<PAGE>
ANNUAL REPORT
- ------------------------------------------------------------------------------
October 31, 1997
NEUBERGER&BERMAN
INCOME FUNDS-Registered Trademark-
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 A-4
GROWTH OF A DOLLAR CHARTS
COMPARISON OF A $10,000 INVESTMENT
Ultra Short Bond Fund B-1
Limited Maturity Bond Fund B-2
FINANCIAL STATEMENTS B-3
FINANCIAL HIGHLIGHTS
PER SHARE DATA
Government Money Fund B-13
Cash Reserves B-14
Ultra Short Bond Fund B-15
Limited Maturity Bond Fund B-16
REPORT OF INDEPENDENT AUDITORS B-19
THE PORTFOLIOS
SCHEDULE OF INVESTMENTS
Government Money Portfolio B-21
Cash Reserves Portfolio B-22
Ultra Short Bond Portfolio B-25
Limited Maturity Bond Portfolio B-28
FINANCIAL STATEMENTS B-35
FINANCIAL HIGHLIGHTS B-45
REPORT OF INDEPENDENT AUDITORS B-47
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% 5.84% 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, have 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.
GOVERNMENT MONEY FUND AND CASH RESERVES True to our trend following
discipline, over the last six months, we extended the portfolios' weighted
average maturities to lock in higher yields as interest rates declined. On May
1, 1997, the Government Money Fund had
5
<PAGE>
a weighted average maturity of 72.2 days. As of October 31, 1997, weighted
average maturity was at 82.3 days, near our 90-day maximum weighted average
maturity ceiling. We were able to enhance portfolio yield by buying Treasury
Notes during periods in which yields were as much as 20 basis points (0.2%)
higher than Treasury Bills.+
Weighted average maturity for Cash Reserves was lengthened from 44.3 days at
the end of first-half fiscal 1997 to 72.8 days at the close of the fiscal year.
In Cash Reserves, we continue to be biased toward commercial paper (73.4% of the
portfolio), and bank debt (20.2%). The balance of the portfolio is comprised of
6.0% floating rate notes and 0.4% in cash. The highest investment grade 90-day
commercial paper is currently yielding approximately 50 basis points (0.50%)
more than 90-day Treasury Bills. In our view, this is not because of
significantly greater credit risk -- in this thriving economy, corporate and
bank cash flows have been very strong -- but rather, due to supply and demand
factors in the Treasury market. The Federal deficit has come way down and
consequently, less short-term government debt is being issued. For example, $19
billion of one-year Treasuries was issued in each of the two auctions in January
1997. At the October 1997 one-year Treasury auction, only $13 billion was
issued. The weekly auctions of three- and six-month Treasury Bills have declined
from $25 billion in January 1997 to around $15 billion in October. Shrinking
supply combined with stable demand has resulted in higher prices and lower
yields for Treasuries. In our opinion, this made commercial paper and bank debt
a much better relative value.+
ULTRA SHORT BOND FUND With interest rates trending lower over the last six
months, we extended the portfolio's weighted average duration from 1.62 years to
1.80 years at the close of fiscal 1997. In the process, securities with
durations (measure of interest rate sensitivity) less than one year declined
from 39% of the portfolio at the end of first half fiscal 1997 to 15% at the
close of the fiscal year.
Our primary strategic shift during the last six months was to increase our
allocation in corporate notes and bonds from 16.4% at the close of first-half
fiscal 1997 to 37.2% at the end of the fiscal year. This was done to take
advantage of the higher yields offered by corporates as a result of plentiful
supply and, in our opinion, unjustified jitters over corporate profitability.
Our allocation in Treasury securities declined from 31.6% at the close of first
half fiscal 1997 to 25.2% at the end of this reporting
6
<PAGE>
period. This reflects our response to the higher prices and lower yields for
Treasuries created by the supply/demand imbalance in the marketplace. In view of
corporate bonds' material yield advantage over Treasuries, one might wonder why
we have not reduced our Treasury securities weighting even more. We believe the
scarcity value of Treasuries is likely to continue to contribute to price
appreciation and enhanced total return. We reduced our exposure to asset-backed
securities from 19.1% to 12.3% over the last six months, taking profits on bonds
that became more fully valued.
We are always on the lookout for "special situations," bonds that are
attractively priced due to what we view as investor misperception. The bonds of
Countrywide Credit Industries, the U.S.'s second largest servicer and originator
of home mortgages, offers a current example. We think the bond is attractively
priced due to investors' concern that a potential wave of refinancing could
reduce revenue and cash flow in Countrywide's mortgage servicing business.
However, the WAC (weighted average interest rate) of the mortgages Countrywide
services approximates the rates on no-point mortgages being offered today. So,
we believe rates would have to come down quite a bit before significant
refinancings would have a materially negative impact on the company's mortgage
servicing business. If they do, we think Countrywide is well positioned to take
up the slack in its mortgage servicing business by increasing revenue and cash
flow from originating new mortgages. At the close of second-half fiscal 1997,
the Countrywide Funding 7.31%s of 8/28/2000 were priced at $102.71 to yield
6.24%; in our view, an attractive yield for a piece of paper maturing in under
three years. Of course, we reserve the right to change our opinion on any bond
in our portfolios, but currently we like the prospects for this one.
LIMITED MATURITY BOND FUND The fund's weighted average duration was extended
from 1.9 years at the beginning of second-half fiscal 1997 to a peak of 2.3
years in October to take advantage of declining interest rates. In the last week
of October, believing the bond market had become temporarily overbought as
equities investors flocked to bonds in the midst of the stock market's
instability, we reduced duration to 2.0 years.
Our sector allocation has not changed significantly over the last six months.
As of October 31, 1997, 68.8% of assets were in corporate bonds, 20.5% in
asset-backed securities, 7.7% in mortgages, and the
7
<PAGE>
remaining 3.0% in Government Agencies and cash equivalents. Once again, our
high-yield investments performed well. So well, in fact, that we took some
profits in high-yield bonds that had become fully priced, and in September had
reduced our high-yield positions from approximately 9.6% of the portfolio at the
start of second-half fiscal 1997 to 6.0%. Since then, we took advantage of what
we believe to be more attractive pricing in the high-yield sector to build our
positions back up to 8.8% of the fund's assets at the close of fiscal 1997.
One of our successful investment strategies over the last six months is
something that we didn't do -- namely, invest in Southeast Asia. We can have up
to 25% of the Fund's assets in non-dollar-denominated foreign bonds and as much
as we want in dollar-denominated bonds of foreign issuers. While the fund will
take advantage of foreign opportunities, we are very careful in our credit
analysis. In recent years, countries such as Thailand, Korea, Malaysia and
Indonesia have been major issuers of U.S. dollar-denominated debt in the U.S.
bond market. All of these countries had strong investment-grade ratings from the
major rating agencies and powerful sponsorship from the key Wall Street
underwriters. We took a hard look at these offerings and our analysis showed
these bonds to have below investment-grade risk characteristics with huge
downside risk if the supply of external capital dried up. Our concerns were
confirmed when currency turmoil, which began in July and accelerated through the
Fall, overwhelmed these countries and sent bonds plummeting.
In the corporate sector, we have been modestly increasing our exposure to
utility company bonds. Due to concerns about the deregulation of the industry,
utilities bonds have been out of favor with the credit rating agencies and
investors in recent years. Now, the dust is settling and we are seeing evidence
that financially strong and well-managed utilities companies can survive and
prosper in this new environment. In addition, regulators thus far appear
disposed to protecting bond holders during this transition period. We see the
potential for solid returns in utilities bonds such as Cleveland Electric
Illuminating Co. 7.19%s of 7/1/2000 and Central Maine Power 7.05%s of 3/1/2008,
two of our portfolio holdings. Of course, these bonds are examples of our
current perspective on utilities bonds, and if fundamentally warranted, our
investment opinions can change.
8
<PAGE>
In closing, we are gratified by our fixed-income funds' performance in second
half and full fiscal year 1997. Favorable economic and supply/ demand
fundamentals for bonds remain intact. We also expect investors' renewed
enthusiasm for bonds will carry over into 1998.
Sincerely,
[/S/ THEODORE P. GIULIANO]
Theodore P. Giuliano
President and Trustee
Neuberger&Berman Income Funds
+An investment in either Government Money Fund or Cash Reserves, like all other
mutual funds, is neither insured nor guaranteed by the U.S. Government and
there can be no assurance that either fund will be able to maintain a stable
net asset value of $1.00 per share. The return on investment in Government
Money Fund and Cash Reserves will fluctuate.
9
<PAGE>
COMPARISON OF A $10,000 INVESTMENT
Neuberger&Berman October 31, 1997
- ----------------------------------------------------------------------
Ultra Short Bond Fund
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ULTRA SHORT 6-MONTH SALOMON
BOND FUND TREASURY BILL INDEX
<S> <C> <C>
1987 $10,000 $10,000
1988 $10,716 $10,673
1989 $11,686 $11,603
1990 $12,619 $12,555
1991 $13,583 $13,384
1992 $14,186 $13,961
1993 $14,687 $14,417
1994 $14,975 $14,990
1995 $15,912 $15,885
1996 $16,744 $16,746
1997 $17,764 $17,656
Average Annual Total Return1
Ultra Short 6-Month Salomon
Bond Fund Treasury Bill Index2
1 Year +6.09% +5.43%
5 Year +4.60% +4.81%
10 Year +5.91% +5.85%
Life of Fund +5.85% +5.87%
</TABLE>
The inception date of Neuberger&Berman Ultra Short Bond
Fund-Registered Trademark- is 11/7/86.
Neuberger&Berman Management Inc.-Registered Trademark- 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' prior written 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.
1
<PAGE>
COMPARISON OF A $10,000 INVESTMENT
Neuberger&Berman October 31, 1997
- ----------------------------------------------------------------------
Limited Maturity Bond Fund
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LIMITED MATURITY MERRILL LYNCH 1-3
BOND FUND YEAR TREASURY INDEX
<S> <C> <C>
1987 $10,000 $10,000
1988 $10,825 $10,758
1989 $11,859 $11,771
1990 $12,791 $12,800
1991 $14,184 $14,244
1992 $15,300 $15,411
1993 $16,384 $16,308
1994 $16,404 $16,501
1995 $17,770 $17,978
1996 $18,736 $19,040
1997 $20,041 $20,275
Average Annual Total Return1
Limited Maturity Merrill Lynch 1-3
Bond Fund Year Treasury Index2
1 Year +6.97% +6.49%
5 Year +5.55% +5.64%
10 Year +7.20% +7.32%
Life of Fund +6.98% +7.34%
</TABLE>
The inception date of Neuberger&Berman Limited Maturity Bond
Fund-Registered Trademark- 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' prior written 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.
