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ANNUAL REPORT
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August 31, 1998
NEUBERGER&BERMAN
EQUITY FUNDS-Registered Trademark-
Neuberger&Berman
FOCUS FUND
Neuberger&Berman
GENESIS FUND
Neuberger&Berman
GUARDIAN FUND
Neuberger&Berman
INTERNATIONAL FUND
Neuberger&Berman
MANHATTAN FUND
Neuberger&Berman
PARTNERS FUND
Neuberger&Berman
SOCIALLY RESPONSIVE FUND
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TABLE OF CONTENTS
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THE FUNDS
CHAIRMAN'S LETTER A-4
PORTFOLIO COMMENTARY
Focus Fund A-6
Genesis Fund A-10
Guardian Fund A-13
International Fund A-17
Manhattan Fund A-20
Partners Fund A-23
Socially Responsive Fund A-26
GROWTH OF A DOLLAR CHARTS
COMPARISON OF A $10,000 INVESTMENT
Focus Fund B-2
Genesis Fund B-3
Guardian Fund B-4
International Fund B-5
Manhattan Fund B-6
Partners Fund B-8
Socially Responsive Fund B-9
FINANCIAL STATEMENTS B-10
FINANCIAL HIGHLIGHTS
PER SHARE DATA
Focus Fund B-21
Genesis Fund B-22
Guardian Fund B-23
International Fund B-24
Manhattan Fund B-25
Partners Fund B-26
Socially Responsive Fund B-27
REPORT OF INDEPENDENT
ACCOUNTANTS/AUDITORS B-30
THE PORTFOLIOS
SCHEDULE OF INVESTMENTS
TOP TEN EQUITY HOLDINGS
Focus Portfolio B-32
Genesis Portfolio B-34
Guardian Portfolio B-39
International Portfolio B-41
Manhattan Portfolio B-47
Partners Portfolio B-50
Socially Responsive Portfolio B-53
FINANCIAL STATEMENTS B-58
FINANCIAL HIGHLIGHTS B-75
REPORT OF INDEPENDENT
ACCOUNTANTS/AUDITORS B-82
DIRECTORY C-1
OFFICERS AND TRUSTEES C-2
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CHAIRMAN'S LETTER October 16, 1998
Dear Fellow Shareholder,
From 1996 through the first half of 1998, we enjoyed a "best of all possible
worlds" for equities -- low inflation, low interest rates and strong corporate
profits. Not surprisingly, investors reacted to all this good news by bidding up
stocks to historically high valuations. When Asian economic problems deepened in
the first half of 1998, and earnings projections were revised downward, the
broad stock market began to deteriorate. Small-cap and mid-cap stocks declined
and, save for a relative handful of market darlings, large-cap stocks began to
drift as well. When Russia imploded in late summer and our own political crisis
escalated, equity investors rushed to the exits.
Is the American economy truly imperiled? Inflation appears to be heading
lower. The Federal Reserve just lowered short-term interest rates by 0.25
percentage point. The yield on the 30-year Treasury Bond hovers near its all
time low. Yes, profits are being squeezed in certain sectors, but the American
economy continues to be sound. Economically sensitive cyclical companies are now
trading at historically low valuations and even some of the market's highest
flyers have come down to earth. Is this the time to abandon equities? We think
not.
At Neuberger&Berman, we believe buying good companies at opportunistic prices
is the best long-term investment strategy. The performance of the S&P "500"
Index disguises the fact that 60% of all New York Stock Exchange listed stocks
are down 30% or more from their 52-week highs and 80% of all NASDAQ traded
issues are off by the same amount. Investors' "irrational exuberance" for a
relative handful of companies and disdain for all others has made for difficult
comparisons for value and price sensitive growth-stock investors. We believe
this is a short-term phenomenon, which has set the stage going forward for much
better relative performance for true value investors.
The underperformance of our value-oriented strategies over the last year has
not tempted us to abandon them. Our value funds will continue looking for the
stocks of good companies at favorable prices. Our growth fund managers will
continue to focus on companies with earnings growth and reasonable
price-to-earnings ratios. We, the principals and employees of Neuberger&Berman,
LLC, still have in excess of
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$125 million of our own savings, for our future and that of our children,
invested along with you. In the following pages, our portfolio managers will
present their carefully considered perspectives on the future. We trust you will
gain some valuable insights on the currently volatile markets and a greater
appreciation of our efforts on your behalf.
Lastly, we have made some changes to the management of our funds that reflect
our commitment to meeting the investment needs of our shareholders. As many of
you know, Allan R. (Rick) White, former lead portfolio manager of the Salomon
Brothers Investors Fund joined Neuberger&Berman on September 8th and is now
co-managing the Guardian Portfolio with Kevin Risen. An experienced bottom-up
value investor, Rick is helping us pick fundamentally undervalued stocks and
putting in place some sophisticated portfolio risk management systems that we
believe will help us deliver more consistent performance in the future. Kent
Simons, who distinguished himself as the manager of the Guardian Portfolio since
1981, is now devoting all his time and energy to the Focus Portfolio, a more
concentrated value portfolio, particularly well suited to his highly refined
stock picking skills. We believe the addition of Rick White to Guardian and
Kent's ability to concentrate exclusively on the Focus Portfolio will benefit
shareholders.
Sincerely,
/s/ Stanley Egener
Stanley Egener
Chairman of the Board
Neuberger&Berman Equity Funds
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PORTFOLIO COMMENTARY
Neuberger&Berman
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Focus Fund
For the six- and twelve-month fiscal periods concluding August 31, 1998, Focus
Fund-Registered Trademark- declined -24.24% and -17.37%, respectively, versus
the Standard & Poor's 500 Index's -8.12% decrease and 8.08% return over the same
time periods (see page B-2 for comparison of a $10,000 investment and average
annual total returns as of August 31, 1998).*
The Focus Portfolio has consistently employed the value approach to investing.
While this style has underperformed the growth and momentum styles over the past
three years, I continue to believe it produces superior long-term results, and
therefore continue to employ it. If anything, now more than ever.
In addition to being a value portfolio, Focus is also a concentrated fund. For
example, the Portfolio must have 90% of its assets in no more that six economic
sectors, and the number of names in the portfolio is usually less than in most
other Portfolios. It is important to understand that we do not select these
sectors on a so-called top-down basis that relies on an overall view of the
economy. The Portfolio is built on a stock-by-stock basis. We have found over
the years that the conditions that lead to an individual company's stock being
undervalued usually affect a number of companies in the same industry or sector.
Thus, concentration in a relative few sectors is a natural outgrowth of our
stock selection process.
As of this writing, the Portfolio is invested in six sectors with financial
services being the largest, accounting for some 48% of the portfolio. In 1997
and the first half of 1998 these stocks did quite well, but since July the
results have been disappointing. Following the collapse of the Russian stock
market and its currency, there was an immediate and pronounced preference by
investors for safety and quality. The prime beneficiary of this "flight to
quality" was U.S. Treasury Bonds, and as a result U.S. interest rates declined
noticeably. This worked to the advantage of our domestic, interest-sensitive
holdings like Countrywide Credit, Hartford Financial and Nationwide.
Unfortunately, our
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Focus Fund (Cont'd)
holdings in commercial and investment banks -- BankBoston, CITICORP, Chase,
Merrill Lynch, Morgan Stanley Dean Witter and Travelers -- had clients and/or
holdings that were negatively affected, and this resulted in a lowering of
earnings estimates. As a result, each of these stocks declined some 40% in a
matter of 7-8 weeks. In light of this situation, let me offer some perspective
and also review the thesis for owning these names.
First, as to perspective, the cuts in 1999 earnings estimates for these
companies have averaged about 10-12%, yet the price declines have been roughly
40%. To me, this has created a significant undervaluation and a real buying
opportunity.
Second, the thesis underlying these holdings remains intact; if anything, it
has been reinforced by recent events. I believe that the financial services
industry is on the brink of undergoing major secular changes that will provide
significant opportunities to those companies large enough and skillful enough to
capitalize on them. The opportunity rests on two foundations: One, in the United
States, another baby boomer turns 50 every seven seconds. Two, as our population
ages, it is discovering the need to plan for retirement. Few needs are taken as
seriously as this, and in meeting it, people are overwhelmingly going with names
they know and trust. Those names are Merrill Lynch, Travelers, Morgan Stanley
Dean Witter, CITICORP and Chase; brand names that have been built over decades
and are now, in my opinion, invaluable. Concurrent with this development in the
U.S. is the rising trend of capitalism and globalization in the rest of the
world. Markets for businesses of all kinds are now global, and companies that
serve them require financing and financial services capabilities that are also
global. Moreover, in terms of privatizing retirement plans and the transference
of businesses from family ownership to public ownership, the rest of the world
is 20-30 years behind the U.S. This too creates a significant opportunity for
American investment banks that can benefit from their experience in this
country. What emerges from all this, in my opinion, is a secular trend creating
great opportunities for companies
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Focus Fund (Cont'd)
with a recognized and trusted name, a global reach, a large capital base and the
technological infrastructure to accommodate and exploit the opportunities. Not
many companies can do this; among the very few who can are the ones we own. I
think their competitive advantage, already large, has increased and their
long-term outlook is as good, if not better, than ever.
The second largest sector is technology, where the Asian currency problems
have been the primary reason for sub-par stock performance. Focus Portfolio's
largest holding, Compaq, has outperformed the Dow Jones Industrial Average
(DJIA) this calendar year as has one of our semiconductor holdings, Texas
Instruments. However, our investments in the semiconductor equipment
stocks -- Applied Materials and KLA -- have not fared as well, due to the fact
that this industry has been hit by order cancellations from the Far East.
However, the growth in demand for semiconductors continues unabated and at some
point this will necessitate the ordering of new equipment. During the current
downturn both KLA and Applied are increasing their share of market thereby
positioning themselves so that if an upturn comes they will likely prosper.
Although we only own three names -- Foundation Health, Sierra Health Services
and Wellpoint Health Networks -- health care is an important sector for us.
While Wellpoint has outperformed the DJIA handily this calendar year, the other
two have not. All three are managed-care companies and all three will benefit,
we think, from the continued trend towards managed-care and a better pricing
environment expected this year and next.
Finally, let me close by offering some thoughts on the value style of
investing. The last three years have not been a good environment for value
investors as falling interest rates have led to higher price-to-earnings (P/E)
ratios, an environment in which growth mutual funds have, by and large,
outperformed those employing the value style. This has created an imbalance in
the stock market that has, in turn, created an opportunity. For example, the P/E
on the Focus Portfolio is now 18
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Focus Fund (Cont'd)
times estimated 1998 earnings; earnings which are expected to increase in 1999.
By contrast, the 30 largest companies in the S&P "500" -- a good proxy for high
multiple stocks -- sell at over 31 times estimated earnings. Focus is paying
less and expects to get more, a situation I am more than comfortable with.
How comfortable? Since August 21st, I have more than doubled my holdings in
Focus for my own account, bringing my total holdings to 184,000 shares. I have
put my money where my mouth is. Believe me when I tell you, my interests are
totally aligned with yours.
Sincerely,
/s/ KENT SIMONS
Kent Simons
PORTFOLIO MANAGER
*The S&P "500" Index is an unmanaged index generally considered to be
representative of stock market activity. Please note that indices do not take
into account any fees and expenses of investing in the individual securities
that they track, and that individuals cannot invest directly in any index. Data
about the performance of this index are prepared or obtained by
Neuberger&Berman Management Inc.-Registered Trademark- and include reinvestment
of all dividends and capital gain distributions. The Portfolio invests in many
securities not included in the above-described index.
The composition, industries and holdings of the Portfolio are subject to
change. No single holding of Focus Portfolio makes up more than a small
fraction of the Portfolio's total assets.
While the value-oriented approach is intended to limit risks, the
Portfolio -- with its concentration in sectors -- may be more greatly affected
by any single economic, political or regulatory development than a more
diversified mutual fund.
Please remember that past performance is not indicative of future results.
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PORTFOLIO COMMENTARY
Neuberger&Berman
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Genesis Fund
PORTFOLIO CO-MANAGERS JUDITH VALE AND ROBERT D'ALELIO FOCUS ON
"EASY-TO-UNDERSTAND" COMPANIES IN THE LESS GLAMOROUS SECTORS OF THE
SMALL-CAPITALIZATION STOCK UNIVERSE. BY AVOIDING THE CUTTING-EDGE
TECHNOLOGY COMPANIES THAT ATTRACT SO MUCH SPECULATIVE ATTENTION IN THE
SMALL-CAP MARKET, THEY ARE BETTER ABLE TO IDENTIFY FUNDAMENTALLY
UNDERVALUED STOCKS WITH EXCEPTIONAL GROWTH POTENTIAL. THIS VALUE-ORIENTED
APPROACH TO SMALL-CAP INVESTING TRANSLATES INTO A PORTFOLIO WITH FAVORABLE
RISK/REWARD CHARACTERISTICS.
For the six- and twelve-month fiscal periods concluding August 31, 1998,
Genesis Fund declined -23.17% and -18.82%, respectively, compared to the Russell
2000's decreases of -26.48% and -19.40% over the same time periods (see page B-3
for comparison of a $10,000 investment and average annual total returns as of
August 31, 1998).*
Late summer's steep declines in the widely followed Dow Jones Industrial
Average and Standard & Poor's 500 Index have many investors worried that we may
be entering a bear market. Small-cap stocks have already experienced one. At the
end of this reporting period, the average small-cap stock is down close to 50%
from its 52-week highs. That's the bad news. The good news is that small-cap
stocks are now not only cheap relative to the large-cap stocks, but appear to be
exceptional absolute bargains as well. In monitoring our portfolio, we see
quality companies with excellent operating track records trading at historically
low multiples to earnings, cash flow and book value.
Are public investors ready to acknowledge the exceptional values in the
small-cap market? We don't know. However, we are beginning to see corporate
investors scooping up heavily discounted small-cap merchandise. Over the last 12
months, 18 companies in the Genesis Portfolio have been taken over. We believe
increased merger and acquisition activity will provide a floor for the small-cap
sector and perhaps set the stage for a strong recovery.
During this particularly difficult period for small-cap stocks, very few
portfolio sectors posted positive results. Our utilities, basic materials, and
healthcare investments did finish fiscal 1998 in the black. Our forecast for
cost-driven consolidation in the utilities industry appears on track and the
group's traditional defensive characteristics served us well during August's
sharp market correction. Our basic materials investments were mixed, but strong
gains from several of our larger positions
A-10
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Genesis Fund (Cont'd)
produced respectable results. Some of our healthcare holdings, primarily small
medical product companies, also posted modestly positive returns. This is
another group we believe will continue to consolidate as product innovators get
gobbled up by larger healthcare companies with more marketing muscle.
Portfolio performance was penalized by our energy investments, primarily small
oil services companies, which got hit hard as oil prices declined to a ten-year
low in early 1998. Declining demand from Asia's weak economies will likely
continue to restrain oil prices for the foreseeable future. Energy producers
have initiated cutbacks to address the current supply/demand imbalance. With an
estimated one-third of world production uneconomic at current prices, further
cutbacks can be expected. However, readily available energy supply is at its
lowest point in a decade, implying that future demand must be met with increased
drilling activity. Today, many small oil services stocks are trading below book
value and well below replacement cost. Barring a worldwide economic downturn, we
believe all the bad news is fully reflected in the group's severely depressed
prices and that a little bit of good news would attract a lot of favorable
investment attention.
Our technology holdings also disappointed. Although we were underweighted in
the group, several of our holdings suffered unanticipated earnings shortfalls
and were swiftly and severely punished. We also passed on the sizzling Internet
stocks. The Internet may be the wave of the future and some of the companies
currently riding its crest could be exceptional long-term investments. But, our
value discipline does not allow us to pay high multiples to revenues for
unseasoned companies that are not yet earning money. Periodically, our value
discipline will penalize us on an "opportunity cost" basis. That is a price we
are willing to pay to control portfolio risk.
In each of our shareholder reports, we discuss a current portfolio holding
that demonstrates our investment discipline. This is not a recommendation and we
may change our opinion on any and all stocks in the Portfolio if fundamentally
justified. This time, we chose to highlight AptarGroup, a manufacturer of small
pumps, valves and closures for the household product, high-end fragrance and
pharmaceutical industries. Aptar has the financial characteristics we like -- a
strong balance sheet, consistent 15-20% earnings growth, the ability to self-
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Genesis Fund (Cont'd)
fund that growth from internally generated cash flow, and a quite reasonable
price-to-earnings ratio. The excitement here is in the pharmaceutical area where
Aptar's fine-mist pumps for the nasal delivery of drugs are finding new
applications including migraine headache relief, and are believed to have
potential in the treatment of diabetes and in immunizations for a variety of
diseases. Aptar's products are patented and must go through the FDA approval
process -- creating a high barrier of entry for future competition.
In closing, we are pleased to have modestly outperformed our Russell 2000
Index benchmark in fiscal 1998, but disappointed by the poor performance of
small-cap stocks in general. We don't know if the small-cap sector has bottomed.
We do believe small-cap stocks are fundamentally cheap and are encouraged that
corporate investors are beginning to go bargain hunting in the small-cap market.
We believe this will eventually inspire public investors to recognize the
outstanding values presented today.
Sincerely,
/s/ JUDITH VALE /s/ ROBERT D'ALELIO
Judith Vale and Robert D'Alelio
PORTFOLIO CO-MANAGERS
*The Russell 2000-Registered Trademark- Index is an unmanaged index consisting
of the securities of the 2,000 issuers having the smallest capitalization in
the Russell 3000-Registered Trademark- Index, representing approximately 11% of
the Russell 3000 total market capitalization. The smallest company's market
capitalization is roughly $222 million. The risks involved in seeking capital
appreciation from investments primarily in companies with small market
capitalization are set forth in the prospectus. Please note that indices do not
take into account any fees and expenses of investing in the individual
securities that they track, and that individuals cannot invest directly in any
index. Data about the performance of this index are prepared or obtained by
Neuberger&Berman Management Inc.-Registered Trademark- and include reinvestment
of all dividends and capital gain distributions. The Portfolio invests in many
securities not included in the above-described index.
The composition, industries and holdings of the Portfolio are subject to
change. Genesis Portfolio is invested in a wide array of stocks and no single
holding makes up more than a small fraction of the Portfolio's total assets.
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PORTFOLIO COMMENTARY
Neuberger&Berman
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Guardian Fund
CURRENT PORTFOLIO CO-MANAGERS KEVIN RISEN AND RICK WHITE FOCUS ON
"FIRST-RATE" COMPANIES IN INDUSTRIES THAT ARE CURRENTLY OUT-OF-FAVOR.
RECOGNIZING THAT "CHEAP" STOCKS ARE NOT NECESSARILY UNDERVALUED, THEY SEEK
WELL-MANAGED, FINANCIALLY SOUND COMPANIES TRADING AT FUNDAMENTALLY
ATTRACTIVE PRICES RELATIVE TO THEIR LONG-TERM EARNINGS GROWTH POTENTIAL.
BY CONCENTRATING THE PORTFOLIO IN HIGH-QUALITY WALL STREET "ORPHANS," THE
PORTFOLIO MANAGEMENT TEAM ATTEMPTS TO CONSISTENTLY TAKE ADVANTAGE OF
OPPORTUNITIES CREATED BY INVESTORS' OVERREACTION TO REAL OR PERCEIVED
PROBLEMS.
For the six- and twelve-month fiscal periods concluding August 31, 1998,
Guardian Fund declined -25.04% and -20.80%, respectively, versus the Standard &
Poor's 500 Index's decrease of -8.12% and return of 8.08% over the same time
periods (see page B-4 for comparison of a $10,000 investment and average annual
total returns as of August 31, 1998).*
A wise man once said that when things are going well, no explanation is
required and when things are going poorly, none is acceptable. We trust our
shareholders are more enlightened and will appreciate hearing our explanation
for the Portfolio's poor showing in fiscal 1998 and the reasons we believe it
will perform significantly better in the year ahead.
We thought we had found value in already depressed cyclical stocks in the
basic materials, capital goods, energy and technology sectors -- high quality
companies like American Standard, Applied Materials and Hewlett Packard as well
as stocks we have since sold such as Alcoa and Schlumberger. To be kind, these
good values became even bigger bargains as Asian economic problems deepened,
global demand withered, commodities prices collapsed and capital spending
declined. We thought we had found value in beaten-down HMO's, like Aetna and
Wellpoint, which we believed were getting costs in line and were poised for
earnings recoveries. Although we think HMOs are on the right track, the
investing public was not willing to wait for evidence of a turnaround.
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Guardian Fund (Cont'd)
We felt there was value in leading financial stocks as well -- the bluest of
blue chips like CITICORP, Chase Manhattan, Merrill Lynch, and Morgan Stanley
Dean Witter. Despite strong performance in 1997 and first-half 1998, we
maintained our positions in these companies, because they were still trading at
well below market average price-to-earnings ratios. Our financial holdings fell
sharply in late summer as global economic turmoil and worldwide stock market
declines panicked investors. Is this panic justified? We shall see. If currency
turmoil spreads to Latin America, bank earnings may be vulnerable. But, we
experienced a Latin American currency crisis as recently as 1994-95 -- a storm
money center banks weathered without dire consequences. With CITICORP losing
more than half its market value from its 52-week high and Chase Manhattan faring
almost as badly, we think most of the bad news -- real and imaginary -- is
already reflected in their stock prices. Leading brokerage/asset management
company stocks like Merrill Lynch and Morgan Stanley Dean Witter suffered
similar fates, and at the end of this reporting period were trading at what we
think were "worst of all possible worlds" valuations. However, if global
financial markets stabilize and prices of these stocks remain the same, we
believe they will prove to be bargain basement valuations.
With a considerable amount of water already over the dam, where do we go from
here? Thanks to the exceptional relative performance of a few widely and, in our
opinion, wildly popular large-cap growth stocks, indexers and closet indexers
(portfolio managers who largely mirror if not duplicate the S&P "500")
materially outperformed almost everyone else in fiscal 1998. Is this likely to
continue? It is hard to predict when investors will come to their collective
senses. However, after the recent correction, we see numerous high quality
companies selling at historically cheap absolute valuations and a few admittedly
good growth companies still trading at what we believe to be seriously inflated
prices. Regardless of where the market heads from here, we believe the former
will fare considerably better than the latter going forward.
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Guardian Fund (Cont'd)
Let's detail a stock that demonstrates our value-oriented discipline.
Countrywide Credit Industries is one of our largest holdings in the financial
sector. Countrywide has two businesses -- originating mortgage loans, which it
then sells to other lenders like Fannie Mae, and servicing mortgages (billing
and collecting mortgage payments and then forwarding them to mortgage holders).
This is the only pure play mortgage company in the S&P "500." It has posted 14
consecutive quarters of earnings growth and business keeps getting better. Yet,
the stock is down over 40% from its 52-week high. The decline is probably the
result of investors' concern that as mortgage rates continue to trend down,
refinancings may take a toll on Countrywide's mortgage servicing book. If the
mortgages go elsewhere, Countrywide's servicing fees might decline. This didn't
happen during the last major refinancing boom in 1993, when Countrywide emerged
with a bigger share of the mortgage servicing market. We don't think it will
happen this time around either. We are projecting 15% annual earnings growth
over the next several years and Countrywide stock is trading at just around 11
times our 1999 earnings estimates. That is our kind of bargain. We reserve the
right to change our investment opinion on Countrywide without notice should
circumstances warrant. However, right now we are quite comfortable owning a
substantial position.
In closing, we cleaved to our discipline in fiscal 1998 -- buying the highest
quality, yet out-of-favor companies. The negative impact of deteriorating Asian
economies, the Russian collapse, potential Latin American currency turmoil, and
falling stock markets had a strong negative impact on blue chip financial
stocks. Had we abandoned our discipline and jumped on the big-cap growth stock
bandwagon, we would have posted better returns, but strayed from our value
principles. Tomorrow is a new day and we believe our portfolio is positioned to
lead us through this period of economic and market uncertainty. If we may be so
bold after this difficult year, we encourage our shareholders to consider
maintaining or adding to their positions in Guardian.
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Guardian Fund (Cont'd)
Sincerely,
/s/ KEVIN RISEN /s/ ALLAN R. WHITE III
Kevin Risen and Rick White
PORTFOLIO CO-MANAGERS
*The S&P "500" Index is an unmanaged index generally considered to be
representative of stock market activity. Please note that indices do not take
into account any fees and expenses of investing in the individual securities
that they track, and that individuals cannot invest directly in any index. Data
about the performance of this index are prepared or obtained by
Neuberger&Berman Management Inc.-Registered Trademark- and include reinvestment
of all dividends and capital gain distributions. The Portfolio invests in many
securities not included in the above-described index.
The composition, industries and holdings of the Portfolio are subject to
change. Guardian Portfolio is invested in a wide array of stocks and no single
holding makes up more than a small fraction of the Portfolio's total assets.
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PORTFOLIO COMMENTARY
Neuberger&Berman
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International Fund
PORTFOLIO MANAGER VALERIE CHANG TAKES A VALUE APPROACH TO INTERNATIONAL
EQUITIES MARKETS. AFTER ANALYZING THE POLITICAL, SOCIAL, ECONOMIC, AND
STOCK MARKET ENVIRONMENTS OF COUNTRIES AROUND THE GLOBE, SHE SELECTS THOSE
INTERNATIONAL INVESTMENT ARENAS BELIEVED TO OFFER THE BEST FUNDAMENTAL
VALUE. THE STOCK SELECTION PROCESS IS RESEARCH INTENSIVE, FEATURING
FREQUENT MEETINGS WITH CORPORATE MANAGEMENT AND THEIR COMPETITORS IN
ADDITION TO THE ANALYSIS OF INCOME STATEMENTS AND BALANCE SHEETS. THE GOAL
IS TO LOOK BEYOND "THE NUMBERS" TO FIND THOSE INTERNATIONAL COMPANIES WITH
THE BEST LONG-TERM INVESTMENT PROSPECTS.
For the six- and twelve-month fiscal periods concluding August 31, 1998,
International Fund declined -13.60% and -5.69%, respectively, versus the MSCI
EAFE Index's decrease of -7.68 and return of 0.13% for the same periods (see
page B-5 for comparison of a $10,000 investment and average annual total returns
as of August 31, 1998).*
International investing has been quite challenging over the past year. The
economic and currency crisis that began in Southeast Asia in August 1997
continued to cripple the markets of that region and has spilled over into the
emerging markets of Latin America and more recently Eastern Europe and South
Africa. The developed markets of Europe remained quite strong during the year
and the Portfolio was helped by an increased exposure to this area. We had very
favorable performance in the European sector specifically in areas such as the
U.K., France, the Netherlands, Spain and Italy.
