Neuberger Berman Strategic Income Fund NCSR Certified annual shareholder report (management investment company)

As filed with the Securities and Exchange Commission on January 7, 2008

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF

REGISTERED MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-3802

LEHMAN BROTHERS INCOME FUNDS

(Exact Name of the Registrant as Specified in Charter)

605 Third Avenue, 2nd Floor

New York, New York 10158-0180

(Address of Principal Executive Offices – Zip Code)

Registrant's telephone number, including area code: (212) 476-8800

Peter E. Sundman, Chairman of the Board and Chief Executive Officer

c/o Neuberger Berman Management Inc.

Lehman Brothers Income Funds

605 Third Avenue, 2nd Floor

New York, New York 10158-0180

Arthur Delibert, Esq.

Kirkpatrick & Lockhart Preston Gates Ellis LLP

1601 K Street, N.W.

Washington, D.C. 20006-1600

(Names and Addresses of agents for service)

Date of fiscal year end: October 31, 2007

Date of reporting period: October 31, 2007

Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection and policymaking roles.

A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.

Item 1. Reports to Shareholders

Lehman Brothers
Income Funds

Investor Class Shares

Institutional Class Shares

Trust Class Shares

Lehman Brothers Core Bond Fund		Lehman Brothers New York Municipal Money Fund
Lehman Brothers High Income Bond Fund		Lehman Brothers Short Duration Bond Fund
Lehman Brothers Municipal Money Fund		Lehman Brothers Strategic Income Fund
Lehman Brothers Municipal Securities Trust		Neuberger Berman Cash Reserves

Annual Report

October 31, 2007

Contents

THE FUNDS

Chairman's Letter					1

PORTFOLIO COMMENTARY

Lehman Brothers Core Bond Fund					2

Lehman Brothers High Income Bond Fund					5

Lehman Brothers Municipal Money Fund					8

Lehman Brothers New York Municipal Money Fund					8

Lehman Brothers Municipal Securities Trust					10

Lehman Brothers Short Duration Bond Fund					13

Lehman Brothers Strategic Income Fund					15

Neuberger Berman Cash Reserves					18

FUND EXPENSE INFORMATION					23

SCHEDULE OF INVESTMENTS

Lehman Brothers Core Bond Fund					26

Lehman Brothers High Income Bond Fund					32

Lehman Brothers Municipal Money Fund					37

Lehman Brothers Municipal Securities Trust					47

Lehman Brothers New York Municipal Money Fund					50

Lehman Brothers Short Duration Bond Fund					54

Lehman Brothers Strategic Income Fund					57

Neuberger Berman Cash Reserves					67

FINANCIAL STATEMENTS					74

The "Neuberger Berman" name and logo are registered service marks of Neuberger Berman, LLC. "Neuberger Berman Management Inc." and the individual fund names in this report are either service marks or registered service marks of Neuberger Berman Management Inc. ^_©2007 Neuberger Berman Management Inc. All rights reserved. ^_©2007 Lehman Brothers Asset Management LLC. All rights reserved.

FINANCIAL HIGHLIGHTS/PER SHARE DATA

Lehman Brothers Core Bond Fund					94

Lehman Brothers High Income Bond Fund					96

Lehman Brothers Municipal Money Fund					97

Lehman Brothers Municipal Securities Trust					98

Lehman Brothers New York Municipal Money Fund					99

Lehman Brothers Short Duration Bond Fund					100

Lehman Brothers Strategic Income Fund					102

Neuberger Berman Cash Reserves					104

Reports of Independent Registered Public Accounting Firms					107

Directory					109

Trustees and Officers					110

Proxy Voting Policies and Procedures					118

Quarterly Portfolio Schedule					118

Notice to Shareholders					118

Board Consideration of the Management and Sub-Advisory Agreements					119

Chairman's Letter

Dear Fellow Shareholder,

For much of the fiscal year ended October 31, 2007, bond investors enjoyed the fruits of a long "pause" in interest rate increases by the Federal Reserve. After ending its previous two-year monetary tightening cycle in June 2006, the Fed appeared to be successfully walking a fine line between moderating economic growth and limiting price inflation.

For its part, the fixed income market experienced a period of relatively low volatility and historically narrow spreads between Treasuries and other fixed income securities. Overall, bond investors appeared confident both that the economy was slowing and that the Fed's pause would turn out to be more permanent.

However, the placid environment did not last. Beginning in July, concern over the spreading impact of subprime mortgage defaults helped trigger a crisis environment in the credit markets. Investors moved rapidly to the safety of Treasury securities at the expense of other fixed income instruments, and many financial institutions became highly reluctant to lend to all but the safest borrowers.

Concerned that this "credit crunch" would drive the economy into recession, Federal Reserve Chairman Ben Bernanke showed that he was willing to employ the full array of policy tools at his disposal. The Fed injected liquidity into the banking system, lowered the Discount rate and accepted a wider range of collateral at the discount window before proceeding with cuts to its Fed Funds rate. When those cuts came, they were dramatic, starting with a 50 basis point reduction in September and another 25 basis point cut in October. Investors responded with some relief to these measures, as non-Treasury securities recovered somewhat through the end of the fiscal year, but the markets remained under stress.

Like the Fed chairman, our portfolio managers were willing to use all the tools available to them — to attempt to preserve principal, extract value and maintain risk control. In the midst of the summer volatility, strongly ingrained risk management techniques were decided advantages, while their focus on fundamental, ongoing credit research helped them maintain portfolios that they believe are positioned to weather ongoing credit concerns. In addition, an emphasis on economic forecasting enabled them to position duration effectively, while continued vigilance allowed them to react quickly and decisively during the tumultuous summer months and beyond.

Looking forward, the credit markets have not left all their problems in the rear view mirror. Subprime mortgage exposure remains a serious issue and tighter credit conditions suggest that a keen focus on research remains essential. There are, of course, no guarantees in the financial markets. However, you can be assured that your managers will continue to exercise sound judgment in navigating a still challenging environment.

Sincerely,

Peter Sundman
Chairman of the Board
Lehman Brothers Income Funds

Lehman Brothers Core Bond Fund Portfolio Commentary

For the fiscal year ended October 31, 2007, the Lehman Brothers Core Bond Fund generated a positive return but trailed its benchmark, the Lehman Brothers U.S. Aggregate Index.

After performing strongly throughout most of the year, the portfolio struggled in the last several months as portfolio holdings suffered price declines related to the credit crises that developed beginning in July. We remain confident that the issues we hold are fundamentally solid and we believe that we will recoup any value lost to date. In our view, this will happen either through principal repayment, as the cash flows on these securities are realized, or through price appreciation, when the market has time to discriminate regarding the quality of collateral and structural protection. However, we are probably going to have to endure further volatility over the balance of the year and into 2008 as the data on the economy, housing and subprime delinquencies/losses evolve.

The bond market rallied in late calendar 2006, with advances driven by a combination of slower economic growth (which encouraged bond investors) and an end to the Federal Reserve's two-year campaign to raise interest rates. The Fed remained on hold throughout most of fiscal 2007, with rates at 5.25%. The minutes from the Federal Open Market Committee's March meeting (released in April) indicated the Fed's reluctance to cut rates, given the level of inflation, despite the slowing of the economy.

However, reports in early July of the collapse of two mortgage-related hedge funds, combined with the downgrade of a number of subprime-related collateralized debt obligations, intensified investors' worries and prompted a flight to quality. In a six-week period from early July to mid-August, the two-year Treasury rose in price as its yield fell 100 basis points (or one percentage point) and spreads on some investment grade securities (compared to Treasury levels) widened 50 basis points or more, as price declines were exacerbated by the unwinding of leveraged positions by some investors. High yield spreads widened 180 basis points as prices on below-investment-grade securities declined while Treasury prices rose.

These severe conditions prompted the Fed to respond with all its policy tools, starting in mid-August with an infusion of new liquidity into the banking system and culminating in a 50 basis-point cut in the Fed Funds rate in mid-September and a further 25 basis-point cut in October. With these actions, non-Treasury sectors managed to recover modestly from mid-August through the end of the reporting period.

In terms of portfolio strategy, we made several duration moves throughout the period to take advantage of expectations for interest rates. We shortened portfolio duration (or sensitivity to interest rates) from neutral to a quarter-year below the benchmark in response to the late calendar 2006 rally, believing that the market's expectation for an imminent rate cut was overly optimistic. As the crisis intensified, we initiated a long duration position in advance of a seemingly unavoidable rate cut by the Federal Reserve. The portfolio is currently modestly longer than the benchmark.

Early in the fiscal year, we reduced our overall position in mortgage-backed securities, as mortgage spreads narrowed to 17-year lows but increased the position later in the period. As of fiscal year-end, mortgage-backed securities remain, at approximately 50%, a substantial part of the portfolio. After decreasing exposure to corporate debt and increasing exposure to U.S. Treasury securities throughout much of the period, we reversed this position as spreads widened, to end with holdings at close to the same levels of a year earlier, at approximately 18% and 9% of the portfolio, respectively. Portfolio holdings of U.S. government agency securities and asset-backed securities remained at approximately 9% and 11%, respectively, of the portfolio.

We continue to believe that the economy will avoid a recession, as the impact of housing on the overall economy is not as large as the bond market appears to think. Global growth, combined with the decline in the dollar, should provide enough balance and time for the U.S. to work through the problems presented by the mortgage market and current conditions in the credit markets.

RATING SUMMARY

AAA/Government/ Government Agency	79.6	%
AA	3.1
A	5.7
BBB	9.5
BB	0.4
B	0.0
CCC	0.0
CC	0.0
C	0.0
D	0.0
Short Term	1.7

In closing, we believe that our systematic approach to managing risk continues to contribute to the returns of the Fund, and we expect to be able to continue to provide value for our shareholders in the future.

Sincerely,

Richard W. Knee
Portfolio Manager

Core Bond Fund

AVERAGE ANNUAL TOTAL RETURN ENDED 10/31/07^{2, 6, 10, 12}

	Investor Class			Institutional Class			Lehman Brothers U.S. Aggregate Index
1 Year		3.67	%		4.08	%		5.38	%
5 Year		3.88	%		4.32	%		4.41	%
10 Year		5.05	%		5.47	%		5.91	%
Life of Fund		5.34	%		5.72	%		6.21	%¹³
Inception Date		02/01/1997			10/01/1995

Performance data quoted represent past performance, which is no guarantee of future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Results are shown on a "total return" basis and include reinvestment of all dividends and capital gain distributions. The composition, industries and holdings of the Fund are subject to change.

Current performance may be lower or higher than the performance data quoted. For performance data current to the most recent month end, please visit www.nb.com/performance.

COMPARISON OF A $10,000 INVESTMENT

				This chart shows the value of a hypothetical $10,000 investment in the Fund over the past 10 fiscal years. The graphs are based on the Institutional Class share only; performance of other classes will vary due to differences in fee structures (see Average Annual Total Return chart above). The result is compared with benchmarks, which may include a broad-based market index and/or a narrower index. Please note that market indices do not include expenses. All results include the reinvestment of dividends and capital gain distributions. Results represent past performance and do not indicate future results. The chart and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Please see Endnotes and Glossary of Indices for additional information. The composition, industries and holdings of the Fund are subject to change. For the period ending 10/31/07, the 30-day SEC yield of the Investor Class shares was 4.67%, and the Institutional Class shares was 5.08%.

Lehman Brothers High Income Bond Fund Portfolio Commentary

For the fiscal year ended October 31, 2007, the Lehman Brothers High Income Bond Fund generated a positive return, finishing just behind its benchmark, the Lehman Brothers U.S. Corporate High Yield 2% Issuer Cap Index.

High yield bonds materially outperformed Treasuries during the first seven months of the fiscal year. By the end of May 2007, this superior relative performance resulted in credit spreads (the difference in yield between comparable maturity U.S. Treasuries and high yield bonds) shrinking to 2.45%, near a historical low. However, high yield bond prices started to slide in June and retreated through August. This was largely due to investors' diminished appetite for risk caused in part by concerns about hedge funds' and financial institutions' exposure to subprime mortgage securities. At peaks in late July and early September, credit spreads reached almost 5%. The high yield market rallied in late September and remained stable in October, with credit spreads closing the fiscal year at 4.50%.

Investors' more risk-averse posture was clearly reflected in the new issue market. Prior to June, high yield investors were willing to support highly leveraged deals with structures beneficial to issuers such as toggle notes, which allow the issuer discretion to pay in cash or with additional notes. However, high yield investors' appetite for these types of transactions diminished significantly in June and several high profile bond offerings were pulled or restructured. We believe that the re-pricing of risk and structural improvements in the new issues market is positive for the longer term health of high yield securities. However, even with more reasonably priced and more conservatively structured new issues, we remain quite selective in our new issue purchases.

Longer term, we believe credit fundamentals are the most important factors in determining high yield bond performance. High yield fundamentals are directly linked to the health of the economy. We note that, despite the weak housing market and the credit crunch spawned by the sub-prime mortgage mess, the U.S. economy has remained strong. Third quarter GDP growth was initially reported at a robust 3.9% and later raised to 4.9%. Even if this figure is revised downward, it will likely exceed previous expectations by a wide margin. We suspect that fourth quarter GDP growth will be somewhat less impressive and, in the first half of 2008, we expect growth to slow to around 2%.

Still, even in a slower growth environment, we don't think that high yield default rates will increase to troubling levels. Interestingly, high yield default rates actually declined from 1.6% to 1.3% (near a record low) during the three months high yield bonds were retreating. Unless our economic forecasts are wrong and the economy slides into recession, we believe that high yield default rates will go no higher than 2% to 3% — still below the long-term historical average. We are confident that our commitment to high quality, in-house fundamental credit research will continue to help us effectively manage credit risk in the portfolio.

Over the course of fiscal 2007, security selection and overweights in the health care, services, energy, media and utilities sectors enhanced returns. The fact that we had almost no exposure to real estate or homebuilders was also a performance plus. Security selection in the food and beverage, and technology sectors detracted from returns. Anticipating more moderate economic growth, we have been gravitating to less economically sensitive industry groups, which historically enjoy more stable cash flows. Currently, the portfolio is overweight in health care, broadcasting, cable television, packaging, metals and publishing. The portfolio is underweight in more cyclical industries including energy, paper, homebuilders and capital goods.

The portfolio's weighted average maturity and duration (a standard measure of interest rate risk) fluctuated only modestly over the 12-month reporting period. This was a function of security selection rather than an attempt to anticipate interest rate trends. Our bias toward intermediate maturity securities, which we believe generally have more attractive risk/reward characteristics than longer maturity bonds, will usually result in weighted average maturity and duration that are slightly lower than benchmark levels. On the credit front, we increased our exposure to

RATING SUMMARY

AAA/Government/ Government Agency	0.0	%
AA	0.0
A	0.0
BBB	2.4
BB	36.3
B	46.6
CCC	14.1
CC	0.0
C	0.0
D	0.0
Not Rated	0.3
Short Term	0.3

BB rated securities (the highest rated securities in our investment universe) at attractive prices during the market volatility in September and the portfolio's present quality distribution stands in line with the benchmark.

Looking ahead, we expect the high yield bond market to remain relatively stable, producing moderate coupon-oriented returns in fiscal 2008.

Sincerely,

Ann H. Benjamin and Thomas P. O'Reilly
Portfolio Co-Managers

High Income Bond Fund

AVERAGE ANNUAL TOTAL RETURN ENDED 10/31/07^{1, 6, 9, 12}

	Investor Class⁹			Lehman Brothers US Corp High Yield 2% Issuer Cap Index			Lehman Brothers Intermediate Ba U.S. High Yield Index
1 Year		6.73	%		6.88	%		5.55	%
5 Year		7.19	%		12.76	%		9.41	%
10 Year		6.31	%		5.97	%		6.36	%
Life of Fund		7.77	%		N/A			7.94	%¹³
Inception Date		02/01/1992

Current performance may be lower or higher than the performance data quoted. For performance data current to the most recent month end, please visit www.nb.com/performance.

COMPARISON OF A $10,000 INVESTMENT

				This chart shows the value of a hypothetical $10,000 investment in the Fund over the past 10 fiscal years. The result is compared with one or more benchmarks, which may include a broad-based market index and/or a narrower index. Please note that market indices do not include expenses. All results include the reinvestment of dividends and capital gain distributions. Results represent past performance and do not indicate future results. The chart and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Please see Endnotes and Glossary of Indices for additional information. The composition, industries and holdings of the Fund are subject to change. For the period ending 10/31/07, the 30-day SEC yield of the Investor Class shares was 7.78%.

Lehman Brothers Municipal Money Fund

Lehman Brothers New York Municipal Money Fund

Portfolio Commentary

The financial markets were relatively quiet during the first seven months of the fiscal year ended October 31, 2007. Then, investors became more concerned about the potential consequences that rising subprime mortgage defaults could have for the economy and financial institutions holding hard-to-value collateralized subprime mortgage debt. In response to subprime-related issues, the credit markets nearly seized up in July, sparking a flight to quality as investors waited until the depth and ultimate impact of the credit crunch could be evaluated. In response, the Federal Reserve injected liquidity into the financial system in August and subsequently cut the Federal Funds rate by 75 basis points in September and October. This temporarily calmed the financial markets, but they experienced additional turmoil toward the end of the 12-month reporting period.

The primary effect of subprime mortgage concerns late in the fiscal year was a strong flow of funds into short-term U.S. Treasuries and municipal money market funds. With demand for short-term U.S. Treasuries showing particular strength, municipal money funds provided relatively attractive after-tax yields.

Normally, when the Federal Reserve eases, the yield curve steepens (with longer maturity issues offering higher yields). As such, we would generally attempt to extend the Funds' weighted average maturity in such circumstances to lock in the higher yields of longer-term securities. This time around, however, the money market yield curve stayed inverted, with variable rate demand notes (VRDNs) — among the shortest maturity instruments in the market — providing higher yields than one-year securities. VDRNs also allow the Funds to be more liquid during periods of market stress. For these reasons, VRDNs, as of fiscal year-end, are by far our largest allocation and the Funds' weighted average maturity actually declined over the course of fiscal 2007.

Looking ahead, the Federal Reserve appears to be in a quandary. Should the subprime mortgage mess further damage the financial system and push the economy toward recession, we believe the Fed would reluctantly come to the rescue with additional rate cuts. However, further Fed easing would likely result in even more pressure on the already weak dollar and, with commodities prices rising (for oil, agricultural products, gold and industrial materials), possibly fan the flames of inflation.

We believe the Fed will sit on the fence as long as possible before making its next move. In the interim, as long as variable rate demand notes are priced so attractively, we will likely maintain the Funds' current weighted average maturities.

Lehman Brothers Municipal Money Fund^{1, 5, 7}

Lehman Brothers Municipal Money Fund posted a positive total return for the fiscal year, surpassing its iMoneyNet Money Fund Report Tax-Free National Retail Average benchmark. Over the course of the fiscal year the Fund's seven-day tax-equivalent current yield* (taxable at the highest federal income tax bracket) decreased from 4.65% on October 31, 2006 to 4.52% on October 31, 2007. Its seven-day tax-equivalent effective yield (also taxable at the highest federal income tax bracket) went from 4.76% on October 31, 2006 to 4.62% on October 31, 2007.

MATURITY DIVERSIFICATION

(% by Maturity)
1 - 7 Days					86.4%
8 - 30 Days					2.1
31 - 90 Days					4.5
91 - 180 Days					1.0
181+ Days					6.0

Lehman Brothers New York Municipal Money Fund^{4, 5, 7}

Lehman Brothers New York Municipal Money Fund posted a positive total return for the fiscal year, surpassing its iMoneyNet Money Fund Report Tax-Free State-Specific Retail Average benchmark. Over the course of the fiscal year, the Fund's seven-day tax-equivalent current yield* (taxable at the highest federal, New York State and New York City income tax brackets) decreased from 5.40% on October 31, 2006 to 5.21% on October 31, 2007. Its seven-day tax-equivalent effective yield (also taxable at the highest federal, New York State and New York City income tax brackets) went from 5.55% on October 31, 2006 to 5.35% on October 31, 2007.**

MATURITY DIVERSIFICATION

(% by Maturity)
1 - 7 Days					91.9%
8 - 30 Days					4.2
31 - 90 Days					0.0
91 - 180 Days					0.0
181+ Days					3.9

Sincerely,

William J. Furrer and Kristian Lind
Portfolio Co-Managers

* Current yield more closely reflects current earnings than does total return. Tax-equivalent yields are the taxable yields that an investor would have had to receive in order to realize the same level of yield after federal income taxes at the highest federal tax rate, currently 35%, assuming that all of a Fund's income is exempt from federal income taxes. For the Lehman Brothers New York Municipal Money Fund, tax-equivalent yields are is calculated based on federal, New York State, and New York City tax rates for a combined rate of 41.8%.

** The U.S. Supreme Court is considering a case from Kentucky involving the question of whether a state can give a tax deduction to holders of other states' bonds. Although it is not possible to predict how the court might decide the case, we will watch it carefully as it has the potential to affect single-state municipal funds.

A portion of the income of Lehman Brothers Municipal Money Fund and Lehman Brothers New York Municipal Money Fund may be a tax preference item for purposes of the federal alternative minimum tax for certain investors.

An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.

The composition, industries and holdings of the Fund are subject to change. Investment return will fluctuate. Past performance is no guarantee of future results.

Unaudited performance data current to the most recent month-end are available at www.lehmanam.com.

Lehman Brothers Municipal Securities Trust Portfolio Commentary

Lehman Brothers Municipal Securities Trust provided a modestly positive return for the fiscal year ended October 31, 2007, outperforming the Lipper Intermediate Municipal Debt Funds Average but lagging the Lehman Brothers 7-Year General Obligation Index.

The Fund got off to a good start with municipal securities prices firming as demand outpaced supply during the seasonally strong end of calendar 2006. However, starting in the first quarter of calendar 2007, new issuances surged on the way to what we expect will be a record year for municipal bonds. Although increased supply was absorbed by the market in an orderly fashion, it restrained municipal bond prices during the reporting period.

Credit spreads (the yield differential between higher and lower rated bonds), became tight relative to historical levels during the first half of the reporting period, a reflection of investors' willingness to assume risk. However, as problems with subprime mortgages and subprime mortgage-backed securities surfaced in July, investors became more risk averse and we saw a classic "flight to quality" to the relative safety of U.S. Treasury securities. Stocks and corporate bonds were hit hardest but municipal securities softened as well, in part due to the subprime mortgage problems facing hedge funds, which have been big buyers of municipal securities. Supported by an injection of liquidity by the Federal Reserve and two Fed Funds rate cuts, the financial markets stabilized in September and early October. However, toward the end of fiscal 2007, as prominent financial institutions began announcing large write-downs of the subprime mortgage backed securities in their portfolios, investors once again fled to Treasuries.

With credit spreads widening, some investors may have found it tempting to enhance portfolio yield by increasing exposure to lower rated investment grade municipal bonds. However, we believe that there are still sufficient uncertainties (the financial health of municipal bond insurers FGIC and Ambac being one of the marketplace's primary concerns), that we have decided to maintain the portfolio's AA+ average credit rating.

The Fed's monetary easing has resulted in a steeper yield curve (higher yields for longer maturity securities). Normally we would have extended the portfolio's weighted average maturity to lock in higher yields in the longer end of the market. However, concerns about hedge fund selling and inflationary pressures resulting from the Fed's rate cuts discouraged us from moving farther out on the yield curve. In addition, if the Fed continues to ease, we believe that short to intermediate maturity securities in the one- to seven-year range will benefit more than bonds in the longer end of the market.

Over the course of fiscal 2007, the portfolio's allocation to revenue bonds (primarily essential purpose bonds) increased from 55.5% of assets to 66.5%. Concurrently, the allocation to general obligation bonds (GO's) declined from 35.6% of assets to 27.1%. Our bias toward essential purpose revenue bonds is based on the fact that historically they have outperformed GO's during periods when economic growth was slowing. In addition, we are concerned about the potentially negative impact declining home prices and a softer labor market will have on the municipal tax revenues that fund GO bond principal and interest payments. Finally, essential purpose revenue bonds are often structured with secure legal provisions that further protect bondholders.

Moving forward, all eyes are on the Federal Reserve, which in our opinion is in a very tough position. On the one hand, the Fed must be willing to ease if the credit crunch further threatens the health of the financial system and the economy appears headed into recession. On the other hand, inflation remains a legitimate concern. Clearly, the Fed is worried about the impact rising commodity prices (oil, gold, agricultural products, and industrial materials) could have on the inflationary front. In addition, the Fed also seems concerned about the impact further rate cuts would have on the already sagging dollar. Our best guess is that the Fed will sit on its hands hoping that the credit markets will survive the subprime mortgage mess so that it doesn't have to make additional rate cuts that could fan inflation and put more pressure on the dollar. With the Fed in

RATING SUMMARY

AAA	63.1	%
AA	23.5
A	9.5
BBB	2.8
BB	0.0
B	0.0
CCC	0.0
CC	0.0
C	0.0
D	0.0
Not Rated	0.0
Short Term	1.1

limbo, we will likely maintain the portfolio's current weighted average maturity and duration, until something good or bad happens to give us confidence that monetary policy is likely to change.

In closing, today municipal securities appear to us attractively priced relative to Treasuries. With intermediate maturity municipal bonds yields on average about 90% of the 10-year Treasury bond yield as of fiscal year end, municipal securities provide a significant yield advantage for investors in the 35% income tax bracket.

Sincerely,

William J. Furrer and James L. Iselin
Portfolio Co-Managers

Municipal Securities Trust

AVERAGE ANNUAL TOTAL RETURN ENDED 10/31/07^{1, 6, 8, 12}

	Investor Class			Lehman Brothers 7-Year GO Index
1 Year		2.61	%		3.60	%
5 Year		2.95	%		3.99	%
10 Year		4.23	%		4.98	%
Life of Fund		5.33	%		6.15	%¹³
Inception Date		07/09/1987

Current performance may be lower or higher than the performance data quoted. For performance data current to the most recent month end, please visit www.nb.com/performance.

COMPARISON OF A $10,000 INVESTMENT

				This chart shows the value of a hypothetical $10,000 investment in the Fund over the past 10 fiscal years. The result is compared with one or more benchmarks, which may include a broad-based market index and/or a narrower index. Please note that market indices do not include expenses. All results include the reinvestment of dividends and capital gain distributions. Results represent past performance and do not indicate future results. The chart and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Please see Endnotes and Glossary of Indices for additional information. The composition, industries and holdings of the Fund are subject to change. For the period ending 10/31/07, the 30-day SEC yield of the Investor Class Shares was 3.63% and the tax equivalent yield was 5.58% for an investor in the highest federal income tax bracket (35%).

Lehman Brothers Short Duration Bond Fund Portfolio Commentary

For the fiscal year ended October 31, 2007, the Lehman Brothers Short Duration Bond Fund generated a positive return but modestly trailed its benchmark, the Merrill Lynch 1-3 Year Treasury Index.

The Fund's underperformance relative to the Treasury benchmark is the result of the flight to the safety of Treasury securities prompted by the credit crises in the last months of the fiscal year. The performance of the Fund relative to its peer group remains quite strong due to the high quality bias in the portfolio's structure.

The beginning of the fiscal year was characterized by relatively low volatility — U.S. Treasuries were range-bound and corporate bond spreads remained tight. Concerns regarding the subprime mortgage market began to emerge in February, and by July the collapse of two mortgage-related hedge funds combined with the downgrade of a number of subprime-related collateralized debt obligations intensified investors' worries, prompting a flight to quality. In a six-week period from early July to mid-August, the two-year Treasury note rose in price as its yield fell almost 100 basis points (or one percentage point) and spreads on some investment grade securities (compared to Treasury levels) widened 50 basis points or more, as price declines were exacerbated by the unwinding of positions by leveraged investors, such as hedge funds.

The resurgence of market volatility this year has provided us with several interesting relative value opportunities. We took advantage of market dislocations and reallocated assets from U.S. Agencies and corporate bonds into higher-yielding, AAA-rated asset-backed securities and AAA-rated mortgage-backed securities that are primarily backed by shorter duration adjustable rate mortgages. These transactions allowed us to increase the yield of the portfolio and also increase credit quality. We believe that our extensive fundamental credit research process, supported by our proprietary portfolio management tools, will enable us to continue to uncover undervalued assets that will contribute to returns.

Despite issues in the credit markets and the weakness in the housing sector, concerns remain that higher commodity prices and a weaker U.S. dollar will fuel inflation. Federal Reserve Chairman Ben Bernanke has stated that further Fed action will be data dependant. We have maintained a slightly defensive duration position, with portfolio duration shorter than that of the benchmark, as we monitor these factors. We expect to continue to maintain this posture until the risks to the economy and inflation become more balanced. In the meantime, our defensive positioning provides yield enhancement due to the inversion in the front end of the yield curve.

To protect principal, we have focused intently on credit quality, and are maintaining a high credit quality bias, with the bulk of the portfolio in AAA, AA and A rated securities, with only a small allocation to BBB rated securities. We are also maintaining a highly diversified portfolio in order to attempt to further reduce credit risk. We expect that the market will remain volatile as we move into the end of the calendar year, and we will continue to look for investment opportunities as they present themselves.

In closing, our disciplined investment process, proprietary fundamental credit research and keen focus on risk management have allowed us to provide our investors with consistent and secure returns, regardless of interest rates and market cycles.

