<PAGE>
ANNUAL REPORT
- --------------------------------------------------
October 31, 1997
Neuberger&Berman
MUNICIPAL FUNDS -Registered Trademark-
Neuberger&Berman
MUNICIPAL MONEY FUND
Neuberger&Berman
MUNICIPAL SECURITIES TRUST
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
THE FUNDS
PRESIDENT'S LETTER A-4
GROWTH OF A DOLLAR CHART
COMPARISON OF A $10,000 INVESTMENT
Municipal Securities Trust B-1
FINANCIAL STATEMENTS B-2
FINANCIAL HIGHLIGHTS
PER SHARE DATA
Municipal Money Fund B-8
Municipal Securities Trust B-9
REPORT OF INDEPENDENT AUDITORS B-11
THE PORTFOLIOS
SCHEDULE OF INVESTMENTS
Municipal Money Portfolio B-12
Municipal Securities Portfolio B-23
FINANCIAL STATEMENTS B-29
FINANCIAL HIGHLIGHTS B-35
REPORT OF INDEPENDENT AUDITORS B-36
DIRECTORY C-1
OFFICERS AND TRUSTEES C-2
</TABLE>
3
<PAGE>
PRESIDENT'S LETTER December 18, 1997
Dear Shareholder,
In a "state of the bond market" address presented in our fiscal April 30,
1997, Semi-Annual Report, I expressed our positive attitude toward the
fixed-income markets. I summarized our perspective by concluding that, "...based
on their own fundamental merits, we find that bonds currently provide an
appealing investment opportunity." Evidently, our opinion was shared by others,
most notably legendary value investor Warren Buffett, who was reported to have
purchased several billion dollars of bonds during the third quarter in a rare
foray into the fixed-income market. Equities investors' renewed enthusiasm for
bonds is also becoming more evident in the mutual fund arena. In September and
October 1997, an estimated $6.6 billion flowed into bond funds, nearly double
the total from a year ago. What is happening here? We believe investors are
recognizing bonds' fundamental attractiveness and showing greater appreciation
for the traditional role fixed income plays in diversified investment
portfolios.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1-YEAR TREASURY
BILLS 5-YEAR TREASURY NOTES 10-YEAR TREASURY BONDS
<S> <C> <C> <C>
Nov-96 0.51% 1.49% 2.68%
Dec-96 0.85% 0.40% 0.54%
Jan-97 1.36% 0.74% 0.55%
Feb-97 1.72% 0.56% 0.32%
Mar-97 2.00% -0.45% -1.65%
Apr-97 2.62% 0.83% 0.25%
May-97 3.26% 1.59% 1.34%
Jun-97 3.87% 2.61% 3.06%
Jul-97 4.62% 5.22% 7.30%
Aug-97 4.99% 4.38% 5.08%
Sep-97 5.55% 5.64% 7.38%
Oct-97 6.15% 7.47% 10.19%
Source: Salomon Brothers
</TABLE>
Let's discuss fundamentals first. There are several surprising bullish
developments that have allowed interest rates to decline by 53-86 basis points
(.53%-.86%) on bonds with maturities of one year or more over the last six
months (ended 10/31/97). All other things being equal,
4
<PAGE>
these developments may help rates gradually fall further in the year ahead.
First, the federal budget deficit appears to be shrinking in a dramatic fashion,
and there are forecasts that the U.S. may in fact have a budget surplus within
the next several years. This would be the first budget surplus in over three
decades. The decline in the federal deficit, accompanied by reduced issuance of
government bonds, has convinced a growing number of investors that the United
States' fiscal house may finally be in order.
A second development is in the Treasury Department's funding policy. Despite
their rather tepid initial reception, the Treasury remains committed to selling
more floating-rate debt (the new Treasury Inflation Protection Securities or
"TIPS") and fewer fixed-rate securities. We believe demand for the traditional
fixed-rate Treasuries will remain strong, and therefore, prices are likely to be
supported by investors chasing a shrinking supply.
Finally, the notion that a strong economy leads to a pick-up in inflation is
being called into question. With this historically unprecedented economic
expansion, many economists and market observers have predicted that a rise in
inflation was inevitable. This has not happened. Inflation statistics are being
reported below 3.0% and the Federal Reserve, which would have normally tightened
credit at this point in the business cycle, has refrained from raising rates
because of what appears to be dormant inflation.
These four factors -- declining federal deficits, a shrinking supply of
fixed-rate Treasury securities, low inflation, and a benign Federal
Reserve -- have produced very positive results for fixed-income investors over
the last six months. While future events are inherently unpredictable, we expect
these factors will continue to buoy the bond market over the next year. Bonds
may also benefit from a tailwind provided by equities investors. In October,
investors got their first taste of stock market instability in several years.
True to form, during the stock market sell-off, bonds provided yield and
relative safety of principal, and in the process, clearly demonstrated why they
deserve a place in everyone's investment program.
Due to the more rapidly rising prices and declining yields of Treasury
securities, in our opinion, municipal bonds offer even better relative value for
high-income tax bracket investors. Over the last six months, municipal bonds
have performed well, with yields dropping
5
<PAGE>
about 25 basis points (.25%) in short maturities and on average, approximately
50 basis points (.50%) on longer-term municipal bonds. However, Treasury
securities yields have dropped even farther. Consequently, at the end of fiscal
1997, municipal bond yields were approximately 82% of comparable
maturity/duration Treasuries, well above the 70% to 77% range municipals have
generally traded at. In addition, the municipal bond market has been much less
volatile than in recent years, because we have not had any federal tax
legislation passed or proposed that could diminish the tax advantages of
municipal bonds. Supply in the municipal bond market has been moderate and
demand appears to be increasing as a strong economy and booming stock market
create more wealthy individuals seeking tax advantageous investments. Finally,
the economic fundamentals have been strong, with credit upgrades recently
exceeding downgrades by a 3 to 1 margin.
MUNICIPAL MONEY FUND Since the fund invests exclusively in high investment
grade short-term municipal securities, we cannot take advantage of credit
spreads to enhance returns. We depend on our trend following maturity management
to maximize returns. During the six months ended October 31, 1997, the
portfolio's weighted average maturity ranged from 55.2 to 83.6 days, with the
weighted average maturity being extended over the last six months to take
advantage of declining interest rates.
The current and effective (compounded) yields for the fund as of October 31,
1997, were 3.07% and 3.12%, respectively. For an investor in the highest federal
income tax bracket, this translates into tax-equivalent current and effective
yields of 5.08% and 5.21%.+
MUNICIPAL SECURITIES TRUST In response to declining interest rates in
second-half fiscal 1997, the portfolio's weighted average duration was extended
from 6.1 years to a peak of 7.0 years in August. We have enjoyed a very
favorable economic backdrop for municipal securities. Rising incomes and the
strong real estate market swelled municipal governments' tax coffers, spawning
upgrades of General Obligation bonds (GOs) throughout most of the country.
Economic health has also contributed to increased infrastructure spending and
consequently, increased issuance of revenue bonds (securities backed by income
streams from the issuer). Generally, these bonds have appeared to us very
attractively priced relative to Treasury securities and other sectors of the
municipal bond market.
6
<PAGE>
The portfolio continues to be over-weighted in high quality revenue bonds
(56.7% of assets), and to favor bonds attached to essential service industries
like water, sewer, and transportation. With the yield spread between higher and
lower investment grade revenue bonds generally 50 basis points (.50%) or less,
we continue to be biased toward higher credit quality issues. With "high coupon"
revenue bonds (bonds with coupons above prevailing interest rates) trading at
rather heady premiums, we are now more concentrated in "current coupon" bonds
(bonds with coupons approximating current interest rates), which are generally
trading around issue price and, in our opinion, have favorable risk/reward
characteristics.
We still like General Obligation bonds (bonds backed by the full faith and
credit of the government issuer), which comprise 35.9% of assets. Due to rising
tax revenues, most municipal governments are in very good financial shape. We
believe these rising revenues will improve the credit quality of GO bonds. The
portfolio has 2.6% of assets in pre-refunded bonds (high coupon, longer-term
bonds that have been refinanced at lower rates). Because these securities are
backed by U.S. Treasuries held in escrow, they have relatively low yields, but
very minimal credit risk. The remaining 4.8% of the portfolio's assets is in
cash and cash equivalents.
As of October 31, 1997, the 30-day SEC yield for the fund was 4.00%. This can
be translated into a tax-equivalent yield of 6.62%, for an investor in the
highest federal income tax bracket.+
NEW YORK INSURED INTERMEDIATE FUND Neuberger&Berman Management announced the
termination of New York Insured Intermediate Fund on September 24, 1997, and the
fund formally ceased operations on October 24, 1997. The general health of the
New York State municipal bond market helped us gradually liquidate positions in
the portfolio. We thank our former shareholders and regret that the fund did not
attract sufficient assets to justify further operations.
In closing, we are gratified by our municipal bond funds' performance in the
second half and full fiscal year 1997. Favorable economic
7
<PAGE>
and supply/demand fundamentals for bonds remain intact. We believe municipal
bonds are currently priced attractively relative to taxable bonds for
high-income tax bracket investors.
Sincerely,
[/S/ THEODORE P. GIULIANO]
Theodore Giuliano
President and Trustee
Neuberger&Berman Income Funds
+Tax-equivalent yield is the taxable effective yield that an investor would have
had to receive in order to realize the same level of yield after federal taxes
at 39.6%, assuming that all of the Fund's income is exempt from Federal income
taxes. A portion of the income may be subject to the federal alternative
minimum tax for certain investors.
An investment in Municipal Money Fund, like all other mutual funds, is neither
insured nor guaranteed by the U.S. Government and there can be no assurance
that the fund will be able to maintain a stable net asset value of $1.00 per
share. The return on an investment in Municipal Money Fund will fluctuate.
"Current yield" refers to the income generated by an investment in the Fund
over a seven day period. The income is then "annualized." The "effective yield"
will be slightly higher than the "current yield" because of the compounding
effect of this assumed reinvestment. Results represent past performance and do
not indicate future results.
Neuberger&Berman Management Inc. currently absorbs certain operating expenses
of Municipal Securities Trust. Absent this arrangement, which is subject to
change, the 30-day SEC yield of Municipal Securities Trust would have been
3.63% and the tax-equivalent yield would have been 6.01%.
