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ANNUAL REPORT
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August 31, 1998
NEUBERGER&BERMAN
EQUITY ASSETS-Registered Trademark-
Neuberger&Berman
FOCUS ASSETS
Neuberger&Berman
GENESIS ASSETS
Neuberger&Berman
GUARDIAN ASSETS
Neuberger&Berman
MANHATTAN ASSETS
Neuberger&Berman
PARTNERS ASSETS
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TABLE OF CONTENTS
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THE FUNDS
CHAIRMAN'S LETTER A-4
PORTFOLIO COMMENTARY
Focus Assets A-6
Genesis Assets A-10
Guardian Assets A-13
Manhattan Assets A-16
Partners Assets A-19
GROWTH OF A DOLLAR CHARTS
COMPARISON OF A $10,000 INVESTMENT
Focus Assets B-1
Genesis Assets B-2
Guardian Assets B-3
Manhattan Assets B-4
Partners Assets B-6
FINANCIAL STATEMENTS B-8
FINANCIAL HIGHLIGHTS
PER SHARE DATA
Focus Assets B-18
Genesis Assets B-19
Guardian Assets B-20
Manhattan Assets B-21
Partners Assets B-22
REPORT OF INDEPENDENT
ACCOUNTANTS/AUDITORS B-25
THE PORTFOLIOS
SCHEDULE OF INVESTMENTS
TOP TEN EQUITY HOLDINGS
Focus Portfolio B-27
Genesis Portfolio B-29
Guardian Portfolio B-34
Manhattan Portfolio B-36
Partners Portfolio B-39
FINANCIAL STATEMENTS B-44
FINANCIAL HIGHLIGHTS B-57
REPORT OF INDEPENDENT
ACCOUNTANTS/AUDITORS B-62
OTHER INFORMATION
Directory/Officers and Trustees C-1
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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 itself 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 Assets
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PORTFOLIO COMMENTARY
Neuberger&Berman
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Focus Assets
For the six- and twelve-month fiscal periods concluding August 31, 1998, Focus
Assets declined -24.40% and -17.73%, respectively, versus the Standard & Poor's
500 Index's -8.12% decrease and 8.08% return over the same time periods (see
page B-1 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 than 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,
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Focus Assets (Cont'd)
our 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
A-7
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Focus Assets (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
rate 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
A-8
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Focus Assets (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 CO-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 Assets
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 Assets declined -23.18% and -18.99%, respectively, compared to the
Russell 2000's decreases of -26.48% and -19.40% 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).*
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
A-10
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Genesis Assets (Cont'd)
during August's sharp market correction. Our basic materials investments were
mixed, but strong gains from several of our larger positions 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
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Genesis Assets (Cont'd)
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-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 Assets
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 Assets declined -25.29% and -21.34%, 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-3 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.
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
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Guardian Assets (Cont'd)
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 the
prices of these stocks remain the same, we believe these 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.
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
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Guardian Assets (Cont'd)
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.
Sincerely,
/s/ Kevin Risen /s/ Rick White
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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Manhattan Assets
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 Assets-Registered Trademark- declined -19.52% and -11.29%,
respectively, compared to the Russell Midcap Growth Index's -19.35% and -11.48%
losses 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).*
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
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Manhattan Assets (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 underweighted 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 underweighted
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-17
<PAGE>
- ----------------------------------------------------------------------
Manhattan Assets (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-Trademark- 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-Trademark- 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.-Registered Trademark- 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-18
<PAGE>
PORTFOLIO COMMENTARY
Neuberger&Berman
- ----------------------------------------------------------------------
Partners Assets
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 Assets declined -18.46% and -10.69%, respectively, versus the Standard
& Poor's "500" Index's -8.12% decrease and 8.08% return 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).*
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 that companies would be
dumping product in the global market at any
A-19
<PAGE>
- ----------------------------------------------------------------------
Partners Assets (Cont'd)
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 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
A-20
<PAGE>
- ----------------------------------------------------------------------
Partners Assets (Cont'd)
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-21
<PAGE>
(This page has been left blank intentionally.)
A-22
<PAGE>
COMPARISON OF A $10,000 INVESTMENT
Neuberger&Berman August 31, 1998
- ----------------------------------------------------------------------
Focus Assets
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 -17.73% +8.08%
5 Year +11.44% +18.26%
10 Year +13.97% +17.04%
Focus Assets S&P "500"
1988 $10,000 $10,000
1989 $13,435 $13,922
1990 $12,935 $13,208
1991 $14,999 $16,773
1992 $16,770 $18,104
1993 $21,506 $20,855
1994 $23,733 $22,004
1995 $30,252 $26,718
1996 $31,371 $31,713
1997 $44,923 $44,628
1998 $36,960 $48,235
</TABLE>
The performance information for Neuberger&Berman Focus Assets-Registered
Trademark- is as of August 31, 1998. Neuberger&Berman Focus Assets started
operating on September 4, 1996. It has identical investment objectives and
policies, and invests in the same Portfolio as Neuberger&Berman Focus
Fund-Registered Trademark-("Sister Fund"), which is also managed by
Neuberger&Berman Management Inc.-Registered Trademark- The performance
information shown in the above chart for the period before September 4, 1996, is
for the Sister Fund. Neuberger&Berman Management Inc. voluntarily bears certain
operating expenses of Focus Assets which, in the aggregate, exceed 1.50% per
annum of Focus Assets' average daily net assets, until December 31, 1998. Absent
such arrangement, the average annual total returns of Focus Assets would have
been less. The total returns for the periods prior to Focus Assets' commencement
of operations would have been lower had they reflected the higher expense ratios
of Focus Assets as compared to those of its Sister Fund.
Prior to November 1, 1991, the investment policies of the Sister 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 Assets' current
investment policies. While the Assets' 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 Focus Assets 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-1
<PAGE>
COMPARISON OF A $10,000 INVESTMENT
Neuberger&Berman August 31, 1998
- ----------------------------------------------------------------------
Genesis Assets
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C>
Average Annual Total Return(1)
Genesis Russell 2000-R- Index(2)
1 Year -18.99% -19.40%
5 Year +12.22% +8.06%
Life of Fund +12.49% +10.59%
Genesis Assets Russell 2000
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 $39,739 $33,701
1998 $32,193 $27,164
</TABLE>
The performance information for Neuberger&Berman Genesis Assets-SM- is as of
August 31, 1998. Neuberger&Berman Genesis Assets started operating on April 2,
1997. It has identical investment objectives and policies, and invests in the
same Portfolio as Neuberger&Berman Genesis Fund-Registered Trademark- ("Sister
Fund"), which is also managed by Neuberger&Berman Management Inc.