2
<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) $ 307,944
Receivable for Trust shares sold 584
--------------
308,528
--------------
LIABILITIES
Dividends payable 13
Payable for Trust shares redeemed 224
Payable to administrator -- net (Note B) 79
Accrued expenses 55
--------------
371
--------------
NET ASSETS at value $ 308,157
--------------
NET ASSETS consist of:
Par value $ 308
Paid-in capital in excess of par value 307,858
Accumulated net realized losses on
investment (9)
Net unrealized appreciation in value of
investment --
--------------
NET ASSETS at value $ 308,157
--------------
SHARES OUTSTANDING
($.001 par value; unlimited shares
authorized) 308,166
--------------
NET ASSET VALUE, offering and redemption price per
share $1.00
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
October 31, 1997
- ----------------------------------------------------------------------
Income Funds
<TABLE>
<CAPTION>
LIMITED
CASH ULTRA SHORT MATURITY
RESERVES BOND FUND BOND FUND
------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investment in corresponding Portfolio, at
value (Note A) $ 665,764 $ 49,935 $ 255,497
Receivable for Trust shares sold 817 7 321
------------------------------------------------
666,581 49,942 255,818
------------------------------------------------
LIABILITIES
Dividends payable 14 39 196
Payable for Trust shares redeemed 2,255 81 91
Payable to administrator -- net (Note B) 164 4 64
Accrued expenses 85 29 61
------------------------------------------------
2,518 153 412
------------------------------------------------
NET ASSETS at value $ 664,063 $ 49,789 $ 255,406
------------------------------------------------
NET ASSETS consist of:
Par value $ 664 $ 5 $ 25
Paid-in capital in excess of par value 663,417 53,703 264,602
Accumulated net realized losses on
investment (18) (4,327) (10,277)
Net unrealized appreciation in value of
investment -- 408 1,056
------------------------------------------------
NET ASSETS at value $ 664,063 $ 49,789 $ 255,406
------------------------------------------------
SHARES OUTSTANDING
($.001 par value; unlimited shares
authorized) 664,081 5,229 25,461
------------------------------------------------
NET ASSET VALUE, offering and redemption price per
share $1.00 $9.52 $10.03
------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<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) $ 17,370
------------
Expenses:
Administration fee (Note B) 883
Auditing fees 8
Custodian fees 10
Legal fees 14
Registration and filing fees 20
Shareholder reports 35
Shareholder servicing agent fees (Note B) 96
Trustees' fees and expenses 22
Miscellaneous 3
Expenses from corresponding Portfolio (Notes
A & B) 1,004
------------
Total expenses 2,095
Expenses reimbursed by administrator and/or
reduced by custodian fee and shareholder
servicing expense offset arrangements
(Note B) (13)
------------
Total net expenses 2,082
------------
Net investment income 15,288
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
FROM CORRESPONDING PORTFOLIO (NOTE A)
Net realized gain (loss) on investment
securities (3)
Net realized loss on financial futures
contracts --
Net realized gain on foreign currency
transactions --
Change in net unrealized appreciation
(depreciation) of investment securities,
financial futures contracts, translation of
assets and liabilities in foreign
currencies, and foreign currency contracts --
------------
Net gain (loss) on investments from
corresponding Portfolio (Note A) (3)
------------
Net increase in net assets resulting from
operations $ 15,285
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
For the Year Ended October 31, 1997
- ----------------------------------------------------------------------
Income Funds
<TABLE>
<CAPTION>
LIMITED
CASH ULTRA SHORT MATURITY
RESERVES BOND FUND BOND FUND
------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Investment income from corresponding Portfolio
(Note A) $ 34,546 $ 4,419 $ 17,260
------------------------------------------------
Expenses:
Administration fee (Note B) 1,654 191 661
Auditing fees 8 8 8
Custodian fees 10 10 10
Legal fees 10 13 20
Registration and filing fees 48 24 28
Shareholder reports 57 23 31
Shareholder servicing agent fees (Note B) 281 62 163
Trustees' fees and expenses 30 8 15
Miscellaneous 4 2 4
Expenses from corresponding Portfolio (Notes
A & B) 1,773 291 806
------------------------------------------------
Total expenses 3,875 632 1,746
Expenses reimbursed by administrator and/or
reduced by custodian fee and shareholder
servicing expense offset arrangements
(Note B) (26) (171) (30)
------------------------------------------------
Total net expenses 3,849 461 1,716
------------------------------------------------
Net investment income 30,697 3,958 15,544
------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
FROM CORRESPONDING PORTFOLIO (NOTE A)
Net realized gain (loss) on investment
securities (7) 20 1,435
Net realized loss on financial futures
contracts -- -- (2,400)
Net realized gain on foreign currency
transactions -- -- 15
Change in net unrealized appreciation
(depreciation) of investment securities,
financial futures contracts, translation of
assets and liabilities in foreign
currencies, and foreign currency contracts -- 71 2,103
------------------------------------------------
Net gain (loss) on investments from
corresponding Portfolio (Note A) (7) 91 1,153
------------------------------------------------
Net increase in net assets resulting from
operations $ 30,690 $ 4,049 $ 16,697
------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
Neuberger&Berman
- ----------------------------------------------------------------------
Income Funds
<TABLE>
<CAPTION>
GOVERNMENT
MONEY FUND
Year
Ended
October 31,
(000'S OMITTED) 1997 1996
-----------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
FROM OPERATIONS:
Net investment income $ 15,288 $ 13,199
Net realized gain (loss)
on investments from
corresponding Portfolio
(Note A) (3) (6)
Change in net unrealized
appreciation
(depreciation) of
investments from
corresponding Portfolio
(Note A) -- --
-----------------------------
Net increase in net assets
resulting from
operations 15,285 13,193
-----------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income (15,288) (13,199)
Net realized gain on
investments -- (4)
-----------------------------
Total distributions to
shareholders (15,288) (13,203)
-----------------------------
FROM TRUST SHARE TRANSACTIONS:
Proceeds from shares sold 959,168 725,958
Proceeds from reinvestment
of dividends and
distributions 15,110 13,025
Payments for shares
redeemed (1,029,506) (683,930)
-----------------------------
Net increase (decrease)
from Trust share
transactions (55,228) 55,053
-----------------------------
NET INCREASE (DECREASE) IN NET
ASSETS (55,231) 55,043
NET ASSETS:
Beginning of year 363,388 308,345
-----------------------------
End of year $ 308,157 $ 363,388
-----------------------------
NUMBER OF TRUST SHARES:
Sold 959,168 725,958
Issued on reinvestment of
dividends and
distributions 15,110 13,025
Redeemed (1,029,506) (683,930)
-----------------------------
Net increase (decrease) in
shares outstanding (55,228) 55,053
-----------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<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,
1997 1996 1997 1996 1997 1996
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
FROM OPERATIONS:
Net investment income $ 30,697 $ 22,645 $ 3,958 $ 5,218 $ 15,544 $ 17,341
Net realized gain (loss)
on investments from
corresponding Portfolio
(Note A) (7) 4 20 (550) (950) (982)
Change in net unrealized
appreciation
(depreciation) of
investments from
corresponding Portfolio
(Note A) -- -- 71 153 2,103 (1,668)
---------------------------------------------------------------------------------------------
Net increase in net assets
resulting from
operations 30,690 22,649 4,049 4,821 16,697 14,691
---------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income (30,697) (22,645) (3,958) (5,218) (15,559) (17,078)
Net realized gain on
investments -- -- -- -- -- --
---------------------------------------------------------------------------------------------
Total distributions to
shareholders (30,697) (22,645) (3,958) (5,218) (15,559) (17,078)
---------------------------------------------------------------------------------------------
FROM TRUST SHARE TRANSACTIONS:
Proceeds from shares sold 1,398,237 865,548 19,967 26,938 87,972 81,362
Proceeds from reinvestment
of dividends and
distributions 30,194 22,257 3,237 4,575 12,926 14,168
Payments for shares
redeemed (1,246,359) (814,685) (62,457) (42,687) (92,319) (154,865)
---------------------------------------------------------------------------------------------
Net increase (decrease)
from Trust share
transactions 182,072 73,120 (39,253) (11,174) 8,579 (59,335)
---------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS 182,065 73,124 (39,162) (11,571) 9,717 (61,722)
NET ASSETS:
Beginning of year 481,998 408,874 88,951 100,522 245,689 307,411
---------------------------------------------------------------------------------------------
End of year $ 664,063 $ 481,998 $ 49,789 $ 88,951 $ 255,406 $ 245,689
---------------------------------------------------------------------------------------------
NUMBER OF TRUST SHARES:
Sold 1,398,237 865,548 2,109 2,838 8,817 8,134
Issued on reinvestment of
dividends and
distributions 30,194 22,257 342 482 1,294 1,419
Redeemed (1,246,359) (814,685) (6,593) (4,500) (9,247) (15,523)
---------------------------------------------------------------------------------------------
Net increase (decrease) in
shares outstanding 182,072 73,120 (4,142) (1,180) 864 (5,970)
---------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Neuberger&Berman October 31, 1997
- ----------------------------------------------------------------------
Income Funds
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1) GENERAL: Neuberger&Berman Government Money Fund-Registered Trademark-
("Government Money"), Neuberger&Berman Cash Reserves-Registered Trademark-
("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 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 (100.00%, 100.00%, 83.06%, and 87.21%, for Government Money,
Cash Reserves, Ultra Short, and Limited Maturity, respectively, 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 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 to
continue to qualify as
9
<PAGE>
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 and $3,277 expiring in 2004 and 2005,
respectively, for Government Money, $7,878, $2,998, and $6,904 expiring in
2002, 2003, and 2005, respectively, for Cash Reserves, $774,592, $774,663,
$533,438, $1,362,347, $329,262, and $552,290 expiring in 1998, 2000, 2001,
2002, 2003, and 2004, respectively, for Ultra Short, and $4,713,841,
$3,757,068, $1,607,920, and $517,222 expiring in 2002, 2003, 2004, and 2005,
respectively, for Limited Maturity, 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, $105,748 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
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.