8
<PAGE>
COMPARISON OF A $10,000 INVESTMENT
Neuberger&Berman October 31, 1997
- ----------------------------------------------------------------------
Municipal Securities Trust
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MUNICIPAL SECURITIES
TRUST LEHMAN 7-YEAR GO INDEX
<S> <C> <C>
1987 $10,000 $10,000
1988 $10,987 $11,057
1989 $11,707 $11,754
1990 $12,526 $12,660
1991 $13,579 $14,040
1992 $14,492 $15,159
1993 $16,129 $16,962
1994 $15,715 $16,618
1995 $17,341 $18,726
1996 $18,021 $19,617
1997 $19,231 $21,104
Average Annual Total Return(1)
Municipal Securities
Trust Lehman 7-Year GO Index(2)
1 Year +6.71% +7.58%
5 Year +5.82% +6.84%
10 Year +6.76% +7.75%
Life of Fund +6.42% +7.31%
</TABLE>
The inception date of Neuberger&Berman Municipal Securities
Trust-Registered Trademark- ("Municipal Securities Trust") is 7/9/87.
The tax equivalent annualized yield for Municipal Securities Trust is 6.62%
for the thirty days ended 10/31/97 (based on an annualized yield of 4.00% and
assuming a federal tax rate of 39.6%). A portion of the income of Municipal
Securities Trust may be subject to the federal alternative minimum tax for
certain investors.
Neuberger&Berman Management Inc.-Registered Trademark- has voluntarily
undertaken to reimburse Municipal Securities Trust for its operating expenses
and its pro rata share of its Portfolio's operating expenses which, in the
aggregate, exceed .65% per annum of Municipal Securities Trust's average daily
net assets. This arrangement can be terminated upon 60 days' prior written
notice. Absent such arrangement, the annualized and tax equivalent yields for
the thirty days ended 10/31/97 would have been 3.63% and 6.01%, respectively.
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 Lehman 7-Year General Obligation Index is an unmanaged total return
performance benchmark for the intermediate-term, 7-year, investment grade
General Obligations (State and Local) tax-exempt bond market. 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.
1
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
Neuberger&Berman October 31, 1997
- ----------------------------------------------------------------------
Income Funds
<TABLE>
<CAPTION>
MUNICIPAL MUNICIPAL
MONEY SECURITIES
(000'S OMITTED EXCEPT PER SHARE AMOUNTS) FUND TRUST
-------------------------------
<S> <C> <C>
ASSETS
Investment in corresponding Portfolio, at
value (Note A) $ 156,487 $ 31,712
Receivable for Trust shares sold 59 --
Receivable from administrator -- net (Note
B) -- 3
-------------------------------
156,546 31,715
-------------------------------
LIABILITIES
Dividends payable 6 42
Payable for Trust shares redeemed 148 23
Payable to administrator (Note B) 38 --
Accrued expenses 33 23
-------------------------------
225 88
-------------------------------
NET ASSETS at value $ 156,321 $ 31,627
-------------------------------
NET ASSETS consist of:
Par value $ 156 $ 3
Paid-in capital in excess of par value 156,191 31,409
Accumulated net realized losses on
investment (26) (673)
Net unrealized appreciation in value of
investment -- 888
-------------------------------
NET ASSETS at value $ 156,321 $ 31,627
-------------------------------
SHARES OUTSTANDING
($.001 par value; unlimited shares
authorized) 156,420 2,869
-------------------------------
NET ASSET VALUE, offering and redemption price per
share $1.00 $11.02
-------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
2
<PAGE>
STATEMENTS OF OPERATIONS
Neuberger&Berman For the Year Ended October 31, 1997
- ----------------------------------------------------------------------
Income Funds
<TABLE>
<CAPTION>
MUNICIPAL MUNICIPAL
MONEY SECURITIES
(000'S OMITTED) FUND TRUST
---------------------------
<S> <C> <C>
INVESTMENT INCOME
Investment income from corresponding Portfolio
(Note A) $ 5,213 $ 1,633
---------------------------
Expenses:
Administration fee (Note B) 382 89
Auditing fees 8 8
Custodian fees 10 10
Legal fees 10 10
Registration and filing fees 28 25
Shareholder reports 17 9
Shareholder servicing agent fees (Note B) 30 22
Trustees' fees and expenses 11 6
Miscellaneous 2 2
Expenses from corresponding Portfolio (Notes
A & B) 535 169
---------------------------
Total expenses 1,033 350
Expenses reimbursed by administrator and/or
reduced by custodian fee and shareholder
servicing expense offset arrangements
(Note B) (12) (135)
---------------------------
Total net expenses 1,021 215
---------------------------
Net investment income 4,192 1,418
---------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
FROM CORRESPONDING PORTFOLIO (NOTE A)
Net realized gain on investment securities -- 223
Net realized loss on financial futures
contracts -- (13)
Change in net unrealized appreciation of
investment securities and financial futures
contracts -- 462
---------------------------
Net gain on investments from corresponding
Portfolio (Note A) -- 672
---------------------------
Net increase in net assets resulting from
operations $ 4,192 $ 2,090
---------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
Neuberger&Berman
- ----------------------------------------------------------------------
Income Funds
<TABLE>
<CAPTION>
MUNICIPAL MUNICIPAL
MONEY SECURITIES
FUND TRUST
Year Year
Ended Ended
October 31, October 31,
(000'S OMITTED) 1997 1996 1997 1996
-------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income $ 4,192 $ 4,569 $ 1,418 $ 1,785
Net realized gain on investments
from corresponding Portfolio (Note
A) -- 2 210 227
Change in net unrealized
appreciation of investments from
corresponding Portfolio (Note A) -- -- 462 (432)
-------------------------------------------------------------
Net increase in net assets resulting
from operations 4,192 4,571 2,090 1,580
-------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (4,192) (4,569) (1,418) (1,785)
-------------------------------------------------------------
FROM TRUST SHARE TRANSACTIONS:
Proceeds from shares sold 228,579 240,030 5,776 6,414
Proceeds from reinvestment of
dividends 4,121 4,508 907 1,202
Payments for shares redeemed (208,978) (272,748) (14,649) (12,810)
-------------------------------------------------------------
Net increase (decrease) from Trust
share transactions 23,722 (28,210) (7,966) (5,194)
-------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 23,722 (28,208) (7,294) (5,399)
NET ASSETS:
Beginning of year 132,599 160,807 38,921 44,320
-------------------------------------------------------------
End of year $ 156,321 $ 132,599 $ 31,627 $ 38,921
-------------------------------------------------------------
NUMBER OF TRUST SHARES:
Sold 228,579 240,030 531 595
Issued on reinvestment of dividends 4,121 4,508 83 111
Redeemed (208,978) (272,748) (1,354) (1,189)
-------------------------------------------------------------
Net increase (decrease) in shares
outstanding 23,722 (28,210) (740) (483)
-------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Neuberger&Berman October 31, 1997
- ----------------------------------------------------------------------
Income Funds
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1) GENERAL: Neuberger&Berman Municipal Money Fund-Registered Trademark-
("Municipal Money") and Neuberger&Berman Municipal Securities Trust
("Municipal Securities Trust") (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 a diversified, 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% for each Fund at October 31, 1997). 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 Municipal Money to maintain a continuous net asset
value per share of $1.00; the 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 the 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 to
continue to qualify as a regulated investment company by complying with the
provisions available to certain investment companies, as defined in
applicable sections of the Internal Revenue Code, and to make distributions
of investment company taxable income and net capital gains (after reduction
for any amounts available for Federal income
B-5
<PAGE>
tax purposes as capital loss carryforwards) sufficient to relieve it from
all, or substantially all, Federal income taxes. Accordingly, each Fund paid
no Federal income taxes and no provision for Federal income taxes was
required.
4) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Each Fund earns income, net of
Portfolio expenses, daily on its investment in its corresponding Portfolio.
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 ($25,578 expiring in 2003 for Municipal Money and
$673,009 expiring in 2003 for Municipal Securities Trust determined as of
October 31, 1997), it is the policy of each Fund not to distribute such
gains. During the year ended October 31, 1997, $73,750 was reclassified from
accumulated net realized losses on investment to paid-in-capital for
Municipal Money 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
distributions 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.
NOTE B -- ADMINISTRATION FEES, DISTRIBUTION ARRANGEMENTS, AND OTHER TRANSACTIONS
WITH AFFILIATES:
Each Fund retains Neuberger&Berman Management Incorporated ("N&B Management")
as its administrator under an Administration Agreement ("Agreement") dated as of
May 1, 1995. Pursuant to this Agreement each Fund pays N&B Management an
administration fee at the annual rate of .27% of that Fund's average daily net
assets. Each Fund indirectly pays for investment management services through its
investment in its corresponding Portfolio (see Note B of Notes to Financial
Statements of the Portfolios). The Agreement provides that, if with respect to
any fiscal year of each Fund, its total operating expenses plus its pro rata
portion of its corresponding Portfolio's operating expenses (including the fees
payable to N&B Management but excluding interest, taxes, brokerage commissions,
and extraordinary
B-6
<PAGE>
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 N&B Management has no
obligation to reimburse the Fund for any such expenses that exceed the
administration fee. Effective October 11, 1996, states may no longer impose
expense limitations as a condition to the sale of mutual fund shares. The most
restrictive expense limitation applicable prior to that date, to which each Fund
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, 1997.
N&B Management has voluntarily undertaken to reimburse Municipal Securities
Trust for its Operating Expenses which exceed, in the aggregate, .65% per annum
of its average daily net assets. This undertaking is subject to termination by
N&B Management upon at least 60 days' prior written notice to the Fund. For the
year ended October 31, 1997, such excess expenses amounted to $131,519 for
Municipal Securities Trust.
All of the capital stock of N&B Management is owned by individuals who are
also principals of Neuberger&Berman, LLC ("Neuberger"), a member firm of The New
York Stock Exchange and sub-adviser to each Portfolio. Several individuals who
are officers and/or trustees of the Trust are also principals of Neuberger
and/or officers and/or directors of N&B Management.
