-----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, BHiyJ+nlEgD3nSczKfZ47VjNMzSiVx1HpWhxvrATwGI1zbG66BE2I33sTg33LAA5 vS/TOEn1YaDOPhqBnvzmpw== 0000898432-98-000715.txt : 19981029 0000898432-98-000715.hdr.sgml : 19981029 ACCESSION NUMBER: 0000898432-98-000715 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980831 FILED AS OF DATE: 19981028 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: 98732080 BUSINESS ADDRESS: STREET 1: 605 THIRD AVENUE STREET 2: 2ND FLOOR CITY: NEW YORK STATE: NY ZIP: 10158-0006 BUSINESS PHONE: 2124768800 N-30D 1 ANNUAL REPORT ------------------------------------------------------ August 31, 1998 NEUBERGER&BERMAN EQUITY ASSETS-Registered Trademark- Neuberger&Berman FOCUS ASSETS Neuberger&Berman GENESIS ASSETS Neuberger&Berman GUARDIAN ASSETS Neuberger&Berman MANHATTAN ASSETS Neuberger&Berman PARTNERS ASSETS TABLE OF CONTENTS
THE FUNDS CHAIRMAN'S LETTER A-4 PORTFOLIO COMMENTARY Focus Assets A-6 Genesis Assets A-10 Guardian Assets A-13 Manhattan Assets A-16 Partners Assets A-19 GROWTH OF A DOLLAR CHARTS COMPARISON OF A $10,000 INVESTMENT Focus Assets B-1 Genesis Assets B-2 Guardian Assets B-3 Manhattan Assets B-4 Partners Assets B-6 FINANCIAL STATEMENTS B-8 FINANCIAL HIGHLIGHTS PER SHARE DATA Focus Assets B-18 Genesis Assets B-19 Guardian Assets B-20 Manhattan Assets B-21 Partners Assets B-22 REPORT OF INDEPENDENT ACCOUNTANTS/AUDITORS B-25 THE PORTFOLIOS SCHEDULE OF INVESTMENTS TOP TEN EQUITY HOLDINGS Focus Portfolio B-27 Genesis Portfolio B-29 Guardian Portfolio B-34 Manhattan Portfolio B-36 Partners Portfolio B-39 FINANCIAL STATEMENTS B-44 FINANCIAL HIGHLIGHTS B-57 REPORT OF INDEPENDENT ACCOUNTANTS/AUDITORS B-62 OTHER INFORMATION Directory/Officers and Trustees C-1
A-3 CHAIRMAN'S LETTER October 16, 1998 Dear Fellow Shareholder, From 1996 through the first half of 1998, we enjoyed a "best of all possible worlds" for equities -- low inflation, low interest rates and strong corporate profits. Not surprisingly, investors reacted to all this good news by bidding up stocks to historically high valuations. When Asian economic problems deepened in the first half of 1998, and earnings projections were revised downward, the broad stock market began to deteriorate. Small-cap and mid-cap stocks declined and, save for a relative handful of market darlings, large-cap stocks began to drift as well. When Russia imploded in late summer and our own political crisis escalated, equity investors rushed to the exits. Is the American economy truly imperiled? Inflation appears to be heading lower. The Federal Reserve just lowered short-term interest rates by 0.25 percentage point. The yield on the 30-year Treasury Bond hovers near its all time low. Yes, profits are being squeezed in certain sectors, but the American economy continues to be sound. Economically sensitive cyclical companies are now trading at historically low valuations and even some of the market's highest flyers have come down to earth. Is this the time to abandon equities? We think not. At Neuberger&Berman, we believe buying good companies at opportunistic prices is the best long-term investment strategy. The performance of the S&P "500" Index itself disguises the fact that 60% of all New York Stock Exchange listed stocks are down 30% or more from their 52-week highs and 80% of all NASDAQ traded issues are off by the same amount. Investors' "irrational exuberance" for a relative handful of companies and disdain for all others has made for difficult comparisons for value and price sensitive growth-stock investors. We believe this is a short-term phenomenon, which has set the stage going forward for much better relative performance for true value investors. The underperformance of our value-oriented strategies over the last year has not tempted us to abandon them. Our value funds will continue looking for the stocks of good companies at favorable prices. Our growth fund managers will continue to focus on companies with earnings growth and reasonable price-to-earnings ratios. We, the principals and employees of Neuberger&Berman, LLC, still have in excess of A-4 $125 million of our own savings, for our future and that of our children, invested along with you. In the following pages, our portfolio managers will present their carefully considered perspectives on the future. We trust you will gain some valuable insights on the currently volatile markets and a greater appreciation of our efforts on your behalf. Lastly, we have made some changes to the management of our funds that reflect our commitment to meeting the investment needs of our shareholders. As many of you know, Allan R. (Rick) White, former lead portfolio manager of the Salomon Brothers Investors Fund joined Neuberger&Berman on September 8th and is now co-managing the Guardian Portfolio with Kevin Risen. An experienced bottom-up value investor, Rick is helping us pick fundamentally undervalued stocks and putting in place some sophisticated portfolio risk management systems that we believe will help us deliver more consistent performance in the future. Kent Simons, who distinguished himself as the manager of the Guardian Portfolio since 1981, is now devoting all his time and energy to the Focus Portfolio, a more concentrated value portfolio, particularly well suited to his highly refined stock picking skills. We believe the addition of Rick White to Guardian and Kent's ability to concentrate exclusively on the Focus Portfolio will benefit shareholders. Sincerely, /s/ Stanley Egener Stanley Egener Chairman of the Board Neuberger&Berman Equity Assets A-5 PORTFOLIO COMMENTARY Neuberger&Berman - ---------------------------------------------------------------------- Focus Assets For the six- and twelve-month fiscal periods concluding August 31, 1998, Focus Assets declined -24.40% and -17.73%, respectively, versus the Standard & Poor's 500 Index's -8.12% decrease and 8.08% return over the same time periods (see page B-1 for comparison of a $10,000 investment and average annual total returns as of August 31, 1998).* The Focus Portfolio has consistently employed the value approach to investing. While this style has underperformed the growth and momentum styles over the past three years, I continue to believe it produces superior long-term results, and therefore continue to employ it. If anything, now more than ever. In addition to being a value portfolio, Focus is also a concentrated fund. For example, the Portfolio must have 90% of its assets in no more than six economic sectors, and the number of names in the portfolio is usually less than in most other Portfolios. It is important to understand that we do not select these sectors on a so-called top-down basis that relies on an overall view of the economy. The Portfolio is built on a stock-by-stock basis. We have found over the years that the conditions that lead to an individual company's stock being undervalued usually affect a number of companies in the same industry or sector. Thus, concentration in a relative few sectors is a natural outgrowth of our stock selection process. As of this writing, the Portfolio is invested in six sectors with financial services being the largest, accounting for some 48% of the portfolio. In 1997 and the first half of 1998 these stocks did quite well, but since July the results have been disappointing. Following the collapse of the Russian stock market and its currency, there was an immediate and pronounced preference by investors for safety and quality. The prime beneficiary of this "flight to quality" was U.S. Treasury Bonds, and as a result U.S. interest rates declined noticeably. This worked to the advantage of our domestic, interest-sensitive holdings like Countrywide Credit, Hartford Financial and Nationwide. Unfortunately, A-6 - ---------------------------------------------------------------------- Focus Assets (Cont'd) our holdings in commercial and investment banks -- BankBoston, CITICORP, Chase, Merrill Lynch, Morgan Stanley Dean Witter and Travelers -- had clients and/or holdings that were negatively affected, and this resulted in a lowering of earnings estimates. As a result, each of these stocks declined some 40% in a matter of 7-8 weeks. In light of this situation, let me offer some perspective and also review the thesis for owning these names. First, as to perspective, the cuts in 1999 earnings estimates for these companies have averaged about 10-12%, yet the price declines have been roughly 40%. To me, this has created a significant undervaluation and a real buying opportunity. Second, the thesis underlying these holdings remains intact; if anything, it has been reinforced by recent events. I believe that the financial services industry is on the brink of undergoing major secular changes that will provide significant opportunities to those companies large enough and skillful enough to capitalize on them. The opportunity rests on two foundations: One, in the United States, another baby boomer turns 50 every seven seconds. Two, as our population ages, it is discovering the need to plan for retirement. Few needs are taken as seriously as this, and in meeting it people are overwhelmingly going with names they know and trust. Those names are Merrill Lynch, Travelers, Morgan Stanley Dean Witter, CITICORP and Chase; brand names that have been built over decades and are now, in my opinion, invaluable. Concurrent with this development in the U.S. is the rising trend of capitalism and globalization in the rest of the world. Markets for businesses of all kinds are now global, and companies that serve them require financing and financial services capabilities that are also global. Moreover, in terms of privatizing retirement plans and the transference of businesses from family ownership to public ownership, the rest of the world is 20-30 years behind the U.S. This too creates a significant opportunity for American investment banks that can benefit from their experience in this country. What emerges from all this, in my opinion, is a secular trend creating great opportunities for companies A-7 - ---------------------------------------------------------------------- Focus Assets (Cont'd) with a recognized and trusted name, a global reach, a large capital base and the technological infrastructure to accommodate and exploit the opportunities. Not many companies can do this; among the very few who can are the ones we own. I think their competitive advantage, already large, has increased and their long-term outlook is as good, if not better, than ever. The second largest sector is technology, where the Asian currency problems have been the primary reason for sub-par stock performance. Focus Portfolio's largest holding, Compaq, has outperformed the Dow Jones Industrial Average (DJIA) this calendar year as has one of our semiconductor holdings, Texas Instruments. However, our investments in the semiconductor equipment stocks -- Applied Materials and KLA -- have not fared as well, due to the fact that this industry has been hit by order cancellations from the Far East. However, the growth in demand for semiconductors continues unabated and at some point this will necessitate the ordering of new equipment. During the current downturn both KLA and Applied are increasing their share of market thereby positioning themselves so that if an upturn comes they will likely prosper. Although we only own three names -- Foundation Health, Sierra Health Services and Wellpoint Health Networks -- health care is an important sector for us. While Wellpoint has outperformed the DJIA handily this calendar year, the other two have not. All three are managed-care companies and all three will benefit, we think, from the continued trend towards managed-care and a better pricing rate environment expected this year and next. Finally, let me close by offering some thoughts on the value style of investing. The last three years have not been a good environment for value investors as falling interest rates have led to higher price-to-earnings (P/E) ratios, an environment in which growth mutual funds have, by and large, outperformed those employing the value style. This has created an imbalance in the stock market that has, in turn, created an opportunity. For example, the P/E on the Focus Portfolio is now 18 A-8 - ---------------------------------------------------------------------- Focus Assets (Cont'd) times estimated 1998 earnings; earnings which are expected to increase in 1999. By contrast, the 30 largest companies in the S&P "500" -- a good proxy for high multiple stocks -- sell at over 31 times estimated earnings. Focus is paying less and expects to get more, a situation I am more than comfortable with. How comfortable? Since August 21st, I have more than doubled my holdings in Focus for my own account, bringing my total holdings to 184,000 shares. I have put my money where my mouth is. Believe me when I tell you, my interests are totally aligned with yours. Sincerely, /s/ Kent Simons Kent Simons PORTFOLIO CO-MANAGER *The S&P "500" Index is an unmanaged index generally considered to be representative of stock market activity. Please note that indices do not take into account any fees and expenses of investing in the individual securities that they track, and that individuals cannot invest directly in any index. Data about the performance of this index are prepared or obtained by Neuberger&Berman Management Inc.-Registered Trademark- and include reinvestment of all dividends and capital gain distributions. The Portfolio invests in many securities not included in the above-described index. The composition, industries and holdings of the Portfolio are subject to change. No single holding of Focus Portfolio makes up more than a small fraction of the Portfolio's total assets. While the value-oriented approach is intended to limit risks, the Portfolio -- with its concentration in sectors -- may be more greatly affected by any single economic, political or regulatory development than a more diversified mutual fund. Please remember that past performance is not indicative of future results. A-9 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- and twelve-month fiscal periods concluding August 31, 1998, Genesis Assets declined -23.18% and -18.99%, respectively, compared to the Russell 2000's decreases of -26.48% and -19.40% over the same time periods (see page B-2 for comparison of a $10,000 investment and average annual total returns as of August 31, 1998).* Late summer's steep declines in the widely followed Dow Jones Industrial Average and Standard & Poor's 500 Index have many investors worried that we may be entering a bear market. Small-cap stocks have already experienced one. At the end of this reporting period, the average small-cap stock is down close to 50% from its 52-week highs. That's the bad news. The good news is that small-cap stocks are now not only cheap relative to the large-cap stocks, but appear to be exceptional absolute bargains as well. In monitoring our portfolio, we see quality companies with excellent operating track records trading at historically low multiples to earnings, cash flow and book value. Are public investors ready to acknowledge the exceptional values in the small-cap market? We don't know. However, we are beginning to see corporate investors scooping up heavily discounted small-cap merchandise. Over the last 12 months, 18 companies in the Genesis Portfolio have been taken over. We believe increased merger and acquisition activity will provide a floor for the small-cap sector and perhaps set the stage for a strong recovery. During this particularly difficult period for small-cap stocks, very few portfolio sectors posted positive results. Our utilities, basic materials, and healthcare investments did finish fiscal 1998 in the black. Our forecast for cost-driven consolidation in the utilities industry appears on track and the group's traditional defensive characteristics served us well A-10 - ---------------------------------------------------------------------- Genesis Assets (Cont'd) during August's sharp market correction. Our basic materials investments were mixed, but strong gains from several of our larger positions produced respectable results. Some of our healthcare holdings, primarily small medical product companies, also posted modestly positive returns. This is another group we believe will continue to consolidate as product innovators get gobbled up by larger healthcare companies with more marketing muscle. Portfolio performance was penalized by our energy investments, primarily small oil services companies, which got hit hard as oil prices declined to a ten-year low in early 1998. Declining demand from Asia's weak economies will likely continue to restrain oil prices for the foreseeable future. Energy producers have initiated cutbacks to address the current supply/demand imbalance. With an estimated one-third of world production uneconomic at current prices, further cutbacks can be expected. However, readily available energy supply is at its lowest point in a decade, implying that future demand must be met with increased drilling activity. Today, many small oil services stocks are trading below book value and well below replacement cost. Barring a worldwide economic downturn, we believe all the bad news is fully reflected in the group's severely depressed prices and that a little bit of good news would attract a lot of favorable investment attention. Our technology holdings also disappointed. Although we were underweighted in the group, several of our holdings suffered unanticipated earnings shortfalls and were swiftly and severely punished. We also passed on the sizzling Internet stocks. The Internet may be the wave of the future and some of the companies currently riding its crest could be exceptional long-term investments. But, our value discipline does not allow us to pay high multiples to revenues for unseasoned companies that are not yet earning money. Periodically, our value discipline will penalize us on an "opportunity cost" basis. That is a price we are willing to pay to control portfolio risk. In each of our shareholder reports, we discuss a current portfolio holding that demonstrates our investment discipline. This is not a recommendation and we may change our opinion on any and all stocks in the Portfolio if fundamentally justified. This time, we chose to A-11 - ---------------------------------------------------------------------- Genesis Assets (Cont'd) highlight AptarGroup, a manufacturer of small pumps, valves and closures for the household product, high-end fragrance and pharmaceutical industries. Aptar has the financial characteristics we like -- a strong balance sheet, consistent 15-20% earnings growth, the ability to self-fund that growth from internally generated cash flow, and a quite reasonable price-to-earnings ratio. The excitement here is in the pharmaceutical area where Aptar's fine-mist pumps for the nasal delivery of drugs are finding new applications including migraine headache relief, and are believed to have potential in the treatment of diabetes and in immunizations for a variety of diseases. Aptar's products are patented and must go through the FDA approval process -- creating a high barrier of entry for future competition. In closing, we are pleased to have modestly outperformed our Russell 2000 Index benchmark in fiscal 1998, but disappointed by the poor performance of small-cap stocks in general. We don't know if the small-cap sector has bottomed. We do believe small-cap stocks are fundamentally cheap and are encouraged that corporate investors are beginning to go bargain hunting in the small-cap market. We believe this will eventually inspire public investors to recognize the outstanding values presented today. Sincerely, /s/ Judith Vale /s/ Robert D'Alelio Judith Vale and Robert D'Alelio PORTFOLIO CO-MANAGERS *The Russell 2000-Registered Trademark- Index is an unmanaged index consisting of the securities of the 2,000 issuers having the smallest capitalization in the Russell 3000-Registered Trademark- Index, representing approximately 11% of the Russell 3000 total market capitalization. The smallest company's market capitalization is roughly $222 million. The risks involved in seeking capital appreciation from investments primarily in companies with small market capitalization are set forth in the prospectus. Please note that indices do not take into account any fees and expenses of investing in the individual securities that they track, and that individuals cannot invest directly in any index. Data about the performance of this index are prepared or obtained by Neuberger&Berman Management Inc.-Registered Trademark- and include reinvestment of all dividends and capital gain distributions. The Portfolio invests in many securities not included in the above-described index. The composition, industries and holdings of the Portfolio are subject to change. Genesis Portfolio is invested in a wide array of stocks and no single holding makes up more than a small fraction of the Portfolio's total assets. A-12 PORTFOLIO COMMENTARY Neuberger&Berman - ---------------------------------------------------------------------- Guardian Assets CURRENT PORTFOLIO CO-MANAGERS KEVIN RISEN AND RICK WHITE FOCUS ON "FIRST-RATE" COMPANIES IN INDUSTRIES THAT ARE CURRENTLY OUT-OF-FAVOR. RECOGNIZING THAT "CHEAP" STOCKS ARE NOT NECESSARILY UNDERVALUED, THEY SEEK WELL-MANAGED, FINANCIALLY SOUND COMPANIES TRADING AT FUNDAMENTALLY ATTRACTIVE PRICES RELATIVE TO THEIR LONG-TERM EARNINGS GROWTH POTENTIAL. BY CONCENTRATING THE PORTFOLIO IN HIGH-QUALITY WALL STREET "ORPHANS," THE PORTFOLIO MANAGEMENT TEAM ATTEMPTS TO CONSISTENTLY TAKE ADVANTAGE OF OPPORTUNITIES CREATED BY INVESTORS' OVERREACTION TO REAL OR PERCEIVED PROBLEMS. For the six- and twelve-month fiscal periods concluding August 31, 1998, Guardian Assets declined -25.29% and -21.34%, respectively, versus the Standard & Poor's 500 Index's decrease of -8.12% and return of 8.08% over the same time periods (see page B-3 for comparison of a $10,000 investment and average annual total returns as of August 31, 1998).