<PAGE>
ANNUAL REPORT
- --------------------------------------------------
October 31, 1997
Neuberger&Berman
INCOME TRUST -Registered Trademark-
Neuberger&Berman
ULTRA SHORT BOND TRUST
Neuberger&Berman
LIMITED MATURITY BOND TRUST
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
THE TRUSTS
PRESIDENT'S LETTER A-4
GROWTH OF A DOLLAR CHARTS
COMPARISON OF A $10,000 INVESTMENT
Ultra Short Bond Trust B-2
Limited Maturity Bond Trust B-3
FINANCIAL STATEMENTS B-4
FINANCIAL HIGHLIGHTS
PER SHARE DATA
Ultra Short Bond Trust B-11
Limited Maturity Bond Trust B-12
REPORT OF INDEPENDENT AUDITORS B-14
THE PORTFOLIOS
SCHEDULE OF INVESTMENTS
Ultra Short Bond Portfolio B-15
Limited Maturity Bond Portfolio B-18
FINANCIAL STATEMENTS B-26
FINANCIAL HIGHLIGHTS B-33
REPORT OF INDEPENDENT AUDITORS B-34
DIRECTORY C-1
OFFICERS AND TRUSTEES C-2
</TABLE>
3
<PAGE>
PRESIDENT'S LETTER December 18, 1997
Dear Shareholder,
In a "state of the bond market" address presented in our fiscal April 30,
1997, Semi-Annual Report, I expressed our positive attitude toward the
fixed-income markets. I summarized our perspective by concluding that, "...based
on their own fundamental merits, we find that bonds currently provide an
appealing investment opportunity." Evidently, our opinion was shared by others,
most notably legendary value investor Warren Buffett, who was reported to have
purchased several billion dollars of bonds during the third quarter in a rare
foray into the fixed-income market. Equities investors' renewed enthusiasm for
bonds is also becoming more evident in the mutual fund arena. In September and
October 1997, an estimated $6.6 billion flowed into bond funds, nearly double
the total from a year ago. What is happening here? We believe investors are
recognizing bonds' fundamental attractiveness and showing greater appreciation
for the traditional role fixed income plays in diversified investment
portfolios.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1-YEAR TREASURY
BILLS 5-YEAR TREASURY NOTES 10-YEAR TREASURY BONDS
<S> <C> <C> <C>
Nov-96 0.51% 1.49% 2.68%
Dec-96 0.85% 0.40% 0.54%
Jan-97 1.36% 0.74% 0.55%
Feb-97 1.72% 0.56% 0.32%
Mar-97 2.00% -0.45% -1.65%
Apr-97 2.62% 0.83% 0.25%
May-97 3.26% 1.59% 1.34%
Jun-97 3.87% 2.61% 3.06%
Jul-97 4.62% 5.22% 7.30%
Aug-97 4.99% 4.38% 5.08%
Sep-97 5.55% 5.84% 7.38%
Oct-97 6.15% 7.47% 10.19%
Source: Salomon Brothers
</TABLE>
Let's discuss fundamentals first. There are several surprising bullish
developments that have allowed interest rates to decline by 53-86 basis points
(.53%-.86%) on bonds with maturities of one year or more over the last six
months (ended 10/31/97). All other things being equal,
4
<PAGE>
these developments may help rates gradually fall further in the year ahead.
First, the federal budget deficit appears to be shrinking in a dramatic fashion,
and there are forecasts that the U.S. may in fact have a budget surplus within
the next several years. This would be the first budget surplus in over three
decades. The decline in the federal deficit, accompanied by reduced issuance of
government bonds, have convinced a growing number of investors that the United
States' fiscal house may finally be in order.
A second development is in the Treasury Department's funding policy. Despite
their rather tepid initial reception, the Treasury remains committed to selling
more floating-rate debt (the new Treasury Inflation Protection Securities or
"TIPS") and fewer fixed-rate securities. We believe demand for the traditional
fixed-rate Treasuries will remain strong, and therefore, prices are likely to be
supported by investors chasing a shrinking supply.
Finally, the notion that a strong economy leads to a pick-up in inflation is
being called into question. With this historically unprecedented economic
expansion, many economists and market observers have predicted that a rise in
inflation was inevitable. This has not happened. Inflation statistics are being
reported below 3.0% and the Federal Reserve, which would have normally tightened
credit at this point in the business cycle, has refrained from raising rates
because of what appears to be dormant inflation.
These four factors--declining federal deficits, a shrinking supply of
fixed-rate Treasury securities, low inflation, and a benign Federal
Reserve--have produced very positive results for fixed-income investors over the
last six months. While future events are inherently unpredictable, we expect
these factors will continue to buoy the bond market over the next year. Bonds
may also benefit from a tailwind provided by equities investors. In October,
investors got their first taste of stock market instability in several years.
True to form, during the stock market sell-off, bonds provided yield and
relative safety of principal, and in the process, clearly demonstrated why they
deserve a place in everyone's investment program.
ULTRA SHORT BOND TRUST With interest rates trending lower over the last six
months, we extended the portfolio's weighted average duration from 1.62 years to
1.80 years at the close of fiscal 1997. In the
5
<PAGE>
process, securities with durations (measure of interest rate sensitivity) less
than one year declined from 39% of the portfolio at the end of first-half fiscal
1997 to 15% at the close of the fiscal year.
Our primary strategic shift during the last six months was to increase our
allocation in corporate notes and bonds from 16.4% at the close of first-half
fiscal 1997 to 37.2% at the end of the fiscal year. This was done to take
advantage of the higher yields offered by corporates as a result of plentiful
supply and, in our opinion, unjustified jitters over corporate profitability.
Our allocation in Treasury securities declined from 31.6% at the close of
first-half fiscal 1997 to 25.2% at the end of this reporting period. This
reflects our response to the higher prices and lower yields for Treasuries
created by the supply/demand imbalance in the marketplace. In view of corporate
bonds' material yield advantage over Treasuries, one might wonder why we have
not reduced our Treasury securities weighting even more. We believe the scarcity
value of Treasuries is likely to continue to contribute to price appreciation
and enhanced total return. We reduced our exposure to asset-backed securities
from 19.1% to 12.3% over the last six months, taking profits on bonds that
became more fully valued.
We are always on the lookout for "special situations," bonds that are
attractively priced due to what we view as investor misperception. The bonds of
Countrywide Credit Industries, the U.S.'s second largest servicer and originator
of home mortgages, offers a current example. We think the bond is attractively
priced due to investors' concern that a potential wave of refinancing could
reduce revenue and cash flow in Countrywide's mortgage servicing business.
However, the WAC (weighted average interest rate) of the mortgages Countrywide
services approximates the rates on no-point mortgages being offered today. So,
we believe rates would have to come down quite a bit before significant
refinancings would have a materially negative impact on the company's mortgage
servicing business. If they do, we think Countrywide is well positioned to take
up the slack in its mortgage servicing business by increasing revenue and cash
flow from originating new mortgages. At the close of second-half fiscal 1997,
the Countrywide Funding 7.31%s of 8/28/2000 were priced at $102.71 to yield
6.24%; in our view, an attractive yield for a piece of paper maturing in under
three years. Of course, we reserve the right to change our opinion on any bond
in our portfolios, but currently we like the prospects for this one.
6
<PAGE>
LIMITED MATURITY BOND TRUST The fund's weighted average duration was
extended from 1.9 years at the beginning of second-half fiscal 1997 to a peak of
2.3 years in October to take advantage of declining interest rates. In the last
week of October, believing the bond market had become temporarily overbought as
equities investors flocked to bonds in the midst of the stock market's
instability, we reduced duration to 2.0 years.
Our sector allocation has not changed significantly over the last six months.
As of October 31, 1997, 68.8% of assets were in corporate bonds, 20.5% in
asset-backed securities, 7.7% in mortgages, and the remaining 3.0% in Government
Agencies and cash equivalents. Once again, our high-yield investments performed
well. So well, in fact, that we took some profits in high-yield bonds that had
become fully priced, and in September had reduced our high-yield positions from
approximately 9.6% of the portfolio at the start of second-half fiscal 1997 to
6.0%. Since then, we took advantage of what we believe to be more attractive
pricing in the high-yield sector to build our positions back up to 8.8% of the
fund's assets at the close of fiscal 1997.
One of our successful investment strategies over the last six months is
something that we didn't do--namely, invest in Southeast Asia. We can have up to
25% of the Fund's assets in non-dollar-denominated foreign bonds and as much as
we want in dollar-denominated bonds of foreign issuers. While the fund will take
advantage of foreign opportunities, we are very careful in our credit analysis.
In recent years, countries such as Thailand, Korea, Malaysia and Indonesia have
been major issuers of U.S. dollar-denominated debt in the U.S. bond market. All
of these countries had strong investment-grade ratings from the major rating
agencies and powerful sponsorship from the key Wall Street underwriters. We took
a hard look at these offerings and our analysis showed these bonds to have below
investment-grade risk characteristics with huge downside risk if the supply of
external capital dried up. Our concerns were confirmed when currency turmoil,
which began in July and accelerated through the Fall, overwhelmed these
countries and sent bonds plummeting.
In the corporate sector, we have been modestly increasing our exposure to
utility company bonds. Due to concerns about the deregulation of the industry,
utilities bonds have been out of favor with the credit rating agencies and
investors in recent years. Now, the dust is
7
<PAGE>
settling and we are seeing evidence that financially strong and well-managed
utilities companies can survive and prosper in this new environment. In
addition, regulators thus far appear disposed to protecting bond holders during
this transition period. We see the potential for solid returns in utilities
bonds such as Cleveland Electric Illuminating Co. 7.19%s of 7/1/2000 and Central
Maine Power 7.05%s of 3/1/2008, two of our portfolio holdings. Of course, these
bonds are examples of our current perspective on utilities bonds, and if
fundamentally warranted, our investment opinions can change.
