<PAGE>
ANNUAL REPORT
- ------------------------------------------------------------------------------
October 31, 1996
NEUBERGER&BERMAN
INCOME FUNDS-R-
Neuberger&Berman
GOVERNMENT MONEY FUND
Neuberger&Berman
CASH RESERVES
Neuberger&Berman
ULTRA SHORT BOND FUND
Neuberger&Berman
LIMITED MATURITY BOND FUND
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
THE FUNDS
PRESIDENT'S LETTER 4
GROWTH OF A DOLLAR
CHARTS
COMPARISON OF A
$10,000 INVESTMENT
Ultra Short Bond Fund 10
Limited Maturity Bond
Fund 11
FINANCIAL STATEMENTS 12
FINANCIAL HIGHLIGHTS
PER SHARE DATA
Government Money Fund 23
Cash Reserves 24
Ultra Short Bond Fund 25
Limited Maturity Bond
Fund 26
REPORT OF
INDEPENDENT AUDITORS 30
THE PORTFOLIOS
SCHEDULE OF
INVESTMENTS
Government Money
Portfolio 32
Cash Reserves Portfolio 33
Ultra Short Bond
Portfolio 37
Limited Maturity Bond
Portfolio 41
FINANCIAL STATEMENTS 48
FINANCIAL HIGHLIGHTS 58
REPORT OF
INDEPENDENT AUDITORS 60
DIRECTORY 61
OFFICERS AND
TRUSTEES 62
</TABLE>
3
<PAGE>
PRESIDENT'S LETTER* December 13, 1996
Dear Shareholder,
At the time of your Fund's October 1995 Annual Report, bond prices were in the
midst of a strong rally, with tepid economic growth and benign inflation
fostering a positive environment for fixed-income securities. After weathering a
significant inflation scare this spring and summer, bonds were benefiting from
similarly favorable economic conditions as the current fiscal year ended.
The twelve months through October 31, 1996, were an unstable time for interest
rates. The Federal Reserve Board (the "Fed") made adjustments to monetary
policy, reducing the Federal funds rate from 5.75% to 5.25%, and lowering the
Discount Rate by a quarter percentage point to 5%. The Fed's steady approach
kept shorter-maturity securities in a narrow range, with three-month Treasury
bills, for example, trading between about 4.9% and 5.6% over the fiscal year.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURNS ON U.S. TREASURY
SECURITIES
<S> <C> <C>
3-year Treasury Notes 30-year Treasury Bonds
Nov-95 1.15% 3.15%
Dec-95 2.06035% 6.048515%
Jan-96 3.029923% 5.634926%
Feb-96 2.174775% -0.565844%
Mar-96 1.725206% -2.604244%
Apr-96 1.42003% -5.058618%
May-96 1.47074% -5.514335%
Jun-96 2.36383% -3.870286%
Jul-96 2.670774% -4.225966%
Aug-96 2.670774% -5.825392%
Sep-96 4.11083% -2.971901%
Oct-96 5.703726% 1.112982%
Source: Salomon Brothers
</TABLE>
The intermediate- and long-term sectors of the bond market, however, were
destabilized by conflicting signals on growth and inflation. At first, most
signs pointed toward a continuation of relatively slow but steady economic
growth. The correspondingly sanguine outlook for inflation nurtured steadily
lower rates, with the yield on the long
*Statistical sources: Federal Reserve Board; Press reports, Bloomberg Financial
Markets, Labor Department, Commerce Department, Bureau of Labor Statistics.
4
<PAGE>
Treasury bond (which is the benchmark 30-year Treasury) falling from 6.34% in
November to 5.95% in January. But the market's tranquility was shattered with
the news that 624,000 non-farm jobs were added to the nation's payrolls in
February. Further signs of above-average economic growth appeared in the form of
rising commodity prices, strong consumer confidence, a 4.8% increase in
second-quarter gross domestic product, and hints of labor-cost pressures. At the
peak of concerns about economic overheating in July, the yield on the Treasury's
30-year bond climbed to 7.19%.
Since August, commodity prices and the pace of economic growth have declined,
and labor costs increased by just 0.6% in the third quarter. By your Fund's
fiscal year end, yields on the long Treasury bond had fallen back to 6.64%, or
only 0.30% above their yield in November 1995.
Since bond prices move inversely to interest rates, the Fed's stable monetary
policy and the sometimes worrisome inflation data helped short-term Treasuries
outperform long-term Treasuries over the fiscal year. The stronger-than-expected
economy also helped corporate issues beat Treasury debt with similar maturities,
while upward pressure on long-term rates allowed mortgage-backed securities to
outperform both Treasury debt and most corporate bonds. Treasury securities
usually underperform corporate bonds during periods of economic growth. Your
Neuberger&Berman Income Funds were in a position to benefit from these trends.
We strive to merit your continued confidence and remain committed to seeking
consistent returns in all types of market environments. A discussion of each
portfolio's strategy during the 12-month period covered by the Annual Report
follows.
CASH RESERVES/GOVERNMENT MONEY FUND After January, strong employment data and
the resulting expectation of the Fed, raising interest rates created swings in
short maturity interest rates in excess of 100 basis points throughout the
fiscal period. We began the year with rates for overnight to one-year maturity
securities mere basis points apart, and closed with short rates having dropped
and longer rates having increased by 30 basis points. As is usually the case in
times of market volatility, the money market sector continued to grow as
investors sought to protect their principal.
5
<PAGE>
The universe of high-quality short-term securities from which we make our
selections actually fluctuated in excess of 35 basis points during the final
months of the fiscal year, as the market stabilized when the Fed kept rates
steady at its September meeting. During this time we focused our attention on
purchases of assets with six-month maturities, at times locking in rates that
were up to 25 basis points higher than overnight to 90-day rates. We extended
the weighted average portfolio maturity of Cash Reserves and Government Money
during the latter portion of the final quarter to lock in rates at a time when
it appeared there was minimal risk of volatility.
Government Money continued to hold U.S. Treasury debt, which is not subject to
most state and local taxes. On the other hand, Cash Reserves closed the year
with a major commitment to high-quality commercial paper, bank deposits, and
variable-rate securities (those which change rates based on various money market
benchmarks such as Treasury bills). The greatest return on bank deposits was
found among the issues of major European and Canadian banks. However, we were
able to capture approximately 30 basis points of additional yield by purchasing
commercial paper issued by major U.S. corporations as compared to similar
Treasury bills. In our view, these corporations continue to show financial
strength and strong cash flow and should add value to our portfolio with minimal
credit risk.
ULTRA SHORT BOND FUND. Fixed income bulls overwhelmed their predominantly
bearish brethren in the final moments of the third quarter of 1996. Most market
pundits, predicting a rate hike by the Fed, were caught by surprise as the Fed
held rates steady, and key economic statistics indicated no rate rise was
imminent. Buyers overwhelmed sellers, driving interest rates lower across the
board. Yields on short-term securities fell by about 30 basis points in the
closing days of September as renewed confidence was established, returning us to
the positive market environment which began the fiscal year.
As a result of the bond market's encouraging performance, we have gradually
extended the weighted average portfolio duration (a measure of the Portfolio's
exposure to interest rate risk) to 1.5 years by the close of the fiscal year, as
opposed to the more defensive stance we had taken
6
<PAGE>
from February through September. As we reduced our commitment to less volatile
money market issues, we looked for value in longer-term securities, locking in
higher interest rates.
During fiscal 1996, the spread of interest rates between 6-month and 2-year
securities changed from a relatively narrow difference of 5 basis points, to a
wider difference of 47 basis points. At the end of the fiscal year, 75% of the
portfolio was invested in securities maturing in more than one year. The U.S.
inflation rate appears to be benign and our portfolio offers an above-market
return to the majority of money market funds and, we believe, is particularly
attractive in inflation-adjusted terms.
At fiscal year-end, the portfolio shows a significant commitment to U.S.
Treasuries, AAA-rated asset-backed securities, and U.S. Government agency
mortgage-backed securities. U.S. Treasuries with maturities greater than one
year participated in the recent market price appreciation and have been a sector
of value for our portfolio, which had 24% invested in Treasuries greater than
one year at October 31, 1996. Also, we have committed 19% of the portfolio to
the asset-backed sector. These AAA-rated securities have increased the total
return of the portfolio with minimal credit risk. As always, our constant
internal analysis of credit trends and their effect on issuers continues to
indicate the presence of strong cash flows and strong balance sheets. Finally,
we have increased the portfolio's commitment to the mortgage-backed sector to
18%, as the attractive return of these securities has been passed over by a
market concerned by prepayment fears. Our selection process has focused on those
issues which, we believe, should be unaffected by increased prepayments, giving
us an opportunity to add incremental yield to the portfolio.
LIMITED MATURITY BOND FUND. The fiscal period November 1, 1995 to October 31,
1996 ended on an upbeat note for the bond market in general, and the Limited
Maturity Bond Fund in particular, as yields across all maturities fell during
September and October. Yields in the 1- to 5-year maturity range ended the
period only modestly higher (10 to 25 basis points) than at the start of the
fiscal year. In between, however, the bond market was on a roller coaster ride,
with interest rates falling early in the period, then rising extremely rapidly,
and finally declining once again for the final rally. Managing our weighted
average
7
<PAGE>
portfolio duration (a measure of the Portfolio's exposure to interest rate risk)
during this period of volatility remained consistent with our trend-following
style. For example, in the early portion of the year our duration was a
relatively long 3 years on average as we took advantage of falling interest
rates. When the trend reversed in February and March as a result of signs of
increased economic growth, higher inflation expectations, and comments by Fed
Chairman Alan Greenspan, we shortened duration several times, including a low
for the year of 2.2 years which was reached in June. By September, the market
seemed to have overreacted to the economic signals, and from a technical and
fundamental standpoint appeared undervalued. We lengthened the weighted average
portfolio duration to just over 2.5 years at the close of our fiscal period.
Yields fell from September through the end of the fiscal year, which benefited
the portfolio due to its longer duration.
Corporate bonds remained the largest sector in the portfolio as we continued
to find value through our bottom-up bond selection process (looking at
individual bonds rather than average sector prices) despite a generally
expensive (i.e., relatively small incremental yields compared to comparable
duration Treasury securities) corporate bond market. The below-investment grade
segment of our holdings outperformed all other sectors, due to the healthy
market conditions in high yield bonds as well as effective individual security
selection. Our research staff identified several bonds during the period that
appeared underpriced relative to their credit fundamentals and which we added to
the portfolio. These included Tenet Healthcare, a leading hospital firm, which
was put on watch for a potential upgrade during the period by S&P. This
potential upgrade resulted in the market pricing these bonds at a tighter spread
(yield differentials) to Treasuries, which resulted in their significant
outperformance of the market. The below-investment grade portion was 9% of the
portfolio at the end of the fiscal year. Investment grade bonds also performed
well, with restructuring at firms such as Tenneco Inc. and Alco Capital
Resource, Inc. resulting in higher prices for their bonds, relative to
comparable duration Treasuries.
Investments in mortgage-backed and asset-backed securities accounted for the
majority of the remainder of the portfolio. The asset-backed securities are all
rated "AAA" and are backed by pools of credit card receivables, auto loans and
leases, or equipment loans. While the increase in consumer delinquencies on
credit cards has received a lot of
8
<PAGE>
media attention, the asset-backed securities in our portfolio are of the highest
quality. The bonds in our portfolio have outperformed comparable duration
Treasury securities as the collateral backing these securities has performed
within the bond market's and the rating agencies' expectations. The mortgage
market performed well throughout the second half of the year, and our investment
in 7-year and 15-year agency pass-through mortgage-backed securities added to
the Fund's return.
Sincerely,
/s/ Theodore P. Giuliano
Theodore P. Giuliano
President and Trustee
Neuberger&Berman Income Funds
The composition and holdings of the Portfolios are subject to change.
There is no assurance that Government Money Fund or Cash Reserves will be able
to maintain a stable net asset value of $1.00 per share. The value of either
Fund's shares, like the share values of all other mutual funds, is neither
insured nor guaranteed by the U.S. Government. The return on an investment in
Government Money Fund and Cash Reserves will fluctuate. Results represent past
performance and do not indicate future results.