* A wise man once said that when things are going well, no explanation is required and when things are going poorly, none is acceptable. We trust our shareholders are more enlightened and will appreciate hearing our explanation for the Portfolio's poor showing in fiscal 1998 and the reasons we believe it will perform significantly better in the year ahead. We thought we had found value in already depressed cyclical stocks in the basic materials, capital goods, energy and technology sectors -- high quality companies like American Standard, Applied Materials and Hewlett Packard as well as stocks we have since sold such as Alcoa and Schlumberger. To be kind, these good values became even bigger bargains as Asian economic problems deepened, global demand withered, commodities prices collapsed and capital spending declined. We thought we had found value in beaten-down HMO's, like Aetna and Wellpoint, which we believed were getting costs in line and were poised for earnings recoveries. Although we think HMOs are on the right track, the investing public was not willing to wait for evidence of a turnaround. We felt there was value in leading financial stocks as well -- the bluest of blue chips like CITICORP, Chase Manhattan, Merrill Lynch, and Morgan Stanley Dean Witter. Despite strong performance in 1997 and first-half 1998, we maintained our positions in these companies, because they were still trading at well below market average price-to-earnings ratios. Our financial holdings fell sharply in late summer as A-13 - ---------------------------------------------------------------------- Guardian Assets (Cont'd) global economic turmoil and worldwide stock market declines panicked investors. Is this panic justified? We shall see. If currency turmoil spreads to Latin America, bank earnings may be vulnerable. But, we experienced a Latin American currency crisis as recently as 1994-95 -- a storm money center banks weathered without dire consequences. With CITICORP losing more than half its market value from its 52-week high and Chase Manhattan faring almost as badly, we think most of the bad news -- real and imaginary -- is already reflected in their stock prices. Leading brokerage/asset management company stocks like Merrill Lynch and Morgan Stanley Dean Witter suffered similar fates, and at the end of this reporting period were trading at what we think were "worst of all possible worlds" valuations. However, if global financial markets stabilize and the prices of these stocks remain the same, we believe these will prove to be bargain basement valuations. With a considerable amount of water already over the dam, where do we go from here? Thanks to the exceptional relative performance of a few widely and, in our opinion, wildly popular large-cap growth stocks, indexers and closet indexers (portfolio managers who largely mirror if not duplicate the S&P "500") materially outperformed almost everyone else in fiscal 1998. Is this likely to continue? It is hard to predict when investors will come to their collective senses. However, after the recent correction, we see numerous high-quality companies selling at historically cheap absolute valuations and a few admittedly good growth companies still trading at what we believe to be seriously inflated prices. Regardless of where the market heads from here, we believe the former will fare considerably better than the latter going forward. Let's detail a stock that demonstrates our value-oriented discipline. Countrywide Credit Industries is one of our largest holdings in the financial sector. Countrywide has two businesses -- originating mortgage loans, which it then sells to other lenders like Fannie Mae, and servicing mortgages (billing and collecting mortgage payments and then forwarding them to mortgage holders). This is the only pure play mortgage company in the S&P "500." It has posted 14 consecutive quarters of earnings growth and business keeps getting better. Yet, the stock is down over 40% from its 52-week high. The decline is probably the result of investors' concern that as mortgage rates continue to trend down, refinancings may take a toll on Countrywide's mortgage servicing book. If the mortgages go elsewhere, Countrywide's servicing fees A-14 - ---------------------------------------------------------------------- Guardian Assets (Cont'd) might decline. This didn't happen during the last major refinancing boom in 1993, when Countrywide emerged with a bigger share of the mortgage servicing market. We don't think it will happen this time around either. We are projecting 15% annual earnings growth over the next several years and Countrywide stock is trading at just around 11 times our 1999 earnings estimates. That is our kind of bargain. We reserve the right to change our investment opinion on Countrywide without notice should circumstances warrant. However, right now we are quite comfortable owning a substantial position. In closing, we cleaved to our discipline in fiscal 1998 -- buying the highest quality, yet out-of-favor companies. The negative impact of deteriorating Asian economies, the Russian collapse, potential Latin American currency turmoil, and falling stock markets had a strong negative impact on blue chip financial stocks. Had we abandoned our discipline and jumped on the big-cap growth stock bandwagon, we would have posted better returns, but strayed from our value principles. Tomorrow is a new day and we believe our portfolio is positioned to lead us through this period of economic and market uncertainty. If we may be so bold after this difficult year, we encourage our shareholders to consider maintaining or adding to their positions in Guardian. Sincerely, /s/ Kevin Risen /s/ Rick White Kevin Risen and Rick White PORTFOLIO CO-MANAGERS *The S&P "500" Index is an unmanaged index generally considered to be representative of stock market activity. Please note that indices do not take into account any fees and expenses of investing in the individual securities that they track, and that individuals cannot invest directly in any index. Data about the performance of this index are prepared or obtained by Neuberger&Berman Management Inc.-Registered Trademark- and include reinvestment of all dividends and capital gain distributions. The Portfolio invests in many securities not included in the above-described index. The composition, industries and holdings of the Portfolio are subject to change. Guardian Portfolio is invested in a wide array of stocks and no single holding makes up more than a small fraction of the Portfolio's total assets. A-15 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- and twelve-month fiscal periods concluding August 31, 1998, the Manhattan Assets-Registered Trademark- declined -19.52% and -11.29%, respectively, compared to the Russell Midcap Growth Index's -19.35% and -11.48% losses over the same time periods (see page B-4 for comparison of a $10,000 investment and average annual total returns as of August 31, 1998).* After three consecutive years of strong advances, stocks were due for a rest. The combination of Asian economic distress, Russia's imploding economy, and our own political soap opera gave investors sufficient reason to back away from the equities market. Much to our chagrin, mid-cap stocks were hit harder than the large-cap sector as is reflected in the poor relative performance of the Russell Midcap Growth Index versus the DJIA and S&P "500." This appears to defy fundamental logic. In the second calendar quarter 1998 (as we write, the last reported quarter for most companies), S&P "500" earnings growth stalled, whereas our portfolio holdings grew earnings by better than 40% on average. While more than a few of the large-cap market darlings reported or warned of earnings shortfalls, more than 90% of our portfolio companies had earnings that were in line or better than consensus estimates. Earnings for the large multi-nationals so prominent in the S&P "500" may continue to be vulnerable to both weak foreign consumer markets and difficult currency translations. When we go down our list, we see mid-cap companies primarily A-16 - ---------------------------------------------------------------------- Manhattan Assets (Cont'd) serving healthy domestic markets. We do not believe their earnings are likely to be impacted significantly by Asian or Russian economic weakness. In uncertain times it is not uncommon for investors to move away from smaller less mature companies, adopting a "show me" attitude on earnings growth potential. When they regain confidence in the economy and markets, they are generally more favorably disposed to smaller companies whose earnings come through as good or better than anticipated. We are quite confident investors will eventually gravitate to mid-cap growth companies that continue to post good earnings and which are now trading at even more attractive valuations relative to large-cap stocks. We have had several portfolio companies taken over this year and several more have initiated substantial share repurchase programs. This would indicate that sophisticated business buyers believe selected mid-cap stocks are terrific business bargains. Perhaps, the investing public will follow their lead. Over the last year, we were fortunate to have been underweighted in poor performing groups like basic materials and capital goods. We were significantly overweighted in the financial sector, focusing primarily on non-bank financial service companies with strong domestic franchises. AIG's acquisition of SunAmerica, which was one of our larger holdings in the financial sector before recently decreasing our position, and the strong performance of re-insurer Exel Limited boosted portfolio performance. Although we were modestly underweighted in energy, our portfolio positions declined substantially, as plummeting oil prices diminished earnings expectations. Our consumer cyclical investments were mixed. Excellent gains in Staples and TJX were offset by a big loss in General Nutrition, once our largest holding that has also seen a recent selling off. We were correct in forecasting strong demand for the types of products that General Nutrition sells. We did not anticipate the negative impact strong competition from Internet retailers would have on General Nutrition's earnings. Our technology holdings materially outperformed our benchmark index's tech sector -- the result of avoiding commodity-oriented technology companies like semiconductor manufacturers -- but still declined significantly for the year. A-17 - ---------------------------------------------------------------------- Manhattan Assets (Cont'd) At the close of this reporting period, the Portfolio demonstrated the financial and investment characteristics we favor. Based on consensus earnings estimates from First Call, (an independent research firm that compiles and distributes Wall Street earnings estimates), the Portfolio had a 3-5 year projected annual earnings growth rate of 25.8% compared to 20.3% for the Russell Midcap Growth Index. Its price-to-earnings (P/E) ratio (consensus calendar 1999 earnings estimates) was 20.6 compared to the Russell's 18.3. Its P/E divided by 3-5 year annual earnings growth estimates was 0.8 compared to the benchmark index's of 0.9. Of course, these figures are estimates and do not guarantee future return. Going forward, we believe the American economy will prove relatively resistant to Asian economic woes and that quality companies serving the domestic market can continue to grow earnings at a respectable pace. As always, we will devote our time and energy to identifying individual stocks we believe can sustain above average earnings and meet or exceed consensus earnings expectations. Sincerely, /s/ Jennifer Silver /s/ Brooke Cobb Jennifer Silver and Brooke Cobb PORTFOLIO CO-MANAGERS *The S&P "500" Index is an unmanaged index generally considered to be representative of stock market activity. The Russell Midcap-Trademark- Growth Index is an unmanaged index which measures the performance of those Russell Midcap Index companies with higher price-to-book ratios and higher forecasted growth values. The Russell Midcap-Trademark- Index measures the performance of the 800 smallest companies in the Russell 1000 Index, which represents approximately 35% of the total market capitalization of the Russell 1000 Index (which in turn, consists of the 1,000 largest U.S. companies, based on market capitalization). Please note that indices do not take into account any fees and expenses of investing in the individual securities that they track, and that individuals cannot invest directly in any index. Data about the performance of these indices are prepared or obtained by Neuberger&Berman Management Inc.-Registered Trademark- and include reinvestment of all dividends and capital gain distributions. The Portfolio invests in many securities not included in the above-described indices. The composition, industries and holdings of the Portfolio are subject to change. Manhattan Portfolio is invested in a wide array of stocks and no single holding makes up more than a small fraction of the Portfolio's total assets. A-18 PORTFOLIO COMMENTARY Neuberger&Berman - ---------------------------------------------------------------------- Partners Assets PORTFOLIO CO-MANAGERS MICHAEL KASSEN AND ROBERT GENDELMAN FOCUS ON OUT-OF-FAVOR LARGE-CAP STOCKS AND MID-SIZED COMPANIES LESS WIDELY FOLLOWED BY WALL STREET ANALYSTS. THEY ARE PARTICULARLY PARTIAL TO "FALLEN ANGELS" -- GROWTH STOCKS THAT HAVE EXPERIENCED TEMPORARY SETBACKS, BUT WHOSE LONGER TERM FUNDAMENTAL OUTLOOK REMAINS STRONG. THE PORTFOLIO MANAGEMENT TEAM VIEWS STOCKS AS PIECES OF BUSINESSES THEY WOULD LIKE TO OWN RATHER THAN PIECES OF PAPER TO TRADE BASED ON SHORT-TERM PRICE FLUCTUATIONS. THE GOAL IS TO FIND QUALITY COMPANIES TRADING AT A DISCOUNT TO THEIR INTRINSIC ECONOMIC VALUE. For the six- and twelve-month fiscal periods concluding August 31, 1998, Partners Assets declined -18.46% and -10.69%, respectively, versus the Standard & Poor's "500" Index's -8.12% decrease and 8.08% return over the same time periods (see page B-6 for comparison of a $10,000 investment and average annual total returns as of August 31, 1998).* We are bottom-up stock pickers focusing on quality companies trading at discount valuations. Consequently, we rarely talk about the impact of macro-economic events on our portfolio. However, this year, the speed and magnitude of the Asian economic collapse had a dramatic influence on portfolio performance and, therefore, some comments are in order. Quite simply, the Asian economic problems had a major ripple effect on economically sensitive companies in the capital goods, energy, and technology industries -- our worst performing sectors in fiscal 1998. We increased our exposure in these sectors in late 1997 after the initial currency crisis in Asia had already taken a rather heavy toll on these stocks. We were focusing on industry leaders like duPont, 3M and Texas Instruments as well as stocks that we have since sold such as Deere and Schlumberger -- the highest quality companies in these out-of-favor industries. We factored in the negative implications of weaker Asian currencies on the earnings prospects for these companies and concluded that the bad news was already fully reflected in depressed stock prices and historically low valuations. Unfortunately, the damage of the Asian economic crisis has been widespread. We did not anticipate that with Japan sinking into recession, things would get so bad in Asia that companies would be dumping product in the global market at any A-19 - ---------------------------------------------------------------------- Partners Assets (Cont'd) price simply to bring in dollars to service dollar-denominated debt. The end result was that quality companies we believed to be fundamentally cheap got a lot cheaper. Are these stocks at rock bottom? We can't be sure. However, barring a global economic catastrophe, we think the worst is nearly over. Assuming Asian economies and currencies gradually recover, we should see some light at the end of the tunnel. Based on current valuations relative to historical measures, the upside potential for quality cyclical stocks is tremendous and we believe they could be market leaders over the next three years. We also note that during the first eight months of 1998, high price- to-earnings (P/E) ratio stocks materially outperformed low P/E stocks. To wit, stocks trading at 30 times trailing earnings or more were up 28% on average, while stocks selling at 15 times trailing earnings or less were down 13% on average. This is somewhat of a historical aberration considering that over the last four decades, the lower P/E group outperformed the higher P/E group by an average 3.6% per year. So, momentum investing has won the last round, but value is still well ahead on the judges' long-term scorecards. There were some bright spots in the Portfolio in fiscal 1998. Selected "fallen angels" in the consumer sector performed quite well as they regained their earnings footing. Our communications services investments posted strong returns as they demonstrated competitive positions in the newly deregulated telecommunications industry. Our electric utility holdings also performed well. Our focus on states in which the deregulation process was clearly mapped out and generally favorable to utilities companies proved beneficial. We continue to like selected utilities stocks. Unicom, the holding company of Commonwealth Edison in Illinois, illustrates our perspective on this group. Unicom has the largest collection of nuclear generating assets in the U.S. It has not been operated particularly efficiently, but we believe new management can do a much better job and that Unicom can become a low-cost power generator. In our opinion, this makes it attractive relative to other electric utilities that are being forced to sell high-cost generating facilities and limit their business to electricity distribution in what are likely to become very competitive markets. Illinois deregulation statutes are straightforward and in our opinion, reasonably generous to utilities. The new laws call for a gradual rate A-20 - ---------------------------------------------------------------------- Partners Assets (Cont'd) reduction that is partially offset by a fee to help utilities recover stranded costs. This will give Unicom time to get its cost structure in order and eventually begin generating excess returns that can now be distributed to shareholders in the form of higher earnings and/or stock buybacks rather than returned to customers via rate reductions. Like all the individual stocks we discuss in these reports, we reserve the right to change our investment opinion on Unicom if it fails to live up to our expectations. This caveat duly recorded, we think Unicom has a bright future. In closing, fiscal 1998 has been a very tough year for value investors. Traditional repositories of value like commodity-oriented cyclicals have been among the market's worst performing groups. Higher multiple groups like the drug and leading branded consumer goods stocks -- out of reach for true value disciples -- have performed relatively well, even during August's sharp correction. We doubt the large-cap market darlings that have such a disproportionate impact on the capitalization-weighted S&P "500" can continue to sustain their performance lead over high quality companies now trading at severely depressed valuations. Sincerely, /s/ Robert Gendelman /s/ Michael Kassen Robert Gendelman and Michael Kassen PORTFOLIO CO-MANAGERS *The S&P "500" Index is an unmanaged index generally considered to be representative of stock market activity. Please note that indices do not take into account any fees and expenses of investing in the individual securities that they track, and that individuals cannot invest directly in any index. Data about the performance of this index are prepared or obtained by Neuberger&Berman Management Inc.-Registered Trademark- and include reinvestment of all dividends and capital gain distributions. The Portfolio invests in many securities not included in the above-described index. The composition, industries and holdings of the Portfolio are subject to change. Partners Portfolio is invested in a wide array of stocks and no single holding makes up more than a small fraction of the Portfolio's total assets. A-21 (This page has been left blank intentionally.) A-22 COMPARISON OF A $10,000 INVESTMENT Neuberger&Berman August 31, 1998 - ---------------------------------------------------------------------- Focus Assets EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Average Annual Total Return(1) Focus S&P "500"(2) 1 Year -17.73% +8.08% 5 Year +11.44% +18.26% 10 Year +13.97% +17.04% Focus Assets S&P "500" 1988 $10,000 $10,000 1989 $13,435 $13,922 1990 $12,935 $13,208 1991 $14,999 $16,773 1992 $16,770 $18,104 1993 $21,506 $20,855 1994 $23,733 $22,004 1995 $30,252 $26,718 1996 $31,371 $31,713 1997 $44,923 $44,628 1998 $36,960 $48,235