10
<PAGE>
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 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 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 N&B Management upon at
least 60 days' prior written notice to the appropriate Fund. For the year ended
October 31, 1997, such excess expenses amounted to $167,838 and $20,974, for
Ultra Short and Limited Maturity, respectively. For the year ended October 31,
1997, there was no reimbursement of expenses by N&B Management for Cash
Reserves.
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.
11
<PAGE>
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 $2,107, $1,721, $263, and $422, for Government Money, Cash
Reserves, Ultra Short, and Limited Maturity, 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 $10,622, $23,847, $2,725, and $8,988, for Government
Money, Cash Reserves, Ultra Short, and Limited Maturity, 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>
GOVERNMENT MONEY $ 872,760,854 $ 943,663,684
CASH RESERVES 994,310,912 845,290,313
ULTRA SHORT 9,368,283 53,078,886
LIMITED MATURITY 38,384,993 46,551,078
</TABLE>
NOTE D -- SUBSEQUENT EVENT:
On September 24, 1997, the Board of Trustees approved a plan of
reorganization in which Ultra Short will sell substantially all of its net
assets to Limited Maturity. The parties currently intend that this transaction
will become effective at the close of business on February 27, 1998, and will be
accounted for as a tax free exchange of shares. Shareholders of Ultra Short will
receive shares of Limited Maturity in exchange for their shares of Ultra Short,
based on the closing net asset value per share of Limited Maturity on February
27, 1998. Accordingly, Ultra Short and its corresponding Portfolio will cease
operations at that time.
12
<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,
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 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0003 $1.0000 $ .9997 $1.0000 $1.0002
-------------------------------------------------------------------------------------------------
Income From
Investment
Operations
Net Investment
Income .0468 .0464 .0499 .0302 .0248 .0354 .0567 .0718 .0758 .0579
Net Gains or
Losses on
Securities -- -- -- -- -- -- .0003 .0003 (.0002) --
-------------------------------------------------------------------------------------------------
Total From
Investment
Operations .0468 .0464 .0499 .0302 .0248 .0354 .0570 .0721 .0756 .0579
-------------------------------------------------------------------------------------------------
Less Distributions
Dividends (from
net investment
income) (.0468) (.0464) (.0499) (.0302) (.0248) (.0354) (.0567) (.0718) (.0758) (.0579)
Distributions
(from net
capital gains) -- -- -- -- -- (.0003) -- -- (.0001) (.0002)
-------------------------------------------------------------------------------------------------
Total
Distributions (.0468) (.0464) (.0499) (.0302) (.0248) (.0357) (.0567) (.0718) (.0759) (.0581)
-------------------------------------------------------------------------------------------------
Net Asset Value, End
of Year $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0003 $1.0000 $ .9997 $1.0000
-------------------------------------------------------------------------------------------------
Total Return(2) +4.78% +4.74% +5.10% +3.07% +2.51% +3.62% +5.82% +7.42% +7.86% +5.97%
-------------------------------------------------------------------------------------------------
Ratios/Supplemental
Data
Net Assets, End
of Year (in
millions) $ 308.2 $ 363.4 $ 308.3 $ 251.5 $ 277.2 $ 301.1 $ 246.5 $ 234.6 $ 184.3 $ 173.2
-------------------------------------------------------------------------------------------------
Ratio of Gross
Expenses to
Average Net
Assets(3) .64% .67% .65% -- -- -- -- -- -- --
-------------------------------------------------------------------------------------------------
Ratio of Net
Expenses to
Average Net
Assets .63% .67% .65% .72% .70% .66% .68% .74% .87% .79%(4)
-------------------------------------------------------------------------------------------------
Ratio of Net
Investment
Income to
Average Net
Assets 4.65% 4.65% 5.00% 3.00% 2.48% 3.50% 5.66% 7.19% 7.55% 5.73%(4)
-------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL HIGHLIGHTS
B-13
<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(5)
to
October
Year Ended October 31, 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 $1.0000 $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 .0499 .0486 .0529 .0327 .0263 .0363 .0600 .0766 .0866 .0401
Net Gains or
Losses on
Securities -- -- -- -- .0002 .0002 -- -- .0001 --
-------------------------------------------------------------------------------------------------
Total From
Investment
Operations .0499 .0486 .0529 .0327 .0265 .0365 .0600 .0766 .0867 .0401
-------------------------------------------------------------------------------------------------
Less Distributions
Dividends (from
net investment
income) (.0499) (.0486) (.0529) (.0327) (.0263) (.0363) (.0600) (.0766) (.0866) (.0401)
Distributions
(from net
capital gains) -- -- -- (.0001) (.0002) (.0001) -- (.0001) -- --
-------------------------------------------------------------------------------------------------
Total
Distributions (.0499) (.0486) (.0529) (.0328) (.0265) (.0364) (.0600) (.0767) (.0866) (.0401)
-------------------------------------------------------------------------------------------------
Net Asset Value, End
of Year $1.0000 $1.0000 $1.0000 $1.0000 $1.0001 $1.0001 $1.0000 $1.0000 $1.0001 $1.0000
-------------------------------------------------------------------------------------------------
Total Return(2) +5.11% +4.97% +5.42% +3.33% +2.68% +3.69% +6.17% +7.94% +9.01% +4.08%(6)
-------------------------------------------------------------------------------------------------
Ratios/Supplemental
Data
Net Assets, End
of Year (in
millions) $ 664.1 $ 482.0 $ 408.9 $ 311.9 $ 273.1 $ 261.7 $ 278.9 $ 278.2 $ 267.1 $140.9
-------------------------------------------------------------------------------------------------
Ratio of Gross
Expenses to
Average Net
Assets(3) .63% .66% .65% -- -- -- -- -- -- --
-------------------------------------------------------------------------------------------------
Ratio of Net
Expenses to
Average Net
Assets(4) .63% .65% .65% .65% .65% .65% .65% .65% .65% .60%(7)
-------------------------------------------------------------------------------------------------
Ratio of Net
Investment
Income to
Average Net
Assets(4) 4.98% 4.86% 5.30% 3.31% 2.63% 3.63% 6.00% 7.66% 8.70% 7.54%(7)
-------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL HIGHLIGHTS
B-14
<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
to
October
Year Ended October 31, 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 $ 9.49 $ 9.53 $ 9.47 $ 9.64 $ 9.70 $ 9.83 $ 9.79 $ 9.83 $ 9.87 $ 9.93
-------------------------------------------------------------------------------------------------
Income From
Investment
Operations
Net Investment
Income .53 .52 .52 .35 .40 .56 .68 .79 .89 .47
Net Gains or
Losses on
Securities
(both realized
and unrealized) .03 (.04) .06 (.17) (.06) (.13) .04 (.04) (.04) (.06)
-------------------------------------------------------------------------------------------------
Total From
Investment
Operations .56 .48 .58 .18 .34 .43 .72 .75 .85 .41
-------------------------------------------------------------------------------------------------
Less Distributions
Dividends (from
net investment
income) (.53) (.52) (.52) (.35) (.40) (.56) (.68) (.79) (.89) (.47)
-------------------------------------------------------------------------------------------------
Net Asset Value, End
of Year $ 9.52 $ 9.49 $ 9.53 $ 9.47 $ 9.64 $ 9.70 $ 9.83 $ 9.79 $ 9.83 $ 9.87
-------------------------------------------------------------------------------------------------
Total Return(2) +6.09% +5.23% +6.26% +1.96% +3.53% +4.44% +7.64% +7.98% +9.05% +4.20%(6)
-------------------------------------------------------------------------------------------------
Ratios/Supplemental
Data
Net Assets, End
of Year (in
millions) $ 49.8 $ 89.0 $100.5 $101.1 $104.4 $ 103.3 $ 97.9 $ 85.8 $ 103.3 $101.0
-------------------------------------------------------------------------------------------------
Ratio of Gross
Expenses to
Average Net
Assets(3) .66% .66% .65% -- -- -- -- -- -- --
-------------------------------------------------------------------------------------------------
Ratio of Net
Expenses to
Average Net
Assets(4) .65% .65% .65% .65% .65% .65% .65% .65% .65% .63%(7)
-------------------------------------------------------------------------------------------------
Ratio of Net
Investment
Income to
Average Net
Assets(4) 5.59% 5.53% 5.44% 3.72% 4.09% 5.70% 6.97% 8.14% 9.06% 7.01%(7)
-------------------------------------------------------------------------------------------------
Portfolio
Turnover
Rate(8) -- -- -- -- 115% 66% 89% 120% 85% 47%
-------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL HIGHLIGHTS
B-15
<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
to
October
Year Ended October 31, 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 $ 9.99 $10.06 $ 9.88 $10.49 $10.40 $ 10.24 $ 9.91 $ 9.96 $ 9.88 $10.00
-------------------------------------------------------------------------------------------------
Income From
Investment
Operations
Net Investment
Income .63 .60 .62 .56 .58 .63 .71 .80 .82 .48
Net Gains or
Losses on
Securities
(both realized
and unrealized) .04 (.07) .18 (.55) .14 .16 .33 (.05) .08 (.12)
-------------------------------------------------------------------------------------------------
Total From
Investment
Operations .67 .53 .80 .01 .72 .79 1.04 .75 .90 .36
-------------------------------------------------------------------------------------------------
Less Distributions
Dividends (from
net investment
income) (.63) (.60) (.62) (.56) (.58) (.63) (.71) (.80) (.82) (.48)
Distributions
(from net
capital gains) -- -- -- (.05) (.05) -- -- -- -- --
Distributions
(in excess of
net capital
gains) -- -- -- (.01) -- -- -- -- -- --
Tax return of
capital -- -- -- -- -- -- -- -- -- --
-------------------------------------------------------------------------------------------------
Total
Distributions (.63) (.60) (.62) (.62) (.63) (.63) (.71) (.80) (.82) (.48)
-------------------------------------------------------------------------------------------------
Net Asset Value, End
of Year $10.03 $ 9.99 $10.06 $ 9.88 $10.49 $ 10.40 $ 10.24 $ 9.91 $ 9.96 $ 9.88
-------------------------------------------------------------------------------------------------
Total Return(2) +6.97% +5.44% +8.32% +0.13% +7.09% +7.87% +10.89% +7.85% +9.56% +3.76%(6)
-------------------------------------------------------------------------------------------------
Ratios/Supplemental
Data
Net Assets, End
of Year (in
millions) $255.4 $245.7 $307.4 $308.6 $357.3 $ 273.0 $ 163.2 $ 101.3 $ 107.7 $133.5
-------------------------------------------------------------------------------------------------
Ratio of Gross
Expenses to
Average Net
Assets(3) .70% .71% .70% -- -- -- -- -- -- --
-------------------------------------------------------------------------------------------------
Ratio of Net
Expenses to
Average Net
Assets(4) .70% .70% .70% .69% .65% .65% .65% .65% .65% .63%(7)
-------------------------------------------------------------------------------------------------
Ratio of Net
Investment
Income to
Average Net
Assets(4) 6.34% 6.10% 6.21% 5.53% 5.49% 6.02% 7.07% 8.09% 8.33% 7.34%(7)
-------------------------------------------------------------------------------------------------
Portfolio
Turnover
Rate(8) -- -- -- -- 114% 113% 88% 88% 121% 68%
-------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL HIGHLIGHTS
B-16
<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 each Fund, 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. 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>
Year Ended
October 31,
GOVERNMENT MONEY 1988
- -------------------------------------------------------------
<S> <C>
Net Expenses .83%
-----
Net Investment Income 5.69%
-----
</TABLE>
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>
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>
Net 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>
For the year ended October 31, 1997, there was no reimbursement of
expenses by N&B Management for Cash Reserves.