9
<PAGE>
COMPARISON OF A $10,000 INVESTMENT
Neuberger&Berman October 31, 1996
- ----------------------------------------------------------------------
Ultra Short Bond Fund
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C>
Ultra Short 6-Month Salomon
Bond Fund Treasury Bill Index
11/7/86 $10,000 $10,000
10/31/87 $10,518 $10,599
1988 $11,271 $11,312
1989 $12,291 $12,298
1990 $13,272 $13,308
1991 $14,286 $14,186
1992 $14,920 $14,797
1993 $15,448 $15,281
1994 $15,750 $15,886
1995 $16,736 $16,836
1996 $17,611 $17,750
Average Annual Total Return 1
Ultra Short 6-Month Salomon
Bond Fund Treasury Bill Index 2
1 Year +5.23% +5.42%
5 Year +4.27% +4.58%
Life of Fund +5.83% +5.91%
</TABLE>
The inception date of Neuberger&Berman Ultra Short Bond Fund is 11/7/86.
Neuberger&Berman Management Inc. has voluntarily undertaken to reimburse
Ultra Short Bond Fund for its operating expenses and its pro rata share of its
Portfolio's operating expenses which, in the aggregate, exceed .65% per annum of
Ultra Short Bond Fund's average daily net assets. This arrangement can be
terminated upon 60 days' notice. Absent such arrangement, the average annual
total returns would have been less.
1. "Total Return" includes reinvestment of all income dividends and capital gain
distributions. Results represent past performance and do not indicate future
results. The value of an investment in the Fund and the return on the investment
both will fluctuate, and redemption proceeds may be higher or lower than an
investor's original cost.
2. The 6-Month Salomon Treasury Bill Index is an unmanaged index of the 6 most
recent 6-month Treasury bill securities. This index consists of a moving 6-month
average yield (not total return) of the 6-month Treasury bills. 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.
10
<PAGE>
COMPARISON OF A $10,000 INVESTMENT
Neuberger&Berman October 31, 1996
- ----------------------------------------------------------------------
Limited Maturity Bond Fund
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C>
Limited
Maturity Merrill Lynch 1-3
Bond Fund Year Treasury Index
10/31/86 $10,000 $10,000
1987 $10,328 $10,530
1988 $11,179 $11,328
1989 $12,248 $12,394
1990 $13,210 $13,478
1991 $14,649 $14,998
1992 $15,801 $16,227
1993 $16,921 $17,172
1994 $16,942 $17,375
1995 $18,352 $18,930
1996 $19,350 $20,049
Average Annual Total Return 1
Limited Maturity Merrill Lynch 1-3
Bond Fund Year Treasury Index 2
1 Year +5.44% +5.91%
5 Year +5.72% +5.98%
10 Year +6.82% +7.20%
Life of Fund +6.98% +7.42%
</TABLE>
The inception date of Neuberger&Berman Limited Maturity Bond Fund is 6/9/86.
Neuberger&Berman Management Inc. has voluntarily undertaken to reimburse
Limited Maturity Bond Fund for its operating expenses and its pro rata share of
its Portfolio's operating expenses which, in the aggregate, exceed .70% per
annum of Limited Maturity Bond Fund's average daily net assets. This arrangement
can be terminated upon 60 days' notice. Absent such arrangement, the average
annual total returns would have been less.
1. "Total Return" includes reinvestment of all income dividends and capital gain
distributions. Results represent past performance and do not indicate future
results. The value of an investment in the Fund and the return on the investment
both will fluctuate, and redemption proceeds may be higher or lower than an
investor's original cost.
2. The Merrill Lynch 1-3 Year Treasury Index is an unmanaged total return market
value index consisting of all coupon-bearing U.S. Treasury publicly placed debt
securities with maturities between 1 and 3 years. 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.
11
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
Neuberger&Berman
- ----------------------------------------------------------------------
Income Funds
<TABLE>
<CAPTION>
GOVERNMENT
(000'S OMITTED EXCEPT PER SHARE AMOUNTS) MONEY FUND
----------
<S> <C>
ASSETS
Investment in corresponding Portfolio, at
value (Note A) $362,482
Receivable for Trust shares sold 1,261
----------
363,743
----------
LIABILITIES
Dividends payable 14
Payable for Trust shares redeemed 189
Payable to administrator -- net (Note B) 78
Accrued expenses 74
----------
355
----------
NET ASSETS at value $363,388
----------
NET ASSETS consist of:
Par value $ 363
Paid-in capital in excess of par value 363,031
Accumulated net realized losses on
investment (6)
Net unrealized appreciation (depreciation)
in value of investment --
----------
NET ASSETS at value $363,388
----------
SHARES OUTSTANDING
($.001 par value; unlimited shares
authorized) 363,394
----------
NET ASSET VALUE, offering and redemption price per
share $1.00
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
October 31, 1996
- ----------------------------------------------------------------------
Income Funds
<TABLE>
<CAPTION>
CASH ULTRA SHORT LIMITED MATURITY
RESERVES BOND FUND BOND FUND
------------------------------------------
<S> <C> <C> <C>
ASSETS
Investment in corresponding Portfolio, at
value (Note A) $483,975 $89,426 $246,056
Receivable for Trust shares sold 498 79 92
------------------------------------------
484,473 89,505 246,148
------------------------------------------
LIABILITIES
Dividends payable 11 53 193
Payable for Trust shares redeemed 2,229 455 147
Payable to administrator -- net (Note B) 119 12 60
Accrued expenses 116 34 59
------------------------------------------
2,475 554 459
------------------------------------------
NET ASSETS at value $481,998 $88,951 $245,689
------------------------------------------
NET ASSETS consist of:
Par value $ 482 $ 9 $ 25
Paid-in capital in excess of par value 481,527 93,054 256,045
Accumulated net realized losses on
investment (11) (4,449) (9,334)
Net unrealized appreciation (depreciation)
in value of investment -- 337 (1,047)
------------------------------------------
NET ASSETS at value $481,998 $88,951 $245,689
------------------------------------------
SHARES OUTSTANDING
($.001 par value; unlimited shares
authorized) 482,009 9,371 24,597
------------------------------------------
NET ASSET VALUE, offering and redemption price per
share $1.00 $9.49 $9.99
------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
STATEMENTS OF OPERATIONS
Neuberger&Berman
- ----------------------------------------------------------------------
Income Funds
<TABLE>
<CAPTION>
GOVERNMENT
(000'S OMITTED) MONEY FUND
----------
<S> <C>
INVESTMENT INCOME
Investment income from corresponding Portfolio
(Note A) $15,087
----------
Expenses:
Administration fee (Note B) 766
Auditing fees 8
Custodian fees 10
Legal fees 22
Registration and filing fees 54
Shareholder reports 28
Shareholder servicing agent fees (Note B) 88
Trustees' fees and expenses 22
Miscellaneous 4
Expenses from corresponding Portfolio (Notes
A & B) 886
----------
Total expenses 1,888
Deduct -- expenses reimbursed by
administrator (Note B) --
----------
Total net expenses 1,888
----------
Net investment income 13,199
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
FROM CORRESPONDING PORTFOLIO (NOTE A)
Net realized gain (loss) on investment
securities (6)
Net realized gain on financial futures
contracts --
Net realized loss on foreign currency
transactions --
Change in net unrealized appreciation
(depreciation) of investment securities,
translation of assets and liabilities in
foreign currencies, and foreign currency
contracts --
Net unrealized depreciation of financial
futures contracts --
----------
Net gain (loss) on investments from
corresponding Portfolio (Note A) (6)
----------
Net increase in net assets resulting from
operations $13,193
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
For the Year Ended October 31, 1996
- ----------------------------------------------------------------------
Income Funds
<TABLE>
<CAPTION>
CASH ULTRA SHORT LIMITED MATURITY
RESERVES BOND FUND BOND FUND
-----------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Investment income from corresponding Portfolio
(Note A) $25,674 $5,832 $19,331
-----------------------------------------
Expenses:
Administration fee (Note B) 1,258 255 767
Auditing fees 8 8 8
Custodian fees 10 10 10
Legal fees 22 21 22
Registration and filing fees 100 26 40
Shareholder reports 42 18 29
Shareholder servicing agent fees (Note B) 234 68 164
Trustees' fees and expenses 34 10 22
Miscellaneous 5 2 5
Expenses from corresponding Portfolio (Notes
A & B) 1,407 373 940
-----------------------------------------
Total expenses 3,120 791 2,007
Deduct -- expenses reimbursed by
administrator (Note B) (91) (177) (17)
-----------------------------------------
Total net expenses 3,029 614 1,990
-----------------------------------------
Net investment income 22,645 5,218 17,341
-----------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
FROM CORRESPONDING PORTFOLIO (NOTE A)
Net realized gain (loss) on investment
securities 4 (550) (1,001)
Net realized gain on financial futures
contracts -- -- 116
Net realized loss on foreign currency
transactions -- -- (97)
Change in net unrealized appreciation
(depreciation) of investment securities,
translation of assets and liabilities in
foreign currencies, and foreign currency
contracts -- 153 (922)
Net unrealized depreciation of financial
futures contracts -- -- (746)
-----------------------------------------
Net gain (loss) on investments from
corresponding Portfolio (Note A) 4 (397) (2,650)
-----------------------------------------
Net increase in net assets resulting from
operations $22,649 $4,821 $14,691
-----------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
Neuberger&Berman
- ----------------------------------------------------------------------
Income Funds
<TABLE>
<CAPTION>
GOVERNMENT
MONEY FUND
Year
Ended
October 31,
(000'S OMITTED) 1996 1995
--------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income $ 13,199 $ 14,864
Net realized gain (loss) on
investments from corresponding
Portfolio (Note A) (6) 4
Change in net unrealized
appreciation (depreciation) of
investments from corresponding
Portfolio (Note A) -- --
--------------------------
Net increase in net assets resulting
from operations 13,193 14,868
--------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (13,199) (14,864)
Net realized gain on investments (4) (1)
--------------------------
Total distributions to shareholders (13,203) (14,865)
--------------------------
FROM TRUST SHARE TRANSACTIONS:
Proceeds from shares sold 725,958 714,547
Proceeds from reinvestment of
dividends and distributions 13,025 14,697
Payments for shares redeemed (683,930) (672,444)
--------------------------
Net increase (decrease) from Trust
share transactions 55,053 56,800
--------------------------
NET INCREASE (DECREASE) IN NET ASSETS 55,043 56,803
NET ASSETS:
Beginning of year 308,345 251,542
--------------------------
End of year $ 363,388 $ 308,345
--------------------------
Dividends in excess of net
investment income -- --
--------------------------
NUMBER OF TRUST SHARES:
Sold 725,958 714,547
Issued on reinvestment of dividends
and distributions 13,025 14,697
Redeemed (683,930) (672,444)
--------------------------
Net increase (decrease) in shares
outstanding 55,053 56,800
--------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
- ----------------------------------------------------------------------
Income Funds
<TABLE>
<CAPTION>
CASH ULTRA SHORT LIMITED MATURITY
RESERVES BOND FUND BOND FUND
Year Year Year
Ended Ended Ended
October 31, October 31, October 31,
1996 1995 1996 1995 1996 1995
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income $ 22,645 $ 18,014 $ 5,218 $ 4,889 $ 17,341 $ 18,500
Net realized gain (loss) on
investments from corresponding
Portfolio (Note A) 4 (3) (550) (330) (982) (3,613)
Change in net unrealized
appreciation (depreciation) of
investments from corresponding
Portfolio (Note A) -- -- 153 833 (1,668) 8,911
----------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 22,649 18,011 4,821 5,392 14,691 23,798
----------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (22,645) (18,014) (5,218) (4,889) (17,078) (18,500)
Net realized gain on investments -- -- -- -- -- --
----------------------------------------------------------------------------------
Total distributions to shareholders (22,645) (18,014) (5,218) (4,889) (17,078) (18,500)
----------------------------------------------------------------------------------
FROM TRUST SHARE TRANSACTIONS:
Proceeds from shares sold 865,548 550,538 26,938 64,831 81,362 92,153
Proceeds from reinvestment of
dividends and distributions 22,257 17,639 4,575 4,098 14,168 15,501
Payments for shares redeemed (814,685) (471,218) (42,687) (70,002) (154,865) (114,110)
----------------------------------------------------------------------------------
Net increase (decrease) from Trust
share transactions 73,120 96,959 (11,174) (1,073) (59,335) (6,456)
----------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 73,124 96,956 (11,571) (570) (61,722) (1,158)
NET ASSETS:
Beginning of year 408,874 311,918 100,522 101,092 307,411 308,569
----------------------------------------------------------------------------------
End of year $ 481,998 $ 408,874 $ 88,951 $ 100,522 $ 245,689 $ 307,411
----------------------------------------------------------------------------------
Dividends in excess of net
investment income -- -- -- -- -- $ (148)
----------------------------------------------------------------------------------
NUMBER OF TRUST SHARES:
Sold 865,548 550,538 2,838 6,822 8,134 9,271
Issued on reinvestment of dividends
and distributions 22,257 17,639 482 431 1,419 1,561
Redeemed (814,685) (471,218) (4,500) (7,375) (15,523) (11,509)
----------------------------------------------------------------------------------
Net increase (decrease) in shares
outstanding 73,120 96,959 (1,180) (122) (5,970) (677)
----------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Neuberger&Berman October 31, 1996
- ----------------------------------------------------------------------
Income Funds
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1) GENERAL: Neuberger&Berman Government Money Fund ("Government Money"),
Neuberger&Berman Cash Reserves ("Cash Reserves"), Neuberger& Berman Ultra
Short Bond Fund ("Ultra Short"), and Neuberger&Berman Limited Maturity Bond
Fund ("Limited Maturity") (collectively, the "Funds") are separate operating
series of Neuberger&Berman Income Funds (the "Trust"), a Delaware business
trust organized pursuant to a Trust Instrument dated December 23, 1992. The
Trust is registered as an open-end management investment company under the
Investment Company Act of 1940, as amended, and its shares are registered
under the Securities Act of 1933, as amended. The trustees of the Trust may
establish additional series or classes of shares without the approval of
shareholders.