As we mentioned to you at this time last year, our exposure to the Pacific
Basin region was already quite low as we entered this period of turmoil.
Nonetheless, we further pared back investments eliminating all exposure to
Malaysia, Indonesia, the Philippines and Thailand. We also further trimmed our
already significantly underweight position in Japan from 9% to 4%. In Latin
America we took the same course of action. We halved our exposure to that region
over the period and eliminated exposure in the markets of Brazil, Chile,
Venezuela, and Peru. Our exposure to other emerging markets remains at
relatively the same level
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International Fund (Cont'd)
it was a year ago -- approximately 9% -- although the individual country
weightings have changed. We initiated positions in South Africa, Turkey and
Greece with the purchases of such names as Computer Configurations, Dimension
Data, Specialised Outsourcing, Efes Sinai Yatirim, and Hellenic
Telecommunications. In South Africa we found interesting investment
opportunities primarily in the computer, information technology, and finance
industries that enjoyed solid returns until South Africa began to suffer from
its own currency crisis and the market fell prey to the negative global emerging
market sentiment that swept markets this past August. Turkey and Greece have
also been victims of the emerging market hysteria that has affected stocks
indiscriminately across the board, and additionally, some of our holdings in
these markets are companies that have distribution channels in the Baltic States
region and have been hurt by the Russian situation. In volatile markets such as
these we particularly factor in top-down issues as well as security-specific
factors when making investment decisions, and we would anticipate a continuing
cautious presence in the emerging market segment for the near term.
As we pared back our exposure to the Pacific Basin and Latin America, we
increased our exposure to Europe. We currently have 65% of the portfolio exposed
to areas of Europe (including the U.K.), which is up approximately 10% from one
year ago. This strategy has paid off. Our top five performing stocks for the
period -- France Telecom, Orange PLC, Misys PLC, Aegon, and Telepizza -- are all
based in Europe. France Telecom, our strongest performer, provides
telecommunications services in France. We continue to emphasize the
telecommunications theme and we feel this industry will maintain strong growth
prospects. In terms of strong performance, France Telecom is followed by Orange
and Misys, both based in the U.K. Orange specializes in the cellular services
segment of the telecommunications industry while France Telecom is mainly a
fixed-line provider. Misys is a service provider of
A-18
<PAGE>
- ----------------------------------------------------------------------
International Fund (Cont'd)
software and hardware solutions across a variety of business lines including
insurance, food and travel services, hotels and an expanding healthcare segment.
The remaining two names are Aegon, a Netherlands based insurance group, and
Telepizza, a fast food pizza chain located mainly throughout Spain but with
restaurants in Portugal, the Canary and Balearic Islands, Poland, and Latin
America.
Looking ahead, we will remain flexible in our regional allocation as market
conditions warrant. Our outlook, however, is cautious. We feel that concerns
about slowing economic growth will affect both emerging and developed markets.
We remain vigilant in our security selection approach and will continue to
invest cautiously, to steer our investors through these turbulent times.
Sincerely,
/s/ VALERIE CHANG
Valerie Chang
PORTFOLIO MANAGER
*The EAFE-Registered Trademark- Index is an unmanaged index of over 1,000
foreign stock prices, translated into U.S. dollars. Please note that indices do
not take into account any fees and expenses of investing in the individual
securities that they track, and that individuals cannot invest directly in any
index. Data about the performance of this index are prepared or obtained by
Neuberger&Berman Management Inc.-Registered Trademark- and include reinvestment
of all dividends and capital gain distributions. The Portfolio invests in many
securities not included in the above-described index.
The composition, industries and holdings of the Portfolio are subject to
change. International Portfolio is invested in a wide array of stocks and no
single holding makes up more than a small fraction of the Portfolio's total
assets.
Investing in foreign securities involves greater risks than investing in
securities of U.S. issuers, including currency fluctuations, interest rates and
political conditions. In an attempt to reduce overall volatility,
Neuberger&Berman Management diversifies the portfolio holdings over a wide
array of countries and individual stocks.
A-19
<PAGE>
PORTFOLIO COMMENTARY
Neuberger&Berman
- ----------------------------------------------------------------------
Manhattan Fund
PORTFOLIO CO-MANAGERS JENNIFER SILVER AND BROOKE COBB LOVE
SURPRISES -- POSITIVE EARNINGS SURPRISES THAT IS. THEIR RESEARCH REVEALS
THAT THE STOCKS OF COMPANIES CONSISTENTLY EXCEEDING CONSENSUS EARNINGS
ESTIMATES HAVE TENDED TO BE TERRIFIC PERFORMERS. THEY COMPUTER SCREEN THE
MID-CAP GROWTH STOCK UNIVERSE TO ISOLATE STOCKS WHOSE MOST RECENT EARNINGS
HAVE BEATEN THE STREET'S EXPECTATIONS. THEY THEN ROLL UP THEIR SLEEVES AND
THROUGH DILIGENT FUNDAMENTAL RESEARCH, STRIVE TO IDENTIFY THOSE COMPANIES
MOST LIKELY TO RECORD A STRING OF POSITIVE EARNINGS SURPRISES. THEIR GOAL
IS TO INVEST TODAY IN THE FAST GROWING MID-SIZED COMPANIES THAT WILL
COMPRISE TOMORROW'S FORTUNE 500.
For the six- and twelve-month fiscal periods concluding August 31, 1998, the
Manhattan Fund-Registered Trademark- declined -19.42% and -11.02%, respectively,
compared to the Russell Midcap Growth Index's -19.35% and -11.48% losses over
the same time periods (see page B-6 for comparison of a $10,000 investment and
average annual total returns as of August 31, 1998).*
After three consecutive years of strong advances, stocks were due for a rest.
The combination of Asian economic distress, Russia's imploding economy, and our
own political soap opera gave investors sufficient reason to back away from the
equities market.
Much to our chagrin, mid-cap stocks were hit harder than the large-cap sector
as is reflected in the poor relative performance of the Russell Midcap Growth
Index versus the DJIA and S&P "500." This appears to defy fundamental logic. In
the second calendar quarter 1998 (as we write, the last reported quarter for
most companies), S&P "500" earnings growth stalled, whereas our portfolio
holdings grew earnings by better than 40% on average. While more than a few of
the large-cap market darlings reported or warned of earnings shortfalls, more
than 90% of our portfolio companies had earnings that were in line or better
than consensus estimates. Earnings for the large multi-nationals so prominent in
the S&P "500" may continue to be vulnerable to both weak foreign consumer
markets and difficult currency translations. When we go down our list, we see
mid-cap companies primarily
A-20
<PAGE>
- ----------------------------------------------------------------------
Manhattan Fund (Cont'd)
serving healthy domestic markets. We do not believe their earnings are likely to
be impacted significantly by Asian or Russian economic weakness.
In uncertain times it is not uncommon for investors to move away from smaller
less mature companies, adopting a "show me" attitude on earnings growth
potential. When they regain confidence in the economy and markets, they are
generally more favorably disposed to smaller companies whose earnings come
through as good or better than anticipated. We are quite confident investors
will eventually gravitate to mid-cap growth companies that continue to post good
earnings and which are now trading at even more attractive valuations relative
to large-cap stocks. We have had several portfolio companies taken over this
year and several more have initiated substantial share repurchase programs. This
would indicate that sophisticated business buyers believe selected mid-cap
stocks are terrific business bargains. Perhaps, the investing public will follow
their lead.
Over the last year, we were fortunate to have been under-weighted in poor
performing groups like basic materials and capital goods. We were significantly
overweighted in the financial sector, focusing primarily on non-bank financial
service companies with strong domestic franchises. AIG's acquisition of
SunAmerica, which was one of our larger holdings in the financial sector before
recently decreasing our position, and the strong performance of re-insurer Exel
Limited boosted portfolio performance. Although we were modestly under-weighted
in energy, our portfolio positions declined substantially, as plummeting oil
prices diminished earnings expectations. Our consumer cyclical investments were
mixed. Excellent gains in Staples and TJX were offset by a big loss in General
Nutrition, once our largest holding that has also seen a recent selling off. We
were correct in forecasting strong demand for the types of products that General
Nutrition sells. We did not anticipate the negative impact strong competition
from Internet retailers would have on General Nutrition's earnings. Our
technology holdings materially outperformed our benchmark index's tech
sector -- the result of avoiding commodity-oriented technology companies like
semiconductor manufacturers -- but still declined significantly for the year.
A-21
<PAGE>
- ----------------------------------------------------------------------
Manhattan Fund (Cont'd)
At the close of this reporting period, the Portfolio demonstrated the
financial and investment characteristics we favor. Based on consensus earnings
estimates from First Call, (an independent research firm that compiles and
distributes Wall Street earnings estimates), the Portfolio had a 3-5 year
projected annual earnings growth rate of 25.8% compared to 20.3% for the Russell
Midcap Growth Index. Its price-to-earnings (P/E) ratio (consensus calendar 1999
earnings estimates) was 20.6 compared to the Russell's 18.3. Its P/E divided by
3-5 year annual earnings growth estimates was 0.8 compared to the benchmark
index's of 0.9. Of course, these figures are estimates and do not guarantee
future return.
Going forward, we believe the American economy will prove relatively resistant
to Asian economic woes and that quality companies serving the domestic market
can continue to grow earnings at a respectable pace. As always, we will devote
our time and energy to identifying individual stocks we believe can sustain
above average earnings and meet or exceed consensus earnings expectations.
Sincerely,
/s/ JENNIFER SILVER /s/ BROOKE COBB
Jennifer Silver and Brooke Cobb
PORTFOLIO CO-MANAGERS
*The S&P "500" Index is an unmanaged index generally considered to be
representative of stock market activity. The Russell Midcap-TM- Growth Index is
an unmanaged index which measures the performance of those Russell Midcap Index
companies with higher price-to-book ratios and higher forecasted growth values.
The Russell Midcap-TM- Index measures the performance of the 800 smallest
companies in the Russell 1000 Index, which represents approximately 35% of the
total market capitalization of the Russell 1000 Index (which in turn, consists
of the 1,000 largest U.S. companies, based on market capitalization). Please
note that indices do not take into account any fees and expenses of investing
in the individual securities that they track, and that individuals cannot
invest directly in any index. Data about the performance of these indices are
prepared or obtained by Neuberger&Berman Management Inc. and include
reinvestment of all dividends and capital gain distributions. The Portfolio
invests in many securities not included in the above-described indices.
The composition, industries and holdings of the Portfolio are subject to
change. Manhattan Portfolio is invested in a wide array of stocks and no single
holding makes up more than a small fraction of the Portfolio's total assets.
A-22
<PAGE>
PORTFOLIO COMMENTARY
Neuberger&Berman
- ----------------------------------------------------------------------
Partners Fund
PORTFOLIO CO-MANAGERS MICHAEL KASSEN AND ROBERT GENDELMAN FOCUS ON
OUT-OF-FAVOR LARGE-CAP STOCKS AND MID-SIZED COMPANIES LESS WIDELY FOLLOWED
BY WALL STREET ANALYSTS. THEY ARE PARTICULARLY PARTIAL TO "FALLEN
ANGELS" -- GROWTH STOCKS THAT HAVE EXPERIENCED TEMPORARY SETBACKS, BUT
WHOSE LONGER TERM FUNDAMENTAL OUTLOOK REMAINS STRONG. THE PORTFOLIO
MANAGEMENT TEAM VIEWS STOCKS AS PIECES OF BUSINESSES THEY WOULD LIKE TO
OWN RATHER THAN PIECES OF PAPER TO TRADE BASED ON SHORT-TERM PRICE
FLUCTUATIONS. THE GOAL IS TO FIND QUALITY COMPANIES TRADING AT A DISCOUNT
TO THEIR INTRINSIC ECONOMIC VALUE.
For the six- and twelve-month fiscal periods concluding August 31, 1998,
Partners Fund declined -18.11% and -10.03%, respectively, versus the Standard &
Poor's 500 Index's -8.12% decrease and 8.08% return over the same time periods
(see page B-8 for comparison of a $10,000 investment and average annual total
returns as of August 31, 1998).*
We are bottom-up stock pickers focusing on quality companies trading at
discount valuations. Consequently, we rarely talk about the impact of
macro-economic events on our portfolio. However, this year, the speed and
magnitude of the Asian economic collapse had a dramatic influence on portfolio
performance and, therefore, some comments are in order.
Quite simply, the Asian economic problems had a major ripple effect on
economically sensitive companies in the capital goods, energy, and technology
industries -- our worst performing sectors in fiscal 1998. We increased our
exposure in these sectors in late 1997 after the initial currency crisis in Asia
had already taken a rather heavy toll on these stocks. We were focusing on
industry leaders like duPont, 3M and Texas Instruments as well as stocks that we
have since sold such as Deere and Schlumberger -- the highest quality companies
in these out-of-favor industries. We factored in the negative implications of
weaker Asian currencies on the earnings prospects for these companies and
concluded that the bad news was already fully reflected in depressed stock
prices and historically low valuations. Unfortunately, the damage of the Asian
economic crisis has been widespread. We did not anticipate that with Japan
sinking into recession, things would get so bad in Asia
A-23
<PAGE>
- ----------------------------------------------------------------------
Partners Fund (Cont'd)
that companies would be dumping product in the global market at any price simply
to bring in dollars to service dollar-denominated debt. The end result was that
quality companies we believed to be fundamentally cheap got a lot cheaper.
Are these stocks at rock bottom? We can't be sure. However, barring a global
economic catastrophe, we think the worst is nearly over. Assuming Asian
economies and currencies gradually recover, we should see some light at the end
of the tunnel. Based on current valuations relative to historical measures, the
upside potential for quality cyclical stocks is tremendous and we believe they
could be market leaders over the next three years.
We also note that during the first eight months of 1998, high price-
to-earnings (P/E) ratio stocks materially outperformed low P/E stocks. To wit,
stocks trading at 30 times trailing earnings or more were up 28% on average,
while stocks selling at 15 times trailing earnings or less were down 13% on
average. This is somewhat of a historical aberration considering that over the
last four decades, the lower P/E group outperformed the higher P/E group by an
average 3.6% per year. So, momentum investing has won the last round, but value
is still well ahead on the judges' long-term scorecards.
There were some bright spots in the Portfolio in fiscal 1998. Selected "fallen
angels" in the consumer sector performed quite well as they regained their
earnings footing. Our communications services investments posted strong returns
as they demonstrated competitive positions in the newly deregulated
telecommunications industry. Our electric utility holdings also performed well.
Our focus on states in which the deregulation process was clearly mapped out and
generally favorable to utilities companies proved beneficial.
We continue to like selected utilities stocks. Unicom, the holding company of
Commonwealth Edison in Illinois, illustrates our perspective on this group.
Unicom has the largest collection of nuclear generating assets in the U.S. It
has not been operated particularly efficiently, but we believe new management
can do a much better job and that Unicom can become a low-cost power generator.
In our opinion, this makes it attractive relative to other electric utilities
that are being forced
A-24
<PAGE>
- ----------------------------------------------------------------------
Partners Fund (Cont'd)
to sell high-cost generating facilities and limit their business to electricity
distribution in what are likely to become very competitive markets. Illinois
deregulation statutes are straightforward and in our opinion, reasonably
generous to utilities. The new laws call for a gradual rate reduction that is
partially offset by a fee to help utilities recover stranded costs. This will
give Unicom time to get its cost structure in order and eventually begin
generating excess returns that can now be distributed to shareholders in the
form of higher earnings and/or stock buybacks rather than returned to customers
via rate reductions. Like all the individual stocks we discuss in these reports,
we reserve the right to change our investment opinion on Unicom if it fails to
live up to our expectations. This caveat duly recorded, we think Unicom has a
bright future.
In closing, fiscal 1998 has been a very tough year for value investors.
Traditional repositories of value like commodity-oriented cyclicals have been
among the market's worst performing groups. Higher multiple groups like the drug
and leading branded consumer goods stocks -- out of reach for true value
disciples -- have performed relatively well, even during August's sharp
correction. We doubt the large-cap market darlings that have such a
disproportionate impact on the capitalization-weighted S&P "500" can continue to
sustain their performance lead over high quality companies now trading at
severely depressed valuations.
Sincerely,
/s/ ROBERT GENDELMAN /s/ MICHAEL KASSEN
Robert Gendelman and Michael Kassen
PORTFOLIO CO-MANAGERS
*The S&P "500" Index is an unmanaged index generally considered to be
representative of stock market activity. Please note that indices do not take
into account any fees and expenses of investing in the individual securities
that they track, and that individuals cannot invest directly in any index. Data
about the performance of this index are prepared or obtained by
Neuberger&Berman Management Inc.-Registered Trademark- and include reinvestment
of all dividends and capital gain distributions. The Portfolio invests in many
securities not included in the above-described index.
The composition, industries and holdings of the Portfolio are subject to
change. Partners Portfolio is invested in a wide array of stocks and no single
holding makes up more than a small fraction of the Portfolio's total assets.
A-25
<PAGE>
PORTFOLIO COMMENTARY
Neuberger&Berman
- ----------------------------------------------------------------------
Socially Responsive Fund
PORTFOLIO MANAGER JANET PRINDLE BELIEVES DOING GOOD IS GOOD BUSINESS AND
HAS THE POTENTIAL TO PRODUCE POSITIVE INVESTMENT RESULTS. SHE FOCUSES ON
COMPANIES THAT ARE AGENTS OF FAVORABLE CHANGE IN WORKPLACE POLICIES
(PARTICULARLY FOR WOMEN AND MINORITIES); ARE GOOD CORPORATE CITIZENS; AND
ARE RESPONSIVE TO ENVIRONMENTAL ISSUES. SHE DOES NOT INVEST IN TOBACCO,
ALCOHOL, GAMBLING, NUCLEAR POWER, OR WEAPONS COMPANIES. BUT, SOCIAL
RESPONSIBILITY ALONE DOES NOT QUALIFY A COMPANY AS A GOOD INVESTMENT. TRUE
TO NEUBERGER& BERMAN'S PRINCIPLES, PORTFOLIO CANDIDATES MUST FIRST BE
FUNDAMENTALLY ATTRACTIVE. THEN, AND ONLY THEN, ARE SOCIAL SCREENS APPLIED.
THE OBJECTIVE IS SIMPLE AND STRAIGHTFORWARD -- TO SERVE BOTH SOCIETY AND
SHAREHOLDERS.
For the six- and twelve-month fiscal periods concluding August 31, 1998,
Socially Responsive Fund declined -17.24% and -6.02%, respectively, compared to
the Standard & Poor's 500 Index's -8.12% decrease and 8.08% return over the same
time periods (see page B-9 for comparison of a $10,000 investment and average
annual total returns as of August 31, 1998).*
In fiscal 1998, the exceptional performance of the relative handful of
large-cap growth stocks that dominate the capitalization-weighted S&P "500"
masked the underlying deterioration of the stock market. To wit, at the end of
this reporting period, the majority of New York Stock Exchange listed securities
were well below their 52-week highs. A broad market decline during a period of
global economic turmoil is understandable. Uncharacteristically, the
fundamentally attractive stocks value investors favor were punished far more
severely than the high flyers. Our best guess is that if another shoe is to
drop, it will land squarely on those stocks whose valuations still defy
fundamental gravity. Looking ahead, we expect the U.S. stock market to remain
volatile until there is some evidence of global economic stability and our own
political crisis is resolved.
As a result of Asian economic weakness, global commodity deflation (lower
prices for oil, paper, chemicals, steel, etc.), and a worldwide
A-26
<PAGE>
- ----------------------------------------------------------------------
Socially Responsive Fund (Cont'd)
slowdown in capital spending (slower computer, construction and industrial
equipment sales), our basic materials, capital goods, energy, and technology
investments performed poorly in fiscal 1998. Going forward, we think these
already beaten-down cyclical stocks will hold up well relative to other market
sectors and at current valuations, represent exceptional long-term opportunity.
Although they finished the fiscal year with only a modest decline, our
investments in the financial services sector were hit particularly hard in
August as investors dumped money center banks and brokerage/asset management
stocks. We believe investor response to the potentially negative impact of
global financial distress and declining stock markets worldwide on financial
companies is to some degree justified, but already overdone. For example,
CITICORP stock was nearly halved in August on fears that loan exposure in Russia
and Latin America would decimate earnings. We don't see the earnings dropping
precipitously, and believe CITICORP is a terrific bargain at current prices.
Neuberger&Berman has excellent coverage in the financial services industry and
we believe our long-term commitment to this traditional value sector will be
rewarded.
Although good news has been a rare commodity over the last year, our
communications services and healthcare investments performed quite admirably. We
were modestly underweighted in communications services, but our stock picks
excelled, gaining more than 50% for the year. Our health care selections led by
Johnson & Johnson, SmithKline Beecham and Warner Lambert, advanced more than
25%.
We have chosen to highlight Warner Lambert as a company that continues to
present excellent long-term investment value and qualifies as a socially
responsive corporate citizen. Warner Lambert's new anti-cholesterol drug,
Lipitor, is gaining market share from competitors and fast approaching
blockbuster status. The company is growing earnings faster than any other U.S.
or U.K. based major pharmaceutical company -- a trend we believe will continue
for the next several years. Like the leading branded consumer goods stocks, the
drug stocks have well
A-27
<PAGE>
- ----------------------------------------------------------------------
Socially Responsive Fund (Cont'd)
above market average price-to-earnings (P/E) ratios and can not be categorized
as absolute fundamental bargains. However, drug company earnings have so far
been largely immune to general economic weakness here and abroad and, therefore,
higher P/E ratios appear justified.
Warner Lambert has a good environmental record and now participates in three
voluntary programs with the Environmental Protection Agency. The company has a
great diversity record, with two African Americans and one woman on the Board of
Directors. WLA also has one of the best work-family programs in the country and
is a large charitable giver. This is a company that knows how to make money and
take good care of the environment, its employees and some very worthy causes.
In closing, in fiscal 1998, value investing played the tortoise to the
large-cap growth stock hare. Both have lost ground in recent months. However, we
believe our tortoise is ready to win the next leg of the race and ultimately
triumph in the market marathon.
Sincerely,
/s/ JANET PRINDLE
Janet Prindle
PORTFOLIO MANAGER
*The S&P "500" Index is an unmanaged index generally considered to be
representative of stock market activity. Please note that indices do not take
into account any fees and expenses of investing in the individual securities
that they track, and that individuals cannot invest directly in any index. Data
about the performance of this index are prepared or obtained by
Neuberger&Berman Management Inc.-Registered Trademark- and include reinvestment
of all dividends and capital gain distributions. The Portfolio invests in many
securities not included in the above-described index.
The composition, industries and holdings of the Portfolio are subject to
change. Socially Responsive Portfolio is invested in a wide array of stocks and
no single holding makes up more than a small fraction of the Portfolio's total
assets.
A-28
<PAGE>
(This page has been left blank intentionally.)
B-1
<PAGE>
COMPARISON OF A $10,000 INVESTMENT
Neuberger&Berman August 31, 1998
- ----------------------------------------------------------------------
Focus Fund
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C>
Average Annual Total Return(1)
Focus S&P "500"(2)
1 YEAR -17.37% +8.08%
5 YEAR +11.65% +18.26%
10 YEAR +14.07% +17.04%
LIFE OF FUND +11.62% +11.51%
Focus Fund S&P "500"
1988 $10,000 $10,000
1989 $13,435 $13,922
1990 $12,935 $13,208
1991 $14,999 $16,773
1992 $16,769 $18,104
1993 $21,506 $20,855
1994 $23,733 $22,004
1995 $30,252 $26,718
1996 $31,371 $31,713
1997 $45,149 $44,628
1998 $37,306 $48,235
</TABLE>
The inception date of Neuberger&Berman Focus Fund-Registered Trademark- is
10/19/55.
The Fund's name prior to January 1, 1995 was Neuberger&Berman Selected
Sectors Fund-Registered Trademark-. Prior to November 1, 1991, the investment
policies of Neuberger&Berman Focus Fund required that a substantial percentage
of its assets be invested in the energy field; accordingly, performance results
prior to that time do not necessarily reflect the level of performance that may
be expected under the Fund's current investment policies. While the Fund's
value-oriented approach is intended to limit risks, the Portfolio, with its
concentration in sectors, may be more greatly affected by any single economic,
political or regulatory development than a more diversified mutual fund.
1. "Total Return" includes reinvestment of all income dividends and capital gain
distributions. Results represent past performance and do not indicate future
results. The value of an investment in the Fund and the return on the investment
both will fluctuate, and redemption proceeds may be higher or lower than an
investor's original cost.
2. The S&P "500" Index is an unmanaged index generally considered to be
representative of stock market activity. Please note that indices do not take
into account any fees and expenses of investing in the individual securities
that they track, and that individuals cannot invest directly in any index. Data
about the performance of this index are prepared or obtained by Neuberger&Berman
Management Inc.-Registered Trademark- and include reinvestment of all dividends
and capital gain distributions. The Portfolio invests in many securities not
included in the above-described index.
B-2
<PAGE>
COMPARISON OF A $10,000 INVESTMENT
Neuberger&Berman August 31, 1998
- ----------------------------------------------------------------------
Genesis Fund
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C>
Average Annual Total Return(1)
Genesis RUSSELL 2000-R-(2)
1 YEAR -18.82% -19.40%
5 YEAR +12.25% +8.06%
LIFE OF FUND +12.50% +10.59%
Genesis Fund Russell 2000-R-
9/27/88 $10,000 $10,000
1989 $13,045 $12,317
1990 $10,236 $9,877
1991 $13,856 $12,963
1992 $14,562 $13,910
1993 $18,087 $18,435
1994 $18,949 $19,516
1995 $22,680 $23,581
1996 $27,516 $26,134
1997 $39,710 $33,701
1998 $32,236 $27,164
</TABLE>
The inception date of Neuberger&Berman Genesis Fund-Registered Trademark-is
9/27/88.
From May 15, 1995 through December 14, 1997, Neuberger&Berman Management
Inc.-Registered Trademark- waived a portion of the management fee borne directly
by Neuberger&Berman Genesis Portfolio-SM- and indirectly by Neuberger&Berman
Genesis Fund to reduce that fee by 0.10% of the Portfolio's average daily net
assets per annum. Absent such waiver, the average annual total returns would
have been less.
1. "Total Return" includes reinvestment of all income dividends and capital gain
distributions. Results represent past performance and do not indicate future
results. The value of an investment in the Fund and the return on the investment
both will fluctuate, and redemption proceeds may be higher or lower than an
investor's original cost.