Each Fund also has a distribution agreement with N&B Management. N&B
Management receives no compensation therefor and no commissions for sales or
redemptions of shares of beneficial interest of each Fund.
Each Portfolio has an expense offset arrangement in connection with its
custodian contract. The impact of this arrangement, reflected in the Statements
of Operations under the caption Expenses from corresponding Portfolio, was a
reduction of $7,437 and $2,577, for Municipal Money and Municipal Securities
Trust, respectively.
Each Fund has an expense offset arrangement in connection with its
shareholder servicing agent contract. The impact of this arrangement, reflected
in the Statements of Operations under the caption Shareholder servicing agent
fees, was a reduction of $4,549 and $1,402, for Municipal Money and Municipal
Securities Trust, respectively.
NOTE C -- INVESTMENT TRANSACTIONS:
During the year ended October 31, 1997, additions and reductions in each
Fund's investment in its corresponding Portfolio were as follows:
<TABLE>
<CAPTION>
ADDITIONS REDUCTIONS
- --------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL MONEY $ 203,053,452 $ 183,974,749
MUNICIPAL SECURITIES TRUST 3,829,184 13,218,421
</TABLE>
B-7
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Municipal 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,
1997(1) 1996(1) 1995(1) 1994(1) 1993(1) 1992 1991 1990 1989 1988
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year $.9993 $.9994 $.9995 $.9996 $.9995 $ .9989 $ .9989 $ .9989 $ .9993 $ .9995
-------------------------------------------------------------------------------------------------
Income From Investment
Operations
Net Investment Income .0296 .0285 .0324 .0204 .0184 .0263 .0432 .0539 .0591 .0478
Net Gains or Losses
on Securities .0001 (.0001) (.0001) (.0001) .0001 .0006 -- -- (.0004) (.0002)
-------------------------------------------------------------------------------------------------
Total From
Investment
Operations .0297 .0284 .0323 .0203 .0185 .0269 .0432 .0539 .0587 .0476
-------------------------------------------------------------------------------------------------
Less Distributions
Dividends (from net
investment income) (.0296) (.0285) (.0324) (.0204) (.0184) (.0263) (.0432) (.0539) (.0591) (.0478)
-------------------------------------------------------------------------------------------------
Net Asset Value, End of
Year $.9994 $.9993 $.9994 $.9995 $.9996 $ .9995 $ .9989 $ .9989 $ .9989 $ .9993
-------------------------------------------------------------------------------------------------
Total Return(2) +3.00% +2.89% +3.29% +2.06% +1.86% +2.66% +4.40% +5.53% +6.07% +4.89%
-------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of
Year (in millions) $156.3 $132.6 $160.9 $150.3 $181.6 $ 195.6 $ 173.9 $ 190.6 $ 204.8 $ 184.5
-------------------------------------------------------------------------------------------------
Ratio of Gross
Expenses to Average
Net Assets(3) .73% .73% .71% -- -- -- -- -- -- --
-------------------------------------------------------------------------------------------------
Ratio of Net Expenses
to Average Net
Assets .72% .72% .71% .73% .74% .67% .66% .67% .74% .69%
-------------------------------------------------------------------------------------------------
Ratio of Net
Investment Income to
Average Net Assets 2.95% 2.86% 3.24% 2.02% 1.85% 2.63% 4.34% 5.41% 5.91% 4.76%
-------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL HIGHLIGHTS
B-8
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Municipal Securities Trust
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,
1997(1) 1996(1) 1995(1) 1994(1) 1993(1) 1992 1991 1990 1989 1988
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year $10.78 $10.83 $10.26 $11.12 $10.53 $ 10.39 $ 10.14 $ 10.09 $ 10.08 $ 9.73
-------------------------------------------------------------------------------------------------
Income From Investment
Operations
Net Investment Income .47 .47 .47 .46 .48 .54 .58 .64 .63 .59
Net Gains or Losses
on Securities (both
realized and
unrealized) .24 (.05) .57 (.73) .68 .14 .25 .05 .01 .35
-------------------------------------------------------------------------------------------------
Total From
Investment
Operations .71 .42 1.04 (.27) 1.16 .68 .83 .69 .64 .94
-------------------------------------------------------------------------------------------------
Less Distributions
Dividends (from net
investment income) (.47) (.47) (.47) (.46) (.48) (.54) (.58) (.64) (.63) (.59)
Distributions (from
net capital gains) -- -- -- (.12) (.09) -- -- -- -- --
Distributions (in
excess of net
capital gains) -- -- -- (.01) -- -- -- -- -- --
-------------------------------------------------------------------------------------------------
Total Distributions (.47) (.47) (.47) (.59) (.57) (.54) (.58) (.64) (.63) (.59)
-------------------------------------------------------------------------------------------------
Net Asset Value, End of
Year $11.02 $10.78 $10.83 $10.26 $11.12 $ 10.53 $ 10.39 $ 10.14 $ 10.09 $ 10.08
-------------------------------------------------------------------------------------------------
Total Return(2) +6.71% +3.92% +10.35% -2.57% +11.30% +6.72% +8.41% +6.99% +6.55% +9.88%
-------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of
Year (in millions) $ 31.6 $ 38.9 $ 44.3 $ 51.1 $105.2 $ 37.0 $ 25.5 $ 14.1 $ 10.5 $ 9.8
-------------------------------------------------------------------------------------------------
Ratio of Gross
Expenses to Average
Net Assets(3) .66% .66% .66% -- -- -- -- -- -- --
-------------------------------------------------------------------------------------------------
Ratio of Net Expenses
to Average Net
Assets(4) .65% .65% .65% .65% .62% .50% .50% .50% .50% .50%
-------------------------------------------------------------------------------------------------
Ratio of Net
Investment Income to
Average Net
Assets(4) 4.30% 4.32% 4.45% 4.24% 4.33% 5.16% 5.61% 6.28% 6.26% 5.90%
-------------------------------------------------------------------------------------------------
Portfolio Turnover
Rate(5) -- -- -- -- 35% 46% 10% 42% 17% 23%
-------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL HIGHLIGHTS
B-9
<PAGE>
NOTES TO FINANCIAL HIGHLIGHTS
Neuberger&Berman October 31, 1997
- ----------------------------------------------------------------------
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 fiscal
period and assumes dividends and other distributions, if any, were
reinvested. Results represent past performance and do not guarantee future
results. Investment returns and principal may fluctuate and shares when
redeemed may be worth more or less than original cost. For Municipal
Securities Trust, total return would have been lower if N&B Management had
not reimbursed certain expenses.
3) For fiscal periods ending after September 1, 1995, each Fund is required to
calculate an expense ratio without taking into consideration any expense
reductions related to expense offset arrangements.
4) After reimbursement of expenses by N&B Management as described in Note B of
Notes to Financial Statements. Had N&B Management not undertaken such action
the annualized ratios of net expenses and net investment income to average
daily net assets would have been:
<TABLE>
<CAPTION>
MUNICIPAL Year Ended October 31,
SECURITIES TRUST 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Expenses 1.05% 1.04% .98% .82% 1.04% 1.16% 1.38% 1.67% 2.50% 2.00%
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Investment Income 3.90% 3.93% 4.12% 4.07% 3.91% 4.50% 4.73% 5.11% 4.26% 4.40%
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
5) The Fund transferred all of its investment securities into Neuberger&Berman
Municipal Securities Portfolio on July 2, 1993. After that date the Fund
invested only in Neuberger&Berman Municipal Securities Portfolio, and that
Portfolio, rather than the Fund, engaged in securities transactions.
Therefore, after that date the Fund had no portfolio turnover rate. Portfolio
turnover rates for periods ending after July 2, 1993, are included in the
Financial Highlights of Neuberger& Berman Municipal Securities Portfolio,
which appear elsewhere in this report.
10
<PAGE>
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Board of Trustees of
Neuberger&Berman Income Funds and
Shareholders of:
Neuberger&Berman Municipal Money Fund and
Neuberger&Berman Municipal Securities Trust
We have audited the accompanying statements of assets and liabilities of the
Neuberger&Berman Municipal Money Fund and Neuberger&Berman Municipal Securities
Trust, two of the series comprising Neuberger&Berman Income Funds (the "Trust"),
as of October 31, 1997, and the related statements of operations for the year
then ended, the statements of changes in net assets for each of the two years in
the period then ended, and the financial highlights for each of the ten years in
the period then ended. 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,
1997, the results of their operations for the year then ended, the changes in
their net assets for each of the two years in the period then ended, and their
financial highlights for each of the ten years in the period then ended, in
conformity with generally accepted accounting principles.
[SIGNATURE]
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
December 5, 1997
11
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Municipal Money Portfolio
<TABLE>
<CAPTION>
Principal Value(3)
Amount Rating(2) (000's
(000's omitted) Security(1) Moody's S&P omitted)
- --------------- -------------------------------------------------- --------- --------- -------------
<C> <S> <C> <C> <C>
TAX-EXEMPT SECURITIES -- PRE-REFUNDED BACKED BY
U.S. GOVERNMENT SECURITIES (5.8%)
$ 2,000 Arizona Agricultural Imp. & Pwr. Dist. Elec. Sys.
Rev. (Salt River Proj.), Ser. 1987 E, 7.25%, due
1/1/17 P/R 1/1/98 Aaa AAA $ 2,010
2,000 Chicago (IL) Pub. Bldg. Comm. Rev. (Comm. College
Dist. No. 508-A), 7.70%, due 1/1/08 P/R 1/1/98 Aaa AAA 2,053
1,800 Illinois G.O., Ser. 1988, 7.75%, due 6/1/11 P/R
6/1/98 1,873
3,000 Utah Sch. Dist. Fin. Cooperative Rev. (Capital
Imp. Fin. Pool), Ser. 1988, 8.375%, due 2/15/10
P/R 8/15/98 Aaa AAA 3,104
-------------
9,040
-------------
MUNICIPAL NOTES (15.4%)
2,000 Broward Co. (FL) Sch. Dist. RANS, Ser. 1997 C,
4.50%, due 4/22/98 MIG-1 SP-1+ 2,005
2,000 California Comm. College Fin. Au. TRANS, Ser. 1997
B, 4.50%, due 9/30/98 SP-1+ 2,010
2,000 California Statewide Comm. Dev. Au. TRANS, Ser.