The assets of each series belong only to that series, and the liabilities
of each series are borne solely by that series and no other.
Each Fund seeks to achieve its investment objective by investing all of
its net investable assets in its corresponding Portfolio of Income 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 (100.00%, 100.00%, 93.09%, and 92.05%, for Government Money,
Cash Reserves, Ultra Short, and Limited Maturity, respectively, at October
31, 1996). 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.
It is the policy of Government Money and Cash Reserves to maintain a
continuous net asset value per share of $1.00; each Fund has adopted certain
investment, valuation, and dividend and distribution policies, which conform
to general industry practice, to enable it to do so. However, there is no
assurance either Fund will be able to maintain a stable net asset value per
share.
2) PORTFOLIO VALUATION: Each Fund records its investment in its corresponding
Portfolio at value. Investment securities held by each Portfolio are valued
by Income Managers Trust as indicated in the notes following the Portfolios'
Schedule of Investments.
3) FEDERAL INCOME TAXES: Each series of the Trust is treated as a separate
entity for Federal income tax purposes. It is the policy of each Fund of the
Trust to continue
18
<PAGE>
to qualify as a regulated investment company by complying with the provisions
available to certain investment companies, as defined in applicable sections
of the Internal Revenue Code, and to make distributions of investment company
taxable income and net capital gains (after reduction for any amounts
available for Federal income tax purposes as capital loss carryforwards)
sufficient to relieve it from all, or substantially all, Federal income
taxes. Accordingly, each Fund paid no Federal income taxes and no provision
for Federal income taxes was required.
4) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Each Fund earns income, net of
Portfolio expenses, daily on its investment in its corresponding Portfolio.
It is the policy of each Fund to declare dividends from net investment income
on each business day; such dividends are paid monthly. Distributions from net
realized capital gains, if any, are normally distributed in December. To the
extent each Fund's net realized capital gains, if any, can be offset by
capital loss carryforwards ($6,216 expiring in 2004 for Government Money,
$7,878 and $2,998 expiring in 2002 and 2003, respectively, for Cash Reserves,
$122,522, $774,592, $774,663, $533,438, $1,362,347, $329,262, and $552,290
expiring in 1997, 1998, 2000, 2001, 2002, 2003, and 2004, respectively, for
Ultra Short, and $4,713,841, $3,757,068, and $1,607,920 expiring in 2002,
2003, and 2004, respectively, for Limited Maturity, determined as of October
31, 1996), it is the policy of each Fund not to distribute such gains. During
the year ended October 31, 1996, $762,839 was reclassified from accumulated
net realized losses on investment to paid-in capital for Ultra Short due to
the expiration of a capital loss carryforward. This change had no effect on
the net assets or net asset value per share.
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
dividends in excess of net investment income or accumulated net realized
gains.
5) 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.
6) 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.
19
<PAGE>
NOTE B -- ADMINISTRATION FEES, DISTRIBUTION ARRANGEMENTS, AND OTHER TRANSACTIONS
WITH AFFILIATES:
Each Fund retains Neuberger&Berman Management Incorporated ("Management") as
its administrator under an Administration Agreement ("Agreement") dated as of
May 1, 1995. Pursuant to this Agreement each Fund pays Management an
administration fee at the annual rate of .27% (.25% prior to May 1, 1995) of
that Fund's average daily net assets and indirectly pays for investment
management services through its investment in its corresponding Portfolio (see
Note B of Notes to Financial Statements of the Portfolios). The Agreement
provides if, with respect to any fiscal year of each Fund, its total operating
expenses plus its pro rata portion of its corresponding Portfolio's operating
expenses (including the fees payable to Management but excluding interest,
taxes, brokerage commissions, and extraordinary expenses) ("Operating Expenses")
exceed the most restrictive of the expense limitations imposed by securities
laws of the states in which such Fund's shares are qualified for sale, the
administration fees for that fiscal year will be reduced by the amount of such
excess, provided that Management has no obligation to reimburse the Fund for any
such expenses that exceed the administration fee. The most restrictive expense
limitation applicable during the year ended October 31, 1996, to which each Fund
was subject, was 2 1/2% of the first $30 million of average daily net assets, 2%
of the next $70 million of average daily net assets, and 1 1/2% of any
additional average daily net assets. No reduction in the administration fee as a
result of any state expense limitation was required for the year ended October
31, 1996. In the future, there will be no state expense limitations applicable
to any Fund.
In addition, Management has voluntarily undertaken to reimburse Cash
Reserves, Ultra Short, and Limited Maturity for their respective Operating
Expenses which exceed, in the aggregate, .65% per annum for Cash Reserves and
Ultra Short, and .70% per annum for Limited Maturity of their respective average
daily net assets. Each undertaking is subject to termination by Management upon
at least 60 days' prior written notice to the appropriate Fund. For the year
ended October 31, 1996, such excess expenses amounted to $90,855, $177,129, and
$16,575, for Cash Reserves, Ultra Short, and Limited Maturity, respectively.
All of the capital stock of Management is owned by individuals who are also
principals of Neuberger&Berman, LLC ("Neuberger"), a member firm of The New York
Stock Exchange and sub-adviser to each Portfolio. Several individuals who are
officers and/or trustees of the Trust are also principals of Neuberger and/or
officers and/or directors of Management.
Under a service agreement, which was in effect through April 30, 1995, each
Fund had retained Management to provide certain shareholder, shareholder-related
and other services not furnished by the shareholder servicing agent. Pursuant to
the service agreement, each Fund paid Management a monthly fee at the annual
rate of
20
<PAGE>
.02% of the average daily net assets of the Fund as compensation for such
services. As of May 1, 1995, the service agreement and the administration
agreement, then in effect, were combined into a single agreement with a fee of
.27%.
Each Fund also has a distribution agreement with Management. Management
receives no compensation therefor and no commissions for sales or redemptions of
shares of beneficial interest of each Fund.
Each Portfolio has an expense offset arrangement in connection with its
custodian contract. The impact of this arrangement, reflected in the Statement
of Operations under the caption Expenses from corresponding Portfolio, is less
than .01% of each Fund's average daily net assets.
Each Fund has an expense offset arrangement in connection with its
shareholder servicing agent contract. The impact of this arrangement, reflected
in the Statement of Operations, is less than .01% of each Fund's average daily
net assets.
NOTE C -- INVESTMENT TRANSACTIONS:
During the year ended October 31, 1996, additions and reductions in each
Fund's investment in its corresponding Portfolio were as follows:
<TABLE>
<CAPTION>
ADDITIONS REDUCTIONS
- --------------------------------------------------------------------------------
<S> <C> <C>
GOVERNMENT MONEY $ 655,266,468 $ 615,464,536
CASH RESERVES 528,657,549 478,184,613
ULTRA SHORT 12,368,217 28,331,197
LIMITED MATURITY 32,223,213 109,820,563
</TABLE>
21
<PAGE>
(This page has been left blank intentionally.)
22
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Government Money Fund
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the Financial
Statements. It should be read in conjunction with its corresponding Portfolio's
Financial Statements and notes thereto.
<TABLE>
<CAPTION>
Year Ended October 31,
1996(1) 1995(1) 1994(1) 1993(1) 1992 1991 1990 1989 1988 1987
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year $1.0000 $1.0000 $1.0000 $1.0000 $1.0003 $1.0000 $ .9997 $1.0000 $1.0002 $1.0002
-------------------------------------------------------------------------------------------
Income From Investment
Operations
Net Investment Income .0464 .0499 .0302 .0248 .0354 .0567 .0718 .0758 .0579 .0504
Net Gains or Losses on
Securities -- -- -- -- -- .0003 .0003 (.0002) -- .0002
-------------------------------------------------------------------------------------------
Total From Investment
Operations .0464 .0499 .0302 .0248 .0354 .0570 .0721 .0756 .0579 .0506
-------------------------------------------------------------------------------------------
Less Distributions
Dividends (from net
investment income) (.0464) (.0499) (.0302) (.0248) (.0354) (.0567) (.0718) (.0758) (.0579) (.0504)
Distributions (from
capital gains) -- -- -- -- (.0003) -- -- (.0001) (.0002) (.0002)
-------------------------------------------------------------------------------------------
Total Distributions (.0464) (.0499) (.0302) (.0248) (.0357) (.0567) (.0718) (.0759) (.0581) (.0506)
-------------------------------------------------------------------------------------------
Net Asset Value, End of Year $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0003 $1.0000 $ .9997 $1.0000 $1.0002
-------------------------------------------------------------------------------------------
Total Return(2) +4.74% +5.10% +3.07% +2.51% +3.62% +5.82% +7.42% +7.86% +5.97% +5.18%
-------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year
(in millions) $ 363.4 $ 308.3 $ 251.5 $ 277.2 $ 301.1 $ 246.5 $ 234.6 $ 184.3 $ 173.2 $ 266.4
-------------------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets .67% .65% .72% .70% .66% .68% .74% .87% .79%(3) .75%(3)
-------------------------------------------------------------------------------------------
Ratio of Net Investment
Income to Average Net
Assets 4.65% 5.00% 3.00% 2.48% 3.50% 5.66% 7.19% 7.55% 5.73%(3) 5.11%(3)
-------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL HIGHLIGHTS
23
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Cash Reserves
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the Financial
Statements. It should be read in conjunction with its corresponding Portfolio's
Financial Statements and notes thereto.
<TABLE>
<CAPTION>
Period from
April 12, 1988(4)
Year Ended October 31, to October 31,
1996(1) 1995(1) 1994(1) 1993(1) 1992 1991 1990 1989 1988
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year $1.0000 $1.0000 $1.0001 $1.0001 $1.0000 $1.0000 $1.0001 $1.0000 $1.0000
-----------------------------------------------------------------------------------------
Income From Investment
Operations
Net Investment Income .0486 .0529 .0327 .0263 .0363 .0600 .0766 .0866 .0401
Net Gains or Losses on
Securities -- -- -- .0002 .0002 -- -- .0001 --
-----------------------------------------------------------------------------------------
Total From Investment
Operations .0486 .0529 .0327 .0265 .0365 .0600 .0766 .0867 .0401
-----------------------------------------------------------------------------------------
Less Distributions
Dividends (from net
investment income) (.0486) (.0529) (.0327) (.0263) (.0363) (.0600) (.0766) (.0866) (.0401)
Distributions (from
capital gains) -- -- (.0001) (.0002) (.0001) -- (.0001) -- --
-----------------------------------------------------------------------------------------
Total Distributions (.0486) (.0529) (.0328) (.0265) (.0364) (.0600) (.0767) (.0866) (.0401)
-----------------------------------------------------------------------------------------
Net Asset Value, End of Year $1.0000 $1.0000 $1.0000 $1.0001 $1.0001 $1.0000 $1.0000 $1.0001 $1.0000
-----------------------------------------------------------------------------------------
Total Return(2) +4.97% +5.42% +3.33% +2.68% +3.69% +6.17% +7.94% +9.01% +4.08%(5)
-----------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year
(in millions) $ 482.0 $ 408.9 $ 311.9 $ 273.1 $ 261.7 $ 278.9 $ 278.2 $ 267.1 $ 140.9
-----------------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets(3) .65% .65% .65% .65% .65% .65% .65% .65% .60%(6)
-----------------------------------------------------------------------------------------
Ratio of Net Investment
Income to Average Net
Assets(3) 4.86% 5.30% 3.31% 2.63% 3.63% 6.00% 7.66% 8.70% 7.54%(6)
-----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL HIGHLIGHTS
24
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Ultra Short Bond Fund
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the Financial
Statements. It should be read in conjunction with its corresponding Portfolio's
Financial Statements and notes thereto.