Sincerely,

John Dugenske and Thomas Sontag
Portfolio Co-Managers

RATING SUMMARY

AAA/Government/ Government Agency	81.1	%
AA	7.0
A	4.2
BBB	5.6
BB	0.0
B	0.0
CCC	0.0
CC	0.0
C	0.0
D	0.0
Not Rated	0.0
Short Term	2.1

Short Duration Bond Fund

AVERAGE ANNUAL TOTAL RETURN ENDED 10/31/07^{1, 6, 12}

	Investor Class			Trust Class			Merrill Lynch 1–3 Year Treasury Index
1 Year		5.24	%		5.15	%		5.78	%
5 Year		2.98	%		2.86	%		2.85	%
10 Year		4.10	%		3.99	%		4.64	%
Life of Fund		5.62	%		5.56	%		6.07	%¹³
Inception Date		06/09/1986			08/30/1993

Current performance may be lower or higher than the performance data quoted. For performance data current to the most recent month end, please visit www.nb.com/performance.

				This chart shows the value of a hypothetical $10,000 investment in the Fund over the past 10 fiscal years. The graphs are based on the Investor Class shares only; performance of other classes will vary due to differences in fee structures (see Average Annual Total Returns chart above). The result is compared with one or more benchmarks, which may include a broad-based market index and/or a narrower index. Please note that market indices do not include expenses. All results include the reinvestment of dividends and capital gain distributions. Results represent past performance and do not indicate future results. The chart and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Please see Endnotes and Glossary of Indices for additional information. The composition, industries and holdings of the Fund are subject to change. For the period ending 10/31/07, the 30-day SEC yield of the Investor Class Shares was 4.93% and the Trust Class shares was 4.83%.

Lehman Brothers Strategic Income Fund Portfolio Commentary

Lehman Brothers Strategic Income Fund generated a positive return in the fiscal year ended October 31, 2007, surpassing its benchmark, the Lehman Brothers U.S. Aggregate Index.

In our opinion, the Fund's performance for the period reflects the benefits of investing in a diversified portfolio of income producing securities. The portfolio represents an attractive mix of such investments, overseen by an asset allocation committee whose primary responsibility is to adjust the portfolio's structure among several market sectors.

As of October 31, 2007, the Fund included 37.3% in corporate bonds, 22.3% in common and preferred securities (including real estate investment trusts or REITs), 19.9% in foreign bonds, 17.1% in Treasury issues, agency obligations and mortgage backed securities, 2.6% in convertible debt and 0.8% in cash.

REITs

The FTSE NAREIT Equity REITs Index enjoyed strong performance early in the fiscal year but declined substantially in June and July due, in our opinion, to several factors including: investors' concerns about the summer's credit crunch and its impact on the economy, a rotation out of yield-oriented sectors by some investors, selling pressure from hedge funds unwinding large REIT positions, and a drop-off in merger and acquisition activity. However, a rally during the fall helped trim REITs' losses, leaving the index with a modest gain for the reporting period.

During the fiscal year, the Fund's real estate holdings declined slightly, hindered by weakness in apartment, office and mixed use holdings. In contrast, health care and regional mall holdings had a positive impact on results.

We believe that REITs can deliver favorable returns in the coming fiscal year, supported by our expectations for above-average earnings growth and favorable yields. Although REITs are currently valued at the higher end of historical norms, they still trade at a roughly 10% discount to net asset value. Looking forward, we anticipate that a tight supply of credit will limit commercial real estate development, helping to preserve favorable supply/demand dynamics in many REIT sectors.

High Yield Securities

The high yield bond market outperformed Treasuries during the first seven months of the reporting period, but investors' aversion to risk later in the time period dragged down performance. The high yield portfolio earned positive returns, but slightly trailed the performance of the Lehman Brothers High Yield 2% Issuer Cap Index during the fiscal year.

Security selection in the food and beverage and technology sectors detracted from returns. Portfolio performance was enhanced, however, by our security selection and overweighting of health care, services, energy, media and utilities sectors. We also had virtually no exposure to real estate firms or homebuilders, which further enhanced performance.

We anticipate that economic growth will moderate. As such, we have been gravitating to less economically sensitive industry groups, such as health care, broadcasting, cable television, packaging, metals and publishing. At the same time, the portfolio is underweight in more cyclical industries, including energy, paper, homebuilders and capital goods.

Investment Grade Fixed Income

The bond market saw significant turbulence during the fiscal year. Early on, volatility levels were relatively low. U.S. Treasuries traded within a limited range and corporate bond spreads remained tight. However, with new concerns regarding the subprime mortgage market, investors initiated a flight to quality. In a six-week period from early July to mid-August, the two-year Treasury note rose in price as its yield fell almost 100 basis points (or one percentage point) and spreads on some investment grade securities (compared to Treasury levels) widened 50 basis points or more, as price declines were exacerbated by the unwinding of positions by leveraged investors, such as hedge funds.

ASSET DIVERSIFICATION

Corporate Debt	37.3	%
Convertible Debt	2.6
Foreign Securities	19.9
U.S. Government Agency Securities	0.9
Mortgage-Backed Securities	12.8
U.S. Treasury Securities	3.4
Preferred Stock	0.9
Common Stock	21.4
Short Term Investments	0.7
Cash, receivables and other assets, less liabilities	0.1

During the period, the investment grade fixed income portfolio allocation, which has an average overall AA credit quality, benefited from our strong interest in bonds perceived to be in the safest and most liquid sectors. We have selectively increased our allocation to the BBB sector and have been able to take advantage of higher yields available due to the widening of credit spreads. The portfolio also benefited from the attractive yields of longer bonds due to the steepening of the yield curve.

Foreign Securities

As in the U.S., economic uncertainty prompted volatility throughout the global capital markets during the fiscal year. Looking forward to 2008, we believe that theme will continue. As credit conditions tighten and economic growth rates decline, in our view, to a sub-trend pace globally, interest rates should remain low for some time.

We believe expectations for lower interest rates in Europe will grow and that the U.S. dollar will recoup some of its losses relative to other currencies. Conversely, the yen should continue to exhibit strength against the dollar. If, as we expect, high risk asset classes begin to underperform due to higher volatility, tighter credit conditions, and a shift in market psychology, the yen is likely to strengthen as investors begin selling their long positions and buying back their yen denominated short positions (unwinding what is known as the "carry trade").

Income Oriented Equity Securities

The portion of the portfolio focusing on income producing equity securities substantially outperformed the S&P 500 during the 12-month reporting period.

Our performance benefited from our overweighting in Energy and Utilities holdings, as both of those sectors had strong returns. Within the Energy sector, rising oil prices during the performance period helped boost petroleum firms' profits. We also enhanced returns by investing in convertible securities and covered calls. While covered calls limit upside potential they also offer protection during market declines.

We continue to maintain positions in Canadian income trusts (CIT), which are focused on energy related companies. CITs are similar to U.S. real estate investment trusts in that they avoid tax at the corporate level and offer relatively high income yields to investors. We believe these securities are reasonably valued, but due to the potential for a change in their tax status in 2011, we continue to monitor them closely.

Sincerely,

Strategic Income Fund
Asset Allocation Committee

Strategic Income Fund

AVERAGE ANNUAL TOTAL RETURN ENDED 10/31/07^{3, 6, 11, 12}

	Institutional Class			Trust Class			Lehman Brothers U.S. Aggregate Index
1 Year		5.64	%		5.54	%		5.38	%
Life of Fund		8.16	%		8.14	%		3.80	%¹³
Inception Date	07/11/2003			04/02/2007

Performance data quoted represent past performance, which is no guarantee of future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed may be worth more or less than their original cost. Results are shown on a "total return" basis and include reinvestment of all dividends and capital gain distributions. The composition, industries and holdings of the Fund are subject to change.

Current performance may be higher or lower than the performance data quoted. For performance data current to the most recent month end, please visit www.nb.com/performance.

				This chart shows the value of a hypothetical $10,000 investment in the Fund over the past 10 fiscal years, or since the Fund's inception, if it has not operated for 10 years. The graphs are based on the Institutional Class shares only; performance of other classes will vary due to differences in fee structures (see Average Annual Total Returns chart above).The result is compared with one or more benchmarks, which may include a broad-based market index and/or a narrower index. Please note that market indices do not include expenses. All results include the reinvestment of dividends and capital gain distributions. Results represent past performance and do not indicate future results. The chart and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Please see Endnotes and Glossary of Indices for additional information. The composition, industries and holdings of the Fund are subject to change. For the period ending 10/31/07, the 30-day SEC yield of the Institutional Class shares was 4.43% and the Trust Class Shares was 4.18%.

Neuberger Berman Cash Reserves Portfolio Commentary

We are pleased to report that Neuberger Berman Cash Reserves delivered positive returns and outperformed the iMoneyNet Money Fund Report Taxable First Tier Retail Average during the fiscal year ended October 31, 2007. The Fund closed the period with a seven-day effective yield of 4.80% and a seven-day current yield* of 4.69%.^{1, 5}

The combination of slower economic growth and a continued pause in the Federal Reserve's two-year tightening campaign led to a rally in bonds early in the reporting period. The Fed remained on hold for much of this time, with the Fed Funds rate at 5.25%, as the central bank balanced concerns about inflation with indications of a slowing economy.

However, beginning in July, worries about reports of large losses at hedge funds in the subprime and collateralized debt space led to a flight-to-quality bid for Treasuries and a widening of risk premiums in the market. Investors became increasingly concerned about contagion to the broader market from the shakeout in subprime mortgages, leading to more investors taking refuge in Treasuries. The cost of borrowing increased dramatically, as the excesses of a prolonged period of liquidity began to be removed from the market.

September brought the release of August payroll figures — the first negative numbers in four years — as well as a sharp revision to the prior two months' data, which were seen as proof that the employment situation appears to be worsening. (August payroll figures were adjusted upward in October.) This, coupled with a housing market that continued to see declining prices and higher inventories, heightened the Fed's interest in preempting any material effects on economic growth.

As a result, the Fed reduced the Fed Funds rate by 50 basis points at its September meeting, marking its first rate reduction since 2003. The move to 4.75% was only the second time in the last 20 years that an easing cycle had commenced with a 50 basis-point reduction. This was followed by a further 25 basis-point cut in October. In taking rates lower, the Federal Open Market Committee commented that the action was "intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in the financial markets." The committee added that it was prepared to "act as needed to foster price stability and sustainable economic growth."

Throughout the period, we maintained the bulk of the portfolio's holdings in corporate commercial paper and floating rate medium term corporate/bank notes, which ended the period at 56.3% and 28.6% of portfolio holdings, respectively. We also had a small percentage, 4.9% of the portfolio in repurchase agreements at the end of the fiscal year. The weighted average maturity of the portfolio ended the fiscal year at 44.5 days — almost exactly where it was a year prior, after reaching a high of 66 days in March, and a low of 26.8 days in the middle of October, prior to a second rate cut by the Federal Reserve.

The U.S. economy has been extremely resilient thus far. However, we anticipate that further deterioration in the housing market will start to take its toll on the consumer and ultimately business investment. The market is suffering from a crisis of confidence, and while the Fed remains reluctant to take rates lower, we believe that the easing cycle may continue. As always, we will seek to provide consistent and secure returns to our shareholders.

Sincerely,

John C. Donohue and Scott F. Riecke
Portfolio Co-Managers

* Current yield more closely reflects current earnings than does total return.

MATURITY DIVERSIFICATION

(% by Maturity)
1 - 7 Days					30.2%
8 - 30 Days					29.0
31 - 90 Days					27.9
91 - 180 Days					6.4
181+ Days					6.5

Endnotes

1 Neuberger Berman Management Inc. ("Management") has contractually undertaken to forgo current payment of fees and/or expenses reimburse the following Funds so that the total annual operating expenses (exclusive of taxes, interest, brokerage commissions and extraordinary expenses) are limited to 0.65% for Neuberger Berman Cash Reserves (Investor Class), 1.00% for Lehman Brothers High Income Bond Fund (Investor Class), 0.70% for Lehman Brothers Short Duration Bond Fund (Investor Class), 0.80% for Lehman Brothers Short Duration Bond Fund (Trust Class), 0.65% for Lehman Brothers Municipal Securities Trust (Investor Class) and 0.59% for Lehman Brothers Municipal Money Fund (Investor Class) of average daily net assets. Each undertaking lasts until October 31, 2010. Absent such forgone fees and/or reimbursements, the performance of each listed c lass of each Fund except for Lehman Brothers High Income Bond Fund and Neuberger Berman Cash Reserves would have been less.

Each of these Funds has contractually undertaken to repay Management for fees and expenses forgone and/or its excess expenses paid by Management, provided the repayments do not cause its total annual operating expenses (exclusive of taxes, interest, brokerage commissions and extraordinary expenses) to exceed the above stated expense limitation and the repayments are made within three years after the year that Management incurred the expense. For the year ended October 31, 2007, there were no repayments of expenses to Management.

2 Management has contractually undertaken to forgo current payment of fees and/or reimburse Lehman Brothers Core Bond Fund so that total annual operating expenses (exclusive of taxes, interest, brokerage commissions and extraordinary expenses) of the Fund are limited to 0.85% and 0.45% of average daily net assets for the Investor Class and Institutional Class, respectively. The undertakings last until October 31, 2017. The Fund has contractually undertaken to repay Management for fees and expenses forgone and/or its excess expenses paid by Management, provided the repayments do not cause total annual operating expenses (exclusive of taxes, interest, brokerage commissions, and extraordinary expenses) to exceed the above-stated expense limitation and the repayments are made within three years after the year that Management incurred the expense. Absent such forgone fees and/or reimbursements, the performance of each class would have been lower. Management has voluntarily agreed to waive its management fee in the amount of 0.25% (0.20% prior to March 1, 2006) of the Fund's average daily net assets through October 31, 2007. Management has agreed to continue this voluntary waiver after this date. If this voluntary waiver was not in place, performance would be lower for the Fund.

3 Management has contractually undertaken to forgo current payment of fees and/or reimburse Lehman Brothers Strategic Income Fund so that total annual operating expenses (exclusive of taxes, interest, brokerage commissions and extraordinary expenses) of the Fund are limited to 1.10% and 0.85% of average daily net assets for the Trust Class and Institutional Class, respectively. The undertaking lasts until October 31, 2010 and October 31, 2017 for the Trust Class and Institutional Class, respectively. The Fund has contractually undertaken to repay Management for fees and expenses forgone and/or its excess expenses paid by Management, provided the repayments do not cause its total annual operating expenses (exclusive of taxes, interest, brokerage commissions, and extraordinary expenses) to exceed the above stated expense limitation and the re payments are made within three years after the year that Management incurred the expense. Absent such forgone fees and/or reimbursements, the performance of the Fund would have been lower.

4 Management has contractually undertaken to forgo current payment of fees and/or reimburse the Investor Class of Lehman Brothers New York Municipal Money Fund so that the total annual operating expenses (exclusive of taxes, interest, brokerage commissions and extraordinary expenses) of the Fund are limited to 0.59% of average daily net assets. The undertaking lasts until October 31, 2010. Absent such forgone fees and/or reimbursements, the performance of the Investor Class of the Fund would have been less. The Fund has contractually undertaken to repay Management for fees and expenses forgone and/or its excess expenses paid by Management, provided the repayments do not cause its total annual operating expenses (exclusive of taxes, interest, brokerage commissions and extraordinary expenses) to exceed the above stated expense limitation and the repayments are made within

three years after the year that Management incurred the expense. For the year ended October 31, 2007, there were no repayments of expenses to Management.

Effective June 5, 2006, Management voluntarily agreed to waive certain expenses of the Investor Class of New York Municipal Money, so that the total annual operating expenses (exclusive of taxes, interest, brokerage commissions and extraordinary expenses) of the Class are limited to 0.52% of the average daily net assets. In addition, effective January 17, 2007, Management voluntarily agreed to waive certain expenses of the Investor Class of the Fund, so that the total annual operating expenses (exclusive of taxes, interest, brokerage commissions and extraordinary expenses) of the Class are limited to 0.47% of the average daily net assets. Absent such waivers, the performance of the Investor Class of the Fund would have been less.

5 "Current yield" of a money market fund refers to the income generated by an investment in a Fund over a recent 7-day period. This income is then "annualized." The "effective yield" is calculated similarly but, when annualized, the income earned by an investment in the Fund is assumed to be reinvested. The "effective yield" will be slightly higher than the "current yield" because of the compounding effect of this assumed reinvestment. Yields of a money market fund will fluctuate and past performance is not a guarantee of future results.

6 Annual total returns are for the period end October 31, 2007. Returns are shown on a "total return" basis and assume reinvestment of all dividends and capital gain distributions.

7 Tax-equivalent effective yield is the taxable effective yield that an investor would have had to receive in order to realize the same level of yield after federal income taxes at the highest federal tax rate, currently 35%, assuming that all of a Fund's income is exempt from federal income taxes. For Lehman Brothers New York Municipal Money Fund, tax-equivalent yield is calculated based on federal, New York State, and New York City tax rates for a combined rate of 41.8%.

8 A portion of the income of Lehman Brothers Municipal Securities Trust may be a tax preference item for purposes of the federal alternative minimum tax for certain investors.

9 This Fund is the successor to the Lipper High Income Bond Fund ("Lipper Fund"). The total return data for the periods prior to September 7, 2002, are those of the Lipper High Income Bond Fund Premier Class. The data reflect performance of the Lipper Fund for the period April 1, 1996, through September 6, 2002. The investment policies, objectives, guidelines and restrictions of the Fund are in all material respects equivalent to those of the Lipper Fund. Returns would have been lower if the manager of the Lipper Fund had not waived certain of its fees during the periods shown.

10 The Fund is the successor to Ariel Premier Bond Fund ("Ariel Bond Fund"). The total return data for the periods prior to June 13, 2005 are those of the Ariel Bond Fund Investor Class and Institutional Class. The data reflects performance of Ariel Bond Fund Investor Class for the period February 1, 1997 through June 10, 2005 and the performance of Ariel Bond Fund Institutional Class for the period October 1, 1995 (date of inception) through January 31, 1997. The investment policies, guidelines and restrictions of the Fund are in all respects equivalent to Ariel Bond Fund. Ariel Bond Fund Institutional Class had lower expenses and typically higher returns than Ariel Bond Fund Investor Class. Returns would have been lower if the manager of Ariel Bond Fund had not waived certain of its fees during the periods shown.

11 Lehman Brothers Strategic Income Fund Trust Class commenced operations on April 2, 2007. The performance information for the Fund prior to its commencement of operations is for the Institutional Class.

12 Unaudited performance data current to the most recent month-end are available at www.nb.com.

13 The date used to calculate Life of Fund performance for the index is the inception date of the oldest share class.

Glossary of Indices

Merrill Lynch 1-3 Year Treasury Index:				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.

Lehman Brothers 7-Year General Obligation Index:				An unmanaged total return performance benchmark for the intermediate-term, 7-year, investment grade General Obligations (State and Local) tax-exempt bond market.

Lehman Brothers Intermediate Ba U.S. High Yield Index:				An unmanaged index comprised of BB-rated bonds with maturities of less than 10 years.

Lehman Brothers U.S. Aggregate Index:				An unmanaged index that represents the U.S. domestic investment grade bond market. It is comprised of the Lehman Brothers Government/Corporate Bond Index, Mortgage-Backed Securities Index, and Asset-Backed Securities Index, including securities that are of investment-grade quality or better, have at least one year to maturity, and have an outstanding par value of at least $100 million.

Lehman Brothers U.S. Corporate High Yield 2% Issuer Cap Index:				An unmanaged sub-index of the Lehman Brothers U.S. Corporate High Yield Index (which includes all U.S. dollar-denominated, taxable, fixed rate, non-investment grade debt), capped such that no single issuer accounts for more than 2% of the index weight.

Lipper Intermediate Municipal Debt Funds Average:				Measures the performance of mutual funds that invest in municipal debt issues with dollar-weighted average maturities of five to ten years, as tracked by Lipper.

iMoneyNet Money Fund Report Tax-Free National Institutional Average:				Measures all national tax-free and municipal institutional funds. Portfolio holdings of tax-free funds include Rated and Unrated Demand Notes, Rated and Unrated General Market Notes, Commercial Paper, Put Bonds — 6 months or less, Put Bonds — over 6 months, AMT Paper, and Other Tax-Free holdings.

iMoneyNet Money Fund Report Taxable First Tier Retail Average:				Measures the performance of retail money market mutual funds which hold "First Tier" securities as defined by Rule 2a-7 of the Investment Company Act of 1940 (not including Second Tier Commercial Paper). First Tier securities are those rated in the highest short-term rating category by two or more nationally recognized statistical ratings organizations or one, if only one has rated the security.

iMoneyNet Money Fund Report Tax-Free National Retail Average:				Measures all national tax-free and municipal retail funds. Portfolio holdings of tax-free funds include Rated and Unrated Demand Notes, Rated and Unrated General Market Notes, Commercial Paper, Put Bonds — 6 months or less, Put Bonds — over 6 months, AMT Paper, and Other Tax-Free holdings.

iMoneyNet Money Fund Report Tax-Free State-Specific Retail Average:				Measures the performance of retail state-specific tax-free and municipal money mutual funds. Portfolio holdings of tax-free funds include Rated and Unrated Demand Notes, Rated and Unrated General Market Notes, Commercial Paper, Put Bonds — 6 months or less, Put Bonds — over 6 months, AMT Paper, and Other Tax-Free holdings.

FTSE NAREIT Equity REITs Index:				FTSE NAREIT Equity REITs Index tracks the performance of all Equity REITs currently listed on the New York Stock Exchange, the NASDAQ National Market System and the American Stock Exchange. REITs are classified as Equity if 75% or more of their gross invested book assets are invested directly or indirectly in equity of commercial properties.

S&P 500 Index:				The S&P 500 Index is widely regarded as the standard for measuring the performance of large-cap stocks traded on U.S.markets and includes a representative sample of leading companies in leading industries.

Please note that indices do not take into account any fees and expenses or any tax consequences of investing in the individual securities that they track and that investors cannot invest directly in any index or average. Data about the performance of each index or average are prepared or obtained by Management and include reinvestment of all dividends and capital gain distributions. Each Fund may invest in securities not included in its respective index.

Information About Your Fund's Expenses

These tables are designed to provide information regarding costs related to your investments. All mutual funds incur operating expenses, which include management fees, fees for administrative services and cost of shareholder reports, among others. The following examples are based on an investment of $1,000 made at the beginning of the six month period ended October 31, 2007 and held for the entire period. The tables illustrate the fund's costs in two ways:

Actual Expenses and Performance:				The first section of the tables provide information about actual account values and actual expenses in dollars, based on the fund's actual performance during the period. You may use the information in this line, together with the amount you invested, to estimate the expenses you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section of the table under the heading entitled "Expenses Paid During the Period" to estimate the expenses you paid over the period.

Hypothetical Example for Comparison Purposes:				The second section of the tables provide information about hypothetical account values and hypothetical expenses based on the fund's actual expense ratio and an assumed rate of return at 5% per year before expenses. This return is not the fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in these funds versus other funds. To do so, compare the expenses shown in this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Expense Information as of 10/31/07 (Unaudited)

LEHMAN BROTHERS CORE BOND FUND

Actual	Beginning Account Value 5/1/07		Ending Account Value 10/31/07		Expenses Paid During the Period* 5/1/07 - 10/31/07		Expense Ratio
Investor Class	$	1,000.00	$	1,009.40	$	4.31		.85	%
Institutional Class	$	1,000.00	$	1,011.40	$	2.28		.45	%
Hypothetical (5% annual return before expenses)**
Investor Class	$	1,000.00	$	1,020.92	$	4.33		.85	%
Institutional Class	$	1,000.00	$	1,022.94	$	2.29		.45	%

LEHMAN BROTHERS HIGH INCOME BOND FUND

Actual	Beginning Account Value 5/1/07		Ending Account Value 10/31/07		Expenses Paid During the Period* 5/1/07 - 10/31/07		Expense Ratio
Investor Class	$	1,000.00	$	997.50	$	4.73		.94	%
Hypothetical (5% annual return before expenses)**
Investor Class	$	1,000.00	$	1,020.47	$	4.79		.94	%

LEHMAN BROTHERS MUNICIPAL MONEY FUND

Actual	Beginning Account Value 5/1/07		Ending Account Value 10/31/07		Expenses Paid During the Period* 5/1/07 - 10/31/07		Expense Ratio
Investor Class	$	1,000.00	$	1,016.10	$	2.95		.58	%
Hypothetical (5% annual return before expenses)**
Investor Class	$	1,000.00	$	1,022.28	$	2.96		.58	%

LEHMAN BROTHERS MUNICIPAL SECURITIES TRUST

Actual	Beginning Account Value 5/1/07		Ending Account Value 10/31/07		Expenses Paid During the Period* 5/1/07 - 10/31/07		Expense Ratio
Investor Class	$	1,000.00	$	1,014.80	$	3.30		.65	%
Hypothetical (5% annual return before expenses)**
Investor Class	$	1,000.00	$	1,021.93	$	3.31		.65	%

Expense Information as of 10/31/07 cont'd (Unaudited)

LEHMAN BROTHERS NEW YORK MUNICIPAL MONEY FUND

Actual	Beginning Account Value 5/1/07		Ending Account Value 10/31/07		Expenses Paid During the Period* 5/1/07- 10/31/07		Expense Ratio
Investor Class	$	1,000.00	$	1,016.60	$	2.34		.46	%
Hypothetical (5% annual return before expenses)**
Investor Class	$	1,000.00	$	1,022.89	$	2.35		.46	%

LEHMAN BROTHERS SHORT DURATION BOND FUND

Actual	Beginning Account Value 5/1/07		Ending Account Value 10/31/07		Expenses Paid During the Period* 5/1/07 - 10/31/07		Expense Ratio
Investor Class	$	1,000.00	$	1,026.20	$	3.57		.70	%
Trust Class	$	1,000.00	$	1,025.80	$	4.08		.80	%
Hypothetical (5% annual return before expenses)**
Investor Class	$	1,000.00	$	1,021.68	$	3.57		.70	%
Trust Class	$	1,000.00	$	1,021.17	$	4.08		.80	%

LEHMAN BROTHERS STRATEGIC INCOME FUND

Actual	Beginning Account Value 5/1/07		Ending Account Value 10/31/07		Expenses Paid During the Period* 5/1/07 - 10/31/07		Expense Ratio
Institutional Class	$	1,000.00	$	1,011.90	$	4.31		.85	%
Trust Class	$	1,000.00	$	1,010.90	$	5.58		1.10	%
Hypothetical (5% annual return before expenses)**
Institutional Class	$	1,000.00	$	1,020.92	$	4.33		.85	%
Trust Class	$	1,000.00	$	1,019.66	$	5.60		1.10	%

NEUBERGER BERMAN CASH RESERVES

Actual	Beginning Account Value 5/1/07		Ending Account Value 10/31/07		Expenses Paid During the Period* 5/1/07 - 10/31/07		Expense Ratio
Investor Class	$	1,000.00	$	1,024.70	$	2.65		.52	%
Hypothetical (5% annual return before expenses)**
Investor Class	$	1,000.00	$	1,022.58	$	2.65		.52	%

* For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period shown).

** Hypothetical 5% annual return before expenses is calculated by multiplying the number of days in the most recent period divided by 365.

