-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UGRyHDTHArkTE8uZKlbl8wILFOSx9blDn8qyduXvvuqyl+NWez/MJdZpflRToYoW hhLWTegu+4zFD/AxwrgzBQ== 0000898432-97-000454.txt : 19971030 0000898432-97-000454.hdr.sgml : 19971030 ACCESSION NUMBER: 0000898432-97-000454 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970831 FILED AS OF DATE: 19971029 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEUBERGER & BERMAN EQUITY TRUST CENTRAL INDEX KEY: 0000906926 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-07784 FILM NUMBER: 97702803 BUSINESS ADDRESS: STREET 1: 605 THIRD AVE STREET 2: 2ND FLOOR CITY: NEW YORK STATE: NY ZIP: 10158-0006 BUSINESS PHONE: 2124768800 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEUBERGER & BERMAN EQUITY ASSETS CENTRAL INDEX KEY: 0000914228 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 133783592 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-08106 FILM NUMBER: 97702804 BUSINESS ADDRESS: STREET 1: 605 THIRD AVENUE STREET 2: 2ND FLOOR CITY: NEW YORK STATE: NY ZIP: 10158-0006 BUSINESS PHONE: 2124768800 N-30D 1 ANNUAL REPORT - ------------------------------------- August 31, 1997 NEUBERGER&BERMAN EQUITY TRUST-Registered Trademark- Neuberger&Berman FOCUS TRUST Neuberger&Berman GENESIS TRUST Neuberger&Berman GUARDIAN TRUST Neuberger&Berman MANHATTAN TRUST Neuberger&Berman PARTNERS TRUST EQUITY ASSETS-SM- Neuberger&Berman SOCIALLY RESPONSIVE TRUST TABLE OF CONTENTS
THE FUNDS CHAIRMAN'S LETTER A-4 PORTFOLIO COMMENTARY Focus Trust A-6 Genesis Trust A-9 Guardian Trust A-12 Manhattan Trust A-15 Partners Trust A-18 Socially Responsive Trust A-21 GROWTH OF A DOLLAR CHARTS COMPARISON OF A $10,000 INVESTMENT Focus Trust B-1 Genesis Trust B-3 Guardian Trust B-5 Manhattan Trust B-6 Partners Trust B-8 Socially Responsive Trust B-9 FINANCIAL STATEMENTS B-10 FINANCIAL HIGHLIGHTS PER SHARE DATA Focus Trust B-21 Genesis Trust B-22 Guardian Trust B-23 Manhattan Trust B-24 Partners Trust B-25 Socially Responsive Trust B-26 REPORT OF INDEPENDENT ACCOUNTANTS/AUDITORS B-29 THE PORTFOLIOS SCHEDULE OF INVESTMENTS TOP TEN EQUITY HOLDINGS Focus Portfolio B-32 Genesis Portfolio B-34 Guardian Portfolio B-38 Manhattan Portfolio B-41 Partners Portfolio B-43 Socially Responsive Portfolio B-46 FINANCIAL STATEMENTS B-50 FINANCIAL HIGHLIGHTS B-63 REPORT OF INDEPENDENT ACCOUNTANTS/AUDITORS B-66 OTHER INFORMATION Directory/Officers and Trustees C-1
A-3 CHAIRMAN'S LETTER October 17, 1997 Dear Fellow Shareholder, Despite sharp corrections in March, early April, and again in late July-August, the stock market continued its historic advance with the Standard & Poor's "500" Index returning 14.78% and 40.73%, respectively, for the six- and twelve-month periods concluding August 31, 1997. In August, the blue chip growth stocks, which outpaced virtually every other sector for the last two and a half years, surrendered market leadership to large-cap value stocks, and small- and mid-cap stocks in general. Driven by the exceptional performance of a relative handful of the Index's largest stocks, the S&P "500" has materially out-performed broader market indices and most active equities managers in recent years. This changed rather suddenly in August, with the S&P (and the Dow Jones Industrial Average -- another rather narrow large-cap stock index) bearing the brunt of the market correction. Is this dramatic change in market leadership a temporary phenomena or a major shift in investor focus? We believe the answer lies in valuations. In an article titled "Cautionary Tale of Index Fund Dangers" published in the July 23, 1997 edition of THE WALL STREET JOURNAL, our own Kent Simons, co-manager of the Neuberger&Berman Guardian and Focus Portfolios, addressed the valuation issue. Kent highlighted eight high-quality companies in the Guardian Portfolio that could theoretically be purchased in their entirety for less than the then $169.35 billion market capitalization of Coca-Cola. These eight companies are projected to have combined 1997 earnings of $12.4 billion compared to the $4.1 billion consensus earnings estimate for Coke. Although Coca-Cola was growing earnings at a higher rate than the average of Kent's eight companies, at its annual growth rate of 18%, it would take Coke nearly seven years to equal these companies' current projected 1997 earnings. The moral of the story is that while Coca-Cola is a terrific company, its valuation may have become excessive relative to many other equally fine companies. We believe the same can be said for a number of the other growth stock giants that have had such a disproportionate influence on the performance of the capitalization-weighted A-4 S&P "500." Going forward, if investors are once again focusing on fundamentals, active, value-oriented managers will be competing on a much more level playing field with the indexers. We are proud of Neuberger&Berman's value heritage. But, we have also made a major commitment to growth stock investing. The recent addition of Jennifer Silver and Brooke Cobb, who are leading Neuberger&Berman LLC's new growth stock group and serving as co-managers of the Manhattan Portfolio, is an important step in enhancing our growth stock research and management capabilities. Jennifer comes to us from Putnam Investments, Inc., where she co-managed the $3.5 billion Putnam Vista Fund. Brooke is also a Putnam veteran and the former Chief Investment Officer of Bainco International Investors. I urge you to read the Manhattan shareholder letter (included in this Annual Report), in which Jennifer and Brooke detail their innovative growth-oriented investment discipline. In closing, we thank you for your confidence in our investment skills. We remain dedicated to helping you achieve your long-term financial objectives through our diversified value and growth stock portfolios. Sincerely, /s/ Stanley Egener Stanley Egener Chairman of the Board Neuberger&Berman Equity Trust A-5 PORTFOLIO MANAGERS' COMMENTARY Neuberger&Berman - ---------------------------------------------------------------------- Focus Trust THE MANAGEMENT TEAM OF KENT SIMONS AND KEVIN RISEN EMPLOY A SECTOR-SPECIFIC APPROACH TO SHAPING THE PORTFOLIO. FIRST, THEY IDENTIFY SIX ECONOMIC SECTORS (OUT OF A POSSIBLE 13) THEY BELIEVE TO BE MOST UNDERVALUED. THEY THEN FOCUS ON WELL MANAGED, FINANCIALLY SOUND INDUSTRY LEADERS IN EACH CHOSEN ECONOMIC SECTOR. THE PORTFOLIO MANAGEMENT TEAM FAVORS COMPANIES WITH ABOVE MARKET AVERAGE EARNINGS GROWTH POTENTIAL TRADING AT BELOW MARKET AVERAGE PRICE/EARNINGS MULTIPLES. For the fiscal six and twelve month periods ended August 31, 1997, Focus Trust returned 17.97% and 43.93%, respectively, versus the Standard & Poor's "500" Index's 14.78% and 40.73% gains over the same periods (see page B-1 for comparison of a $10,000 investment and average annual total returns as of August 31, 1997).* Our portfolio holdings in the financial services sector (banking, finance, insurance, and investment companies), performed well with Merrill Lynch and Travelers Group at the top of the list. Our technology investments were also productive with Applied Materials and Compaq the stars of the show. Investments in heavy industry and media/entertainment companies lagged. We have reduced our exposure in the heavy industry sector and completely eliminated our positions in media/entertainment to focus our assets in groups we believe have better prospects in the fiscal year ahead. One of the premises of value investing is that over the long term, the stock market is a rational animal and that stock prices will ultimately reflect the underlying economic value of companies. Over the short term, the market and individual stock prices are influenced by investor emotion, fad, fashion and momentum. Human nature being what it is, relatively few investors -- amateur or professional -- rush out to buy stocks that have not been doing well. More often, investors are inclined to do today what they should have done two years ago. Which brings us to the subject of indexing. The S&P "500" has been a very tough hurdle for active managers over the last several years. S&P returns have been enhanced by the A-6 - ---------------------------------------------------------------------- Focus Trust (Cont'd) exceptional performance of a relative handful of the large-cap growth stocks that heavily influence this capitalization-weighted index. For example, in the first six months of calendar 1997, the largest 30 companies in the S&P (just 6% of the 500 stocks in the index), represented approximately 34% of the index's weighting and contributed about 52% of its total performance. The better these stocks do, the heavier their weighting in the index. Consequently, a greater percentage of every dollar put in an S&P "500" index fund goes into these stocks, creating a snowball effect. The end result are valuations that defy economic reality. In August, a degree of sanity reappeared. Following cautions of modest earnings slowdowns from Coca-Cola and Gillette, there was a sharp correction in many of the large-cap growth "darlings" that have been propelling S&P "500" returns over the last several years. Investors seemed to wake up and ask themselves if they really wanted to pay 30-40 times earnings for these stocks when they could buy other fine companies with excellent earnings prospects for much lower multiples. This, of course, is music to our ears. If we are entering a period in which fundamentals once again matter, we believe the S&P "500" will be a much easier target for value-oriented investors like ourselves. We have had significant exposure to bank stocks for several years. The group has performed well, raising the issue of whether we can still fairly categorize the banks as an out-of-favor industry. We consider industries and individual stocks to be out-of-favor when we believe valuations do not adequately reflect superior earnings growth and return on equity prospects. Let's use CITICORP as an example. CITICORP is the most global and diverse money center bank, and in our opinion, the best positioned to produce consistently strong revenue gains. Management has set a goal of increasing return on equity to 18%, well above the market average. While we can't predict what management will do in the future, net earnings could advance in the 10%-12% annual range if the company continues to use excess cash flow to buy back stock (CITICORP has repurchased 70 million shares for $5.8 billion since mid-1995). Yet, at the close of this reporting period, A-7 - ---------------------------------------------------------------------- Focus Trust (Cont'd) CITICORP stock was trading at about 16 times trailing 12 month earnings and about 15 times our 1997 earnings estimate. In CITICORP, we have a company with above-market average earnings growth and return on equity potential selling at a below market average multiple. We don't fall in love with stocks forever, and if CITICORP fails to live up to our fundamental expectations, or if we think it has become fully valued, we will respond. However, today, we still think it is a bargain. In closing, we are pleased to have exceeded our S&P "500" benchmark in fiscal 1997 and even more delighted the market appears poised to more adequately recognize fundamental value. We look forward to serving you in the year ahead. Sincerely, /s/ Kent Simons /s/ Kevin Risen Kent Simons Kevin Risen
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. 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 Trust makes up more than a small fraction of the Portfolio's total assets. Prior to November 1, 1991, the investment policies of Focus required that it invest a substantial portion of its assets in the energy field. 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. A-8 PORTFOLIO MANAGERS' COMMENTARY Neuberger&Berman - ---------------------------------------------------------------------- Genesis Trust 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, THE MANAGERS BELIEVE THEY ARE BETTER ABLE TO IDENTIFY FUNDAMENTALLY UNDERVALUED STOCKS WITH EXCEPTIONAL GROWTH POTENTIAL. THIS VALUE-ORIENTED APPROACH TO SMALL-CAP INVESTING HAS TRANSLATED INTO A PORTFOLIO WITH FAVORABLE RISK/REWARD CHARACTERISTICS. For the fiscal six and twelve month periods ended August 31, 1997, Genesis Trust returned 28.98% and 44.31% respectively. This compares to the Russell 2000-Registered Trademark- Index's gains of 18.53% and 28.96%, respectively, 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, 1997).* As the performance results reflect, we've had a terrific year. Our investments in aerospace components, energy, oil services, and regional bank stocks were among the leaders in the performance parade, but many other industry group selections marched smartly ahead as well. Disappointments have come not from any particular industry groups, but rather from individual companies that have not lived up to earnings expectations. NN Ball & Roller, a niche ball bearing manufacturer with extensive business in the Pacific Rim, was a casualty of the economic problems plaguing many of the Asian "Tiger" nations. Lawter International, a specialty chemical company, suffered from slackening demand for its products and an unanticipated earnings shortfall. The Portfolio still has a significant weighting in the aerospace components group -- the companies that supply parts to Boeing and the other major commercial airplane builders. We believe we are only midway through an extended commercial aerospace boom. Boeing has ramped up production and new orders remain strong. Due to improving demand from Boeing and others, component suppliers are experiencing significant volume growth, which should translate into expanding profit margins and accelerating earnings. The oil patch is still vibrant. Oil prices have stabilized, the much ballyhooed natural gas bubble appears to have evaporated, and the percentage of "shut-in" production -- reserves instantly accessible to satisfy spikes in demand -- has declined from about 30% of production A-9 - ---------------------------------------------------------------------- Genesis Trust (Cont'd) in the late 1980's to just around 5% today. All this would indicate to us that energy companies are likely to continue to be poking a lot of new holes to increase production. Oil service companies, particularly drilling rig owners and operators, are major beneficiaries of strong exploration and production activity. We believe the prospects for selected regional bank stocks are still excellent. We are stock-pickers, not economists. However, our reading of the economy is that interest rates should trend down over the next year. This should provide a modest tailwind for bank stocks, which are generally perceived as interest rate sensitive. We are focusing on regional banks in geographic areas -- like the oil patch -- we believe to have stronger than average economic growth prospects. Generally, the stronger the regional economy has been, the greater the loan demand, and the better the earnings prospects for local banks. Finally, we are partial to regional banks with significant "goodwill" lawsuits against the federal government. During the savings and loan crisis of the 1980s, large, financially healthy S&Ls were encouraged to buy smaller ailing thrifts. In the process, a lot of goodwill was added to the rescuers' balance sheets. Bank regulators permitted this goodwill to be included in the banks' stated capital. When the full magnitude of the savings and loan crisis became apparent in the early 1990's, the government reversed its decision and required goodwill to be removed as a capital asset. This damaged the "Good Samaritan" banks' balance sheets, reducing lending capital and restraining earnings. Regional banks are now suing the government for damages. Recently, the federal judge overseeing the Golden State Bancorp versus Uncle Sam suit urged the government to settle, publicly warning the government attorneys that if he were to decide the case that day, he would be inclined to award Golden State every dollar it was asking for. Four of our regional bank stock holdings have substantial goodwill lawsuits against the government. These are profitable, well-managed banks that we like based on their own fundamental merits. While each case will be decided on its own facts, if they win their suits or get large settlements from the government, these banks will receive cash windfalls representing a significant portion of their current market capitalizations. A-10 - ---------------------------------------------------------------------- Genesis Trust (Cont'd) Our investment opinions on every stock in the portfolio can change on short notice. However, in our reports to shareholders, we like to briefly discuss at least one portfolio holding that we currently favor. Since we've already gone into some detail on the regional banking group, let's fill in the blanks on Bank United Corp., a Texas savings and loan. Bank United is a beneficiary of the recovery in the Texas economy, spawned in part by strength in the oil patch. It has a sizable Net Operating Loss carry forward, which will reduce its future tax bills and enhance cash flow. Bank United also has a sizable goodwill lawsuit pending against the government. In addition, we believe it will benefit from recent state legislation, which for the first time, allows Texas banks to offer home equity loans -- potentially a very profitable business. Bank United has been gearing up to enter this new market, and we expect it to hit the street running. We believe the bank has very good earnings growth potential going forward. If the company wins or favorably settles its goodwill lawsuit with the government, there would be a lot of icing on this already appetizing cake. In closing, we are proud of the portfolio's strong returns this year and hope to build on our performance record in the years ahead. Sincerely, /s/ Judith Vale /s/ Robert D'Alelio Judith Vale Robert D'Alelio
Portfolio Co-Managers *The Russell 2000 Index is an unmanaged index generally considered to be representative of small 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. The risks involved in seeking capital appreciation from investments principally in companies with small market capitalization are set forth in the prospectus. The composition, industries and holdings of the Trust 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. A-11 PORTFOLIO MANAGERS' COMMENTARY Neuberger&Berman - ---------------------------------------------------------------------- Guardian Trust PORTFOLIO CO-MANAGERS KENT SIMONS AND KEVIN RISEN 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' OVER-REACTION TO REAL OR PERCEIVED PROBLEMS. For the fiscal six and twelve month periods ended August 31, 1997, Guardian Trust returned 16.10% and 39.56%, respectively, versus the Standard & Poor's "500"'s 14.78% and 40.73% gains over the same periods (see page B-5 for comparison of a $10,000 investment and average annual total returns as of August 31, 1997).* Our investments in the financial services industries (banking, finance, insurance and brokerage/investment management) continued to perform well with Signet Banking (bought by First Union Corp. later in the period), Travelers Group, and Merrill Lynch near the top of the charts. Our electronics holdings also did quite well, led by Teradyne. Selected technology holdings soared with Applied Materials, KLA Tencor, and Texas Instruments more than doubling in fiscal 1997. As a result, we have taken profits. Portfolio holdings in the steel, energy, and media and entertainment industries disappointed. We have eliminated our positions in steel companies and almost all of our holdings in media and entertainment, re-allocating assets to other industry groups we believe offer better value. Investor emotion -- particularly fear -- has a powerful short-term influence on the stock market. This was demonstrated in 1993, when investors stampeded out of drug stocks as the Clintons and Ira Magaziner were threatening to radically overhaul America's healthcare system. Investors were simply afraid to own some absolutely terrific companies. Fear created opportunity that value investors were able to take advantage of when the panic subsided and the drug group rebounded strongly. In 1996 and the first half 1997, we saw a reverse panic -- investors were afraid not to own the giant blue chip growth A-12 - ---------------------------------------------------------------------- Guardian Trust (Cont'd) stocks. S&P "500" indexers took much of the credit (or should that be blame) for the rather incredible valuations given to the big-cap market "darlings." But, index fund investors were not the only folks driving these stocks higher. Active managers were throwing in the towel and almost regardless of their stated discipline, loading up on Coca-Cola, Gillette, GE, Procter & Gamble and a handful of the other favored few. This "if you can't beat them, join them" response has also created opportunity. We believe investors who conquered the fear of under-performing the S&P are well positioned to take advantage of a market that is now more inclined to acknowledge fundamental values. Another great danger created by euphoric markets is to buy "relative value." The rationale is that if XYZ stock is growing earnings at 15% and trading at a price/earnings ratio of 40, then PDQ stock, which is also growing earnings at 15% and "only" trading at 35 times earnings is a raging bargain. This is a trap we strive to avoid. To us, cheap does not mean less expensive. We want to own companies trading at a price/earnings and return on equity discounts to the market, but valuations must be sensible on an absolute basis as well. In other words, we would much rather be right than less wrong. We would not describe investors' current attitude on the auto industry as a panic. But, judging from the present valuations of the big three auto companies, investors seem to fear the autos are as vulnerable to a slowing economy as they were to the steeper economic downturns of the boom and bust cycles of the past. We believe this is an over-reaction. The bear case on the auto companies is that the economic expansion is long of tooth and the strength of the dollar against the yen is making Japanese products much more competitive. These concerns are, to a degree, justified. If the economy slows, a decline in vehicle demand is possible. Retail incentives -- price discounting -- are up, partially in response to Japanese competition. However, cost cutting in the industry and much improved inventory management should help cushion a fall resulting from a decelerating economy. Importantly, the domestic autos are in vastly better financial shape than they were in the last cycle. Chrysler, for example, has a cash horde of $8 billion to help see it through a period of weak demand and soft pricing. Although we can't A-13 - ---------------------------------------------------------------------- Guardian Trust (Cont'd) predict what the company would do, some of this king's ransom could be used to help buoy stock price through dividend increases and significant share repurchases. Earnings could decline in calendar 1998, but through the cycle, we think they will make a good showing. Our substantial position in Chrysler stock is subject to change if we believe fundamentals warrant it. However, with the stock currently trading around 7.5 times our calendar 1997 earnings estimate, we think it is a long-term bargain. This rising market has given us the opportunity to take profits in portfolio holdings that became fairly, if not fully priced. We have also reduced or eliminated positions in several industry groups with diminishing prospects. The result is a somewhat more concentrated portfolio that we believe will enhance return potential in the year ahead. In closing, we are pleased with our competitive returns relative to the S&P "500" benchmark. Going forward, we welcome the challenges presented by what we believe is becoming a more selective and fundamentally disciplined market. Sincerely, /s/ Kent Simons /s/ Kevin Risen Kent Simons Kevin Risen