In closing, we are gratified by our fixed-income funds' performance in second
half and full fiscal year 1997. Favorable economic and supply/demand
fundamentals for bonds remain intact. We also expect investors' renewed
enthusiasm for bonds will carry over into 1998.
Sincerely,
/s/ THEODORE P. GIULIANO
Theodore P. Giuliano
President and Trustee
Neuberger&Berman Income Trust
8
<PAGE>
(This page has been left blank intentionally.)
B-1
<PAGE>
COMPARISON OF A $10,000 INVESTMENT
Neuberger&Berman October 31, 1997
- ----------------------------------------------------------------------
Ultra Short Bond Trust
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (1)
ULTRA SHORT 6-MONTH SALOMON
TREASURY BILL INDEX
BOND TRUST (2)
<S> <C> <C>
1 Year +5.97% +5.43%
5 Year +4.57% +4.81%
10 Years +5.90% +5.85%
Ultra Short 6-Month Salomon
Bond Trust Treasury Bill Index
1987 $10,000 $10,000
1988 $10,716 $10,673
1989 $11,686 $11,603
1990 $12,619 $12,555
1991 $13,583 $13,384
1992 $14,186 $13,961
1993 $14,699 $14,417
1994 $14,981 $14,990
1995 $15,903 $15,885
1996 $16,736 $16,746
1997 $17,735 $17,656
</TABLE>
The performance information for Neuberger&Berman Ultra Short Bond
Trust-Registered Trademark- ("Ultra Short Bond Trust") is as of October 31,
1997. Ultra Short Bond Trust started operating on September 7, 1993. It has
identical investment objectives and policies, and invests in the same Portfolio
as Neuberger&Berman Ultra Short Bond Fund-Registered Trademark- ("Sister Fund"),
which is also managed by Neuberger&Berman Management Inc.-Registered Trademark-
The performance information shown in the above chart for the period before
September 7, 1993, is for the Sister Fund. Neuberger&Berman Management Inc. has
voluntarily undertaken to reimburse Ultra Short Bond Trust for its operating
expenses and its pro rata share of its Portfolio's operating expenses which, in
the aggregate, exceed .75% per annum of Ultra Short Bond Trust's average daily
net assets. This arrangement can be terminated upon 60 days' prior written
notice. Absent such arrangement, the average annual total returns would have
been less. The total returns for periods prior to the Trust's commencement of
operations would have been lower had they reflected the higher expense ratios of
the Trust as compared to those of the Sister Fund.
1. "Total Return" includes reinvestment of all income dividends and capital gain
distributions. Results represent past performance and do not indicate future
results. The value of an investment in the Trust and the return on the
investment both will fluctuate, and redemption proceeds may be higher or lower
than an investor's original cost.
2. The 6-Month Salomon Treasury Bill Index is an unmanaged index of the 6 most
recent 6-month Treasury bill securities. This index consists of a moving 6-month
average yield (not total return) of the 6-month Treasury bills. Please note that
indices do not take into account any fees and expenses of investing in the
individual securities that they track, and that individuals cannot invest
directly in any index. Data about the performance of this index are prepared or
obtained by Neuberger&Berman Management Inc. and include reinvestment of all
dividends and capital gain distributions. The Portfolio invests in many
securities not included in the above-described index.
2
<PAGE>
COMPARISON OF A $10,000 INVESTMENT
Neuberger&Berman October 31, 1997
- ----------------------------------------------------------------------
Limited Maturity Bond Trust
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (1)
LIMITED MATURITY MERRILL LYNCH 1-3
BOND TRUST YEAR TREASURY INDEX (2)
<S> <C> <C>
1 Year +6.88% +6.49%
5 Year +5.51% +5.64%
10 Year +7.18% +7.32%
Limited Maturity Merrill Lynch 1-3
Bond Trust Year Treasury Index
1987 $10,000 $10,000
1988 $10,825 $10,758
1989 $11,859 $11,771
1990 $12,791 $12,800
1991 $14,184 $14,244
1992 $15,300 $15,411
1993 $16,408 $16,308
1994 $16,406 $16,501
1995 $17,778 $17,978
1996 $18,719 $19,040
1997 $20,008 $20,275
</TABLE>
The performance information for Neuberger&Berman Limited Maturity Bond
Trust-Registered Trademark- ("Limited Maturity Bond Trust") is as of October 31,
1997. Limited Maturity Bond Trust started operating on August 30, 1993. It has
identical investment objectives and policies, and invests in the same Portfolio
as Neuberger&Berman Limited Maturity Bond Fund-Registered Trademark- ("Sister
Fund"), which is also managed by Neuberger& Berman Management Inc. The
performance information shown in the above chart for the period before August
30, 1993, is for the Sister Fund. Neuberger&Berman Management Inc. has
voluntarily undertaken to reimburse Limited Maturity Bond Trust for its
operating expenses and its pro rata share of its Portfolio's operating expenses
which, in the aggregate, exceed .80% per annum of Limited Maturity Bond Trust's
average daily net assets. This arrangement can be terminated upon 60 days' prior
written notice. Absent such arrangement, the average annual total returns would
have been less. The total returns for periods prior to the Trust's commencement
of operations would have been lower had they reflected the higher expense ratios
of the Trust as compared to those of the Sister Fund.
1. "Total Return" includes reinvestment of all income dividends and capital gain
distributions. Results represent past performance and do not indicate future
results. The value of an investment in the Trust and the return on the
investment both will fluctuate, and redemption proceeds may be higher or lower
than an investor's original cost.
2. The Merrill Lynch 1-3 Year Treasury Index is an unmanaged total return market
value index consisting of all coupon-bearing U.S. Treasury publicly placed debt
securities with maturities between 1 and 3 years. Please note that indices do
not take into account any fees and expenses of investing in the individual
securities that they track, and that individuals cannot invest directly in any
index. Data about the performance of this index are prepared or obtained by
Neuberger&Berman Management Inc. and include reinvestment of all dividends and
capital gain distributions. The Portfolio invests in many securities not
included in the above-described index.
3
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
Neuberger&Berman October 31, 1997
- ----------------------------------------------------------------------
Income Trust
<TABLE>
<CAPTION>
LIMITED
ULTRA SHORT MATURITY
(000'S OMITTED EXCEPT PER SHARE AMOUNTS) BOND TRUST BOND TRUST
-------------------------------
<S> <C> <C>
ASSETS
Investment in corresponding Portfolio, at
value (Note A) $ 10,186 $ 37,469
Deferred organization costs (Note A) 9 9
Receivable for Trust shares sold 2 12
Receivable from administrator -- net (Note
B) 5 --
-------------------------------
10,202 37,490
-------------------------------
LIABILITIES
Payable for Trust shares redeemed 14 56
Payable to administrator -- net (Note B) -- 13
Accrued expenses 19 25
-------------------------------
33 94
-------------------------------
NET ASSETS at value $ 10,169 $ 37,396
-------------------------------
NET ASSETS consist of:
Par value $ 1 $ 4
Paid-in capital in excess of par value 10,145 37,291
Accumulated net realized losses on
investment (43) (111)
Net unrealized appreciation in value of
investment 66 212
-------------------------------
NET ASSETS at value $ 10,169 $ 37,396
-------------------------------
SHARES OUTSTANDING
($.001 par value; unlimited shares
authorized) 1,032 3,907
-------------------------------
NET ASSET VALUE, offering and redemption price per
share $9.85 $9.57
-------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
STATEMENTS OF OPERATIONS
Neuberger&Berman For the Year Ended October 31, 1997
- ----------------------------------------------------------------------
Income Trust
<TABLE>
<CAPTION>
LIMITED
ULTRA SHORT MATURITY
(000'S OMITTED) BOND TRUST BOND TRUST
---------------------------
<S> <C> <C>
INVESTMENT INCOME
Investment income from corresponding Portfolio
(Note A) $ 568 $ 2,314
---------------------------
Expenses:
Administration fee (Note B) 45 164
Amortization of deferred organization and
initial offering expenses (Note A) 11 10
Auditing fees 5 5
Custodian fees 10 10
Legal fees 13 14
Registration and filing fees 29 41
Shareholder reports 24 34
Shareholder servicing agent fees 18 19
Trustees' fees and expenses 1 2
Miscellaneous 1 1
Expenses from corresponding Portfolio
(Notes A & B) 38 108
---------------------------
Total expenses 195 408
Expenses reimbursed by administrator and/or
reduced by custodian fee expense offset
arrangement (Note B) (126) (145)
---------------------------
Total net expenses 69 263
---------------------------
Net investment income 499 2,051
---------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
FROM CORRESPONDING PORTFOLIO (NOTE A)
Net realized gain on investment securities 1 237
Net realized loss on financial futures
contracts -- (279)
Net realized gain on foreign currency
transactions -- 2
Change in net unrealized appreciation of
investment securities, financial futures
contracts, translation of assets and
liabilities in foreign currencies, and
foreign currency contracts 44 163
---------------------------
Net gain on investments from corresponding
Portfolio (Note A) 45 123
---------------------------
Net increase in net assets resulting from
operations $ 544 $ 2,174
---------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
Neuberger&Berman
- ----------------------------------------------------------------------
Income Trust
<TABLE>
<CAPTION>
ULTRA SHORT LIMITED MATURITY
BOND TRUST BOND TRUST
Year Year
Ended Ended
October 31, October 31,
(000'S OMITTED) 1997 1996 1997 1996
------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income $ 499 $ 336 $ 2,051 $ 923
Net realized gain (loss) on
investments from
corresponding Portfolio (Note A) 1 (42) (40) (10)
Change in net unrealized
appreciation of investments
from corresponding Portfolio (Note
A) 44 19 163 (58)
------------------------------------------
Net increase in net assets resulting
from operations 544 313 2,174 855
------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (499) (336) (2,053) (922)
------------------------------------------
FROM TRUST SHARE TRANSACTIONS:
Proceeds from shares sold 6,089 8,353 29,132 15,484
Proceeds from reinvestment of
dividends 573 335 2,050 906
Payments for shares redeemed (3,171) (3,772) (15,135) (7,010)
------------------------------------------
Net increase from Trust share
transactions 3,491 4,916 16,047 9,380
------------------------------------------
NET INCREASE IN NET ASSETS 3,536 4,893 16,168 9,313
NET ASSETS:
Beginning of year 6,633 1,740 21,228 11,915
------------------------------------------
End of year $ 10,169 $ 6,633 $ 37,396 $ 21,228
------------------------------------------
NUMBER OF TRUST SHARES:
Sold 621 849 3,052 1,629
Issued on reinvestment of dividends 59 34 215 95
Redeemed (324) (384) (1,587) (737)
------------------------------------------
Net increase in shares outstanding 356 499 1,680 987
------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Neuberger&Berman October 31, 1997
- ----------------------------------------------------------------------
Income Trust
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1) GENERAL: Neuberger&Berman Ultra Short Bond Trust ("Ultra Short") and
Neuberger&Berman Limited Maturity Bond Trust ("Limited Maturity")
(collectively, the "Funds") are separate operating series of Neuberger&Berman
Income Trust (the "Trust"), a Delaware business trust organized pursuant to a
Trust Instrument dated May 6, 1993. The Trust is registered as a diversified,
open-end management investment company under the Investment Company Act of
1940, as amended, and its shares are registered under the Securities Act of
1933, as amended. The trustees of the Trust may establish additional series
or classes of shares without the approval of shareholders.