Schedule of Investments Lehman Brothers Core Bond Fund

PRINCIPAL AMOUNT

RATING^§

VALUE^†

(000's omitted)

Moody's

S&P

(000's omitted)

U.S. Treasury Securities-Backed by the Full Faith and Credit of
the U.S. Government (8.8%)

445

U.S. Treasury Bonds, 8.13%, due 8/15/19

TSY

584

1,435

U.S. Treasury Bonds, 6.00%, due 2/15/26

TSY

1,643

^ØØ

4,685

U.S. Treasury Notes, 4.38%, due 8/15/12

TSY

4,745

^ØØ

625

U.S. Treasury Strips, due 8/15/14 & 2/15/25

TSY

362

Total U.S. Treasury Securities-Backed by the Full
Faith and Credit of the U.S. Government (Cost $7,236)

7,334

U.S. Government Agency Securities (9.0%)

850

Fannie Mae, Notes, 5.25%, due 1/29/09 & 9/15/16

AGY

862

1,320

Fannie Mae, Notes, 4.30%, due 3/9/09

AGY

1,318

660

Fannie Mae, Notes, 5.38%, due 7/15/16

AGY

682

725

Fannie Mae, Notes, 5.00%, due 5/11/17

AGY

728

200

Federal Home Loan Bank, Bonds, 5.00%, due 11/17/17

AGY

202

280

Federal Home Loan Bank, Bonds, 5.50%, due 7/15/36

AGY

291

700

Federal Home Loan Bank, Bonds, 5.13%, due 6/18/08

AGY

702

2,450

Freddie Mac, Notes, 4.75%, due 1/18/11

AGY

2,473

200

Freddie Mac, Notes, 5.13%, due 7/15/12

AGY

204

Total U.S. Government Agency Securities (Cost $7,412)

7,462

Mortgage-Backed Securities (84.4%)
Adjustable Rate Mortgages (41.6%)

ACE Securities Corp., Ser. 2006-FM1, Class A2A, 4.91%, due 11/25/07

Aaa

AAA

^µØØ

205

ACE Securities Corp., Ser. 2006-FM1, Class A2B, 4.96%, due 11/25/07

Aaa

AAA

200

^µØØ

171

ACE Securities Corp., Ser. 2005-HE6, Class A2B, 5.07%, due 11/25/07

Aaa

AAA

171

^µØØ

1,075

Advanta Business Card Master Trust, Ser. 2001-A, Class A, 5.30%, due 11/20/07

Aaa

AAA

1,076

^µ

209

Asset Backed Securities Corp. Home Equity, Ser. 2005-HE6, Class A2B,
5.12%, due 11/25/07

Aaa

AAA

208

^µØØ

570

Bank of America Credit Card Trust, Ser. 2007-A7, Class A7,
5.09%, due 11/15/07

Aaa

AAA

567

^µØØ

800

Bank of America Credit Card Trust, Ser. 2007-A13, Class A13,
5.33%, due 11/15/07

Aaa

AAA

800

^µØØ

Banc of America Funding Corp., Ser. 2006-G, Class 2A2,
5.08%, due 11/20/07

Aaa

AAA

^µØØ

116

Banc of America Funding Corp., Ser. 2006-G, Class 2A1,
5.22%, due 11/20/07

Aaa

AAA

115

^µØØ

327

Banc of America Funding Corp., Ser. 2005-F, Class 4A1,
5.35%, due 11/20/07

Aaa

AAA

328

^µ

386

Banc of America Funding Corp., Ser. 2006-A, Class 3A2,
5.88%, due 11/20/07

AAA

388

^µ

800

Bank One Issuance Trust, Ser. 2003-A3, Class A3, 5.20%, due 11/15/07

Aaa

AAA

800

^µØØ

800

Bank One Issuance Trust, Ser. 2003-A1, Class A1, 5.21%, due 11/15/07

Aaa

AAA

800

^µØØ

164

Bear Stearns ALT-A Trust, Ser. 2006-4, Class 32A1,
6.48%, due 7/25/36

Aaa

AAA

167

406

Bear Stearns ALT-A Trust, Ser. 2007-2, Class 2A1,
5.61%, due 11/25/07

Aaa

AAA

408

^µ

330

Carrington Mortgage Loan Trust, Ser. 2006-NC3, Class A3, 5.02%, due 11/25/07

Aaa

AAA

311

^µØØ

220

Carrington Mortgage Loan Trust, Ser. 2006-NC4, Class M2, 5.19%, due 11/25/07

Aa2

166

^µØØ

810

Chase Credit Card Master Trust, Ser. 2002-3, Class A, 5.26%, due 11/15/07

Aaa

AAA

810

^µ

Chase Funding Mortgage Loan Asset-Backed Certificates, Ser. 2004-1,
Class 2A2, 5.10%, due 11/25/07

Aaa

AAA

^µØØ

800

Chase Issuance Trust, Ser. 2006-A3, Class A3, 5.08%, due 11/15/07

Aaa

AAA

798

^µ

350

Chase Issuance Trust, Ser. 2007-A6, Class A6, 5.09%, due 11/15/07

Aaa

AAA

348

^µØØ

800

Chase Issuance Trust, Ser. 2007-A14, Class A14, 5.34%, due 11/15/07

Aaa

AAA

801

^µØØ

800

Citibank Credit Card Issuance Trust, Ser. 2003-A9, Class A9, 5.59%, due 11/20/07

Aaa

AAA

799

^µØØ

See Notes to Schedule of Investments 26

PRINCIPAL AMOUNT

RATING^§

VALUE^†

(000's omitted)

Moody's

S&P

(000's omitted)

110

Citigroup Mortgage Loan Trust, Inc., Ser. 2006-WFH1, Class M2,
5.24%, due 11/25/07

Aa2

^µØØ

165

Countrywide Alternative Loan Trust, Ser. 2006-0C9, Class A2B,
5.11%, due 11/25/07

Aaa

AAA

164

^µØØ

616

Countrywide Asset-Backed Certificates, Ser. 2007-BC2, Class 2A1,
4.96%, due 11/25/07

Aaa

AAA

606

^µØØ

305

Countrywide Asset-Backed Certificates, Ser. 2005-IM2, Class A3,
5.14%, due 11/25/07

Aaa

AAA

301

^µØØ

697

Countrywide Asset-Backed Certificates, Ser. 2007-7, Class 2A1,
4.95%, due 11/25/07

Aaa

AAA

688

^µØØ

211

Countrywide Asset-Backed Certificates, Ser. 2007-S3, Class A1,
5.01%, due 11/25/07

Aaa

AAA

206

^µØØ

206

Countrywide Asset-Backed Certificates, Ser. 2006-BC1, Class 1A,
5.07%, due 11/25/07

Aaa

AAA

198

^µØØ

759

Countrywide Asset-Backed Certificates, Ser. 2006-IM1, Class A2,
5.11%, due 11/25/07

Aaa

AAA

729

^µØØ

135

Countrywide Asset-Backed Certificates, Ser. 2005-13, Class MV6,
5.57%, due 11/25/07

103

^µØØ

234

Countrywide Home Equity Loan Trust, Ser. 2005-A, Class 2A,
5.33%, due 11/15/07

Aaa

AAA

229

^µØØ

230

Countrywide Home Equity Loan Trust, Ser. 2005-K, Class 2A1,
5.33%, due 11/15/07

Aaa

AAA

226

^µØØ

422

Countrywide Home Loans Mortgage Pass-Through Trust, Ser. 2007-HYB2,
Class 2A1, 5.46%, due 11/25/07

Aaa

AAA

426

^µ

150

Credit Suisse Mortgage Capital Certificates, Ser. 2007-TF2A,
Class A1, 5.27%, due 11/15/07

Aaa

AAA

150

^ñµØØ

Credit-Based Asset Servicing and Securitization, Ser. 2006-CB3, Class AV1,
4.93%, due 11/25/07

Aaa

AAA

^µØØ

360

Credit-Based Asset Servicing and Securitization, Ser. 2006-CB6, Class A22,
4.96%, due 11/25/07

Aaa

AAA

352

^µØØ

462

Credit-Based Asset Servicing and Securitization, Ser. 2007-SP2, Class A1,
5.02%, due 11/25/07

Aaa

AAA

454

^ñµØØ

800

Credit-Based Asset Servicing and Securitization, Ser. 2006-CB3, Class AV3,
5.04%, due 11/25/07

Aaa

AAA

775

^µØØ

222

Credit-Based Asset Servicing and Securitization, Ser. 2005-CB5, Class AV2,
5.13%, due 11/25/07

Aaa

AAA

217

^µØØ

720

Discover Card Master Trust I, Ser. 2005-4, Class A1, 5.15%, due 11/15/07

Aaa

AAA

716

^µØØ

Equifirst Mortgage Loan Trust, Ser. 2003-2, Class 3A3, 5.62%, due 11/25/07

Aaa

AAA

^µØØ

Fannie Mae Grantor Trust, Ser. 2002-T5, Class A1, 5.11%, due 11/25/07

^µØØ

160

Fannie Mae Whole Loan, Ser. 2003-W5, Class A, 5.09%, due 11/25/07

Aaa

155

^µØØ

385

First Franklin Mortgage Loan Asset-Backed Certificates, Ser. 2006-FF4,
Class A2, 5.06%, due 11/25/07

Aaa

AAA

368

^µØØ

First Franklin Mortgage Loan Trust, Asset-Backed Certificates, Ser. 2006-FF5,
Class 2A1, 4.92%, due 11/25/07

Aaa

AAA

^µØØ

First Franklin Mortgage Loan Trust, Asset-Backed Certificates, Ser. 2006-FF3,
Class A2A, 4.95%, due 11/25/07

Aaa

AAA

^µØØ

775

First Franklin Mortgage Loan Trust, Asset-Backed Certificates, Ser. 2006-FF11,
Class 2A3, 5.02%, due 11/25/07

Aaa

AAA

711

^µØØ

First Franklin Mortgage Loan Trust, Asset-Backed Certificates, Ser. 2004-FFH3,
Class 2A1, 5.25%, due 11/25/07

Aaa

^µØØ

479

First Horizon Mortgage Pass-Through Trust, Ser. 2005-AR5, Class 2A1,
5.44%, due 11/25/07

AAA

479

^µ

262

GMAC Mortgage Corp. Loan Trust, Ser. 2006-AR1, Class 1A1,
5.60%, due 11/19/07

Aaa

AAA

263

^µ

360

GSAMP Trust, Ser. 2006-HE6, Class A3, 5.02%, due 11/25/07

Aaa

AAA

331

^µØØ

280

GSAMP Trust, Ser. 2006-HE6, Class M2, 5.18%, due 11/25/07

Aa2

200

^µØØ

GS Mortgage Securities Corp. II, Ser. 2006-FL8A, Class A1,
5.22%, due 11/6/07

Aaa

AAA

^ñµØØ

366

GSR Mortgage Loan Trust, Ser. 2005-AR3, Class 6A1,
5.02%, due 5/25/35

Aaa

AAA

363

603

GSR Mortgage Loan Trust, Ser. 2007-AR1, Class 2A1,
6.01%, due 11/25/07

AAA

609

^µ

See Notes to Schedule of Investments 27

PRINCIPAL AMOUNT

RATING^§

VALUE^†

(000's omitted)

Moody's

S&P

(000's omitted)

494

Harborview Mortgage Loan Trust, Ser. 2006-3, Class 1A1A,
6.38%, due 11/19/07

Aaa

AAA

503

132

Household Home Equity Loan Trust, Ser. 2006-1, Class A1, 5.16%, due 11/20/07

Aaa

AAA

126

^µØØ

161

Household Home Equity Loan Trust, Ser. 2006-2, Class A2, 5.27%, due 11/20/07

Aaa

AAA

153

^µØØ

340

HSI Asset Loan Obligation, Ser. 2007-AR1, Class 2A1,
6.15%, due 11/25/07

AAA

343

^µ

195

HSI Asset Securitization Corp. Trust, Ser. 2006-WMC1, Class A2,
4.97%, due 11/25/07

Aaa

AAA

187

^µØØ

HSI Asset Securitization Corp. Trust, Ser. 2005-I1, Class 2A1, 4.99%, due 11/25/07

Aaa

AAA

^µØØ

720

Impac Secured Assets Corp., Ser. 2006-3, Class A4, 4.96%, due 11/25/07

Aaa

AAA

715

^µØØ

Indymac Index Mortgage Loan Trust, Ser. 2006-AR7, Class 3A1,
6.10%, due 11/25/07

Aaa

AAA

^µ

607

Indymac Index Mortgage Loan Trust, Ser. 2006-AR11, Class 2A1,
5.86%, due 11/25/07

Aaa

AAA

607

^µ

Indymac Loan Trust, Ser. 2006-L2, Class A1, 4.92%, due 11/25/07

Aaa

AAA

^µØØ

178

Indymac Loan Trust, Ser. 2005-L2, Class A1, 5.09%, due 11/25/07

Aaa

AAA

175

^µØØ

657

Indymac Seconds Asset-Backed Trust, Ser. 2006-2B, Class A, 5.04%, due 11/25/07

Aaa

AAA

631

^µØØ

JP Morgan Alternative Loan Trust, Ser. 2006-A3, Class 1A2,
4.94%, due 11/25/07

Aaa

AAA

^µØØ

135

JP Morgan Alternative Loan Trust, Ser. 2006-A2, Class 1A2,
4.95%, due 11/25/07

Aaa

AAA

135

^µØØ

195

JP Morgan Alternative Loan Trust, Ser. 2006-S4, Class A1B,
4.95%, due 11/25/07

Aaa

AAA

195

^µØØ

JP Morgan Chase Commercial Mortgage Securities Corp., Ser. 2005-FL1A,
Class A1, 5.20%, due 11/15/07

Aaa

AAA

^ñµØØ

997

JP Morgan Mortgage Trust, Ser. 2005-A3, Class 7CA1, 5.11%, due 6/25/35

AAA

993

340

JP Morgan Mortgage Acquisition Corp., Ser. 2006-CW2, Class AV3,
4.97%, due 11/25/07

Aaa

AAA

332

^µØØ

642

Knollwood CDO Ltd., Ser. 2006-2A, Class A2J, 5.66%, due 1/13/08

Aaa

AAA

193

^ñµØØ

2,050

MBNA Credit Card Master Note Trust, Ser. 2006-A4, Class A4,
5.08%, due 11/15/07

Aaa

AAA

2,045

^µØØ

685

MBNA Credit Card Master Note Trust, Ser. 2004-A7, Class A7,
5.19%, due 11/15/07

Aaa

AAA

684

^µØØ

505

MBNA Credit Card Master Note Trust, Ser. 2002-A13, Class A,
5.22%, due 11/15/07

Aaa

AAA

505

^µØØ

697

Merrill Lynch First Franklin Mortgage Loan, Ser. 2007-2, Class A2A,
4.98%, due 11/25/07

Aaa

AAA

689

^µØØ

299

MortgageIT Trust, Ser. 2005-3, Class A1, 5.17%, due 11/25/07

Aaa

AAA

296

^µØØ

Morgan Stanley Capital I, Ser. 2004-WMC3, Class B3, 7.57%, due 11/25/07

Baa3

BBB-

^µØØ

130

MSCC Heloc Trust, Ser. 2003-2, Class A, 5.13%, due 11/25/07

Aaa

AAA

128

^µØØ

395

Nomura Asset Acceptance Corp., Ser. 2007-2, Class A1A, 4.99%, due 11/25/07

Aaa

AAA

394

^µØØ

Novastar Home Equity Loan, Ser. 2005-3, Class A2B, 5.06%, due 11/25/07

Aaa

AAA

^µØØ

800

Option One Mortgage Loan Trust, Ser. 2006-2, Class 2A2, 4.97%, due 11/25/07

Aaa

AAA

784

^µØØ

176

Popular ABS Mortgage Pass-Through Trust, Ser. 2006-E, Class A1,
4.96%, due 11/25/07

Aaa

AAA

174

^µØØ

150

Residential Accredit Loans, Inc., Ser. 2006-QO7, Class 3A2, 5.08%, due 11/25/07

Aaa

AAA

146

^µØØ

364

Residential Accredit Loans, Inc., Ser. 2005-QA10, Class A31, 5.60%, due 11/25/07

Aaa

AAA

365

^µ

472

Residential Accredit Loans, Inc., Ser. 2006-QA1, Class A21, 5.97%, due 11/25/07

Aaa

AAA

478

^µ

Residential Asset Mortgage Products, Inc., Ser. 2003-RS2, Class AII,
5.21%, due 11/25/07

Aaa

AAA

^µØØ

Residential Asset Mortgage Products, Inc., Ser. 2003-RS3, Class AII,
5.59%, due 11/25/07

Aaa

AAA

^µØØ

Saxon Asset Securities Trust, Ser. 2004-1, Class A, 5.41%, due 11/25/07

Aaa

AAA

^µØØ

385

SLM Student Loan Trust, Ser. 2005-A, Class A1, 5.73%, due 12/15/07

Aaa

AAA

383

^µØØ

Specialty Underwriting & Residential Finance, Ser. 2003-BC1, Class A,
5.21%, due 11/25/07

Aaa

^µØØ

350

Textron Financial Floorplan Master Note Trust, Ser. 2005-1A, Class A,
5.21%, due 11/13/07

Aaa

AAA

350

^ñµØØ

Thornburg Mortgage Securities Trust, Ser. 2006-2, Class A1B,
4.92%, due 11/25/07

Aaa

AAA

^µØØ

665

Volkswagen Credit Auto Master Trust, Ser. 2005-1, Class A, 5.02%, due 11/20/07

Aaa

AAA

664

^µØØ

Wachovia Asset Securitization, Inc., Ser. 2003-HE3, Class A, 5.12%, due 11/25/07

Aaa

AAA

^µØØ

34,627

See Notes to Schedule of Investments 28

PRINCIPAL AMOUNT

RATING^§

VALUE^†

(000's omitted)

Moody's

S&P

(000's omitted)

Fannie Mae (37.0%)

164

Pass-Through Certificates, 6.00%, due 11/1/15

AGY

167

493

Pass-Through Certificates, 5.00%, due 3/1/21 & 8/1/35

AGY

479

145

Pass-Through Certificates, 8.50%, due 4/1/34

AGY

155

399

Pass-Through Certificates, 5.50%, due 7/1/37

AGY

393

1,530

Pass-Through Certificates, 6.00%, TBA, 30 Year Maturity

AGY

1,541

^Ø

8,425

Pass-Through Certificates, 5.00%, TBA, 15 Year Maturity

AGY

8,294

^Ø

8,655

Pass-Through Certificates, 5.00%, TBA, 30 Year Maturity

AGY

8,301

^Ø

11,550

Pass-Through Certificates, 5.50%, TBA, 30 Year Maturity

AGY

11,380

^Ø

30,710

Freddie Mac (5.8%)

137

Pass-Through Certificates, 6.50%, due 11/1/25

AGY

142

261

Pass-Through Certificates, 5.71%, due 6/1/36

AGY

264

1,074

Pass-Through Certificates, 5.78%, due 7/1/36

AGY

1,077

719

Pass-Through Certificates, 5.40%, due 2/1/37

AGY

721

754

Pass-Through Certificates, 5.55%, due 2/1/37

AGY

759

1,808

Pass-Through Certificates, 5.27%, due 4/1/37

AGY

1,806

4,769

Total Mortgage-Backed Securities (Cost 69,880)

70,106

Corporate Debt Securities (18.0%)
Bank (1.3%)

490

Deutsche Bank AG, Senior Unsecured Notes, 5.38%, due 10/12/12

Aa1

494

315

JP Morgan Chase Capital XV, Guaranteed Notes, 5.88%, due 3/15/35

Aa3

286

255

Wachovia Corp., Senior Medium-Term Notes, Ser. G, 5.70%, due 8/1/13

Aa3

AA-

257

1,037

Electric (0.2%)

240

Exelon Generation Co., LLC, Senior Unsecured Notes, 6.20%, due 10/1/17

BBB+

241

Finance (5.1%)

155

American Express Co., Senior Unsecured Notes, 6.15%, due 8/28/17

A+

158

910

Citigroup, Inc., Subordinated Notes, 5.00%, due 9/15/14

Aa3

AA-

883

475

Countrywide Financial Corp., Guaranteed Medium Term Notes, 5.80%, due 6/7/12

Baa3

BBB+

409

110

Goldman Sachs Group, Inc., Subordinated Notes, 5.95%, due 1/15/27

A+

102

Goldman Sachs Group, Inc., Subordinated Notes, 6.45%, due 5/1/36

A+

155

Goldman Sachs Group, Inc., Subordinated Notes, 6.75%, due 10/1/37

A+

156

Household Finance Corp., Senior Unsecured Notes, 4.13%, due 11/16/09

Aa3

AA-

390

International Lease Finance Corp., Unsubordinated Notes, 4.75%, due 7/1/09

AA-

385

245

International Lease Finance Corp., Medium Term Notes, Ser. R, 5.63%, due 9/15/10

248

325

JP Morgan Chase & Co., Senior Unsecured Notes, 5.38%, due 10/1/12

Aa2

AA-

327

210

Merrill Lynch & Co., Subordinated Notes, 6.11%, due 1/29/37

193

130

Merrill Lynch & Co., Subordinated Notes, 6.22%, due 9/15/26

124

790

Simon Property Group L.P., Unsubordinated Notes, 5.25%, due 12/1/16

A-

748

140

Travelers Companies, Inc., Senior Unsecured Notes, 6.25%, due 6/15/37

A-

138

260

WEA Finance LLC/WCI Finance LLC, Senior Notes, 5.70%, due 10/1/16

A-

254

^ñ

4,252

Industrial (9.3%)

490

Comcast Corp., Guaranteed Notes, 6.30%, due 11/15/17

Baa2

BBB+

505

425

Continental Airlines, Inc., Pass-Through Certificates, Series A, 5.98%, due 4/19/22

Baa1

418

300

Covidien International Finance S.A., Guaranteed Notes, 6.55%, due 10/15/37

Baa1

A-

306

^ñ

615

CVS Caremark Corp., Senior Unsecured Notes, 6.25%, due 6/1/27

Baa2

BBB+

612

300

DaimlerChrysler N.A. Holding Corp., Notes, 4.88%, due 6/15/10

BBB+

298

105

DCP Midstream LLC, Senior Unsecured Notes, 6.75%, due 9/15/37

Baa2

BBB+

108

^ñ

See Notes to Schedule of Investments 29

PRINCIPAL AMOUNT

RATING^§

VALUE^†

(000's omitted)

Moody's

S&P

(000's omitted)

610

Delta Air Lines, Pass-Through Certificates, 7.57%, due 11/18/10

BBB-

630

280

Encana Corp., Senior Unsubordinated Notes, 6.63%, due 8/15/37

Baa2

A-

296

300

Enterprise Products Operating L.P., Guaranteed Notes, 6.30%, due 9/15/17

Baa3

BBB-

305

460

Erac USA Finance Co., Guaranteed Notes, 7.00%, due 10/15/37

Baa2

BBB

453

^ñ

205

Fedex Corp., Guaranteed Notes, 5.50%, due 8/15/09

Baa2

BBB

207

355

Marathon Oil Corp., Unsubordinated Notes, 6.60%, due 10/1/37

Baa1

BBB+

370

185

Motorola, Inc., Senior Unsecured Notes, 6.63%, due 11/15/37

Baa1

A-

181

190

Motorola, Inc., Debentures, 5.22%, due 10/1/97

Baa1

139

335

Northwest Airlines, Inc., Pass-Through Certificates, 7.03%, due 11/1/19

A-

338

220

Oneok Parters L.P., Guaranteed Notes, 6.85%, due 10/15/37

Baa2

BBB

230

130

Owens Corning, Inc., Guaranteed Notes, 7.00%, due 12/1/36

Baa3

BBB-

121

220

Southwest Airlines Co., Pass-Through Certificates, Series 07-1, 6.15%, due 8/1/22

Aa3

AA-

223

280

Suncor, Inc., Bonds, 6.50%, due 6/15/38

A-

293

450

Time Warner Cable, Inc., Senior Unsecured Notes, 5.85%, due 5/1/17

Baa2

BBB+

446

^ñ

305

Union Pacific Corp., Senior Unsubordinated Notes, 5.75%, due 11/15/17

Baa2

BBB

304

235

United Airlines, Inc., Pass-Through Certificates, 6.64%, due 7/2/22

Baa2

BBB

233

180

USG Corp., Senior Unsecured Notes, 6.30%, due 11/15/16

Baa3

BB+

165

220

Xerox Corp., Senior Unsecured Notes, 5.50%, due 5/15/12

Baa3

BBB-

220

265

XTO Energy, Inc., Senior Unsecured Notes, 6.75%, due 8/1/37

Baa2

BBB

284

7,685

Telecommunications (1.4%)

390

AT&T Wireless Services, Inc., Senior Unsubordinated Notes, 7.88%, due 3/1/11

423

335

Qwest Corp., Notes, 8.88%, due 3/15/12

Ba1

BBB-

367

355

Sprint Nextel Corp., Unsecured Notes, 6.00%, due 12/1/16

Baa3

BBB

341

1,131

Utility - Electric (0.7%)

155

DTE Energy Co., Senior Notes, 7.05%, due 6/1/11

Baa2

BBB-

163

285

FirstEnergy Corp., Unsubordinated Notes, Ser. B, 6.45%, due 11/15/11

Baa3

BBB-

294

145

MidAmerican Energy Co., Senior Unsecured Notes, 5.80%, due 10/15/36

A-

141

598

Total Corporate Debt Securities (Cost $15,001)

14,944

Asset-Backed Securities (11.2%)

ABSC NIMS Trust, Ser. 2005-HE6, Class A1, 5.05%, due 8/27/35

CCC

^ñ

Adjustable Rate Mortgage NIM Trust, Ser. 2006-6, Class A,
6.50%, due 11/27/07

A-

^ñ

105

ARCap REIT, Inc., Ser. 2004-1A, Class D, 5.64%, due 4/21/39

^ñ

110

Banc of America Commercial Mortgage, Inc., Ser. 2007-3, Class A4,
5.84%, due 11/10/07

Aaa

AAA

110

^µ

Carmax Auto Owner Trust, Ser. 2004-1, Class D, 3.52%, due 11/15/10

AAA

106

Chase Commercial Mortgage Securities Corp., Ser. 2000-3, Class A1,
7.09%, due 10/15/32

AAA

106

630

Chase Commercial Mortgage Securities Corp., Ser. 2003-3, Class A2,
7.32%, due 10/15/32

AAA

660

165

Credit Suisse First Boston Mortgage Securities Corp., Ser. 2001-CK6,
Class A3, 6.39%, due 8/15/36

Aaa

AAA

171

225

Credit Suisse First Boston Mortgage Securities Corp., Ser. 2005-C4,
Class A3, 5.12%, due 8/15/38

Aaa

AAA

222

Credit Suisse Mortgage Capital Certificates, Ser. 2007-C3,
Class A4, 5.91%, due 11/15/07

Aaa

AAA

^µ

670

Credit Suisse Mortgage Capital Certificates, Ser. 2006-C4, Class A2,
5.36%, due 9/15/39

Aaa

AAA

670

Credit Suisse Mortgage Capital Certificates, Ser. 2007-C4, Class A4,
6.01%, due 11/15/07

Aaa

AAA

^µ

100

Credit Suisse Mortgage Capital Certificates, Ser. 2007-C1, Class A3,
5.38%, due 2/15/40

Aaa

635

Discover Card Master Trust, Ser. 2007-A1, Class A1, 5.65%, due 3/16/20

Aaa

AAA

640

See Notes to Schedule of Investments 30

PRINCIPAL AMOUNT

RATING^§

VALUE^†

(000's omitted)

Moody's

S&P

(000's omitted)

Fremont NIM Trust, Ser. 2005-C, 5.58%, due 7/25/35

CCC

^ñ

175

Greenwich Capital Commercial Funding Corp., Ser. 2007-GG11,
Class A4, 5.74%, due 12/10/49

AAA

177

175

GS Mortgage Securities Corp. II, Ser. 2007-GG10, Class A4,
5.99%, due 11/10/07

Aaa

AAA

177

^µ

Harborview NIM Corp., Ser. 2006-9A, Class N1,
6.41%, due 11/19/36

^ñ§§

148

JP Morgan Chase Commercial Mortgage Securities Corp., Ser. 2005-CB11,
Class A1, 4.52%, due 8/12/37

Aaa

AAA

147

220

JP Morgan Chase Commercial Mortgage Securities Corp., Ser. 2005-LDP3,
Class A3, 4.96%, due 8/15/42

Aaa

AAA

215

335

JP Morgan Chase Commercial Mortgage Securities Corp., Ser. 2006-CB14,
Class ASB, 5.51%, due 12/12/44

Aaa

AAA

334

180

JP Morgan Chase Commercial Mortgage Securities Corp., Ser. 2006-LDP7,
Class A4, 6.07%, due 11/15/07

Aaa

AAA

184

^µ

200

JP Morgan Chase Commercial Mortgage Securities Corp., Ser. 2007-LDPX,
Class A3, 5.42%, due 1/15/49

Aaa

196

1,270

JP Morgan Chase Commercial Mortgage Securities Corp., Ser. 2007-LD11,
Class A4, 6.01%, due 11/15/07

Aaa

AAA

1,287

^µ

1,270

JP Morgan Chase Commercial Mortgage Securities Corp., Ser. 2007-CB20,
Class A4, 5.79%, due 2/12/51

Aaa

AAA

1,279

808

LB Commercial Conduit Mortgage Trust, Ser. 1998-C4, Class A1B,
6.21%, due 10/15/35

Aaa

AAA

812

123

Merrill Lynch Mortgage Trust, Ser. 2005-MKB2, Class A1, 4.45%, due 9/12/42

Aaa

AAA

122

300

Merrill Lynch/Countrywide Commercial Mortgage Trust, Ser. 2007-5, Class A4,
5.38%, due 8/12/48

Aaa

AAA

294

140

Morgan Stanley Capital I, Ser. 2005-T17, Class A5, 4.78%, due 12/13/41

AAA

133

115

Morgan Stanley Capital I, Ser. 2007-HQ11, Class A4, 5.45%, due 2/12/44

Aaa

AAA

113

260

Newcastle CDO Ltd., Ser. 2004-4A, Class 3FX, 5.11%, due 3/24/39

217

^ñ

Renaissance Home Equity Loan Trust, Ser. 2005-4, Class N, 7.14%, due 2/25/36

BBB

^ñ

Wachovia Bank Commercial Mortgage Trust, Ser. 2005-C17, Class A1,
4.43%, due 3/15/42

Aaa

AAA

245

Wachovia Bank Commercial Mortgage Trust, Ser. 2007-C30, Class A5,
5.34%, due 12/15/43

Aaa

AAA

239

330

Wachovia Bank Commercial Mortgage Trust, Ser. 2005-C22, Class A4,
5.27%, due 11/15/07

Aaa

AAA

325

^µ

Total Asset-Backed Securities (Cost $10,559)

9,270

NUMBER OF SHARES

Short-Term Investments (3.7%)

3,051,615

Neuberger Berman Prime Money Fund Trust Class (Cost $3,052)

3,052

^#@

Total Investments (135.1%) (Cost $113,140)

112,168

^##

Liabilities, less cash, receivables and other assets [(35.1%)]

(29,145

)

Total Net Assets (100.0%)

83,023

See Notes to Schedule of Investments 31

Schedule of Investments Lehman Brothers High Income Bond Fund

PRINCIPAL AMOUNT

RATING^§

VALUE^†

(000's omitted)

Moody's

S&P

(000's omitted)