2. The Russell 2000 Index is an unmanaged index generally considered to be
representative of the 2,000 issuers having the smallest capitalization in the
Russell 3000-Registered Trademark- Index, representing approximately 11% of the
Russell 3000 total market capitalization. The smallest company's market
capitalization is roughly $222 million. The risks involved in seeking capital
appreciation from investments principally in companies with small market
capitalization are set forth in the prospectus. Please note that indices do not
take into account any fees and expenses of investing in the individual
securities that they track, and that individuals cannot invest directly in any
index. Data about the performance of this index are prepared or obtained by
Neuberger&Berman Management Inc. and include reinvestment of all dividends and
capital gain distributions. The Portfolio invests in many securities not
included in the above-described index.
B-3
<PAGE>
COMPARISON OF A $10,000 INVESTMENT
Neuberger&Berman August 31, 1998
- ----------------------------------------------------------------------
Guardian Fund
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C>
Average Annual Total Return(1)
Guardian S&P "500"(2)
1 YEAR -20.80% +8.08%
5 YEAR +9.53% +18.26%
10 YEAR +13.07% +17.04%
LIFE OF FUND +12.59% +12.74%
Guardian Fund S&P "500"
1988 $10,000 $10,000
1989 $13,390 $13,922
1990 $11,717 $13,208
1991 $15,289 $16,773
1992 $17,412 $18,104
1993 $21,667 $20,855
1994 $23,642 $22,004
1995 $29,331 $26,718
1996 $30,876 $31,713
1997 $43,129 $44,628
1998 $34,159 $48,235
</TABLE>
The inception date of Neuberger&Berman Guardian Fund-SM- is 6/1/50.
1. "Total Return" includes reinvestment of all income dividends and capital gain
distributions. Results represent past performance and do not indicate future
results. The value of an investment in the Fund and the return on the investment
both will fluctuate, and redemption proceeds may be higher or lower than an
investor's original cost.
2. The S&P "500" Index is an unmanaged index generally considered to be
representative of stock market activity. Please note that indices do not take
into account any fees and expenses of investing in the individual securities
that they track, and that individuals cannot invest directly in any index. Data
about the performance of this index are prepared or obtained by Neuberger&Berman
Management Inc. and include reinvestment of all dividends and capital gain
distributions. The Portfolio invests in many securities not included in the
above-described index.
B-4
<PAGE>
COMPARISON OF A $10,000 INVESTMENT
Neuberger&Berman August 31, 1998
- ----------------------------------------------------------------------
International Fund
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C>
Average Annual Total Return(1)
International EAFE-R- INDEX(2)
1 YEAR -5.69% +0.13%
LIFE OF FUND +8.50% +5.20%
International Fund EAFE-R- Index
6/15/94 $10,000 $10,000
8/31/94 $10,460 $10,366
1995 $10,732 $10,449
1996 $11,991 $11,305
1997 $14,954 $12,363
1998 $14,104 $12,379
</TABLE>
The inception date of Neuberger&Berman International Fund-Registered
Trademark- is 6/15/94.
Neuberger&Berman Management Inc. ("Management") has voluntarily undertaken to
reimburse International Fund for its operating expenses and its pro rata share
of its Portfolio's operating expenses which, in the aggregate, exceed 1.70% per
annum of International Fund's average daily net assets ("Expense Limitation"),
subject to termination upon 60 days' prior written notice. Absent such
reimbursement, the average annual total returns would have been lower.
International Fund has agreed to repay Management through December 31, 1998 for
its excess operating expenses previously reimbursed by Management, so long as
its annual operating expenses during that period do not exceed the Expense
Limitation. Absent this repayment arrangement, the average annual total returns
would have been higher.
1. "Total Return" includes reinvestment of all income dividends and capital gain
distributions. Results represent past performance and do not indicate future
results. The value of an investment in the Fund and the return on the investment
both will fluctuate, and redemption proceeds may be higher or lower than an
investor's original cost.
2. The EAFE-Registered Trademark- Index, also known as the Morgan Stanley
Capital International Europe, Australasia, Far East Index, is an unmanaged index
of over 1,000 foreign stock prices. The index is translated into U.S. dollars
and includes reinvestment of all dividends and capital gain distributions. The
risks involved in seeking capital appreciation from investments principally in
companies based outside the United States are set forth in the prospectus.
Please note that indices do not take into account any fees and expenses of
investing in the individual securities that they track, and that individuals
cannot invest directly in any index. Data about the performance of this index
are prepared or obtained by Management and include reinvestment of all dividends
and capital gain distributions. The Portfolio invests in many securities not
included in the above-described index.
B-5
<PAGE>
COMPARISON OF A $10,000 INVESTMENT
Neuberger&Berman August 31, 1998
- ----------------------------------------------------------------------
Manhattan Fund
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C> <C>
Average Annual Total Return(1)
RUSSELL MIDCAP-TM-
Manhattan S&P "500"(2) GROWTH INDEX 2
1 YEAR -11.02% +8.08% -11.48%
5 YEAR +9.34% +18.26% +11.30%
10 YEAR +12.65% +17.04% +14.25%
LIFE OF FUND +15.84% +16.62% N/A
Russell Midcap-TM-
Manhattan Fund S&P "500" Growth Index
1988 $10,000 $10,000 $10,000
1989 $14,241 $13,922 $13,678
1990 $12,467 $13,208 $12,323
1991 $15,729 $16,773 $17,125
1992 $16,474 $18,104 $18,283
1993 $21,047 $20,855 $22,197
1994 $21,782 $22,004 $23,394
1995 $27,444 $26,718 $29,184
1996 $26,646 $31,713 $32,633
1997 $36,972 $44,628 $42,825
1998 $32,899 $48,235 $37,909
</TABLE>
The inception date of Neuberger&Berman Manhattan Fund-Registered Trademark-
is 3/1/79 when Neuberger&Berman Management Inc. first became its investment
adviser.
1. "Total Return" includes reinvestment of all income dividends and capital gain
distributions. Results represent past performance and do not indicate future
results. The value of an investment in the Fund and the return on the investment
both will fluctuate, and redemption proceeds may be higher or lower than an
investor's original cost.
2. Before July 1997, Neuberger&Berman Manhattan Portfolio-SM- (the "Portfolio")
was managed using a "growth at a reasonable price" investment approach. Under
this blended value and growth approach, the Portfolio Manager purchased
securities of small-, medium-, and large-capitalization companies that he
believed offered greater potential for long-term capital appreciation, in most
cases at prices reflecting relatively higher multiples to measures of economic
value (such as earnings or cash flow) compared to securities purchased by other
Neuberger&Berman Portfolios.
In July 1997, growth-style Managers Jennifer Silver and Brooke Cobb joined
Neuberger&Berman Management Inc. and assumed responsibility for the Portfolio.
Ms. Silver now heads Neuberger&Berman, LLC's Growth Equity Group in Boston.
Since July 1997, the Portfolio has been managed using a growth-oriented
investment approach. True to this approach, the Managers seek securities of
companies that are growing earnings faster than the average American business,
and ideally, faster than competitors in their respective industries. In return
for this perceived higher earnings growth potential, the Managers are willing to
pay a higher absolute multiple for these securities. They do so because they
believe these stocks offer greater potential for long-term capital appreciation.
Moreover, while the Portfolio can still invest in securities of small-, medium-,
and large-cap companies, the Portfolio Managers currently intend to focus on the
securities of medium-cap companies.
The S&P "500" Index is an unmanaged index generally considered to be
representative of overall stock market activity. The Russell Midcap-TM- Growth
Index measures the performance of those Russell Midcap-TM- Index companies with
higher price-to-book ratios and higher forecasted growth values. The Russell
Midcap Index measures the performance of the 800 smallest companies in the
Russell 1000-Registered Trademark- Index, which represents approximately 35% of
the total market capitalization of the Russell 1000 Index (which, in turn,
B-6
<PAGE>
consists of the 1,000 largest U.S. companies, based on market capitalization).
Therefore, prior to July 1997 the Portfolio was appropriately compared to the
S&P "500" Index as a benchmark. However, with its focus on medium-cap growth
stocks, the current Portfolio is more appropriately compared to the Russell
Midcap Growth Index as a benchmark. Please note that indices do not take into
account any fees and expenses of investing in the individual securities that
they track, and that individuals cannot invest directly in any index. Data about
the performance of these indices are prepared or obtained by Neuberger&Berman
Management Inc. and include reinvestment of all dividends and capital gain
distributions. The Portfolio invests in many securities not included in the
above-described indices.
B-7
<PAGE>
COMPARISON OF A $10,000 INVESTMENT
Neuberger&Berman August 31, 1998
- ----------------------------------------------------------------------
Partners Fund
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C>
Average Annual Total Return(1)
Partners S&P "500"(2)
1 YEAR -10.03% +8.08%
5 YEAR +14.09% +18.26%
10 YEAR +14.56% +17.04%
LIFE OF FUND +17.28% +15.90%
Partners Fund S&P "500"
1988 $10,000 $10,000
1989 $13,168 $13,922
1990 $12,271 $13,208
1991 $14,483 $16,773
1992 $15,714 $18,104
1993 $20,136 $20,855
1994 $21,255 $22,004
1995 $25,831 $26,718
1996 $29,412 $31,713
1997 $43,269 $44,628
1998 $38,931 $48,235
</TABLE>
The inception date of Neuberger&Berman Partners Fund-Registered Trademark- is
1/20/75 when Neuberger&Berman Management Inc. first became its investment
adviser.
1. "Total Return" includes reinvestment of all income dividends and capital gain
distributions. Results represent past performance and do not indicate future
results. The value of an investment in the Fund and the return on the investment
both will fluctuate, and redemption proceeds may be higher or lower than an
investor's original cost.
2. The S&P "500" Index is an unmanaged index generally considered to be
representative of stock market activity. Please note that indices do not take
into account any fees and expenses of investing in the individual securities
that they track, and that individuals cannot invest directly in any index. Data
about the performance of this index are prepared or obtained by Neuberger&Berman
Management Inc. and include reinvestment of all dividends and capital gain
distributions. The Portfolio invests in many securities not included in the
above-described index.
B-8
<PAGE>
COMPARISON OF A $10,000 INVESTMENT
Neuberger&Berman August 31, 1998
- ----------------------------------------------------------------------
Socially Responsive Fund
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C>
Average Annual Total Return(1)
Socially Responsive S&P "500"(2)
1 YEAR -6.02% +8.08%
LIFE OF FUND +13.63% +19.98%
Socially Responsive Fund S&P "500"
3/16/94 $10,000 $10,000
8/31/94 $10,070 $10,279
1995 $11,865 $12,481
1996 $14,261 $14,814
1997 $18,818 $20,848
1998 $17,686 $22,533
</TABLE>
The inception date of Neuberger&Berman Socially Responsive Fund-Registered
Trademark- is 3/16/94.
Neuberger&Berman Management Inc. ("Management") had voluntarily undertaken to
reimburse Socially Responsive Fund for its operating expenses and its pro rata
share of its Portfolio's operating expenses which, in the aggregate, exceeded
1.50% per annum of Socially Responsive Fund's average daily net assets ("Expense
Limitation"). Absent such reimbursement, the average annual total returns would
have been lower. Socially Responsive Fund had agreed to repay Management through
March 14, 1998 for its excess operating expenses previously reimbursed by
Management, so long as its annual operating expenses during that period did not
exceed the Expense Limitation of the Fund; the Fund has entirely repaid
Management for these amounts. Absent this repayment arrangement, the average
annual total returns would have been higher.
1. "Total Return" includes reinvestment of all income dividends and capital gain
distributions. Results represent past performance and do not indicate future
results. The value of an investment in the Fund and the return on the investment
both will fluctuate, and redemption proceeds may be higher or lower than an
investor's original cost.
2. The S&P "500" Index is an unmanaged index generally considered to be
representative of stock market activity. Please note that indices do not take
into account any fees and expenses of investing in the individual securities
that they track, and that individuals cannot invest directly in any index. Data
about the performance of this index are prepared or obtained by Management and
include reinvestment of all dividends and capital gain distributions. The
Portfolio invests in many securities not included in the above-described index.
B-9
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
Neuberger&Berman
- ----------------------------------------------------------------------
Equity Funds
<TABLE>
<CAPTION>
FOCUS GENESIS GUARDIAN
(000'S OMITTED EXCEPT PER SHARE AMOUNTS) FUND FUND FUND
------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investment in corresponding Portfolio, at
value (Note A) $ 1,123,382 $ 1,082,067 $ 4,228,306
Deferred organization costs (Note A) -- -- --
Receivable for Trust shares sold 1,490 3,812 4,669
------------------------------------------------
1,124,872 1,085,879 4,232,975
------------------------------------------------
LIABILITIES
Payable for Trust shares redeemed 4,294 6,064 19,856
Payable to administrator (Note B) 311 274 1,148
Accrued expenses 346 465 1,211
------------------------------------------------
4,951 6,803 22,215
------------------------------------------------
NET ASSETS at value $ 1,119,921 $ 1,079,076 $ 4,210,760
------------------------------------------------
NET ASSETS consist of:
Par value $ 40 $ 87 $ 198
Paid-in capital in excess of par value 812,836 1,175,541 3,358,665
Accumulated undistributed net investment
income (loss) 3,155 9,699 5,254
Accumulated net realized gains (losses) on
investment 73,192 26,411 650,277
Net unrealized appreciation (depreciation)
in value of investment 230,698 (132,662) 196,366
------------------------------------------------
NET ASSETS at value $ 1,119,921 $ 1,079,076 $ 4,210,760
------------------------------------------------
SHARES OUTSTANDING
($.001 par value; unlimited shares
authorized) 40,293 86,534 197,527
------------------------------------------------
NET ASSET VALUE, offering and redemption price per
share $27.79 $12.47 $21.32
------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-10
<PAGE>
August 31, 1998
- ----------------------------------------------------------------------
Equity Funds
<TABLE>
<CAPTION>
SOCIALLY
INTERNATIONAL MANHATTAN PARTNERS RESPONSIVE
FUND FUND FUND FUND
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investment in corresponding Portfolio, at
value (Note A) $ 126,060 $ 476,938 $ 2,820,257 $ 82,858
Deferred organization costs (Note A) 16 -- -- 8
Receivable for Trust shares sold 270 824 3,331 239
-----------------------------------------------------------------
126,346 477,762 2,823,588 83,105
-----------------------------------------------------------------
LIABILITIES
Payable for Trust shares redeemed 771 822 9,553 539
Payable to administrator (Note B) 12 128 713 21
Accrued expenses 57 164 645 47
-----------------------------------------------------------------
840 1,114 10,911 607
-----------------------------------------------------------------
NET ASSETS at value $ 125,506 $ 476,648 $ 2,812,677 $ 82,498
-----------------------------------------------------------------
NET ASSETS consist of:
Par value $ 9 $ 51 $ 122 $ 5
Paid-in capital in excess of par value 112,780 447,690 2,624,887 78,451
Accumulated undistributed net investment
income (loss) (118) -- -- 326
Accumulated net realized gains (losses) on
investment (9,771) 40,573 277,707 4,433
Net unrealized appreciation (depreciation)
in value of investment 22,606 (11,666) (90,039) (717)
-----------------------------------------------------------------
NET ASSETS at value $ 125,506 $ 476,648 $ 2,812,677 $ 82,498
-----------------------------------------------------------------
SHARES OUTSTANDING
($.001 par value; unlimited shares
authorized) 9,059 50,626 122,465 5,055
-----------------------------------------------------------------
NET ASSET VALUE, offering and redemption price per
share $13.85 $9.42 $22.97 $16.32
-----------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-11
<PAGE>
STATEMENTS OF OPERATIONS
Neuberger&Berman
- ----------------------------------------------------------------------
Equity Funds
<TABLE>
<CAPTION>
FOCUS GENESIS GUARDIAN
(000'S OMITTED) FUND FUND FUND
------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Investment income from corresponding Portfolio
(Note A) $ 16,359 $ 24,535 $ 85,004
------------------------------------------
Expenses:
Administration fee (Note B) 3,852 3,499 16,076
Amortization of deferred organization and
initial offering expenses (Note A) -- -- --
Auditing fees 8 8 8
Custodian fees 10 10 10
Legal fees 15 10 11
Registration and filing fees 80 240 67
Reimbursement of expenses previously assumed
by administrator (Note B) -- -- --
Shareholder reports 191 306 566
Shareholder servicing agent fees (Note B) 746 1,259 4,156
Trustees' fees and expenses 16 14 49
Miscellaneous 10 3 29
Expenses from corresponding Portfolio (Notes
A & B) 7,558 9,559 28,126
------------------------------------------
Total expenses 12,486 14,908 49,098
Expenses reduced by custodian fee and
shareholder servicing expense offset
arrangements (Note B) (76) (72) (323)
------------------------------------------
Total net expenses 12,410 14,836 48,775
------------------------------------------
Net investment income (loss) 3,949 9,699 36,229
------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
FROM CORRESPONDING PORTFOLIO (NOTE A)
Net realized gain (loss) on investment
securities 83,989 27,717 732,613
Net realized gain (loss) on option contracts (3,899) -- 4,433
Net realized loss on financial futures
contracts -- -- --
Net realized gain on foreign currency
transactions -- -- --
Change in net unrealized appreciation
(depreciation) of investment securities,
financial futures contracts, option
contracts, equity swap contracts,
translation of assets and liabilities in
foreign currencies, and foreign currency
contracts (318,701) (330,423) (1,869,600)
------------------------------------------
Net loss on investments from corresponding
Portfolio (Note A) (238,611) (302,706) (1,132,554)
------------------------------------------
Net decrease in net assets resulting from
operations $ (234,662) $ (293,007) $ (1,096,325)
------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-12
<PAGE>
For the Year Ended August 31, 1998
- ----------------------------------------------------------------------
Equity Funds
<TABLE>
<CAPTION>
SOCIALLY
INTERNATIONAL MANHATTAN PARTNERS RESPONSIVE
FUND FUND FUND FUND
----------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Investment income from corresponding Portfolio
(Note A) $ 1,986 $ 3,111 $ 53,982 $ 1,255
----------------------------------------------------------------
Expenses:
Administration fee (Note B) 353 1,557 8,893 214
Amortization of deferred organization and
initial offering expenses (Note A) 20 -- -- 16
Auditing fees 8 9 8 4
Custodian fees 10 10 10 10
Legal fees 7 15 10 11
Registration and filing fees 39 29 217 34
Reimbursement of expenses previously assumed
by administrator (Note B) 127 -- -- --
Shareholder reports 41 117 311 29
Shareholder servicing agent fees (Note B) 107 489 1,923 87
Trustees' fees and expenses 6 9 30 2
Miscellaneous 1 9 13 1
Expenses from corresponding Portfolio (Notes
A & B) 1,596 3,426 16,091 495
----------------------------------------------------------------
Total expenses 2,315 5,670 27,506 903
Expenses reduced by custodian fee and
shareholder servicing expense offset
arrangements (Note B) (8) (33) (162) (4)
----------------------------------------------------------------
Total net expenses 2,307 5,637 27,344 899
----------------------------------------------------------------
Net investment income (loss) (321) (2,526) 26,638 356
----------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
FROM CORRESPONDING PORTFOLIO (NOTE A)
Net realized gain (loss) on investment
securities (6,650) 42,660 379,905 4,904
Net realized gain (loss) on option contracts (72) -- -- --
Net realized loss on financial futures
contracts (4,022) -- -- --
Net realized gain on foreign currency
transactions 147 -- -- --
Change in net unrealized appreciation
(depreciation) of investment securities,
financial futures contracts, option
contracts, equity swap contracts,
translation of assets and liabilities in
foreign currencies, and foreign currency
contracts (252) (97,621) (727,668) (13,949)
----------------------------------------------------------------
Net loss on investments from corresponding
Portfolio (Note A) (10,849) (54,961) (347,763) (9,045)
----------------------------------------------------------------
Net decrease in net assets resulting from
operations $ (11,170) $ (57,487) $ (321,125) $ (8,689)
----------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-13
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
Neuberger&Berman
- ----------------------------------------------------------------------
Equity Funds
<TABLE>
<CAPTION>
FOCUS FUND GENESIS FUND
Year Year
Ended Ended
August 31, August 31,
(000'S OMITTED) 1998 1997 1998 1997
-------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) $ 3,949 $ 2,521 $ 9,699 $ (320)
Net realized gain (loss) on
investments from corresponding
Portfolio (Note A) 80,090 172,820 27,717 14,252
Change in net unrealized
appreciation (depreciation) of
investments from corresponding
Portfolio (Note A) (318,701) 265,410 (330,423) 148,087
-------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations (234,662) 440,751 (293,007) 162,019
-------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (2,176) (8,010) -- --
Net realized gain on investments (178,818) (52,068) (14,284) (3,645)
-------------------------------------------------------------
Total distributions to shareholders (180,994) (60,078) (14,284) (3,645)
-------------------------------------------------------------
FROM TRUST SHARE TRANSACTIONS:
Proceeds from shares sold 193,247 214,044 1,453,709 482,993
Proceeds from reinvestment of
dividends and distributions 160,844 53,255 13,158 3,444
Payments for shares redeemed (230,424) (307,442) (798,608) (122,082)
-------------------------------------------------------------
Net increase (decrease) from Trust
share transactions 123,667 (40,143) 668,259 364,355
-------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (291,989) 340,530 360,968 522,729
NET ASSETS:
Beginning of year 1,411,910 1,071,380 718,108 195,379
-------------------------------------------------------------
End of year $ 1,119,921 $ 1,411,910 $ 1,079,076 $ 718,108
-------------------------------------------------------------
Accumulated undistributed net
investment income (loss) at end of
year $ 3,155 $ 1,666 $ 9,699 $ --
-------------------------------------------------------------
NUMBER OF TRUST SHARES:
Sold 5,176 6,453 89,859 37,602
Issued on reinvestment of dividends
and distributions 5,052 1,718 850 288
Redeemed (6,242) (9,505) (50,355) (9,618)
-------------------------------------------------------------
Net increase (decrease) in shares
outstanding 3,986 (1,334) 40,354 28,272
-------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-14
<PAGE>
- ----------------------------------------------------------------------
Equity Funds
<TABLE>
<CAPTION>
GUARDIAN FUND INTERNATIONAL FUND MANHATTAN FUND
Year Year Year
Ended Ended Ended
August 31, August 31, August 31,
1998 1997 1998 1997 1998 1997
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) $ 36,229 $ 31,611 $ (321) $ (21) $ (2,526) $ (1,052)
Net realized gain (loss) on
investments from corresponding
Portfolio (Note A) 737,046 728,099 (10,595) 2,368 42,660 170,508
Change in net unrealized
appreciation (depreciation) of
investments from corresponding
Portfolio (Note A) (1,869,600) 1,139,234 (254) 16,214 (97,621) 5,870
-----------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations (1,096,325) 1,898,944 (11,170) 18,561 (57,487) 175,326
-----------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (37,408) (49,597) -- (111) -- --
Net realized gain on investments (809,963) (252,628) (1,069) -- (148,169) (67,073)
-----------------------------------------------------------------------------------
Total distributions to shareholders (847,371) (302,225) (1,069) (111) (148,169) (67,073)
-----------------------------------------------------------------------------------
FROM TRUST SHARE TRANSACTIONS:
Proceeds from shares sold 672,782 999,314 138,963 90,517 82,374 92,313
Proceeds from reinvestment of
dividends and distributions 785,350 279,571 999 96 137,125 61,291
Payments for shares redeemed (1,778,812) (1,305,637) (117,593) (50,675) (107,644) (207,647)
-----------------------------------------------------------------------------------
Net increase (decrease) from Trust
share transactions (320,680) (26,752) 22,369 39,938 111,855 (54,043)
-----------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (2,264,376) 1,569,967 10,130 58,388 (93,801) 54,210
NET ASSETS:
Beginning of year 6,475,136 4,905,169 115,376 56,988 570,449 516,239
-----------------------------------------------------------------------------------
End of year $ 4,210,760 $ 6,475,136 $ 125,506 $ 115,376 $ 476,648 $ 570,449
-----------------------------------------------------------------------------------
Accumulated undistributed net
investment income (loss) at end of
year $ 5,254 $ 6,443 $ (118) $ (153) $ -- $ --
-----------------------------------------------------------------------------------
NUMBER OF TRUST SHARES:
Sold 23,020 36,707 8,477 6,581 6,569 7,177
Issued on reinvestment of dividends
and distributions 31,246 10,821 70 7 13,235 5,234
Redeemed (62,892) (47,659) (7,268) (3,592) (8,493) (16,326)
-----------------------------------------------------------------------------------
Net increase (decrease) in shares
outstanding (8,626) (131) 1,279 2,996 11,311 (3,915)
-----------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-15
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS(Cont'd)
Neuberger&Berman
- ----------------------------------------------------------------------
Equity Funds
<TABLE>
<CAPTION>
PARTNERS FUND SOCIALLY RESPONSIVE FUND
Year Year
Ended Ended
August 31, August 31,
(000'S OMITTED) 1998 1997 1998 1997
-------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) $ 26,638 $ 17,506 $ 356 $ 107
Net realized gain (loss) on
investments from corresponding
Portfolio (Note A) 379,905 490,163 4,904 1,586
Change in net unrealized
appreciation (depreciation) of
investments from corresponding
Portfolio (Note A) (727,668) 417,398 (13,949) 11,253
-------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations (321,125) 925,067 (8,689) 12,946
-------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (18,986) (17,551) (83) (82)
Net realized gain on investments (583,567) (208,212) (1,563) (1,152)
-------------------------------------------------------------
Total distributions to shareholders (602,553) (225,763) (1,646) (1,234)
-------------------------------------------------------------
FROM TRUST SHARE TRANSACTIONS:
Proceeds from shares sold 759,283 798,352 44,463 30,166
Proceeds from reinvestment of
dividends and distributions 573,055 214,033 1,494 1,124
Payments for shares redeemed (699,711) (479,905) (12,864) (16,186)
-------------------------------------------------------------
Net increase (decrease) from Trust
share transactions 632,627 532,480 33,093 15,104
-------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (291,051) 1,231,784 22,758 26,816
NET ASSETS:
Beginning of year 3,103,728 1,871,944 59,740 32,924
-------------------------------------------------------------
End of year $ 2,812,677 $ 3,103,728 $ 82,498 $ 59,740
-------------------------------------------------------------
Accumulated undistributed net
investment income (loss) at end of
year $ -- $ 11,889 $ 326 $ 53
-------------------------------------------------------------
NUMBER OF TRUST SHARES:
Sold 26,171 29,056 2,283 1,925
Issued on reinvestment of dividends
and distributions 22,596 8,450 85 74
Redeemed (24,506) (17,682) (671) (1,013)
-------------------------------------------------------------
Net increase (decrease) in shares
outstanding 24,261 19,824 1,697 986
-------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Neuberger&Berman August 31, 1998
- ----------------------------------------------------------------------
Equity Funds
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1) GENERAL: Neuberger&Berman Focus Fund ("Focus"), Neuberger&Berman Genesis Fund
("Genesis"), Neuberger&Berman Guardian Fund ("Guardian"), Neuberger&Berman
International Fund ("International"), Neuberger&Berman Manhattan Fund
("Manhattan"), Neuberger&Berman Partners Fund ("Partners"), and
Neuberger&Berman Socially Responsive Fund ("Socially Responsive")
(collectively, the "Funds") are separate operating series of Neuberger&
Berman Equity Funds (the "Trust"), a Delaware business trust organized
pursuant to a Trust Instrument dated December 23, 1992. The Trust is
registered as a diversified, open-end management investment company under the
Investment Company Act of 1940, as amended, and its shares are registered
under the Securities Act of 1933, as amended. 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.