The assets of each series belong only to that series, and the liabilities
of each series are borne solely by that series and no other.
Each Fund seeks to achieve its investment objective by investing all of
its net investable assets in its corresponding Portfolio of Income Managers
Trust (each a "Portfolio") having the same investment objective and policies
as the Fund. The value of each Fund's investment in its corresponding
Portfolio reflects that Fund's proportionate interest in the net assets of
that Portfolio (16.94% and 12.79% for Ultra Short and Limited Maturity,
respectively, at October 31, 1997). The performance of each Fund is directly
affected by the performance of its corresponding Portfolio. The financial
statements of each Portfolio, including the Schedule of Investments, are
included elsewhere in this report and should be read in conjunction with the
corresponding Fund's financial statements.
2) PORTFOLIO VALUATION: Each Fund records its investment in its corresponding
Portfolio at value. Investment securities held by each Portfolio are valued
by Income Managers Trust as indicated in the notes following the Portfolios'
Schedule of Investments.
3) FEDERAL INCOME TAXES: Each series of the Trust is treated as a separate
entity for Federal income tax purposes. It is the policy of each Fund to
continue to qualify as a regulated investment company by complying with the
provisions available to certain investment companies, as defined in
applicable sections of the Internal Revenue Code, and to make distributions
of investment company taxable income and net capital gains (after reduction
for any amounts available for Federal income tax purposes as capital loss
carryforwards) sufficient to relieve it from all, or substantially all,
Federal income taxes. Accordingly, each Fund paid no Federal income taxes and
no provision for Federal income taxes was required.
7
<PAGE>
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 ($1,937, $1,909, and $39,554 expiring in 2002,
2003, and 2004, respectively, for Ultra Short and $86, $11,896, $24,346,
$70,825, and $48,668 expiring in 2001, 2002, 2003, 2004, and 2005,
respectively, for Limited Maturity, determined as of October 31, 1997), it is
the policy of each Fund not to distribute such gains.
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: Expenses incurred by each Fund in connection with its
organization are being amortized by each Fund on a straight-line basis over a
five-year period. At October 31, 1997, the unamortized balance of such
expenses amounted to $9,333 and $8,748, for Ultra Short and Limited Maturity,
respectively.
6) EXPENSE ALLOCATION: Each Fund bears all costs of its operations. Expenses
incurred by the Trust with respect to both Funds are allocated in proportion
to the net assets of the 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.
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 Incorporated ("N&B Management")
as its administrator under an Administration Agreement ("Agreement") dated as of
July 12, 1993. Pursuant to this Agreement each Fund pays N&B Management an
administration fee at the annual rate of .50% of that Fund's average daily net
assets. Each Fund indirectly pays for investment management services through its
investment in its corresponding Portfolio (see Note B of Notes to Financial
Statements of the Portfolios). The Agreement provides that, if with respect to
any fiscal
8
<PAGE>
year of each Fund, its total operating expenses plus its pro rata portion of its
corresponding Portfolio's operating expenses (including the fees payable to N&B
Management but excluding interest, taxes, brokerage commissions, and
extraordinary expenses) ("Operating Expenses") exceed the most restrictive of
the expense limitations imposed by securities laws of the states in which such
Fund's shares are qualified for sale, the administration fees for that fiscal
year will be reduced by the amount of such excess, provided that N&B Management
has no obligation to reimburse the Fund for any such expenses that exceed the
administration fee. Effective October 11, 1996, states may no longer impose
expense limitations as a condition to the sale of mutual fund shares. The most
restrictive expense limitation applicable prior to that date, to which each Fund
was subject, was 2 1/2% of the first $30 million of average daily net assets, 2%
of the next $70 million of average daily net assets, and 1 1/2% of any
additional average daily net assets. No reduction in the administration fee as a
result of any state expense limitation was required for the year ended October
31, 1997.
N&B Management has voluntarily undertaken to reimburse each Fund for its
respective Operating Expenses which exceed, in the aggregate, .75% per annum for
Ultra Short and .80% per annum for Limited Maturity of their respective average
daily net assets. Each undertaking is subject to termination by N&B Management
upon at least 60 days' prior written notice to the appropriate Fund. For the
year ended October 31, 1997, such excess expenses amounted to $125,821 and
$144,510, for Ultra Short and Limited Maturity, respectively.
All of the capital stock of N&B Management is owned by individuals who are
also principals of Neuberger&Berman, LLC ("Neuberger"), a member firm of The New
York Stock Exchange and sub-adviser to each Portfolio. Several individuals who
are officers and/or trustees of the Trust are also principals of Neuberger
and/or officers and/or directors of N&B Management.
Each Fund also has a distribution agreement with N&B Management. N&B
Management receives no compensation therefor and no commissions for sales or
redemptions of shares of beneficial interest of each Fund.
Each Portfolio has an expense offset arrangement in connection with its
custodian contract. The impact of this arrangement, reflected in the Statements
of Operations under the caption Expenses from corresponding Portfolio, was a
reduction of $34 and $57, for Ultra Short and Limited Maturity, respectively.
NOTE C -- INVESTMENT TRANSACTIONS:
During the year ended October 31, 1997, additions and reductions in each
Fund's investment in its corresponding Portfolio were as follows:
<TABLE>
<CAPTION>
ADDITIONS REDUCTIONS
- -----------------------------------------------------------------------------
<S> <C> <C>
ULTRA SHORT $ 5,155,668 $2,180,642
LIMITED MATURITY 23,335,165 9,448,652
</TABLE>
9
<PAGE>
NOTE D -- SUBSEQUENT EVENT:
On September 24, 1997, the Board of Trustees approved a plan of
reorganization in which Ultra Short will sell substantially all of its net
assets to Limited Maturity. The parties currently intend that this transaction
will become effective at the close of business on February 27, 1998, and will be
accounted for as a tax free exchange of shares. Shareholders of Ultra Short will
receive shares of Limited Maturity in exchange for their shares of Ultra Short,
based on the closing net asset value per share of Limited Maturity on February
27, 1998. Accordingly, Ultra Short and its corresponding Portfolio will cease
operations at that time.
10
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Ultra Short Bond Trust
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the Financial
Statements. The per share amounts and ratios which are shown reflect income and
expenses, including the Fund's proportionate share of its corresponding
Portfolio's income and expenses. It should be read in conjunction with its
corresponding Portfolio's Financial Statements and notes thereto.
<TABLE>
<CAPTION>
Period from
September 7,
1993(1)
to October
Year Ended October 31, 31,
1997 1996 1995 1994 1993
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year $9.82 $9.85 $9.79 $9.97 $ 10.00
----------------------------------------------------
Income From Investment
Operations
Net Investment Income .54 .53 .53 .37 .05
Net Gains or Losses on
Securities (both realized
and unrealized) .03 (.03) .06 (.18) (.03)
----------------------------------------------------
Total From Investment
Operations .57 .50 .59 .19 .02
----------------------------------------------------
Less Distributions
Dividends (from net
investment income) (.54) (.53) (.53) (.37) (.05)
----------------------------------------------------
Net Asset Value, End of Year $9.85 $9.82 $9.85 $9.79 $ 9.97
----------------------------------------------------
Total Return(2) +5.97% +5.24% +6.15% +1.92% +0.17%(3)
----------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year
(in millions) $10.2 $ 6.6 $ 1.7 $ 1.2 $ 0.2
----------------------------------------------------
Ratio of Gross Expenses to
Average Net Assets(4) .76% .76% .72% -- --
----------------------------------------------------
Ratio of Net Expenses to
Average Net Assets(5) .76% .76% .72% .65% .65%(6)
----------------------------------------------------
Ratio of Net Investment
Income to Average Net
Assets(5) 5.51% 5.43% 5.42% 3.86% 2.98%(6)
----------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL HIGHLIGHTS
B-11
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Limited Maturity Bond Trust
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the Financial
Statements. The per share amounts and ratios which are shown reflect income and
expenses, including the Fund's proportionate share of its corresponding
Portfolio's income and expenses. It should be read in conjunction with its
corresponding Portfolio's Financial Statements and notes thereto.