Corporate Debt Securities (98.0%)
Aerospace/Defense (1.9%)

5,935

L-3 Communications Corp., Guaranteed Senior Unsecured Subordinated Notes,
7.63%, due 6/15/12

Ba3

BB+

6,106

375

L-3 Communications Corp., Guaranteed Senior Unsecured Subordinated Notes,
6.13%, due 7/15/13

Ba3

BB+

372

725

L-3 Communications Corp., Guaranteed Notes, Ser. B, 6.38%, due 10/15/15

Ba3

BB+

725

7,203

Airlines (1.2%)

4,130

Continental Airlines, Inc., Pass-Through Certificates, 9.80%, due 4/1/21

Ba1

BB+

4,399

Apparel/Textiles (0.7%)

2,605

Levi Strauss & Co., Senior Unsubordinated Notes, 9.75%, due 1/15/15

B+

2,719

Auto Loans (8.3%)

6,115

Ford Motor Credit Co., Senior Unsecured Notes, 9.75%, due 9/15/10

6,089

7,430

Ford Motor Credit Co., Notes, 7.80%, due 6/1/12

6,981

12,785

General Motors Acceptance Corp., Notes, 6.88%, due 9/15/11

Ba1

BB+

11,783

6,300

General Motors Acceptance Corp., Unsecured Notes, 7.00%, due 2/1/12

Ba1

BB+

5,754

30,607

Auto Parts & Equipment (1.1%)

1,612

Goodyear Tire & Rubber Co., Senior Notes, 8.63%, due 12/1/11

Ba3

1,717

2,270

Goodyear Tire & Rubber Co., Senior Notes, 9.00%, due 7/1/15

Ba3

2,483

4,200

Beverage (0.4%)

1,375

Constellation Brands, Inc., Guaranteed Notes, 7.25%, due 9/1/16

Ba3

BB-

1,385

Building & Construction (0.1%)

650

K. Hovnanian Enterprises, Senior Notes, 8.63%, due 1/15/17

Ba3

BB-

543

^È

Chemicals (1.6%)

1,180

Chemtura Corp., Guaranteed Notes, 6.88%, due 6/1/16

Ba2

BB+

1,127

2,035

Hexion US Finance Corp., Guaranteed Notes, 9.75%, due 11/15/14

2,233

2,710

MacDermid, Inc., Senior Subordinated Notes, 9.50%, due 4/15/17

Caa1

CCC+

2,588

^ñ

5,948

Consumer/Commercial/Lease Financing (0.6%)

2,960

Residential Capital LLC, Guaranteed Notes, 7.00%, due 2/22/11

Ba1

BBB-

2,161

Electric - Generation (4.4%)

1,540

AES Corp., Senior Notes, 7.75%, due 10/15/15

1,544

^ñ

2,375

AES Corp., Senior Notes, 8.00%, due 10/15/17

2,396

^ñ

3,920

Dynegy-Roseton Danskamme, Pass-Through Certificates, Ser. B,
7.67%, due 11/8/16

Ba3

3,930

780

Edison Mission Energy, Senior Unsecured Notes, 7.50%, due 6/15/13

BB-

791

1,885

Edison Mission Energy, Senior Notes, 7.63%, due 5/15/27

BB-

1,795

^ñ

4,565

Mirant Americas Generation, Inc., Senior Unsecured Notes, 8.30%, due 5/1/11

Caa1

B-

4,616

1,085

NRG Energy, Inc., Guaranteed Notes, 7.38%, due 2/1/16

1,082

16,154

See Notes to Schedule of Investments 32

PRINCIPAL AMOUNT

RATING^§

VALUE^†

(000's omitted)

Moody's

S&P

(000's omitted)

Electric - Integrated (1.8%)

6,505

Energy Future Holdings, Guaranteed Notes, 10.88%, due 11/1/17

CCC+

6,578

^ñ

Electronics (2.4%)

5,725

Freescale Semiconductor, Inc., Guaranteed Notes, 9.13%, due 12/15/14

5,181

1,095

NXP BV Funding LLC, Secured Notes, 7.88%, due 10/15/14

Ba3

1,069

2,775

NXP BV Funding LLC, Guaranteed Notes, 9.50%, due 10/15/15

2,622

8,872

Energy-Exploration & Production (3.0%)

9,035

Chesapeake Energy Corp., Guaranteed Notes, 7.50%, due 9/15/13

Ba2

9,284

1,730

Forest Oil Corp., Guaranteed Senior Unsecured Notes, 7.75%, due 5/1/14

B+

1,747

11,031

Environmental (0.3%)

985

Allied Waste North America, Inc., Secured Notes, Ser. B, 5.75%, due 2/15/11

BB+

960

Food & Drug Retailers (1.3%)

2,095

Rite Aid Corp., Senior Unsecured Notes, 8.63%, due 3/1/15

Caa1

CCC+

1,859

3,295

Rite Aid Corp., Guaranteed Notes, 9.50%, due 6/15/17

Caa1

CCC+

3,048

^ñ

4,907

Forestry/Paper (0.6%)

1,420

Bowater, Inc., Debentures, 9.00%, due 8/1/09

1,392

830

Graphic Packaging Int'l, Inc., Guaranteed Notes, 8.50%, due 8/15/11

B-

842

2,234

Gaming (5.1%)

2,735

Chukchansi Economic Development Authority, Senior Notes,
8.00%, due 11/15/13

BB-

2,756

^ñ

3,010

Fontainebleau Las Vegas Holdings LLC, Second Mortgage, 10.25%, due 6/15/15

Caa1

CCC+

2,814

^ñ

1,860

Majestic Star LLC, Senior Unsecured Notes, 9.75%, due 1/15/11

Caa1

CCC+

1,581

3,595

Pokagon Gaming Authority, Senior Notes, 10.38%, due 6/15/14

3,972

^ñ

3,225

San Pasqual Casino, Notes, 8.00%, due 9/15/13

B+

3,257

^ñ

2,495

Shingle Springs Tribal Gaming Authority, Senior Notes, 9.38%, due 6/15/15

2,507

^ñ

645

Station Casinos, Inc., Senior Unsecured Subordinated Notes, 6.88%, due 3/1/16

Ba3

534

1,525

Station Casinos, Inc., Senior Unsecured Notes, 7.75%, due 8/15/16

Ba2

B+

1,493

18,914

Gas Distribution (5.7%)

1,100

AmeriGas Partners L.P., Senior Unsecured Notes, 7.25%, due 5/20/15

1,089

3,020

Ferrellgas Partners L.P., Senior Unsecured Notes, 8.75%, due 6/15/12

B-

3,111

6,115

Kinder Morgan, Inc., Senior Unsecured Notes, 6.50%, due 9/1/12

Ba2

BB-

6,061

4,212

Regency Energy Partners L.P., Guaranteed Notes, 8.38%, due 12/15/13

4,433

1,095

Sabine Pass L.P., Secured Notes, 7.25%, due 11/30/13

Ba3

1,073

5,405

Sabine Pass L.P., Secured Notes, 7.50%, due 11/30/16

Ba3

5,297

21,064

Health Services (10.1%)

825

Bausch & Lomb, Inc., Senior Unsecured Notes, 9.88%, due 11/1/15

Caa1

B-

850

^ñ

915

Community Health Systems, Inc., Guaranteed Notes, 8.88%, due 7/15/15

B-

926

^ñ

3,615

HCA, Inc., Secured Notes, 9.25%, due 11/15/16

BB-

3,805

6,880

HCA, Inc., Secured Notes, 9.63%, due 11/15/16

BB-

7,276

3,640

LVB Acquisition Merger, Inc., Guaranteed Notes, 10.38%, due 10/15/17

B-

3,686

^ñ

1,975

LVB Acquisition Merger, Inc., Guaranteed Notes, 11.63%, due 10/15/17

Caa1

B-

2,012

^ñ

See Notes to Schedule of Investments 33

PRINCIPAL AMOUNT

RATING^§

VALUE^†

(000's omitted)

Moody's

S&P

(000's omitted)

2,726

NMH Holdings, Inc., Senior Unsecured Floating Rate Notes, 12.82%, due 12/15/07

Caa2

CCC+

2,713

^ñµ

2,310

Service Corp. Int'l, Senior Unsecured Notes, 6.75%, due 4/1/15

BB-

2,304

2,650

Service Corp. Int'l, Senior Unsecured Notes, 7.50%, due 4/1/27

BB-

2,478

1,795

Tenet Healthcare Corp., Senior Notes, 9.88%, due 7/1/14

Caa1

CCC+

1,633

2,890

US Oncology, Inc., Guaranteed Notes, 9.00%, due 8/15/12

CCC+

2,897

3,065

Ventas Realty L.P., Guaranteed Notes, 6.75%, due 6/1/10

Ba1

BB+

3,080

1,415

Ventas Realty L.P., Guaranteed Notes, 7.13%, due 6/1/15

Ba1

BB+

1,443

1,060

Ventas Realty L.P., Guaranteed Notes, 6.50%, due 6/1/16

Ba1

BB+

1,047

1,060

Ventas Realty L.P., Guaranteed Notes, 6.75%, due 4/1/17

Ba1

BB+

1,060

37,210

Hotels (0.3%)

1,180

Host Hotels & Resorts L.P., Secured Notes, 6.88%, due 11/1/14

1,189

Investments & Misc. Financial Services (1.4%)

3,795

Cardtronics, Inc., Guaranteed Notes, 9.25%, due 8/15/13

Caa1

B-

3,662

1,695

Cardtronics, Inc., Senior Subordinated Notes, Ser. B, 9.25%, due 8/15/13

Caa1

B-

1,636

^ñ

5,298

Media - Broadcast (4.7%)

6,130

CMP Susquehanna Corp., Guaranteed Notes, 9.88%, due 5/15/14

Caa1

CCC

5,632

2,030

Entercom Radio/Capital, Guaranteed Senior Unsecured Notes, 7.63%, due 3/1/14

2,020

4,410

LIN Television Corp., Guaranteed Notes, 6.50%, due 5/15/13

B-

4,278

4,085

Univision Communications, Inc., Guaranteed Notes, 9.75%, due 3/15/15

CCC+

4,003

^ñ

1,285

Young Broadcasting, Inc., Guaranteed Senior Subordinated Notes,
10.00%, due 3/1/11

Caa1

CCC-

1,208

465

Young Broadcasting, Inc., Senior Subordinated Notes, 8.75%, due 1/15/14

Caa1

CCC-

401

17,542

Media - Cable (7.2%)

2,890

CCH I Holdings LLC, Secured Notes, 11.00%, due 10/1/15

Caa2

CCC

2,803

7,145

Charter Communications Operating LLC, Senior Notes, 8.38%, due 4/30/14

B+

7,145

^ñ

5,340

DirecTV Holdings LLC, Senior Notes, 8.38%, due 3/15/13

Ba3

BB-

5,580

255

DirecTV Holdings LLC, Guaranteed Notes, 6.38%, due 6/15/15

Ba3

BB-

246

5,085

EchoStar DBS Corp., Guaranteed Notes, 6.38%, due 10/1/11

Ba3

BB-

5,149

2,570

EchoStar DBS Corp., Guaranteed Notes, 7.00%, due 10/1/13

Ba3

BB-

2,676

2,785

EchoStar DBS Corp., Guaranteed Notes, 7.13%, due 2/1/16

Ba3

BB-

2,911

26,510

Media - Diversified (0.5%)

2,090

Quebecor Media, Inc., Notes, 7.75%, due 3/15/16

2,017

^ñ

Media - Services (2.6%)

2,385

Lamar Media Corp., Guaranteed Notes, 7.25%, due 1/1/13

Ba3

2,391

3,685

WMG Acquisition Corp., Senior Subordinated Notes, 7.38%, due 4/15/14

3,271

5,180

WMG Holdings Corp., Guaranteed Notes, Step-Up, 0.00%/9.50%, due 12/15/14

3,807

^**

9,469

Metals/Mining Excluding Steel (4.6%)

2,900

Aleris Int'l, Inc., Guaranteed Notes, 9.00%, due 12/15/14

B-

2,617

3,460

Aleris Int'l, Inc., Guaranteed Notes, 10.00%, due 12/15/16

Caa1

B-

3,045

3,820

Arch Western Finance Corp., Guaranteed Notes, 6.75%, due 7/1/13

BB-

3,725

2,020

Freeport-McMoRan Copper & Gold, Senior Unsecured Notes, 8.38%, due 4/1/17

Ba3

2,212

5,665

Massey Energy Co., Guaranteed Notes, 6.88%, due 12/15/13

B+

5,353

16,952

See Notes to Schedule of Investments 34

PRINCIPAL AMOUNT

RATING^§

VALUE^†

(000's omitted)

Moody's

S&P

(000's omitted)

Non-Food & Drug Retailers (1.5%)

1,560

Claire's Stores, Inc., Guaranteed Notes, 9.63%, due 6/1/15

Caa1

CCC+

1,276

^ñ

2,175

GSC Holdings Corp., Guaranteed Notes, 8.00%, due 10/1/12

Ba3

2,270

1,915

Michaels Stores, Inc., Guaranteed Notes, 11.38%, due 11/1/16

Caa1

CCC

1,910

^È

5,456

Packaging (4.2%)

7,815

Ball Corp., Guaranteed Unsecured Notes, 6.88%, due 12/15/12

Ba1

7,932

2,360

Crown Americas LLC, Guaranteed Notes, 7.75%, due 11/15/15

2,431

2,760

Graham Packaging Co., Inc., Guaranteed Notes, 9.88%, due 10/15/14

Caa1

CCC+

2,732

2,410

Owens-Brockway Glass Container, Inc., Guaranteed Notes, 8.75%, due 11/15/12

Ba2

2,516

15,611

Printing & Publishing (4.8%)

670

Dex Media West LLC, Senior Unsecured Notes, Ser. B, 8.50%, due 8/15/10

Ba3

688

1,960

Dex Media West LLC, Guaranteed Notes, Ser. B, 9.88%, due 8/15/13

2,090

2,765

Dex Media, Inc., Senior Disc. Notes, Step-Up, 0.00%/9.00%, due 11/15/13

2,620

^**

6,025

Idearc, Inc., Guaranteed Notes, 8.00%, due 11/15/16

B+

6,040

2,580

R.H. Donnelley Corp., Senior Unsecured Notes, 6.88%, due 1/15/13

2,425

925

R.H. Donnelley Corp., Senior Notes, 8.88%, due 10/15/17

925

^ñ

3,345

Reader's Digest Association, Inc., Senior Subordinated Notes, 9.00%, due 2/15/17

Caa1

CCC+

2,981

^ñ

17,769

Railroads (1.9%)

1,140

Kansas City Southern Mexico, Senior Notes, 7.38%, due 6/1/14

B+

1,140

^ñ

5,400

TFM SA de C.V., Senior Notes, 9.38%, due 5/1/12

5,724

6,864

Real Estate Dev. & Mgt. (1.9%)

5,300

American Real Estate Partners, L.P., Senior Notes, 8.13%, due 6/1/12

Ba3

BB+

5,340

1,915

Realogy Corp., Guaranteed Notes, 11.00%, due 4/15/14

Caa1

B-

1,560

^ñ

6,900

Restaurants (0.5%)

2,055

NPC Int'l, Inc., Guaranteed Notes, 9.50%, due 5/1/14

Caa1

B-

1,921

Software/Services (1.5%)

5,695

First Data Corp., Guaranteed Notes, 9.88%, due 9/24/15

B-

5,453

^ñ

Steel Producers/Products (1.7%)

2,805

Metals U.S.A. Holdings Corp., Senior Floating Rate Notes, 11.23%, due 1/2/08

Caa1

CCC

2,545

^ñµ

3,670

Tube City IMS Corp., Guaranteed Notes, 9.75%, due 2/1/15

B-

3,606

6,151

Support-Services (1.4%)

870

Aramark Corp., Guaranteed Notes, 8.50%, due 2/1/15

B-

881

4,285

Knowledge Learning Corp., Inc., Guaranteed Notes, 7.75%, due 2/1/15

B-

4,188

^ñ

5,069

Telecom - Integrated/Services (6.1%)

2,120

Dycom Industries, Inc., Guaranteed Notes, 8.13%, due 10/15/15

Ba3

B+

2,157

3,830

Intelsat Subsidiary Holdings Co. Ltd., Guaranteed Notes, 8.63%, due 1/15/15

3,887

3,165

Nordic Telephone Co. Holdings, Secured Notes, 8.88%, due 5/1/16

3,347

^ñ

See Notes to Schedule of Investments 35

PRINCIPAL AMOUNT

RATING^§

VALUE^†

(000's omitted)

Moody's

S&P

(000's omitted)

2,970

Qwest Corp., Notes, 8.88%, due 3/15/12

Ba1

BBB-

3,252

3,215

Qwest Corp., Senior Notes, 7.63%, due 6/15/15

Ba1

BBB-

3,384

2,480

Windstream Corp., Guaranteed Notes, 8.13%, due 8/1/13

Ba3

BB-

2,623

3,695

Windstream Corp., Guaranteed Notes, 8.63%, due 8/1/16

Ba3

BB-

3,954

22,604

Theaters & Entertainment (0.6%)

1,995

AMC Entertainment, Inc., Guaranteed Notes, Ser. B, 8.63%, due 8/15/12

Ba3

B-

2,069

Total Corporate Debt Securities (Cost $364,965)

361,933

NUMBER OF SHARES

Short-Term Investments (0.6%)

216,828

Neuberger Berman Prime Money Fund Trust Class

217

1,773,561

Neuberger Berman Securities Lending Quality Fund, LLC

1,774

^‡

Total Short-Term Investments (Cost $1,991)

1,991

Total Investments (98.6%) (Cost $366,956)

363,924

^##

Cash, receivables and other assets, less liabilities (1.4%)

5,322

Total Net Assets (100.0%)

369,246

See Notes to Schedule of Investments 36

Schedule of Investments Lehman Brothers Municipal Money Fund

PRINCIPAL AMOUNT

SECURITY^@@

RATING^‡‡§

VALUE^††

(000's omitted)

Moody's

S&P

(000's omitted)

Municipal Notes (98.1%)

Alabama (1.1%)

300

Decatur IDB Solid Waste Disp. Rev. (Amoco Chemical Co. Proj.),
Ser. 1995, 3.64%, due 11/1/07

VMIG1

300

^µß

9,500

Mobile IDB Rev. (Pwr. Theodore Plant), Ser. 2001 A,
3.66%, due 11/1/07

VMIG1

A-1

9,500

^µß

9,800

Arizona (4.6%)

1,000

Coconino Co. Ind. Dev. Au. IDR (Scuff Steel Proj.), Ser. 2007,
(LOC: Wells Fargo Bank NA), 3.53%, due 11/1/07

A-1+

1,000

^µß

15,810

Phoenix Ind. Dev. Au. Single Family Mtge. Rev. (Merlots), Ser. 2007 C59,
(LOC: Government National Mortgage Association), 3.39%, due 11/7/07

VMIG1

15,810

^µd

23,595

RBC Muni. Prod., Inc. Trust Var. St. Rev. (Floater Cert.), Ser. 2007 C-1,
(LOC: Royal Bank of Canada), 3.57%, due 11/1/07

VMIG1

23,595

^µ

40,405

Arkansas (0.2%)

2,025

Clarksville IDR (Baldor Elec. Co. Proj.), Ser. 1998,
(LOC: SunTrust Bank), 3.54%, due 11/7/07

2,025

^µß

California (2.9%)

2,620

Arcadia Unified Sch. Dist. (Putters), Ser. 2007-1716,
(FSA Insured), 3.46%, due 11/1/07

VMIG1

2,620

^µs

2,000

BB&T Muni. Trust, Ser. 2000, (FSA Insured), 3.43%, due 11/1/07

VMIG1

2,000

^µg

4,980

California Infrastructure & Econ. Dev. Bank IDR (Kruger & Sons, Inc., Proj.),
Ser. 2002, (LOC: Bank of the West), 3.50%, due 11/1/07

VMIG1

4,980

^µß

3,060

California Infrastructure & Econ. Dev. Bank IDR (Studio Moulding Proj.),
Ser. 2001 A, (LOC: Comerica Bank), 3.53%, due 11/1/07

VMIG1

3,060

^µß

6,765

California Statewide CDA (Floaters), Ser. 2007-2114,
(LOC: Wells Fargo Bank & Trust Co.), 3.51%, due 11/1/07

A-1+

6,765

^µ

5,000

Contra Costa Co. Multi-Family Hsg. Rev. (Pleasant Hill BART Transit),
Ser. 2006 A, 3.95%, due 4/15/46 Putable 12/20/07

5,002

^ß

1,245

Deutsche Bank Spears/Lifers Trust Var. St. Rev., Ser. 2007-116,
(LOC: Deutsche Bank), 3.71%, due 11/1/07

1,245

^µ

25,672

Colorado (1.5%)

2,000

Colorado Hsg. & Fin. Au. Mfg. Rev. (Ready Foods, Inc. Proj.), Ser. 2007 A,
(LOC: U.S. Bank), 3.51%, due 11/1/07

A-1+

2,000

^µß

2,500

Denver City & Co. Arpt. Rev., Sub. Ser. 2005 C-2, (CIFG Insured),
3.43%, due 11/7/07

VMIG1

A-1+

2,500

^µy

8,830

Fort Collins PCR (Floaters), Ser. 2007-2036, (LOC: Morgan Stanley),
3.51%, due 11/1/07

A-1+

8,830

^µ

13,330

Connecticut (0.7%)

5,805

Connecticut Dev. Au. Arpt. Hotel Rev. (Bradley Arpt. Hotel Proj.), Ser. 2006,
(LOC: TD Banknorth N.A.), 3.46%, due 11/1/07

VMIG1

5,805

^µß

See Notes to Schedule of Investments 37

PRINCIPAL AMOUNT

SECURITY^@@

RATING^‡‡§

VALUE^††

(000's omitted)

Moody's

S&P

(000's omitted)

District of Columbia (0.2%)

1,500

Washington Convention Ctr. Au. Dedicated Tax Rev. Sr. Lien, Ser. 1998,
(AMBAC Insured), 5.25%, due 10/1/12 Pre-Refunded 10/1/08

1,539

Florida (4.8%)

10,070

Florida Hsg. Fin. Corp. Rev. (Floaters), Ser. 2007-2028,
(LOC: Government National Mortgage Association), 3.55%, due 11/1/07

10,070

^µy

5,400

Florida Hsg. Fin. Corp. Rev. (Merlots), Ser. 2007 C64,
(LOC: Bank of New York), 3.39%, due 11/7/07

A-1+

5,400

^µ

6,670

Florida Hsg. Fin. Corp. Rev. (Merlots), Ser. 2006 B17,
(LOC: Government National Mortgage Association), 3.39%, due 11/7/07

A-1+

6,670

^µii

3,000

Miami-Dade Co. Aviation Rev., Ser. 2007-10065,
(MBIA Insured), 3.59%, due 11/1/07

A-1+

3,000

^µk

2,500

Miami-Dade Co. Ind. Dev. Au. Solid Waste Disp. Rev.
(Florida Pwr. & Light Co. Proj.), Ser. 2003, 3.65%, due 11/1/07

VMIG1

2,500

^µß

1,100

Pinellas Co. Hlth. Fac. Au. Rev. Ref. (Pooled Hosp. Loan Prog.), Ser. 1985,
(AMBAC Insured), 3.59%, due 11/1/07

VMIG1

A-1+

1,100

^µßii

5,000

RBC Muni. Prod. Inc. Trust Var. St. (Floater Cert.), Ser. 2007 I-43,
(XLCA Insured), 3.50%, due 11/1/07

5,000

^µnn

6,705

St. John's Co. Ind. Dev. Au. IDR (Rulon Co. Proj.), Ser. 2004,
(LOC: Coastal Bank of Georgia), 3.53%, due 11/1/07

6,705

^µß

1,000

St. Lucie Co. Solid Waste Disp. Ref. Rev. (Florida Pwr. & Light Co. Proj.),
Ser. 2003, 3.65%, due 11/1/07

VMIG1

1,000

^µß

41,445

Georgia (2.7%)

2,970

Atlanta Arpt. Rev. (Merlots), Ser. 2004 C14,
(FSA Insured), 3.39%, due 11/7/07

VMIG1

2,970

^µii

6,450

Atlanta Urban Residential Fin. Au. Multi-Family Hsg. Rev.
(Capitol Gateway Apts.), Ser. 2005, (LOC: Bank of America),
3.54%, due 11/1/07

A-1+

6,450

^µß

1,575

Columbus Dev. Au. Rev. (Foundation Prop. Inc.), Ser. 2007,
(LOC: Columbus Bank & Trust), 3.48%, due 11/1/07

1,575

^µß

2,875

Crisp Co. Cordele IDA Rev. (Goldens Foundry & Machine Co. Proj.),
Ser. 2007, (LOC: Columbus Bank & Trust), 3.53%, due 11/1/07

2,875

^µß

1,200

Forsyth Co. Dev. Au. IDR (Selecto Scientific Inc. Proj.), Ser. 1998,
(RBC Centura Bank), 3.58%, due 11/1/07

A-1+

1,200

^µß

3,100

Georgia St. Hsg. & Fin. Au. Rev. (Merlots), Ser. 2006 B11,
(LOC: Wachovia Bank & Trust Co.), 3.39%, due 11/7/07

A-1+

3,100

^µ

1,985

Savannah Econ. Dev. Au. Rev. (Exempt Fac. Cons. Util. Proj.),
Ser. 1999, (LOC: Branch Banking & Trust Co.), 3.58%, due 11/1/07

VMIG1

1,985

^µß

970

Savannah Econ. Dev. Au. Rev. (Kennickell Printing Co. Proj.),
Ser. 2001, (LOC: Branch Banking & Trust Co.), 3.58%, due 11/1/07

VMIG1

970

^µß

2,110

Turner Co. Dev. Au. IDR (McElroy Metal Mill, Inc.), Ser. 2005,
(LOC: AmSouth Bank), 3.53%, due 11/1/07

P-1

2,110

^µ

23,235

Illinois (6.1%)

5,295

Aurora Single Family Mtge. Rev. (Merlots), Ser. 2007 E05,
(LOC: Government National Mortgage Association), 3.39%, due 11/7/07

A-1+

5,295

^µd

2,350

Chicago Enterprise Zone Rev. (J & A LLC Proj.), Ser. 2002,
(LOC: Charter One Bank), 3.56%, due 11/1/07

2,350

^µ

1,695

Chicago Multi-Family Hsg. Rev. (Claras Village Proj.), Ser. 2007 B,
(LOC: Harris Trust & Savings Bank), 3.55%, due 11/1/07

VMIG1

1,695

^µ

2,500

Chicago Single Family Mtge. Rev., Ser. 2007 2F,
(LOC: Government National Mortgage Association), 3.93%, due 7/1/08

2,500

2,400

Illinois Dev. Fin. Au. IDR (Universal Press, Inc., Proj.), Ser. 2000 A,
(LOC: LaSalle National Bank), 3.55%, due 11/1/07

A-1+

2,400

^µß

2,850

Illinois Hlth. Fac. Au. Rev. (Advocate Hlth. Care Network), Ser. 2003 A,
3.78%, due 11/15/22 Putable 7/3/08