1997 A, 4.50%, due 6/30/98 Aaa AAA 2,008
2,000 Colorado Gen. Fund TRANS, Ser. 1997 A, 4.50%, due
6/26/98 SP-1+ 2,008
2,000 Houston (TX) TRANS, Ser. 1997, 4.50%, due 6/30/98 MIG-1 SP-1+ 2,008
1,000 Idaho TANS, Ser. 1997, 4.625%, due 6/30/98 MIG-1 SP-1+ 1,005
2,000 Los Angeles Co. (CA) TRANS, Ser. A, 4.50%, due
6/30/98 MIG-1 SP-1+ 2,008
2,000 Manatee Co. (FL) Port Au. BANS, Ser. 1997, 4.25%,
due 7/1/98 MIG-1 2,004
2,000 Michigan Muni. Bond Au. Rev. Notes, Ser. 1997 B,
4.50%, due 7/2/98 SP-1+ 2,009
1,000 New Mexico TRANS, Ser. 1997, 4.50%, due 6/30/98 MIG-1 SP-1+ 1,004
3,000 Santa Cruz Co. (CA) Office of Ed. TRANS, Ser.
1997, 4.50%, due 7/30/98 SP-1+ 3,014
</TABLE>
12
<PAGE>
October 31, 1997
- --------------------------------------------------------------------------------
Municipal Money Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal Value(3)
Amount Rating(2) (000's
(000's omitted) Security(1) Moody's S&P omitted)
- --------------- -------------------------------------------------- --------- --------- -------------
<C> <S> <C> <C> <C>
$ 1,000 Summit Co. (OH) Var. Purp. Ltd. Tax G.O. BANS,
Ser. 1997 A, 4.50%, due 6/4/98 MIG-1 SP-1+ $ 1,004
2,000 Texas TRANS, 4.75%, due 8/31/98 MIG-1 SP-1+ 2,015
-------------
24,102
-------------
TAX-EXEMPT SECURITIES -- BACKED BY LETTERS OF
CREDIT (2.5%)
MORGAN GUARANTY TRUST CO.
3,000 Chicago (IL) G.O. Notes, Ser. 1997, 3.65%, due
1/31/99 Putable 2/5/98 MIG-1 SP-1+ 3,000
STUDENT LOAN MARKETING ASSOC.
1,000 Greater East Texas Higher Ed. Au., Inc. Std. Loan
Ref. Rev., Ser. 1995 A, 4.10%, due 5/1/11 Putable
5/1/98 VMIG-1 A-1+ 1,000
-------------
4,000
-------------
TAX-EXEMPT SECURITIES -- BACKED BY INSURANCE
(4.2%)
AMERICAN MUNICIPAL BOND ASSURANCE CORP.
1,000 Houston (TX) Wtr. & Swr. Sys. Prior Lien Rev.,
Ser. 1989 A, 6.75%, due 12/1/97 Aaa AAA 1,002
1,000 New York Dorm. Au. Ed. Fac. (State Univ.), Ser.
1989 B, 7.00%, due 5/15/98 Aaa AAA 1,017
FINANCIAL GUARANTY INSURANCE CO.
1,000 Chicago (IL) Proj. & Ref. G.O., Ser. 1995 B,
5.50%, due 1/1/98 Aaa AAA 1,003
1,000 Connecticut Spec. Assessment Unemployment Comp.
Adv. Fund Rev., Ser. 1993 C, 3.90%, due 11/15/01
Putable 7/1/98 VMIG-1 A-1+ 1,000
2,530 Wisconsin Trans. Rev., Ser. 1996 A, 5.00%, due
7/1/98 Aaa AAA 2,549
-------------
6,571
-------------
TAX-EXEMPT SECURITIES -- OTHER (3.2%)
1,000 Chester Co. (PA) Solid Waste Au. Gtd. Rev., Ser.
1990 B, 6.65%, due 1/1/98 Aa2 AA 1,004
990 Oregon Hsg. & Comm. Svc. Dept. Mtge. Rev.
(Single-Family Mtge. Prog.), Ser. 1996 K, 3.65%,
due 12/11/97 MIG-1 990
</TABLE>
13
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Municipal Money Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal Value(3)
Amount Rating(2) (000's
(000's omitted) Security(1) Moody's S&P omitted)
- --------------- -------------------------------------------------- --------- --------- -------------
<C> <S> <C> <C> <C>
$ 1,000 Tennessee Hsg. Dev. Agcy. Homeownership Prog.
Rev., Ser. 1997-1, 3.75%, due 1/1/28 Putable
2/19/98 VMIG-1 A-1+ $ 1,000
2,000 Washington Var. Purp. G.O., Ser. 1997 E, 5.00%,
due 7/1/98 Aa1 AA+ 2,015
-------------
5,009
-------------
TAX-EXEMPT CASH EQUIVALENT SECURITIES (11.3%)
1,500 Carlton (WI) PCR (Wisconsin Pwr. & Lt. Co. Proj.),
Ser. 1988, 3.75%, VRDN due 8/1/15 VMIG-1 1,500
300 Decatur (AL) IDB Solid Waste Disp. Rev. (Amoco
Chemical Co. Proj.), Ser. 1995, 4.25%, VRDN due
5/1/25 VMIG-1 300
800 Delaware Co. (PA) IDA Arpt. Fac. Rev. (United
Parcel Svc. Proj.), Ser. 1985, 4.00%, VRDN due
12/1/15 A-1+ 800
1,100 Gulf Coast (TX) IDA Marine Term. Rev. (Amoco Oil
Co. Proj.), Ser. 1993, 4.25%, VRDN due 4/1/28 VMIG-1 A-1+ 1,100
1,000 Gulf Coast (TX) Waste Disp. Au. PCR (Amoco Oil Co.
Proj.), Ser. 1994, 4.25%, VRDN due 6/1/24 VMIG-1 A-1+ 1,000
400 Harris Co. (TX) Hlth. Fac. Dev. Corp. Hosp. Rev.
(The Methodist Hosp.), Ser. 1994, 4.00%, VRDN due
12/1/25 A-1+ 400
700 Lincoln Co. (WY) PCR (Exxon Proj.), Ser. 1987 C,
4.10%, VRDN due 7/1/17 P-1 A-1+ 700
2,700 Louisiana Pub. Fac. Au. SCH Hlth. Care Sys. Rev.
(Sisters of Charity of the Incarnate Word,
Houston, Texas), Ser. 1997 E, 3.65%, VRDN due
7/1/23 VMIG-1 A-1+ 2,700
800 Minneapolis (MN) Comm. Dev. Agcy. Ref. PCR (No.
States Pwr. Co. Proj.), Ser. 1985, 3.75%, VRDN due
3/1/11 Aa3 AA 800
1,000 Navajo Co. (AZ) IDA (Citizens Util. Co. Proj.),
Ser. 1997, 3.80%, VRDN due 5/1/32 A-1+ 1,000
2,000 Nueces Co. (TX) Port of Corpus Christi Au. Solid
Waste Disp. Ref. Rev. (Koch Refining Co., L.P.
Proj.), Ser. 1996, 3.80%, VRDN due 5/1/26 VMIG-1 A-1+ 2,000
</TABLE>
14
<PAGE>
October 31, 1997
- --------------------------------------------------------------------------------
Municipal Money Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal Value(3)
Amount Rating(2) (000's
(000's omitted) Security(1) Moody's S&P omitted)
- --------------- -------------------------------------------------- --------- --------- -------------
<C> <S> <C> <C> <C>
$ 550 Parish of St. Charles (LA) PCR (Shell Oil Co.
Norco Proj.), Ser. 1991, 4.25%, VRDN due 11/1/21 VMIG-1 A-1+ $ 550
200 Parish of St. Charles (LA) PCR (Shell Oil Co.
Norco Proj.), Ser. 1993, 4.25%, VRDN due 9/1/23 VMIG-1 A-1+ 200
2,100 Southwestern Illinois Dev. Au. Solid Waste Disp.
Rev. (Shell Oil Co. Wood River Proj.), Ser. 1992,
4.25%, VRDN due 4/1/22 VMIG-1 A-1+ 2,100
2,500 Texas Ref. G.O. (Veterans' Hsg. Assist. Prog.,
Fund I), Ser. 1995, 3.60%, VRDN due 12/1/16 VMIG-1 A-1+ 2,500
-------------
17,650
-------------
TAX-EXEMPT CASH EQUIVALENT SECURITIES -- BACKED BY
LETTERS OF CREDIT (50.8%)
ABN AMRO BANK NV
4,000 Phenix City (AL) IDB Env. Imp. Rev. (Mead Coated
Board Proj.), Ser. 1988, 3.75%, TECP due 2/12/98 P-1 4,000
BANK OF AMERICA
500 California Hlth. Fac. Au. Hosp. Rev. (N.T. Enloe
Mem. Hosp.), Ser. 1985 A, 3.50%, VRDN due 1/1/16 A-1+ 500
BANK OF MONTREAL
2,100 Port of Corpus Christi (TX) IDC Ref. Rev. (Valero
Refining & Mktg. Co. Proj.), Ser. 1997 D, 3.80%,
VRDN due 4/1/09 A-1+ 2,100
1,100 Port of Portland (OR) Spec. Oblig. Rev. (Horizon
Air Ind., Inc. Proj.), Ser. 1997, 4.15%, VRDN due
6/15/27 A-1+ 1,100
BANK OF NOVA SCOTIA
1,000 North Alabama Env. Imp. Au. Ref. PCR (Reynolds
Metals Co. Proj.), Ser. 1985, 4.05%, VRDN due
12/1/00 P-1 1,000
1,100 Port of Portland (OR) Ref. PCR (Reynolds Metals
Co. Proj.), Ser. 1985, 4.05%, VRDN due 12/1/09 P-1 1,100
BARCLAYS BANK INT'L., LTD.
2,000 Beaver Co. (PA) Ind. Dev. Au. PCR (Duquesne Lt.