<TABLE>
<CAPTION>
Period from
March 1, 1988 Year Ended
Year Ended October 31, to October 31, February 29,
1996(1) 1995(1) 1994(1) 1993(1) 1992 1991 1990 1989 1988 1988
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year $9.53 $ 9.47 $ 9.64 $ 9.70 $ 9.83 $9.79 $9.83 $ 9.87 $ 9.93 $ 9.98
---------------------------------------------------------------------------------------------------
Income From Investment
Operations
Net Investment Income .52 .52 .35 .40 .56 .68 .79 .89 .47 .66
Net Gains or Losses on
Securities (both realized
and unrealized) (.04) .06 (.17) (.06) (.13) .04 (.04) (.04) (.06) (.05)
---------------------------------------------------------------------------------------------------
Total From Investment
Operations .48 .58 .18 .34 .43 .72 .75 .85 .41 .61
---------------------------------------------------------------------------------------------------
Less Distributions
Dividends (from net
investment income) (.52) (.52) (.35) (.40) (.56) (.68) (.79) (.89) (.47) (.66)
---------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $9.49 $ 9.53 $ 9.47 $ 9.64 $ 9.70 $9.83 $9.79 $ 9.83 $ 9.87 $ 9.93
---------------------------------------------------------------------------------------------------
Total Return(2) +5.23% +6.26% +1.96% +3.53% +4.44% +7.64% +7.98% +9.05% +4.20%(5) +6.31%
---------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year
(in millions) $89.0 $100.5 $101.1 $104.4 $103.3 $97.9 $85.8 $103.3 $101.0 $125.3
---------------------------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets(3) .65% .65% .65% .65% .65% .65% .65% .65% .63%(6) .50%
---------------------------------------------------------------------------------------------------
Ratio of Net Investment
Income to Average Net
Assets(3) 5.53% 5.44% 3.72% 4.09% 5.70% 6.97% 8.14% 9.06% 7.01%(6) 6.72%
---------------------------------------------------------------------------------------------------
Portfolio Turnover Rate(7) -- -- -- 115% 66% 89% 120% 85% 47% 121%
---------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL HIGHLIGHTS
25
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Limited Maturity Bond Fund
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the Financial
Statements. It should be read in conjunction with its corresponding Portfolio's
Financial Statements and notes thereto.
<TABLE>
<CAPTION>
Period from
March 1, 1988 Year Ended
Year Ended October 31, to October 31, February 29,
1996(1) 1995(1) 1994(1) 1993(1) 1992 1991 1990 1989 1988 1988
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Year $10.06 $ 9.88 $10.49 $10.40 $10.24 $ 9.91 $ 9.96 $ 9.88 $10.00 $10.17
-----------------------------------------------------------------------------------------------------
Income From Investment
Operations
Net Investment Income .60 .62 .56 .58 .63 .71 .80 .82 .48 .69
Net Gains or Losses on
Securities (both
realized and
unrealized) (.07) .18 (.55) .14 .16 .33 (.05) .08 (.12) (.17)
-----------------------------------------------------------------------------------------------------
Total From Investment
Operations .53 .80 .01 .72 .79 1.04 .75 .90 .36 .52
-----------------------------------------------------------------------------------------------------
Less Distributions
Dividends (from net
investment income) (.60) (.62) (.56) (.58) (.63) (.71) (.80) (.82) (.48) (.69)
Distributions (from
capital gains) -- -- (.05) (.05) -- -- -- -- -- --
Distributions (in
excess of capital
gains) -- -- (.01) -- -- -- -- -- -- --
Tax return of capital -- -- -- -- -- -- -- -- -- --
-----------------------------------------------------------------------------------------------------
Total Distributions (.60) (.62) (.62) (.63) (.63) (.71) (.80) (.82) (.48) (.69)
-----------------------------------------------------------------------------------------------------
Net Asset Value, End of
Year $ 9.99 $10.06 $ 9.88 $10.49 $10.40 $10.24 $ 9.91 $ 9.96 $ 9.88 $10.00
-----------------------------------------------------------------------------------------------------
Total Return(2) +5.44% +8.32% +0.13% +7.09% +7.87% +10.89% +7.85% +9.56% +3.76%(5) +5.39%
-----------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year
(in millions) $245.7 $307.4 $308.6 $357.3 $273.0 $163.2 $101.3 $107.7 $133.5 $107.3
-----------------------------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets(3) .70% .70% .69% .65% .65% .65% .65% .65% .63%(6) .50%
-----------------------------------------------------------------------------------------------------
Ratio of Net Investment
Income to Average Net
Assets(3) 6.10% 6.21% 5.53% 5.49% 6.02% 7.07% 8.09% 8.33% 7.34%(6) 6.97%
-----------------------------------------------------------------------------------------------------
Portfolio Turnover
Rate(7) -- -- -- 114% 113% 88% 88% 121% 68% 158%
-----------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL HIGHLIGHTS
26
<PAGE>
NOTES TO FINANCIAL HIGHLIGHTS
Neuberger&Berman October 31, 1996
- ----------------------------------------------------------------------
Income Funds
1) The per share amounts and ratios which are shown reflect income and expenses,
including each Fund's proportionate share of its corresponding Portfolio's
income and expenses.
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 year
and assumes dividends and capital gain distributions, if any, were
reinvested. Results represent past performance and do not guarantee future
results. Investment returns and principal may fluctuate and shares when
redeemed may be worth more or less than original cost. For each Fund, total
return would have been lower if Management had not reimbursed certain
expenses.
3) After reimbursement of expenses by Management. Had Management not undertaken
such action the annualized ratios to average daily net assets would have
been:
<TABLE>
<CAPTION>
Year Ended
October 31,
GOVERNMENT MONEY 1988 1987
- ------------------------------------------------------------------
<S> <C> <C>
Expenses .83% .90%
Net Investment Income 5.69% 4.96%
</TABLE>
After reimbursement of expenses by Management as described in Note B of Notes
to Financial Statements. Had Management not undertaken such action the
annualized ratios to average daily net assets would have been:
<TABLE>
<CAPTION>
Period from
April 12, 1988
Year Ended October 31, to October 31,
CASH RESERVES 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Expenses .67% .68% .71% .76% .69% .69% .72% .83% 1.03%
Net Investment Income 4.84% 5.27% 3.25% 2.52% 3.59% 5.96% 7.59% 8.52% 7.11%
</TABLE>
<TABLE>
<CAPTION>
Period from
March 1,
1988 to Year Ended
Year Ended October 31, October 31, February 29,
ULTRA SHORT 1996 1995 1994 1993 1992 1991 1990 1989 1988 1988
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Expenses .84% .87% .86% .95% .87% .87% .81% .92% .89% .95%
Net Investment Income 5.34% 5.22% 3.51% 3.79% 5.48% 6.75% 7.98% 8.79% 6.75% 6.27%
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Period from
March 1,
1988 to Year Ended
Year Ended October 31, October 31, February 29,
LIMITED MATURITY 1996 1995 1994 1993 1992 1991 1990 1989 1988 1988
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Expenses .71% .71% .71% .73% .68% .72% .71% .77% .74% .78%
Net Investment Income 6.09% 6.20% 5.51% 5.42% 5.99% 7.00% 8.03% 8.21% 7.23% 6.69%
</TABLE>
4) The date investment operations commenced.
5) Not annualized.
6) Annualized.
7) Ultra Short and Limited Maturity transferred all of their investment
securities into their respective Portfolios on July 2, 1993. After that date
each Fund invested only in its corresponding Portfolio, and that Portfolio,
rather than the Fund, engaged in securities transactions. Therefore, after
that date neither Fund had a portfolio turnover rate. Portfolio turnover
rates for periods ending after July 2, 1993, are included elsewhere in
Neuberger&Berman Ultra Short Bond Portfolio's and Neuberger&Berman Limited
Maturity Bond Portfolio's Financial Highlights.
28
<PAGE>
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29
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees of
Neuberger&Berman Income Funds and
Shareholders of
Neuberger&Berman Government Money Fund
Neuberger&Berman Cash Reserves
Neuberger&Berman Ultra Short Bond Fund and
Neuberger&Berman Limited Maturity Bond Fund
We have audited the accompanying Statements of Assets and Liabilities of the
Neuberger&Berman Government Money Fund, Neuberger&Berman Cash Reserves,
Neuberger&Berman Ultra Short Bond Fund, and Neuberger&Berman Limited Maturity
Bond Fund, four of the series comprising Neuberger&Berman Income Funds (the
"Trust"), as of October 31, 1996, and the related Statements of Operations for
the year then ended, the Statements of Changes in Net Assets for each of the two
years in the period then ended, and the Financial Highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the above mentioned series of Neuberger&Berman Income Funds at October 31,
1996, the results of their operations for the year then ended, the changes in
their net assets for each of the two years in the period then ended, and the
financial highlights for each of the periods indicated therein, in conformity
with generally accepted accounting principles.