VMIG1

A-1+

2,850

^µß

See Notes to Schedule of Investments 38

PRINCIPAL AMOUNT		SECURITY^@@	RATING^‡‡§		VALUE^††
(000's omitted)			Moody's	S&P	(000's omitted)
$	2,000	Illinois Hsg. Dev. Au. Multi-Family Hsg. Rev. (Rome Meadows Proj.), Ser. 2007, (LOC: First National Bank), 3.53%, due 11/1/07		A-1+	$	2,000	^µkk
	4,070	Illinois Hsg. Dev. Au. Multi-Family Rev. (Galesburg Towers), Ser. 2005, (LOC: Harris Trust & Savings), 3.50%, due 11/1/07		A-1		4,070	^µß
	1,135	Illinois Std. Assist. Commission Std. Loan Rev., Ser. 2000 XX, 5.10%, due 9/1/08				1,148
	4,140	Lake Co. Multi-Family Hsg. Rev. (Rosewood Apt. Proj.), Ser. 2004, (LOC: Freddie Mac), 3.58%, due 11/1/07		A-1+		4,140	^µß
	14,390	Puttable Floating Option Tax-Exempt Receipts (Floaters), Ser. 2007-4262, (LOC: Government National Mortgage Association), 3.57%, due 11/1/07				14,390	^µx
	9,000	Will Co. Solid Waste Disp. Rev. (BASF Corp. Proj.), Ser. 1997, 3.69%, due 11/1/07	P-1			9,000	^µß
	1,035	Woodridge Ind. Rev. (McDavid Knee Guard), Ser. 1996, (LOC: Marshall & Ilsley), 3.35%, due 11/7/07		A-1		1,035	^µß
						52,873
Indiana (7.5%)
	13,795	ABN Amro Munitops Cert. Trust Rev., Ser. 2003-27, (FGIC Insured), 3.49%, due 11/1/07	VMIG1			13,795	^µa
	2,670	Anderson Econ. Dev. Rev. (Gateway Village Proj.), Ser. 1996, (LOC: Federal Home Loan Bank), 3.53%, due 11/1/07	VMIG1			2,670	^µ
	1,000	Angola Ed. Fac. Rev. (Tri-State Univ. Proj.), Ser. 2006, (LOC: Fifth Third Bank), 3.47%, due 11/2/07				1,000	^µß
	5,230	Bartholomew Cons. Sch. Corp. Ind. Tax Anticipation Warrants, Ser. 2007, 4.00%, due 12/31/07				5,233
	7,660	Columbus Econ. Dev. Rev. (Arbors at Waters Edge Apts.), Ser. 2004, (LOC: Federal Home Loan Bank), 3.58%, due 11/1/07	VMIG1			7,660	^µ
	2,300	East Porter Co. Sch. Bldg. Corp. Rev., Ser. 2005-145, (MBIA Insured), 3.57%, due 11/1/07		A-1+		2,300	^µo
	6,010	Greencastle IDR (Crown Equip. Corp. Proj.), Ser. 1996, (LOC: Key Bank), 3.52%, due 11/1/07				6,010	^µß
	2,500	Hamilton Southeastern Sch. Warrants, Ser. 2007, 3.80%, due 12/31/07				2,501
	2,735	Hammond Econ. Dev. Rev. (Annex at Douglas Pointe), Ser. 1996 A, (LOC: Federal Home Loan Bank), 3.53%, due 11/1/07	VMIG1			2,735	^µß
	2,250	Indiana Bond Bank Rev. (Adv. Fdg. Prog. Notes), Ser. 2007 A, (LOC: Bank of New York), 4.25%, due 1/31/08		SP-1+		2,253
	400	Indiana Hlth. & Ed. Fac. Fin. Au. Hosp. Rev. (Howard Reg. Hlth. Sys. Proj.), Ser. 2005 B, (LOC: National City Bank), 3.63%, due 11/1/07		A-1		400	^µß
	7,725	Indiana Hsg. & CDA Single Family Mtge Rev. (Putters), Ser. 2007-1847, (LOC: JP Morgan Chase), 3.55%, due 11/1/07	VMIG1			7,725	^µ
	2,400	Indiana St. Dev. Fin. Au. IDR (TTP, Inc. Proj.), Ser. 2001, (LOC: LaSalle National Bank), 3.55%, due 11/1/07		A-1+		2,400	^µß
	1,178	La Porte Co. Econ. Dev. Rev. (Pedcor Investments-Woodland Crossing Apt.), Ser. 1994, (LOC: Federal Home Loan Bank), 3.56%, due 11/1/07	VMIG1			1,178	^µß
	4,800	Noblesville Econ. Dev. Rev. (Greystone Apts. Proj.), Ser. 2006 A, (LOC: LaSalle National Bank), 3.54%, due 11/1/07		A-1+		4,800	^µß
	2,500	Northern Wells Comm. Sch. Tax Anticipation Warrants, Ser. 2007, 3.70%, due 12/31/07				2,500
						65,160
Iowa (0.3%)
	900	Iowa Higher Ed. Loan Au. Rev. (Loras College), Ser. 2007 E, (LOC: LaSalle National Bank), 4.50%, due 5/20/08		SP-1+		903	^ß
	1,250	Iowa Higher Ed. Loan Au. Rev. (Morningside College), Ser. 2007 F, (LOC: U.S. Bank), 4.50%, due 5/20/08		SP-1+		1,255	^ß
						2,158

See Notes to Schedule of Investments 39

PRINCIPAL AMOUNT

SECURITY^@@

RATING^‡‡§

VALUE^††

(000's omitted)

Moody's

S&P

(000's omitted)

Kentucky (3.3%)

3,285

Boone Co. Ind. Bldg. Rev. (Bonfiglioli USA, Inc. Proj.), Ser. 2006,
(LOC: Fifth Third Bank), 3.54%, due 11/2/07

3,285

^µß

11,975

Deutsche Bank Spears/Lifers Trust Var. St., Ser. 2007-347,
(MBIA Insured), 3.50%, due 11/1/07

A-1+

11,975

^µo

1,610

Georgetown Ind. Bldg. Rev. (Georgetown College Proj.), Ser. 2006,
(LOC: Fifth Third Bank), 3.45%, due 11/2/07

VMIG1

1,610

^µß

670

Jefferson Co. Retirement Home Rev. (Nazareth Library Proj.), Ser. 1999,
(LOC: Fifth Third Bank), 3.47%, due 11/2/07

670

^µß

3,000

Kentucky Econ. Dev. Fin. Au. Ind. Bldg. Rev. (Republic Svcs., Inc. Proj.),
Ser. 2001, (LOC: Bank of America), 3.55%, due 11/1/07

A-1+

3,000

^µ

2,000

Kentucky Econ. Dev. Fin. Au. Ind. Bldg. Rev. (Republic Svcs., Inc. Proj.),
Ser. 2003, (LOC: Bank One), 3.55%, due 11/1/07

A-1+

2,000

^µß

4,995

Kentucky Hsg. Corp. Hsg. Rev., Ser. 2006-3478,
(LOC: Merrill Lynch Capital Markets), 3.61%, due 11/1/07

A-1+

4,995

^µ

1,450

Ohio Co. Solid Waste Disp. Rev. (Waste Management LLC Proj.), Ser. 2003,
(LOC: Wachovia Bank & Trust Co.), 3.52%, due 11/1/07

A-1+

1,450

^µß

28,985

Louisiana (2.4%)

7,000

Ascension Parish Rev. (BASF Corp. Proj.), Ser. 1997, 3.69%, due 11/1/07

P-1

7,000

^µß

6,000

Ascension Parish Rev. (BASF Corp. Proj.), Ser. 1998, 3.69%, due 11/1/07

P-1

6,000

^µß

5,000

Louisiana Local Gov't. Env. Facs. & CDA Rev. (Mid South Extrusion, Inc. Proj.),
Ser. 2006, (LOC: Regions Bank), 3.52%, due 11/1/07

A-1

5,000

^µß

2,000

Louisiana Local Gov't. Env. Facs. & Comm. Dev. Rev. (SRL Holdings LLC Proj.),
Ser. 2007, (LOC: Branch Banking & Trust Co.), 3.58%, due 11/1/07

2,000

^µß

1,000

Louisiana St. Gas & Fuels Tax Rev., Ser. 2006-7021, (FGIC Insured),
3.51%, due 11/1/07

VMIG1

1,000

^µl

21,000

Maine (0.9%)

8,000

Maine St. Hsg. Au. Mtge. Purchase Bonds, Ser. 2007 F,
3.85%, due 11/15/34 Putable 9/22/08

VMIG1

A-1+

8,000

Maryland (0.3%)

2,380

Maryland St. Comm. Dev. Admin. Dept. Hsg. & Comm. Dev. Residential,
Ser. 2006 R, 3.64%, due 12/14/07

MIG1

2,380

Massachusetts (3.4%)

6,000

Fall River G.O. BANS, Ser. 2007 A, 4.10%, due 1/30/08

MIG1

SP-1

6,005

10,000

Massachusetts Bay Trans. Au. Sales Tax Rev. (Floaters), Ser. 2006-3526,
(LOC: Dexia Credit Locale de France), 3.49%, due 11/1/07

A-1+

10,000

^µ

12,115

Massachusetts St. HFA (Floaters), Ser. 2007-2071,
(LOC: Morgan Stanley), 3.55%, due 11/1/07

12,115

^µ

125

Massachusetts St. Hlth. & Ed. Fac. Au. Rev. (Sherrill House),
Ser. 2002 A-1, (LOC: Sovereign Bank), 3.45%, due 11/1/07

A-1+

125

^µßm

1,000

Massachusetts St. Turnpike Au. Metro. Hwy. Sys. Rev. (Floaters), Ser. 2000,
(MBIA Insured), 3.49%, due 11/1/07

VMIG1

1,000

^µy

29,245

Michigan (4.0%)

10,000

ABN Amro Munitops Cert. Trust, Ser. 2002-35,
(FSA Insured), 3.49%, due 11/1/07

VMIG1

10,000

^µa

1,600

Eastern Michigan Univ. Rev., Ser. 2001,
(FGIC Insured), 3.58%, due 11/1/07

A-1+

1,600

^µp

9,630

Kent Co. Arpt. Rev. G.O. (Merlots), Ser. 2007-D28,
(LOC: Wachovia Bank & Trust Co.), 3.34%, due 11/7/07

A-1+

9,630

^µ

See Notes to Schedule of Investments 40

PRINCIPAL AMOUNT

SECURITY^@@

RATING^‡‡§

VALUE^††

(000's omitted)

Moody's

S&P

(000's omitted)

1,370

Michigan St. Hosp. Fin. Au. Rev., Ser. 2006,
(LOC: Citibank, N.A.), 3.51%, due 11/1/07

VMIG1

1,370

^µ

1,000

Michigan St. Hsg. Dev. Au. Ltd. Oblig. Rev. (JAS Non-Profit Hsg. Corp. IV),
Ser. 2000, (LOC: Bank One Michigan), 3.50%, due 11/1/07

A-1+

1,000

^µß

1,900

Michigan St. Job. Dev. Au. IDR (Kentwood Residence Assoc. Proj.), Ser. 1984,
(LOC: Wells Fargo & Co.), 3.85%, due 11/1/07

A-1+

1,900

^µ

2,500

Michigan St. Strategic Fund Ltd. Oblig. Rev. (Behr Sys., Inc. Proj.), Ser. 2001,
(LOC: National City Bank), 3.56%, due 11/1/07

2,500

^µß

400

Michigan St. Strategic Fund Ltd. Oblig. Rev. (Ultra Aluminum Mfg. Inc., Proj.),
Ser. 2003, (LOC: Fifth Third Bank), 3.54%, due 11/2/07

400

^µ

6,770

Muni. Sec. Trust Cert. G.O., Ser. 2003-9054,
(LOC: Bear Stearns), 3.50%, due 11/1/07

A-1

6,770

^ñµ

35,170

Minnesota (0.9%)

6,595

Dakota Co. Comm. Dev. Agcy. Multi-Family Hsg. Rev.
(Brentwood Hills Apts. Proj.), Ser. 2003 A,
(LOC: LaSalle National Bank), 3.68%, due 11/1/07

VMIG1

6,595

^µß

1,400

Plymouth Multi-Family Hsg. Ref. Rev. (At the Lake Apts. Proj.),
Ser. 2004, (LOC: Freddie Mac), 3.53%, due 11/1/07

VMIG1

1,400

^µß

7,995

Mississippi (1.3%)

10,960

Mississippi Home Corp. Single Family Mtge. Rev. (Merlots),
Ser. 2007 C60, (LOC: Government National Mortgage Association),
3.39%, due 11/7/07

VMIG1

10,960

^µd

Missouri (2.6%)

4,000

Missouri Higher Ed. Loan Au. Std. Loan Rev., Ser. 2005 E,
(MBIA Insured), 3.53%, due 11/1/07

VMIG1

A-1

4,000

^µn

800

Missouri St. Dev. Fin. Board Infrastructure Fac. Rev.
(St. Louis Convention Ctr.), Ser. 2000 C, (LOC: U.S. Bank),
3.63%, due 11/1/07

A-1+

800

^µ

1,435

Missouri St. Hlth. & Ed. Fac. Au. Ed. Fac. Rev. (Drury College),
Ser. 1999, (LOC: Bank of America), 3.63%, due 11/1/07

VMIG1

1,435

^µß

200

Missouri St. Hlth. & Ed. Fac. Au. Ed. Fac. Rev. (St. Louis Univ.),
Ser. 1999 B, (LOC: Bank of America), 3.61%, due 11/1/07

VMIG1

A-1+

200

^µß

4,520

Missouri St. Hsg. Dev. Commission Single Family Mtge. Rev. (Putters),
Ser. 2006-1514, (LOC: Government National Mortgage Association),
3.55%, due 11/1/07

A-1+

4,520

^µs

11,640

Puttable Floating Option Tax Exempt Receipts (Floaters),
Ser. 2007-4085, (FSA Insured), 3.55%, due 11/1/07

11,640

^µp

22,595

Nevada (2.0%)

9,365

Muni. Sec. Trust Cert. G.O. (Clark Co. Passenger Fac.), Ser. 2007-321,
Class A, (AMBAC Insured), 3.55%, due 11/1/07

VMIG1

9,365

^ñµh

4,580

Nevada Hsg. Div. Multi-Unit Hsg. (Mesquite), Ser. 1996 B,
(LOC: U.S. Bank), 3.34%, due 11/7/07

VMIG1

4,580

^µ

3,500

Nevada Hsg. Div. Multi-Unit Hsg. (Sierra Port), Ser. 2005,
(LOC: Fannie Mae), 3.50%, due 11/1/07

A-1+

3,500

^µß

17,445

New Hampshire (2.4%)

1,800

Cheshire Co. G.O. TANS, Ser. 2007, 3.75%, due 12/27/07

1,800

1,160

Manchester Hsg. Au. Multi-Family Rev. (Wall Street Tower), Ser. 1990 B,
(LOC: PNC Bank), 3.50%, due 11/1/07

A-1

1,160

^µ

2,000

Merrimack Co. G.O. TANS, Ser. 2007, 4.25%, due 12/28/07

2,002

See Notes to Schedule of Investments 41

PRINCIPAL AMOUNT

SECURITY^@@

RATING^‡‡§

VALUE^††

(000's omitted)

Moody's

S&P

(000's omitted)

5,000

New Hampshire Hlth. & Ed. Fac. Au. Rev. (Kimball Union Academy),
Ser. 2007, (LOC: RBS Citizens N.A.), 3.50%, due 11/1/07

VMIG1

5,000

^µ

4,200

New Hampshire St. Bus. Fin. Au. Rev. (Taylor Home), Ser. 2005 B,
(LOC: TD Banknorth N.A.), 3.47%, due 11/1/07

VMIG1

4,200

^µß

3,000

New Hampshire St. Hsg. Fin. Au. Multi-Family Rev. (Floaters),
Ser. 2006-3438, (LOC: Merrill Lynch Capital Markets), 3.61%, due 11/1/07

VMIG1

3,000

^µ

3,600

Strafford Co. G.O. TANS, Ser. 2007, 3.75%, due 12/31/07

3,600

20,762

New Mexico (0.5%)

2,800

ABN Amro Munitops Cert. Trust, Ser. 2005-42,
(AMBAC Insured), 3.50%, due 11/1/07

2,800

^ñµa

1,900

Farmington PCR Ref. (Arizona Pub. Svc. Co.), Ser. 1994 A,
(LOC: Barclays Bank PLC), 3.59%, due 11/1/07

VMIG1

A-1+

1,900

^µß

4,700

New York (4.6%)

7,000

Jamestown City Sch. Dist. G.O. BANS, Ser. 2007, 3.75%, due 5/22/08

7,001

16,100

New York City IDA Spec. Fac. Rev. (Korean Air Lines Co.), Ser. 1997 B,
(LOC: HSBC Bank U.S.A. N.A.), 3.28%, due 11/7/07

VMIG1

A-1+

16,100

^µß

9,000

New York St. Dorm. Au. Rev. Secondary Issues (Floaters), Ser. 2006-1370,
(FHA Insured), 3.47%, due 11/1/07

A-1

9,000

^µx

6,000

Port Au. New York & New Jersey (Putters), Ser. 2007-2092,
(FSA Insured), 3.47%, due 11/1/07

A-1+

6,000

^µs

Utica IDA Civic Fac. Rev. (Utica College Proj.), Ser. 2005 A,
(LOC: Citizens Bank), 3.45%, due 11/1/07

VMIG1

^µß

1,700

Watervliet Hsg. Au. Sr. Residential Hsg. Rev. (Beltrone Living Ctr. Proj.),
Ser. 1998 A, 6.13%, due 6/1/38 Pre-Refunded 6/1/08

1,773

^ß

39,884

North Carolina (1.4%)

2,800

North Carolina Cap. Fac. Fin. Agcy. Rev. (Eagle), Ser. 2006-0139,
Class A, (LOC: Citibank, N.A.), 3.52%, due 11/1/07

A-1+

2,800

^µ

9,190

North Carolina HFA Rev. (Merlots), Ser. 2006 B12,
(LOC: Wachovia Bank & Trust Co.), 3.39%, due 11/7/07

VMIG1

9,190

^µ

11,990

Ohio (2.5%)

3,855

Hamilton Co. Hlth. Care Fac. Rev. (Sisters of Charity Sr. Care),
Ser. 2002, (LOC: Fifth Third Bank), 3.49%, due 11/1/07

3,855

^µß

3,000

Marysville G.O. BANS, Ser. 2007, 4.13%, due 6/5/08

MIG1

3,008

5,000

Ohio St. Higher Ed. Cap. Fac., Ser. 2002 II A, 5.00%, due 12/1/07

5,005

2,325

Ohio St. Wtr. Dev. Au. Rev. (Floaters), Ser. 2005-1118,
(LOC: Rabobank Nederland), 3.50%, due 11/1/07

A-1+

2,325

^µ

2,000

Univ. of Cincinnati Gen. Receipts Bonds BANS, Ser. 2007 C,
4.50%, due 1/24/08

MIG1

SP-1+

2,004

3,850

Warrensville Heights G.O. BANS (Var. Purp. Imp.), Ser. 2007,
4.05%, due 5/30/08

3,855

2,132

Wood Co. IDR (Reclamation Technologies), Ser. 2006,
(LOC: National City Bank), 3.56%, due 11/1/07

2,132

^µß

22,184

Oklahoma (1.7%)

15,000

Tulsa Co. Ind. Au. Cap. Imp. Rev., Ser. 2003 A,
(LOC: Bank of America), 3.70%, due 5/15/17 Putable 11/15/07

A-1+

15,000

^µ

See Notes to Schedule of Investments 42

PRINCIPAL AMOUNT

SECURITY^@@

RATING^‡‡§

VALUE^††

(000's omitted)

Moody's

S&P

(000's omitted)

Pennsylvania (2.4%)

900

Berks Co. Ind. Dev. Au. Rev. (Mfg. Facs. RAM Ind. Proj.), Ser. 1996,
(LOC: PNC Bank), 3.36%, due 11/7/07

900

^µß

2,385

Bradford Co. Ind. Dev. Au. Rev. (Econ. Dev. Towanda Print), Ser. 2001,
(LOC: PNC Bank), 3.56%, due 11/1/07

2,385

^µß

2,700

Cumberland Co. Muni. Au. Rev. (Presbyterian Homes Proj.), Ser. 2005 B,
(Radian Insured), 3.65%, due 12/1/26 Putable 12/1/07

A-1+

2,700

^µßii

1,765

Lackawanna Co. Ind. Dev. Au. Rev. (Material Technology Proj.), Ser. 2006,
(LOC: Wachovia Bank & Trust Co.), 3.60%, due 11/1/07

1,765

^µß

1,905

Northampton Co. Ind. Dev. Au. IDR (Losco Family Properties LLC Proj.),
Ser. 2005, (LOC: Wachovia Bank & Trust Co.), 3.60%, due 11/1/07

1,905

^µß

300

Pennsylvania Econ. Dev. Fin. Au. Econ. Dev. Rev., Ser. 2000 B7,
(LOC: PNC Bank), 3.52%, due 11/1/07

VMIG1

300

^µß

800

Pennsylvania Econ. Dev. Fin. Au. Econ. Dev. Rev., Ser. 2000 H7,
(LOC: PNC Bank), 3.52%, due 11/1/07

A-1

800

^µß

4,600

Pennsylvania Econ. Dev. Fin. Au. Econ. Dev. Rev., Ser. 2002 B5,
(LOC: PNC Bank), 3.52%, due 11/1/07

A-1

4,600

^µß

1,150

Pennsylvania Econ. Dev. Fin. Au. Econ. Dev. Rev., Ser. 2006 A2,
(LOC: PNC Bank), 3.52%, due 11/1/07

A-1

1,150

^µß

800

Pennsylvania Econ. Dev. Fin. Au. Econ. Dev. Rev.
(North American Communication Proj.), Ser. 2004 A1,
(LOC: PNC Bank), 3.52%, due 11/1/07

A-1

800

^µß

3,900

West Cornwall Township Muni. Au. Rev. (Sr. Living Fac.-Lebanon Valley),
Ser. 2006, (LOC: PNC Bank), 3.47%, due 11/1/07

A-1

3,900

^µß

21,205

Puerto Rico (3.6%)

7,230

Deutsche Bank Spears/Lifers Trust Var. St., Ser. 2007,
(MBIA Insured), 3.45%, due 11/1/07

7,230

^µo

11,000

Puerto Rico Elec. Pwr. Au. Pwr. Rev. (Putters), Ser. 2005-815,
(FSA Insured), 3.45%, due 11/1/07

A-1+

11,000

^µs

4,105

Puerto Rico Ind. Tourist Ed. Med. & Env. Ctrl. Fac. Rev. (Floater Cert.),
Ser. 2000-377, (LOC: Morgan Stanley), 3.47%, due 11/1/07

VMIG1

4,105

^µß

9,400

Puerto Rico Sales Tax Financing Corp. Sales Tax Rev. (Floaters),
Ser. 2007-2006-1990, (LOC: Morgan Stanley), 3.50%, due 11/1/07

A-1+

9,400

^µ

31,735

Rhode Island (1.2%)

5,000

Rhode Island Hsg. & Mtge. Fin. Corp. (Floaters), Ser. 2006-1428R,
(LOC: Merrill Lynch Capital Markets), 3.61%, due 11/1/07

A-1

5,000

^µ

5,750

Rhode Island Hsg. & Mtge. Fin. Corp. (Floaters), Ser. 2007-1591,
(FGIC Insured), 3.55%, due 11/1/07

A-1+

5,750

^µy

10,750

South Carolina (0.7%)

4,000

Jasper Co. Rev. BANS, Ser. 2007, 3.85%, due 7/1/08

4,000

2,000

South Carolina Jobs Econ. Dev. Au. Econ. Dev. Rev. (Bondtax, Inc. Proj.),
Ser. 2007, (LOC: Branch Banking & Trust Co.), 3.58%, due 11/1/07

2,000

^µ

6,000

Tennessee (2.2%)

930

Franklin Co. Hlth. & Ed. Fac. Board Rev. (Univ. of the South Proj.), Ser. 1990,
3.65%, due 11/1/07

A-1

930

^µß

7,995

Muni. Sec. Trust Cert., Ser. 2007-3052, Class A,
(LOC: Bear Stearns), 3.55%, due 11/1/07

VMIG1

7,995

^ñµ

See Notes to Schedule of Investments 43

PRINCIPAL AMOUNT

SECURITY^@@

RATING^‡‡§

VALUE^††

(000's omitted)

Moody's

S&P

(000's omitted)

7,000

Sevier Co. Pub. Bldg. Au. Rev. (Loc. Gov't. Pub. Imp.), Ser. 2001,
(AMBAC Insured), 3.65%, due 11/1/07

VMIG1

7,000

^µp

2,890

Shelby Co. Hlth. Ed. & Hsg. Fac. Board Multi-Family Hsg. Rev. (Flag Manor),
Ser. 1995, (LOC: Federal Home Loan Bank), 3.53%, due 11/1/07

VMIG1

2,890

^µ

18,815

Texas (9.3%)

2,800

Austin Arpt. Sys. Rev., Ser. 1995 A, (LOC: JP Morgan Chase),
3.32%, due 11/7/07

P-1

A-1+

2,800

^µ

1,800

Brazoria Co. Hlth. Fac. Dev. Corp. Hosp. Rev. (Brazosport Mem. Hosp.),
Ser. 1999, (LOC: Chase Bank of Texas), 3.50%, due 11/1/07

VMIG1

1,800

^µß

15,000

Brazos River Harbor Navigation Dist. of Brazoria Co. Rev. (BASF Corp. Proj.),
Ser. 1997, 3.69%, due 11/1/07

P-1

15,000

^µß

1,200

Calhoun Co. Navigation Ind. Dev. Au. Port Rev. (Formosa Plastics Corp. Proj.),
Ser. 1994, (LOC: Bank of America), 3.32%, due 11/7/07

VMIG1

1,200

^µß

1,200

Dallas Fort Worth Int'l Arpt. Rev. (Putters), Ser. 2004-385,
(FGIC Insured), 3.55%, due 11/1/07

VMIG1

A-1+

1,200

^µs

1,300

Dallas Fort Worth Reg. Arpt. Rev. (Muni. Sec. Trust Receipts),
Ser. 1997 SGA 49, (MBIA Insured), 3.63%, due 11/1/07

A-1+

1,300

^µcc

2,800

Denton Independent Sch. Dist. G.O., Ser. 1996 B,
(PSF Insured), 3.75%, due 8/15/08

A-1+

2,800

^µmm

13,535

Deutsche Bank Spears/Lifers Trust Var. St., Ser. 2007-291,
(FGIC Insured), 3.50%, due 11/1/07

A-1+

13,535

^µo

8,185

El Paso Hsg. Fin. Corp. Multi-Family Hsg. Rev. (Viva Apts. Proj.),
Ser. 1993, (LOC: Bank of America), 3.31%, due 11/7/07

A-1+

8,185

^µß

100

Gulf Coast Waste Disp. Au. Env. Fac. Rev. (BP Amoco Chemical Co. Proj.),
Ser. 2003, 3.64%, due 11/1/07

VMIG1

A-1+

100

^µß

1,800

Gulf Coast Waste Disp. Au. Rev. Ref. (Armco, Inc. Proj.), Ser. 1998,
(LOC: PNC Bank), 3.46%, due 11/1/07

1,800

^µß

1,000

Houston Arpt. Sys. Rev. (Floaters), Ser. 2006-1382X,
(FGIC Insured), 3.53%, due 11/1/07

VMIG1

1,000

^µy

4,000

Northside G.O. Independent Sch. Dist. Ref., Ser. 2006 A,
(PSF Insured), 3.75%, due 8/1/33 Putable 8/1/08

VMIG1

4,000

^µp

700

San Antonio Arpt. Sys. Rev. Spec. Fac. (Cessna Aircraft), Ser. 1995,
(LOC: Bank of America), 3.53%, due 11/1/07

A-1+

700

^µß

10,435

San Antonio Hsg. Trust Fin. Corp. Single Family Mtge. Rev., Ser. 2007-10229,
(LOC: Government National Mortgage Association), 3.59%, due 11/1/07

VMIG1

10,435

^µl

1,500

Texas Muni. Gas Acquisition & Supply Corp. I Gas Supply Rev. Sr. Lien,
Ser. 2006 A, 5.00%, due 12/15/07

1,503

7,925

Texas St. Affordable Hsg. Corp. Single Family Mtge. Rev. (Merlots),
Ser. 2007-C62, (LOC: Federal Home Loan Mtge. Corp.), 3.39%, due 11/7/07

VMIG1

7,925

^µd

5,770

Victory Street Pub. Fac. Corp. Multi-Family Rev., Ser. 2007-832CE,
(LOC: Citigroup Global Markets), 3.63%, due 11/1/07

VMIG1

5,770

^µ

81,053

Utah (0.5%)

1,810

Utah St. HFA Rev. (Merlots), Ser. 2001 A14,
(LOC: Wachovia Bank & Trust Co.), 3.39%, due 11/7/07

VMIG1

1,810

^µ

2,290

Utah St. HFA Rev. (Merlots), Ser. 2001 A62,
(LOC: Wachovia Bank & Trust Co.), 3.39%, due 11/7/07

VMIG1

2,290

^µ

4,100

Vermont (1.2%)

3,300

Vermont Ed. & Hlth. Bldg. Fin. Agcy. Rev. (Middlebury College Proj.),
Ser. 2002 B, 3.58%, due 11/1/32 Putable 11/1/07

3,300

^µ

7,000

Vermont HFA Multi. Purp. Notes, Ser. 2007 D, (LOC: Calyon Bank),
3.85%, due 9/25/08

7,000

10,300

See Notes to Schedule of Investments 44

PRINCIPAL AMOUNT

SECURITY^@@

RATING^‡‡§

VALUE^††

(000's omitted)

Moody's

S&P

(000's omitted)

Virginia (1.7%)

2,585

Tazewell Co. Ind. Dev. Au. Rev. (Jennmar Corp., Inc.), Ser. 2007,
(LOC: PNC Bank), 3.56%, due 11/1/07

2,585

^µß

6,285

Virginia St. Hsg. Dev. Au. Commonwealth Mtge. (Merlots), Ser. 2006 B20,
(LOC: Wachovia Bank & Trust Co.), 3.39%, due 11/7/07

A-1+

6,285

^µ

5,700

Virginia St. Hsg. Dev. Au. Commonwealth Mtge. (Merlots), Ser. 2006 C07,
(LOC: Bank of New York), 3.39%, due 11/7/07

A-1+

5,700

^µ

14,570

Washington (6.8%)

King Co. Swr. Rev. (Floaters), Ser. 2005-1091,
(FSA Insured), 3.50%, due 11/1/07

^µy

12,330

NJB Prop. Lease Rev., Ser. 2007-9152, (LOC: Citigroup Global Markets),
3.51%, due 11/1/07

A-1+

12,330

^µ

4,000

Washington St. G.O. (Merlots), Ser. 2003 B23,
(MBIA Insured), 3.34%, due 11/7/07

VMIG1

4,000

^µii

9,870

Washington St. Hsg. Fin. Commission, Ser. 2007-11203,
(LOC: Government National Mortgage Association),
3.59%, due 11/1/07

VMIG1

9,870

^µk

3,000

Washington St. Hsg. Fin. Commission Multi-Family Hsg. Rev.
(Lake City Sr. Apts. Proj.), Ser. 2006 A, (LOC: Freddie Mac),
3.51%, due 11/1/07

A-1+

3,000

^µß

6,130

Washington St. Hsg. Fin. Commission Multi-Family Mtge. Rev.
(Canyon Lakes II Proj.), Ser. 1994, (LOC: Wells Fargo & Co.),
3.50%, due 11/1/07

