<PAGE>
NEUBERGER BERMAN
Neuberger Berman
Income Funds -Registered Trademark-
----------------------------------------------------------
GOVERNMENT MONEY FUND
CASH RESERVES ANNUAL REPORT
LIMITED MATURITY BOND FUND OCTOBER 31, 2000
HIGH YIELD BOND FUND
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
THE FUNDS
CHAIRMAN'S LETTER A-4
GROWTH OF A DOLLAR CHARTS
COMPARISON OF A $10,000 INVESTMENT
Limited Maturity Bond Fund A-10
High Yield Bond Fund A-11
FINANCIAL STATEMENTS B-1
FINANCIAL HIGHLIGHTS
PER SHARE DATA
Government Money Fund B-11
Cash Reserves B-12
Limited Maturity Bond Fund B-13
High Yield Bond Fund B-14
REPORT OF INDEPENDENT
AUDITORS B-16
THE PORTFOLIOS
SCHEDULE OF INVESTMENTS
Government Money Portfolio C-1
Cash Reserves Portfolio C-2
Limited Maturity Bond
Portfolio C-5
High Yield Bond Portfolio C-11
FINANCIAL STATEMENTS C-18
FINANCIAL HIGHLIGHTS
Government Money Portfolio C-28
Cash Reserves Portfolio C-29
Limited Maturity Bond
Portfolio C-30
High Yield Bond Portfolio C-31
REPORT OF INDEPENDENT
AUDITORS C-32
DIRECTORY D-1
OFFICERS AND TRUSTEES D-2
</TABLE>
The "Neuberger Berman" name and logo are service
marks of Neuberger Berman, LLC. "Neuberger Berman
Management Inc." and the individual fund names in
this report are either service marks or registered
trademarks of Neuberger Berman Management
Inc.-C-2000 Neuberger Berman Management Inc.
<PAGE>
CHAIRMAN'S LETTER December 20, 2000
Dear Shareholder,
In fiscal 2000, fixed-income markets constituted something of a tale of two
cities. For the first six months, the great majority of investors continued to
sell bonds and buy equities. Investors seemed to view fixed income of all
classes as an afterthought, as they chased the high returns of equities, and
more specifically the stocks of the so-called new economy. But by the end of the
period, investors were beginning to see the benefits of cash and bond funds, as
they looked for vehicles offering relative safety in a storm. While investors in
our taxable cash products did extremely well, results for most of our other
taxable fixed-income funds were muted but positive nonetheless.
The fixed-income markets for the year were dominated by the U.S. Government
buyback of Treasury securities. These gigantic purchases created a relative
scarcity of Treasuries, causing their prices to soar while the rest of the bond
market languished. The yield difference between Treasuries and most other
sectors of the market widened to 10-year highs. Other trends exacerbated this
dichotomy: The U.S. Government Agency bond market was fraught with concern that
proposed legislation would end government guarantees. The corporate market was
affected by high oil prices, a weak Euro and increasing earnings and credit
problems that caused more credit downgrades than upgrades -- and much market
volatility.
At Neuberger Berman, we have taken pride in our contrarian approach. During
this fiscal year, we saw negative investor sentiment as an opportunity to buy
weaker sectors with higher yields, while selling into the strength of U.S.
Treasury bonds. High-quality bonds in many sectors now yield between 6.0% and
7.5%. From our perspective as long-term investors, we believe that the scheduled
return of principal that comes with yields now available from high-quality bonds
make the bond market overall a wonderful investment opportunity.
In the year ahead, we will continue to add value to the fixed-income
investment process. We still consider many market sectors to be attractive as
Treasury supplies shrink. As always, we focus first on high credit quality and
the return of principal. We continue to adhere to our traditional strategy:
looking for undervalued securities in the most
A-4
<PAGE>
fundamentally attractive sectors, while carefully managing risk. We are
confident that these remain the best tools to enhance the income from the
capital you have entrusted to us.
GOVERNMENT MONEY FUND AND CASH RESERVES During fiscal 2000, our portfolio
co-managers kept their approach to cash management simple -- and the strategy
worked. We invested in high-quality paper, short maturities and moved sector
allocations as necessary to benefit from rising interest rates. Short-term
securities, which have been weak over the last several years, in the second half
of the fiscal year garnered much more investor attention. As the world focused
on the so-called new economy, compound interest and high-quality securities this
year proved they have yet to go out of style.
Rising short-term rates continued to have an impact on the market, as did the
beginning of an economic slowing of the U.S. and global economies -- in the wake
of four Federal Reserve Board rate increases during the fiscal year, as well as
higher oil prices and a lower Euro. All that being said, it has been a terrific
period for cash investors, as returns indicate. Whereas rising rates normally
hurt longer-term bond investors, cash investors benefit from them. Neuberger
Berman Government Money and Cash Reserves portfolios served as a secure harbor,
protecting capital and providing strong rates of return. The Government Money
Fund returned 5.22% for the Oct. 31, 2000 fiscal year, and closed the period
with current and effective yields of 5.56% and 5.71% respectively. Neuberger
Berman Cash Reserves returned 5.76% for the year ended October 31, 2000, and
closed the period with current and effective yields of 6.10% and 6.29%
respectively.*
In Cash Reserves, our portfolio co-managers used rising rates to shareholders'
advantage by reinvesting, at higher rates, throughout the period. As rates rose,
higher returns were quickly reflected in the portfolio's yields. As the year
progressed, however, one-year paper became more compelling and we invested
accordingly. At the end of the fiscal year, the portfolio co-managers increased
investments in one-year maturity paper, creating a "barbell" structure of short
and longer term maturities in the portfolio, in anticipation of the possibility
that yields on longer-term paper may fall.
Issue and sector selection was even more important than usual throughout this
period. Given that an increasing number of corporations have had significant
negative earnings surprises, the co-managers
A-5
<PAGE>
reacted quickly when there was even a remote whisper of problems.
Notwithstanding weakness in some industries, the corporate sector offered
extremely attractive returns. The portfolio co-managers increased the
portfolio's position in corporate commercial paper from 65.8% of the portfolio
at the beginning of the period to 77.7% at the end of the fiscal year, having
raised it as high as 85.0% in May. The portfolio co-managers had eliminated the
12.0% U.S. Government Agency position it started with by February (2000), as
well as the 1.8% Treasury security position that was in the portfolio at the
start of the period. At the end of the fiscal year, the balance of the portfolio
was made up of certificates of deposit (8.8% of the portfolio), funding
agreements (4.9%), variable rate demand notes (3.7%), asset-backed notes (2.3%),
bank notes (1.9%), medium-term notes (0.5%), and other assets (0.2%).
In the Government Money Fund, the portfolio co-managers have been limited to
buying only Treasury securities or those issues that carry a government
guarantee. In the current bond market environment, this limitation helped our
performance. The shrinking supply of Treasury paper was mitigated by eight large
cash management Treasury bills during the period, which provided significant
yield enhancement. These issues tended to be shorter than normal short-term
Treasury securities, maturing in as little as three weeks. The U.S. Government
Agency supply, meanwhile, has grown, supplying much of the demand for
government-guaranteed paper.
Looking forward to fiscal 2001, we believe investors may realize that the
so-called new economy has not displaced the benefits of capital preservation and
compound interest. We are confident that the Government Money and Cash Reserves
portfolios can continue to fulfill their role of providing secure and productive
vehicles to preserve and enhance a portion of your assets.
LIMITED MATURITY BOND FUND Although the Federal Reserve Board raised
short-term interest rates four times during fiscal 2000, the federal buyback of
U.S. Treasury bonds dominated the markets. Investors flocked to Treasury bonds
at the expense of other sectors. U.S. Treasuries emerged as the clear winner
over non-Treasury sectors, especially corporate bonds.
A-6
<PAGE>
The Limited Maturity Bond Fund returned 4.47%, compared to the Merrill Lynch
1-3 Year Treasury Index, which returned 6.07%. Although our diversified strategy
fell short of expectations, we believe we are positioned well to reap future
rewards. Investment-grade corporate bonds, which performed poorly as a class in
fiscal 2000, reached their widest spreads relative to Treasury securities in the
last decade.** While no one can predict the future, this range of spreads has
historically signaled a good buying opportunity. Our portfolio also has
substantial weightings in mortgage-backed and U.S. agency bonds, which feature
attractive yields as well.
In keeping with traditional Neuberger Berman strategy, we have focused on the
credit profile in the portfolio, finishing the fiscal year with a portfolio
average quality of AA-. Although we were subject to the volatility of credit
spreads that affected even highly rated issuers, we believe the portfolio is
solid from a credit standpoint.
Periods of volatility are painful, but they do create opportunities. During
the fiscal year, we made several changes in sector allocation to boost returns.
We substantially increased our weighting in U.S. agencies from 1.5% to over 9.8%
of portfolio net assets to take advantage of very wide spreads. We increased our
corporate weighting from 32.6% of the portfolio at the end of fiscal 1999 to
37.5% at the end of this year. We temporarily cut the corporate sector weighting
in the spring of 2000, but increased corporate bond holdings afterwards to take
advantage of wider spreads. We raised our holdings of asset-backed securities to
8.7% of the portfolio, from 7.0%. On the other hand, we decreased holdings of
mortgage-backed securities to 21.0% of the portfolio, from 30.1% a year ago.
Similarly, we cut exposure to bank and financial debt to 13.8% of the portfolio,
from 16.9%; Treasury securities fell to 5.4% of the portfolio from 7.6%. And
foreign government securities fell to 1.0% of the portfolio from 5.8%.
The portfolio's average weighted duration at the close of the period was
2.3 years. Recent changes in the yield curve provide good returns with
shorter-duration bonds.
Looking ahead to fiscal 2001, we expect to continue to benefit from our
conservative management. The earnings environment may continue to be difficult
for much of fiscal 2001, but we believe our careful positioning with
high-quality credits should help insulate shareholders. Furthermore, we believe
that yields remain quite attractive, falling in a
A-7
<PAGE>
range that has historically signaled good opportunities. We also believe that
limited maturity bonds continue to be a good opportunity for long-term investors
who wish to offset some of the risks of equity investing.
HIGH YIELD BOND FUND The high-yield market experienced another difficult year.
Through the first ten months of the calendar year, the Lehman High Yield Bond
Index declined by -3.83%. By the end of our October fiscal year, the Lehman High
Yield Bond Index was yielding 13.65%, a spread of 789 basis points over
comparable Treasury securities, and the highest spread since it peaked at more
than 1000 basis points in 1990 and 1991.*** Since the end of the fiscal year,
yields and spreads have increased further. The portfolio co-managers believe
that the current high yields, combined with the fact that a high level of
defaults is leaving a stronger pool of companies in the sector, has created an
opportunity for strong returns in the coming 12 to 24 months.
The portfolio co-managers have repositioned the fund across-the-board into
higher-quality securities. There has been a significant tiering in the market
between companies that investors believe are durable and those that investors
believe may be severely damaged in the future.
During the fiscal year, default rates continued to be high, with Moody's
trailing twelve-month global speculative grade default rate at 5.1% in
September. The ratio of downgrades to upgrades was 2.4 to 1.0 at fiscal year
end. The ratio tends to be a leading indicator of future default rates.
Corporations are reporting earnings pressures, largely from higher energy costs
and a weak Euro, which depresses demand for U.S. goods. Steel producers and auto
parts suppliers are being hit especially hard, and companies with asbestos
related liabilities also have been under considerable pressure.
Much of the problem, however, has been caused by the volume of new bonds
issued in 1997, 1998 and 1999. Since demand for high-yield bonds was so great,
many companies with questionable credit profiles came to market at that time. A
large percentage of the companies defaulting now issued their bonds during that
period. Although the process has been painful, it has produced a more
creditworthy pool of investments from which the portfolio managers can choose.
A-8
<PAGE>
According to the Investment Company Institute, high-yield mutual funds
suffered net redemptions of $8.8 billion in the first nine months of calendar
2000, on the heels of $2.5 billion in net redemptions during 1999.