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. 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 Trust 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. A-14 PORTFOLIO MANAGERS' COMMENTARY Neuberger&Berman - ---------------------------------------------------------------------- Manhattan Trust PORTFOLIO CO-MANAGERS JENNIFER SILVER AND BROOKE COBB LOVE SURPRISES -- POSITIVE EARNINGS SURPRISES THAT IS. THEIR EXTENSIVE RESEARCH HAS REVEALED THAT THE STOCKS OF COMPANIES THAT CONSISTENTLY EXCEEDED CONSENSUS EARNINGS ESTIMATES TENDED TO BE TERRIFIC PERFORMERS. THEY SCREEN THE MID-CAP GROWTH STOCK UNIVERSE TO ISOLATE STOCKS WHOSE MOST RECENT EARNINGS HAVE BEAT 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 fiscal six and twelve month periods ended August 31, 1997, Manhattan Trust returned, 15.11% and 38.84%, respectively. This compares to the S&P "500" Index's 14.78% and 40.73%, gains over the same periods (see page B-6 for comparison of a $10,000 investment and average annual total returns as of August 31, 1997).* In fiscal 1997, the portfolio's financial services, technology, and health care investments excelled. Although posting positive returns, investments in the energy, communications, and consumer cyclical groups on average under-performed. We are pleased by the portfolio's very competitive performance versus the S&P "500," particularly because it was achieved during a period of transition as we took over from Mark Goldstein and began rapidly reshaping the portfolio. The re- engineering of the portfolio is now complete. Since this is our first opportunity to directly address the shareholders, we thought it important to describe our investment discipline in some detail. Let us begin by saying we are growth stock investors in the purest sense of the term. We want to own the stocks of companies that are growing earnings faster than the average American business and ideally, faster than the competitors in their respective industries. We are particularly biased towards companies that have consistently beaten consensus earnings estimates. Our extensive research has revealed that stocks whose earnings consistently exceeded expectations offered greater potential for long-term capital appreciation. We focus our research efforts on mid-cap stocks in new and/or rapidly evolving industries. The mid-cap growth sector is less widely followed by Wall Street analysts and therefore, less efficient than the A-15 - ---------------------------------------------------------------------- Manhattan Trust (Cont'd) large-cap stock market. By operating in the mid-cap arena (stocks with market capitalizations between $500 million and $8 billion), we believe we are likely to identify more of our brand of growth stock opportunities. Considering the currently high valuations of large-cap growth stocks relative to mid-cap stocks with what we think is comparable or in many cases, better earnings growth potential, we believe the portfolio is particularly well positioned in today's market. Going forward, the portfolio will use the Russell Midcap-TM- Growth Index* as its benchmark. Consistent with our clearly defined capitalization parameters and our growth style, we believe this is a more appropriate benchmark than the S&P "500." Let us once again emphasize we are growth stock investors. But, there is a value component to our discipline as well. We just define value differently. The kind of fast-growth companies we favor generally do not trade at below market average price/earnings ratios. However, they often trade at very reasonable multiples relative to annual earnings growth rates. Given the choice between two good companies with comparable earnings growth rates, we will select the one trading at the lower multiple to earnings growth. We are dispassionate sellers. If a stock does not live up to our earnings expectations or if we believe its valuation has become excessive, we will sell and direct the assets to another opportunity we find more attractive. We will maintain a broadly diversified portfolio rather than heavily concentrating our holdings in just a few of the fastest growing industry groups. An examination of the portfolio's current characteristics provides a good illustration of our discipline. As of August 31, 1997, the portfolio had 80 stocks in 11 different industry groups. The average weighted capitalization is approximately $4 billion. The majority of the Portfolio's companies exceeded consensus earnings estimates in the preceding quarter. Based on consensus earnings estimates from First Call (an independent research firm that compiles and distributes Wall Street earnings estimates), the Portfolio's earnings are projected to grow 25% in calendar year 1998 and 21% annually over the next five years. The Portfolio is trading at just less than one time its projected five-year annual earnings growth rate. A-16 - ---------------------------------------------------------------------- Manhattan Trust (Cont'd) To further demonstrate our approach, we will briefly discuss Staples, currently one of our largest holdings. Staples virtually created an entire new retail category, the office supply super store. It is a retailing concept that works and could continue to expand nationwide and perhaps globally. Recently reported earnings were 9% higher than consensus estimates. We expect additional pleasant earnings surprises going forward. At the close of this reporting period, Staples' stock traded at just 0.7 times our long-term earnings growth rate projections. With the caveat that things can change in a hurry and we will respond to those changes, we believe Staples will continue to be a very rewarding investment. In closing, we thank you for your patience as we have transformed the Manhattan Portfolio in to what we believe will be a more dynamic growth stock vehicle. We look forward to serving you and to welcoming new shareholders as we further demonstrate the effectiveness of our focused growth stock discipline. Sincerely, /s/ Jennifer Silver /s/ Brooke Cobb Jennifer Silver Brooke Cobb
Portfolio Co-Managers *The S&P "500" Index is an unmanaged index generally considered to be representative of stock market activity. The Russell Midcap-TM- Growth Index is an unmanaged index which measures the performance of those Russell Midcap Index companies with higher price-to-book ratios and higher forecasted growth values. The Russell Midcap-TM- Index measures the performance of the 800 smallest companies in the Russell 1000-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 US companies, based on market capitalization). Please note that indices do not take into account any fees and expenses of investing in the individual securities that they track, and that individuals cannot invest directly in any index. Data about the performance of these indices are prepared or obtained by Neuberger&Berman Management Inc. and include reinvestment of all dividends and capital gain distributions. The Portfolio invests in many securities not included in the above-described indices. The composition, industries and holdings of the Portfolio are subject to change. Manhattan Trust's 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-17 PORTFOLIO MANAGERS' COMMENTARY Neuberger&Berman - ---------------------------------------------------------------------- Partners Trust 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 fiscal six and twelve month periods ended August 31, 1997, Partners Trust returned 19.06% and 47.11%, respectively, versus the S&P "500" Index's 14.78% and 40.73% gains over the same periods (see page B-8 for comparison of a $10,000 investment and average annual total returns as of August 31, 1997).* In fiscal 1997, our portfolio holdings in the paper and forest products, technology, insurance, entertainment, and retail sectors performed particularly well. Once again, our healthcare holdings lagged well behind. The major pharmaceutical companies, which we unfortunately had to pass on due to our value discipline, forged ahead. Returns from HMO's and biotechnology stocks that qualified as our kind of fundamental bargains were much less inspiring. Value investors occasionally get opportunities to buy unblemished companies that have somehow evaded Wall Street analysts' radar screens. More often, we are investing in good companies with real and/or perceived problems. Sometimes our timing is fortuitous and we buy right at the bottom. Generally, however, we are buying on the way down and patiently waiting for portfolio companies to demonstrate they have solved their problems or for perceptions to change. Our recent experience with cable television stocks demonstrates that patience can indeed be a virtue. When we began investing in cable TV operators, we knew the industry's problems. Cable operators were seeing cash flows decline due to stiffer competition from satellite broadcasters at a time when they needed to step up capital expenditures to modernize their systems. We A-18 - ---------------------------------------------------------------------- Partners Trust (Cont'd) focused on the advantages of all those two-way wires connected to American homes. We eliminated positions in the financially weaker cable operators, but we believed the well-financed companies, which we held onto, would find the capital needed to upgrade systems and that new interactive services such as video-on-demand movies and internet connection through high speed cable modems would generate significant incremental business. We thought cable stock prices were fully discounting the industry's problems and not at all reflecting some of the potentially profitable developments. We waited and then waited some more for other investors to see the value in our cable holdings. Earlier this summer, another investor did. Recognizing that cable television lines into the home represented the best current transmission vehicle for internet connectivity, Microsoft Chairman Bill Gates invested $1 billion in Comcast, one of our cable television holdings. Investors took note and the entire cable television group took off. The second half of fiscal 1997 returns from our cable television holdings were spectacular. When our entire holding period is factored in, the returns from our cable TV investments were merely good. That is generally good enough for disciplined value investors. Our financial service sector holdings have performed well for several years. But, we are still finding selected values in the group. When we discuss portfolio holdings to illustrate our investment discipline, one must be aware we reserve the right to reduce or eliminate these positions if our perspective changes. This caveat duly noted, we believe Countrywide Credit Industries currently represents excellent value. Countrywide is the U.S.'s second largest originator and servicer of home mortgages. There is a lot of room for the company to increase its market share in both businesses in what is still a very fragmented industry. On the mortgage service side, Countrywide is a low cost provider, making it very attractive to the banks who are outsourcing mortgage servicing operations. The bear case on the mortgage service business is that if interest rates trend down, mortgages will be refinanced and Countrywide's mortgage service bookings will decline. However, with a weighted average coupon (WAC) currently approximating rates A-19 - ---------------------------------------------------------------------- Partners Trust (Cont'd) on a new no-point mortgage, we believe interest rates would have to come down substantially before costing Countrywide much servicing business. If much lower rates do spawn another refinancing boom, Countrywide could recapture lost revenue from servicing by originating new loans. In essence, any money coming from the left pocket could easily find its way to the right one. In addition, Countrywide is entering new related businesses like mortgage insurance and home appraisals, which historically have been highly profitable. Countrywide stock is currently trading at just 11 times our 1998 earnings estimate -- a deep discount from the current market multiple and a very reasonable price to pay for what we think is better than average earnings growth potential. This is the close of a very good year for Partners' Portfolio. Our value style was productive even in an environment that for the most part still favored growth stock investing. If the pattern we witnessed in August continues -- investors gravitating from large-cap growth stocks to the value and smaller capitalization sectors -- we should have the opportunity to excel in the year ahead. Sincerely, /s/ Michael Kassen /s/ Robert Gendelman Michael Kassen Robert Gendelman
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. 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 Trust's 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-20 PORTFOLIO MANAGER'S COMMENTARY Neuberger&Berman - ---------------------------------------------------------------------- Socially Responsive Trust PORTFOLIO MANAGER JANET PRINDLE BELIEVES DOING GOOD, IS GOOD BUSINESS AND HAS THE POTENTIAL TO PRODUCE POSITIVE INVESTMENT RESULTS. SHE FOCUSES ON COMPANIES THAT ARE AGENTS OF FAVORABLE CHANGE IN WORKPLACE POLICIES (PARTICULARLY FOR WOMEN AND MINORITIES); ARE GOOD CORPORATE CITIZENS; AND ARE RESPONSIVE TO ENVIRONMENTAL ISSUES. SHE DOES NOT INVEST IN TOBACCO, ALCOHOL, GAMBLING, NUCLEAR POWER, OR WEAPONS COMPANIES. BUT, SOCIAL RESPONSIBILITY ALONE DOES NOT QUALIFY A COMPANY AS A GOOD INVESTMENT. TRUE TO NEUBERGER& BERMAN'S PRINCIPLES, PORTFOLIO CANDIDATES MUST FIRST BE FOUND TO BE FUNDAMENTALLY ATTRACTIVE. THEN, AND ONLY THEN, ARE SOCIAL SCREENS APPLIED. THE OBJECTIVE IS SIMPLE AND STRAIGHTFORWARD -- TO SERVE BOTH SOCIETY AND SHAREHOLDERS. For the six and twelve month periods ended August 31, 1997, Socially Responsive Trust returned 14.30% and 31.92%, respectively, compared to the Standard & Poor's "500" Index's 14.78% and 40.73% gains over the same periods (see page B-9 for comparison of a $10,000 investment and average annual total returns as of August 31, 1997).* In fiscal 1997, our retail, insurance, banking, and technology investments were, on average, stellar performers. Our telecommunications, food and beverage, and energy investments disappointed. Value investing requires patience. If you do your homework and find good companies in out-of-favor industries, patience is generally rewarded. Retail stocks were in Wall Street's "doghouse" in 1995-96. We had the opportunity to buy two of the best, Costco and Nordstrom, at very reasonable prices. Our little shopping spree didn't do much for the Portfolio last year, but it produced strong positive returns in fiscal year 1997. We are being similarly patient with our energy investments, which as a group lagged this year. The economics in the industry have improved as worldwide demand has continued to outpace new production. Exploration and production activity recently has been vigorous -- a very good sign for oil service companies. Political instability in oil-producing nations, weather patterns, and short-term supply/demand A-21 - ---------------------------------------------------------------------- Socially Responsive Trust (Cont'd) imbalances will cause oil and gas prices to fluctuate. However, we believe the long-term prospects for energy pricing and energy stock earnings are favorable. We continue to have significant exposure to the banking sector. Our portfolio holdings in the group performed quite well in fiscal 1997. On a fundamental basis, we believe the stocks are still very reasonably priced. The regional bank stocks seem particularly appealing. Earnings have been progressing quite nicely despite a back-up in interest rates. If rates trend down from here -- the spread between interest rates and inflation is historically high -- regional banks could attract more investor attention. Finally, we believe consolidation in the industry could continue. The stocks should do well on fundamentals alone and we may even get a windfall in the form of a takeover of one or more of our regional bank holdings. In our shareholder letter, we like to go into detail on at least one current portfolio holding that illustrates our investment approach. Be advised, we can change our minds on any stock in our portfolio if deteriorating fundamentals or price appreciation warrants it. Technology giant Intel was one of our better performing stocks in fiscal 1997. We think it will continue to do well. As the leading designer and manufacturer of microprocessors, Intel holds the dominant market share in a rapidly growing industry. Enormous research and development spending, in addition to high capital expenditures, has allowed the company to maintain and enhance its competitive position. Intel is also one of America's better corporate citizens. The company has a good environmental record. It has a diverse workforce, with women and minorities well represented. It is employee friendly, with numerous family-oriented programs in the workplace. Finally, the company is one of the largest charitable givers in the American corporate community. In closing, our mandate does present special challenges. We must find not only good companies, but also companies that are good to their employees and society in general. If we can do so successfully, we A-22 - ---------------------------------------------------------------------- Socially Responsive Trust (Cont'd) receive a double reward -- the gratification all portfolio managers get from taking good care of their shareholders, and the special feeling of accomplishment from doing so in a socially responsive manner. Sincerely, /s/ Janet Prindle Janet Prindle Portfolio Manager *The S&P "500" Index is an unmanaged index generally considered to be representative of stock market activity. Please note that indices do not take into account any fees and expenses of investing in the individual securities that they track, and that individuals cannot invest directly in any index. Data about the performance of this index are prepared or obtained by Neuberger&Berman Management Inc. and include reinvestment of all dividends and capital gain distributions. The Portfolio invests in many securities not included in the above-described index. The composition, industries and holdings of the Portfolio are subject to change. Socially Responsive Trust's 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-23 COMPARISON OF A $10,000 INVESTMENT Neuberger&Berman August 31, 1997 - ---------------------------------------------------------------------- Focus Trust EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Average Annual Total Return(1) Focus S&P "500"(2) 1 Year +43.93% +40.73% 5 Year +22.58% +19.78% 10 Year +14.70% +13.85% Focus Trust S&P "500" 1987 $10,000 $10,000 1988 $8,491 $8,201 1989 $11,408 $11,418 1990 $10,983 $10,833 1991 $12,736 $13,756 1992 $14,239 $14,848 1993 $18,255 $17,104 1994 $20,733 $18,046 1995 $26,422 $21,912 1996 $27,379 $26,009 1997 $39,407 $36,602
The performance information for Neuberger&Berman Focus Trust-SM- is as of August 31, 1997. Neuberger&Berman Focus Trust started operating on August 30, 1993. 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 August 30, 1993, is for the Sister Fund. Neuberger&Berman Management Inc. voluntarily bears certain operating expenses of the Trust so that its expense ratio per annum will not exceed the expense ratio per annum of its Sister Fund by more than 0.10% of the Trust's average daily net assets per annum. This arrangement can be terminated upon 60 days' prior written notice. Absent such arrangement, the average annual total returns of the Trust would have been less. The total returns for periods prior to the Trust's commencement of operations would have been lower had they reflected the higher expense ratios of the Trust as compared to those of Neuberger&Berman Focus Fund. The Trust's name prior to January 1, 1995 was Neuberger&Berman Selected Sectors Trust. 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 Trust's current investment policies. While the Trust's value- B-1 oriented approach is intended to limit risks, the Portfolio, with its concentration in sectors, may be more greatly affected by any single economic, political or regulatory development than a more diversified mutual fund. 1. "Total Return" includes reinvestment of all income dividends and capital gain distributions. Results represent past performance and do not indicate future results. The value of an investment in the Trust 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-2 COMPARISON OF A $10,000 INVESTMENT Neuberger&Berman August 31, 1997 - ---------------------------------------------------------------------- Genesis Trust EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Average Annual Total Return1 Genesis Russell 2000-R-2 1 Year +44.31% +28.96% 5 Year +22.35% +19.36% Life of Fund +16.76% +14.57% Genesis Trust 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 $18,072 $18,435 1994 $19,061 $19,516 1995 $22,780 $23,581 1996 $27,664 $26,134 1997 $39,923 $33,701