("Management"). The performance information shown in the above chart for the
period before April 2, 1997, is for the Sister Fund. Management voluntarily
bears certain operating expenses of Genesis Assets which, in the aggregate,
exceed 1.50% per annum of Genesis Assets' average daily net assets, until
December 31, 1998. Management previously agreed to waive a portion of the
management fee borne directly by Neuberger&Berman Genesis Portfolio-SM- and
indirectly by Genesis Assets. Absent such arrangements, the average annual total
returns of Genesis Assets would have been less. The total returns for the
periods prior to Genesis Assets' commencement of operations would have been
lower had they reflected the higher expense ratios of Genesis Assets as compared
to those of its Sister 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 Genesis Assets 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-Registered Trademark- 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 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-2
<PAGE>
COMPARISON OF A $10,000 INVESTMENT
Neuberger&Berman August 31, 1998
- ----------------------------------------------------------------------
Guardian Assets
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 -21.34% +8.08%
5 Year +9.22% +18.26%
10 Year +12.91% +17.04%
Guardian Assets 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 $42,821 $44,628
1998 $33,681 $48,235
</TABLE>
The performance information for Neuberger&Berman Guardian Assets-SM- is as of
August 31, 1998. Neuberger&Berman Guardian Assets started operating on September
4, 1996. It has identical investment objectives and policies, and invests in the
same Portfolio as Neuberger&Berman Guardian Fund-SM- ("Sister Fund"), which is
also managed by Neuberger&Berman Management Inc. The performance information
shown in the above chart for the period before September 4, 1996, is for the
Sister Fund. Neuberger&Berman Management Inc. voluntarily bears certain
operating expenses of Guardian Assets which, in the aggregate, exceed 1.50% per
annum of Guardian Assets' average daily net assets, until December 31, 1998.
Absent such arrangement, the average annual total returns of Guardian Assets
would have been less. The total returns for the periods prior to Guardian
Assets' commencement of operations would have been lower had they reflected the
higher expense ratios of Guardian Assets as compared to those of its Sister
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 Guardian Assets 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-3
<PAGE>
COMPARISON OF A $10,000 INVESTMENT
Neuberger&Berman August 31, 1998
- ----------------------------------------------------------------------
Manhattan Assets
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 -11.29% +8.08% -11.48%
5 Year +9.17% +18.26% +11.30%
10 Year +12.55% +17.04% +14.25%
Manhattan Assets S&P "500" Russell Midcap Growth
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 $36,783 $44,628 $42,825
1998 $32,632 $48,235 $37,909
</TABLE>
The performance information for Neuberger&Berman Manhattan Assets-Registered
Trademark- is as of August 31, 1998. Neuberger&Berman Manhattan Assets started
operating on September 4, 1996. It has identical investment objectives and
policies, and invests in the same Portfolio as Neuberger&Berman Manhattan Fund-
Registered Trademark- ("Sister Fund"), which is also managed by Neuberger&
Berman Management Inc. The performance information shown in the above chart for
the period before September 4, 1996, is for the Sister Fund. Neuberger&Berman
Management Inc. voluntarily bears certain operating expenses of Manhattan Assets
which, in the aggregate, exceed 1.50% per annum of Manhattan Assets' average
daily net assets, until December 31, 1998. Absent such arrangement, the average
annual total returns of Manhattan Assets would have been less. The total returns
for the periods prior to Manhattan Assets' commencement of operations would have
been lower had they reflected the higher expense ratios of Manhattan Assets as
compared to those of its Sister 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 Manhattan Assets 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,
B-4
<PAGE>
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-Trademark-
Growth Index measures the performance of those Russell Midcap-Trademark- 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, 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-5
<PAGE>
COMPARISON OF A $10,000 INVESTMENT
Neuberger&Berman August 31, 1998
- ----------------------------------------------------------------------
Partners Assets
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 -10.69% +8.08%
5 Year +13.80% +18.26%
10 Year +14.41% +17.04%
Partners Assets 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 $29,416 $31,713
1997 $43,024 $44,628
1998 $38,426 $48,235
</TABLE>
The performance information for Neuberger&Berman Partners Assets-Registered
Trademark- is as of August 31, 1998. Neuberger&Berman Partners Assets started
operating on August 19, 1996. It has identical investment objectives and
policies, and invests in the same Portfolio as Neuberger&Berman Partners Fund-
Registered Trademark- ("Sister Fund"), which is also managed by Neuberger&
Berman Management Inc. The performance information shown in the above chart for
the period before August 19, 1996, is for the Sister Fund. Neuberger&Berman
Management Inc. voluntarily bears certain operating expenses of Partners Assets
which, in the aggregate, exceed 1.50% per annum of Partners Assets' average
daily net assets, until December 31, 1998. Absent such arrangement, the average
annual total returns of Partners Assets would have been less. The total returns
for the periods prior to Partners Assets' commencement of operations would have
been lower had they reflected the higher expense ratios of Partners Assets as
compared to those of its Sister 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 Partners Assets 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-6
<PAGE>
(This page has been left blank intentionally.)