Often in the past, when investors all but abandoned a sector, as they have the
high-yield market, that has been an opportunity for courageous and foresighted
investors. Our portfolio co-managers believe that the high-yield sector offers
particularly attractive values. We believe that the asset class continues to
play a necessary role, offering attractive income, and good diversification from
both equities and less risky bond classes. We also believe that those investors
who take a long-term view are likely to reap long-term rewards, and that our
firm's conservative bond management philosophy may serve high-yield investors
particularly well in the coming year.
Sincerely,
/s/ Peter Sundman
Peter Sundman
Chairman of the Board,
Chief Executive Officer 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 Federal Deposit
Insurance Corporation or any other government agency. Although the funds seek
to preserve the value of your investment at $1.00 per share, it is possible
to lose money by investing in the funds. The return on investment in
Government Money Fund and Cash Reserves will fluctuate. The composition,
industries and holdings of the funds are subject to change. Past performance
is no guarantee of future results.
The "current yield" of the money market funds refers to the income generated
by an investment in the funds over the 7-day period ending 10/31/00. The
income is then "annualized." The "effective yield" is calculated similarly
but, when annualized, the income earned by an investment in the funds 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.
**Merrill Lynch Corporate Master Index
***Lehman Brothers High-yield Research, "High-yield Monthly Review," October 31,
2000
A-9
<PAGE>
COMPARISON OF A $10,000 INVESTMENT
Neuberger Berman October 31, 2000
----------------------------------------------------------------------
Limited Maturity Bond Fund
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
AVERAGE ANNUAL TOTAL RETURN(1)
<TABLE>
<CAPTION>
MERRILL LYNCH
LIMITED MATURITY 1-3 YEAR
BOND FUND TREASURY INDEX(2)
<S> <C> <C>
1 YEAR +4.47% +6.07%
5 YEAR +4.74% +5.82%
10 YEAR +5.76% +6.42%
LIFE OF FUND +6.30% +6.97%
</TABLE>
<TABLE>
<CAPTION>
LIMITED MATURITY MERRILL LYNCH 1-3
BOND FUND YEAR TREASURY INDEX
<S> <C> <C>
10/31/90 $10,000 $10,000
10/31/91 $11,089 $11,128
10/31/92 $11,962 $12,039
10/31/93 $12,809 $12,740
10/31/94 $12,825 $12,892
10/31/95 $13,893 $14,045
10/31/96 $14,648 $14,875
10/31/97 $15,669 $15,840
10/31/98 $16,439 $17,060
10/31/99 $16,765 $17,570
10/31/00 $17,514 $18,638
</TABLE>
Neuberger Berman Limited Maturity Bond Fund commenced operations on 6/9/86.
Neuberger Berman Management Inc. ("Management") has voluntarily undertaken to
reimburse Limited Maturity Bond Fund for its operating expenses and its pro rata
share of its Portfolio's operating expenses (excluding taxes, interest,
brokerage commissions and extraordinary expenses) which, in the aggregate,
exceed .70% per annum of Limited Maturity Bond Fund's average daily net assets,
subject to termination upon 60 days' prior written notice. Absent such
arrangement, the average annual total returns of the fund would have been less.
1. "Total Return" includes reinvestment of all dividends and 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 to 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
Management and include reinvestment of all dividends and capital gain
distributions. The Portfolio may invest in many securities not included in the
above-described index.
A-10
<PAGE>
COMPARISON OF A $10,000 INVESTMENT
Neuberger Berman October 31, 2000
----------------------------------------------------------------------
High Yield Bond Fund
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
AVERAGE ANNUAL TOTAL RETURN(1)
<TABLE>
<S> <C> <C>
HIGH
YIELD LEHMAN BROTHERS HIGH
BOND FUND YIELD BOND INDEX(2)
1 YEAR -8.60% -1.61%
LIFE OF FUND -3.26% -0.77%
</TABLE>
<TABLE>
<S> <C> <C>
Lehman Brothers
High Yield
High Yield Bond Fund Bond Index
3/3/98 $10,000 $10,000
10/31/98 $9,831 $9,541
1999 $10,014 $9,956
2000 $9,153 $9,796
</TABLE>
Neuberger Berman High Yield Bond Fund commenced operations on 3/3/98.
Neuberger Berman Management Inc. ("Management") has voluntarily undertaken to
reimburse High Yield Bond Fund for its operating expenses and its pro rata share
of its Portfolio's operating expenses (excluding taxes, interest, brokerage
commissions and extraordinary expenses) which, in the aggregate, exceed 1.00%
per annum of High Yield Bond Fund's average daily net assets, subject to
termination 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 dividends and 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 High Yield Bond Index is an unmanaged index considered to
be representative of the fixed rate, publicly issued, non-investment grade debt
registered with the SEC. Please note that indices do not take into account any
fees and expenses of investing in the individual securities that they track, and
that individuals cannot invest directly in any index. Data about the performance
of this index are prepared or obtained by Management and include reinvestment of
all dividends and capital gain distributions. The Portfolio may invest in many
securities not included in the above-described index.
A-11
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
Neuberger Berman
----------------------------------------------------------------------
Income Funds
<TABLE>
<CAPTION>
GOVERNMENT
(000'S OMITTED EXCEPT PER SHARE AMOUNTS) MONEY FUND
<S> <C>
-------------
ASSETS
Investment in corresponding Portfolio, at
value (Note A) $ 303,671
Deferred organization costs (Note A) --
Receivable for Trust shares sold 653
Receivable from administrator -- net
(Note B) --
-------------
304,324
-------------
LIABILITIES
Dividends payable 13
Payable for Trust shares redeemed 281
Payable to administrator -- net (Note B) 66
Accrued expenses 165
-------------
525
-------------
NET ASSETS at value $ 303,799
-------------
NET ASSETS consist of:
Par value $ 304
Paid-in capital in excess of par value 303,498
Dividends in excess of net investment income --
Accumulated net realized losses on
investment (3)
Net unrealized depreciation in value of
investment --
-------------
NET ASSETS at value $ 303,799
-------------
SHARES OUTSTANDING
($.001 par value; unlimited shares
authorized) 303,802
-------------
NET ASSET VALUE, offering and redemption price per
share $1.00
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-1
<PAGE>
October 31, 2000
----------------------------------------------------------------------
Income Funds
<TABLE>
<CAPTION>
CASH LIMITED MATURITY HIGH YIELD
RESERVES BOND FUND BOND FUND
<S> <C> <C> <C>
----------------------------------------------
ASSETS
Investment in corresponding Portfolio, at
value (Note A) $ 1,326,281 $ 168,181 $ 12,143
Deferred organization costs (Note A) -- -- 33
Receivable for Trust shares sold 130 77 10
Receivable from administrator -- net
(Note B) -- -- 4
----------------------------------------------
1,326,411 168,258 12,190
----------------------------------------------
LIABILITIES
Dividends payable 14 89 40
Payable for Trust shares redeemed 1,038 97 4
Payable to administrator -- net (Note B) 263 46 --
Accrued expenses 309 110 38
----------------------------------------------
1,624 342 82
----------------------------------------------
NET ASSETS at value $ 1,324,787 $ 167,916 $ 12,108
----------------------------------------------
NET ASSETS consist of:
Par value $ 1,325 $ 18 $ 2
Paid-in capital in excess of par value 1,323,487 197,148 19,032
Dividends in excess of net investment income -- (89) --
Accumulated net realized losses on
investment (25) (26,923) (5,390)
Net unrealized depreciation in value of
investment -- (2,238) (1,536)
----------------------------------------------
NET ASSETS at value $ 1,324,787 $ 167,916 $ 12,108
----------------------------------------------
SHARES OUTSTANDING
($.001 par value; unlimited shares
authorized) 1,324,812 18,031 1,682
----------------------------------------------
NET ASSET VALUE, offering and redemption price per
share $1.00 $9.31 $7.20
----------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-2
<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) $ 23,393
-----------
Expenses:
Administration fee (Note B) 1,113
Amortization of deferred organization and
initial offering expenses (Note A) --
Auditing fees 9
Custodian fees 10
Legal fees 13
Registration and filing fees 101
Shareholder reports 46
Shareholder servicing agent fees 93
Trustees' fees and expenses 24
Miscellaneous 111
Expenses from corresponding Portfolio
(Notes A & B) 1,236
-----------
Total expenses 2,756
Expenses reimbursed by administrator and/or
reduced by custodian fee expense offset
arrangement (Note B) (4)
-----------
Total net expenses 2,752
-----------
Net investment income 20,641
-----------
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 loss on foreign currency
transactions --
Change in net unrealized 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 (decrease) in net assets
resulting from operations $ 20,638
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-3
<PAGE>
For the Year Ended October 31, 2000
----------------------------------------------------------------------
Income Funds
<TABLE>
<CAPTION>
CASH LIMITED MATURITY HIGH YIELD
RESERVES BOND FUND BOND FUND
<S> <C> <C> <C>
----------------------------------------------
INVESTMENT INCOME
Investment income from corresponding Portfolio
(Note A) $ 70,769 $ 14,009 $ 1,681
----------------------------------------------
Expenses:
Administration fee (Note B) 3,071 526 42
Amortization of deferred organization and
initial offering expenses (Note A) -- -- 15
Auditing fees 9 9 5
Custodian fees 10 10 10
Legal fees 19 19 15
Registration and filing fees 68 30 27
Shareholder reports 108 39 24
Shareholder servicing agent fees 259 170 19
Trustees' fees and expenses 52 14 7
Miscellaneous 188 31 4
Expenses from corresponding Portfolio
(Notes A & B) 3,017 651 157
----------------------------------------------
Total expenses 6,801 1,499 325
Expenses reimbursed by administrator and/or
reduced by custodian fee expense offset
arrangement (Note B) (4) (134) (167)
----------------------------------------------
Total net expenses 6,797 1,365 158
----------------------------------------------
Net investment income 63,972 12,644 1,523
----------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
FROM CORRESPONDING PORTFOLIO (NOTE A)
Net realized gain (loss) on investment
securities 1 (7,111) (4,121)
Net realized loss on financial futures
contracts -- (4) (21)
Net realized loss on foreign currency
transactions -- (575) --
Change in net unrealized depreciation of
investment securities, financial futures
contracts, translation of assets and
liabilities in foreign currencies, and
foreign currency contracts -- 3,196 908
----------------------------------------------
Net gain (loss) on investments from
corresponding Portfolio (Note A) 1 (4,494) (3,234)
----------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 63,973 $ 8,150 $ (1,711)
----------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-4
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
Neuberger Berman
----------------------------------------------------------------------
Income Funds
<TABLE>
<CAPTION>
GOVERNMENT
MONEY FUND
Year
Ended
October 31,
(000's omitted) 2000 1999
<S> <C> <C>
--------------------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income $ 20,641 $ 24,438
Net realized gain (loss) on
investments from corresponding
Portfolio (Note A) (3) --
Change in net unrealized
appreciation (depreciation) of
investments from corresponding
Portfolio (Note A) -- --
--------------------------
Net increase (decrease) in net
assets resulting from operations 20,638 24,438
--------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (20,641) (24,438)
Net realized gain on investments -- (22)
Tax return of capital -- --
--------------------------
Total distributions to shareholders (20,641) (24,460)
--------------------------
FROM TRUST SHARE TRANSACTIONS:
Proceeds from shares sold 758,280 1,208,139
Proceeds from reinvestment of
dividends and distributions 20,462 24,307
Payments for shares redeemed (1,128,317) (946,644)
--------------------------
Net increase (decrease) from Trust
share transactions (349,575) 285,802
--------------------------
NET INCREASE (DECREASE) IN NET ASSETS (349,578) 285,780
NET ASSETS:
Beginning of year 653,377 367,597
--------------------------
End of year $303,799 $653,377
--------------------------
Accumulated distribution in excess
of net
investment income at end of year $ -- $ --
--------------------------
NUMBER OF TRUST SHARES:
Sold 758,280 1,208,139
Issued on reinvestment of dividends
and distributions 20,462 24,307
Redeemed (1,128,317) (946,644)
--------------------------
Net increase (decrease) in shares
outstanding (349,575) 285,802
--------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-5
<PAGE>
----------------------------------------------------------------------
Income Funds
<TABLE>
<CAPTION>
CASH LIMITED MATURITY HIGH YIELD
RESERVES BOND FUND BOND FUND
Year Year Year
Ended Ended Ended
October 31, October 31, October 31,
2000 1999 2000 1999 2000 1999
<S> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income $ 63,972 $ 47,825 $ 12,644 $ 15,532 $ 1,523 $ 2,396
Net realized gain (loss) on
investments from corresponding
Portfolio (Note A) 1 (4) (7,690) (3,322) (4,142) (1,206)
Change in net unrealized
appreciation (depreciation) of
investments from corresponding
Portfolio (Note A) -- -- 3,196 (6,966) 908 (783)
----------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations 63,973 47,821 8,150 5,244 (1,711) 407
----------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (63,972) (47,825) (12,030) (15,781) (1,523) (2,396)
Net realized gain on investments -- -- -- -- -- --
Tax return of capital -- -- (614) -- -- --
----------------------------------------------------------------------------------
Total distributions to shareholders (63,972) (47,825) (12,644) (15,781) (1,523) (2,396)
----------------------------------------------------------------------------------
FROM TRUST SHARE TRANSACTIONS:
Proceeds from shares sold 2,337,554 1,564,077 133,095 83,283 4,794 18,400
Proceeds from reinvestment of
dividends and distributions 63,474 46,947 11,064 12,908 872 1,316
Payments for shares redeemed (2,180,407) (1,531,409) (198,790) (153,837) (14,130) (16,511)
----------------------------------------------------------------------------------
Net increase (decrease) from Trust
share transactions 220,621 79,615 (54,631) (57,646) (8,464) 3,205
----------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 220,622 79,611 (59,125) (68,183) (11,698) 1,216
NET ASSETS:
Beginning of year 1,104,165 1,024,554 227,041 295,224 23,806 22,590
----------------------------------------------------------------------------------
End of year $ 1,324,787 $ 1,104,165 $ 167,916 $ 227,041 $ 12,108 $ 23,806
----------------------------------------------------------------------------------
Accumulated distribution in excess
of net
investment income at end of year $ -- $ -- $ (89) $ -- $ -- $ --
----------------------------------------------------------------------------------
NUMBER OF TRUST SHARES:
Sold 2,337,554 1,564,077 14,245 8,570 617 1,956
Issued on reinvestment of dividends
and distributions 63,474 46,947 1,184 1,331 114 142
Redeemed (2,180,407) (1,531,409) (21,270) (15,831) (1,793) (1,772)
----------------------------------------------------------------------------------
Net increase (decrease) in shares
outstanding 220,621 79,615 (5,841) (5,930) (1,062) 326
----------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-6
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Neuberger Berman October 31, 2000
----------------------------------------------------------------------
Income Funds
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1) GENERAL: Neuberger Berman Government Money Fund ("Government Money"),
Neuberger Berman Cash Reserves ("Cash Reserves"), Neuberger Berman Limited
Maturity Bond Fund ("Limited Maturity"), and Neuberger Berman High Yield Bond
Fund ("High Yield") (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 Fund belong only to that Fund, and the liabilities of
each Fund are borne solely by that Fund 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%, 86.18%, and 100.00%, for Government Money,
Cash Reserves, Limited Maturity, and High Yield, respectively, at
October 31, 2000). 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 of these Funds 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
as indicated in the notes following the Portfolios' Schedule of Investments.