The performance information for Neuberger&Berman Genesis Trust-Registered Trademark- is as of August 31, 1997. Neuberger&Berman Genesis Trust started operating on August 26, 1993. 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. The performance information shown in the above chart for the period before August 26, 1993, is for the Sister Fund which commenced operations on September 27, 1988. Neuberger&Berman Management Inc. voluntarily bears certain operating expenses of the Trust so that its expense ratio per annum will not exceed the expense ratio per annum of its Sister Fund by more than 0.10% of the Trust's average daily net assets per annum. This arrangement can be terminated upon 60 days' prior written notice. Effective May 1, 1995, Neuberger& Berman Management Inc. has voluntarily agreed to waive a portion of the management fee borne directly by Neuberger&Berman Genesis Portfolio-SM- and indirectly by Neuberger&Berman Genesis Trust to reduce that fee by 0.10% of the Portfolio's average daily net assets per annum. Absent such arrangements, the average annual total returns of the Trust would have been less. The total returns for periods prior to the Trust's commencement of operations would have been lower had they reflected the higher expense ratios of the Trust as compared to those of Neuberger&Berman Genesis Fund. B-3 1. "Total Return" includes reinvestment of all income dividends and capital gain distributions. Results represent past performance and do not indicate future results. The value of an investment in the Trust and the return on the investment both will fluctuate, and redemption proceeds may be higher or lower than an investor's original cost. 2. The Russell 2000 Index is an unmanaged index generally considered to be representative of the 2,000 issuers having the smallest capitalization in the Russell 3000-Registered Trademark- Index, representing approximately 10% of the Russell 3000 total market capitalization. The smallest company's market capitalization is roughly $13 million. The risks involved in seeking capital appreciation from investments principally in companies with small market capitalization are set forth in the prospectus. Please note that indices do not take into account any fees and expenses of investing in the individual securities that they track, and that individuals cannot invest directly in any index. Data about the performance of this index are prepared or obtained by Neuberger&Berman Management Inc. and include reinvestment of all dividends and capital gain distributions. The Portfolio invests in many securities not included in the above-described index. B-4 COMPARISON OF A $10,000 INVESTMENT Neuberger&Berman August 31, 1997 - ---------------------------------------------------------------------- Guardian Trust EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Average Annual Total Return(1) Guardian S&P "500"(2) 1 Year +39.56% +40.73% 5 Year +19.85% +19.78% 10 Year +14.42% +13.85% Guardian Trust S&P "500" 1987 $10,000 $10,000 1988 $8,931 $8,201 1989 $11,958 $11,418 1990 $10,464 $10,833 1991 $13,654 $13,756 1992 $15,550 $14,848 1993 $19,102 $17,104 1994 $21,122 $18,046 1995 $26,194 $21,912 1996 $27,553 $26,009 1997 $38,455 $36,602
The performance information for Neuberger&Berman Guardian Trust-SM- is as of August 31, 1997. Neuberger&Berman Guardian Trust started operating on August 3, 1993. 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 August 3, 1993, is for the Sister Fund. Neuberger&Berman Management Inc. voluntarily bears certain operating expenses of the Trust so that its expense ratio per annum will not exceed the expense ratio per annum of its Sister Fund by more than 0.10% of the Trust's average daily net assets per annum. This arrangement can be terminated upon 60 days' prior written notice. Absent such arrangement, the average annual total returns of the Trust would have been less. The total returns for periods prior to the Trust's commencement of operations would have been lower had they reflected the higher expense ratios of the Trust as compared to those of Neuberger&Berman Guardian Fund. 1. "Total Return" includes reinvestment of all income dividends and capital gain distributions. Results represent past performance and do not indicate future results. The value of an investment in the Trust 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-5 COMPARISON OF A $10,000 INVESTMENT Neuberger&Berman August 31, 1997 - ---------------------------------------------------------------------- Manhattan Trust EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Average Annual Total Return(1) Russell Midcap-TM- Manhattan S&P "500"(2) Growth Index(2) 1 Year +38.84% +40.73% +31.23% 5 Year +17.56% +19.78% +18.56% 10 Year +11.49% +13.85% +13.18% Manhattan Trust S&P "500" Russell Midcap Growth 1987 $10,000 $10,000 $10,000 1988 $8,021 $8,201 $8,052 1989 $11,423 $11,418 $11,014 1990 $10,000 $10,833 $9,923 1991 $12,616 $13,756 $13,789 1992 $13,214 $14,848 $14,722 1993 $16,873 $17,104 $17,874 1994 $17,497 $18,046 $18,837 1995 $22,029 $21,912 $23,499 1996 $21,372 $26,009 $26,276 1997 $29,673 $36,602 $34,483
The performance information for Neuberger&Berman Manhattan Trust-Registered Trademark- is as of August 31, 1997. Neuberger&Berman Manhattan Trust started operating on August 30, 1993. 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 August 30, 1993, is for the Sister Fund. Neuberger&Berman Management Inc. voluntarily bears certain operating expenses of the Trust so that its expense ratio per annum will not exceed the expense ratio per annum of its Sister Fund by more than 0.10% of the Trust's average daily net assets per annum. This arrangement can be terminated upon 60 days' prior written notice. Absent such arrangement, the average annual total returns of the Trust would have been less. The total returns for periods prior to the Trust's commencement of operations would have been lower had they reflected the higher expense ratios of the Trust as compared to those of Neuberger&Berman Manhattan Fund. 1. "Total Return" includes reinvestment of all income dividends and capital gain distributions. Results represent past performance and do not indicate future results. The value of an investment in the Trust 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 B-6 believed offered greater potential for long-term capital appreciation, in most cases at prices reflecting relatively higher multiples to measures of economic value (such as earnings or cash flow) compared to securities purchased by other Neuberger&Berman Portfolios. In July 1997, growth-style Managers Jennifer Silver and Brooke Cobb joined Neuberger&Berman Management Inc. and assumed responsibility for the Portfolio. Ms. Silver now heads Neuberger&Berman, LLC's new Growth Equity Group in Boston. The Portfolio is now managed using a growth-oriented investment approach. True to this new approach, the Managers seek securities of companies that are growing earnings faster than the average American business, and ideally, faster than competitors in their respective industries. In return for this perceived higher earnings growth potential, the Managers are willing to pay a higher absolute multiple for these securities. They do so because they believe these stocks offer greater potential for long-term capital appreciation. Moreover, while the Portfolio can still invest in securities of small-, medium-, and large-cap companies, the Portfolio Managers currently intend to focus on the securities of medium-cap companies. The S&P "500" Index is an unmanaged index generally considered to be representative of overall stock market activity. The Russell Midcap-TM- Index, on the other hand, 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). The Russell Midcap Growth Index measures the performance of those Russell Midcap Index companies with higher price-to-book ratios and higher forecasted growth values. Therefore, the Portfolio prior to July 1997 was appropriately compared to the S&P "500" Index as a benchmark. However, with its focus on medium-cap growth stocks, the current Portfolio is more appropriately compared to the Russell Midcap Growth Index as a benchmark. Please note that indices do not take into account any fees and expenses of investing in the individual securities that they track, and that individuals cannot invest directly in any index. Data about the performance of these indices are prepared or obtained by Neuberger&Berman Management Inc. and include reinvestment of all dividends and capital gain distributions. The Portfolio invests in many securities not included in the above-described indices. B-7 COMPARISON OF A $10,000 INVESTMENT Neuberger&Berman August 31, 1997 - ---------------------------------------------------------------------- Partners Trust EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Average Annual Total Return(1) Partners S&P "500"(2) 1 Year +47.11% +40.73% 5 Year +22.44% +19.78% 10 Year +14.33% +13.85% Partners Trust S&P "500" 1987 $10,000 $10,000 1988 $8,820 $8,201 1989 $11,615 $11,418 1990 $10,823 $10,833 1991 $12,775 $13,756 1992 $13,860 $14,848 1993 $17,763 $17,104 1994 $18,759 $18,046 1995 $22,795 $21,912 1996 $25,932 $26,009 1997 $38,148 $36,602
The performance information for Neuberger&Berman Partners Trust-SM- is as of August 31, 1997. Neuberger&Berman Partners Trust started operating on August 30, 1993. 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 30, 1993, is for the Sister Fund. Neuberger&Berman Management Inc. voluntarily bears certain operating expenses of the Trust so that its expense ratio per annum will not exceed the expense ratio per annum of its Sister Fund by more than 0.10% of the Trust's average daily net assets per annum. This arrangement can be terminated upon 60 days' prior written notice. Absent such arrangement, the average annual total returns of the Trust would have been less. The total returns for periods prior to the Trust's commencement of operations would have been lower had they reflected the higher expense ratios of the Trust as compared to those of Neuberger&Berman Partners Fund. 1. "Total Return" includes reinvestment of all income dividends and capital gain distributions. Results represent past performance and do not indicate future results. The value of an investment in the Trust and the return on the investment both will fluctuate, and redemption proceeds may be higher or lower than an investor's original cost. 2. The S&P "500" Index is an unmanaged index generally considered to be representative of stock market activity. Please note that indices do not take into account any fees and expenses of investing in the individual securities that they track, and that individuals cannot invest directly in any index. Data about the performance of this index are prepared or obtained by Neuberger&Berman Management Inc. and include reinvestment of all dividends and capital gain distributions. The Portfolio invests in many securities not included in the above-described index. B-8 COMPARISON OF A $10,000 INVESTMENT Neuberger&Berman August 31, 1997 - ---------------------------------------------------------------------- Socially Responsive Trust EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Average Annual Total Return(1) Socially Responsive S&P "500"(2) 1 Year +31.92% +40.73% Life of Fund +20.02% +23.65% Socially Responsive Trust S&P "500" 3/16/94 $10,000 $10,000 8/31/94 $10,070 $10,279 1995 $11,865 $12,481 1996 $14,261 $14,814 1997 $18,813 $20,848
The performance information for Neuberger&Berman Socially Responsive Trust-SM- is as of August 31, 1997. Neuberger&Berman Socially Responsive Trust started operating on March 3, 1997. It has identical investment objectives and policies, and invests in the same Portfolio as Neuberger&Berman Socially Responsive 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 March 3, 1997, is for the Sister Fund. Neuberger&Berman Management Inc. voluntarily bears certain operating expenses of the Trust so that its expense ratio per annum will not exceed the expense ratio per annum of its Sister Fund by more than 0.10% of the Trust's average daily net assets per annum. This arrangement can be terminated upon 60 days' prior written notice. Absent such arrangement, the average annual total returns of the Trust would have been less. The total returns for periods prior to the Trust's commencement of operations would have been lower had they reflected the higher expense ratios of the Trust as compared to those of Neuberger&Berman Socially Responsive Fund. 1. "Total Return" includes reinvestment of all income dividends and capital gain distributions. Results represent past performance and do not indicate future results. The value of an investment in the Trust 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-9 STATEMENTS OF ASSETS AND LIABILITIES Neuberger&Berman - ----------------------------------------------------------------------
EQUITY TRUST ------------------- FOCUS GENESIS (000'S OMITTED EXCEPT PER SHARE AMOUNTS) TRUST TRUST ------------------- ASSETS Investment in corresponding Portfolio, at value (Note A) $162,588 $377,916 Deferred organization costs (Note A) 10 10 Receivable for Trust shares sold 485 5,079 Receivable from administrator -- net (Note B) -- -- ------------------- 163,083 383,005 ------------------- LIABILITIES Payable for Fund expenses (Note B) -- -- Payable for Trust shares redeemed 2,095 119 Payable to administrator -- net (Note B) 59 121 Accrued organization costs (Note A) -- -- Accrued expenses 32 28 ------------------- 2,186 268 ------------------- NET ASSETS at value $160,897 $382,737 ------------------- NET ASSETS consist of: Par value $ 8 $ 18 Paid-in capital in excess of par value 122,415 304,439 Accumulated undistributed net investment income 26 -- Accumulated net realized gains on investment 3,658 3,817 Net unrealized appreciation in value of investment 34,790 74,463 ------------------- NET ASSETS at value $160,897 $382,737 ------------------- SHARES OUTSTANDING ($.001 par value; unlimited shares authorized) 7,565 17,845 ------------------- NET ASSET VALUE, offering and redemption price per share $21.27 $21.45 -------------------
SEE NOTES TO FINANCIAL STATEMENTS B-10 August 31, 1997 - ----------------------------------------------------------------------
EQUITY ASSETS EQUITY TRUST ------------- ---------------------------------- SOCIALLY GUARDIAN MANHATTAN PARTNERS RESPONSIVE TRUST TRUST TRUST TRUST ------------------------------------------------- ASSETS Investment in corresponding Portfolio, at value (Note A) $2,273,339 $51,010 $470,161 $7,707 Deferred organization costs (Note A) 9 10 10 102 Receivable for Trust shares sold 8,866 95 1,224 42 Receivable from administrator -- net (Note B) -- -- -- 23 ------------------------------------------------- 2,282,214 51,115 471,395 7,874 ------------------------------------------------- LIABILITIES Payable for Fund expenses (Note B) -- -- -- 8 Payable for Trust shares redeemed 11,574 8 634 -- Payable to administrator -- net (Note B) 776 20 160 -- Accrued organization costs (Note A) -- -- -- 114 Accrued expenses 112 24 27 20 ------------------------------------------------- 12,462 52 821 142 ------------------------------------------------- NET ASSETS at value $2,269,752 $51,063 $470,574 $7,732 ------------------------------------------------- NET ASSETS consist of: Par value $ 117 $ 3 $ 25 $ 1 Paid-in capital in excess of par value 1,595,058 34,719 365,535 7,198 Accumulated undistributed net investment income 2,314 -- 1,364 1 Accumulated net realized gains on investment 143,597 9,031 40,046 70 Net unrealized appreciation in value of investment 528,666 7,310 63,604 462 ------------------------------------------------- NET ASSETS at value $2,269,752 $51,063 $470,574 $7,732 ------------------------------------------------- SHARES OUTSTANDING ($.001 par value; unlimited shares authorized) 116,563 3,237 25,035 676 ------------------------------------------------- NET ASSET VALUE, offering and redemption price per share $19.47 $15.77 $18.80 $11.43 -------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS B-11 STATEMENTS OF OPERATIONS Neuberger&Berman - ----------------------------------------------------------------------
EQUITY TRUST FOCUS GENESIS TRUST TRUST For the For the Year Year Ended Ended August 31, August 31, (000'S OMITTED) 1997 1997 ----------------------- INVESTMENT INCOME Investment income from corresponding Portfolio (Note A) $ 1,110 $ 1,678 ----------------------- Expenses: Administration fee (Note B) 418 615 Amortization of deferred organization and initial offering expenses (Note A) 9 9 Auditing fees 5 5 Custodian fees 11 11 Legal fees 11 16 Registration and filing fees 49 49 Shareholder reports 26 23 Shareholder servicing agent fees 20 19 Trustees' fees and expenses 1 3 Miscellaneous 1 1 Expenses from corresponding Portfolio (Notes A & B) 550 1,178 ----------------------- Total expenses 1,101 1,929 Expenses reimbursed by administrator and/or reduced by custodian fee arrangement (Note B) (103) (1) ----------------------- Total net expenses 998 1,928 ----------------------- Net investment income (loss) 112 (250) ----------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS FROM CORRESPONDING PORTFOLIO (NOTE A) Net realized gain on investment securities 3,661 4,157 Net realized loss on option contracts written (16) -- Change in net unrealized appreciation of investment securities and option contracts written 32,689 62,917 ----------------------- Net gain on investments from corresponding Portfolio (Note A) 36,334 67,074 ----------------------- Net increase in net assets resulting from operations $36,446 $66,824 -----------------------
SEE NOTES TO FINANCIAL STATEMENTS B-12 - ----------------------------------------------------------------------
EQUITY TRUST EQUITY ASSETS SOCIALLY RESPONSIVE TRUST GUARDIAN MANHATTAN PARTNERS For the TRUST TRUST TRUST Period from March 3, 1997 For the For the For the (Commencement Year Year Year of Operations) Ended Ended Ended to August 31, August 31, August 31, August 31, 1997 1997 1997 1997 ------------------------------------------------------- INVESTMENT INCOME Investment income from corresponding Portfolio (Note A) $ 23,883 $ 351 $ 4,159 $ 29 ------------------------------------------------------- Expenses: Administration fee (Note B) 7,078 178 1,074 7 Amortization of deferred organization and initial offering expenses (Note A) 10 9 9 11 Auditing fees 5 9 5 5 Custodian fees 11 10 10 5 Legal fees 15 11 10 3 Registration and filing fees 150 29 61 3 Shareholder reports 147 19 33 13 Shareholder servicing agent fees 27 18 20 -- Trustees' fees and expenses 16 1 2 -- Miscellaneous 8 1 2 -- Expenses from corresponding Portfolio (Notes A & B) 8,097 262 1,301 11 ------------------------------------------------------- Total expenses 15,564 547 2,527 58 Expenses reimbursed by administrator and/or reduced by custodian fee arrangement (Note B) (1) (64) (90) (30) ------------------------------------------------------- Total net expenses 15,563 483 2,437 28 ------------------------------------------------------- Net investment income (loss) 8,320 (132) 1,722 1 ------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS FROM CORRESPONDING PORTFOLIO (NOTE A) Net realized gain on investment securities 144,961 9,993 41,373 69 Net realized loss on option contracts written (2,026) -- -- -- Change in net unrealized appreciation of investment securities and option contracts written 430,378 4,760 55,878 462 ------------------------------------------------------- Net gain on investments from corresponding Portfolio (Note A) 573,313 14,753 97,251 531 ------------------------------------------------------- Net increase in net assets resulting from operations $581,633 $14,621 $98,973 $532 -------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS B-13 STATEMENTS OF CHANGES IN NET ASSETS Neuberger&Berman - ----------------------------------------------------------------------
EQUITY TRUST FOCUS TRUST GENESIS TRUST Year Year Ended Ended August 31, August 31, (000'S OMITTED) 1997 1996 1997 1996 ------------------------------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss) $ 112 $ 230 $ (250) $ (104) Net realized gain (loss) on investments from corresponding Portfolio (Note A) 3,645 (313) 4,157 1,183 Change in net unrealized appreciation of investments from corresponding Portfolio (Note A) 32,689 488 62,917 6,518 ------------------------------------- Net increase (decrease) in net assets resulting from operations 36,446 405 66,824 7,597 ------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (289) (33) -- -- Net realized gain on investments -- (133) (846) (822) ------------------------------------- Total distributions to shareholders (289) (166) (846) (822) ------------------------------------- FROM TRUST SHARE TRANSACTIONS: Proceeds from shares sold in initial capitalization of the Fund (Note A) -- -- -- -- Proceeds from shares sold to the public 111,352 59,911 283,599 30,213 Proceeds from reinvestment of dividends and distributions 289 161 846 822 Payments for shares redeemed (42,514) (19,169) (32,922) (3,211) ------------------------------------- Net increase (decrease) from Trust share transactions 69,127 40,903 251,523 27,824 ------------------------------------- NET INCREASE IN NET ASSETS 105,284 41,142 317,501 34,599 NET ASSETS: Beginning of year 55,613 14,471 65,236 30,637 ------------------------------------- End of year $160,897 $ 55,613 $382,737 $65,236 ------------------------------------- Accumulated undistributed net investment income at end of year $ 26 $ 203 $ -- $ -- ------------------------------------- NUMBER OF TRUST SHARES: Sold in initial capitalization of the Fund (Note A) -- -- -- -- Sold to the public 6,127 4,038 15,306 2,095 Issued on reinvestment of dividends and distributions 17 11 51 64 Redeemed (2,329) (1,303) (1,865) (227) ------------------------------------- Net increase (decrease) in shares outstanding 3,815 2,746 13,492 1,932 -------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS B-14 - ----------------------------------------------------------------------