17
<PAGE>
<TABLE>
<CAPTION>
Period from
March 1,
1988 to
Year Ended October 31, October 31,
ULTRA SHORT 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Expenses .89% .84% .87% .86% .95% .87% .87% .81% .92% .89%
---------------------------------------------------------------------------------------------------------
Net Investment
Income 5.35% 5.34% 5.22% 3.51% 3.79% 5.48% 6.75% 7.98% 8.79% 6.75%
---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Period from
March 1,
1988 to
Year Ended October 31, October 31,
LIMITED MATURITY 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Expenses .71% .71% .71% .71% .73% .68% .72% .71% .77% .74%
---------------------------------------------------------------------------------------------------------
Net Investment
Income 6.33% 6.09% 6.20% 5.51% 5.42% 5.99% 7.00% 8.03% 8.21% 7.23%
---------------------------------------------------------------------------------------------------------
</TABLE>
5) The date investment operations commenced.
6) Not annualized.
7) Annualized.
8) 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 in the Financial
Highlights of Neuberger&Berman Ultra Short Bond Portfolio and
Neuberger&Berman Limited Maturity Bond Portfolio, which appear elsewhere in
this report.
18
<PAGE>
REPORT OF ERNST & YOUNG LLP,
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, 1997, and the related statements of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the above mentioned series of Neuberger&Berman 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 periods indicated therein, in conformity
with generally accepted accounting principles.
[SIGNATURE]
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
December 5, 1997
19
<PAGE>
(This page has been left blank intentionally.)
B-20
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman October 31, 1997
- --------------------------------------------------------------------------------
Government Money Portfolio
<TABLE>
<CAPTION>
Principal Annualized
Amount Yield at Value(1)
(000's 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 (99.1%)
$ 9,680 U.S. Treasury Bills, due
11/13/97 5.23-5.27% $ 9,666
35,000 U.S. Treasury Notes, 8.875%,
due 11/15/97 5.54% 35,036
905 U.S. Treasury Bills, due
11/28/97 5.20-5.21% 902
31,550 U.S. Treasury Bills, due
12/11/97 4.89-5.31% 31,379
275 U.S. Treasury Bills, due
12/18/97 5.07% 273
22,620 U.S. Treasury Notes, 5.25%,
due 12/31/97 5.41-5.59% 22,612
2,660 U.S. Treasury Bills, due
1/2/98 5.08-5.24% 2,638
48,295 U.S. Treasury Bills, due
1/8/98 5.03-5.34% 47,853
12,845 U.S. Treasury Bills, due
1/15/98 5.11% 12,715
39,020 U.S. Treasury Notes, 7.875%,
due 1/15/98 5.21-5.45% 39,204
8,575 U.S. Treasury Bills, due
1/22/98 5.21-5.26% 8,478
10,000 U.S. Treasury Notes, 5.625%,
due 1/31/98 5.37% 10,004
1,600 U.S. Treasury Bills, due
2/12/98 5.16% 1,578
23,950 U.S. Treasury Bills, due
3/5/98 5.22-5.29% 23,540
2,855 U.S. Treasury Bills, due
3/12/98 5.20% 2,804
5,465 U.S. Treasury Bills, due
3/19/98 5.24-5.28% 5,360
11,455 U.S. Treasury Bills, due
4/2/98 5.30% 11,212
15,000 U.S. Treasury Notes, 7.875%,
due 4/15/98 5.38% 15,162
15,000 U.S. Treasury Bills, due
4/16/98 5.32% 14,651
10,000 U.S. Treasury Notes, 5.125%,
due 4/30/98 5.48% 9,983
-------------
TOTAL U.S. TREASURY SECURITIES 305,050
Cash, receivables and other
assets, less liabilities
(0.9%) 2,894
-------------
TOTAL NET ASSETS (100.0%) $ 307,944
-------------
</TABLE>
SEE NOTES TO SCHEDULE OF INVESTMENTS
21
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman October 31, 1997
- --------------------------------------------------------------------------------
Cash Reserves Portfolio
<TABLE>
<CAPTION>
Principal
Amount Value(1)
(000's Rating(2) (000's
omitted) Moody's S&P omitted)
- ------------- ----------- --------- -------------
<C> <S> <C> <C> <C>
BANKERS' ACCEPTANCES (3.8%)
$ 9,700 Bank of Montreal, 5.53%, due
12/19/97 P-1 A-1+ $ 9,631
16,000 First National Bank of
Chicago, 5.53%-5.65%, due
11/5/97-4/15/98 P-1 A-1 15,870
-------------
TOTAL BANKERS' ACCEPTANCES 25,501
-------------
ASSET-BACKED COMMERCIAL PAPER
(2.9%)
2,275 Preferred Receivables Funding
Corp., 5.70%, due 11/3/97 P-1 A-1 2,275
2,000 Enterprise Funding Corp.,
5.57%, due 11/12/97 P-1 A-1+ 1,997
15,000 Asset Securitization
Cooperative Corp., 5.50% &
5.53%, due 11/20/97 & 12/5/97 P-1 A-1+ 14,950
-------------
TOTAL ASSET-BACKED COMMERCIAL
PAPER 19,222
-------------
CORPORATE COMMERCIAL PAPER
(70.5%)
12,500 Panasonic Finance, Inc.,
5.68%, due 11/3/97 P-1 A-1+ 12,500
2,510 Wisconsin Power & Light Co.,
5.70%, due 11/3/97 P-1 A-1+ 2,510
5,000 Merrill Lynch & Co., Inc.,
5.72%, due 11/6/97 P-1 A-1+ 4,998
14,600 Swedish Export Credit Corp.,
5.63%, due 11/10/97 P-1 A-1+ 14,584
9,000 Ford Motor Credit Co., 5.65%,
due 11/14/97 P-1 A-1 8,984
5,000 Scotiabanc Inc., 5.50%, due
11/17/97 P-1 A-1+ 4,989
5,000 Ameritech Corp., 5.63%, due
11/18/97 P-1 A-1+ 4,988
8,500 General Re Corp., 5.50%, due
12/18/97 P-1 A-1+ 8,442
2,845 AT&T Corp., 5.50%, due 1/2/98 P-1 A-1+ 2,819
20,000 National Australia Funding
Delaware Inc., 5.50% & 5.62%,
due 12/1/97 & 1/9/98 P-1 A-1+ 19,854
32,000 Eksportfinans ASA, 5.49% &
5.50%, due 12/11/97 & 1/20/98 P-1 A-1+ 31,710
15,000 Gannett Co., Inc., 5.49%, due
1/20/98 P-1 A-1 14,822
15,000 Pitney Bowes Credit Corp.,
5.55% & 5.65%, due 11/12/97 &
1/21/98 P-1 A-1+ 14,925
10,000 Ford Credit Europe PLC, 5.50%,
due 1/26/98 P-1 A-1 9,872
5,000 Hitachi America, Ltd., 5.53%,
due 1/26/98 P-1 A-1+ 4,936
10,997 Procter & Gamble Co., 5.47% &
5.48%, due 1/7/98 & 1/26/98 P-1 A-1+ 10,885
</TABLE>
22
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Cash Reserves Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal
Amount Value(1)
(000's Rating(2) (000's
omitted) Moody's S&P omitted)
- ------------- ----------- --------- -------------
<C> <S> <C> <C> <C>
$ 9,000 Morgan Stanley Group Inc.,
Variable Rate Notes, 5.6084%,
due 1/30/98 P-1 A-1 $ 9,000
25,000 Ameritech Capital Funding
Corp., 5.51% & 5.63%, due
11/13/97 & 2/10/98 P-1 A-1+ 24,825
28,393 USAA Capital Corp.,
5.47%-5.54%, due
1/12/98-2/10/98 P-1 A-1+ 28,038
5,000 Akzo Nobel Inc., 5.53%, due
2/19/98 P-1 A-1 4,917
15,000 SBC Communications Inc.,
5.47%, due 2/19/98 P-1 A-1+ 14,754
26,755 General Electric Capital
Corp., 5.54%-5.74%, due
11/14/97-3/2/98 P-1 A-1+ 26,502
10,000 du Pont (E.I.) de Nemours &
Co., 5.50%, due 3/6/98 P-1 A-1+ 9,812
2,000 Caisse d'Amortissement de la
Dette Sociale, 5.53%, due
3/9/98 P-1 A-1+ 1,961
10,000 IBM Credit Corp., 5.55%, due
3/9/98 P-1 A-1 9,806
10,000 Campbell Soup Co., 5.51%, due
3/16/98 P-1 A-1+ 9,796
24,000 Kingdom of Sweden,
5.51%-5.59%, due
11/24/97-3/16/98 P-1 A-1+ 23,631
10,000 du Pont (E.I.) de Nemours &
Co., 5.50%, due 3/17/98 P-1 A-1+ 9,795(3)
25,000 Electricite de France, 5.53%,
due 3/11/98 & 3/23/98 P-1 A-1+ 24,481
23,000 American Express Credit Corp.,
5.49%-5.51%, due
1/20/98-3/25/98 P-1 A-1 22,663
16,845 Daimler-Benz North America
Corp., 5.51%-5.62%, due
2/12/98-4/1/98 P-1 A-1 16,560
30,000 Goldman Sachs Group, L.P.,
5.47%-5.70%, due
11/6/97-4/1/98 P-1 A-1+ 29,863
3,000 Cargill, Inc., 5.52%, due
4/13/98 P-1 A-1+ 2,926
29,000 Prudential Funding Corp.,
5.52%-5.53%, due 2/3/98-5/1/98 P-1 A-1 28,427
-------------
TOTAL CORPORATE COMMERCIAL
PAPER 469,575
-------------
</TABLE>
23
<PAGE>
October 31, 1997
- --------------------------------------------------------------------------------
Cash Reserves Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal
Amount Value(1)
(000's Rating(2) (000's
omitted) Moody's S&P omitted)
- ------------- ----------- --------- -------------