VMIG1

6,130

^µß

1,300

Washington St. Hsg. Fin. Commission Multi-Family Mtge. Rev.
(Wandering Creek Proj.), Ser. 1995, (LOC: Freddie Mac),
3.31%, due 11/7/07

VMIG1

1,300

^µß

2,325

Washington St. Hsg. Fin. Commission Multi-Family Rev.
(Auburn Meadows Proj.), Ser. 2003 A, (LOC: Wells Fargo & Co.),
3.60%, due 11/1/07

A-1+

2,325

^µ

5,775

Washington St. Hsg. Fin. Commission Multi-Family Rev.
(Rosemont Apts. Proj.), Ser. 2003 A, (LOC: Umpqua Bank),
3.60%, due 11/1/07

A-1

5,775

^µße

7,340

Washington St. Hsg. Fin. Commission Multi-Family Rev.
(Silver Creek Retirement), Ser. 2004 A, (LOC: Wells Fargo & Co.),
3.60%, due 11/1/07

VMIG1

7,340

^µß

6,400

Washington St. Hsg. Fin. Commission Multi-Family Rev.
(Woodland Retirement Proj.), Ser. 2003 A, (LOC: Wells Fargo & Co.),
3.60%, due 11/1/07

A-1+

6,400

^µß

700

Washington St. Hsg. Fin. Commission Non-Profit Rev.
(Tacoma Art Museum Proj.), Ser. 2002, (LOC: Northern Trust Co.),
3.63%, due 11/1/07

VMIG1

700

^µß

59,171

Wisconsin (1.7%)

1,210

Germantown Ind. Rev. (Great Lakes Packaging Corp.), Ser. 1996,
(LOC: Marshall & Ilsley), 3.55%, due 11/1/07

A-1

1,210

^µß

3,100

Menomonee Falls Sch. Dist. BANS, Ser. 2007 A, 4.46%, due 12/1/07

MIG1

3,102

4,000

Muni. Sec. Trust Cert., Ser. 2007-7063, Class A,
(LOC: Bear Stearns), 3.55%, due 11/1/07

VMIG1

4,000

^ñµ

2,925

Wisconsin Sch. Dist. Cash Flow Management Prog. Cert. Participation,
Ser. 2006 B, 4.25%, due 11/1/07

MIG1

2,925

3,895

Wisconsin St. Hlth. & Ed. Fac. Au. Rev. (St. Joseph's Comm. Hosp. Proj.),
Ser. 2005, (LOC: Marshall & Ilsley), 3.47%, due 11/1/07

A-1

3,895

^µß

15,132

Total Municipal Notes

854,573

See Notes to Schedule of Investments 45

PRINCIPAL AMOUNT

SECURITY^@@

RATING^‡‡§

VALUE^††

(000's omitted)

Asset-Backed Securities (1.1%)

$ 9,919

FHLMC Multi-Family Certs., Ser. M010, Class A, 4.04%, due 11/15/07

9,919

^µ

Total Investments (99.2%)

864,492

Cash, receivables and other assets, less liabilities (0.8%)

7,016

Total Net Assets (100.0%)

$871,508

See Notes to Schedule of Investments 46

Schedule of Investments Lehman Brothers Municipal Securities Trust

PRINCIPAL AMOUNT

SECURITY^@@

RATING^§

VALUE^†

(000's omitted)

Moody's

S&P

(000's omitted)

Alabama (3.7%)

1,000

Jefferson Co. Cap. Imp. & Ref. Warrants, Ser. 2003-A,
(MBIA Insured), 5.00%, due 4/1/18

Aaa

AAA

1,039

Alaska (3.0%)

795

Alaska St. Int'l Arpts. Ref. Rev., Ser. 2006 A,
(MBIA Insured), 5.00%, due 10/1/17

Aaa

AAA

841

California (9.6%)

500

California St. Econ. Rec. G.O., Ser. 2004 A,
(MBIA Insured), 5.25%, due 7/1/13

Aaa

AAA

543

1,000

California St. Pub. Works Board Lease Rev. Dept. of Mental Hlth.
(Coalinga St. Hosp.), Ser. 2004 A, 5.50%, due 6/1/21

1,069

1,000

Sacramento Muni. Util. Dist. Fin. Au. Rev. (Cosumnes Proj.), Ser. 2006,
(MBIA Insured), 5.00%, due 7/1/20

Aaa

AAA

1,061

2,673

Colorado (3.8%)

1,000

Larimer Co. Sales & Use Tax Rev., Ser. 2000,
(AMBAC Insured), 5.75%, due 12/15/15

Aaa

AAA

1,068

Georgia (3.8%)

1,000

George L. Smith II World Congress Center Au. Rev.
(Domed Stadium Proj.), Ser. 2000, (MBIA Insured), 5.75%, due 7/1/15

Aaa

AAA

1,055

Illinois (10.9%)

1,000

Chicago O'Hare Int'l. Arpt. Gen. Arpt. Third Lien Ref. Rev., Ser. 2005 B,
(MBIA Insured), 5.25%, due 1/1/17

Aaa

AAA

1,094

1,000

Lake Co. Sch. Dist. No. 109 Deerfield Ref. G.O., Ser. 1999 C,
5.00%, due 12/15/14

Aa2

1,074

800

Will & Kendall Cos. Plainfield Comm. Cons. Sch. Dist. Number 202
Sch. Bldg. G.O., Ser. 2001, (FSA Insured),
5.38%, due 1/1/13 Pre-Refunded 1/1/12

Aaa

AAA

856

3,024

Indiana (3.7%)

1,000

Indiana St. Office Bldg. Commission Fac. Ref. Rev., Ser. 1998 A,
5.13%, due 7/1/14

Aa2

1,020

Louisiana (3.8%)

1,000

Louisiana St. Citizens Prop. Insurance Corp. Assessment Rev.,
Ser. 2006 B, (AMBAC Insured), 5.00%, due 6/1/18

Aaa

AAA

1,065

Massachusetts (1.9%)

500

Massachusetts St. Hlth. & Ed. Fac. Au. Rev. (Berklee College),
Ser. 2007 A, 5.00%, due 10/1/15

A+

536

^ß

Michigan (2.9%)

750

Detroit Wayne Co. Sch. Dist. Sch. Bldg. & Site Imp. Ref. G.O.,
Ser. 1998 C, (FGIC Insured), 5.25%, due 5/1/13

Aaa

AAA

807

See Notes to Schedule of Investments 47

PRINCIPAL AMOUNT

SECURITY^@@

RATING^§

VALUE^†

(000's omitted)

Moody's

S&P

(000's omitted)

Missouri (6.6%)

500

Curators Univ. Sys. Fac. Rev., Ser. 2003 A,
5.00%, due 11/1/31 Pre-Refunded 11/3/13

Aa2

537

200

Missouri St. Hlth. & Ed. Fac. Au. Ed. Fac. Rev. (The Washington Univ.),
Ser. 1996 A, (LOC: Morgan Guaranty Trust), 3.59%, due 11/1/07

VMIG1

A-1+

200

^µ

1,000

Springfield Sch. Dist. Number R-12, Ref. G.O., Ser. 2002 A,
(FSA Insured), 5.50%, due 3/1/13

Aaa

AAA

1,089

1,826

New Jersey (10.0%)

1,000

New Jersey Econ. Dev. Au. St. Lease Rev. (Liberty St. Park Proj.),
Ser. 2005 B, (MBIA Insured), 5.00%, due 3/1/17

Aaa

AAA

1,068

575

New Jersey Trans. Trust Fund Au. Trans. Sys. Rev., Ser. 1999 A,
5.63%, due 6/15/13

AA-

627

1,000

New Jersey Trans. Trust Fund Au. Trans. Sys. Rev., Ser. 2006 A,
5.25%, due 12/15/19

AA-

1,100

2,795

New York (9.6%)

800

Battery Park City Au. Sr. Rev., Ser. 2003 A, 5.25%, due 11/1/22

Aaa

AAA

858

500

Buffalo & Ft. Erie Pub. Bridge Au. Toll Bridge Sys. Ref. Rev., Ser. 2005,
(LOC: Bank of Nova Scotia), 4.00%, due 1/1/25 Putable 7/1/10

Aa1

AA-

500

^µ

250

New York City IDA Spec. Fac. Rev. (Term. One Group Assoc., L.P. Proj.),
Ser. 2005, 5.50%, due 1/1/16

BBB+

270

^ß

500

New York St. Env. Fac. Corp. Solid Waste Disp. Rev.
(Waste Management, Inc. Proj.), Ser. 2004 A,
4.45%, due 7/1/17 Putable 7/1/09

BBB

501

^ß

500

New York St. Urban Dev. Corp. Ref. Rev. (Correctional Facs.),
Ser. 1994 A, (FSA Insured), 5.50%, due 1/1/14

Aaa

AAA

535

2,664

Oklahoma (0.4%)

100

Oklahoma St. Ind. Au. Rev. (Integris Baptist), Ser. 1999 B,
(MBIA Insured), 3.58%, due 11/1/07

VMIG1

A-1+

100

^µßs

South Carolina (1.9%)

500

South Carolina St. Budget & Ctrl. Board St. Fac. Installment Purchase Rev.
(Dept. of Pub. Safety Proj.), Ser. 2003, 4.50%, due 1/1/11

Aa2

515

Tennessee (3.8%)

1,000

Tennessee Energy Acquisition Corp. Gas Rev., Ser. 2006 A,
5.25%, due 9/1/17

Aa3

AA-

1,050

Texas (15.2%)

1,000

Brazosport Independent Sch. Dist. Ref. G.O., Ser. 2005,
(PSF Insured), 5.00%, due 2/15/15

Aaa

1,066

1,000

Grapevine Combination Tax & Tax Increment Reinvestment Zone Rev.
Cert. of Oblig. G.O., Ser. 2000, (FGIC Insured), 5.63%, due 8/15/15

Aaa

AAA

1,055

1,045

San Antonio Passenger Fac. Charge & Sub. Lien Arpt. Sys. Imp. Rev.,
Ser. 2005, (FSA Insured), 5.25%, due 7/1/12

Aaa

AAA

1,108

1,000

Texas Muni. Gas Acquisition & Supply Corp. I Gas Supply Rev.,
Ser. 2006 B, 4.37%, due 12/15/07

A+

1,000

^µ

4,229

See Notes to Schedule of Investments 48

PRINCIPAL AMOUNT

SECURITY^@@

RATING^§

VALUE^†

(000's omitted)

Moody's

S&P

(000's omitted)

Wisconsin (3.8%)

$ 1,000

Wisconsin St. G.O., Ser. 2002 C, (MBIA Insured),
5.25%, due 5/1/14 Pre-Refunded 5/1/12

Aaa

AAA

1,070

Total Investments (98.4%) (Cost $27,145)

27,377

^##

Cash, receivables and other assets, less liabilities (1.6%)

451

Total Net Assets (100.0%)

27,828

See Notes to Schedule of Investments 49

Schedule of Investments Lehman Brothers New York Municipal Money Fund

PRINCIPAL AMOUNT		SECURITY^@@	RATING^‡‡§		VALUE^††
(000's omitted)			Moody's	S&P	(000's omitted)
New York (85.5%)
$	8,870	ABN Amro Munitops Cert. Trust, Ser. 2006, (FSA Insured), 3.52%, due 11/1/07	VMIG1		$	8,870	^ñµa
	6,710	ABN Amro Munitops Cert. Trust, Ser. 2006, (LOC: ABN AMRO Bank NV), 3.48%, due 11/1/07	VMIG1			6,710	^ñµ
	8,330	ABN Amro Munitops Cert. Trust, Ser. 2006, (XLCA Insured), 3.48%, due 11/1/07	VMIG1			8,330	^ñµa
	4,650	Albany IDA Civic Fac. Rev. (Albany Med. Ctr. Proj.), Ser. 2006 A, (LOC: Citizens Bank), 3.44%, due 11/1/07	VMIG1			4,650	^µß
	3,800	Albany IDA Civic Fac. Rev. (Research Foundation of the St. Univ. of New York Proj.), Ser. 2002 A, 3.55%, due 11/1/07	VMIG1			3,800	^µß
	3,310	Albany IDA Civic Fac. Rev. (Univ. of Albany Foundation Std. Hsg.), Ser. 2001 A, (AMBAC Insured), 3.47%, due 11/1/07		A-1		3,310	^µßu
	1,970	Albany IDA Civic Fac. Rev. (Univ. of Albany Foundation Std. Hsg.), Ser. 2001 D, (AMBAC Insured), 3.47%, due 11/1/07		A-1		1,970	^µßu
	1,650	Allegany Co. IDA Env. Fac. Ref. Rev. (Atlantic Richfield Proj.), Ser. 2002, (LOC: BP PLC), 3.57%, due 11/1/07	VMIG1	A-1+		1,650	^µß
	975	Auburn Ind. Dev. Au. IDR (Goulds Pumps, Inc. Proj.), Ser. 1989, (LOC: Deutsche Bank), 3.58%, due 11/7/07				975	^µ
	9,875	Austin Trust Var. St., Ser. 2007-1017, (LOC: Bank of America), 3.52%, due 11/1/07		A-1+		9,875	^µ
	5,300	Austin Trust Var. St., Ser. 2007-160, (LOC: Bank of America), 3.47%, due 11/1/07		A-1+		5,300	^µ
	1,970	Battery Park City Au. Rev., Ser. 2003, (LOC: Merrill Lynch Capital Markets), 3.52%, due 11/1/07				1,970	^µ
	7,940	BB&T Muni. Trust (Floaters), Ser. 2007-2025, (LOC: Branch Banking & Trust Co.), 3.48%, due 11/1/07	VMIG1			7,940	^µ
	4,000	Board Cooperative Ed. Svc. Sole Supervisory Dist. RANS, Ser. 2007, 3.85%, due 6/20/08				4,001
	9,500	Board Cooperative Ed. Svc. Sole Supervisory Dist. RANS, Ser. 2007 A, 3.85%, due 6/19/08				9,503
	2,815	Broome Co. IDA IDR (Parlor City Paper Box Proj.), Ser. 2006, (LOC: NBT Bank N.A.), 3.51%, due 11/1/07				2,815	^µßd
	2,870	Clinton Co. IDA Civic Fac. Rev. (Champlain Valley Hosp. Proj.), Ser. 2006 A, (LOC: Key Bank), 3.44%, due 11/1/07	VMIG1			2,870	^µß
	4,700	Dunkirk G.O. BANS, Ser. 2007, 3.82%, due 9/11/08				4,701
	3,725	Dutchess Co. IDA Civic Fac. Rev. (Lutheran Ctr.), Ser. 2005, (LOC: Key Bank), 3.47%, due 11/1/07	VMIG1			3,725	^µß
	10,490	Eclipse Funding Trust (Solar Eclipse-New York St. Dorm Au. Rev.), Ser. 2006-0148, (MBIA Insured), 3.63%, due 11/1/07		A-1+		10,490	^µhh
	1,900	Eclipse Funding Trust Var. St., Ser. 2006-0028, (AMBAC Insured), 3.45%, due 11/1/07				1,900	^ñµhh
	8,295	Enhanced Return Puttable Floating Option Tax Exempt Receipts Rev. (New York City TRANS), Ser. 2007, (LOC: Merrill Lynch Capital Markets), 3.52%, due 11/1/07				8,295	^µ
	4,181	Geneva G.O. BANS, Ser. 2007 B, 3.85%, due 5/22/08				4,182
	8,560	Haverstraw Stony Point Central Sch. Dist. G.O. (Merlots), Ser. 2007 D, (FSA Insured), 3.34%, due 11/7/07	VMIG1			8,560	^µii
	12,345	Hempstead IDA IDR (Floater), Ser. 2007, (LOC: Goldman Sachs), 3.50%, due 11/1/07				12,345	^µ
	8,850	Hempstead Town IDA Multi-Family Rev., Ser. 2007-300, (LOC: Bank of America), 3.50%, due 11/1/07	VMIG1			8,850	^µ
	1,025	Herkimer Co. IDA Civic Fac. Rev. (Templeton Foundation Proj.), Ser. 2000, (LOC: Key Bank), 3.51%, due 11/1/07				1,025	^µß
	7,200	Hudson Yards Infrastructure Corp. Rev., Ser. 2007-1608, (FGIC Insured), 3.52%, due 11/1/07	VMIG1			7,200	^µy
	10,440	Hudson Yards Infrastructure Corp. Rev., Ser. 2007-9137, (FGIC Insured), 3.50%, due 11/1/07		A-1+		10,440	^µl
	6,500	Jamestown City Sch. Dist. G.O. BANS, Ser. 2007, 3.75%, due 5/22/08				6,501

See Notes to Schedule of Investments 50

PRINCIPAL AMOUNT

SECURITY^@@

RATING^‡‡§

VALUE^††

(000's omitted)

Moody's

S&P

(000's omitted)

1,500

Liberty Dev. Corp. Rev., Ser. 2006, (LOC: Citibank, N.A.),
3.50%, due 11/1/07

VMIG1

1,500

^µ

5,050

Long Island Pwr. Au. Elec. Sys. Rev., Ser. 2003, (CIFG Insured),
3.47%, due 11/1/07

5,050

^µx

2,400

Long Island Pwr. Au. Elec. Sys. Rev., Ser. 2006, (MBIA Insured),
3.50%, due 11/1/07

VMIG1

2,400

^µk

2,000

Long Island Pwr. Au. Elec. Sys. Rev. (Floaters), Ser. 2007-1647,
(MBIA Insured), 3.49%, due 11/1/07

A-1+

2,000

^µy

7,000

Metro. Trans. Au. Dedicated Tax Fund, Ser. 2006 A, (MBIA Insured),
3.51%, due 11/1/07

A-1+

7,000

^µk

7,000

Metro. Trans. Au. Rev., Ser. 2007 A, (FSA Insured), 3.49%, due 11/1/07

A-1

7,000

^µo

8,620

Metro. Trans. Au. Rev. (Floaters), Ser. 2007-1942, (MBIA Insured),
3.49%, due 11/1/07

VMIG1

8,620

^µy

5,110

Muni. Sec. Trust Cert., Ser. 2007 A, (FGIC Insured), 3.47%, due 11/1/07

VMIG1

5,110

^µh

11,200

Muni. Sec. Trust Cert., Ser. 2007 A, (FHA Insured), 3.47%, due 11/1/07

A-1

11,200

^ñµh

2,700

Muni. Sec. Trust Cert., Ser. 2001, (LOC: Bear Stearns), 3.57%, due 11/1/07

VMIG1

2,700

^ñµ

3,300

Muni. Sec. Trust Cert., Ser. 2007 A, (LOC: Bear Stearns),
3.49%, due 11/1/07

VMIG1

3,300

^ñµ

2,315

Nassau Co. IDA Civic Fac. Rev. (North Shore Hebrew Academy Proj.),
Ser. 2005, (LOC: Sovereign Bank), 3.46%, due 11/1/07

VMIG1

2,315

^µßm

18,000

Nassau Co. IDA Rev. (Floater), Ser. 2007 75G, (LOC: Goldman Sachs),
3.51%, due 11/1/07

18,000

^µ

1,000

New York City Hsg. Dev. Corp. Multi-Family Mtge. Rev. (Target V. Apts.),
Ser. 2006 A, (LOC: Citibank, N.A.), 3.27%, due 11/7/07

A-1+

1,000

^µß

13,275

New York City Hsg. Dev. Corp. Multi-Family Rental Hsg. Rev. (Progress of
Peoples Dev.), Ser. 2005 A, (LOC: Fannie Mae), 3.30%, due 11/7/07

A-1+

13,275

^µ

10,000

New York City Hsg. Dev. Corp. Multi-Family Rev., Ser. 2003 A,
(LOC: Landesbank Baden), 3.26%, due 11/7/07

A-1+

10,000

^µß

2,480

New York City IDA Civic Fac. Rev. (American Society Technion Proj.),
Ser. 2003, (LOC: Allied Irish Bank), 3.19%, due 11/7/07

VMIG1

2,480

^µß

236

New York City IDA Rev. (Floaters), Ser. 2007-1875, (FGIC Insured),
3.49%, due 11/1/07

A-1+

236

^µy

6,920

New York City IDA Spec. Fac. Rev. (Korean Air Lines Co.), Ser. 1997 A,
(LOC: HSBC Bank N.A.), 3.28%, due 11/7/07

VMIG1

A-1+

6,920

^µß

3,900

New York City Muni. Wtr. Fin. Au. Rev., Ser. 2001, (LOC: Merrill Lynch
Capital Markets), 3.48%, due 11/1/07

A-1

3,900

^µ

5,000

New York City Muni. Wtr. Fin. Au. Wtr & Swr. Sys. Rev., Ser. 2006,
(LOC: Citibank N.A.), 3.50%, due 11/1/07

VMIG1

A-1+

5,000

^µ

8,000

New York City Muni. Wtr. Fin. Au. Wtr. & Swr. Sys. Rev., Ser. 2007 A,
(LOC: Citibank, N.A.), 3.50%, due 11/1/07

A-1+

8,000

^µ

2,700

New York City Trans. Fin. Au. Rev., Ser. 1998 C, (LOC: Bayerische
Landesbank), 3.49%, due 11/1/07

VMIG1

A-1+

2,700

^µ

10,710

New York City Trans. Fin. Au. Rev. (Putters), Ser. 2007,
(LOC: JP Morgan Chase), 3.48%, due 11/1/07

A-1+

10,710

^µ

11,690

New York G.O. (Putters), Ser. 2006, (AMBAC Insured), 3.48%, due 11/1/07

A-1+

11,690

^µs

5,000

New York G.O. (Putters), Ser. 2007-2207, (LOC: JP Morgan Chase),
3.48%, due 11/1/07

A-1+

5,000

^µ

7,945

New York St. Dorm. Au. Rev., Ser. 2000, (LOC: Merrill Lynch Capital
Markets), 3.49%, due 11/1/07

A-1+

7,945

^µ

1,990

New York St. Dorm. Au. Rev. (Merlots), Ser. 2003, (FGIC Insured),
3.34%, due 11/7/07

VMIG1

1,990

^µii

1,995

New York St. Dorm. Au. Rev. Secondary Issues, Ser. 2005, (AMBAC
Insured), 3.50%, due 11/1/07

VMIG1

1,995

^µk

5,910

New York St. Dorm. Au. Rev. Secondary Issues, Ser. 2006, (AMBAC
Insured), 3.45%, due 11/1/07

5,910

^µp

5,840

New York St. Dorm. Au. Rev. Secondary Issues, Ser. 2006, (AMBAC
Insured), 3.52%, due 11/1/07

5,840

^µp

5,240

New York St. Dorm. Au. Rev. Secondary Issues, Ser. 2005,
(CIFG Insured), 3.52%, due 11/1/07

A-1

5,240

^µx

8,885

New York St. Dorm. Au. Rev. Secondary Issues, Ser. 2007,
(LOC: Citibank, N.A.), 3.50%, due 11/1/07

VMIG1

8,885

^µ

6,000

New York St. Dorm. Au. Rev. Secondary Issues (Floaters), Ser. 2005,
(AMBAC Insured), 3.49%, due 11/1/07

6,000

^µy

10,600

New York St. Dorm. Au. Rev. Secondary Issues (Floaters), Ser. 2007-1959,
(AMBAC Insured), 3.49%, due 11/1/07

A-1+

10,600

^µy

See Notes to Schedule of Investments 51

PRINCIPAL AMOUNT

SECURITY^@@

RATING^‡‡§

VALUE^††

(000's omitted)

Moody's

S&P

(000's omitted)

2,500

New York St. Dorm. Au. Rev. Secondary Issues (Floaters), Ser. 2006-1370,
(FHA Insured), 3.47%, due 11/1/07

A-1

2,500

^µx

5,010

New York St. Dorm. Au. Rev. Secondary Issues (Floaters), Ser. 2006-1424,
(LOC: Morgan Stanley), 3.49%, due 11/1/07

A-1+

5,010

^µ

1,980

New York St. Dorm. Au. Rev. Secondary Issues (Putters), Ser. 2005,
(FSA Insured), 3.48%, due 11/1/07

1,980

^µs

10,680

New York St. Energy Research & Dev. Au. Elec. Fac. Rev. (Long Island
Lighting Co.), Ser. 1997 A, (LOC: Royal Bank of Scotland),
3.26%, due 11/7/07

VMIG1

10,680

^µß

3,600

New York St. Energy Research & Dev. Au. Fac. Rev. (Cons. Edison Co.),
Ser. 2004 C, (LOC: Citibank, N.A.), 3.33%, due 11/7/07

VMIG1

A-1+

3,600

^µß

5,000

New York St. HFA Rev., Ser. 2004, (LOC: Fannie Mae), 3.30%, due 11/7/07

VMIG1

5,000

^µß

4,000

New York St. HFA Rev., Ser. 2001 A, (LOC: Freddie Mac), 3.30%, due 11/7/07

VMIG1

4,000

^µß

5,600

New York St. HFA Rev. (360 West 43rd), Ser. 2002 A, (LOC: Fannie Mae),
3.30%, due 11/7/07

VMIG1

5,600

^µß

8,700

New York St. HFA Rev. (Biltmore Tower Hsg.), Ser. 2002 A, (LOC: Fannie
Mae), 3.26%, due 11/7/07

VMIG1

8,700

^µß

7,000

New York St. HFA Rev. (Capitol Green Apts.), Ser. 2006 A, (LOC: Fannie
Mae), 3.35%, due 11/7/07

VMIG1

7,000

^µ

2,000

New York St. HFA Rev. (Clinton Green South Hsg.), Ser. 2006 A, (LOC:
Bank of America), 3.26%, due 11/7/07

VMIG1

2,000

^µß

6,000

New York St. HFA Rev. (Eleventh Ave Hsg.), Ser. 2007 A, (LOC: Fannie
Mae), 3.30%, due 11/7/07

VMIG1

6,000

^µß

5,000

New York St. HFA Rev. (Theater Row), Ser. 2000 A, (LOC: Freddie Mac),
3.30%, due 11/7/07

VMIG1

5,000

^µ

7,000

New York St. HFA Rev. (Third Avenue Apts. Hsg.), Ser. 2006 A, (LOC: Bank
of America), 3.37%, due 11/7/07

VMIG1

7,000

^µß

4,500

New York St. HFA Rev. (Tribeca), Ser. 1997 A, (LOC: Fannie Mae),
3.32%, due 11/7/07

VMIG1

4,500

^µ

5,700

New York St. HFA Rev. (Worth St.), Ser. 2002 A, (LOC: Fannie Mae),
3.30%, due 11/7/07

VMIG1

5,700

^µß

3,020

New York St. HFA Rev. Multi-Family Hsg., Ser. 1988 A, (AMBAC Insured),
3.31%, due 11/7/07

VMIG1

A-1+

3,020

^µii

8,295

New York St. Local Gov't Assist. Corp., Ser. 2003, (FSA Insured),
3.25%, due 11/7/07

A-1+

8,295

^µt

12,495

New York St. Mtge. Agcy. Rev., Ser. 1998, (LOC: Merrill Lynch Capital
Markets), 3.50%, due 11/1/07

VMIG1

12,495

^µ

1,000

New York St. Mtge. Agcy. Rev. (AMT Homeowner Mtge.), Ser. 2005,
(LOC: Dexia Credit Locale de France), 3.27%, due 11/7/07

VMIG1

1,000

^µ

2,020

New York St. Mtge. Agcy. Rev. (Putters), Ser. 2005, (LOC: JP Morgan
Chase), 3.55%, due 11/1/07

VMIG1

2,020

^µ

1,200

New York St. Thruway Au. Gen. Rev., Ser. 2005, (FSA Insured),
3.50%, due 11/1/07

VMIG1

1,200

^µl

5,526

New York St. Thruway Au. Gen. Rev. (Floaters), Ser. 2006, (FSA Insured),
3.49%, due 11/1/07

A-1+

5,526

^µy

6,495

New York St. Thruway Au. Gen. Rev. (Putters), Ser. 2005-1102,
(FSA Insured), 3.48%, due 11/1/07

VMIG1

6,495

^µs

2,000

New York St. Thruway Au. Hwy. & Bridge Trust Fund Rev., Ser. 2005,
(AMBAC Insured), 3.45%, due 11/1/07

2,000

^µee

1,390

New York St. Urban Dev. Corp. Correctional & Youth Fac. Svcs. Contract Rev.
(Putters), Ser. 2002, (LOC: JP Morgan Chase), 3.56%, due 11/1/07

A-1+

1,390

^µ

7,740

New York St. Urban Dev. Corp. Rev., Ser. 2003, (FGIC Insured),
3.48%, due 11/1/07

A-1+

7,740

^µcc

1,500

Oneida Co. IDA Civic Fac. Rev. (Mohawk Valley St. Luke's), Ser. 2006 E,
(LOC: Bank of America), 3.43%, due 11/1/07

VMIG1

1,500

^µß

3,180

Onondaga Co. IDA Arpt. Fac. Rev., Ser. 2000 A, (LOC: Fleet
National Bank), 3.28%, due 11/7/07

A-1+

3,180

^µß

3,825

Onondaga Co. IDA Civic Fac. Rev. (Comm. College Hsg. Dev.),
Ser. 2005 A, (LOC: Citizens Bank), 3.44%, due 11/1/07