3) TAXES: The Funds are treated as separate entities for U.S. Federal income tax
purposes. It is the policy of each Fund to continue to qualify as a regulated
B-7
<PAGE>
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 U.S.
Federal income tax purposes as capital loss carryforwards) sufficient to
relieve it from all, or substantially all, U.S. Federal income taxes.
Accordingly, each Fund paid no U.S. Federal income taxes and no provision for
U.S. 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 ($3,004 expiring in 2008 for Government Money;
$6,784, $2,998, $6,904, $4,112, and $3,565 expiring in 2002, 2003, 2005,
2006, and 2007, respectively, for Cash Reserves; $1,362,347, $5,043,103,
$4,309,358, $1,607,920, $517,222, $3,229,127, $3,698,620, and $7,155,214
expiring in 2001, 2002, 2003, 2004, 2005, 2006, 2007, and 2008, respectively,
for Limited Maturity; and $42,133, $1,206,076, and $4,142,445 expiring in
2006, 2007, and 2008, respectively, for High Yield, determined as of
October 31, 2000), it is the policy of each Fund not to distribute such
gains. The capital loss carryforwards shown above for Limited Maturity
include $1,362,347, $329,262, and $552,290 expiring in 2001, 2002, and 2003,
respectively, which were acquired on February 27, 1998 in the merger with
Neuberger Berman Ultra Short Bond Fund. The use of these losses to offset
future gains may be limited in a given year.
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) ORGANIZATION EXPENSES: Organization expenses incurred by High Yield are being
amortized on a straight-line basis over a five-year period. At October 31,
2000, the unamortized balance of such expenses amounted to $33,594.
6) EXPENSE ALLOCATION: Each Fund bears all costs of its operations. Expenses
incurred by the Trust with respect to any two or more funds are allocated in
proportion to the net assets of such funds, except where a more appropriate
allocation of expenses to each fund can otherwise be made fairly. Expenses
directly attributable to a fund are charged to that fund.
B-8
<PAGE>
7) OTHER: All net investment income and realized and unrealized capital gains
and losses of each Portfolio are allocated pro rata among its respective
Funds and any other investors in the Portfolio.
NOTE B -- ADMINISTRATION FEES, DISTRIBUTION ARRANGEMENTS, AND OTHER TRANSACTIONS
WITH AFFILIATES:
Each Fund retains Neuberger Berman Management Inc. ("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 Cash Reserves, Limited
Maturity, and High Yield for their operating expenses plus their pro rata
portion of their corresponding Portfolio's operating expenses (including the
fees payable to Management, but excluding interest, taxes, brokerage
commissions, and extraordinary expenses) ("Operating Expenses") which exceed, in
the aggregate, 0.65%, 0.70%, and 1.00%, respectively, per annum of their average
daily net assets (each an "Expense Limitation"). Each undertaking is subject to
termination by Management upon at least 60 days' prior written notice to the
appropriate Fund. For the year ended October 31, 2000, such excess expenses
amounted to $120,662 and $165,780, for Limited Maturity and High Yield,
respectively. For the year ended October 31, 2000, there was no reimbursement of
expenses by Management for Cash Reserves. High Yield had agreed to repay
Management through December 31, 1999, for its excess Operating Expenses
previously reimbursed by Management, so long as its annual Operating Expenses
during that period did not exceed its Expense Limitation. For the period from
November 1, 1999 to December 31, 1999, High Yield did not reimburse Management.
At October 31, 2000, High Yield has no remaining contingent liability to
Management under the agreement for any amount not repaid through December 31,
1999.
Management and Neuberger Berman, LLC ("Neuberger"), a member firm of The New
York Stock Exchange and sub-adviser to each Portfolio, are wholly owned
subsidiaries of Neuberger Berman Inc., a publicly held company. Several
individuals who are officers and/or trustees of the Trust are also employees of
Neuberger and/or 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
B-9
<PAGE>
under the caption Expenses from corresponding Portfolio, was a reduction of
$3,626, $3,915, $13,003, and $749, for Government Money, Cash Reserves, Limited
Maturity, and High Yield, respectively.
NOTE C -- INVESTMENT TRANSACTIONS:
During the year ended October 31, 2000, additions and reductions in each
Fund's investment in its corresponding Portfolio were as follows:
<TABLE>
<CAPTION>
ADDITIONS REDUCTIONS
---------------------------------------------------------------------------------
<S> <C> <C>
GOVERNMENT MONEY $ 653,489,000 $1,025,842,000
CASH RESERVES 1,773,316,000 1,620,425,000
LIMITED MATURITY 85,938,000 155,056,000
HIGH YIELD 3,181,000 13,351,000
</TABLE>
NOTE D -- REORGANIZATION:
On June 6, 2000, the Trustees of the Trust approved a plan of reorganization
under which the respective Funds of the Trust will each receive from the
corresponding Portfolios the entire portfolio of market securities and other
assets and each Portfolio will dissolve. Thus, the Funds will no longer invest
all of their net investable assets in the Portfolios. Instead, each Fund will
own directly the securities formerly held in its corresponding Portfolio. The
effective date of the proposed conversion is February 9, 2001.
B-10
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger Berman
--------------------------------------------------------------------------------
Government 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,
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
-----------------------------------------------
Net Asset Value, Beginning of Year $1.0000 $1.0001 $1.0000 $1.0000 $1.0000
-----------------------------------------------
Income From Investment Operations
Net Investment Income .0509 .0406 .0459 .0468 .0464
Net Gains or Losses on Securities -- -- .0001 -- --
-----------------------------------------------
Total From Investment Operations .0509 .0406 .0460 .0468 .0464
-----------------------------------------------
Less Distributions
Dividends (from net investment income) (.0509) (.0406) (.0459) (.0468) (.0464)
Distributions (from net capital gains) -- (.0001) -- -- --
-----------------------------------------------
Total Distributions (.0509) (.0407) (.0459) (.0468) (.0464)
-----------------------------------------------
Net Asset Value, End of Year $1.0000 $1.0000 $1.0001 $1.0000 $1.0000
-----------------------------------------------
Total Return(2) +5.22% +4.14% +4.69% +4.78% +4.74%
-----------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year (in millions) $ 303.8 $ 653.4 $ 367.6 $ 308.2 $ 363.4
-----------------------------------------------
Ratio of Gross Expenses to Average Net Assets(3) .67% .60% .64% .64% .67%
-----------------------------------------------
Ratio of Net Expenses to Average Net Assets .67% .60% .63% .63% .67%
-----------------------------------------------
Ratio of Net Investment Income to Average Net Assets 4.99% 4.08% 4.61% 4.65% 4.65%
-----------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL HIGHLIGHTS
B-11
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger Berman
--------------------------------------------------------------------------------
Cash Reserves(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,
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
------------------------------------------------------
Net Asset Value, Beginning of Year $ 1.0000 $ 1.0000 $ 1.0000 $1.0000 $1.0000
------------------------------------------------------
Income From Investment Operations
Net Investment Income .0562 .0453 .0499 .0499 .0486
Net Gains or Losses on Securities -- -- -- -- --
------------------------------------------------------
Total From Investment Operations .0562 .0453 .0499 .0499 .0486
------------------------------------------------------
Less Distributions
Dividends (from net investment
income) (.0562) (.0453) (.0499) (.0499) (.0486)
------------------------------------------------------
Net Asset Value, End of Year $ 1.0000 $ 1.0000 $ 1.0000 $1.0000 $1.0000
------------------------------------------------------
Total Return(2) +5.76% +4.63% +5.10% +5.11% +4.97%
------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year (in
millions) $1,324.8 $1,104.2 $1,024.6 $ 664.1 $ 482.0
------------------------------------------------------
Ratio of Gross Expenses to Average
Net Assets(3) .60% .61% .64% .63% .66%
------------------------------------------------------
Ratio of Net Expenses to Average Net
Assets(4) .60% .61% .63% .63% .65%
------------------------------------------------------
Ratio of Net Investment Income to
Average Net Assets 5.61% 4.55% 5.00% 4.98% 4.86%
------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL HIGHLIGHTS
B-12
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger Berman
--------------------------------------------------------------------------------
Limited Maturity Bond 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,
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
----------------------------------------------
Net Asset Value, Beginning of Year $ 9.51 $ 9.91 $10.03 $ 9.99 $10.06
----------------------------------------------
Income From Investment Operations
Net Investment Income .61 .59 .60 .63 .60
Net Gains or Losses on Securities
(both realized and unrealized) (.20) (.40) (.12) .04 (.07)
----------------------------------------------
Total From Investment Operations .41 .19 .48 .67 .53
----------------------------------------------
Less Distributions
Dividends (from net investment
income) (.58) (.59) (.60) (.63) (.60)
Tax return of capital (.03) -- -- -- --
----------------------------------------------
Total Distributions (.61) (.59) (.60) (.63) (.60)
----------------------------------------------
Net Asset Value, End of Year $ 9.31 $ 9.51 $ 9.91 $10.03 $ 9.99
----------------------------------------------
Total Return(2) +4.47% +1.98% +4.92% +6.97% +5.44%
----------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year (in
millions) $167.9 $227.0 $295.2 $255.4 $245.7
----------------------------------------------
Ratio of Gross Expenses to Average
Net Assets(3) .70% .70% .71% .70% .71%
----------------------------------------------
Ratio of Net Expenses to Average Net
Assets(4) .70% .70% .70% .70% .70%
----------------------------------------------
Ratio of Net Investment Income to
Average Net Assets 6.43% 5.98% 6.03% 6.34% 6.10%
----------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL HIGHLIGHTS
B-13
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger Berman
--------------------------------------------------------------------------------
High Yield Bond 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>
Period from
March 3, 1998(5)
Year Ended October 31, to October 31,
2000 1999 1998
<S> <C> <C> <C>
--------------------------------------------
Net Asset Value, Beginning of Year $8.68 $9.34 $10.00
--------------------------------------------
Income From Investment Operations
Net Investment Income .75 .85 .51
Net Gains or Losses on Securities
(both realized and unrealized) (1.48) (.66) (.66)
--------------------------------------------
Total From Investment Operations (.73) .19 (.15)
--------------------------------------------
Less Distributions
Dividends (from net investment
income) (.75) (.85) (.51)
--------------------------------------------
Net Asset Value, End of Year $7.20 $8.68 $ 9.34
--------------------------------------------
Total Return(2) -8.60% +1.86% -1.69%(6)
--------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year (in
millions) $12.1 $23.8 $ 22.6
--------------------------------------------
Ratio of Gross Expenses to Average
Net Assets(3) 1.01% 1.01% 1.00%(7)
--------------------------------------------
Ratio of Net Expenses to Average Net
Assets(4) 1.00% 1.01% 1.00%(7)
--------------------------------------------
Ratio of Net Investment Income to
Average Net Assets 9.66% 9.20% 8.03%(7)
--------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL HIGHLIGHTS
B-14
<PAGE>
NOTES TO FINANCIAL HIGHLIGHTS
Neuberger Berman October 31, 2000
----------------------------------------------------------------------
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
(excluding Government Money), total return would have been lower if
Management had not reimbursed certain expenses.