EQUITY TRUST GUARDIAN TRUST MANHATTAN TRUST PARTNERS TRUST Year Year Year Ended Ended Ended August 31, August 31, August 31, 1997 1996 1997 1996 1997 1996 ---------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss) $ 8,320 $ 13,233 $ (132) $ (172) $ 1,722 $ 726 Net realized gain (loss) on investments from corresponding Portfolio (Note A) 142,935 24,032 9,993 1,705 41,373 7,827 Change in net unrealized appreciation of investments from corresponding Portfolio (Note A) 430,378 8,398 4,760 (3,356) 55,878 212 ---------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 581,633 45,663 14,621 (1,823) 98,973 8,765 ---------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (9,986) (9,999) -- -- (961) (364) Net realized gain on investments (22,820) (10,557) (2,874) (1,370) (7,693) (4,629) ---------------------------------------------------------------- Total distributions to shareholders (32,806) (20,556) (2,874) (1,370) (8,654) (4,993) ---------------------------------------------------------------- FROM TRUST SHARE TRANSACTIONS: Proceeds from shares sold in initial capitalization of the Fund (Note A) -- -- -- -- -- -- Proceeds from shares sold to the public 743,301 854,807 18,421 24,466 344,075 75,478 Proceeds from reinvestment of dividends and distributions 32,801 20,520 2,874 1,370 8,113 4,893 Payments for shares redeemed (395,265) (243,412) (30,177) (10,026) (100,384) (17,026) ---------------------------------------------------------------- Net increase (decrease) from Trust share transactions 380,837 631,915 (8,882) 15,810 251,804 63,345 ---------------------------------------------------------------- NET INCREASE IN NET ASSETS 929,664 657,022 2,865 12,617 342,123 67,117 NET ASSETS: Beginning of year 1,340,088 683,066 48,198 35,581 128,451 61,334 ---------------------------------------------------------------- End of year $2,269,752 $1,340,088 $ 51,063 $ 48,198 $ 470,574 $128,451 ---------------------------------------------------------------- Accumulated undistributed net investment income at end of year $ 2,314 $ 3,980 $ -- $ -- $ 1,364 $ 603 ---------------------------------------------------------------- NUMBER OF TRUST SHARES: Sold in initial capitalization of the Fund (Note A) -- -- -- -- -- -- Sold to the public 43,802 60,492 1,312 1,900 20,951 5,647 Issued on reinvestment of dividends and distributions 2,055 1,469 226 110 538 394 Redeemed (23,424) (17,232) (2,257) (792) (6,046) (1,287) ---------------------------------------------------------------- Net increase (decrease) in shares outstanding 22,433 44,729 (719) 1,218 15,443 4,754 ----------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS B-15 STATEMENTS OF CHANGES IN NET ASSETS(Cont'd) Neuberger&Berman - ----------------------------------------------------------------------
EQUITY ASSETS SOCIALLY RESPONSIVE TRUST Period from March 3, 1997 (Commencement of Operations) to August 31, (000'S OMITTED) 1997 ---------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss) $ 1 Net realized gain (loss) on investments from corresponding Portfolio (Note A) 69 Change in net unrealized appreciation of investments from corresponding Portfolio (Note A) 462 -------- Net increase (decrease) in net assets resulting from operations 532 -------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income -- Net realized gain on investments -- -------- Total distributions to shareholders -- -------- FROM TRUST SHARE TRANSACTIONS: Proceeds from shares sold in initial capitalization of the Fund (Note A) 100 Proceeds from shares sold to the public 7,261 Proceeds from reinvestment of dividends and distributions -- Payments for shares redeemed (161) -------- Net increase (decrease) from Trust share transactions 7,200 -------- NET INCREASE IN NET ASSETS 7,732 NET ASSETS: Beginning of year -- -------- End of year $7,732 -------- Accumulated undistributed net investment income at end of year $ 1 -------- NUMBER OF TRUST SHARES: Sold in initial capitalization of the Fund (Note A) 10 Sold to the public 680 Issued on reinvestment of dividends and distributions -- Redeemed (14) -------- Net increase (decrease) in shares outstanding 676 --------
SEE NOTES TO FINANCIAL STATEMENTS B-16 NOTES TO FINANCIAL STATEMENTS Neuberger&Berman August 31, 1997 - ---------------------------------------------------------------------- Equity Trust and Equity Assets NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: 1) GENERAL: Neuberger&Berman Focus Trust ("Focus"), Neuberger&Berman Genesis Trust ("Genesis"), Neuberger&Berman Guardian Trust ("Guardian"), Neuberger&Berman Manhattan Trust ("Manhattan"), and Neuberger&Berman Partners Trust ("Partners") are separate operating series of Neuberger&Berman Equity Trust ("Equity Trust"), a Delaware business trust organized pursuant to a Trust Instrument dated May 6, 1993. Neuberger&Berman Socially Responsive Trust ("Socially Responsive") is a separate operating series of Neuberger&Berman Equity Assets ("Equity Assets"), a Delaware business trust organized pursuant to a Trust Instrument dated October 18, 1993. These six aforementioned series are collectively referred to as the "Funds." Equity Trust and Equity Assets (collectively, the "Trusts") are registered as diversified, open-end management investment companies under the Investment Company Act of 1940, as amended (the "1940 Act"), and their shares are registered under the Securities Act of 1933, as amended (the "1933 Act"). Socially Responsive had no operations until March 3, 1997, other than matters relating to its organization and registration as a diversified, open-end management investment company under the 1940 Act, and registration of its shares under the 1933 Act, and the sale and issuance of 10,000 shares to Neuberger&Berman Management Incorporated ("Management") on October 26, 1994. The trustees of the Trusts 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 (10.33%, 34.87%, 25.96%, 8.21%, 13.15%, and 3.01%, for Focus, Genesis, Guardian, Manhattan, Partners, and Socially Responsive, respectively, at August 31, 1997). 73.67% of Neuberger& Berman Socially Responsive Portfolio is held by another regulated investment company, which has only a single shareholder and is sponsored by Management. The performance of each Fund is directly affected by the performance of its corresponding Portfolio. The financial statements of each Portfolio, including the Schedule of Investments, are included elsewhere in this report and should be read in conjunction with the corresponding Fund's financial statements. B-17 2) PORTFOLIO VALUATION: Each Fund records its investment in its corresponding Portfolio at value. Investment securities held by each Portfolio are valued by Equity Managers Trust as indicated in the notes following the Portfolios' Schedule of Investments. 3) FEDERAL INCOME TAXES: Each series of the Trusts are treated as a separate entity for Federal income tax purposes. It is the policy of Focus, Genesis, Guardian, Manhattan, and Partners to continue to qualify and the intention of Socially Responsive 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 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. Dividends and distributions from net realized capital gains, if any, are normally distributed in December. Guardian generally distributes substantially all of its net investment income, if any, at the end of each calendar quarter. Income dividends and capital gain distributions to shareholders are recorded on the ex-dividend date. To the extent each Fund's net realized capital gains, if any, can be offset by capital loss carryforwards, it is the policy of each Fund not to distribute such gains. Each Fund distinguishes between dividends on a tax basis and a financial reporting basis and only distributions in excess of tax basis earnings and profits are reported in the financial statements as a return of capital. Differences in the recognition or classification of income between the financial statements and tax earnings and profits which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. 5) ORGANIZATION EXPENSES: Expenses incurred by each Fund in connection with its organization are being amortized by that Fund on a straight-line basis over a five-year period. At August 31, 1997, the unamortized balance of such expenses amounted to $9,716, $9,608, $8,970, $9,715, $9,717, and $102,264, for Focus, Genesis, Guardian, Manhattan, Partners, and Socially Responsive, respectively. The accrued organization costs for Socially Responsive are payable to Management, the administrator to the Fund. 6) EXPENSE ALLOCATION: Each Fund bears all costs of its operations. Expenses incurred by the Trusts with respect to any two or more Funds are allocated in B-18 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 Management as its administrator under an Administration Agreement ("Agreement"). Pursuant to this Agreement each Fund pays Management an administration fee at the annual rate of .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). The Agreement provides that, if with respect to any fiscal year of each Fund, its total operating expenses plus its pro rata portion of its corresponding Portfolio's operating expenses (including the fees payable to Management but excluding interest, taxes, brokerage commissions, and extraordinary expenses) ("Operating Expenses") exceed the most restrictive of the expense limitations imposed by securities laws of the states in which such Fund's shares are qualified for sale, the administration fees for that fiscal year will be reduced by the amount of such excess, provided that Management has no obligation to reimburse the Fund for any such expenses that exceed the administration fee. Effective October 11, 1996, states may no longer impose expense limitations as a condition to the sale of mutual fund shares. The most restrictive expense limitation applicable prior to that date, to which each Fund (excluding Socially Responsive) was subject, was 2 1/2% of the first $30 million of average daily net assets, 2% of the next $70 million of average daily net assets, and 1 1/2% of any additional average daily net assets. No reduction in the administration fee as a result of any state expense limitation was required for the period ended August 31, 1997. Management has voluntarily undertaken (subject to termination upon 60 days' prior written notice) to reimburse Focus, Genesis, Guardian, Manhattan, Partners, and Socially Responsive for their Operating Expenses which, in the aggregate, exceed by more than .10% the expense ratio per annum of a certain other mutual fund ("Sister Fund") which also invests in the same Portfolio. For the year ended August 31, 1997, expenses (net of reimbursement) incurred by Focus, Genesis, Guardian, Manhattan, Partners, and Socially Responsive amounted to .96%, 1.25%, .88%, 1.09%, .91%, and 1.58%, respectively, of average daily net assets on an annualized basis. Since inception of Socially Responsive, Management has voluntarily undertaken to pay certain expenses as an advance. These expenses will be repaid by the Fund to Management in the future, and are included under the caption Payable for Fund expenses in the Statements of Assets and Liabilities. B-19 All of the capital stock of 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 Trusts are also principals of Neuberger and/or officers and/or directors of Management. Each Fund also has a distribution agreement with Management. Management receives no compensation therefor and no commissions for sales or redemptions of shares of beneficial interest of each Fund. Each Portfolio has an expense offset arrangement in connection with its custodian contract. The impact of this arrangement, reflected in the Statements of Operations under the caption Expenses from corresponding Portfolio, was a reduction of $461, $1,280, $785, $64, $393, and $4, for Focus, Genesis, Guardian, Manhattan, Partners, and Socially Responsive, respectively. NOTE C -- INVESTMENT TRANSACTIONS: During the period ended August 31, 1997, additions and reductions in each Fund's investment in its corresponding Portfolio were as follows:
ADDITIONS REDUCTIONS - ------------------------------------------------------------------------------- FOCUS $ 87,069,461 $15,540,958 GENESIS 251,656,873 6,501,081 GUARDIAN 425,431,726 75,803,622 MANHATTAN 11,319,637 25,363,996 PARTNERS 276,258,772 34,719,470 SOCIALLY RESPONSIVE 7,324,107 165,650
B-20 FINANCIAL HIGHLIGHTS Neuberger&Berman - -------------------------------------------------------------------------------- Focus Trust(1) 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.
Period from August 30, 1993(2) Year Ended August 31, to August 31, 1997 1996 1995 1994 1993 -------------------------------------------------- Net Asset Value, Beginning of Year $14.83 $14.41 $11.36 $10.03 $10.00 -------------------------------------------------- Income From Investment Operations Net Investment Income .01 .06 .05 .05 -- Net Gains or Losses on Securities (both realized and unrealized) 6.49 .46 3.05 1.31 .03 -------------------------------------------------- Total From Investment Operations 6.50 .52 3.10 1.36 .03 -------------------------------------------------- Less Distributions Dividends (from net investment income) (.06) (.02) (.05) (.02) -- Distributions (from capital gains) -- (.08) -- (.01) -- -------------------------------------------------- Total Distributions (.06) (.10) (.05) (.03) -- -------------------------------------------------- Net Asset Value, End of Year $21.27 $14.83 $14.41 $11.36 $10.03 -------------------------------------------------- Total Return(3) +43.93% +3.62% +27.44% +13.58% +0.30%(4) -------------------------------------------------- Ratios/Supplemental Data Net Assets, End of Year (in millions) $160.9 $ 55.6 $ 14.5 $ 1.6 $ -- -------------------------------------------------- Ratio of Gross Expenses to Average Net Assets(5) .96% .99% -- -- -- -------------------------------------------------- Ratio of Net Expenses to Average Net Assets(6) .96% .99% .96% .85% .92%(7) -------------------------------------------------- Ratio of Net Investment Income to Average Net Assets(6) .11% .63% .67% .92% .05%(7) --------------------------------------------------
SEE NOTES TO FINANCIAL HIGHLIGHTS B-21 FINANCIAL HIGHLIGHTS Neuberger&Berman - -------------------------------------------------------------------------------- Genesis Trust 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.
Period from August 26, 1993(2) Year Ended August 31, to August 31, 1997 1996 1995 1994 1993 ---------------------------------------------------------- Net Asset Value, Beginning of Year $14.99 $12.65 $10.59 $10.05 $10.00 ---------------------------------------------------------- Income From Investment Operations Net Investment Income (Loss) (.01) (.02) (.01) (.01) -- Net Gains or Losses on Securities (both realized and unrealized) 6.61 2.68 2.08 .56 .05 ---------------------------------------------------------- Total From Investment Operations 6.60 2.66 2.07 .55 .05 ---------------------------------------------------------- Less Distributions Distributions (from capital gains) (.14) (.32) (.01) (.01) -- ---------------------------------------------------------- Net Asset Value, End of Year $21.45 $14.99 $12.65 $10.59 $10.05 ---------------------------------------------------------- Total Return(3) +44.31% +21.44% +19.51% +5.47% +0.50%(4) ---------------------------------------------------------- Ratios/Supplemental Data Net Assets, End of Year (in millions) $382.7 $ 65.2 $ 30.6 $ 3.1 $ -- ---------------------------------------------------------- Ratio of Gross Expenses to Average Net Assets(5) 1.26% 1.38% -- -- -- ---------------------------------------------------------- Ratio of Net Expenses to Average Net Assets(6) 1.25% 1.38% 1.42% 1.36% 1.51%(7) ---------------------------------------------------------- Ratio of Net Investment Loss to Average Net Assets(6) (.16%) (.27%) (.24%) (.21%) (.44%)(7) ----------------------------------------------------------
SEE NOTES TO FINANCIAL HIGHLIGHTS B-22 FINANCIAL HIGHLIGHTS Neuberger&Berman - -------------------------------------------------------------------------------- Guardian Trust 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.
Period from August 3, 1993(2) Year Ended August 31, to August 31, 1997 1996 1995 1994 1993 ----------------------------------------------------------------- Net Asset Value, Beginning of Year $ 14.24 $ 13.83 $11.27 $10.27 $10.00 ----------------------------------------------------------------- Income From Investment Operations Net Investment Income .08 .16 .13 .09 -- Net Gains or Losses on Securities (both realized and unrealized) 5.48 .55 2.55 .99 .27 ----------------------------------------------------------------- Total From Investment Operations 5.56 .71 2.68 1.08 .27 ----------------------------------------------------------------- Less Distributions Dividends (from net investment income) (.10) (.14) (.12) (.07) -- Distributions (from capital gains) (.23) (.16) -- (.01) -- ----------------------------------------------------------------- Total Distributions (.33) (.30) (.12) (.08) -- ----------------------------------------------------------------- Net Asset Value, End of Year $ 19.47 $ 14.24 $13.83 $11.27 $10.27 ----------------------------------------------------------------- Total Return(3) +39.56% +5.19% +24.01% +10.57% +2.70%(4) ----------------------------------------------------------------- Ratios/Supplemental Data Net Assets, End of Year (in millions) $2,269.8 $1,340.1 $683.1 $ 75.8 $ -- ----------------------------------------------------------------- Ratio of Gross Expenses to Average Net Assets(5) .88% .92% -- -- -- ----------------------------------------------------------------- Ratio of Net Expenses to Average Net Assets .88% .92%(6) .90%(6) .80%(6) .81%(6)(7) ----------------------------------------------------------------- Ratio of Net Investment Income to Average Net Assets .47% 1.26%(6) 1.35%(6) 1.50%(6) 1.00%(6)(7) -----------------------------------------------------------------
SEE NOTES TO FINANCIAL HIGHLIGHTS B-23 FINANCIAL HIGHLIGHTS Neuberger&Berman - -------------------------------------------------------------------------------- Manhattan Trust 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.
Period from August 30, 1993(2) Year Ended August 31, to August 31, 1997 1996 1995 1994 1993 ---------------------------------------------------------- Net Asset Value, Beginning of Year $12.18 $12.99 $10.37 $10.01 $10.00 ---------------------------------------------------------- Income From Investment Operations Net Investment Income (Loss) (.04) (.04) -- .01 -- Net Gains or Losses on Securities (both realized and unrealized) 4.55 (.34) 2.67 .36 .01 ---------------------------------------------------------- Total From Investment Operations 4.51 (.38) 2.67 .37 .01 ---------------------------------------------------------- Less Distributions Dividends (from net investment income) -- -- (.01) (.01) -- Distributions (from capital gains) (.92) (.43) (.04) -- -- ---------------------------------------------------------- Total Distributions (.92) (.43) (.05) (.01) -- ---------------------------------------------------------- Net Asset Value, End of Year $15.77 $12.18 $12.99 $10.37 $10.01 ---------------------------------------------------------- Total Return(3) +38.84% -2.98% +25.90% +3.70% +0.10%(4) ---------------------------------------------------------- Ratios/Supplemental Data Net Assets, End of Year (in millions) $ 51.1 $ 48.2 $ 35.6 $ 12.1 $ -- ---------------------------------------------------------- Ratio of Gross Expenses to Average Net Assets(5) 1.09% 1.08% -- -- -- ---------------------------------------------------------- Ratio of Net Expenses to Average Net Assets(6) 1.09% 1.08% 1.06% .96% 1.04%(7) ---------------------------------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets(6) (.30%) (.38%) (.03%) .16% 5.48%(7) ----------------------------------------------------------
SEE NOTES TO FINANCIAL HIGHLIGHTS B-24 FINANCIAL HIGHLIGHTS Neuberger&Berman - -------------------------------------------------------------------------------- Partners Trust 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.
Period from August 30, 1993(2) Year Ended August 31, to August 31, 1997 1996 1995 1994 1993 -------------------------------------------------- Net Asset Value, Beginning of Year $13.39 $12.68 $10.54 $10.01 $10.00 -------------------------------------------------- Income From Investment Operations Net Investment Income .07 .08 .05 .03 -- Net Gains or Losses on Securities (both realized and unrealized) 6.06 1.59 2.19 .53 .01 -------------------------------------------------- Total From Investment Operations 6.13 1.67 2.24 .56 .01 -------------------------------------------------- Less Distributions Dividends (from net investment income) (.08) (.07) (.02) (.01) -- Distributions (from capital gains) (.64) (.89) (.08) (.02) -- -------------------------------------------------- Total Distributions (.72) (.96) (.10) (.03) -- -------------------------------------------------- Net Asset Value, End of Year $18.80 $13.39 $12.68 $10.54 $10.01 -------------------------------------------------- Total Return(3) +47.11% +13.76% +21.52% +5.61% +0.10%(4) -------------------------------------------------- Ratios/Supplemental Data Net Assets, End of Year (in millions) $470.6 $128.5 $ 61.3 $ 4.7 $ -- -------------------------------------------------- Ratio of Gross Expenses to Average Net Assets(5) .91% .94% -- -- -- -------------------------------------------------- Ratio of Net Expenses to Average Net Assets(6) .91% .94% .92% .81% .84%(7) -------------------------------------------------- Ratio of Net Investment Income to Average Net Assets(6) .64% .84% .81% .47% 2.65%(7) --------------------------------------------------
SEE NOTES TO FINANCIAL HIGHLIGHTS B-25 FINANCIAL HIGHLIGHTS Neuberger&Berman - -------------------------------------------------------------------------------- Socially Responsive Trust The following table includes selected data for a share outstanding throughout the period 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.