B-7
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
Neuberger&Berman
- ----------------------------------------------------------------------
Equity Assets
<TABLE>
<CAPTION>
FOCUS GENESIS
ASSETS ASSETS
-------------------------------
<S> <C> <C>
ASSETS
Investment in corresponding Portfolio, at
value (Note A) $ 486,195 $ 24,368,493
Deferred organization costs (Note A) 35,190 43,620
Receivable for Trust shares sold -- 107,287
Receivable from administrator -- net (Note
B) 171,430 --
-------------------------------
692,815 24,519,400
-------------------------------
LIABILITIES
Payable for Fund expenses (Note B) 126,447 --
Payable for Trust shares redeemed 11,977 22,804
Payable to administrator -- net (Note B) -- 5,617
Accrued organization costs (Note A) 58,468 --
Accrued expenses 20,193 25,044
-------------------------------
217,085 53,465
-------------------------------
NET ASSETS at value $ 475,730 $ 24,465,935
-------------------------------
NET ASSETS consist of:
Par value $ 42 $ 2,293
Paid-in capital in excess of par value 582,229 30,729,433
Accumulated undistributed net investment
income -- 47,908
Accumulated net realized gains (losses) on
investment (12,725) (114,712)
Net unrealized depreciation in value of
investment (93,816) (6,198,987)
-------------------------------
NET ASSETS at value $ 475,730 $ 24,465,935
-------------------------------
SHARES OUTSTANDING
($.001 par value; unlimited shares
authorized) 42,048 2,292,802
-------------------------------
NET ASSET VALUE, offering and redemption price per
share $11.31 $10.67
-------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-8
<PAGE>
August 31, 1998
- ----------------------------------------------------------------------
Equity Assets
<TABLE>
<CAPTION>
GUARDIAN MANHATTAN PARTNERS
ASSETS ASSETS ASSETS
------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investment in corresponding Portfolio, at
value (Note A) $ 17,547,551 $ 223,611 $ 29,096,306
Deferred organization costs (Note A) 35,190 35,104 34,177
Receivable for Trust shares sold 2,914 -- 227,225
Receivable from administrator -- net (Note
B) -- 175,151 --
------------------------------------------------
17,585,655 433,866 29,357,708
------------------------------------------------
LIABILITIES
Payable for Fund expenses (Note B) -- 130,529 --
Payable for Trust shares redeemed 217 18,239 36,089
Payable to administrator -- net (Note B) 17,198 -- 23,027
Accrued organization costs (Note A) -- 58,325 --
Accrued expenses 19,695 18,891 20,049
------------------------------------------------
37,110 225,984 79,165
------------------------------------------------
NET ASSETS at value $ 17,548,545 $ 207,882 $ 29,278,543
------------------------------------------------
NET ASSETS consist of:
Par value $ 1,623 $ 19 $ 2,325
Paid-in capital in excess of par value 21,934,555 235,357 34,498,912
Accumulated undistributed net investment
income -- -- 16,664
Accumulated net realized gains (losses) on
investment (267,953) 1,195 (724,059)
Net unrealized depreciation in value of
investment (4,119,680) (28,689) (4,515,299)
------------------------------------------------
NET ASSETS at value $ 17,548,545 $ 207,882 $ 29,278,543
------------------------------------------------
SHARES OUTSTANDING
($.001 par value; unlimited shares
authorized) 1,623,363 19,329 2,324,656
------------------------------------------------
NET ASSET VALUE, offering and redemption price per
share $10.81 $10.76 $12.59
------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-9
<PAGE>
STATEMENTS OF OPERATIONS
Neuberger&Berman
- ----------------------------------------------------------------------
Equity Assets
<TABLE>
<CAPTION>
FOCUS GENESIS
ASSETS ASSETS
---------------------------
<S> <C> <C>
INVESTMENT INCOME
Investment income from corresponding Portfolio
(Note A) $ 3,539 $ 170,275
---------------------------
Expenses:
Administration fee (Note B) 1,245 32,446
Amortization of deferred organization and
initial offering expenses (Note A) 11,687 12,148
Auditing fees 5,300 5,300
Custodian fees 10,000 10,000
Distribution fees (Note B) 471 20,147
Legal fees 2,980 3,354
Registration and filing fees 25,343 24,351
Shareholder reports 11,274 14,864
Shareholder servicing agent fees 16,595 11,663
Trustees' fees and expenses 3 74
Miscellaneous 691 522
Expenses from corresponding Portfolio (Notes
A & B) 1,602 59,299
---------------------------
Total expenses 87,191 194,168
Expenses reimbursed by administrator and
reduced by custodian fee expense offset
arrangement (Note B) (82,521) (72,496)
---------------------------
Total net expenses 4,670 121,672
---------------------------
Net investment income (loss) (1,131) 48,603
---------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
FROM CORRESPONDING PORTFOLIO (NOTE A)
Net realized gain (loss) on investment
securities (12,332) (133,272)
Net realized gain (loss) on option contracts (564) --
Change in net unrealized appreciation
(depreciation) of investment securities and
option contracts (132,136) (6,253,262)
---------------------------
Net loss on investments from corresponding
Portfolio (Note A) (145,032) (6,386,534)
---------------------------
Net decrease in net assets resulting from
operations $ (146,163) $ (6,337,931)
---------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-10
<PAGE>
For the Year Ended August 31, 1998
- ----------------------------------------------------------------------
Equity Assets
<TABLE>
<CAPTION>
GUARDIAN MANHATTAN PARTNERS
ASSETS ASSETS ASSETS
------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Investment income from corresponding Portfolio
(Note A) $ 227,862 $ 1,090 $ 325,543
------------------------------------------------
Expenses:
Administration fee (Note B) 67,676 838 80,343
Amortization of deferred organization and
initial offering expenses (Note A) 11,688 11,658 11,518
Auditing fees 5,300 5,600 5,300
Custodian fees 10,000 10,002 10,000
Distribution fees (Note B) 42,298 213 50,214
Legal fees 2,577 4,172 3,057
Registration and filing fees 33,243 25,048 28,699
Shareholder reports 7,683 13,258 11,874
Shareholder servicing agent fees 17,408 16,428 16,063
Trustees' fees and expenses 120 3 6
Miscellaneous 699 691 686
Expenses from corresponding Portfolio (Notes
A & B) 77,370 1,204 95,036
------------------------------------------------
Total expenses 276,062 89,115 312,796
Expenses reimbursed by administrator and
reduced by custodian fee expense offset
arrangement (Note B) (21,586) (85,972) (10,829)
------------------------------------------------
Total net expenses 254,476 3,143 301,967
------------------------------------------------
Net investment income (loss) (26,614) (2,053) 23,576
------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
FROM CORRESPONDING PORTFOLIO (NOTE A)
Net realized gain (loss) on investment
securities (355,682) 1,509 (705,466)
Net realized gain (loss) on option contracts 33,811 -- --
Change in net unrealized appreciation
(depreciation) of investment securities and
option contracts (4,845,187) (45,409) (4,835,972)
------------------------------------------------
Net loss on investments from corresponding
Portfolio (Note A) (5,167,058) (43,900) (5,541,438)
------------------------------------------------
Net decrease in net assets resulting from
operations $ (5,193,672) $ (45,953) $ (5,517,862)
------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-11
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
Neuberger&Berman
- ----------------------------------------------------------------------
Equity Assets
<TABLE>
<CAPTION>
FOCUS ASSETS
Period from GENESIS ASSETS
September 4, Period from
1996 April 2, 1997
(Commencement (Commencement
of of
Year Operations) Year Operations)
Ended to Ended to
August 31, August 31, August 31, August 31,
1998 1997 1998 1997
-------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) $ (1,131) $ (518) $ 48,603 $ (337)
Net realized gain (loss) on
investments from corresponding
Portfolio (Note A) (12,896) 5,564 (133,272) 2,268
Change in net unrealized
appreciation (depreciation) of
investments from corresponding
Portfolio (Note A) (132,136) 38,320 (6,253,262) 54,275