Each Fund seeks to achieve its investment objective by investing all of
its net investable assets in its corresponding portfolio of Equity Managers
Trust (Global Managers Trust with respect to International) (each a
"Portfolio") having the same investment objective and policies as the Fund.
The value of each Fund's investment in its corresponding Portfolio reflects
that Fund's proportionate interest in the net assets of that Portfolio
(85.27%, 59.71%, 73.06%, 98.62%, 91.13%, 78.75%, and 29.29%, for Focus,
Genesis, Guardian, International, Manhattan, Partners, and Socially
Responsive, respectively, at August 31, 1998). 65.99% of Neuberger&Berman
Socially Responsive Portfolio is held by another regulated investment
company, which has only a single shareholder and is sponsored by
Neuberger&Berman Management Incorporated ("N&B Management"). The performance
of each Fund is directly affected by the performance of its corresponding
Portfolio. The financial statements of each Portfolio, including the Schedule
of Investments, are included elsewhere in this report and should be read in
conjunction with the corresponding Fund's financial statements.
2) PORTFOLIO VALUATION: Each Fund records its investment in its corresponding
Portfolio at value. Investment securities held by each Portfolio are valued
as indicated in the notes following the Portfolios' Schedule of Investments.
3) FEDERAL INCOME TAXES: The Funds are treated as separate entities for Federal
income tax purposes. It is the policy of each Fund to continue to qualify as
a regulated investment company by complying with the provisions available to
B-17
<PAGE>
certain investment companies, as defined in applicable sections of the
Internal Revenue Code, and to make distributions of investment company
taxable income and net capital gains (after reduction for any amounts
available for Federal income tax purposes as capital loss carryforwards)
sufficient to relieve it from all, or substantially all, Federal income
taxes. Accordingly, each Fund paid no Federal income taxes and no provision
for Federal income taxes was required.
4) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Each Fund earns income, net of
Portfolio expenses, daily on its investment in its corresponding Portfolio.
Income dividends and distributions from net realized capital gains, if any,
are normally distributed in December. Guardian generally distributes
substantially all of its net investment income, if any, at the end of each
calendar quarter. Income dividends and capital gain distributions to
shareholders are recorded on the ex-dividend date. To the extent each Fund's
net realized capital gains, if any, can be offset by capital loss
carryforwards, it is the policy of each Fund not to distribute such gains.
Each Fund distinguishes between dividends on a tax basis and a financial
reporting basis and only distributions in excess of tax basis earnings and
profits are reported in the financial statements as a return of capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes are classified as
distributions in excess of net investment income or accumulated net realized
gains. For the year ended August 31, 1998, Guardian, Manhattan, Partners, and
Socially Responsive hereby designate an additional $617,229, $328,324,
$15,008,245, and $61,241, respectively, as capital gain distributions for
purposes of the dividend paid deduction.
5) ORGANIZATION EXPENSES: Expenses incurred by International and Socially
Responsive in connection with their organization are being amortized on a
straight-line basis over a five-year period. At August 31, 1998, the
unamortized balance of such expenses amounted to $15,764 and $8,421, for
International and Socially Responsive, respectively.
6) EXPENSE ALLOCATION: Each Fund bears all costs of its operations. Expenses
incurred by the Trust with respect to any two or more Funds are allocated in
proportion to the net assets of such Funds, except where a more appropriate
allocation of expenses to each Fund can otherwise be made fairly. Expenses
directly attributable to a Fund are charged to that Fund.
7) OTHER: All net investment income and realized and unrealized capital gains
and losses of each Portfolio are allocated pro rata among its respective
Funds and any other investors in the Portfolio.
B-18
<PAGE>
NOTE B -- ADMINISTRATION FEES, DISTRIBUTION ARRANGEMENTS, AND OTHER TRANSACTIONS
WITH AFFILIATES:
Each Fund retains N&B Management as its administrator under an Administration
Agreement ("Agreement"). Pursuant to this Agreement each Fund pays N&B
Management an administration fee at the annual rate of 0.26% of that Fund's
average daily net assets. Each Fund indirectly pays for investment management
services through its investment in its corresponding Portfolio (see Note B of
Notes to Financial Statements of the Portfolios).
N&B Management has voluntarily undertaken to reimburse International for its
operating expenses plus its pro rata portion of its corresponding Portfolio's
operating expenses (including the fees payable to N&B Management but excluding
interest, taxes, brokerage commissions, and extraordinary expenses) ("Operating
Expenses") which exceed, in the aggregate, 1.70% per annum of its average daily
net assets (the "Expense Limitation"). This undertaking is subject to
termination by N&B Management upon at least 60 days' prior written notice to the
Fund. International has agreed to repay N&B Management through December 31,
1998, for its excess Operating Expenses previously reimbursed by N&B Management,
so long as its annual Operating Expenses during that period do not exceed the
Expense Limitation. For the year ended August 31, 1998, International reimbursed
N&B Management $126,742 under this agreement. At August 31, 1998, International
has a remaining contingent liability to N&B Management of $219,803 under the
agreement. This contingent liability expires on December 31, 1998, for any
amount not repaid by that date. For the fiscal year ended August 31, 1997,
Socially Responsive had a similar reimbursement and repayment arrangement.
All of the capital stock of N&B Management is owned by individuals who are
also principals of Neuberger&Berman, LLC ("Neuberger"), a member firm of The New
York Stock Exchange and sub-adviser to each Portfolio. Several individuals who
are officers and/or trustees of the Trust are also principals of Neuberger
and/or officers and/or directors of N&B Management.
Each Fund also has a distribution agreement with N&B Management. N&B
Management receives no compensation therefor and no commissions for sales or
redemptions of shares of beneficial interest of each Fund.
Each Portfolio has an expense offset arrangement in connection with its
custodian contract. In addition, in connection with the Securities Lending
Agreement between each Portfolio and Morgan Stanley & Co. Incorporated
("Morgan"), Morgan has agreed to reimburse each Portfolio for transaction costs
incurred on security lending transactions charged by the custodian. The impact
of these arrangements, respectively, reflected in the Statements of Operations
under the caption Expenses from corresponding Portfolio, was a reduction of $653
and $327, $1,481 and $477, $526 and
B-19
<PAGE>
$846, $700 and $463, $1,586 and $585, $373 and $230, and $70 and $10, for Focus,
Genesis, Guardian, International, Manhattan, Partners, and Socially Responsive,
respectively.
Each Fund has an expense offset arrangement in connection with its
shareholder servicing agent contract. The impact of this arrangement, reflected
in the Statements of Operations under the caption Shareholder servicing agent
fees, was a reduction of $74,760, $69,616, $321,389, $6,643, $30,372, $161,759,
and $3,643, for Focus, Genesis, Guardian, International, Manhattan, Partners,
and Socially Responsive, respectively.
NOTE C -- INVESTMENT TRANSACTIONS:
During the year ended August 31, 1998, additions and reductions in each
Fund's investment in its corresponding Portfolio were as follows:
<TABLE>
<CAPTION>
ADDITIONS REDUCTIONS
- ----------------------------------------------------------------------------------
<S> <C> <C>
FOCUS $ 49,743,965 $ 107,260,838
GENESIS 903,930,900 239,141,011
GUARDIAN 29,472,215 1,201,062,552
INTERNATIONAL 89,407,350 68,153,776
MANHATTAN 31,791,577 70,174,367
PARTNERS 286,412,238 255,902,743
SOCIALLY RESPONSIVE 33,943,867 2,557,787
</TABLE>
At August 31, 1998, Neuberger&Berman International Portfolio's cost of
investments for U.S. Federal income tax purposes was $119,274,000. Gross
unrealized appreciation of investments was $32,829,000 and gross unrealized
depreciation of investments was $10,730,000, resulting in net unrealized
appreciation of $22,099,000, based on cost for U.S. Federal income tax purposes.
B-20
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Focus Fund(1)(2)
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the Financial
Statements. It should be read in conjunction with its corresponding Portfolio's
Financial Statements and notes thereto.
<TABLE>
<CAPTION>
Year Ended August 31,
1998 1997 1996 1995 1994
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 38.89 $ 28.46 $ 28.88 $ 24.42 $ 24.00
-------------------------------------------------------------
Income From Investment Operations
Net Investment Income .10 .08 .19 .17 .21
Net Gains or Losses on Securities
(both realized and unrealized) (6.21) 12.00 .85 5.97 2.16
-------------------------------------------------------------
Total From Investment Operations (6.11) 12.08 1.04 6.14 2.37
-------------------------------------------------------------
Less Distributions
Dividends (from net investment
income) (.06) (.22) (.11) (.20) (.25)
Distributions (from net capital
gains) (4.93) (1.43) (1.35) (1.48) (1.70)
-------------------------------------------------------------
Total Distributions (4.99) (1.65) (1.46) (1.68) (1.95)
-------------------------------------------------------------
Net Asset Value, End of Year $ 27.79 $ 38.89 $ 28.46 $ 28.88 $ 24.42
-------------------------------------------------------------
Total Return(3) -17.37% +43.92% +3.70% +27.47% +10.35%
-------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year (in
millions) $ 1,119.9 $ 1,411.9 $ 1,071.4 $ 956.0 $ 643.9
-------------------------------------------------------------
Ratio of Gross Expenses to Average
Net Assets(4) .84% .86% .89% -- --
-------------------------------------------------------------
Ratio of Net Expenses to Average Net
Assets .84% .86% .89% .87% .85%
-------------------------------------------------------------
Ratio of Net Investment Income to
Average Net Assets .27% .21% .69% .75% .89%
-------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL HIGHLIGHTS
B-21
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Genesis Fund(2)
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the Financial
Statements. It should be read in conjunction with its corresponding Portfolio's
Financial Statements and notes thereto.
<TABLE>
<CAPTION>
Year Ended August 31,
1998 1997 1996 1995 1994
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 15.55 $ 10.91 $ 9.52 $ 8.27 $ 8.62
-------------------------------------------------------------------------
Income From Investment Operations
Net Investment Income (Loss) .11 (.01) (.01) -- (.01)
Net Gains or Losses on Securities
(both realized and unrealized) (3.00) 4.80 1.95 1.56 .42
-------------------------------------------------------------------------
Total From Investment Operations (2.89) 4.79 1.94 1.56 .41
-------------------------------------------------------------------------
Less Distributions
Dividends (from net investment
income) -- -- -- -- (.01)
Distributions (from net capital
gains) (.19) (.15) (.55) (.31) (.75)
-------------------------------------------------------------------------
Total Distributions (.19) (.15) (.55) (.31) (.76)
-------------------------------------------------------------------------
Net Asset Value, End of Year $ 12.47 $ 15.55 $ 10.91 $ 9.52 $ 8.27
-------------------------------------------------------------------------
Total Return(3) -18.82% +44.32% +21.32% +19.69% +4.77%
-------------------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year (in
millions) $ 1,079.1 $ 718.1 $ 195.4 $ 111.5 $ 135.6
-------------------------------------------------------------------------
Ratio of Gross Expenses to Average
Net Assets(4) 1.11% 1.17% 1.28% -- --
-------------------------------------------------------------------------
Ratio of Net Expenses to Average Net
Assets 1.10%(5) 1.16%(5) 1.28%(5) 1.35%(5) 1.36%
-------------------------------------------------------------------------
Ratio of Net Investment Income
(Loss) to Average Net Assets .72%(5) (.08%)(5) (.18%)(5) (.16%)(5) (.20%)
-------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL HIGHLIGHTS
B-22
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Guardian Fund(2)
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the Financial
Statements. It should be read in conjunction with its corresponding Portfolio's
Financial Statements and notes thereto.
<TABLE>
<CAPTION>
Year Ended August 31,
1998 1997 1996 1995 1994
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 31.41 $ 23.78 $ 23.61 $ 19.52 $ 18.57
-----------------------------------------------------------------
Income From Investment Operations
Net Investment Income .18 .15 .31 .27 .24
Net Gains or Losses on Securities
(both realized and unrealized) (6.09) 8.96 .90 4.30 1.41
-----------------------------------------------------------------
Total From Investment Operations (5.91) 9.11 1.21 4.57 1.65
-----------------------------------------------------------------
Less Distributions
Dividends (from net investment
income) (.18) (.24) (.28) (.25) (.30)
Distributions (from net capital
gains) (4.00) (1.24) (.76) (.23) (.40)
-----------------------------------------------------------------
Total Distributions (4.18) (1.48) (1.04) (.48) (.70)
-----------------------------------------------------------------
Net Asset Value, End of Year $ 21.32 $ 31.41 $ 23.78 $ 23.61 $ 19.52
-----------------------------------------------------------------
Total Return(3) -20.80% +39.69% +5.27% +24.06% +9.12%
-----------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year (in
millions) $ 4,210.8 $ 6,475.1 $ 4,905.2 $ 3,947.5 $ 2,416.5
-----------------------------------------------------------------
Ratio of Gross Expenses to Average
Net Assets(4) .79% .80% .82% -- --
-----------------------------------------------------------------
Ratio of Net Expenses to Average Net
Assets .79% .80% .82% .80% .80%
-----------------------------------------------------------------
Ratio of Net Investment Income to
Average Net Assets .59% .55% 1.37% 1.40% 1.36%
-----------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL HIGHLIGHTS
B-23
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
- --------------------------------------------------------------------------------
International Fund(2)
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the Financial
Statements. It should be read in conjunction with its corresponding Portfolio's
Financial Statements and notes thereto.
<TABLE>
<CAPTION>
Period from
June 15, 1994(6) to
Year Ended August 31, August 31,
1998 1997 1996 1995 1994
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 14.83 $ 11.91 $ 10.70 $ 10.46 $10.00
-------------------------------------------------------------------
Income From Investment Operations
Net Investment Income (Loss) (.03) -- .01 .06 .01
Net Gains or Losses on Securities
(both realized and unrealized) (.81) 2.94 1.24 .21 .45
-------------------------------------------------------------------
Total From Investment Operations (.84) 2.94 1.25 .27 .46
-------------------------------------------------------------------
Less Distributions
Dividends (from net investment
income) -- (.02) (.04) (.03) --
Distributions (from net capital
gains) (.14) -- -- -- --
-------------------------------------------------------------------
Total Distributions (.14) (.02) (.04) (.03) --
-------------------------------------------------------------------
Net Asset Value, End of Year $ 13.85 $ 14.83 $ 11.91 $ 10.70 $10.46
-------------------------------------------------------------------
Total Return(3) -5.69% +24.71% +11.73% +2.60% +4.60%(7)
-------------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year (in
millions) $ 125.5 $ 115.4 $ 57.0 $ 26.4 $ 6.2
-------------------------------------------------------------------
Ratio of Gross Expenses to Average
Net Assets(4) 1.71% 1.70% 1.70% -- --
-------------------------------------------------------------------
Ratio of Net Expenses to Average Net
Assets(5) 1.70% 1.70% 1.70% 1.70% 1.70%(8)
-------------------------------------------------------------------
Ratio of Net Investment Income
(Loss) to Average Net Assets(5) (.24%) (.02%) .24% .73% .57%(8)
-------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL HIGHLIGHTS
B-24
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Manhattan Fund(2)
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the Financial
Statements. It should be read in conjunction with its corresponding Portfolio's
Financial Statements and notes thereto.
<TABLE>
<CAPTION>
Year Ended August 31,
1998 1997 1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 14.51 $ 11.94 $ 13.27 $ 11.28 $ 12.94
-------------------------------------------------------
Income From Investment Operations
Net Investment Income (Loss) (.05) (.03) (.04) -- .02
Net Gains or Losses on Securities
(both realized and unrealized) (1.20) 4.26 (.33) 2.70 .40
-------------------------------------------------------
Total From Investment Operations (1.25) 4.23 (.37) 2.70 .42
-------------------------------------------------------
Less Distributions
Dividends (from net investment
income) -- -- -- (.01) (.02)
Distributions (from net capital
gains) (3.84) (1.66) (.96) (.70) (2.06)
-------------------------------------------------------
Total Distributions (3.84) (1.66) (.96) (.71) (2.08)
-------------------------------------------------------
Net Asset Value, End of Year $ 9.42 $ 14.51 $ 11.94 $ 13.27 $ 11.28
-------------------------------------------------------
Total Return(3) -11.02% +38.75% -2.91% +26.00% +3.49%
-------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year (in
millions) $ 476.6 $ 570.4 $ 516.2 $ 612.0 $ 510.3
-------------------------------------------------------
Ratio of Gross Expenses to Average
Net Assets(4) .95% .99% .98% -- --
-------------------------------------------------------
Ratio of Net Expenses to Average Net
Assets .94% .98% .98% .98% .96%
-------------------------------------------------------
Ratio of Net Investment Income
(Loss) to Average Net Assets (.42%) (.20%) (.27%) .03% .16%
-------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL HIGHLIGHTS
B-25
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Partners Fund(2)
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the Financial
Statements. It should be read in conjunction with its corresponding Portfolio's
Financial Statements and notes thereto.
<TABLE>
<CAPTION>
Year Ended August 31,
1998 1997 1996 1995 1994
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 31.60 $ 23.88 $ 23.72 $ 21.32 $ 22.46
-----------------------------------------------------------------
Income From Investment Operations
Net Investment Income .23 .19 .22 .17 .10
Net Gains or Losses on Securities
(both realized and unrealized) (2.83) 10.36 2.84 3.94 1.07
-----------------------------------------------------------------
Total From Investment Operations (2.60) 10.55 3.06 4.11 1.17
-----------------------------------------------------------------
Less Distributions
Dividends (from net investment
income) (.19) (.22) (.20) (.11) (.11)
Distributions (from net capital
gains) (5.84) (2.61) (2.70) (1.60) (2.20)
-----------------------------------------------------------------
Total Distributions (6.03) (2.83) (2.90) (1.71) (2.31)
-----------------------------------------------------------------
Net Asset Value, End of Year $ 22.97 $ 31.60 $ 23.88 $ 23.72 $ 21.32
-----------------------------------------------------------------
Total Return(3) -10.03% +47.11% +13.86% +21.53% +5.56%
-----------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year (in
millions) $ 2,812.7 $ 3,103.7 $ 1,871.9 $ 1,564.0 $ 1,335.9
-----------------------------------------------------------------
Ratio of Gross Expenses to Average
Net Assets(4) .80% .81% .84% -- --
-----------------------------------------------------------------
Ratio of Net Expenses to Average Net
Assets .80% .81% .84% .83% .81%
-----------------------------------------------------------------
Ratio of Net Investment Income to
Average Net Assets .78% .72% .93% .83% .48%
-----------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL HIGHLIGHTS
B-26
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Socially Responsive Fund(2)
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the Financial
Statements. It should be read in conjunction with its corresponding Portfolio's
Financial Statements and notes thereto.
<TABLE>
<CAPTION>
Period from
March 16, 1994(6) to
Year Ended August 31, August 31,
1998 1997 1996 1995 1994
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 17.79 $ 13.88 $ 11.84 $ 10.07 $10.00
---------------------------------------------------------------------
Income From Investment Operations
Net Investment Income .07 .03 .02 .03 .01
Net Gains or Losses on Securities
(both realized and unrealized) (1.11) 4.33 2.35 1.76 .06
---------------------------------------------------------------------
Total From Investment Operations (1.04) 4.36 2.37 1.79 .07
---------------------------------------------------------------------
Less Distributions
Dividends (from net investment
income) (.03) (.03) (.02) (.02) --
Distributions (from net capital
gains) (.40) (.42) (.31) -- --
---------------------------------------------------------------------
Total Distributions (.43) (.45) (.33) (.02) --
---------------------------------------------------------------------
Net Asset Value, End of Year $ 16.32 $ 17.79 $ 13.88 $ 11.84 $10.07
---------------------------------------------------------------------
Total Return(3) -6.02% +31.96% +20.19% +17.82% +0.70%(7)
---------------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year (in
millions) $ 82.5 $ 59.7 $ 32.9 $ 8.2 $ 2.3
---------------------------------------------------------------------
Ratio of Gross Expenses to Average
Net Assets(4) 1.10% 1.49% 1.50% -- --
---------------------------------------------------------------------
Ratio of Net Expenses to Average Net
Assets 1.10% 1.48%(5) 1.50%(5) 1.51%(5) 1.50%(5)(8)
---------------------------------------------------------------------
Ratio of Net Investment Income to
Average Net Assets .43% .23%(5) .19%(5) .36%(5) .50%(5)(8)
---------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL HIGHLIGHTS
B-27
<PAGE>
NOTES TO FINANCIAL HIGHLIGHTS
Neuberger&Berman August 31, 1998
- ----------------------------------------------------------------------
Equity Funds
1) Prior to January 1, 1995, its name was Neuberger&Berman Selected Sectors
Fund.
2) The per share amounts and ratios which are shown reflect income and expenses,
including each Fund's proportionate share of its corresponding Portfolio's
income and expenses.
3) Total return based on per share net asset value reflects the effects of
changes in net asset value on the performance of each Fund during each fiscal
period and assumes dividends and other distributions, if any, were
reinvested. Results represent past performance and do not guarantee future
results. Investment returns and principal may fluctuate and shares when
redeemed may be worth more or less than original cost. For International and
Socially Responsive, total return would have been lower if N&B Management had
not reimbursed certain expenses. For Genesis, total return would have been
lower if the investment manager had not waived a portion of the management
fee.
4) For fiscal periods ending after September 1, 1995, the Fund is required to
calculate an expense ratio without taking into consideration any expense
reductions related to expense offset arrangements.
5) Had the investment manager not waived a portion of the management fee borne
directly by Neuberger&Berman Genesis Portfolio as described in Note B of
Notes to Financial Statements of the Portfolios the annualized ratios of net
expenses and net investment income (loss) to average daily net assets would
have been:
<TABLE>
<CAPTION>
Year Ended August 31,
1998 1997 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Expenses 1.12% 1.26% 1.38% 1.38%
------------------------------------------
Net Investment Income (Loss) .70% (.18%) (.28%) (.19%)
------------------------------------------
</TABLE>
B-28
<PAGE>
After reimbursement of expenses by N&B Management as described in Note B of
Notes to Financial Statements. Had N&B Management not undertaken such action the
annualized ratios of net expenses and net investment income (loss) to average
daily net assets would have been:
<TABLE>
<CAPTION>
Period from
Year Ended June 15, 1994
August 31, to August 31,
INTERNATIONAL 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Expenses 2.28% 2.31% 2.50%
--------------------------------------------
Net Investment Income (Loss) (.34%) .12% (.23%)
--------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Period from
Year Ended March 16, 1994
August 31, to August 31,
SOCIALLY RESPONSIVE 1996 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Expenses 1.69% 2.50% 2.50%
----------------------------------------
Net Investment Income (Loss) .00% (.63%) (.50%)
----------------------------------------
</TABLE>
Had International not reimbursed N&B Management, as described in Note B of
Notes to Financial Statements, the annualized ratios of net expenses and net
investment loss to average daily net assets would have been:
<TABLE>
<CAPTION>
Year Ended
August 31,
1998 1997
- --------------------------------------------------------------------
<S> <C> <C>
Net Expenses 1.61% 1.69%
-------------------
Net Investment Loss (.15%) (.01%)
-------------------
</TABLE>
Had Socially Responsive not reimbursed N&B Management, as described in
Note B of Notes to Financial Statements, the annualized ratios of net
expenses and net investment income to average daily net assets would have
been:
<TABLE>
<CAPTION>
Year Ended
August 31,
1997
- ------------------------------------------------------------------
<S> <C>
Net Expenses 1.20%
-----
Net Investment Income .51%
-----
</TABLE>
6) The date investment operations commenced.
7) Not annualized.
8) Annualized.