Period from March 3,1997(2) to August 31, 1997 --------------- Net Asset Value, Beginning of Period $10.00 --------------- Income From Investment Operations Net Investment Income -- Net Gains or Losses on Securities (both realized and unrealized) 1.43 --------------- Total From Investment Operations 1.43 --------------- Net Asset Value, End of Period $11.43 --------------- Total Return(3)(4) +14.30% --------------- Ratios/Supplemental Data Net Assets, End of Period (in millions) $ 7.7 --------------- Ratio of Gross Expenses to Average Net Assets(5)(7) 1.58% --------------- Ratio of Net Expenses to Average Net Assets(7)(8) 1.58% --------------- Ratio of Net Investment Income to Average Net Assets(7)(8) .06% ---------------
SEE NOTES TO FINANCIAL HIGHLIGHTS B-26 NOTES TO FINANCIAL HIGHLIGHTS Neuberger&Berman August 31, 1997 - ---------------------------------------------------------------------- Equity Trust and Equity Assets 1) Prior to January 1, 1995, its name was Neuberger&Berman Selected Sectors Trust. 2) The date investment operations commenced. 3) Total return based on per share net asset value reflects the effects of changes in net asset value on the performance of each Fund during each fiscal period and assumes dividends and other distributions, if any, were reinvested. Results represent past performance and do not guarantee future results. Investment returns and principal may fluctuate and shares when redeemed may be worth more or less than original cost. Total return would have been lower if Management had not reimbursed certain expenses. In addition, for Genesis, total return would have been lower if Management had not waived a portion of the management fee. 4) Not annualized. 5) For fiscal periods ending after September 1, 1995, the Fund is required to calculate an expense ratio without expense reductions related to expense offset arrangements. These ratios include management fee waiver and/or reimbursement of expenses. 6) After reimbursement of expenses by Management as described in Note B of Notes to Financial Statements. Had Management not undertaken such action the annualized ratios to average daily net assets would have been:
Period from August 30, 1993 Year Ended August 31, to August 31, FOCUS 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------ Net Expenses 1.06% 1.27% 2.50% 2.50% 2.50% ----------------------------------------------------------- Net Investment Income (Loss) .01% .35% (.87%) (.73%) (1.53%) -----------------------------------------------------------
Period from August 3, 1993 Year Ended August 31, to August 31, GUARDIAN 1996 1995 1994 1993 - ---------------------------------------------------------------------------------------------- Net Expenses .92% .96% 1.52% 2.50% --------------------------------------------- Net Investment Income (Loss) 1.26% 1.29% .78% (.69%) ---------------------------------------------
Period from August 30, 1993 Year Ended August 31, to August 31, MANHATTAN 1997 1996 1995 1994 1993 - -------------------------------------------------------------------------------------------------------------- Net Expenses 1.23% 1.25% 1.46% 2.50% 2.50% ------------------------------------------------------------- Net Investment Income (Loss) (.44%) (.55%) (.43%) (1.38%) 4.02% -------------------------------------------------------------
B-27
Period from August 30, 1993 Year Ended August 31, to August 31, PARTNERS 1997 1996 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------- Net Expenses .94% 1.06% 1.24% 2.50% 2.50% --------------------------------------------------------- Net Investment Income (Loss) .61% .72% .49% (1.22%) .99% ---------------------------------------------------------
After reimbursement of expenses by Management as described in Note B of Notes to Financial Statements and/or the waiver of a portion of the management fee as described in Note B of Notes to Financial Statements of Neuberger&Berman Genesis Portfolio. Had Management not undertaken such action the annualized ratios to average daily net assets would have been:
Period from August 26, 1993 Year Ended August 31, to August 31, GENESIS 1997 1996 1995 1994 1993 - -------------------------------------------------------------------------------------------------------------- Net Expenses 1.35% 1.65% 1.78% 2.50% 2.50% ------------------------------------------------------------- Net Investment Loss (.26%) (.54%) (.60%) (1.35%) (1.43%) -------------------------------------------------------------
7) Annualized. 8) After reimbursement of expenses by Management as described in Note B of Notes to Financial Statements. Had Management not undertaken such action the annualized expense and net investment income ratios to average daily net assets would have been higher and lower, respectively. B-28 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Trustees of Neuberger&Berman Equity Trust and Shareholders of Neuberger&Berman Manhattan Trust We have audited the accompanying statement of assets and liabilities of Neuberger&Berman Manhattan Trust (the "Trust"), as of August 31, 1997, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with 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. 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 audit provides 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 Neuberger&Berman Manhattan Trust as of August 31, 1997, 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. COOPERS & LYBRAND L.L.P. Boston, Massachusetts October 3, 1997 B-29 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Trustees of Neuberger&Berman Equity Assets and Shareholders of Neuberger&Berman Socially Responsive Trust We have audited the accompanying statement of assets and liabilities of Neuberger&Berman Socially Responsive Trust (the "Trust"), as of August 31, 1997, and the related statement of operations, the statement of changes in net assets, and the financial highlights for the period from March 3, 1997 (Commencement of Operations) to August 31, 1997. 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 audit. We conducted our audit 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. 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 audit provides 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 Neuberger&Berman Socially Responsive Trust as of August 31, 1997, the results of its operations, the changes in its net assets, and the financial highlights for the period from March 3, 1997 (Commencement of Operations) to August 31, 1997, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Boston, Massachusetts October 3, 1997 B-30 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Board of Trustees Neuberger&Berman Equity Trust and Shareholders of: Neuberger&Berman Focus Trust Neuberger&Berman Genesis Trust Neuberger&Berman Guardian Trust and Neuberger&Berman Partners Trust We have audited the accompanying statements of assets and liabilities of the Neuberger&Berman Focus Trust, Neuberger&Berman Genesis Trust, Neuberger& Berman Guardian Trust, and Neuberger&Berman Partners Trust, four of the series comprising Neuberger&Berman Equity Trust (the "Trust"), as of August 31, 1997, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the above mentioned series of Neuberger&Berman Equity Trust at August 31, 1997, 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 3, 1997 B-31 SCHEDULE OF INVESTMENTS Neuberger&Berman - -------------------------------------------------------------------------------- Focus Portfolio
TOP TEN EQUITY HOLDINGS --------------------------------------------------- HOLDING PERCENTAGE 1. Compaq Computer 5.5% 2. 3Com Corp. 4.3% 3. Aetna Inc. 4.0% 4. General Motors 3.9% 5. CITICORP 3.8% 6. ADVANTA Corp. Class A 3.6% 7. Foundation Health Systems 3.5% 8. Travelers Group 3.3% 9. Countrywide Credit Industries 3.2% 10. Banc One 3.1%
Market Value(1) Number (000's of Shares omitted) - ---------- ------------ COMMON STOCKS (98.1%) AUTOMOTIVE (7.0%) 1,370,000 Chrysler Corp. $ 48,121 981,000 General Motors 61,558 ------------ 109,679 ------------ FINANCIAL SERVICES (38.5%) 380,000 ACE Ltd. 31,587 1,691,500 ADVANTA Corp. Class A 56,031 (2) 195,300 Associates First Capital 11,340 900,000 Banc One 48,263 365,200 BankBoston Corp. 30,357 940,000 Capital One Financial 36,190 466,200 CITICORP 59,499 1,515,000 Countrywide Credit Industries 51,037 986,000 Fannie Mae 43,384 1,225,000 Federal Home Loan Mortgage 39,889 242,000 Hartford Financial Services Group 19,299 570,000 Merrill Lynch 35,055 Market Value(1) Number (000's of Shares omitted) - ---------- ------------ 569,300 Morgan Stanley, Dean Witter, Discover $ 27,398 525,600 PartnerRe Ltd. 20,893 307,500 Providian Corp. 11,454 222,000 St. Paul Cos. 16,289 162,000 Transamerica Corp. 15,967 820,000 Travelers Group 52,070 ------------ 606,002 ------------ HEALTH CARE (14.9%) 652,600 Aetna Inc. 62,283 1,743,000 Foundation Health Systems 55,449 (3) 230,000 PacifiCare Health Systems Class B 15,726 934,500 Sierra Health Services 30,780 (2)(3) 519,300 United Healthcare 25,251 838,000 Wellpoint Health Networks 45,566 (3) ------------ 235,055 ------------ HEAVY INDUSTRY (9.1%) 1,285,000 AGCO Corp. 41,762 1,045,000 DT Industries 31,089 (2) 604,100 Harnischfeger Industries 24,240 297,500 Ispat International 7,977 (3) 804,600 UCAR International 37,967 (3) ------------ 143,035 ------------ RETAIL (8.3%) 600,000 Barnes & Noble 27,862 (3) 1,925,000 Furniture Brands International 33,928 (3) 1,298,000 Neiman-Marcus Group 40,076 (3) 434,800 Payless ShoeSource 27,882 (3) ------------ 129,748 ------------ TECHNOLOGY (18.8%) 1,340,000 3Com Corp. 66,916 (3) 200,000 Applied Materials 18,875 (3) 242,000 Arrow Electronics 14,868 (3)
B-32 August 31, 1997 - -------------------------------------------------------------------------------- Focus Portfolio (Cont'd)
Market Value(1) Number (000's of Shares omitted) - ---------- ------------ 585,000 Atmel Corp. $ 20,694(3) 976,000 Cabletron Systems 29,524(3) 1,312,500 Compaq Computer 85,969(3)(4) 449,000 Gateway 2000 17,567(3) 550,000 Rational Software 9,075(3) 950,000 Silicon Valley Group 32,063(3) ------------ 295,551 ------------ TRANSPORTATION (1.5%) 644,000 Continental Airlines Class B 23,586 (3) ------------ TOTAL COMMON STOCKS (COST $955,133) 1,542,656 ------------ Market Value(1) Principal (000's Amount omitted) - ---------- ------------ SHORT-TERM CORPORATE NOTES (2.9%) $46,120,000 General Electric Capital Corp., 5.45%, due 9/2/97 (COST $46,120) $ 46,120(5) ------------ TOTAL INVESTMENTS (101.0%) (COST $1,001,253) 1,588,776(6) Liabilities, less cash, receivables and other assets [(1.0%)] (15,335) ------------ TOTAL NET ASSETS (100.0%) $1,573,441 ------------
SEE NOTES TO SCHEDULE OF INVESTMENTS B-33 SCHEDULE OF INVESTMENTS Neuberger&Berman - -------------------------------------------------------------------------------- Genesis Portfolio
TOP TEN EQUITY HOLDINGS --------------------------------------------------- HOLDING PERCENTAGE 1. Thiokol Corp. 2.9% 2. Pride International 2.8% 3. BMC Industries 2.2% 4. Bank United 2.1% 5. Texas Industries 2.0% 6. Data General 1.9% 7. AAR Corp. 1.9% 8. Dallas Semiconductor 1.8% 9. Webster Financial 1.6% 10. AptarGroup Inc. 1.6%
Market Value(1) Number (000's of Shares omitted) - ----------- ----------- COMMON STOCKS (93.7%) AEROSPACE (10.4%) 617,600 AAR Corp. $ 20,728 140,800 Alliant Techsystems 9,090(3) 947,000 Aviall Inc. 15,507 154,700 BE Aerospace 5,492(3) 401,500 DONCASTERS PLC ADR 10,339(3) 199,900 Ducommun Inc. 7,446(3) 171,200 Hexcel Corp. 4,762(3) 79,300 Moog, Inc. Class A 2,885(3) 257,300 Orbital Sciences 5,580(3) 390,100 Thiokol Corp. 31,062 ----------- 112,891 ----------- AUTOMOTIVE (1.3%) 144,500 Donaldson Co. 6,448 67,800 Monaco Coach 1,678(3) 135,900 Tower Automotive 6,099(3) ----------- 14,225 ----------- BANKING & FINANCIAL (13.3%) 642,400 Bank United 23,207(3) 112,250 Charter One Financial 6,103 Market Value(1) Number (000's of Shares omitted) - ----------- ----------- 90,400 Coast Savings Financial $ 4,164(3) 95,900 Colonial BancGroup 2,523 121,500 Community First Bankshares 4,951 185,000 Cullen/Frost Bankers 8,232 211,600 Dime Community Bancorp 4,153 166,700 First Commerce 8,898 583,000 Golden State Bancorp 16,834 119,600 Long Island Bancorp 4,769 78,300 North Fork Bancorp 1,953 112,700 Ocean Financial 3,789 65,377 ONBANCorp, Inc. 3,400 218,500 Peoples Heritage Financial Group 8,139 89,450 Queens County Bancorp 4,819 202,600 Reliance Bancorp 6,243 458,450 Sterling Bancshares 8,252 264,750 Texas Regional Bancshares 6,751 325,800 Webster Financial 17,227 ----------- 144,407 ----------- BUILDING, CONSTRUCTION & FURNISHINGS (3.6%) 656,100 Apogee Enterprises 14,352 73,000 Lincoln Electric Class A 2,847 659,600 Texas Industries 21,973 ----------- 39,172 ----------- CHEMICALS (0.8%) 334,100 Lawter International 4,385 201,000 Lilly Industries 4,447 ----------- 8,832 ----------- COMMUNICATIONS (0.6%) 175,100 Black Box 6,369(3) ----------- CONSUMER PRODUCTS & SERVICES (5.2%) 120,073 Block Drug 5,703 124,100 Bush Boake Allen 3,863(3)
B-34 August 31, 1997 - -------------------------------------------------------------------------------- Genesis Portfolio (Cont'd)
Market Value(1) Number (000's of Shares omitted) - ----------- ----------- 368,800 Coachmen Industries $ 6,823 427,400 First Brands 10,658 3,400 Marcus Corp. 84 579,500 Prime Hospitality 11,011(3) 645,000 Richfood Holdings 14,513 125,000 The First Years 3,156 ----------- 55,811 ----------- DIAGNOSTIC EQUIPMENT (1.2%) 683,100 ADAC Laboratories 13,406 ----------- ELECTRONICS (3.7%) 224,800 Continental Circuits 4,496(3) 496,100 Dallas Semiconductor 19,007 79,400 Kent Electronics 2,973(3) 70,000 Nu Horizons 551(3) 84,943 Pioneer Standard Electronics 1,274 302,600 SCI Systems 11,896(3) ----------- 40,197 ----------- ENERGY (4.4%) 286,400 Apache Corp. 11,367 157,300 Aquila Gas Pipeline 1,642 182,500 Cairn Energy USA 2,087(3) 701,900 Coho Energy 6,844(3) 121,800 Cross Timbers Oil 2,626 54,200 Ocean Energy 3,486 243,800 Offshore Energy Development 1,310(3) 410,900 Swift Energy 10,658(3) 564,400 Unit Corp. 7,584(3) ----------- 47,604 ----------- HEALTH CARE (6.7%) 460,200 Ballard Medical Products 10,642 110,000 CONMED Corp. 2,049(3) 168,000 Haemonetics Corp. 3,066(3) 749,800 Kinetic Concepts 13,778 235,500 Patterson Dental 8,331(3) 151,900 Sofamor Danek Group 7,282(3) 90,000 STAAR Surgical 1,530(3) Market Value(1) Number (000's of Shares omitted) - ----------- ----------- 266,500 Sullivan Dental Products $ 6,862 375,200 Trigon Healthcare 8,958(3) 232,500 Universal Health Services Class B 10,186(3) ----------- 72,684 ----------- INDUSTRIAL & COMMERCIAL PRODUCTS & SERVICES (7.8%) 115,000 Alamo Group 2,530 752,800 BMC Industries 23,431 108,500 Dionex Corp. 5,073(3) 142,850 Holophane Corp. 3,321(3) 228,400 Kaydon Corp. 13,490 134,100 Libbey Inc. 5,146 332,000 NN Ball & Roller 4,067 119,900 Pameco Corp. 2,308(3) 107,000 Pentair, Inc. 3,812 81,600 Roper Industries 2,305 139,900 SOS Staffing Services 2,396(3) 154,800 W.H. Brady 4,702 127,100 Wallace Computer Services 3,940 168,100 Wolverine Tube 5,400(3) 155,750 Woodhead Industries 2,881 ----------- 84,802 ----------- INSURANCE (2.0%) 94,400 Allied Group 4,177 210,300 FBL Financial Group 6,730(3) 81,000 Orion Capital 3,443 178,000 Penn-America Group 3,248 109,400 Trenwick Group 3,979 ----------- 21,577 ----------- MACHINERY & EQUIPMENT (1.6%) 119,800 Allied Products 4,231 536,700 Stewart & Stevenson Services 13,082 ----------- 17,313 -----------
B-35 SCHEDULE OF INVESTMENTS Neuberger&Berman - -------------------------------------------------------------------------------- Genesis Portfolio (Cont'd)
Market Value(1) Number (000's of Shares omitted) - ----------- ----------- OFFICE EQUIPMENT (0.0%) 14,960 DH Technology $ 254(3) ----------- OIL SERVICES (16.6%) 208,200 Cal Dive International 7,079(3) 178,800 Cliffs Drilling 8,527(3) 138,800 Dawson Production Services 2,602(3) 217,100 Dreco Energy Services 11,941(3) 322,000 Falcon Drilling 10,143(3) 145,000 Friede Goldman International 5,836(3) 265,200 Global Industries 9,663(3) 187,700 Hvide Marine 5,795(3) 399,500 Nabors Industries 13,758(3) 238,300 National-Oilwell 14,670(3) 480,700 Oceaneering International 11,206(3) 742,500 Offshore Logistics 13,551(3) 940,500 Pride International 30,096 142,400 Smith International 10,360(3) 224,400 Trico Marine Services 6,956(3) 192,600 Tuboscope Inc. 5,369(3) 108,400 UTI Energy 8,306(3) 213,700 Willbros Group 3,686(3) ----------- 179,544 ----------- PACKING & CONTAINERS (1.6%) 302,200 AptarGroup Inc. 16,999 ----------- PUBLISHING & BROADCASTING (0.5%) 87,500 McClatchy Newspapers 2,636 45,666 Pulitzer Publishing 2,400 ----------- 5,036 ----------- REAL ESTATE (2.8%) 197,100 CCA Prison Realty Trust 6,529(3) 26,800 Crescent Operating 432 359,500 Crescent Real Estate Equities 11,369 Market Value(1) Number (000's of Shares omitted) - ----------- ----------- 470,100 Prime Retail $ 6,787 219,400 SL Green Realty 5,225(3) ----------- 30,342 ----------- RETAILING (0.9%) 228,900 99 Cents Only Stores 7,353(3) 119,000 Schultz Sav-O Stores 2,901 ----------- 10,254 ----------- TECHNOLOGY (7.8%) 176,600 Analysts International 6,049 935,900 Auspex Systems 10,295(3) 1,378,700 Borland International 12,236(3) 267,400 CACI International 4,512(3) 134,700 Computer Data Systems 4,108 578,900 Data General 20,804(3) 300,000 Methode Electronics Class A 7,125 706,700 Reynolds & Reynolds 14,222 159,000 Zebra Technologies 4,671(3) ----------- 84,022 ----------- TEXTILES & APPAREL (0.5%) 124,300 St. John Knits 5,236 ----------- TRANSPORTATION, SHIPPING & FREIGHT (0.4%) 78,375 Air Express International 2,381 213,600 Maritrans Inc. 1,775 ----------- 4,156 ----------- TOTAL COMMON STOCKS (COST $743,618) 1,015,133 ----------- PREFERRED STOCKS (0.3%) 60,000 Hvide Capital Trust, Cv., 6.50% (COST $3,000) 3,757(7) -----------