A-1+

3,825

^µ

4,000

Onondaga Co. IDA Civic Fac. Rev. (Crouse Hlth. Hosp.), Ser. 2007 A,
(LOC: M&T Bank), 3.35%, due 11/7/07

VMIG1

4,000

^µß

6,400

Ontario Co. IDA. Civic Fac. Rev. (F. F. Thompson Hosp.), Ser. 2003 B,
(LOC: Key Bank), 3.33%, due 11/7/07

VMIG1

6,400

^µß

See Notes to Schedule of Investments 52

PRINCIPAL AMOUNT		SECURITY^@@	RATING^‡‡§		VALUE^††
(000's omitted)			Moody's	S&P	(000's omitted)
$	2,365	Orange Co. IDA Civic Fac. Rev. (St. Luke's Cornwall Hosp. Proj.), Ser. 2006, (LOC: Key Bank), 3.47%, due 11/1/07	VMIG1		$	2,365	^µß
	6,000	Port Au. New York & New Jersey (Putters), Ser. 2007-2092, (FSA Insured), 3.47%, due 11/1/07		A-1+		6,000	^µs
	4,345	Puttable Floating Option Tax Exempt Receipts (New York St. Dorm), Ser. 2007, (LOC: Merrill Lynch Capital Markets), 3.59%, due 11/1/07				4,345	^µ
	2,135	Riverhead IDA Civic Fac. Rev. (Central Suffolk Hosp. Proj.), Ser. 2006 C, (LOC: HSBC Bank N.A.), 3.43%, due 11/1/07	VMIG1			2,135	^µß
	1,000	Sales Tax Asset Receivable Corp., Ser. 2006, (AMBAC Insured), 3.50%, due 11/1/07	VMIG1			1,000	^µk
	810	Schenectady IDA IDR (Fortitech Holding Corp. Proj.), Ser. 1995 A, (LOC: Bank of America), 3.55%, due 11/1/07	VMIG1			810	^µß
	5,371	Spencerport G.O. BANS, Ser. 2007 A, 3.75%, due 9/4/08				5,372
	3,010	Suffolk Co. IDA IDR (JBC Realty LLC), Ser. 1998, (LOC: Chase Manhattan Bank), 3.28%, due 11/7/07		A-1+		3,010	^µß
	1,221	Syracuse G.O. BANS, Ser. 2007, 3.80%, due 10/25/08	MIG1			1,222
	16,600	Syracuse G.O. RANS, Ser. 2007 A, 4.50%, due 6/30/08				16,680
	1,975	Triborough Bridge & Tunnel Au. Rev. (Putters), Ser. 2002, (MBIA Insured), 3.48%, due 11/1/07		A-1+		1,975	^µs
	2,200	UBS Muni. CRVS (Floaters), Ser. 2007, (LOC: Bank of New York), 3.49%, due 11/1/07		A-1+		2,200	^µ
	1,600	Utica IDA Civic Fac. Rev. (Utica College Proj.), Ser. 2005 A, (LOC: Citizens Bank), 3.45%, due 11/1/07	VMIG1			1,600	^µß
	9,505	Warren & Washington Cos. IDA Civic Fac. Rev. (Glen at Hiland Meadows Proj.), Ser. 2000, (LOC: Sovereign Bank), 3.27%, due 11/7/07		A-1		9,505	^µßbb
	6,000	Watervliet Hsg. Au. Sr. Residential Hsg. Rev. (Beltrone Living Ctr. Proj.), Ser. 1998 A, 6.13%, due 6/1/38 Pre-Refunded 6/1/08				6,259	^ß
	15,000	Westchester Co. IDA Rev. (Floater), Ser. 2007-103G, (LOC: Goldman Sachs), 3.51%, due 11/1/07				15,000	^µ
						618,098
Puerto Rico (13.8%)
	5,695	Austin Trust Var. St., Ser. 2007-156, (MBIA Insured), 3.45%, due 11/1/07		A-1+		5,695	^µc
	20,000	Deutsche Bank Spears/Lifers Trust Var. St., Ser. 2007, (MBIA Insured), 3.45%, due 11/1/07				20,000	^µo
	1,800	DFA Muni. Trust Var. St. (Puerto Rico Pub. Bldg. Au.), Ser. 2007-02, (MBIA Insured), 3.48%, due 11/1/07				1,800	^µn
	12,000	Puerto Rico Commonwealth Aqueduct & Swr. Auth. Rev., Ser. 2007, (LOC: Citigroup Global Markets), 3.51%, due 11/1/07	VMIG1			12,000	^µ
	10,465	Puerto Rico Commonwealth G.O. (Floaters), Ser. 2004, (FGIC Insured), 3.47%, due 11/1/07				10,465	^µy
	6,480	Puerto Rico Commonwealth Hwy. & Trans. Au. Trans. Rev. (Merlots), Ser. 2007, (MBIA Insured), 3.32%, due 11/7/07		A-1+		6,480	^µd
	7,015	Puerto Rico Commonwealth Hwy. & Trans. Au. Trans. Rev. (Putters), Ser. 2002-246, (FSA Insured), 3.45%, due 11/1/07		A-1+		7,015	^ñµs
	8,340	Puerto Rico Elec. Pwr. Au. Pwr. Rev. (Muni. Sec. Trust Receipts), Ser. 2007 A, (FGIC Insured), 3.49%, due 11/1/07		A-1+		8,340	^µcc
	2,385	Puerto Rico Elec. Pwr. Au. Pwr. Rev. (Putters), Ser. 2005-815, (FSA Insured), 3.45%, due 11/1/07		A-1+		2,385	^µs
	300	Puerto Rico Pub. Fin. Corp. (Putters), Ser. 2003-363, (AMBAC Insured), 3.45%, due 11/1/07		A-1+		300	^ñµs
	7,395	Puerto Rico Sales Tax Fin. Corp. Sales Tax Rev., Ser. 2007-043, (FGIC Insured), 3.45%, due 11/1/07	VMIG1			7,395	^µi
	7,000	Puerto Rico Sales Tax Fin. Corp. Sales Tax Rev. (Floater), Ser. 2007-1984, (LOC: Morgan Stanley), 3.50%, due 11/1/07		A-1+		7,000	^µ
	10,750	UBS Muni. CRVS (Floaters), Ser. 2007, (FSA Insured), 3.46%, due 11/1/07		A-1+		10,750	^µi
						99,625
		Total Investments (99.3%)				717,723
		Cash, receivables and other assets, less liabilities (0.7%)				5,418
		Total Net Assets (100.0%)			$	723,141

See Notes to Schedule of Investments 53

Schedule of Investments Lehman Brothers Short Duration Bond Fund

PRINCIPAL AMOUNT

RATING^§

VALUE^†

(000's omitted)

Moody's

S&P

(000's omitted)

U.S. Government Agency Securities (0.7%)

750

Fannie Mae, Notes, 4.13%, due 5/15/10 (Cost $749)

AGY

745

Mortgage-Backed Securities (65.8%)

Adjustable Alt-A Jumbo Balance (2.2%)

2,287

JP Morgan Alternative Loan Trust, Ser. 2006-A2, Class 3A1, 5.94%,
due 5/25/36

AAA

2,309

^ØØ

Adjustable Alt-A Mixed Balance (12.6%)

3,573

Bear Stearns ALT-A Trust, Ser. 2006-4, Class 32A1, 6.48%, due 7/25/36

Aaa

AAA

3,636

^ØØ

1,246

Bear Stearns ALT-A Trust, Ser. 2007-2, Class 2A1, 5.61%, due 4/25/37

Aaa

AAA

1,252

2,194

First Horizon Alternative Mortgage Securities Trust, Ser. 2006-AA7,
Class A1, 6.54%, due 1/25/37

Aaa

2,237

3,935

Nomura Asset Acceptance Corp., Ser. 2006-AR2, Class 2A2, 6.57%,
due 4/25/36

Aaa

AAA

4,008

2,277

Residential Accredit Loans, Inc., Ser. 2005-QA10, Class A31, 5.60%,
due 9/25/35

Aaa

AAA

2,282

13,415

Adjustable Alt-B Mixed Balance (1.5%)

1,637

Lehman XS Trust, Ser. 2005-1, Class 2A1, 4.66%, due 5/25/08

Aaa

AAA

1,634

^µ

Adjustable Conforming Balance (4.3%)

2,344

Adjustable Rate Mortgage Trust, Ser. 2005-10, Class 4A1,
5.38%, due 1/25/36

Aaa

AAA

2,336

2,199

IndyMac INDX Mortgage Loan Trust, Ser. 2005-AR23, Class 2A1,
5.53%, due 11/25/35

Aaa

AAA

2,207

4,543

Adjustable Jumbo Balance (7.6%)

983

Banc of America Funding Corp., Ser. 2005-F, Class 4A1,
5.35%, due 9/20/35

Aaa

AAA

984

2,177

Banc of America Funding Corp., Ser. 2006-H, Class 2A3, 6.70%,
due 9/20/46

AAA

2,241

3,351

Harborview Mortgage Loan Trust, Ser. 2006-3, Class 1A1A, 6.38%,
due 6/19/36

Aaa

AAA

3,410

^ØØ

1,500

Wells Fargo Mortgage Backed Securities Trust, Ser. 2005-AR16,
Class 4A2, 4.99%, due 10/25/35

Aaa

AAA

1,493

8,128

Adjustable Mixed Balance (12.5%)

2,226

Banc of America Funding Corp., Ser. 2005-H, Class 7A1, 5.67%, due 11/20/35

AAA

2,228

1,267

Countrywide Home Loans Mortgage Pass-Through Trust, Ser. 2006-HYB3,
Class 1A1A, 5.48%, due 5/20/36

Aaa

AAA

1,284

2,345

Credit Suisse First Boston Mortgage Securities Corp., Ser. 2004-AR4,
Class 2A1, 4.68%, due 5/25/34

Aaa

AAA

2,331

^ØØ

2,492

First Horizon Mortgage Pass-Through Trust, Ser. 2005-AR5, Class 2A1,
5.44%, due 11/25/35

AAA

2,492

2,336

GMAC Mortgage Corp. Loan Trust, Ser. 2006-AR1, Class 1A1,
5.60%, due 4/19/36

Aaa

AAA

2,351

464

Harborview Mortgage Loan Trust, Ser. 2004-4, Class 3A, 6.79%, due 11/19/07

Aaa

AAA

463

^µ

2,250

WaMu Mortgage Pass-Through Certificates, Ser. 2004-AR9,
Class A7, 4.14%, due 8/25/34

Aaa

AAA

2,219

13,368

Commercial Mortgage-Backed (16.4%)

2,320

Credit Suisse First Boston Mortgage Securities Corp., Ser. 2005-C6,
Class A1, 4.94%, due 12/15/40

Aaa

AAA

2,311

^ØØ

1,565

GE Capital Commercial Mortgage Corp., Ser. 2002-2A, Class A2, 4.97%,
due 8/11/36

Aaa

AAA

1,563

1,775

GE Capital Commercial Mortgage Corp., Ser. 2005-C3, Class A2, 4.85%,
due 7/10/45

AAA

1,761

See Notes to Schedule of Investments 54

PRINCIPAL AMOUNT

RATING^§

VALUE^†

(000's omitted)

Moody's

S&P

(000's omitted)

733

GMAC Commercial Mortgage Securities, Inc., Ser. 2006-C1, Class A1,
4.98%, due 11/10/45

AAA

730

2,108

JP Morgan Chase Commercial Mortgage Securities Corp., Ser. 2004-C2,
Class A1, 4.28%, due 5/15/41

Aaa

2,086

2,908

JP Morgan Chase Commercial Mortgage Securities Corp., Ser. 2005-LDP5,
Class A1, 5.04%, due 12/15/44

Aaa

AAA

2,899

3,180

JP Morgan Chase Commercial Mortgage Securities Corp., Ser. 2006-LDP7,
Class A1, 5.83%, due 4/15/45

Aaa

AAA

3,218

2,883

LB-UBS Commercial Mortgage Trust, Ser. 2006-C3, Class A1, 5.48%,
due 3/15/39

Aaa

AAA

2,899

17,467

Mortgage-Backed Non-Agency (4.3%)

1,259

Countrywide Home Loans, Ser. 2005-R2, Class 2A4, 8.50%, due 6/25/35

Aaa

AAA

1,392

^ñ

2,483

GSMPS Mortgage Loan Trust, Ser. 2005-RP2, Class 1A4, 8.50%, due 3/25/35

Aaa

AAA

2,667

^ñ

517

GSMPS Mortgage Loan Trust, Ser. 2005-RP3, Class 1A4, 8.50%, due 9/25/35

Aaa

AAA

555

^ñ

4,614

Fannie Mae (1.4%)

1,303

Whole Loan, Ser. 2004-W8, Class PT, 10.10%, due 6/25/44

AGY

1,451

^ØØ

Freddie Mac (2.9%)

ARM Certificates, 6.50%, due 2/1/08

AGY

^µ

1,664

Pass-Through Certificates, 8.00%, due 11/1/26

AGY

1,767

1,178

Pass-Through Certificates, 8.50%, due 10/1/30

AGY

1,264

3,046

Government National Mortgage Association (0.1%)

Pass-Through Certificates, 7.00%, due 4/15/11

AGY

^ØØ

Pass-Through Certificates, 7.50%, due 10/15/09 – 8/15/10

AGY

Pass-Through Certificates, 12.00%, due 12/15/12 – 5/15/14

AGY

Total Mortgage-Backed Securities (Cost $69,846)

70,046

Corporate Debt Securities (19.2%)

Automobile Manufacturing (1.2%)

1,300

DaimlerChrysler N.A. Holdings Corp., Guaranteed Unsecured Notes,
4.05%, due 6/4/08

BBB+

1,289

^ØØ

Banks (1.1%)

1,200

Bank of America Corp., Senior Unsecured Notes, 3.88%, due 1/15/08

Aa1

1,197

^ØØ

Diversified Financial Services (11.4%)

1,800

Bear Stearns Co., Inc., Senior Unsecured Notes, 4.00%, due 1/31/08

A+

1,793

2,250

General Electric Capital Corp., Medium-Term Notes,
Ser. A, 4.25%, due 9/13/10

Aaa

AAA

2,219

^ØØ

2,200

HSBC Finance Corp., Notes, 4.13%, due 12/15/08

Aa3

AA-

2,177

^ØØ

2,200

International Lease Finance Corp., Unsubordinated Unsecured Notes,
3.50%, due 4/1/09

AA-

2,153

^ØØ

1,700

John Deere Capital Corp., Unsecured Notes, 3.90%, due 1/15/08

1,696

^ØØ

825

JP Morgan Chase & Co., Senior Notes, 3.63%, due 5/1/08

Aa2

AA-

819

1,250

MBNA Corp., Notes, 4.63%, due 9/15/08

Aa1

1,245

^ØØ

12,102

Media (4.5%)

1,250

British Sky Broadcasting, Guaranteed Senior Unsecured Notes,
8.20%, due 7/15/09

Baa2

BBB

1,309

^ØØ

1,080

Comcast Cable Communications, Guaranteed Unsecured Unsubordinated Notes,
6.20%, due 11/15/08

Baa2

BBB+

1,090

^ØØ

1,210

News America Holdings, Inc., Guaranteed Notes, 7.38%, due 10/17/08

Baa2

BBB+

1,231

^ØØ

1,100

Time Warner Entertainment LP, Debentures, 7.25%, due 9/1/08

Baa2

BBB+

1,115

^ØØ

4,745

See Notes to Schedule of Investments 55

PRINCIPAL AMOUNT

RATING^§

VALUE^†

(000's omitted)

Moody's

S&P

(000's omitted)

Retail (1.0%)

1,100

Target Corp., Notes, 3.38%, due 3/1/08

A+

1,094

^ØØ

Total Corporate Debt Securities (Cost $20,411)

20,427

Asset-Backed Securities (13.9%)

1,000

Ace Securities Corp. Home Equity Loan Trust, Ser. 2006-ASP5, Class A2B,
5.00%, due 11/25/07

Aaa

AAA

959

^µ

400

Ace Securities Corp. Home Equity Loan Trust, Ser. 2006-OP1, Class A2C,
5.02%, due 11/25/07

Aaa

AAA

381

^µ

400

Bear Stearns Asset Backed Securities Trust, Ser. 2006-HE9, Class 1A2,
5.02%, due 11/25/07

Aaa

AAA

383

^µ

938

Carrington Mortgage Loan Trust, Ser. 2006-RFC1, Class A1,
4.91%, due 11/25/07

Aaa

AAA

933

^µ

1,250

Carrington Mortgage Loan Trust, Ser. 2006-OPT1, Class A3,
5.05%, due 11/25/07

Aaa

AAA

1,196

^µ

850

Carrington Mortgage Loan Trust, Ser. 2007-FRE1, Class A3,
5.13%, due 11/25/07

Aaa

AAA

778

^µ

589

Chase Funding Mortgage Loan, Ser. 2003-6, Class 1A3,
3.34%, due 5/25/26

Aaa

AAA

582

800

Countrywide Asset-Backed Certificates, Ser. 2006-3, Class 2A2,
5.05%, due 11/25/07

Aaa

AAA

768

^µ

500

Countrywide Asset-Backed Certificates, Ser. 2006-5, Class 2A2,
5.05%, due 11/25/07

Aaa

AAA

485

^µ

1,000

Countrywide Asset-Backed Certificates, Ser. 2006-6, Class 2A2,
5.05%, due 11/25/07

Aaa

AAA

980

^µ

2,136

Fieldstone Mortgage Investment Corp., Ser. 2006-2, Class 2A1,
4.96%, due 11/25/07

Aaa

AAA

2,108

^µ

736

Impac Secured Assets Corp., Ser. 2006-3, Class A4, 4.96%, due 11/25/07

Aaa

AAA

731

^µ

406

John Deere Owner Trust, Ser. 2005-A, Class A3, 3.98%, due 6/15/09

Aaa

AAA

406

413

Knollwood CDO Ltd., Ser. 2006-2A, Class A2J, 5.66%, due 1/13/08

Aaa

AAA

124

^ñµ

917

Nomura Asset Acceptance Corp., Ser. 2005-S3, Class AIO, 20.00%,
Interest Only Security, due 8/25/35

Aaa

AAA

2,373

Nomura Asset Acceptance Corp., Ser. 2005-S4, Class AIO, 20.00%,
Interest Only Security, due 10/25/35

Aaa

AAA

147

2,703

Nomura Asset Acceptance Corp., Ser. 2006-AP1, Class AIO, 4.50%,
Interest Only Security, due 1/25/36

Aaa

AAA

2,242

Nomura Asset Acceptance Corp., Ser. 2006-S2, Class AIO, 10.00%,
Interest Only Security, due 4/25/36

Aaa

AAA

109

^ñ

1,050

Residential Asset Mortgage Products, Inc., Ser. 2006-RS1, Class AI2,
5.10%, due 11/25/07

Aaa

AAA

1,000

^µ

350

Securitized Asset Backed Receivables LLC Trust, Ser. 2006-WM4,
Class A2C, 5.03%, due 11/25/07

Aaa

AAA

332

^µ

1,100

Soundview Home Equity Loan Trust, Ser. 2006-OPT3, Class 2A3,
5.04%, due 11/25/07

Aaa

AAA

1,024

^µ

Soundview Home Equity Loan Trust, Ser. 2005-4, Class 2A2,
5.07%, due 11/25/07

Aaa

AAA

^µ

1,325

Structured Asset Investment Loan Trust, Ser. 2006-3, Class A4,
4.96%, due 11/25/07

Aaa

AAA

1,297

^µ

Total Asset-Backed Securities (Cost $15,301)

14,866

Repurchase Agreements (2.1%)

2,230

Repurchase Agreement with Fixed Income Clearing Corp.,
4.45%, due 11/1/07, dated 10/31/07, Maturity Value $2,230,276,
Collateralized by $2,301,806 Fannie Mae, 4.35%, due 5/4/10
(Collateral Value $2,350,249), (Cost $2,230)

2,230

Total Investments (101.7%) (Cost $108,537)

108,314

^##

Liabilities, less cash, receivables and other assets [(1.7%)]

(1,816

)

Total Net Assets (100.0%)

106,498

See Notes to Schedule of Investments 56

Schedule of Investments Lehman Brothers Strategic Income Fund

NUMBER OF SHARES			MARKET VALUE^†(000's omitted)
Common Stocks (21.4%)
Apartments (1.2%)
	125	Apartment Investment & Management	$	6
	500	AvalonBay Communities		61
	800	Camden Property Trust		50
	700	Equity Residential		29
	200	Essex Property Trust		25
	500	Home Properties		26
	400	UDR, Inc.		9
				206
Basic Materials (0.2%)
	2,200	Gold Fields ADR		40
Coal (0.6%)
	2,600	Fording Canadian Coal Trust		95	^~
Community Centers (0.6%)
	800	Acadia Realty Trust		21
	100	Developers Diversified Realty		5
	700	Equity One		19
	600	Federal Realty Investment Trust		53
				98
Consumer Products & Services (0.1%)
	2,500	Great Lakes Dredge & Dock		22	*
Diversified (1.0%)
	900	Forest City Enterprises Class A		51
	500	Macquarie Infrastructure		21
	950	Vornado Realty Trust		106
				178
Energy (1.1%)
	5,000	Cathedral Energy Services Income Trust		47
	1,155	Enbridge Energy Management		63	*
	600	Enerplus Resources Fund		29
	800	ENI ADR		58
				197
Entertainment (0.1%)
	1,400	World Wrestling Entertainment		21
Finance (0.9%)
	1,000	Bank of America		48
	1,000	Crystal River Capital		15
	1,800	Tortoise Energy Capital		49
	1,400	Tortoise Energy Infrastructure		49
				161

NUMBER OF SHARES			MARKET VALUE^†(000's omitted)
Financial Services (0.7%)
	2,700	Aeroplan Income Fund	$	64
	4,000	PennantPark Investment Corp.		52
				116
Food & Beverage (0.3%)
	1,000	Anheuser-Busch		51
Health Care (1.4%)
	700	Health Care Property Investors		24
	300	Health Care REIT		13
	1,200	Nationwide Health Properties		37
	1,000	Novartis AG ADR		53
	700	OMEGA Healthcare Investors		12
	2,300	Ventas, Inc.		99
				238
Industrial (0.9%)
	1,500	General Electric		62	^~
	1,300	ProLogis		93
				155
Insurance (0.6%)
	700	American International Group		44
	2,000	Arthur J. Gallagher		53
				97
Lodging (0.2%)
	800	Host Hotels & Resorts		18
	100	LaSalle Hotel Properties		4
	100	Starwood Hotels & Resorts Worldwide		6
				28
Office (2.3%)
	600	Alexandria Real Estate Equities		62
	800	BioMed Realty Trust		19
	600	Boston Properties		65
	2,550	Brookfield Asset Management Class A		104
	2,350	Brookfield Properties		59
	700	Corporate Office Properties Trust		29
	500	SL Green Realty		60
				398
Office - Industrial (0.3%)
	1,200	Digital Realty Trust		53
Oil & Gas (1.0%)
	2,000	Hugoton Royalty Trust		49
	1,700	Sasol Limited ADR		86
	400	Schlumberger Ltd.		39	^~
				174

See Notes to Schedule of Investments 57

NUMBER OF SHARES			MARKET VALUE^†(000's omitted)
Oil Services (0.4%)
	2,000	Canadian Oil Sands Trust	$	74
Pharmaceutical (0.3%)
	800	Johnson & Johnson		52
Real Estate (0.3%)
	800	AMB Property		52
Regional Malls (1.4%)
	1,700	Kimco Realty		71
	500	Macerich Co.		43
	400	Simon Property Group		42
	1,400	Taubman Centers		82
				238
Self Storage (1.0%)
	1,000	Extra Space Storage		16
	1,600	Public Storage		129
	400	Sovran Self Storage		19
				164
Software (0.4%)
	2,000	Microsoft Corp.		74
Specialty (0.3%)
	1,500	Corrections Corporation of America		42	*
Technology (0.5%)
	1,400	Dupont Fabros Technology		30	*
	1,500	Microchip Technology		50
				80
Utilities (3.3%)
	1,500	California Water Service Group		67
	2,500	Duke Energy		48
	900	FPL Group		62
	1,000	National Fuel Gas		48	^~
	750	National Grid ADR		61
	1,100	New Jersey Resources		54
	1,900	NSTAR		67
	1,500	PNM Resources		38
	5,700	United Utilities		86
	2,000	Xcel Energy		45
				576
		Total Common Stocks (Cost $3,251)		3,680
Convertible Preferred Stocks (0.9%)
	500	Chesapeake Energy, Ser. D		53
	1,000	New York Community Capital Trust V		50
	1,200	Sovereign Capital Trust IV		49
		Total Convertible Preferred Stocks (Cost $153)		152

PRINCIPAL AMOUNT (000's omitted)			MARKET VALUE^†(000's omitted)
Convertible Bonds (2.6%)
$	50	American Tower Corp., Notes, 5.00%, due 2/15/10, Moody's Rating Ba1, S&P Rating BB+	$	50
	75	Edwards Lifesciences Corp., Debentures, 3.88%, due 5/15/33		77	^
	50	Euronet Worldwide, Inc., Debentures, 3.50%, due 10/15/15, S&P Rating B+		53
	50	Invitrogen Corp., Senior Unsecured Notes, 3.25%, due 6/15/25		57	^
	50	Ivax Corp., Senior Subordinated Notes, 4.50%, due 5/15/08		52	^
	50	NII Holdings, Inc., Senior Unsecured Notes, 3.13%, due 6/15/12		48	^
	60	St. Jude Medical, Inc., Debentures, 2.80%, due 12/15/35		60	^
	50	Vishay Intertechnology, Inc., Subordinated Notes, 3.63%, due 8/1/23, Moody's Rating B3, S&P Rating B+		50
		Total Convertible Bonds (Cost $433)		447

See Notes to Schedule of Investments 58

PRINCIPAL AMOUNT

RATING^§

VALUE^†

(000's omitted)

Moody's

S&P

(000's omitted)

U.S. Treasury Securities-Backed by the Full Faith and
Credit of the U.S. Government (3.4%)

545

U.S. Treasury Notes, 4.38%, due 8/15/12

TSY

552

^ØØ

U.S. Treasury Notes, 4.13%, due 5/15/15

TSY

Total U.S. Treasury Securities-Backed by the
Full Faith and Credit of the
U.S. Government (Cost $578)

591

U.S. Government Agency Securities (0.9%)

Fannie Mae, Notes, 5.38%, due 7/15/16

AGY

Freddie Mac, Notes, 5.13%, due 7/15/12

AGY

Total U.S. Government Agency Securities (Cost $149)

149

Mortgage-Backed Securities (12.8%)

Fannie Mae (10.8%)

Pass-Through Certificates, 4.50%, due 8/1/18 & 10/1/18

AGY

1,237

Pass-Through Certificates, 5.00%, due 11/1/17 – 5/1/37

AGY

1,191

^ØØ

Pass-Through Certificates, Notes, 5.50%, due 10/1/37

AGY

421

Pass-Through Certificates, 5.50%, due 9/1/16 – 6/1/37

AGY

416

Pass-Through Certificates, 6.00%, due 3/1/18 – 9/1/33

AGY

Pass-Through Certificates, 6.50%, due 11/1/13 – 9/1/32

AGY

Pass-Through Certificates, 7.00%, due 7/1/17 & 7/1/29

AGY

Pass-Through Certificates, 7.50%, due 12/1/32

AGY

1,873

Freddie Mac (1.9%)

Pass-Through Certificates, 4.50%, due 8/1/18

AGY

Pass-Through Certificates, 5.00%, due 5/1/18 & 8/1/33

AGY

115

Pass-Through Certificates, 5.50%, due 9/1/17 – 8/1/33

AGY

115

Pass-Through Certificates, 6.00%, due 4/1/17 – 12/1/33

AGY

Pass-Through Certificates, 6.50%, due 3/1/16 – 1/1/32

AGY

Pass-Through Certificates, 7.00%, due 6/1/32

AGY

324

Government National Mortgage Association (0.1%)

Pass-Through Certificates, 6.50%, due 7/15/32

AGY

Pass-Through Certificates, 7.00%, due 8/15/32

AGY

Total Mortgage-Backed Securities (Cost $2,231)

2,211

Corporate Debt Securities (37.3%)

Aerospace (0.4%)

L-3 Communications Corp., Guaranteed Senior Unsecured
Subordinated Notes, 7.63%, due 6/15/12

Ba3

BB+

L-3 Communications Corp., Guaranteed Senior Unsecured
Subordinated Notes, 6.13%, due 7/15/13

Ba3

BB+

Airlines (0.3%)

Continental Airlines, Inc., Pass-Through Certificates, 9.80%, due 4/1/21

Ba1

BB+

See Notes to Schedule of Investments 59

PRINCIPAL AMOUNT

RATING^§

VALUE^†

(000's omitted)

Moody's

S&P

(000's omitted)

Apparel/Textiles (0.2%)

Levi Strauss & Co., Senior Unsubordinated Notes, 9.75%, due 1/15/15

B+

Auto Loans (2.2%)

125

Ford Motor Credit Co., Bonds, 7.38%, due 2/1/11

118

^ØØ

Ford Motor Credit Co., Notes, 7.80%, due 6/1/12

^ØØ

195

General Motors Acceptance Corp., Notes, 6.88%, due 9/15/11

Ba1

BB+

180

General Motors Acceptance Corp., Unsecured Notes, 7.00%, due 2/1/12

Ba1

BB+

386

Auto Parts & Equipment (0.3%)