[SIGNATURE]
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
December 2, 1996
30
<PAGE>
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31
<PAGE>
SCHEDULE OF INVESTMENTS October 31, 1996
Neuberger&Berman
- --------------------------------------------------------------------------------
Government Money Portfolio
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT ANNUALIZED VALUE(1)
(000'S YIELD AT DATE (000'S
OMITTED) OF PURCHASE OMITTED)
- ------------- -------------- -------------
<C> <S> <C> <C>
U.S. TREASURY
SECURITIES -- BACKED BY THE
FULL FAITH AND CREDIT OF THE
U.S. GOVERNMENT (99.4%)
$ 1,410 U.S. Treasury Bills, due
11/7/96 5.32% $ 1,409
34,520 U.S. Treasury Bills, due
11/14/96 5.17-5.32% 34,457
13,225 U.S. Treasury Notes, 4.375%,
due 11/15/96 5.20-5.21% 13,221
6,770 U.S. Treasury Bills, due
11/21/96 5.13-5.18% 6,751
11,730 U.S. Treasury Bills, due
11/29/96 5.19-5.22% 11,684
335 U.S. Treasury Bills, due
12/5/96 5.33% 333
23,715 U.S. Treasury Bills, due
12/12/96 4.98-5.45% 23,580
20,000 U.S. Treasury Bills, due
12/19/96 5.21-5.31% 19,864
7,905 U.S. Treasury Notes, 7.50%,
due 12/31/96 5.37% 7,931
25,080 U.S. Treasury Bills, due
1/9/97 5.11-5.45% 24,835
33,710 U.S. Treasury Notes, 8.00%,
due 1/15/97 5.34-5.61% 33,878
25,270 U.S. Treasury Bills, due
1/16/97 5.10-5.16% 25,004
9,950 U.S. Treasury Bills, due
1/23/97 5.12-5.14% 9,835
17,405 U.S. Treasury Bills, due
1/30/97 5.13-5.21% 17,186
7,990 U.S. Treasury Notes, 7.50%,
due 1/31/97 5.42% 8,030
17,425 U.S. Treasury Notes, 6.25%,
due 1/31/97 5.24-5.27% 17,464
21,580 U.S. Treasury Bills, due
2/6/97 5.15-5.19% 21,288
12,665 U.S. Treasury Bills, due
2/13/97 5.24-5.25% 12,479
15,000 U.S. Treasury Notes, 6.875%,
due 2/28/97 5.29% 15,075
1,650 U.S. Treasury Bills, due
3/20/97 5.52% 1,616
10,000 U.S. Treasury Notes, 6.875%,
due 3/31/97 5.65% 10,049
15,000 U.S. Treasury Notes, 6.625%,
due 3/31/97 5.37-5.61% 15,066
425 U.S. Treasury Bills, due
4/3/97 5.22% 416
5,000 U.S. Treasury Bills, due
4/24/97 5.33% 4,876
15,000 U.S. Treasury Notes, 6.875%,
due 4/30/97 5.36-5.38% 15,109
2,180 U.S. Treasury Notes, 6.50%,
due 4/30/97 5.50% 2,190
7,000 U.S. Treasury Bills, due
5/1/97 5.34% 6,820
-------------
TOTAL U.S. TREASURY SECURITIES 360,446
Cash, receivables and other
assets, less liabilities
(0.6%) 2,036
-------------
TOTAL NET ASSETS (100.0%) $ 362,482
-------------
</TABLE>
32
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman October 31, 1996
- --------------------------------------------------------------------------------
Cash Reserves Portfolio
<TABLE>
<CAPTION>
PRINCIPAL VALUE(1)
AMOUNT RATING(2) (000'S
(000'S OMITTED) MOODY'S S&P OMITTED)
- --------------- ----------- --------- -------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCY
SECURITIES (8.4%)
$ 2,845 Federal Home Loan Mortgage
Corp., Discount Notes, 5.53%,
due 11/1/96 AGY AGY $ 2,845
18,300 Federal Home Loan Bank,
Variable Rate Global Bonds,
5.35%, due 11/21/96 AGY AGY 18,300
5,000 Federal Farm Credit Bank,
Bonds, 5.40%, due 12/2/96 AGY AGY 5,000
14,400 Federal National Mortgage
Association, Variable Rate
Medium-Term Notes, Ser. B,
5.213%, due 9/12/97 AGY AGY 14,392
-------------
TOTAL U.S. GOVERNMENT AGENCY
SECURITIES 40,537
-------------
BANKERS' ACCEPTANCES (1.3%)
6,500 First National Bank of
Chicago, 5.30% & 5.37%, due
11/18/96 & 2/3/97 P-1 A-1 6,438
-------------
ASSET-BACKED COMMERCIAL PAPER
(3.1%)
15,000 Asset Securitization
Cooperative Corp., 5.25% &
5.32%, due 11/13/96 & 11/18/96 P-1 A-1+ 14,966
-------------
CORPORATE COMMERCIAL PAPER
(63.4%)
4,000 Illinois Tool Works Inc.,
5.23%, due 11/1/96 P-1 A-1+ 4,000
6,000 Merrill Lynch & Co., Inc.,
5.65%, due 11/1/96 P-1 A-1+ 6,000
7,000 Sara Lee Corp., 5.20%, due
11/4/96 P-1 A-1+ 6,997
13,540 Enterprise Capital Funding
Corp., 5.35% & 5.45%, due
11/1/96 & 11/5/96 P-1 A-1 13,535
10,000 J.P. Morgan & Co., Inc.,
5.40%, due 11/12/96 P-1 A-1+ 9,984
10,000 Times Mirror Co., 5.25%, due
11/12/96 P-1 A-1 9,984
10,000 AON Corp., 5.24%, due 11/15/96 P-1 A-1+ 9,980
1,112 Toyota Motor Credit Corp.,
5.21%, due 11/15/96 P-1 A-1+ 1,110
11,000 Nalco Chemical Co., 5.24% &
5.29%, due 11/4/96 & 11/20/96 P-1 A-1 10,981
6,370 Hewlett-Packard Co., 5.25% &
5.35%, due 11/6/96 & 12/3/96 P-1 A-1+ 6,342
20,000 Enel Commercial Paper Inc.,
5.32% & 5.45%, due 12/5/96 P-1 A-1+ 19,898
</TABLE>
33
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Cash Reserves Portfolio (Cont'd)
<TABLE>
<CAPTION>
PRINCIPAL VALUE(1)
AMOUNT RATING(2) (000'S
(000'S OMITTED) MOODY'S S&P OMITTED)
- --------------- ----------- --------- -------------
<C> <S> <C> <C> <C>
$ 14,899 Colonial Pipeline Co., 5.29% &
5.30%, due 11/1/96 & 12/6/96 P-1 A-1+ $ 14,873
6,410 Procter & Gamble Co., 5.38%,
due 12/10/96 P-1 A-1+ 6,373
11,553 Sandoz Corp., 5.23%, due
11/14/96 & 12/11/96 P-1 A-1+ 11,504
16,000 Southwestern Bell Capital
Corp., 5.30%, due 11/25/96 &
12/13/96 P-1 A-1 15,930
24,000 Caisse d'Amortissement de la
Dette Sociale, 5.28% & 5.45%,
due 12/4/96-12/20/96 P-1 A-1+ 23,861
17,500 Northern States Power Co.,
5.23% & 5.30%, due 11/8/96 &
12/30/96 P-1 A-1+ 17,402
7,000 Glaxo Wellcome PLC, 5.32%, due
1/21/97 P-1 A-1+ 6,916
5,000 General Electric Capital
Corp., 5.39%, due 2/4/97 P-1 A-1+ 4,929
10,000 Hitachi America, Ltd., 5.40%,
due 2/7/97 P-1 A-1+ 9,853
15,000 CS First Boston, Variable Rate
Notes, 5.404%, due 3/5/97 P-1 A-1 15,000
10,000 Province of British Columbia,
Canada, 5.32%, due 4/2/97 P-1 A-1+ 9,775
19,000 National Australia Funding
Delaware Inc., 5.33%-5.45%,
due 11/6/96-4/18/97 P-1 A-1+ 18,719
9,500 Ameritech Corp., 5.31%, due
4/21/97 P-1 A-1+ 9,260
10,500 Swedish Export Credit Corp.,
5.32%, due 4/22/97 P-1 A-1+ 10,233
7,000 Air Products & Chemicals,
Inc., 5.30%, due 4/25/97 P-1 A-1 6,820
10,000 Goldman Sachs & Co., 5.35%,
due 4/25/97 P-1 A-1+ 9,740
17,000 Pitney Bowes Credit Corp.,
5.28% & 5.55%, due 3/3/97 &
5/2/97 P-1 A-1+ 16,625
-------------
TOTAL CORPORATE COMMERCIAL
PAPER 306,624
-------------
</TABLE>
34
<PAGE>
October 31, 1996
- --------------------------------------------------------------------------------
Cash Reserves Portfolio (Cont'd)
<TABLE>
<CAPTION>
PRINCIPAL VALUE(1)
AMOUNT RATING(2) (000'S
(000'S OMITTED) MOODY'S S&P OMITTED)
- --------------- ----------- --------- -------------
<C> <S> <C> <C> <C>
TAXABLE REVENUE BONDS (0.8%)
$ 2,000 Harris Co. (TX) Hlth. Fac.
Dev. Corp. SCH Hlth. Care Sys.
(Sisters of Charity of the
Incarnate Word, Houston,
Texas), Ser. 1993, 5.49%, due
11/4/96 P-1 A-1+ $ 2,000
2,100 Louisiana Pub. Fac. Au. SCH
Hlth. Care Sys. (Sisters of
Charity of the Incarnate Word,
Houston, Texas), Ser. 1993,
5.49%, due 11/4/96 P-1 A-1+ 2,100
-------------
TOTAL TAXABLE REVENUE BONDS 4,100
-------------
CERTIFICATES OF DEPOSIT
(16.9%)
5,000 Royal Bank of Canada, Yankee
C.D., 5.50%, due 11/12/96 P-1 A-1+ 5,000
5,000 Abbey National Treasury
Services PLC, Eurodollar C.D.,
5.47%, due 11/13/96 P-1 A-1+ 5,000
5,000 Bayerische Landesbank
Girozentrale, Eurodollar C.D.,
5.49%, due 11/13/96 P-1 A-1+ 5,000
5,000 Commerzbank AG, Eurodollar
C.D., 5.46%, due 11/14/96 P-1 A-1+ 5,000
10,000 Norddeutsche Landesbank
Girozentrale, Eurodollar C.D.,
5.49% & 5.78%, due 11/13/96 &
2/3/97 P-1 A-1+ 10,003
5,000 Societe Generale, Yankee C.D.,
5.53%, due 2/6/97 P-1 A-1+ 5,000
10,000 Bayerische Vereinsbank AG,
Eurodollar C.D., 5.56% &
5.67%, due 1/9/97 & 2/10/97 P-1 A-1+ 10,002
5,000 Canadian Imperial Bank of
Commerce, Eurodollar C.D.,
5.51%, due 2/18/97 P-1 A-1+ 5,000
5,000 Norddeutsche Landesbank
Girozentrale, Yankee C.D.,
5.71%, due 2/28/97 P-1 A-1+ 5,003
10,000 Australia & New Zealand
Banking Group, Ltd.,
Eurodollar C.D., 5.77%, due
3/10/97 P-1 A-1+ 10,000
</TABLE>
35
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman October 31, 1996
- --------------------------------------------------------------------------------
Cash Reserves Portfolio (Cont'd)
<TABLE>
<CAPTION>
PRINCIPAL VALUE(1)
AMOUNT RATING(2) (000'S
(000'S OMITTED) MOODY'S S&P OMITTED)
- --------------- ----------- --------- -------------
<C> <S> <C> <C> <C>
$ 10,000 Westpac Banking Corp., Yankee
C.D., 5.75%, due 3/11/97 P-1 A-1+ $ 10,000
7,000 Westpac Banking Corp.,
Eurodollar C.D., 5.75%, due
3/24/97 P-1 A-1+ 7,004
-------------
TOTAL CERTIFICATES OF DEPOSIT 82,012
-------------
CORPORATE DEBT SECURITIES
(5.7%)
10,500 AT&T Capital Corp.,
Medium-Term Notes, Ser. A,
7.22%, due 11/5/96 Aa3 AA- 10,502
2,000 Ford Motor Credit Co.,
Variable Rate Medium-Term
Notes, 5.61%, due 5/20/97 P-1 A-1 2,000
15,000 Morgan Stanley Group Inc.,
Senior Variable Rate
Medium-Term Notes, Ser. C,
5.511%, due 7/10/97 P-1 A-1+ 15,000
-------------
TOTAL CORPORATE DEBT
SECURITIES 27,502
-------------
TOTAL INVESTMENTS (99.6%) 482,179
Cash, receivables and other
assets, less liabilities
(0.4%) 1,796
-------------
TOTAL NET ASSETS (100.0%) $ 483,975
-------------
</TABLE>
36
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman October 31, 1996
- --------------------------------------------------------------------------------
Ultra Short Bond Portfolio
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT RATING(2) VALUE(3)
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
--------------- ------- ---- ---------------
<C> <S> <C> <C> <C>
U.S. TREASURY SECURITIES
(27.7%)
$3,800 U.S. Treasury Notes, 6.875%,
due 3/31/97 TSY TSY $ 3,824
5,000 U.S. Treasury Notes, 6.25%,
due 7/31/98 TSY TSY 5,044
5,000 U.S. Treasury Notes, 6.125%,
due 8/31/98 TSY TSY 5,033
5,000 U.S. Treasury Notes, 6.00%,
due 9/30/98 TSY TSY 5,024
1,500 U.S. Treasury Notes, 6.00%,
due 8/15/99 TSY TSY 1,504
6,000 U.S. Treasury Notes, 6.875%,
due 8/31/99 TSY TSY 6,148
-------
TOTAL U.S. TREASURY SECURITIES
(COST $26,352) 26,577
-------
U.S. GOVERNMENT AGENCY
SECURITIES (9.4%)
2,000 Federal Home Loan Bank,
Discount Notes, 5.53%, due
11/1/96 AGY AGY 2,000
1,000 Federal Farm Credit Bank,
Bonds, 5.40%, due 12/2/96 AGY AGY 1,000
1,300 Federal Home Loan Mortgage
Corp., Notes, 7.555%, due
2/10/97 AGY AGY 1,308
250 Federal Home Loan Bank,
Variable Rate Notes, 4.639%,
due 1/29/98 AGY AGY 245
500 Federal Home Loan Bank,
Variable Rate Notes, 4.664%,
due 2/25/98 AGY AGY 490
4,000 Federal National Mortgage
Association, Medium-Term
Notes, 6.50%, due 6/26/98 AGY AGY 4,013
-------
TOTAL U.S. GOVERNMENT AGENCY
SECURITIES (COST $9,061) 9,056
-------
MORTGAGE-BACKED SECURITIES
(17.5%)
FEDERAL HOME LOAN MORTGAGE CORP.