Co. Proj.), 3.80%, TECP due 11/6/97 P-1 A-1+ 2,000
</TABLE>
15
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Municipal Money Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal Value(3)
Amount Rating(2) (000's
(000's omitted) Security(1) Moody's S&P omitted)
- --------------- -------------------------------------------------- --------- --------- -------------
<C> <S> <C> <C> <C>
BAYERISCHE LANDESBANK GIROZENTRALE
$ 700 Nashville (TN) Metro. Arpt. Au. Spec. Fac. Ref.
Rev. (Amer. Airlines, Inc. Proj.), Ser. 1995 B,
4.05%, VRDN due 10/1/12 A-1+ $ 700
BAYERISCHE VEREINSBANK AG
700 Phenix City (AL) IDB Env. Imp. Rev. (Mead Coated
Board Proj.), Ser. 1996, 4.15%, VRDN due 3/1/31 VMIG-1 700
CANADIAN IMPERIAL BANK OF COMMERCE
500 District of Columbia Ref. G.O., Ser. 1992 A-2,
4.25%, VRDN due 10/1/07 VMIG-1 A-1+ 500
1,000 St. Louis (MO) Ind. Dev. Au. IDR (Svc. Merchandise
Co., Inc. Proj.), 3.65%, VRDN due 9/15/98 A-1+ 1,000
CITIBANK, N.A.
1,100 Austin Co. (TX) Ind. Dev. Corp. IDR (Justin Ind.,
Inc. Proj.), Ser. 1984, 3.65%, VRDN due 12/1/14 P-1 1,100
COMMERZBANK AG
2,700 Houston (TX) Arpt. Sys. Rev., Ser. A, 3.75%, TECP
due 12/10/97 & 2/18/98 P-1 A-1+ 2,700 (4)
COMMONWEALTH BANK OF AUSTRALIA
4,400 Pendleton Co. (KY) Multi-County Lease Rev.
(Kentucky Assoc. of Cos. Leasing Trust Prog.),
Ser. 1989, 3.75%, TECP due 11/5/97 & 12/10/97 A-1+ 4,400
CREDIT COMMERCIAL DE FRANCE
350 Elkhart Co. (IN) Econ. Dev. Rev. (Pace Amer. Inc.
Proj.), 3.90%, VRDN due 1/1/13 VMIG-1 350
150 Indiana Emp. Dev. Comm. Econ. Dev. Rev. (Metal
Svc. & Supply Inc.), 3.90%, VRDN due 1/1/13 VMIG-1 150
135 Indiana Emp. Dev. Comm. Econ. Dev. Rev. (Triangle
Ventures Proj.), Ser. 1988, 3.90%, VRDN due 1/1/14 VMIG-1 135
100 South Carolina Jobs Econ. Dev. Au. Rev. (Brown
Packing Co., Inc.), Ser. 1988 B, 4.05%, VRDN due
4/1/99 VMIG-1 100
550 South Carolina Jobs Econ. Dev. Au. Rev. (Florence
RHF Hsg., Inc. Proj.), Ser. 1987 A, 3.80%, VRDN
due 11/7/07 P-1 550
</TABLE>
16
<PAGE>
October 31, 1997
- --------------------------------------------------------------------------------
Municipal Money Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal Value(3)
Amount Rating(2) (000's
(000's omitted) Security(1) Moody's S&P omitted)
- --------------- -------------------------------------------------- --------- --------- -------------
<C> <S> <C> <C> <C>
$ 150 South Carolina Jobs Econ. Dev. Au. Rev. (Kent Mfg.
Co. Proj.), Ser. 1988 A, 3.95%, VRDN due 4/7/99 VMIG-1 $ 150
50 South Carolina Jobs Econ. Dev. Au. Rev. (Mar-Mac
Mfg. Co., Inc. Proj.), Ser. 1988 A, 4.05%, VRDN
due 4/7/99 VMIG-1 50
600 South Carolina Jobs Econ. Dev. Au. Rev. (Osmose
Wood Preserving), Ser. B, 3.95%, VRDN due 12/1/04 P-1 600
350 South Carolina Jobs Econ. Dev. Au. Rev. (Phoenix
Finishing Co.), Ser. B, 4.05%, VRDN due 4/1/04 VMIG-1 350
100 South Carolina Jobs Econ. Dev. Au. Rev. (Sudan &
Delta Prop.), Ser. A, 4.05%, VRDN due 1/1/04 VMIG-1 100
CREDIT SUISSE
1,200 Hubbard Co. (MN) Solid Waste Disp. Rev. (Potlatch
Corp. Proj.), Ser. 1990, 3.65%, VRDN due 8/1/14 A-1+ 1,200
100 Kansas City (KS) Ind. Ref. Rev. (PQ Corp.-Kansas
City Proj.), Ser. 1985, 4.10%, VRDN due 8/1/15 VMIG-1 100
400 Montgomery Co. (TX) Ind. Dev. Corp. IDR (Dal-Tile
Corp. Proj.), Ser. 1986 B, 3.80%, VRDN due 12/1/03 A-1+ 400
500 Nashville (TN) Metro. Arpt. Au. Spec. Fac. Ref.
Rev. (Amer. Airlines, Inc. Proj.), Ser. 1995 A,
4.05%, VRDN due 10/1/12 A-1+ 500
434 Salt Lake City (UT) Sub. Arpt. Rev., Ser. 1994 A,
3.65%, VRDN due 6/1/98 VMIG-1 A-1+ 434
1,000 Texas Capital Hlth. Fac. Dev. Corp. (Island on
Lake Travis Ltd. Proj.), 3.70%, VRDN due 12/1/16 A-1+ 1,000
1,000 Wake Co. (NC) Ind. Fac. & Poll. Ctrl. Fin. Au. PCR
(Carolina Pwr. & Lt. Co. Proj.), Ser. 1985 A,
3.65%, VRDN due 5/1/15 A-1+ 1,000
600 Warren (AR) Solid Waste Disp. Rev. (Potlatch Corp.
Proj.), Ser. 1993, 3.65%, VRDN due 4/1/12 A-1+ 600
</TABLE>
17
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Municipal Money Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal Value(3)
Amount Rating(2) (000's
(000's omitted) Security(1) Moody's S&P omitted)
- --------------- -------------------------------------------------- --------- --------- -------------
<C> <S> <C> <C> <C>
DEUTSCHE BANK AG
$ 2,000 Burlington (KS) Ref. & Imp. PCR (Kansas City Pwr.
& Lt. Co. Proj.), Ser. 1987 B, 3.70%, TECP due
11/10/97 P-1 A-1+ $ 2,000
200 Hapeville (GA) Dev. Au. IDR (Hapeville Hotel Ltd.
Partnership Proj.), Ser. 1985, 4.00%, VRDN due
11/1/15 P-1 200
1,000 New Hampshire Ind. Dev. Au. PCR (Connecticut Lt. &
Pwr. Co. Proj.), Ser. 1986, 3.70%, VRDN due
11/1/16 VMIG-1 1,000
FIRST UNION NATIONAL BANK
2,000 Washington Co. (PA) Au. Lease Rev. (Higher Ed.
Pooled Equip. Leasing Prog.), Ser. 1985 A, 3.70%,
VRDN due 11/1/05 VMIG-1 2,000
FLEET BANK, N.A.
400 California Poll. Ctrl. Fin. Au. Res. Rec. Rev.
(Burney Forest Prod. Proj.), Ser. 1988 A, 3.95%,
VRDN due 9/1/20 P-1 400
2,000 New York State Hsg. Fin. Agcy. Rev. (250 West 50th
Street), Ser. 1997 A, 3.65%, VRDN due 5/1/30 VMIG-1 2,000
GENERAL ELECTRIC CAPITAL CORP.
7,365 New Hampshire Hsg. Fin. Au. Multi-Family Hsg. Rev.
(Countryside L.P. Proj.), Ser. 1994, 3.75%, VRDN
due 7/1/24 VMIG-1 7,365
HARRIS TRUST AND SAVINGS BANK
800 Illinois Dev. Fin. Au. IDR (Grayhill, Inc. Proj.),
Ser. 1995 C, 3.75%, VRDN due 2/1/05 A-1+ 800
1,000 Illinois Dev. Fin. Au. IDR (Overton Gear & Tool
Corp. Proj.), Ser. 1994, 3.75%, VRDN due 10/1/08 A-1+ 1,000
KREDIETBANK, NV
200 New York (NY) G.O., Ser. 1993 A-5, 4.00%, VRDN due
8/1/16 VMIG-1 A-1+ 200
</TABLE>
18
<PAGE>
October 31, 1997
- --------------------------------------------------------------------------------
Municipal Money Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal Value(3)
Amount Rating(2) (000's
(000's omitted) Security(1) Moody's S&P omitted)
- --------------- -------------------------------------------------- --------- --------- -------------
<C> <S> <C> <C> <C>
MORGAN GUARANTY TRUST CO.
$ 100 Grapevine (TX) IDC Rev. (Amer. Airlines, Inc.
Proj.), Ser. 1984 A-4, 4.05%, VRDN due 12/1/24 P-1 $ 100
100 Grapevine (TX) IDC Rev. (Amer. Airlines, Inc.
Proj.), Ser. 1984 B-1, 4.05%, VRDN due 12/1/24 P-1 100
800 New York (NY) G.O., Ser. 1994 A-8, 4.00%, VRDN due
8/1/18 VMIG-1 A-1+ 800
NATIONAL WESTMINSTER BANK PLC
1,200 Hillsborough (FL) Aviation Au. Rev. (Tampa Int'l.
Arpt.), 3.75%, TECP due 11/13/97 P-1 A-1+ 1,200
300 Marion Co. (WV) Comm. Solid Waste Disp. Fac. Rev.
(Grant Town Cogeneration Proj.), Ser. 1990 A,
3.75%, VRDN due 10/1/17 VMIG-1 A-1+ 300
1,400 Marion Co. (WV) Comm. Solid Waste Disp. Fac. Rev.
(Grant Town Cogeneration Proj.), Ser. 1990 B,
3.70%, VRDN due 10/1/17 VMIG-1 A-1+ 1,400
300 Marion Co. (WV) Comm. Solid Waste Disp. Fac. Rev.
(Grant Town Cogeneration Proj.), Ser. 1990 D,
3.70%, VRDN due 10/1/17 VMIG-1 A-1+ 300
1,000 Rhode Island Std. Loan Au. Prog. Rev., Ser.