The performance information for Neuberger&Berman Focus Assets-Registered Trademark- is as of August 31, 1998. Neuberger&Berman Focus Assets started operating on September 4, 1996. It has identical investment objectives and policies, and invests in the same Portfolio as Neuberger&Berman Focus Fund-Registered Trademark-("Sister Fund"), which is also managed by Neuberger&Berman Management Inc.-Registered Trademark- The performance information shown in the above chart for the period before September 4, 1996, is for the Sister Fund. Neuberger&Berman Management Inc. voluntarily bears certain operating expenses of Focus Assets which, in the aggregate, exceed 1.50% per annum of Focus Assets' average daily net assets, until December 31, 1998. Absent such arrangement, the average annual total returns of Focus Assets would have been less. The total returns for the periods prior to Focus Assets' commencement of operations would have been lower had they reflected the higher expense ratios of Focus Assets as compared to those of its Sister Fund. Prior to November 1, 1991, the investment policies of the Sister Fund required that a substantial percentage of its assets be invested in the energy field; accordingly, performance results prior to that time do not necessarily reflect the level of performance that may be expected under the Assets' current investment policies. While the Assets' value-oriented approach is intended to limit risks, the Portfolio, with its concentration in sectors, may be more greatly affected by any single economic, political or regulatory development than a more diversified mutual fund. 1. "Total Return" includes reinvestment of all income dividends and capital gain distributions. Results represent past performance and do not indicate future results. The value of an investment in Focus Assets and the return on the investment both will fluctuate, and redemption proceeds may be higher or lower than an investor's original cost. 2. The S&P "500" Index is an unmanaged index generally considered to be representative of stock market activity. Please note that indices do not take into account any fees and expenses of investing in the individual securities that they track, and that individuals cannot invest directly in any index. Data about the performance of this index are prepared or obtained by Neuberger&Berman Management Inc. and include reinvestment of all dividends and capital gain distributions. The Portfolio invests in many securities not included in the above-described index. B-1 COMPARISON OF A $10,000 INVESTMENT Neuberger&Berman August 31, 1998 - ---------------------------------------------------------------------- Genesis Assets EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Average Annual Total Return(1) Genesis Russell 2000-R- Index(2) 1 Year -18.99% -19.40% 5 Year +12.22% +8.06% Life of Fund +12.49% +10.59% Genesis Assets Russell 2000 9/27/88 $10,000 $10,000 1989 $13,045 $12,317 1990 $10,236 $9,877 1991 $13,856 $12,963 1992 $14,562 $13,910 1993 $18,087 $18,435 1994 $18,949 $19,516 1995 $22,680 $23,581 1996 $27,516 $26,134 1997 $39,739 $33,701 1998 $32,193 $27,164
The performance information for Neuberger&Berman Genesis Assets-SM- is as of August 31, 1998. Neuberger&Berman Genesis Assets started operating on April 2, 1997. It has identical investment objectives and policies, and invests in the same Portfolio as Neuberger&Berman Genesis Fund-Registered Trademark- ("Sister Fund"), which is also managed by Neuberger&Berman Management Inc. ("Management"). The performance information shown in the above chart for the period before April 2, 1997, is for the Sister Fund. Management voluntarily bears certain operating expenses of Genesis Assets which, in the aggregate, exceed 1.50% per annum of Genesis Assets' average daily net assets, until December 31, 1998. Management previously agreed to waive a portion of the management fee borne directly by Neuberger&Berman Genesis Portfolio-SM- and indirectly by Genesis Assets. Absent such arrangements, the average annual total returns of Genesis Assets would have been less. The total returns for the periods prior to Genesis Assets' commencement of operations would have been lower had they reflected the higher expense ratios of Genesis Assets as compared to those of its Sister Fund. 1. "Total Return" includes reinvestment of all income dividends and capital gain distributions. Results represent past performance and do not indicate future results. The value of an investment in Genesis Assets and the return on the investment both will fluctuate, and redemption proceeds may be higher or lower than an investor's original cost. 2. The Russell 2000-Registered Trademark- Index is an unmanaged index generally considered to be representative of the 2,000 issuers having the smallest capitalization in the Russell 3000-Registered Trademark- Index, representing approximately 11% of the Russell 3000 total market capitalization. The smallest company's market capitalization is roughly $222 million. The risks involved in seeking capital appreciation from investments principally in companies with small market capitalization are set forth in the prospectus. Please note that indices do not take into account any fees and expenses of investing in the individual securities that they track, and that individuals cannot invest directly in any index. Data about the performance of this index are prepared or obtained by Management and include reinvestment of all dividends and capital gain distributions. The Portfolio invests in many securities not included in the above-described index. B-2 COMPARISON OF A $10,000 INVESTMENT Neuberger&Berman August 31, 1998 - ---------------------------------------------------------------------- Guardian Assets EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Average Annual Total Return(1) Guardian S&P "500"(2) 1 Year -21.34% +8.08% 5 Year +9.22% +18.26% 10 Year +12.91% +17.04% Guardian Assets S&P "500" 1988 $10,000 $10,000 1989 $13,390 $13,922 1990 $11,717 $13,208 1991 $15,289 $16,773 1992 $17,412 $18,104 1993 $21,667 $20,855 1994 $23,642 $22,004 1995 $29,331 $26,718 1996 $30,876 $31,713 1997 $42,821 $44,628 1998 $33,681 $48,235
The performance information for Neuberger&Berman Guardian Assets-SM- is as of August 31, 1998. Neuberger&Berman Guardian Assets started operating on September 4, 1996. It has identical investment objectives and policies, and invests in the same Portfolio as Neuberger&Berman Guardian Fund-SM- ("Sister Fund"), which is also managed by Neuberger&Berman Management Inc. The performance information shown in the above chart for the period before September 4, 1996, is for the Sister Fund. Neuberger&Berman Management Inc. voluntarily bears certain operating expenses of Guardian Assets which, in the aggregate, exceed 1.50% per annum of Guardian Assets' average daily net assets, until December 31, 1998. Absent such arrangement, the average annual total returns of Guardian Assets would have been less. The total returns for the periods prior to Guardian Assets' commencement of operations would have been lower had they reflected the higher expense ratios of Guardian Assets as compared to those of its Sister Fund. 1. "Total Return" includes reinvestment of all income dividends and capital gain distributions. Results represent past performance and do not indicate future results. The value of an investment in Guardian Assets and the return on the investment both will fluctuate, and redemption proceeds may be higher or lower than an investor's original cost. 2. The S&P "500" Index is an unmanaged index generally considered to be representative of stock market activity. Please note that indices do not take into account any fees and expenses of investing in the individual securities that they track, and that individuals cannot invest directly in any index. Data about the performance of this index are prepared or obtained by Neuberger&Berman Management Inc. and include reinvestment of all dividends and capital gain distributions. The Portfolio invests in many securities not included in the above-described index. B-3 COMPARISON OF A $10,000 INVESTMENT Neuberger&Berman August 31, 1998 - ---------------------------------------------------------------------- Manhattan Assets EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Average Annual Total Return(1) Russell Midcap-TM- Manhattan S&P "500"(2) Growth Index(2) 1 Year -11.29% +8.08% -11.48% 5 Year +9.17% +18.26% +11.30% 10 Year +12.55% +17.04% +14.25% Manhattan Assets S&P "500" Russell Midcap Growth 1988 $10,000 $10,000 $10,000 1989 $14,241 $13,922 $13,678 1990 $12,467 $13,208 $12,323 1991 $15,729 $16,773 $17,125 1992 $16,474 $18,104 $18,283 1993 $21,047 $20,855 $22,197 1994 $21,782 $22,004 $23,394 1995 $27,444 $26,718 $29,184 1996 $26,646 $31,713 $32,633 1997 $36,783 $44,628 $42,825 1998 $32,632 $48,235 $37,909
The performance information for Neuberger&Berman Manhattan Assets-Registered Trademark- is as of August 31, 1998. Neuberger&Berman Manhattan Assets started operating on September 4, 1996. It has identical investment objectives and policies, and invests in the same Portfolio as Neuberger&Berman Manhattan Fund- Registered Trademark- ("Sister Fund"), which is also managed by Neuberger& Berman Management Inc. The performance information shown in the above chart for the period before September 4, 1996, is for the Sister Fund. Neuberger&Berman Management Inc. voluntarily bears certain operating expenses of Manhattan Assets which, in the aggregate, exceed 1.50% per annum of Manhattan Assets' average daily net assets, until December 31, 1998. Absent such arrangement, the average annual total returns of Manhattan Assets would have been less. The total returns for the periods prior to Manhattan Assets' commencement of operations would have been lower had they reflected the higher expense ratios of Manhattan Assets as compared to those of its Sister Fund. 1. "Total Return" includes reinvestment of all income dividends and capital gain distributions. Results represent past performance and do not indicate future results. The value of an investment in Manhattan Assets and the return on the investment both will fluctuate, and redemption proceeds may be higher or lower than an investor's original cost. 2. Before July 1997, Neuberger&Berman Manhattan Portfolio-SM- (the "Portfolio") was managed using a "growth at a reasonable price" investment approach. Under this blended value and growth approach, the Portfolio Manager purchased securities of small-, medium-, and large-capitalization companies that he believed offered greater potential for long-term capital appreciation, in most cases at prices reflecting relatively higher multiples to measures of economic value (such as earnings or cash flow) compared to securities purchased by other Neuberger&Berman Portfolios. In July 1997, growth-style Managers Jennifer Silver and Brooke Cobb joined Neuberger&Berman Management Inc. and assumed responsibility for the Portfolio. Ms. Silver now heads Neuberger&Berman, B-4 LLC's Growth Equity Group in Boston. Since July 1997, the Portfolio has been managed using a growth-oriented investment approach. True to this approach, the Managers seek securities of companies that are growing earnings faster than the average American business, and ideally, faster than competitors in their respective industries. In return for this perceived higher earnings growth potential, the Managers are willing to pay a higher absolute multiple for these securities. They do so because they believe these stocks offer greater potential for long-term capital appreciation. Moreover, while the Portfolio can still invest in securities of small-, medium-, and large-cap companies, the Portfolio Managers currently intend to focus on the securities of medium-cap companies. The S&P "500" Index is an unmanaged index generally considered to be representative of overall stock market activity. The Russell Midcap-Trademark- Growth Index measures the performance of those Russell Midcap-Trademark- Index companies with higher price-to-book ratios and higher forecasted growth values. The Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000-Registered Trademark- Index, which represents approximately 35% of the total market capitalization of the Russell 1000 Index (which, in turn, consists of the 1,000 largest U.S. companies, based on market capitalization). Therefore, prior to July 1997, the Portfolio was appropriately compared to the S&P "500" Index as a benchmark. However, with its focus on medium-cap growth stocks, the current Portfolio is more appropriately compared to the Russell Midcap Growth Index as a benchmark. Please note that indices do not take into account any fees and expenses of investing in the individual securities that they track, and that individuals cannot invest directly in any index. Data about the performance of these indices are prepared or obtained by Neuberger&Berman Management Inc. and include reinvestment of all dividends and capital gain distributions. The Portfolio invests in many securities not included in the above-described indices. B-5 COMPARISON OF A $10,000 INVESTMENT Neuberger&Berman August 31, 1998 - ---------------------------------------------------------------------- Partners Assets EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Average Annual Total Return(1) Partners S&P "500"(2) 1 Year -10.69% +8.08% 5 Year +13.80% +18.26% 10 Year +14.41% +17.04% Partners Assets S&P "500" 1988 $10,000 $10,000 1989 $13,168 $13,922 1990 $12,271 $13,208 1991 $14,483 $16,773 1992 $15,714 $18,104 1993 $20,136 $20,855 1994 $21,255 $22,004 1995 $25,831 $26,718 1996 $29,416 $31,713 1997 $43,024 $44,628 1998 $38,426 $48,235
The performance information for Neuberger&Berman Partners Assets-Registered Trademark- is as of August 31, 1998. Neuberger&Berman Partners Assets started operating on August 19, 1996. It has identical investment objectives and policies, and invests in the same Portfolio as Neuberger&Berman Partners Fund- Registered Trademark- ("Sister Fund"), which is also managed by Neuberger& Berman Management Inc. The performance information shown in the above chart for the period before August 19, 1996, is for the Sister Fund. Neuberger&Berman Management Inc. voluntarily bears certain operating expenses of Partners Assets which, in the aggregate, exceed 1.50% per annum of Partners Assets' average daily net assets, until December 31, 1998. Absent such arrangement, the average annual total returns of Partners Assets would have been less. The total returns for the periods prior to Partners Assets' commencement of operations would have been lower had they reflected the higher expense ratios of Partners Assets as compared to those of its Sister Fund. 1. "Total Return" includes reinvestment of all income dividends and capital gain distributions. Results represent past performance and do not indicate future results. The value of an investment in Partners Assets and the return on the investment both will fluctuate, and redemption proceeds may be higher or lower than an investor's original cost. 2. The S&P "500" Index is an unmanaged index generally considered to be representative of stock market activity. Please note that indices do not take into account any fees and expenses of investing in the individual securities that they track, and that individuals cannot invest directly in any index. Data about the performance of this index are prepared or obtained by Neuberger&Berman Management Inc. and include reinvestment of all dividends and capital gain distributions. The Portfolio invests in many securities not included in the above-described index. B-6 (This page has been left blank intentionally.) B-7 STATEMENTS OF ASSETS AND LIABILITIES Neuberger&Berman - ---------------------------------------------------------------------- Equity Assets
FOCUS GENESIS ASSETS ASSETS ------------------------------- ASSETS Investment in corresponding Portfolio, at value (Note A) $ 486,195 $ 24,368,493 Deferred organization costs (Note A) 35,190 43,620 Receivable for Trust shares sold -- 107,287 Receivable from administrator -- net (Note B) 171,430 -- ------------------------------- 692,815 24,519,400 ------------------------------- LIABILITIES Payable for Fund expenses (Note B) 126,447 -- Payable for Trust shares redeemed 11,977 22,804 Payable to administrator -- net (Note B) -- 5,617 Accrued organization costs (Note A) 58,468 -- Accrued expenses 20,193 25,044 ------------------------------- 217,085 53,465 ------------------------------- NET ASSETS at value $ 475,730 $ 24,465,935 ------------------------------- NET ASSETS consist of: Par value $ 42 $ 2,293 Paid-in capital in excess of par value 582,229 30,729,433 Accumulated undistributed net investment income -- 47,908 Accumulated net realized gains (losses) on investment (12,725) (114,712) Net unrealized depreciation in value of investment (93,816) (6,198,987) ------------------------------- NET ASSETS at value $ 475,730 $ 24,465,935 ------------------------------- SHARES OUTSTANDING ($.001 par value; unlimited shares authorized) 42,048 2,292,802 ------------------------------- NET ASSET VALUE, offering and redemption price per share $11.31 $10.67 -------------------------------
SEE NOTES TO FINANCIAL STATEMENTS B-8 August 31, 1998 - ---------------------------------------------------------------------- Equity Assets
GUARDIAN MANHATTAN PARTNERS ASSETS ASSETS ASSETS ------------------------------------------------ ASSETS Investment in corresponding Portfolio, at value (Note A) $ 17,547,551 $ 223,611 $ 29,096,306 Deferred organization costs (Note A) 35,190 35,104 34,177 Receivable for Trust shares sold 2,914 -- 227,225 Receivable from administrator -- net (Note B) -- 175,151 -- ------------------------------------------------ 17,585,655 433,866 29,357,708 ------------------------------------------------ LIABILITIES Payable for Fund expenses (Note B) -- 130,529 -- Payable for Trust shares redeemed 217 18,239 36,089 Payable to administrator -- net (Note B) 17,198 -- 23,027 Accrued organization costs (Note A) -- 58,325 -- Accrued expenses 19,695 18,891 20,049 ------------------------------------------------ 37,110 225,984 79,165 ------------------------------------------------ NET ASSETS at value $ 17,548,545 $ 207,882 $ 29,278,543 ------------------------------------------------ NET ASSETS consist of: Par value $ 1,623 $ 19 $ 2,325 Paid-in capital in excess of par value 21,934,555 235,357 34,498,912 Accumulated undistributed net investment income -- -- 16,664 Accumulated net realized gains (losses) on investment (267,953) 1,195 (724,059) Net unrealized depreciation in value of investment (4,119,680) (28,689) (4,515,299) ------------------------------------------------ NET ASSETS at value $ 17,548,545 $ 207,882 $ 29,278,543 ------------------------------------------------ SHARES OUTSTANDING ($.001 par value; unlimited shares authorized) 1,623,363 19,329 2,324,656 ------------------------------------------------ NET ASSET VALUE, offering and redemption price per share $10.81 $10.76 $12.59 ------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS B-9 STATEMENTS OF OPERATIONS Neuberger&Berman - ---------------------------------------------------------------------- Equity Assets
FOCUS GENESIS ASSETS ASSETS --------------------------- INVESTMENT INCOME Investment income from corresponding Portfolio (Note A) $ 3,539 $ 170,275 --------------------------- Expenses: Administration fee (Note B) 1,245 32,446 Amortization of deferred organization and initial offering expenses (Note A) 11,687 12,148 Auditing fees 5,300 5,300 Custodian fees 10,000 10,000 Distribution fees (Note B) 471 20,147 Legal fees 2,980 3,354 Registration and filing fees 25,343 24,351 Shareholder reports 11,274 14,864 Shareholder servicing agent fees 16,595 11,663 Trustees' fees and expenses 3 74 Miscellaneous 691 522 Expenses from corresponding Portfolio (Notes A & B) 1,602 59,299 --------------------------- Total expenses 87,191 194,168 Expenses reimbursed by administrator and reduced by custodian fee expense offset arrangement (Note B) (82,521) (72,496) --------------------------- Total net expenses 4,670 121,672 --------------------------- Net investment income (loss) (1,131) 48,603 --------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS FROM CORRESPONDING PORTFOLIO (NOTE A) Net realized gain (loss) on investment securities (12,332) (133,272) Net realized gain (loss) on option contracts (564) -- Change in net unrealized appreciation (depreciation) of investment securities and option contracts (132,136) (6,253,262) --------------------------- Net loss on investments from corresponding Portfolio (Note A) (145,032) (6,386,534) --------------------------- Net decrease in net assets resulting from operations $ (146,163) $ (6,337,931) ---------------------------
SEE NOTES TO FINANCIAL STATEMENTS B-10 For the Year Ended August 31, 1998 - ---------------------------------------------------------------------- Equity Assets
GUARDIAN MANHATTAN PARTNERS ASSETS ASSETS ASSETS ------------------------------------------------ INVESTMENT INCOME Investment income from corresponding Portfolio (Note A) $ 227,862 $ 1,090 $ 325,543 ------------------------------------------------ Expenses: Administration fee (Note B) 67,676 838 80,343 Amortization of deferred organization and initial offering expenses (Note A) 11,688 11,658 11,518 Auditing fees 5,300 5,600 5,300 Custodian fees 10,000 10,002 10,000 Distribution fees (Note B) 42,298 213 50,214 Legal fees 2,577 4,172 3,057 Registration and filing fees 33,243 25,048 28,699 Shareholder reports 7,683 13,258 11,874 Shareholder servicing agent fees 17,408 16,428 16,063 Trustees' fees and expenses 120 3 6 Miscellaneous 699 691 686 Expenses from corresponding Portfolio (Notes A & B) 77,370 1,204 95,036 ------------------------------------------------ Total expenses 276,062 89,115 312,796 Expenses reimbursed by administrator and reduced by custodian fee expense offset arrangement (Note B) (21,586) (85,972) (10,829) ------------------------------------------------ Total net expenses 254,476 3,143 301,967 ------------------------------------------------ Net investment income (loss) (26,614) (2,053) 23,576 ------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS FROM CORRESPONDING PORTFOLIO (NOTE A) Net realized gain (loss) on investment securities (355,682) 1,509 (705,466) Net realized gain (loss) on option contracts 33,811 -- -- Change in net unrealized appreciation (depreciation) of investment securities and option contracts (4,845,187) (45,409) (4,835,972) ------------------------------------------------ Net loss on investments from corresponding Portfolio (Note A) (5,167,058) (43,900) (5,541,438) ------------------------------------------------ Net decrease in net assets resulting from operations $ (5,193,672) $ (45,953) $ (5,517,862) ------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS B-11 STATEMENTS OF CHANGES IN NET ASSETS Neuberger&Berman - ---------------------------------------------------------------------- Equity Assets