633 REMIC Floating Rate CMO, Ser.
1270-F, 5.7875%, due 5/15/97 AGY AGY 633
41 Mortgage Participation
Certificates, 11.50%, due
2/1/00 & 5/1/00 AGY AGY 44
4,296 Gold Balloon Mortgage
Participation Certificates,
6.50%, due 3/1/97-11/1/00 AGY AGY 4,304
</TABLE>
37
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Ultra Short Bond Portfolio (Cont'd)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT RATING(2) VALUE(3)
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
--------------- ------- ---- ---------------
<C> <S> <C> <C> <C>
$ 93 Mortgage Participation
Certificates, 10.50%, due
6/1/00-11/1/00 AGY AGY $ 98
1,698 Gold Balloon Mortgage
Participation Certificates,
7.50%, due 11/1/01 AGY AGY 1,733
FEDERAL NATIONAL MORTGAGE ASSOCIATION
2,475 Balloon Pass-Through
Certificates, 7.00%, due
8/1/03 AGY AGY 2,494
2,431 Pass-Through Certificates,
7.50%, due 7/1/11 AGY AGY 2,470
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
2,549 Pass-Through Certificates,
7.50%, due 10/15/09-10/15/10 AGY AGY 2,600
2,457 Pass-Through Certificates,
7.00%, due 4/15/11 AGY AGY 2,468
-------
TOTAL MORTGAGE-BACKED
SECURITIES (COST $16,784) 16,844
-------
ASSET-BACKED SECURITIES
(19.2%)
43 General Motors Acceptance
Corp. Grantor Trust,
Automobile Loan Pass-Through
Certificates, Ser. 1992-F,
Class A, 4.50%, due 9/15/97 Aaa AAA 43
1,000 Capita Equipment Receivables
Trust, Ser. 1996-1, Class A-2,
5.95%, due 7/15/98 Aaa AAA 1,001
427 Daimler-Benz Auto Grantor
Trust, Ser. 1993-A, Class A,
3.90%, due 10/15/98 Aaa AAA 427
87 USAA Auto Loan Grantor Trust,
Automobile Loan Pass-Through
Certificates, Ser. 1993-1,
3.90%, due 3/15/99 Aaa AAA 87
3,000 Premier Auto Trust, Ser.
1995-3, Class A-4, 6.10%, due
7/6/99 Aaa AAA 3,012
1,549 Ford Credit Grantor Trust,
Ser. 1995-A, Class A, 5.90%,
due 5/15/00 Aaa AAA 1,552
2,272 Caterpillar Financial Asset
Trust, Ser. 1995-A, Class A-2,
6.10%, due 8/25/01 Aaa AAA 2,286
</TABLE>
38
<PAGE>
October 31, 1996
- --------------------------------------------------------------------------------
Ultra Short Bond Portfolio (Cont'd)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT RATING(2) VALUE(3)
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
--------------- ------- ---- ---------------
<C> <S> <C> <C> <C>
$2,324 Chase Manhattan Grantor Trust,
Automobile Loan Pass-Through
Certificates, Ser. 1995-A,
6.00%, due 9/17/01 Aaa AAA $ 2,328
3,703 Banc One Auto Grantor Trust,
Ser. 1996-B, Class A, 6.55%,
due 2/15/03 Aaa AAA 3,730
4,000 Case Equipment Loan Trust,
Ser. 1996-B, Class A-2, 6.25%,
due 9/15/03 Aaa AAA 4,017
-------
TOTAL ASSET-BACKED SECURITIES
(COST $18,392) 18,483
-------
BANKS & FINANCIAL INSTITUTIONS
(15.1%)
4,000 Deutsche Bank AG, Yankee C.D.,
7.498%, due 1/21/97 Aaa AAA 4,015
4,000 Societe Generale, Yankee C.D.,
5.77%, due 5/15/97 P-1 A-1+ 4,005
3,000 J.P. Morgan & Co. Inc.,
Domestic C.D., 5.73%, due
8/12/97 P-1 A-1+ 3,003
3,500 Associates Corp. of North
America, Senior Notes, 6.375%,
due 8/15/99 Aa3 AA- 3,512
-------
TOTAL BANKS & FINANCIAL
INSTITUTIONS (COST $14,517) 14,535
-------
CORPORATE DEBT SECURITIES
(7.3%)
3,000 AT&T Captial Corp.,
Medium-Term Notes, Ser. A,
7.22%, due 11/5/96 Aa3 AA- 3,000
4,000 du Pont (E.I.) de Nemours and
Co., Medium-Term Notes, Ser.
F, 6.04%, due 12/16/97 Aa2 AA 4,012
-------
TOTAL CORPORATE DEBT
SECURITIES (COST $7,042) 7,012
-------
</TABLE>
39
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman October 31, 1996
- --------------------------------------------------------------------------------
Ultra Short Bond Portfolio (Cont'd)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT RATING(2) VALUE(3)
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
--------------- ------- ---- ---------------
<C> <S> <C> <C> <C>
CORPORATE COMMERCIAL PAPER
(2.8%)
$2,635 American Express Credit Corp.,
5.70%, due 11/1/96 (COST
$2,635) P-1 A-1 $ 2,635(4)
-------
TOTAL INVESTMENTS (99.0%)
(COST $94,783) 95,142(5)
Cash, receivables and other
assets, less liabilities
(1.0%) 921
-------
TOTAL NET ASSETS (100.0%) $96,063
-------
</TABLE>
40
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman October 31, 1996
- --------------------------------------------------------------------------------
Limited Maturity Bond Portfolio
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT RATING(2) VALUE(3)
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
--------------- ------- ---- ---------------
<C> <S> <C> <C> <C>
U.S. TREASURY SECURITIES
(16.1%)
$ 35 U.S. Treasury Notes, 6.75%,
due 5/31/97 TSY TSY $ 35
40 U.S. Treasury Notes, 7.375%,
due 11/15/97 TSY TSY 41
17,035 U.S. Treasury Notes, 6.00%,
due 9/30/98 TSY TSY 17,116
1,130 U.S. Treasury Notes, 6.50%,
due 4/30/99 TSY TSY 1,147
3,790 U.S. Treasury Notes, 6.375%,
due 5/15/99 TSY TSY 3,834
18,815 U.S. Treasury Notes, 6.00%,
due 8/15/99 TSY TSY 18,861
1,000 U.S. Treasury Notes, 6.75%,
due 4/30/00 TSY TSY 1,023
1,070 U.S. Treasury Notes, 6.25%,
due 5/31/00 TSY TSY 1,079
---------------
TOTAL U.S. TREASURY SECURITIES
(COST $42,822) 43,136
---------------
MORTGAGE-BACKED SECURITIES
(9.4%)
FEDERAL HOME LOAN MORTGAGE CORP.
178 Mortgage Participation
Certificates, 10.50%, due
10/1/00 & 12/1/00 AGY AGY 187
607 Mortgage Participation
Certificates, 8.50%, due
10/1/01 AGY AGY 624
259 ARM Certificates, 7.00%, due
1/1/17 AGY AGY 262
175 ARM Certificates, 6.875%, due
2/1/17 AGY AGY 177
726 ARM Certificates, 6.625%, due
3/1/17 AGY AGY 734
FEDERAL NATIONAL MORTGAGE ASSOCIATION
290 Balloon Pass-Through
Certificates, 9.00%, due
3/1/97-8/1/98 AGY AGY 298
345 Balloon Pass-Through
Certificates, 8.50%, due
9/1/97-11/1/98 AGY AGY 354
673 REMIC Floating Rate CMO, Ser.
1992-59F, 5.80625%, due
8/25/06 AGY AGY 673
9,011 Pass-Through Certificates,
7.00%, due 9/1/03 & 6/1/11 AGY AGY 9,089
6,014 Pass-Through Certificates,
7.50%, due 9/1/11 AGY AGY 6,112
</TABLE>
41
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Limited Maturity Bond Portfolio (Cont'd)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT RATING(2) VALUE(3)
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
--------------- ------- ---- ---------------
<C> <S> <C> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
$ 193 Pass-Through Certificates,
12.00%, due 5/15/12-3/15/15 AGY AGY $ 221
4,517 Pass-Through Certificates,
10.00%, due 9/15/15-6/15/20 AGY AGY 4,953
1,363 Pass-Through Certificates,
9.50%, due 8/15/09-4/15/22 AGY AGY 1,471
---------------
TOTAL MORTGAGE-BACKED
SECURITIES (COST $24,728) 25,155
---------------
ASSET-BACKED SECURITIES
(15.8%)
6,300 Capita Equipment Receivables
Trust, Ser. 1996-1, Class A-3,
6.11%, due 7/15/99 Aaa AAA 6,312
3,861 Chase Manhattan Grantor Trust,
Automobile Loan Pass-Through
Certificates, Ser. 1995-B,
5.90%, due 11/15/01 Aaa AAA 3,865
4,220 Navistar Financial Owner
Trust, Ser. 1996-A, Class A-2,
6.35%, due 11/15/02 Aaa AAA 4,239
6,279 Banc One Auto Grantor Trust,
Ser. 1996-B, Class A, 6.55%,
due 2/15/03 Aaa AAA 6,325
6,500 Ford Credit Auto Loan Master
Trust, Auto Loan Certificates,
Ser. 1996-1, 5.50%, due
2/15/03 Aaa AAA 6,306
7,000 NationsBank Credit Card Master
Trust, Ser. 1995-1, Class A,
6.45%, due 4/15/03 Aaa AAA 7,055
2,590 Navistar Financial Owner
Trust, Ser. 1996-B, Class A-3,
6.33%, due 4/21/03 Aaa AAA 2,609
5,000 Standard Credit Card Master
Trust I, Credit Card
Participation Certificates,
Ser. 1994-4, Class A, 8.25%,
due 11/7/03 Aaa AAA 5,380
---------------
TOTAL ASSET-BACKED SECURITIES
(COST $42,217) 42,091
---------------
</TABLE>
42
<PAGE>
October 31, 1996
- --------------------------------------------------------------------------------
Limited Maturity Bond Portfolio (Cont'd)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT RATING(2) VALUE(3)
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
--------------- ------- ---- ---------------
<C> <S> <C> <C> <C>
BANKS & FINANCIAL INSTITUTIONS
(17.6%)
$ 5,000 BankAmerica Corp., Medium-Term
Notes, 6.875%, due 11/20/97 A1 A+ $ 5,055
10,000 Chase Manhattan Corp., Senior
Notes, 6.625%, due 1/15/98 A1 A 10,078
6,400 Alco Capital Resource, Inc.,
Medium-Term Notes, Ser. B,
5.46%, due 2/22/99 A3 A- 6,290
5,180 CIT Group Holdings, Inc.,
Medium-Term Notes, 6.25%, due
10/25/99 Aa3 A+ 5,181
8,000 First USA Bank, Medium-Term
Deposit Notes, 6.375%, due
10/23/00 Baa2 BBB- 7,930
6,600 Capital One Bank, Bank Notes,
5.95%, due 2/15/01 Baa3 BBB- 6,373
1,105 First Nationwide Escrow Corp.,
Senior Subordinated Notes,
10.625%, due 10/1/03 Ba3 B 1,160(6)
5,150 Goldman Sachs Group, L.P.,
Global Notes, 6.75%, due
2/15/06 A1 A+ 5,045(6)
---------------
TOTAL BANKS & FINANCIAL
INSTITUTIONS (COST $47,702) 47,112
---------------
CORPORATE DEBT SECURITIES
(43.7%)
9,000 P. H. Glatfelter Co., Notes,
5.875%, due 3/1/98 Baa2 BBB+ 8,973
2,780 Colonial Gas Co., Medium-Term
Notes, Ser. A, 6.20%, due
3/18/98 Baa1 A- 2,787
3,000 Ford Motor Credit Co.,
Medium-Term Notes, 9.10%, due
5/4/98 A1 A+ 3,135
1,900 American Standard Inc., Senior
Notes, 10.875%, due 5/15/99 Ba3 BB- 2,016
7,000 Lockheed Martin Corp., Notes,
6.55%, due 5/15/99 A3 BBB+ 7,053
2,710 Arkla, Inc., Notes, 8.875%,
due 7/15/99 Baa3 BBB 2,875
700 Caterpillar Finance,
Medium-Term Notes, Ser. E,
6.11%, due 7/15/99 A2 A 698
</TABLE>
43
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Limited Maturity Bond Portfolio (Cont'd)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT RATING(2) VALUE(3)
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
--------------- ------- ---- ---------------
<C> <S> <C> <C> <C>
$ 990 Hoechst Celanese Corp., Notes,
9.625%, due 9/1/99 A2 A+ $ 1,019
4,460 Travelers/Aetna Property
Casualty Corp., Notes, 6.25%,
due 10/1/99 A2 A 4,454
5,000 Xerox Credit Corp.,
Medium-Term Notes, Ser. D,
6.84%, due 6/1/00 A2 A 4,993
2,000 Ford Motor Credit Co.,
Medium-Term Notes, 6.84%, due
8/16/00 A1 A+ 2,023
2,510 Chesapeake Corp., Notes,
10.375%, due 10/1/00 Baa3 BBB 2,828
1,750 Sears Roebuck Acceptance
Corp., Medium-Term Notes, Ser.