<TABLE>
<CAPTION>
Period from
August 30,
1993(1)
to October
Year Ended October 31, 31,
1997 1996 1995 1994 1993
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $9.53 $9.61 $9.43 $9.97 $ 10.00
----------------------------------------------------
Income From Investment Operations
Net Investment Income .60 .57 .58 .54 .08
Net Gains or Losses on Securities
(both realized and unrealized) .04 (.08) .18 (.54) (.03)
----------------------------------------------------
Total From Investment Operations .64 .49 .76 -- .05
----------------------------------------------------
Less Distributions
Dividends (from net investment
income) (.60) (.57) (.58) (.54) (.08)
----------------------------------------------------
Net Asset Value, End of Year $9.57 $9.53 $9.61 $9.43 $ 9.97
----------------------------------------------------
Total Return(2) +6.88% +5.29% +8.36% -0.01% +0.55%(3)
----------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year (in
millions) $37.4 $21.2 $11.9 $ 6.7 $ 0.1
----------------------------------------------------
Ratio of Gross Expenses to Average
Net Assets(4) .80% .81% .77% -- --
----------------------------------------------------
Ratio of Net Expenses to Average Net
Assets(5) .80% .80% .77% .70% .65%(6)
----------------------------------------------------
Ratio of Net Investment Income to
Average Net Assets(5) 6.25% 6.06% 6.16% 5.72% 4.99%(6)
----------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL HIGHLIGHTS
B-12
<PAGE>
NOTES TO FINANCIAL HIGHLIGHTS
Neuberger&Berman October 31, 1997
- ----------------------------------------------------------------------
Income Trust
1) The date investment operations commenced.
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. Total return would
have been lower if N&B Management had not reimbursed certain expenses.
3) Not annualized.
4) For fiscal periods ending after September 1, 1995, each Fund is required to
calculate an expense ratio without taking into consideration any expense
reductions related to expense offset arrangements. These ratios reflect the
reimbursement of certain expenses.
5) After reimbursement of expenses by N&B Management as described in Note B of
Notes to Financial Statements. Had N&B Management not undertaken such action
the annualized ratios of net expenses and net investment income to average
daily net assets would have been:
<TABLE>
<CAPTION>
Period from
September 7, 1993
Year Ended October 31, to October 31,
ULTRA SHORT 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Expenses 2.15% 2.50% 2.50% 2.50% 2.50%
---------------------------------------------
Net Investment Income 4.12% 3.69% 3.64% 2.01% 1.13%
---------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Period from
August 30, 1993
Year Ended October 31, to October 31,
LIMITED MATURITY 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Expenses 1.24% 1.91% 2.18% 2.50% 2.50%
---------------------------------------------
Net Investment Income 5.81% 4.95% 4.75% 3.92% 3.14%
---------------------------------------------
</TABLE>
6) Annualized.
13
<PAGE>
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Board of Trustees of
Neuberger&Berman Income Trust and
Shareholders of:
Neuberger&Berman Ultra Short Bond Trust and
Neuberger&Berman Limited Maturity Bond Trust
We have audited the accompanying statements of assets and liabilities of the
Neuberger&Berman Ultra Short Bond Trust and Neuberger&Berman Limited Maturity
Bond Trust, two of the series comprising Neuberger&Berman Income Trust (the
"Trust"), as of October 31, 1997, and the related statements of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. 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 Trust at October 31,
1997, the results of their operations for the year then ended, the changes in
their net assets for each of the two years in the period then ended, and their
financial highlights for each of the periods indicated therein, in conformity
with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
December 5, 1997
14
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman October 31, 1997
- --------------------------------------------------------------------------------
Ultra Short Bond Portfolio
<TABLE>
<CAPTION>
Principal
Amount Rating(1) Value(2)
(000's omitted) Moody's S&P (000's omitted)
- --------------- ------- ------- ---------------
<C> <S> <C> <C> <C>
U.S. TREASURY
SECURITIES (25.2%)
$ 4,655 U.S. Treasury
Notes, 6.875%, due
8/31/99 TSY TSY $ 4,751
1,785 U.S. Treasury
Notes, 5.875%, due
2/15/00 TSY TSY 1,791
4,220 U.S. Treasury
Notes, 6.75%, due
4/30/00 TSY TSY 4,320
340 U.S. Treasury
Notes, 6.375%, due
5/15/00 TSY TSY 345
3,895 U.S. Treasury
Notes, 6.00%, due
8/15/00 TSY TSY 3,926
-------
TOTAL U.S.
TREASURY
SECURITIES (COST
$14,949) 15,133
-------
U.S. GOVERNMENT
AGENCY SECURITIES
(6.7%)
3,285 Federal Home Loan
Bank, Discount
Notes, 5.54%, due
11/3/97 AGY AGY 3,283
250 Federal Home Loan
Bank, Variable
Rate Notes,
4.704%, due
1/29/98 AGY AGY 249
500 Federal Home Loan
Bank, Variable
Rate Notes,
4.729%, due
2/25/98 AGY AGY 498
-------
TOTAL U.S.
GOVERNMENT AGENCY
SECURITIES
(COST $4,033) 4,030
-------
MORTGAGE-BACKED
SECURITIES (22.6%)
FANNIE MAE
2,156 Balloon
Pass-Through
Certificates,
7.00%, due 8/1/03 AGY AGY 2,182
2,141 Pass-Through
Certificates,
7.50%, due 7/1/11 AGY AGY 2,195
FREDDIE MAC
18 Mortgage
Participation
Certificates,
11.50%, due 5/1/00 AGY AGY 19
3,155 Gold Balloon
Mortgage
Participation
Certificates,
6.50%, due
9/1/98-11/1/00 AGY AGY 3,173
58 Mortgage
Participation
Certificates,
10.50%, due
6/1/00-11/1/00 AGY AGY 61
1,484 Gold Balloon
Mortgage
Participation
Certificates,
7.50%, due 11/1/01 AGY AGY 1,517
</TABLE>
15
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Ultra Short Bond Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal
Amount Rating(1) Value(2)
(000's omitted) Moody's S&P (000's omitted)
- --------------- ------- ------- ---------------
<C> <S> <C> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
$ 2,211 Pass-Through
Certificates,
7.50%, due
10/15/09-10/15/10 AGY AGY $ 2,274
2,171 Pass-Through
Certificates,
7.00%, due 4/15/11 AGY AGY 2,208
-------
TOTAL
MORTGAGE-BACKED
SECURITIES (COST
$13,489) 13,629
-------
ASSET-BACKED
SECURITIES (12.3%)
767 Capita Equipment
Receivables Trust,
Ser. 1996-1, Class
A-2, 5.95%, due
7/15/98 Aaa AAA 768
77 Daimler-Benz Auto
Grantor Trust,
Ser. 1993-A, Class
A, 3.90%, due
10/15/98 Aaa AAA 77
15 USAA Auto Loan
Grantor Trust,
Automobile Loan
Pass-Through
Certificates, Ser.
1993-1, 3.90%, due
3/15/99 Aaa AAA 15
1,600 Chase Manhattan
Grantor Trust,
Automobile Loan
Pass-Through
Certificates, Ser.
1997-A, Class A-2,
5.95%, due
10/15/99 Aaa AAA 1,601
676 Premier Auto
Trust, Ser.
1997-1, Class A-2,
5.90%, due 4/6/00 Aaa AAA 677
696 Ford Credit
Grantor Trust,
Ser. 1995-A, Class
A, 5.90%, due
5/15/00 Aaa AAA 695
1,178 Chase Manhattan
Grantor Trust,
Automobile Loan
Pass-Through
Certificates, Ser.
1995-A, 6.00%, due
9/17/01 Aaa AAA 1,177
1,921 Banc One Auto
Grantor Trust,
Ser. 1996-B, Class
A, 6.55%, due
2/15/03 Aaa AAA 1,936
448 Honda Auto
Receivables
Grantor Trust,
Ser. 1997-A, Class
A, 5.85%, due
2/15/03 Aaa AAA 448
-------
TOTAL ASSET-BACKED
SECURITIES (COST
$7,372) 7,394
-------
BANKS & FINANCIAL
INSTITUTIONS
(30.7%)
3,500 Merrill Lynch &
Co., Inc.,
Medium-Term Notes,
Ser. B, 6.64%, due
4/9/99 Aa3 AA- 3,536
2,000 AT&T Capital
Corp., Medium-Term
Notes, Ser.
