-----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, NW4julv/62g59hC9rR32LYkAPqGheB8FKdZAhcf7vTQzmYclBUSH9E4zX9bIb528 K1ZnDyZFPd8ye59FCFH4xQ== 0000898432-98-000409.txt : 19980505 0000898432-98-000409.hdr.sgml : 19980505 ACCESSION NUMBER: 0000898432-98-000409 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980228 FILED AS OF DATE: 19980504 SROS: NONE 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: 98609705 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 SEMI-ANNUAL REPORT ------------------------------------------------------ FEBRUARY 28, 1998 NEUBERGER&BERMAN EQUITY ASSETS-SM- Neuberger&Berman FOCUS ASSETS Neuberger&Berman GENESIS ASSETS Neuberger&Berman GUARDIAN ASSETS Neuberger&Berman MANHATTAN ASSETS Neuberger&Berman PARTNERS ASSETS TABLE OF CONTENTS
THE FUNDS CHAIRMAN'S LETTER A-4 PORTFOLIO COMMENTARY Focus Assets A-5 Genesis Assets A-8 Guardian Assets A-11 Manhattan Assets A-14 Partners Assets A-17 PERFORMANCE HIGHLIGHTS B-1 FINANCIAL STATEMENTS B-2 FINANCIAL HIGHLIGHTS PER SHARE DATA Focus Assets B-12 Genesis Assets B-13 Guardian Assets B-14 Manhattan Assets B-15 Partners Assets B-16 THE PORTFOLIOS SCHEDULE OF INVESTMENTS TOP TEN EQUITY HOLDINGS Focus Portfolio B-18 Genesis Portfolio B-20 Guardian Portfolio B-25 Manhattan Portfolio B-28 Partners Portfolio B-30 FINANCIAL STATEMENTS B-36 FINANCIAL HIGHLIGHTS Focus Portfolio B-48 Genesis Portfolio B-49 Guardian Portfolio B-50 Manhattan Portfolio B-51 Partners Portfolio B-52 DIRECTORY C-1 OFFICERS AND TRUSTEES C-2
A-3 CHAIRMAN'S LETTER April 17, 1998 Dear Fellow Shareholder, At the end of this semi-annual reporting period (February 28, 1998), the major market indices stood at record levels. However, the preceding six months have not been easy. The Asian currency crisis that surfaced in mid-summer caused considerable damage to a number of sectors of the domestic equities market in late 1997. In what we viewed as a classic Wall Street "shoot first and ask questions later" response, technology stocks were among the casualties. Neuberger&Berman portfolio managers were faced with a classic investment dilemma -- think short term and retreat, or hold their ground in sectors and individual stocks they believed to have outstanding long-term performance potential. I'm proud to say, they chose the latter option, and so far in early 1998, were rewarded for their persistence. In today's volatile equity markets, investors' patience and discipline is tested on a daily basis. Experienced investors realize that the prospect for superior long-term returns is diminished by overreaction to short-term events. At Neuberger&Berman, we pride ourselves on being farsighted. We are not influenced by emotion or market fads and fashion. We strive to be coldly analytical and focus on where we think a stock will be in three years, not three months. We believe if we can successfully ignore the market's constant static and focus on the long-term fundamental message, we will achieve our goal of providing shareholders solid long-term returns. Sincerely, /s/ Stanley Egener Stanley Egener Chairman of the Board Neuberger&Berman Equity Assets A-4 PORTFOLIO COMMENTARY Neuberger&Berman - ---------------------------------------------------------------------- Focus Assets 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 six months ending February 28, 1998, the fund returned 8.83% versus the Standard & Poor's 500 Index's 17.64% gain (see page B-1 for average annual total returns through March 31, 1998).* Over this six-month reporting period, our financial holdings, particularly mortgage lenders and insurance stocks, performed quite well. The portfolio's retail and auto stocks also contributed to returns. Our technology and healthcare stocks (primarily HMOs) restrained performance. Quoting from our 1997 Annual Report letter, "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." In our opinion, emotion carried the day in calendar fourth quarter 1997. When Asian currencies began toppling like dominoes last fall, investors bailed out of stocks of American companies with exposure to Far Eastern markets. Technology stocks were particularly hard hit. We can't say we anticipated the Asian currency crisis. However, when Asian currency problems began surfacing in late summer/early fall, we took a hard look at our technology holdings, trying to gauge the impact Asian economic problems would have on earnings. We concluded that barring a real doomsday scenario in which Korea crashed taking Japan and China down with it, in most cases, any earnings problems would be short-lived. We then had a choice. We could think A-5 - ---------------------------------------------------------------------- Focus Assets (Cont'd) short term and sell stocks we viewed as exceptional long-term fundamental bargains or we could stand pat and weather the storm. We chose the latter option and while the portfolio took on some water in late 1997, the ship righted itself in early 1998, and progressed at a steady pace propelled in part by a technology stock recovery. We believe our decision will be further justified in the year ahead. In a related issue, today's extreme market volatility is a cross investors may have to bear for the foreseeable future. Business values rarely change as rapidly as stock prices, even in more stable markets. This can be a blessing -- value investors like us depend on inefficient pricing for opportunities. It can also be a curse when a portfolio holding declines 10%, 15% and even 25% in a day following a very modest earnings shortfall. We have and probably will continue to periodically suffer from such silliness. This will not turn us into day traders. To paraphrase Warren Buffett, short term (and it seems to be getting shorter by the day), the market is a voting machine, but longer term, it is a weighing machine. We will continue to weigh the long-term fundamental merits of companies such as the following. Chase Manhattan stock declined along with the other money center banks as investors responded to Asian currency turmoil. It then came roaring back as investors appeared to collectively realize that the impact of Asian economic problems would likely be minimal. With the merger with Chemical Bank in 1996, Chase Manhattan is now the largest bank holding company in the U.S. The integration of the merged companies is well along and Chase is now prepared to concentrate on growing revenues and earnings. Chase has a nice balance between global wholesale banking (investment banking, financial advisory, trading and investment services) and domestic consumer banking. It is also now the third largest credit card issuer in the U.S. Management has some ambitious, but in our opinion, achievable goals for the company, including 15% operating earnings growth and a return on equity of 18% or higher in 1998. Wall Street appears under-whelmed by Chase as is evidenced by its well below market average P/E. However, companies like Citicorp A-6 - ---------------------------------------------------------------------- Focus Assets (Cont'd) and Merrill Lynch view Chase as a very strong competitor. We agree. We reserve the right to change our opinion on Chase without notice if fundamentals warrant it. However, at present, we view it as a real value. The preceding six months has tested our patience and discipline. We have persevered and are encouraged by the portfolio's rapid comeback after a very tough start. Our value-oriented approach is validated in our long-term performance record. We believe it will continue to serve our shareholders well. Sincerely, /s/ Kent Simons /s/ Kevin Risen Kent Simons and 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.-Registered Trademark- and include reinvestment of all dividends and capital gain distributions. The portfolio invests in many securities not included in the above-described index. The composition, industries and holdings of the portfolio are subject to change. No single holding of the portfolio makes up more than a small fraction of the portfolio's total assets. Prior to November 1, 1991, the investment policies of the portfolio 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. Past performance is no guarantee of future results. A-7 PORTFOLIO COMMENTARY Neuberger&Berman - ---------------------------------------------------------------------- Genesis Assets PORTFOLIO CO-MANAGERS JUDITH VALE AND ROBERT D'ALELIO FOCUS ON "EASY-TO-UNDERSTAND" COMPANIES IN THE LESS GLAMOROUS SECTORS OF THE SMALL-CAPITALIZATION STOCK UNIVERSE. BY AVOIDING THE CUTTING EDGE TECHNOLOGY COMPANIES THAT ATTRACT SO MUCH SPECULATIVE ATTENTION IN THE SMALL-CAP MARKET, THEY ARE BETTER ABLE TO IDENTIFY FUNDAMENTALLY UNDERVALUED STOCKS WITH EXCEPTIONAL GROWTH POTENTIAL. THIS VALUE-ORIENTED APPROACH TO SMALL-CAP INVESTING TRANSLATES INTO A PORTFOLIO WITH FAVORABLE RISK/REWARD CHARACTERISTICS. For the six-month period concluding February 28, 1998, the fund returned 5.46%, compared to the Russell 2000's 9.64% gain over the same time period (see page B-1 for average annual total returns through March 31, 1998).* During this six-month reporting period, good performance from regional banks, commercial aerospace component manufacturers, REITs and utilities stocks was offset by the poor performance of oil services and drilling companies. The regional banks benefited from declining interest rates, steady earnings gains, merger activity in the industry, and in some cases, a favorable outlook for the positive resolution of "goodwill" lawsuits against the federal government. We took profits in some of our bank holdings, which in our opinion, had become fully priced. However, we believe selected regional banks still present an excellent opportunity going forward. We also took some profits in commercial aerospace manufacturers, but remain committed to the group. New airplane demand may slacken somewhat with Asian economic weakness, but backlogs remain high and earnings could continue to advance at an attractive rate. We think Wall Street has overreacted to the decline in oil prices resulting from what we believe to be short-term phenomena. More importantly, in our opinion, the Street is ignoring secular factors strongly benefiting oil service and drilling companies. El Nino's warm winter weather pattern and inventory liquidation in Asia has reduced energy demand. Increased production from OPEC has increased supply. However, depletion rates (the naturally occurring decline in annual production capacity from existing reserves) have not come down significantly. With only about 5% "shut in" production (readily available in- A-8 - ---------------------------------------------------------------------- Genesis Assets (Cont'd) ground reserves) versus 30% five years ago, we believe energy companies will be forced to maintain drilling activity at or near current levels even with lower oil prices. Over the short term, we may see some exploration projects curtailed. But, this is not likely to have a materially negative impact on the oil service and drilling industries that, due to a long period of under investment, remain capacity constrained. Looking ahead, El Nino years have historically been followed by cold winters, OPEC has shown no taste for extended price wars, and Asia will probably have to rebuild energy inventories. These are pluses for oil pricing. Also, oil services and drilling company stocks have been hit so hard, they now appear attractive relative to underlying asset values. The recent Halliburton/Dresser Industries merger and EVI's acquisition of Weatherford Entera, may foreshadow extensive consolidation in the oil patch. Over the last six months, we have made a significant commitment to utilities. Utilities have been under the cloud of ongoing deregulation. This cloud has started to dissipate. Selective electric utilities are being allowed to divest power-generating assets and become pure power distributors. This is not only helping to reduce some of the risks that have plagued the industry (most notably nuclear generating facilities), but is also providing a lot of cash to reduce debt, repurchase shares and go shopping for other utilities companies. Regulatory roadblocks for natural gas utilities are also coming down. We believe the utilities industry is ripe for consolidation. Similar to the banking industry five years ago, there are just too many utilities. Consolidation could create economies of scale and enhance profits. We may also see local and regional electricity companies combining with natural gas utilities to provide one stop shopping in their operating areas. The portfolio owns a diversified group of utilities companies -- approximately half electric, half gas -- in different geographic areas in the U.S. We believe these positions will energize the portfolio in the year ahead. As is our custom, we will discuss a portfolio holding that demonstrates our value-oriented investment discipline. This should not be construed as a recommendation and we reserve the right to sell any security without notice should fundamental developments warrant doing so. A-9 - ---------------------------------------------------------------------- Genesis Assets (Cont'd) Texas Industries, a cement and specialty steel producer, has done well as constrained capacity in the cement industry has improved pricing and profits. Recent years' strong free cash flow has allowed the company to reduce debt, repurchase shares, buy all of Chapparal Steel and develop a new cement production process, which it is starting to sell to other cement companies not competing in its markets. In view of the strong construction market, which we expect to continue to benefit the company's cement and specialty steel operations, and the prospects for fee income from selling the new cement processing technology, we expect earnings growth to continue to be impressive. Despite a nice run, Texas Industries stock still sells at just about 14 times earnings. In the interest of full disclosure, we have taken some profits in the stock to reduce what had become a very large position in the portfolio. However, we still view Texas Industries as an attractive fundamental situation that demonstrates our research discipline and value focus. In closing, we are disappointed with the fund's lackluster performance during this reporting period following its exceptionally good returns in fiscal 1996 and 1997. We believe the portfolio is well positioned to regain performance momentum in the year ahead. Sincerely, /s/ Judith Vale /s/ Robert D'Alelio Judith Vale and Robert D'Alelio PORTFOLIO CO-MANAGERS *The Russell 2000-Registered Trademark- Index is an unmanaged index 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 portfolio are subject to change. Genesis Portfolio is invested in a wide array of stocks and no single holding makes up more than a small fraction of the portfolio's total assets. Past performance is no guarantee of future results. A-10 PORTFOLIO COMMENTARY Neuberger&Berman - ---------------------------------------------------------------------- Guardian Assets 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 six-month period concluding February 28, 1998, the fund returned 5.29% versus the Standard & Poor's 500 Index's 17.64% gain (see page B-1 for average annual total returns through March 31, 1998).* Over the last six months, our financial holdings (banks, insurance and consumer finance) performed quite well. Our auto and airline holdings also contributed to returns. Our technology holdings, particularly in the computer, semiconductor and semiconductor equipment sectors, were hit hard. The portfolio's healthcare holdings, primarily HMOs, also restrained returns. Over the last six months, equity investors were confronted by two powerful and conflicting forces -- the potentially negative impact of the Asian currency crisis on U.S. corporate earnings and a bond rally that drove interest rates to levels supporting higher valuations for stocks. These crosscurrents resulted in extreme volatility for the market and our portfolio. Bank stocks were dragged under briefly, but made it to higher ground by the end of the reporting period. Technology stocks were really swamped in late 1997 and, although they came back in early 1998, remain underwater. What were we doing as the waters swirled around us? What we always do -- our homework. When Asian currency problems began surfacing in late summer, we began taking a hard look at all our technology stock holdings to assess the impact Asian economic problems would have on earnings. In general, we concluded that any earnings problems resulting from Asian economic weakness would likely be short-lived. So, Wall Street be damned, we decided to stick A-11 - ---------------------------------------------------------------------- Guardian Assets (Cont'd) with what we viewed as outstanding long-term bargains. We paid the price in late 1997. Going forward, we believe our discipline and patience in what we see as a very undervalued technology group will be rewarded. With our portfolio under the gun in fourth quarter 1997, we received some criticism for owning technology stocks in a value portfolio. This prompted us to review our investment discipline for our critics. We are trying to buy good companies when they are cheap. This demands intensive research and independent thinking. We are not influenced by the common perception that certain groups like technology are for growth stock investors only. We feel perfectly justified buying outstanding technology companies with well above market average long-term earnings prospects when they are trading at below market average multiples. In our opinion, that is the very definition of value. Ironically, we received similar criticism for our large positions in drug stocks in 1993. The pharmaceuticals were thought to be another growth group that had no place in value portfolios. Well, at the time we were buying them, they were fundamentally cheap and became one of the very best performing groups in our portfolio in the mid 90's. Our ongoing commitment to bank stocks has also been questioned. The most commonly voiced concern has been that after recent years' strong performance, bank stocks are now trading well above historic valuations and therefore, are no longer value plays. In our opinion, selected bank stocks are trading above historic valuations for very good reasons. Declining interest rates, productivity gains, favorable demographics, a less cyclical economy and consolidation were helping banking companies grow earnings at a much higher rate than in the past and in many cases, at above market average rates. Yet, despite recent years' excellent performance, selected bank stocks are still trading at P/Es well below the market's. Once again, in our eyes, clearly defined value. Applied Materials (AMAT) was one of our technology holdings that got beaten up in late 1997. AMAT is the technological and market leader in equipment that layers electrically conductive materials on to semiconductor chips. The economic malaise in the Far East may impact A-12 - ---------------------------------------------------------------------- Guardian Assets (Cont'd) revenues and earnings in the next several quarters. However, looking past any short-term Asia-induced weakness, we believe AMAT could lead a major semiconductor industry technology upgrade. If so, we think AMAT's revenues and earnings will grow well in excess of the market averages over the longer term. Yet, as of February 28, 1998, based on our 1998 earnings projections, AMAT stock was still trading at a price earnings ratio discount to the S&P "500." We think this represents excellent value. Be reminded that when we discuss individual securities in our reports to shareholders it is done solely to demonstrate our investment discipline, not as a recommendation. We offer no guarantee the portfolio will continue to own this security or any others we may mention if our fundamental outlook changes. Our brand of value investing demands hard work, discipline and patience. There will be periods (like calendar fourth quarter 1997) when the portfolio will materially underperform the S&P "500." However, the portfolio's long-term performance record justifies our belief that owning fundamentally undervalued stocks will generate superior results over time. Sincerely, /s/ Kent Simons /s/ Kevin Risen Kent Simons and 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. 