I, 6.42%, due 10/10/00 A2 A- 1,750
5,000 Sears Roebuck Acceptance
Corp., Medium-Term Notes, Ser.
I, 6.40%, due 10/11/00 A2 A- 4,996
1,730 BHP Finance (USA) Limited,
Guaranteed Notes, 5.625%, due
11/1/00 A2 A 1,682
5,200 General Motors Acceptance
Corp., Medium-Term Notes,
8.125%, due 3/1/01 A3 A- 5,498
2,290 Colonial Realty Limited
Partnership, Senior Notes,
7.50%, due 7/15/01 Baa3 BBB- 2,330
4,160 Tyco International Ltd.,
Notes, 6.50%, due 11/1/01 Baa2 BBB+ 4,151
2,835 Black & Decker Corp.,
Medium-Term Notes, Ser. A,
8.90%, due 1/21/02 Baa3 BBB- 3,099
3,780 Federated Department Stores,
Inc., Senior Notes, 8.125%,
due 10/15/02 Ba1 BB- 3,877
5,480 Viacom, Senior Notes, 6.75%,
due 1/15/03 Ba2(7) BB+(7) 5,210
1,000 Safeway Inc., Medium-Term
Notes, 8.57%, due 4/1/03 Baa3 BBB 1,041
2,700 ADT Operations, Inc., Senior
Subordinated Notes, 9.25%, due
8/1/03 Ba3 BB+ 2,795
4,920 Owens-Illinois, Inc., Senior
Debentures, 11.00%, due
12/1/03 Ba3(8) BB(8) 5,406
4,675 Duty Free International, Inc.,
Notes, 7.00%, due 1/15/04 Ba1 BBB- 4,400
</TABLE>
44
<PAGE>
October 31, 1996
- --------------------------------------------------------------------------------
Limited Maturity Bond Portfolio (Cont'd)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT RATING(2) VALUE(3)
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
--------------- ------- ---- ---------------
<C> <S> <C> <C> <C>
$ 400 Container Corp. of America,
Senior Notes, Ser. A, 11.25%,
due 5/1/04 B1 B+ $ 425
1,000 K & F Industries, Inc., Senior
Subordinated Notes, 10.375%,
due 9/1/04 B2 B- 1,030
4,400 Tenet Healthcare Corp., Senior
Subordinated Notes, 10.125%,
due 3/1/05 Ba3 B+ 4,829
1,535 Mark IV Industries, Inc.,
Senior Subordinated Notes,
7.75%, due 4/1/06 Ba3 BB+ 1,445
350 Collins & Aikman Products Co.,
Senior Subordinated Notes,
11.50%, due 4/15/06 B3 B 366
400 Cablevision Systems Corp.,
Senior Subordinated Notes,
9.875%, due 5/15/06 B2 B 393
420 JCAC, Inc., Senior
Subordinated Notes, 10.125%,
due 6/15/06 B2 B 426
1,360 LIFESTYLE FURNISHINGS
INTERNATIONAL LTD., Senior
Subordinated Notes, 10.875%,
due 8/1/06 B1 B 1,414(6)
5,575 Time Warner Inc., Notes,
8.11%, due 8/15/06 Ba1 BBB- 5,746
400 Commonwealth Aluminum Corp.,
Senior Subordinated Notes,
10.75%, due 10/1/06 B2 B- 404(6)
1,100 International Home Foods,
Senior Subordinated Notes,
10.375%, due 11/1/06 B2 B- 1,108(6)
7,290 Tenneco Inc., Debentures,
10.00%, due 3/15/08 Baa2 BBB- 8,894
725 Buckeye Cellulose Corp.,
Senior Subordinated Notes,
9.25%, due 9/15/08 Ba3 BB- 732
500 Stone Container Corp., Rating
Adjustable Senior Notes,
11.875%, due 8/1/16 B1 B+ 522(6)
---------------
TOTAL CORPORATE DEBT
SECURITIES (COST $117,040) 116,823
---------------
TOTAL INVESTMENTS (102.6%)
(COST $274,509) 274,317(5)
Liabilities, less cash,
receivables and other assets
[(2.6%)] (7,008)
---------------
TOTAL NET ASSETS (100.0%) $267,309
---------------
</TABLE>
45
<PAGE>
NOTES TO SCHEDULE OF INVESTMENTS
October 31, 1996
- ----------------------------------------------------------------------
Income Managers Trust
1) Investment securities of the Portfolio are valued at amortized cost, which
approximates Federal income tax cost.
2) Credit ratings are unaudited.
3) Investment securities of the Portfolio are valued daily by obtaining bid
price quotations from independent pricing services on selected securities
available in each service's data base. For all other securities requiring
daily quotations, bid prices are obtained from principal market makers in
those securities or, if quotations are not available, by a method the
trustees of Income Managers Trust believe accurately reflects fair value.
Short-term investments with less than 60 days until maturity may be valued at
cost which, when combined with interest earned, approximates market value.
4) At cost, which approximates market value.
5) At October 31, 1996, selected Portfolio information on a Federal income tax
basis was as follows:
<TABLE>
<CAPTION>
NET
GROSS GROSS UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
NEUBERGER&BERMAN COST APPRECIATION DEPRECIATION (DEPRECIATION)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ULTRA SHORT BOND PORTFOLIO $ 94,783,000 $ 460,000 $ 101,000 $ 359,000
LIMITED MATURITY BOND PORTFOLIO 274,510,000 1,788,000 1,981,000 (193,000)
</TABLE>
6) Security exempt from registration under the Securities Act of 1933. These
securities may be resold in transactions exempt from registration, normally
to qualified institutional buyers under Rule 144A. At October 31, 1996, these
securities amounted to $9,654,127 or 3.6% of net assets.
7) Rated BBB- by Fitch Investors Services, Inc.
8) Rated BBB- by Duff & Phelps Credit Rating Co.
SEE NOTES TO FINANCIAL STATEMENTS
46
<PAGE>
(This page has been left blank intentionally.)
47
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
- ----------------------------------------------------------------------
Income Managers Trust
<TABLE>
<CAPTION>
GOVERNMENT
MONEY
(000'S OMITTED) PORTFOLIO
-------------
<S> <C>
ASSETS
Investments in securities, at value*
(Note A) -- see Schedule of Investments $ 360,446
Cash 111
Deferred organization costs (Note A) 9
Interest receivable 2,020
Prepaid expenses and other assets 13
Receivable for securities sold --
-------------
362,599
-------------
LIABILITIES
Payable for securities purchased --
Payable for variation margin (Note A) --
Payable to investment manager (Note B) 72
Accrued expenses 45
-------------
117
-------------
NET ASSETS Applicable to Investors' Beneficial
Interests $ 362,482
-------------
NET ASSETS consist of:
Paid-in capital $ 362,482
Net unrealized appreciation (depreciation)
in value of investment securities and
financial futures contracts --
-------------
NET ASSETS $ 362,482
-------------
*Cost of investments $ 360,446
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
48
<PAGE>
October 31, 1996
- ----------------------------------------------------------------------
Income Managers Trust
<TABLE>
<CAPTION>
CASH ULTRA SHORT LIMITED MATURITY
RESERVES BOND BOND
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments in securities, at value*
(Note A) -- see Schedule of Investments $482,179 $ 95,142 $274,317
Cash 22 3 --
Deferred organization costs (Note A) 8 3 9
Interest receivable 1,914 966 3,733
Prepaid expenses and other assets 18 4 16
Receivable for securities sold -- 4 38
------------------------------------------
484,141 96,122 278,113
------------------------------------------
LIABILITIES
Payable for securities purchased -- -- 10,637
Payable for variation margin (Note A) -- -- 59
Payable to investment manager (Note B) 108 20 57
Accrued expenses 58 39 51
------------------------------------------
166 59 10,804
------------------------------------------
NET ASSETS Applicable to Investors' Beneficial
Interests $483,975 $ 96,063 $267,309
------------------------------------------
NET ASSETS consist of:
Paid-in capital $483,975 $ 95,704 $268,307
Net unrealized appreciation (depreciation) in
value of investment securities and financial
futures contracts -- 359 (998)
------------------------------------------
NET ASSETS $483,975 $ 96,063 $267,309
------------------------------------------
*Cost of investments $482,179 $ 94,783 $274,509
------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
STATEMENTS OF OPERATIONS
- ----------------------------------------------------------------------
Income Managers Trust
<TABLE>
<CAPTION>
GOVERNMENT
MONEY
(000'S OMITTED) PORTFOLIO
----------
<S> <C>
INVESTMENT INCOME
Interest income $15,087
----------
Expenses:
Investment management fee (Note B) 711
Accounting fees 10
Amortization of deferred organization and initial
offering expenses (Note A) 5
Auditing fees 23
Custodian fees (Note B) 92
Insurance expense 8
Legal fees 15
Trustees' fees and expenses 22
Miscellaneous --
----------
Total expenses 886
----------
Net investment income 14,201
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investment securities sold (6)
Net realized gain on financial futures contracts (Note
A) --
Net realized loss on foreign currency transactions (Note
A) --
Change in net unrealized appreciation (depreciation) of
investment securities, translation of assets and
liabilities in foreign currencies, and foreign
currency contracts --
Net unrealized depreciation of financial futures
contracts (Note A) --
----------
Net gain (loss) on investments (6)
----------
Net increase in net assets resulting from operations $14,195
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
For the Year Ended October 31, 1996
- ----------------------------------------------------------------------
Income Managers Trust
<TABLE>
<CAPTION>
CASH ULTRA SHORT LIMITED MATURITY
RESERVES BOND BOND
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest income $25,674 $6,215 $20,377
------------------------------------------
Expenses:
Investment management fee (Note B) 1,168 252 751
Accounting fees 10 10 10
Amortization of deferred organization and
initial offering expenses (Note A) 4 2 5
Auditing fees 24 23 25
Custodian fees (Note B) 138 81 131
Insurance expense 10 2 8
Legal fees 17 16 36
Trustees' fees and expenses 35 12 24
Miscellaneous 1 -- 1
------------------------------------------
Total expenses 1,407 398 991
------------------------------------------
Net investment income 24,267 5,817 19,386
------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investment
securities sold 4 (592) (1,007)
Net realized gain on financial futures
contracts (Note A) -- -- 115
Net realized loss on foreign currency
transactions (Note A) -- -- (100)
Change in net unrealized appreciation
(depreciation) of investment securities,
translation of assets and liabilities in
foreign currencies, and foreign currency
contracts -- 172 (920)
Net unrealized depreciation of financial
futures contracts (Note A) -- -- (806)
------------------------------------------
Net gain (loss) on investments 4 (420) (2,718)
------------------------------------------
Net increase in net assets resulting from
operations $24,271 $5,397 $16,668
------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------
Income Managers Trust
<TABLE>
<CAPTION>
GOVERNMENT
MONEY PORTFOLIO
Year
Ended
October 31,
(000'S OMITTED) 1996 1995
--------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income $ 14,201 $ 15,857
Net realized gain (loss) on
investments (6) 4
Change in net unrealized
appreciation (depreciation) of
investments -- --
--------------------------
Net increase in net assets resulting
from operations 14,195 15,861
--------------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL
INTERESTS:
Additions 655,267 642,711
Reductions (615,465) (601,644)
--------------------------
Net increase (decrease) in net
assets resulting from transactions
in investors' beneficial interests 39,802 41,067
--------------------------
NET INCREASE (DECREASE) IN NET ASSETS 53,997 56,928
NET ASSETS:
Beginning of year 308,485 251,557
--------------------------
End of year $ 362,482 $ 308,485
--------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
52
<PAGE>
- ----------------------------------------------------------------------
Income Managers Trust
<TABLE>
<CAPTION>
CASH RESERVES ULTRA SHORT LIMITED MATURITY
PORTFOLIO BOND PORTFOLIO BOND PORTFOLIO
Year Year Year
Ended Ended Ended
October 31, October 31, October 31,
1996 1995 1996 1995 1996 1995
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income $ 24,267 $ 19,159 $ 5,817 $ 5,200 $ 19,386 $ 20,164
Net realized gain (loss) on
investments 4 (3) (592) (331) (992) (3,625)
Change in net unrealized
appreciation (depreciation) of
investments -- -- 172 842 (1,726) 9,092
----------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 24,271 19,156 5,397 5,711 16,668 25,631
----------------------------------------------------------------------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL
INTERESTS:
Additions 528,658 331,245 20,518 37,400 45,924 42,386
Reductions (478,185) (253,131) (31,918) (43,021) (114,929) (64,495)
----------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from transactions
in investors' beneficial interests 50,473 78,114 (11,400) (5,621) (69,005) (22,109)
----------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 74,744 97,270 (6,003) 90 (52,337) 3,522
NET ASSETS:
Beginning of year 409,231 311,961 102,066 101,976 319,646 316,124
----------------------------------------------------------------------------------
End of year $ 483,975 $ 409,231 $ 96,063 $ 102,066 $ 267,309 $ 319,646
----------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
53
<PAGE>
NOTES TO FINANCIAL STATEMENTS
October 31, 1996
- ----------------------------------------------------------------------
Income Managers Trust
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1) GENERAL: Neuberger&Berman Government Money Portfolio ("Government Money"),
Neuberger&Berman Cash Reserves Portfolio ("Cash Reserves"), Neuberger&Berman
Ultra Short Bond Portfolio ("Ultra Short"), and Neuberger&Berman Limited
Maturity Bond Portfolio ("Limited Maturity") (collectively, the "Portfolios")
are separate operating series of Income Managers Trust ("Managers Trust"), a
New York common law trust organized as of December 1, 1992. Managers Trust is
registered as an open-end management investment company under the Investment
Company Act of 1940, as amended. Other regulated investment companies
sponsored by Neuberger&Berman Management Incorporated ("Management"), whose
financial statements are not presented herein, also invest in these and other
Portfolios of 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) FORWARD FOREIGN CURRENCY CONTRACTS: Limited Maturity may enter into forward
foreign currency contracts ("contracts") in connection with planned purchases
or sales of securities, to hedge the U.S. dollar value of portfolio
securities denominated in a foreign currency, or to increase or decrease its
exposure to a currency other than U.S. dollars. The gain or loss arising from
the difference between the original contract price and the closing price of
such contract is included in net realized gains or losses on foreign currency
transactions. Fluctuations in the value of forward foreign currency contracts
are recorded for financial reporting purposes as unrealized gains or losses
by the Portfolio. The Portfolio has no specific limitation on the percentage
of assets which may be committed to these types of contracts. The Portfolio
could be exposed to risks if a counterparty to a contract were unable to meet
the terms of its contract or if the value of the
54
<PAGE>
foreign currency changes unfavorably. The U.S. dollar value of foreign
currency underlying all contractual commitments held by the Portfolio is
determined using forward foreign currency rates supplied by an independent
pricing service.