1995-1, 3.75%, VRDN due 7/1/19 A-1+ 1,000
3,000 Rhode Island Std. Loan Au. Prog. Rev., Ser.
1996-3, 3.75%, VRDN due 6/1/26 A-1+ 3,000
NORWEST BANK
800 New Ulm (MN) Hosp. Ref. Rev. (Hlth. Central Sys.
Proj.), Ser. 1985, 3.70%, VRDN due 8/1/14 A-1+ 800
PNC BANK N.A.
400 Florida HFA Multi-Family Hsg. Rev. (Falls of
Venice Proj.), Ser. 1987 E, 3.75%, VRDN due
12/1/11 P-1 A-1 400
RABOBANK NEDERLAND
1,500 Henderson Co. (KY) Solid Waste Disp. Rev. (Hudson
Foods, Inc. Proj.), Ser. 1995, 3.70%, VRDN due
3/1/15 VMIG-1 1,500
</TABLE>
19
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Municipal Money Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal Value(3)
Amount Rating(2) (000's
(000's omitted) Security(1) Moody's S&P omitted)
- --------------- -------------------------------------------------- --------- --------- -------------
<C> <S> <C> <C> <C>
ROYAL BANK OF CANADA
$ 100 Lone Star (TX) Arpt. Imp. Au., Inc. Rev. (Amer.
Airlines, Inc. Proj.), Ser. 1984 A-2, 4.05%, VRDN
due 12/1/14 VMIG-1 $ 100
100 Lone Star (TX) Arpt. Imp. Au., Inc. Rev. (Amer.
Airlines, Inc. Proj.), Ser. 1984 B-5, 4.05%, VRDN
due 12/1/14 VMIG-1 100
SOCIETE GENERALE
1,700 Chicago (IL) O'Hare Int'l. Arpt. Gen. Arpt. 2nd
Lien Rev., Ser. 1984 A, 3.65%, VRDN due 1/1/15 VMIG-1 A-1+ 1,700
1,900 Chicago (IL) O'Hare Int'l. Arpt. Spec. Fac. Rev.
(Compagnie Nationale Air France Proj.), Ser. 1990,
3.70%, VRDN due 5/1/18 A-1+ 1,900
100 Indianapolis (IN) Multi-Family Hsg. Ref. Rev.
(Canal Square Proj.), Ser. 1989, 3.65%, VRDN due
12/1/15 VMIG-1 100
100 Los Angeles (CA) Reg. Arpts. Imp. Corp. Fac.
Sublease Rev. (Los Angeles Int'l. Arpt.), Ser.
1985, 4.05%, VRDN due 12/1/25 A-1+ 100
1,500 Maricopa Co. (AZ) Poll. Ctrl. Corp. PCR (Arizona
Pub. Svc. Co. Palo Verde Proj.), Ser. 1994 B,
4.20%, VRDN due 5/1/29 P-1 A-1+ 1,500
600 Platte Co. (WY) Ref. PCR (Tri-State Generation &
Transmission Assoc., Inc. Proj.), Ser. 1984 A,
3.95%, VRDN due 7/1/14 P-1 600
STUDENT LOAN MARKETING ASSOC.
200 Colorado Std. Oblig. Bond Au. Std. Loan Rev., Ser.
1993 A, 3.60%, VRDN due 7/1/99 VMIG-1 A-1+ 200
300 Nebraska Higher Ed. Loan Prog., Inc. Std. Loan
Prog. Rev., Ser. 1986 A, 3.75%, VRDN due 12/1/16 A-1+ 300
1,600 Panhandle-Plains (TX) Higher Ed. Au., Inc. Std.
Loan Rev., Ser. 1995 A, 3.70%, VRDN due 6/1/25 VMIG-1 1,600
SUNTRUST BANK
1,000 Mayfield (KY) IDR (Seaboard Farms of Kentucky
Proj.), 3.80%, VRDN due 8/1/19 P-1 1,000
</TABLE>
20
<PAGE>
October 31, 1997
- --------------------------------------------------------------------------------
Municipal Money Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal Value(3)
Amount Rating(2) (000's
(000's omitted) Security(1) Moody's S&P omitted)
- --------------- -------------------------------------------------- --------- --------- -------------
<C> <S> <C> <C> <C>
SWISS BANK CORP.
$ 1,150 Pennsylvania Energy Dev. Au. Rev. (B & W Ebensburg
Proj.), Ser. 1986, 3.70%, VRDN due 12/1/11 VMIG-1 $ 1,150
TORONTO DOMINION BANK
1,000 Crossett (AR) PCR (Georgia-Pacific Corp. Proj.),
Ser. 1984, 3.60%, VRDN due 10/1/07 P-1 1,000
120 Wisconsin Hlth. Fac. Au. Rev. (Franciscan Hlth.
Care, Inc.-Sys. Fin.), Ser. 1985 A-2, 3.60%, VRDN
due 1/1/16 VMIG-1 A-1+ 120
TRUST CO. BANK-ATLANTA
3,000 Fulco (GA) Hosp. Au. Rev. Anticipation Cert. (St.
Joseph's Hosp. of Atlanta Proj.), Ser. 1989,
3.65%, TECP due 12/11/97 VMIG-1 A-1+ 3,000
UNION BANK OF SWITZERLAND
1,000 Alaska Ind. Dev. & Export Au. Fac. Rev. (Fairbanks
Gold Mining, Inc. Proj.), Ser. 1997, 3.75%, VRDN
due 5/1/09 VMIG-1 A-1+ 1,000
700 Beltrami Co. (MN) Env. Imp. Rev. (Northwood
Panelboard Co. Proj.), Ser. 1995, 4.05%, VRDN due
7/1/25 A-1+ 700
1,000 Clark Co. (NV) Arpt. Sys. Sub. Lien Rev., Ser.
1995 A-1, 3.60%, VRDN due 7/1/25 VMIG-1 A-1+ 1,000
900 Delta Co. (MI) Econ. Dev. Corp. Env. Imp. Rev.
(Mead-Escanaba Paper Co. Proj.), Ser. 1992, 4.10%,
VRDN due 12/1/23 A-1+ 900
1,705 Des Moines (IA) Commercial Dev. Rev. (Capitol Ctr.
III Proj.), Ser. 1985, 3.65%, VRDN due 12/1/15 VMIG-1 1,705
150 Indiana Emp. Dev. Comm. Econ. Dev. Rev. (K & F
Ind., Inc. Proj.), 3.90%, VRDN due 1/1/14 VMIG-1 150
100 Sabine (TX) River Au. Ref. PCR (Texas Util. Elec.
Co.), Ser. B, 3.95%, VRDN due 6/1/30 VMIG-1 A-1+ 100
WACHOVIA BANK & TRUST CO.
300 Los Angeles (CA) Reg. Arpts. Imp. Corp. Lease Rev.
(Amer. Airlines-Los Angeles Int'l. Arpt.), Ser.
1984 F, 4.05%, VRDN due 12/1/24 P-1 300
</TABLE>
21
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman October 31, 1997
- --------------------------------------------------------------------------------
Municipal Money Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal Value(3)
Amount Rating(2) (000's
(000's omitted) Security(1) Moody's S&P omitted)
- --------------- -------------------------------------------------- --------- --------- -------------
<C> <S> <C> <C> <C>
WESTDEUTSCHE LANDESBANK GIROZENTRALE
$ 600 New York (NY) Trust for Cultural Res. Rev. (The
Solomon R. Guggenheim Foundation), Ser. 1990 B,
4.00%, VRDN due 12/1/15 VMIG-1 A-1+ $ 600
-------------
79,459
-------------
TAX-EXEMPT CASH EQUIVALENT SECURITIES -- BACKED BY
INSURANCE (5.9%)
AMERICAN MUNICIPAL BOND ASSURANCE CORP.
4,300 Dade Co. (FL) Hlth. Fac. Au. Hosp. Rev. (Miami
Children's Hosp. Proj.), Ser. 1995, 3.60%, VRDN
due 9/1/25 A-1+ 4,300
810 La Crosse (WI) IDR (Dairyland Pwr. Cooperative),
Ser. C, 4.00%, VRDN due 2/1/15 VMIG-1 810
400 Sayre (PA) Hlth. Care Fac. Au. Hosp. Rev. (VHA of
PA, Inc. Cap. Asset Fin. Prog.), Ser. 1985 A,
3.65%, VRDN due 12/1/20 A-1 400
FINANCIAL GUARANTY INSURANCE CO.
700 New York City (NY) Muni. Wtr. Fin. Au. Wtr. & Swr.
Sys. Rev., Ser. 1993 C, 4.00%, VRDN due 6/15/22 VMIG-1 A-1+ 700
MUNICIPAL BOND INVESTORS ASSURANCE CORP.
1,000 Illinois Toll Hwy. Au. Ref. Rev., Ser. 1993 B,
3.60%, VRDN due 1/1/10 VMIG-1 A-1+ 1,000 (5)
2,100 Lower Colorado (TX) River Au. Jr. Lien Ref. Rev.,
3rd Ser., 3.60%, VRDN due 1/1/13 VMIG-1 A-1+ 2,100
-------------
9,310
-------------
TOTAL INVESTMENTS (99.1%) 155,141
Cash, receivables and other assets, less
liabilities (0.9%) 1,346
-------------
TOTAL NET ASSETS (100.0%) $ 156,487
-------------
</TABLE>
SEE NOTES TO SCHEDULE OF INVESTMENTS
22
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman October 31, 1997
- --------------------------------------------------------------------------------
Municipal Securities Portfolio
<TABLE>
<CAPTION>
Principal Value(6)
Amount Rating(2) (000's
(000's omitted) Security(1) Moody's S&P omitted)
- --------------- -------------------------------------------------- ----------- --------- -------------
<C> <S> <C> <C> <C>
TAX-EXEMPT SECURITIES -- PRE-REFUNDED BACKED BY
U.S. GOVERNMENT SECURITIES (2.6%)
$ 750 Massachusetts Wtr. Res. Au. Gen. Rev., Ser. 1992
A, 6.50%, due 7/15/21 P/R 7/15/02 Aaa AAA $ 833
-------------
TAX-EXEMPT SECURITIES -- BACKED BY INSURANCE
(42.1%)
AMERICAN MUNICIPAL BOND ASSURANCE CORP.