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. Past performance is no guarantee of future results. A-13 PORTFOLIO COMMENTARY Neuberger&Berman - ---------------------------------------------------------------------- Manhattan Assets PORTFOLIO CO-MANAGERS JENNIFER SILVER AND BROOKE COBB LOVE SURPRISES -- POSITIVE EARNINGS SURPRISES THAT IS. THEIR RESEARCH REVEALS THAT THE STOCKS OF COMPANIES CONSISTENTLY EXCEEDING CONSENSUS EARNINGS ESTIMATES HAVE TENDED TO BE TERRIFIC PERFORMERS. THEY COMPUTER SCREEN THE MID-CAP GROWTH STOCK UNIVERSE TO ISOLATE STOCKS WHOSE MOST RECENT EARNINGS HAVE BEATEN THE STREET'S EXPECTATIONS. THEY THEN ROLL UP THEIR SLEEVES, AND THROUGH DILIGENT FUNDAMENTAL RESEARCH, STRIVE TO IDENTIFY THOSE COMPANIES MOST LIKELY TO RECORD A STRING OF POSITIVE EARNINGS SURPRISES. THEIR GOAL IS TO INVEST TODAY IN THE FAST-GROWING MID-SIZED COMPANIES THAT WILL COMPRISE TOMORROW'S FORTUNE 500. For the six-month period ending February 28, 1998, the fund returned 10.23% compared to the Russell Midcap-Trademark- Growth Index's 9.77% and the Standard & Poor's 500 Index's 17.64% gain (see page B-1 for average annual total returns through March 31, 1998).* Over this six-month reporting period, our retail and retail services holdings performed quite well. Our selections in the media, restaurant, banking and insurance industries also contributed to returns. Interestingly, in total, our computer holdings posted decent gains during a period that saw many technology-oriented securities severely punished due to the potential for Asian-induced earnings problems. Our healthcare investments were mixed. However, the portfolio was hurt by the poor performance of HMO's, which in keeping with our sell discipline, have been liquidated. Although we were under-weighted in the energy sector, our positions were negatively impacted by declining oil prices. The strong economy, high employment, low inflation and low interest rates, have consumers feeling quite confident. This has created a tailwind for the retail group in general. Our focus on retailers delivering quality merchandise at good value to their customers was particularly beneficial, with off-price retailers like Costco, Staples and TJX & Company all gaining 35% or more over the last six months. The portfolio's lone airline stock, Southwest Airlines, the leading low price operator in its industry, also took off, gaining more than 50%. We believe consumer confidence will remain strong and that high quality, value-oriented retailers will continue to grow earnings at attractive rates. A-14 - ---------------------------------------------------------------------- Manhattan Assets (Cont'd) As the television networks have lost viewers in recent years, national and large regional advertisers have gravitated to other media including radio and billboards. Consolidation in these industries is creating larger companies with bigger market footprints. This enhances advertising revenue and economies of scale realized through consolidation are improving profit margins and accelerating earnings for portfolio companies like Chancellor Media (radio) and Outdoor Systems, Inc. (billboards), which were up strongly over the last six months. We believe earnings will continue to trend higher for these companies. Be reminded, our opinions on these and any other portfolio holdings mentioned in this report are subject to change. Our relative success in the technology group over the last six months can be traced to our mid-summer decision to move out of hardware and commodity-oriented tech stocks (personal computer, disc drive, semiconductor and semiconductor equipment manufacturers), and into proprietary product companies (software and specialty systems producers), whose earnings we believe to be less sensitive to the capital spending cycle. In our carefully considered opinion, these types of technology companies offer more reliable earnings growth potential, albeit at a slightly higher valuation level. This decision proved to be particularly timely as commodity-oriented technology stocks got hit hard in late 1997 when Asian economic turmoil dampened earnings expectations. Although mid-cap stocks have a superior long-term performance record, they have lagged large-cap stocks in recent years. Will this continue? We don't know. However, on a valuation basis, mid-cap growth companies currently look attractive relative to large-cap growth companies. To wit: based on consensus earnings estimates from First Call (an independent research firm that compiles and distributes Wall Street earnings estimates), S&P "500" earnings are expected to grow approximately 4% in first quarter 1998, and 10% annually over the next five years. Also based on First Call data, our portfolio holdings are projected to grow earnings by 40% in first quarter 1998 and 25% annually over the next five years. Yet, the Manhattan portfolio trades at A-15 - ---------------------------------------------------------------------- Manhattan Assets (Cont'd) just one time its estimated five-year annual earnings growth rate compared to the S&P "500's" substantial premium to its five-year annual earnings growth projections. Also, as you know, we believe companies that consistently beat earnings estimates will ultimately deliver superior investment performance. In fourth quarter 1997, 90% of the Manhattan Portfolio's holdings met or exceeded First Call earnings estimates, reporting year-to-year earnings gains approximating 45%. Only 62% of the S&P "500" companies met or exceeded First Call estimates, reporting only about 8% year-to-year earnings advances. In closing, a highly volatile stock market has and will likely continue to challenge investors of all stripes. The Manhattan Portfolio is positioned in companies with a recent history of rapid growth, trading at what we view as very reasonable multiples relative to projected earnings growth rates. We believe this disciplined investment strategy will reward our shareholders. Sincerely, /s/ Jennifer Silver /s/ Brooke Cobb Jennifer Silver and Brooke Cobb PORTFOLIO CO-MANAGERS *The S&P "500" Index is an unmanaged index generally considered to be representative of stock market activity. The Russell Midcap Growth Index is an unmanaged index which measures the performance of those Russell Midcap-Trademark- Index companies with higher price-to-book ratios and higher forecasted growth values. The Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000-Registered Trademark- Index, which represents approximately 35% of the total market capitalization of the Russell 1000 Index (which in turn, consists of the 1,000 largest U.S. companies, based on market capitalization). Please note that indices do not take into account any fees and expenses of investing in the individual securities that they track, and that individuals cannot invest directly in any index. Data about the performance of these indices are prepared or obtained by Neuberger&Berman Management Inc. and include reinvestment of all dividends and capital gain distributions. The portfolio invests in many securities not included in the above-described indices. The composition, industries and holdings of the portfolio are subject to change. Manhattan Portfolio is invested in a wide array of stocks and no single holding makes up more than a small fraction of the portfolio's total assets. Past performance is no guarantee of future results. A-16 PORTFOLIO COMMENTARY Neuberger&Berman - ---------------------------------------------------------------------- Partners Assets PORTFOLIO CO-MANAGERS MICHAEL KASSEN AND ROBERT GENDELMAN FOCUS ON OUT-OF-FAVOR LARGE CAP STOCKS AND MID-SIZED COMPANIES LESS WIDELY FOLLOWED BY WALL STREET ANALYSTS. THEY ARE PARTICULARLY PARTIAL TO "FALLEN ANGELS" -- GROWTH STOCKS THAT HAVE EXPERIENCED TEMPORARY SETBACKS, BUT WHOSE LONGER-TERM FUNDAMENTAL OUTLOOK REMAINS STRONG. THE PORTFOLIO MANAGEMENT TEAM VIEWS STOCKS AS PIECES OF BUSINESSES THEY WOULD LIKE TO OWN RATHER THAN PIECES OF PAPER TO TRADE BASED ON SHORT-TERM PRICE FLUCTUATIONS. THE GOAL IS TO FIND QUALITY COMPANIES TRADING AT A DISCOUNT TO THEIR INTRINSIC ECONOMIC VALUE. For the six-month period concluding February 28, 1998, the fund returned 9.53% versus the Standard & Poor's 500 Index's 17.64% gain (see page B-1 for average annual total returns through March 31, 1998).* Over the last six months, portfolio holdings in the retail, cable television, airline, and financial (banks, consumer finance and insurance) groups contributed to returns. In the healthcare sector, we were hurt both by what we owned (HMOs still struggling to get pricing and costs in line) and what we didn't own (drug stocks, whose high multiples got even higher in the last six months). Our energy investments, particularly exploration and production companies where profits are tied directly to oil prices, disappointed. Our technology investments hindered performance as Asian economic problems spooked investors. We believe Asian economic weakness will muddy the short-term earnings outlook for some of our technology holdings, but that the longer-term earnings picture remains bright. The strong performance of cable television stocks was particularly gratifying in that we were more than satisfactorily rewarded for our patience and discipline -- absolute requirements for value investors. We bought cable television companies like Comcast and Time Warner (the big entertainment conglomerate and one of the largest cable operators in the U.S.) back when no one wanted to own them. We thought the business fundamentals were reasonably good and likely to get better, and that the threat of competition from satellite broadcasters was over- A-17 - ---------------------------------------------------------------------- Partners Assets (Cont'd) blown. These stocks did nothing for us until 1997, when investors suddenly realized that cable television was still a good growth business and sent CATV stocks soaring. Our patience being rewarded, we have recently taken some profits in both stocks. The airline stocks also took off during this reporting period. This was an industry we had avoided because the group never really grew earnings over a full cycle. Good times prompted all the airlines to add capacity (buy a lot of expensive new airplanes) which they then couldn't fill without profit eroding fare wars. To make matters worse, new airlines kept popping up overnight and despite hemorrhaging money, were kept on life support systems by the government and unrealistically optimistic investors. Proving old dogs are not necessarily resistant to new tricks; we took another look at the airline industry in late 1996. We recognized three major changes we believed were improving the industry's outlook. First, the hub system (individual airlines controlling the majority of gates at airports in selected cities and effectively creating mini-monopolies) was raising the barrier of entry in the business, allowing established airlines to dominate certain markets, and limiting the fare wars that restrained profitability. Secondly, airline company managements were becoming much more financially savvy, particularly in controlling capital expenditures. Finally, the strong economy and lower fuel costs were improving profit margins. When we put our stock picking hats on -- always the most important element in our investment wardrobe -- we selected Continental, Delta and Southwest Airlines. Let's use Continental to demonstrate what was so appealing about the airlines. Continental's hubs in Newark, Houston and Cleveland provide strong market footholds in the Northeast, Southwest and Midwest. In recent years, Continental has added more capacity than the other four top carriers and has had little problem filling the seats. The company has standardized its fuel-efficient fleet, in the process saving on training and maintenance costs. Continental now has an alliance with Northwest Airlines, which expands its geographic reach and we estimate can add $2.50 to $3.75 to earnings by the year A-18 - ---------------------------------------------------------------------- Partners Assets (Cont'd) 2000. We believe Continental can grow total pre-tax earnings at a 12-15% annual rate for the next several years. Yet, even after its strong run, the stock trades at just 10 times our 1998 earnings estimates. We believe when investors recognize the beneficial changes for the airlines in general and Continental's progress in particular, it will get a better appraisal. Bear in mind, as positively as we feel about the group and Continental, we may change our opinion without notice should the stock fly out of our value range or the company fails to meet our fundamental expectations. We have taken some profit in Delta and Southwest but we've kept all our seats on Continental. In closing, after three years of exceptional equity performance, the pickings are getting slimmer for true value-oriented investors. However, even with the market indices near record levels, we are still finding fundamental bargains in industries and companies not swept up in Wall Street's euphoria. We believe that by maintaining our discipline and providing a home for under-loved stocks, our shareholders can enjoy the sunshine while it lasts and have a roof over their heads should the market weather become inclement. Sincerely, /s/ Robert Gendelman /s/ Michael Kassen Robert Gendelman and Michael Kassen PORTFOLIO CO-MANAGERS *The S&P "500" Index is an unmanaged index generally considered to be representative of stock market activity. Please note that indices do not take into account any fees and expenses of investing in the individual securities that they track, and that individuals cannot invest directly in any index. Data about the performance of this index are prepared or obtained by Neuberger&Berman Management Inc. and include reinvestment of all dividends and capital gain distributions. The portfolio invests in many securities not included in the above-described index. The composition, industries and holdings of the portfolio are subject to change. Partners Portfolio is invested in a wide array of stocks and no single holding makes up more than a small fraction of the portfolio's total assets. Past performance is no guarantee of future results. A-19 (This page has been left blank intentionally.) A-20 PERFORMANCE HIGHLIGHTS
FOR PERIODS ENDED 3/31/98 SIX MONTH -------------------------- PERIOD AVERAGE ANNUAL TOTAL NEUBERGER&BERMAN ENDED RETURNS(1) EQUITY ASSETS 2/28/98(1) 1 YR 5 YR 10 YR - ----------------------------------------------------------------------------------------------- FOCUS ASSETS(2) +8.83% +42.36% +20.52% +17.88% GUARDIAN ASSETS +5.29% +32.38% +17.82% +17.22% PARTNERS ASSETS +9.53% +40.67% +21.58% +17.64% S&P "500"(3) +17.64% +47.88% +22.35% +18.88% MANHATTAN ASSETS +10.23% +39.40% +16.62% +15.68% RUSSELL MIDCAP-TRADEMARK- GROWTH INDEX(3) +9.77% +42.36% +18.41% +17.02% GENESIS ASSETS +5.46% +43.51% +19.81% +16.67%(4) RUSSELL 2000-REGISTERED TRADEMARK- INDEX(3) +9.64% +42.01% +17.67% N/A
Each Fund commenced operations in the summer of 1996 (except Genesis Assets, which began in April 1997). The Funds have identical investment objectives and policies and invest in the same Portfolio as other funds ("Sister Funds") of similar names, which are also managed by Neuberger&Berman Management Inc.-Registered Trademark- The performance information for the Funds prior to their commencement of operations are for the Sister Funds. Neuberger&Berman Management Inc. currently absorbs certain operating expenses of each Fund and their pro rata share of their Portfolio's operating expenses which, in the aggregate, exceed 1.50% per annum of each Fund's average daily net assets, until December 31, 1998. Neuberger&Berman Management Inc. previously waived a portion of the management fee borne directly by Neuberger&Berman Genesis Portfolio and indirectly by Neuberger&Berman Genesis Assets-SM-. Absent such arrangements, which are subject to change, the average annual total returns of the Funds would have been less. The total returns for periods prior to the Funds' commencement of operations would have been lower had they reflected the higher expense ratios of the Funds as compared to those of the Sister Funds. 1) Results are shown on a "total return" basis and include reinvestment of all dividends and capital gain distributions. Performance data quoted represents past performance, which is no guarantee of future results. The investment return and principal value of an investment will fluctuate so that the shares, when redeemed, may be worth more or less than their original cost. 2) Prior to November 1, 1991, the investment policies of its Sister Fund required that it invest a substantial portion of its assets in the energy field. 3) The S&P "500" Index is an unmanaged index generally considered to be representative of stock market activity. The Russell Midcap-Trademark- Growth Index measures the performance of those Russell Midcap-Trademark- Index companies with higher price-to-book ratios and higher forecasted growth values. The Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000-Registered Trademark- Index, which represents approximately 35% of the total market capitalization of the Russell 1000 Index (which, in turn, consists of the 1,000 largest U.S. companies, based on market capitalization). The Russell 2000-Registered Trademark- Index is an unmanaged index consisting of the securities of the 2,000 issuers having the smallest capitalization in the Russell 3000-Registered Trademark- Index, representing approximately 10% of the Russell 3000 total market capitalization. The smallest company's market capitalization is roughly $172 million. The risks involved in seeking capital appreciation from investments primarily in companies with small market capitalization are set forth in the prospectus. Please note that indices do not take into account any fees and expenses of investing in the individual securities that they track, and that individuals cannot invest directly in any index. Data about the performance of these indices are prepared or obtained by Neuberger&Berman Management Inc. and include reinvestment of all dividends and capital gain distributions. The Portfolios invest in many securities not included in any of the above-described indices. 4) From inception of Sister Fund. B-1 STATEMENTS OF ASSETS AND LIABILITIES Neuberger&Berman - ---------------------------------------------------------------------- Equity Assets
FOCUS GENESIS ASSETS ASSETS -------------------- ASSETS Investment in corresponding Portfolio, at value (Note A) $271,082 $4,438,297 Deferred organization costs (Note A) 41,081 49,751 Receivable for Trust shares sold -- 17,381 Receivable from administrator -- net (Note B) 143,283 11,497 -------------------- 455,446 4,516,926 -------------------- LIABILITIES Payable for Fund expenses (Note B) 90,232 -- Payable for Trust shares redeemed -- 12,693 Payable to administrator -- net (Note B) -- -- Accrued organization costs (Note A) 58,468 -- Accrued expenses 37,219 23,321 -------------------- 185,919 36,014 -------------------- NET ASSETS at value $269,527 $4,480,912 -------------------- NET ASSETS consist of: Par value $ 18 $ 323 Paid-in capital in excess of par value 211,780 4,267,245 Accumulated undistributed net investment income (loss) (332) 3,812 Accumulated net realized gains (losses) on investment 521 2,511 Net unrealized appreciation in value of investment 57,540 207,021 -------------------- NET ASSETS at value $269,527 $4,480,912 -------------------- SHARES OUTSTANDING ($.001 par value; unlimited shares authorized) 18,016 322,574 -------------------- NET ASSET VALUE, offering and redemption price per share $14.96 $13.89 --------------------
SEE NOTES TO FINANCIAL STATEMENTS B-2 February 28, 1998 (Unaudited) - ---------------------------------------------------------------------- Equity Assets