B-29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of Neuberger&Berman Equity Funds and
Shareholders of Neuberger&Berman Manhattan Fund and
Neuberger&Berman Socially Responsive Fund
In our opinion, the accompanying statements of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Neuberger&Berman Manhattan Fund and Neuberger&Berman Socially Responsive Fund
(collectively the "Funds") at August 31, 1998, the results of their operations
for the year then ended, the changes in their net assets for each of the two
years in the period then ended and the financial highlights for each of the five
years in the period then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Funds'
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 9, 1998
B-30
<PAGE>
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Board of Trustees
Neuberger&Berman Equity Funds and
Shareholders of:
Neuberger&Berman Focus Fund
Neuberger&Berman Genesis Fund
Neuberger&Berman Guardian Fund
Neuberger&Berman International Fund and
Neuberger&Berman Partners Fund
We have audited the accompanying statements of assets and liabilities of the
Neuberger&Berman Focus Fund, Neuberger&Berman Genesis Fund, Neuberger& Berman
Guardian Fund, Neuberger&Berman International Fund, and Neuberger& Berman
Partners Fund, five of the series constituting the Neuberger&Berman Equity Funds
(the "Trust"), as of August 31, 1998, and the related statements of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the above mentioned series of Neuberger&Berman Equity Funds at August 31,
1998, the results of their operations for the year then ended, the changes in
their net assets for each of the two years in the period then ended, and their
financial highlights for each of the periods indicated therein, in conformity
with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
October 5, 1998
B-31
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Focus Portfolio
<TABLE>
<CAPTION>
TOP TEN EQUITY HOLDINGS
---------------------------------------------------
HOLDING PERCENTAGE
<C> <S> <C>
1. Compaq Computer 6.5%
2. Capital One Financial 6.1%
3. Chase Manhattan 5.6%
4. General Motors 5.4%
5. Countrywide Credit Industries 5.2%
6. CITICORP 5.0%
7. Wellpoint Health Networks 5.0%
8. Travelers Group 4.9%
9. Merrill Lynch 3.7%
10. Morgan Stanley Dean Witter 3.6%
</TABLE>
<TABLE>
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ---------- ------------
<C> <S> <C>
COMMON STOCKS (97.2%)
AUTOMOTIVE (7.6%)
598,000 Cabot Corp. $ 13,007
1,240,500 General Motors 71,639
451,000 LucasVarity PLC ADR 15,841
------------
100,487
------------
FINANCIAL SERVICES (48.3%)
948,694 ADVANTA Corp. Class A 10,732 (3)
910,000 ADVANTA Corp. Class B 9,327 (3)
442,500 Banc One 16,815
1,260,000 BankBoston Corp. 44,966
922,500 Capital One Financial 80,719
1,380,000 Chase Manhattan 73,140
608,000 CITICORP 65,740
1,844,500 Countrywide Credit Industries 69,053
510,000 Hartford Financial Services
Group 22,823
740,000 Merrill Lynch 48,840
824,000 Morgan Stanley Dean Witter 47,844
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ---------- ------------
<C> <S> <C>
650,000 Nationwide Financial Services $ 29,047
512,000 PartnerRe Ltd. 20,608
1,468,500 Travelers Group 65,165
960,000 Travelers Property Casualty 31,620
------------
636,439
------------
HEALTH CARE (8.2%)
1,857,900 Foundation Health Systems 20,785 (2)
1,360,000 Sierra Health Services 21,760 (2)
1,230,000 Wellpoint Health Networks 65,651 (2)
------------
108,196
------------
RETAIL (11.4%)
1,110,000 Barnes & Noble 30,039 (2)
2,850,000 Cendant Corp. 32,953
811,000 CompUSA Inc. 9,631 (2)
1,916,000 Furniture Brands International 42,871 (2)
600,000 Neiman-Marcus Group 14,587
481,000 Payless ShoeSource 19,781 (2)
------------
149,862
------------
TECHNOLOGY (19.7%)
903,000 3Com Corp. 21,390 (2)
765,000 Applied Materials 18,790 (2)
3,053,000 Compaq Computer 85,293
935,000 KLA-Tencor 19,869 (2)
2,500,000 Maxtor Corp. 17,031 (2)
420,000 Novellus Systems 11,183 (2)
940,000 Photronics, Inc. 11,280 (2)
1,430,000 Rational Software 15,909 (2)
763,000 Teradyne, Inc. 13,257 (2)
575,000 Texas Instruments 27,420
442,000 WorldCom, Inc. 18,094 (2)
------------
259,516
------------
</TABLE>
B-32
<PAGE>
August 31, 1998
- --------------------------------------------------------------------------------
Focus Portfolio (Cont'd)
<TABLE>
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ---------- ------------
<C> <S> <C>
TRANSPORTATION (2.0%)
650,000 Continental Airlines Class B $ 26,813 (2)
------------
TOTAL COMMON STOCKS (COST
$1,057,172) 1,281,313
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
- ----------
<C> <S> <C>
SHORT-TERM INVESTMENTS (3.0%)
$18,290,000 General Electric Capital
Corp., 5.50%, due 9/1/98 18,290(4)
20,989,077 N&B Securities Lending Quality
Fund, LLC 20,989(4)
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $39,279) 39,279
------------
TOTAL INVESTMENTS (100.2%)
(COST $1,096,451) 1,320,592(5)
Liabilities, less cash,
receivables and other assets
[(0.2%)] (3,114)
------------
TOTAL NET ASSETS (100.0%) $1,317,478
------------
</TABLE>
SEE NOTES TO SCHEDULE OF INVESTMENTS
B-33
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Genesis Portfolio
<TABLE>
<CAPTION>
TOP TEN EQUITY HOLDINGS
---------------------------------------------------
HOLDING PERCENTAGE
<C> <S> <C>
1. AptarGroup Inc. 2.5%
2. Alliant Techsystems 2.3%
3. AAR Corp. 2.1%
4. Montana Power 1.8%
5. Allied Group 1.8%
6. Trigon Healthcare 1.7%
7. Bank United 1.7%
8. Cordant Technologies 1.7%
9. Newport News Shipbuilding 1.7%
10. Dallas Semiconductor 1.6%
</TABLE>
<TABLE>
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ---------- ------------
<C> <S> <C>
COMMON STOCKS (92.7%)
AEROSPACE (6.7%)
1,748,650 AAR Corp. $ 38,689 (3)
1,194,100 Aviall Inc. 15,225 (2)(3)
878,700 Cordant Technologies 31,304
468,300 DONCASTERS PLC ADR 9,132 (2)(3)
299,850 Ducommun Inc. 5,154
310,200 Hexcel Corp. 3,005
425,000 Ladish Co. 3,984 (2)
344,200 Moog, Inc. Class A 9,723
257,300 Orbital Sciences 4,824 (2)
------------
121,040
------------
AUTOMOTIVE (0.5%)
500,000 Donaldson Co. 8,875
------------
BANKING & FINANCIAL (9.7%)
941,900 Bank United 31,318
393,800 Colonial BancGroup 4,578
126,856 Commerce Bancorp 4,456
321,100 Commercial Federal 7,064
625,600 Community First Bankshares 10,635
333,100 Cullen/Frost Bankers 14,240
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ---------- ------------
<C> <S> <C>
211,600 Dime Community Bancshares $ 3,240(2)
732,600 FirstFed Financial 10,806
410,000 Golden State Bancorp 6,509
195,100 Long Island Bancorp 7,316
285,400 Ocean Financial 3,960
1,052,600 Peoples Heritage Financial
Group 16,513
177,475 Queens County Bancorp 6,300
227,600 Reliance Bancorp 5,932
687,675 Sterling Bancshares 8,209
339,250 Texas Regional Bancshares 7,379
1,321,600 Webster Financial 27,258
------------
175,713
------------
BASIC MATERIALS (1.8%)
180,900 Lone Star Industries 10,877 (2)
215,160 Southdown Inc. 9,091
361,600 Texas Industries 13,085
------------
33,053
------------
BUILDING, CONSTRUCTION & FURNISHINGS (0.9%)
925,600 Apogee Enterprises 9,372
146,000 Lincoln Electric Holdings 2,555
174,200 Simpson Manufacturing 5,073 (2)
------------
17,000
------------
CHEMICALS (0.6%)
97,000 H.B. Fuller 4,607
382,500 Lawter International 2,917
201,000 Lilly Industries 3,744
------------
11,268
------------
CONSUMER CYCLICALS (0.5%)
466,600 Coachmen Industries 8,720
------------
CONSUMER PRODUCTS & SERVICES (4.2%)
372,191 Block Drug 12,655
138,800 Bush Boake Allen 4,164 (2)
125,500 Church & Dwight 3,396
</TABLE>
B-34
<PAGE>
August 31, 1998
- --------------------------------------------------------------------------------
Genesis Portfolio (Cont'd)
<TABLE>
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ---------- ------------
<C> <S> <C>
477,400 First Brands $ 9,518
134,100 Libbey Inc. 4,099
192,400 Omega Protein 1,972(2)
1,020,800 Richfood Holdings 20,990
41,600 Ruddick Corp. 629
627,600 Stewart Enterprises 12,317
427,200 The First Years 5,393
------------
75,133
------------
DEFENSE (4.5%)
648,500 Alliant Techsystems 42,558 (2)(3)
1,292,200 Newport News Shipbuilding 30,367
235,000 Primex Technologies 8,636
------------
81,561
------------
DIAGNOSTIC EQUIPMENT (1.2%)
1,003,100 ADAC Laboratories 22,507 (2)(3)
------------
ELECTRONICS (2.1%)
1,095,600 Dallas Semiconductor 29,650
400,900 SCI Systems 9,195 (2)
------------
38,845
------------
ENERGY (1.4%)
209,500 Apache Corp. 4,792
420,000 Cabot Oil & Gas 5,355
701,900 Coho Energy 3,159 (2)
263,600 Cross Timbers Oil 3,311
661,990 Swift Energy 5,834 (2)
840,800 Unit Corp. 3,468
------------
25,919
------------
HEALTH CARE (9.6%)
611,000 Acuson Corp. 8,936 (2)
146,800 Arrow International 3,982
747,500 Ballard Medical Products 13,876
227,900 CompDent Corp. 3,390 (2)
512,900 CONMED Corp. 10,418 (2)
225,000 DENTSPLY International 4,802
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ---------- ------------
<C> <S> <C>
370,400 DePuy, Inc. $ 12,733
1,121,900 Haemonetics Corp. 17,600(2)
315,000 John Alden Financial 7,068
443,550 Patterson Dental 13,223(2)
218,900 Physio-Control International 5,609(2)
199,450 Sierra Health Services 3,191(2)
152,700 Sofamor Danek Group 12,741(2)
453,700 STAAR Surgical 3,403(2)
1,144,800 Trigon Healthcare 31,625(2)
557,600 Universal Health Services
Class B 21,607
------------
174,204
------------
INDUSTRIAL & COMMERCIAL PRODUCTS & SERVICES (5.7%)
115,000 Alamo Group 1,969
844,700 BMC Industries 3,379
436,100 Brady Corp. 7,305
262,400 Dionex Corp. 5,658 (2)
1,515,600 Hussmann International 19,892
284,700 IDEX Corp. 5,979
669,300 Kaydon Corp. 18,113
242,000 NN Ball & Roller 2,450
281,800 Pameco Corp. 4,790 (2)(3)
212,000 Pentair, Inc. 5,909
183,100 Roper Industries 3,113
641,900 SOS Staffing Services 8,465 (2)(3)
872,400 Wallace Computer Services 14,122
180,750 Woodhead Industries 1,853
------------
102,997
------------
INSURANCE (3.6%)
703,250 Allied Group 33,009
462,600 Annuity and Life Re 8,443 (2)
582,400 FBL Financial Group 12,849
81,000 Orion Capital 3,017
</TABLE>
B-35
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Genesis Portfolio (Cont'd)
<TABLE>
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ---------- ------------
<C> <S> <C>
229,000 Penn-America Group $ 2,490
152,800 Trenwick Group 5,272
------------
65,080
------------
LODGING (0.3%)
579,500 Prime Hospitality 4,817
------------
MACHINERY & EQUIPMENT (0.9%)
178,800 Allied Products 1,632
27,900 Gardner Denver Machinery 528 (2)
1,039,400 Stewart & Stevenson Services 13,577
------------
15,737
------------
MEDIA & ENTERTAINMENT (0.2%)
185,000 Championship Auto Racing Teams 3,654 (2)
------------
METALS (0.0%)
11,000 Cleveland-Cliffs 401
------------
OFFICE EQUIPMENT (1.6%)
487,500 United Stationers 28,884
------------
OIL SERVICES (4.7%)
310,700 Cal Dive International 4,000 (2)
193,800 Cliffs Drilling 2,750 (2)
313,800 Dawson Production Services 4,903 (2)
468,500 Friede Goldman International 4,890 (2)
630,400 Global Industries 5,910 (2)
430,000 IRI International 2,150 (2)
569,500 Nabors Industries 6,727 (2)
1,384,490 National-Oilwell 10,730 (2)
565,700 Oceaneering International 5,268 (2)
742,500 Offshore Logistics 6,682 (2)
1,598,400 Pride International 12,687 (2)
310,300 R&B Falcon 2,793 (2)
462,400 Smith International 8,150 (2)
213,500 Tuboscope Inc. 1,962 (2)
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ---------- ------------
<C> <S> <C>
393,200 UTI Energy $ 2,580(2)
344,800 Willbros Group 3,534(2)
------------
85,716
------------
PACKING & CONTAINERS (2.5%)
1,570,400 AptarGroup Inc. 44,560
------------
PUBLISHING & BROADCASTING (0.6%)
134,466 Pulitzer Publishing 10,228
------------
REAL ESTATE/REITS (4.8%)
865,800 CCA Prison Realty Trust 17,749
26,800 Crescent Operating 216 (2)
713,200 Crescent Real Estate Equities 16,404
335,000 ElderTrust 4,020
495,000 Health Care Property Investors 15,500
415,000 Nationwide Health Properties 8,482
162,800 OMEGA Healthcare Investors 4,660
798,100 Prime Retail 7,482
415,300 SL Green Realty 7,994
540,000 Sunstone Hotel Investors 4,590
------------
87,097
------------
RESTAURANTS (1.1%)
1,202,150 Brinker International 20,587 (2)
------------
RETAILING (1.0%)
418,375 99 Cents Only Stores 14,696 (2)
178,500 Schultz Sav-O Stores 2,811
------------
17,507
------------
TECHNOLOGY (4.9%)
422,800 Analysts International 8,932
1,069,800 Auspex Systems 2,140 (2)
194,900 Black Box 4,458 (2)
527,600 CACI International 8,112 (2)
750,600 Data General 5,629 (2)
420,000 Eltron International 11,550 (2)(3)
</TABLE>
B-36
<PAGE>
August 31, 1998
- --------------------------------------------------------------------------------
Genesis Portfolio (Cont'd)
<TABLE>
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ---------- ------------
<C> <S> <C>
2,606,300 Inprise Corp. $ 13,846(2)(3)
868,600 Methode Electronics Class A 10,423
1,027,400 Reynolds & Reynolds 12,971
328,400 Zebra Technologies 10,201(2)
------------
88,262
------------
TEXTILES & APPAREL (0.2%)
224,300 St. John Knits 4,276
------------
TRANSPORTATION, SHIPPING & FREIGHT (0.2%)
78,375 Air Express International 1,342
213,600 Maritrans Inc. 1,642
------------
2,984
------------
UTILITIES, ELECTRIC & GAS (16.7%)
1,262,500 AGL Resources 23,119
183,200 Aquila Gas Pipeline 1,317
294,000 Atmos Energy 8,342
282,500 Central Hudson Gas & Electric 12,059
425,100 Connecticut Energy 11,239
124,300 Eastern Enterprises 4,918
591,900 Eastern Utilities Associates 14,686
86,200 Illinova Corp. 2,225
249,000 Interstate Energy 7,501
855,800 Montana Power 33,376
341,200 National Fuel Gas 14,032
618,200 Nevada Power 15,339
298,800 NICOR Inc. 11,597
290,000 Northwest Natural Gas 7,069
450,900 NUI Corp. 9,441
393,000 ONEOK, Inc. 11,815
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ---------- ------------
<C> <S> <C>
200,000 Orange & Rockland Utilities $ 10,750
266,500 Otter Tail Power 9,361
529,900 Public Service Co. of New
Mexico 10,598
475,100 Rochester Gas & Electric 13,867
350,500 Sempra Energy 8,916(2)
401,100 Sierra Pacific Resources 14,665
390,000 UtiliCorp United 13,431
507,400 Washington Gas Light 12,051
603,600 Washington Water Power 10,223
304,600 WICOR, Inc. 6,511
140,000 WPS Resources 4,716
------------
303,164
------------
TOTAL COMMON STOCKS (COST
$1,951,986) 1,679,789
------------
WARRANTS (0.1%)
355,000 Golden State Bancorp (COST
$2,161) 1,597 (2)
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
- ----------
<C> <S> <C>
U.S. TREASURY SECURITIES (2.6%)
$$46,960,000 U.S. Treasury Bills, 5.49%,
due 9/15/98 (COST $46,860) 46,860
------------
</TABLE>
B-37
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman August 31, 1998
- --------------------------------------------------------------------------------
Genesis Portfolio (Cont'd)
<TABLE>
<CAPTION>
Market
Value(1)
Principal (000's
Amount omitted)
- ---------- ------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (6.9%)
81,900,000 General Electric Capital
Corp., 5.52% - 5.53%, due
9/1/98 - 9/2/98 $ 81,900(4)
44,199,387 N&B Securities Lending Quality
Fund, LLC 44,199(4)
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $126,099) 126,099
------------
TOTAL INVESTMENTS (102.3%)
(COST $2,127,106) 1,854,345(5)
Liabilities, less cash,
receivables and other assets
[(2.3%)] (41,990)
------------
TOTAL NET ASSETS (100.0%) $1,812,355
------------
</TABLE>
SEE NOTES TO SCHEDULE OF INVESTMENTS
B-38
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman August 31, 1998
- --------------------------------------------------------------------------------
Guardian Portfolio
<TABLE>
<CAPTION>
TOP TEN EQUITY HOLDINGS
---------------------------------------------------
HOLDING PERCENTAGE
<C> <S> <C>
1. General Motors 5.4%
2. Capital One Financial 4.7%
3. Countrywide Credit Industries 4.3%
4. Compaq Computer 4.2%
5. Chase Manhattan 4.1%
6. CITICORP 3.7%
7. Aetna Inc. 3.6%
8. Wellpoint Health Networks 3.4%
9. Morgan Stanley Dean Witter 3.0%
10. Texas Instruments 2.9%
</TABLE>
<TABLE>
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ----------- ------------
<C> <S> <C>
COMMON STOCKS (97.3%)
AGRICULTURE (1.0%)
1,217,300 Potash Corp. of Saskatchewan $ 61,017
------------
AUTOMOTIVE (14.7%)
3,841,000 Cabot Corp. 83,542 (3)
4,863,900 Coltec Industries 69,918 (2)(3)
5,400,000 General Motors 311,850
1,868,000 Lear Corp. 75,771 (2)
3,961,086 LucasVarity PLC ADR 139,133
2,122,900 Magna International Class A 127,241
2,942,081 Mark IV Industries 41,741 (3)
------------
849,196
------------
BANKING (10.3%)
4,105,000 BankBoston Corp. 146,497
4,425,000 Chase Manhattan 234,525
1,990,500 CITICORP 215,223
------------
596,245
------------
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ----------- ------------
<C> <S> <C>
CONSUMER GOODS & SERVICES (3.4%)
10,347,228 Cendant Corp. $ 119,640
1,995,000 Kimberly-Clark 76,059
------------
195,699
------------
ENERGY (2.4%)
1,092,000 Cooper Cameron 23,205 (2)
1,778,000 EVI Weatherford 27,115 (2)
2,283,000 Lyondell Chemical 49,227
2,241,000 Santa Fe International 30,253 (6)
531,500 Smith International 9,368 (2)
------------
139,168
------------
FINANCIAL SERVICES (19.4%)
3,087,900 Capital One Financial 270,191
4,465,000 Conseco, Inc. 123,345
6,590,000 Countrywide Credit Industries 246,713 (3)
3,067,100 IndyMac Mortgage Holdings 60,192
2,375,000 Merrill Lynch 156,750
3,004,500 Morgan Stanley Dean Witter 174,449
2,010,000 Travelers Group 89,194 (6)
------------
1,120,834
------------
HEALTH CARE (11.1%)
3,442,500 Aetna Inc. 207,195
9,939,900 Foundation Health Systems 111,203 (2)(3)
1,988,564 PacifiCare Health Systems
Class B 125,279 (2)(3)
3,674,996 Wellpoint Health Networks 196,153 (2)(3)
------------
639,830
------------
HEAVY INDUSTRY (0.7%)
2,176,200 UCAR International 39,444 (2)
------------
INDUSTRIAL GOODS & SERVICES (8.6%)
1,970,200 American Standard 77,084 (2)
2,327,200 Crown Cork & Seal 76,216
</TABLE>
B-39
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman August 31, 1998
- --------------------------------------------------------------------------------
Guardian Portfolio (Cont'd)
<TABLE>
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ----------- ------------
<C> <S> <C>
2,472,000 Millennium Chemicals $ 53,457
1,743,000 Praxair, Inc. 62,530
3,835,000 Republic Services 61,840(2)
1,253,700 USG Corp. 53,909
2,586,500 Waste Management 114,129(2)
------------
499,165
------------
INSURANCE (2.1%)
2,712,000 Hartford Financial Services
Group 121,362
------------
RESTAURANTS (1.8%)
1,875,000 McDonald's Corp. 105,117 (6)
------------
RETAIL (2.5%)
3,055,600 Barnes & Noble 82,692 (2)
1,423,500 Sears, Roebuck 64,680
------------
147,372
------------
TECHNOLOGY (12.6%)
3,860,000 Applied Materials 94,811 (2)
8,802,500 Compaq Computer 245,920
1,120,000 Hewlett-Packard 54,390
60,000 Intel Corp. 4,271
1,542,900 KLA-Tencor 32,787 (2)
1,444,000 Sun Microsystems 57,219 (2)
3,946,100 Teradyne, Inc. 68,563 (2)
3,566,000 Texas Instruments 170,054
------------
728,015
------------
TELECOMMUNICATIONS (1.1%)
1,598,000 WorldCom, Inc. 65,418 (2)
------------
TRANSPORTATION (5.6%)
1,812,600 Continental Airlines Class B 74,770 (2)
957,770 Delta Air Lines 97,693
2,260,900 Northwest Airlines 62,881 (2)
1,556,000 US Airways Group 90,637 (2)
------------
325,981
------------
TOTAL COMMON STOCKS (COST
$5,462,761) 5,633,863
------------
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ----------- ------------
<C> <S> <C>
PREFERRED STOCKS (0.1%)
52,430 Aetna Inc., Ser. C, Cv., 6.25%
(COST $3,424) $ 3,254
------------
<CAPTION>
Principal
Amount
- -----------
<C> <S> <C>
SHORT-TERM INVESTMENTS (5.0%)
$256,260,000 General Electric Capital
Corp., 5.50% - 5.53%, due
9/1/98 - 9/16/98 256,260(4)
32,636,664 N&B Securities Lending Quality
Fund, LLC 32,637(4)
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $288,897) 288,897
------------
TOTAL INVESTMENTS (102.4%)
(COST $5,755,082) 5,926,014(5)
Liabilities, less cash,
receivables and other assets
[(2.4%)] (138,209)
------------
TOTAL NET ASSETS (100.0%) $5,787,805
------------
</TABLE>
SEE NOTES TO SCHEDULE OF INVESTMENTS
B-40
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman August 31, 1998
- --------------------------------------------------------------------------------
International Portfolio
<TABLE>
<CAPTION>
TOP TEN EQUITY HOLDINGS
----------------------------------------------------------------------------------------------
HOLDING COUNTRY INDUSTRY PERCENTAGE
<C> <S> <C> <C> <C>
1. Misys PLC United Kingdom Technology 3.0%
2. Orange PLC United Kingdom Telecommunications 2.9%
3. France Telecom ADR France Telecommunications 2.7%
4. Portugal Telecom ADR Portugal Telecommunications 2.0%
5. Dassault Systemes ADR France Technology 1.9%
6. Aegon NV-New York Netherlands Insurance 1.7%
7. Tieto Corp. Finland Technology 1.6%
8. Nokia Corp. ADR Finland Telecommunications 1.6%
9. TelePizza, SA Spain Restaurants 1.4%
10. BPA Portugal Banking & Financial 1.3%
</TABLE>
<TABLE>
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ---------- -------------
<C> <S> <C>
COMMON STOCKS (89.4%)
ARGENTINA (0.7%)
14,616 IRSA Inversiones y
Representaciones GDR $ 347
10,000 Telefonica de Argentina ADR 224
14,570 YPF SA ADR 322
-------------
893
-------------
BELGIUM (2.9%)
11,000 Almanij NV 821
3,000 Barco Industries 726
8,060 Telinfo SA 1,058
200 UCB SA 1,040
-------------
3,645
-------------
CANADA (0.5%)
19,000 BCE Inc. 611
-------------
COLOMBIA (0.4%)
44,600 Bell Canada International 507 (2)
-------------
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ---------- -------------
<C> <S> <C>
CZECH REPUBLIC (0.5%)
33,300 Ceske Radiokomunikace GDR $ 699 (2)(7)
-------------
DENMARK (2.7%)
15,000 Bang & Olufsen Holding, B
Shares 1,142
8,840 Carli Gry International 581
9,000 NeuroSearch AS 588 (2)
13,500 Unidanmark AS, A Shares 1,109
-------------
3,420
-------------
FINLAND (6.1%)
14,700 Alma Media II 441
38,750 Hartwall Oyj 652
22,000 Helsinki Telephone 933
30,000 Nokia Corp. ADR 2,004
19,800 Pohjola Insurance Group, B
Shares 732
75,000 Raisio Group 995
66,000 Tieto Corp. 2,096
-------------
7,853
-------------
</TABLE>
B-41
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman
- --------------------------------------------------------------------------------
International Portfolio (Cont'd)
<TABLE>
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ---------- -------------
<C> <S> <C>
FRANCE (8.2%)
8,990 Chargeurs International $ 562
52,500 Dassault Systemes ADR 2,441
49,080 France Telecom ADR 3,491
30,000 Genset ADR 540 (2)
16,720 Lagardere SCA 630
18,000 Scor SA ADR 1,119
8,000 TRANSGENE SA 368 (2)
23,000 TRANSGENE SA ADR 348 (2)
5,000 Vivendi 999
-------------
10,498
-------------
GERMANY (3.0%)
20,300 LHS Group 858 (2)
15,000 Mannesmann AG 1,356
22,000 Volkswagen AG 1,587
-------------
3,801
-------------
GREECE (0.3%)
13,230 Hellenic Bottling Company 293
3,033 Hellenic Telecommunication
Organization 70
-------------
363
-------------
HONG KONG (0.6%)
33,000 China Telecom ADR 759 (2)
-------------
HUNGARY (0.7%)
20,400 Matav RT ADR 413
15,850 OTP Bank GDR 489
-------------
902
-------------
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ---------- -------------
<C> <S> <C>
IRELAND (1.4%)
60,000 Adare Printing Group $ 584
9,900 Allied Irish Banks ADR 767
30,000 Saville Systems ADR 491 (2)
-------------
1,842
-------------
ISRAEL (1.8%)
19,500 Formula Systems 522 (2)
20,000 NICE-Systems ADR 560 (2)
56,500 Orckit Communications 847 (2)
29,000 Tecnomatix Technologies 312 (2)
