<PAGE>
NEUBERGER BERMAN
Neuberger Berman
Municipal Funds-Registered Trademark-
- -------------------------------------------------
MUNICIPAL MONEY FUND
MUNICIPAL SECURITIES TRUST ANNUAL REPORT
OCTOBER 31, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
THE FUNDS
PRESIDENT'S LETTER A-4
GROWTH OF A DOLLAR CHART
COMPARISON OF A $10,000 INVESTMENT
Municipal Securities Trust B-1
FINANCIAL STATEMENTS B-2
FINANCIAL HIGHLIGHTS
PER SHARE DATA
Municipal Money Fund B-8
Municipal Securities Trust B-9
REPORT OF INDEPENDENT AUDITORS B-11
THE PORTFOLIOS
SCHEDULE OF INVESTMENTS
Municipal Money Portfolio B-12
Municipal Securities Portfolio B-23
FINANCIAL STATEMENTS B-28
FINANCIAL HIGHLIGHTS
Municipal Money Portfolio B-34
Municipal Securities Portfolio B-35
REPORT OF INDEPENDENT AUDITORS B-36
DIRECTORY C-1
OFFICERS AND TRUSTEES C-2
</TABLE>
A-3
<PAGE>
PRESIDENT'S LETTER December 18, 1998
Dear Shareholder,
Bonds enjoyed another good year in fiscal 1998, although U.S. Treasuries
materially outperformed all other sectors, including municipal securities.
Municipal bonds benefited from declining interest rates and the influx of U.S.
investors seeking shelter from volatile stock markets. However, because
municipals offer no tax advantages to foreign investors, they did not fully
participate in the global "flight to quality" that helped propel Treasury Bonds'
strong advance.
Our Municipal Securities Trust performed well, thanks in part to our emphasis
on securities with strong call protection. During periods of declining interest
rates, higher-coupon municipal securities are often "called" by issuers
refinancing debt at lower rates. This effectively lowers portfolio yield.
Focusing on securities protected against calls and our decision to control
exposure to weak A-rated credits (as rated by Standard and Poor's and Moody's)
helped reduce portfolio risk and maintain positive yields.
Although the spread between municipal bond and Treasury yields narrowed in mid
to late October as investors migrated from Treasuries back into the rallying
stock market, the ratio of municipal bond yields to Treasuries remains at
historically high levels. At the close of this reporting period, five-year
investment-grade municipal yields were 87.7% - 93.1% of the five-year Treasury
Bond.+ This provides a historically high after-tax yield advantage for municipal
bonds relative to Treasuries.
Going forward, we will continue to seek opportunities for attractive municipal
investments through in-depth credit analysis. Our goal is to identify municipal
issues that we consider "cheap" relative to their underlying quality, while
focusing on issuers with stable or improving credit characteristics.
We have always believed that stocks help investors eat well, but bonds help
them sleep well. In the second half of fiscal 1998, investors with rich,
equity-only diets suffered severe heartburn and bouts of insomnia. Those with
healthy portions of carefully selected bonds on their investment plates
experienced some mild indigestion, but slept quite peacefully despite the loud
racket produced by international economic turmoil. We won't make any predictions
regarding the future health of the stock market but, as good investment
nutritionists, we continue to recommend a balanced diet featuring bonds as well
as stocks.
A-4
<PAGE>
MUNICIPAL MONEY FUND The fund invests exclusively in high-quality credits. We
depend greatly on our practice of maturity management (extending portfolio
maturity when rates are falling and reducing it when rates are rising) and our
efforts in selecting securities with the best risk/reward characteristics to
maximize returns.
During the six months ended October 31, 1998, weighted average maturity ranged
from a high of 72.4 days to a low of 40.7 days, closing at 41.7 days. Municipal
issuers have continued to "bond out" (meet financing needs by issuing more
long-term paper). The limited supply of short-term obligations has resulted in a
flat yield curve (little difference in yields of bonds from zero to one year in
maturity). Consequently, there has been little or no advantage to taking
incremental interest rate risk by materially extending the portfolio's average
maturity.
The current and effective (compounded) 7-day yields for the Fund as of October
31, 1998, were 2.56% and 2.59%, respectively. For an investor in the highest
federal income tax bracket, this translates into tax-equivalent current and
effective yields of 4.24% and 4.33%.*
MUNICIPAL SECURITIES TRUST It was a "steady as you go" municipal bond market
in fiscal 1998. Like all bond sectors, municipals benefited from falling
interest rates and investors seeking safe harbor from the volatile stock market.
However, municipal bond prices didn't rise nearly as dramatically as Treasuries
in the global "flight to quality" or decline as much as corporate bonds in
August and September as investors began focusing on the negative impact a
slowing global economy might have had on income statements and balance sheets.
In essence, no news has been good news.
We continued to see strong new issuance -- in fact, total new issuance in 1998
is expected to reach the record of $292 billion that was raised in 1993. Demand
was also strong and became stronger as investors temporarily piled into the bond
market when stocks hit the skids. In early October, 10-year and 30-year
municipal bond yields declined to 3.85% and 4.5%, respectively -- both
three-decade lows. Viewing these as artificial lows resulting from heightened
stock market anxiety and concerned that a still strong economy could put upward
pressure on interest rates, we shortened the Portfolio's weighted average
maturity to 6.7 years and virtually eliminated zero-coupon General Obligation
bonds -- the most interest rate sensitive securities in our portfolio. This
A-5
<PAGE>
strategy paid off when interest rates rose in late October. We will be quick to
lengthen average maturity when we see evidence of economic deceleration.
Looking ahead, we believe the overall municipal bond market will remain
healthy. We are shying away from issuers in states with weak economies, such as
Hawaii and Louisiana. We are also remaining quite cautious regarding issuers in
big cities like New York and Los Angeles, where large entitlement budgets and
lower tax revenues may have a negative impact on credit quality.
As of October 31, 1998, the 30-day SEC yield for the Fund was 3.40%. This can
be translated into a tax-equivalent yield of 5.63% for investors in the highest
federal income tax bracket.*
In closing, municipal bonds performed their job in fiscal 1998 -- preserving
and enhancing assets in the midst of global economic and stock market distress,
while also providing certain tax advantages. We are pleased to have helped see
our shareholders through these troubled times. Going forward, we trust investors
will have a greater appreciation for the valuable role bonds play in a truly
diversified investment program.
Sincerely,
/s/ Theodore P. Giuliano
Theodore P. Giuliano
President and Trustee
Neuberger Berman Income Funds
+Bloomberg L.P. 11/18/98
*An investment in Municipal Money Fund, like all other mutual funds, is neither
insured nor guaranteed by the U.S. Government and there can be no assurance
that the fund will be able to maintain a stable net asset value of $1.00 per
share. The return on investment in Municipal Money Fund will fluctuate and past
performance is no guarantee of future results.
"Current yield" refers to the income generated by an investment in the Fund
over a 7-day period. The income is then "annualized." The "effective yield" is
calculated similarly but, when annualized, the income earned by an investment
in the Fund is assumed to be reinvested. The "effective yield" will be slightly
higher than the "current yield" because of the compounding effect of this
assumed reinvestment.
Tax-equivalent yield is the taxable effective yield that an investor would have
had to receive in order to realize the same level of yield after federal taxes
at 39.6%, assuming that all of the Fund's income is exempt from Federal income
taxes. A portion of the income may be subject to the federal alternative
minimum tax for certain investors.
Neuberger Berman Management Inc.-Registered Trademark- currently absorbs
certain operating expenses of Municipal Securities Trust. Absent this
arrangement, which is subject to change, the 30-day SEC yield of Municipal
Securities Trust would have been 3.03% and the tax-equivalent yield would have
been 5.02%
A-6
<PAGE>
COMPARISON OF A $10,000 INVESTMENT
Neuberger Berman October 31, 1998
- ----------------------------------------------------------------------
Municipal Securities Trust
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MUNICIPAL SECURITIES TRUST LEHMAN BROTHERS 7-YEAR GO INDEX
<S> <C> <C>
1988 $10,000 $10,000
1989 $10,655 $10,630
1990 $11,400 $11,450
1991 $12,358 $12,698
1992 $13,189 $13,710
1993 $14,679 $15,341
1994 $14,303 $15,029
1995 $15,782 $16,936
1996 $16,401 $17,741
1997 $17,502 $19,087
1998 $18,767 $20,507
AVERAGE ANNUAL TOTAL RETURN (1)
MUNICIPAL SECURITIES TRUST LEHMAN BROTHERS 7-YEAR GO INDEX (2)
1 YEAR +7.22% +7.44%
5 YEAR +5.04% +5.98%
10 YEAR +6.50% +7.45%
LIFE OF FUND +6.49% +7.32%
</TABLE>
Neuberger Berman Municipal Securities Trust-Registered Trademark- ("Municipal
Securities Trust") commenced operations on 7/9/87.
The tax equivalent annualized yield for Municipal Securities Trust is 5.63%
for the thirty days ended 10/31/98 (based on an annualized yield of 3.40% and
assuming a federal tax rate of 39.6%). A portion of the income of Municipal
Securities Trust may be subject to the federal alternative minimum tax for
certain investors.
Neuberger Berman Management Inc.-Registered Trademark- has voluntarily
undertaken to reimburse Municipal Securities Trust for its operating expenses
and its pro rata share of its Portfolio's operating expenses which, in the
aggregate, exceed .65% per annum of Municipal Securities Trust's average daily
net assets, subject to termination upon 60 days' prior written notice. Absent
such reimbursement, the annualized and tax equivalent yields for the thirty days
ended 10/31/98 would have been 3.03% and 5.02%, respectively. Absent such
reimbursement, the average annual total returns would have been less.
1. "Total Return" includes reinvestment of all income dividends and capital gain
distributions. Results represent past performance and do not indicate future
results. The value of an investment in the Fund and the return on the investment
both will fluctuate, and redemption proceeds may be higher or lower than an
investor's original cost.
2. The Lehman Brothers 7-Year General Obligation Index is an unmanaged total
return performance benchmark for the intermediate-term, 7-year, investment grade
General Obligations (State and Local) tax-exempt bond market. Please note that
indices do not take into account any fees and expenses of investing in the
individual securities that they track, and that individuals cannot invest
directly in any index. Data about the performance of this index are prepared or
obtained by Neuberger Berman Management Inc. and include reinvestment of all
dividends and capital gain distributions. The Portfolio invests in many
securities not included in the above-described index.