-------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations (146,163) 43,366 (6,337,931) 56,206
-------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- -- -- --
Net realized gain on investments (5,827) -- (2,617) --
-------------------------------------------------------------
Total distributions to shareholders (5,827) -- (2,617) --
-------------------------------------------------------------
FROM TRUST SHARE TRANSACTIONS:
Proceeds from shares sold 550,896 100,010 33,602,259 673,996
Proceeds from reinvestment of
dividends and distributions 5,827 -- 2,617 --
Payments for shares redeemed (72,379) -- (3,528,565) (30)
-------------------------------------------------------------
Net increase from Trust share
transactions 484,344 100,010 30,076,311 673,966
-------------------------------------------------------------
NET INCREASE IN NET ASSETS 332,354 143,376 23,735,763 730,172
NET ASSETS:
Beginning of year 143,376 -- 730,172 --
-------------------------------------------------------------
End of year $ 475,730 $ 143,376 $ 24,465,935 $ 730,172
-------------------------------------------------------------
Accumulated undistributed net
investment income at end of year $ -- $ -- $ 47,908 $ --
-------------------------------------------------------------
NUMBER OF TRUST SHARES:
Sold 36,548 10,001 2,502,346 55,276
Issued on reinvestment of dividends
and distributions 434 -- 192 --
Redeemed (4,935) -- (265,010) (2)
-------------------------------------------------------------
Net increase in shares outstanding 32,047 10,001 2,237,528 55,274
-------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-12
<PAGE>
- ----------------------------------------------------------------------
Equity Assets
<TABLE>
<CAPTION>
GUARDIAN ASSETS MANHATTAN ASSETS
Period from Period from
September September
4, 1996 4, 1996
(Commencement (Commencement PARTNERS ASSETS
of of
Year Operations) Year Operations) Year
Ended to Ended to Ended
August 31, August 31, 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) $ (26,614) $ (2,926) $ (2,053) $ (825) $ 23,576 $ 1,072
Net realized gain (loss) on
investments from corresponding
Portfolio (Note A) (321,871) 116,398 1,509 22,981 (705,466) 131,273
Change in net unrealized
appreciation (depreciation) of
investments from corresponding
Portfolio (Note A) (4,845,187) 725,507 (45,409) 16,720 (4,835,972) 321,444
---------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations (5,193,672) 838,979 (45,953) 38,876 (5,517,862) 453,789
---------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- (296) -- -- (7,807) (147)
Net realized gain on investments (133,550) -- (22,498) (1,100) (249,831) (735)
---------------------------------------------------------------------------------
Total distributions to shareholders (133,550) (296) (22,498) (1,100) (257,638) (882)
---------------------------------------------------------------------------------
FROM TRUST SHARE TRANSACTIONS:
Proceeds from shares sold 14,285,243 9,409,019 143,110 100,010 31,553,872 5,428,435
Proceeds from reinvestment of
dividends and distributions 133,550 296 22,498 1,100 257,638 881
Payments for shares redeemed (850,481) (940,543) (28,161) -- (2,576,682) (166,509)
---------------------------------------------------------------------------------
Net increase from Trust share
transactions 13,568,312 8,468,772 137,447 101,110 29,234,828 5,262,807
---------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 8,241,090 9,307,455 68,996 138,886 23,459,328 5,715,714
NET ASSETS:
Beginning of year 9,307,455 -- 138,886 -- 5,819,215 103,501
---------------------------------------------------------------------------------
End of year $17,548,545 $9,307,455 $ 207,882 $ 138,886 $29,278,543 $ 5,819,215
---------------------------------------------------------------------------------
Accumulated undistributed net
investment income at end of year $ -- $ -- $ -- $ -- $ 16,664 $ 928
---------------------------------------------------------------------------------
NUMBER OF TRUST SHARES:
Sold 1,003,724 746,797 9,764 10,001 2,071,720 406,827
Issued on reinvestment of dividends
and distributions 10,202 26 1,812 99 17,917 76
Redeemed (61,267) (76,119) (2,347) -- (168,502) (13,828)
---------------------------------------------------------------------------------
Net increase in shares outstanding 952,659 670,704 9,229 10,100 1,921,135 393,075
---------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Neuberger&Berman August 31, 1998
- ----------------------------------------------------------------------
Equity Assets
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1) GENERAL: Neuberger&Berman Focus Assets ("Focus"), Neuberger&Berman Genesis
Assets ("Genesis"), Neuberger&Berman Guardian Assets ("Guardian"),
Neuberger&Berman Manhattan Assets ("Manhattan"), and Neuberger&Berman
Partners Assets ("Partners") (collectively, the "Funds") are separate
operating series of Neuberger&Berman Equity Assets (the "Trust"), a Delaware
business trust organized pursuant to a Trust Instrument dated October 18,
1993. The Trust had no operations until April 2, 1997, for Genesis; September
4, 1996, for Focus, Guardian, and Manhattan; and August 19, 1996, for
Partners, other than matters relating to its organization and registration as
a diversified, open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"), and registration of its
shares 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 (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 (0.04%, 1.34%, 0.30%, 0.04%, and 0.81%, for Focus, Genesis,
Guardian, Manhattan, and Partners, respectively, at August 31, 1998). 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
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
B-14
<PAGE>
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 ($19,527 expiring in 2006 for Guardian, determined as of August
31, 1998), 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, Focus and Partners hereby
designate an additional $69 and $710, respectively, as capital gain
distributions for purposes of the dividend paid deduction.
5) ORGANIZATION EXPENSES: Expenses incurred by each Fund in connection with its
organization are being amortized by each Fund on a straight-line basis over a
five-year period. At August 31, 1998, the unamortized balance of such
expenses amounted to $35,190, $43,620, $35,190, $35,104, and $34,177, for
Focus, Genesis, Guardian, Manhattan, and Partners, respectively. The accrued
organization costs for Focus and Manhattan are payable to Neuberger&Berman
Management Incorporated ("N&B Management"), the administrator of each Fund.
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.
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") dated as of February 13, 1996, as amended on
B-15
<PAGE>
August 2, 1996. Pursuant to this Agreement each Fund pays N&B Management an
administration fee at the annual rate of 0.40% 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 acts as agent in arranging for the sale of Fund shares without
commission and bears advertising and promotion expenses. The trustees of the
Trust have adopted a plan pursuant to Rule 12b-1 under the 1940 Act (the
"Plan"). The Plan provides that, as compensation for administrative and other
services provided to the Funds, N&B Management's activities and expenses related
to the sale and distribution of Fund shares, and ongoing services provided to
investors in the Funds, N&B Management receives from each Fund a fee at the
annual rate of 0.25% of that Fund's average daily net assets. N&B Management
pays this amount to institutions that distribute Fund shares and provide
services to the Funds and their shareholders. Those institutions may use the
payments for, among other purposes, compensating employees engaged in sales
and/or shareholder servicing. The amount of fees paid by each Fund during any
year may be more or less than the cost of distribution and other services
provided to that Fund. NASD rules limit the amount of annual distribution fees
that may be paid by a mutual fund and impose a ceiling on the cumulative
distribution fees paid. The Trust's Plan complies with those rules.