1997-4, 6.92%, due
4/29/99 Baa3 BBB 2,025
</TABLE>
16
<PAGE>
October 31, 1997
- --------------------------------------------------------------------------------
Ultra Short Bond Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal
Amount Rating(1) Value(2)
(000's omitted) Moody's S&P (000's omitted)
- --------------- ------- ------- ---------------
<C> <S> <C> <C> <C>
$ 3,500 Associates Corp.
of North America,
Senior Notes,
6.375%, due
8/15/99 Aa3 AA- $ 3,524
1,300 Lehman Brothers
Holdings Inc.,
Medium-Term Notes,
Ser. E, 7.08%, due
5/22/00 Baa1 A 1,325
1,800 International
Lease Finance
Corp., Notes,
6.625%, due 6/1/00 A1 A+ 1,822
3,150 Countrywide
Funding Corp.,
Medium-Term Notes,
Ser. A, 7.31%, due
8/28/00 A3 A 3,235
3,000 Aristar, Inc.,
Senior Notes,
6.125%, due
12/1/00 A3 A- 2,983
-------
TOTAL BANKS &
FINANCIAL
INSTITUTIONS
(COST $18,342) 18,450
-------
CORPORATE DEBT
SECURITIES (6.5%)
1,000 General Motors
Acceptance Corp.,
Medium-Term Notes,
6.15%, due 9/20/99 A3 A- 1,002
2,000 American General
Finance Corp.,
Senior Notes,
6.125%, due
9/15/00 A2 A+ 2,006
900 Ford Motor Credit
Co., Global Bonds,
6.50%, due 2/28/02 A1 A+ 908
-------
TOTAL CORPORATE
DEBT SECURITIES
(COST $3,893) 3,916
-------
TOTAL INVESTMENTS
(104.0%) (COST
$62,078) 62,552(3)
Liabilities, less
cash, receivables
and other assets
[(4.0%)] (2,431)
-------
TOTAL NET ASSETS
(100.0%) $ 60,121
-------
</TABLE>
SEE NOTES TO SCHEDULE OF INVESTMENTS
17
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Limited Maturity Bond Portfolio
<TABLE>
<CAPTION>
Principal
Amount Rating(1) Value(2)
(000's omitted) Moody's S&P (000's omitted)
- --------------- ------- ------- ---------------
<C> <S> <C> <C> <C>
U.S. TREASURY
SECURITIES (1.1%)
$ 40 U.S. Treasury
Notes, 7.375%, due
11/15/97 TSY TSY $ 40
540 U.S. Treasury
Notes, 6.50%, due
4/30/99 TSY TSY 547
2,629 U.S. Treasury
Inflation-Indexed
Notes, 3.375%, due
1/15/07 TSY TSY 2,591
---------------
TOTAL U.S.
TREASURY
SECURITIES (COST
$3,219) 3,178
---------------
U.S. GOVERNMENT
AGENCY SECURITIES
(5.4%)
15,795 Federal Home Loan
Bank, Discount
Notes, 5.50%, due
11/3/97 (COST
$15,790) AGY AGY 15,788
---------------
MORTGAGE-BACKED
SECURITIES (7.7%)
FANNIE MAE
118 Balloon
Pass-Through
Certificates,
9.00%, due
12/1/97-8/1/98 AGY AGY 122
207 Balloon
Pass-Through
Certificates,
8.50%, due
3/1/98-11/1/98 AGY AGY 214
396 REMIC Floating
Rate CMO, Ser.
1992-59F,
6.05625%, due
8/25/06 AGY AGY 397
7,652 Pass-Through
Certificates,
7.00%, due 9/1/03
& 6/1/11 AGY AGY 7,801
5,400 Pass-Through
Certificates,
7.50%, due 9/1/11 AGY AGY 5,535
FREDDIE MAC
114 Mortgage
Participation
Certificates,
10.50%, due
10/1/00 & 12/1/00 AGY AGY 120
416 Mortgage
Participation
Certificates,
8.50%, due 10/1/01 AGY AGY 428
357 ARM Certificates,
7.00%, due 1/1/17
& 2/1/17 AGY AGY 363
617 ARM Certificates,
7.125%, due 3/1/17 AGY AGY 628
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
151 Pass-Through
Certificates,
12.00%, due
5/15/12-3/15/15 AGY AGY 172
6,789 Pass-Through
Certificates,
7.00%, due 1/15/27 AGY AGY 6,825
---------------
TOTAL
MORTGAGE-BACKED
SECURITIES (COST
$22,067) 22,605
---------------
</TABLE>
18
<PAGE>
October 31, 1997
- --------------------------------------------------------------------------------
Limited Maturity Bond Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal
Amount Rating(1) Value(2)
(000's omitted) Moody's S&P (000's omitted)
- --------------- ------- ------- ---------------
<C> <S> <C> <C> <C>
ASSET-BACKED
SECURITIES (20.5%)
$ 6,300 Capita Equipment
Receivables Trust,
Ser. 1996-1, Class
A-3, 6.11%, due
7/15/99 Aaa AAA $ 6,332
5,710 PNC Student Loan
Trust I, Ser.
1997-2, Class A-2,
6.138%, due
1/25/00 Aaa AAA 5,734
3,820 Chase Manhattan
Auto Owner Trust,
Ser. 1996-C, Class
A-3, 5.95%, due
11/15/00 Aaa AAA 3,826
6,927 Money Store Auto
Grantor Trust,
Ser. 1997-2, Class
A-1, 6.17%, due
3/20/01 Aaa AAA 6,948
3,257 Banc One Auto
Grantor Trust,
Ser. 1996-B, Class
A, 6.55%, due
2/15/03 Aaa AAA 3,282
6,500 Ford Credit Auto
Loan Master Trust,
Auto Loan
Certificates, Ser.
1996-1, 5.50%, due
2/15/03 Aaa AAA 6,411
5,600 Chase Credit Card
Master Trust, Ser.
1997-2, Class A,
6.30%, due 4/15/03 Aaa AAA 5,649
2,590 Navistar Financial
Owner Trust, Ser.
1996-B, Class A-3,
6.33%, due 4/21/03 Aaa AAA 2,606
5,330 World Omni
Automobile Lease
Securitization
Trust, Ser.
1997-A, Class A-3,
6.85%, due 6/25/03 Aaa AAA 5,446
3,839 Chevy Chase Auto
Receivables Trust,
Ser. 1996-2, Class
A, 5.90%, due
7/15/03 Aaa AAA 3,827
5,000 Standard Credit
Card Master Trust
I, Credit Card
Participation
Certificates, Ser.
1994-4, Class A,
8.25%, due 11/7/03 Aaa AAA 5,397
4,680 IMC Excess
Cashflow Trust,
Ser. 1997-A,
7.41%, due
11/27/28 BBB (4) 4,686(5)
---------------
TOTAL ASSET-BACKED
SECURITIES (COST
$60,025) 60,144
---------------
BANKS & FINANCIAL
INSTITUTIONS
(23.4%)
5,250 Household Finance
Corp., Medium-Term
Notes, 6.62%, due
5/28/99 A2 A 5,295
5,240 Merrill Lynch &
Co., Inc.,
Medium-Term Notes,
Ser. B, 6.28%, due
6/25/99 Aa3 AA- 5,269
4,850 Chase Manhattan
Bank USA, Senior
Global Bank Notes,
5.875%, due 8/4/99 Aa2 A+ 4,847
</TABLE>
19
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Limited Maturity Bond Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal
Amount Rating(1) Value(2)
(000's omitted) Moody's S&P (000's omitted)
- --------------- ------- ------- ---------------
<C> <S> <C> <C> <C>
$ 5,180 CIT Group
Holdings, Inc.,
Medium-Term Notes,
6.25%, due
10/25/99 Aa3 A+ $ 5,204
3,940 First National
Bank of Commerce,
Senior Bank Notes,
6.50%, due 1/14/00 A2 A- 3,982
3,980 HomeSide Lending,
Inc., Notes,
6.875%, due
5/15/00 Baa2 BBB 4,033
5,000 Smith Barney
Holdings Inc.,
Notes, 7.00%, due
5/15/00 A2 A 5,106
5,400 Comdisco, Inc.,
Notes, 6.50%, due
6/15/00 Baa1 BBB+ 5,438
7,090 Associates
Pass-Through Asset
Trust, Ser.
1997-1, 6.45%, due
9/15/00 Aa3 AA- 7,141(5)
5,000 Lehman Brothers
Holdings Inc.,
Medium-Term Notes,
Ser. E, 6.89%, due
10/10/00 Baa1 A 5,078
1,725 Lehman Brothers
Holdings Inc.,
Medium-Term Notes,
Ser. E, 6.65%, due
11/8/00 Baa1 A 1,739
6,600 Capital One Bank,
Bank Notes, 5.95%,
due 2/15/01 Baa3 BBB- 6,503
3,550 Riggs National
Corp.,
Subordinated
Notes, 8.50%, due
2/1/06 Ba1 (6) BB-(6) 3,692
5,150 Goldman Sachs
Group, L.P.,
Global Notes,
6.75%, due 2/15/06 A1 A+ 5,211(5)
---------------
TOTAL BANKS &
FINANCIAL
INSTITUTIONS (COST
$68,137) 68,538
---------------
CORPORATE DEBT
SECURITIES (45.4%)
2,780 Colonial Gas Co.,
Medium-Term Notes,
Ser. A, 6.20%, due
3/18/98 Baa1 A- 2,785
6,400 Alco Capital
Resource, Inc.,
Medium-Term Notes,
Ser. B, 5.46%, due
2/22/99 A3 A- 6,361
1,900 American Standard
Inc., Senior
Notes, 10.875%,
due 5/15/99 Ba3 BB- 2,002
7,000 Lockheed Martin
Corp., Notes,
6.55%, due 5/15/99 A3 BBB+ 7,066
4,800 NWCG Holdings
Corp., Notes,
Zero-Coupon,
Yielding 7.05%,
due 6/15/99 Ba2 BBB- 4,320
5,200 Williams Holdings
of Delaware, Inc.,
Medium-Term Notes,
Ser. A, 6.40%, due
6/17/99 Baa2 BBB- 5,225
</TABLE>
20
<PAGE>
October 31, 1997
- --------------------------------------------------------------------------------
Limited Maturity Bond Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal
Amount Rating(1) Value(2)
(000's omitted) Moody's S&P (000's omitted)
- --------------- ------- ------- ---------------
<C> <S> <C> <C> <C>
$ 4,070 Chrysler Financial
Corp., Medium-Term
Notes, Ser. Q,
6.37%, due 6/21/99 A3 A $ 4,098
2,710 Arkla, Inc.,
Notes, 8.875%, due
7/15/99 Baa3 BBB 2,825
4,680 Time Warner
Pass-Through Asset
Trust, Ser.