B-36 August 31, 1997 - -------------------------------------------------------------------------------- Genesis Portfolio (Cont'd)
Market Value(1) Principal (000's Amount omitted) - ----------- ----------- U.S. TREASURY SECURITIES (6.6%) $71,960,000 U.S. Treasury Bills, 5.00% & 5.04%, due 9/4/97 & 10/16/97 (COST $71,731) $ 71,739 ----------- SHORT-TERM CORPORATE NOTES (3.7%) 40,000,000 General Electric Capital Corp., 5.45%, due 9/2/97 (COST $40,000) 40,000(5) ----------- TOTAL INVESTMENTS (104.3%) (COST $858,349) 1,130,629(6) Liabilities, less cash, receivables and other assets [(4.3%)] (46,978) ----------- TOTAL NET ASSETS (100.0%) $1,083,651 -----------
SEE NOTES TO SCHEDULE OF INVESTMENTS B-37 SCHEDULE OF INVESTMENTS Neuberger&Berman - -------------------------------------------------------------------------------- Guardian Portfolio
TOP TEN EQUITY HOLDINGS --------------------------------------------------- HOLDING PERCENTAGE 1. Compaq Computer 5.0% 2. General Motors 4.1% 3. Aetna Inc. 4.0% 4. 3Com Corp. 4.0% 5. Foundation Health Systems 3.3% 6. Banc One 3.2% 7. CITICORP 3.0% 8. Chrysler Corp. 3.0% 9. Merrill Lynch 2.3% 10. Chase Manhattan 2.2%
Market Value(1) Number (000's of Shares omitted) - ----------- ------------ COMMON STOCKS (89.3%) AGRICULTURE (4.8%) 4,737,400 AGCO Corp. $ 153,966 (2) 4,160,000 IMC Global 146,380 1,592,900 Potash Corp. of Saskatchewan 117,775 ------------ 418,121 ------------ AUTOMOTIVE (11.4%) 2,662,300 Cabot Corp. 72,881 7,380,000 Chrysler Corp. 259,223 4,893,900 Coltec Industries 109,501 (2)(3) 5,760,500 General Motors 361,471 574,000 Lear Corp. 26,296 (3) 1,815,486 LucasVarity PLC ADR 57,528 809,800 Magna International Class A 53,649 2,130,081 Mark IV Industries 53,518 ------------ 994,067 ------------ BANKING (11.3%) 5,174,963 Banc One 277,507 1,830,000 BankBoston Corp. 152,119 1,750,000 Chase Manhattan 194,578 Market Value(1) Number (000's of Shares omitted) - ----------- ------------ 2,060,000 CITICORP $ 262,908 504,000 First Tennessee National 26,838 904,400 First Union 43,468 140,000 Wells Fargo 35,595 ------------ 993,013 ------------ DRUGS (0.4%) 361,100 Zeneca Group ADR 34,485 ------------ ELECTRONICS (2.7%) 2,866,000 Atmel Corp. 101,385 (3) 2,350,000 Teradyne, Inc. 130,865 (3) ------------ 232,250 ------------ ENERGY (2.3%) 2,295,700 Enron Oil & Gas 55,384 1,670,000 Unocal Corp. 65,234 788,200 Vastar Resources 33,646 1,702,000 Zeigler Coal Holding 43,507 (2) ------------ 197,771 ------------ FINANCIAL SERVICES (14.0%) 3,955,000 ADVANTA Corp. Class B 125,571 220,814 Alleghany Corp. 52,995 (3) 4,445,000 Capital One Financial 171,133 (2) 5,445,000 Countrywide Credit Industries 183,428 (2) 4,100,000 Fannie Mae 180,400 3,210,000 Federal Home Loan Mortgage 104,526 3,280,000 Merrill Lynch 201,720 400,000 MGIC Investment 20,125 (4) 3,715,000 Morgan Stanley, Dean Witter, Discover 178,784 510,000 Security Capital Industrial Trust 10,774 ------------ 1,229,456 ------------
B-38 August 31, 1997 - -------------------------------------------------------------------------------- Guardian Portfolio (Cont'd)
Market Value(1) Number (000's of Shares omitted) - ----------- ------------ FOOD PRODUCTS (0.6%) 2,224,300 IBP, Inc. $ 51,020 ------------ HEALTH CARE (11.6%) 3,673,500 Aetna Inc. 350,590 9,065,800 Foundation Health Systems 288,406 (2)(3) 4,240,400 Humana Inc. 99,914 (3) 1,960,300 Mid Atlantic Medical Services 30,262 (3) 1,327,790 PacifiCare Health Systems Class B 90,788 (3) 800,000 United Healthcare 38,900 2,226,396 Wellpoint Health Networks 121,060 (3) ------------ 1,019,920 ------------ HEAVY INDUSTRY (3.3%) 1,010,000 Aluminum Co. of America 83,073 1,166,900 Harnischfeger Industries 46,822 3,404,400 UCAR International 160,645 (2)(3) ------------ 290,540 ------------ INDUSTRIAL GOODS & SERVICES (1.7%) 1,460,200 American Standard 68,630 (3) 1,885,000 USG Corp. 80,819 (3) ------------ 149,449 ------------ INSURANCE (4.9%) 626,250 American International Group 59,102 1,499,800 Hartford Financial Services Group 119,609 460,500 St. Paul Cos. 33,789 451,050 Transatlantic Holdings 31,884 2,894,066 Travelers Group 183,773 ------------ 428,157 ------------ Market Value(1) Number (000's of Shares omitted) - ----------- ------------ MEDIA & ENTERTAINMENT (0.6%) 1,050,700 Harcourt General $ 49,974 147,000 Jones Intercable Inc. Class A 1,654 (3) ------------ 51,628 ------------ REAL ESTATE INVESTMENT TRUSTS (1.0%) 2,173,700 INMC Mortgage Holdings 52,033 1,040,000 Spieker Properties 38,675 ------------ 90,708 ------------ RETAIL (1.1%) 1,034,400 Barnes & Noble 48,035 (3) 1,300,000 Wal-Mart Stores 46,150 ------------ 94,185 ------------ TECHNOLOGY (16.6%) 7,000,000 3Com Corp. 349,562 (3) 1,020,000 Applied Materials 96,262 (3) 1,475,000 Arrow Electronics 90,620 (3) 1,296,600 Avnet, Inc. 89,709 5,120,000 Cabletron Systems 154,880 (3) 6,724,000 Compaq Computer 440,422 (3)(4) 625,000 Gateway 2000 24,453 (3) 500,000 KLA-Tencor 35,438 (3) 552,000 Komag, Inc. 9,695 (3) 1,735,200 National Semiconductor 59,431 (3) 1,350,000 Seagate Technology 51,553 (3) 490,000 Texas Instruments 55,676 (4) ------------ 1,457,701 ------------ TRANSPORTATION (1.0%) 1,510,600 Continental Airlines Class B 55,326 (3) 550,000 Union Pacific 35,715 ------------ 91,041 ------------ TOTAL COMMON STOCKS (COST $5,217,000) 7,823,512 ------------
B-39 SCHEDULE OF INVESTMENTS Neuberger&Berman August 31, 1997 - -------------------------------------------------------------------------------- Guardian Portfolio (Cont'd)
Market Value(1) Number (000's of Shares omitted) - ----------- ------------ PREFERRED STOCKS (0.1%) 52,430 Aetna Inc., Ser. C, Cv., 6.25% $ 4,614 125,000 PacifiCare Health Systems, Ser. C, Cv., $1.00 3,500 ------------ TOTAL PREFERRED STOCKS (COST $7,557) 8,114 ------------ Principal Amount - ----------- CONVERTIBLE BONDS (0.2%) $15,000,000 International CableTel Inc., Cv. Sub. Notes, 7.25%, due 4/15/05 (COST $14,997) 15,075(7) ------------ U.S. TREASURY SECURITIES (10.5%) 717,980,000 U.S. Treasury Bills, 4.79% - 5.325%, due 9/4/97 - 10/16/97 716,117 15,000,000 U.S. Treasury Notes, 8.00%, due 5/15/01 15,895 Market Value(1) Principal (000's Amount omitted) - ----------- ------------ $100,000,000 U.S. Treasury Bonds, 6.25%, due 8/15/23 $ 94,625 100,000,000 U.S. Treasury Bonds, 6.00%, due 2/15/26 91,500 ------------ TOTAL U.S. TREASURY SECURITIES (COST $923,065) 918,137 ------------ SHORT-TERM CORPORATE NOTES (0.4%) 36,480,000 General Electric Capital Corp., 5.45%, due 9/2/97 (COST $36,480) 36,480(5) ------------ TOTAL INVESTMENTS (100.5%) (COST $6,199,099) 8,801,318(6) Liabilities, less cash, receivables and other assets [(0.5%)] (43,111) ------------ TOTAL NET ASSETS (100.0%) $8,758,207 ------------
SEE NOTES TO SCHEDULE OF INVESTMENTS B-40 SCHEDULE OF INVESTMENTS Neuberger&Berman August 31, 1997 - -------------------------------------------------------------------------------- Manhattan Portfolio
TOP TEN EQUITY HOLDINGS --------------------------------------------------- HOLDING PERCENTAGE 1. General Nutrition 2.3% 2. Staples Inc. 2.2% 3. CKE Restaurants 2.2% 4. CUC International 2.1% 5. ACE Ltd. 2.0% 6. Finova Group 1.9% 7. KLA-Tencor 1.9% 8. Dura Pharmaceuticals 1.8% 9. MBNA Corp. 1.8% 10. TJX Cos. 1.7%
Market Value(1) Number (000's of Shares omitted) - ---------- ------------- COMMON STOCKS (92.7%) BASIC MATERIALS (2.0%) 108,100 Cytec Industries $ 5,277 (3) 145,000 UCAR International 6,842 (3) ------------- 12,119 ------------- CAPITAL GOODS (4.0%) 385,000 Corporate Express 6,569 (3) 278,000 Miller Industries 4,118 (3) 167,100 U.S. Filter 6,016 (3) 200,700 USA Waste Services 8,429 (3) ------------- 25,132 ------------- COMMUNICATIONS (0.2%) 66,400 NTL Inc. 1,469 ------------- CONSUMER CYCLICALS (19.4%) 390,000 Authentic Fitness 6,118 218,300 Costco Cos. 7,872 (3) 550,000 CUC International 12,925 (3) 169,900 Doubletree Corp. 8,495 (3) 220,100 GTECH Holdings 6,617 (3) 366,200 Harrah's Entertainment 8,217 (3) 133,400 Hayes Wheels 4,336 (3) 131,400 Mirage Resorts 3,523 (3) 194,500 Outdoor Systems 5,142 (3) Market Value(1) Number (000's of Shares omitted) - ---------- ------------- 200,000 Promus Hotel $ 7,762(3) 96,400 Robert Half International 5,627(3) 155,300 SABRE Group Holdings 4,775(3) 580,000 Staples Inc. 13,630(3) 146,300 Sylvan Learning Systems 5,468(3) 71,200 Tiffany & Co. 3,222 394,900 TJX Cos. 10,860 293,100 Viking Office Products 6,192(3) ------------- 120,781 ------------- CONSUMER STAPLES (14.1%) 117,600 Blyth Industries 4,344 (3) 567,600 Buffets Inc. 6,208 (3) 160,100 Cardinal Health 10,607 208,500 Cheesecake Factory 5,760 (3) 415,600 CKE Restaurants 13,403 420,900 Comcast Corp. Class A Special 9,865 151,700 Estee Lauder 7,206 207,700 Evergreen Media 9,944 (3) 507,800 General Nutrition 14,091 (3) 104,900 Luxottica Group ADR 6,123 ------------- 87,551 ------------- ENERGY (6.4%) 120,600 BJ Services 8,713 (3) 280,000 Enron Oil & Gas 6,755 313,900 Noble Drilling 8,927 (3) 233,800 Oryx Energy 6,181 (3) 139,500 Seagull Energy 3,409 (3) 110,000 Tidewater Inc. 5,775 ------------- 39,760 ------------- FINANCIAL SERVICES (15.6%) 150,900 ACE Ltd. 12,544 60,000 BankBoston Corp. 4,988 200,000 Bear Stearns 7,912 153,500 Equitable Cos. 6,677 160,000 EXEL Ltd. 8,780
B-41 SCHEDULE OF INVESTMENTS Neuberger&Berman August 31, 1997 - -------------------------------------------------------------------------------- Manhattan Portfolio (Cont'd)
Market Value(1) Number (000's of Shares omitted) - ---------- ------------- 140,000 Finova Group $ 11,839 95,300 GreenPoint Financial 5,867 284,100 MBNA Corp. 10,920 178,800 Northern Trust 9,499 190,100 PennCorp Financial Group 6,095 129,100 Redwood Trust 4,954 140,100 State Street 6,987 ------------- 97,062 ------------- HEALTH CARE (10.7%) 241,400 Acuson Corp. 6,503 (3) 316,200 Dura Pharmaceuticals 11,265 (3) 79,500 HBO & Co. 5,694 302,700 Omnicare, Inc. 8,759 100,400 Oxford Health Plans 7,342 (3) 30,700 Quintiles Transnational 2,394 (3) 72,600 Spine-Tech 3,412 (3) 175,000 Watson Pharmaceuticals 9,198 (3) 125,000 Wellpoint Health Networks 6,797 (3) 172,200 Zonagen, Inc. 5,446 (3) ------------- 66,810 ------------- TECHNOLOGY (17.6%) 130,400 Altera Corp. 6,944 (3) 90,000 Andrew Corp. 2,239 (3) 116,500 Ascend Communications 4,944 (3) 131,700 BMC Software 8,248 (3) 92,500 CBT Group ADR 6,013 (3) 100,200 CHS Electronics 3,870 (3) 114,700 Citrix Systems 5,792 (3) 270,000 ECI Telecommunications 8,049 135,900 EMC Corp. 6,973 (3) 335,200 Equifax, Inc. 9,868 163,700 KLA-Tencor 11,602 (3) Market Value(1) Number (000's of Shares omitted) - ---------- ------------- 241,400 LSI Logic $ 7,770(3) 150,300 McAfee Associates 8,511(3) 163,600 Micron Technology 7,290 163,800 NextLevel Systems 3,286(3) 35,000 SAP AG (Ordinary Shares) 7,718 ------------- 109,117 ------------- TRANSPORTATION (1.0%) 210,200 Southwest Airlines 5,886 ------------- UTILITIES (1.7%) 288,600 AES Corp. 10,678 (3) ------------- TOTAL COMMON STOCKS (COST $483,085) 576,365 ------------- Principal Amount - ---------- U.S. TREASURY SECURITIES (3.5%) $21,490,000 U.S. Treasury Bills, 5.165% & 5.25%, due 9/18/97 (COST $21,437) 21,439 ------------- SHORT-TERM CORPORATE NOTES (2.9%) 18,100,000 General Electric Capital Corp., 5.45%, due 9/2/97 (COST $18,100) 18,100 (5) ------------- TOTAL INVESTMENTS (99.1%) (COST $522,622) 615,904 (6) Cash, receivables and other assets, less liabilities (0.9%) 5,839 ------------- TOTAL NET ASSETS (100.0%) $ 621,743 -------------
SEE NOTES TO SCHEDULE OF INVESTMENTS B-42 SCHEDULE OF INVESTMENTS Neuberger&Berman August 31, 1997 - -------------------------------------------------------------------------------- Partners Portfolio
TOP TEN EQUITY HOLDINGS --------------------------------------------------- HOLDING PERCENTAGE 1. Costco Cos. 2.1% 2. Comcast Corp. Class A Special 2.0% 3. CITICORP 1.9% 4. EXEL Ltd. 1.9% 5. Burlington Northern Santa Fe 1.9% 6. McDonald's Corp. 1.9% 7. Gap, Inc. 1.7% 8. Host Marriott 1.7% 9. Allstate Corp. 1.7% 10. Micron Technology 1.7%
Market Value(1) Number (000's of Shares omitted) - ------------ ----------- COMMON STOCKS (94.4%) AIRLINES (2.9%) 1,103,300 Continental Airlines Class B $ 40,408(3) 150,700 Delta Air Lines 13,036 1,760,200 Southwest Airlines 49,286 ----------- 102,730 ----------- AUTO/TRUCK REPLACEMENT PARTS (1.6%) 900,000 Goodyear Tire & Rubber 55,462 ----------- AUTOMOTIVE (1.5%) 1,567,600 Chrysler Corp. 55,062 ----------- BANKING & FINANCIAL SERVICES (6.0%) 1,157,000 Capital One Financial 44,544 464,600 Chase Manhattan 51,658 537,300 CITICORP 68,573 1,497,400 Countrywide Credit Industries 50,444 ----------- 215,219 ----------- BUILDING, CONSTRUCTION & REFURNISHING (1.6%) 1,300,000 USG Corp. 55,737(3) ----------- Market Value(1) Number (000's of Shares omitted) - ------------ ----------- CHEMICALS (3.9%) 900,000 duPont $ 56,081 1,267,200 Morton International 42,135 604,500 W.R. Grace 41,597 ----------- 139,813 ----------- COMMUNICATIONS (1.5%) 1,636,000 Airtouch Communications 55,317(3) ----------- CONSUMER GOODS & SERVICES (2.2%) 692,400 Nike, Inc. 36,957 1,198,400 Tupperware Corp. 40,221 ----------- 77,178 ----------- DIVERSIFIED (1.6%) 1,171,600 Tenneco Inc. 56,896 ----------- ELECTRONICS (2.0%) 1,633,500 Loral Space & Communications 28,586(3) 462,900 Raychem Corp. 43,079 ----------- 71,665 ----------- ENTERTAINMENT (4.1%) 900,000 Evergreen Media 43,087(3) 1,848,900 Mirage Resorts 49,574(3) 1,059,300 Time Warner 54,554 ----------- 147,215 ----------- FOOD & TOBACCO (4.5%) 1,294,300 Anheuser-Busch 55,170 1,000,000 Philip Morris 43,625 400,000 RJR Nabisco Holdings 13,925 1,697,800 UST, Inc. 49,024 ----------- 161,744 ----------- FOOD PRODUCTS (0.7%) 1,150,200 IBP, Inc. 26,383 -----------
B-43 SCHEDULE OF INVESTMENTS Neuberger&Berman - -------------------------------------------------------------------------------- Partners Portfolio (Cont'd)
Market Value(1) Number (000's of Shares omitted) - ------------ ----------- HEALTH CARE (3.8%) 1,134,700 Biogen, Inc. $ 44,679(3) 1,331,650 Columbia/HCA Healthcare 42,030 713,042 Novartis AG ADR 50,804 ----------- 137,513 ----------- INDUSTRIAL GOODS & SERVICES (3.5%) 1,088,000 AK Steel Holding 49,232 837,200 Crown Cork & Seal 42,593 1,000,000 Owens-Illinois 34,812(3) ----------- 126,637 ----------- INSURANCE (9.7%) 522,700 Aetna Inc. 49,885 815,900 Allstate Corp. 59,612(3) 444,700 Equitable Cos. 19,344 1,245,800 EXEL Ltd. 68,363 1,283,550 Orion Capital 54,551 500,000 Progressive Corp. 49,500 729,000 Travelers Group 46,292 ----------- 347,547 ----------- MEDIA (2.0%) 3,032,081 Comcast Corp. Class A Special 71,064 ----------- OIL & GAS (8.7%) 1,333,400 Cabot Corp. 36,502 748,200 ENI ADR 41,525 1,109,200 Enron Corp. 42,773 2,957,500 Gulf Canada Resources 23,845(3) 1,003,300 Noble Affiliates 46,528 820,950 Tejas Gas 38,995(3) 1,487,755 Union Pacific Resources Group 37,194 1,353,800 YPF SA ADR 44,083 ----------- 311,445 ----------- OIL SERVICES (0.9%) 597,000 Tidewater Inc. 31,343 ----------- Market Value(1) Number (000's of Shares omitted) - ------------ ----------- PAPER & FOREST PRODUCTS (2.6%) 700,000 Mead Corp. $ 49,656 727,000 Weyerhaeuser Corp. 41,984 ----------- 91,640 ----------- PUBLISHING & BROADCASTING (1.7%) 1,208,800 Hollinger International 15,563 900,000 Knight-Ridder 45,563 ----------- 61,126 ----------- RAILROADS (1.9%) 738,800 Burlington Northern Santa Fe 67,739 ----------- REAL ESTATE (2.8%) 3,072,100 Host Marriott 59,906(3) 873,500 Security Capital Industrial Trust 18,453 1,607,700 Security Capital U.S. Realty 23,151(7) ----------- 101,510 ----------- RESTAURANTS (1.9%) 1,418,500 McDonald's Corp. 67,113 ----------- RETAILING (3.6%) 605,000 CVS Corp. 34,107 984,200 Harcourt General 46,811 1,300,000 Wal-Mart Stores 46,150 ----------- 127,068 ----------- RETAILING & APPAREL (3.8%) 2,100,000 Costco Cos. 75,731(3) 1,350,000 Gap, Inc. 59,991 ----------- 135,722 ----------- SPECIALTY CHEMICAL (1.4%) 979,300 Millipore Corp. 48,475 ----------- TECHNOLOGY (11.1%) 1,243,000 Adobe Systems 48,943 1,300,000 Analog Devices 43,063(3) 400,000 Autodesk, Inc. 17,500 1,300,000 Cabletron Systems 39,325(3)
B-44 August 31, 1997 - -------------------------------------------------------------------------------- Partners Portfolio (Cont'd)
Market Value(1) Number (000's of Shares omitted) - ------------ ----------- 1,460,600 Komag, Inc. $ 25,652(3) 1,325,000 Micron Technology 59,045 12,000 Netscape Communications 478 1,100,000 Seagate Technology 42,006(3) 467,600 Texas Instruments 53,131 660,300 Varian Associates 37,678 650,000 Western Digital 31,281(3) ----------- 398,102 ----------- UTILITIES (0.9%) 1,329,000 Unicom Corp. 31,398(3) ----------- TOTAL COMMON STOCKS (COST $2,675,602) 3,375,863 ----------- PREFERRED STOCKS (0.4%) 566,700 Fresenius National Medical Care, Class D 41 280,000 Loral Space & Communications Cv., Ser. C, 6% 15,330(7) ----------- TOTAL PREFERRED STOCKS (COST $14,107) 15,371 ----------- RIGHTS (0.0%) 873,500 Security Capital Industrial Trust, Expire 9/9/97 (COST $0) 14(3) ----------- Market Value(1) Principal (000's Amount omitted) - ------------ ----------- U.S. TREASURY SECURITIES (4.2%) $150,000,000 U.S. Treasury Bills, 5.04% & 5.165%, due 9/18/97 & 10/16/97 (COST $149,249) $ 149,263 ----------- SHORT-TERM CORPORATE NOTES (1.2%) 43,550,000 General Electric Capital Corp., 5.45%, due 9/2/97 (COST $43,550) 43,550(5) ----------- TOTAL INVESTMENTS (100.2%) (COST $2,882,508) 3,584,061(6) Liabilities, less cash, receivables and other assets [(0.2%)] (8,488) ----------- TOTAL NET ASSETS (100.0%) $3,575,573 -----------
SEE NOTES TO SCHEDULE OF INVESTMENTS B-45 SCHEDULE OF INVESTMENTS Neuberger&Berman - -------------------------------------------------------------------------------- Socially Responsive Portfolio
TOP TEN EQUITY HOLDINGS --------------------------------------------------- HOLDING PERCENTAGE 1. Intel Corp. 2.7% 2. Warner-Lambert 2.7% 3. ReliaStar Financial 2.3% 4. Johnson & Johnson 2.2% 5. Raychem Corp. 2.2% 6. A.G. Edwards 2.2% 7. CITICORP 2.1% 8. Dexter Corp. 2.1% 9. Wal-Mart Stores 2.1% 10. Mead Corp. 2.1%