<C> <S> <C> <C> <C>
CERTIFICATES OF DEPOSIT
(16.4%)
$ 15,000 Rabobank Nederland, Yankee
C.D., 5.90%, due 11/3/97 P-1 A-1+ $ 15,000
15,000 Bayerische Landesbank
Girozentrale, Eurodollar C.D.,
5.88%, due 11/6/97 P-1 A-1+ 15,000
5,000 Bayerische Hypotheken-und
Wechsel-Bank, Eurodollar C.D.,
5.83%, due 11/24/97 P-1 A-1+ 5,000
5,000 Westdeutsche Landesbank
Girozentrale, Eurodollar C.D.,
5.83%, due 11/24/97 P-1 A-1+ 5,000
5,000 Morgan Guaranty Trust Co.,
Domestic C.D., 5.71%, due
1/6/98 P-1 A-1+ 4,998
5,000 National Westminster Bank PLC,
Yankee C.D., 5.80%, due 1/7/98 P-1 A-1+ 5,000
10,000 Societe Generale, Yankee C.D.,
5.70%, due 1/8/98 P-1 A-1+ 10,000
15,000 Banque Nationale de Paris,
Eurodollar C.D., 5.69%, due
2/5/98 P-1 A-1 15,000
10,000 Royal Bank of Canada, Yankee
C.D., 5.67%, due 2/11/98 P-1 A-1+ 9,995
10,000 Deutsche Bank, Eurodollar
C.D., 5.73%, due 4/17/98 P-1 A-1+ 10,001
2,000 Swiss Bank Corp., Yankee C.D.,
6.05%, due 5/22/98 P-1 A-1+ 2,003
12,000 Landesbank Hessen-Thueringen
Girozentrale, Yankee C.D.,
5.70% & 6.03%, due 12/17/97 &
6/12/98 P-1 A-1+ 12,002
-------------
TOTAL CERTIFICATES OF DEPOSIT 108,999
-------------
CORPORATE DEBT SECURITIES
(6.0%)
14,500 First Union National Bank of
North Carolina, Floating Rate
Bank Notes, 5.57%, due
12/19/97 P-1 A-1 14,500
15,000 Morgan Stanley Group Inc.,
Senior Variable Rate
Medium-Term Notes, Ser. C,
5.6922%, due 5/18/98 P-1 A-1 15,000
10,000 Morgan Guaranty Trust Co.,
Bank Notes, 5.93%, due 8/31/98 P-1 A-1+ 10,008
-------------
TOTAL CORPORATE DEBT
SECURITIES 39,508
-------------
TOTAL INVESTMENTS (99.6%) 662,805
Cash, receivables and other
assets, less liabilities
(0.4%) 2,959
-------------
TOTAL NET ASSETS (100.0%) $ 665,764
-------------
</TABLE>
SEE NOTES TO SCHEDULE OF INVESTMENTS
24
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Ultra Short Bond Portfolio
<TABLE>
<CAPTION>
Principal Value(4)
Amount Rating(2) (000's
(000's omitted) Moody's S&P omitted)
- --------------- ----------- --------- -------------
<C> <S> <C> <C> <C>
U.S. TREASURY SECURITIES
(25.2%)
$ 4,655 U.S. Treasury Notes, 6.875%,
due 8/31/99 TSY TSY $ 4,751
1,785 U.S. Treasury Notes, 5.875%,
due 2/15/00 TSY TSY 1,791
4,220 U.S. Treasury Notes, 6.75%,
due 4/30/00 TSY TSY 4,320
340 U.S. Treasury Notes, 6.375%,
due 5/15/00 TSY TSY 345
3,895 U.S. Treasury Notes, 6.00%,
due 8/15/00 TSY TSY 3,926
-------------
TOTAL U.S. TREASURY SECURITIES
(COST $14,949) 15,133
-------------
U.S. GOVERNMENT AGENCY
SECURITIES (6.7%)
3,285 Federal Home Loan Bank,
Discount Notes, 5.54%, due
11/3/97 AGY AGY 3,283
250 Federal Home Loan Bank,
Variable Rate Notes, 4.704%,
due 1/29/98 AGY AGY 249
500 Federal Home Loan Bank,
Variable Rate Notes, 4.729%,
due 2/25/98 AGY AGY 498
-------------
TOTAL U.S. GOVERNMENT AGENCY
SECURITIES
(COST $4,033) 4,030
-------------
MORTGAGE-BACKED SECURITIES
(22.6%)
FANNIE MAE
2,156 Balloon Pass-Through
Certificates, 7.00%, due
8/1/03 AGY AGY 2,182
2,141 Pass-Through Certificates,
7.50%, due 7/1/11 AGY AGY 2,195
FREDDIE MAC
18 Mortgage Participation
Certificates, 11.50%, due
5/1/00 AGY AGY 19
3,155 Gold Balloon Mortgage
Participation Certificates,
6.50%, due 9/1/98-11/1/00 AGY AGY 3,173
58 Mortgage Participation
Certificates, 10.50%, due
6/1/00-11/1/00 AGY AGY 61
1,484 Gold Balloon Mortgage
Participation Certificates,
7.50%, due 11/1/01 AGY AGY 1,517
</TABLE>
25
<PAGE>
October 31, 1997
- --------------------------------------------------------------------------------
Ultra Short Bond Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal Value(4)
Amount Rating(2) (000's
(000's omitted) Moody's S&P omitted)
- --------------- ----------- --------- -------------
<C> <S> <C> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
$ 2,211 Pass-Through Certificates,
7.50%, due 10/15/09-10/15/10 AGY AGY $ 2,274
2,171 Pass-Through Certificates,
7.00%, due 4/15/11 AGY AGY 2,208
-------------
TOTAL MORTGAGE-BACKED
SECURITIES (COST $13,489) 13,629
-------------
ASSET-BACKED SECURITIES
(12.3%)
767 Capita Equipment Receivables
Trust, Ser. 1996-1, Class A-2,
5.95%, due 7/15/98 Aaa AAA 768
77 Daimler-Benz Auto Grantor
Trust, Ser. 1993-A, Class A,
3.90%, due 10/15/98 Aaa AAA 77
15 USAA Auto Loan Grantor Trust,
Automobile Loan Pass-Through
Certificates, Ser. 1993-1,
3.90%, due 3/15/99 Aaa AAA 15
1,600 Chase Manhattan Grantor Trust,
Automobile Loan Pass-Through
Certificates, Ser. 1997-A,
Class A-2, 5.95%, due 10/15/99 Aaa AAA 1,601
676 Premier Auto Trust, Ser.
1997-1, Class A-2, 5.90%, due
4/6/00 Aaa AAA 677
696 Ford Credit Grantor Trust,
Ser. 1995-A, Class A, 5.90%,
due 5/15/00 Aaa AAA 695
1,178 Chase Manhattan Grantor Trust,
Automobile Loan Pass-Through
Certificates, Ser. 1995-A,
6.00%, due 9/17/01 Aaa AAA 1,177
1,921 Banc One Auto Grantor Trust,
Ser. 1996-B, Class A, 6.55%,
due 2/15/03 Aaa AAA 1,936
448 Honda Auto Receivables Grantor
Trust, Ser. 1997-A, Class A,
5.85%, due 2/15/03 Aaa AAA 448
-------------
TOTAL ASSET-BACKED SECURITIES
(COST $7,372) 7,394
-------------
BANKS & FINANCIAL INSTITUTIONS
(30.7%)
3,500 Merrill Lynch & Co., Inc.,
Medium-Term Notes, Ser. B,
6.64%, due 4/9/99 Aa3 AA- 3,536
2,000 AT&T Capital Corp.,
Medium-Term Notes, Ser.
1997-4, 6.92%, due 4/29/99 Baa3 BBB 2,025
</TABLE>
26
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman October 31, 1997
- --------------------------------------------------------------------------------
Ultra Short Bond Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal Value(4)
Amount Rating(2) (000's
(000's omitted) Moody's S&P omitted)
- --------------- ----------- --------- -------------
<C> <S> <C> <C> <C>
$ 3,500 Associates Corp. of North
America, Senior Notes, 6.375%,
due 8/15/99 Aa3 AA- $ 3,524
1,300 Lehman Brothers Holdings Inc.,
Medium-Term Notes, Ser. E,
7.08%, due 5/22/00 Baa1 A 1,325
1,800 International Lease Finance
Corp., Notes, 6.625%, due
6/1/00 A1 A+ 1,822
3,150 Countrywide Funding Corp.,
Medium-Term Notes, Ser. A,
7.31%, due 8/28/00 A3 A 3,235
3,000 Aristar, Inc., Senior Notes,
6.125%, due 12/1/00 A3 A- 2,983
-------------
TOTAL BANKS & FINANCIAL
INSTITUTIONS
(COST $18,342) 18,450
-------------
CORPORATE DEBT SECURITIES
(6.5%)
1,000 General Motors Acceptance
Corp., Medium-Term Notes,
6.15%, due 9/20/99 A3 A- 1,002
2,000 American General Finance
Corp., Senior Notes, 6.125%,
due 9/15/00 A2 A+ 2,006
900 Ford Motor Credit Co., Global
Bonds, 6.50%, due 2/28/02 A1 A+ 908
-------------
TOTAL CORPORATE DEBT
SECURITIES (COST $3,893) 3,916
-------------
TOTAL INVESTMENTS (104.0%)
(COST $62,078) 62,552(5)
Liabilities, less cash,
receivables and other assets
[(4.0%)] (2,431)
-------------
TOTAL NET ASSETS (100.0%) $ 60,121
-------------
</TABLE>
SEE NOTES TO SCHEDULE OF INVESTMENTS
27
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman October 31, 1997
- --------------------------------------------------------------------------------
Limited Maturity Bond Portfolio
<TABLE>
<CAPTION>
Principal
Amount Value(4)
(000's Rating(2) (000's
omitted) Moody's S&P omitted)
- ------------- ----------- --------- -------------
<C> <S> <C> <C> <C>
U.S. TREASURY SECURITIES
(1.1%)
$ 40 U.S. Treasury Notes, 7.375%,
due 11/15/97 TSY TSY $ 40
540 U.S. Treasury Notes, 6.50%,
due 4/30/99 TSY TSY 547
2,629 U.S. Treasury
Inflation-Indexed Notes,
3.375%, due 1/15/07 TSY TSY 2,591
-------------
TOTAL U.S. TREASURY SECURITIES
(COST $3,219) 3,178
-------------
U.S. GOVERNMENT AGENCY
SECURITIES (5.4%)
15,795 Federal Home Loan Bank,
Discount Notes, 5.50%, due
11/3/97 (COST $15,790) AGY AGY 15,788
-------------
MORTGAGE-BACKED SECURITIES
(7.7%)