1,175 Anchorage (AK) Sr. Lien Elec. Rev. (Muni. Lt. &
Pwr.), Ser. 1996 C, 6.00%, due 12/1/04 Aaa AAA 1,276
1,000 Atlanta (GA) Arpt. Fac. Ref. Rev., Ser. 1996,
6.50%, due 1/1/06 Aaa AAA 1,131
500 Florida Dept. of Trans. Tpke. Rev., Ser. 1995 A,
5.50%, due 7/1/03 Aaa AAA 530
1,000 New York City (NY) Muni. Assist. Corp. Rev., Ser.
D, 5.25%, due 7/1/02 Aaa AAA 1,041
FINANCIAL GUARANTY INSURANCE CO.
1,000 Dade Co. (FL) Wtr. & Swr. Sys. Rev., Ser. 1995,
6.25%, due 10/1/06 Aaa AAA 1,124
750 New York Dorm. Au. Rev. (State Univ. Ed. Fac.),
Ser. 1993 B, 5.20%, due 5/15/03 Aaa AAA 781
1,000 North Chicago (IL) Ref. G.O., Ser. 1996, 5.75%,
due 1/1/10 Aaa AAA 1,071
MUNICIPAL BOND INVESTORS ASSURANCE CORP.
1,000 Clark Co. (NV) Sch. Dist. Imp. G.O., Ser. 1995 A,
5.60%, due 6/15/08 Aaa AAA 1,056
1,000 Commonwealth of Pennsylvania G.O. (Ref. & Proj.),
2nd Ser. 1994, 5.20%, due 6/15/04 Aaa AAA 1,043
1,000 Connecticut Spec. Tax Oblig. Ref. Rev. (Trans.
Infrastructure Purp.), Ser. 1993 A, 5.40%, due
9/1/09 Aaa AAA 1,034
1,000 Harris Co. (TX) Hlth. Fac. Dev. Corp. Hosp. Rev.
(Mem. Hosp. Sys. Proj.), Ser. A, 5.00%, due 6/1/06 Aaa AAA 1,018
</TABLE>
23
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Municipal Securities Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal Value(6)
Amount Rating(2) (000's
(000's omitted) Security(1) Moody's S&P omitted)
- --------------- -------------------------------------------------- ----------- --------- -------------
<C> <S> <C> <C> <C>
$ 1,000 Nebraska Inv. Fin. Au. Hosp. Rev. (Nebraska
Methodist Hlth. Sys., Inc.), Ser. 1991, 7.00%, due
3/1/06 Aaa AAA $ 1,098
1,000 Puerto Rico Elec. Pwr. Au. Ref. Rev., Ser. W,
6.50%, due 7/1/05 Aaa AAA 1,132
-------------
13,335
-------------
TAX-EXEMPT SECURITIES -- OTHER (50.5%)
500 Brownwood (TX) Independent Sch. Dist. Unlimited
Tax Sch. Bldg. & Ref. G.O. (Brown Co., Texas),
Ser. 1994, Zero Coupon, Yielding 5.90%, due
2/15/02 Aaa 414
560 Brownwood (TX) Independent Sch. Dist. Unlimited
Tax Sch. Bldg. & Ref. G.O. (Brown Co., Texas),
Ser. 1994, Zero Coupon, Yielding 6.10%, due
2/15/04 Aaa 419
1,000 California Ed. Fac. Au. Rev. (Univ. of So. Cal.
Proj.), Ser. 1989 B, 6.80%, due 10/1/99 Aa3 AA 1,054
670 Cincinnati (OH) Std. Loan Funding Corp. Ref. Rev.,
Ser. 1992 C, 6.10%, due 7/1/02 Aaa 706
1,000 Commonwealth of Massachusetts Ref. G.O., Ser. 1995
A, 6.25%, due 7/1/04 A1 AA- 1,099
1,000 Georgia G.O., Ser. 1995 C, 7.25%, due 7/1/04 Aaa AAA 1,164
1,970 Honolulu (HI) City & Co. G.O., Ser. 74, Zero
Coupon, Yielding 5.95%, due 1/1/13 Aa2 891
1,500 Maryland Comm. Dev. Admin. Dept. of Hsg. & Comm.
Dev. Rev. (Single Family Prog.), 3rd Ser. 1993,
5.15%, due 4/1/08 Aa2 1,525
1,000 Maryland Wtr. Quality Fin. Admin. Ref. Rev.
(Revolving Loan Fund), Ser. 1995 A, 5.50%, due
9/1/11 Aa2 AA 1,033
1,000 Mecklenburg Co. (NC) Pub. Imp. G.O., Ser. 1994,
5.50%, due 4/1/12 Aaa AAA 1,042
</TABLE>
24
<PAGE>
October 31, 1997
- --------------------------------------------------------------------------------
Municipal Securities Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal Value(6)
Amount Rating(2) (000's
(000's omitted) Security(1) Moody's S&P omitted)
- --------------- -------------------------------------------------- ----------- --------- -------------
<C> <S> <C> <C> <C>
$ 190 Mississippi Higher Ed. Assist. Corp. Std. Loan
Sub. Rev., Ser. 1993 C, 6.05%, due 9/1/07 A $ 199
1,000 Nevada Ref. Limited Tax G.O., Ser. 1997 A-2,
6.00%, due 5/15/06 Aa2 AA 1,099
500 New Jersey Bldg. Au. St. Bldg. Rev., Ser. 1994,
5.00%, due 6/15/11 Aa2 AA- 500
750 New York City (NY) IDA Spec. Fac. Rev. (Term. One
Group Assoc., L.P. Proj.), Ser. 1994, 6.00%, due
1/1/15 A A 782
1,000 New York Dorm. Au. Rev. (Columbia Univ.), Ser.
1994 A, 4.00%, due 7/1/00 Aaa AA+ 999
1,000 Omaha (NE) Pub. Pwr. Dist. Elec. Sys. Rev., Ser.
1993 E, 4.60%, due 2/1/06 Aa2 AA 1,001
1,000 Port of Portland (OR) Ref. G.O., Ser. 1993 A,
4.50%, due 3/1/05 Aa AA+ 1,000
1,000 Washington Motor Vehicle Fuel Tax G.O., Ser. 1995
D, 6.50%, due 9/1/01 Aa1 AA+ 1,083
-------------
16,010
-------------
TAX-EXEMPT CASH EQUIVALENT SECURITIES (0.9%)
300 Lincoln Co. (WY) PCR (Exxon Proj.), Ser. 1987 C,
4.10%, VRDN due 7/1/17 P-1 A-1+ 300
-------------
TAX-EXEMPT CASH EQUIVALENT SECURITIES -- BACKED BY
LETTERS OF CREDIT (2.5%)
BANK OF NOVA SCOTIA
200 North Alabama Env. Imp. Au. Ref. PCR (Reynolds
Metals Co. Proj.), Ser. 1985, 4.05%, VRDN due
12/1/00 P-1 200
100 Port of Portland (OR) Ref. PCR (Reynolds Metals
Co. Proj.), Ser. 1985, 4.05%, VRDN due 12/1/09 P-1 100
SOCIETE GENERALE
100 Los Angeles (CA) Reg. Arpt. Imp. Corp. Term. Fac.
Rev., 4.15%, VRDN due 12/1/25 A-1+ 100
</TABLE>
25
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman October 31, 1997
- --------------------------------------------------------------------------------
Municipal Securities Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal Value(6)
Amount Rating(2) (000's
(000's omitted) Security(1) Moody's S&P omitted)
- --------------- -------------------------------------------------- ----------- --------- -------------
<C> <S> <C> <C> <C>
UNION BANK OF SWITZERLAND
$ 300 Washoe Co. (NV) Wtr. Fac. Rev. (Sierra Pacific
Pwr. Co. Proj.), Ser. 1990, 4.25%, VRDN due
12/1/20 P-1 A-1+ $ 300
WACHOVIA BANK & TRUST CO.
100 Los Angeles (CA) Reg. Arpts. Imp. Corp. Lease Rev.
(Amer. Airlines -- Los Angeles Int'l. Arpt.), Ser.
A, 4.05%, VRDN due 12/1/24 P-1 100
-------------
800
-------------
TOTAL INVESTMENTS (98.6%) (COST $30,390) 31,278 (7)
Cash, receivables and other assets, less
liabilities (1.4%) 434
-------------
TOTAL NET ASSETS (100.0%) $ 31,712
-------------
</TABLE>
SEE NOTES TO SCHEDULE OF INVESTMENTS
26
<PAGE>
NOTES TO SCHEDULE OF INVESTMENTS
October 31, 1997
- ----------------------------------------------------------------------
Income Managers Trust
1) Municipal securities held by Neuberger&Berman Municipal Money Portfolio
("Municipal Money") and Neuberger&Berman Municipal Securities Portfolio
("Municipal Securities") are within the two and four highest rating
categories, respectively, assigned by a nationally recognized statistical
rating organization ("NRSRO") such as Moody's Investors Service, Inc. or
Standard & Poor's or, where not rated, are determined by the Portfolio's
investment manager to be of comparable quality within guidelines approved by
the trustees of Income Managers Trust. Approximately 78% and 51% of the
municipal securities held by Municipal Money and Municipal Securities,
respectively, have credit enhancement features backing them, which the
Portfolios may rely on, such as letters of credit, insurance, or guarantees.
Without these credit enhancement features the securities may or may not meet
the quality standards of the Portfolios. Pre-refunded bonds are supported by
securities in escrow issued or guaranteed by the U.S. Government, its
agencies, or instrumentalities. The amount escrowed is sufficient to pay the
periodic interest due and the principal of these bonds. Putable bonds give
the Portfolios the right to sell back the issue on the date specified.
2) Credit ratings are unaudited.
3) Investment securities of the Portfolio are valued at amortized cost, which
approximates Federal income tax cost.
4) Canadian Imperial Bank of Commerce has also issued a letter of credit for
this security.
5) Societe Generale has also issued a letter of credit for this security.
6) Investment securities of the Portfolio are valued daily by obtaining bid
price quotations from an independent pricing service on all securities
available in the 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.