B-1
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
Neuberger Berman October 31, 1998
- ----------------------------------------------------------------------
Income Funds
<TABLE>
<CAPTION>
MUNICIPAL MUNICIPAL
MONEY SECURITIES
(000'S OMITTED EXCEPT PER SHARE AMOUNTS) FUND TRUST
-------------------------------
<S> <C> <C>
ASSETS
Investment in corresponding Portfolio, at
value (Note A) $ 221,612 $ 40,226
Receivable for Trust shares sold 2 1
-------------------------------
221,614 40,227
-------------------------------
LIABILITIES
Dividends payable 5 45
Payable for Trust shares redeemed 22 2
Payable to administrator -- net (Note B) 54 1
Accrued expenses 52 31
-------------------------------
133 79
-------------------------------
NET ASSETS at value $ 221,481 $ 40,148
-------------------------------
NET ASSETS consist of:
Par value $ 222 $ 4
Paid-in capital in excess of par value 221,259 38,920
Accumulated net realized losses on
investment -- (247)
Net unrealized appreciation in value of
investment -- 1,471
-------------------------------
NET ASSETS at value $ 221,481 $ 40,148
-------------------------------
SHARES OUTSTANDING
($.001 par value; unlimited shares
authorized) 221,554 3,539
-------------------------------
NET ASSET VALUE, offering and redemption price per
share $1.00 $11.34
-------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-2
<PAGE>
STATEMENTS OF OPERATIONS
Neuberger Berman For the Year Ended October 31, 1998
- ----------------------------------------------------------------------
Income Funds
<TABLE>
<CAPTION>
MUNICIPAL MUNICIPAL
MONEY SECURITIES
(000'S OMITTED) FUND TRUST
---------------------------
<S> <C> <C>
INVESTMENT INCOME
Investment income from corresponding Portfolio
(Note A) $ 6,741 $ 1,640
---------------------------
Expenses:
Administration fee (Note B) 509 93
Auditing fees 8 8
Custodian fees 10 10
Legal fees 7 7
Registration and filing fees 56 26
Shareholder reports 30 28
Shareholder servicing agent fees (Note B) 27 26
Trustees' fees and expenses 15 7
Miscellaneous 2 1
Expenses from corresponding Portfolio (Notes
A & B) 685 176
---------------------------
Total expenses 1,349 382
Expenses reimbursed by administrator and/or
reduced by custodian fee and shareholder
servicing expense offset arrangements
(Note B) (16) (158)
---------------------------
Total net expenses 1,333 224
---------------------------
Net investment income 5,408 1,416
---------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS FROM
CORRESPONDING PORTFOLIO (NOTE A)
Net realized gain on investment securities 26 420
Net realized gain on financial futures
contracts -- 6
Change in net unrealized appreciation of
investment securities -- 583
---------------------------
Net gain on investments from corresponding
Portfolio (Note A) 26 1,009
---------------------------
Net increase in net assets resulting from
operations $ 5,434 $ 2,425
---------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-3
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
Neuberger Berman
- ----------------------------------------------------------------------
Income Funds
<TABLE>
<CAPTION>
MUNICIPAL MUNICIPAL
MONEY SECURITIES
FUND TRUST
Year Year
Ended Ended
October 31, October 31,
(000'S OMITTED) 1998 1997 1998 1997
-------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income $ 5,408 $ 4,192 $ 1,416 $ 1,418
Net realized gain on investments
from corresponding Portfolio (Note
A) 26 -- 426 210
Change in net unrealized
appreciation of investments from
corresponding Portfolio (Note A) -- -- 583 462
-------------------------------------------------------------
Net increase in net assets resulting
from operations 5,434 4,192 2,425 2,090
-------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (5,408) (4,192) (1,416) (1,418)
-------------------------------------------------------------
FROM TRUST SHARE TRANSACTIONS:
Proceeds from shares sold 319,207 228,579 16,999 5,776
Proceeds from reinvestment of
dividends 5,334 4,121 898 907
Payments for shares redeemed (259,407) (208,978) (10,385) (14,649)
-------------------------------------------------------------
Net increase (decrease) from Trust
share transactions 65,134 23,722 7,512 (7,966)
-------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 65,160 23,722 8,521 (7,294)
NET ASSETS:
Beginning of year 156,321 132,599 31,627 38,921
-------------------------------------------------------------
End of year $ 221,481 $ 156,321 $ 40,148 $ 31,627
-------------------------------------------------------------
NUMBER OF TRUST SHARES:
Sold 319,207 228,579 1,520 531
Issued on reinvestment of dividends 5,334 4,121 80 83
Redeemed (259,407) (208,978) (930) (1,354)
-------------------------------------------------------------
Net increase (decrease) in shares
outstanding 65,134 23,722 670 (740)
-------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Neuberger Berman October 31, 1998
- ----------------------------------------------------------------------
Income Funds
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1) GENERAL: Neuberger Berman Municipal Money Fund-Registered Trademark-
("Municipal Money") and Neuberger Berman Municipal Securities Trust
("Municipal Securities Trust") (collectively, the "Funds") are separate
operating series of Neuberger Berman Income Funds-Registered Trademark- (the
"Trust"), a Delaware business trust organized pursuant to a Trust Instrument
dated December 23, 1992. The Trust is registered as a diversified, open-end
management investment company under the Investment Company Act of 1940, as
amended, and its shares are registered under the Securities Act of 1933, as
amended. The trustees of the Trust may establish additional series or classes
of shares without the approval of shareholders.
The assets of each series belong only to that series, and the liabilities
of each series are borne solely by that series and no other.
Each Fund seeks to achieve its investment objective by investing all of
its net investable assets in its corresponding portfolio of Income Managers
Trust (each a "Portfolio") having the same investment objective and policies
as the Fund. The value of each Fund's investment in its corresponding
Portfolio reflects that Fund's proportionate interest in the net assets of
that Portfolio (100% for each Fund at October 31, 1998). The performance of
each Fund is directly affected by the performance of its corresponding
Portfolio. The financial statements of each Portfolio, including the Schedule
of Investments, are included elsewhere in this report and should be read in
conjunction with the corresponding Fund's financial statements.
It is the policy of Municipal Money to maintain a continuous net asset
value per share of $1.00; the Fund has adopted certain investment, valuation,
and dividend and distribution policies, which conform to general industry
practice, to enable it to do so. However, there is no assurance the Fund will
be able to maintain a stable net asset value per share.
2) PORTFOLIO VALUATION: Each Fund records its investment in its corresponding
Portfolio at value. Investment securities held by each Portfolio are valued
as indicated in the notes following the Portfolios' Schedule of Investments.
3) FEDERAL INCOME TAXES: The Funds are treated as separate entities for Federal
income tax purposes. It is the policy of each Fund to continue to qualify as
a regulated investment company by complying with the provisions available to
certain investment companies, as defined in applicable sections of the
Internal Revenue Code, and to make distributions of investment company
taxable income and net capital gains (after reduction for any amounts
available for Federal income
B-5
<PAGE>
tax purposes as capital loss carryforwards) sufficient to relieve it from
all, or substantially all, Federal income taxes. Accordingly, each Fund paid
no Federal income taxes and no provision for Federal income taxes was
required.
4) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Each Fund earns income, net of
Portfolio expenses, daily on its investment in its corresponding Portfolio.
It is the policy of each Fund to declare dividends from net investment income
on each business day; such dividends are paid monthly. Distributions from net
realized capital gains, if any, are normally distributed in December. To the
extent each Fund's net realized capital gains, if any, can be offset by
capital loss carryforwards ($267 expiring in 2003 for Municipal Money and
$246,798 expiring in 2003 for Municipal Securities Trust, determined as of
October 31, 1998), it is the policy of each Fund not to distribute such
gains.
Each Fund distinguishes between dividends on a tax basis and a financial
reporting basis and only distributions in excess of tax basis earnings and
profits are reported in the financial statements as a return of capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes are classified as
distributions in excess of net investment income or accumulated net realized
gains.
5) EXPENSE ALLOCATION: Each Fund bears all costs of its operations. Expenses
incurred by the Trust with respect to any two or more funds are allocated in
proportion to the net assets of such funds, except where a more appropriate
allocation of expenses to each fund can otherwise be made fairly. Expenses
directly attributable to a fund are charged to that fund.
6) OTHER: All net investment income and realized and unrealized capital gains
and losses of each Portfolio are allocated pro rata among its respective
Funds and any other investors in the Portfolio.
NOTE B -- ADMINISTRATION FEES, DISTRIBUTION ARRANGEMENTS, AND OTHER TRANSACTIONS
WITH AFFILIATES:
Each Fund retains Neuberger Berman Management Incorporated ("Management") as
its administrator under an Administration Agreement ("Agreement"). Pursuant to
this Agreement each Fund pays Management an administration fee at the annual
rate of 0.27% 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).
Management has voluntarily undertaken to reimburse Municipal Securities Trust
for its operating expenses plus its pro rata portion of its corresponding
Portfolio's operating expenses (including the fees payable to Management but
excluding interest, taxes, brokerage commissions, and extraordinary expenses)
which exceed, in the aggregate, 0.65% per annum of its average daily net assets.
This undertaking is subject
B-6
<PAGE>
to termination by Management upon at least 60 days' prior written notice to the
Fund. For the year ended October 31, 1998, such excess expenses amounted to
$155,100 for Municipal Securities Trust.
All of the capital stock of Management is owned by individuals who are also
principals of Neuberger Berman, LLC ("Neuberger"), a member firm of The New York
Stock Exchange and sub-adviser to each Portfolio. Several individuals who are
officers and/or trustees of the Trust are also principals of Neuberger and/or
officers and/or directors of Management.
Each Fund also has a distribution agreement with Management. Management
receives no compensation therefor and no commissions for sales or redemptions of
shares of beneficial interest of each Fund.
Each Portfolio has an expense offset arrangement in connection with its
custodian contract. The impact of this arrangement, reflected in the Statements
of Operations under the caption Expenses from corresponding Portfolio, was a
reduction of $8,731 and $1,776, for Municipal Money and Municipal Securities
Trust, respectively.
Each Fund has an expense offset arrangement in connection with its
shareholder servicing agent contract. The impact of this arrangement, reflected
in the Statements of Operations under the caption Shareholder servicing agent
fees, was a reduction of $7,130 and $1,384, for Municipal Money and Municipal
Securities Trust, respectively.