GUARDIAN MANHATTAN PARTNERS ASSETS ASSETS ASSETS ------------------------------------ ASSETS Investment in corresponding Portfolio, at value (Note A) $17,386,610 $206,883 $20,738,292 Deferred organization costs (Note A) 41,082 40,981 39,087 Receivable for Trust shares sold 9,329 -- 24,724 Receivable from administrator -- net (Note B) -- 147,891 -- ------------------------------------ 17,437,021 395,755 20,802,103 ------------------------------------ LIABILITIES Payable for Fund expenses (Note B) -- 105,856 -- Payable for Trust shares redeemed -- -- 36,942 Payable to administrator -- net (Note B) 54 -- 6,414 Accrued organization costs (Note A) -- 58,325 -- Accrued expenses 24,763 26,118 21,263 ------------------------------------ 24,817 190,299 64,619 ------------------------------------ NET ASSETS at value $17,412,204 $205,456 $20,737,484 ------------------------------------ NET ASSETS consist of: Par value $ 1,203 $ 15 $ 1,344 Paid-in capital in excess of par value 15,828,728 172,291 19,216,623 Accumulated undistributed net investment income (loss) (1,253) (850) (5,709) Accumulated net realized gains (losses) on investment (138,231) (1,093) 110,634 Net unrealized appreciation in value of investment 1,721,757 35,093 1,414,592 ------------------------------------ NET ASSETS at value $17,412,204 $205,456 $20,737,484 ------------------------------------ SHARES OUTSTANDING ($.001 par value; unlimited shares authorized) 1,203,149 15,364 1,343,509 ------------------------------------ NET ASSET VALUE, offering and redemption price per share $14.47 $13.37 $15.44 ------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS B-3 STATEMENTS OF OPERATIONS Neuberger&Berman - ---------------------------------------------------------------------- Equity Assets
FOCUS GENESIS ASSETS ASSETS --------------------- INVESTMENT INCOME Investment income from corresponding Portfolio (Note A) $ 962 $ 15,490 --------------------- Expenses: Administration fee (Note B) 345 3,114 Amortization of deferred organization and initial offering expenses (Note A) 5,796 6,017 Auditing fees 2,704 2,704 Custodian fees 4,959 4,960 Distribution fees (Note B) 94 1,814 Legal fees 1,478 4,884 Registration and filing fees 24,853 22,713 Shareholder reports 4,988 7,174 Shareholder servicing agent fees 8,337 3,133 Trustees' fees and expenses 1 11 Miscellaneous 691 522 Expenses from corresponding Portfolio (Notes A & B) 446 5,670 --------------------- Total expenses 54,692 62,716 Expenses reimbursed by administrator and reduced by custodian fee expense offset arrangement (Note B) (53,398) (51,038) --------------------- Total net expenses 1,294 11,678 --------------------- Net investment income (loss) (332) 3,812 --------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS FROM CORRESPONDING PORTFOLIO (NOTE A) Net realized gain (loss) on investment securities 1,530 3,270 Net realized loss on option contracts (350) -- Change in net unrealized appreciation of investment securities and option contracts 19,220 152,746 --------------------- Net gain on investments from corresponding Portfolio (Note A) 20,400 156,016 --------------------- Net increase in net assets resulting from operations $ 20,068 $ 159,828 ---------------------
SEE NOTES TO FINANCIAL STATEMENTS B-4 For the Six Months Ended February 28, 1998 (Unaudited) - ---------------------------------------------------------------------- Equity Assets
GUARDIAN MANHATTAN PARTNERS ASSETS ASSETS ASSETS ---------------------------------------- INVESTMENT INCOME Investment income from corresponding Portfolio (Note A) $ 93,550 $ 522 $ 83,670 ---------------------------------------- Expenses: Administration fee (Note B) 25,097 366 21,818 Amortization of deferred organization and initial offering expenses (Note A) 5,796 5,781 6,608 Auditing fees 2,706 2,479 2,706 Custodian fees 4,959 3,293 4,961 Distribution fees (Note B) 15,685 110 13,637 Legal fees 7,020 6,689 5,704 Registration and filing fees 31,861 25,452 26,810 Shareholder reports 723 4,880 2,339 Shareholder servicing agent fees 8,773 10,005 7,565 Trustees' fees and expenses 26 1 -- Miscellaneous 699 1 685 Expenses from corresponding Portfolio (Notes A & B) 28,793 534 26,005 ---------------------------------------- Total expenses 132,138 59,591 118,838 Expenses reimbursed by administrator and reduced by custodian fee expense offset arrangement (Note B) (37,335) (58,219) (36,338) ---------------------------------------- Total net expenses 94,803 1,372 82,500 ---------------------------------------- Net investment income (loss) (1,253) (850) 1,170 ---------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS FROM CORRESPONDING PORTFOLIO (NOTE A) Net realized gain (loss) on investment securities (110,646) (953) 224,907 Net realized loss on option contracts (11,099) -- -- Change in net unrealized appreciation of investment securities and option contracts 996,250 18,373 1,093,919 ---------------------------------------- Net gain on investments from corresponding Portfolio (Note A) 874,505 17,420 1,318,826 ---------------------------------------- Net increase in net assets resulting from operations $ 873,252 $ 16,570 $ 1,319,996 ----------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS B-5 STATEMENTS OF CHANGES IN NET ASSETS Neuberger&Berman - ---------------------------------------------------------------------- Equity Assets
GENESIS ASSETS FOCUS ASSETS Period from April 2, 1997 Six Months Period from Six Months (Commencement Ended September 4, 1996 Ended of February (Commencement February Operations) 28, of Operations) to 28, to 1998 August 31, 1998 August 31, (UNAUDITED) 1997 (UNAUDITED) 1997 ------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss) $ (332) $ (518) $ 3,812 $ (337) Net realized gain (loss) on investments from corresponding Portfolio (Note A) 1,180 5,564 3,270 2,268 Change in net unrealized appreciation (depreciation) of investments from corresponding Portfolio (Note A) 19,220 38,320 152,746 54,275 ------------------------------------------------------------- Net increase in net assets resulting from operations 20,068 43,366 159,828 56,206 ------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income -- -- -- -- Net realized gain on investments (5,827) -- (2,617) -- ------------------------------------------------------------- Total distributions to shareholders (5,827) -- (2,617) -- ------------------------------------------------------------- FROM TRUST SHARE TRANSACTIONS: Proceeds from shares sold 107,732 100,010 4,230,754 673,996 Proceeds from reinvestment of dividends and distributions 5,827 -- 2,617 -- Payments for shares redeemed (1,649) -- (639,842) (30) ------------------------------------------------------------- Net increase from Trust share transactions 111,910 100,010 3,593,529 673,966 ------------------------------------------------------------- NET INCREASE IN NET ASSETS 126,151 143,376 3,750,740 730,172 NET ASSETS: Beginning of period 143,376 -- 730,172 -- ------------------------------------------------------------- End of period $269,527 $143,376 $4,480,912 $730,172 ------------------------------------------------------------- Accumulated undistributed net investment income (loss) at end of period $ (332) $ -- $ 3,812 $ -- ------------------------------------------------------------- NUMBER OF TRUST SHARES: Sold 7,700 10,001 314,034 55,276 Issued on reinvestment of dividends and distributions 434 -- 192 -- Redeemed (119) -- (46,926) (2) ------------------------------------------------------------- Net increase in shares outstanding 8,015 10,001 267,300 55,274 -------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS B-6 - ---------------------------------------------------------------------- Equity Assets
MANHATTAN ASSETS GUARDIAN ASSETS Six PARTNERS ASSETS Period from Months Period from Six Months September 4, 1996 Ended September 4, 1996 Six Months Ended (Commencement February (Commencement Ended Year February 28, of Operations) to 28, of Operations) to February 28, Ended 1998 August 31, 1998 August 31, 1998 August 31, (UNAUDITED) 1997 (UNAUDITED) 1997 (UNAUDITED) 1997 --------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss) $ (1,253) $ (2,926) $ (850) $ (825) $ 1,170 $ 1,072 Net realized gain (loss) on investments from corresponding Portfolio (Note A) (121,745) 116,398 (953) 22,981 224,907 131,273 Change in net unrealized appreciation (depreciation) of investments from corresponding Portfolio (Note A) 996,250 725,507 18,373 16,720 1,093,919 321,444 --------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 873,252 838,979 16,570 38,876 1,319,996 453,789 --------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income -- (296) -- -- (7,807) (147) Net realized gain on investments (133,549) -- (22,498) (1,100) (249,831) (735) --------------------------------------------------------------------------------------- Total distributions to shareholders (133,549) (296) (22,498) (1,100) (257,638) (882) --------------------------------------------------------------------------------------- FROM TRUST SHARE TRANSACTIONS: Proceeds from shares sold 7,531,385 9,409,019 50,000 100,010 13,833,424 5,428,435 Proceeds from reinvestment of dividends and distributions 133,549 296 22,498 1,100 257,638 881 Payments for shares redeemed (299,888) (940,543) -- -- (235,151) (166,509) --------------------------------------------------------------------------------------- Net increase from Trust share transactions 7,365,046 8,468,772 72,498 101,110 13,855,911 5,262,807 --------------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS 8,104,749 9,307,455 66,570 138,886 14,918,269 5,715,714 NET ASSETS: Beginning of period 9,307,455 -- 138,886 -- 5,819,215 103,501 --------------------------------------------------------------------------------------- End of period $17,412,204 $9,307,455 $205,456 $138,886 $20,737,484 $5,819,215 --------------------------------------------------------------------------------------- Accumulated undistributed net investment income (loss) at end of period $ (1,253) $ -- $ (850) $ -- $ (5,709) $ 928 --------------------------------------------------------------------------------------- NUMBER OF TRUST SHARES: Sold 544,346 746,797 3,453 10,001 938,240 406,827 Issued on reinvestment of dividends and distributions 10,202 26 1,811 99 17,917 76 Redeemed (22,103) (76,119) -- -- (16,169) (13,828) --------------------------------------------------------------------------------------- Net increase in shares outstanding 532,445 670,704 5,264 10,100 939,988 393,075 ---------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS B-7 NOTES TO FINANCIAL STATEMENTS Neuberger&Berman February 28, 1998 (Unaudited) - ---------------------------------------------------------------------- Equity Assets NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: 1) GENERAL: Neuberger&Berman Focus Assets-SM- ("Focus"), Neuberger& Berman Genesis Assets ("Genesis"), Neuberger&Berman Guardian Assets-SM-("Guardian"), Neuberger&Berman Manhattan Assets-SM- ("Manhattan"), and Neuberger&Berman Partners Assets-SM- ("Partners") (collectively, the "Funds") are separate operating series of Neuberger&Berman Equity Assets (the "Trust"), a Delaware business trust organized pursuant to a Trust Instrument dated October 18, 1993. The Trust had no operations until April 2, 1997, for Genesis; September 4, 1996, for Focus, Guardian, and Manhattan; and August 19, 1996, for Partners, other than matters relating to its organization and registration as a diversified, open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"), and registration of its shares under the Securities Act of 1933, as amended. The trustees of the Trust may establish additional series or classes of shares without the approval of shareholders. The assets of each series belong only to that series, and the liabilities of each series are borne solely by that series and no other. Each Fund seeks to achieve its investment objective by investing all of its net investable assets in its corresponding Portfolio of Equity Managers Trust (each a "Portfolio") having the same investment objective and policies as the Fund. The value of each Fund's investment in its corresponding Portfolio reflects that Fund's proportionate interest in the net assets of that Portfolio (0.01%, 0.19%, 0.20%, 0.03%, and 0.48%, for Focus, Genesis, Guardian, Manhattan, and Partners, respectively, at February 28, 1998). The performance of each Fund is directly affected by the performance of its corresponding Portfolio. The financial statements of each Portfolio, including the Schedule of Investments, are included elsewhere in this report and should be read in conjunction with the corresponding Fund's financial statements. 2) PORTFOLIO VALUATION: Each Fund records its investment in its corresponding Portfolio at value. Investment securities held by each Portfolio are valued by Equity Managers Trust as indicated in the notes following the Portfolios' Schedule of Investments. 3) FEDERAL INCOME TAXES: Each series of the Trust is treated as a separate entity for Federal income tax purposes. It is the policy of each Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined in applicable sections of the Internal Revenue Code, and to make distributions of investment company taxable income B-8 and net capital gains (after reduction for any amounts available for Federal income tax purposes as capital loss carryforwards) sufficient to relieve it from all, or substantially all, Federal income taxes. Accordingly, each Fund paid no Federal income taxes and no provision for Federal income taxes was required. 4) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Each Fund earns income, net of Portfolio expenses, daily on its investment in its corresponding Portfolio. Income dividends and distributions from net realized capital gains, if any, are normally distributed in December. Guardian generally distributes substantially all of its net investment income, if any, at the end of each calendar quarter. Income dividends and capital gain distributions to shareholders are recorded on the ex-dividend date. To the extent each Fund's net realized capital gains, if any, can be offset by capital loss carryforwards, it is the policy of each Fund not to distribute such gains. Each Fund distinguishes between dividends on a tax basis and a financial reporting basis and only distributions in excess of tax basis earnings and profits are reported in the financial statements as a return of capital. Differences in the recognition or classification of income between the financial statements and tax earnings and profits which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. 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 February 28, 1998, the unamortized balance of such expenses amounted to $41,081, $49,751, $41,082, $40,981, and $39,087, for Focus, Genesis, Guardian, Manhattan, and Partners, respectively. The accrued organization costs for Focus and Manhattan are payable to Neuberger&Berman Management Incorporated ("N&B Management"), the administrator of each Fund. 6) EXPENSE ALLOCATION: Each Fund bears all costs of its operations. Expenses incurred by the Trust with respect to any two or more funds are allocated in proportion to the net assets of such funds, except where a more appropriate allocation of expenses to each fund can otherwise be made fairly. Expenses directly attributable to a fund are charged to that fund. 7) OTHER: All net investment income and realized and unrealized capital gains and losses of each Portfolio are allocated pro rata among its respective Funds and any other investors in the Portfolio. NOTE B -- ADMINISTRATION FEES, DISTRIBUTION ARRANGEMENTS, AND OTHER TRANSACTIONS WITH AFFILIATES: Each Fund retains N&B Management as its administrator under an Administration Agreement ("Agreement") dated as of February 13, 1996, as amended on August 2, 1996. Pursuant to this Agreement each Fund pays N&B Management an administration fee at the annual rate of .40% of that Fund's average daily net assets. B-9 Each Fund indirectly pays for investment management services through its investment in its corresponding Portfolio (see Note B of Notes to Financial Statements of the Portfolios). N&B Management acts as agent in arranging for the sale of Fund shares without commission and bears advertising and promotion expenses. The trustees of the Trust have adopted a plan pursuant to Rule 12b-1 under the 1940 Act (the "Plan"). The Plan provides that, as compensation for administrative and other services provided to the Funds, N&B Management's activities and expenses related to the sale and distribution of Fund shares, and ongoing services provided to investors in the Funds, N&B Management receives from each Fund a fee at the annual rate of .25% of that Fund's average daily net assets. N&B Management pays this amount to institutions that distribute Fund shares and provide services to the Funds and their shareholders. Those institutions may use the payments for, among other purposes, compensating employees engaged in sales and/or shareholder servicing. The amount of fees paid by each Fund during any year may be more or less than the cost of distribution and other services provided to that Fund. NASD rules limit the amount of annual distribution fees that may be paid by a mutual fund and impose a ceiling on the cumulative distribution fees paid. The Trust's Plan complies with those rules. N&B Management has voluntarily undertaken until December 31, 1998, to reimburse each Fund for its operating expenses plus its pro rata portion of its corresponding Portfolio's operating expenses (including the fees payable to N&B Management but excluding interest, taxes, brokerage commissions, and extraordinary expenses) which exceed, in the aggregate, 1.50% per annum of the Fund's average daily net assets. For the period ended February 28, 1998, such excess expenses amounted to $53,398, $51,036, $37,334, $58,219, and $36,337, for Focus, Genesis, Guardian, Manhattan, and Partners, respectively. Since inception of Focus and Manhattan, N&B Management has voluntarily undertaken to pay certain expenses of each Fund as an advance. These expenses will be repaid by the Funds to N&B Management in the future, and are included under the caption Payable for Fund expenses in the Statements of Assets and Liabilities. All of the capital stock of N&B Management is owned by individuals who are also principals of Neuberger&Berman, LLC ("Neuberger"), a member firm of The New York Stock Exchange and sub-adviser to each Portfolio. Several individuals who are officers and/or trustees of the Trust are also principals of Neuberger and/or officers and/or directors of N&B Management. Each Fund also has a distribution agreement with N&B Management which receives no commissions for sales or redemptions of shares of beneficial interest of each Fund, but receives fees under the Plan, as described above. Each Portfolio has an expense offset arrangement in connection with its custodian contract. The impact of this arrangement, reflected in the Statements of Operations B-10 under the caption Expenses from corresponding Portfolio, was a reduction of $0.05, $1.87, $0.75, $0.07, and $1.29 for Focus, Genesis, Guardian, Manhattan, and Partners, respectively. NOTE C -- INVESTMENT TRANSACTIONS: During the six months ended February 28, 1998, additions and reductions in each Fund's investment in its corresponding Portfolio were as follows:
ADDITIONS REDUCTIONS - --------------------------------------------------------------------------- FOCUS $ 158,447 $ 52,411 GENESIS 4,190,042 648,447 GUARDIAN 7,353,033 202,223 MANHATTAN 50,094 166 PARTNERS 13,604,953 36,241
NOTE D -- UNAUDITED FINANCIAL INFORMATION: The financial information included in this interim report is taken from the records of each Fund without audit by independent accountants/auditors. Annual reports contain audited financial statements. B-11 FINANCIAL HIGHLIGHTS Neuberger&Berman - -------------------------------------------------------------------------------- Focus Assets The following table includes selected data for a share outstanding throughout each 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.