Market Value(1) Number (000's of Shares omitted) - ---------- ------------- COMMON STOCKS (95.1%) AUTOMOTIVE (1.8%) 90,000 Borg-Warner Automotive $ 4,691 ------------- BANKING (9.6%) 42,000 CITICORP 5,360 80,007 CoreStates Financial 4,920 230,000 Dime Bancorp 4,442 70,000 Mercantile Bancorporation 4,826 90,000 National City 5,085 ------------- 24,633 ------------- BUSINESS SERVICES (1.9%) 170,000 Dun & Bradstreet 4,760 ------------- CHEMICALS (8.5%) 65,000 Air Products & Chemicals 5,302 140,300 Dexter Corp. 5,331 60,000 Minerals Technologies 2,385 150,000 Morton International 4,987 50,000 Perkin-Elmer 3,700 ------------- 21,705 ------------- Market Value(1) Number (000's of Shares omitted) - ---------- ------------- CONSUMER GOODS & SERVICES (2.7%) 90,000 Kimberly-Clark $ 4,270 20,000 Procter & Gamble 2,661 ------------- 6,931 ------------- DIVERSIFIED (1.8%) 60,000 Tyco International 4,706 ------------- ENERGY (1.8%) 100,000 Noble Affiliates 4,638 ------------- FINANCIAL SERVICES (8.0%) 140,000 A.G. Edwards 5,565 120,000 ADVANTA Corp. Class A 3,975 64,000 ADVANTA Corp. Class B 2,032 100,000 Fannie Mae 4,400 70,000 Travelers Group 4,445 ------------- 20,417 ------------- FOOD & BEVERAGE (1.6%) 85,200 McDonald's Corp. 4,031 ------------- FURNISHINGS (1.8%) 110,000 Leggett & Platt 4,730 ------------- HEALTH CARE (8.3%) 200,000 Invacare Corp. 4,200 100,000 Johnson & Johnson 5,669 100,000 SmithKline Beecham ADR 4,331 55,000 Warner-Lambert 6,988 ------------- 21,188 ------------- INDUSTRIAL & COMMERCIAL PRODUCTS (2.2%) 60,000 Raychem Corp. 5,584 ------------- INSURANCE (5.9%) 60,000 Chubb Corp. 4,013 80,000 ReliaStar Financial 5,980 70,000 St. Paul Cos. 5,136 ------------- 15,129 ------------- LODGING (1.6%) 75,000 HFS, Inc. 4,177 (3) -------------
B-46 August 31, 1997 - -------------------------------------------------------------------------------- Socially Responsive Portfolio (Cont'd)
Market Value(1) Number (000's of Shares omitted) - ---------- ------------- MACHINERY & EQUIPMENT (1.8%) 178,400 Cincinnati Milacron $ 4,594 ------------- OIL & GAS (2.6%) 200,000 Enserch Exploration 1,800 (3) 200,000 Seagull Energy 4,887 (3) ------------- 6,687 ------------- OIL SERVICES (3.7%) 100,000 Dresser Industries 4,175 100,000 Tidewater Inc. 5,250 ------------- 9,425 ------------- PAPER & FOREST PRODUCTS (2.7%) 70,000 American Pad & Paper 1,610 (3) 75,000 Mead Corp. 5,320 ------------- 6,930 ------------- PUBLISHING & BROADCASTING (2.9%) 120,700 CMP Media 3,229 (3) 140,000 Valassis Communications 4,252 (3) ------------- 7,481 ------------- RAILROADS (1.4%) 104,600 Illinois Central 3,511 ------------- RECYCLING (1.1%) 150,000 IMCO Recycling 2,878 ------------- RETAIL STORES (2.1%) 90,000 Nordstrom, Inc. 5,265 ------------- RETAILING (4.1%) 145,000 Costco Cos. 5,229 (3) 150,000 Wal-Mart Stores 5,325 ------------- 10,554 ------------- TECHNOLOGY (8.0%) 100,000 AMP, Inc. 5,000 130,000 Cabletron Systems 3,933 (3) 76,000 Hewlett-Packard 4,660 76,000 Intel Corp. 7,001 ------------- 20,594 ------------- Market Value(1) Number (000's of Shares omitted) - ---------- ------------- TELECOMMUNICATIONS (5.8%) 300,000 Metromedia International Group $ 3,563 (3) 114,000 Southern New England Telecommunications 4,360 50,000 Telephone & Data Systems 1,975 170,000 WorldCom Inc. 5,089 (3) ------------- 14,987 ------------- UTILITIES (1.4%) 115,000 Brooklyn Union Gas 3,472 ------------- TOTAL COMMON STOCKS (COST $176,412) 243,698 ------------- Principal Amount - ---------- U.S. TREASURY SECURITIES (4.7%) $12,097,000 U.S. Treasury Bills, 4.90% - 5.34%, due 9/4/97 - 10/16/97 (COST $12,052) 12,052(5) ------------- CERTIFICATES OF DEPOSIT (0.0%) 100,000 Self Help Credit Union, 5.33%, due 11/25/97 (COST $100) 100 (5) ------------- TOTAL INVESTMENTS (99.8%) (COST $188,564) 255,850 (6) Cash, receivables and other assets, less liabilities (0.2%) 431 ------------- TOTAL NET ASSETS (100.0%) $ 256,281 -------------
SEE NOTES TO SCHEDULE OF INVESTMENTS B-47 NOTES TO SCHEDULE OF INVESTMENTS August 31, 1997 - ---------------------------------------------------------------------- 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 that 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) Affiliated Issuer (see Note E of Notes to Financial Statements). 3) Non-income producing security. 4) The following securities were held in escrow at August 31, 1997 to cover outstanding call options written:
MARKET VALUE SECURITIES AND OF PREMIUM ON MARKET VALUE NEUBERGER&BERMAN SHARES OPTIONS SECURITIES OPTIONS OF OPTIONS - ------------------------------------------------------------------------------------------------------- FOCUS PORTFOLIO 162,500 Compaq Computer $10,643,750 $1,208,511 $3,087,500 October 1997 @ 48 150,000 Compaq Computer $ 9,825,000 $ 776,674 $2,193,750 October 1997 @ 52 GUARDIAN PORTFOLIO 250,000 Compaq Computer $16,375,000 $1,315,706 $3,656,250 October 1997 @ 52 249,250 Compaq Computer $16,325,875 $1,073,052 $3,364,875 October 1997 @ 54 250,000 Compaq Computer $16,375,000 $ 861,351 $2,843,750 October 1997 @ 56 400,000 MGIC Investment $20,125,000 $ 893,970 $2,225,000 September 1997 @ 45 100,000 Texas Instruments $11,362,500 $1,346,955 $ 262,500 September 1997 @ 120
5) At cost, which approximates market value. B-48 6) At August 31, 1997, selected Portfolio information on a Federal income tax basis was as follows:
GROSS GROSS UNREALIZED UNREALIZED NET UNREALIZED NEUBERGER&BERMAN COST APPRECIATION DEPRECIATION APPRECIATION - ---------------------------------------------------------------------------------------------------- FOCUS PORTFOLIO $1,003,330,000 $ 591,929,000 $ 6,483,000 $ 585,446,000 GENESIS PORTFOLIO 858,349,000 276,077,000 3,797,000 272,280,000 GUARDIAN PORTFOLIO 6,199,356,000 2,675,595,000 73,633,000 2,601,962,000 MANHATTAN PORTFOLIO 522,622,000 103,997,000 10,715,000 93,282,000 PARTNERS PORTFOLIO 2,885,221,000 733,767,000 34,927,000 698,840,000 SOCIALLY RESPONSIVE PORTFOLIO 188,591,000 69,292,000 2,033,000 67,259,000
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, 1997, these securities amounted to $3,757,000 or .3% of net assets for Neuberger&Berman Genesis Portfolio, $15,075,000 or .2% of net assets for Neuberger&Berman Guardian Portfolio, and $38,481,000 or 1.1% of net assets for Neuberger&Berman Partners Portfolio. SEE NOTES TO FINANCIAL STATEMENTS B-49 STATEMENTS OF ASSETS AND LIABILITIES - ---------------------------------------------------------------------- Equity Managers Trust
FOCUS GENESIS (000'S OMITTED) PORTFOLIO PORTFOLIO ------------------------------- ASSETS Investments in securities, at market value* (Notes A & E) -- see Schedule of Investments: Unaffiliated issuers $ 1,470,876 $ 1,130,629 Non-controlled affiliated issuers 117,900 -- ------------------------------- 1,588,776 1,130,629 Cash 8 26 Deferred organization costs (Note A) 8 2 Dividends and interest receivable 959 466 Prepaid expenses and other assets 33 17 Receivable for securities sold 13,792 85 ------------------------------- 1,603,576 1,131,225 ------------------------------- LIABILITIES Option contracts written, at market value (Note A) 5,281 -- Payable for collateral on securities loaned (Note A) 3,431 15,251 Payable for securities purchased 20,629 31,635 Payable to investment manager (Note B) 660 581 Accrued expenses 134 107 ------------------------------- 30,135 47,574 ------------------------------- NET ASSETS Applicable to Investors' Beneficial Interests $ 1,573,441 $ 1,083,651 ------------------------------- NET ASSETS consist of: Paid-in capital $ 989,214 $ 811,371 Net unrealized appreciation in value of investment securities and option contracts written 584,227 272,280 ------------------------------- NET ASSETS $ 1,573,441 $ 1,083,651 ------------------------------- *Cost of investments: Unaffiliated issuers $ 900,387 $ 858,349 Non-controlled affiliated issuers 100,866 -- ------------------------------- Total cost of investments $ 1,001,253 $ 858,349 -------------------------------
SEE NOTES TO FINANCIAL STATEMENTS B-50 August 31, 1997 - ---------------------------------------------------------------------- Equity Managers Trust
SOCIALLY GUARDIAN MANHATTAN PARTNERS RESPONSIVE PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ----------------------------------------------------------------- ASSETS Investments in securities, at market value* (Notes A & E) -- see Schedule of Investments: Unaffiliated issuers $ 7,690,732 $ 615,904 $ 3,584,061 $ 255,850 Non-controlled affiliated issuers 1,110,586 -- -- -- ----------------------------------------------------------------- 8,801,318 615,904 3,584,061 255,850 Cash 13 12 19 1 Deferred organization costs (Note A) 23 9 16 10 Dividends and interest receivable 6,874 165 2,833 279 Prepaid expenses and other assets 175 18 78 4 Receivable for securities sold 16,328 20,605 27,925 2,969 ----------------------------------------------------------------- 8,824,731 636,713 3,614,932 259,113 ----------------------------------------------------------------- LIABILITIES Option contracts written, at market value (Note A) 12,352 -- -- -- Payable for collateral on securities loaned (Note A) 1,566 -- 5,761 -- Payable for securities purchased 49,050 14,593 32,033 2,668 Payable to investment manager (Note B) 3,281 282 1,377 122 Accrued expenses 275 95 188 42 ----------------------------------------------------------------- 66,524 14,970 39,359 2,832 ----------------------------------------------------------------- NET ASSETS Applicable to Investors' Beneficial Interests $ 8,758,207 $ 621,743 $ 3,575,573 $ 256,281 ----------------------------------------------------------------- NET ASSETS consist of: Paid-in capital $ 6,162,849 $ 528,461 $ 2,874,020 $ 188,995 Net unrealized appreciation in value of investment securities and option contracts written 2,595,358 93,282 701,553 67,286 ----------------------------------------------------------------- NET ASSETS $ 8,758,207 $ 621,743 $ 3,575,573 $ 256,281 ----------------------------------------------------------------- *Cost of investments: Unaffiliated issuers $ 5,377,996 $ 522,622 $ 2,882,508 $ 188,564 Non-controlled affiliated issuers 821,103 -- -- -- ----------------------------------------------------------------- Total cost of investments $ 6,199,099 $ 522,622 $ 2,882,508 $ 188,564 -----------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS B-51 STATEMENTS OF OPERATIONS - ---------------------------------------------------------------------- Equity Managers Trust
FOCUS GENESIS (000'S OMITTED) PORTFOLIO PORTFOLIO --------------------------- INVESTMENT INCOME Income: Dividend income -- unaffiliated issuers $ 12,565 $ 4,129 Dividend income -- non-controlled affiliated issuers 406 -- Interest income 1,187 1,749 Foreign taxes withheld (Note A) (28) -- --------------------------- Total income 14,130 5,878 --------------------------- Expenses: Investment management fee (Note B) 6,610 4,420 Accounting fees 10 10 Amortization of deferred organization and initial offering expenses (Note A) 9 2 Auditing fees 41 23 Custodian fees (Note B) 288 172 Insurance expense 24 5 Interest expense (Note D) -- -- Legal fees 17 41 Trustees' fees and expenses 17 10 Miscellaneous 1 11 --------------------------- Total expenses 7,017 4,694 Fee waived by investment manager and/or expenses reduced by custodian fee arrangement (Note B) (6) (544) --------------------------- Total net expenses 7,011 4,150 --------------------------- Net investment income 7,119 1,728 --------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain on investment securities sold in unaffiliated issuers 176,798 18,411 Net realized loss on investment securities sold in non-controlled affiliated issuers -- -- Net realized loss on option contracts written (Note A) (327) -- Change in net unrealized appreciation of investment securities and option contracts written 298,137 211,059 --------------------------- Net gain on investments 474,608 229,470 --------------------------- Net increase in net assets resulting from operations $ 481,727 $ 231,198 ---------------------------
SEE NOTES TO FINANCIAL STATEMENTS B-52 For the Year Ended August 31, 1997 - ---------------------------------------------------------------------- Equity Managers Trust
SOCIALLY GUARDIAN MANHATTAN PARTNERS RESPONSIVE PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ---------------------------------------------------------------- INVESTMENT INCOME Income: Dividend income -- unaffiliated issuers $ 78,254 $ 3,701 $ 35,204 $ 2,887 Dividend income -- non-controlled affiliated issuers 3,303 -- -- -- Interest income 20,405 934 6,410 612 Foreign taxes withheld (Note A) (798) (63) (182) (6) ---------------------------------------------------------------- Total income 101,164 4,572 41,432 3,493 ---------------------------------------------------------------- Expenses: Investment management fee (Note B) 32,887 3,093 12,498 1,123 Accounting fees 10 10 10 10 Amortization of deferred organization and initial offering expenses (Note A) 26 10 18 7 Auditing fees 49 37 43 20 Custodian fees (Note B) 1,113 205 457 91 Insurance expense 130 13 44 3 Interest expense (Note D) -- 4 -- -- Legal fees 18 29 19 19 Trustees' fees and expenses 70 10 28 7 Miscellaneous 6 8 2 -- ---------------------------------------------------------------- Total expenses 34,309 3,419 13,119 1,280 Fee waived by investment manager and/or expenses reduced by custodian fee arrangement (Note B) (3) (1) (3) (1) ---------------------------------------------------------------- Total net expenses 34,306 3,418 13,116 1,279 ---------------------------------------------------------------- Net investment income 66,858 1,154 28,316 2,214 ---------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain on investment securities sold in unaffiliated issuers 906,206 180,525 531,668 11,478 Net realized loss on investment securities sold in non-controlled affiliated issuers (26,691) -- -- -- Net realized loss on option contracts written (Note A) (8,365) -- -- -- Change in net unrealized appreciation of investment securities and option contracts written 1,570,338 10,646 473,597 44,043 ---------------------------------------------------------------- Net gain on investments 2,441,488 191,171 1,005,265 55,521 ---------------------------------------------------------------- Net increase in net assets resulting from operations $ 2,508,346 $ 192,325 $ 1,033,581 $ 57,735 ----------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS B-53 STATEMENTS OF CHANGES IN NET ASSETS - ---------------------------------------------------------------------- Equity Managers Trust
FOCUS GENESIS PORTFOLIO PORTFOLIO Year Year Ended Ended August 31, August 31, (000'S OMITTED) 1997 1996 1997 1996 ------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income $ 7,119 $ 11,390 $ 1,728 $ 471 Net realized gain on investments 176,471 51,701 18,411 5,660 Change in net unrealized appreciation (depreciation) of investments 298,137 (21,728) 211,059 27,635 ------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 481,727 41,363 231,198 33,766 ------------------------------------------------------------- TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS: Additions 156,839 231,514 609,195 110,968 Reductions (187,496) (119,679) (16,606) (27,030) ------------------------------------------------------------- Net increase (decrease) in net assets resulting from transactions in investors' beneficial interests (30,657) 111,835 592,589 83,938 ------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS 451,070 153,198 823,787 117,704 NET ASSETS: Beginning of year 1,122,371 969,173 259,864 142,160 ------------------------------------------------------------- End of year $ 1,573,441 $ 1,122,371 $ 1,083,651 $ 259,864 -------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS B-54 - ---------------------------------------------------------------------- Equity Managers Trust
GUARDIAN MANHATTAN PARTNERS PORTFOLIO PORTFOLIO PORTFOLIO Year Year Year Ended Ended Ended August 31, August 31, August 31, 1997 1996 1997 1996 1997 1996 -------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income $ 66,858 $ 97,934 $ 1,154 $ 829 $ 28,316 $ 23,394 Net realized gain on investments 871,150 307,410 180,525 59,509 531,668 240,765 Change in net unrealized appreciation of investments 1,570,338 (111,192) 10,646 (74,167) 473,597 (30,217) -------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 2,508,346 294,152 192,325 (13,829) 1,033,581 233,942 -------------------------------------------------------------------- TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS: Additions 592,646 1,540,028 41,417 70,833 715,909 309,196 Reductions (575,327) (214,834) (179,425) (134,984) (173,520) (167,061) -------------------------------------------------------------------- Net increase (decrease) in net assets resulting from transactions in investors' beneficial interests 17,319 1,325,194 (138,008) (64,151) 542,389 142,135 -------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS 2,525,665 1,619,346 54,317 (77,980) 1,575,970 376,077 NET ASSETS: Beginning of year 6,232,542 4,613,196 567,426 645,406 1,999,603 1,623,526 -------------------------------------------------------------------- End of year $8,758,207 $6,232,542 $ 621,743 $ 567,426 $3,575,573 $1,999,603 --------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS B-55 STATEMENTS OF CHANGES IN NET ASSETS(Cont'd) - ---------------------------------------------------------------------- Equity Managers Trust