NOTE C -- INVESTMENT TRANSACTIONS:
During the year ended October 31, 1998, additions and reductions in each
Fund's investment in its corresponding Portfolio were as follows:
<TABLE>
<CAPTION>
ADDITIONS REDUCTIONS
- --------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL MONEY $ 281,553,000 $ 222,519,000
MUNICIPAL SECURITIES TRUST 14,666,000 8,627,000
</TABLE>
B-7
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger Berman
- --------------------------------------------------------------------------------
Municipal Money Fund(1)
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,
1998 1997 1996 1995 1994
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ .9994 $ .9993 $ .9994 $ .9995 $ .9996
----------------------------------------------------------------
Income From Investment Operations
Net Investment Income .0288 .0296 .0285 .0324 .0204
Net Gains or Losses on Securities .0003 .0001 (.0001) (.0001) (.0001)
----------------------------------------------------------------
Total From Investment Operations .0291 .0297 .0284 .0323 .0203
----------------------------------------------------------------
Less Distributions
Dividends (from net investment
income) (.0288) (.0296) (.0285) (.0324) (.0204)
----------------------------------------------------------------
Net Asset Value, End of Year $ .9997 $ .9994 $ .9993 $ .9994 $ .9995
----------------------------------------------------------------
Total Return(2) +2.92% +3.00% +2.89% +3.29% +2.06%
----------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year (in
millions) $ 221.5 $ 156.3 $ 132.6 $ 160.9 $ 150.3
----------------------------------------------------------------
Ratio of Gross Expenses to Average
Net Assets(3) .72% .73% .73% .71% --
----------------------------------------------------------------
Ratio of Net Expenses to Average Net
Assets .71% .72% .72% .71% .73%
----------------------------------------------------------------
Ratio of Net Investment Income to
Average Net Assets 2.88% 2.95% 2.86% 3.24% 2.02%
----------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL HIGHLIGHTS
B-8
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger Berman
- --------------------------------------------------------------------------------
Municipal Securities Trust(1)
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,
1998 1997 1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 11.02 $ 10.78 $ 10.83 $ 10.26 $ 11.12
-------------------------------------------------------
Income From Investment Operations
Net Investment Income .46 .47 .47 .47 .46
Net Gains or Losses on Securities (both realized and
unrealized) .32 .24 (.05) .57 (.73)
-------------------------------------------------------
Total From Investment Operations .78 .71 .42 1.04 (.27)
-------------------------------------------------------
Less Distributions
Dividends (from net investment income) (.46) (.47) (.47) (.47) (.46)
Distributions (from net capital gains) -- -- -- -- (.12)
Distributions (in excess of net capital gains) -- -- -- -- (.01)
-------------------------------------------------------
Total Distributions (.46) (.47) (.47) (.47) (.59)
-------------------------------------------------------
Net Asset Value, End of Year $ 11.34 $ 11.02 $ 10.78 $ 10.83 $ 10.26
-------------------------------------------------------
Total Return(2) +7.22% +6.71% +3.92% +10.35% -2.57%
-------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year (in millions) $ 40.1 $ 31.6 $ 38.9 $ 44.3 $ 51.1
-------------------------------------------------------
Ratio of Gross Expenses to Average Net Assets(3) .66% .66% .66% .66% --
-------------------------------------------------------
Ratio of Net Expenses to Average Net Assets(4) .65% .65% .65% .65% .65%
-------------------------------------------------------
Ratio of Net Investment Income to Average Net Assets 4.13% 4.30% 4.32% 4.45% 4.24%
-------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL HIGHLIGHTS
B-9
<PAGE>
NOTES TO FINANCIAL HIGHLIGHTS
Neuberger Berman October 31, 1998
- ----------------------------------------------------------------------
Income Funds
1) The per share amounts and ratios which are shown reflect income and expenses,
including each Fund's proportionate share of its corresponding Portfolio's
income and expenses.
2) Total return based on per share net asset value reflects the effects of
changes in net asset value on the performance of each Fund during each fiscal
period and assumes dividends and other distributions, if any, were
reinvested. Results represent past performance and do not guarantee future
results. Investment returns and principal may fluctuate and shares when
redeemed may be worth more or less than original cost. For Municipal
Securities Trust, total return would have been lower if Management had not
reimbursed certain expenses.
3) For fiscal periods ending after September 1, 1995, the 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 Management as described in Note B of Notes
to Financial Statements. Had Management not undertaken such action the
annualized ratios of net expenses to average daily net assets would have
been:
<TABLE>
<CAPTION>
MUNICIPAL Year Ended October 31,
SECURITIES TRUST 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Expenses 1.11% 1.05% 1.04% .98% .82%
</TABLE>
B-10
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees
Neuberger Berman Income Funds and
Shareholders of:
Neuberger Berman Municipal Money Fund and
Neuberger Berman Municipal Securities Trust
We have audited the accompanying statements of assets and liabilities of the
Neuberger Berman Municipal Money Fund and Neuberger Berman Municipal Securities
Trust, two of the series constituting the Neuberger Berman Income Funds (the
"Trust"), as of October 31, 1998, and the related statements of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the above mentioned series of the Neuberger Berman Income Funds at October
31, 1998, the results of their operations for the year then ended, the changes
in their net assets for each of the two years in the period then ended, and
their financial highlights for each of the five years in the period then ended,
in conformity with generally accepted accounting principles.
[SIGNATURE]
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
December 4, 1998
B-11
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger Berman
- --------------------------------------------------------------------------------
Municipal Money Portfolio
<TABLE>
<CAPTION>
Principal Value(4)
Amount Rating(2)(3) (000's
(000's omitted) Security(1) Moody's S&P omitted)
- ---------------- ------------------------------------------------------- ------- ------- ----------
<C> <S> <C> <C> <C>
TAX-EXEMPT SECURITIES -- PRE-REFUNDED BACKED BY U.S.
GOVERNMENT SECURITIES (4.6%)
$ 1,245 Las Vegas (NV) Ltd. Tax Swr. G.O., Ser. 1989, 7.20%,
due 1/1/08 P/R 1/1/99 $ 1,277
1,000 Los Angeles (CA) Muni. Imp. Corp. Leasehold Rev.
(Central Library Proj.), Ser. 1990 A, 7.10%, due 6/1/10
P/R 6/1/99 1,039
2,500 New York St. Med. Care Fac. Fin. Agcy. Hosp. & Nursing
Home FHA-Insured Mtge. Rev., Ser. 1989 A, 7.25%, due
2/15/24 P/R 2/15/99 2,575
1,000 Orlando (FL) Util. Comm. Wtr. & Elec. Sub. Rev., Ser.
1989 C, 7.00%, due 10/1/23 P/R 10/1/99 1,052
1,020 Prince William Co. (VA) Sch. & Pub. Imp. G.O., Ser.
1991 A, 6.25%, due 2/1/11 P/R 2/1/99 1,046
1,000 Tarrant Co. (TX) Fort Worth Independent Sch. Dist. Sch.
Bldg. Unlimited Tax G.O., Ser. 1989, 7.00%, due 2/15/01
P/R 2/15/99 1,009
1,000 Utah Intermountain Pwr. Agcy. Pwr. Supply Ref. Rev.,
Ser. 1989 A, 7.20%, due 7/1/11 P/R 7/1/99 1,042
1,000 Wisconsin G.O., Ser. 1990 G, 6.75%, due 5/1/09
P/R 5/1/99 1,024
----------
10,064
----------
TAX-EXEMPT SECURITIES -- ESCROWED IN U.S. GOVERNMENT
SECURITIES (0.5%)
1,175 Austin (TX) Combined Util. Sys. Rev., Ser. 1986 A,
7.50%, due 11/15/98 1,177
----------
MUNICIPAL NOTES (3.3%)
1,250 Kentucky Asset/Liability Comm. Gen. Fund TRANS, Ser.
1998 B, 4.00%, due 6/25/99 MIG 1 SP-1+ 1,255
2,400 Kentucky Sch. Boards Fin. Corp. Cert. of Participation
Ed. TRANS, Ser. 1998, 3.66%, due 6/30/99 MIG 1 2,401
2,000 Los Angeles (CA) Unified Sch. Dist. TRANS, Ser. 1998 A,
4.50%, due 7/1/99 MIG 1 SP-1+ 2,011
1,500 Wayne Co. (MI) Detroit Sch. Dist. St. Sch. Aid Ltd. Tax
G.O. Notes, Ser. 1998, 4.50%, due 7/1/99 SP-1+ 1,508
----------
7,175
----------
</TABLE>
B-12
<PAGE>
October 31, 1998
- --------------------------------------------------------------------------------
Municipal Money Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal Value(4)
Amount Rating(2)(3) (000's
(000's omitted) Security(1) Moody's S&P omitted)
- ---------------- ------------------------------------------------------- ------- ------- ----------
<C> <S> <C> <C> <C>
TAX-EXEMPT SECURITIES -- BACKED BY LETTERS OF CREDIT
(1.1%)
NATIONAL WESTMINSTER BANK PLC
$ 1,000 Rhode Island Std. Loan Au. Prog. Rev., Ser. 1996-1,
3.80%, due 6/1/26 Putable 6/1/99 A-1+ $ 1,000
SLM HOLDING CORP.
1,500 Greater Texas Std. Loan Corp. Ref. Rev., Ser. 1996 A,
3.60%, due 4/1/05 Putable 3/1/99 VMIG 1 A-1+ 1,500
----------
2,500
----------
TAX-EXEMPT SECURITIES -- BACKED BY INSURANCE (5.8%)
AMERICAN MUNICIPAL BOND ASSURANCE CORP.
1,650 Atlanta (GA) Arpt. Fac. Ref. Rev., Ser. 1996, 5.25%,
due 1/1/99 VMIG 1 A-1+ 1,654
1,000 Perry Township (IN) Multi Sch. Bldg. Corp. First Mtge.
Ref. Rev., Ser. 1992, 6.375%, due 1/1/99 1,005
FINANCIAL GUARANTY INSURANCE CO.
1,020 Atlanta (GA) Wtr. & Swr. Rev., Ser. 1997, 5.00%, due
1/1/99 VMIG 1 A-1+ 1,022
1,000 Connecticut Spec. Assessment Unemployment Comp. Adv.
Fund Rev., Ser. 1993 C, 3.60%, due 11/15/01 Putable
7/1/99 VMIG 1 A-1+ 1,000
1,260 Rhode Island & Providence Plantations Cons. Cap. Dev.
Loan G.O., Ser. 1998 A, 4.25%, due 9/1/99 1,266
1,000 Rutherford Co. (TN) Cons. Util. Dist. Waterworks Ref.
Rev., Ser. 1997 B, 4.25%, due 2/1/99 VMIG 1 A-1+ 1,002
MUNICIPAL BOND INVESTORS ASSURANCE CORP.
1,690 Fargo (ND) Wtr. Rev., Ser. 1993, 4.65%, due 1/1/99 1,693
3,000 Oklahoma Cap. Imp. Au. St. Hwy. Rev., Ser. 1998, 4.25%,
due 6/1/99 3,011
1,250 Utah Intermountain Pwr. Agcy. Pwr. Supply Ref. Rev.,
Ser. 1996 C, 5.50%, due 7/1/99 1,265
----------
12,918
----------
TAX-EXEMPT SECURITIES -- OTHER (5.3%)
1,000 Board of Regents of the Texas A&M Univ. Sys. Fin. Sys.