Six Months Ended Period from February 28, September 4, 1996(1) 1998 to August 31, (UNAUDITED) 1997 --------------------------------------- Net Asset Value, Beginning of Period $14.34 $10.00 --------------------------------------- Income From Investment Operations Net Investment Loss (.02) (.05) Net Gains or Losses on Securities (both realized and unrealized) 1.22 4.39 --------------------------------------- Total From Investment Operations 1.20 4.34 --------------------------------------- Less Distributions Distributions (from net capital gains) (.58) -- --------------------------------------- Net Asset Value, End of Period $14.96 $14.34 --------------------------------------- Total Return(2)(3) +8.83% +43.40% --------------------------------------- Ratios/Supplemental Data Net Assets, End of Period (in thousands) $269.5 $143.4 --------------------------------------- Ratio of Gross Expenses to Average Net Assets(4)(5) 1.50% 1.50% --------------------------------------- Ratio of Net Expenses to Average Net Assets(5)(6) 1.50% 1.50% --------------------------------------- Ratio of Net Investment Loss to Average Net Assets(5)(6) (.38%) (.43%) ---------------------------------------
SEE NOTES TO FINANCIAL HIGHLIGHTS B-12 FINANCIAL HIGHLIGHTS Neuberger&Berman - -------------------------------------------------------------------------------- Genesis Assets The following table includes selected data for a share outstanding throughout each 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.
Six Months Ended Period from February 28, April 2, 1997(1) 1998 to August 31, (UNAUDITED) 1997 ----------------------------------- Net Asset Value, Beginning of Period $ 13.21 $10.00 ----------------------------------- Income From Investment Operations Net Investment Income (Loss) .01 (.01) Net Gains or Losses on Securities (both realized and unrealized) .71 3.22 ----------------------------------- Total From Investment Operations .72 3.21 ----------------------------------- Less Distributions Distributions (from net capital gains) (.04) -- ----------------------------------- Net Asset Value, End of Period $ 13.89 $13.21 ----------------------------------- Total Return(2)(3) +5.46% +32.10% ----------------------------------- Ratios/Supplemental Data Net Assets, End of Period (in thousands) $4,480.9 $730.2 ----------------------------------- Ratio of Gross Expenses to Average Net Assets(4)(5) 1.50% 1.50% ----------------------------------- Ratio of Net Expenses to Average Net Assets(5)(6) 1.50% 1.50% ----------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets(5)(6) .49% (.36%) -----------------------------------
SEE NOTES TO FINANCIAL HIGHLIGHTS B-13 FINANCIAL HIGHLIGHTS Neuberger&Berman - -------------------------------------------------------------------------------- Guardian Assets The following table includes selected data for a share outstanding throughout each 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.
Six Months Ended Period from February 28, September 4, 1996(1) 1998 to August 31, (UNAUDITED) 1997 --------------------------------------- Net Asset Value, Beginning of Period $ 13.88 $ 10.00 --------------------------------------- Income From Investment Operations Net Investment Income -- .01 Net Gains or Losses on Securities (both realized and unrealized) .72 3.88 --------------------------------------- Total From Investment Operations .72 3.89 --------------------------------------- Less Distributions Dividends (from net investment income) -- (.01) Distributions (from net capital gains) (.13) -- --------------------------------------- Total Distributions (.13) (.01) --------------------------------------- Net Asset Value, End of Period $ 14.47 $ 13.88 --------------------------------------- Total Return(2)(3) +5.29% +38.92% --------------------------------------- Ratios/Supplemental Data Net Assets, End of Period (in thousands) $17,412.2 $9,307.5 --------------------------------------- Ratio of Gross Expenses to Average Net Assets(4)(5) 1.51% 1.50% --------------------------------------- Ratio of Net Expenses to Average Net Assets(5)(6) 1.51% 1.50% --------------------------------------- Ratio of Net Investment Loss to Average Net Assets(5)(6) (.02%) (.12%) ---------------------------------------
SEE NOTES TO FINANCIAL HIGHLIGHTS B-14 FINANCIAL HIGHLIGHTS Neuberger&Berman - -------------------------------------------------------------------------------- Manhattan Assets The following table includes selected data for a share outstanding throughout each 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.
Six Months Ended Period from February 28, September 4, 1996(1) 1998 to August 31, (UNAUDITED) 1997 --------------------------------------- Net Asset Value, Beginning of Period $13.75 $10.00 --------------------------------------- Income From Investment Operations Net Investment Loss (.06) (.08) Net Gains or Losses on Securities (both realized and unrealized) 1.34 3.94 --------------------------------------- Total From Investment Operations 1.28 3.86 --------------------------------------- Less Distributions Distributions (from net capital gains) (1.66) (.11) --------------------------------------- Net Asset Value, End of Period $13.37 $13.75 --------------------------------------- Total Return(2)(3) +10.23% +38.86% --------------------------------------- Ratios/Supplemental Data Net Assets, End of Period (in thousands) $205.5 $138.9 --------------------------------------- Ratio of Gross Expenses to Average Net Assets(4)(5) 1.50% 1.50% --------------------------------------- Ratio of Net Expenses to Average Net Assets(5)(6) 1.50% 1.50% --------------------------------------- Ratio of Net Investment Loss to Average Net Assets(5)(6) (.93%) (.70%) ---------------------------------------
SEE NOTES TO FINANCIAL HIGHLIGHTS B-15 FINANCIAL HIGHLIGHTS Neuberger&Berman - -------------------------------------------------------------------------------- Partners Assets The following table includes selected data for a share outstanding throughout each 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.
Six Months Ended Period from February 28, Year Ended August 19, 1996(1) 1998 August 31, to August 31, (UNAUDITED) 1997 1996 -------------------------------------------------- Net Asset Value, Beginning of Period $ 14.42 $ 9.91 $10.00 -------------------------------------------------- Income From Investment Operations Net Investment Income -- .01 -- Net Gains or Losses on Securities (both realized and unrealized) 1.35 4.56 (.09) -------------------------------------------------- Total From Investment Operations 1.35 4.57 (.09) -------------------------------------------------- Less Distributions Dividends (from net investment income) (.01) (.01) -- Distributions (from net capital gains) (.32) (.05) -- -------------------------------------------------- Total Distributions (.33) (.06) -- -------------------------------------------------- Net Asset Value, End of Period $ 15.44 $ 14.42 $ 9.91 -------------------------------------------------- Total Return(2) +9.53%(3) +46.26% -0.90%(3) -------------------------------------------------- Ratios/Supplemental Data Net Assets, End of Period (in thousands) $20,737.5 $5,819.2 $103.5 -------------------------------------------------- Ratio of Gross Expenses to Average Net Assets(4) 1.51%(5) 1.50% 1.50%(5) -------------------------------------------------- Ratio of Net Expenses to Average Net Assets(6) 1.51%(5) 1.50% 1.50%(5) -------------------------------------------------- Ratio of Net Investment Income to Average Net Assets(6) .02%(5) .08% 2.38%(5) --------------------------------------------------
SEE NOTES TO FINANCIAL HIGHLIGHTS B-16 NOTES TO FINANCIAL HIGHLIGHTS Neuberger&Berman February 28, 1998 (Unaudited) - ---------------------------------------------------------------------- Equity Assets 1) The date investment operations commenced. 2) Total return based on per share net asset value reflects the effects of changes in net asset value on the performance of each Fund during each fiscal period and assumes dividends and other distributions, if any, were reinvested. Results represent past performance and do not guarantee future results. Investment returns and principal may fluctuate and shares when redeemed may be worth more or less than original cost. Total return would have been lower if N&B Management had not reimbursed certain expenses. In addition, for Genesis, total return would have been lower if N&B Management had not waived a portion of the management fee. 3) Not annualized. 4) The Fund is required to calculate an expense ratio without taking into consideration any expense reductions related to expense offset arrangements. These ratios include expense reimbursement arrangements. In addition, for Genesis, these ratios include management fee waiver. 5) Annualized. 6) After waiver and/or reimbursement of expenses by N&B Management as described in Note B of Notes to Financial Statements. Had N&B Management not undertaken such action the annualized ratios of net expenses and net investment income (loss) to average daily net assets would have been higher and lower, respectively. B-17 SCHEDULE OF INVESTMENTS Neuberger&Berman - -------------------------------------------------------------------------------- Focus Portfolio
TOP TEN EQUITY HOLDINGS --------------------------------------------------- HOLDING PERCENTAGE 1. Compaq Computer 4.9% 2. Chase Manhattan 4.8% 3. Travelers Group 4.5% 4. Countrywide Credit Industries 4.3% 5. CITICORP 4.2% 6. Capital One Financial 3.6% 7. General Motors 3.5% 8. Fannie Mae 3.4% 9. 3Com Corp. 3.4% 10. Furniture Brands International 3.1%
Market Number Value(1) of Shares (000's omitted) - ----------- --------------- COMMON STOCKS (92.9%) AUTOMOTIVE (4.9%) 183,100 Cabot Corp. $ 6,454 883,500 General Motors 60,907 503,400 Hertz Corp. 19,947 --------------- 87,308 --------------- FINANCIAL SERVICES (45.8%) 209,000 ACE Ltd. 20,665 964,155 ADVANTA Corp. Class A 22,718(2) 643,500 Banc One 36,358 383,000 BankBoston Corp. 38,180 940,000 Capital One Financial 63,156 680,000 Chase Manhattan 84,363 555,000 CITICORP 73,538 1,715,000 Countrywide Credit Industries 76,210 940,000 Fannie Mae 59,984 700,000 Freddie Mac 33,075 247,000 Hartford Financial Services Group 24,268 672,500 Merrill Lynch 48,126 Market Number Value(1) of Shares (000's omitted) - ----------- --------------- 700,000 Morgan Stanley, Dean Witter, Discover $ 48,781 640,800 Nationwide Financial Services 28,195 525,600 PartnerRe Ltd. 25,623 177,100 St. Paul Cos. 15,695 107,000 Transamerica Corp. 12,459 1,427,000 Travelers Group 79,555 395,000 Travelers Property Casualty 16,195 --------------- 807,144 --------------- HEALTH CARE (8.0%) 1,857,900 Foundation Health Systems 51,441 940,000 Sierra Health Services 34,427(2) 934,900 Wellpoint Health Networks 54,633 --------------- 140,501 --------------- HEAVY INDUSTRY (5.2%) 1,330,000 AGCO Corp. 37,406 1,000,000 AK Steel Holding 18,688 1,030,000 DT Industries 36,307(2) --------------- 92,401 --------------- RETAIL (9.4%) 1,200,000 Barnes & Noble 42,150 2,014,300 Furniture Brands International 55,142 1,074,000 Neiman-Marcus Group 39,939 420,000 Payless ShoeSource 28,245 --------------- 165,476 --------------- TECHNOLOGY (17.8%) 1,665,000 3Com Corp. 59,524 700,000 Applied Materials 25,769(3) 525,000 Atmel Corp. 8,531
B-18 February 28, 1998 (Unaudited) - -------------------------------------------------------------------------------- Focus Portfolio (Cont'd)
Market Number Value(1) of Shares (000's omitted) - ----------- --------------- 2,700,000 Compaq Computer $ 86,569 120,000 Credence Systems 4,005 580,000 KLA-Tencor 26,771 964,500 National Semiconductor 23,027 90,000 Rational Software 1,215 1,300,000 Silicon Valley Group 35,425 533,000 Teradyne, Inc. 25,151 320,000 Texas Instruments 18,520 --------------- 314,507 --------------- TRANSPORTATION (1.8%) 644,000 Continental Airlines Class B 32,361 --------------- TOTAL COMMON STOCKS (COST $952,034) 1,639,698 --------------- Market Principal Value(1) Amount (000's omitted) - ----------- --------------- U.S. TREASURY SECURITIES (2.7%) $47,880,000 U.S. Treasury Bills, 4.97% - 5.045%, due 3/5/98 & 4/9/98 (COST $47,749) $ 47,756 --------------- SHORT-TERM CORPORATE NOTES (3.9%) 68,140,000 General Electric Capital Corp., 5.50%, due 3/2/98 (COST $68,140) 68,140(4) --------------- TOTAL INVESTMENTS (99.5%) (COST $1,067,923) 1,755,594(5) Cash, receivables and other assets, less liabilities (0.5%) 8,292 --------------- TOTAL NET ASSETS (100.0%) $1,763,886 ---------------
SEE NOTES TO SCHEDULE OF INVESTMENTS B-19 SCHEDULE OF INVESTMENTS Neuberger&Berman - -------------------------------------------------------------------------------- Genesis Portfolio
TOP TEN EQUITY HOLDINGS --------------------------------------------------- HOLDING PERCENTAGE 1. Thiokol Corp. 1.9% 2. Bank United 1.8% 3. Webster Financial 1.6% 4. AAR Corp. 1.6% 5. Pride International 1.4% 6. Trigon Healthcare 1.4% 7. National-Oilwell 1.3% 8. Richfood Holdings 1.2% 9. AptarGroup Inc. 1.2% 10. Crescent Real Estate Equities 1.1%
Market Number Value(1) of Shares (000's omitted) - ------------ --------------- COMMON STOCKS (86.5%) AEROSPACE (6.5%) 1,209,750 AAR Corp. $ 36,746 1,194,100 Aviall Inc. 17,165(2) 259,100 BE Aerospace 7,627 468,300 DONCASTERS PLC ADR 11,708 199,900 Ducommun Inc. 6,434 210,200 Hexcel Corp. 5,531 344,200 Moog, Inc. Class A 12,133 257,300 Orbital Sciences 9,810 463,500 Thiokol Corp. 44,322 --------------- 151,476 --------------- AUTOMOTIVE (0.4%) 384,000 Donaldson Co. 9,144 --------------- BANKING & FINANCIAL (12.8%) 237,775 Associated Banc-Corp 12,453 874,900 Bank United 41,230 253,612 Charter One Financial 15,367 196,900 Colonial BancGroup 6,695 121,485 Commerce Bancorp 5,786 321,100 Commercial Federal 11,359 Market Number Value(1) of Shares (000's omitted) - ------------ --------------- 302,800 Community First Bankshares $ 16,048 328,100 Cullen/Frost Bankers 18,681 211,600 Dime Community Bancorp 5,316 186,700 First Commerce 14,749 281,300 FirstFed Financial 11,358 232,200 Imperial Bancorp 7,663 248,500 Long Island Bancorp 14,957 78,300 North Fork Bancorp 2,677 142,700 Ocean Financial 5,030 82,877 ONBANCorp, Inc. 6,019 511,300 Peoples Heritage Financial Group 23,807 169,175 Queens County Bancorp 6,725 227,600 Reliance Bancorp 8,080 237,700 Sovereign Bancorp 4,605 687,675 Sterling Bancshares 10,315 307,750 Texas Regional Bancshares 10,656 592,600 Webster Financial 38,075 --------------- 297,651 --------------- BASIC MATERIALS (1.9%) 101,300 Lone Star Industries 6,103 198,800 Lone Star Technologies 6,163 244,500 Medusa Corp. 11,568 361,600 Texas Industries 20,430 --------------- 44,264 --------------- BUILDING, CONSTRUCTION & REFURNISHING (0.8%) 825,600 Apogee Enterprises 10,681 73,000 Lincoln Electric Class A 2,774 95,000 Simpson Manufacturing 3,907 --------------- 17,362 ---------------