-------------
2,241
-------------
ITALY (3.0%)
189,380 Autogrill SpA 1,220
50,000 ENI SpA 264
218,750 Gruppo Ceramiche Ricchetti 257
45,975 IFI 743
150,000 Interpump Group 676
10,000 Italy WEBS Index Series 224
93,023 Telecom Italia 464
-------------
3,848
-------------
JAPAN (4.0%)
5,600 Acom Co. 278
200 Circle K Japan 6
19,000 Fuji Photo Film 614
11,000 Fujimi Inc. 358
20,000 Konami Co. 508
5,500 Nintendo Corp. 511
13,000 Sankyo Co. 283
8,700 SMC Corp. 600
12,800 Sony Corp. 937
30,000 Takeda Chemical Industries 786
15,000 Terumo Corp. 284
-------------
5,165
-------------
</TABLE>
B-42
<PAGE>
August 31, 1998
- --------------------------------------------------------------------------------
International Portfolio (Cont'd)
<TABLE>
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ---------- -------------
<C> <S> <C>
KOREA (0.4%)
183,450 Kookmin Bank $ 511 (2)
-------------
MEXICO (2.1%)
1,198,000 Biper SA, B Shares 234 (2)
200,000 Cemex SA, B Shares 492
3,900 Cemex SA, CPO Shares 8
48,000 Coca-Cola Femsa ADR 522
210,000 Corporacion Interamericana de
Entretenimiento, B Shares 291 (2)
28,000 Corporacion Interamericana de
Entretenimiento, L Shares 28 (2)
14,645 Desc SA ADR 227
16,600 Fomento Economico Mexicano ADR 284
35,000 Panamerican Beverages 558
-------------
2,644
-------------
NETHERLANDS (6.7%)
50,000 ABN AMRO Holding 1,134
26,000 Aegon NV-New York 2,223
20,148 Getronics NV 1,030
12,000 Hunter Douglas 497
11,900 ING Groep 703
15,000 Randstad Holdings 996
6,414 Vedior NV 194
6,500 Vendex NV 223
14,000 VNU NV 591
5,700 Wolters Kluwer 944
-------------
8,535
-------------
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ---------- -------------
<C> <S> <C>
NORWAY (2.2%)
145,000 Merkantildata ASA $ 1,635
20,000 Petroleum Geo-Services ADR 260 (2)
33,400 Tomra Systems 908
-------------
2,803
-------------
PORTUGAL (3.5%)
10,125 Banco Espirito Santo e
Comercial de Lisboa 301
80,000 BPA 1,647 (2)
62,000 Portugal Telecom ADR 2,577
-------------
4,525
-------------
RUSSIA (0.8%)
16,800 Global TeleSystems Group 538 (2)
25,000 Lukoil Holding ADR 350
23,000 Vimpel-Communications ADR 184 (2)
-------------
1,072
-------------
SINGAPORE (1.3%)
424,000 Datacraft Asia 975
285,000 Venture Manufacturing 724
-------------
1,699
-------------
SOUTH AFRICA (3.4%)
60,000 BOE Ltd. 34
400,134 Computer Configurations
Holdings 1,238 (2)
111,400 DataTec Ltd. 1,281
91,000 Persetel Q Data Holdings 629
492,000 Software Connection 164
</TABLE>
B-43
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman
- --------------------------------------------------------------------------------
International Portfolio (Cont'd)
<TABLE>
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ---------- -------------
<C> <S> <C>
200,000 Specialised Outsourcing $ 645
176,000 Theta Group 393(2)
-------------
4,384
-------------
SPAIN (5.5%)
23,000 ACS 669
87,700 Banco Bilbao Vizcaya ADR 1,102
64,260 Banco Santander ADR 1,148
50,000 Endesa ADR 900
5,000 Spain WEBS Index Series 115
11,454 Telefonica de Espana ADR 1,250
200,000 TelePizza, SA 1,849 (2)
-------------
7,033
-------------
SWEDEN (7.8%)
25,000 Assa Abloy 1,006
53,500 Atle AB 753
85,000 Bure Investment 1,096
30,000 Dahl International 409
18,400 Enator AB 486
45,200 L.M. Ericsson Telephone ADR 966
30,000 NetCom Systems, B Shares 1,145 (2)
50,000 OM Gruppen 862
82,000 Skandia Forsakrings 1,154
52,800 Skandinaviska Enskilda Banken,
A Shares 664
35,000 WM-Data 1,380
-------------
9,921
-------------
SWITZERLAND (1.6%)
595 Ares-Serono Group 726
3,969 UBS AG 1,286 (2)
-------------
2,012
-------------
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ---------- -------------
<C> <S> <C>
TAIWAN (0.6%)
28,800 ASE Test $ 749 (2)
-------------
TURKEY (0.3%)
224,000 Efes Sinai Yatirim Holding GDR 330 (2)
-------------
UNITED KINGDOM (16.4%)
55,000 Alliance & Leicester 844
48,800 Barclays PLC 1,166
32,300 Bodycote International 474
9,209 British Petroleum ADR 673
68,125 Carlton Communications 501
49,600 Cobham PLC 723
21,000 COLT Telecom Group 904 (2)
30,000 EMAP PLC 518
67,200 Energis PLC 936 (2)
47,500 Hays PLC 633
85,314 Misys PLC 3,790
315,000 Orange PLC 3,749
120,000 Rentokil Initial 724
60,000 SEMA Group 548
25,000 Serco Group 543
490,000 SkyePharma PLC 526 (2)
53,225 Stagecoach Holdings 980
40,000 The Sage Group 852
40,900 United Utilities 603
570,000 VideoLogic Group 506 (2)
140,000 WPP Group 767
-------------
20,960
-------------
TOTAL COMMON STOCKS (COST
$93,310) 114,225
-------------
</TABLE>
B-44
<PAGE>
August 31, 1998
- --------------------------------------------------------------------------------
International Portfolio (Cont'd)
<TABLE>
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ---------- -------------
<C> <S> <C>
PREFERRED STOCKS (1.9%)
2,000 BMW AG, Germany $ 910 (2)
300 BMW AG-New, Germany 133 (2)
2,500 SAP AG-Vorzug, Germany 1,422
-------------
TOTAL PREFERRED STOCKS (COST
$1,289) 2,465
-------------
RIGHTS (0.0%)
287 S1 Corp., Expire 9/29/98,
South Korea (COST $0) 8 (2)
-------------
WARRANTS (0.0%)
43,750 Gruppo Ceramiche Ricchetti,
Expire 12/31/01, Italy (COST
$0) 0 (2)
-------------
<CAPTION>
Principal
Amount
- ----------
<C> <S> <C>
U.S. TREASURY SECURITIES (5.3%)
$6,850,000 U.S. Treasury Bills, 4.67% -
5.49%, due 9/15/98 - 10/8/98
(COST $6,828) $ 6,828(4)
-------------
<CAPTION>
Market
Value(1)
Principal (000's
Amount omitted)
- ---------- -------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (14.0%)
$17,847,376 N&B Securities Lending Quality
Fund, LLC (COST $17,847) $ 17,847(4)
-------------
TOTAL INVESTMENTS (110.6%)
(COST $119,274) 141,373
Liabilities, less cash,
receivables and other assets
[(10.6%)] (13,551)
-------------
TOTAL NET ASSETS (100.0%) $ 127,822
-------------
</TABLE>
SEE NOTES TO SCHEDULE OF INVESTMENTS
B-45
<PAGE>
SUMMARY SCHEDULE OF INVESTMENTS
BY INDUSTRY
Neuberger&Berman
- --------------------------------------------------------------------------------
International Portfolio
<TABLE>
<CAPTION>
Market
Value(1) Percentage of
Industry (000's omitted) Net Assets
- -------------------------------------------------- --------------- ---------------
<S> <C> <C>
Telecommunications $ 26,889 21.0%
Technology 20,072 15.7%
Banking & Financial 18,089 14.1%
U.S. Treasury Securities & Other Assets-Net 11,125 8.7%
Diversified 5,621 4.4%
Electronics 5,446 4.3%
Insurance 5,229 4.1%
Pharmaceutical 4,489 3.5%
Food & Beverage 3,633 2.8%
Publishing & Broadcasting 3,077 2.4%
Restaurants 3,069 2.4%
Machinery & Equipment 2,963 2.3%
Automotive 2,630 2.1%
Industrial Goods & Services 2,620 2.0%
Oil & Gas 1,870 1.5%
Media & Entertainment 1,839 1.4%
Manufacturing 1,631 1.3%
Utilities 1,503 1.2%
Building Materials 1,406 1.1%
Textiles 1,143 0.9%
Transportation 980 0.8%
Retailing 843 0.7%
Advertising 767 0.6%
Real Estate 347 0.3%
Hospital Supplies 284 0.2%
Consumer Goods & Services 257 0.2%
--------------- -----
TOTAL NET ASSETS $ 127,822 100.0%
--------------- -----
</TABLE>
B-46
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman August 31, 1998
- --------------------------------------------------------------------------------
Manhattan Portfolio
<TABLE>
<CAPTION>
TOP TEN EQUITY HOLDINGS
---------------------------------------------------
HOLDING PERCENTAGE
<C> <S> <C>
1. Staples, Inc. 2.8%
2. TJX Cos. 2.5%
3. Citrix Systems 2.3%
4. J.D. Edwards 2.2%
5. CKE Restaurants 2.0%
6. Elan Corp. ADR 2.0%
7. Suiza Foods 1.9%
8. CBT Group ADR 1.8%
9. Chancellor Media 1.8%
10. Network Associates 1.7%
</TABLE>
<TABLE>
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ---------- -------------
<C> <S> <C>
COMMON STOCKS (95.2%)
CAPITAL GOODS (6.6%)
178,500 Eastern Environmental Services $ 4,596 (2)
314,600 Herman Miller 6,449
355,800 HON INDUSTRIES 7,650
506,700 Republic Services 8,171 (2)
254,700 Sanmina Corp. 7,864 (2)
-------------
34,730
-------------
COMMUNICATIONS (4.9%)
172,600 American Tower 2,718 (2)
216,600 ICG Communications 3,885 (2)
141,300 Intermedia Communications 3,515 (2)
91,500 NEXTLINK Communications 1,899 (2)
259,400 RSL Communications 5,934 (2)
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ---------- -------------
<C> <S> <C>
359,600 Saville Systems ADR $ 5,888(2)
297,600 SmarTalk TeleServices 1,879(2)
-------------
25,718
-------------
CONSUMER CYCLICALS (22.0%)
146,100 Abercrombie & Fitch 6,282 (2)
363,900 AccuStaff Inc. 4,549 (2)
360,800 Avis Rent A Car 5,660 (2)
186,200 Costco Cos. 8,763 (2)
138,500 Furniture Brands International 3,099 (2)
319,100 General Nutrition 4,248 (2)
273,100 Hayes Lemmerz International 8,125 (2)
175,200 Lennar Corp. 3,176
378,100 Linens 'n Things 8,838 (2)
329,775 Outdoor Systems 7,667 (2)
166,500 Robert Half International 7,992 (2)
230,900 StaffMark, Inc. 4,127 (2)
530,800 Staples, Inc. 14,398 (2)
337,500 Sylvan Learning Systems 7,214 (2)
596,100 TJX Cos. 13,301
255,800 Tower Automotive 4,684 (2)
130,300 Travel Services International 2,834 (2)
-------------
114,957
-------------
CONSUMER STAPLES (13.8%)
139,300 American Italian Pasta 3,491 (2)
455,600 Brinker International 7,802 (2)
335,500 Capstar Broadcasting 5,683 (2)
98,100 Cardinal Health 8,584
260,200 Chancellor Media 9,286 (2)
344,400 CKE Restaurants 10,676
127,800 Comcast Corp. Class A Special 4,776
91,800 Estee Lauder 5,405
</TABLE>
B-47
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Manhattan Portfolio (Cont'd)
<TABLE>
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ---------- -------------
<C> <S> <C>
209,400 Suiza Foods $ 10,130(2)
207,600 Valassis Communications 6,189(2)
-------------
72,022
-------------
ENERGY (0.3%)
113,400 BJ Services 1,432 (2)
-------------
FINANCIAL SERVICES (11.4%)
187,700 Ace, Ltd. 5,443
108,500 Bear Stearns 4,008
84,600 Equitable Cos. 4,838
113,400 EXEL Ltd. 7,576
199,800 Finova Group 8,916
294,900 GreenPoint Financial 7,428
105,100 Northern Trust 5,859
147,300 State Street 7,669
124,700 SunAmerica, Inc. 7,724
-------------
59,461
-------------
HEALTH CARE (11.9%)
313,200 Alternative Living Services 5,559 (2)
176,200 Biogen, Inc. 8,149 (2)
173,800 Elan Corp. ADR 10,211 (2)
286,300 Omnicare, Inc. 8,929
196,200 Quintiles Transnational 7,014 (2)
126,100 Rexall Sundown 2,302 (2)
70,400 Sofamor Danek Group 5,874 (2)
256,800 STERIS Corp. 6,131 (2)
175,400 Watson Pharmaceuticals 7,904 (2)
-------------
62,073
-------------
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ---------- -------------
<C> <S> <C>
TECHNOLOGY (21.7%)
226,500 Ascend Communications $ 7,927 (2)
161,000 BMC Software 6,812 (2)
380,900 Cadence Design Systems 8,047 (2)
257,100 Cambridge Technology Partners 8,356 (2)
198,200 CBT Group ADR 9,315 (2)
208,350 Citrix Systems 12,006 (2)
193,800 Compuware Corp. 8,806 (2)
285,700 HBO & Co. 6,071
144,300 International Network Services 4,762 (2)
289,400 J.D. Edwards 11,721 (2)
211,600 Network Appliance 8,821 (2)
279,600 Network Associates 9,017 (2)
304,300 Staff Leasing 4,565 (2)
229,000 Sterling Commerce 7,557 (2)
-------------
113,783
-------------
TRANSPORTATION (1.0%)
93,400 US Airways Group 5,440 (2)
-------------
UTILITIES (1.6%)
315,200 AES Corp. 8,589 (2)
-------------
TOTAL COMMON STOCKS (COST
$511,079) 498,205
-------------
</TABLE>
B-48
<PAGE>
August 31, 1998
- --------------------------------------------------------------------------------
Manhattan Portfolio (Cont'd)
<TABLE>
<CAPTION>
Market
Value(1)
Principal (000's
Amount omitted)
- ---------- -------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (16.5%)
$25,690,000 General Electric Capital
Corp., 5.52%, due 9/1/98 $ 25,690(4)
60,534,515 N&B Securities Lending Quality
Fund, LLC 60,535(4)
-------------
TOTAL SHORT-TERM INVESTMENTS
(COST $86,225) 86,225
-------------
TOTAL INVESTMENTS (111.7%)
(COST $597,304) 584,430(5)
Liabilities, less cash,
receivables and other assets
[(11.7%)] (61,071)
-------------
TOTAL NET ASSETS (100.0%) $ 523,359
-------------
</TABLE>
SEE NOTES TO SCHEDULE OF INVESTMENTS
B-49
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Partners Portfolio
<TABLE>
<CAPTION>
TOP TEN EQUITY HOLDINGS
---------------------------------------------------
HOLDING PERCENTAGE
<C> <S> <C>
1. Unicom Corp. 2.6%
2. EXEL Ltd. 2.6%
3. Countrywide Credit Industries 2.2%
4. First Chicago 2.2%
5. SLM Holding 2.1%
6. Aetna Inc. 2.1%
7. CIGNA Corp. 2.0%
8. Biogen, Inc. 2.0%
9. Anheuser-Busch 1.9%
10. Edison International 1.9%
</TABLE>
<TABLE>
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ----------- ------------
<C> <S> <C>
COMMON STOCKS (94.1%)
AIRLINES (2.1%)
1,103,300 Continental Airlines Class B $ 45,511 (2)
281,000 Delta Air Lines 28,662
------------
74,173
------------
AUTOMOBILE MANUFACTURING (1.7%)
1,079,000 General Motors 62,312
------------
AUTO/TRUCK REPLACEMENT PARTS (2.1%)
1,162,500 AutoZone, Inc. 30,152 (2)
954,600 Goodyear Tire & Rubber 46,776
------------
76,928
------------
BANKING & FINANCIAL (7.6%)
1,276,000 Chase Manhattan 67,628
439,300 CITICORP 47,499
2,127,200 Countrywide Credit Industries 79,637
1,245,000 First Chicago 78,902
------------
273,666
------------
BUILDING, CONSTRUCTION & REFURNISHING (1.1%)
936,000 USG Corp. 40,248
------------
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ----------- ------------
<C> <S> <C>
CHEMICALS (2.0%)
601,100 duPont $ 34,676
1,671,000 Morton International 37,180
------------
71,856
------------
COMMUNICATIONS (5.8%)
1,185,000 Bell Atlantic 52,288
939,000 Motorola, Inc. 40,436
1,647,000 SBC Communications 62,586
1,314,000 WorldCom, Inc. 53,792 (2)
------------
209,102
------------
CONSUMER GOODS & SERVICES (1.6%)
4,800,000 Cendant Corp. 55,500
------------
DIVERSIFIED (2.1%)
772,500 Bowater Inc. 29,210
677,600 Minnesota Mining &
Manufacturing 46,416
------------
75,626
------------
ELECTRICAL & ELECTRONICS (1.5%)
1,191,000 Raytheon Co. Class A 53,372
------------
ELECTRONICS (1.4%)
1,100,000 Raychem Corp. 31,900
973,000 Teradyne, Inc. 16,906 (2)
------------
48,806
------------
ENERGY (1.8%)
1,069,900 McDermott International 21,465
970,400 Texas Utilities 41,242
------------
62,707
------------
ENTERTAINMENT (1.1%)
2,602,000 Mirage Resorts 38,705 (2)
------------
FINANCIAL SERVICES (2.1%)
2,124,400 SLM Holding 76,213
------------
FOOD & TOBACCO (7.2%)
1,497,000 Anheuser-Busch 69,049
703,400 ConAgra, Inc. 17,409
</TABLE>
B-50
<PAGE>
August 31, 1998
- --------------------------------------------------------------------------------
Partners Portfolio (Cont'd)
<TABLE>
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ----------- ------------
<C> <S> <C>
1,333,500 Nabisco Holdings $ 44,089
1,500,000 Philip Morris 62,344
1,799,000 Tricon Global Restaurants 66,675(2)
------------
259,566
------------
GAS (1.9%)
1,848,500 Praxair, Inc. 66,315
------------
HEALTH CARE (6.7%)
185,700 Alza Corp. 6,685 (2)
1,039,000 Baxter International 55,327
1,512,000 Biogen, Inc. 69,930 (2)
1,232,000 CIGNA Corp. 71,687
661,800 Wellpoint Health Networks 35,323 (2)
------------
238,952
------------
INDUSTRIAL GOODS & SERVICES (2.6%)
1,558,000 Crown Cork & Seal 51,024
1,300,000 Owens-Illinois 40,544 (2)
------------
91,568
------------
INSURANCE (13.0%)
1,731,300 Ace, Ltd. 50,208
1,243,000 Aetna Inc. 74,813
1,822,000 Allstate Corp. 68,325
850,000 Aon Corp. 53,178
1,373,300 EXEL Ltd. 91,753
1,373,550 Orion Capital 51,165
1,174,000 St. Paul Cos. 35,880
875,400 Travelers Group 38,846
------------
464,168
------------
OIL & GAS (5.9%)
1,605,200 Cabot Corp. 34,913
655,000 Chevron Corp. 48,511
804,400 Cooper Cameron 17,094 (2)
1,156,600 Noble Affiliates 26,746
585,100 Smith International 10,312 (2)
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ----------- ------------
<C> <S> <C>
880,000 Transocean Offshore $ 21,615
1,652,900 Unocal Corp. 51,757
------------
210,948
------------
PAPER & FOREST PRODUCTS (1.9%)
780,000 Kimberly-Clark 29,738
1,420,000 Mead Corp. 38,872
------------
68,610
------------
PUBLISHING & BROADCASTING (0.7%)
525,600 Knight Ridder 25,032
------------
REAL ESTATE (3.6%)
4,621,900 Host Marriott 64,706
1,607,700 Security Capital U.S. Realty
ADR 15,755 (2)(7)
1,319,000 Starwood Hotels & Resorts 48,144
------------
128,605
------------
RESTAURANTS (1.1%)
715,000 McDonald's Corp. 40,085
------------
RETAILING (1.4%)
1,041,100 Harcourt General 50,558
------------
RETAILING & APPAREL (2.6%)
511,000 J.C. Penney 25,326
1,487,000 Sears, Roebuck 67,566
------------
92,892
------------
STEEL (1.1%)
2,801,000 AK Steel Holding 38,864
------------
TECHNOLOGY (2.8%)
433,000 Hewlett-Packard 21,027
2,550,000 Quantum Corp. 29,166 (2)
1,081,000 Texas Instruments 51,550
------------
101,743
------------
UTILITIES (6.2%)
2,426,000 Edison International 68,989
1,900,000 PG&E Corp. 61,038
2,597,900 Unicom Corp. 92,550
------------
222,577
------------
</TABLE>
B-51
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman August 31, 1998
- --------------------------------------------------------------------------------
Partners Portfolio (Cont'd)
<TABLE>
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ----------- ------------
<C> <S> <C>
WASTE MANAGEMENT (1.4%)
1,140,000 Waste Management $ 50,302
------------
TOTAL COMMON STOCKS (COST
$3,541,245) 3,369,999
------------
WARRANTS (0.0%)
44,356 Security Capital Group, Class
B, Expire 9/18/98 (COST $0) 1 (2)
------------
<CAPTION>
Principal
Amount
- -----------
<C> <S> <C>
SHORT-TERM INVESTMENTS (7.8%)
$96,030,000 Exxon Asset Management, 5.75%,
due 9/1/98 96,030(4)
145,390,000 General Electric Capital
Corp., 5.50% - 5.53%, due
9/1/98 - 9/2/98 145,390(4)
37,438,042 N&B Securities Lending Quality
Fund, LLC 37,438(4)
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $278,858) 278,858
------------
TOTAL INVESTMENTS (101.9%)
(COST $3,820,103) 3,648,858(5)
Liabilities, less cash,
receivables and other assets
[(1.9%)] (67,521)
------------
TOTAL NET ASSETS (100.0%) $3,581,337
------------
</TABLE>
SEE NOTES TO SCHEDULE OF INVESTMENTS
B-52
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman August 31, 1998
- --------------------------------------------------------------------------------
Socially Responsive Portfolio
<TABLE>
<CAPTION>
TOP TEN EQUITY HOLDINGS
---------------------------------------------------
HOLDING PERCENTAGE
<C> <S> <C>
1. Warner-Lambert 3.5%
2. Wal-Mart Stores 3.1%
3. WorldCom, Inc. 2.6%
4. Fannie Mae 2.5%
5. Cinergy Corp. 2.5%
6. Biogen, Inc. 2.5%
7. MarketSpan Corp. 2.4%
8. Sears, Roebuck 2.4%
9. TYCO International 2.4%
10. ESG Re 2.3%
</TABLE>
<TABLE>
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ---------- -------------
<C> <S> <C>
COMMON STOCKS (93.9%)
ADVERTISING (1.9%)
240,000 True North Communications $ 5,460
-------------
AUTOMOTIVE (2.1%)
150,000 Borg-Warner Automotive 6,075
-------------
BANKING (7.2%)
45,000 CITICORP 4,865
200,000 Dime Bancorp 3,800
90,000 National City 5,288
195,000 Southtrust Corp. 6,313
-------------
20,266
-------------
CHEMICALS (2.9%)
100,000 Minerals Technologies 3,631
80,000 Perkin-Elmer 4,630
-------------
8,261
-------------
CONSUMER GOODS & SERVICES (4.2%)
200,000 Hasbro, Inc. 6,262
150,000 Kimberly-Clark 5,719
-------------
11,981
-------------
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ---------- -------------
<C> <S> <C>
DIVERSIFIED (4.3%)
80,000 Minnesota Mining &
Manufacturing $ 5,480
120,000 TYCO International 6,660
-------------
12,140
-------------
ENERGY (3.1%)
80,000 Chevron Corp. 5,925
120,000 Noble Affiliates 2,775
-------------
8,700
-------------
FINANCIAL SERVICES (10.2%)
64,800 A.G. Edwards 1,758
128,000 Ambac Financial Group 6,040
180,000 Conseco, Inc. 4,972
125,000 Fannie Mae 7,102
100,000 Heller Financial 1,975 (2)
300,000 Indigo Aviation ADR 2,325 (2)
105,000 Travelers Group 4,659
-------------
28,831
-------------
FOOD & BEVERAGE (2.0%)
100,000 McDonald's Corp. 5,606
-------------
FURNISHINGS (2.1%)
300,000 Leggett & Platt 6,019
-------------
HEALTH CARE (11.5%)
150,000 Biogen, Inc. 6,937 (2)
200,000 Invacare Corp. 4,050
80,000 Johnson & Johnson 5,520
150,000 Warner-Lambert 9,788
118,000 Wellpoint Health Networks 6,298 (2)
-------------
32,593
-------------
HOSPITAL SUPPLIES (3.6%)
64,500 Beckman Coulter 3,572
200,000 C.R. Bard 6,550
-------------
10,122
-------------
INDUSTRIAL & COMMERCIAL PRODUCTS (2.1%)
200,000 Raychem Corp. 5,800
-------------
</TABLE>
B-53
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman August 31, 1998
- --------------------------------------------------------------------------------
Socially Responsive Portfolio (Cont'd)
<TABLE>
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ---------- -------------
<C> <S> <C>
INSURANCE (6.3%)
380,000 ESG Re $ 6,603
160,000 ReliaStar Financial 6,280
160,000 St. Paul Cos. 4,890
-------------
17,773
-------------
MACHINERY & EQUIPMENT (1.4%)
200,000 Cincinnati Milacron 3,875
-------------
OIL SERVICES (1.1%)
120,000 Dresser Industries 3,067
-------------
PUBLISHING & BROADCASTING (3.3%)
200,000 CMP Media 3,275 (2)
200,000 Valassis Communications 5,963 (2)
-------------
9,238
-------------
RECYCLING (0.8%)
187,500 IMCO Recycling 2,273
-------------
RETAIL GROCERY (1.1%)
60,000 Albertson's Inc. 3,034
-------------
RETAIL STORES (2.4%)
150,000 Sears, Roebuck 6,816
-------------
RETAILING (3.1%)
150,000 Wal-Mart Stores 8,813
-------------
TECHNOLOGY (7.4%)
250,000 Analog Devices 3,516 (2)
120,000 Hewlett-Packard 5,828
80,000 Intel Corp. 5,695
330,000 Unisys Corp. 5,919 (2)
-------------
20,958
-------------
TELECOMMUNICATIONS (3.0%)
303,200 Metromedia International Group 1,250 (2)
180,000 WorldCom, Inc. 7,369 (2)
-------------
8,619
-------------
<CAPTION>
Market
Value(1)
Number (000's
of Shares omitted)
- ---------- -------------
<C> <S> <C>
UTILITIES, ELECTRIC & GAS (6.8%)
200,000 Cinergy Corp. $ 6,950
300,000 DPL Inc. 5,400
250,000 MarketSpan Corp. 6,844
-------------
19,194
-------------
TOTAL COMMON STOCKS (COST
$249,001) 265,514
-------------
<CAPTION>
Principal
Amount
- ----------
<C> <S> <C>
U.S. TREASURY SECURITIES (6.3%)
$$17,991,000 U.S. Treasury Bills, 4.66% &
4.87%, due 9/10/98 & 10/8/98
(COST $17,914) 17,914(4)
-----------
SHORT-TERM INVESTMENTS (0.9%)
2,537,784 N&B Securities Lending Quality
Fund, LLC 2,538(4)
100,000 Self Help Credit Union, 5.25%,
due 11/24/98 100(4)
-----------
TOTAL SHORT-TERM INVESTMENTS
(COST $2,638) 2,638
-----------
TOTAL INVESTMENTS (101.1%)
(COST $269,553) 286,066(5)
Liabilities, less cash,
receivables and other assets
[(1.1%)] (3,216)
-----------
TOTAL NET ASSETS (100.0%) $282,850
-----------
</TABLE>
SEE NOTES TO SCHEDULE OF INVESTMENTS
B-54
<PAGE>
NOTES TO SCHEDULE OF INVESTMENTS
August 31, 1998
- ----------------------------------------------------------------------
Equity Managers Trust and Global Managers Trust
1) Investment securities of each Portfolio are valued at the latest sales price;
securities for which no sales were reported, unless otherwise noted, are
valued at the mean between the closing bid and asked prices, with the
exception of securities held by Neuberger&Berman International Portfolio,
which are valued at the last available bid price. The Portfolios value all
other securities by a method the trustees of Equity Managers Trust and Global
Managers Trust believe accurately reflects fair value. Foreign security
prices are furnished by independent quotation services expressed in local
currency values. Foreign security prices are translated from the local
currency into U.S. dollars using current exchange rates. Short-term debt
securities with less than 60 days until maturity may be valued at cost which,
when combined with interest earned, approximates market value.