7) At October 31, 1997, selected Portfolio information on a Federal income tax
basis was as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED NET UNREALIZED
NEUBERGER&BERMAN COST APPRECIATION DEPRECIATION APPRECIATION
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL SECURITIES PORTFOLIO $ 30,390,000 $ 888,000 $ -- $ 888,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
27
<PAGE>
(This page has been left blank intentionally.)
28
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
October 31, 1997
- ----------------------------------------------------------------------
Income Managers Trust
<TABLE>
<CAPTION>
MUNICIPAL MUNICIPAL
MONEY SECURITIES
(000'S OMITTED) PORTFOLIO PORTFOLIO
-------------------------------
<S> <C> <C>
ASSETS
Investments in securities, at value*
(Note A) -- see Schedule of Investments $ 155,141 $ 31,278
Cash 62 53
Deferred organization costs (Note A) 2 1
Interest receivable 1,352 414
Prepaid expenses and other assets 3 1
Receivable for securities sold 10 --
-------------------------------
156,570 31,747
-------------------------------
LIABILITIES
Payable to investment manager (Note B) 35 7
Accrued expenses 48 28
-------------------------------
83 35
-------------------------------
NET ASSETS Applicable to Investors' Beneficial
Interests $ 156,487 $ 31,712
-------------------------------
NET ASSETS consist of:
Paid-in capital $ 156,487 $ 30,824
Net unrealized appreciation in value of
investment securities -- 888
-------------------------------
NET ASSETS $ 156,487 $ 31,712
-------------------------------
*Cost of investments $ 155,141 $ 30,390
-------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
29
<PAGE>
STATEMENTS OF OPERATIONS
For the Year Ended October 31, 1997
- ----------------------------------------------------------------------
Income Managers Trust
<TABLE>
<CAPTION>
MUNICIPAL MUNICIPAL
MONEY SECURITIES
(000'S OMITTED) PORTFOLIO PORTFOLIO
---------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest income $ 5,213 $ 1,633
---------------------------
Expenses:
Investment management fee (Note B) 354 83
Accounting fees 10 10
Amortization of deferred organization and
initial offering expenses (Note A) 3 1
Auditing fees 30 22
Custodian fees (Note B) 107 32
Insurance expense 3 1
Legal fees 17 13
Trustees' fees and expenses 11 7
---------------------------
Total expenses 535 169
Expenses reduced by custodian fee expense
offset arrangement (Note B) (7) (3)
---------------------------
Total net expenses 528 166
---------------------------
Net investment income 4,685 1,467
---------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investment securities
sold -- 223
Net realized loss on financial futures
contracts (Note A) -- (13)
Change in net unrealized appreciation of
investment securities and financial futures
contracts (Note A) -- 462
---------------------------
Net gain on investments -- 672
---------------------------
Net increase in net assets resulting from
operations $ 4,685 $ 2,139
---------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
30
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------
Income Managers Trust
<TABLE>
<CAPTION>
MUNICIPAL MUNICIPAL
MONEY SECURITIES
PORTFOLIO PORTFOLIO
Year Year
Ended Ended
October 31, October 31,
(000'S OMITTED) 1997 1996 1997 1996
-------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income $ 4,685 $ 5,139 $ 1,467 $ 1,860
Net realized gain on investments -- 2 210 227
Change in net unrealized
appreciation of investments -- -- 462 (432)
-------------------------------------------------------------
Net increase in net assets resulting
from operations 4,685 5,141 2,139 1,655
-------------------------------------------------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL
INTERESTS:
Additions 203,054 213,754 3,829 3,715
Reductions (183,975) (247,266) (13,218) (10,828)
-------------------------------------------------------------
Net increase (decrease) in net
assets resulting from transactions
in investors' beneficial interests 19,079 (33,512) (9,389) (7,113)
-------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 23,764 (28,371) (7,250) (5,458)
NET ASSETS:
Beginning of year 132,723 161,094 38,962 44,420
-------------------------------------------------------------
End of year $ 156,487 $ 132,723 $ 31,712 $ 38,962
-------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
31
<PAGE>
NOTES TO FINANCIAL STATEMENTS
October 31, 1997
- ----------------------------------------------------------------------
Income Managers Trust
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1) GENERAL: Neuberger&Berman Municipal Money Portfolio ("Municipal Money") and
Neuberger&Berman Municipal Securities Portfolio ("Municipal Securities")
(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 a diversified, open-end
management investment company under the Investment Company Act of 1940, as
amended. Other regulated investment companies sponsored by Neuberger& Berman
Management Incorporated ("N&B Management"), whose financial statements are
not presented herein, also invest in Managers Trust.
The assets of each series belong only to that series, and the liabilities
of each series are borne solely by that series and no other.
2) PORTFOLIO VALUATION: Investment securities are valued as indicated in the
notes following the Portfolios' Schedule of Investments.
3) 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, is recorded on the accrual basis. Realized gains and
losses from securities transactions are recorded on the basis of identified
cost.
4) 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.
5) 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, 1997, the unamortized balance
of such expenses amounted to $1,967 and $695, for Municipal Money and
Municipal Securities, respectively.
6) 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.
32
<PAGE>
7) FINANCIAL FUTURES CONTRACTS: Municipal Securities may buy and sell financial
futures contracts to hedge against changes in securities prices resulting
from changes in prevailing interest rates. At the time the Portfolio enters
into a financial futures contract, it is required to deposit with its
custodian a specified amount of cash or liquid securities, 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, the 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
the Portfolio may cause the 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, the Portfolio's losses on transactions
involving futures contracts may be deferred rather than being taken into
account currently in calculating the Portfolio's taxable income.
During the year ended October 31, 1997, Municipal Securities entered into
financial futures contracts. There were no open positions in financial
futures contracts at October 31, 1997.
NOTE B -- MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES:
Each Portfolio retains N&B Management as its investment manager under a
Management Agreement. For such investment management services, each Portfolio
pays N&B 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 N&B Management is owned by individuals who are
also principals of Neuberger&Berman, LLC ("Neuberger"), a member firm of The New
York Stock Exchange and sub-adviser to each Portfolio. Neuberger is retained by
33
<PAGE>
N&B Management to furnish it with investment recommendations and research
information without added cost to each Portfolio. Several individuals who are
officers and/or trustees of Managers Trust are also principals of Neuberger
and/or officers and/or directors of N&B Management.
Each Portfolio has an expense offset arrangement in connection with its
custodian contract. The impact of this arrangement, reflected in the Statements
of Operations under the caption Custodian fees, was a reduction of $7,437 and
$2,577, for Municipal Money and Municipal Securities, respectively.
NOTE C -- SECURITIES TRANSACTIONS:
During the year ended October 31, 1997, there were purchase and sale
transactions (excluding short-term securities and financial futures contracts)
as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
- -----------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL SECURITIES $6,944,117 $ 14,291,349
</TABLE>
All securities transactions for Municipal Money were short-term.
34
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Income Managers Trust
<TABLE>
<CAPTION>
MUNICIPAL MUNICIPAL
MONEY SECURITIES
PORTFOLIO PORTFOLIO
Period from Period from
July 2, July 2,
1993(1) 1993(1)
Year Ended October 31, to October 31, Year Ended October 31, to October 31,
1997 1996 1995 1994 1993 1997 1996 1995 1994 1993
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses(2) .38% .37% .37% -- -- .51% .47% .47% -- --
-------------------------------------------------------------------------------------------
Net Expenses .37% .36% .36% .36% .36%(3) .50% .47% .46% .40% .42%(3)
-------------------------------------------------------------------------------------------
Net Investment Income 3.29% 3.21% 3.57% 2.38% 2.20%(3) 4.44% 4.49% 4.63% 4.47% 4.21%(3)
-------------------------------------------------------------------------------------------
Portfolio Turnover Rate -- -- -- -- -- 22% 3% 66% 127% 25%
-------------------------------------------------------------------------------------------
Net Assets, End of Year (in
millions) $156.5 $132.7 $161.1 $150.5 $181.8 $31.7 $39.0 $44.4 $51.4 $104.3
-------------------------------------------------------------------------------------------
</TABLE>
1) The date investment operations commenced.
2) For fiscal periods ending after September 1, 1995, each Portfolio is required
to calculate an expense ratio without taking into consideration any expense
reductions related to expense offset arrangements.
3) Annualized.
B-35
<PAGE>
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Board of Trustees of
Income Managers Trust and
Owners of Beneficial Interest of
Neuberger&Berman Municipal Money Portfolio and
Neuberger&Berman Municipal Securities Portfolio
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the Neuberger&Berman Municipal Money
Portfolio and Neuberger&Berman Municipal Securities Portfolio, two of the series
comprising Income Managers Trust (the "Trust"), as of October 31, 1997, and the
related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of October 31, 1997, by correspondence with the custodian.
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, 1997, the
results of their operations for the year then ended, the changes in their net
assets for each of the two years in the period then ended, and their financial
highlights for each of the periods indicated therein, in conformity with
generally accepted accounting principles.
[SIGNATURE]
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
December 5, 1997
36
<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 Municipal Money Fund, and
Neuberger&Berman Municipal Securities Trust are registered service marks of
Neuberger&Berman Management Inc.
- -C- 1997 Neuberger&Berman Management Inc.
1
<PAGE>
OFFICERS AND TRUSTEES
Stanley Egener
CHAIRMAN OF THE BOARD AND TRUSTEE
Theodore P. Giuliano
PRESIDENT AND TRUSTEE
John Cannon
TRUSTEE
Barry Hirsch
TRUSTEE
Robert A. Kavesh
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
2
<PAGE>
Neuberger&Berman Management Inc. -Registered Trademark-
605 THIRD AVENUE 2ND FLOOR
NEW YORK, NY 10158-0180
SHAREHOLDER SERVICES
800.877.9700
INSTITUTIONAL SERVICES
800.366.6264
WWW.NBFUNDS.COM
Statistics and projections in this report are derived from sources
deemed to be reliable but cannot be regarded as a representation of
future results of the Funds. This report is prepared for the general
information of shareholders and is not an offer of shares of the Funds.
Shares are sold only through the currently effective prospectus, which
must precede or accompany this report.
- -recycle logo- PRINTED ON RECYCLED PAPER
NBMFAR001097