B-20 February 28, 1998 (Unaudited) - -------------------------------------------------------------------------------- Genesis Portfolio (Cont'd)
Market Number Value(1) of Shares (000's omitted) - ------------ --------------- CHEMICALS (0.7%) 382,500 Lawter International $ 4,471 201,000 Lilly Industries 4,045 297,000 Lyondell Petrochemical 8,093 --------------- 16,609 --------------- CONSUMER CYCLICALS (0.7%) 466,600 Coachmen Industries 13,327 67,800 Monaco Coach 2,678 --------------- 16,005 --------------- CONSUMER PRODUCTS & SERVICES (3.9%) 243,791 Block Drug 10,270 138,800 Bush Boake Allen 4,476 477,400 First Brands 12,293 134,100 Libbey Inc. 4,945 579,500 Prime Hospitality 11,011 1,020,800 Richfood Holdings 29,029 273,800 Stewart Enterprises 12,903 166,900 The First Years 4,485 --------------- 89,412 --------------- DEFENSE (1.7%) 271,700 Alliant Techsystems 17,066 660,000 Newport News Shipbuilding 17,985 100,000 Primex Technologies 4,325 --------------- 39,376 --------------- DIAGNOSTIC EQUIPMENT (0.9%) 793,100 ADAC Laboratories 21,116 --------------- ELECTRONICS (2.0%) 224,800 Continental Circuits 5,311 534,100 Dallas Semiconductor 25,370 25,000 Kent Electronics 558 340,900 SCI Systems 15,340 --------------- 46,579 --------------- ENERGY (2.4%) 509,500 Apache Corp. 17,323 410,000 Cabot Oil & Gas 8,610 Market Number Value(1) of Shares (000's omitted) - ------------ --------------- 701,900 Coho Energy $ 5,571 182,700 Cross Timbers Oil 2,923 54,200 Ocean Energy 2,534 636,990 Swift Energy 11,426 17,994 Titan Exploration 130 765,800 Unit Corp. 6,079 --------------- 54,596 --------------- HEALTH CARE (8.0%) 511,000 Acuson Corp. 9,390 92,500 Arrow International 3,619 634,000 Ballard Medical Products 15,929 252,900 CompDent Corp. 3,509 492,200 CONMED Corp. 10,798 445,400 DePuy, Inc. 11,998 871,500 Haemonetics Corp. 14,543 195,877 Henry Schein 7,982 315,000 John Alden Financial 7,068 443,550 Patterson Dental 13,417 370,000 Physio-Control International 6,984 149,100 R.P. Scherer 9,067 154,100 Sofamor Danek Group 11,596 192,500 STAAR Surgical 3,128 1,039,800 Trigon Healthcare 32,234 475,600 Universal Health Services Class B 24,850 --------------- 186,112 --------------- INDUSTRIAL & COMMERCIAL PRODUCTS & SERVICES (5.4%) 115,000 Alamo Group 2,084 1,003,800 BMC Industries 19,511 118,700 Dionex Corp. 6,929 1,380,900 Hussmann International 20,972 612,200 Kaydon Corp. 22,766 332,000 NN Ball & Roller 3,528 281,800 Pameco Corp. 4,650(2) 162,000 Pentair, Inc. 6,672 96,600 Roper Industries 2,808 547,200 SOS Staffing Services 11,218 233,600 W.H. Brady 7,709
B-21 SCHEDULE OF INVESTMENTS Neuberger&Berman - -------------------------------------------------------------------------------- Genesis Portfolio (Cont'd)
Market Number Value(1) of Shares (000's omitted) - ------------ --------------- 389,100 Wallace Computer Services $ 14,154 180,750 Woodhead Industries 3,434 --------------- 126,435 --------------- INSURANCE (1.9%) 535,150 Allied Group 16,857 290,200 FBL Financial Group 13,494 81,000 Orion Capital 3,954 229,000 Penn-America Group 5,238 150,700 Trenwick Group 5,501 --------------- 45,044 --------------- MACHINERY & EQUIPMENT (0.9%) 178,800 Allied Products 4,101 27,900 Gardner Denver Machinery 748 683,300 Stewart & Stevenson Services 16,698 --------------- 21,547 --------------- OFFICE EQUIPMENT (1.1%) 415,000 United Stationers 24,848 --------------- OIL SERVICES (8.2%) 50,600 Bayard Drilling Technologies 651 208,200 Cal Dive International 5,621 193,800 Cliffs Drilling 7,510 313,800 Dawson Production Services 3,785 373,500 Friede Goldman International 11,345 630,400 Global Industries 10,874 226,200 Hvide Marine 4,298 405,000 IRI International 4,784 544,500 Nabors Industries 12,455 1,103,091 National-Oilwell 30,887 480,700 Oceaneering International 7,962 742,500 Offshore Logistics 13,087 Market Number Value(1) of Shares (000's omitted) - ------------ --------------- 1,463,400 Pride International $ 33,384 367,000 R&B Falcon 9,726 287,400 Smith International 15,304 224,400 Trico Marine Services 4,180 192,600 Tuboscope Inc. 3,768 393,200 UTI Energy 5,357 344,800 Willbros Group 5,538 --------------- 190,516 --------------- PACKING & CONTAINERS (1.2%) 491,200 AptarGroup Inc. 28,336 --------------- PUBLISHING & BROADCASTING (0.3%) 85,666 Pulitzer Publishing 7,196 --------------- REAL ESTATE/REITS (5.7%) 570,900 CCA Prison Realty Trust 25,119 26,800 Crescent Operating 533 749,500 Crescent Real Estate Equities 25,530 335,000 ElderTrust 6,072(2) 495,000 Health Care Property Investors 18,377 297,000 Imperial Credit Commercial Mortgage Investment 4,566 140,900 National Health Investors 5,777 339,700 Nationwide Health Properties 8,981 162,800 OMEGA Healthcare Investors 6,319 798,100 Prime Retail 11,622 415,300 SL Green Realty 11,031 540,000 Sunstone Hotel Investors 8,640 --------------- 132,567 --------------- RESTAURANTS (0.6%) 706,800 Brinker International 14,754 ---------------
B-22 February 28, 1998 (Unaudited) - -------------------------------------------------------------------------------- Genesis Portfolio (Cont'd)
Market Number Value(1) of Shares (000's omitted) - ------------ --------------- RETAILING (1.0%) 354,875 99 Cents Only Stores $ 13,663 517,900 Micro Warehouse 7,121 178,500 Schultz Sav-O Stores 2,789 --------------- 23,573 --------------- TECHNOLOGY (5.3%) 242,800 Analysts International 8,589 1,072,600 Auspex Systems 10,257 202,600 Black Box 7,243 2,036,300 Borland International 18,963(2) 517,600 CACI International 11,064 1,124,100 Data General 23,185 162,500 Eltron International 3,494 264,900 Emulex Corp. 3,146 483,200 Methode Electronics Class A 6,825 1,027,400 Reynolds & Reynolds 21,832 328,400 Zebra Technologies 9,482 --------------- 124,080 --------------- TEXTILES & APPAREL (0.2%) 124,300 St. John Knits 5,252 --------------- TRANSPORTATION, SHIPPING & FREIGHT (0.2%) 78,375 Air Express International 2,195 213,600 Maritrans Inc. 2,136 --------------- 4,331 --------------- UTILITIES, ELECTRIC & GAS (11.8%) 582,200 AGL Resources 11,826 183,200 Aquila Gas Pipeline 2,210 248,600 Atmos Energy 7,132 246,500 Central Hudson Gas & Electric 10,014 227,600 Connecticut Energy 6,714 Market Number Value(1) of Shares (000's omitted) - ------------ --------------- 124,300 Eastern Enterprises $ 5,508 509,800 Eastern Utilities Associates 12,203 400,500 Enova Corp. 10,213 695,600 Illinova Corp. 19,303 628,800 Montana Power 20,122 336,200 National Fuel Gas 15,675 618,200 Nevada Power 15,339 193,300 NICOR Inc. 7,949 48,500 Northwest Natural Gas 1,367 289,800 NUI Corp. 7,662 383,600 ONEOK, Inc. 13,426 200,000 Orange & Rockland Utilities 8,787 66,100 Otter Tail Power 2,504 529,900 Public Service Co. of New Mexico 12,353 475,100 Rochester Gas & Electric 14,817 376,100 Sierra Pacific Resources 13,493 390,000 UtiliCorp United 14,040 457,400 Washington Gas Light 12,321 483,600 Washington Water Power 11,062 152,300 WICOR, Inc. 7,282 249,000 WPL Holdings 7,937 140,000 WPS Resources 4,550 --------------- 275,809 --------------- TOTAL COMMON STOCKS (COST $1,700,109) 2,013,990 --------------- PREFERRED STOCKS (0.1%) 60,000 Hvide Capital Trust, Cv., 6.50% (COST $3,000) 2,948(6) ---------------
B-23 SCHEDULE OF INVESTMENTS Neuberger&Berman February 28, 1998 (Unaudited) - -------------------------------------------------------------------------------- Genesis Portfolio (Cont'd)
Market Principal Value(1) Amount (000's omitted) - ------------ --------------- U.S. TREASURY SECURITIES (12.3%) $287,240,000 U.S. Treasury Bills, 4.90% - 5.045%, due 3/5/98 - 4/9/98 (COST $286,585) $ 286,628 --------------- SHORT-TERM CORPORATE NOTES (2.2%) 51,040,000 General Electric Capital Corp., 5.50%, due 3/2/98 (COST $51,040) 51,040(4) --------------- TOTAL INVESTMENTS (101.1%) (COST $2,040,734) 2,354,606(5) Liabilities, less cash, receivables and other assets [(1.1%)] (24,479) --------------- TOTAL NET ASSETS (100.0%) $2,330,127 ---------------
SEE NOTES TO SCHEDULE OF INVESTMENTS B-24 SCHEDULE OF INVESTMENTS Neuberger&Berman February 28, 1998 (Unaudited) - -------------------------------------------------------------------------------- Guardian Portfolio
TOP TEN EQUITY HOLDINGS --------------------------------------------------- HOLDING PERCENTAGE 1. General Motors 4.0% 2. Compaq Computer 3.9% 3. Chase Manhattan 3.5% 4. Travelers Group 3.5% 5. Capital One Financial 3.4% 6. CITICORP 3.2% 7. Foundation Health Systems 3.1% 8. Morgan Stanley, Dean Witter, Discover 3.1% 9. Countrywide Credit Industries 3.0% 10. 3Com Corp. 2.9%
Market Number Value(1) of Shares (000's omitted) - ------------ --------------- COMMON STOCKS (93.0%) AGRICULTURE (4.0%) 5,360,200 AGCO Corp. $ 150,756(2) 3,107,200 IMC Global 118,656 904,600 Potash Corp. of Saskatchewan 80,848 --------------- 350,260 --------------- AUTOMOTIVE (11.1%) 3,040,700 Cabot Corp. 107,185 2,793,250 Chrysler Corp. 108,762 4,893,900 Coltec Industries 127,547(2) 5,048,000 General Motors 347,997 649,000 Lear Corp. 34,316 2,298,786 LucasVarity PLC ADR 86,492 1,784,800 Magna International Class A 107,980 2,452,081 Mark IV Industries 57,011 --------------- 977,290 --------------- BANKING (12.3%) 4,026,069 Banc One 227,473 2,300,000 BankBoston Corp. 229,281 Market Number Value(1) of Shares (000's omitted) - ------------ --------------- 2,495,000 Chase Manhattan $ 309,536 2,095,000 CITICORP 277,588 1,008,000 First Tennessee National 32,130 --------------- 1,076,008 --------------- CONSUMER GOODS & SERVICES (0.4%) 874,728 Cendant Corp. 32,802 --------------- ENERGY (1.2%) 150,000 Cooper Cameron 8,044 1,275,000 Praxair, Inc. 60,961 1,125,000 Santa Fe International 39,867 --------------- 108,872 --------------- FINANCIAL SERVICES (17.5%) 2,254,350 ADVANTA Corp. Class B 49,596 220,814 Alleghany Corp. 75,298 4,380,000 Capital One Financial 294,281(2) 5,830,000 Countrywide Credit Industries 259,071(2) 3,000,000 Fannie Mae 191,437(3) 3,020,000 Freddie Mac 142,695 3,300,000 Merrill Lynch 236,156 3,897,700 Morgan Stanley, Dean Witter, Discover 271,621 510,000 Security Capital Industrial Trust 12,367 --------------- 1,532,522 --------------- HEALTH CARE (10.8%) 2,855,000 Aetna Inc. 249,456 9,974,900 Foundation Health Systems 276,180(2) 4,788,800 Humana Inc. 121,815 1,260,000 Mid Atlantic Medical Services 14,805 1,465,790 PacifiCare Health Systems Class B 91,612(2) 326,600 Tenet Healthcare 12,186
B-25 SCHEDULE OF INVESTMENTS Neuberger&Berman - -------------------------------------------------------------------------------- Guardian Portfolio (Cont'd)
Market Number Value(1) of Shares (000's omitted) - ------------ --------------- 800,000 United Healthcare $ 48,550 2,326,396 Wellpoint Health Networks 135,949 --------------- 950,553 --------------- HEAVY INDUSTRY (1.9%) 339,000 Harnischfeger Industries 11,992 537,100 Rockwell International 32,495 3,654,400 UCAR International 125,848(2) --------------- 170,335 --------------- INDUSTRIAL GOODS & SERVICES (3.7%) 2,275,200 American Standard 101,246 1,150,000 U.S. Filter 39,028 2,251,500 USA Waste Services 93,719 1,700,700 USG Corp. 92,901 --------------- 326,894 --------------- INSURANCE (6.1%) 1,640,000 Hartford Financial Services Group 161,130 95,000 St. Paul Cos. 8,419 163,100 Transamerica Corp. 18,991 451,050 Transatlantic Holdings 34,111 5,530,000 Travelers Group 308,298 --------------- 530,949 --------------- MEDIA & ENTERTAINMENT (0.4%) 611,900 Harcourt General 33,043 --------------- REAL ESTATE INVESTMENT TRUSTS (1.5%) 2,767,100 INMC Mortgage Holdings 72,809 1,542,000 Spieker Properties 61,198 --------------- 134,007 --------------- Market Number Value(1) of Shares (000's omitted) - ------------ --------------- RETAIL (1.7%) 2,739,600 Barnes & Noble $ 96,228 200,500 Sears, Roebuck 10,639 1,800,000 Woolworth Corp. 42,750 --------------- 149,617 --------------- TECHNOLOGY (17.3%) 7,175,000 3Com Corp. 256,506 3,795,000 Applied Materials 139,703(3) 2,950,000 Arrow Electronics 98,272 2,846,000 Atmel Corp. 46,247 1,280,000 Avnet, Inc. 81,600 1,046,600 Cabletron Systems 16,222 10,602,500 Compaq Computer 339,943(3) 1,830,000 KLA-Tencor 84,466 3,265,000 National Semiconductor 77,952 3,150,000 Teradyne, Inc. 148,641 3,906,000 Texas Instruments 226,060 --------------- 1,515,612 --------------- TRANSPORTATION (3.1%) 1,510,600 Continental Airlines Class B 75,908 930,270 Delta Air Lines 105,179 550,000 Union Pacific 28,050 926,000 US Airways Group 58,627 --------------- 267,764 --------------- TOTAL COMMON STOCKS (COST $5,357,418) 8,156,528 --------------- PREFERRED STOCKS (0.1%) 52,430 Aetna Inc., Ser. C, Cv., 6.25% 4,371 125,000 PacifiCare Health Systems, Ser. C, Cv., $1.00 3,031 --------------- TOTAL PREFERRED STOCKS (COST $7,557) 7,402 ---------------
B-26 February 28, 1998 (Unaudited) - -------------------------------------------------------------------------------- Guardian Portfolio (Cont'd)
Market Principal Value(1) Amount (000's omitted) - ------------ --------------- CONVERTIBLE BONDS (0.2%) $ 15,000,000 International CableTel Inc., Cv. Sub. Notes, 7.25%, due 4/15/05 (COST $14,997) $ 18,112(6) --------------- U.S. TREASURY SECURITIES (5.3%) 243,025,000 U.S. Treasury Bills, 4.96% - 5.06%, due 3/5/98 - 4/9/98 242,724 15,000,000 U.S. Treasury Notes, 8.00%, due 5/15/01 16,045 100,000,000 U.S. Treasury Bonds, 6.25%, due 8/15/23 103,344 100,000,000 U.S. Treasury Bonds, 6.00%, due 2/15/26 100,156 --------------- TOTAL U.S. TREASURY SECURITIES (COST $449,843) 462,269 --------------- Market Principal Value(1) Amount (000's omitted) - ------------ --------------- SHORT-TERM CORPORATE NOTES (0.4%) $ 38,310,000 General Electric Capital Corp., 5.50%, due 3/2/98 (COST $38,310) $ 38,310(4) --------------- TOTAL INVESTMENTS (99.0%) (COST $5,868,125) 8,682,621(5) Cash, receivables and other assets, less liabilities (1.0%) 91,203 --------------- TOTAL NET ASSETS (100.0%) $8,773,824 ---------------