1997-2, 4.90%, due
7/29/99 Ba1 BBB- 4,573(5)
4,800 Norfolk Southern
Corp., Notes,
6.70%, due 5/1/00 Baa1 BBB+ 4,859
3,610 Cleveland Electric
Illuminating Co.,
Secured Notes,
Ser. A, 7.19%, due
7/1/00 Ba1 BB+ 3,655(5)
4,550 Arvin Industries,
Inc., Notes,
10.00%, due 8/1/00 Ba1 BBB- 4,936
2,000 Ford Motor Credit
Co., Medium-Term
Notes, 6.84%, due
8/16/00 A1 A 2,038
6,370 MedPartners, Inc.,
Senior
Subordinated
Notes, 6.875%, due
9/1/00 Ba2 BBB- 6,380
2,510 Chesapeake Corp.,
Notes, 10.375%,
due 10/1/00 Baa3 BBB 2,775
1,730 BHP Finance (USA)
Limited,
Guaranteed Notes,
5.625%, due
11/1/00 A2 A 1,708
500 Congoleum Corp.,
Senior Notes,
9.00%, due 2/1/01 B1 BB- 507
5,200 General Motors
Acceptance Corp.,
Medium-Term Notes,
8.125%, due 3/1/01 A3 A- 5,501
3,470 Revlon Worldwide
Corp., Senior
Secured Notes,
Ser. B,
Zero-Coupon,
Yielding 10.75% &
10.959%, due
3/15/01 B3 B- 2,407
2,290 Colonial Realty
Limited
Partnership,
Senior Notes,
7.50%, due 7/15/01 Baa3 BBB- 2,372
4,160 Tyco International
Ltd., Notes,
6.50%, due 11/1/01 Baa2 A- 4,196
2,965 ICI Wilmington
Inc., Guaranteed
Notes, 7.50%, due
1/15/02 Baa1 A- 3,111
2,835 Black & Decker
Corp., Medium-Term
Notes, Ser. A,
8.90%, due 1/21/02 Baa2 BBB- 3,095
2,280 Fort James Corp.,
Senior Notes,
6.50%, due 9/15/02 Baa3 BBB- 2,294
1,000 Safeway Inc.,
Medium-Term Notes,
8.57%, due 4/1/03 Baa1 BBB 1,091
4,200 Stewart
Enterprises, Inc.,
Notes, 6.70%, due
12/1/03 Baa3 BBB 4,218
620 Loomis Fargo &
Co., Senior
Subordinated
Notes, 10.00%, due
1/15/04 B3 B- 618
</TABLE>
21
<PAGE>
SCHEDULE OF INVESTMENTS
Neuberger&Berman
- --------------------------------------------------------------------------------
Limited Maturity Bond Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal
Amount Rating(1) Value(2)
(000's omitted) Moody's S&P (000's omitted)
- --------------- ------- ------- ---------------
<C> <S> <C> <C> <C>
$ 175 Playtex Products,
Inc., Senior
Notes, Ser. B,
8.875%, due
7/15/04 B1 B+ $ 175
420 Iridium LLC,
Senior Notes, Ser.
C, 11.25%, due
7/15/05 B3 B- 385(5)
190 ICN
Pharmaceuticals,
Inc., Senior
Notes, 9.25%, due
8/15/05 B1 BB 200(5)
4,350 Bell Cablemedia
plc, Senior Step
Up Notes, Yielding
8.98%, due 9/15/05 Baa3 BBB+ 3,763
4,200 Heritage Media
Corp., Senior
Subordinated
Notes, 8.75%, due
2/15/06 B2 BBB- 4,463
4,040 Mark IV
Industries, Inc.,
Senior
Subordinated
Notes, 7.75%, due
4/1/06 Ba2 BB+ 4,111
400 Printpack, Inc.,
Senior
Subordinated
Notes, Ser. B,
10.625%, due
8/15/06 B3 B+ 425
2,825 Time Warner Inc.,
Notes, 8.11%, due
8/15/06 Ba1 BBB- 3,051
400 Commonwealth
Aluminum Corp.,
Senior
Subordinated
Notes, 10.75%, due
10/1/06 B2 B- 429
415 Evenflo & Spalding
Holdings Corp.,
Senior
Subordinated
Notes, Ser. B,
10.375%, due
10/1/06 B3 B- 354
4,950 MedPartners, Inc.,
Senior Notes,
7.375%, due
10/1/06 Baa3 BBB 4,837
500 Motors and Gears,
Inc., Senior
Notes, Ser. B,
10.75%, due
11/15/06 B3 B 526
680 Newport News
Shipbuilding Inc.,
Senior
Subordinated
Notes, 9.25%, due
12/1/06 B1 B+ 707
857 AMTROL Inc.,
Senior
Subordinated
Notes, 10.625%,
due 12/31/06 B3 B- 870
1,275 Pen-Tab
Industries, Inc.,
Senior
Subordinated
Notes, Ser. B,
10.875%, due
2/1/07 B3 B- 1,269
965 Fonda Group, Inc.,
Senior
Subordinated
Notes, Ser. B,
9.50%, due 3/1/07 B3 B- 924
120 Tekni-Plex, Inc.,
Senior
Subordinated
Notes, Ser. B,
11.25%, due 4/1/07 B3 B- 131
300 French Fragrances,
Inc., Senior
Notes, Ser. B,
10.375%, due
5/15/07 B2 B+ 313
</TABLE>
22
<PAGE>
October 31, 1997
- --------------------------------------------------------------------------------
Limited Maturity Bond Portfolio (Cont'd)
<TABLE>
<CAPTION>
Principal
Amount Rating(1) Value(2)
(000's omitted) Moody's S&P (000's omitted)
- --------------- ------- ------- ---------------
<C> <S> <C> <C> <C>
$ 2,410 Owens-Illinois,
Inc., Senior
Debentures, 8.10%,
due 5/15/07 Ba1 (7) BB+(7) $ 2,553
405 AmeriServe Food
Distribution,
Inc., Senior
Subordinated
Notes, 10.125%,
due 7/15/07 B3 B- 422(5)
190 Safety Components
International,
Inc., Senior
Subordinated
Notes, 10.125%,
due 7/15/07 B3 B- 197
880 HydroChem
Industrial
Services, Inc.,
Senior
Subordinated
Notes, Ser. B,
10.375%, due
8/1/07 B3 B- 913(5)
4,680 Interpool, Inc.,
Notes, 7.20%, due
8/1/07 Ba1 BBB 4,681(5)
190 Insilco Corp.,
Senior
Subordinated
Notes, 10.25%, due
8/15/07 B3 B+ 198(5)
1,585 Central Maine
Power & Co.,
General and
Refunding Mortgage
Bonds, Ser. Q,
7.05%, due 3/1/08 Baa3 BB+ 1,568
360 KinderCare
Learning Centers,
Inc., Senior
Subordinated
Notes, Ser. B,
9.50%, due 2/15/09 B3 B- 354
---------------
TOTAL CORPORATE
DEBT SECURITIES
(COST $132,217) 132,835
---------------
TOTAL INVESTMENTS
(103.5%) (COST
$301,455) 303,088(3)
Liabilities, less
cash, receivables
and other assets
[(3.5%)] (10,122)
---------------
TOTAL NET ASSETS
(100.0%) $292,966
---------------
</TABLE>
SEE NOTES TO SCHEDULE OF INVESTMENTS
23
<PAGE>
NOTES TO SCHEDULE OF INVESTMENTS
October 31, 1997
- ----------------------------------------------------------------------
Income Managers Trust
1) Credit ratings are unaudited.
2) Investment securities of the Portfolio are valued daily by obtaining bid
price quotations from independent pricing services on selected securities
available in each service's data base. For all other securities requiring
daily quotations, bid prices are obtained from principal market makers in
those securities or, if quotations are not available, by a method the
trustees of Income Managers Trust believe accurately reflects fair value.
Short-term investments with less than 60 days until maturity may be valued at
cost which, when combined with interest earned, approximates market value.
3) At October 31, 1997, selected Portfolio information on a Federal income tax
basis was as follows:
<TABLE>
<CAPTION>
GROSS GROSS NET
UNREALIZED UNREALIZED UNREALIZED
NEUBERGER&BERMAN COST APPRECIATION DEPRECIATION APPRECIATION
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ULTRA SHORT BOND PORTFOLIO $ 62,078,000 $ 484,000 $ 10,000 $ 474,000
LIMITED MATURITY BOND PORTFOLIO 301,455,000 2,609,000 976,000 1,633,000
</TABLE>
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, 1997, these
securities amounted to $32,065,000 or 10.9% of net assets.
6) Rated BBB by Thomson Bank Watch, Inc.
7) Rated BBB- by Duff & Phelps Credit Rating Co.
SEE NOTES TO FINANCIAL STATEMENTS
24
<PAGE>
(This page has been left blank intentionally.)