2) Non-income producing security.
3) Affiliated issuer (see Note E of Notes to Financial Statements).
4) At cost, which approximates market value.
5) At August 31, 1998, selected Portfolio information on a Federal income tax
basis was as follows:
<TABLE>
<CAPTION>
NET
GROSS GROSS UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
NEUBERGER&BERMAN COST APPRECIATION DEPRECIATION (DEPRECIATION)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOCUS PORTFOLIO $ 1,098,677,000 $ 367,818,000 $145,903,000 $ 221,915,000
GENESIS PORTFOLIO 2,127,106,000 106,756,000 379,517,000 (272,761,000)
GUARDIAN PORTFOLIO 5,765,755,000 1,156,419,000 996,160,000 160,259,000
MANHATTAN PORTFOLIO 597,304,000 77,735,000 90,609,000 (12,874,000)
PARTNERS PORTFOLIO 3,825,301,000 265,069,000 441,512,000 (176,443,000)
SOCIALLY RESPONSIVE PORTFOLIO 269,594,000 45,152,000 28,680,000 16,472,000
</TABLE>
6) The following securities were held in escrow at August 31, 1998, to cover
outstanding call options written:
<TABLE>
<CAPTION>
SECURITIES AND MARKET VALUE PREMIUM ON MARKET VALUE
NEUBERGER&BERMAN SHARES OPTIONS OF SECURITIES OPTIONS OF OPTIONS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GUARDIAN PORTFOLIO 251,800 McDonald's Corp. $ 14,116,538 $ 980,854 $ 15,738
September 1998 @ 75
150,000 Santa Fe International 2,025,000 1,176,521 23,438
October 1998 @ 25
300,000 Travelers Group September 13,312,500 1,340,955 18,750
1998 @ 70
</TABLE>
B-55
<PAGE>
7) Security exempt from registration under the Securities Act of 1933. These
securities may be resold in transactions exempt from registration, normally
to qualified institutional buyers under Rule 144A. At August 31, 1998, these
securities amounted to $699,000 or 0.5% of net assets for Neuberger&Berman
International Portfolio and $15,755,000 or 0.4% of net assets for
Neuberger&Berman Partners Portfolio.
SEE NOTES TO FINANCIAL STATEMENTS
B-56
<PAGE>
(This page has been left blank intentionally.)
B-57
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY MANAGERS TRUST
------------------------------------------------
FOCUS GENESIS GUARDIAN
(000'S OMITTED) PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments in securities, at market value*
(Notes A & E) -- see Schedule of
Investments:
Unaffiliated issuers $ 1,300,533 $ 1,687,583 $ 5,051,465
Non-controlled affiliated issuers 20,059 166,762 874,549
------------------------------------------------
1,320,592 1,854,345 5,926,014
Cash 6 15 5
Deferred organization costs (Note A) -- -- --
Dividends and interest receivable 1,342 3,270 7,962
Net receivable for forward foreign currency
exchange contracts sold (Note C) -- -- --
Other assets 13 7 75
Receivable for securities sold 43,615 6,061 47,808
------------------------------------------------
1,365,568 1,863,698 5,981,864
------------------------------------------------
LIABILITIES
Net payable for equity swap contracts (Note
A) -- -- --
Option contracts written, at market value
(Note A) -- -- 58
Payable for collateral on securities loaned
(Note A) 20,989 44,199 32,636
Payable for securities purchased 26,008 5,017 157,099
Payable for variation margin (Note A) -- -- --
Payable to investment manager (Note B) 682 1,245 2,655
Accrued expenses and other payables 411 882 1,611
------------------------------------------------
48,090 51,343 194,059
------------------------------------------------
NET ASSETS Applicable to Investors' Beneficial
Interests $ 1,317,478 $ 1,812,355 $ 5,787,805
------------------------------------------------
NET ASSETS consist of:
Paid-in capital $ 1,093,337 $ 2,085,116 $ 5,613,432
Net unrealized appreciation (depreciation)
in value of investment securities, option
contracts, equity swap contracts,
financial futures contracts, translation
of assets and liabilities in foreign
currencies, and foreign currency contracts 224,141 (272,761) 174,373
------------------------------------------------
NET ASSETS $ 1,317,478 $ 1,812,355 $ 5,787,805
------------------------------------------------
*Cost of investments:
Unaffiliated issuers $ 1,057,642 $ 1,956,664 $ 4,800,586
Non-controlled affiliated issuers 38,809 170,442 954,496
------------------------------------------------
Total cost of investments $ 1,096,451 $ 2,127,106 $ 5,755,082
------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-58
<PAGE>
August 31,1998
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL
MANAGERS EQUITY MANAGERS TRUST
TRUST ------------------------------------------------
-------------- SOCIALLY
INTERNATIONAL MANHATTAN PARTNERS RESPONSIVE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities, at market value*
(Notes A & E) -- see Schedule of
Investments:
Unaffiliated issuers $ 141,373 $ 584,430 $ 3,648,858 $ 286,066
Non-controlled affiliated issuers -- -- -- --
-----------------------------------------------------------------
141,373 584,430 3,648,858 286,066
Cash 51 10 5 9
Deferred organization costs (Note A) 9 -- -- 4
Dividends and interest receivable 428 967 5,164 507
Net receivable for forward foreign currency
exchange contracts sold (Note C) 442 -- -- --
Other assets 3 5 30 2
Receivable for securities sold 4,037 6,665 17,600 --
-----------------------------------------------------------------
146,343 592,077 3,671,657 286,588
-----------------------------------------------------------------
LIABILITIES
Net payable for equity swap contracts (Note
A) 84 -- -- --
Option contracts written, at market value
(Note A) -- -- -- --
Payable for collateral on securities loaned
(Note A) 17,847 60,535 37,438 2,538
Payable for securities purchased -- 7,110 50,490 951
Payable for variation margin (Note A) 131 -- -- --
Payable to investment manager (Note B) 110 287 1,561 150
Accrued expenses and other payables 349 786 831 99
-----------------------------------------------------------------
18,521 68,718 90,320 3,738
-----------------------------------------------------------------
NET ASSETS Applicable to Investors' Beneficial
Interests $ 127,822 $ 523,359 $ 3,581,337 $ 282,850
-----------------------------------------------------------------
NET ASSETS consist of:
Paid-in capital $ 105,560 $ 536,233 $ 3,752,582 $ 266,337
Net unrealized appreciation (depreciation)
in value of investment securities, option
contracts, equity swap contracts,
financial futures contracts, translation
of assets and liabilities in foreign
currencies, and foreign currency contracts 22,262 (12,874) (171,245) 16,513
-----------------------------------------------------------------
NET ASSETS $ 127,822 $ 523,359 $ 3,581,337 $ 282,850
-----------------------------------------------------------------
*Cost of investments:
Unaffiliated issuers $ 119,274 $ 597,304 $ 3,820,103 $ 269,553
Non-controlled affiliated issuers -- -- -- --
-----------------------------------------------------------------
Total cost of investments $ 119,274 $ 597,304 $ 3,820,103 $ 269,553
-----------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-59
<PAGE>
STATEMENTS OF OPERATIONS
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY MANAGERS TRUST
------------------------------------------
FOCUS GENESIS GUARDIAN
(000'S OMITTED) PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Income:
Dividend income -- unaffiliated issuers $ 14,684 $ 28,496 $ 81,304
Dividend income -- non-controlled affiliated
issuers 562 487 5,375
Interest income 3,583 9,353 30,752
Foreign taxes withheld (Note A) (19) -- (820)
------------------------------------------
Total income 18,810 38,336 116,611
------------------------------------------
Expenses:
Investment management fee (Note B) 8,235 14,776 37,039
Accounting fees 10 10 10
Amortization of deferred organization and
initial offering expenses (Note A) 8 2 23
Auditing fees 44 25 51
Custodian fees (Note B) 324 401 1,236
Insurance expense 22 12 124
Legal fees 23 61 23
Trustees' fees and expenses 20 24 78
Miscellaneous 2 43 3
------------------------------------------
Total expenses 8,688 15,354 38,587
Fee waived by investment manager and/or
expenses reduced by custodian fee expense
offset arrangement (Note B) (1) (456) (2)
------------------------------------------
Total net expenses 8,687 14,898 38,585
------------------------------------------
Net investment income (loss) 10,123 23,438 78,026
------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investment
securities sold in unaffiliated issuers 79,344 35,406 840,232
Net realized gain on investment securities
sold in non-controlled affiliated issuers (255) -- 47,582
Net realized gain (loss) on option contracts
(Note A) (4,403) -- 6,019
Net realized loss on financial futures
contracts (Note A) -- -- --
Net realized gain on foreign currency
transactions (Note A) -- -- --
Change in net unrealized appreciation
(depreciation) of investment securities,
financial futures contracts, option
contracts, equity swap contracts,
translation of assets and liabilities in
foreign currencies, and foreign currency
contracts (Note A) (360,086) (545,041) (2,420,985)
------------------------------------------
Net loss on investments (285,400) (509,635) (1,527,152)
------------------------------------------
Net decrease in net assets resulting from
operations $ (275,277) $ (486,197) $(1,449,126)
------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-60
<PAGE>
For the Year Ended August 31, 1998
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL
MANAGERS EQUITY MANAGERS TRUST
TRUST -------------------------------------------------
------------ SOCIALLY
INTERNATIONAL MANHATTAN PARTNERS RESPONSIVE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Income:
Dividend income -- unaffiliated issuers $ 1,470 $ 1,610 $ 58,525 $ 3,988
Dividend income -- non-controlled affiliated
issuers -- -- -- --
Interest income 736 1,798 7,756 760
Foreign taxes withheld (Note A) (216) (3) (305) (7)
----------------------------------------------------------------
Total income 1,990 3,405 65,976 4,741
----------------------------------------------------------------
Expenses:
Investment management fee (Note B) 1,154 3,466 18,715 1,696
Accounting fees 10 10 10 10
Amortization of deferred organization and
initial offering expenses (Note A) 12 9 16 6
Auditing fees 32 42 46 23
Custodian fees (Note B) 244 164 662 106
Insurance expense 2 9 49 4
Legal fees 89 26 23 24
Trustees' fees and expenses 17 11 41 8
Miscellaneous 40 13 70 1
----------------------------------------------------------------
Total expenses 1,600 3,750 19,632 1,878
Fee waived by investment manager and/or
expenses reduced by custodian fee expense
offset arrangement (Note B) (1) (2) -- --
----------------------------------------------------------------
Total net expenses 1,599 3,748 19,632 1,878
----------------------------------------------------------------
Net investment income (loss) 391 (343) 46,344 2,863
----------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investment
securities sold in unaffiliated issuers (6,680) 45,585 408,784 26,331
Net realized gain on investment securities
sold in non-controlled affiliated issuers -- -- -- --
Net realized gain (loss) on option contracts
(Note A) (72) -- -- --
Net realized loss on financial futures
contracts (Note A) (4,070) -- -- --
Net realized gain on foreign currency
transactions (Note A) 147 -- -- --
Change in net unrealized appreciation
(depreciation) of investment securities,
financial futures contracts, option
contracts, equity swap contracts,
translation of assets and liabilities in
foreign currencies, and foreign currency
contracts (Note A) (596) (106,156) (872,798) (50,773)
----------------------------------------------------------------
Net loss on investments (11,271) (60,571) (464,014) (24,442)
----------------------------------------------------------------
Net decrease in net assets resulting from
operations $ (10,880) $ (60,914) $ (417,670) $ (21,579)
----------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-61
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY MANAGERS
TRUST
FOCUS GENESIS
PORTFOLIO PORTFOLIO
Year Year
Ended Ended
August 31, August 31,
(000'S OMITTED) 1998 1997 1998 1997
-------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) $ 10,123 $ 7,119 $ 23,438 $ 1,728
Net realized gain (loss) on
investments 74,686 176,471 35,406 18,411
Change in net unrealized
appreciation (depreciation) of
investments (360,086) 298,137 (545,041) 211,059
-------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations (275,277) 481,727 (486,197) 231,198
-------------------------------------------------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL
INTERESTS:
Additions 178,065 156,839 1,557,053 609,195
Reductions (158,751) (187,496) (342,152) (16,606)
-------------------------------------------------------------
Net increase (decrease) in net
assets resulting from transactions
in investors' beneficial interests 19,314 (30,657) 1,214,901 592,589
-------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (255,963) 451,070 728,704 823,787
NET ASSETS:
Beginning of year 1,573,441 1,122,371 1,083,651 259,864
-------------------------------------------------------------
End of year $ 1,317,478 $ 1,573,441 $ 1,812,355 $ 1,083,651
-------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-62
<PAGE>
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY MANAGERS GLOBAL MANAGERS TRUST EQUITY MANAGERS TRUST
TRUST
GUARDIAN
PORTFOLIO INTERNATIONAL PORTFOLIO MANHATTAN PORTFOLIO
Year Year Year
Ended Ended Ended
August 31, August 31, August 31,
1998 1997 1998 1997 1998 1997
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) $ 78,026 $ 66,858 $ 391 $ 425 $ (343) $ 1,154
Net realized gain (loss) on
investments 893,833 871,150 (10,675) 2,368 45,585 180,525
Change in net unrealized
appreciation (depreciation) of
investments (2,420,985) 1,570,338 (596) 16,214 (106,156) 10,646
-----------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations (1,449,126) 2,508,346 (10,880) 19,007 (60,914) 192,325
-----------------------------------------------------------------------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL
INTERESTS:
Additions 391,142 592,646 91,654 61,548 53,069 41,417
Reductions (1,912,418) (575,327) (68,216) (22,274) (90,539) (179,425)
-----------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from transactions
in investors' beneficial interests (1,521,276) 17,319 23,438 39,274 (37,470) (138,008)
-----------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (2,970,402) 2,525,665 12,558 58,281 (98,384) 54,317
NET ASSETS:
Beginning of year 8,758,207 6,232,542 115,264 56,983 621,743 567,426
-----------------------------------------------------------------------------------
End of year $ 5,787,805 $ 8,758,207 $ 127,822 $ 115,264 $ 523,359 $ 621,743
-----------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-63
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS(Cont'd)
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY MANAGERS
TRUST
SOCIALLY RESPONSIVE PORTFOLIO
PARTNERS PORTFOLIO
Year Year
Ended Ended
August 31, August 31,
(000'S OMITTED) 1998 1997 1998 1997
-------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) $ 46,344 $ 28,316 $ 2,863 $ 2,214
Net realized gain (loss) on
investments 408,784 531,668 26,331 11,478
Change in net unrealized
appreciation (depreciation) of
investments (872,798) 473,597 (50,773) 44,043
-------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations (417,670) 1,033,581 (21,579) 57,735
-------------------------------------------------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL
INTERESTS:
Additions 743,583 715,909 71,633 57,455
Reductions (320,149) (173,520) (23,485) (17,394)
-------------------------------------------------------------
Net increase (decrease) in net
assets resulting from transactions
in investors' beneficial interests 423,434 542,389 48,148 40,061
-------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 5,764 1,575,970 26,569 97,796
NET ASSETS:
Beginning of year 3,575,573 1,999,603 256,281 158,485
-------------------------------------------------------------
End of year $ 3,581,337 $ 3,575,573 $ 282,850 $ 256,281
-------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-64
<PAGE>
NOTES TO FINANCIAL STATEMENTS
August 31, 1998
- ----------------------------------------------------------------------
Equity Managers Trust and Global Managers Trust
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1) GENERAL: Neuberger&Berman Focus Portfolio ("Focus"), Neuberger&Berman Genesis
Portfolio ("Genesis"), Neuberger&Berman Guardian Portfolio ("Guardian"),
Neuberger&Berman Manhattan Portfolio ("Manhattan"), Neuberger& Berman
Partners Portfolio ("Partners"), and Neuberger&Berman Socially Responsive
Portfolio ("Socially Responsive") are separate operating series of Equity
Managers Trust ("Managers Trust"), a New York common law trust organized as
of December 1, 1992. Neuberger&Berman International Portfolio
("International") is a separate operating series of Global Managers Trust
("Global"), a New York common law trust organized as of March 18, 1994, with
its principal office in the Cayman Islands. These seven aforementioned series
are collectively referred to as the "Portfolios." Managers Trust and Global
(collectively, the "Trusts") are registered as diversified, open-end
management investment companies under the Investment Company Act of 1940, as
amended (the "1940 Act"). Other regulated investment companies sponsored by
Neuberger&Berman Management Incorporated ("N&B Management"), whose financial
statements are not presented herein, also invest in the Trusts. Global
currently has only one Portfolio.
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.
2) PORTFOLIO VALUATION: Investment securities are valued as indicated in the
notes following the Portfolios' Schedule of Investments.
3) FOREIGN CURRENCY TRANSLATION: The accounting records of the Portfolios are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars at the current rate of exchange of such currency against the U.S.
dollar to determine the value of investments, other assets and liabilities.
Purchase and sale prices of securities, and income and expenses are
translated into U.S. dollars at the prevailing rate of exchange on the
respective dates of such transactions.
4) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on a trade date basis. Dividend income is recorded on the
ex-dividend date or, for certain foreign dividends, as soon as the Portfolio
becomes aware of the dividends. Non-cash dividends included in dividend
income, if any, are recorded at the fair market value of the securities
received. Interest income, including accretion of original issue discount,
where applicable, and accretion of discount on short-term investments, is
recorded on the accrual basis. Realized gains and losses from securities
transactions and foreign currency transactions are recorded on the basis of
identified cost.
B-65
<PAGE>
5) FORWARD FOREIGN CURRENCY CONTRACTS: The Portfolios may enter into forward
foreign currency contracts ("contracts") in connection with planned
purchases or sales of securities to hedge the U.S. dollar value of portfolio
securities denominated in a foreign currency. International may also enter
into such contracts to increase or decrease its exposure to a currency other
than U.S. dollars. The gain or loss arising from the difference between the
original contract price and the closing price of such contract is included
in net realized gains or losses on foreign currency transactions.
Fluctuations in the value of forward foreign currency contracts are recorded
for financial reporting purposes as unrealized gains or losses by each
Portfolio. The Portfolios have no specific limitation on the percentage of
assets which may be committed to these types of contracts. The Portfolios
could be exposed to risks if a counterparty to a contract were unable to
meet the terms of its contract or if the value of the foreign currency
changes unfavorably. The U.S. dollar value of foreign currency underlying
all contractual commitments held by each Portfolio is determined using
forward foreign currency exchange rates supplied by an independent pricing
service.
6) TAXES: Managers Trust intends to comply with the requirements of the
Internal Revenue Code. Each Portfolio of the Trusts also intends to conduct
its operations so that each of its investors (in the case of Global, its
U.S. investors) will be able to qualify as a regulated investment company.
Each Portfolio will be treated as a partnership for U.S. Federal income tax
purposes and is therefore not subject to U.S. Federal income tax. There is,
at present, no direct taxation in the Cayman Islands, and therefore
interest, dividends, and capital gains derived by Global are not subject to
taxes in that jurisdiction.
7) FOREIGN TAXES: Foreign taxes withheld represent amounts withheld by foreign
tax authorities, net of refunds recoverable.
8) ORGANIZATION EXPENSES: Expenses incurred by International and Socially
Responsive in connection with their organization are being amortized on a
straight-line basis over a five-year period. At August 31, 1998, the
unamortized balance of such expenses amounted to $9,146 and $3,583, for
International and Socially Responsive, respectively. Organization expenses
incurred by Focus, Genesis, Guardian, Manhattan, and Partners were fully
amortized as of August 31, 1998.
9) EXPENSE ALLOCATION: Each Portfolio bears all costs of its operations.
Expenses incurred by each of the Trusts with respect to any two or more
Portfolios are allocated in proportion to the net assets of such Portfolios,
except where a more appropriate allocation of expenses to each Portfolio can
otherwise be made fairly. Expenses directly attributable to a Portfolio are
charged to that Portfolio.
10) CALL OPTIONS: Premiums received by each Portfolio upon writing a covered
call option are recorded in the liability section of each Portfolio's
Statement of Assets
B-66
<PAGE>
and Liabilities and are subsequently adjusted to the current market value.
When an option is exercised, closed, or expired, the Portfolio realizes a
gain or loss and the liability is eliminated. A Portfolio bears the risk of
a decline in the price of the security during the period, although any
potential loss during the period would be reduced by the amount of the
option premium received. In general, written covered call options may serve
as a partial hedge against decreases in value in the underlying securities
to the extent of the premium received. All securities covering outstanding
options are held in escrow by the custodian bank.
Summary of option transactions for the year ended August 31, 1998:
<TABLE>
<CAPTION>
VALUE
WHEN
FOCUS NUMBER WRITTEN
- -------------------------------------------------------------------------
<S> <C> <C>
CONTRACTS OUTSTANDING 8/31/97 1,250 $ 1,985,185
CONTRACTS WRITTEN 4,000 1,496,778
CONTRACTS EXPIRED (1,000) (96,997)
CONTRACTS EXERCISED (1,000) (371,987)
CONTRACTS CLOSED (3,250) (3,012,979)
------------------------
CONTRACTS OUTSTANDING 8/31/98 0 $ 0
------------------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
WHEN
GUARDIAN NUMBER WRITTEN
- ---------------------------------------------------------------------------
<S> <C> <C>
CONTRACTS OUTSTANDING 8/31/97 7,997 $ 5,491,034
CONTRACTS WRITTEN 75,538 37,765,006
CONTRACTS EXPIRED (30,674) (18,082,401)
CONTRACTS EXERCISED (34,876) (15,026,537)
CONTRACTS CLOSED (10,967) (6,648,772)
--------------------------
CONTRACTS OUTSTANDING 8/31/98 7,018 $ 3,498,330
--------------------------
</TABLE>
11) FINANCIAL FUTURES CONTRACTS: International and Socially Responsive may each
buy and sell financial futures contracts to hedge against a possible decline
in the value of its portfolio securities. International may also buy and
sell financial futures contracts for non-hedging purposes. At the time a
Portfolio enters into a financial futures contract, it is required to
deposit with its custodian a specified amount of cash or liquid securities,
known as "initial margin," ranging upward from 1.1% of the value of the
financial futures contract being traded. Each day, the futures contract is
valued at the official settlement price of the board of trade or U.S.
commodity exchange on which such futures contract is traded. Subsequent
payments, known as "variation margin," to and from the broker are made on a
daily basis as the market price of the financial futures contract
fluctuates. Daily variation margin adjustments, arising from this "mark to
market," are recorded by the Portfolios as unrealized gains or losses.
B-67
<PAGE>
Although some financial futures contracts by their terms call for actual
delivery or acceptance of financial instruments, in most cases the contracts
are closed out prior to delivery by offsetting purchases or sales of
matching financial futures contracts. When the contracts are closed, a
Portfolio recognizes a gain or loss. Risks of entering into futures
contracts include the possibility there may be an illiquid market and/or a
change in the value of the contract may not correlate with changes in the
value of the underlying securities.
For U.S. Federal income tax purposes, the futures transactions undertaken
by a Portfolio may cause that Portfolio to recognize gains or losses from
marking to market even though its positions have not been sold or
terminated, may affect the character of the gains or losses recognized as
long-term or short-term, and may affect the timing of some capital gains and
losses realized by the Portfolios. Also, a Portfolio's losses on
transactions involving futures contracts may be deferred rather than being
taken into account currently in calculating such Portfolio's taxable income.
During the year ended August 31, 1998, Socially Responsive did not enter
into any financial futures contracts.
At August 31, 1998, open positions in financial futures contracts for
International were as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
EXPIRATION OPEN CONTRACTS POSITION (DEPRECIATION)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
September 1998 250 All Share Index Futures (South Africa) Short $ 133,846
September 1998 80 CAC 40 Index Futures (France) Long (434,621)
September 1998 60 Hang Seng Index Futures (Hong Kong) Short 212,931
September 1998 300 KL Composite Index Futures (Malaysia) Short 101,267
September 1998 20 MIB30 Index Futures (Italy) Long (465,782)
September 1998 45 Nikkei 225 (OSE) Futures (Japan) Short 663,811
December 1998 20 MIB30 Index Futures (Italy) Long (542,947)
March 1999 250 All Share Index Futures (South Africa) Short 134,235
</TABLE>
At August 31, 1998, International had deposited $3,630,000 U.S. Treasury
Bills, 4.67%, due 9/24/98, in a segregated account to cover margin
requirements on open financial futures contracts.