5) FINANCIAL FUTURES CONTRACTS: Ultra Short and Limited Maturity may buy and
sell financial futures contracts to hedge against the effects of fluctuations
in interest rates. At the time a Portfolio enters into a financial futures
contract, it is required to deposit with its custodian a specified amount of
cash or liquid debt obligations, known as "initial margin," ranging upward
from 1.1% of the value of the financial futures contract being traded. Each
day, the futures contract is valued at the official settlement price of the
board of trade or U.S. commodity exchange on which such futures contract is
traded. Subsequent payments, known as "variation margin," to and from the
broker are made on a daily basis as the market price of the financial futures
contract fluctuates. Daily variation margin adjustments, arising from this
"mark to market," are recorded by the Portfolio as unrealized gains or
losses.
Although some financial futures contracts by their terms call for actual
delivery or acceptance of financial instruments, in most cases the contracts
are closed out prior to delivery by offsetting purchases or sales of matching
financial futures contracts. When the contracts are closed, a Portfolio
recognizes a gain or loss. Risks of entering into futures contracts include
the possibility there may be an illiquid market and/or a change in the value
of the contract may not correlate with changes in the value of the underlying
securities.
For Federal income tax purposes, the futures transactions undertaken by a
Portfolio may cause that Portfolio to recognize gains or losses from marking
to market even though its positions have not been sold or terminated, may
affect the character of the gains or losses recognized as long-term or
short-term, and may affect the timing of some capital gains and losses
realized by the Portfolio. Also, a Portfolio's losses on transactions
involving futures contracts may be deferred rather than being taken into
account currently in calculating such Portfolio's taxable income.
At October 31, 1996, open positions in financial futures contracts for
Limited Maturity were as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
EXPIRATION OPEN CONTRACTS POSITION (DEPRECIATION)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
165 U.S.
Treasury Notes,
December 1996 2 Year Long $ 168,719
145 U.S.
Treasury Notes,
December 1996 5 Year Short (194,953)
297 U.S.
Treasury Notes,
December 1996 10 Year Short (779,625)
</TABLE>
55
<PAGE>
At October 31, 1996, Limited Maturity had the following securities deposited
in a segregated account to cover margin requirements on open financial futures
contracts:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY
-------------------------------------------------------
<C> <S>
$764,875 U.S. Treasury Notes, 6.375%, due 5/15/99
105,000 U.S. Treasury Notes, 6.75%, due 4/30/00
</TABLE>
6) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on a trade date basis. Interest income, including accretion of
discount (adjusted for original issue discount, where applicable) and
amortization of premium, where applicable, is recorded on the accrual basis.
Realized gains and losses from securities transactions are recorded on the
basis of identified cost.
7) FEDERAL INCOME TAXES: Managers Trust intends to comply with the requirements
of the Internal Revenue Code of 1986, as amended. Each Portfolio of Managers
Trust also intends to conduct its operations so that each of its investors
will be able to qualify 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.
8) ORGANIZATION EXPENSES: Expenses incurred by each Portfolio in connection with
its organization are being amortized by each Portfolio on a straight-line
basis over a five-year period. At October 31, 1996, the unamortized balance
of such expenses amounted to $8,794, $7,746, $3,181, and $8,828 for
Government Money, Cash Reserves, Ultra Short, and Limited Maturity,
respectively.
9) 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.
NOTE B -- MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES:
Each Portfolio retains Management as its investment manager under a
Management Agreement. For such investment management services, each Portfolio
pays Management a fee at the annual rate of .25% of the first $500 million of
that Portfolio's average daily net assets, .225% of the next $500 million, .20%
of the next $500 million, .175% of the next $500 million, and .15% of average
daily net assets in excess of $2 billion.
All of the capital stock of Management is owned by individuals who are also
principals of Neuberger&Berman, LLC ("Neuberger"), a member firm of The New York
Stock Exchange and sub-adviser to each Portfolio. Neuberger is retained by
56
<PAGE>
Management to furnish it with investment recommendations and research
information without cost to each Portfolio. Several individuals who are officers
and/or trustees of Managers Trust are also principals of Neuberger and/or
officers and/or directors of Management.
Each Portfolio has an expense offset arrangement in connection with its
custodian contract. The impact of this arrangement, reflected in the Statement
of Operations, is less than .01% of the Portfolio's average daily net assets.
NOTE C -- SECURITIES TRANSACTIONS:
During the year ended October 31, 1996, there were purchase and sale
transactions (excluding short-term securities, financial futures contracts, and
forward foreign currency contracts) as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
- --------------------------------------------------------------------------------
<S> <C> <C>
ULTRA SHORT $ 125,385,989 $ 117,789,844
LIMITED MATURITY 463,858,235 470,201,323
</TABLE>
All securities transactions for Government Money and Cash Reserves were
short-term.
During the year ended October 31, 1996, Limited Maturity entered into various
contracts to deliver currencies at specified future dates. There were no open
positions in these contracts at October 31, 1996.
57
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Income Managers Trust
<TABLE>
<CAPTION>
GOVERNMENT CASH RESERVES
MONEY PORTFOLIO PORTFOLIO
Period from Period from
July 2, 1993 July 2, 1993
(Commencement (Commencement
of of
Operations) Operations)
to to
Year Ended October 31, October 31, Year Ended October 31, October 31,
1996 1995 1994 1993 1996 1995 1994 1993
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS:
Expenses .31% .31% .33% .32%(1) .30% .31% .32% .34%(1)
-----------------------------------------------------------------------------
Net Investment Income 4.99% 5.32% 3.38% 2.82%(1) 5.20% 5.62% 3.63% 2.88%(1)
-----------------------------------------------------------------------------
Portfolio Turnover Rate -- -- -- -- -- -- -- --
-----------------------------------------------------------------------------
Net Assets, End of Year (in
millions) $362.5 $308.5 $251.6 $277.7 $484.0 $409.2 $312.0 $273.3
-----------------------------------------------------------------------------
</TABLE>
1) Annualized.
58
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Income Managers Trust
<TABLE>
<CAPTION>
ULTRA SHORT LIMITED MATURITY
BOND PORTFOLIO BOND PORTFOLIO
Period from Period from
July 2, 1993 July 2, 1993
(Commencement (Commencement
of of
Operations) Operations)
to to
Year Ended October 31, October 31, Year Ended October 31, October 31,
1996 1995 1994 1993 1996 1995 1994 1993
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS:
Expenses .39% .40% .38% .40%(1) .33% .33% .34% .33%(1)
-----------------------------------------------------------------------------
Net Investment Income 5.77% 5.67% 3.98% 4.00%(1) 6.45% 6.55% 5.86% 5.53%(1)
-----------------------------------------------------------------------------
Portfolio Turnover Rate 173% 148% 94% 46% 169% 88% 102% 71%
-----------------------------------------------------------------------------
Net Assets, End of Year (in
millions) $96.1 $102.1 $102.0 $104.3 $267.3 $319.6 $316.1 $357.9
-----------------------------------------------------------------------------
</TABLE>
1) Annualized.
59
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees of
Income Managers Trust and
Owners of Beneficial Interest of
Neuberger&Berman Government Money Portfolio
Neuberger&Berman Cash Reserves Portfolio
Neuberger&Berman Ultra Short Bond Portfolio and
Neuberger&Berman Limited Maturity Bond Portfolio
We have audited the accompanying Statements of Assets and Liabilities,
including the Schedules of Investments, of the Neuberger&Berman Government Money
Portfolio, Neuberger&Berman Cash Reserves Portfolio, Neuberger&Berman Ultra
Short Bond Portfolio, and Neuberger&Berman Limited Maturity Bond Portfolio, four
of the series comprising Income Managers Trust (the "Trust"), as of October 31,
1996, 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 October 31, 1996, 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 Income Managers Trust at October 31, 1996, the
results of their operations for the year then ended, the changes in their net
assets for each of the two years in the period then ended, and the financial
highlights for each of the periods indicated therein, in conformity with
generally accepted accounting principles.
[SIGNATURE]
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
December 2, 1996
60
<PAGE>
DIRECTORY
INVESTMENT MANAGER, ADMINISTRATOR
AND DISTRIBUTOR
Neuberger&Berman Management Incorporated
605 Third Avenue 2nd Floor
New York, NY 10158-0180
800-877-9700
Institutional Services 800-366-6264
SUB-ADVISER
Neuberger&Berman, LLC
605 Third Avenue
New York, NY 10158-3698
CUSTODIAN AND SHAREHOLDER
SERVICING AGENT
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
ADDRESS CORRESPONDENCE TO:
Neuberger&Berman Funds
Boston Service Center
P.O. Box 8403
Boston, MA 02266-8403
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, NW
2nd Floor
Washington, DC 20036-1800
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
Neuberger&Berman Management Inc., Neuberger&Berman Government Money Fund,
Neuberger&Berman Cash
Reserves, Neuberger&Berman Ultra Short Bond Fund, and Neuberger&Berman Limited
Maturity Bond Fund are
registered service marks of Neuberger&Berman Management Inc.
- -C- 1996 Neuberger&Berman Management Inc.
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OFFICERS AND TRUSTEES
Stanley Egener
CHAIRMAN OF THE BOARD AND TRUSTEE
Theodore P. Giuliano
PRESIDENT AND TRUSTEE
John Cannon
TRUSTEE
Charles DeCarlo
TRUSTEE
Barry Hirsch
TRUSTEE
Robert A. Kavesh
TRUSTEE
Harold R. Logan
TRUSTEE
William E. Rulon
TRUSTEE
Candace L. Straight
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
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NEUBERGER&BERMAN MANAGEMENT INC.-R-
605 THIRD AVENUE 2ND FLOOR
NEW YORK, NY 10158-0180
SHAREHOLDER SERVICES
800.877.9700
INSTITUTIONAL SERVICES
800.366.6264
Statistics and projections in this report are derived from sources
deemed to be reliable but cannot be regarded as a representation of
future results of the Funds. This report is prepared for the
general 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.
[RECYCLED LOGO] PRINTED ON RECYCLED PAPER
NBIFAR001096