SEE NOTES TO SCHEDULE OF INVESTMENTS B-27 SCHEDULE OF INVESTMENTS Neuberger&Berman - -------------------------------------------------------------------------------- Manhattan Portfolio
TOP TEN EQUITY HOLDINGS --------------------------------------------------- HOLDING PERCENTAGE 1. General Nutrition 2.7% 2. CKE Restaurants 2.6% 3. Staples, Inc. 2.3% 4. Chancellor Media 2.3% 5. TJX Cos. 2.1% 6. Promus Hotel 2.0% 7. Network Associates 1.9% 8. Finova Group 1.9% 9. AES Corp. 1.8% 10. Omnicare, Inc. 1.8%
Market Number Value(1) of Shares (000's omitted) - ----------- --------------- COMMON STOCKS (95.7%) BASIC MATERIALS (1.9%) 169,300 Cytec Industries $ 8,274 318,100 NS Group 4,533 --------------- 12,807 --------------- CAPITAL GOODS (7.1%) 562,900 Corporate Express 5,699 131,000 HON INDUSTRIES 8,613 809,400 Philip Services 7,740 107,200 Sanmina Corp. 8,543 167,100 U.S. Filter 5,671 266,900 USA Waste Services 11,110 --------------- 47,376 --------------- COMMUNICATIONS (4.3%) 131,600 Advanced Fibre Communications 3,940 97,700 CIENA Corp. 4,097 229,500 NEXTLINK Communications 6,914 Market Number Value(1) of Shares (000's omitted) - ----------- --------------- 286,300 RSL Communications $ 7,480 128,200 Saville Systems Ireland ADR 6,009 --------------- 28,440 --------------- CONSUMER CYCLICALS (20.2%) 130,800 American Skiing 1,962 335,000 Authentic Fitness 7,035 230,900 Costco Cos. 11,285 88,300 Dollar Thrifty 1,766 447,200 General Nutrition 17,776 302,600 Hayes Lemmerz International 9,816 233,350 Outdoor Systems 6,957 278,742 Promus Hotel 13,449 240,500 Robert Half International 10,883 734,700 Staples, Inc. 15,520 210,400 Sylvan Learning Systems 9,639 166,700 Tiffany & Co. 7,835 366,600 TJX Cos. 14,160 251,100 Viking Office Products 5,524 --------------- 133,607 --------------- CONSUMER STAPLES (11.6%) 134,400 Cardinal Health 11,004 341,300 Chancellor Media 15,273 166,600 Cheesecake Factory 5,373 398,420 CKE Restaurants 16,908 322,300 Comcast Corp. Class A Special 11,281 135,500 Estee Lauder 7,927 139,900 Suiza Foods 9,067 --------------- 76,833 --------------- ENERGY (5.5%) 241,200 BJ Services 8,291 152,800 Cooper Cameron 8,194 313,900 Noble Drilling 8,907
B-28 February 28, 1998 (Unaudited) - -------------------------------------------------------------------------------- Manhattan Portfolio (Cont'd)
Market Number Value(1) of Shares (000's omitted) - ----------- --------------- 233,800 Oryx Energy $ 5,947 296,200 Seagull Energy 4,999 --------------- 36,338 --------------- FINANCIAL SERVICES (14.1%) 100,900 ACE Ltd. 9,976 173,100 Bear Stearns 8,071 153,500 Equitable Cos. 8,030 160,000 EXEL Ltd. 10,590 225,500 Finova Group 12,402 187,600 FIRSTPLUS Financial Group 6,191 111,900 GreenPoint Financial 8,309 133,800 Northern Trust 10,177 147,300 State Street 9,105 237,200 SunAmerica, Inc. 10,748 --------------- 93,599 --------------- HEALTH CARE (9.3%) 148,100 Alternative Living Services 5,072 96,300 Biogen, Inc. 4,249 168,100 Elan Corp. ADR 10,433 314,500 Omnicare, Inc. 11,637 215,000 Quintiles Transnational 10,508 126,100 Rexall Sundown 4,666 71,300 Sofamor Danek Group 5,365 265,500 Watson Pharmaceuticals 9,525 --------------- 61,455 --------------- TECHNOLOGY (18.4%) 201,900 Analog Devices 6,511 81,500 Applied Micro Circuits 1,528 127,400 BMC Software 9,746 220,400 Cadence Design Systems 7,700 109,400 CBT Group ADR 10,010 220,900 CHS Electronics 4,556 225,850 Citrix Systems 9,500 Market Number Value(1) of Shares (000's omitted) - ----------- --------------- 113,400 Equifax, Inc. $ 4,076 159,000 HBO & Co. 8,606 285,000 J.D. Edwards & Co. 9,405 136,300 KLA-Tencor 6,291 323,900 Network Appliance 9,555 198,000 Network Associates 12,796 229,000 Sterling Commerce 10,448 233,200 Teradyne, Inc. 11,004 --------------- 121,732 --------------- TRANSPORTATION (1.5%) 346,500 Southwest Airlines 9,940 --------------- UTILITIES (1.8%) 277,800 AES Corp. 12,223 --------------- TOTAL COMMON STOCKS (COST $498,478) 634,350 --------------- Principal Amount - ----------- U.S. TREASURY SECURITIES (2.6%) $17,440,000 U.S. Treasury Bills, 4.95%, due 3/26/98 (COST $17,380) 17,385 --------------- SHORT-TERM CORPORATE NOTES (3.8%) 24,880,000 General Electric Capital Corp., 5.50%, due 3/2/98 (COST $24,880) 24,880(4) --------------- TOTAL INVESTMENTS (102.1%) (COST $540,738) 676,615(5) Liabilities, less cash, receivables and other assets [(2.1%)] (13,684) --------------- TOTAL NET ASSETS (100.0%) $662,931 ---------------
SEE NOTES TO SCHEDULE OF INVESTMENTS B-29 SCHEDULE OF INVESTMENTS Neuberger&Berman - -------------------------------------------------------------------------------- Partners Portfolio
TOP TEN EQUITY HOLDINGS --------------------------------------------------- HOLDING PERCENTAGE 1. Sears, Roebuck 2.2% 2. Allstate Corp. 2.0% 3. CITICORP 2.0% 4. Unicom Corp. 1.9% 5. EXEL Ltd. 1.9% 6. Enron Corp. 1.9% 7. Chase Manhattan 1.8% 8. McDonald's Corp. 1.8% 9. duPont 1.8% 10. Crown Cork & Seal 1.8%
Market Number Value(1) of Shares (000's omitted) - ------------ --------------- COMMON STOCKS (95.9%) AEROSPACE (1.4%) 1,100,000 Boeing Co. $ 59,675 --------------- AIRLINES (2.5%) 1,103,300 Continental Airlines Class B 55,441 100,000 Delta Air Lines 11,306 1,400,000 Southwest Airlines 40,163 --------------- 106,910 --------------- AUTO/TRUCK REPLACEMENT PARTS (3.1%) 1,012,500 AutoZone, Inc. 30,628 682,500 Cummins Engine 39,499 954,600 Goodyear Tire & Rubber 65,987 --------------- 136,114 --------------- AUTOMOBILE MANUFACTURING (1.4%) 1,600,000 Chrysler Corp. 62,300 --------------- BANKING & FINANCIAL SERVICES (6.7%) 1,070,960 Banc One 60,509 628,000 Chase Manhattan 77,911 Market Number Value(1) of Shares (000's omitted) - ------------ --------------- 648,000 CITICORP $ 85,860 1,466,000 Countrywide Credit Industries 65,146 --------------- 289,426 --------------- BUILDING, CONSTRUCTION & REFURNISHING (1.4%) 1,115,900 USG Corp. 60,956 --------------- CHEMICALS (3.0%) 1,250,000 duPont 76,641 1,357,600 Morton International 44,886 153,079 Rhone-Poulenc ADR 7,070 --------------- 128,597 --------------- COMMUNICATIONS (2.3%) 844,400 BCE, Inc. 30,029 1,855,000 WorldCom Inc. 70,838 --------------- 100,867 --------------- DIVERSIFIED (1.9%) 370,000 Minnesota Mining & Manufacturing 31,566 1,271,600 Tenneco Inc. 52,294 --------------- 83,860 --------------- ELECTRONICS (2.7%) 1,172,900 KLA-Tencor 54,137 1,412,500 Raychem Corp. 61,355 17,500 Rockwell International 1,059 --------------- 116,551 --------------- ENERGY (2.0%) 637,300 CalEnergy Co. 17,087 1,757,200 McDermott International 69,190 --------------- 86,277 --------------- ENTERTAINMENT (2.2%) 1,982,900 Mirage Resorts 45,359 750,000 Time Warner 50,625 --------------- 95,984 ---------------
B-30 February 28, 1998 (Unaudited) - -------------------------------------------------------------------------------- Partners Portfolio (Cont'd)
Market Number Value(1) of Shares (000's omitted) - ------------ --------------- FINANCIAL SERVICES (1.1%) 1,174,400 SLM Holding $ 48,517 --------------- FOOD & TOBACCO (4.7%) 1,524,100 Anheuser-Busch 71,442 200,000 Nabisco Holdings 9,438 1,100,000 Philip Morris 47,781 2,083,500 UST, Inc. 73,834 --------------- 202,495 --------------- GAS (1.7%) 1,554,800 Praxair, Inc. 74,339 --------------- HEALTH CARE (6.4%) 994,500 Amgen, Inc. 52,833 1,373,400 Biogen, Inc. 60,601 269,000 CIGNA Corp. 51,379 1,780,950 Columbia/HCA Healthcare 48,308 713,042 Novartis AG ADR 65,065 --------------- 278,186 --------------- INDUSTRIAL GOODS & SERVICES (3.5%) 700,000 Corning Inc. 28,438 1,406,800 Crown Cork & Seal 75,967 1,205,000 Owens-Illinois 46,242 --------------- 150,647 --------------- INSURANCE (11.2%) 634,000 Aetna Inc. 55,396 934,000 Allstate Corp. 87,095 284,200 Aon Corp. 16,999 1,245,800 EXEL Ltd. 82,456 1,373,550 Orion Capital 67,046 329,000 Progressive Corp. 38,123 713,800 St. Paul Cos. 63,261 1,361,000 Travelers Group 75,876 --------------- 486,252 --------------- MEDIA (1.4%) 1,724,181 Comcast Corp. Class A Special 60,346 --------------- Market Number Value(1) of Shares (000's omitted) - ------------ --------------- OIL & GAS (7.6%) 1,485,200 Cabot Corp. $ 52,353 76,000 Chevron Corp. 6,166 1,746,000 Enron Corp. 82,062 4,555,900 Gulf Canada Resources 26,766 1,343,000 Noble Affiliates 52,377 104,600 Schlumberger Ltd. 7,884 1,918,155 Union Pacific Resources Group 42,919 1,792,000 YPF SA ADR 56,672 --------------- 327,199 --------------- PAPER & FOREST PRODUCTS (2.5%) 1,420,000 Mead Corp. 48,546 1,190,800 Weyerhaeuser Co. 59,466 --------------- 108,012 --------------- PUBLISHING & BROADCASTING (1.3%) 968,500 Knight Ridder 54,478 --------------- RAILROADS (1.7%) 720,000 Burlington Northern Santa Fe 71,730 --------------- REAL ESTATE (2.1%) 3,426,100 Host Marriott 67,880 1,607,700 Security Capital U.S. Realty 22,347(6) --------------- 90,227 --------------- RESTAURANTS (1.8%) 1,418,500 McDonald's Corp. 77,663 --------------- RETAILING (1.2%) 984,200 Harcourt General 53,147 --------------- RETAILING & APPAREL (3.0%) 700,000 Costco Cos. 34,212 1,784,400 Sears, Roebuck 94,685 --------------- 128,897 --------------- SPECIALTY CHEMICAL (0.9%) 979,300 Millipore Corp. 37,030 ---------------
B-31 SCHEDULE OF INVESTMENTS Neuberger&Berman February 28, 1998 (Unaudited) - -------------------------------------------------------------------------------- Partners Portfolio (Cont'd)
Market Number Value(1) of Shares (000's omitted) - ------------ --------------- STEEL (1.7%) 2,176,000 AK Steel Holding $ 40,664 661,000 Nucor Corp. 34,041 --------------- 74,705 --------------- TECHNOLOGY (5.0%) 705,000 First Data 23,970 1,400,000 Komag, Inc. 20,125 2,020,000 National Semiconductor 48,228 550,000 Quantum Corp. 13,819 1,125,500 Texas Instruments 65,138 774,800 Varian Associates 44,938 --------------- 216,218 --------------- TRANSPORTATION (1.6%) 1,123,200 FDX Corp. 71,534 --------------- UTILITIES (4.9%) 2,426,000 Edison International 67,018 2,057,000 PG&E Corp. 62,096 2,600,000 Unicom Corp. 83,362 --------------- 212,476 --------------- TOTAL COMMON STOCKS (COST $3,409,726) 4,151,615 --------------- PREFERRED STOCKS (0.0%) 566,700 Fresenius National Medical Care, Class D (COST $108) 31 --------------- Market Number Value(1) of Shares (000's omitted) - ------------ --------------- WARRANTS (0.0%) 44,356 Security Capital Group, Class B, Expire 9/18/98 (COST $0) $ 163 ---------------
Principal Amount - ------------ U.S. TREASURY SECURITIES (2.8%) $120,000,000 U.S. Treasury Bills, 5.00% - 5.08%, due 4/2/98 & 4/9/98 (COST $119,432) 119,449 --------------- SHORT-TERM CORPORATE NOTES (1.3%) 57,420,000 General Electric Capital Corp., 5.50%, due 3/2/98 (COST $57,420) 57,420(4) --------------- TOTAL INVESTMENTS (100.0%) (COST $3,586,686) 4,328,678(5) Liabilities, less cash, receivables and other assets [(0.0%)] (13) --------------- TOTAL NET ASSETS (100.0%) $4,328,665 ---------------
SEE NOTES TO SCHEDULE OF INVESTMENTS B-32 NOTES TO SCHEDULE OF INVESTMENTS February 28, 1998 (Unaudited) - ---------------------------------------------------------------------- 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) The following securities were held in escrow at February 28, 1998, to cover outstanding call options written:
PREMIUM SECURITIES AND MARKET VALUE ON MARKET VALUE NEUBERGER&BERMAN SHARES OPTIONS OF SECURITIES OPTIONS OF OPTIONS - ----------------------------------------------------------------------------------------------- FOCUS PORTFOLIO 100,000 Applied Materials $ 3,681,250 $96,997 $ 50,000 March 1998 @ 40 GUARDIAN PORTFOLIO 300,000 Applied Materials $ 11,043,750 $347,238 $ 150,000 March 1998 @ 40 100,000 Compaq Computer $ 3,206,250 $234,492 $ 112,500 April 1998 @ 35 200,000 Compaq Computer $ 6,412,500 $818,853 $1,050,000 April 1998 @ 55 200,000 Fannie Mae $ 12,762,500 $693,977 $ 800,000 March 1998 @ 60 100,000 Fannie Mae $ 6,381,250 $546,981 $ 525,000 April 1998 @ 60
4) At cost, which approximates market value. 5) At February 28, 1998, 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 $1,069,699,000 $ 704,548,000 $ 18,653,000 $ 685,895,000 GENESIS PORTFOLIO 2,040,734,000 369,078,000 55,206,000 313,872,000 GUARDIAN PORTFOLIO 5,868,350,000 2,981,275,000 167,004,000 2,814,271,000 MANHATTAN PORTFOLIO 540,738,000 153,708,000 17,831,000 135,877,000 PARTNERS PORTFOLIO 3,587,977,000 789,866,000 49,165,000 740,701,000
B-33 6) 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 February 28, 1998, these securities amounted to $2,948,000 or .1% of net assets for Neuberger&Berman Genesis Portfolio, $18,112,000 or .2% of net assets for Neuberger&Berman Guardian Portfolio, and $22,347,000 or .5% of net assets for Neuberger&Berman Partners Portfolio. SEE NOTES TO FINANCIAL STATEMENTS B-34 (This page has been left blank intentionally.) B-35 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 $1,662,141 $2,307,756 Non-controlled affiliated issuers 93,453 46,850 ------------------------ 1,755,594 2,354,606 Cash 10 4 Deferred organization costs (Note A) 4 1 Dividends and interest receivable 969 1,413 Prepaid expenses and other assets 24 13 Receivable for securities sold 29,134 448 ------------------------ 1,785,735 2,356,485 ------------------------ LIABILITIES Option contracts written, at market value (Note A) 50 -- Payable for collateral on securities loaned (Note A) -- 3,300 Payable for securities purchased 21,098 21,758 Payable to investment manager (Note B) 623 1,193 Accrued expenses 78 107 ------------------------ 21,849 26,358 ------------------------ NET ASSETS Applicable to Investors' Beneficial Interests $1,763,886 $2,330,127 ------------------------ NET ASSETS consist of: Paid-in capital $1,076,169 $2,016,255 Net unrealized appreciation in value of investment securities and option contracts 687,717 313,872 ------------------------ NET ASSETS $1,763,886 $2,330,127 ------------------------ *Cost of investments: Unaffiliated issuers $ 990,099 $1,997,751 Non-controlled affiliated issuers 77,824 42,983 ------------------------ Total cost of investments $1,067,923 $2,040,734 ------------------------
SEE NOTES TO FINANCIAL STATEMENTS B-36 February 28, 1998 (Unaudited) - ---------------------------------------------------------------------- Equity Managers Trust