Ref. Rev., Ser. 1998, 5.00%, due 5/15/99 1,006
2,300 Harford Co. (MD) Cons. Pub. Imp. G.O., Ser. 1997,
5.00%, due 12/1/98 2,302
</TABLE>
B-13
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger Berman
- --------------------------------------------------------------------------------
Municipal Money Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal Value(4)
Amount Rating(2)(3) (000's
(000's omitted) Security(1) Moody's S&P omitted)
- ---------------- ------------------------------------------------------- ------- ------- ----------
<C> <S> <C> <C> <C>
$ 1,500 Milwaukee (WI) Metro. Swr. Dist. Cap. Purp. Ref. G.O.,
Ser. 1997 A, 4.25%, due 10/1/99 $ 1,514
1,000 Ohio Coal Dev. G.O., Ser. 1993 C, 4.40%, due 2/1/99 1,003
2,320 Pasadena (TX) Independent Sch. Dist. Maintenance Tax
Ref. G.O., Ser. 1998, 4.00%, due 2/15/99 2,322
1,000 Richland Co. (SC) Sch. Dist. No. 1 G.O., Ser. 1996,
6.625%, due 3/1/99 1,009
1,250 Tennessee Sch. Bond Au. Higher Ed. Fac. Second Prog.
Ref. Rev., Ser. 1998 C, 4.00%, due 5/1/99 1,254
1,300 Virginia Pub. Sch. Au. Sch. Fin. Ref. Rev. (1987
Resolution), Ser. 1993 B, 4.40%, due 1/1/99 1,303
----------
11,713
----------
TAX-EXEMPT CASH EQUIVALENT SECURITIES (16.4%)
2,200 Berkeley Co. (SC) Fac. Ind. Rev. (Amoco Chemical Co.
Proj.), Ser. 1997, 3.80%, VRDN due 4/1/27 VMIG 1 A-1+ 2,200 (5)
6,700 Blytheville (AR) IDR (Nucor Corp. Proj.), Ser. 1998,
3.25%, VRDN due 6/1/28 P-1 A-1+ 6,700 (5)
1,500 Carlton (WI) PCR (Wisconsin Pwr. & Lt. Co. Proj.), Ser.
1988, 3.20%, VRDN due 8/1/15 VMIG 1 1,500 (5)
2,000 Commonwealth of Massachusetts Ref. G.O., Ser. 1998 A,
2.90%, VRDN due 9/1/16 VMIG 1 A-1+ 2,000
1,500 Harris Co. (TX) IDC Solid Waste Disp. Rev. (Exxon
Proj.), Ser. 1997, 3.80%, VRDN due 4/1/32 VMIG 1 1,500 (5)
1,700 Harris Co. (TX) Ind. Dev. Corp. PCR (Exxon Proj.),
3.80%, VRDN due 8/15/27 A-1+ 1,700 (5)
1,200 Jackson Co. (MS) Ind. Swr. Fac. Rev. (Chevron U.S.A.
Inc. Proj.), Ser. 1994, 3.85%, VRDN due 12/15/24 P-1 1,200 (5)
1,300 Madison Co. (IL) Env. Imp. Rev. (Shell Wood River
Refining Co. Proj.), Ser. 1997, 3.80%, VRDN due 4/1/32 VMIG 1 A-1+ 1,300 (5)
800 Minneapolis (MN) Comm. Dev. Agcy. Ref. PCR (No. States
Pwr. Co. Proj.), Ser. 1985, 3.30%, VRDN due 3/1/11 P-1 A-1+ 800 (5)
2,900 Mount Vernon (IN) Ref. PCR (Gen. Elec. Co. Proj.), Ser.
1998, 3.80%, VRDN due 11/1/18 A-1+ 2,900 (5)
</TABLE>
B-14
<PAGE>
October 31, 1998
- --------------------------------------------------------------------------------
Municipal Money Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal Value(4)
Amount Rating(2)(3) (000's
(000's omitted) Security(1) Moody's S&P omitted)
- ---------------- ------------------------------------------------------- ------- ------- ----------
<C> <S> <C> <C> <C>
$ 1,000 Navajo Co. (AZ) IDA (Citizens Util. Co. Proj.), Ser.
1997, 3.20%, VRDN due 5/1/32 A-1+ $ 1,000
2,000 Port of Corpus Christi (TX) IDC Ref. Rev. (Valero
Refining & Mktg. Co. Proj.), Ser. 1997 D, 3.30%, VRDN
due 5/1/26 VMIG 1 A-1+ 2,000
8,000 Rhode Island & Providence Plantations G.O., 3.05%, VRDN
due 6/1/18 VMIG 1 A-1+ 8,000
900 San Antonio (TX) Higher Ed. Au., Inc. Ref. Rev.
(Trinity Univ. Proj.), Ser. 1993, 3.10%, VRDN due
4/1/04 A-1+ 900
900 Southwestern (IL) Dev. Au. Solid Waste Disp. Rev.
(Shell Oil Co. Wood River Proj.), Ser. 1992, 3.80%,
VRDN due 4/1/22 VMIG 1 A-1+ 900 (5)
1,800 Will Co. (IL) Exempt Fac. Ind. Rev. (Amoco Chemical Co.
Proj.), Ser. 1998, 3.80%, VRDN due 3/1/28 VMIG 1 A-1+ 1,800 (5)
----------
36,400
----------
TAX-EXEMPT CASH EQUIVALENT SECURITIES -- BACKED BY
LETTERS OF CREDIT (53.7%)
ABN AMRO BANK NV
100 Long Island (NY) Pwr. Au. Elec. Sys. Sub. Rev., Ser.
1998-6, 3.60%, VRDN due 5/1/33 VMIG 1 A-1+ 100 (6)
BANK OF AMERICA
1,200 Calhoun Co. (TX) Navigation IDA Port Rev. (Formosa
Plastics Corp., Texas Proj.), Ser. 1994, 3.20%, VRDN
due 11/1/15 VMIG 1 1,200
4,400 Texas Muni. Pwr. Agcy. Rev., Ser. 1991, 3.20%, TECP due
11/23/98 & 12/9/98 P-1 A-1+ 4,400 (7)
1,000 Utah Intermountain Pwr. Agcy. Pwr. Supply Rev., Ser.
1985 E, 3.20%, TECP due 11/23/98 VMIG 1 A-1+ 1,000
BANK OF NOVA SCOTIA
2,600 Sunshine St. (FL) Gov't. Fin. Comm. Rev., Ser. A,
3.45%, TECP due 11/10/98 A-1+ 2,600
BAYERISCHE LANDESBANK GIROZENTRALE
6,000 Denver (CO) City & Co. Arpt. Sys. Sub. Rev., Ser. 1997
A, 3.30%, TECP due 11/9/98 P-1 A-1+ 6,000
1,000 Long Island (NY) Pwr. Au. Elec. Sys. Rev., Ser. 1998 E,
3.70%, TECP due 11/18/98 VMIG 1 A-1+ 1,000 (8)
</TABLE>
B-15
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger Berman
- --------------------------------------------------------------------------------
Municipal Money Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal Value(4)
Amount Rating(2)(3) (000's
(000's omitted) Security(1) Moody's S&P omitted)
- ---------------- ------------------------------------------------------- ------- ------- ----------
<C> <S> <C> <C> <C>
CANADIAN IMPERIAL BANK OF COMMERCE
$ 2,000 Houston (TX) Arpt., Ser. A, 3.15%, TECP due 1/14/99 A-1+ $ 2,000 (9)
3,800 Louisa Co. (IA) Customized Purchase Ref. PCR
(Iowa-Illinois Gas & Elec. Co. Proj.), Ser. 1987,
3.35%, VRDN due 3/1/17 A-1 3,800
1,500 North Carolina Eastern Muni. Pwr. Agcy. Sys. Rev.,
3.40%, TECP due 1/13/99 P-1 A-1+ 1,500
CHASE MANHATTAN BANK, N.A.
2,000 Douglas Co. (GA) Dev. Au. IDR (Whirlwind Steel Bldg.,
Inc. Proj.), Ser. 1997, 3.25%, VRDN due 12/1/12 VMIG 1 A-1 2,000
645 South Carolina Jobs Econ. Dev. Au. Rev. (St. Francis
Hosp. Proj.), Ser. 1990, 3.65%, VRDN due 7/1/22 VMIG 1 645
970 Virginia Small Bus. Fin. Au. IDR (Coral Graphic Svc.,
Inc. Proj.), Ser. 1998, 3.25%, VRDN due 1/1/13 VMIG 1 A-1 970
CITIBANK, N.A.
1,100 Austin Co. (TX) Ind. Dev. Corp. IDR (Justin Ind., Inc.
Proj.), Ser. 1984, 3.10%, VRDN due 12/1/14 P-1 1,100
COMMONWEALTH BANK OF AUSTRALIA
2,000 Pendleton Co. (KY) Multi-County Lease Rev. (Kentucky
Assoc. of Cos. Leasing Trust Prog.), Ser. 1989, 3.40%,
TECP due 1/22/99 A-1+ 2,000
CREDIT COMMERCIAL DE FRANCE
300 Elkhart Co. (IN) Econ. Dev. Rev. (Pace Amer. Inc.
Proj.), 3.30%, VRDN due 1/1/13 VMIG 1 300
115 Indiana Emp. Dev. Comm. Econ. Dev. Rev. (Triangle
Ventures Proj.), Ser. 1988, 3.30%, VRDN due 1/1/14 VMIG 1 115
2,900 South Carolina Jobs Econ. Dev. Au. Rev. (Florence RHF
Hsg., Inc. Proj.), Ser. 1987 A, 3.25%, VRDN due 11/7/07 P-1 2,900
75 South Carolina Jobs Econ. Dev. Au. Rev. (Kent Mfg. Co.
Proj.), Ser. 1988 A, 3.35%, VRDN due 4/7/99 VMIG 1 75
50 South Carolina Jobs Econ. Dev. Au. Rev. (Mar-Mac Mfg.
Co., Inc. Proj.), Ser. 1988 A, 3.45%, VRDN due 4/7/99 VMIG 1 50
</TABLE>
B-16
<PAGE>
October 31, 1998
- --------------------------------------------------------------------------------
Municipal Money Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal Value(4)
Amount Rating(2)(3) (000's
(000's omitted) Security(1) Moody's S&P omitted)
- ---------------- ------------------------------------------------------- ------- ------- ----------
<C> <S> <C> <C> <C>
$ 530 South Carolina Jobs Econ. Dev. Au. Rev. (Osmose Wood
Preserving), Ser. 1989 B, 3.35%, VRDN due 12/1/04 P-1 $ 530
100 South Carolina Jobs Econ. Dev. Au. Rev. (Su-Dan Co. &
Delta Prop.), Ser. 1989 A, 3.45%, VRDN due 1/1/04 VMIG 1 100
CREDIT LOCAL DE FRANCE
1,000 Colorado Reg. Trans. Dist. Spec. Passenger Fare Rev.,
Ser. 1989 A, 3.05%, VRDN due 6/1/99 A-1+ 1,000
CREDIT SUISSE
1,300 Chattanooga (TN) Ind. Dev. Board IDR (Market Street
Ltd. Proj.), 3.15%, VRDN due 12/15/12 A-1+ 1,300
1,200 Hubbard Co. (MN) Solid Waste Disp. Rev. (Potlatch Corp.