3) 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>
Year Ended
October 31,
CASH RESERVES 1996
<S> <C>
--------------------------------------------------------------------------------------
Net Expenses .67%
-----------
</TABLE>
<TABLE>
<CAPTION>
Year Ended October 31,
LIMITED MATURITY 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------
Net Expenses .76% .72% .75% .71% .71%
---------------------------------
</TABLE>
<TABLE>
<CAPTION>
Period from
March 3, 1998 to
Year Ended October 31, October 31,
HIGH YIELD 2000 1999 1998
<S> <C> <C> <C>
-------------------------------------------------------------------------------------------
Net Expenses 2.04% 1.43% 1.65%
-----------------------------------------
</TABLE>
5) The date investment operations commenced.
6) Not annualized.
7) Annualized.
B-15
<PAGE>
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Board of Trustees
Neuberger Berman Income Funds and
Shareholders of:
Neuberger Berman Government Money Fund
Neuberger Berman Cash Reserves
Neuberger Berman Limited Maturity Bond Fund and
Neuberger Berman High Yield 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 Limited Maturity Bond Fund, and Neuberger Berman High Yield
Bond Fund, four of the series constituting the Neuberger Berman Income Funds
(the "Trust"), as of October 31, 2000, 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 auditing standards generally
accepted in the United States. 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,
2000, 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 accounting principles generally accepted in the United States.
Boston, Massachusetts /s/ ERNST & YOUNG LLP
December 4, 2000
B-16
<PAGE>
(This page has been left blank intentionally.)
B-17
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger Berman October 31, 2000
--------------------------------------------------------------------------------
Government Money Portfolio
<TABLE>
<CAPTION>
Principal Annualized
Amount Yield at Date Value(1)
(000's omitted) of Purchase (000's omitted)
--------------------- ------------- ---------------
<C> <S> <C> <C>
U.S. TREASURY SECURITIES -- BACKED BY THE FULL
FAITH AND CREDIT OF THE U.S. GOVERNMENT (99.7%)
$ 5,827 U.S. Treasury Bills, due 11/2/00 6.23-6.26% $ 5,826
36,863 U.S. Treasury Bills, due 11/9/00 6.20-6.27% 36,813
36,848 U.S. Treasury Bills, due 11/24/00 6.32-6.41% 36,705
22,750 U.S. Treasury Bills, due 11/30/00 6.14-6.31% 22,639
10,000 U.S. Treasury Notes, 5.625%, due 11/30/00 6.26% 9,995
4,877 U.S. Treasury Bills, due 12/7/00 6.15-6.23% 4,848
10,000 U.S. Treasury Bills, due 12/21/00 6.46% 9,912
5,519 U.S. Treasury Bills, due 12/28/00 6.21% 5,466
2,319 U.S. Treasury Bills, due 1/4/01 6.23-6.24% 2,294
3,356 U.S. Treasury Bills, due 1/11/01 6.15-6.19% 3,317
27,901 U.S. Treasury Bills, due 1/18/01 6.14-6.37% 27,535
38,400 U.S. Treasury Bills, due 1/25/01 6.33-6.35% 37,842
10,000 U.S. Treasury Notes, 5.25%, due 1/31/01 6.30-6.31% 9,974
11,443 U.S. Treasury Notes, 4.50%, due 1/31/01 6.27-6.38% 11,392
16,230 U.S. Treasury Bills, due 2/1/01 6.35-6.36% 15,974
40,000 U.S. Treasury Notes, 5.375%, due 2/15/01 6.30-6.36% 39,890
17,840 U.S. Treasury Bills, due 2/22/01 6.29-6.30% 17,502
5,000 U.S. Treasury Bills, due 3/8/01 6.30% 4,894
--------
TOTAL U.S. TREASURY SECURITIES 302,818
Cash, receivables and other assets, less
liabilities (0.3%) 853
--------
TOTAL NET ASSETS (100.0%) $303,671
--------
</TABLE>
SEE NOTES TO SCHEDULE OF INVESTMENTS
C-1
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger Berman
--------------------------------------------------------------------------------
Cash Reserves Portfolio
<TABLE>
<CAPTION>
Principal
Amount Rating(2) Value(1)
(000's omitted) Moody's S&P (000's omitted)
--------------------- ---------- ------------ ---------------
<C> <S> <C> <C> <C>
ASSET-BACKED COMMERCIAL PAPER (19.0%)
$20,000 Surrey Funding Corp., 6.51%, due 11/10/00 P-1 A-1+ $ 19,967
54,010 Preferred Receivables Funding Corp., 6.48%-6.50%,
due 11/17/00-12/8/00 P-1 A-1 53,726
35,000 Corporate Receivables Corp., 6.52%, due 1/9/01 P-1 A-1+ 34,563
25,000 Monte Rosa Capital Corp., 6.56%, due 1/11/01 P-1 A-1+ 24,677
24,690 Receivables Capital Corp., 6.51% & 6.53%, due 11/10/00 &
1/12/01 P-1 A-1+ 24,547
54,000 Govco Inc., 6.55% & 6.56%, due 1/16/01 & 1/17/01 P-1 A-1+ 53,247
42,000 Asset Securitization Cooperative Corp., 6.55%, due 1/19/01 P-1 A-1+ 41,404
----------
TOTAL ASSET-BACKED COMMERCIAL PAPER 252,131
----------
CORPORATE COMMERCIAL PAPER (58.7%)
28,000 Anheuser-Busch Cos., Inc., 6.60%, due 11/1/00 P-1 A-1 28,000
4,860 Bayer Corp., 6.62%, due 11/1/00 P-1 A-1+ 4,860
10,000 BellSouth Capital Funding Corp., 6.53%, due 11/1/00 P-1 A-1+ 10,000
50,000 Gillette Co., 6.60%, due 11/1/00 P-1 A-1+ 50,000
29,175 Morgan Stanley Dean Witter, 6.58%, due 11/1/00 P-1 A-1+ 29,175
30,000 Salomon Smith Barney Holdings Inc., 6.61%, due 11/1/00 P-1 A-1 30,000
30,000 AT&T Corp., 6.60%, due 11/2/00 P-1 A-1+ 29,995
25,000 BMW U.S. Capital Corp., 6.50%, due 11/2/00 P-1 A-1 24,995
33,500 USAA Capital Corp., 6.56%, due 11/2/00 P-1 A-1+ 33,494
56,500 Panasonic Finance (America), 6.50% & 6.62%, due 11/1/00 &
11/3/00 P-1 A-1+ 56,485
40,000 Sara Lee Corp., 6.55%, due 11/3/00 P-1 A-1+ 39,985
1,660 Verizon Global Funding Corp., 6.48%, due 11/6/00 P-1 A-1 1,658
38,000 National Australia Funding Delaware Inc., 6.47% & 6.61%,
due 11/1/00 & 11/17/00 P-1 A-1+ 37,963
20,000 Pitney Bowes Credit Corp., 6.46%, due 11/21/00 P-1 A-1+ 19,928
11,500 ANZ (Delaware) Inc., 6.48% & 6.64%, due 11/8/00 & 12/4/00 P-1 A-1+ 11,457
35,000 Lloyd's Bank PLC, 6.54%, due 12/14/00 P-1 A-1+ 34,727
5,000 SBC Communications Inc., 6.62%, due 12/14/00 P-1 A-1+ 4,960
</TABLE>
C-2
<PAGE>
October 31, 2000
--------------------------------------------------------------------------------
Cash Reserves Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal
Amount Rating(2) Value(1)
(000's omitted) Moody's S&P (000's omitted)
--------------------- ---------- ------------ ---------------
<C> <S> <C> <C> <C>
$13,000 du Pont (E.I.) de Nemours & Co., 6.60%, due 12/18/00 P-1 A-1+ $ 12,888
50,000 Toyota Motor Credit Corp., 6.44%, due 12/21/00 P-1 A-1+ 49,553
17,000 ING America Insurance Holdings, Inc., 6.53%, due 1/23/01 P-1 A-1+ 16,744
5,000 Paccar Financial Corp., 6.50%, due 1/25/01 P-1 A-1+ 4,923
3,300 Heinz (H.J.) Co., 6.50%, due 1/26/01 P-1 A-1 3,249
49,300 Abbey National North America Corp., 6.47% & 6.52%,
due 1/24/01 & 1/29/01 P-1 A-1+ 48,531
7,000 Deutsche Bank Financial Inc., 6.48%, due 1/29/01 P-1 A-1+ 6,888
38,925 American Express Credit Corp., 6.45%-6.48%,
due 11/2/00-2/5/01 P-1 A-1 38,697
20,000 General Motors Acceptance Corp., 6.51%, due 2/5/01 P-1 A-1 19,653
30,000 Goldman Sachs Group, Inc., 6.46%, due 2/15/01 P-1 A-1+ 29,429
32,254 Washington Post Co., 6.52%, due 2/22/01 P-1 A-1+ 31,671
25,000 National Rural Utilities Coop. Finance Corp., 6.45% & 6.62%,
due 12/15/00 & 2/26/01 P-1 A-1+ 24,669
25,000 British Telecommunications PLC, 6.50%, due 3/7/01 P-1 A-1 24,431
20,000 ABN Amro North America Finance Inc., 6.43%, due 3/28/01 P-1 A-1+ 19,475
----------
TOTAL CORPORATE COMMERCIAL PAPER 778,483
----------
TAXABLE REVENUE BONDS (3.7%)
11,465 Health Institute of Indiana, Inc., Loan Program Notes,
Ser. A, 6.67%, VRDN due 10/1/28 P-1 A-1 11,465
7,000 Rhode Island St. Student Loan Au. Student Loan Rev.,
Ser. 4, 6.60%, VRDN due 12/1/34 VMIG-1 7,000
30,100 Florida Housing Finance Corp., Rev. Bonds, Ser. 1999 A,
6.55%, VRDN due 1/1/44 MIG-1 A-1+ 30,100
----------
TOTAL TAXABLE REVENUE BONDS 48,565
----------
</TABLE>
C-3
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger Berman October 31, 2000
--------------------------------------------------------------------------------
Cash Reserves Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal
Amount Rating(2) Value(1)
(000's omitted) Moody's S&P (000's omitted)
--------------------- ---------- ------------ ---------------
<C> <S> <C> <C> <C>
ASSET-BACKED SECURITIES (2.3%)
$ 9,000 First Security Auto Owner Trust 2000-2, 6.66%, due 9/17/01 P-1 A-1+ $ 9,000
21,100 Honda Auto Receivables Owner Trust 2001-1, 6.7113%,
due 11/15/01 P-1 A-1+ 21,100
----------
TOTAL ASSET-BACKED SECURITIES 30,100
----------
CERTIFICATES OF DEPOSIT (8.8%)
30,000 First Union National Bank, Domestic C.D., 7.00%,
due 11/22/00 P-1 A-1 30,000
32,000 Bank of Nova Scotia, Yankee C.D., 6.68%, due 1/5/01 P-1 A-1 32,000
30,000 Societe Generale, Yankee C.D., 6.71%, due 2/12/01 P-1 A-1+ 30,000
25,000 Westdeutsche Landesbank Girozentrale, Yankee C.D., 6.62%,
due 4/11/01 P-1 A-1+ 25,000
----------
TOTAL CERTIFICATES OF DEPOSIT 117,000
----------
CORPORATE DEBT SECURITIES (2.4%)
25,000 Bank One N.A., Bank Notes, 6.84%, due 12/19/00 P-1 A-1 25,000
7,000 Merrill Lynch & Co., Inc., Medium-Term Notes, 6.8013%,
due 5/8/01 P-1 A-1+ 7,003
----------
TOTAL CORPORATE DEBT SECURITIES 32,003
----------
FUNDING AGREEMENTS (4.9%)
30,000 Travelers Insurance Co., Variable Rate Funding Agreement,
6.6588%, expiring 3/16/01 P-1 A-1+ 30,000
35,000 Hartford Life Insurance Co., Variable Rate Funding
Agreement, 6.6588%, expiring 7/31/01 P-1 A-1 35,000
----------
TOTAL FUNDING AGREEMENTS 65,000
----------
TOTAL INVESTMENTS (99.8%) 1,323,282
Cash, receivables and other assets, less liabilities (0.2%) 2,999
----------
TOTAL NET ASSETS (100.0%) $1,326,281
----------
</TABLE>
SEE NOTES TO SCHEDULE OF INVESTMENTS
C-4
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger Berman October 31, 2000
--------------------------------------------------------------------------------
Limited Maturity Bond Portfolio
<TABLE>
<CAPTION>
Principal
Amount Rating(2) Value(3)
(000's omitted) Moody's S&P (000's omitted)