FANNIE MAE
118 Balloon Pass-Through
Certificates, 9.00%, due
12/1/97-8/1/98 AGY AGY 122
207 Balloon Pass-Through
Certificates, 8.50%, due
3/1/98-11/1/98 AGY AGY 214
396 REMIC Floating Rate CMO, Ser.
1992-59F, 6.05625%, due
8/25/06 AGY AGY 397
7,652 Pass-Through Certificates,
7.00%, due 9/1/03 & 6/1/11 AGY AGY 7,801
5,400 Pass-Through Certificates,
7.50%, due 9/1/11 AGY AGY 5,535
FREDDIE MAC
114 Mortgage Participation
Certificates, 10.50%, due
10/1/00 & 12/1/00 AGY AGY 120
416 Mortgage Participation
Certificates, 8.50%, due
10/1/01 AGY AGY 428
357 ARM Certificates, 7.00%, due
1/1/17 & 2/1/17 AGY AGY 363
617 ARM Certificates, 7.125%, due
3/1/17 AGY AGY 628
</TABLE>
28
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Limited Maturity Bond Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal
Amount Value(4)
(000's Rating(2) (000's
omitted) Moody's S&P omitted)
- ------------- ----------- --------- -------------
<C> <S> <C> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
151 Pass-Through Certificates,
12.00%, due 5/15/12-3/15/15 AGY AGY 172
6,789 Pass-Through Certificates,
7.00%, due 1/15/27 AGY AGY 6,825
-------------
TOTAL MORTGAGE-BACKED
SECURITIES (COST $22,067) 22,605
-------------
ASSET-BACKED SECURITIES
(20.5%)
$ 6,300 Capita Equipment Receivables
Trust, Ser. 1996-1, Class A-3,
6.11%, due 7/15/99 Aaa AAA $ 6,332
5,710 PNC Student Loan Trust I, Ser.
1997-2, Class A-2, 6.138%, due
1/25/00 Aaa AAA 5,734
3,820 Chase Manhattan Auto Owner
Trust, Ser. 1996-C, Class A-3,
5.95%, due 11/15/00 Aaa AAA 3,826
6,927 Money Store Auto Grantor
Trust, Ser. 1997-2, Class A-1,
6.17%, due 3/20/01 Aaa AAA 6,948
3,257 Banc One Auto Grantor Trust,
Ser. 1996-B, Class A, 6.55%,
due 2/15/03 Aaa AAA 3,282
6,500 Ford Credit Auto Loan Master
Trust, Auto Loan Certificates,
Ser. 1996-1, 5.50%, due
2/15/03 Aaa AAA 6,411
5,600 Chase Credit Card Master
Trust, Ser. 1997-2, Class A,
6.30%, due 4/15/03 Aaa AAA 5,649
2,590 Navistar Financial Owner
Trust, Ser. 1996-B, Class A-3,
6.33%, due 4/21/03 Aaa AAA 2,606
5,330 World Omni Automobile Lease
Securitization Trust, Ser.
1997-A, Class A-3, 6.85%, due
6/25/03 Aaa AAA 5,446
3,839 Chevy Chase Auto Receivables
Trust, Ser. 1996-2, Class A,
5.90%, due 7/15/03 Aaa AAA 3,827
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 5,397
4,680 IMC Excess Cashflow Trust,
Ser. 1997-A, 7.41%, due
11/27/28 BBB (6) 4,686 (3)
-------------
TOTAL ASSET-BACKED SECURITIES
(COST $60,025) 60,144
-------------
</TABLE>
29
<PAGE>
October 31, 1997
- --------------------------------------------------------------------------------
Limited Maturity Bond Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal
Amount Value(4)
(000's Rating(2) (000's
omitted) Moody's S&P omitted)
- ------------- ----------- --------- -------------
<C> <S> <C> <C> <C>
BANKS & FINANCIAL INSTITUTIONS
(23.4%)
5,250 Household Finance Corp.,
Medium-Term Notes, 6.62%, due
5/28/99 A2 A 5,295
5,240 Merrill Lynch & Co., Inc.,
Medium-Term Notes, Ser. B,
6.28%, due 6/25/99 Aa3 AA- 5,269
4,850 Chase Manhattan Bank USA,
Senior Global Bank Notes,
5.875%, due 8/4/99 Aa2 A+ 4,847
$ 5,180 CIT Group Holdings, Inc.,
Medium-Term Notes, 6.25%, due
10/25/99 Aa3 A+ $ 5,204
3,940 First National Bank of
Commerce, Senior Bank Notes,
6.50%, due 1/14/00 A2 A- 3,982
3,980 HomeSide Lending, Inc., Notes,
6.875%, due 5/15/00 Baa2 BBB 4,033
5,000 Smith Barney Holdings Inc.,
Notes, 7.00%, due 5/15/00 A2 A 5,106
5,400 Comdisco, Inc., Notes, 6.50%,
due 6/15/00 Baa1 BBB+ 5,438
7,090 Associates Pass-Through Asset
Trust, Ser. 1997-1, 6.45%, due
9/15/00 Aa3 AA- 7,141(3)
5,000 Lehman Brothers Holdings Inc.,
Medium-Term Notes, Ser. E,
6.89%, due 10/10/00 Baa1 A 5,078
1,725 Lehman Brothers Holdings Inc.,
Medium-Term Notes, Ser. E,
6.65%, due 11/8/00 Baa1 A 1,739
6,600 Capital One Bank, Bank Notes,
5.95%, due 2/15/01 Baa3 BBB- 6,503
3,550 Riggs National Corp.,
Subordinated Notes, 8.50%, due
2/1/06 Ba1 (7) BB- (7) 3,692
5,150 Goldman Sachs Group, L.P.,
Global Notes, 6.75%, due
2/15/06 A1 A+ 5,211(3)
-------------
TOTAL BANKS & FINANCIAL
INSTITUTIONS (COST $68,137) 68,538
-------------
CORPORATE DEBT SECURITIES
(45.4%)
2,780 Colonial Gas Co., Medium-Term
Notes, Ser. A, 6.20%, due
3/18/98 Baa1 A- 2,785
6,400 Alco Capital Resource, Inc.,
Medium-Term Notes, Ser. B,
5.46%, due 2/22/99 A3 A- 6,361
</TABLE>
30
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Limited Maturity Bond Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal
Amount Value(4)
(000's Rating(2) (000's
omitted) Moody's S&P omitted)
- ------------- ----------- --------- -------------
<C> <S> <C> <C> <C>
1,900 American Standard Inc., Senior
Notes, 10.875%, due 5/15/99 Ba3 BB- 2,002
7,000 Lockheed Martin Corp., Notes,
6.55%, due 5/15/99 A3 BBB+ 7,066
4,800 NWCG Holdings Corp., Notes,
Zero-Coupon, Yielding 7.05%,
due 6/15/99 Ba2 BBB- 4,320
5,200 Williams Holdings of Delaware,
Inc., Medium-Term Notes, Ser.