Proj.), Ser. 1990, 3.15%, VRDN due 8/1/14 A-1+ 1,200
300 Montgomery Co. (TX) Ind. Dev. Corp. IDR (Dal-Tile Corp.
Proj.), Ser. 1986 B, 3.25%, VRDN due 12/1/03 A-1+ 300
1,000 Texas Capital Hlth. Fac. Dev. Corp. (Island on Lake
Travis Ltd. Proj.), Ser. 1986, 3.15%, VRDN due 12/1/16 A-1+ 1,000
600 Warren (AR) Solid Waste Disp. Rev. (Potlatch Corp.
Proj.), Ser. 1993, 3.15%, VRDN due 4/1/12 A-1+ 600
DEUTSCHE BANK AG
300 Louisiana Pub. Fac. Au. IDR (Kenner Hotel L.P. Proj.),
Ser. 1985, 3.70%, VRDN due 12/1/15 P-1 300
FIRST NATIONAL BANK OF CHICAGO
1,400 Indiana Hlth. Fac. Fin. Au. Hosp. Rev. (Deaconess
Hosp., Inc.), Ser. 1992, 3.10%, VRDN due 1/1/22 VMIG 1 1,400
1,000 Stevenson (AL) IDB Env. Imp. Rev. (Mead Corp. Proj.),
Ser. 1998 B, 3.80%, VRDN due 4/1/33 A-1+ 1,000
FIRST UNION NATIONAL BANK
1,000 Monroe Co. (NY) IDA Rev. (Collegiate Hsg. Foundation,
Inc. Fac. at Rochester Institute of Technology), Ser.
1998 A, 3.10%, VRDN due 10/1/28 VMIG 1 1,000
1,075 North Carolina Med. Care Comm. Hosp. ACES Rev. (Pooled
Fin. Proj.), Ser. 1991 B, 3.75%, VRDN due 10/1/13 VMIG 1 1,075
</TABLE>
B-17
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger Berman
- --------------------------------------------------------------------------------
Municipal Money Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal Value(4)
Amount Rating(2)(3) (000's
(000's omitted) Security(1) Moody's S&P omitted)
- ---------------- ------------------------------------------------------- ------- ------- ----------
<C> <S> <C> <C> <C>
$ 600 Wake Co. (NC) Ind. Fac. & Poll. Ctrl. Fin. Au. PCR
(Carolina Pwr. & Lt. Co. Proj.), Ser. 1987, 3.75%, VRDN
due 3/1/17 P-1 A-1 $ 600
2,000 Washington Co. (PA) Au. Lease Rev. (Higher Ed. Pooled
Equip. Leasing Prog.), Ser. 1985 A, 3.20%, VRDN due
11/1/05 VMIG 1 2,000
GENERAL ELECTRIC CAPITAL CORP.
800 New Hampshire Hsg. Fin. Au. Multi-Family Hsg. Rev.
(Countryside L.P. Proj.), Ser. 1994, 3.20%, VRDN due
7/1/24 VMIG 1 800
5,000 New Hampshire Hsg. Fin. Au. Multi-Family Hsg. Rev.
(P.R.A. Prop. L.P.-Pheasant Run Proj.), Ser. 1985,
3.25%, VRDN due 5/1/25 VMIG 1 5,000
HARRIS TRUST AND SAVINGS BANK
700 Illinois Dev. Fin. Au. IDR (Grayhill, Inc. Proj.), Ser.
1995 C, 3.15%, VRDN due 2/1/05 A-1+ 700
720 Illinois Dev. Fin. Au. IDR (Overton Gear & Tool Corp.
Proj.), Ser. 1994, 3.15%, VRDN due 10/1/08 A-1+ 720
KREDIETBANK, NV
1,600 Emmaus (PA) Gen. Au. Local Gov't. Rev. (Bond Pool
Prog.), Ser. 1989 B-16, 3.10%, VRDN due 3/1/24 A-1+ 1,600
MORGAN GUARANTY TRUST CO.
200 Grapevine (TX) IDC Rev. (Amer. Airlines, Inc. Proj.),
Ser. 1984 A-3, 3.65%, VRDN due 12/1/24 P-1 200
7,000 Orlando (FL) Spec. Assessment Rev. (Republic Drive
Interchange Proj.), Ser. 1997 A, 2.95%, VRDN due
10/1/21 VMIG 1 7,000
NATIONAL WESTMINSTER BANK PLC
1,200 Hillsborough Co. (FL) Aviation Au. Rev. (Tampa Int'l.
Arpt.), 3.60%, TECP due 11/9/98 P-1 A-1+ 1,200
300 Marion Co. (WV) Comm. Solid Waste Disp. Fac. Rev.
(Grant Town Cogeneration Proj.), Ser. 1990 A, 3.20%,
VRDN due 10/1/17 VMIG 1 A-1+ 300
1,300 Marion Co. (WV) Comm. Solid Waste Disp. Fac. Rev.
(Grant Town Cogeneration Proj.), Ser. 1990 B, 3.10%,
VRDN due 10/1/17 VMIG 1 A-1+ 1,300
300 Marion Co. (WV) Comm. Solid Waste Disp. Fac. Rev.
(Grant Town Cogeneration Proj.), Ser. 1990 D, 3.10%,
VRDN due 10/1/17 VMIG 1 A-1+ 300
</TABLE>
B-18
<PAGE>
October 31, 1998
- --------------------------------------------------------------------------------
Municipal Money Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal Value(4)
Amount Rating(2)(3) (000's
(000's omitted) Security(1) Moody's S&P omitted)
- ---------------- ------------------------------------------------------- ------- ------- ----------
<C> <S> <C> <C> <C>
$ 1,000 Rhode Island Std. Loan Au. Prog. Rev., Ser. 1995-1,
3.20%, VRDN due 7/1/19 A-1+ $ 1,000
3,000 Rhode Island Std. Loan Au. Prog. Rev., Ser. 1996-3,
3.20%, VRDN due 6/1/26 A-1+ 3,000
NBD BANK, N.A.
100 Indiana Emp. Dev. Comm. Econ. Dev. Rev. (K & F Ind.,
Inc. Proj.), Ser. 1988, 3.30%, VRDN due 1/1/14 VMIG 1 100
NORWEST BANK
800 New Ulm (MN) Hosp. Ref. Rev. (Hlth. Central Sys.
Proj.), Ser. 1985, 3.15%, VRDN due 8/1/14 A-1+ 800
PNC BANK N.A.
1,000 Rockport (IN) Rev. (AK Steel Corp. Proj.), Ser. 1997 A,
3.20%, VRDN due 12/1/27 P-1 A-1 1,000
RABOBANK NEDERLAND
1,500 Henderson Co. (KY) Solid Waste Disp. Rev. (Hudson
Foods, Inc. Proj.), Ser. 1995, 3.30%, VRDN due 3/1/15 VMIG 1 1,500
ROYAL BANK OF CANADA
100 Lone Star (TX) Arpt. Imp. Au., Inc. Rev. (Amer.
Airlines, Inc. Proj.), Ser. 1984 A-1, 3.65%, VRDN due
12/1/14 VMIG 1 100
1,000 Lone Star (TX) Arpt. Imp. Au., Inc. Rev. (Amer.
Airlines, Inc. Proj.), Ser. 1984 A-3, 3.65%, VRDN due
12/1/14 VMIG 1 1,000
SLM HOLDING CORP.
200 Colorado Std. Oblig. Bond Au. Std. Loan Rev., Ser. 1993
A, 3.05%, VRDN due 7/1/99 VMIG 1 A-1+ 200
300 Nebhelp Inc. (NE) Std. Loan Prog. Rev., Ser. 1986 A,
3.15%, VRDN due 12/1/16 A-1+ 300
2,200 Panhandle-Plains (TX) Higher Ed. Au., Inc. Std. Loan
Rev., Ser. 1991 A, 3.15%, VRDN due 6/1/21 VMIG 1 2,200
1,600 Panhandle-Plains (TX) Higher Ed. Au., Inc. Std. Loan
Rev., Ser. 1995 A, 3.15%, VRDN due 6/1/25 VMIG 1 1,600
SOCIETE GENERALE
1,600 Chicago (IL) O'Hare Int'l. Arpt. Gen. Arpt. 2nd Lien
Rev., Ser. 1984 A, 3.15%, VRDN due 1/1/15 VMIG 1 A-1+ 1,600
2,800 Chicago (IL) O'Hare Int'l. Arpt. Gen. Arpt. 2nd Lien
Rev., Ser. 1984 B, 3.15%, VRDN due 1/1/15 VMIG 1 A-1+ 2,800
</TABLE>
B-19
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger Berman
- --------------------------------------------------------------------------------
Municipal Money Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal Value(4)
Amount Rating(2)(3) (000's
(000's omitted) Security(1) Moody's S&P omitted)
- ---------------- ------------------------------------------------------- ------- ------- ----------
<C> <S> <C> <C> <C>
$ 1,900 Chicago (IL) O'Hare Int'l. Arpt. Spec. Fac. Rev.
(Compagnie Nationale Air France Proj.), Ser. 1990,
3.25%, VRDN due 5/1/18 A-1+ $ 1,900
100 Indianapolis (IN) Multi-Family Hsg. Ref. Rev. (Canal
Square Proj.), Ser. 1989, 3.20%, VRDN due 12/1/15 VMIG 1 100
100 Los Angeles (CA) Reg. Arpt. Imp. Corp. Term. Fac.
Completion Rev. (Los Angeles Int'l. Arpt.), Ser. 1989,
3.75%, VRDN due 12/1/25 A-1+ 100
400 Platte Co. (WY) Ref. PCR (Tri-State Generation &
Transmission Assoc., Inc. Proj.), Ser. 1984 A, 3.75%,
VRDN due 7/1/14 P-1 400
SUNTRUST BANK
1,600 Clark Co. (AR) Solid Waste Disp. Rev. (Reynolds Metals
Co. Proj.), Ser. 1992, 3.25%, VRDN due 8/1/22 P-1 A-1+ 1,600
4,700 Mayfield (KY) IDR (Seaboard Farms of Kentucky, Inc.
Proj.), Ser. 1989, 3.25%, VRDN due 8/1/19 P-1 4,700
TORONTO DOMINION BANK
3,000 Cleveland (OH) Sub. Inc. Tax Rev., 3.30%, TECP due
11/12/98 VMIG 1 A-1+ 3,000
1,000 Crossett (AR) PCR (Georgia-Pacific Corp. Proj.), Ser.