25
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
October 31, 1997
- ----------------------------------------------------------------------
Income Managers Trust
<TABLE>
<CAPTION>
LIMITED
ULTRA SHORT MATURITY
BOND BOND
(000'S OMITTED) PORTFOLIO PORTFOLIO
-------------------------------
<S> <C> <C>
ASSETS
Investments in securities, at market value*
(Note A) -- see Schedule of Investments $ 62,552 $ 303,088
Cash 4 1
Deferred organization costs (Note A) 1 4
Interest receivable 676 4,067
Prepaid expenses and other assets 2 6
Receivable for securities sold 2 44
-------------------------------
63,237 307,210
-------------------------------
LIABILITIES
Payable for securities purchased 3,067 14,112
Payable for variation margin (Note A) -- 18
Payable to investment manager (Note B) 13 62
Accrued expenses 36 52
-------------------------------
3,116 14,244
-------------------------------
NET ASSETS Applicable to Investors' Beneficial
Interests $ 60,121 $ 292,966
-------------------------------
NET ASSETS consist of:
Paid-in capital $ 59,647 $ 291,698
Net unrealized appreciation in value of
investment securities and financial
futures contracts 474 1,268
-------------------------------
NET ASSETS $ 60,121 $ 292,966
-------------------------------
*Cost of investments $ 62,078 $ 301,455
-------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
26
<PAGE>
STATEMENTS OF OPERATIONS
For the Year Ended October 31, 1997
- ----------------------------------------------------------------------
Income Managers Trust
<TABLE>
<CAPTION>
LIMITED
ULTRA SHORT MATURITY
BOND BOND
(000'S OMITTED) PORTFOLIO PORTFOLIO
---------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest income $ 4,986 $ 19,575
---------------------------
Expenses:
Investment management fee (Note B) 200 697
Accounting fees 10 10
Amortization of deferred organization and
initial offering expenses (Note A) 2 5
Auditing fees 23 24
Custodian fees (Note B) 61 135
Insurance expense 2 6
Legal fees 22 19
Trustees' fees and expenses 9 18
---------------------------
Total expenses 329 914
Expenses reduced by custodian fee expense
offset arrangement (Note B) -- --
---------------------------
Total net expenses 329 914
---------------------------
Net investment income 4,657 18,661
---------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investment securities
sold 21 1,672
Net realized loss on financial futures
contracts (Note A) -- (2,679)
Net realized gain on foreign currency
transactions (Note A) -- 17
Change in net unrealized appreciation
(depreciation) of investment securities,
financial futures contracts, translation of
assets and liabilities in foreign
currencies, and foreign currency contracts
(Note A) 115 2,266
---------------------------
Net gain on investments 136 1,276
---------------------------
Net increase in net assets resulting from
operations $ 4,793 $ 19,937
---------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
27
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------
Income Managers Trust
<TABLE>
<CAPTION>
ULTRA SHORT LIMITED MATURITY
BOND BOND
PORTFOLIO PORTFOLIO
Year Year
Ended Ended
October 31, October 31,
(000'S OMITTED) 1997 1996 1997 1996
-------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income $ 4,657 $ 5,817 $ 18,661 $ 19,386
Net realized gain (loss) on
investments 21 (592) (990) (992)
Change in net unrealized
appreciation (depreciation) of
investments 115 172 2,266 (1,726)
-------------------------------------------------------------
Net increase in net assets resulting
from operations 4,793 5,397 19,937 16,668
-------------------------------------------------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL
INTERESTS:
Additions 14,524 20,518 61,720 45,924
Reductions (55,259) (31,918) (56,000) (114,929)
-------------------------------------------------------------
Net increase (decrease) in net
assets resulting from transactions
in investors' beneficial interests (40,735) (11,400) 5,720 (69,005)
-------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (35,942) (6,003) 25,657 (52,337)
NET ASSETS:
Beginning of year 96,063 102,066 267,309 319,646
-------------------------------------------------------------
End of year $ 60,121 $ 96,063 $ 292,966 $ 267,309
-------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
28
<PAGE>
NOTES TO FINANCIAL STATEMENTS
October 31, 1997
- ----------------------------------------------------------------------
Income Managers Trust
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1) GENERAL: Neuberger&Berman Ultra Short Bond Portfolio ("Ultra Short") and
Neuberger&Berman Limited Maturity Bond Portfolio ("Limited Maturity")
(collectively, the "Portfolios") are separate operating series of Income
Managers Trust ("Managers Trust"), a New York common law trust organized as
of December 1, 1992. Managers Trust is registered as a diversified, open-end
management investment company under the Investment Company Act of 1940, as
amended. Other regulated investment companies sponsored by Neuberger&Berman
Management Incorporated ("N&B Management"), whose financial statements are
not presented herein, also invest in these and other Portfolios of Managers
Trust.
The assets of each series belong only to that series, and the liabilities
of each series are borne solely by that series and no other.
2) PORTFOLIO VALUATION: Investment securities are valued as indicated in the
notes following the Portfolios' Schedule of Investments.
3) FOREIGN CURRENCY TRANSLATION: Limited Maturity may invest in foreign
securities denominated in foreign currency. The accounting records of the
Portfolio are maintained in U.S. dollars. Foreign currency amounts are
translated into U.S. dollars at the current rate of exchange of such currency
against the U.S. dollar to determine the value of investments, other assets
and liabilities. Purchase and sale prices of securities, and income and
expenses are translated into U.S. dollars at the prevailing rate of exchange
on the respective dates of such transactions.
4) FORWARD FOREIGN CURRENCY CONTRACTS: Limited Maturity may enter into forward
foreign currency contracts ("contracts") in connection with planned purchases
or sales of securities, to hedge the U.S. dollar value of portfolio
securities denominated in a foreign currency. The gain or loss arising from
the difference between the original contract price and the closing price of
such contract is included in net realized gains or losses on foreign currency
transactions. Fluctuations in the value of forward foreign currency contracts
are recorded for financial reporting purposes as unrealized gains or losses
by the Portfolio. The Portfolio has no specific limitation on the percentage
of assets which may be committed to these types of contracts. The Portfolio
could be exposed to risks if a counterparty to a contract were unable to meet
the terms of its contract or if the value of the foreign currency changes
unfavorably. The U.S. dollar value of foreign currency underlying all
contractual commitments held by the Portfolio is determined using forward
foreign currency exchange rates supplied by an independent pricing service.
29
<PAGE>
5) FINANCIAL FUTURES CONTRACTS: Ultra Short and Limited Maturity may buy and
sell financial futures contracts to hedge against changes in securities
prices resulting from changes in prevailing interest rates. At the time a
Portfolio enters into a financial futures contract, it is required to deposit
with its custodian a specified amount of cash or liquid securities, known as
"initial margin," ranging upward from 1.1% of the value of the financial
futures contract being traded. Each day, the futures contract is valued at
the official settlement price of the board of trade or U.S. commodity
exchange on which such futures contract is traded. Subsequent payments, known
as "variation margin," to and from the broker are made on a daily basis as
the market price of the financial futures contract fluctuates. Daily
variation margin adjustments, arising from this "mark to market," are
recorded by the Portfolio as unrealized gains or losses.
Although some financial futures contracts by their terms call for actual
delivery or acceptance of financial instruments, in most cases the contracts
are closed out prior to delivery by offsetting purchases or sales of matching
financial futures contracts. When the contracts are closed, a Portfolio
recognizes a gain or loss. Risks of entering into futures contracts include
the possibility there may be an illiquid market and/or a change in the value
of the contract may not correlate with changes in the value of the underlying
securities.
For Federal income tax purposes, the futures transactions undertaken by a
Portfolio may cause that Portfolio to recognize gains or losses from marking
to market even though its positions have not been sold or terminated, may
affect the character of the gains or losses recognized as long-term or
short-term, and may affect the timing of some capital gains and losses
realized by the Portfolio. Also, a Portfolio's losses on transactions
involving futures contracts may be deferred rather than being taken into
account currently in calculating such Portfolio's taxable income.
During the year ended October 31, 1997, Ultra Short did not enter into any
financial futures contracts.
At October 31, 1997, open positions in financial futures contracts for
Limited Maturity were as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
EXPIRATION OPEN CONTRACTS POSITION (DEPRECIATION)
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December
1997 311 U.S. Treasury Notes, 2 Year Short $ (220,453)
December
1997 73 U.S. Treasury Notes, 2 Year Long 65,645
December
1997 74 U.S. Treasury Notes, 5 Year Short (63,969)
December
1997 79 U.S. Treasury Notes, 5 Year Short (30,116)
December
1997 115 U.S. Treasury Notes, 10 Year Short (115,805)
</TABLE>
30
<PAGE>
At October 31, 1997, Limited Maturity had the following securities
deposited in a segregated account to cover margin requirements on open
financial futures contracts:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY
----------------------------------------------------
<C> <S>
$ 530,250 U.S. Treasury Notes, 6.50%, due 4/30/99
40,000 U.S. Treasury Inflation-Indexed Notes,
3.375%, due 1/15/07
</TABLE>
6) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on a trade date basis. Interest income, including accretion of
discount (adjusted for original issue discount, where applicable) and
amortization of premium, where applicable, is recorded on the accrual basis.
Realized gains and losses from securities transactions and foreign currency
transactions are recorded on the basis of identified cost.
7) FEDERAL INCOME TAXES: Managers Trust intends to comply with the requirements
of the Internal Revenue Code of 1986, as amended. Each Portfolio of Managers
Trust also intends to conduct its operations so that each of its investors
will be able to qualify as a regulated investment company. Each Portfolio
will be treated as a partnership for Federal income tax purposes and is
therefore not subject to Federal income tax.