GUARDIAN MANHATTAN PARTNERS PORTFOLIO PORTFOLIO PORTFOLIO ------------------------------------ ASSETS Investments in securities, at market value* (Notes A & E) -- see Schedule of Investments: Unaffiliated issuers $7,357,326 $676,615 $4,328,678 Non-controlled affiliated issuers 1,325,295 -- -- ------------------------------------ 8,682,621 676,615 4,328,678 Cash 8 14 9 Deferred organization costs (Note A) 11 4 7 Dividends and interest receivable 7,281 187 4,944 Prepaid expenses and other assets 138 10 54 Receivable for securities sold 161,519 10,559 80,070 ------------------------------------ 8,851,578 687,389 4,413,762 ------------------------------------ LIABILITIES Option contracts written, at market value (Note A) 2,638 -- -- Payable for collateral on securities loaned (Note A) 35,000 17,094 784 Payable for securities purchased 36,888 6,987 82,745 Payable to investment manager (Note B) 2,885 260 1,430 Accrued expenses 343 117 138 ------------------------------------ 77,754 24,458 85,097 ------------------------------------ NET ASSETS Applicable to Investors' Beneficial Interests $8,773,824 $662,931 $4,328,665 ------------------------------------ NET ASSETS consist of: Paid-in capital $5,959,324 $527,054 $3,586,673 Net unrealized appreciation in value of investment securities and option contracts 2,814,500 135,877 741,992 ------------------------------------ NET ASSETS $8,773,824 $662,931 $4,328,665 ------------------------------------ *Cost of investments: Unaffiliated issuers $4,901,488 $540,738 $3,586,686 Non-controlled affiliated issuers 966,637 -- -- ------------------------------------ Total cost of investments $5,868,125 $540,738 $3,586,686 ------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS B-37 STATEMENTS OF OPERATIONS - ---------------------------------------------------------------------- Equity Managers Trust
FOCUS GENESIS (000'S OMITTED) PORTFOLIO PORTFOLIO --------------------- INVESTMENT INCOME Income: Dividend income -- unaffiliated issuers $ 7,523 $ 9,369 Dividend income -- non-controlled affiliated issuers 288 -- Interest income 747 4,530 Foreign taxes withheld (Note A) -- -- --------------------- Total income 8,558 13,899 --------------------- Expenses: Investment management fee (Note B) 3,875 5,790 Accounting fees 5 5 Amortization of deferred organization and initial offering expenses (Note A) 4 1 Auditing fees 22 12 Custodian fees (Note B) 146 179 Insurance expense 11 7 Legal fees 11 46 Trustees' fees and expenses 10 11 Miscellaneous -- 19 --------------------- Total expenses 4,084 6,070 Fee waived by investment manager and/or expenses reduced by custodian fee expense offset arrangement (Note B) (1) (2) --------------------- Total net expenses 4,083 6,068 --------------------- Net investment income (loss) 4,475 7,831 --------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain on investment securities sold in unaffiliated issuers 32,299 24,505 Net realized gain (loss) on investment securities sold in non-controlled affiliated issuers 6,405 -- Net realized loss on option contracts (Note A) (3,764) -- Change in net unrealized appreciation of investment securities and option contracts 103,490 41,592 --------------------- Net gain on investments 138,430 66,097 --------------------- Net increase in net assets resulting from operations $142,905 $73,928 ---------------------
SEE NOTES TO FINANCIAL STATEMENTS B-38 For the Six Months Ended February 28, 1998 (Unaudited) - ---------------------------------------------------------------------- Equity Managers Trust
GUARDIAN MANHATTAN PARTNERS PORTFOLIO PORTFOLIO PORTFOLIO --------------------------------- INVESTMENT INCOME Income: Dividend income -- unaffiliated issuers $ 45,631 $ 909 $ 23,952 Dividend income -- non-controlled affiliated issuers 1,961 -- -- Interest income 16,550 877 4,422 Foreign taxes withheld (Note A) (341) (3) -- --------------------------------- Total income 63,801 1,783 28,374 --------------------------------- Expenses: Investment management fee (Note B) 18,716 1,655 8,593 Accounting fees 5 5 5 Amortization of deferred organization and initial offering expenses (Note A) 12 5 9 Auditing fees 26 25 23 Custodian fees (Note B) 639 85 304 Insurance expense 62 4 24 Legal fees 12 13 12 Trustees' fees and expenses 42 6 20 Miscellaneous -- 6 -- --------------------------------- Total expenses 19,514 1,804 8,990 Fee waived by investment manager and/or expenses reduced by custodian fee expense offset arrangement (Note B) -- -- -- --------------------------------- Total net expenses 19,514 1,804 8,990 --------------------------------- Net investment income (loss) 44,287 (21) 19,384 --------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain on investment securities sold in unaffiliated issuers 216,558 21,812 319,848 Net realized gain (loss) on investment securities sold in non-controlled affiliated issuers (1,853) -- -- Net realized loss on option contracts (Note A) (11,852) -- -- Change in net unrealized appreciation of investment securities and option contracts 219,142 42,595 40,439 --------------------------------- Net gain on investments 421,995 64,407 360,287 --------------------------------- Net increase in net assets resulting from operations $466,282 $64,386 $379,671 ---------------------------------
SEE NOTES TO FINANCIAL STATEMENTS B-39 STATEMENTS OF CHANGES IN NET ASSETS - ---------------------------------------------------------------------- Equity Managers Trust
FOCUS GENESIS PORTFOLIO PORTFOLIO Six Months Six Months Ended Ended February Year February Year 28, Ended 28, Ended 1998 August 31, 1998 August 31, (000'S OMITTED) (UNAUDITED) 1997 (UNAUDITED) 1997 ------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss) $ 4,475 $ 7,119 $ 7,831 $ 1,728 Net realized gain on investments 34,940 176,471 24,505 18,411 Change in net unrealized appreciation of investments 103,490 298,137 41,592 211,059 ------------------------------------------------------- Net increase in net assets resulting from operations 142,905 481,727 73,928 231,198 ------------------------------------------------------- TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS: Additions 136,750 156,839 1,238,836 609,195 Reductions (89,210) (187,496) (66,288) (16,606) ------------------------------------------------------- Net increase (decrease) in net assets resulting from transactions in investors' beneficial interests 47,540 (30,657) 1,172,548 592,589 ------------------------------------------------------- NET INCREASE IN NET ASSETS 190,445 451,070 1,246,476 823,787 NET ASSETS: Beginning of period 1,573,441 1,122,371 1,083,651 259,864 ------------------------------------------------------- End of period $1,763,886 $1,573,441 $2,330,127 $1,083,651 -------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS B-40 - ---------------------------------------------------------------------- Equity Managers Trust
GUARDIAN MANHATTAN PARTNERS PORTFOLIO PORTFOLIO PORTFOLIO Six Months Six Months Six Months Ended Ended Ended February Year February Year February Year 28, Ended 28, Ended 28, Ended 1998 August 31, 1998 August 31, 1998 August 31, (UNAUDITED) 1997 (UNAUDITED) 1997 (UNAUDITED) 1997 -------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss) $ 44,287 $ 66,858 $ (21) $ 1,154 $ 19,384 $ 28,316 Net realized gain on investments 202,853 871,150 21,812 180,525 319,848 531,668 Change in net unrealized appreciation of investments 219,142 1,570,338 42,595 10,646 40,439 473,597 -------------------------------------------------------------------------------- Net increase in net assets resulting from operations 466,282 2,508,346 64,386 192,325 379,671 1,033,581 -------------------------------------------------------------------------------- TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS: Additions 285,502 592,646 24,255 41,417 477,524 715,909 Reductions (736,167) (575,327) (47,453) (179,425) (104,103) (173,520) -------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from transactions in investors' beneficial interests (450,665) 17,319 (23,198) (138,008) 373,421 542,389 -------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS 15,617 2,525,665 41,188 54,317 753,092 1,575,970 NET ASSETS: Beginning of period 8,758,207 6,232,542 621,743 567,426 3,575,573 1,999,603 -------------------------------------------------------------------------------- End of period $8,773,824 $8,758,207 $662,931 $ 621,743 $4,328,665 $3,575,573 --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS B-41 NOTES TO FINANCIAL STATEMENTS February 28, 1998 (Unaudited) - ---------------------------------------------------------------------- Equity Managers Trust NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: 1) GENERAL: Neuberger&Berman Focus Portfolio ("Focus"), Neuberger&Berman Genesis Portfolio ("Genesis"), Neuberger&Berman Guardian Portfolio ("Guardian"), Neuberger&Berman Manhattan Portfolio ("Manhattan"), and Neuberger&Berman Partners Portfolio ("Partners") (collectively, the "Portfolios") are separate operating series of Equity Managers Trust ("Managers Trust"), a New York common law trust organized as of December 1, 1992. Managers Trust is registered as a diversified, open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"). Other regulated investment companies sponsored by Neuberger&Berman Management Incorporated ("N&B Management"), whose financial statements are not presented herein, also invest in Managers Trust. The assets of each series belong only to that series, and the liabilities of each series are borne solely by that series and no other. 2) PORTFOLIO VALUATION: Investment securities are valued as indicated in the notes following the Portfolios' Schedule of Investments. 3) FOREIGN CURRENCY TRANSLATION: The accounting records of the Portfolios are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange of such currency against the U.S. dollar to determine the value of investments, other assets and liabilities. Purchase and sale prices of securities, and income and expenses are translated into U.S. dollars at the prevailing rate of exchange on the respective dates of such transactions. 4) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are recorded on a trade date basis. Dividend income is recorded on the ex-dividend date or, for certain foreign dividends, as soon as the Portfolio becomes aware of the dividends. Non-cash dividends included in dividend income, if any, are recorded at the fair market value of the securities received. Interest income, including accretion of original issue discount, where applicable, and accretion of discount on short-term investments, is recorded on the accrual basis. Realized gains and losses from securities transactions and foreign currency transactions are recorded on the basis of identified cost. 5) FEDERAL INCOME TAXES: Managers Trust intends to comply with the requirements of the Internal Revenue Code. Each Portfolio of Managers Trust also intends to conduct its operations so that each of its investors will be able to qualify B-42 as a regulated investment company. Each Portfolio will be treated as a partnership for Federal income tax purposes and is therefore not subject to Federal income tax. 6) FOREIGN TAXES: Foreign taxes withheld represent amounts withheld by foreign tax authorities, net of refunds recoverable. 7) ORGANIZATION EXPENSES: 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 February 28, 1998, the unamortized balance of such expenses amounted to $3,668, $809, $10,741, $4,091, and $7,440, for Focus, Genesis, Guardian, Manhattan, and Partners, 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 six months ended February 28, 1998:
VALUE WHEN FOCUS NUMBER WRITTEN - ----------------------------------------------------------------------- CONTRACTS OUTSTANDING 8/31/97 1,250 $ 1,985,185 CONTRACTS WRITTEN 2,500 654,978 CONTRACTS EXPIRED 0 0 CONTRACTS EXERCISED (1,000) (371,987) CONTRACTS CLOSED (1,750) (2,171,179) ------------------------ CONTRACTS OUTSTANDING 2/28/98 1,000 $ 96,997 ------------------------
B-43
VALUE WHEN GUARDIAN NUMBER WRITTEN - ---------------------------------------------------------------------------- CONTRACTS OUTSTANDING 8/31/97 7,997 $ 5,491,034 CONTRACTS WRITTEN 13,000 3,460,513 CONTRACTS EXPIRED 0 0 CONTRACTS EXERCISED (8,030) (5,376,565) CONTRACTS CLOSED (3,967) (933,441) ----------------------------- CONTRACTS OUTSTANDING 2/28/98 9,000 $ 2,641,541 -----------------------------
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 Managers Trust's Board of Trustees, monitors the creditworthiness of the parties to whom the Portfolios make security loans. The Portfolios will not lend securities on which covered call options have been written, or lend securities on terms which would prevent each of their investors from qualifying as a regulated investment company. 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 six months ended February 28, 1998, Focus, Genesis, Guardian, Manhattan, and Partners lent securities to Neuberger. At February 28, 1998, the value of the securities loaned and the value of the collateral were as follows:
VALUE OF SECURITIES VALUE OF LOANED COLLATERAL - ------------------------------------------------------------------------- GENESIS $ 3,187,500 $ 3,300,000 GUARDIAN 33,937,500 35,000,000 MANHATTAN 16,613,094 17,094,400 PARTNERS 755,000 784,000
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-44 daily basis, the value of the securities transferred to ensure that their value, including accrued interest, is greater than amounts owed to a Portfolio under each such repurchase agreement. NOTE B -- MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES: Each Portfolio retains N&B Management as its investment manager under a Management Agreement. For such investment management services, each Portfolio (except Genesis) pays N&B Management a fee at the annual rate of 0.55% of the first $250 million of that Portfolio's average daily net assets, 0.525% of the next $250 million, 0.50% of the next $250 million, 0.475% of the next $250 million, 0.45% of the next $500 million, and 0.425% of average daily net assets in excess of $1.5 billion. Genesis has contracted to pay N&B Management a fee for investment management services at the annual rate of 0.85% of the first $250 million of that Portfolio's average daily net assets, 0.80% of the next $250 million, 0.75% of the next $250 million, 0.70% of the next $250 million, and 0.65% of average daily net assets in excess of $1 billion. Prior to December 15, 1997, N&B Management had voluntarily agreed to waive a portion of the management fee borne directly by Genesis and indirectly by Neuberger&Berman Genesis Assets to reduce the annual fee by 0.10% per annum of average daily net assets of Genesis. Effective December 15, 1997, the above waiver was terminated. All of the capital stock of N&B Management is owned by individuals who are also principals of Neuberger, a member firm of The New York Stock Exchange and sub-adviser to each Portfolio. Neuberger is retained by N&B Management to furnish it with investment recommendations and research information without added cost to each Portfolio. Several individuals who are officers and/or trustees of Managers Trust are also principals of Neuberger and/or officers and/or directors of N&B Management. Each Portfolio has an expense offset arrangement in connection with its custodian contract. The impact of this arrangement, reflected in the Statements of Operations under the caption Custodian fees, was a reduction of $474, $2,002, $378, $241, and $269, for Focus, Genesis, Guardian, Manhattan, and Partners, respectively. NOTE C -- SECURITIES TRANSACTIONS: During the six months ended February 28, 1998, there were purchase and sale transactions (excluding short-term securities and option contracts) as follows:
PURCHASES SALES - ------------------------------------------------------------------------------- FOCUS $ 447,275,784 $ 489,078,798 GENESIS 1,056,190,516 124,203,828 GUARDIAN 1,776,344,276 1,849,371,286 MANHATTAN 267,343,782 273,721,632 PARTNERS 2,192,592,514 1,791,409,499
B-45 During the six months ended February 28, 1998, there were brokerage commissions on securities paid to Neuberger and other brokers as follows:
OTHER NEUBERGER BROKERS TOTAL - --------------------------------------------------------------------------------------------- FOCUS $ 467,982 $ 467,990 $ 935,972 GENESIS 803,599 869,152 1,672,751 GUARDIAN 2,136,335 1,745,085 3,881,420 MANHATTAN 264,094 266,094 530,188 PARTNERS 2,544,056 1,693,940 4,237,996
In addition, Neuberger's share of the total interest income earned for the six months ended February 28, 1998, from the collateralization of securities loaned to or through Neuberger was $2,092, $93,415, $296,469, $95,451, and $32,622, for Focus, Genesis, Guardian, Manhattan, and Partners, respectively. NOTE D -- COMBINED LINE OF CREDIT: At February 28, 1998, 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 N&B 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 February 28, 1998. During the six months ended February 28, 1998, neither Genesis nor Manhattan utilized this line of credit. NOTE E -- INVESTMENTS IN NON-CONTROLLED AFFILIATES*: FOCUS
BALANCE OF GROSS GROSS BALANCE OF SHARES HELD PURCHASES SALES SHARES HELD VALUE AUGUST 31, AND AND FEBRUARY 28, FEBRUARY 28, NAME OF ISSUER: 1997 ADDITIONS REDUCTIONS 1998 1998 - -------------------------------------------------------------------------------------------------- ADVANTA Corp. Class A 1,691,500 0 727,345 964,155 $22,717,902 DT Industries 1,045,000 0 15,000 1,030,000 36,307,500 Sierra Health Services 934,500 5,500 0 940,000 34,427,500
B-46 GENESIS
BALANCE OF GROSS GROSS BALANCE OF SHARES HELD PURCHASES SALES SHARES HELD VALUE AUGUST 31, AND AND FEBRUARY 28, FEBRUARY 28, NAME OF ISSUER: 1997 ADDITIONS REDUCTIONS 1998 1998 - -------------------------------------------------------------------------------------------------- Aviall Inc. 947,000 247,100 0 1,194,100 $17,165,188 Borland International 1,378,700 657,600 0 2,036,300 18,963,044 ElderTrust 0 335,000 0 335,000 6,071,875 Pameco Corp. 119,900 161,900 0 281,800 4,649,700
GUARDIAN
BALANCE OF GROSS GROSS BALANCE OF SHARES HELD PURCHASES SALES SHARES HELD VALUE AUGUST 31, AND AND FEBRUARY 28, FEBRUARY 28, NAME OF ISSUER: 1997 ADDITIONS REDUCTIONS 1998 1998 - ------------------------------------------------------------------------------------------------------------- AGCO Corp. 4,737,400 622,800 0 5,360,200 $150,755,625 Capital One Financial 4,445,000 0 65,000 4,380,000 294,281,250 Coltec Industries 4,893,900 0 0 4,893,900 127,547,269 Countrywide Credit Industries 5,445,000 385,000 0 5,830,000 259,070,625 Foundation Health Systems 9,065,800 909,100 0 9,974,900 276,180,044 PacifiCare Health Systems Class B 1,327,790 138,000 0 1,465,790 91,611,875 UCAR International 3,404,400 575,000 325,000 3,654,400 125,848,400 Zeigler Coal Holding** 1,702,000 0 1,702,000 0 0
*AFFILIATED ISSUERS, AS DEFINED IN THE 1940 ACT, INCLUDE ISSUERS IN WHICH THE PORTFOLIO HELD 5% OR MORE OF THE OUTSTANDING VOTING SECURITIES. **AT FEBRUARY 28, 1998, THE ISSUERS OF THESE SECURITIES WERE NO LONGER AFFILIATED WITH THE PORTFOLIO. NOTE F -- UNAUDITED FINANCIAL INFORMATION: The financial information included in this interim report is taken from the records of each Portfolio without audit by independent accountants/auditors. Annual reports contain audited financial statements. B-47 FINANCIAL HIGHLIGHTS Neuberger&Berman - -------------------------------------------------------------------------------- Focus Portfolio
Six Months Ended February Period from 28, August 2, 1993(1) 1998 Year Ended August 31, to August 31, (UNAUDITED) 1997 1996 1995 1994 1993 --------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Gross Expenses(2) .51%(3) .53% .54% -- -- -- --------------------------------------------------------------------- Net Expenses .51%(3) .53% .54% .57% .58% .58%(3) --------------------------------------------------------------------- Net Investment Income .56%(3) .54% 1.04% 1.05% 1.16% 1.46%(3) --------------------------------------------------------------------- Portfolio Turnover Rate 29% 63% 39% 36% 52% 4% --------------------------------------------------------------------- Average Commission Rate Paid $0.0536 $0.0555 $0.0578 -- -- -- --------------------------------------------------------------------- Net Assets, End of Period (in millions) $1,763.9 $1,573.4 $1,122.4 $969.2 $645.0 $574.0 ---------------------------------------------------------------------
1) The date investment operations commenced. 2) For fiscal periods ending after September 1, 1995, the Portfolio is required to calculate an expense ratio without taking into consideration any expense reductions related to expense offset arrangements. 3) Annualized. B-48 FINANCIAL HIGHLIGHTS Neuberger&Berman - -------------------------------------------------------------------------------- Genesis Portfolio
Six Months Ended February Period from 28, August 2, 1993(1) 1998 Year Ended August 31, to August 31, (UNAUDITED) 1997 1996 1995 1994 1993 ------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS: Gross Expenses(2) .70%(3) .77% .85% -- -- -- ------------------------------------------------------------------------------------ Net Expenses .70%(3)(4) .77%(4) .85%(4) .94%(4) .98% 1.07%(3) ------------------------------------------------------------------------------------ Net Investment Income .91%(3)(4) .32%(4) .27%(4) .25%(4) .18% .37%(3) ------------------------------------------------------------------------------------ Portfolio Turnover Rate 8% 18% 21% 37% 63% 3% ------------------------------------------------------------------------------------ Average Commission Rate Paid $0.0550 $0.0565 $0.0576 -- -- -- ------------------------------------------------------------------------------------ Net Assets, End of Period (in millions) $2,330.1 $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 Portfolio is required to calculate an expense ratio without taking into consideration any expense reductions related to expense offset arrangements. These ratios include the management fee waiver. 3) Annualized. 4) Had N&B Management not waived a portion of the management fee, the annualized ratios of net expenses and net investment income to average net assets would have been:
Six Months Ended February 28, Year Ended 1998 August 31, (UNAUDITED) 1997 1996 1995 - --------------------------------------------------------------------------------- Net Expenses .75% .87% .95% .97% Net Investment Income .86% .22% .17% .22%
B-49 FINANCIAL HIGHLIGHTS Neuberger&Berman - -------------------------------------------------------------------------------- Guardian Portfolio
Six Months Ended February Period from 28, August 2, 1993(1) 1998 Year Ended August 31, to August 31, (UNAUDITED) 1997 1996 1995 1994 1993 --------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Gross Expenses(2) .46%(3) .46% .46% -- -- -- --------------------------------------------------------------------------- Net Expenses .46%(3) .46% .46% .48% .50% .51%(3) --------------------------------------------------------------------------- Net Investment Income 1.03%(3) .89% 1.72% 1.72% 1.66% 2.45%(3) --------------------------------------------------------------------------- Portfolio Turnover Rate 22% 50% 37% 26% 24% 3% --------------------------------------------------------------------------- Average Commission Rate Paid $0.0541 $0.0538 $0.0580 -- -- -- --------------------------------------------------------------------------- Net Assets, End of Period (in millions) $8,773.8 $8,758.2 $6,232.5 $4,613.2 $2,480.3 $1,777.6 ---------------------------------------------------------------------------
1) The date investment operations commenced. 2) For fiscal periods ending after September 1, 1995, the Portfolio is required to calculate an expense ratio without taking into consideration any expense reductions related to expense offset arrangements. 3) Annualized. B-50 FINANCIAL HIGHLIGHTS Neuberger&Berman - -------------------------------------------------------------------------------- Manhattan Portfolio
Six Months Ended February Period from 28, August 2, 1993(1) 1998 Year Ended August 31, to August 31, (UNAUDITED) 1997 1996 1995 1994 1993 ----------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Gross Expenses(2) .58%(3) .59% .58% -- -- -- ----------------------------------------------------------------------- Net Expenses .58%(3) .59% .58% .59% .59% .59%(3) ----------------------------------------------------------------------- Net Investment Income (Loss) (.01%)(3) .20% .13% .42% .53% .55%(3) ----------------------------------------------------------------------- Portfolio Turnover Rate 45% 89% 53% 44% 50% 3% ----------------------------------------------------------------------- Average Commission Rate Paid $0.0580 $0.0573 $0.0373 -- -- -- ----------------------------------------------------------------------- Net Assets, End of Period (in millions) $662.9 $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 Portfolio is required to calculate an expense ratio without taking into consideration any expense reductions related to expense offset arrangements. 3) Annualized. B-51 FINANCIAL HIGHLIGHTS Neuberger&Berman - -------------------------------------------------------------------------------- Partners Portfolio
Six Months Ended February Period from 28, August 2, 1993(1) 1998 Year Ended August 31, to August 31, (UNAUDITED) 1997 1996 1995 1994 1993 --------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Gross Expenses(2) .47%(3) .48% .51% -- -- -- --------------------------------------------------------------------------- Net Expenses .47%(3) .48% .51% .53% .54% .54%(3) --------------------------------------------------------------------------- Net Investment Income 1.02%(3) 1.05% 1.26% 1.13% .75% 1.19%(3) --------------------------------------------------------------------------- Portfolio Turnover Rate 49% 77% 96% 98% 75% 8% --------------------------------------------------------------------------- Average Commission Rate Paid $0.0548 $0.0522 $0.0494 -- -- -- --------------------------------------------------------------------------- Net Assets, End of Period (in millions) $4,328.7 $3,575.6 $1,999.6 $1,623.5 $1,340.3 $1,182.1 ---------------------------------------------------------------------------
1) The date investment operations commenced. 2) For fiscal periods ending after September 1, 1995, the Portfolio is required to calculate an expense ratio without taking into consideration any expense reductions related to expense offset arrangements. 3) Annualized. B-52 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 Neuberger&Berman Management Inc., Neuberger&Berman Focus Assets, Neuberger&Berman Genesis Assets, Neuberger&Berman Guardian Assets, Neuberger&Berman Manhattan Assets, and Neuberger&Berman Partners Assets are registered service marks of Neuberger&Berman Management Inc. - -C- 1998 Neuberger&Berman Management Inc. C-1 OFFICERS AND TRUSTEES Stanley Egener CHAIRMAN OF THE BOARD AND TRUSTEE Lawrence Zicklin PRESIDENT AND TRUSTEE Faith Colish TRUSTEE Howard A. Mileaf TRUSTEE Edward I. O'Brien TRUSTEE John T. Patterson, Jr. TRUSTEE John P. Rosenthal TRUSTEE Cornelius T. Ryan TRUSTEE Gustave H. Shubert TRUSTEE Daniel J. Sullivan VICE PRESIDENT Michael J. Weiner VICE PRESIDENT Richard Russell TREASURER Claudia A. Brandon SECRETARY Barbara DiGiorgio ASSISTANT TREASURER Celeste Wischerth ASSISTANT TREASURER Stacy Cooper-Shugrue ASSISTANT SECRETARY C. Carl Randolph ASSISTANT SECRETARY 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 WWW.NBFUNDS.COM Statistics and projections in this report are derived from sources deemed to be reliable but cannot be regarded as a representation of future results of the Funds. This report is prepared for the general information of shareholders and is not an offer of shares of the Funds. Shares are sold only through the currently effective prospectus, which must precede or accompany this report. [LOGO] PRINTED ON RECYCLED PAPER NBASAR000298 KIRKPATRICK & LOCKHART LLP 1800 MASSACHUSETTS AVENUE, N.W. 2ND FLOOR WASHINGTON, D.C. 10036-1800 TELEPHONE (202) 778-9000 FACSIMILE (202) 778-9100 May 4, 1998 VIA EDGAR - --------- Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Neuberger & Berman Equity Assets: Neuberger & Berman Focus Assets Neuberger & Berman Guardian Assets Neuberger & Berman Manhattan Assets Neuberger & Berman Partners Assets 1933 Act File No. 33-82568 1940 Act File No. 811-8106 ------------------------------------ Dear Sir or Madam: Transmitted herewith for filing is the Semi-Annual Report to Shareholders of the above-referenced series of Neuberger & Berman Equity Assets for the period ended February 28, 1998. This filing is being made pursuant to Section 30(b)(2) of the Investment Company Act of 1940, as amended, and Rule 30b2-1 thereunder. If you should have any questions regarding this filing, please contact the undersigned. Sincerely, /s/ Lori L. Schneider ------------------------ Lori L. Schneider Enclosures -----END PRIVACY-ENHANCED MESSAGE-----