1984, 3.00%, VRDN due 10/1/07 P-1 1,000
2,500 Indiana Muni. Pwr. Agcy. Pwr. Supply Sys. Ref. Rev.,
Ser. 1998 A, 3.10%, VRDN due 1/1/18 VMIG 1 A-1+ 2,500
3,400 Phenix City (AL) IDB Env. Imp. Rev. (Mead Coated Board
Proj.), Ser. 1993 A, 3.75%, VRDN due 6/1/28 A-1+ 3,400
400 Stevenson (AL) IDB Env. Imp. Rev. (Mead Corp. Proj.),
Ser. 1997, 3.80%, VRDN due 6/1/32 A-1+ 400
120 Wisconsin Hlth. Fac. Au. Rev. (Franciscan Hlth. Care,
Inc.-Sys. Fin.), Ser. 1985 A-2, 3.15%, VRDN due 1/1/16 VMIG 1 A-1+ 120
UNION BANK OF SWITZERLAND
1,000 Alaska Ind. Dev. & Export Au. Fac. Rev. (Fairbanks Gold
Mining, Inc. Proj.), Ser. 1997, 3.25%, VRDN due 5/1/09 VMIG 1 A-1+ 1,000
4,300 Ashland (KY) Ref. PCR (Ashland Oil, Inc. Proj.), Ser.
1985, 2.85%, VRDN due 4/1/09 P-1 4,300
</TABLE>
B-20
<PAGE>
October 31, 1998
- --------------------------------------------------------------------------------
Municipal Money Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal Value(4)
Amount Rating(2)(3) (000's
(000's omitted) Security(1) Moody's S&P omitted)
- ---------------- ------------------------------------------------------- ------- ------- ----------
<C> <S> <C> <C> <C>
$ 1,890 Clark Co. (NV) Arpt. Sys. Sub. Lien Rev., Ser. 1995
A-1, 3.05%, VRDN due 7/1/25 VMIG 1 A-1+ $ 1,890
1,000 Dallas (TX) Wtr. & Swr. Rev., 3.20%, TECP due 12/8/98 P-1 A-1+ 1,000
200 Delta Co. (MI) Econ. Dev. Corp. Env. Imp. Rev.
(Mead-Escanaba Paper Co. Proj.), 3.60%, VRDN due
12/1/23 A-1+ 200
2,000 Lincoln Co. (WY) Ref. PCR (Pacificorp Proj.), Ser.
1991, 3.40%, TECP due 12/7/98 VMIG 1 A-1+ 2,000
1,100 Pennsylvania Energy Dev. Au. Rev. (B & W Ebensburg
Proj.), Ser. 1986, 3.15%, VRDN due 12/1/11 VMIG 1 1,100
100 Sabine (TX) River Au. Ref. PCR (Texas Util. Elec. Co.
Proj.), Ser. 1995 B, 3.75%, VRDN due 6/1/30 VMIG 1 A-1+ 100
WACHOVIA BANK & TRUST CO.
1,200 Los Angeles (CA) Reg. Arpt. Imp. Corp. Fac. Sublease
Rev. (Amer. Airlines-Los Angeles Int'l. Arpt.), Ser.
1984 C, 3.65%, VRDN due 12/1/24 VMIG 1 1,200
500 Los Angeles (CA) Reg. Arpt. Imp. Corp. Fac. Sublease
Rev. (Amer. Airlines-Los Angeles Int'l. Arpt.), Ser.
1984 F, 3.65%, VRDN due 12/1/24 P-1 500
1,000 Wake Co. (NC) Ind. Fac. & Poll. Ctrl. Fin. Au. PCR
(Carolina Pwr. & Lt. Co. Proj.), Ser. 1985 A, 3.15%,
VRDN due 5/1/15 P-1 A-1+ 1,000
WESTDEUTSCHE LANDESBANK GIROZENTRALE
2,000 Mesa (AZ) Muni. Dev. Corp. Spec. Tax Updates, Ser. 1996
A, 3.15%, TECP due 12/8/98 VMIG 1 A-1+ 2,000
----------
118,990
----------
TAX-EXEMPT CASH EQUIVALENT SECURITIES -- BACKED BY
INSURANCE (8.7%)
AMERICAN MUNICIPAL BOND ASSURANCE CORP.
2,600 Indiana Secondary Mkt. for Ed. Loans, Inc. Rev., Ser.
1988 B, 3.10%, VRDN due 12/1/13 VMIG 1 A-1+ 2,600
400 Sayre (PA) Hlth. Care Fac. Au. Hosp. Rev. (VHA of PA,
Inc. Cap. Asset Fin. Prog.), Ser. 1985 A, 3.25%, VRDN
due 12/1/20 A-1+ 400
500 Trinity (TX) River Au. Collateralized PCR (Texas Util.
Elec. Co. Proj.), Ser. 1996 A, 3.85%, VRDN due 3/1/26 VMIG 1 A-1 500
</TABLE>
B-21
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger Berman October 31, 1998
- --------------------------------------------------------------------------------
Municipal Money Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal Value(4)
Amount Rating(2)(3) (000's
(000's omitted) Security(1) Moody's S&P omitted)
- ---------------- ------------------------------------------------------- ------- ------- ----------
<C> <S> <C> <C> <C>
$ 1,100 Utah St. Board of Regents Std. Loan Rev., Ser. 1988 B,
3.00%, VRDN due 11/1/00 VMIG 1 A-1+ $ 1,100
FINANCIAL SECURITY ASSURANCE INC.
2,000 Florida Cap. Proj. Fin. Au. Rev. (Florida Hosp. Assoc.-
Cap. Proj. Loan Prog.), Ser. 1998 A, 3.25%, VRDN due
6/1/28 A-1+ 2,000
MUNICIPAL BOND INVESTORS ASSURANCE CORP.
1,845 Charlotte (NC) Arpt. Ref. Rev., Ser. 1997 A, 3.15%,
VRDN due 7/1/17 VMIG 1 A-1+ 1,845
900 Kentucky Higher Ed. Std. Loan Corp. Rev., Ser. 1996 A,
3.05%, VRDN due 6/1/26 VMIG 1 A-1+ 900
2,100 Lower Colorado (TX) River Au. Jr. Lien Ref. Rev., 3rd
Ser., 3.10%, VRDN due 1/1/13 VMIG 1 A-1+ 2,100
5,500 Missouri-Illinois Metro. Dist. Bi-State Dev. Agcy. Rev.
(St. Clair Co. Metrolink Extension), Ser. 1998 B,
3.00%, VRDN due 7/1/28 VMIG 1 A-1+ 5,500
1,400 Orange Co. (FL) Hlth. Fac. Au. Ref. Rev. (Pooled Hosp.
Loan Prog.), Ser. 1985, 3.20%, TECP due 12/9/98 VMIG 1 A-1+ 1,400
815 Polk Co. (IA) Hosp. Equip. & Imp. Rev., Ser. 1985,
3.15%, VRDN due 12/1/05 VMIG 1 A-1 815
200 Reno (NV) Hosp. Rev. (St. Mary's Reg. Med. Ctr.), Ser.
1998 B, 3.65%, VRDN due 5/15/23 VMIG 1 A-1+ 200
----------
19,360
----------
TOTAL INVESTMENTS (99.4%) 220,297
Cash, receivables and other assets, less liabilities
(0.6%) 1,315
----------
TOTAL NET ASSETS (100.0%) $221,612
----------
</TABLE>
SEE NOTES TO SCHEDULE OF INVESTMENTS
B-22
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger Berman October 31, 1998
- --------------------------------------------------------------------------------
Municipal Securities Portfolio
<TABLE>
<CAPTION>
Principal
Amount Rating(2) Value(10)
(000's omitted) Security(1) Moody's S&P (000's omitted)
- --------------- ------------------------------------------------------------ ------- ----- ---------------
<C> <S> <C> <C> <C>
TAX-EXEMPT SECURITIES -- PRE-REFUNDED BACKED BY U.S.
GOVERNMENT SECURITIES (4.1%)
$ 500 Massachusetts Wtr. Res. Au. Gen. Rev., Ser. 1992 A, 6.50%,
due 7/15/21 P/R 7/15/02 Aaa AAA $ 557
1,000 Nebraska Inv. Fin. Au. Hosp. Rev. (Nebraska Methodist Hlth.
Sys., Inc.), Ser. 1991, 7.00%, due 3/1/06 P/R 3/1/01 Aaa AAA 1,094
-------
1,651
-------
TAX-EXEMPT SECURITIES -- BACKED BY INSURANCE (40.0%)
AMERICAN MUNICIPAL BOND ASSURANCE CORP.
1,000 Atlanta (GA) Arpt. Fac. Ref. Rev., Ser. 1996, 6.50%, due
1/1/06 Aaa AAA 1,153
500 Florida Dept. of Trans. Tpke. Rev., Ser. 1995 A, 5.50%, due
7/1/03 Aaa AAA 538
1,000 New York City (NY) Muni. Assist. Corp. Rev., Ser. D, 5.25%,
due 7/1/02 Aaa AAA 1,052
1,000 Pittsburgh (PA) G.O., Ser. 1997 A, 5.00%, due 9/1/06 Aaa AAA 1,062
FINANCIAL GUARANTY INSURANCE CO.
1,000 Chicago (IL) Equip. G.O., Ser. 1998, 5.00%, due 1/1/07 Aaa AAA 1,055
1,000 Dade Co. (FL) Wtr. & Swr. Sys. Rev., Ser. 1995, 6.25%, due
10/1/06 Aaa AAA 1,148
750 New York Dorm. Au. Rev. (State Univ. Ed. Fac.), Ser. 1993 B,
5.20%, due 5/15/03 Aaa AAA 792
1,000 Tampa Bay (FL) Wtr. Util. Sys. Rev., Ser. 1998 B, 5.125%,
due 10/1/09 Aaa AAA 1,078
FINANCIAL SECURITY ASSURANCE INC.
1,000 Illinois Dev. Fin. Au. Cap. Appreciation Cons. Sch. Dist.
#304 Rev., Zero Coupon, Yielding 4.80%, due 1/1/09 Aaa 632
1,000 Maine Muni. Bond Bank Ref. Rev., Ser. 1998 A, 5.00%, due
11/1/05 Aaa AAA 1,062
MUNICIPAL BOND INVESTORS ASSURANCE CORP.
1,000 Clark Co. (NV) Sch. Dist. Imp. G.O., Ser. 1995 A, 5.60%, due
6/15/08 Aaa AAA 1,085
1,000 Commonwealth of Pennsylvania G.O. (Ref. & Proj.), 2nd Ser.