FOCUS ASSETS Period from GENESIS ASSETS September 4, Period from 1996 April 2, 1997 (Commencement (Commencement of of Year Operations) Year Operations) Ended to Ended to August 31, August 31, August 31, August 31, 1998 1997 1998 1997 ------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss) $ (1,131) $ (518) $ 48,603 $ (337) Net realized gain (loss) on investments from corresponding Portfolio (Note A) (12,896) 5,564 (133,272) 2,268 Change in net unrealized appreciation (depreciation) of investments from corresponding Portfolio (Note A) (132,136) 38,320 (6,253,262) 54,275 ------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (146,163) 43,366 (6,337,931) 56,206 ------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income -- -- -- -- Net realized gain on investments (5,827) -- (2,617) -- ------------------------------------------------------------- Total distributions to shareholders (5,827) -- (2,617) -- ------------------------------------------------------------- FROM TRUST SHARE TRANSACTIONS: Proceeds from shares sold 550,896 100,010 33,602,259 673,996 Proceeds from reinvestment of dividends and distributions 5,827 -- 2,617 -- Payments for shares redeemed (72,379) -- (3,528,565) (30) ------------------------------------------------------------- Net increase from Trust share transactions 484,344 100,010 30,076,311 673,966 ------------------------------------------------------------- NET INCREASE IN NET ASSETS 332,354 143,376 23,735,763 730,172 NET ASSETS: Beginning of year 143,376 -- 730,172 -- ------------------------------------------------------------- End of year $ 475,730 $ 143,376 $ 24,465,935 $ 730,172 ------------------------------------------------------------- Accumulated undistributed net investment income at end of year $ -- $ -- $ 47,908 $ -- ------------------------------------------------------------- NUMBER OF TRUST SHARES: Sold 36,548 10,001 2,502,346 55,276 Issued on reinvestment of dividends and distributions 434 -- 192 -- Redeemed (4,935) -- (265,010) (2) ------------------------------------------------------------- Net increase in shares outstanding 32,047 10,001 2,237,528 55,274 -------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS B-12 - ---------------------------------------------------------------------- Equity Assets
GUARDIAN ASSETS MANHATTAN ASSETS Period from Period from September September 4, 1996 4, 1996 (Commencement (Commencement PARTNERS ASSETS of of Year Operations) Year Operations) Year Ended to Ended to Ended August 31, August 31, August 31, August 31, August 31, 1998 1997 1998 1997 1998 1997 --------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss) $ (26,614) $ (2,926) $ (2,053) $ (825) $ 23,576 $ 1,072 Net realized gain (loss) on investments from corresponding Portfolio (Note A) (321,871) 116,398 1,509 22,981 (705,466) 131,273 Change in net unrealized appreciation (depreciation) of investments from corresponding Portfolio (Note A) (4,845,187) 725,507 (45,409) 16,720 (4,835,972) 321,444 --------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (5,193,672) 838,979 (45,953) 38,876 (5,517,862) 453,789 --------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income -- (296) -- -- (7,807) (147) Net realized gain on investments (133,550) -- (22,498) (1,100) (249,831) (735) --------------------------------------------------------------------------------- Total distributions to shareholders (133,550) (296) (22,498) (1,100) (257,638) (882) --------------------------------------------------------------------------------- FROM TRUST SHARE TRANSACTIONS: Proceeds from shares sold 14,285,243 9,409,019 143,110 100,010 31,553,872 5,428,435 Proceeds from reinvestment of dividends and distributions 133,550 296 22,498 1,100 257,638 881 Payments for shares redeemed (850,481) (940,543) (28,161) -- (2,576,682) (166,509) --------------------------------------------------------------------------------- Net increase from Trust share transactions 13,568,312 8,468,772 137,447 101,110 29,234,828 5,262,807 --------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS 8,241,090 9,307,455 68,996 138,886 23,459,328 5,715,714 NET ASSETS: Beginning of year 9,307,455 -- 138,886 -- 5,819,215 103,501 --------------------------------------------------------------------------------- End of year $17,548,545 $9,307,455 $ 207,882 $ 138,886 $29,278,543 $ 5,819,215 --------------------------------------------------------------------------------- Accumulated undistributed net investment income at end of year $ -- $ -- $ -- $ -- $ 16,664 $ 928 --------------------------------------------------------------------------------- NUMBER OF TRUST SHARES: Sold 1,003,724 746,797 9,764 10,001 2,071,720 406,827 Issued on reinvestment of dividends and distributions 10,202 26 1,812 99 17,917 76 Redeemed (61,267) (76,119) (2,347) -- (168,502) (13,828) --------------------------------------------------------------------------------- Net increase in shares outstanding 952,659 670,704 9,229 10,100 1,921,135 393,075 ---------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS B-13 NOTES TO FINANCIAL STATEMENTS Neuberger&Berman August 31, 1998 - ---------------------------------------------------------------------- Equity Assets NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: 1) GENERAL: Neuberger&Berman Focus Assets ("Focus"), Neuberger&Berman Genesis Assets ("Genesis"), Neuberger&Berman Guardian Assets ("Guardian"), Neuberger&Berman Manhattan Assets ("Manhattan"), and Neuberger&Berman Partners Assets ("Partners") (collectively, the "Funds") are separate operating series of Neuberger&Berman Equity Assets (the "Trust"), a Delaware business trust organized pursuant to a Trust Instrument dated October 18, 1993. The Trust had no operations until April 2, 1997, for Genesis; September 4, 1996, for Focus, Guardian, and Manhattan; and August 19, 1996, for Partners, other than matters relating to its organization and registration as a diversified, open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"), and registration of its shares under the Securities Act of 1933, as amended. The trustees of the Trust may establish additional series or classes of shares without the approval of shareholders. The assets of each series belong only to that series, and the liabilities of each series are borne solely by that series and no other. Each Fund seeks to achieve its investment objective by investing all of its net investable assets in its corresponding portfolio of Equity Managers Trust (each a "Portfolio") having the same investment objective and policies as the Fund. The value of each Fund's investment in its corresponding Portfolio reflects that Fund's proportionate interest in the net assets of that Portfolio (0.04%, 1.34%, 0.30%, 0.04%, and 0.81%, for Focus, Genesis, Guardian, Manhattan, and Partners, respectively, at August 31, 1998). The performance of each Fund is directly affected by the performance of its corresponding Portfolio. The financial statements of each Portfolio, including the Schedule of Investments, are included elsewhere in this report and should be read in conjunction with the corresponding Fund's financial statements. 2) PORTFOLIO VALUATION: Each Fund records its investment in its corresponding Portfolio at value. Investment securities held by each Portfolio are valued as indicated in the notes following the Portfolios' Schedule of Investments. 3) FEDERAL INCOME TAXES: The Funds are treated as separate entities for Federal income tax purposes. It is the policy of each Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined in applicable sections of the Internal Revenue Code, and to make distributions of investment company taxable income and net capital gains (after reduction for any amounts available for Federal income B-14 tax purposes as capital loss carryforwards) sufficient to relieve it from all, or substantially all, Federal income taxes. Accordingly, each Fund paid no Federal income taxes and no provision for Federal income taxes was required. 4) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Each Fund earns income, net of Portfolio expenses, daily on its investment in its corresponding Portfolio. Income dividends and distributions from net realized capital gains, if any, are normally distributed in December. Guardian generally distributes substantially all of its net investment income, if any, at the end of each calendar quarter. Income dividends and capital gain distributions to shareholders are recorded on the ex-dividend date. To the extent each Fund's net realized capital gains, if any, can be offset by capital loss carryforwards ($19,527 expiring in 2006 for Guardian, determined as of August 31, 1998), it is the policy of each Fund not to distribute such gains. Each Fund distinguishes between dividends on a tax basis and a financial reporting basis and only distributions in excess of tax basis earnings and profits are reported in the financial statements as a return of capital. Differences in the recognition or classification of income between the financial statements and tax earnings and profits which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. For the year ended August 31, 1998, Focus and Partners hereby designate an additional $69 and $710, respectively, as capital gain distributions for purposes of the dividend paid deduction. 5) ORGANIZATION EXPENSES: Expenses incurred by each Fund in connection with its organization are being amortized by each Fund on a straight-line basis over a five-year period. At August 31, 1998, the unamortized balance of such expenses amounted to $35,190, $43,620, $35,190, $35,104, and $34,177, for Focus, Genesis, Guardian, Manhattan, and Partners, respectively. The accrued organization costs for Focus and Manhattan are payable to Neuberger&Berman Management Incorporated ("N&B Management"), the administrator of each Fund. 6) EXPENSE ALLOCATION: Each Fund bears all costs of its operations. Expenses incurred by the Trust with respect to any two or more funds are allocated in proportion to the net assets of such funds, except where a more appropriate allocation of expenses to each fund can otherwise be made fairly. Expenses directly attributable to a fund are charged to that fund. 7) OTHER: All net investment income and realized and unrealized capital gains and losses of each Portfolio are allocated pro rata among its respective Funds and any other investors in the Portfolio. NOTE B -- ADMINISTRATION FEES, DISTRIBUTION ARRANGEMENTS, AND OTHER TRANSACTIONS WITH AFFILIATES: Each Fund retains N&B Management as its administrator under an Administration Agreement ("Agreement") dated as of February 13, 1996, as amended on B-15 August 2, 1996. Pursuant to this Agreement each Fund pays N&B Management an administration fee at the annual rate of 0.40% of that Fund's average daily net assets. Each Fund indirectly pays for investment management services through its investment in its corresponding Portfolio (see Note B of Notes to Financial Statements of the Portfolios). N&B Management acts as agent in arranging for the sale of Fund shares without commission and bears advertising and promotion expenses. The trustees of the Trust have adopted a plan pursuant to Rule 12b-1 under the 1940 Act (the "Plan"). The Plan provides that, as compensation for administrative and other services provided to the Funds, N&B Management's activities and expenses related to the sale and distribution of Fund shares, and ongoing services provided to investors in the Funds, N&B Management receives from each Fund a fee at the annual rate of 0.25% of that Fund's average daily net assets. N&B Management pays this amount to institutions that distribute Fund shares and provide services to the Funds and their shareholders. Those institutions may use the payments for, among other purposes, compensating employees engaged in sales and/or shareholder servicing. The amount of fees paid by each Fund during any year may be more or less than the cost of distribution and other services provided to that Fund. NASD rules limit the amount of annual distribution fees that may be paid by a mutual fund and impose a ceiling on the cumulative distribution fees paid. The Trust's Plan complies with those rules. N&B Management has voluntarily undertaken until December 31, 1998, to reimburse each Fund for its operating expenses plus its pro rata portion of its corresponding Portfolio's operating expenses (including the fees payable to N&B Management but excluding interest, taxes, brokerage commissions, and extraordinary expenses) which exceed, in the aggregate, 1.50% per annum of the Fund's average daily net assets. For the year ended August 31, 1998, such excess expenses amounted to $82,521, $72,484, $21,582, $85,971, and $10,825, for Focus, Genesis, Guardian, Manhattan, and Partners, respectively. Since inception of Focus and Manhattan, N&B Management has voluntarily undertaken to pay certain expenses of each Fund as an advance. These expenses will be repaid by the Funds to N&B Management in the future, and are included under the caption Payable for Fund expenses in the Statements of Assets and Liabilities. All of the capital stock of N&B Management is owned by individuals who are also principals of Neuberger&Berman, LLC ("Neuberger"), a member firm of The New York Stock Exchange and sub-adviser to each Portfolio. Several individuals who are officers and/or trustees of the Trust are also principals of Neuberger and/or officers and/or directors of N&B Management. Each Fund also has a distribution agreement with N&B Management. N&B Management receives no commissions for sales or redemptions of shares of beneficial interest of each Fund, but receives fees under the Plan, as described above. B-16 Each Portfolio has an expense offset arrangement in connection with its custodian contract. In addition, in connection with the Securities Lending Agreement between each Portfolio and Morgan Stanley & Co. Incorporated ("Morgan"), Morgan has agreed to reimburse each Portfolio for transaction costs incurred on security lending transactions charged by the custodian. The impact of these arrangements, respectively, reflected in the Statements of Operations under the caption Expenses from corresponding Portfolio, was a reduction of $0.13 and $0.08, $9.19 and $2.96, $1.45 and $2.33, $0.56 and $0.20, $2.20 and $1.36, for Focus, Genesis, Guardian, Manhattan, and Partners, respectively. NOTE C -- INVESTMENT TRANSACTIONS: During the year ended August 31, 1998, additions and reductions in each Fund's investment in its corresponding Portfolio were as follows:
ADDITIONS REDUCTIONS - ----------------------------------------------------------------------------- FOCUS $ 597,996 $ 112,836 GENESIS 31,646,272 1,733,099 GUARDIAN 14,010,135 742,559 MANHATTAN 148,557 20,479 PARTNERS 29,990,378 1,376,232
B-17 FINANCIAL HIGHLIGHTS Neuberger&Berman - -------------------------------------------------------------------------------- Focus Assets The following table includes selected data for a share outstanding throughout each year and other performance information derived from the Financial Statements. The per share amounts and ratios which are shown reflect income and expenses, including the Fund's proportionate share of its corresponding Portfolio's income and expenses. It should be read in conjunction with its corresponding Portfolio's Financial Statements and notes thereto.
Period from September 4, Year 1996(1) Ended to August August 31, 31, 1998 1997 ------------------- Net Asset Value, Beginning of Year $14.34 $10.00 ------------------- Income From Investment Operations Net Investment Loss (.03) (.05) Net Gains or Losses on Securities (both realized and unrealized) (2.42) 4.39 ------------------- Total From Investment Operations (2.45) 4.34 ------------------- Less Distributions Distributions (from net capital gains) (.58) -- ------------------- Net Asset Value, End of Year $11.31 $14.34 ------------------- Total Return(2) -17.73% +43.40%(3) ------------------- Ratios/Supplemental Data Net Assets, End of Year (in thousands) $475.7 $143.4 ------------------- Ratio of Gross Expenses to Average Net Assets(4) 1.50% 1.50%(5) ------------------- Ratio of Net Expenses to Average Net Assets(6) 1.50% 1.50%(5) ------------------- Ratio of Net Investment Loss to Average Net Assets (.36%) (.43%)(5) -------------------
SEE NOTES TO FINANCIAL HIGHLIGHTS B-18 FINANCIAL HIGHLIGHTS Neuberger&Berman - -------------------------------------------------------------------------------- Genesis Assets The following table includes selected data for a share outstanding throughout each year and other performance information derived from the Financial Statements. The per share amounts and ratios which are shown reflect income and expenses, including the Fund's proportionate share of its corresponding Portfolio's income and expenses. It should be read in conjunction with its corresponding Portfolio's Financial Statements and notes thereto.
Period from April 2, 1997(1) to Year Ended August August 31, 31, 1998 1997 ---------------------- Net Asset Value, Beginning of Year $ 13.21 $10.00 ---------------------- Income From Investment Operations Net Investment Income (Loss) .02 (.01) Net Gains or Losses on Securities (both realized and unrealized) (2.52) 3.22 ---------------------- Total From Investment Operations (2.50) 3.21 ---------------------- Less Distributions Distributions (from net capital gains) (.04) -- ---------------------- Net Asset Value, End of Year $ 10.67 $13.21 ---------------------- Total Return(2) -18.99% +32.10%(3) ---------------------- Ratios/Supplemental Data Net Assets, End of Year (in thousands) $ 24,465.9 $730.2 ---------------------- Ratio of Gross Expenses to Average Net Assets(4) 1.50% 1.50%(5) ---------------------- Ratio of Net Expenses to Average Net Assets(6) 1.50% 1.50%(5) ---------------------- Ratio of Net Investment Income (Loss) to Average Net Assets .60% (.36%)(5) ----------------------
SEE NOTES TO FINANCIAL HIGHLIGHTS B-19 FINANCIAL HIGHLIGHTS Neuberger&Berman - -------------------------------------------------------------------------------- Guardian Assets The following table includes selected data for a share outstanding throughout each year and other performance information derived from the Financial Statements. The per share amounts and ratios which are shown reflect income and expenses, including the Fund's proportionate share of its corresponding Portfolio's income and expenses. It should be read in conjunction with its corresponding Portfolio's Financial Statements and notes thereto.
Period from September 4, 1996(1) to Year Ended August August 31, 31, 1998 1997 ------------------------ Net Asset Value, Beginning of Year $ 13.88 $ 10.00 ------------------------ Income From Investment Operations Net Investment Income (Loss) (.02) .01 Net Gains or Losses on Securities (both realized and unrealized) (2.92) 3.88 ------------------------ Total From Investment Operations (2.94) 3.89 ------------------------ Less Distributions Dividends (from net investment income) -- (.01) Distributions (from net capital gains) (.13) -- ------------------------ Total Distributions (.13) (.01) ------------------------ Net Asset Value, End of Year $ 10.81 $ 13.88 ------------------------ Total Return(2) -21.34% +38.92%(3) ------------------------ Ratios/Supplemental Data Net Assets, End of Year (in thousands) $ 17,548.5 $9,307.5 ------------------------ Ratio of Gross Expenses to Average Net Assets(4) 1.50% 1.50%(5) ------------------------ Ratio of Net Expenses to Average Net Assets(6) 1.50% 1.50%(5) ------------------------ Ratio of Net Investment Loss to Average Net Assets (.16%) (.12%)(5) ------------------------
SEE NOTES TO FINANCIAL HIGHLIGHTS B-20 FINANCIAL HIGHLIGHTS Neuberger&Berman - -------------------------------------------------------------------------------- Manhattan Assets The following table includes selected data for a share outstanding throughout each year and other performance information derived from the Financial Statements. The per share amounts and ratios which are shown reflect income and expenses, including the Fund's proportionate share of its corresponding Portfolio's income and expenses. It should be read in conjunction with its corresponding Portfolio's Financial Statements and notes thereto.
Period from September 4, Year 1996(1) Ended to August August 31, 31, 1998 1997 ------------------- Net Asset Value, Beginning of Year $13.75 $10.00 ------------------- Income From Investment Operations Net Investment Loss (.11) (.08) Net Gains or Losses on Securities (both realized and unrealized) (1.22) 3.94 ------------------- Total From Investment Operations (1.33) 3.86 ------------------- Less Distributions Distributions (from net capital gains) (1.66) (.11) ------------------- Net Asset Value, End of Year $10.76 $13.75 ------------------- Total Return(2) -11.29% +38.86%(3) ------------------- Ratios/Supplemental Data Net Assets, End of Year (in thousands) $207.9 $138.9 ------------------- Ratio of Gross Expenses to Average Net Assets(4) 1.50% 1.50%(5) ------------------- Ratio of Net Expenses to Average Net Assets(6) 1.50% 1.50%(5) ------------------- Ratio of Net Investment Loss to Average Net Assets (.98%) (.70%)(5) -------------------
SEE NOTES TO FINANCIAL HIGHLIGHTS B-21 FINANCIAL HIGHLIGHTS Neuberger&Berman - -------------------------------------------------------------------------------- Partners Assets The following table includes selected data for a share outstanding throughout each year and other performance information derived from the Financial Statements. The per share amounts and ratios which are shown reflect income and expenses, including the Fund's proportionate share of its corresponding Portfolio's income and expenses. It should be read in conjunction with its corresponding Portfolio's Financial Statements and notes thereto.