N&B Management has voluntarily undertaken until December 31, 1998, to
reimburse each Fund 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) which exceed, in the aggregate, 1.50% per annum of the
Fund's average daily net assets. For the year ended August 31, 1998, such excess
expenses amounted to $82,521, $72,484, $21,582, $85,971, and $10,825, for Focus,
Genesis, Guardian, Manhattan, and Partners, respectively.
Since inception of Focus and Manhattan, N&B Management has voluntarily
undertaken to pay certain expenses of each Fund as an advance. These expenses
will be repaid by the Funds to N&B Management in the future, and are included
under the caption Payable for Fund expenses in the Statements of Assets and
Liabilities.
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 commissions for sales or redemptions of shares of
beneficial interest of each Fund, but receives fees under the Plan, as described
above.
B-16
<PAGE>
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
$0.13 and $0.08, $9.19 and $2.96, $1.45 and $2.33, $0.56 and $0.20, $2.20 and
$1.36, for Focus, Genesis, Guardian, Manhattan, and Partners, 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 $ 597,996 $ 112,836
GENESIS 31,646,272 1,733,099
GUARDIAN 14,010,135 742,559
MANHATTAN 148,557 20,479
PARTNERS 29,990,378 1,376,232
</TABLE>
B-17
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Focus Assets
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the Financial
Statements. The per share amounts and ratios which are shown reflect income and
expenses, including the Fund's proportionate share of its corresponding
Portfolio's income and expenses. It should be read in conjunction with its
corresponding Portfolio's Financial Statements and notes thereto.
<TABLE>
<CAPTION>
Period
from
September
4,
Year 1996(1)
Ended to
August August
31, 31,
1998 1997
-------------------
<S> <C> <C>
Net Asset Value, Beginning of Year $14.34 $10.00
-------------------
Income From Investment Operations
Net Investment Loss (.03) (.05)
Net Gains or Losses on Securities
(both realized and unrealized) (2.42) 4.39
-------------------
Total From Investment Operations (2.45) 4.34
-------------------
Less Distributions
Distributions (from net capital
gains) (.58) --
-------------------
Net Asset Value, End of Year $11.31 $14.34
-------------------
Total Return(2) -17.73% +43.40%(3)
-------------------
Ratios/Supplemental Data
Net Assets, End of Year (in
thousands) $475.7 $143.4
-------------------
Ratio of Gross Expenses to Average
Net Assets(4) 1.50% 1.50%(5)
-------------------
Ratio of Net Expenses to Average Net
Assets(6) 1.50% 1.50%(5)
-------------------
Ratio of Net Investment Loss to
Average Net Assets (.36%) (.43%)(5)
-------------------
</TABLE>
SEE NOTES TO FINANCIAL HIGHLIGHTS
B-18
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Genesis Assets
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the Financial
Statements. The per share amounts and ratios which are shown reflect income and
expenses, including the Fund's proportionate share of its corresponding
Portfolio's income and expenses. It should be read in conjunction with its
corresponding Portfolio's Financial Statements and notes thereto.
<TABLE>
<CAPTION>
Period
from
April
2,
1997(1)
to
Year Ended August
August 31, 31,
1998 1997
----------------------
<S> <C> <C>
Net Asset Value, Beginning of Year $ 13.21 $10.00
----------------------
Income From Investment Operations
Net Investment Income (Loss) .02 (.01)
Net Gains or Losses on Securities
(both realized and unrealized) (2.52) 3.22
----------------------
Total From Investment Operations (2.50) 3.21
----------------------
Less Distributions
Distributions (from net capital
gains) (.04) --
----------------------
Net Asset Value, End of Year $ 10.67 $13.21
----------------------
Total Return(2) -18.99% +32.10%(3)
----------------------
Ratios/Supplemental Data
Net Assets, End of Year (in
thousands) $ 24,465.9 $730.2
----------------------
Ratio of Gross Expenses to Average
Net Assets(4) 1.50% 1.50%(5)
----------------------
Ratio of Net Expenses to Average Net
Assets(6) 1.50% 1.50%(5)
----------------------
Ratio of Net Investment Income
(Loss) to Average Net Assets .60% (.36%)(5)
----------------------
</TABLE>
SEE NOTES TO FINANCIAL HIGHLIGHTS
B-19
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Guardian Assets
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the Financial
Statements. The per share amounts and ratios which are shown reflect income and
expenses, including the Fund's proportionate share of its corresponding
Portfolio's income and expenses. It should be read in conjunction with its
corresponding Portfolio's Financial Statements and notes thereto.
<TABLE>
<CAPTION>
Period
from
September
4,
1996(1)
to
Year Ended August
August 31, 31,
1998 1997
------------------------
<S> <C> <C>
Net Asset Value, Beginning of Year $ 13.88 $ 10.00
------------------------
Income From Investment Operations
Net Investment Income (Loss) (.02) .01
Net Gains or Losses on Securities
(both realized and unrealized) (2.92) 3.88
------------------------
Total From Investment Operations (2.94) 3.89
------------------------
Less Distributions
Dividends (from net investment
income) -- (.01)
Distributions (from net capital
gains) (.13) --
------------------------
Total Distributions (.13) (.01)
------------------------
Net Asset Value, End of Year $ 10.81 $ 13.88
------------------------
Total Return(2) -21.34% +38.92%(3)
------------------------
Ratios/Supplemental Data
Net Assets, End of Year (in
thousands) $ 17,548.5 $9,307.5
------------------------
Ratio of Gross Expenses to Average
Net Assets(4) 1.50% 1.50%(5)
------------------------
Ratio of Net Expenses to Average Net
Assets(6) 1.50% 1.50%(5)
------------------------
Ratio of Net Investment Loss to
Average Net Assets (.16%) (.12%)(5)
------------------------
</TABLE>
SEE NOTES TO FINANCIAL HIGHLIGHTS
B-20
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Manhattan Assets
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the Financial
Statements. The per share amounts and ratios which are shown reflect income and
expenses, including the Fund's proportionate share of its corresponding
Portfolio's income and expenses. It should be read in conjunction with its
corresponding Portfolio's Financial Statements and notes thereto.