1994, 5.20%, due 6/15/04 Aaa AAA 1,066
</TABLE>
B-23
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger Berman
- --------------------------------------------------------------------------------
Municipal Securities Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal
Amount Rating(2) Value(10)
(000's omitted) Security(1) Moody's S&P (000's omitted)
- --------------- ------------------------------------------------------------ ------- ----- ---------------
<C> <S> <C> <C> <C>
$ 1,000 Connecticut Spec. Tax Oblig. Ref. Rev. (Trans.
Infrastructure Purp.), Ser. 1993 A, 5.40%, due 9/1/09 Aaa AAA $ 1,067
1,000 Harris Co. (TX) Hlth. Fac. Dev. Corp. Hosp. Rev. (Mem. Hosp.
Sys. Proj.), Ser. A, 5.00%, due 6/1/06 Aaa AAA 1,050
1,000 New York Dorm. Au. Rev. (Univ. of Rochester), Ser. 1997 A,
5.50%, due 7/1/06 Aaa AAA 1,093
1,000 Puerto Rico Elec. Pwr. Au. Ref. Rev., Ser. W, 6.50%, due
7/1/05 Aaa AAA 1,150
-------
16,083
-------
TAX-EXEMPT SECURITIES -- OTHER (38.6%)
1,000 Board of Regents of the Texas A&M Univ. Sys. Perm. Univ.
Fund Rev., Ser. 1998, 5.00%, due 7/1/08 Aaa AAA 1,065
500 Brownwood (TX) Independent Sch. Dist. Unlimited Tax Sch.
Bldg. & Ref. G.O. (Brown Co., Texas), Ser. 1994, Zero
Coupon, Yielding 5.90%, due 2/15/02 Aaa 441 (5)
560 Brownwood (TX) Independent Sch. Dist. Unlimited Tax Sch.
Bldg. & Ref. G.O. (Brown Co., Texas), Ser. 1994, Zero
Coupon, Yielding 6.10%, due 2/15/04 Aaa 453 (5)
670 Cincinnati (OH) Std. Loan Funding Corp. Ref. Rev., Ser. 1992
C, 6.10%, due 7/1/02 Aaa 710
1,000 Commonwealth of Massachusetts Ref. G.O., Ser. 1995 A, 6.25%,
due 7/1/04 Aa3 AA- 1,117
1,000 Florida St. Board of Ed. Cap. Outlay Ref. G.O., Ser. B,
5.25%, due 6/1/09 Aa2 AA+ 1,085
1,000 Georgia G.O., Ser. 1995 C, 7.25%, due 7/1/04 Aaa AAA 1,171
1,000 Lake Co. (IL) Forest Preserve Dist. Ref. G.O., Ser. 1997,
5.50%, due 2/1/09 Aa2 AA+ 1,100
1,500 Maryland Comm. Dev. Admin. Dept. of Hsg. & Comm. Dev. Rev.
(Single Family Prog.), 3rd Ser. 1993, 5.15%, due 4/1/08 Aa2 1,558
1,000 Maryland Wtr. Quality Fin. Admin. Ref. Rev. (Revolving Loan
Fund), Ser. 1995 A, 5.50%, due 9/1/11 Aa2 AA 1,076
1,000 Mecklenburg Co. (NC) Pub. Imp. G.O., Ser. 1994, 5.50%, due
4/1/12 Aaa AAA 1,085
165 Mississippi Higher Ed. Assist. Corp. Std. Loan Sub. Rev.,
Ser. 1993 C, 6.05%, due 9/1/07 A 172
1,000 Nevada Ref. Ltd. Tax G.O., Ser. 1997 A-2, 6.00%, due 5/15/06 Aa2 AA 1,123
</TABLE>
B-24
<PAGE>
October 31, 1998
- --------------------------------------------------------------------------------
Municipal Securities Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal
Amount Rating(2) Value(10)
(000's omitted) Security(1) Moody's S&P (000's omitted)
- --------------- ------------------------------------------------------------ ------- ----- ---------------
<C> <S> <C> <C> <C>
$ 500 New Jersey Bldg. Au. St. Bldg. Rev., Ser. 1994, 5.00%, due
6/15/11 Aa2 AA- $ 514
750 New York City (NY) IDA Spec. Fac. Rev. (Term. One Group
Assoc., L.P. Proj.), Ser. 1994, 6.00%, due 1/1/15 A3 A 799
1,000 Omaha (NE) Pub. Pwr. Dist. Elec. Sys. Rev., Ser. 1993 E,
4.60%, due 2/1/06 Aa2 AA 1,035
1,000 Port of Portland (OR) Ref. G.O., Ser. 1993 A, 4.50%, due
3/1/05 Aa2 AA+ 1,032
-------
15,536
-------
TAX-EXEMPT CASH EQUIVALENT SECURITIES (6.0%)
2,200 Berkeley Co. (SC) Fac. Ind. Rev. (Amoco Chemical Co. Proj.),
Ser. 1997, 3.80%, VRDN due 4/1/27 VMIG 1 A-1+ 2,200 (5)
100 Gulf Coast (TX) Waste Disp. Au. PCR (Amoco Oil Co. Proj.),
Ser. 1993, 3.80%, VRDN due 5/1/23 VMIG 1 A-1+ 100 (5)
100 Kemmerer (WY) PCR (Exxon Proj.), Ser. 1984, 3.70%, VRDN due
11/1/14 P-1 A-1+ 100 (5)
-------
2,400
-------
TAX-EXEMPT CASH EQUIVALENT SECURITIES -- BACKED BY LETTERS
OF CREDIT (10.2%)
TORONTO DOMINION BANK
100 Stevenson (AL) IDB Env. Imp. Rev. (Mead Corp. Proj.), Ser.
1997, 3.80%, VRDN due 6/1/32 A-1+ 100
WESTDEUTSCHE LANDESBANK GIROZENTRALE
4,000 Indianapolis (IN) Res. Rec. Rev. (Ogden Martin Sys. Proj.),
Ser. 1987, 3.80%, VRDN due 12/1/16 A-1+ 4,000
-------
4,100
-------
TOTAL INVESTMENTS (98.9%) (COST $38,299) 39,770 (11)
Cash, receivables and other assets, less liabilities (1.1%) 456
-------
TOTAL NET ASSETS (100.0%) $ 40,226
-------
</TABLE>
SEE NOTES TO SCHEDULE OF INVESTMENTS
B-25
<PAGE>
NOTES TO SCHEDULE OF INVESTMENTS
October 31, 1998
- ----------------------------------------------------------------------
Income Managers Trust
1) Municipal securities held by Neuberger Berman Municipal Money Portfolio
("Municipal Money") and Neuberger Berman Municipal Securities Portfolio
("Municipal Securities") are within the two and four highest rating
categories, respectively, assigned by a nationally recognized statistical
rating organization ("NRSRO") such as Moody's Investors Service, Inc. or
Standard & Poor's or, where not rated, are determined by the Portfolio's
investment manager to be of comparable quality within guidelines approved by
the trustees of Income Managers Trust. Approximately 85% and 63% of the
municipal securities held by Municipal Money and Municipal Securities,
respectively, have credit enhancement features backing them, which the
Portfolios may rely on, such as letters of credit, insurance, or guarantees.
Without these credit enhancement features the securities may or may not meet
the quality standards of the Portfolios. Pre-refunded bonds are supported by
securities in escrow issued or guaranteed by the U.S. Government, its
agencies, or instrumentalities. The amount escrowed is sufficient to pay the
periodic interest due and the principal of these bonds. Putable bonds give
the Portfolios the right to sell back the issue on the date specified.
2) Credit ratings are unaudited.
3) Where no rating appears from any NRSRO, the security is deemed unrated for
purposes of Rule 2a-7 under the Investment Company Act of 1940, as amended.
Each of these securities is an eligible security based on a comparable
quality analysis performed by the Portfolio's investment manager within the
guidelines approved by the trustees of Income Managers Trust.
4) Investment securities of the Portfolio are valued at amortized cost, which
approximates Federal income tax cost.
5) Security is guaranteed by the corporate obligor.
6) Security is subject to a fractional guarantee provided by ABN AMRO Bank NV
and Morgan Guaranty Trust Co., each backing 50% of the total principal.
7) Security is subject to a fractional guarantee provided by Bank of America,
Chase Manhattan Bank, N.A., and Morgan Guaranty Trust Co., each backing
33 1/3% of the total principal.
8) Security is subject to a fractional guarantee provided by Bayerische
Landesbank Girozentrale and Westdeutsche Landesbank Girozentrale, each
backing 50% of the total principal.
9) Security is subject to a fractional guarantee provided by Canadian Imperial
Bank of Commerce and Commerzbank AG, each backing 50% of the total principal.
B-26
<PAGE>
10) Investment securities of the Portfolio are valued daily by obtaining bid
price quotations from an independent pricing service on all securities
available in the service's data base. For all other securities requiring
daily quotations, bid prices are obtained from principal market makers in
those securities or, if quotations are not available, by a method the
trustees of Income Managers Trust believe accurately reflects fair value.
11) At October 31, 1998, the cost of investments for Federal income tax purposes
was $38,299,000. Gross unrealized appreciation of investments was $1,474,000
and gross unrealized depreciation of investments was $3,000, resulting in
net unrealized appreciation of $1,471,000, based on cost for Federal income
tax purposes.