Period from August 19, 1996(1) to August Year Ended August 31, 31, 1998 1997 1996 ------------------------------------ Net Asset Value, Beginning of Year $ 14.42 $ 9.91 $10.00 ------------------------------------ Income From Investment Operations Net Investment Income .01 .01 -- Net Gains or Losses on Securities (both realized and unrealized) (1.51) 4.56 (.09) ------------------------------------ Total From Investment Operations (1.50) 4.57 (.09) ------------------------------------ Less Distributions Dividends (from net investment income) (.01) (.01) -- Distributions (from net capital gains) (.32) (.05) -- ------------------------------------ Total Distributions (.33) (.06) -- ------------------------------------ Net Asset Value, End of Year $ 12.59 $ 14.42 $ 9.91 ------------------------------------ Total Return(2) -10.69% +46.26% -0.90%(3) ------------------------------------ Ratios/Supplemental Data Net Assets, End of Year (in thousands) $29,278.5 $ 5,819.2 $103.5 ------------------------------------ Ratio of Gross Expenses to Average Net Assets(4) 1.50% 1.50% 1.50%(5) ------------------------------------ Ratio of Net Expenses to Average Net Assets(6) 1.50% 1.50% 1.50%(5) ------------------------------------ Ratio of Net Investment Income to Average Net Assets .12% .08% 2.38%(5) ------------------------------------
SEE NOTES TO FINANCIAL HIGHLIGHTS B-22 NOTES TO FINANCIAL HIGHLIGHTS Neuberger&Berman August 31, 1998 - ---------------------------------------------------------------------- Equity Assets 1) The date investment operations commenced. 2) Total return based on per share net asset value reflects the effects of changes in net asset value on the performance of each Fund during each fiscal period and assumes dividends and other distributions, if any, were reinvested. Results represent past performance and do not guarantee future results. Investment returns and principal may fluctuate and shares when redeemed may be worth more or less than original cost. Total return would have been lower if N&B Management had not reimbursed certain expenses. In addition, for Genesis, total return would have been lower if the investment manager had not waived a portion of the management fee. 3) Not annualized. 4) The Fund is required to calculate an expense ratio without taking into consideration any expense reductions related to expense offset arrangements. 5) Annualized. 6) After reimbursement of expenses by N&B Management as described in Note B of Notes to Financial Statements. Had N&B Management not undertaken such action the annualized ratios of net expenses to average daily net assets would have been:
Period from September Year 4, 1996 Ended to August August 31, 31, FOCUS 1998 1997 - -------------------------------------------------------------------- Net Expenses 28.01% 76.74%
Period from September Year 4, 1996 Ended to August August 31, 31, GUARDIAN 1998 1997 - ------------------------------------------------------------------ Net Expenses 1.63% 5.65%
Period from September Year 4, 1996 Ended to August August 31, 31, MANHATTAN 1998 1997 - -------------------------------------------------------------------- Net Expenses 42.53% 77.83%
B-23
Period from August 19, 1996 Year Ended to August August 31, 31, PARTNERS 1998 1997 1996 - ---------------------------------------------------------------------------------- Net Expenses 1.56% 8.74% 11,685.89%
After reimbursement of expenses by N&B Management as described in Note B of Notes to Financial Statements and/or the waiver of a portion of the management fee by the investment manager as described in Note B of Notes to Financial Statements of Neuberger&Berman Genesis Portfolio. Had N&B Management not undertaken such action the annualized ratios of net expenses to average daily net assets would have been:
Period from April Year 2, 1997 Ended to August August 31, 31, GENESIS 1998 1997 - ------------------------------------------------------------------- Net Expenses 2.40% 25.91%
B-24 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Trustees of Neuberger&Berman Equity Assets and Shareholders of Neuberger&Berman Manhattan Assets In our opinion, the accompanying statement of assets and liabilities and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Neuberger&Berman Manhattan Assets (the "Assets") at August 31, 1998, the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for the year then ended and for the period from September 4, 1996 (commencement of operations) through August 31, 1997, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Assets' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Boston, Massachusetts October 9, 1998 B-25 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Board of Trustees Neuberger&Berman Equity Assets and Shareholders of: Neuberger&Berman Focus Assets Neuberger&Berman Genesis Assets Neuberger&Berman Guardian Assets and Neuberger&Berman Partners Assets We have audited the accompanying statements of assets and liabilities of the Neuberger&Berman Focus Assets, Neuberger&Berman Genesis Assets, Neuberger& Berman Guardian Assets, and Neuberger&Berman Partners Assets, four of the series constituting the Neuberger&Berman Equity Assets (the "Trust"), as of August 31, 1998, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the above mentioned series of the Neuberger&Berman Equity Assets at August 31, 1998, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and their financial highlights for each of the periods indicated therein, in conformity with generally accepted accounting principles. [SIGNATURE] /s/ ERNST & YOUNG LLP Boston, Massachusetts October 5, 1998 B-26 SCHEDULE OF INVESTMENTS Neuberger&Berman August 31, 1998 - -------------------------------------------------------------------------------- Focus Portfolio
TOP TEN EQUITY HOLDINGS --------------------------------------------------- HOLDING PERCENTAGE 1. Compaq Computer 6.5% 2. Capital One Financial 6.1% 3. Chase Manhattan 5.6% 4. General Motors 5.4% 5. Countrywide Credit Industries 5.2% 6. CITICORP 5.0% 7. Wellpoint Health Networks 5.0% 8. Travelers Group 4.9% 9. Merrill Lynch 3.7% 10. Morgan Stanley Dean Witter 3.6%
Market Value(1) Number (000's of Shares omitted) - ---------- ------------ COMMON STOCKS (97.2%) AUTOMOTIVE (7.6%) 598,000 Cabot Corp. $ 13,007 1,240,500 General Motors 71,639 451,000 LucasVarity PLC ADR 15,841 ------------ 100,487 ------------ FINANCIAL SERVICES (48.3%) 948,694 ADVANTA Corp. Class A 10,732 (3) 910,000 ADVANTA Corp. Class B 9,327 (3) 442,500 Banc One 16,815 1,260,000 BankBoston Corp. 44,966 922,500 Capital One Financial 80,719 1,380,000 Chase Manhattan 73,140 608,000 CITICORP 65,740 1,844,500 Countrywide Credit Industries 69,053 510,000 Hartford Financial Services Group 22,823 740,000 Merrill Lynch 48,840 824,000 Morgan Stanley Dean Witter 47,844 Market Value(1) Number (000's of Shares omitted) - ---------- ------------ 650,000 Nationwide Financial Services $ 29,047 512,000 PartnerRe Ltd. 20,608 1,468,500 Travelers Group 65,165 960,000 Travelers Property Casualty 31,620 ------------ 636,439 ------------ HEALTH CARE (8.2%) 1,857,900 Foundation Health Systems 20,785 (2) 1,360,000 Sierra Health Services 21,760 (2) 1,230,000 Wellpoint Health Networks 65,651 (2) ------------ 108,196 ------------ RETAIL (11.4%) 1,110,000 Barnes & Noble 30,039 (2) 2,850,000 Cendant Corp. 32,953 811,000 CompUSA Inc. 9,631 (2) 1,916,000 Furniture Brands International 42,871 (2) 600,000 Neiman-Marcus Group 14,587 481,000 Payless ShoeSource 19,781 (2) ------------ 149,862 ------------ TECHNOLOGY (19.7%) 903,000 3Com Corp. 21,390 (2) 765,000 Applied Materials 18,790 (2) 3,053,000 Compaq Computer 85,293 935,000 KLA-Tencor 19,869 (2) 2,500,000 Maxtor Corp. 17,031 (2) 420,000 Novellus Systems 11,183 (2) 940,000 Photronics, Inc. 11,280 (2) 1,430,000 Rational Software 15,909 (2) 763,000 Teradyne, Inc. 13,257 (2) 575,000 Texas Instruments 27,420 442,000 WorldCom, Inc. 18,094 (2) ------------ 259,516 ------------
B-27 SCHEDULE OF INVESTMENTS Neuberger&Berman August 31, 1998 - -------------------------------------------------------------------------------- Focus Portfolio (Cont'd)
Market Value(1) Number (000's of Shares omitted) - ---------- ------------ TRANSPORTATION (2.0%) 650,000 Continental Airlines Class B $ 26,813 (2) ------------ TOTAL COMMON STOCKS (COST $1,057,172) 1,281,313 ------------
Principal Amount - ---------- SHORT-TERM INVESTMENTS (3.0%) $18,290,000 General Electric Capital Corp., 5.50%, due 9/1/98 18,290(4) 20,989,077 N&B Securities Lending Quality Fund, LLC 20,989(4) ------------ TOTAL SHORT-TERM INVESTMENTS (COST $39,279) 39,279 ------------ TOTAL INVESTMENTS (100.2%) (COST $1,096,451) 1,320,592(5) Liabilities, less cash, receivables and other assets [(0.2%)] (3,114) ------------ TOTAL NET ASSETS (100.0%) $1,317,478 ------------
SEE NOTES TO SCHEDULE OF INVESTMENTS B-28 SCHEDULE OF INVESTMENTS Neuberger&Berman August 31, 1998 - -------------------------------------------------------------------------------- Genesis Portfolio
TOP TEN EQUITY HOLDINGS --------------------------------------------------- HOLDING PERCENTAGE 1. AptarGroup Inc. 2.5% 2. Alliant Techsystems 2.3% 3. AAR Corp. 2.1% 4. Montana Power 1.8% 5. Allied Group 1.8% 6. Trigon Healthcare 1.7% 7. Bank United 1.7% 8. Cordant Technologies 1.7% 9. Newport News Shipbuilding 1.7% 10. Dallas Semiconductor 1.6%
Market Value(1) Number (000's of Shares omitted) - ---------- ------------ COMMON STOCKS (92.7%) AEROSPACE (6.7%) 1,748,650 AAR Corp. $ 38,689 (3) 1,194,100 Aviall Inc. 15,225 (2)(3) 878,700 Cordant Technologies 31,304 468,300 DONCASTERS PLC ADR 9,132 (2)(3) 299,850 Ducommun Inc. 5,154 310,200 Hexcel Corp. 3,005 425,000 Ladish Co. 3,984 (2) 344,200 Moog, Inc. Class A 9,723 257,300 Orbital Sciences 4,824 (2) ------------ 121,040 ------------ AUTOMOTIVE (0.5%) 500,000 Donaldson Co. 8,875 ------------ BANKING & FINANCIAL (9.7%) 941,900 Bank United 31,318 393,800 Colonial BancGroup 4,578 126,856 Commerce Bancorp 4,456 321,100 Commercial Federal 7,064 625,600 Community First Bankshares 10,635 333,100 Cullen/Frost Bankers 14,240 Market Value(1) Number (000's of Shares omitted) - ---------- ------------ 211,600 Dime Community Bancshares $ 3,240(2) 732,600 FirstFed Financial 10,806 410,000 Golden State Bancorp 6,509 195,100 Long Island Bancorp 7,316 285,400 Ocean Financial 3,960 1,052,600 Peoples Heritage Financial Group 16,513 177,475 Queens County Bancorp 6,300 227,600 Reliance Bancorp 5,932 687,675 Sterling Bancshares 8,209 339,250 Texas Regional Bancshares 7,379 1,321,600 Webster Financial 27,258 ------------ 175,713 ------------ BASIC MATERIALS (1.8%) 180,900 Lone Star Industries 10,877 (2) 215,160 Southdown Inc. 9,091 361,600 Texas Industries 13,085 ------------ 33,053 ------------ BUILDING, CONSTRUCTION & FURNISHINGS (0.9%) 925,600 Apogee Enterprises 9,372 146,000 Lincoln Electric Holdings 2,555 174,200 Simpson Manufacturing 5,073 (2) ------------ 17,000 ------------ CHEMICALS (0.6%) 97,000 H.B. Fuller 4,607 382,500 Lawter International 2,917 201,000 Lilly Industries 3,744 ------------ 11,268 ------------ CONSUMER CYCLICALS (0.5%) 466,600 Coachmen Industries 8,720 ------------ CONSUMER PRODUCTS & SERVICES (4.2%) 372,191 Block Drug 12,655 138,800 Bush Boake Allen 4,164 (2) 125,500 Church & Dwight 3,396
B-29 SCHEDULE OF INVESTMENTS Neuberger&Berman - -------------------------------------------------------------------------------- Genesis Portfolio (Cont'd)
Market Value(1) Number (000's of Shares omitted) - ---------- ------------ 477,400 First Brands $ 9,518 134,100 Libbey Inc. 4,099 192,400 Omega Protein 1,972(2) 1,020,800 Richfood Holdings 20,990 41,600 Ruddick Corp. 629 627,600 Stewart Enterprises 12,317 427,200 The First Years 5,393 ------------ 75,133 ------------ DEFENSE (4.5%) 648,500 Alliant Techsystems 42,558 (2)(3) 1,292,200 Newport News Shipbuilding 30,367 235,000 Primex Technologies 8,636 ------------ 81,561 ------------ DIAGNOSTIC EQUIPMENT (1.2%) 1,003,100 ADAC Laboratories 22,507 (2)(3) ------------ ELECTRONICS (2.1%) 1,095,600 Dallas Semiconductor 29,650 400,900 SCI Systems 9,195 (2) ------------ 38,845 ------------ ENERGY (1.4%) 209,500 Apache Corp. 4,792 420,000 Cabot Oil & Gas 5,355 701,900 Coho Energy 3,159 (2) 263,600 Cross Timbers Oil 3,311 661,990 Swift Energy 5,834 (2) 840,800 Unit Corp. 3,468 ------------ 25,919 ------------ HEALTH CARE (9.6%) 611,000 Acuson Corp. 8,936 (2) 146,800 Arrow International 3,982 747,500 Ballard Medical Products 13,876 227,900 CompDent Corp. 3,390 (2) 512,900 CONMED Corp. 10,418 (2) 225,000 DENTSPLY International 4,802 Market Value(1) Number (000's of Shares omitted) - ---------- ------------ 370,400 DePuy, Inc. $ 12,733 1,121,900 Haemonetics Corp. 17,600(2) 315,000 John Alden Financial 7,068 443,550 Patterson Dental 13,223(2) 218,900 Physio-Control International 5,609(2) 199,450 Sierra Health Services 3,191(2) 152,700 Sofamor Danek Group 12,741(2) 453,700 STAAR Surgical 3,403(2) 1,144,800 Trigon Healthcare 31,625(2) 557,600 Universal Health Services Class B 21,607 ------------ 174,204 ------------ INDUSTRIAL & COMMERCIAL PRODUCTS & SERVICES (5.7%) 115,000 Alamo Group 1,969 844,700 BMC Industries 3,379 436,100 Brady Corp. 7,305 262,400 Dionex Corp. 5,658 (2) 1,515,600 Hussmann International 19,892 284,700 IDEX Corp. 5,979 669,300 Kaydon Corp. 18,113 242,000 NN Ball & Roller 2,450 281,800 Pameco Corp. 4,790 (2)(3) 212,000 Pentair, Inc. 5,909 183,100 Roper Industries 3,113 641,900 SOS Staffing Services 8,465 (2)(3) 872,400 Wallace Computer Services 14,122 180,750 Woodhead Industries 1,853 ------------ 102,997 ------------ INSURANCE (3.6%) 703,250 Allied Group 33,009 462,600 Annuity and Life Re 8,443 (2) 582,400 FBL Financial Group 12,849 81,000 Orion Capital 3,017
B-30 August 31, 1998 - -------------------------------------------------------------------------------- Genesis Portfolio (Cont'd)
Market Value(1) Number (000's of Shares omitted) - ---------- ------------ 229,000 Penn-America Group $ 2,490 152,800 Trenwick Group 5,272 ------------ 65,080 ------------ LODGING (0.3%) 579,500 Prime Hospitality 4,817 ------------ MACHINERY & EQUIPMENT (0.9%) 178,800 Allied Products 1,632 27,900 Gardner Denver Machinery 528 (2) 1,039,400 Stewart & Stevenson Services 13,577 ------------ 15,737 ------------ MEDIA & ENTERTAINMENT (0.2%) 185,000 Championship Auto Racing Teams 3,654 (2) ------------ METALS (0.0%) 11,000 Cleveland-Cliffs 401 ------------ OFFICE EQUIPMENT (1.6%) 487,500 United Stationers 28,884 ------------ OIL SERVICES (4.7%) 310,700 Cal Dive International 4,000 (2) 193,800 Cliffs Drilling 2,750 (2) 313,800 Dawson Production Services 4,903 (2) 468,500 Friede Goldman International 4,890 (2) 630,400 Global Industries 5,910 (2) 430,000 IRI International 2,150 (2) 569,500 Nabors Industries 6,727 (2) 1,384,490 National-Oilwell 10,730 (2) 565,700 Oceaneering International 5,268 (2) 742,500 Offshore Logistics 6,682 (2) 1,598,400 Pride International 12,687 (2) 310,300 R&B Falcon 2,793 (2) 462,400 Smith International 8,150 (2) 213,500 Tuboscope Inc. 1,962 (2) Market Value(1) Number (000's of Shares omitted) - ---------- ------------ 393,200 UTI Energy $ 2,580(2) 344,800 Willbros Group 3,534(2) ------------ 85,716 ------------ PACKING & CONTAINERS (2.5%) 1,570,400 AptarGroup Inc. 44,560 ------------ PUBLISHING & BROADCASTING (0.6%) 134,466 Pulitzer Publishing 10,228 ------------ REAL ESTATE/REITS (4.8%) 865,800 CCA Prison Realty Trust 17,749 26,800 Crescent Operating 216 (2) 713,200 Crescent Real Estate Equities 16,404 335,000 ElderTrust 4,020 495,000 Health Care Property Investors 15,500 415,000 Nationwide Health Properties 8,482 162,800 OMEGA Healthcare Investors 4,660 798,100 Prime Retail 7,482 415,300 SL Green Realty 7,994 540,000 Sunstone Hotel Investors 4,590 ------------ 87,097 ------------ RESTAURANTS (1.1%) 1,202,150 Brinker International 20,587 (2) ------------ RETAILING (1.0%) 418,375 99 Cents Only Stores 14,696 (2) 178,500 Schultz Sav-O Stores 2,811 ------------ 17,507 ------------ TECHNOLOGY (4.9%) 422,800 Analysts International 8,932 1,069,800 Auspex Systems 2,140 (2) 194,900 Black Box 4,458 (2) 527,600 CACI International 8,112 (2) 750,600 Data General 5,629 (2) 420,000 Eltron International 11,550 (2)(3)
B-31 SCHEDULE OF INVESTMENTS Neuberger&Berman - -------------------------------------------------------------------------------- Genesis Portfolio (Cont'd)
Market Value(1) Number (000's of Shares omitted) - ---------- ------------ 2,606,300 Inprise Corp. $ 13,846(2)(3) 868,600 Methode Electronics Class A 10,423 1,027,400 Reynolds & Reynolds 12,971 328,400 Zebra Technologies 10,201(2) ------------ 88,262 ------------ TEXTILES & APPAREL (0.2%) 224,300 St. John Knits 4,276 ------------ TRANSPORTATION, SHIPPING & FREIGHT (0.2%) 78,375 Air Express International 1,342 213,600 Maritrans Inc. 1,642 ------------ 2,984 ------------ UTILITIES, ELECTRIC & GAS (16.7%) 1,262,500 AGL Resources 23,119 183,200 Aquila Gas Pipeline 1,317 294,000 Atmos Energy 8,342 282,500 Central Hudson Gas & Electric 12,059 425,100 Connecticut Energy 11,239 124,300 Eastern Enterprises 4,918 591,900 Eastern Utilities Associates 14,686 86,200 Illinova Corp. 2,225 249,000 Interstate Energy 7,501 855,800 Montana Power 33,376 341,200 National Fuel Gas 14,032 618,200 Nevada Power 15,339 298,800 NICOR Inc. 11,597 290,000 Northwest Natural Gas 7,069 450,900 NUI Corp. 9,441 393,000 ONEOK, Inc. 11,815 Market Value(1) Number (000's of Shares omitted) - ---------- ------------ 200,000 Orange & Rockland Utilities $ 10,750 266,500 Otter Tail Power 9,361 529,900 Public Service Co. of New Mexico 10,598 475,100 Rochester Gas & Electric 13,867 350,500 Sempra Energy 8,916(2) 401,100 Sierra Pacific Resources 14,665 390,000 UtiliCorp United 13,431 507,400 Washington Gas Light 12,051 603,600 Washington Water Power 10,223 304,600 WICOR, Inc. 6,511 140,000 WPS Resources 4,716 ------------ 303,164 ------------ TOTAL COMMON STOCKS (COST $1,951,986) 1,679,789 ------------ WARRANTS (0.1%) 355,000 Golden State Bancorp (COST $2,161) 1,597 (2) ------------