12) SECURITY LENDING: Securities loans involve certain risks in the event a
borrower should fail financially, including delays or inability to recover
the lent securities or foreclose against the collateral. The investment
manager, under the general supervision of the Trusts' Boards of Trustees,
monitors the creditworthiness of the parties to whom the Portfolios make
security loans. The Portfolios will not lend securities on which covered
call options have been written, or lend securities on terms which would
prevent each of their investors from qualifying as a regulated
B-68
<PAGE>
investment company. Prior to June 1, 1998, the Portfolios made securities
loans to Neuberger&Berman, LLC ("Neuberger"), the Portfolios' principal
broker and sub-adviser. These loans were made in accordance with an
exemptive order issued by the Securities and Exchange Commission under the
1940 Act. The Portfolios received cash as collateral against the lent
securities, which was maintained at not less than 100% of the market value
of the lent securities during the period of the loan. The Portfolios
received income earned on the lent securities and a portion of the income
earned on the cash collateral. During the year ended August 31, 1998, Focus,
Genesis, Guardian, Manhattan, Partners, and Socially Responsive lent
securities to Neuberger. Effective June 1, 1998, the Portfolios entered into
a Securities Lending Agreement with Morgan Stanley & Co. Incorporated
("Morgan"). The Portfolios receive cash collateral equal to at least 100% of
the current market value of the loaned securities. The Portfolios invest the
cash collateral in the N&B Securities Lending Quality Fund, LLC ("investment
vehicle"), which is managed by State Street Bank and Trust Company pursuant
to guidelines approved by the Trusts' investment manager. Income earned on
the investment vehicle is paid to Morgan monthly. The Portfolios receive a
fee, payable monthly, negotiated by the Portfolios and Morgan, based on the
number and duration of the lending transactions. At August 31, 1998, the
value of the securities loaned and the value of the collateral were as
follows:
<TABLE>
<CAPTION>
VALUE OF
SECURITIES VALUE OF
LOANED COLLATERAL
- ------------------------------------------------------------------------------
<S> <C> <C>
FOCUS $ 19,427,906 $ 20,989,077
GENESIS 41,306,509 44,199,387
GUARDIAN 31,037,719 32,636,664
INTERNATIONAL 16,604,012 17,847,376
MANHATTAN 54,079,669 60,534,515
PARTNERS 35,512,750 37,438,042
SOCIALLY RESPONSIVE 2,128,588 2,537,784
</TABLE>
13) REPURCHASE AGREEMENTS: Each Portfolio may enter into repurchase agreements
with institutions that each Portfolio's investment manager has determined
are creditworthy. Each repurchase agreement is recorded at cost. A Portfolio
requires that the securities purchased in a repurchase transaction be
transferred to the custodian in a manner sufficient to enable a Portfolio to
obtain those securities in the event of a default under the repurchase
agreement. A Portfolio monitors, on a daily basis, the value of the
securities transferred to ensure that their value, including accrued
interest, is greater than amounts owed to a Portfolio under each such
repurchase agreement.
14) SWAPS: International has entered into equity swap contracts to gain exposure
to specific foreign equities. A swap is an agreement that obligates two
parties to
B-69
<PAGE>
exchange a series of cash flows at specified intervals based upon or
calculated by reference to changes in specified security prices or interest
rates. The payment flows are usually netted against each other, with the
difference being paid by one party to the other.
Risks may arise as a result of the failure of another party to the swap
contract to comply with the terms of the swap contract. The loss incurred by
the failure of a counterparty is generally limited to the net payment to be
received by the Portfolio and/or the termination value at the end of the
contract. Therefore, International considers the creditworthiness of each
counterparty to a swap contract in evaluating potential credit risk.
Additionally, risks may arise from unanticipated movements in interest rates
or in the value of the underlying equities.
International records a net receivable or payable for the amount expected
to be received or paid under the contract. The fluctuation in the market
value of the underlying security is recorded as unrealized appreciation
(depreciation) of investments. Premium payments made to enter into a swap
contract are capitalized and amortized over the life of the swap contract.
N&B Management periodically reviews the value of the unamortized balance of
the premium payment and may accelerate the amortization. At August 31, 1998,
International had an outstanding equity swap contract with the following
terms:
<TABLE>
<CAPTION>
SWAP NOTIONAL UNDERLYING UNDERLYING
COUNTERPARTY AMOUNT TERMINATION DATE SHARES EQUITY
<S> <C> <C> <C> <C>
Merrill Lynch International $ 2,000,000 September 10, 1998 19,319,938.18 Telecomunicacoes Brasileiras
</TABLE>
NOTE B -- MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES:
Each Portfolio retains N&B Management as its investment manager under a
Management Agreement. For such investment management services, each Portfolio
(except Genesis and International) pays N&B Management a fee at the annual rate
of 0.55% of the first $250 million of that Portfolio's average daily net assets,
0.525% of the next $250 million, 0.50% of the next $250 million, 0.475% of the
next $250 million, 0.45% of the next $500 million, and 0.425% of average daily
net assets in excess of $1.5 billion. Genesis has contracted to pay N&B
Management a fee for investment management services at the annual rate of 0.85%
of the first $250 million of that 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. Prior to
December 15, 1997, N&B Management had voluntarily agreed to waive a portion of
the management fee borne directly by Genesis and indirectly by Neuberger&Berman
Genesis Fund to reduce the annual fee by 0.10% per annum of average daily net
assets of Genesis. Effective December 15, 1997, the above waiver was terminated.
International pays N&B Management a fee for investment management services at
the annual rate of 0.85% of the first $250 million of that Portfolio's average
B-70
<PAGE>
daily net assets, 0.825% of the next $250 million, 0.80% of the next $250
million, 0.775% of the next $250 million, 0.75% of the next $500 million, and
0.725% of average daily net assets in excess of $1.5 billion.
All of the capital stock of N&B Management is owned by individuals who are
also principals of Neuberger, a member firm of The New York Stock Exchange and
sub-adviser to each Portfolio. Neuberger is retained by N&B Management to
furnish it with investment recommendations and research information without
added cost to each Portfolio. Several individuals who are officers and/or
trustees of the Trusts are also principals of Neuberger and/or officers and/or
directors of N&B Management.
Each Portfolio has an expense offset arrangement in connection with its
custodian contract. In addition, in connection with the Securities Lending
Agreement between each Portfolio and Morgan, Morgan has agreed to reimburse each
Portfolio for transaction costs incurred on security lending transactions
charged by the custodian. The impact of these arrangements, respectively,
reflected in the Statements of Operations under the caption Custodian fees, was
a reduction of $750 and $376, $2,309 and $744, $721 and $1,160, $702 and $464,
$1,737 and $640, $455 and $280, and $264 and $40, for Focus, Genesis, Guardian,
International, Manhattan, Partners, and Socially Responsive, respectively.
NOTE C -- SECURITIES TRANSACTIONS:
During the year ended August 31, 1998, there were purchase and sale
transactions (excluding short-term securities, forward foreign currency
contracts, financial futures contracts, option contracts, and equity swap
contracts) as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
- ------------------------------------------------------------------------------------
<S> <C> <C>
FOCUS $ 1,051,182,326 $ 1,027,948,723
GENESIS 1,512,422,858 340,293,319
GUARDIAN 4,737,515,488 5,604,611,486
INTERNATIONAL 75,212,434 55,857,425
MANHATTAN 554,191,211 571,714,146
PARTNERS 4,736,758,358 4,293,047,580
SOCIALLY RESPONSIVE 183,937,505 137,674,368
</TABLE>
B-71
<PAGE>
During the year ended August 31, 1998, International had entered into various
contracts to deliver currencies at specified future dates. At August 31, 1998,
open contracts were as follows:
<TABLE>
<CAPTION>
NET
UNREALIZED
CONTRACTS TO IN EXCHANGE SETTLEMENT APPRECIATION
SALES DELIVER FOR DATE VALUE (DEPRECIATION)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
South African Rand 16,380,000 $ 3,000,000 9/16/98 $ 2,525,667 $ 474,333
Japanese Yen 271,000,000 2,000,000 10/22/98 1,938,115 61,885
Italian Lira 1,799,250,000 1,000,000 10/23/98 1,035,489 (35,489)
Japanese Yen 409,260,000 3,000,000 12/21/98 2,952,420 47,580
South African Rand 35,250,000 5,000,000 2/1/99 5,106,290 (106,290)
------------ ------------ ----------
$14,000,000 $ 13,557,981 $ 442,019
------------ ------------ ----------
</TABLE>
During the year ended August 31, 1998, there were brokerage commissions on
securities paid to Neuberger and other brokers as follows:
<TABLE>
<CAPTION>
OTHER
NEUBERGER BROKERS TOTAL
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOCUS $ 998,930 $ 1,052,077 $ 2,051,007
GENESIS 1,159,143 1,260,016 2,419,159
GUARDIAN 5,733,976 5,824,547 11,558,523
INTERNATIONAL 3,435 341,757 345,192
MANHATTAN 546,227 586,082 1,132,309
PARTNERS 6,281,978 3,746,735 10,028,713
SOCIALLY RESPONSIVE 296,353 105,248 401,601
</TABLE>
In addition, Neuberger's share of the total interest income earned for the
year ended August 31, 1998, from the collateralization of securities loaned to
or through Neuberger was $101,879, $152,375, $1,035,708, $212,611, $141,707, and
$10,803, for Focus, Genesis, Guardian, Manhattan, Partners, and Socially
Responsive, respectively.
NOTE D -- COMBINED LINE OF CREDIT:
Effective June 1, 1998, Genesis and Manhattan were two of the holders of an
unsecured $100,000,000 combined line of credit with State Street Bank and Trust
Company ($60,000,000 prior to June 1, 1998), to be used only for temporary or
emergency purposes. Interest is charged on borrowings under this agreement at
the overnight Federal Funds Rate plus 0.75% per annum. A facility fee of 0.07%
(0.1% prior to June 1, 1998) per annum of the available line of credit is
charged, of which Genesis and Manhattan each has agreed to pay its pro rata
share, based on the ratio of its individual net assets to the net assets of all
the participants at the time the fee is due and payable. The fee is paid
quarterly in arrears. No compensating balance is required.
B-72
<PAGE>
Other investment companies managed by N&B Management also participate in the
line of credit on the same terms. Because several investment companies
participate, there is no assurance that an individual Portfolio will have access
to the entire $100,000,000 at any particular time. Genesis and Manhattan had no
loans outstanding pursuant to this line of credit at August 31, 1998. During the
year ended August 31, 1998, neither Genesis nor Manhattan utilized this line of
credit.
At August 31, 1998, International was one of two holders of a $20,000,000
combined uncommitted, secured line of credit with State Street Bank and Trust
Company to be used for temporary or emergency purposes or for leverage. Interest
is charged at LIBOR, or the overnight Federal Funds Rate, plus a spread to be
determined at the time of borrowing. Another investment company managed by N&B
Management also participates in the line of credit on the same terms. Because
another investment company participates, there is no assurance that an
individual Portfolio will have access to the entire $20,000,000 at any
particular time. International had no loans outstanding pursuant to this line of
credit at August 31, 1998, nor had it utilized this line of credit at any time
prior to that date.
NOTE E -- INVESTMENTS IN NON-CONTROLLED AFFILIATES*:
<TABLE>
<CAPTION>
BALANCE OF BALANCE OF
SHARES GROSS GROSS SHARES
HELD PURCHASES SALES HELD VALUE
FOCUS AUGUST 31, AND AND AUGUST 31, AUGUST 31,
NAME OF ISSUER: 1997 ADDITIONS REDUCTIONS 1998 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ADVANTA Corp. Class A 1,691,500 15,000 757,806 948,694 $10,732,000
ADVANTA Corp. Class B 0 910,000 0 910,000 9,327,000
DT Industries** 1,045,000 0 1,045,000 0 0
Sierra Health Services** 934,500 475,500 50,000 1,360,000 21,760,000
</TABLE>
B-73
<PAGE>
<TABLE>
<CAPTION>
BALANCE OF BALANCE OF
SHARES GROSS GROSS SHARES
HELD PURCHASES SALES HELD VALUE
GENESIS AUGUST 31, AND AND AUGUST 31, AUGUST 31,
NAME OF ISSUER: 1997 ADDITIONS REDUCTIONS 1998 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AAR Corp. 617,600 1,131,050 0 1,748,650 $38,689,000
ADAC Laboratories 683,100 320,000 0 1,003,100 22,507,000
Alliant Techsystems 140,800 507,700 0 648,500 42,558,000
Aviall Inc. 947,000 247,100 0 1,194,100 15,225,000
DONCASTERS PLC ADR 401,500 66,800 0 468,300 9,132,000
Eltron International 0 420,000 0 420,000 11,550,000
Inprise Corp. 1,378,700 1,227,600 0 2,606,300 13,846,000
Pameco Corp. 119,900 161,900 0 281,800 4,790,000
SOS Staffing Services 139,900 502,000 0 641,900 8,465,000
</TABLE>
<TABLE>
<CAPTION>
BALANCE OF BALANCE OF
SHARES GROSS GROSS SHARES
HELD PURCHASES SALES HELD VALUE
GUARDIAN AUGUST 31, AND AND AUGUST 31, AUGUST 31,
NAME OF ISSUER: 1997 ADDITIONS REDUCTIONS 1998 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AGCO Corp.** 4,737,400 622,800 5,360,200 0 $ 0
Cabot Corp. 2,662,300 1,178,700 0 3,841,000 83,542,000
Capital One Financial** 4,445,000 0 1,357,100 3,087,900 270,191,000
Coltec Industries 4,893,900 0 30,000 4,863,900 69,918,000
Countrywide Credit Industries 5,445,000 1,145,000 0 6,590,000 246,713,000
Foundation Health Systems 9,065,800 909,100 35,000 9,939,900 111,203,000
Mark IV Industries 2,130,081 822,000 10,000 2,942,081 41,741,000
PacifiCare Health Systems Class B 1,327,790 660,774 0 1,988,564 125,279,000
UCAR International** 3,404,400 575,000 1,803,200 2,176,200 39,444,000
Wellpoint Health Networks 2,226,396 1,448,600 0 3,674,996 196,153,000
Zeigler Coal Holding** 1,702,000 0 1,702,000 0 0
</TABLE>
*AFFILIATED ISSUERS, AS DEFINED IN THE 1940 ACT, INCLUDE ISSUERS IN WHICH THE
PORTFOLIO HELD 5% OR MORE OF THE OUTSTANDING VOTING SECURITIES.
**AT AUGUST 31, 1998, THE ISSUERS OF THESE SECURITIES WERE NO LONGER AFFILIATED
WITH THE PORTFOLIO.
B-74
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Focus Portfolio
<TABLE>
<CAPTION>
Year Ended August 31,
1998 1997 1996 1995 1994
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses(1) .51% .53% .54% -- --
-------------------------------------------------------------
Net Expenses .51% .53% .54% .57% .58%
-------------------------------------------------------------
Net Investment Income .59% .54% 1.04% 1.05% 1.16%
-------------------------------------------------------------
Portfolio Turnover Rate 64% 63% 39% 36% 52%
-------------------------------------------------------------
Net Assets, End of Year (in millions) $ 1,317.5 $ 1,573.4 $ 1,122.4 $ 969.2 $ 645.0
-------------------------------------------------------------
</TABLE>
1) For fiscal periods ending after September 1, 1995, the Portfolio is required
to calculate an expense ratio without taking into consideration any expense
reductions related to expense offset arrangements.
B-75
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Genesis Portfolio
<TABLE>
<CAPTION>
Year Ended August 31,
1998 1997 1996 1995 1994
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses(1) .72% .77% .85% -- --
------------------------------------------------------------
Net Expenses .72%(2) .77%(2) .85%(2) .94%(2) .98%
------------------------------------------------------------
Net Investment Income 1.13%(2) .32%(2) .27%(2) .25%(2) .18%
------------------------------------------------------------
Portfolio Turnover Rate 18% 18% 21% 37% 63%
------------------------------------------------------------
Net Assets, End of Year (in millions) $ 1,812.4 $ 1,083.7 $ 259.9 $ 142.2 $ 138.6
------------------------------------------------------------
</TABLE>
1) For fiscal periods ending after September 1, 1995, the Portfolio is required
to calculate an expense ratio without taking into consideration any expense
reductions related to expense offset arrangements.
2) Had the investment manager not waived a portion of the management fee, the
annualized ratios of net expenses and net investment income to average daily
net assets would have been:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1998 1997 1996 1995
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------
Net Expenses .74% .87% .95% .97%
Net Investment Income 1.11% .22% .17% .22%
</TABLE>
B-76
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Guardian Portfolio
<TABLE>
<CAPTION>
Year Ended August 31,
1998 1997 1996 1995 1994
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses(1) .46% .46% .46% -- --
-----------------------------------------------------------------
Net Expenses .46% .46% .46% .48% .50%
-----------------------------------------------------------------
Net Investment Income .92% .89% 1.72% 1.72% 1.66%
-----------------------------------------------------------------
Portfolio Turnover Rate 60% 50% 37% 26% 24%
-----------------------------------------------------------------
Net Assets, End of Year (in millions) $ 5,787.8 $ 8,758.2 $ 6,232.5 $ 4,613.2 $ 2,480.3
-----------------------------------------------------------------
</TABLE>
1) For fiscal periods ending after September 1, 1995, the Portfolio is required
to calculate an expense ratio without taking into consideration any expense
reductions related to expense offset arrangements.
B-77
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
- --------------------------------------------------------------------------------
International Portfolio
<TABLE>
<CAPTION>
Period from
June 15, 1994(1)
Year Ended August 31, to August 31,
1998 1997 1996 1995 1994
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses(2) 1.18% 1.21% 1.37% -- --
-----------------------------------------------------------------
Net Expenses 1.18% 1.21% 1.37%(4) .70%(4) .70%(3)(4)
-----------------------------------------------------------------
Net Investment Income .29% .47% .58%(4) 1.74%(4) 1.63%(3)(4)
-----------------------------------------------------------------
Portfolio Turnover Rate 46% 37% 45% 41% 5%
-----------------------------------------------------------------
Net Assets, End of Year (in millions) $ 127.8 $ 115.3 $ 57.0 $ 26.4 $6.1
-----------------------------------------------------------------
</TABLE>
1) The date investment operations commenced.
2) For fiscal periods ending after September 1, 1995, the Portfolio is required
to calculate an expense ratio without taking into consideration any expense
reductions related to expense offset arrangements.
3) Annualized.
4) After reimbursement of expenses by the investment adviser. Had the investment
adviser not undertaken such action, the annualized ratios of net expenses and
net investment income (loss) to average daily net assets would have been:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED AUGUST JUNE 15, 1994
31, TO AUGUST 31,
1996 1995 1994
<S> <C> <C> <C>
- ------------------------------------------------------------------------
Net Expenses 1.49% 2.24% 2.50%
Net Investment Income (Loss) .46% .20% (.17%)
</TABLE>
B-78
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Manhattan Portfolio
<TABLE>
<CAPTION>
Year Ended August 31,
1998 1997 1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses(1) .57% .59% .58% -- --
-------------------------------------------------------
Net Expenses .57% .59% .58% .59% .59%
-------------------------------------------------------
Net Investment Income (Loss) (.05%) .20% .13% .42% .53%
-------------------------------------------------------
Portfolio Turnover Rate 90% 89% 53% 44% 50%
-------------------------------------------------------
Net Assets, End of Year (in millions) $ 523.4 $ 621.7 $ 567.4 $ 645.4 $ 521.7
-------------------------------------------------------
</TABLE>
1) For fiscal periods ending after September 1, 1995, the Portfolio is required
to calculate an expense ratio without taking into consideration any expense
reductions related to expense offset arrangements.
B-79
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Partners Portfolio
<TABLE>
<CAPTION>
Year Ended August 31,
1998 1997 1996 1995 1994
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses(1) .47% .48% .51% -- --
-----------------------------------------------------------------
Net Expenses .47% .48% .51% .53% .54%
-----------------------------------------------------------------
Net Investment Income 1.11% 1.05% 1.26% 1.13% .75%
-----------------------------------------------------------------
Portfolio Turnover Rate 109% 77% 96% 98% 75%
-----------------------------------------------------------------
Net Assets, End of Year (in millions) $ 3,581.3 $ 3,575.6 $ 1,999.6 $ 1,623.5 $ 1,340.3
-----------------------------------------------------------------
</TABLE>
1) For fiscal periods ending after September 1, 1995, the Portfolio is required
to calculate an expense ratio without taking into consideration any expense
reductions related to expense offset arrangements.
B-80
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Socially Responsive Portfolio
<TABLE>
<CAPTION>
Period from
March 14, 1994(1)
Year Ended August 31, to August 31,
1998 1997 1996 1995 1994
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses(2) .60% .63% .65% -- --
-----------------------------------------------------------------
Net Expenses .60% .63% .65% .68% .69%(3)
-----------------------------------------------------------------
Net Investment Income .92% 1.08% 1.02% 1.18% 1.33%(3)
-----------------------------------------------------------------
Portfolio Turnover Rate 47% 51% 53% 58% 14%
-----------------------------------------------------------------
Net Assets, End of Year (in millions) $ 282.9 $ 256.3 $ 158.5 $ 96.7 $70.7
-----------------------------------------------------------------
</TABLE>
1) The date investment operations commenced.
2) For fiscal periods ending after September 1, 1995, the Portfolio is required
to calculate an expense ratio without taking into consideration any expense
reductions related to expense offset arrangements.
3) Annualized.
B-81
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of Equity Managers Trust and
Owners of Beneficial Interest of
Neuberger&Berman Manhattan Portfolio and
Neuberger&Berman Socially Responsive Portfolio
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Neuberger&Berman Manhattan
Portfolio and Neuberger& Berman Socially Responsive Portfolio (collectively the
"Portfolios") at August 31, 1998, the results of their operations for the year
then ended, the changes in their net assets for each of the two years in the
period then ended and the financial highlights for each of the periods indicated
therein in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Portfolio's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities owned as of August 31, 1998 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 9, 1998
B-82
<PAGE>
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Board of Trustees
Equity Managers Trust and
Owners of Beneficial Interest of
Neuberger&Berman Focus Portfolio
Neuberger&Berman Genesis Portfolio
Neuberger&Berman Guardian Portfolio and
Neuberger&Berman Partners Portfolio
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the Neuberger&Berman Focus Portfolio,
Neuberger&Berman Genesis Portfolio, Neuberger&Berman Guardian Portfolio, and
Neuberger&Berman Partners Portfolio, four of the series constituting Equity
Managers Trust (the "Trust"), as of August 31, 1998, and the related statements
of operations for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended, and the financial highlights
for each of the periods indicated therein. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of August 31, 1998, by correspondence with the custodian and
brokers or other appropriate auditing procedures where replies from brokers were
not received. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the above mentioned series of Equity Managers Trust at August 31, 1998, the
results of their operations for the year then ended, the changes in their net
assets for each of the two years in the period then ended, and their financial
highlights for each of the periods indicated therein, in conformity with
generally accepted accounting principles.
Boston, Massachusetts /s/ ERNST & YOUNG LLP
October 5, 1998
B-83
<PAGE>
REPORT OF ERNST & YOUNG,
INDEPENDENT AUDITORS
To the Board of Trustees
Global Managers Trust and
Owners of Beneficial Interest of
Neuberger&Berman International Portfolio
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of the Neuberger&Berman International
Portfolio, one of the series constituting Global Managers Trust (the "Trust"),
as of August 31, 1998, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Neuberger&Berman International Portfolio of Global Managers Trust at August 31,
1998, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the financial
highlights for each of the periods indicated therein, in conformity with
accounting principles generally accepted in the United States of America.
/s/ ERNST & YOUNG LLP
Grand Cayman,
Cayman Islands
October 5, 1998
B-84
<PAGE>
DIRECTORY
INVESTMENT MANAGER, ADMINISTRATOR
AND DISTRIBUTOR
Neuberger&Berman Management Incorporated
605 Third Avenue 2nd Floor
New York, NY 10158-0180
800-877-9700
Institutional Services 800-366-6264
SUB-ADVISER
Neuberger&Berman, LLC
605 Third Avenue
New York, NY 10158-3698
CUSTODIAN AND SHAREHOLDER
SERVICING AGENT
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
ADDRESS CORRESPONDENCE TO:
Neuberger&Berman Funds
Boston Service Center
P.O. Box 8403
Boston, MA 02266-8403
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, NW
2nd Floor
Washington, DC 20036-1800
INDEPENDENT ACCOUNTANTS/AUDITORS
PricewaterhouseCoopers LLP
One Post Office Square
Boston, MA 02109
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
Ernst & Young
One Capital Place
Shedden Road
George Town
Grand Cayman, Cayman Islands
Neuberger&Berman Management Inc., Neuberger&Berman Focus Fund, Neuberger&Berman
Genesis Fund, Neuberger&Berman Guardian Fund, Neuberger&Berman International
Fund, Neuberger&Berman Manhattan Fund, Neuberger&Berman Partners Fund, and
Neuberger&Berman Socially Responsive Fund are registered service marks of
Neuberger&Berman Management Inc.
- -C- 1998 Neuberger&Berman Management Inc.
C-1
<PAGE>
OFFICERS AND TRUSTEES
EQUITY MANAGERS TRUST/
NEUBERGER&BERMAN EQUITY FUNDS
Stanley Egener
CHAIRMAN OF THE BOARD AND TRUSTEE
Lawrence Zicklin
PRESIDENT AND TRUSTEE
Faith Colish
TRUSTEE
Howard A. Mileaf
TRUSTEE
Edward I. O'Brien
TRUSTEE
John T. Patterson, Jr.
TRUSTEE
John P. Rosenthal
TRUSTEE
Cornelius T. Ryan
TRUSTEE
Gustave H. Shubert
TRUSTEE
Daniel J. Sullivan
VICE PRESIDENT
Michael J. Weiner
VICE PRESIDENT
Richard Russell
TREASURER
Claudia A. Brandon
SECRETARY
Barbara DiGiorgio
ASSISTANT TREASURER
Celeste Wischerth
ASSISTANT TREASURER
Stacy Cooper-Shugrue
ASSISTANT SECRETARY
C. Carl Randolph
ASSISTANT SECRETARY
GLOBAL MANAGERS TRUST
Stanley Egener
CHAIRMAN OF THE BOARD AND TRUSTEE
Lawrence Zicklin
PRESIDENT
Howard A. Mileaf
TRUSTEE
John T. Patterson, Jr.
TRUSTEE
John P. Rosenthal
TRUSTEE
Daniel J. Sullivan
VICE PRESIDENT
Michael J. Weiner
VICE PRESIDENT
Richard Russell
TREASURER
Claudia A. Brandon
SECRETARY
Barbara DiGiorgio
ASSISTANT TREASURER
Jacqueline Henning
ASSISTANT TREASURER
Celeste Wischerth
ASSISTANT TREASURER
Stacy Cooper-Shugrue
ASSISTANT SECRETARY
Lenore Joan McCabe
ASSISTANT SECRETARY
C. Carl Randolph
ASSISTANT SECRETARY
C-2
<PAGE>
Notice to Shareholders (Unaudited)
For Neuberger&Berman Guardian Fund 90% of the dividends distributed during
the fiscal year ended August 31, 1998 qualifies for the dividend received
deduction for corporate shareholders. The Fund will notify shareholders in
January 1999 of the applicable percentage of qualifying dividends for corporate
shareholders for use in preparing 1998 income tax returns.
C-3
<PAGE>
Neuberger&Berman Management Inc.-Registered Trademark-
605 THIRD AVENUE 2ND FLOOR
NEW YORK, NY 10158-0180
SHAREHOLDER SERVICES
800-877-9700
INSTITUTIONAL SERVICES
800-366-6264
WWW.NBFUNDS.COM
Statistics and projections in this report are derived from sources
deemed to be reliable but cannot be regarded as a representation of
future results of the Funds. This report is prepared for the
general information of shareholders and is not an offer of shares
of the Funds. Shares are sold only through the currently
effective prospectus, which must precede or accompany this report.
[LOGO] PRINTED ON RECYCLED PAPER NBEFAR010898