SEE NOTES TO FINANCIAL STATEMENTS
B-27
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
October 31, 1998
- ----------------------------------------------------------------------
Income Managers Trust
<TABLE>
<CAPTION>
MUNICIPAL MUNICIPAL
MONEY SECURITIES
(000'S OMITTED) PORTFOLIO PORTFOLIO
-------------------------------
<S> <C> <C>
ASSETS
Investments in securities, at value*
(Note A) -- see Schedule of Investments $ 220,297 $ 39,770
Cash 53 25
Interest receivable 1,354 466
Prepaid expenses and other assets 3 1
-------------------------------
221,707 40,262
-------------------------------
LIABILITIES
Payable to investment manager (Note B) 50 8
Accrued expenses 45 28
-------------------------------
95 36
-------------------------------
NET ASSETS Applicable to Investors' Beneficial
Interests $ 221,612 $ 40,226
-------------------------------
NET ASSETS consist of:
Paid-in capital $ 221,612 $ 38,755
Net unrealized appreciation in value of
investment securities -- 1,471
-------------------------------
NET ASSETS $ 221,612 $ 40,226
-------------------------------
*Cost of investments $ 220,297 $ 38,299
-------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-28
<PAGE>
STATEMENTS OF OPERATIONS
For the Year Ended October 31, 1998
- ----------------------------------------------------------------------
Income Managers Trust
<TABLE>
<CAPTION>
MUNICIPAL MUNICIPAL
MONEY SECURITIES
(000'S OMITTED) PORTFOLIO PORTFOLIO
---------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest income $ 6,741 $ 1,640
---------------------------
Expenses:
Investment management fee (Note B) 472 86
Accounting fees 10 10
Amortization of deferred organization and
initial offering expenses (Note A) 2 1
Auditing fees 33 24
Custodian fees (Note B) 121 31
Insurance expense 2 1
Legal fees 29 15
Trustees' fees and expenses 15 7
Miscellaneous 1 1
---------------------------
Total expenses 685 176
Expenses reduced by custodian fee expense
offset arrangement (Note B) (9) (2)
---------------------------
Total net expenses 676 174
---------------------------
Net investment income 6,065 1,466
---------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investment securities
sold 26 420
Net realized gain on financial futures
contracts (Note A) -- 6
Change in net unrealized appreciation of
investment securities -- 583
---------------------------
Net gain on investments 26 1,009
---------------------------
Net increase in net assets resulting from
operations $ 6,091 $ 2,475
---------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-29
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------
Income Managers Trust
<TABLE>
<CAPTION>
MUNICIPAL MUNICIPAL
MONEY SECURITIES
PORTFOLIO PORTFOLIO
Year Year
Ended Ended
October 31, October 31,
(000'S OMITTED) 1998 1997 1998 1997
-------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income $ 6,065 $ 4,685 $ 1,466 $ 1,467
Net realized gain on investments 26 -- 426 210
Change in net unrealized
appreciation of investments -- -- 583 462
-------------------------------------------------------------
Net increase in net assets resulting
from operations 6,091 4,685 2,475 2,139
-------------------------------------------------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL
INTERESTS:
Additions 281,553 203,054 14,666 3,829
Reductions (222,519) (183,975) (8,627) (13,218)
-------------------------------------------------------------
Net increase (decrease) in net
assets resulting from transactions
in investors' beneficial interests 59,034 19,079 6,039 (9,389)
-------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 65,125 23,764 8,514 (7,250)
NET ASSETS:
Beginning of year 156,487 132,723 31,712 38,962
-------------------------------------------------------------
End of year $ 221,612 $ 156,487 $ 40,226 $ 31,712
-------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-30
<PAGE>
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
- ----------------------------------------------------------------------
Income Managers Trust
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1) GENERAL: Neuberger Berman Municipal Money Portfolio ("Municipal Money") and
Neuberger Berman Municipal Securities Portfolio ("Municipal Securities")
(collectively, the "Portfolios") are separate operating series of Income
Managers Trust ("Managers Trust"), a New York common law trust organized as
of December 1, 1992. Managers Trust is registered as a diversified, open-end
management investment company under the Investment Company Act of 1940, as
amended. Other regulated investment companies sponsored by Neuberger Berman
Management Incorporated ("Management"), whose financial statements are not
presented herein, also invest in Managers Trust.
The assets of each series belong only to that series, and the liabilities
of each series are borne solely by that series and no other.
2) PORTFOLIO VALUATION: Investment securities are valued as indicated in the
notes following the Portfolios' Schedule of Investments.
3) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on a trade date basis. Interest income, including accretion of
discount (adjusted for original issue discount, where applicable) and
amortization of premium, is recorded on the accrual basis. Realized gains and
losses from securities transactions are recorded on the basis of identified
cost.
4) FEDERAL INCOME TAXES: Managers Trust intends to comply with the requirements
of the Internal Revenue Code. Each Portfolio of Managers Trust also intends
to conduct its operations so that each of its investors will be able to
qualify as a regulated investment company. Each Portfolio will be treated as
a partnership for Federal income tax purposes and is therefore not subject to
Federal income tax.
5) ORGANIZATION EXPENSES: Organization expenses incurred by each Portfolio were
fully amortized as of October 31, 1998.
6) EXPENSE ALLOCATION: Each Portfolio bears all costs of its operations.
Expenses incurred by Managers Trust with respect to any two or more
portfolios are allocated in proportion to the net assets of such portfolios,
except where a more appropriate allocation of expenses to each portfolio can
otherwise be made fairly. Expenses directly attributable to a portfolio are
charged to that portfolio.
7) FINANCIAL FUTURES CONTRACTS: Municipal Securities may buy and sell financial
futures contracts to hedge against changes in securities prices resulting
from changes in prevailing interest rates. At the time the Portfolio enters
into a financial futures contract, it is required to deposit with its
custodian a specified amount of
B-31
<PAGE>
cash or liquid securities, known as "initial margin," ranging upward from
1.1% of the value of the financial futures contract being traded. Each day,
the futures contract is valued at the official settlement price of the board
of trade or U.S. commodity exchange on which such futures contract is traded.
Subsequent payments, known as "variation margin," to and from the broker are
made on a daily basis as the market price of the financial futures contract
fluctuates. Daily variation margin adjustments, arising from this "mark to
market," are recorded by the Portfolio as unrealized gains or losses.
Although some financial futures contracts by their terms call for actual
delivery or acceptance of financial instruments, in most cases the contracts
are closed out prior to delivery by offsetting purchases or sales of matching
financial futures contracts. When the contracts are closed, the Portfolio
recognizes a gain or loss. Risks of entering into futures contracts include
the possibility there may be an illiquid market and/or a change in the value
of the contract may not correlate with changes in the value of the underlying
securities.
For Federal income tax purposes, the futures transactions undertaken by
the Portfolio may cause the Portfolio to recognize gains or losses from
marking to market even though its positions have not been sold or terminated,
may affect the character of the gains or losses recognized as long-term or
short-term, and may affect the timing of some capital gains and losses
realized by the Portfolio. Also, the Portfolio's losses on transactions
involving futures contracts may be deferred rather than being taken into
account currently in calculating the Portfolio's taxable income.
During the year ended October 31, 1998, Municipal Securities entered into
financial futures contracts. There were no open positions in financial
futures contracts at October 31, 1998.
NOTE B -- MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES:
Each Portfolio retains Management as its investment manager under a
Management Agreement. For such investment management services, each Portfolio
pays Management a fee at the annual rate of 0.25% of the first $500 million of
that Portfolio's average daily net assets, 0.225% of the next $500 million,
0.20% of the next $500 million, 0.175% of the next $500 million, and 0.15% of
average daily net assets in excess of $2 billion.
All of the capital stock of Management is owned by individuals who are also
principals of Neuberger Berman, LLC ("Neuberger"), a member firm of The New York
Stock Exchange and sub-adviser to each Portfolio. Neuberger is retained by
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 Management.
B-32
<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 Custodian fees, was a reduction of $8,731 and
$1,776, for Municipal Money and Municipal Securities, respectively.
NOTE C -- SECURITIES TRANSACTIONS:
During the year ended October 31, 1998, there were purchase and sale
transactions (excluding short-term securities and financial futures contracts)
of $10,102,000 and $7,985,000, respectively, for Municipal Securities. All
securities transactions for Municipal Money were short-term.
B-33
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger Berman
- --------------------------------------------------------------------------------
Municipal Money Portfolio
<TABLE>
<CAPTION>
Year Ended October 31,
1998 1997 1996 1995 1994
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses(1) .36% .38% .37% .37% --
------------------------------------------------------------
Net Expenses .36% .37% .36% .36% .36%
------------------------------------------------------------
Net Investment Income 3.22% 3.29% 3.21% 3.57% 2.38%
------------------------------------------------------------
Net Assets, End of Year (in millions) $ 221.6 $ 156.5 $ 132.7 $ 161.1 $ 150.5
------------------------------------------------------------
</TABLE>
1) For fiscal periods ending after September 1, 1995, the Portfolio is required
to calculate an expense ratio without taking into consideration any expense
reductions related to expense offset arrangements.
B-34
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger Berman
- --------------------------------------------------------------------------------
Municipal Securities Portfolio
<TABLE>
<CAPTION>
Year Ended October 31,
1998 1997 1996 1995 1994
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses(1) .51% .51% .47% .47% --
------------------------------------------------------------
Net Expenses .51% .50% .47% .46% .40%
------------------------------------------------------------
Net Investment Income 4.27% 4.44% 4.49% 4.63% 4.47%
------------------------------------------------------------
Portfolio Turnover Rate 24% 22% 3% 66% 127%
------------------------------------------------------------
Net Assets, End of Year (in millions) $ 40.2 $ 31.7 $ 39.0 $ 44.4 $ 51.4
------------------------------------------------------------
</TABLE>
1) For fiscal periods ending after September 1, 1995, the Portfolio is required
to calculate an expense ratio without taking into consideration any expense
reductions related to expense offset arrangements.
B-35
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees
Income Managers Trust and
Owners of Beneficial Interest of
Neuberger Berman Municipal Money Portfolio and
Neuberger Berman Municipal Securities Portfolio
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the Neuberger Berman Municipal Money
Portfolio and Neuberger Berman Municipal Securities Portfolio, two of the series
constituting Income Managers Trust (the "Trust"), as of October 31, 1998, and
the related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of October 31, 1998, by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the above mentioned series of Income Managers Trust at October 31, 1998, the
results of their operations for the year then ended, the changes in their net
assets for each of the two years in the period then ended, and their financial
highlights for each of the five years in the period then ended, in conformity
with generally accepted accounting principles.
[SIGNATURE]
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
December 4, 1998
B-36
<PAGE>
DIRECTORY
INVESTMENT MANAGER, ADMINISTRATOR
AND DISTRIBUTOR
Neuberger Berman Management Incorporated
605 Third Avenue 2nd Floor
New York, NY 10158-0180
800-877-9700
Institutional Services 800-366-6264
SUB-ADVISER
Neuberger Berman, LLC
605 Third Avenue
New York, NY 10158-3698
CUSTODIAN AND SHAREHOLDER
SERVICING AGENT
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
ADDRESS CORRESPONDENCE TO:
Neuberger Berman Funds
Boston Service Center
P.O. Box 8403
Boston, MA 02266-8403
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, NW
2nd Floor
Washington, DC 20036-1800
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
Neuberger Berman Management Inc., Neuberger Berman Municipal Money Fund,
Neuberger Berman Municipal Securities Trust, Neuberger Berman Municipal Funds,
and Neuberger Berman Income Funds are registered service marks of Neuberger
Berman Management Inc.
- -C- 1998 Neuberger Berman Management Inc.
C-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
C-2
<PAGE>
Statistics and projections in this report are derived from sources
deemed to be reliable but cannot be regarded as a representation of
future results of the Funds. This report is prepared for the
general information of shareholders and is not an offer of shares
of the Funds. Shares are sold only through the currently effective
prospectus, which must precede or accompany this report.
NEUBERGER BERMAN
NEUBERGER BERMAN MANAGEMENT INC.
605 Third Avenue 2nd Floor
New York, NY 10158-0180
SHAREHOLDER SERVICES
800.877.9700
INSTITUTIONAL SERVICES
800.366.6264
WWW.NBFUNDS.COM
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