--------------------- -------- --------- ---------------
<C> <S> <C> <C> <C>
U.S. TREASURY SECURITIES (5.4%)
$ 1,790 U.S. Treasury Notes, 6.50%, due 3/31/02 TSY TSY $ 1,798
5,355 U.S. Treasury Notes, 6.25%, due 6/30/02 TSY TSY 5,372
2,890 U.S. Treasury Notes, 6.00%, due 8/15/04 TSY TSY 2,902
485 U.S. Treasury Inflation-Indexed Notes, 3.375%, due 1/15/07 TSY TSY 472
--------
TOTAL U.S. TREASURY SECURITIES (COST $10,443) 10,544
--------
U.S. GOVERNMENT AGENCY SECURITIES (9.8%)
8,830 Fannie Mae, Notes, 4.625%, due 10/15/01 AGY AGY 8,674
10,000 Fannie Mae, Notes, 6.25%, due 11/15/02 AGY AGY 9,962
510 Freddie Mac, Notes, 5.75%, due 7/15/03 AGY AGY 502
--------
TOTAL U.S. GOVERNMENT AGENCY SECURITIES
(COST $19,117) 19,138
--------
MORTGAGE-BACKED SECURITIES (21.0%)
1,464 GE Capital Mortgage Services, Inc., REMIC Pass-Through
Certificates, Ser. 1998-25, Class B3, 6.25%, due 12/25/28 BB(4) 1,023(5)
936 Norwest Asset Securities Corp., Mortgage Pass-Through
Certificates, Ser. 1999-13, 6.75%, due 5/25/29 BB(4) 691(5)
1,098 GE Capital Mortgage Services, Inc., REMIC Pass-Through
Certificates, Ser. 1999-11, Class B3, 6.50%, due 7/25/29 BB(4) 798(5)
965 Morgan Stanley Capital I Inc., Commercial Mortgage
Pass-Through Certificates, Ser. 1998-HF2, 6.01%,
due 11/15/30 BB(4) 688(5)
FANNIE MAE
3,430 Pass-Through Certificates, 7.00%,
due 9/1/03 & 6/1/11 AGY AGY 3,435
8,678 Pass-Through Certificates, 6.50%,
due 5/1/13 & 5/1/14 AGY AGY 8,529
</TABLE>
C-5
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger Berman
--------------------------------------------------------------------------------
Limited Maturity Bond Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal
Amount Rating(2) Value(3)
(000's omitted) Moody's S&P (000's omitted)
--------------------- -------- --------- ---------------
<C> <S> <C> <C> <C>
FREDDIE MAC
$ -- Mortgage Participation Certificates, 10.50%, due 12/1/00 AGY AGY $ --
52 Mortgage Participation Certificates, 8.50%, due 10/1/01 AGY AGY 52
98 ARM Certificates, 7.00%, due 1/1/17 AGY AGY 98
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
55 Pass-Through Certificates, 7.50%, due 10/15/09-9/15/10 AGY AGY 56
109 Pass-Through Certificates, 12.00%, due 5/15/12-3/15/15 AGY AGY 121
2,923 Pass-Through Certificates, 7.00%, due 4/15/11 & 12/15/28 AGY AGY 2,900
22,156 Pass-Through Certificates, 8.00%, due 5/15/30-8/15/30 AGY AGY 22,516
--------
TOTAL MORTGAGE-BACKED SECURITIES (COST $40,917) 40,907
--------
ASSET-BACKED SECURITIES (8.7%)
2,180 Honda Auto Lease Trust, Ser. 1999-A, Class A4, 6.45%,
due 9/16/02 Aaa AAA 2,174
237 Navistar Financial Owner Trust, Ser. 1996-B, Class A-3,
6.33%, due 4/21/03 Aaa AAA 237
405 Chevy Chase Auto Receivables Trust, Ser. 1996-2, Class A,
5.90%, due 7/15/03 Aaa AAA 403
600 Daimler Chrysler Auto Trust, Ser. 2000-A, Class A3, 7.09%,
due 12/6/03 Aaa AAA 603
6,500 Ford Credit Auto Owner Trust, Ser. 2000-C, Class A4, 7.24%,
due 2/15/04 Aaa AAA 6,532
4,120 Nissan Auto Receivables Owner Trust, Ser. 2000-B,
Class A3, 7.25%, due 4/15/04 Aaa AAA 4,158
</TABLE>
C-6
<PAGE>
October 31, 2000
--------------------------------------------------------------------------------
Limited Maturity Bond Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal
Amount Rating(2) Value(3)
(000's omitted) Moody's S&P (000's omitted)
--------------------- -------- --------- ---------------
<C> <S> <C> <C> <C>
$ 1,250 Ford Credit Auto Owner Trust, Ser. 2000-E, Class A4, 6.74%,
due 6/15/04 Aaa AAA $ 1,252
1,500 Daimler Chrysler Auto Trust, Ser. 2000-C, Class A3, 6.82%,
due 9/6/04 Aaa AAA 1,504
--------
TOTAL ASSET-BACKED SECURITIES (COST $16,773) 16,863
--------
BANKS & FINANCIAL INSTITUTIONS (13.8%)
1,470 Dime Bancorp, Inc., Notes, 6.375%, due 1/30/01 Ba1 BBB- 1,465
1,500 Dime Bancorp, Inc., Notes, 7.00%, due 7/25/01 Ba1 BBB- 1,494
2,185 Donaldson, Lufkin & Jenrette, Inc., Senior Notes, 5.875%,
due 4/1/02 A3 A- 2,153
1,000 MBNA America Bank N.A., Subordinated Notes, 7.25%,
due 9/15/02 Baa2 BBB 999
3,350 Banc One Corp., Medium-Term Notes, 6.375%, due 10/1/02 Aa3 A 3,312
1,400 Merrill Lynch & Co., Inc., Notes, 6.00%, due 2/12/03 Aa3 AA- 1,373
2,250 Bank of America Corp., Subordinated Notes, 6.85%,
due 3/1/03 Aa3 A 2,245
2,040 Bear Stearns Co., Inc., Notes, 6.20%, due 3/30/03 A2 A 1,991
3,025 Lehman Brothers Holdings Inc., Medium-Term Notes, Ser. E,
7.00%, due 5/15/03 A3 A 3,002
3,050 Household Finance Corp., Notes, 7.00%, due 8/1/03 A2 A 3,037
2,900 Paine Webber Group Inc., Notes, 6.45%, due 12/1/03 Baa1 BBB+ 2,859
2,200 Morgan Stanley Dean Witter & Co., Notes, 5.625%,
due 1/20/04 Aa3 AA- 2,107
1,000 Bank United Corp., Medium-Term Notes, Ser. A, 8.00%,
due 3/15/09 Ba2 BBB- 964
--------
TOTAL BANKS & FINANCIAL INSTITUTIONS
(COST $26,877) 27,001
--------
</TABLE>
C-7
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger Berman
--------------------------------------------------------------------------------
Limited Maturity Bond Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal
Amount Rating(2) Value(3)
(000's omitted) Moody's S&P (000's omitted)
--------------------- -------- --------- ---------------
<C> <S> <C> <C> <C>
CORPORATE DEBT SECURITIES (37.5%)
$3,325 AT&T Capital Corp., Notes, 6.875%, due 1/16/01 A1 A+ $3,325
1,125 Tyco International Group S.A., Notes, 6.125%, due 6/15/01 Baa1 A- 1,116
1,000 WMX Technologies, Inc., Notes, 7.125%, due 6/15/01 Ba1 BBB 993
1,780 CMS Energy Corp., Senior Notes, 8.00%, due 7/1/01 Ba3 BB 1,761
3,300 Telecom Argentina Stet-France SA, Medium-Term Notes, 9.75%,
due 7/12/01 B1 BBB- 3,321(5)
2,290 Colonial Realty Limited Partnership, Senior Notes, 7.50%,
due 7/15/01 Baa3 BBB- 2,281
1,220 USA Waste Services, Inc., Senior Notes, 6.125%, due 7/15/01 Ba1 BBB 1,196
1,325 Cox Communications, Inc., Notes, 7.00%, due 8/15/01 Baa2 BBB 1,318
3,300 Texas Utilities Co., Notes, 5.94%, due 10/15/01 Baa3 BBB 3,258
2,080 Tyco International Ltd., Notes, 6.50%, due 11/1/01 A3 A- 2,069
1,923 Marlin Water Trust, Senior Secured Notes, 7.09%,
due 12/15/01 Baa1 BBB 1,911(5)
2,965 ICI Wilmington Inc., Guaranteed Notes, 7.50%, due 1/15/02 Baa2 BBB+ 2,948
2,835 Black & Decker Corp., Medium-Term Notes, Ser. A, 8.90%,
due 1/21/02 Baa2 BBB 2,891
945 Century Communications Corp., Senior Notes, 9.75%,
due 2/15/02 B2 B+ 933
900 Ford Motor Credit Co., Global Bonds, 6.50%, due 2/28/02 A2 A 896
1,500 Xerox Capital (Europe) PLC, Notes, 5.75%, due 5/15/02 Baa2 BBB- 1,110
2,290 Sprint Capital Corp., Medium-Term Notes, 7.625%,
due 6/10/02 Baa1 BBB+ 2,306
2,170 General Motors Acceptance Corp., Medium-Term Notes, 6.30%,
due 7/8/02 A2 A 2,149
</TABLE>
C-8
<PAGE>
October 31, 2000
--------------------------------------------------------------------------------
Limited Maturity Bond Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal
Amount Rating(2) Value(3)
(000's omitted) Moody's S&P (000's omitted)
--------------------- -------- --------- ---------------
<C> <S> <C> <C> <C>
$ 900 Comdisco, Senior Notes, 7.25%, due 9/1/02 Baa2 BBB $ 675
1,775 Commercial Credit Co., Notes, 6.375%, due 9/15/02 Aa3 AA- 1,763
1,825 Fort James Corp., Senior Notes, 6.50%, due 9/15/02 Baa2 BBB 1,790
2,460 Conseco Inc., Notes, 8.50%, due 10/15/02 B1 BB- 1,931
800 Reliant Energy Finance Co., Notes, 7.40%, due 11/15/02 Baa1 BBB 798(5)
1,400 Valero Energy, Notes, 6.75%, due 12/15/02 Baa3 BBB- 1,364(5)
1,375 American Standard Inc., Senior Notes, 7.125%, due 2/15/03 Ba2 BB+ 1,334
1,000 Safeway Inc., Medium-Term Notes, 8.57%, due 4/1/03 Baa2 BBB 1,026
1,615 Cox Radio, Inc., Notes, 6.25%, due 5/15/03 Baa2 BBB 1,572
1,000 Comdisco, Senior Notes, 9.50%, due 8/15/03 Baa2 BBB 740
60 Core-Mark International, Inc., Senior Subordinated Notes,
11.375%, due 9/15/03 B3 B 57
1,140 Associates Corp., Senior Notes, 5.75%, due 11/1/03 A1 A+ 1,106
1,300 Unilever Capital Corp., Senior Notes, 6.75%, due 11/1/03 A1 A+ 1,294
2,555 Akzo Nobel Inc., Guaranteed Notes, 6.00%, due 11/15/03 A2 A- 2,473(5)
705 Loomis Fargo & Co., Senior Subordinated Notes, 10.00%,
due 1/15/04 B3 B 675
1,524 PDVSA Finance Ltd., Notes, 8.75%, due 2/15/04 Baa1(6) 1,509
2,000 Heller Financial, Inc., Notes, 6.00%, due 3/19/04 A3 A- 1,908
1,285 Wells Fargo & Co., Notes, 6.625%, due 7/15/04 Aa2 A+ 1,267
2,400 Caterpillar Financial Services Corp., Notes, 6.875%,
due 8/1/04 A2 A+ 2,379
660 EOP Operating Limited Partnership, Notes, 6.625%,
due 2/15/05 Baa1 BBB+ 638
4,200 Heritage Media Corp., Senior Subordinated Notes, 8.75%,
due 2/15/06 Ba3 BB+ 4,100
735 Calpine Corp., Senior Notes, 7.625%, due 4/15/06 Ba1(7) BB+(7) 709
325 Jones Apparel Group, Senior Notes, 7.875%, due 6/15/06 Baa2 BBB- 303
</TABLE>
C-9
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger Berman October 31, 2000
--------------------------------------------------------------------------------
Limited Maturity Bond Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal
Amount Rating(2) Value(3)
(000's omitted) Moody's S&P (000's omitted)
--------------------- -------- --------- ---------------
<C> <S> <C> <C> <C>
$ 2,825 Time Warner Inc., Notes, 8.11%, due 8/15/06 Baa3 BBB $ 2,927
680 Newport News Shipbuilding Inc., Senior Subordinated Notes,
9.25%, due 12/1/06 Ba3 B+ 689
2,000 Interpool, Inc., Notes, 7.20%, due 8/1/07 B1(8) BB+(8) 1,444
1,000 Thiokol Corp., Senior Notes, 6.625%, due 3/1/08 A3 A+ 957
--------
TOTAL CORPORATE DEBT SECURITIES (COST $76,217) 73,210
--------
FOREIGN GOVERNMENT SECURITIES (1.0%)
2,160 Republic of Argentina, Floating Rate Notes, 7.625%,
due 3/31/05 (COST $1,998) B1 BB 1,890
--------
REPURCHASE AGREEMENTS (1.5%)
2,990 State Street Bank and Trust Co. Repurchase Agreement, 6.55%,
due 11/1/00, dated 10/31/00, Maturity Value $2,990,544,