A, 6.40%, due 6/17/99 Baa2 BBB- 5,225
$ 4,070 Chrysler Financial Corp.,
Medium-Term Notes, Ser. Q,
6.37%, due 6/21/99 A3 A $ 4,098
2,710 Arkla, Inc., Notes, 8.875%,
due 7/15/99 Baa3 BBB 2,825
4,680 Time Warner Pass-Through Asset
Trust, Ser. 1997-2, 4.90%, due
7/29/99 Ba1 BBB- 4,573(3)
4,800 Norfolk Southern Corp., Notes,
6.70%, due 5/1/00 Baa1 BBB+ 4,859
3,610 Cleveland Electric
Illuminating Co., Secured
Notes, Ser. A, 7.19%, due
7/1/00 Ba1 BB+ 3,655(3)
4,550 Arvin Industries, Inc., Notes,
10.00%, due 8/1/00 Ba1 BBB- 4,936
2,000 Ford Motor Credit Co.,
Medium-Term Notes, 6.84%, due
8/16/00 A1 A 2,038
6,370 MedPartners, Inc., Senior
Subordinated Notes, 6.875%,
due 9/1/00 Ba2 BBB- 6,380
2,510 Chesapeake Corp., Notes,
10.375%, due 10/1/00 Baa3 BBB 2,775
1,730 BHP Finance (USA) Limited,
Guaranteed Notes, 5.625%, due
11/1/00 A2 A 1,708
500 Congoleum Corp., Senior Notes,
9.00%, due 2/1/01 B1 BB- 507
5,200 General Motors Acceptance
Corp., Medium-Term Notes,
8.125%, due 3/1/01 A3 A- 5,501
3,470 Revlon Worldwide Corp., Senior
Secured Notes, Ser. B,
Zero-Coupon, Yielding 10.75% &
10.959%, due 3/15/01 B3 B- 2,407
2,290 Colonial Realty Limited
Partnership, Senior Notes,
7.50%, due 7/15/01 Baa3 BBB- 2,372
4,160 Tyco International Ltd.,
Notes, 6.50%, due 11/1/01 Baa2 A- 4,196
2,965 ICI Wilmington Inc.,
Guaranteed Notes, 7.50%, due
1/15/02 Baa1 A- 3,111
2,835 Black & Decker Corp.,
Medium-Term Notes, Ser. A,
8.90%, due 1/21/02 Baa2 BBB- 3,095
</TABLE>
31
<PAGE>
October 31, 1997
- --------------------------------------------------------------------------------
Limited Maturity Bond Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal
Amount Value(4)
(000's Rating(2) (000's
omitted) Moody's S&P omitted)
- ------------- ----------- --------- -------------
<C> <S> <C> <C> <C>
2,280 Fort James Corp., Senior
Notes, 6.50%, due 9/15/02 Baa3 BBB- 2,294
1,000 Safeway Inc., Medium-Term
Notes, 8.57%, due 4/1/03 Baa1 BBB 1,091
4,200 Stewart Enterprises, Inc.,
Notes, 6.70%, due 12/1/03 Baa3 BBB 4,218
620 Loomis Fargo & Co., Senior
Subordinated Notes, 10.00%,
due 1/15/04 B3 B- 618
$ 175 Playtex Products, Inc., Senior
Notes, Ser. B, 8.875%, due
7/15/04 B1 B+ $ 175
420 Iridium LLC, Senior Notes,
Ser. C, 11.25%, due 7/15/05 B3 B- 385(3)
190 ICN Pharmaceuticals, Inc.,
Senior Notes, 9.25%, due
8/15/05 B1 BB 200(3)
4,350 Bell Cablemedia plc, Senior
Step Up Notes, Yielding 8.98%,
due 9/15/05 Baa3 BBB+ 3,763
4,200 Heritage Media Corp., Senior
Subordinated Notes, 8.75%, due
2/15/06 B2 BBB- 4,463
4,040 Mark IV Industries, Inc.,
Senior Subordinated Notes,
7.75%, due 4/1/06 Ba2 BB+ 4,111
400 Printpack, Inc., Senior
Subordinated Notes, Ser. B,
10.625%, due 8/15/06 B3 B+ 425
2,825 Time Warner Inc., Notes,
8.11%, due 8/15/06 Ba1 BBB- 3,051
400 Commonwealth Aluminum Corp.,
Senior Subordinated Notes,
10.75%, due 10/1/06 B2 B- 429
415 Evenflo & Spalding Holdings
Corp., Senior Subordinated
Notes, Ser. B, 10.375%, due
10/1/06 B3 B- 354
4,950 MedPartners, Inc., Senior
Notes, 7.375%, due 10/1/06 Baa3 BBB 4,837
500 Motors and Gears, Inc., Senior
Notes, Ser. B, 10.75%, due
11/15/06 B3 B 526
680 Newport News Shipbuilding
Inc., Senior Subordinated
Notes, 9.25%, due 12/1/06 B1 B+ 707
857 AMTROL Inc., Senior
Subordinated Notes, 10.625%,
due 12/31/06 B3 B- 870
1,275 Pen-Tab Industries, Inc.,
Senior Subordinated Notes,
Ser. B, 10.875%, due 2/1/07 B3 B- 1,269
</TABLE>
32
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman October 31, 1997
- --------------------------------------------------------------------------------
Limited Maturity Bond Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal
Amount Value(4)
(000's Rating(2) (000's
omitted) Moody's S&P omitted)
- ------------- ----------- --------- -------------
<C> <S> <C> <C> <C>
965 Fonda Group, Inc., Senior
Subordinated Notes, Ser. B,
9.50%, due 3/1/07 B3 B- 924
120 Tekni-Plex, Inc., Senior
Subordinated Notes, Ser. B,
11.25%, due 4/1/07 B3 B- 131
300 French Fragrances, Inc.,
Senior Notes, Ser. B, 10.375%,
due 5/15/07 B2 B+ 313
$ 2,410 Owens-Illinois, Inc., Senior
Debentures, 8.10%, due 5/15/07 Ba1 (8) BB+ (8) $ 2,553
405 AmeriServe Food Distribution,
Inc., Senior Subordinated
Notes, 10.125%, due 7/15/07 B3 B- 422(3)
190 Safety Components
International, Inc., Senior
Subordinated Notes, 10.125%,
due 7/15/07 B3 B- 197
880 HydroChem Industrial Services,
Inc., Senior Subordinated
Notes, Ser. B, 10.375%, due
8/1/07 B3 B- 913(3)
4,680 Interpool, Inc., Notes, 7.20%,
due 8/1/07 Ba1 BBB 4,681(3)
190 Insilco Corp., Senior
Subordinated Notes, 10.25%,
due 8/15/07 B3 B+ 198(3)
1,585 Central Maine Power & Co.,
General and Refunding Mortgage
Bonds, Ser. Q, 7.05%, due
3/1/08 Baa3 BB+ 1,568
360 KinderCare Learning Centers,
Inc., Senior Subordinated
Notes, Ser. B, 9.50%, due
2/15/09 B3 B- 354
-------------
TOTAL CORPORATE DEBT
SECURITIES (COST $132,217) 132,835
-------------
TOTAL INVESTMENTS (103.5%)
(COST $301,455) 303,088(5)
Liabilities, less cash,
receivables and other assets
[(3.5%)] (10,122)
-------------
TOTAL NET ASSETS (100.0%) $ 292,966
-------------
</TABLE>
SEE NOTES TO SCHEDULE OF INVESTMENTS
33
<PAGE>
NOTES TO SCHEDULE OF INVESTMENTS
October 31, 1997
- ----------------------------------------------------------------------
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) 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, 1997, these
securities amounted to $9,795,000 or 1.5% of net assets for Neuberger&Berman
Cash Reserves Portfolio and $32,065,000 or 10.9% of net assets for Neuberger&
Berman Limited Maturity Bond Portfolio.
4) 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.
5) At October 31, 1997, selected Portfolio information on a Federal income tax
basis was as follows:
<TABLE>
<CAPTION>
GROSS GROSS NET
UNREALIZED UNREALIZED UNREALIZED
NEUBERGER&BERMAN COST APPRECIATION DEPRECIATION APPRECIATION
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ULTRA SHORT BOND PORTFOLIO $ 62,078,000 $ 484,000 $ 10,000 $ 474,000
LIMITED MATURITY BOND PORTFOLIO 301,455,000 2,609,000 976,000 1,633,000
</TABLE>
6) Not rated by Moody's; the rating shown is from Fitch Investors Services, Inc.
7) Rated BBB by Thomson Bank Watch, Inc.
8) Rated BBB- by Duff & Phelps Credit Rating Co.
SEE NOTES TO FINANCIAL STATEMENTS
34
<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 $ 305,050
Cash 3
Deferred organization costs (Note A) 4
Interest receivable 2,996
Prepaid expenses and other assets 9
Receivable for securities sold --
--------------
308,062
--------------
LIABILITIES
Payable for securities purchased --
Payable for variation margin (Note A) --
Payable to investment manager (Note B) 73
Accrued expenses 45
--------------
118
--------------
NET ASSETS Applicable to Investors' Beneficial
Interests $ 307,944
--------------
NET ASSETS consist of:
Paid-in capital $ 307,944
Net unrealized appreciation in value of
investment securities and financial
futures contracts --
--------------
NET ASSETS $ 307,944
--------------
*Cost of investments $ 305,050
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
35
<PAGE>
October 31, 1997
- ----------------------------------------------------------------------
Income Managers Trust
<TABLE>
<CAPTION>
LIMITED
CASH ULTRA SHORT MATURITY
RESERVES BOND BOND
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments in securities, at value*
(Note A) -- see Schedule of Investments $ 662,805 $ 62,552 $ 303,088
Cash 6 4 1
Deferred organization costs (Note A) 3 1 4
Interest receivable 3,142 676 4,067
Prepaid expenses and other assets 14 2 6
Receivable for securities sold -- 2 44
------------------------------------------------
665,970 63,237 307,210
------------------------------------------------
LIABILITIES
Payable for securities purchased -- 3,067 14,112
Payable for variation margin (Note A) -- -- 18
Payable to investment manager (Note B) 148 13 62
Accrued expenses 58 36 52
------------------------------------------------
206 3,116 14,244
------------------------------------------------
NET ASSETS Applicable to Investors' Beneficial
Interests $ 665,764 $ 60,121 $ 292,966
------------------------------------------------
NET ASSETS consist of:
Paid-in capital $ 665,764 $ 59,647 $ 291,698
Net unrealized appreciation in value of investment
securities and financial futures contracts -- 474 1,268
------------------------------------------------
NET ASSETS $ 665,764 $ 60,121 $ 292,966
------------------------------------------------
*Cost of investments $ 662,805 $ 62,078 $ 301,455
------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
36
<PAGE>
STATEMENTS OF OPERATIONS
- ----------------------------------------------------------------------
Income Managers Trust
<TABLE>
<CAPTION>
GOVERNMENT
MONEY
(000'S OMITTED) PORTFOLIO
------------
<S> <C>
INVESTMENT INCOME
Interest income $ 17,370
------------
Expenses:
Investment management fee (Note B) 820
Accounting fees 10
Amortization of deferred organization and
initial offering expenses (Note A) 5
Auditing fees 23
Custodian fees (Note B) 104
Insurance expense 5
Legal fees 14
Trustees' fees and expenses 23
Miscellaneous --
------------
Total expenses 1,004
Expenses reduced by custodian fee expense
offset arrangement (Note B) (2)
------------
Total net expenses 1,002
------------
Net investment income 16,368
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investment
securities sold (3)
Net realized loss on financial futures
contracts (Note A) --
Net realized gain on foreign currency
transactions (Note A) --
Change in net unrealized appreciation
(depreciation) of investment securities,
financial futures contracts, translation of
assets and liabilities in foreign
currencies, and foreign currency contracts
(Note A) --
------------
Net gain (loss) on investments (3)
------------
Net increase in net assets resulting from
operations $ 16,365
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
37
<PAGE>
For the Year Ended October 31, 1997
- ----------------------------------------------------------------------
Income Managers Trust
<TABLE>
<CAPTION>
LIMITED
CASH ULTRA SHORT MATURITY
RESERVES BOND BOND
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest income $ 34,546 $ 4,986 $ 19,575
------------------------------------------------
Expenses:
Investment management fee (Note B) 1,506 200 697
Accounting fees 10 10 10
Amortization of deferred organization and
initial offering expenses (Note A) 5 2 5
Auditing fees 24 23 24
Custodian fees (Note B) 162 61 135
Insurance expense 9 2 6
Legal fees 24 22 19
Trustees' fees and expenses 32 9 18
Miscellaneous 1 -- --
------------------------------------------------
Total expenses 1,773 329 914
Expenses reduced by custodian fee expense
offset arrangement (Note B) (2) -- --
------------------------------------------------
Total net expenses 1,771 329 914
------------------------------------------------
Net investment income 32,775 4,657 18,661
------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investment
securities sold (7) 21 1,672
Net realized loss on financial futures
contracts (Note A) -- -- (2,679)
Net realized gain on foreign currency
transactions (Note A) -- -- 17
Change in net unrealized appreciation
(depreciation) of investment securities,
financial futures contracts, translation of
assets and liabilities in foreign
currencies, and foreign currency contracts
(Note A) -- 115 2,266
------------------------------------------------
Net gain (loss) on investments (7) 136 1,276
------------------------------------------------
Net increase in net assets resulting from
operations $ 32,768 $ 4,793 $ 19,937
------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
38
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------