<TABLE>
<CAPTION>
Period
from
September
4,
Year 1996(1)
Ended to
August August
31, 31,
1998 1997
-------------------
<S> <C> <C>
Net Asset Value, Beginning of Year $13.75 $10.00
-------------------
Income From Investment Operations
Net Investment Loss (.11) (.08)
Net Gains or Losses on Securities
(both realized and unrealized) (1.22) 3.94
-------------------
Total From Investment Operations (1.33) 3.86
-------------------
Less Distributions
Distributions (from net capital
gains) (1.66) (.11)
-------------------
Net Asset Value, End of Year $10.76 $13.75
-------------------
Total Return(2) -11.29% +38.86%(3)
-------------------
Ratios/Supplemental Data
Net Assets, End of Year (in
thousands) $207.9 $138.9
-------------------
Ratio of Gross Expenses to Average
Net Assets(4) 1.50% 1.50%(5)
-------------------
Ratio of Net Expenses to Average Net
Assets(6) 1.50% 1.50%(5)
-------------------
Ratio of Net Investment Loss to
Average Net Assets (.98%) (.70%)(5)
-------------------
</TABLE>
SEE NOTES TO FINANCIAL HIGHLIGHTS
B-21
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Partners Assets
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the Financial
Statements. The per share amounts and ratios which are shown reflect income and
expenses, including the Fund's proportionate share of its corresponding
Portfolio's income and expenses. It should be read in conjunction with its
corresponding Portfolio's Financial Statements and notes thereto.
<TABLE>
<CAPTION>
Period
from
August
19,
1996(1)
to
August
Year Ended August 31, 31,
1998 1997 1996
------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Year $ 14.42 $ 9.91 $10.00
------------------------------------
Income From Investment Operations
Net Investment Income .01 .01 --
Net Gains or Losses on Securities
(both realized and unrealized) (1.51) 4.56 (.09)
------------------------------------
Total From Investment Operations (1.50) 4.57 (.09)
------------------------------------
Less Distributions
Dividends (from net investment
income) (.01) (.01) --
Distributions (from net capital
gains) (.32) (.05) --
------------------------------------
Total Distributions (.33) (.06) --
------------------------------------
Net Asset Value, End of Year $ 12.59 $ 14.42 $ 9.91
------------------------------------
Total Return(2) -10.69% +46.26% -0.90%(3)
------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year (in
thousands) $29,278.5 $ 5,819.2 $103.5
------------------------------------
Ratio of Gross Expenses to Average
Net Assets(4) 1.50% 1.50% 1.50%(5)
------------------------------------
Ratio of Net Expenses to Average Net
Assets(6) 1.50% 1.50% 1.50%(5)
------------------------------------
Ratio of Net Investment Income to
Average Net Assets .12% .08% 2.38%(5)
------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL HIGHLIGHTS
B-22
<PAGE>
NOTES TO FINANCIAL HIGHLIGHTS
Neuberger&Berman August 31, 1998
- ----------------------------------------------------------------------
Equity Assets
1) The date investment operations commenced.
2) 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. Total return would
have been lower if N&B Management had not reimbursed certain expenses. In
addition, for Genesis, total return would have been lower if the investment
manager had not waived a portion of the management fee.
3) Not annualized.
4) The Fund is required to calculate an expense ratio without taking into
consideration any expense reductions related to expense offset arrangements.
5) Annualized.
6) 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 to average daily net assets would have
been:
<TABLE>
<CAPTION>
Period
from
September
Year 4, 1996
Ended to
August August
31, 31,
FOCUS 1998 1997
- --------------------------------------------------------------------
<S> <C> <C>
Net Expenses 28.01% 76.74%
</TABLE>
<TABLE>
<CAPTION>
Period
from
September
Year 4, 1996
Ended to
August August
31, 31,
GUARDIAN 1998 1997
- ------------------------------------------------------------------
<S> <C> <C>
Net Expenses 1.63% 5.65%
</TABLE>
<TABLE>
<CAPTION>
Period
from
September
Year 4, 1996
Ended to
August August
31, 31,
MANHATTAN 1998 1997
- --------------------------------------------------------------------
<S> <C> <C>
Net Expenses 42.53% 77.83%
</TABLE>
B-23
<PAGE>
<TABLE>
<CAPTION>
Period from
August 19,
1996
Year Ended to August
August 31, 31,
PARTNERS 1998 1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Expenses 1.56% 8.74% 11,685.89%
</TABLE>
After reimbursement of expenses by N&B Management as described in Note B of
Notes to Financial Statements and/or the waiver of a portion of the management
fee by the investment manager as described in Note B of Notes to Financial
Statements of Neuberger&Berman Genesis Portfolio. Had N&B Management not
undertaken such action the annualized ratios of net expenses to average daily
net assets would have been:
<TABLE>
<CAPTION>
Period
from
April
Year 2, 1997
Ended to
August August
31, 31,
GENESIS 1998 1997
- -------------------------------------------------------------------
<S> <C> <C>
Net Expenses 2.40% 25.91%
</TABLE>
B-24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of Neuberger&Berman Equity Assets and
Shareholders of Neuberger&Berman Manhattan Assets
In our opinion, the accompanying statement 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 Assets (the "Assets") at August 31, 1998, the results
of its operations for the year then ended, and the changes in its net assets and
the financial highlights for the year then ended and for the period from
September 4, 1996 (commencement of operations) through August 31, 1997, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Assets' 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-25
<PAGE>
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Board of Trustees
Neuberger&Berman Equity Assets and
Shareholders of:
Neuberger&Berman Focus Assets
Neuberger&Berman Genesis Assets
Neuberger&Berman Guardian Assets and
Neuberger&Berman Partners Assets
We have audited the accompanying statements of assets and liabilities of the
Neuberger&Berman Focus Assets, Neuberger&Berman Genesis Assets, Neuberger&
Berman Guardian Assets, and Neuberger&Berman Partners Assets, four of the series
constituting the Neuberger&Berman Equity Assets (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 the Neuberger&Berman Equity Assets 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.