Collateralized by $3,050,000 Fannie Mae, Medium-Term Notes,
Ser. B, 6.23%, due 8/20/01 (Collateral Value $3,079,945)
(COST $2,990) 2,990(9)
--------
TOTAL INVESTMENTS (98.7%) (COST $195,332) 192,543(10)
Cash, receivables and other assets, less liabilities (1.3%) 2,605
--------
TOTAL NET ASSETS (100.0%) $195,148
--------
</TABLE>
SEE NOTES TO SCHEDULE OF INVESTMENTS
C-10
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger Berman October 31, 2000
--------------------------------------------------------------------------------
High Yield Bond Portfolio
<TABLE>
<CAPTION>
Principal
Amount Rating(2) Value(3)
(000's omitted) Moody's S&P (000's omitted)
--------------------- --------- --------- ---------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCY SECURITIES (1.7%)
$210 Freddie Mac, Discount Notes, 6.35%, due 11/7/00 (COST $210) AGY AGY $ 210
-------
MORTGAGE-BACKED SECURITIES (9.7%)
421 BA Mortgage Securities, Inc., Mortgage Pass-Through
Certificates, Ser. 1998-6, 6.25%, due 12/26/28 BB(4) 291(5)
493 GE Capital Mortgage Services, Inc., REMIC Pass-Through
Certificates, Ser. 1999-11, Class B3, 6.50%, due 7/25/29 BB(4) 358(5)
747 Morgan Stanley Capital I Inc., Commercial Mortgage
Pass-Through Certificates, Ser. 1998-HF2, 6.01%,
due 11/15/30 BB(4) 533(5)
-------
TOTAL MORTGAGE-BACKED SECURITIES (COST $1,140) 1,182
-------
CORPORATE DEBT SECURITIES (79.5%)
150 Methanex Corp., Notes, 7.40%, due 8/15/02 Ba1 BBB- 140
100 Anixter Inc., Notes, 8.00%, due 9/15/03 Ba1 BBB- 99
100 Core-Mark International, Inc., Senior Subordinated Notes,
11.375%, due 9/15/03 B3 B 94
125 Acetex Corp., Guaranteed Notes, 9.75%, due 10/1/03 B3 B+ 115
98 Loomis Fargo & Co., Senior Subordinated Notes, 10.00%,
due 1/15/04 B3 B 94
210 Playtex Products, Inc., Senior Notes, Ser. B, 8.875%,
due 7/15/04 B1 B+ 205
250 Gearbulk Holding Ltd., Senior Notes, 11.25%, due 12/1/04 B1 B+ 249
160 AMERCO, Senior Notes, 8.80%, due 2/4/05 Ba1 BBB 153
250 American Standard Inc., Senior Notes, 7.375%, due 4/15/05 Ba2 BB+ 238
100 International Wire Group, Inc., Senior Subordinated Notes,
Ser. B, 11.75%, due 6/1/05 B3 B- 99
</TABLE>
C-11
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger Berman
--------------------------------------------------------------------------------
High Yield Bond Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal
Amount Rating(2) Value(3)
(000's omitted) Moody's S&P (000's omitted)
--------------------- --------- --------- ---------------
<C> <S> <C> <C> <C>
$210 Seagull Energy Corp., Senior Subordinated Notes, 8.625%,
due 8/1/05 Ba3 BB- $211
175 ICN Pharmaceuticals, Inc., Senior Notes, Ser. B, 9.25%,
due 8/15/05 Ba3 BB 170
250 Clearnet Communications Inc., Senior Step Up Notes, Yielding
12.183%, due 12/15/05 Ba1 265
250 Park Place Entertainment Corp., Senior Subordinated Notes,
7.875%, due 12/15/05 Ba2 BB+ 241
150 Vintage Petroleum, Inc., Senior Subordinated Notes, 9.00%,
due 12/15/05 Ba3 BB- 151
250 Mohegan Tribal Gaming Authority, Senior Notes, 8.125%,
due 1/1/06 Ba2 BB 242
100 Intercel Inc., Senior Step Up Notes, Yielding 11.982%,
due 2/1/06 B2 B 99
150 Amkor Technology, Inc., Senior Notes, 9.25%, due 5/1/06 Ba3 BB- 146
210 Microcell Telecommunications, Senior Step Up Notes, Yielding
11.4225%, due 6/1/06 B3 202
50 Delco Remy International, Inc., Senior Subordinated Notes,
10.875%, due 8/1/06 B2 B 48
85 Printpack, Inc., Senior Subordinated Notes, Ser. B,
10.625%, due 8/15/06 Caa1 B 79
150 Motors and Gears, Inc., Senior Notes, Ser. B, 10.75%,
due 11/15/06 B3 B 145
150 Newport News Shipbuilding Inc., Senior Notes, 8.625%,
due 12/1/06 Ba1 BB 150
210 Nuevo Grupo Iusacell S.A., Senior Notes, 14.25%,
due 12/1/06 B1 B+ 212
200 NTL Inc., Senior Notes, Ser. B, 10.00%, due 2/15/07 B2 B 176
120 Doane Pet Care Co., Senior Subordinated Notes, 9.75%,
due 5/15/07 B3 B- 100
210 Venture Holdings Trust, Senior Notes, 11.00%, due 6/1/07 B2 B 130
</TABLE>
C-12
<PAGE>
October 31, 2000
--------------------------------------------------------------------------------
High Yield Bond Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal
Amount Rating(2) Value(3)
(000's omitted) Moody's S&P (000's omitted)
--------------------- --------- --------- ---------------
<C> <S> <C> <C> <C>
$100 Hayes Wheels International, Inc., Senior Subordinated Notes,
Ser. B, 9.125%, due 7/15/07 B2 B $ 81
100 Telewest Communications PLC, Senior Notes, 9.875%,
due 10/1/07 B1 B+ 80(5)
100 International Shipholding Corp., Senior Notes, Ser. B,
7.75%, due 10/15/07 Ba3 BB 88
85 K & F Industries, Inc., Senior Subordinated Notes, 9.25%,
due 10/15/07 B3 B- 81
250 Fisher Scientific International Inc., Senior Subordinated
Notes, 9.00%, due 2/1/08 B3 B- 228
100 M.D.C. Holdings, Inc., Senior Notes, 8.375%, due 2/1/08 Ba2 BB 92
210 Allegiance Telecom, Inc., Senior Step Up Notes, Yielding
10.992%, due 2/15/08 B3 B 145
150 Nextel Communications, Inc., Senior Redeemable Step Up
Notes, Yielding 10.926%, due 2/15/08 B1 B 112
210 Beckman Coulter, Inc., Senior Notes, 7.45%, due 3/4/08 Ba1(7) BB+(7) 194
190 Great Central Mines Ltd., Senior Notes, 8.875%, due 4/1/08 Ba2 BB+ 162
150 Level 3 Communications, Inc., Senior Notes, 9.125%,
due 5/1/08 B3 B 121
320 Sun Healthcare Group, Inc., Senior Subordinated Notes,
9.375%, due 5/1/08 D 10(5)(11)
200 Millar Western Forest Products Ltd., Senior Notes, 9.875%,
due 5/15/08 B2 B+ 174
200 Pierce Leahy Command Co., Senior Notes, 8.125%, due 5/15/08 B2 B 186
75 WESCO Distribution, Inc., Senior Subordinated Notes,
Ser. B, 9.125%, due 6/1/08 B2 B 68
250 Station Casinos, Inc., Senior Subordinated Notes, 8.875%,
due 12/1/08 B1 B+ 240
250 Bulong Operations Ltd., Senior Secured Notes, 12.50%,
due 12/15/08 Caa1 D 112(11)
</TABLE>
C-13
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger Berman
--------------------------------------------------------------------------------
High Yield Bond Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal
Amount Rating(2) Value(3)
(000's omitted) Moody's S&P (000's omitted)
--------------------- --------- --------- ---------------
<C> <S> <C> <C> <C>
$250 AK Steel Corp., Senior Notes, 7.875%, due 2/15/09 Ba2 BB $226
250 McLeodUSA Inc., Senior Notes, 8.125%, due 2/15/09 B1 B+ 217
150 Canandaigua Brands, Inc., Senior Subordinated Notes, 8.50%,
due 3/1/09 B1 B+ 145
250 Charter Communications Holdings, LLC, Senior Notes, 8.625%,
due 4/1/09 B2 B+ 225
500 Diamond Brands Inc., Senior Step Up Debentures, Yielding
12.875%, due 4/15/09 Caa2 CCC+ 81
150 Isle of Capri Casinos, Inc., Senior Subordinated Notes,
Ser. B, 8.75%, due 4/15/09 B2 B 136
125 TeleCorp PCS, Inc., Senior Subordinated Step Up Notes,
Yielding 11.625%, due 4/15/09 B3 81
50 Dura Operating Corp., Senior Subordinated Notes, 9.00%,
due 5/1/09 B2 B 41
500 MEDIQ Inc., Senior Step Up Debentures, Yielding 13.00%,
due 6/1/09 C --
250 Nextlink Communications, Inc., Senior Notes, 10.75%,
due 6/1/09 B2 B 219
200 Falcon Products, Inc., Senior Subordinated Notes, 11.375%,
due 6/15/09 B3 B 184
250 Allied Waste North America, Inc., Senior Subordinated Notes,
Ser. B, 10.00%, due 8/1/09 B2 B+ 214
100 Sequa Corp., Senior Notes, 9.00%, due 8/1/09 Ba2 BB 97
150 Swift Energy Co., Senior Subordinated Notes, 10.25%,
due 8/1/09 B2 B- 151
250 Williams Communications Group, Inc., Senior Notes, 10.875%,
due 10/1/09 B2 B+ 211
150 Global Crossing Holdings Ltd., Senior Notes, 9.50%,
due 11/15/09 Ba2 BB 143
210 Metromedia Fiber Network, Inc., Senior Notes, 10.00%,
due 12/15/09 B2 B+ 186
100 Telewest Communications PLC, Step Up Debentures, 11.00%,
due 2/1/10 B1 B+ 87(5)
</TABLE>
C-14
<PAGE>
October 31, 2000
--------------------------------------------------------------------------------
High Yield Bond Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal
Amount Rating(2) Value(3)
(000's omitted) Moody's S&P (000's omitted)
--------------------- --------- --------- ---------------
<C> <S> <C> <C> <C>
$ 50 Del Webb Corp., Senior Subordinated Debentures, 10.25%,
due 2/15/10 B2 B- $ 47
100 Flextronics International Ltd., Senior Subordinated Notes,
9.875%, due 7/1/10 Ba3 B+ 101(5)
125 TeleCorp PCS, Inc., Senior Subordinated Notes, 10.625%,
due 7/15/10 B3 125
30 Crown Castle International Corp., Senior Step Up Notes,
Yielding 11.238%, due 5/15/11 B3 B 19
70 Crown Castle International Corp., Senior Notes, 10.75%,
due 8/1/11 B3 B 72
250 US Airways Inc., Pass-Through Certificates, 9.82%,
due 1/1/13 Ba3 BB- 217
-------
TOTAL CORPORATE DEBT SECURITIES (COST $11,233) 9,652
-------
REPURCHASE AGREEMENTS (4.2%)
505 State Street Bank and Trust Co. Repurchase Agreement, 6.55%,
due 11/1/00, dated 10/31/00, Maturity Value $505,092,
Collateralized by $520,000 Fannie Mae, Medium-Term Notes,
Ser. B, 6.23%, due 8/20/01 (Collateral Value $525,105)
(COST $505) 505(9)
-------
CONVERTIBLE BONDS (0.9%)
140 Omnicare, Inc., Subordinated Debentures, 5.00%, due 12/1/07
(COST $101) Ba3 BB+ 104
-------
WARRANTS (0.0%)
500 MEDIQ Inc. (COST $0) --
-------
TOTAL INVESTMENTS (96.0%) (COST $13,189) 11,653(10)
Cash, receivables and other assets, less liabilities (4.0%) 491
-------
TOTAL NET ASSETS (100.0%) $12,144
-------
</TABLE>
SEE NOTES TO SCHEDULE OF INVESTMENTS
C-15
<PAGE>
NOTES TO SCHEDULE OF INVESTMENTS
October 31, 2000
----------------------------------------------------------------------
Income Managers Trust
1) Investment securities of the Portfolio are valued at amortized cost, which
approximates U.S. Federal income tax cost.
2) Credit ratings are unaudited.
3) Investment securities of the Portfolio are valued daily by obtaining bid
price quotations from independent pricing services on selected securities
available in each service's data base. For all other securities requiring