Principal Amount - ---------- U.S. TREASURY SECURITIES (2.6%) $$46,960,000 U.S. Treasury Bills, 5.49%, due 9/15/98 (COST $46,860) 46,860 ------------
B-32 August 31, 1998 - -------------------------------------------------------------------------------- Genesis Portfolio (Cont'd)
Market Value(1) Principal (000's Amount omitted) - ---------- ------------ SHORT-TERM INVESTMENTS (6.9%) $81,900,000 General Electric Capital Corp., 5.52% - 5.53%, due 9/1/98 - 9/2/98 $ 81,900(4) 44,199,387 N&B Securities Lending Quality Fund, LLC 44,199(4) ------------ TOTAL SHORT-TERM INVESTMENTS (COST $126,099) 126,099 ------------ TOTAL INVESTMENTS (102.3%) (COST $2,127,106) 1,854,345(5) Liabilities, less cash, receivables and other assets [(2.3%)] (41,990) ------------ TOTAL NET ASSETS (100.0%) $1,812,355 ------------
SEE NOTES TO SCHEDULE OF INVESTMENTS B-33 SCHEDULE OF INVESTMENTS Neuberger&Berman - -------------------------------------------------------------------------------- Guardian Portfolio
TOP TEN EQUITY HOLDINGS --------------------------------------------------- HOLDING PERCENTAGE 1. General Motors 5.4% 2. Capital One Financial 4.7% 3. Countrywide Credit Industries 4.3% 4. Compaq Computer 4.2% 5. Chase Manhattan 4.1% 6. CITICORP 3.7% 7. Aetna Inc. 3.6% 8. Wellpoint Health Networks 3.4% 9. Morgan Stanley Dean Witter 3.0% 10. Texas Instruments 2.9%
Market Value(1) Number (000's of Shares omitted) - ----------- ------------ COMMON STOCKS (97.3%) AGRICULTURE (1.0%) 1,217,300 Potash Corp. of Saskatchewan $ 61,017 ------------ AUTOMOTIVE (14.7%) 3,841,000 Cabot Corp. 83,542 (3) 4,863,900 Coltec Industries 69,918 (2)(3) 5,400,000 General Motors 311,850 1,868,000 Lear Corp. 75,771 (2) 3,961,086 LucasVarity PLC ADR 139,133 2,122,900 Magna International Class A 127,241 2,942,081 Mark IV Industries 41,741 (3) ------------ 849,196 ------------ BANKING (10.3%) 4,105,000 BankBoston Corp. 146,497 4,425,000 Chase Manhattan 234,525 1,990,500 CITICORP 215,223 ------------ 596,245 ------------ Market Value(1) Number (000's of Shares omitted) - ----------- ------------ CONSUMER GOODS & SERVICES (3.4%) 10,347,228 Cendant Corp. $ 119,640 1,995,000 Kimberly-Clark 76,059 ------------ 195,699 ------------ ENERGY (2.4%) 1,092,000 Cooper Cameron 23,205 (2) 1,778,000 EVI Weatherford 27,115 (2) 2,283,000 Lyondell Chemical 49,227 2,241,000 Santa Fe International 30,253 (6) 531,500 Smith International 9,368 (2) ------------ 139,168 ------------ FINANCIAL SERVICES (19.4%) 3,087,900 Capital One Financial 270,191 4,465,000 Conseco, Inc. 123,345 6,590,000 Countrywide Credit Industries 246,713 (3) 3,067,100 IndyMac Mortgage Holdings 60,192 2,375,000 Merrill Lynch 156,750 3,004,500 Morgan Stanley Dean Witter 174,449 2,010,000 Travelers Group 89,194 (6) ------------ 1,120,834 ------------ HEALTH CARE (11.1%) 3,442,500 Aetna Inc. 207,195 9,939,900 Foundation Health Systems 111,203 (2)(3) 1,988,564 PacifiCare Health Systems Class B 125,279 (2)(3) 3,674,996 Wellpoint Health Networks 196,153 (2)(3) ------------ 639,830 ------------ HEAVY INDUSTRY (0.7%) 2,176,200 UCAR International 39,444 (2) ------------ INDUSTRIAL GOODS & SERVICES (8.6%) 1,970,200 American Standard 77,084 (2) 2,327,200 Crown Cork & Seal 76,216
B-34 August 31, 1998 - -------------------------------------------------------------------------------- Guardian Portfolio (Cont'd)
Market Value(1) Number (000's of Shares omitted) - ----------- ------------ 2,472,000 Millennium Chemicals $ 53,457 1,743,000 Praxair, Inc. 62,530 3,835,000 Republic Services 61,840(2) 1,253,700 USG Corp. 53,909 2,586,500 Waste Management 114,129(2) ------------ 499,165 ------------ INSURANCE (2.1%) 2,712,000 Hartford Financial Services Group 121,362 ------------ RESTAURANTS (1.8%) 1,875,000 McDonald's Corp. 105,117 (6) ------------ RETAIL (2.5%) 3,055,600 Barnes & Noble 82,692 (2) 1,423,500 Sears, Roebuck 64,680 ------------ 147,372 ------------ TECHNOLOGY (12.6%) 3,860,000 Applied Materials 94,811 (2) 8,802,500 Compaq Computer 245,920 1,120,000 Hewlett-Packard 54,390 60,000 Intel Corp. 4,271 1,542,900 KLA-Tencor 32,787 (2) 1,444,000 Sun Microsystems 57,219 (2) 3,946,100 Teradyne, Inc. 68,563 (2) 3,566,000 Texas Instruments 170,054 ------------ 728,015 ------------ TELECOMMUNICATIONS (1.1%) 1,598,000 WorldCom, Inc. 65,418 (2) ------------ TRANSPORTATION (5.6%) 1,812,600 Continental Airlines Class B 74,770 (2) 957,770 Delta Air Lines 97,693 2,260,900 Northwest Airlines 62,881 (2) 1,556,000 US Airways Group 90,637 (2) ------------ 325,981 ------------ TOTAL COMMON STOCKS (COST $5,462,761) 5,633,863 ------------ Market Value(1) Number (000's of Shares omitted) - ----------- ------------ PREFERRED STOCKS (0.1%) 52,430 Aetna Inc., Ser. C, Cv., 6.25% (COST $3,424) $ 3,254 ------------ Principal Amount - ----------- SHORT-TERM INVESTMENTS (5.0%) $256,260,000 General Electric Capital Corp., 5.50% - 5.53%, due 9/1/98 - 9/16/98 256,260(4) 32,636,664 N&B Securities Lending Quality Fund, LLC 32,637(4) ------------ TOTAL SHORT-TERM INVESTMENTS (COST $288,897) 288,897 ------------ TOTAL INVESTMENTS (102.4%) (COST $5,755,082) 5,926,014(5) Liabilities, less cash, receivables and other assets [(2.4%)] (138,209) ------------ TOTAL NET ASSETS (100.0%) $5,787,805 ------------
SEE NOTES TO SCHEDULE OF INVESTMENTS B-35 SCHEDULE OF INVESTMENTS Neuberger&Berman - -------------------------------------------------------------------------------- Manhattan Portfolio
TOP TEN EQUITY HOLDINGS --------------------------------------------------- HOLDING PERCENTAGE 1. Staples, Inc. 2.8% 2. TJX Cos. 2.5% 3. Citrix Systems 2.3% 4. J.D. Edwards 2.2% 5. CKE Restaurants 2.0% 6. Elan Corp. ADR 2.0% 7. Suiza Foods 1.9% 8. CBT Group ADR 1.8% 9. Chancellor Media 1.8% 10. Network Associates 1.7%
Market Value(1) Number (000's of Shares omitted) - ---------- ------------- COMMON STOCKS (95.2%) CAPITAL GOODS (6.6%) 178,500 Eastern Environmental Services $ 4,596 (2) 314,600 Herman Miller 6,449 355,800 HON INDUSTRIES 7,650 506,700 Republic Services 8,171 (2) 254,700 Sanmina Corp. 7,864 (2) ------------- 34,730 ------------- COMMUNICATIONS (4.9%) 172,600 American Tower 2,718 (2) 216,600 ICG Communications 3,885 (2) 141,300 Intermedia Communications 3,515 (2) 91,500 NEXTLINK Communications 1,899 (2) 259,400 RSL Communications 5,934 (2) Market Value(1) Number (000's of Shares omitted) - ---------- ------------- 359,600 Saville Systems ADR $ 5,888(2) 297,600 SmarTalk TeleServices 1,879(2) ------------- 25,718 ------------- CONSUMER CYCLICALS (22.0%) 146,100 Abercrombie & Fitch 6,282 (2) 363,900 AccuStaff Inc. 4,549 (2) 360,800 Avis Rent A Car 5,660 (2) 186,200 Costco Cos. 8,763 (2) 138,500 Furniture Brands International 3,099 (2) 319,100 General Nutrition 4,248 (2) 273,100 Hayes Lemmerz International 8,125 (2) 175,200 Lennar Corp. 3,176 378,100 Linens 'n Things 8,838 (2) 329,775 Outdoor Systems 7,667 (2) 166,500 Robert Half International 7,992 (2) 230,900 StaffMark, Inc. 4,127 (2) 530,800 Staples, Inc. 14,398 (2) 337,500 Sylvan Learning Systems 7,214 (2) 596,100 TJX Cos. 13,301 255,800 Tower Automotive 4,684 (2) 130,300 Travel Services International 2,834 (2) ------------- 114,957 ------------- CONSUMER STAPLES (13.8%) 139,300 American Italian Pasta 3,491 (2) 455,600 Brinker International 7,802 (2) 335,500 Capstar Broadcasting 5,683 (2) 98,100 Cardinal Health 8,584 260,200 Chancellor Media 9,286 (2) 344,400 CKE Restaurants 10,676 127,800 Comcast Corp. Class A Special 4,776 91,800 Estee Lauder 5,405
B-36 August 31, 1998 - -------------------------------------------------------------------------------- Manhattan Portfolio (Cont'd)
Market Value(1) Number (000's of Shares omitted) - ---------- ------------- 209,400 Suiza Foods $ 10,130(2) 207,600 Valassis Communications 6,189(2) ------------- 72,022 ------------- ENERGY (0.3%) 113,400 BJ Services 1,432 (2) ------------- FINANCIAL SERVICES (11.4%) 187,700 Ace, Ltd. 5,443 108,500 Bear Stearns 4,008 84,600 Equitable Cos. 4,838 113,400 EXEL Ltd. 7,576 199,800 Finova Group 8,916 294,900 GreenPoint Financial 7,428 105,100 Northern Trust 5,859 147,300 State Street 7,669 124,700 SunAmerica, Inc. 7,724 ------------- 59,461 ------------- HEALTH CARE (11.9%) 313,200 Alternative Living Services 5,559 (2) 176,200 Biogen, Inc. 8,149 (2) 173,800 Elan Corp. ADR 10,211 (2) 286,300 Omnicare, Inc. 8,929 196,200 Quintiles Transnational 7,014 (2) 126,100 Rexall Sundown 2,302 (2) 70,400 Sofamor Danek Group 5,874 (2) 256,800 STERIS Corp. 6,131 (2) 175,400 Watson Pharmaceuticals 7,904 (2) ------------- 62,073 ------------- Market Value(1) Number (000's of Shares omitted) - ---------- ------------- TECHNOLOGY (21.7%) 226,500 Ascend Communications $ 7,927 (2) 161,000 BMC Software 6,812 (2) 380,900 Cadence Design Systems 8,047 (2) 257,100 Cambridge Technology Partners 8,356 (2) 198,200 CBT Group ADR 9,315 (2) 208,350 Citrix Systems 12,006 (2) 193,800 Compuware Corp. 8,806 (2) 285,700 HBO & Co. 6,071 144,300 International Network Services 4,762 (2) 289,400 J.D. Edwards 11,721 (2) 211,600 Network Appliance 8,821 (2) 279,600 Network Associates 9,017 (2) 304,300 Staff Leasing 4,565 (2) 229,000 Sterling Commerce 7,557 (2) ------------- 113,783 ------------- TRANSPORTATION (1.0%) 93,400 US Airways Group 5,440 (2) ------------- UTILITIES (1.6%) 315,200 AES Corp. 8,589 (2) ------------- TOTAL COMMON STOCKS (COST $511,079) 498,205 -------------
B-37 SCHEDULE OF INVESTMENTS Neuberger&Berman August 31, 1998 - -------------------------------------------------------------------------------- Manhattan Portfolio (Cont'd)
Market Value(1) Principal (000's Amount omitted) - ---------- ------------- SHORT-TERM INVESTMENTS (16.5%) $25,690,000 General Electric Capital Corp., 5.52%, due 9/1/98 $ 25,690(4) 60,534,515 N&B Securities Lending Quality Fund, LLC 60,535(4) ------------- TOTAL SHORT-TERM INVESTMENTS (COST $86,225) 86,225 ------------- TOTAL INVESTMENTS (111.7%) (COST $597,304) 584,430(5) Liabilities, less cash, receivables and other assets [(11.7%)] (61,071) ------------- TOTAL NET ASSETS (100.0%) $ 523,359 -------------
SEE NOTES TO SCHEDULE OF INVESTMENTS B-38 SCHEDULE OF INVESTMENTS Neuberger&Berman August 31, 1998 - -------------------------------------------------------------------------------- Partners Portfolio
TOP TEN EQUITY HOLDINGS --------------------------------------------------- HOLDING PERCENTAGE 1. Unicom Corp. 2.6% 2. EXEL Ltd. 2.6% 3. Countrywide Credit Industries 2.2% 4. First Chicago 2.2% 5. SLM Holding 2.1% 6. Aetna Inc. 2.1% 7. CIGNA Corp. 2.0% 8. Biogen, Inc. 2.0% 9. Anheuser-Busch 1.9% 10. Edison International 1.9%
Market Value(1) Number (000's of Shares omitted) - ----------- ------------ COMMON STOCKS (94.1%) AIRLINES (2.1%) 1,103,300 Continental Airlines Class B $ 45,511 (2) 281,000 Delta Air Lines 28,662 ------------ 74,173 ------------ AUTOMOBILE MANUFACTURING (1.7%) 1,079,000 General Motors 62,312 ------------ AUTO/TRUCK REPLACEMENT PARTS (2.1%) 1,162,500 AutoZone, Inc. 30,152 (2) 954,600 Goodyear Tire & Rubber 46,776 ------------ 76,928 ------------ BANKING & FINANCIAL (7.6%) 1,276,000 Chase Manhattan 67,628 439,300 CITICORP 47,499 2,127,200 Countrywide Credit Industries 79,637 1,245,000 First Chicago 78,902 ------------ 273,666 ------------ BUILDING, CONSTRUCTION & REFURNISHING (1.1%) 936,000 USG Corp. 40,248 ------------ Market Value(1) Number (000's of Shares omitted) - ----------- ------------ CHEMICALS (2.0%) 601,100 duPont $ 34,676 1,671,000 Morton International 37,180 ------------ 71,856 ------------ COMMUNICATIONS (5.8%) 1,185,000 Bell Atlantic 52,288 939,000 Motorola, Inc. 40,436 1,647,000 SBC Communications 62,586 1,314,000 WorldCom, Inc. 53,792 (2) ------------ 209,102 ------------ CONSUMER GOODS & SERVICES (1.6%) 4,800,000 Cendant Corp. 55,500 ------------ DIVERSIFIED (2.1%) 772,500 Bowater Inc. 29,210 677,600 Minnesota Mining & Manufacturing 46,416 ------------ 75,626 ------------ ELECTRICAL & ELECTRONICS (1.5%) 1,191,000 Raytheon Co. Class A 53,372 ------------ ELECTRONICS (1.4%) 1,100,000 Raychem Corp. 31,900 973,000 Teradyne, Inc. 16,906 (2) ------------ 48,806 ------------ ENERGY (1.8%) 1,069,900 McDermott International 21,465 970,400 Texas Utilities 41,242 ------------ 62,707 ------------ ENTERTAINMENT (1.1%) 2,602,000 Mirage Resorts 38,705 (2) ------------ FINANCIAL SERVICES (2.1%) 2,124,400 SLM Holding 76,213 ------------ FOOD & TOBACCO (7.2%) 1,497,000 Anheuser-Busch 69,049 703,400 ConAgra, Inc. 17,409
B-39 SCHEDULE OF INVESTMENTS Neuberger&Berman - -------------------------------------------------------------------------------- Partners Portfolio (Cont'd)
Market Value(1) Number (000's of Shares omitted) - ----------- ------------ 1,333,500 Nabisco Holdings $ 44,089 1,500,000 Philip Morris 62,344 1,799,000 Tricon Global Restaurants 66,675(2) ------------ 259,566 ------------ GAS (1.9%) 1,848,500 Praxair, Inc. 66,315 ------------ HEALTH CARE (6.7%) 185,700 Alza Corp. 6,685 (2) 1,039,000 Baxter International 55,327 1,512,000 Biogen, Inc. 69,930 (2) 1,232,000 CIGNA Corp. 71,687 661,800 Wellpoint Health Networks 35,323 (2) ------------ 238,952 ------------ INDUSTRIAL GOODS & SERVICES (2.6%) 1,558,000 Crown Cork & Seal 51,024 1,300,000 Owens-Illinois 40,544 (2) ------------ 91,568 ------------ INSURANCE (13.0%) 1,731,300 Ace, Ltd. 50,208 1,243,000 Aetna Inc. 74,813 1,822,000 Allstate Corp. 68,325 850,000 Aon Corp. 53,178 1,373,300 EXEL Ltd. 91,753 1,373,550 Orion Capital 51,165 1,174,000 St. Paul Cos. 35,880 875,400 Travelers Group 38,846 ------------ 464,168 ------------ OIL & GAS (5.9%) 1,605,200 Cabot Corp. 34,913 655,000 Chevron Corp. 48,511 804,400 Cooper Cameron 17,094 (2) 1,156,600 Noble Affiliates 26,746 585,100 Smith International 10,312 (2) Market Value(1) Number (000's of Shares omitted) - ----------- ------------ 880,000 Transocean Offshore $ 21,615 1,652,900 Unocal Corp. 51,757 ------------ 210,948 ------------ PAPER & FOREST PRODUCTS (1.9%) 780,000 Kimberly-Clark 29,738 1,420,000 Mead Corp. 38,872 ------------ 68,610 ------------ PUBLISHING & BROADCASTING (0.7%) 525,600 Knight Ridder 25,032 ------------ REAL ESTATE (3.6%) 4,621,900 Host Marriott 64,706 1,607,700 Security Capital U.S. Realty ADR 15,755 (2)(7) 1,319,000 Starwood Hotels & Resorts 48,144 ------------ 128,605 ------------ RESTAURANTS (1.1%) 715,000 McDonald's Corp. 40,085 ------------ RETAILING (1.4%) 1,041,100 Harcourt General 50,558 ------------ RETAILING & APPAREL (2.6%) 511,000 J.C. Penney 25,326 1,487,000 Sears, Roebuck 67,566 ------------ 92,892 ------------ STEEL (1.1%) 2,801,000 AK Steel Holding 38,864 ------------ TECHNOLOGY (2.8%) 433,000 Hewlett-Packard 21,027 2,550,000 Quantum Corp. 29,166 (2) 1,081,000 Texas Instruments 51,550 ------------ 101,743 ------------ UTILITIES (6.2%) 2,426,000 Edison International 68,989 1,900,000 PG&E Corp. 61,038 2,597,900 Unicom Corp. 92,550 ------------ 222,577 ------------
B-40 August 31, 1998 - -------------------------------------------------------------------------------- Partners Portfolio (Cont'd)
Market Value(1) Number (000's of Shares omitted) - ----------- ------------ WASTE MANAGEMENT (1.4%) 1,140,000 Waste Management $ 50,302 ------------ TOTAL COMMON STOCKS (COST $3,541,245) 3,369,999 ------------ WARRANTS (0.0%) 44,356 Security Capital Group, Class B, Expire 9/18/98 (COST $0) 1 (2) ------------ Principal Amount - ----------- SHORT-TERM INVESTMENTS (7.8%) $96,030,000 Exxon Asset Management, 5.75%, due 9/1/98 96,030(4) 145,390,000 General Electric Capital Corp., 5.50% - 5.53%, due 9/1/98 - 9/2/98 145,390(4) 37,438,042 N&B Securities Lending Quality Fund, LLC 37,438(4) ------------ TOTAL SHORT-TERM INVESTMENTS (COST $278,858) 278,858 ------------ TOTAL INVESTMENTS (101.9%) (COST $3,820,103) 3,648,858(5) Liabilities, less cash, receivables and other assets [(1.9%)] (67,521) ------------ TOTAL NET ASSETS (100.0%) $3,581,337 ------------
SEE NOTES TO SCHEDULE OF INVESTMENTS B-41 NOTES TO SCHEDULE OF INVESTMENTS August 31, 1998 - ---------------------------------------------------------------------- Equity Managers Trust 1) Investment securities of each Portfolio are valued at the latest sales price; securities for which no sales were reported, unless otherwise noted, are valued at the mean between the closing bid and asked prices. The Portfolios value all other securities by a method the trustees of Equity Managers Trust believe accurately reflects fair value. Foreign security prices are furnished by independent quotation services expressed in local currency values. Foreign security prices are translated from the local currency into U.S. dollars using current exchange rates. Short-term debt securities with less than 60 days until maturity may be valued at cost which, when combined with interest earned, approximates market value. 2) Non-income producing security. 3) Affiliated issuer (see Note E of Notes to Financial Statements). 4) At cost, which approximates market value. 5) At August 31, 1998, selected Portfolio information on a Federal income tax basis was as follows:
NET GROSS GROSS UNREALIZED UNREALIZED UNREALIZED APPRECIATION NEUBERGER&BERMAN COST APPRECIATION DEPRECIATION (DEPRECIATION) - ------------------------------------------------------------------------------------------------------------------------- FOCUS PORTFOLIO $ 1,098,677,000 $ 367,818,000 $145,903,000 $ 221,915,000 GENESIS PORTFOLIO 2,127,106,000 106,756,000 379,517,000 (272,761,000) GUARDIAN PORTFOLIO 5,765,755,000 1,156,419,000 996,160,000 160,259,000 MANHATTAN PORTFOLIO 597,304,000 77,735,000 90,609,000 (12,874,000) PARTNERS PORTFOLIO 3,825,301,000 265,069,000 441,512,000 (176,443,000)
6) The following securities were held in escrow at August 31, 1998, to cover outstanding call options written:
MARKET MARKET VALUE VALUE SECURITIES AND OF PREMIUM ON OF NEUBERGER&BERMAN SHARES OPTIONS SECURITIES OPTIONS OPTIONS - ----------------------------------------------------------------------------------------------------------------------------------- GUARDIAN PORTFOLIO 251,800 McDonald's Corp. $14,116,538 $ 980,854 $15,738 September 1998 @ 75 150,000 Santa Fe International 2,025,000 1,176,521 23,438 October 1998 @ 25 300,000 Travelers Group 13,312,500 1,340,955 18,750 September 1998 @ 70
B-42 7) Security exempt from registration under the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers under Rule 144A. At August 31, 1998, this security amounted to $15,755,000 or 0.4% of net assets for Neuberger&Berman Partners Portfolio. SEE NOTES TO FINANCIAL STATEMENTS B-43 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 $ 1,300,533 $ 1,687,583 Non-controlled affiliated issuers 20,059 166,762 ------------------------------- 1,320,592 1,854,345 Cash 6 15 Dividends and interest receivable 1,342 3,270 Other assets 13 7 Receivable for securities sold 43,615 6,061 ------------------------------- 1,365,568 1,863,698 ------------------------------- LIABILITIES Option contracts written, at market value (Note A) -- -- Payable for collateral on securities loaned (Note A) 20,989 44,199 Payable for securities purchased 26,008 5,017 Payable to investment manager (Note B) 682 1,245 Accrued expenses and other payables 411 882 ------------------------------- 48,090 51,343 ------------------------------- NET ASSETS Applicable to Investors' Beneficial Interests $ 1,317,478 $ 1,812,355 ------------------------------- NET ASSETS consist of: Paid-in capital $ 1,093,337 $ 2,085,116 Net unrealized appreciation (depreciation) in value of investment securities and option contracts 224,141 (272,761) ------------------------------- NET ASSETS $ 1,317,478 $ 1,812,355 ------------------------------- *Cost of investments: Unaffiliated issuers $ 1,057,642 $ 1,956,664 Non-controlled affiliated issuers 38,809 170,442 ------------------------------- Total cost of investments $ 1,096,451 $ 2,127,106 -------------------------------
SEE NOTES TO FINANCIAL STATEMENTS B-44 August 31,1998 - ---------------------------------------------------------------------- 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 $ 5,051,465 $ 584,430 $ 3,648,858 Non-controlled affiliated issuers 874,549 -- -- ------------------------------------------------ 5,926,014 584,430 3,648,858 Cash 5 10 5 Dividends and interest receivable 7,962 967 5,164 Other assets 75 5 30 Receivable for securities sold 47,808 6,665 17,600 ------------------------------------------------ 5,981,864 592,077 3,671,657 ------------------------------------------------ LIABILITIES Option contracts written, at market value (Note A) 58 -- -- Payable for collateral on securities loaned (Note A) 32,636 60,535 37,438 Payable for securities purchased 157,099 7,110 50,490 Payable to investment manager (Note B) 2,655 287 1,561 Accrued expenses and other payables 1,611 786 831 ------------------------------------------------ 194,059 68,718 90,320 ------------------------------------------------ NET ASSETS Applicable to Investors' Beneficial Interests $ 5,787,805 $ 523,359 $ 3,581,337 ------------------------------------------------ NET ASSETS consist of: Paid-in capital $ 5,613,432 $ 536,233 $ 3,752,582 Net unrealized appreciation (depreciation) in value of investment securities and option contracts 174,373 (12,874) (171,245) ------------------------------------------------ NET ASSETS $ 5,787,805 $ 523,359 $ 3,581,337 ------------------------------------------------ *Cost of investments: Unaffiliated issuers $ 4,800,586 $ 597,304 $ 3,820,103 Non-controlled affiliated issuers 954,496 -- -- ------------------------------------------------ Total cost of investments $ 5,755,082 $ 597,304 $ 3,820,103 ------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS B-45 STATEMENTS OF OPERATIONS - ---------------------------------------------------------------------- Equity Managers Trust
FOCUS GENESIS (000'S OMITTED) PORTFOLIO PORTFOLIO --------------------------- INVESTMENT INCOME Income: Dividend income -- unaffiliated issuers $ 14,684 $ 28,496 Dividend income -- non-controlled affiliated issuers 562 487 Interest income 3,583 9,353 Foreign taxes withheld (Note A) (19) -- --------------------------- Total income 18,810 38,336 --------------------------- Expenses: Investment management fee (Note B) 8,235 14,776 Accounting fees 10 10 Amortization of deferred organization and initial offering expenses (Note A) 8 2 Auditing fees 44 25 Custodian fees (Note B) 324 401 Insurance expense 22 12 Legal fees 23 61 Trustees' fees and expenses 20 24 Miscellaneous 2 43 --------------------------- Total expenses 8,688 15,354 Fee waived by investment manager and/or expenses reduced by custodian fee expense offset arrangement (Note B) (1) (456) --------------------------- Total net expenses 8,687 14,898 --------------------------- Net investment income (loss) 10,123 23,438 --------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain on investment securities sold in unaffiliated issuers 79,344 35,406 Net realized gain on investment securities sold in non-controlled affiliated issuers (255) -- Net realized gain (loss) on option contracts (Note A) (4,403) -- Change in net unrealized appreciation (depreciation) of investment securities and option contracts (360,086) (545,041) --------------------------- Net loss on investments (285,400) (509,635) --------------------------- Net decrease in net assets resulting from operations $ (275,277) $ (486,197) ---------------------------
SEE NOTES TO FINANCIAL STATEMENTS B-46 For the Year Ended August 31, 1998 - ---------------------------------------------------------------------- Equity Managers Trust
GUARDIAN MANHATTAN PARTNERS PORTFOLIO PORTFOLIO PORTFOLIO ------------------------------------------------ INVESTMENT INCOME Income: Dividend income -- unaffiliated issuers $ 81,304 $ 1,610 $ 58,525 Dividend income -- non-controlled affiliated issuers 5,375 -- -- Interest income 30,752 1,798 7,756 Foreign taxes withheld (Note A) (820) (3) (305) ------------------------------------------------ Total income 116,611 3,405 65,976 ------------------------------------------------ Expenses: Investment management fee (Note B) 37,039 3,466 18,715 Accounting fees 10 10 10 Amortization of deferred organization and initial offering expenses (Note A) 23 9 16 Auditing fees 51 42 46 Custodian fees (Note B) 1,236 164 662 Insurance expense 124 9 49 Legal fees 23 26 23 Trustees' fees and expenses 78 11 41 Miscellaneous 3 13 70 ------------------------------------------------ Total expenses 38,587 3,750 19,632 Fee waived by investment manager and/or expenses reduced by custodian fee expense offset arrangement (Note B) (2) (2) -- ------------------------------------------------ Total net expenses 38,585 3,748 19,632 ------------------------------------------------ Net investment income (loss) 78,026 (343) 46,344 ------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain on investment securities sold in unaffiliated issuers 840,232 45,585 408,784 Net realized gain on investment securities sold in non-controlled affiliated issuers 47,582 -- -- Net realized gain (loss) on option contracts (Note A) 6,019 -- -- Change in net unrealized appreciation (depreciation) of investment securities and option contracts (2,420,985) (106,156) (872,798) ------------------------------------------------ Net loss on investments (1,527,152) (60,571) (464,014) ------------------------------------------------ Net decrease in net assets resulting from operations $(1,449,126) $ (60,914) $ (417,670) ------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS B-47 STATEMENTS OF CHANGES IN NET ASSETS - ---------------------------------------------------------------------- Equity Managers Trust
FOCUS GENESIS PORTFOLIO PORTFOLIO Year Year Ended Ended August 31, August 31, (000'S OMITTED) 1998 1997 1998 1997 ------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss) $ 10,123 $ 7,119 $ 23,438 $ 1,728 Net realized gain on investments 74,686 176,471 35,406 18,411 Change in net unrealized appreciation (depreciation) of investments (360,086) 298,137 (545,041) 211,059 ------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (275,277) 481,727 (486,197) 231,198 ------------------------------------------------------------- TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS: Additions 178,065 156,839 1,557,053 609,195 Reductions (158,751) (187,496) (342,152) (16,606) ------------------------------------------------------------- Net increase (decrease) in net assets resulting from transactions in investors' beneficial interests 19,314 (30,657) 1,214,901 592,589 ------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS (255,963) 451,070 728,704 823,787 NET ASSETS: Beginning of year 1,573,441 1,122,371 1,083,651 259,864 ------------------------------------------------------------- End of year $ 1,317,478 $ 1,573,441 $ 1,812,355 $ 1,083,651 -------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS B-48 - ---------------------------------------------------------------------- Equity Managers Trust
GUARDIAN MANHATTAN PARTNERS PORTFOLIO PORTFOLIO PORTFOLIO Year Year Year Ended Ended Ended August 31, August 31, August 31, 1998 1997 1998 1997 1998 1997 --------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss) $ 78,026 $ 66,858 $ (343) $ 1,154 $ 46,344 $ 28,316 Net realized gain on investments 893,833 871,150 45,585 180,525 408,784 531,668 Change in net unrealized appreciation (depreciation) of investments (2,420,985) 1,570,338 (106,156) 10,646 (872,798) 473,597 --------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (1,449,126) 2,508,346 (60,914) 192,325 (417,670) 1,033,581 --------------------------------------------------------------------------------- TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS: Additions 391,142 592,646 53,069 41,417 743,583 715,909 Reductions (1,912,418) (575,327) (90,539) (179,425) (320,149) (173,520) --------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from transactions in investors' beneficial interests (1,521,276) 17,319 (37,470) (138,008) 423,434 542,389 --------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS (2,970,402) 2,525,665 (98,384) 54,317 5,764 1,575,970 NET ASSETS: Beginning of year 8,758,207 6,232,542 621,743 567,426 3,575,573 1,999,603 --------------------------------------------------------------------------------- End of year $ 5,787,805 $ 8,758,207 $ 523,359 $ 621,743 $ 3,581,337 $ 3,575,573 ---------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS B-49 NOTES TO FINANCIAL STATEMENTS August 31, 1998 - ---------------------------------------------------------------------- Equity Managers Trust NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: 1) GENERAL: Neuberger&Berman Focus Portfolio ("Focus"), Neuberger&Berman Genesis Portfolio ("Genesis"), Neuberger&Berman Guardian Portfolio ("Guardian"), Neuberger&Berman Manhattan Portfolio ("Manhattan"), and Neuberger&Berman Partners Portfolio ("Partners") (collectively, the "Portfolios") are separate operating series of Equity Managers Trust ("Managers Trust"), a New York common law trust organized as of December 1, 1992. Managers Trust is registered as a diversified, open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"). Other regulated investment companies sponsored by Neuberger&Berman Management Incorporated ("N&B Management"), whose financial statements are not presented herein, also invest in Managers Trust. The assets of each series belong only to that series, and the liabilities of each series are borne solely by that series and no other. 2) PORTFOLIO VALUATION: Investment securities are valued as indicated in the notes following the Portfolios' Schedule of Investments. 3) FOREIGN CURRENCY TRANSLATION: The accounting records of the Portfolios are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange of such currency against the U.S. dollar to determine the value of investments, other assets and liabilities. Purchase and sale prices of securities, and income and expenses are translated into U.S. dollars at the prevailing rate of exchange on the respective dates of such transactions. 4) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are recorded on a trade date basis. Dividend income is recorded on the ex-dividend date or, for certain foreign dividends, as soon as the Portfolio becomes aware of the dividends. Non-cash dividends included in dividend income, if any, are recorded at the fair market value of the securities received. Interest income, including accretion of original issue discount, where applicable, and accretion of discount on short-term investments, is recorded on the accrual basis. Realized gains and losses from securities transactions and foreign currency transactions are recorded on the basis of identified cost. 5) FEDERAL INCOME TAXES: Managers Trust intends to comply with the requirements of the Internal Revenue Code. Each Portfolio of Managers Trust also intends to conduct its operations so that each of its investors will be able to qualify B-50 as a regulated investment company. Each Portfolio will be treated as a partnership for Federal income tax purposes and is therefore not subject to Federal income tax. 6) FOREIGN TAXES: Foreign taxes withheld represent amounts withheld by foreign tax authorities, net of refunds recoverable. 7) ORGANIZATION EXPENSES: Organization expenses incurred by each Portfolio were fully amortized as of August 31, 1998. 8) EXPENSE ALLOCATION: Each Portfolio bears all costs of its operations. Expenses incurred by Managers Trust with respect to any two or more portfolios are allocated in proportion to the net assets of such portfolios, except where a more appropriate allocation of expenses to each portfolio can otherwise be made fairly. Expenses directly attributable to a portfolio are charged to that portfolio. 9) CALL OPTIONS: Premiums received by each Portfolio upon writing a covered call option are recorded in the liability section of each Portfolio's Statement of Assets and Liabilities and are subsequently adjusted to the current market value. When an option is exercised, closed, or expired, the Portfolio realizes a gain or loss and the liability is eliminated. A Portfolio bears the risk of a decline in the price of the security during the period, although any potential loss during the period would be reduced by the amount of the option premium received. In general, written covered call options may serve as a partial hedge against decreases in value in the underlying securities to the extent of the premium received. All securities covering outstanding options are held in escrow by the custodian bank. Summary of option transactions for the year ended August 31, 1998:
VALUE WHEN FOCUS NUMBER WRITTEN - ------------------------------------------------------------------------- CONTRACTS OUTSTANDING 8/31/97 1,250 $ 1,985,185 CONTRACTS WRITTEN 4,000 1,496,778 CONTRACTS EXPIRED (1,000) (96,997) CONTRACTS EXERCISED (1,000) (371,987) CONTRACTS CLOSED (3,250) (3,012,979) ------------------------ CONTRACTS OUTSTANDING 8/31/98 0 $ 0 ------------------------
B-51
VALUE WHEN GUARDIAN NUMBER WRITTEN - --------------------------------------------------------------------------- CONTRACTS OUTSTANDING 8/31/97 7,997 $ 5,491,034 CONTRACTS WRITTEN 75,538 37,765,006 CONTRACTS EXPIRED (30,674) (18,082,401) CONTRACTS EXERCISED (34,876) (15,026,537) CONTRACTS CLOSED (10,967) (6,648,772) -------------------------- CONTRACTS OUTSTANDING 8/31/98 7,018 $ 3,498,330 --------------------------
10) SECURITY LENDING: Securities loans involve certain risks in the event a borrower should fail financially, including delays or inability to recover the lent securities or foreclose against the collateral. The investment manager, under the general supervision of Managers Trust's Board of Trustees, monitors the creditworthiness of the parties to whom the Portfolios make security loans. The Portfolios will not lend securities on which covered call options have been written, or lend securities on terms which would prevent each of their investors from qualifying as a regulated investment company. Prior to June 1, 1998, the Portfolios made securities loans to Neuberger&Berman, LLC ("Neuberger"), the Portfolios' principal broker and sub-adviser. These loans were made in accordance with an exemptive order issued by the Securities and Exchange Commission under the 1940 Act. The Portfolios received cash as collateral against the lent securities, which was maintained at not less than 100% of the market value of the lent securities during the period of the loan. The Portfolios received income earned on the lent securities and a portion of the income earned on the cash collateral. During the year ended August 31, 1998, the Portfolios lent securities to Neuberger. Effective June 1, 1998, the Portfolios entered into a Securities Lending Agreement with Morgan Stanley & Co. Incorporated ("Morgan"). The Portfolios receive cash collateral equal to at least 100% of the current market value of the loaned securities. The Portfolios invest the cash collateral in the N&B Securities Lending Quality Fund, LLC ("investment vehicle"), which is managed by State Street Bank and Trust Company pursuant to guidelines approved by Managers Trust's investment manager. Income earned on the investment vehicle is paid to Morgan monthly. The Portfolios receive a fee, payable monthly, B-52 negotiated by the Portfolios and Morgan, based on the number and duration of the lending transactions. At August 31, 1998, the value of the securities loaned and the value of the collateral were as follows:
VALUE OF SECURITIES VALUE OF LOANED COLLATERAL - ------------------------------------------------------------------------------ FOCUS $ 19,427,906 $ 20,989,077 GENESIS 41,306,509 44,199,387 GUARDIAN 31,037,719 32,636,664 MANHATTAN 54,079,669 60,534,515 PARTNERS 35,512,750 37,438,042
11) REPURCHASE AGREEMENTS: Each Portfolio may enter into repurchase agreements with institutions that each Portfolio's investment manager has determined are creditworthy. Each repurchase agreement is recorded at cost. A Portfolio requires that the securities purchased in a repurchase transaction be transferred to the custodian in a manner sufficient to enable a Portfolio to obtain those securities in the event of a default under the repurchase agreement. A Portfolio monitors, on a daily basis, the value of the securities transferred to ensure that their value, including accrued interest, is greater than amounts owed to a Portfolio under each such repurchase agreement. NOTE B -- MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES: Each Portfolio retains N&B Management as its investment manager under a Management Agreement. For such investment management services, each Portfolio (except Genesis) pays N&B Management a fee at the annual rate of 0.55% of the first $250 million of that Portfolio's average daily net assets, 0.525% of the next $250 million, 0.50% of the next $250 million, 0.475% of the next $250 million, 0.45% of the next $500 million, and 0.425% of average daily net assets in excess of $1.5 billion. Genesis has contracted to pay N&B Management a fee for investment management services at the annual rate of 0.85% of the first $250 million of that Portfolio's average daily net assets, 0.80% of the next $250 million, 0.75% of the next $250 million, 0.70% of the next $250 million, and 0.65% of average daily net assets in excess of $1 billion. Prior to December 15, 1997, N&B Management had voluntarily agreed to waive a portion of the management fee borne directly by Genesis and indirectly by Neuberger&Berman Genesis Assets to reduce the annual fee by 0.10% per annum of average daily net assets of Genesis. Effective December 15, 1997, the above waiver was terminated. All of the capital stock of N&B Management is owned by individuals who are also principals of Neuberger, a member firm of The New York Stock Exchange and sub-adviser to each Portfolio. Neuberger is retained by N&B Management to furnish it with investment recommendations and research information without added cost to B-53 each Portfolio. Several individuals who are officers and/or trustees of Managers Trust are also principals of Neuberger and/or officers and/or directors of N&B Management. Each Portfolio has an expense offset arrangement in connection with its custodian contract. In addition, in connection with the Securities Lending Agreement between each Portfolio and Morgan, Morgan has agreed to reimburse each Portfolio for transaction costs incurred on security lending transactions charged by the custodian. The impact of these arrangements, respectively, reflected in the Statements of Operations under the caption Custodian fees, was a reduction of $750 and $376, $2,309 and $744, $721 and $1,160, $1,737 and $640, and $455 and $280, for Focus, Genesis, Guardian, Manhattan, and Partners, respectively. NOTE C -- SECURITIES TRANSACTIONS: During the year ended August 31, 1998, there were purchase and sale transactions (excluding short-term securities and option contracts) as follows:
PURCHASES SALES - ------------------------------------------------------------------------------------ FOCUS $ 1,051,182,326 $ 1,027,948,723 GENESIS 1,512,422,858 340,293,319 GUARDIAN 4,737,515,488 5,604,611,486 MANHATTAN 554,191,211 571,714,146 PARTNERS 4,736,758,358 4,293,047,580
During the year ended August 31, 1998, there were brokerage commissions on securities paid to Neuberger and other brokers as follows:
OTHER NEUBERGER BROKERS TOTAL - --------------------------------------------------------------------------------------------- FOCUS $ 998,930 $ 1,052,077 $ 2,051,007 GENESIS 1,159,143 1,260,016 2,419,159 GUARDIAN 5,733,976 5,824,547 11,558,523 MANHATTAN 546,227 586,082 1,132,309 PARTNERS 6,281,978 3,746,735 10,028,713
In addition, Neuberger's share of the total interest income earned for the year ended August 31, 1998, from the collateralization of securities loaned to or through Neuberger was $101,879, $152,375, $1,035,708, $212,611, and $141,707, for Focus, Genesis, Guardian, Manhattan, and Partners, respectively. NOTE D -- COMBINED LINE OF CREDIT: Effective June 1, 1998, Genesis and Manhattan were two of the holders of an unsecured $100,000,000 combined line of credit with State Street Bank and Trust Company ($60,000,000 prior to June 1, 1998), to be used only for temporary or emergency purposes. Interest is charged on borrowings under this agreement at the overnight Federal Funds Rate plus 0.75% per annum. A facility fee of 0.07% (0.1% prior to June 1, 1998) per annum of the available line of credit is charged, of which B-54 Genesis and Manhattan each has agreed to pay its pro rata share, based on the ratio of its individual net assets to the net assets of all the participants at the time the fee is due and payable. The fee is paid quarterly in arrears. No compensating balance is required. Other investment companies managed by N&B Management also participate in the line of credit on the same terms. Because several investment companies participate, there is no assurance that an individual Portfolio will have access to the entire $100,000,000 at any particular time. Genesis and Manhattan had no loans outstanding pursuant to this line of credit at August 31, 1998. During the year ended August 31, 1998, neither Genesis nor Manhattan utilized this line of credit. NOTE E -- INVESTMENTS IN NON-CONTROLLED AFFILIATES*:
BALANCE OF BALANCE OF SHARES GROSS GROSS SHARES HELD PURCHASES SALES HELD VALUE FOCUS AUGUST 31, AND AND AUGUST 31, AUGUST 31, NAME OF ISSUER: 1997 ADDITIONS REDUCTIONS 1998 1998 - ----------------------------------------------------------------------------------------------------------------------- ADVANTA Corp. Class A 1,691,500 15,000 757,806 948,694 $10,732,000 ADVANTA Corp. Class B 0 910,000 0 910,000 9,327,000 DT Industries** 1,045,000 0 1,045,000 0 0 Sierra Health Services** 934,500 475,500 50,000 1,360,000 21,760,000
BALANCE OF BALANCE OF SHARES GROSS GROSS SHARES HELD PURCHASES SALES HELD VALUE GENESIS AUGUST 31, AND AND AUGUST 31, AUGUST 31, NAME OF ISSUER: 1997 ADDITIONS REDUCTIONS 1998 1998 - ------------------------------------------------------------------------------------------------------------------ AAR Corp. 617,600 1,131,050 0 1,748,650 $38,689,000 ADAC Laboratories 683,100 320,000 0 1,003,100 22,507,000 Alliant Techsystems 140,800 507,700 0 648,500 42,558,000 Aviall Inc. 947,000 247,100 0 1,194,100 15,225,000 DONCASTERS PLC ADR 401,500 66,800 0 468,300 9,132,000 Eltron International 0 420,000 0 420,000 11,550,000 Inprise Corp. 1,378,700 1,227,600 0 2,606,300 13,846,000 Pameco Corp. 119,900 161,900 0 281,800 4,790,000 SOS Staffing Services 139,900 502,000 0 641,900 8,465,000
B-55
BALANCE OF BALANCE OF SHARES GROSS GROSS SHARES HELD PURCHASES SALES HELD VALUE GUARDIAN AUGUST 31, AND AND AUGUST 31, AUGUST 31, NAME OF ISSUER: 1997 ADDITIONS REDUCTIONS 1998 1998 - -------------------------------------------------------------------------------------------------------------------------- AGCO Corp.** 4,737,400 622,800 5,360,200 0 $ 0 Cabot Corp. 2,662,300 1,178,700 0 3,841,000 83,542,000 Capital One Financial** 4,445,000 0 1,357,100 3,087,900 270,191,000 Coltec Industries 4,893,900 0 30,000 4,863,900 69,918,000 Countrywide Credit Industries 5,445,000 1,145,000 0 6,590,000 246,713,000 Foundation Health Systems 9,065,800 909,100 35,000 9,939,900 111,203,000 Mark IV Industries 2,130,081 822,000 10,000 2,942,081 41,741,000 PacifiCare Health Systems Class B 1,327,790 660,774 0 1,988,564 125,279,000 UCAR International** 3,404,400 575,000 1,803,200 2,176,200 39,444,000 Wellpoint Health Networks 2,226,396 1,448,600 0 3,674,996 196,153,000 Zeigler Coal Holding** 1,702,000 0 1,702,000 0 0
*AFFILIATED ISSUERS, AS DEFINED IN THE 1940 ACT, INCLUDE ISSUERS IN WHICH THE PORTFOLIO HELD 5% OR MORE OF THE OUTSTANDING VOTING SECURITIES. **AT AUGUST 31, 1998, THE ISSUERS OF THESE SECURITIES WERE NO LONGER AFFILIATED WITH THE PORTFOLIO. B-56 FINANCIAL HIGHLIGHTS Neuberger&Berman - -------------------------------------------------------------------------------- Focus Portfolio
Year Ended August 31, 1998 1997 1996 1995 1994 ------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Gross Expenses(1) .51% .53% .54% -- -- ------------------------------------------------------------- Net Expenses .51% .53% .54% .57% .58% ------------------------------------------------------------- Net Investment Income .59% .54% 1.04% 1.05% 1.16% ------------------------------------------------------------- Portfolio Turnover Rate 64% 63% 39% 36% 52% ------------------------------------------------------------- Net Assets, End of Year (in millions) $ 1,317.5 $ 1,573.4 $ 1,122.4 $ 969.2 $ 645.0 -------------------------------------------------------------
1) For fiscal periods ending after September 1, 1995, the Portfolio is required to calculate an expense ratio without taking into consideration any expense reductions related to expense offset arrangements. B-57 FINANCIAL HIGHLIGHTS Neuberger&Berman - -------------------------------------------------------------------------------- Genesis Portfolio
Year Ended August 31, 1998 1997 1996 1995 1994 ------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS: Gross Expenses(1) .72% .77% .85% -- -- ------------------------------------------------------------ Net Expenses .72%(2) .77%(2) .85%(2) .94%(2) .98% ------------------------------------------------------------ Net Investment Income 1.13%(2) .32%(2) .27%(2) .25%(2) .18% ------------------------------------------------------------ Portfolio Turnover Rate 18% 18% 21% 37% 63% ------------------------------------------------------------ Net Assets, End of Year (in millions) $ 1,812.4 $ 1,083.7 $ 259.9 $ 142.2 $ 138.6 ------------------------------------------------------------
1) For fiscal periods ending after September 1, 1995, the Portfolio is required to calculate an expense ratio without taking into consideration any expense reductions related to expense offset arrangements. 2) Had the investment manager not waived a portion of the management fee, the annualized ratios of net expenses to average daily net assets would have been:
YEAR ENDED AUGUST 31, 1998 1997 1996 1995 - ------------------------------------------------------------------------ Net Expenses .74% .87% .95% .97
B-58 FINANCIAL HIGHLIGHTS Neuberger&Berman - -------------------------------------------------------------------------------- Guardian Portfolio
Year Ended August 31, 1998 1997 1996 1995 1994 ----------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Gross Expenses(1) .46% .46% .46% -- -- ----------------------------------------------------------------- Net Expenses .46% .46% .46% .48% .50% ----------------------------------------------------------------- Net Investment Income .92% .89% 1.72% 1.72% 1.66% ----------------------------------------------------------------- Portfolio Turnover Rate 60% 50% 37% 26% 24% ----------------------------------------------------------------- Net Assets, End of Year (in millions) $ 5,787.8 $ 8,758.2 $ 6,232.5 $ 4,613.2 $ 2,480.3 -----------------------------------------------------------------
1) For fiscal periods ending after September 1, 1995, the Portfolio is required to calculate an expense ratio without taking into consideration any expense reductions related to expense offset arrangements. B-59 FINANCIAL HIGHLIGHTS Neuberger&Berman - -------------------------------------------------------------------------------- Manhattan Portfolio
Year Ended August 31, 1998 1997 1996 1995 1994 ------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Gross Expenses(1) .57% .59% .58% -- -- ------------------------------------------------------- Net Expenses .57% .59% .58% .59% .59% ------------------------------------------------------- Net Investment Income (Loss) (.05%) .20% .13% .42% .53% ------------------------------------------------------- Portfolio Turnover Rate 90% 89% 53% 44% 50% ------------------------------------------------------- Net Assets, End of Year (in millions) $ 523.4 $ 621.7 $ 567.4 $ 645.4 $ 521.7 -------------------------------------------------------
1) For fiscal periods ending after September 1, 1995, the Portfolio is required to calculate an expense ratio without taking into consideration any expense reductions related to expense offset arrangements. B-60 FINANCIAL HIGHLIGHTS Neuberger&Berman - -------------------------------------------------------------------------------- Partners Portfolio
Year Ended August 31, 1998 1997 1996 1995 1994 ----------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Gross Expenses(1) .47% .48% .51% -- -- ----------------------------------------------------------------- Net Expenses .47% .48% .51% .53% .54% ----------------------------------------------------------------- Net Investment Income 1.11% 1.05% 1.26% 1.13% .75% ----------------------------------------------------------------- Portfolio Turnover Rate 109% 77% 96% 98% 75% ----------------------------------------------------------------- Net Assets, End of Year (in millions) $ 3,581.3 $ 3,575.6 $ 1,999.6 $ 1,623.5 $ 1,340.3 -----------------------------------------------------------------
1) For fiscal periods ending after September 1, 1995, the Portfolio is required to calculate an expense ratio without taking into consideration any expense reductions related to expense offset arrangements. B-61 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Trustees of Equity Managers Trust and Owners of Beneficial Interest of Neuberger&Berman Manhattan Portfolio In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Neuberger&Berman Manhattan Portfolio (the "Portfolio") at August 31, 1998, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated therein in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Portfolio's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities owned as of August 31, 1998 by correspondence with the custodian and brokers, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Boston, Massachusetts October 9, 1998 B-62 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Board of Trustees Equity Managers Trust and Owners of Beneficial Interest of Neuberger&Berman Focus Portfolio Neuberger&Berman Genesis Portfolio Neuberger&Berman Guardian Portfolio and Neuberger&Berman Partners Portfolio We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of the Neuberger&Berman Focus Portfolio, Neuberger&Berman Genesis Portfolio, Neuberger&Berman Guardian Portfolio, and Neuberger&Berman Partners Portfolio, four of the series constituting Equity Managers Trust (the "Trust"), as of August 31, 1998, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of August 31, 1998, by correspondence with the custodian and brokers or other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the above mentioned series of Equity Managers Trust at August 31, 1998, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and their financial highlights for each of the periods indicated therein, in conformity with generally accepted accounting principles. [SIGNATURE] Boston, Massachusetts /s/ ERNST & YOUNG LLP October 5, 1998 B-63 OTHER INFORMATION DIRECTORY INVESTMENT MANAGER, ADMINISTRATOR AND DISTRIBUTOR Neuberger&Berman Management Incorporated 605 Third Avenue 2nd Floor New York, NY 10158-0180 800-877-9700 Institutional Services 800-366-6264 SUB-ADVISER Neuberger&Berman, LLC 605 Third Avenue New York, NY 10158-3698 CUSTODIAN AND SHAREHOLDER SERVICING AGENT State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110 ADDRESS CORRESPONDENCE TO: Neuberger&Berman Funds Institutional Services 605 Third Avenue 2nd Floor New York, NY 10158-0180 LEGAL COUNSEL Kirkpatrick & Lockhart LLP 1800 Massachusetts Avenue, NW 2nd Floor Washington, DC 20036-1800 INDEPENDENT ACCOUNTANTS/AUDITORS PricewaterhouseCoopers LLP One Post Office Square Boston, MA 02109 Ernst & Young LLP 200 Clarendon Street Boston, MA 02116 OFFICERS AND TRUSTEES Stanley Egener CHAIRMAN OF THE BOARD AND TRUSTEE Lawrence Zicklin PRESIDENT AND TRUSTEE Faith Colish TRUSTEE Howard A. Mileaf TRUSTEE Edward I. O'Brien TRUSTEE John T. Patterson, Jr. TRUSTEE John P. Rosenthal TRUSTEE Cornelius T. Ryan TRUSTEE Gustave H. Shubert TRUSTEE Daniel J. Sullivan VICE PRESIDENT Michael J. Weiner VICE PRESIDENT Richard Russell TREASURER Claudia A. Brandon SECRETARY Barbara DiGiorgio ASSISTANT TREASURER Celeste Wischerth ASSISTANT TREASURER Stacy Cooper-Shugrue ASSISTANT SECRETARY C. Carl Randolph ASSISTANT SECRETARY Neuberger&Berman Management Inc., Neuberger&Berman Focus Assets, Neuberger&Berman Genesis Assets, Neuberger&Berman Guardian Assets, Neuberger&Berman Manhattan Assets, Neuberger&Berman Partners Assets, and Neuberger&Berman Equity Assets are registered service marks of Neuberger&Berman Management Inc. - -C- 1998 Neuberger&Berman Management Inc. C-1 Neuberger&Berman Management Inc.-Registered Trademark- 605 THIRD AVENUE 2ND FLOOR NEW YORK, NY 10158-0180 SHAREHOLDER SERVICES 800-877-9700 INSTITUTIONAL SERVICES 800-366-6264 WWW.NBFUNDS.COM Statistics and projections in this report are derived from sources deemed to be reliable but cannot be regarded as a representation of future results of the Funds. This report is prepared for the general information of shareholders and is not an offer of shares of the Funds. Shares are sold only through the currently effective prospectus, which must precede or accompany this report. [LOGO] PRINTED ON RECYCLED PAPER NBEAAR020898 -----END PRIVACY-ENHANCED MESSAGE-----