[SIGNATURE]
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
October 5, 1998
B-26
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman August 31, 1998
- --------------------------------------------------------------------------------
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-27
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman 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-28
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman August 31, 1998
- --------------------------------------------------------------------------------
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-29
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman
- --------------------------------------------------------------------------------
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-30
<PAGE>
August 31, 1998
- --------------------------------------------------------------------------------
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-31
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman
- --------------------------------------------------------------------------------
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-32
<PAGE>
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-33
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman
- --------------------------------------------------------------------------------
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-34
<PAGE>
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-35
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman
- --------------------------------------------------------------------------------
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-36
<PAGE>
August 31, 1998
- --------------------------------------------------------------------------------
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-37
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman 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-38
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman August 31, 1998
- --------------------------------------------------------------------------------
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-39
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman
- --------------------------------------------------------------------------------
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-40
<PAGE>
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-41
<PAGE>
NOTES TO SCHEDULE OF INVESTMENTS
August 31, 1998
- ----------------------------------------------------------------------
Equity 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. The Portfolios
value all other securities by a method the trustees of Equity 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)
</TABLE>
6) The following securities were held in escrow at August 31, 1998, to cover
outstanding call options written:
<TABLE>
<CAPTION>
MARKET
MARKET VALUE VALUE
SECURITIES AND OF PREMIUM ON OF
NEUBERGER&BERMAN SHARES OPTIONS SECURITIES OPTIONS 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 13,312,500 1,340,955 18,750
September 1998 @ 70
</TABLE>
B-42
<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, this
security amounted to $15,755,000 or 0.4% of net assets for Neuberger&Berman
Partners Portfolio.
SEE NOTES TO FINANCIAL STATEMENTS
B-43
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
- ----------------------------------------------------------------------
Equity Managers Trust
<TABLE>
<CAPTION>
FOCUS GENESIS
(000'S OMITTED) PORTFOLIO PORTFOLIO
-------------------------------
<S> <C> <C>
ASSETS
Investments in securities, at market value*
(Notes A & E) -- see Schedule of
Investments:
Unaffiliated issuers $ 1,300,533 $ 1,687,583
Non-controlled affiliated issuers 20,059 166,762
-------------------------------
1,320,592 1,854,345
Cash 6 15
Dividends and interest receivable 1,342 3,270
Other assets 13 7
Receivable for securities sold 43,615 6,061
-------------------------------
1,365,568 1,863,698
-------------------------------
LIABILITIES
Option contracts written, at market value
(Note A) -- --
Payable for collateral on securities loaned
(Note A) 20,989 44,199
Payable for securities purchased 26,008 5,017
Payable to investment manager (Note B) 682 1,245
Accrued expenses and other payables 411 882
-------------------------------
48,090 51,343
-------------------------------
NET ASSETS Applicable to Investors' Beneficial
Interests $ 1,317,478 $ 1,812,355
-------------------------------
NET ASSETS consist of:
Paid-in capital $ 1,093,337 $ 2,085,116
Net unrealized appreciation (depreciation)
in value of investment securities and
option contracts 224,141 (272,761)
-------------------------------
NET ASSETS $ 1,317,478 $ 1,812,355
-------------------------------
*Cost of investments:
Unaffiliated issuers $ 1,057,642 $ 1,956,664
Non-controlled affiliated issuers 38,809 170,442
-------------------------------
Total cost of investments $ 1,096,451 $ 2,127,106
-------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-44
<PAGE>
August 31,1998
- ----------------------------------------------------------------------
Equity Managers Trust
<TABLE>
<CAPTION>
GUARDIAN MANHATTAN PARTNERS
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments in securities, at market value*
(Notes A & E) -- see Schedule of
Investments:
Unaffiliated issuers $ 5,051,465 $ 584,430 $ 3,648,858
Non-controlled affiliated issuers 874,549 -- --
------------------------------------------------
5,926,014 584,430 3,648,858
Cash 5 10 5
Dividends and interest receivable 7,962 967 5,164
Other assets 75 5 30
Receivable for securities sold 47,808 6,665 17,600
------------------------------------------------
5,981,864 592,077 3,671,657
------------------------------------------------
LIABILITIES
Option contracts written, at market value
(Note A) 58 -- --
Payable for collateral on securities loaned
(Note A) 32,636 60,535 37,438
Payable for securities purchased 157,099 7,110 50,490
Payable to investment manager (Note B) 2,655 287 1,561
Accrued expenses and other payables 1,611 786 831
------------------------------------------------
194,059 68,718 90,320
------------------------------------------------
NET ASSETS Applicable to Investors' Beneficial
Interests $ 5,787,805 $ 523,359 $ 3,581,337
------------------------------------------------
NET ASSETS consist of:
Paid-in capital $ 5,613,432 $ 536,233 $ 3,752,582
Net unrealized appreciation (depreciation)
in value of investment securities and
option contracts 174,373 (12,874) (171,245)
------------------------------------------------
NET ASSETS $ 5,787,805 $ 523,359 $ 3,581,337
------------------------------------------------
*Cost of investments:
Unaffiliated issuers $ 4,800,586 $ 597,304 $ 3,820,103
Non-controlled affiliated issuers 954,496 -- --
------------------------------------------------
Total cost of investments $ 5,755,082 $ 597,304 $ 3,820,103
------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-45
<PAGE>
STATEMENTS OF OPERATIONS
- ----------------------------------------------------------------------
Equity Managers Trust
<TABLE>
<CAPTION>
FOCUS GENESIS
(000'S OMITTED) PORTFOLIO PORTFOLIO
---------------------------
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividend income -- unaffiliated issuers $ 14,684 $ 28,496
Dividend income -- non-controlled affiliated
issuers 562 487
Interest income 3,583 9,353
Foreign taxes withheld (Note A) (19) --
---------------------------
Total income 18,810 38,336
---------------------------
Expenses:
Investment management fee (Note B) 8,235 14,776
Accounting fees 10 10
Amortization of deferred organization and
initial offering expenses (Note A) 8 2
Auditing fees 44 25
Custodian fees (Note B) 324 401
Insurance expense 22 12
Legal fees 23 61
Trustees' fees and expenses 20 24
Miscellaneous 2 43
---------------------------
Total expenses 8,688 15,354
Fee waived by investment manager and/or
expenses reduced by custodian fee expense
offset arrangement (Note B) (1) (456)
---------------------------
Total net expenses 8,687 14,898
---------------------------
Net investment income (loss) 10,123 23,438
---------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investment securities
sold in unaffiliated issuers 79,344 35,406
Net realized gain on investment securities
sold in non-controlled affiliated issuers (255) --
Net realized gain (loss) on option contracts
(Note A) (4,403) --
Change in net unrealized appreciation
(depreciation) of investment securities and
option contracts (360,086) (545,041)
---------------------------
Net loss on investments (285,400) (509,635)
---------------------------
Net decrease in net assets resulting from
operations $ (275,277) $ (486,197)
---------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-46
<PAGE>
For the Year Ended August 31, 1998