Income Managers Trust
<TABLE>
<CAPTION>
GOVERNMENT
MONEY PORTFOLIO
Year
Ended
October 31,
(000'S OMITTED) 1997 1996
-----------------------------
<S> <C> <C>
INCREASE (DECREASE)
IN NET ASSETS:
FROM OPERATIONS:
Net investment
income $ 16,368 $ 14,201
Net realized
gain (loss) on
investments (3) (6)
Change in net
unrealized
appreciation
(depreciation)
of investments -- --
-----------------------------
Net increase in
net assets
resulting from
operations 16,365 14,195
-----------------------------
TRANSACTIONS IN
INVESTORS'
BENEFICIAL
INTERESTS:
Additions 872,761 655,267
Reductions (943,664) (615,465)
-----------------------------
Net increase
(decrease) in
net assets
resulting from
transactions
in investors'
beneficial
interests (70,903) 39,802
-----------------------------
NET INCREASE
(DECREASE) IN NET
ASSETS (54,538) 53,997
NET ASSETS:
Beginning of
year 362,482 308,485
-----------------------------
End of year $ 307,944 $ 362,482
-----------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
39
<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,
1997 1996 1997 1996 1997 1996
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE)
IN NET ASSETS:
FROM OPERATIONS:
Net investment
income $ 32,775 $ 24,267 $ 4,657 $ 5,817 $ 18,661 $ 19,386
Net realized
gain (loss) on
investments (7) 4 21 (592) (990) (992)
Change in net
unrealized
appreciation
(depreciation)
of investments -- -- 115 172 2,266 (1,726)
---------------------------------------------------------------------------------------------
Net increase in
net assets
resulting from
operations 32,768 24,271 4,793 5,397 19,937 16,668
---------------------------------------------------------------------------------------------
TRANSACTIONS IN
INVESTORS'
BENEFICIAL
INTERESTS:
Additions 994,311 528,658 14,524 20,518 61,720 45,924
Reductions (845,290) (478,185) (55,259) (31,918) (56,000) (114,929)
---------------------------------------------------------------------------------------------
Net increase
(decrease) in
net assets
resulting from
transactions
in investors'
beneficial
interests 149,021 50,473 (40,735) (11,400) 5,720 (69,005)
---------------------------------------------------------------------------------------------
NET INCREASE
(DECREASE) IN NET
ASSETS 181,789 74,744 (35,942) (6,003) 25,657 (52,337)
NET ASSETS:
Beginning of
year 483,975 409,231 96,063 102,066 267,309 319,646
---------------------------------------------------------------------------------------------
End of year $ 665,764 $ 483,975 $ 60,121 $ 96,063 $ 292,966 $ 267,309
---------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
40
<PAGE>
NOTES TO FINANCIAL STATEMENTS
October 31, 1997
- ----------------------------------------------------------------------
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 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 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: Limited Maturity may invest in foreign
securities denominated in foreign currency. The accounting records of the
Portfolio 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. 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 foreign currency changes
unfavorably. The U.S. dollar value of foreign currency
41
<PAGE>
underlying all contractual commitments held by the Portfolio is determined
using forward foreign currency exchange 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 changes in securities
prices resulting from changes in prevailing 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 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, 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.
During the year ended October 31, 1997, Ultra Short did not enter into any
financial futures contracts.
At October 31, 1997, 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> <C>
December
1997 311 U.S. Treasury Notes, 2 Year Short $ (220,453)
December
1997 73 U.S. Treasury Notes, 2 Year Long 65,645
December
1997 74 U.S. Treasury Notes, 5 Year Short (63,969)
December
1997 79 U.S. Treasury Notes, 5 Year Short (30,116)
December
1997 115 U.S. Treasury Notes, 10 Year Short (115,805)
</TABLE>
42
<PAGE>
At October 31, 1997, 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>
$ 530,250 U.S. Treasury Notes, 6.50%, due 4/30/99
40,000 U.S. Treasury Inflation-Indexed Notes, 3.375%, due 1/15/07
</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 and foreign currency
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, 1997, the unamortized balance
of such expenses amounted to $3,520, $3,101, $1,274, and $3,537 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.
10) REVERSE REPURCHASE AGREEMENTS: Each Portfolio (except Government Money) may
enter into reverse repurchase agreements with institutions that each
Portfolio's investment manager has determined are creditworthy. In a reverse
repurchase agreement, a Portfolio sells securities to a bank or securities
dealer and simultaneously agrees to repurchase the same securities at a
higher price on a specific date. During the period before the repurchase, a
Portfolio continues to receive principal and/or interest payments on the
securities sold. A Portfolio will maintain cash or liquid securities in a
segregated account to cover its obligations under reverse repurchase
agreements. Such agreements, which may be viewed as a form of leverage,
involve certain risks and may increase fluctuations in a Portfolio's net
asset value.
43
<PAGE>
During the year ended October 31, 1997, Ultra Short entered into reverse
repurchase agreements. There were no open reverse repurchase agreements 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
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 $2,107,
$1,721, $297, and $479 for Government Money, Cash Reserves, Ultra Short, and
Limited Maturity, respectively.
NOTE C -- SECURITIES TRANSACTIONS:
During the year ended October 31, 1997, 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 $ 74,145,738 $ 93,082,238
LIMITED MATURITY 251,132,539 242,033,947
</TABLE>
All securities transactions for Government Money and Cash Reserves were
short-term.
During the year ended October 31, 1997, Limited Maturity entered into various
contracts to deliver currencies at specified future dates. There were no open
positions in these contracts at October 31, 1997.
NOTE D -- SUBSEQUENT EVENT:
On September 24, 1997, the Board of Trustees approved a plan of
reorganization in which the feeder funds of Ultra Short will sell substantially
all of their net assets to the feeder funds of Limited Maturity. The parties
currently intend that this transaction will become effective at the close of
business on February 27, 1998, and will be accounted for as a tax free
transaction. Accordingly, Ultra Short and its corresponding feeder funds will
cease operations at that time.
44
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Income Managers Trust
<TABLE>
<CAPTION>
GOVERNMENT CASH RESERVES
MONEY PORTFOLIO PORTFOLIO
Period from Period from
July 2, July 2,
1993(1) 1993(1)
to October to October
Year Ended October 31, 31, Year Ended October 31, 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) .30% .31% .31% -- -- .29% .30% .31% -- --
-----------------------------------------------------------------------------------------------------------
Net Expenses .30% .31% .31% .33% .32%(3) .29% .30% .31% .32% .34%(3)
-----------------------------------------------------------------------------------------------------------
Net Investment
Income 4.96% 4.99% 5.32% 3.38% 2.82%(3) 5.31% 5.20% 5.62% 3.63% 2.88%(3)
-----------------------------------------------------------------------------------------------------------
Portfolio Turnover
Rate -- -- -- -- -- -- -- -- -- --
-----------------------------------------------------------------------------------------------------------
Net Assets, End of
Year (in millions) $307.9 $362.5 $308.5 $251.6 $277.7 $665.8 $484.0 $409.2 $312.0 $273.3
-----------------------------------------------------------------------------------------------------------
</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 reductions related to expense offset
arrangements.
3) Annualized.
B-45
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Income Managers Trust
<TABLE>
<CAPTION>
ULTRA SHORT LIMITED MATURITY
BOND PORTFOLIO BOND PORTFOLIO
Period from Period from
July 2, July 2,
1993(1) 1993(1)
to October to October
Year Ended October 31, 31, Year Ended October 31, 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) .41% .39% .40% -- -- .33% .33% .33% -- --
---------------------------------------------------------------------------------------------------------
Net Expenses .41% .39% .40% .38% .40%(3) .33% .33% .33% .34% .33%(3)
---------------------------------------------------------------------------------------------------------
Net Investment
Income 5.82% 5.77% 5.67% 3.98% 4.00%(3) 6.70% 6.45% 6.55% 5.86% 5.53%(3)
---------------------------------------------------------------------------------------------------------
Portfolio Turnover
Rate 101% 173% 148% 94% 46% 89% 169% 88% 102% 71%
---------------------------------------------------------------------------------------------------------
Net Assets, End of
Year (in millions) $60.1 $96.1 $102.1 $102.0 $104.3 $293.0 $267.3 $319.6 $316.1 $357.9
---------------------------------------------------------------------------------------------------------
</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 reductions related to expense offset
arrangements.
3) Annualized.
B-46
<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 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,
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
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, 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
47
<PAGE>
Boston, Massachusetts
December 5, 1997
48
<PAGE>
(This page has been left blank intentionally.)
B-48
<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- 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>
Notice to Shareholders (Unaudited)
Under most state tax laws, mutual fund dividends which are derived from
direct investments in U.S. Government obligations are not taxable, as long as a
Fund meets certain requirements. Some states require that a Fund must provide
shareholders with a written notice, within 60 days of the close of a Fund's
taxable year, designating the portion of the dividends which represents interest
which those states consider to have been earned on U.S. Government obligations.
The chart below shows the percentage of income derived from such investments for
the twelve months ended October 31, 1997. This information should not be used to
complete your tax returns.
<TABLE>
<CAPTION>
CALIFORNIA,
CONNECTICUT, MAINE ALL
AND AND NEW OTHER
NEUBERGER&BERMAN NEW YORK HAMPSHIRE STATES
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
GOVERNMENT MONEY FUND 100.0% 100.0% 100.0%
CASH RESERVES 0.0 0.0 0.6
ULTRA SHORT BOND FUND 0.0 34.8 36.0
LIMITED MATURITY BOND FUND 0.0 2.9 3.6
</TABLE>
In January 1998 you will receive information to be used in filing your 1997
tax returns, which will include a notice of the exact tax status of all
dividends paid to you by each Fund during calendar 1997. Please consult your own
tax advisor for details as to how this information should be reflected on your
tax returns.
3
<PAGE>
(This page has been left blank intentionally.)
C-4
<PAGE>
(This page has been left blank intentionally.)
C-5
<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 preceded or accompany this report.
- -Recycled PRINTED ON RECYCLED PAPER
Logo- NBIFAR001097