daily quotations, bid prices are obtained from principal market makers in
those securities or, if quotations are not available, by a method the
trustees of Income Managers Trust believe accurately reflects fair value.
Foreign security prices are furnished by independent quotation services
expressed in local currency values. Foreign security prices are translated
from the local currency into U.S. dollars using current exchange rates.
Short-term debt securities with less than 60 days until maturity may be
valued at cost which, when combined with interest earned, approximates
market value.
4) Not rated by Moody's; the rating shown is from Fitch Investors Services,
Inc.
5) 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, 2000,
these securities amounted to $13,067,000 or 6.7% of net assets for Neuberger
Berman Limited Maturity Bond Portfolio and $1,460,000 or 12.0% of net assets
for Neuberger Berman High Yield Bond Portfolio.
6) Rated A by Fitch Investors Services, Inc.
7) Rated BBB- by Fitch Investors Services, Inc.
8) Rated BBB by Fitch Investors Services, Inc.
9) At cost, which approximates market value.
10) At October 31, 2000, selected Portfolio information on a U.S. Federal income
tax basis was as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED NET UNREALIZED
NEUBERGER BERMAN COST APPRECIATION DEPRECIATION DEPRECIATION
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------
LIMITED MATURITY BOND PORTFOLIO $195,332,000 $769,000 $3,558,000 $2,789,000
HIGH YIELD BOND PORTFOLIO 13,189,000 109,000 1,645,000 1,536,000
</TABLE>
11) Non-income producing security -- in default.
SEE NOTES TO FINANCIAL STATEMENTS
C-16
<PAGE>
(This page has been left blank intentionally.)
C-17
<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 $ 302,818
Cash 1
Deferred organization costs (Note A) --
Interest receivable 955
Prepaid expenses and other assets 9
Receivable for securities sold --
-------------
303,783
-------------
LIABILITIES
Payable to investment manager (Note B) 62
Accrued expenses 50
-------------
112
-------------
NET ASSETS Applicable to Investors' Beneficial
Interests $ 303,671
-------------
NET ASSETS consist of:
Paid-in capital $ 303,671
Net unrealized depreciation in value of
investment securities --
-------------
NET ASSETS $ 303,671
-------------
*Cost of investments $ 302,818
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
C-18
<PAGE>
October 31, 2000
----------------------------------------------------------------------
Income Managers Trust
<TABLE>
<CAPTION>
CASH LIMITED MATURITY HIGH YIELD
RESERVES BOND BOND
PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C>
----------------------------------------------
ASSETS
Investments in securities, at value*
(Note A) -- see Schedule of Investments $ 1,323,282 $ 192,543 $ 11,653
Cash 9 6 1
Deferred organization costs (Note A) -- -- 1
Interest receivable 3,266 2,670 278
Prepaid expenses and other assets 24 6 1
Receivable for securities sold -- 9 250
----------------------------------------------
1,326,581 195,234 12,184
----------------------------------------------
LIABILITIES
Payable to investment manager (Note B) 226 42 4
Accrued expenses 74 44 36
----------------------------------------------
300 86 40
----------------------------------------------
NET ASSETS Applicable to Investors' Beneficial
Interests $ 1,326,281 $ 195,148 $ 12,144
----------------------------------------------
NET ASSETS consist of:
Paid-in capital $ 1,326,281 $ 197,937 $ 13,680
Net unrealized depreciation in value of investment
securities -- (2,789) (1,536)
----------------------------------------------
NET ASSETS $ 1,326,281 $ 195,148 $ 12,144
----------------------------------------------
*Cost of investments $ 1,323,282 $ 195,332 $ 13,189
----------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
C-19
<PAGE>
STATEMENTS OF OPERATIONS
----------------------------------------------------------------------
Income Managers Trust
<TABLE>
<CAPTION>
GOVERNMENT
MONEY
(000'S OMITTED) PORTFOLIO
<S> <C>
-----------
INVESTMENT INCOME
Interest income $ 23,393
-----------
Expenses:
Investment management fee (Note B) 1,034
Accounting fees 10
Auditing fees 26
Custodian fees (Note B) 117
Insurance expense 8
Legal fees 17
Trustees' fees and expenses 25
Miscellaneous --
-----------
Total expenses 1,237
Expenses reduced by custodian fee expense
offset arrangement (Note B) (4)
-----------
Total net expenses 1,233
-----------
Net investment income 22,160
-----------
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 loss on foreign currency
transactions (Note A) --
Change in net unrealized 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 (decrease) in net assets
resulting from operations $ 22,157
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
C-20
<PAGE>
For the Year Ended October 31, 2000
----------------------------------------------------------------------
Income Managers Trust
<TABLE>
<CAPTION>
CASH LIMITED MATURITY HIGH YIELD
RESERVES BOND BOND
PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C>
----------------------------------------------
INVESTMENT INCOME
Interest income $ 70,769 $ 16,585 $ 1,681
----------------------------------------------
Expenses:
Investment management fee (Note B) 2,656 579 60
Accounting fees 10 10 10
Auditing fees 27 26 23
Custodian fees (Note B) 231 113 33
Insurance expense 13 4 --
Legal fees 27 22 23
Trustees' fees and expenses 53 16 7
Miscellaneous -- 1 1
----------------------------------------------
Total expenses 3,017 771 157
Expenses reduced by custodian fee expense
offset arrangement (Note B) (4) (15) (1)
----------------------------------------------
Total net expenses 3,013 756 156
----------------------------------------------
Net investment income 67,756 15,829 1,525
----------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investment
securities sold 1 (8,545) (4,121)
Net realized loss on financial futures
contracts (Note A) -- (4) (21)
Net realized loss on foreign currency
transactions (Note A) -- (685) --
Change in net unrealized depreciation of
investment securities, financial futures
contracts, translation of assets and
liabilities in foreign currencies, and
foreign currency contracts (Note A) -- 3,924 908
----------------------------------------------
Net gain (loss) on investments 1 (5,310) (3,234)
----------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 67,757 $ 10,519 $ (1,709)
----------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
C-21
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
----------------------------------------------------------------------
Income Managers Trust
<TABLE>
<CAPTION>
GOVERNMENT
MONEY PORTFOLIO
Year
Ended
October 31,
(000's omitted) 2000 1999
<S> <C> <C>
--------------------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income $ 22,160 $ 26,324
Net realized gain (loss) on
investments (3) --
Change in net unrealized
appreciation (depreciation) of
investments -- --
--------------------------
Net increase (decrease) in net
assets resulting from operations 22,157 26,324
--------------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL
INTERESTS:
Additions 653,489 1,124,520
Reductions (1,025,842) (864,743)
--------------------------
Net increase (decrease) in net
assets resulting from transactions
in investors' beneficial interests (372,353) 259,777
--------------------------
NET INCREASE (DECREASE) IN NET ASSETS (350,196) 286,101
NET ASSETS:
Beginning of year 653,867 367,766
--------------------------
End of year $ 303,671 $ 653,867
--------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
C-22
<PAGE>
----------------------------------------------------------------------
Income Managers Trust
<TABLE>
<CAPTION>
CASH RESERVES LIMITED MATURITY HIGH YIELD
PORTFOLIO BOND PORTFOLIO BOND PORTFOLIO
Year Year Year
Ended Ended Ended
October 31, October 31, October 31,
2000 1999 2000 1999 2000 1999
<S> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income $ 67,756 $ 51,361 $ 15,829 $ 20,055 $ 1,525 $ 2,467
Net realized gain (loss) on
investments 1 (4) (9,234) (4,032) (4,142) (1,206)
Change in net unrealized
appreciation (depreciation) of
investments -- -- 3,924 (8,500) 908 (783)
----------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations 67,757 51,357 10,519 7,523 (1,709) 478
----------------------------------------------------------------------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL
INTERESTS:
Additions 1,773,316 1,035,872 92,710 44,610 3,181 13,190
Reductions (1,620,425) (1,010,355) (178,208) (138,662) (13,351) (12,284)
----------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from transactions
in investors' beneficial interests 152,891 25,517 (85,498) (94,052) (10,170) 906
----------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 220,648 76,874 (74,979) (86,529) (11,879) 1,384
NET ASSETS:
Beginning of year 1,105,633 1,028,759 270,127 356,656 24,023 22,639
----------------------------------------------------------------------------------
End of year $ 1,326,281 $ 1,105,633 $ 195,148 $ 270,127 $ 12,144 $ 24,023
----------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
C-23
<PAGE>
NOTES TO FINANCIAL STATEMENTS
October 31, 2000
----------------------------------------------------------------------
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
Limited Maturity Bond Portfolio ("Limited Maturity"), and Neuberger Berman
High Yield Bond Portfolio ("High Yield") (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 Inc. ("Management"), whose
financial statements are not presented herein, also invest in these and other
Portfolios of Managers Trust.