SOCIALLY RESPONSIVE PORTFOLIO Year Ended August 31, (000'S OMITTED) 1997 1996 ----------------------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income $ 2,214 $ 1,307 Net realized gain on investments 11,478 11,385 Change in net unrealized appreciation of investments 44,043 9,035 ----------------------------- Net increase (decrease) in net assets resulting from operations 57,735 21,727 ----------------------------- TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS: Additions 57,455 45,974 Reductions (17,394) (5,963) ----------------------------- Net increase (decrease) in net assets resulting from transactions in investors' beneficial interests 40,061 40,011 ----------------------------- NET INCREASE (DECREASE) IN NET ASSETS 97,796 61,738 NET ASSETS: Beginning of year 158,485 96,747 ----------------------------- End of year $ 256,281 $ 158,485 -----------------------------
SEE NOTES TO FINANCIAL STATEMENTS B-56 NOTES TO FINANCIAL STATEMENTS August 31, 1997 - ---------------------------------------------------------------------- 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"), Neuberger& Berman Partners Portfolio ("Partners"), and Neuberger&Berman Socially Responsive Portfolio ("Socially Responsive") (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 ("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 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 of 1986, as amended. Each Portfolio of Managers Trust also intends to conduct its operations so that each of its investors B-57 will be able to qualify as a regulated investment company. Each Portfolio will be treated as a partnership for U.S. Federal income tax purposes and is therefore not subject to U.S. Federal income tax. 6) FOREIGN TAXES: Foreign taxes withheld represent amounts withheld by foreign tax authorities, net of refunds recoverable. 7) ORGANIZATION EXPENSES: Expenses incurred by each Portfolio in connection with its organization are being amortized by each Portfolio on a straight-line basis over a five-year period. At August 31, 1997, the unamortized balance of such expenses amounted to $7,998, $1,763, $23,447, $8,926, $16,249, and $10,339, for Focus, Genesis, Guardian, Manhattan, Partners, and Socially Responsive, respectively. 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, 1997:
VALUE WHEN FOCUS NUMBER WRITTEN - -------------------------------------------------------------------------- CONTRACTS OUTSTANDING 8/31/96 0 $ 0 CONTRACTS WRITTEN 11,918 5,472,524 CONTRACTS EXPIRED (600) (125,696) CONTRACTS EXERCISED (4,268) (1,153,282) CONTRACTS CLOSED (5,800) (2,208,361) ------------------------- CONTRACTS OUTSTANDING 8/31/97 1,250 $ 1,985,185 -------------------------
B-58
VALUE WHEN GUARDIAN NUMBER WRITTEN - --------------------------------------------------------------------------- CONTRACTS OUTSTANDING 8/31/96 0 $ 0 CONTRACTS WRITTEN 42,060 20,271,636 CONTRACTS EXPIRED (60) (13,319) CONTRACTS EXERCISED (13,004) (4,664,985) CONTRACTS CLOSED (20,999) (10,102,298) -------------------------- CONTRACTS OUTSTANDING 8/31/97 7,997 $ 5,491,034 --------------------------
10) SECURITY LENDING: Portfolio securities loans involve certain risks in the event a borrower should fail financially, including delays or inability to recover the lent securities or foreclose against the collateral. The investment manager, under the general supervision of the Trusts' Boards of Trustees, monitors the creditworthiness of the parties to whom the Portfolios make security loans. The Portfolios will not lend securities on which covered call options have been written, or lend securities on terms which would prevent each of their investors from qualifying as a regulated investment company. Portfolio securities loans to Neuberger&Berman, LLC ("Neuberger"), the Portfolios' principal broker and sub-adviser, are made in accordance with an exemptive order issued by the Securities and Exchange Commission under the 1940 Act. The Portfolios receive cash as collateral against the lent securities, which must be maintained at not less than 100% of the market value of the lent securities during the period of the loan. The Portfolios receive income earned on the lent securities and a portion of the income earned on the cash collateral. During the year ended August 31, 1997, Focus, Genesis, Guardian, Manhattan, Partners, and Socially Responsive lent securities to Neuberger. At August 31, 1997, the value of the securities loaned and the value of the collateral were as follows:
VALUE OF SECURITIES VALUE OF LOANED COLLATERAL - ------------------------------------------------------------------------------ FOCUS $ 3,400,231 $ 3,430,700 GENESIS 14,670,344 15,251,200 GUARDIAN 1,533,081 1,565,700 PARTNERS 5,298,063 5,761,000
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 B-59 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 Management as its investment manager under a Management Agreement. For such investment management services, each Portfolio (except Genesis) pays 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 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. Management has voluntarily agreed to waive a portion of the management fee borne directly by Genesis and indirectly by Neuberger&Berman Genesis Trust to reduce the annual fee by 0.10% per annum of average daily net assets of Genesis, effective May 1, 1995. All of the capital stock of 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 Management to furnish it with investment recommendations and research information without added cost to each Portfolio. Several individuals who are officers and/or trustees of Managers Trust are also principals of Neuberger and/or officers and/or directors of Management. Each Portfolio has an expense offset arrangement in connection with its custodian contract. The impact of this arrangement, reflected in the Statements of Operations under the caption Custodian fees was a reduction of $5,870, $4,507, $3,355, $839, $3,408, and $509, for Focus, Genesis, Guardian, Manhattan, Partners, and Socially Responsive, respectively. NOTE C -- SECURITIES TRANSACTIONS: During the year ended August 31, 1997, there were purchase and sale transactions (excluding short-term securities and option contracts written) as follows:
PURCHASES SALES - ------------------------------------------------------------------------------------ FOCUS $ 824,820,266 $ 831,328,130 GENESIS 633,503,648 94,550,616 GUARDIAN 3,570,949,280 3,874,878,295 MANHATTAN 508,485,851 692,207,887 PARTNERS 2,566,392,485 1,986,851,872 SOCIALLY RESPONSIVE 136,770,015 98,492,220
B-60 During the year ended August 31, 1997, there were brokerage commissions on securities paid to Neuberger and other brokers as follows:
OTHER NEUBERGER BROKERS TOTAL - -------------------------------------------------------------------------------------------- FOCUS $ 920,202 $ 905,291 $ 1,825,493 GENESIS 516,040 344,057 860,097 GUARDIAN 4,806,913 3,733,422 8,540,335 MANHATTAN 458,679 512,347 971,026 PARTNERS 3,508,790 1,904,663 5,413,453 SOCIALLY RESPONSIVE 232,238 73,402 305,640
In addition, Neuberger's share of the total interest income earned for the year ended August 31, 1997, from the collateralization of securities loaned to or through Neuberger was $898,127, $69,948, $3,523,486, $326,403, $688,624, and $51,639, for Focus, Genesis, Guardian, Manhattan, Partners, and Socially Responsive, respectively. NOTE D -- COMBINED LINE OF CREDIT: At August 31, 1997, Genesis and Manhattan were two of the holders of an unsecured $60,000,000 combined line of credit with State Street Bank and Trust Company, to be used only for temporary or emergency purposes. Interest is charged on borrowings under this agreement at the overnight Federal Funds Rate plus .75% per annum. A facility fee of .1% per annum of the available line of credit is charged, of which Genesis and Manhattan each has agreed to pay its pro rata share, based on the ratio of its individual net assets to the net assets of all the participants at the time the fee is due and payable. The fee is paid quarterly in arrears, commencing June 30, 1997. No compensating balance is required. Another investment company managed by Management also participates 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 $60,000,000 at any particular time. Genesis and Manhattan had no loans outstanding pursuant to this line of credit at August 31, 1997, nor had Genesis utilized this line of credit at anytime prior to that date. The following information relates to short-term borrowings for the year ended August 31, 1997, for Manhattan. The average loan amount outstanding (total of daily outstanding principal balances divided by the number of days with debt outstanding) during the period was $4,550,758, the average interest rate was 6.13%, and the total interest expense on such borrowings was $3,875. B-61 NOTE E -- INVESTMENTS IN NON-CONTROLLED AFFILIATES*:
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: 1996 ADDITIONS REDUCTIONS 1997 1997 - -------------------------------------------------------------------------------------------------------------------------- ADVANTA CORP. CLASS A 0 1,691,500 0 1,691,500 $56,030,938 DT INDUSTRIES 0 1,045,000 0 1,045,000 31,088,750 SIERRA HEALTH SERVICES 0 934,500 0 934,500 30,780,094
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: 1996 ADDITIONS REDUCTIONS 1997 1997 - -------------------------------------------------------------------------------------------------------------------------- AGCO CORP. 0 4,737,400 0 4,737,400 $ 153,965,500 CAPITAL ONE FINANCIAL 2,424,000 2,036,000 15,000 4,445,000 171,132,500 COLTEC INDUSTRIES 4,778,900 115,000 0 4,893,900 109,501,013 COUNTRYWIDE CREDIT INDUSTRIES 4,800,000 645,000 0 5,445,000 183,428,438 FINGERHUT COS.** 3,241,700 0 3,241,700 0 0 FOUNDATION HEALTH SYSTEMS 3,020,000 6,045,800 0 9,065,800 288,405,763 HEALTHSOURCE INC.** 4,190,000 0 4,190,000 0 0 HOSPITALITY PROPERTIES TRUST** 1,442,600 0 1,442,600 0 0 J & L SPECIALTY STEEL** 3,278,200 10,000 3,288,200 0 0 UCAR INTERNATIONAL 0 3,404,400 0 3,404,400 160,645,125 USFREIGHTWAYS CORP.** 1,257,000 0 1,257,000 0 0 ZEIGLER COAL HOLDING 1,702,000 0 0 1,702,000 43,507,375
*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, 1997, THE ISSUERS OF THESE SECURITIES WERE NO LONGER AFFILIATED WITH THE PORTFOLIO. B-62 FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- Equity Managers Trust
FOCUS GENESIS PORTFOLIO PORTFOLIO Period Period from from August 2, August 2, 1993(1) 1993(1) to August to August Year Ended August 31, 31, Year Ended August 31, 31, 1997 1996 1995 1994 1993 1997 1996 1995 1994 1993 ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Gross Expenses(2) .53% .54% -- -- -- .77% .85% -- -- -- ----------------------------------------------------------------------------------------------------------- Net Expenses .53% .54% .57% .58% .58%(3) .77%(4) .85%(4) .94%(4) .98% 1.07%(3) ----------------------------------------------------------------------------------------------------------- Net Investment Income .54% 1.04% 1.05% 1.16% 1.46%(3) .32%(4) .27%(4) .25%(4) .18% .37%(3) ----------------------------------------------------------------------------------------------------------- Portfolio Turnover Rate 63% 39% 36% 52% 4% 18% 21% 37% 63% 3% ----------------------------------------------------------------------------------------------------------- Average Commission Rate Paid $0.0555 $0.0578 -- -- -- $0.0565 $0.0576 -- -- -- ----------------------------------------------------------------------------------------------------------- Net Assets, End of Year (in millions) $1,573.4 $1,122.4 $969.2 $645.0 $574.0 $1,083.7 $259.9 $142.2 $138.6 $118.6 -----------------------------------------------------------------------------------------------------------
1) The date investment operations commenced. 2) For fiscal periods ending after September 1, 1995, the Fund is required to calculate an expense ratio without reductions related to expense offset arrangements. For Genesis, these ratios include the management fee waiver. 3) Annualized. 4) Had Management not waived a portion of the management fee, the annualized ratios to average daily net assets would have been:
Year Ended August 31, GENESIS 1997 1996 1995 - ------------------------------------------------------- Net Expenses .87% .95% .97% Net Investment Income .22% .17% .22%
B-63 FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- Equity Managers Trust
GUARDIAN MANHATTAN PORTFOLIO PORTFOLIO Period Period from from August 2, August 2, 1993(1) 1993(1) to August to August Year Ended August 31, 31, Year Ended August 31, 31, 1997 1996 1995 1994 1993 1997 1996 1995 1994 1993 ------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Gross Expenses(2) .46% .46% -- -- -- .59% .58% -- -- -- ------------------------------------------------------------------------------------------------- Net Expenses .46% .46% .48% .50% .51%(3) .59% .58% .59% .59% .59%(3) ------------------------------------------------------------------------------------------------- Net Investment Income .89% 1.72% 1.72% 1.66% 2.45%(3) .20% .13% .42% .53% .55%(3) ------------------------------------------------------------------------------------------------- Portfolio Turnover Rate 50% 37% 26% 24% 3% 89% 53% 44% 50% 3% ------------------------------------------------------------------------------------------------- Average Commission Rate Paid $0.0538 $0.0580 -- -- -- $0.0573 $0.0373 -- -- -- ------------------------------------------------------------------------------------------------- Net Assets, End of Year (in millions) $8,758.2 $6,232.5 $4,613.2 $2,480.3 $1,777.6 $621.7 $567.4 $645.4 $521.7 $536.8 -------------------------------------------------------------------------------------------------
1) The date investment operations commenced. 2) For fiscal periods ending after September 1, 1995, the Fund is required to calculate an expense ratio without reductions related to expense offset arrangements. 3) Annualized. B-64 FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- Equity Managers Trust
PARTNERS SOCIALLY RESPONSIVE PORTFOLIO PORTFOLIO Period from Period from August 2, 1993(1) March 14, 1994(1) Year Ended August 31, to August 31, Year Ended August 31, to August 31, 1997 1996 1995 1994 1993 1997 1996 1995 1994 ------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Gross Expenses(2) .48% .51% -- -- -- .63% .65% -- -- ------------------------------------------------------------------------------------------------------- Net Expenses .48% .51% .53% .54% .54%(3) .63% .65% .68% .69%(3) ------------------------------------------------------------------------------------------------------- Net Investment Income 1.05% 1.26% 1.13% .75% 1.19%(3) 1.08% 1.02% 1.18% 1.33%(3) ------------------------------------------------------------------------------------------------------- Portfolio Turnover Rate 77% 96% 98% 75% 8% 51% 53% 58% 14% ------------------------------------------------------------------------------------------------------- Average Commission Rate Paid $0.0522 $0.0494 -- -- -- $0.0568 $0.0587 -- -- ------------------------------------------------------------------------------------------------------- Net Assets, End of Year (in millions) $3,575.6 $1,999.6 $1,623.5 $1,340.3 $1,182.1 $256.3 $158.5 $96.7 $70.7 -------------------------------------------------------------------------------------------------------
1) The date investment operations commenced. 2) For fiscal periods ending after September 1, 1995, the Fund is required to calculate an expense ratio without reductions related to expense offset arrangements. 3) Annualized. B-65 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Trustees of Equity Managers Trust and Owners of Beneficial Interest of Neuberger&Berman Manhattan Portfolio and Neuberger&Berman Socially Responsive Portfolio We have audited the accompanying statements of assets and liabilities of Neuberger&Berman Manhattan Portfolio and Neuberger&Berman Socially Responsive Portfolio (collectively the "Portfolios"), including the schedules of investments, as of August 31, 1997, 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 Portfolios' 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. Our procedures included confirmation of securities owned as of August 31, 1997 by correspondence with the custodian and brokers. 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 Neuberger&Berman Manhattan Portfolio and Neuberger&Berman Socially Responsive Portfolio as of August 31, 1997, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated therein, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Boston, Massachusetts October 3, 1997 B-66 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 comprising Equity Managers Trust (the "Trust"), as of August 31, 1997, 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, 1997, 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, 1997, 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 3, 1997 B-67 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 Coopers & Lybrand L.L.P. 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 Donald M. Cox 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 Trust, Neuberger&Berman Genesis Trust, Neuberger&Berman Guardian Trust, Neuberger&Berman Manhattan Trust, Neuberger&Berman Partners Trust, and Neuberger&Berman Socially Responsive Trust are registered service marks of Neuberger&Berman Management Inc. - -C- 1997 Neuberger&Berman Management Inc. C-1 Notice to Shareholders (Unaudited) For Neuberger&Berman Guardian Trust 75% of the dividends distributed during the fiscal year ended August 31, 1997 qualifies for the dividend received deduction for corporate shareholders. The Fund will notify shareholders in January 1998 of the applicable percentage of qualifying dividends for corporate shareholders for use in preparing 1997 income tax returns. C-2 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 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 infor- mation 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 NBETAR020897 -----END PRIVACY-ENHANCED MESSAGE-----