- ----------------------------------------------------------------------
Equity Managers Trust
<TABLE>
<CAPTION>
GUARDIAN MANHATTAN PARTNERS
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Income:
Dividend income -- unaffiliated issuers $ 81,304 $ 1,610 $ 58,525
Dividend income -- non-controlled affiliated
issuers 5,375 -- --
Interest income 30,752 1,798 7,756
Foreign taxes withheld (Note A) (820) (3) (305)
------------------------------------------------
Total income 116,611 3,405 65,976
------------------------------------------------
Expenses:
Investment management fee (Note B) 37,039 3,466 18,715
Accounting fees 10 10 10
Amortization of deferred organization and
initial offering expenses (Note A) 23 9 16
Auditing fees 51 42 46
Custodian fees (Note B) 1,236 164 662
Insurance expense 124 9 49
Legal fees 23 26 23
Trustees' fees and expenses 78 11 41
Miscellaneous 3 13 70
------------------------------------------------
Total expenses 38,587 3,750 19,632
Fee waived by investment manager and/or
expenses reduced by custodian fee expense
offset arrangement (Note B) (2) (2) --
------------------------------------------------
Total net expenses 38,585 3,748 19,632
------------------------------------------------
Net investment income (loss) 78,026 (343) 46,344
------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investment securities
sold in unaffiliated issuers 840,232 45,585 408,784
Net realized gain on investment securities
sold in non-controlled affiliated issuers 47,582 -- --
Net realized gain (loss) on option contracts
(Note A) 6,019 -- --
Change in net unrealized appreciation
(depreciation) of investment securities and
option contracts (2,420,985) (106,156) (872,798)
------------------------------------------------
Net loss on investments (1,527,152) (60,571) (464,014)
------------------------------------------------
Net decrease in net assets resulting from
operations $(1,449,126) $ (60,914) $ (417,670)
------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-47
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------
Equity Managers Trust
<TABLE>
<CAPTION>
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 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-48
<PAGE>
- ----------------------------------------------------------------------
Equity Managers Trust
<TABLE>
<CAPTION>
GUARDIAN MANHATTAN PARTNERS
PORTFOLIO PORTFOLIO 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 $ (343) $ 1,154 $ 46,344 $ 28,316
Net realized gain on investments 893,833 871,150 45,585 180,525 408,784 531,668
Change in net unrealized
appreciation (depreciation) of
investments (2,420,985) 1,570,338 (106,156) 10,646 (872,798) 473,597
---------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations (1,449,126) 2,508,346 (60,914) 192,325 (417,670) 1,033,581
---------------------------------------------------------------------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL
INTERESTS:
Additions 391,142 592,646 53,069 41,417 743,583 715,909
Reductions (1,912,418) (575,327) (90,539) (179,425) (320,149) (173,520)
---------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from transactions
in investors' beneficial interests (1,521,276) 17,319 (37,470) (138,008) 423,434 542,389
---------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (2,970,402) 2,525,665 (98,384) 54,317 5,764 1,575,970
NET ASSETS:
Beginning of year 8,758,207 6,232,542 621,743 567,426 3,575,573 1,999,603
---------------------------------------------------------------------------------
End of year $ 5,787,805 $ 8,758,207 $ 523,359 $ 621,743 $ 3,581,337 $ 3,575,573
---------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-49
<PAGE>
NOTES TO FINANCIAL STATEMENTS
August 31, 1998
- ----------------------------------------------------------------------
Equity 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"), and Neuberger&Berman
Partners Portfolio ("Partners") (collectively, the "Portfolios") are separate
operating series of Equity Managers Trust ("Managers Trust"), a New York
common law trust organized as of December 1, 1992. Managers Trust is
registered as a diversified, open-end management investment company 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 Managers Trust.
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.
5) FEDERAL INCOME TAXES: Managers Trust intends to comply with the requirements
of the Internal Revenue Code. Each Portfolio of Managers Trust also intends
to conduct its operations so that each of its investors will be able to
qualify
B-50
<PAGE>
as a regulated investment company. Each Portfolio will be treated as a
partnership for Federal income tax purposes and is therefore not subject to
Federal income tax.
6) FOREIGN TAXES: Foreign taxes withheld represent amounts withheld by foreign
tax authorities, net of refunds recoverable.
7) ORGANIZATION EXPENSES: Organization expenses incurred by each Portfolio were
fully amortized as of August 31, 1998.
8) EXPENSE ALLOCATION: Each Portfolio bears all costs of its operations.
Expenses incurred by Managers Trust 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.
9) 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 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>
B-51
<PAGE>
<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>
10) 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 Managers Trust's Board 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
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, the
Portfolios 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 Managers Trust's investment
manager. Income earned on the investment vehicle is paid to Morgan monthly.
The Portfolios receive a fee, payable monthly,
B-52
<PAGE>
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
MANHATTAN 54,079,669 60,534,515
PARTNERS 35,512,750 37,438,042
</TABLE>
11) 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.
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) 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 Assets
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.
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
B-53
<PAGE>
each Portfolio. Several individuals who are officers and/or trustees of Managers
Trust 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, $1,737 and $640,
and $455 and $280, for Focus, Genesis, Guardian, Manhattan, and Partners,
respectively.
NOTE C -- SECURITIES TRANSACTIONS:
During the year ended August 31, 1998, there were purchase and sale
transactions (excluding short-term securities and option 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
MANHATTAN 554,191,211 571,714,146
PARTNERS 4,736,758,358 4,293,047,580
</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
MANHATTAN 546,227 586,082 1,132,309
PARTNERS 6,281,978 3,746,735 10,028,713
</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, and $141,707,
for Focus, Genesis, Guardian, Manhattan, and Partners, 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
B-54
<PAGE>
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. 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.
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>
<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>
B-55
<PAGE>
<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-56
<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-57
<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 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
</TABLE>
B-58
<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-59
<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-60
<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-61
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of Equity Managers Trust and
Owners of Beneficial Interest of
Neuberger&Berman Manhattan Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule 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 (the "Portfolio") 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 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-62
<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.
[SIGNATURE]
Boston, Massachusetts /s/ ERNST & YOUNG LLP
October 5, 1998
B-63
<PAGE>
OTHER INFORMATION
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
Institutional Services
605 Third Avenue 2nd Floor
New York, NY 10158-0180
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
OFFICERS AND TRUSTEES
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
Neuberger&Berman Management Inc., Neuberger&Berman Focus Assets,
Neuberger&Berman Genesis Assets, Neuberger&Berman Guardian Assets,
Neuberger&Berman Manhattan Assets, Neuberger&Berman Partners Assets, and
Neuberger&Berman Equity Assets are registered service marks of Neuberger&Berman
Management Inc.
- -C- 1998 Neuberger&Berman Management Inc.
C-1
<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 NBEAAR020898