The assets of each Portfolio belong only to that Portfolio, and the
liabilities of each Portfolio are borne solely by that Portfolio 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 and High Yield may invest in
foreign securities denominated in foreign currency. The accounting records of
the Portfolios are maintained in U.S. dollars. Foreign currency amounts are
translated into U.S. dollars at the current rate of exchange of such currency
against the U.S. dollar to determine the value of investments, other assets
and liabilities. Purchase and sale prices of securities, and income and
expenses are translated into U.S. dollars at the prevailing rate of exchange
on the respective dates of such transactions.
4) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on a trade date basis. 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.
5) FORWARD FOREIGN CURRENCY CONTRACTS: Limited Maturity and High Yield may each
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
C-24
<PAGE>
transactions. Fluctuations in the value of forward foreign currency contracts
are recorded for financial reporting purposes as unrealized gains or losses
by each Portfolio. Neither Portfolio has a specific limitation on the
percentage of assets which may be committed to these types of contracts. The
Portfolios 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
underlying all contractual commitments held by each Portfolio is determined
using forward foreign currency exchange rates supplied by an independent
pricing service.
6) 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 U.S. Federal income tax purposes and is therefore not subject to U.S.
Federal income tax.
7) ORGANIZATION EXPENSES: Organization expenses incurred by High Yield are being
amortized on a straight-line basis over a five-year period. At October 31,
2000, the unamortized balance of such expenses amounted to $756.
8) EXPENSE ALLOCATION: Each Portfolio bears all costs of its operations.
Expenses incurred by Managers Trust with respect to any two or more
portfolios are allocated in proportion to the net assets of such portfolios,
except where a more appropriate allocation of expenses to each portfolio can
otherwise be made fairly. Expenses directly attributable to a portfolio are
charged to that portfolio.
9) FINANCIAL FUTURES CONTRACTS: Limited Maturity and High Yield may each 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 Portfolios 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.
C-25
<PAGE>
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 U.S. 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 Portfolios. 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, 2000, Limited Maturity and High Yield
had entered into various financial futures contracts. At October 31, 2000,
there were no open positions.
10) REPURCHASE AGREEMENTS: Each Portfolio may enter into repurchase agreements
with institutions that the Portfolio's investment manager has determined are
creditworthy. Each repurchase agreement is recorded at cost. A Portfolio
requires that the securities purchased in a repurchase transaction be
transferred to the custodian in a manner sufficient to enable a Portfolio to
obtain those securities in the event of a default under the repurchase
agreement. A Portfolio monitors, on a daily basis, the value of the
securities transferred to ensure that their value, including accrued
interest, is greater than amounts owed to a Portfolio under each such
repurchase agreement.
NOTE B -- MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES:
Each Portfolio retains Management as its investment manager under a
Management Agreement. For such investment management services, each Portfolio
(except High Yield) 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.
High Yield pays Management a fee for investment management services at the
annual rate of 0.38% of the first $500 million of that Portfolio's average daily
net assets, 0.355% of the next $500 million, 0.33% of the next $500 million,
0.305% of the next $500 million, and 0.28% of average daily net assets in excess
of $2 billion.
Management and Neuberger Berman, LLC ("Neuberger"), a member firm of The New
York Stock Exchange and sub-adviser to each Portfolio, are wholly owned
subsidiaries of Neuberger Berman Inc., a publicly held company. Neuberger is
retained by Management to furnish it with investment recommendations and
research
C-26
<PAGE>
information without added cost to each Portfolio. Several individuals who are
officers and/or trustees of Managers Trust are also employees of Neuberger
and/or 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 $3,626,
$3,915, $15,393, and $749 for Government Money, Cash Reserves, Limited Maturity,
and High Yield, respectively.
NOTE C -- SECURITIES TRANSACTIONS:
During the year ended October 31, 2000, 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>
-------------------------------------------------------------------
LIMITED MATURITY $ 233,220,000 $ 311,551,000
HIGH YIELD 10,746,000 18,646,000
</TABLE>
All securities transactions for Government Money and Cash Reserves were
short-term.
During the year ended October 31, 2000, Limited Maturity had entered into
various contracts to deliver currencies at specified future dates. At
October 31, 2000, there were no open contracts.
NOTE D -- REORGANIZATION:
As currently structured, the Portfolios receive investments from Neuberger
Berman Government Money Fund, Neuberger Berman Cash Reserves, Neuberger Berman
Limited Maturity Bond Fund, and Neuberger Berman High Yield Bond Fund
(collectively, the "Funds"). On June 6, 2000, the Trustees of the Portfolios
approved a plan of reorganization whereby each Portfolio will distribute its
entire portfolio of market securities and other assets to the corresponding
Fund, and each Portfolio will dissolve. Thus, the Funds will no longer invest
all of their net investable assets in the Portfolios. Instead, each Fund will
own directly the securities formerly held in its corresponding Portfolio. The
effective date of the proposed conversion is February 9, 2001.
C-27
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger Berman
--------------------------------------------------------------------------------
Government Money Portfolio
<TABLE>
<CAPTION>
Year Ended October 31,
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
---------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses(1) .30% .28% .31% .30% .31%
---------------------------------------------------
Net Expenses .30% .28% .31% .30% .31%
---------------------------------------------------
Net Investment Income 5.35% 4.39% 4.93% 4.96% 4.99%
---------------------------------------------------
Net Assets, End of Year (in millions) $303.7 $653.9 $367.8 $307.9 $362.5
---------------------------------------------------
</TABLE>
1) The Portfolio is required to calculate an expense ratio without taking into
consideration any expense reductions related to expense offset arrangements.
C-28
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger Berman
--------------------------------------------------------------------------------
Cash Reserves Portfolio
<TABLE>
<CAPTION>
Year Ended October 31,
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
----------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses(1) .26% .27% .29% .29% .30%
----------------------------------------------------
Net Expenses .26% .27% .29% .29% .30%
----------------------------------------------------
Net Investment Income 5.93% 4.88% 5.33% 5.31% 5.20%
----------------------------------------------------
Net Assets, End of Year (in millions) $1,326.3 $1,105.6 $1,028.8 $665.8 $484.0
----------------------------------------------------
</TABLE>
1) The Portfolio is required to calculate an expense ratio without taking into
consideration any expense reductions related to expense offset arrangements.
C-29
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger Berman
--------------------------------------------------------------------------------
Limited Maturity Bond Portfolio
<TABLE>
<CAPTION>
Year Ended October 31,
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
----------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses(1) .33% .31% .33% .33% .33%
----------------------------------------------
Net Expenses .32% .31% .33% .33% .33%
----------------------------------------------
Net Investment Income 6.78% 6.35% 6.38% 6.70% 6.45%
----------------------------------------------
Portfolio Turnover Rate 105% 102% 44% 89% 169%
----------------------------------------------
Net Assets, End of Year (in millions) $195.1 $270.1 $356.7 $293.0 $267.3
----------------------------------------------
</TABLE>
1) The Portfolio is required to calculate an expense ratio without taking into
consideration any expense reductions related to expense offset arrangements.
C-30
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger Berman
--------------------------------------------------------------------------------
High Yield Bond Portfolio
<TABLE>
<CAPTION>
Period from
March 3, 1998 (1)
Year Ended October 31, to October 31,
2000 1999 1998
<S> <C> <C> <C>
-------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses(2) .98% .73% .89%(3)
-------------------------------------------
Net Expenses .98% .73% .89%(3)
-------------------------------------------
Net Investment Income 9.60% 9.44% 8.13%(3)
-------------------------------------------
Portfolio Turnover Rate 74% 66% 16%
-------------------------------------------
Net Assets, End of Year (in millions) $12.1 $24.0 $22.6
-------------------------------------------
</TABLE>
1) The date investment operations commenced.
2) The Portfolio is required to calculate an expense ratio without taking into
consideration any expense reductions related to expense offset arrangements.
3) Annualized.
C-31
<PAGE>
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Board of Trustees
Income Managers Trust and
Owners of Beneficial Interest of
Neuberger Berman Government Money Portfolio
Neuberger Berman Cash Reserves Portfolio
Neuberger Berman Limited Maturity Bond Portfolio and
Neuberger Berman High Yield 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 Limited
Maturity Bond Portfolio, and Neuberger Berman High Yield Bond Portfolio, four of
the series constituting Income Managers Trust (the "Trust"), as of October 31,
2000, 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 auditing standards generally
accepted in the United States. 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, 2000, by correspondence with
the custodian and brokers or other appropriate 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, 2000, 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
accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
December 4, 2000
C-32
<PAGE>
DIRECTORY
INVESTMENT MANAGER, ADMINISTRATOR
AND DISTRIBUTOR
Neuberger Berman Management Inc.
605 Third Avenue 2nd Floor
New York, NY 10158-0180
800.877.9700 or 212.476.8800
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
-C- 2000 Neuberger Berman Management Inc.
D-1
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OFFICERS AND TRUSTEES
Theodore P. Giuliano
CHAIRMAN OF THE BOARD AND TRUSTEE
John Cannon
TRUSTEE
Barry Hirsch
TRUSTEE
Robert A. Kavesh
TRUSTEE
William E. Rulon
TRUSTEE
Candace L. Straight
TRUSTEE
Peter E. Sundman
PRESIDENT
Daniel J. Sullivan
VICE PRESIDENT
Richard Russell
TREASURER
Claudia A. Brandon
SECRETARY
Barbara DiGiorgio
ASSISTANT TREASURER
Celeste Wischerth
ASSISTANT TREASURER
Stacy Cooper-Shugrue
ASSISTANT SECRETARY
D-2
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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, 2000. This information should not be used to
complete your tax returns.
<TABLE>
<CAPTION>
CALIFORNIA,
CONNECTICUT, AND ALL OTHER
NEUBERGER BERMAN NEW YORK MAINE STATES
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<S> <C> <C> <C>
GOVERNMENT MONEY FUND 100.0% 100.0% 100.0%
CASH RESERVES 0.0 0.4 0.8
LIMITED MATURITY BOND FUND 0.0 7.9 8.1
HIGH YIELD BOND FUND 0.0 0.9 0.0
</TABLE>
In January 2001 you will receive information to be used in filing your 2000
tax returns, which will include a notice of the exact tax status of all
dividends paid to you by each Fund during calendar 2000. Please consult your own
tax advisor for details as to how this information should be reflected on your
tax returns.
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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
[LOGO] PRINTED ON RECYCLED PAPER A0104 12/00
KIRKPATRICK & LOCKHART LLP 1800 Massachusetts Avenue, NW
Second Floor
Washington, DC 20036-1800
202.778.9000
www.kl.com
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December 28, 2000
EDGAR FILING
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U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Neuberger Berman Income Funds:
Neuberger Berman Government Money Fund
Neuberger Berman Cash Reserves
Neuberger Berman Limited Maturity Bond Fund
Neuberger Berman High Yield Bond Fund
1933 Act File No. 2-85229
1940 Act File No. 811-3802
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Dear Sir or Madam:
Transmitted herewith for filing is the Annual Report to Shareholders of
the above-referenced series of Neuberger Berman Income Funds for the fiscal year
ended October 31, 2000. This filing is being made pursuant to Section 30(b)(2)
of the Investment Company Act of 1940, as amended, and Rule 30b2-1 thereunder.
If you should have any questions regarding this filing, please contact the
undersigned.
Sincerely,
/s/ Fatima Sulaiman
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Fatima Sulaiman
Enclosures