8) ORGANIZATION EXPENSES: Expenses incurred by each Portfolio in connection with
its organization are being amortized by each Portfolio on a straight-line
basis over a five-year period. At October 31, 1997, the unamortized balance
of such expenses amounted to $1,274 and $3,537, for Ultra Short and Limited
Maturity, respectively.
9) EXPENSE ALLOCATION: Each Portfolio bears all costs of its operations.
Expenses incurred by Managers Trust with respect to any two or more
Portfolios are allocated in proportion to the net assets of such Portfolios,
except where a more appropriate allocation of expenses to each Portfolio can
otherwise be made fairly. Expenses directly attributable to a Portfolio are
charged to that Portfolio.
10) REVERSE REPURCHASE AGREEMENTS: Each Portfolio may enter into reverse
repurchase agreements with institutions that each Portfolio's investment
manager has determined are creditworthy. In a reverse repurchase agreement,
a Portfolio sells securities to a bank or securities dealer and
simultaneously agrees to repurchase the same securities at a higher price on
a specific date. During the period before the repurchase, a Portfolio
continues to receive principal and/or interest payments on the securities
sold. A Portfolio will maintain cash or liquid securities in a segregated
account to cover its obligations under reverse repurchase agreements. Such
agreements, which may be viewed as a form of leverage, involve certain risks
and may increase fluctuations in a Portfolio's net asset value.
31
<PAGE>
During the year ended October 31, 1997, Ultra Short entered into reverse
repurchase agreements. There were no open reverse repurchase agreements at
October 31, 1997.
NOTE B -- MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES:
Each Portfolio retains N&B Management as its investment manager under a
Management Agreement. For such investment management services, each Portfolio
pays N&B Management a fee at the annual rate of .25% of the first $500 million
of that Portfolio's average daily net assets, .225% of the next $500 million,
.20% of the next $500 million, .175% of the next $500 million, and .15% of
average daily net assets in excess of $2 billion.
All of the capital stock of N&B Management is owned by individuals who are
also principals of Neuberger&Berman, LLC ("Neuberger"), a member firm of The New
York Stock Exchange and sub-adviser to each Portfolio. Neuberger is retained by
N&B Management to furnish it with investment recommendations and research
information without added cost to each Portfolio. Several individuals who are
officers and/or trustees of Managers Trust are also principals of Neuberger
and/or officers and/or directors of N&B Management.
Each Portfolio has an expense offset arrangement in connection with its
custodian contract. The impact of this arrangement, reflected in the Statements
of Operations under the caption Custodian fees, was a reduction of $297 and
$479, for Ultra Short and Limited Maturity, respectively.
NOTE C -- SECURITIES TRANSACTIONS:
During the year ended October 31, 1997, there were purchase and sale
transactions (excluding short-term securities, financial futures contracts, and
forward foreign currency contracts) as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
- ---------------------------------------------------------------------
<S> <C> <C>
ULTRA SHORT $ 74,145,738 $ 93,082,238
LIMITED MATURITY 251,132,539 242,033,947
</TABLE>
During the year ended October 31, 1997, Limited Maturity entered into various
contracts to deliver currencies at specified future dates. There were no open
positions in these contracts at October 31, 1997.
NOTE D -- SUBSEQUENT EVENT:
On September 24, 1997, the Board of Trustees approved a plan of
reorganization in which the feeder funds of Ultra Short will sell substantially
all of their net assets to the feeder funds of Limited Maturity. The parties
currently intend that this transaction will become effective at the close of
business on February 27, 1998, and will be accounted for as a tax free
transaction. Accordingly, Ultra Short and its corresponding feeder funds will
cease operations at that time.
32
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Income Managers Trust
<TABLE>
<CAPTION>
ULTRA SHORT LIMITED MATURITY
BOND PORTFOLIO BOND PORTFOLIO
Period from Period from
July 2, July 2,
1993(1) 1993(1)
Year Ended October 31, to October 31, Year Ended October 31, to October 31,
1997 1996 1995 1994 1993 1997 1996 1995 1994 1993
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses(2) .41% .39% .40% -- -- .33% .33% .33% -- --
---------------------------------------------------------------------------------------------
Net Expenses .41% .39% .40% .38% .40%(3) .33% .33% .33% .34% .33%(3)
---------------------------------------------------------------------------------------------
Net Investment Income 5.82% 5.77% 5.67% 3.98% 4.00%(3) 6.70% 6.45% 6.55% 5.86% 5.53%(3)
---------------------------------------------------------------------------------------------
Portfolio Turnover Rate 101% 173% 148% 94% 46% 89% 169% 88% 102% 71%
---------------------------------------------------------------------------------------------
Net Assets, End of Year (in
millions) $60.1 $96.1 $102.1 $102.0 $104.3 $293.0 $267.3 $319.6 $316.1 $357.9
---------------------------------------------------------------------------------------------
</TABLE>
1) The date investment operations commenced.
2) For fiscal periods ending after September 1, 1995, each Portfolio is required
to calculate an expense ratio without reductions related to expense offset
arrangements.
3) Annualized.
B-33
<PAGE>
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Board of Trustees of
Income Managers Trust and
Owners of Beneficial Interest of
Neuberger&Berman Ultra Short Bond Portfolio and
Neuberger&Berman Limited Maturity Bond Portfolio
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the Neuberger&Berman Ultra Short Bond
Portfolio and Neuberger&Berman Limited Maturity Bond Portfolio, two of the
series comprising Income Managers Trust (the "Trust"), as of October 31, 1997,
and the related statements of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of October 31, 1997, by correspondence with the custodian
and brokers or other appropriate auditing procedures where replies from brokers
were not received. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the above mentioned series of Income Managers Trust at October 31, 1997, the
results of their operations for the year then ended, the changes in their net
assets for each of the two years in the period then ended, and their financial
highlights for each of the periods indicated therein, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
December 5, 1997
34
<PAGE>
DIRECTORY
INVESTMENT MANAGER, ADMINISTRATOR
AND DISTRIBUTOR
Neuberger&Berman Management Incorporated
605 Third Avenue 2nd Floor
New York, NY 10158-0180
800-877-9700
Institutional Services 800-366-6264
SUB-ADVISER
Neuberger&Berman, LLC
605 Third Avenue
New York, NY 10158-3698
CUSTODIAN AND SHAREHOLDER
SERVICING AGENT
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
ADDRESS CORRESPONDENCE TO:
Neuberger&Berman Funds
Institutional Services
605 Third Avenue 2nd Floor
New York, NY 10158-0180
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, NW
2nd Floor
Washington, DC 20036-1800
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
Neuberger&Berman Management Inc., Neuberger&Berman Ultra Short Bond Trust, and
Neuberger&Berman Limited Maturity Bond Trust are registered service marks of
Neuberger&Berman Management Inc.
- -C- 1997 Neuberger&Berman Management Inc.
1
<PAGE>
OFFICERS AND TRUSTEES
Stanley Egener
CHAIRMAN OF THE BOARD AND TRUSTEE
Theodore P. Giuliano
PRESIDENT AND TRUSTEE
John Cannon
TRUSTEE
Barry Hirsch
TRUSTEE
Robert A. Kavesh
TRUSTEE
William E. Rulon
TRUSTEE
Candace L. Straight
TRUSTEE
Daniel J. Sullivan
VICE PRESIDENT
Michael J. Weiner
VICE PRESIDENT
Richard Russell
TREASURER
Claudia A. Brandon
SECRETARY
Barbara DiGiorgio
ASSISTANT TREASURER
Celeste Wischerth
ASSISTANT TREASURER
Stacy Cooper-Shugrue
ASSISTANT SECRETARY
C. Carl Randolph
ASSISTANT SECRETARY
2
<PAGE>
Notice to Shareholders (Unaudited)
Under most state tax laws, mutual fund dividends which are derived from
direct investments in U.S. Government obligations are not taxable, as long as a
Fund meets certain requirements. Some states require that a Fund must provide
shareholders with a written notice, within 60 days of the close of a Fund's
taxable year, designating the portion of the dividends which represents interest
which those states consider to have been earned on U.S. Government obligations.
The chart below shows the percentage of income derived from such investments for
the twelve months ended October 31, 1997. This information should not be used to
complete your tax returns.
<TABLE>
<CAPTION>
CALIFORNIA,
CONNECTICUT, AND MAINE AND ALL OTHER
NEUBERGER&BERMAN NEW YORK NEW HAMPSHIRE STATES
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------
ULTRA SHORT BOND TRUST 0.00% 34.8% 36.0%
LIMITED MATURITY BOND TRUST 0.00 2.9 3.6
</TABLE>
In January 1998 you will receive information to be used in filing your 1997
tax returns, which will include a notice of the exact tax status of all
dividends paid to you by each Fund during calendar 1997. Please consult your own
tax advisor for details as to how this information should be reflected on your
tax returns.
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Neuberger&Berman Management Inc. -Registered Trademark-
605 THIRD AVENUE 2ND FLOOR
NEW YORK, NY 10158-0180
SHAREHOLDER SERVICES
800.877.9700
INSTITUTIONAL SERVICES
800.366.6264
WWW.NBFUNDS.COM
Statistics and projections in this report are derived from sources
deemed to be reliable but cannot be regarded as a representation of
future results of the Funds. This report is prepared for the general
information of shareholders and is not an offer of shares of the Funds.
Shares are sold only through the currently effective prospectus, which
must precede or accompany this report.
- -recycle logo- PRINTED ON RECYCLED PAPER
NBITAR001097