Goodyear Tire & Rubber Co., Senior Notes, 8.63%, due 12/1/11

Ba3

Goodyear Tire & Rubber Co., Senior Notes, 9.00%, due 7/1/15

Ba3

Automotive (0.4%)

DaimlerChrysler N.A. LLC, Guaranteed Notes, 8.00%, due 6/15/10

BBB+

Banks (1.3%)

Bank of America Corp., Unsecured Subordinated Notes,
6.80%, due 3/15/28

Aa2

AA-

Bank One Corp., Unsecured Subordinated Notes, 7.88%, due 8/1/10

Aa3

A+

Deutsche Bank AG, Senior Unsecured Notes, 5.38%, due 10/12/12

Aa1

Wachovia Corp., Senior Medium-Term Notes, Ser. G, 5.70%, due 8/1/13

Aa3

AA-

220

Beverages (0.3%)

Coca-Cola Enterprises, Inc., Unsecured Debentures, 6.95%, due 11/15/26

Constellation Brands, Inc., Guaranteed Notes, 7.25%, due 9/1/16

Ba3

BB-

Building & Construction (0.0%)

K. Hovnanian Enterprises, Senior Notes, 8.63%, due 1/15/17

Ba3

BB-

^È

Chemicals (0.4%)

Chemtura Corp., Guaranteed Notes, 6.88%, due 6/1/16

Ba2

BB+

Hexion US Finance Corp., Guaranteed Notes, 9.75%, due 11/15/14

MacDermid, Inc., Senior Subordinated Notes, 9.50%, due 4/15/17

Caa1

CCC+

^ñ

Consumer/Commercial/Lease Financing (0.2%)

Residential Capital LLC, Guaranteed Notes, 6.00%, due 2/22/11

Ba1

BBB-

Diversified Financial Services (3.7%)

American Express Co., Senior Unsecured Notes, 6.15%, due 8/28/17

A+

Associates Corp. NA, Senior Notes, 6.25%, due 11/1/08

Aa1

Bear Stearns Co., Senior Unsubordinated Notes, 5.35%, due 2/1/12

A+

Citigroup, Inc., Senior Notes, 4.13%, due 2/22/10

Aa1

General Electric Capital Corp., Senior Unsecured Medium-Term Notes, Ser. A,
6.00%, due 6/15/12

Aaa

AAA

Goldman Sachs Group, Inc., Unsecured Notes, 4.13%, due 1/15/08

Aa3

AA-

^ØØ

100

HSBC Finance Corp., Senior Unsecured Notes, 4.63%, due 1/15/08

Aa3

AA-

100

125

JP Morgan Chase & Co., Senior Notes, 3.63%, due 5/1/08

Aa2

AA-

124

^ØØ

635

See Notes to Schedule of Investments 60

PRINCIPAL AMOUNT

RATING^§

VALUE^†

(000's omitted)

Moody's

S&P

(000's omitted)

Electric (0.9%)

100

Dominion Resources, Inc., Notes, 4.13%, due 2/15/08

Baa2

BBB

100

Exelon Generation Co., LLC, Senior Unsecured Notes, 6.20%, due 10/1/17

BBB+

155

Electric - Generation (1.2%)

AES Corp., Senior Notes, 8.00%, due 10/15/17

^ñ

AES Corp., Senior Notes, 7.75%, due 10/15/15

^ñ

Dynegy-Roseton Danskamme, Pass-Through Certificates, Ser. B,
7.67%, due 11/8/16

Ba3

Edison Mission Energy, Senior Unsecured Notes, 7.50%, due 6/15/13

BB-

Edison Mission Energy, Senior Notes, 7.63%, due 5/15/27

BB-

^ñ

Mirant Americas Generation, Inc., Senior Unsecured Notes,
8.30%, due 5/1/11

Caa1

B-

NRG Energy, Inc., Guaranteed Notes, 7.38%, due 2/1/16

209

Electric - Integrated (0.5%)

Energy Future Holdings, Guaranteed Notes, 10.88%, due 11/1/17

CCC+

^ñ

Electronics (0.8%)

Freescale Semiconductor, Inc., Guaranteed Notes, 9.13%, due 12/15/14

NXP BV Funding LLC, Guaranteed Notes, 9.50%, due 10/15/15

134

Energy-Exploration & Production (1.1%)

Chesapeake Energy Corp., Guaranteed Notes, 6.88%, due 1/15/16

Ba2

100

Chesapeake Energy Corp., Guaranteed Notes, 7.50%, due 9/15/13

Ba2

103

Forest Oil Corp., Guaranteed Senior Unsecured Notes, 7.75%, due 5/1/14

B+

XTO Energy, Inc., Senior Unsecured Notes, 6.75%, due 8/1/37

Baa2

BBB

192

Environmental (0.1%)

Allied Waste North America, Inc., Secured Notes, Ser. B, 5.75%,
due 2/15/11

BB+

Food & Drug Retailers (0.3%)

Rite Aid Corp., Senior Unsecured Notes, 8.63%, due 3/1/15

Caa1

CCC+

Rite Aid Corp., Guaranteed Notes, 9.50%, due 6/15/17

Caa1

CCC+

^ñ

Forestry/Paper (0.2%)

Bowater, Inc., Debentures, 9.00%, due 8/1/09

Graphic Packaging Int'l, Inc., Guaranteed Notes, 8.50%, due 8/15/11

B-

Gaming (1.2%)

Chukchansi Economic Development Authority, Senior Notes,
8.00%, due 11/15/13

BB-

^ñ

Fontainebleau Las Vegas Holdings LLC, Second Mortgage,
10.25%, due 6/15/15

Caa1

CCC+

^ñ

Majestic Star LLC, Senior Unsecured Notes, 9.75%, due 1/15/11

Caa1

CCC

Pokagon Gaming Authority, Senior Notes, 10.38%, due 6/15/14

^ñ

San Pasqual Casino, Notes, 8.00%, due 9/15/13

B+

^ñ

Shingle Springs Tribal Gaming Authority, Senior Notes, 9.38%, due 6/15/15

^ñ

Station Casinos, Inc., Senior Unsecured Notes, 7.75%, due 8/15/16

Ba2

B+

See Notes to Schedule of Investments 61

PRINCIPAL AMOUNT

RATING^§

VALUE^†

(000's omitted)

Moody's

S&P

(000's omitted)

Station Casinos, Inc., Senior Unsecured Subordinated Notes,
6.88%, due 3/1/16

Ba3

208

Gas Distribution (1.2%)

AmeriGas Partners L.P., Senior Unsecured Notes, 7.25%, due 5/20/15

El Paso Natural Gas Co., Bonds, 8.38%, due 6/15/32

Baa3

Ferrellgas Partners L.P., Senior Unsecured Notes, 8.75%, due 6/15/12

B-

Kinder Morgan, Inc., Senior Unsecured Notes, 6.50%, due 9/1/12

Ba2

BB-

Kinder Morgan, Inc., Guaranteed Notes, 5.70%, due 1/5/16

Ba2

BB-

Regency Energy Partners L.P., Guaranteed Notes, 8.38%, due 12/15/13

206

Government (0.4%)

Province of Ontario, Senior Unsubordinated Unsecured Notes,
5.50%, due 10/1/08

Aa1

Health Services (2.7%)

Bausch & Lomb, Inc., Senior Unsecured Notes, 9.88%, due 11/1/15

Caa1

B-

^ñ

Community Health Systems, Inc., Guaranteed Notes, 8.88%, due 7/15/15

B-

^ñ

HCA, Inc., Secured Notes, 9.63%, due 11/15/16

BB-

HCA, Inc., Secured Notes, 9.25%, due 11/15/16

BB-

LVB Acquisition Merger, Inc., Guaranteed Notes, 10.38%, due 10/15/17

B-

^ñ

LVB Acquisition Merger, Inc., Guaranteed Notes, 11.63%, due 10/15/17

Caa1

B-

^ñ

NMH Holdings, Inc., Senior Unsecured Floating Rate Notes,
12.82%, due 12/15/07

Caa2

CCC+

^ñµ

Service Corp. Int'l, Senior Unsecured Notes, 7.38%, due 10/1/14

BB-

Service Corp. Int'l, Senior Unsecured Notes, 6.75%, due 4/1/15

BB-

Tenet Healthcare Corp., Senior Notes, 9.88%, due 7/1/14

Caa1

CCC+

US Oncology, Inc., Guaranteed Notes, 9.00%, due 8/15/12

CCC+

Ventas Realty L.P., Guaranteed Notes, 6.75%, due 6/1/10

Ba1

BB+

Ventas Realty L.P., Senior Notes, 6.63%, due 10/15/14

Ba1

BB+

Ventas Realty L.P., Guaranteed Notes, 7.13%, due 6/1/15

Ba1

BB+

Ventas Realty L.P., Guaranteed Notes, 6.50%, due 6/1/16

Ba1

BB+

Ventas Realty L.P., Guaranteed Notes, 6.75%, due 4/1/17

Ba1

BB+

469

Hotels (0.3%)

Host Hotels & Resorts L.P., Secured Notes, 6.88%, due 11/1/14

Industrial (0.5%)

CVS Caremark Corp., Senior Unsecured Notes, 6.25%, due 6/1/27

Baa2

BBB+

Insurance (0.3%)

American Int'l Group, Inc., Medium-Term Notes, Ser. G,
5.60%, due 10/18/16

Aa2

Investments & Misc. Financial Services (0.4%)

Cardtronics, Inc., Guaranteed Notes, 9.25%, due 8/15/13

Caa1

B-

Cardtronics, Inc., Senior Subordinated Notes, Ser. B, 9.25%, due 8/15/13

Caa1

B-

^ñ

Media (1.7%)

AOL Time Warner, Inc., Guaranteed Unsecured Notes, 6.88%, due 5/1/12

Baa2

BBB+

AOL Time Warner, Inc., Guaranteed Unsecured Notes, 7.70%, due 5/1/32

Baa2

BBB+

Comcast Corp., Guaranteed Notes, 6.30%, due 11/15/17

Baa2

BBB+

See Notes to Schedule of Investments 62

PRINCIPAL AMOUNT

RATING^§

VALUE^†

(000's omitted)

Moody's

S&P

(000's omitted)

120

News America, Inc., Guaranteed Notes, 6.20%, due 12/15/34

Baa2

BBB+

117

301

Media - Broadcast (1.2%)

CMP Susquehanna Corp., Guaranteed Notes, 9.88%, due 5/15/14

Caa1

CCC

Entercom Radio/Capital, Guaranteed Senior Unsecured Notes,
7.63%, due 3/1/14

LIN Television Corp., Guaranteed Notes, 6.50%, due 5/15/13

B-

LIN Television Corp., Guaranteed Notes, Ser. B, 6.50%, due 5/15/13

B-

Univision Communications, Inc., Guaranteed Notes, 9.75%, due 3/15/15

CCC+

^ñ

Young Broadcasting, Inc., Guaranteed Senior Subordinated Notes,
10.00%, due 3/1/11

Caa1

CCC-

210

Media - Cable (1.7%)

CCH I Holdings LLC, Secured Notes, 11.00%, due 10/1/15

Caa2

CCC

Charter Communications Operating LLC, Senior Notes, 8.38%, due 4/30/14

B+

^ñ

DirecTV Holdings LLC, Guaranteed Notes, 6.38%, due 6/15/15

Ba3

BB-

DirecTV Holdings LLC, Senior Notes, 8.38%, due 3/15/13

Ba3

BB-

EchoStar DBS Corp., Guaranteed Notes, 7.13%, due 2/1/16

Ba3

BB-

EchoStar DBS Corp., Guaranteed Notes, 7.00%, due 10/1/13

Ba3

BB-

EchoStar DBS Corp., Guaranteed Notes, 6.38%, due 10/1/11

Ba3

BB-

285

Media - Diversified (0.1%)

Quebecor Media, Inc., Notes, 7.75%, due 3/15/16

^ñ

Media - Services (0.6%)

Lamar Media Corp., Guaranteed Notes, 7.25%, due 1/1/13

Ba3

WMG Acquisition Corp., Senior Subordinated Notes, 7.38%, due 4/15/14

WMG Holdings Corp., Guaranteed Notes, Step-Up,
0.00%/9.50%, due 12/15/14

Metals/Mining Excluding Steel (1.1%)

Aleris Int'l, Inc., Guaranteed Notes, 9.00%, due 12/15/14

B-

Aleris Int'l, Inc., Guaranteed Notes, 10.00%, due 12/15/16

Caa1

B-

Arch Western Finance Corp., Guaranteed Notes, 6.75%, due 7/1/13

BB-

Freeport-McMoRan Copper & Gold, Senior Unsecured Notes,
8.25%, due 4/1/15

Ba3

Freeport-McMoRan Copper & Gold, Senior Unsecured Notes,
8.38%, due 4/1/17

Ba3

Massey Energy Co., Guaranteed Notes, 6.88%, due 12/15/13

B+

195

Multi-National (0.2%)

Int'l Bank for Reconstruction & Development, Notes, 3.63%, due 5/21/13

Aaa

AAA

Non-Food & Drug Retailers (0.3%)

Claire's Stores, Inc., Guaranteed Notes, 9.63%, due 6/1/15

Caa1

CCC+

^ñ

GSC Holdings Corp., Guaranteed Notes, 8.00%, due 10/1/12

Ba3

Michaels Stores, Inc., Guaranteed Notes, 11.38%, due 11/1/16

Caa1

CCC

^È

See Notes to Schedule of Investments 63

PRINCIPAL AMOUNT

RATING^§

VALUE^†

(000's omitted)

Moody's

S&P

(000's omitted)

Oil & Gas (0.6%)

Canadian Natural Resources Ltd., Unsecured Notes, 5.70%, due 5/15/17

Baa2

BBB

ConocoPhillips Corp., Unsecured Notes, 8.75%, due 5/25/10

110

Packaging (1.2%)

115

Ball Corp., Guaranteed Unsecured Notes, 6.88%, due 12/15/12

Ba1

117

Crown Americas LLC, Guaranteed Notes, 7.75%, due 11/15/15

Graham Packaging Co., Inc., Guaranteed Notes, 9.88%, due 10/15/14

Caa1

CCC+

Owens-Brockway Glass Container, Inc., Guaranteed Notes,
8.75%, due 11/15/12

Ba2

198

Pharmaceuticals (0.4%)

Astrazeneca PLC, Senior Unsubordinated Notes, 5.90%, due 9/15/17

AA-

Printing & Publishing (1.2%)

Dex Media West LLC, Senior Unsecured Notes, Ser. B, 8.50%, due 8/15/10

Ba3

Dex Media West LLC, Guaranteed Notes, Ser. B, 9.88%, due 8/15/13

Dex Media, Inc., Senior Disc. Notes, Step-Up, 0.00%/9.00%, due 11/15/13

Idearc, Inc., Guaranteed Notes, 8.00%, due 11/15/16

B+

R.H. Donnelley Corp., Senior Unsecured Notes, 6.88%, due 1/15/13

R.H. Donnelley Corp., Senior Notes, 8.88%, due 10/15/17

^ñ

Reader's Digest Association, Inc., Senior Subordinated Notes,
9.00%, due 2/15/17

Caa1

CCC+

^ñ

204

Railroads (0.4%)

Kansas City Southern Mexico, Senior Notes, 7.38%, due 6/1/14

B+

^ñ

TFM SA de C.V., Senior Notes, 9.38%, due 5/1/12

Real Estate Dev. & Mgt. (0.4%)

American Real Estate Partners, L.P., Senior Notes, 8.13%, due 6/1/12

Ba3

BB+

Realogy Corp., Guaranteed Notes, 11.00%, due 4/15/14

Caa1

B-

^ñ

Restaurants (0.1%)

NPC Int'l, Inc., Guaranteed Notes, 9.50%, due 5/1/14

Caa1

B-

Retail (0.3%)

Target Corp., Senior Unsecured Notes, 7.50%, due 8/15/10

A+

Software/Services (0.4%)

First Data Corp., Guaranteed Notes, 9.88%, due 9/24/15

B-

^ñ

Steel Producers/Products (0.5%)

Metals U.S.A. Holdings Corp., Senior Floating Rate Notes,
11.23%, due 1/2/08

Caa1

CCC

^ñµ

Steel Dynamics, Inc., Senior Notes, 7.38%, due 11/1/12

Ba2

BB+

^ñ

Tube City IMS Corp., Guaranteed Notes, 9.75%, due 2/1/15

B-

See Notes to Schedule of Investments 64

PRINCIPAL AMOUNT

RATING^§

VALUE^†

(000's omitted)

Moody's

S&P

(000's omitted)

Support - Services (0.4%)

Aramark Corp., Guaranteed Notes, 8.50%, due 2/1/15

B-

Knowledge Learning Corp., Inc., Guaranteed Notes, 7.75%, due 2/1/15

B-

^ñ

Telecom - Integrated/Services (1.3%)

Dycom Industries, Inc., Guaranteed Notes, 8.13%, due 10/15/15

Ba3

B+

Intelsat Subsidiary Holdings Co. Ltd., Guaranteed Notes, 8.63%,
due 1/15/15

Qwest Corp., Notes, 8.88%, due 3/15/12

Ba1

BBB-

Qwest Corp., Senior Unsecured Notes, 7.50%, due 10/1/14

Ba1

BBB-

Qwest Corp., Senior Notes, 7.63%, due 6/15/15

Ba1

BBB-

Windstream Corp., Guaranteed Notes, 8.13%, due 8/1/13

Ba3

BB-

Windstream Corp., Guaranteed Notes, 8.63%, due 8/1/16

Ba3

BB-

215

Telecom - Wireless (0.1%)

Dobson Cellular Systems, Secured Notes, 8.38%, due 11/1/11

Ba2

B+

Telecommunications (0.8%)

AT&T Wireless Services, Inc., Senior Unsubordinated Notes,
8.75%, due 3/1/31

^ØØ

Motorola, Inc., Senior Unsecured Notes, 6.00%, due 11/15/17

Baa1

A-

Sprint Nextel Corp., Unsecured Notes, 6.00%, due 12/1/16

Baa3

BBB

141

Theaters & Entertainment (0.2%)

AMC Entertainment, Inc., Guaranteed Notes, Ser. B, 8.63%, due 8/15/12

Ba3

B-

Transportation (0.3%)

Norfolk Southern Corp., Senior Notes, 7.80%, due 5/15/27

Baa1

BBB+

Norfolk Southern Corp., Senior Unsecured Notes, 6.00%, due 4/30/08

Baa1

BBB+

Total Corporate Debt Securities (Cost $6,364)

6,415

Foreign Government Securities^^ (19.9%)

JPY

12,000

Bank Nederlandse Gemeenten, Notes, 1.85%, due 11/7/16

Aaa

AAA

106

EUR

129

Belgium Kingdom, Bonds, 3.00%, due 3/28/10

Aa1

AA+

182

^ØØ

EUR

Bundesobligation, 3.25%, due 4/17/09

Aaa

AAA

122

EUR

145

Bundesrepublik Deutschland, Bonds, 4.00%, due 7/4/16

Aaa

AAA

207

EUR

Bundesrepublik Deutschland, Bonds, 4.00%, due 1/4/37

Aaa

AAA

100

CAD

Canadian Government, Bonds, 4.00%, due 6/1/16

Aaa

AAA

JPY

20,000

Depfa ACS Bank, Medium-Term Notes, 1.65%, due 12/20/16

Aaa

AAA

171

JPY

14,000

Development Bank of Japan, Guaranteed Unsecured Bonds,
1.05%, due 6/20/23

Aaa

106

^ØØ

EUR

210

France Government, Bonds, 4.00%, due 10/25/13

Aaa

AAA

301

^ØØ

JPY

27,000

Inter-American Development Bank, Unsecured Bonds, 1.90%, due 7/8/09

Aaa

AAA

238

^ØØ

JPY

14,000

Japan Finance Corp. for Municipal Enterprise, Guaranteed Bonds,
1.35%, due 11/26/13

Aaa

122

^ØØ

JPY

11,000

KFW, Guaranteed Bonds, 2.60%, due 6/20/37

Aaa

AAA

DKK

243

Kingdom of Denmark, Bonds, 5.00%, due 11/15/13

Aaa

AAA

JPY

17,000

Quebec Province, Bonds, 1.60%, due 5/9/13

A+

149

^ØØ

AUD

Queensland Treasury Corp., Guaranteed Bonds, 6.00%, due 6/14/11

Aaa

AAA

JPY

23,000

Republic of Austria, Senior Unsecured Unsubordinated Bonds,
3.75%, due 2/3/09

Aaa

AAA

206

^ØØ

EUR

175

Republic of Germany, Bonds, 5.50%, due 1/4/31

Aaa

AAA

288

See Notes to Schedule of Investments 65

PRINCIPAL AMOUNT

RATING^§

VALUE^†

(000's omitted)

Moody's

S&P

(000's omitted)

JPY

19,000

Republic of Italy, Bonds, 1.80%, due 2/23/10

Aa2

A+

168

^ØØ

EUR

225

Spain Government, Bonds, 5.00%, due 7/30/12

Aaa

AAA

337

^ØØ

GBP

UK Government, Bonds, 4.00%, due 9/7/16

Aaa

AAA

^ØØ

GBP

UK Treasury, Bonds, 4.75%, due 6/7/10

Aaa

AAA

157

^ØØ

GBP

UK Treasury, Bonds, 4.25%, due 3/7/36

Aaa

AAA

113

Total Foreign Government Securities (Cost $3,266)

3,427

NUMBER OF SHARES

Short-Term Investments (0.7%)

95,812

Neuberger Berman Prime Money Fund Trust Class

28,441

Neuberger Berman Securities Lending Quality Fund, LLC

^‡

Total Short-Term Investments (Cost $124)

124

Total Investments (99.9%) (Cost $16,549)

17,196

^##

Cash, receivables and other assets, less liabilities (0.1%)

Total Net Assets (100.0%)

17,221

See Notes to Schedule of Investments 66

Schedule of Investments Neuberger Berman Cash Reserves

PRINCIPAL AMOUNT

RATING^§

VALUE^††

(000's omitted)

Moody's

S&P

(000's omitted)

U.S. Government Agency Securities (2.0%)

3,000

Federal Home Loan Bank, Bonds, 5.38%, due 4/9/08

AGY

3,000

Federal Home Loan Bank, Bonds, 4.55%, due 11/5/08

AGY

3,000

^Ø

Total U.S. Government Agency Securities

6,000

Certificates of Deposit (3.8%)

5,000

HBOS Treasury Services NY, Yankee CD, 4.80%, due 7/30/08

P-1

A-1+

5,015

4,000

Natixis NY, Yankee CD, 4.72%, due 4/29/08

P-1

A-1+

4,000

2,000

Royal Bank of Canada NY, Yankee CD, 5.38%, due 11/14/07

P-1

A-1+

2,000

690

Unicredito Italiano NY, Yankee CD, 5.30%, due 11/21/07

P-1

A-1

690

Total Certificates of Deposit

11,705

Floating Rate Certificates of Deposit (1.4%)µ

4,265

Fortis Bank NY, Floating Rate Yankee CD, 5.06%, due 11/13/07

P-1

A-1

4,264

Commercial Paper (57.6%)

Asset-Backed Securities (26.4%)

7,500

Amsterdam Funding, 5.05%, due 12/4/07

P-1

A-1

7,465

8,000

Atlantic Asset Securitization Corp., 5.05%, due 11/19/07

P-1

A-1

7,980

8,000

Chariot Funding LLC, 5.00%, due 12/14/07

P-1

A-1

7,952

7,500

CRC Funding LLC, 4.91%, due 1/10/08

P-1

A-1+

7,428

7,500

Crown Point Capital Co., 5.20%, due 11/5/07

P-1

A-1

7,496

6,125

Fairway Finance, 5.07%, due 11/21/07

P-1

A-1

6,108

2,000

Grampian Funding LLC, 5.21%, due 12/14/07

P-1

A-1+

1,987

1,000

Mont Blanc Capital Corp., 4.82%, due 11/8/07

P-1

A-1+

999

8,500

Old Line Funding LLC, 5.04% & 5.15%, due 11/5/07 & 12/14/07

P-1

A-1+

8,490

8,500

Thames Asset Securitization LLC, 4.80%, due 11/9/07

P-1

A-1

8,491

^ñ

9,000

Thunder Bay Funding, Inc., 5.05% & 5.07%, due 12/3/07 & 12/17/07

P-1

A-1

8,950

7,500

Yorktown Capital, 5.05%, due 11/5/07

P-1

A-1+

7,496

80,842

Automotive/Auto Manufacturing (0.2%)

725

American Honda Finance Corp., 5.25%, due 11/27/07

P-1

A-1

723

Banking/Domestic (8.4%)

5,500

Bank of America NA, 5.24%, due 11/16/07

P-1

A-1+

5,488

3,000

HSBC Bank USA, 5.20%, due 1/10/08

P-1

A-1+

2,970

450

ING America Insurance Holdings, 5.16%, due 1/4/08

P-1

A-1+

446

3,500

Merrill Lynch & Co., 4.57%, due 4/30/08

P-1

A-1

3,420

4,000

Morgan Stanley, 4.80% & 5.12%, due 2/1/08 & 4/28/08

P-1

A-1+

3,926

544

Scaldis Capital LLC, 5.24%, due 11/9/07

P-1

A-1+

543

^ñ

9,000

UBS Finance LLC, 4.65% & 5.10%, due 1/7/08 & 1/29/08

P-1

A-1+

8,902

25,695

Banking/Foreign (22.6%)

5,000

ABN AMRO North America Finance, Inc., 5.20%, due 11/30/07

P-1

A-1+

4,979

3,500

Bank of Ireland, 4.73% & 5.24%, due 11/8/07 & 2/4/08

P-1

A-1

3,462

8,000

Danske Corp., 4.98% - 5.25%, due 11/9/07 - 1/17/08

P-1

A-1+

7,972

3,000

Fairway Finance, 5.18%, due 11/2/07

P-1

A-1

3,000

4,500

Fortis Banque, 4.50%, due 5/1/08

P-1

A-1+

4,398

3,000

HBOS Treasury Services PLC, 5.25%, due 11/5/07

P-1

A-1+

2,998

4,000

Societe Generale NA, 5.22%, due 11/7/07

P-1

A-1+

3,996

^ØØ

4,900

Societe Generale NA, 4.50% - 5.24%, due 11/15/07 - 6/2/08

P-1

A-1+

4,802

See Notes to Schedule of Investments 67

PRINCIPAL AMOUNT

RATING^§

VALUE^††

(000's omitted)

Moody's

S&P

(000's omitted)

5,000

Solitaire Funding Corp., 5.20%, due 1/11/08

P-1

A-1+

4,949

7,800

Svenska Handlesbanken Inc., 5.24%, due 11/6/07

P-1

A-1+

7,794

9,000

Swedbank Mortgage AB, 5.00% & 5.10%, due 1/11/08 & 1/22/08

P-1

A-1

8,903

5,300

Unicredito Italiano PLC, 4.86% & 4.95%, due 1/4/08

P-1

A-1

5,254

7,000

Westpac Bank, 4.66%, due 1/30/08

P-1

A-1+

6,918

69,425

Total Commercial Paper

176,685

Corporate Debt Securities (0.0%)

Financial Services (0.0%)

150

Monument Global Funding II, Notes, 3.85%, due 3/3/08

P-1

A-1+

149

^ñ

Floating Rate Corporate Debt Securities (29.2%)µ

Asset-Backed Securities (7.1%)

5,000

Beta Finance, Inc., Guaranteed Floating Rate Medium-Term Notes,
4.56%, due 11/19/07

P-1

A-1+

5,000

^ñ

2,800

Dorada Finance, Inc., Floating Rate Medium-Term Notes, 5.01%, due 11/1/07

P-1

A-1+

2,800

^ñ

4,000

K2 (USA) LLC, Guaranteed Floating Rate Medium-Term Notes,
5.68%, due 12/10/07

P-1

A-1+

4,000

^ñ

5,000

Links Finance LLC, Floating Rate Medium-Term Notes, 5.46%, due 11/26/07

P-1

A-1+

5,000

^ñ

5,000

Tango Finance Corp., Floating Rate Medium-Term Notes, 4.87%, due 11/1/07

P-1

A-1+

5,000

^ñ

21,800

Automotive/Auto Manufacturing (0.3%)

1,000

BMW US Capital LLC, Guaranteed Floating Rate Notes, 5.11%, due 11/15/07

1,000

^ñ

Banking/Domestic (1.6%)

5,000

Wachovia Bank NA, Senior Floating Rate Bank Notes, 4.98%, due 11/1/07

P-1

A-1

5,000

Banking/Foreign (10.8%)

5,000

Bank of Ireland, Unsecured Floating Rate Medium-Term Notes,
5.01%, due 11/19/07

P-1

A-1

5,000

^ñ

2,000

DNB Norbank ASA, Floating Rate Medium-Term Notes,
Ser. E, 5.55%, due 11/26/07

P-1

A-1

2,000

5,000

La Caixa, Unsubordinated Floating Rate Notes, 5.15%, due 1/23/08

P-1

A-1

5,000

^ñ

5,000

Natexis Banque Populaires, Floating Rate Bonds, 5.11%, due 11/15/07

P-1

A-1+

5,000

^ñ

5,000

Nationwide Building, Floating Rate Medium-Term Notes, 5.18%, due 11/7/07

P-1

A-1

5,000

^ñ

5,000

Royal Bank of Canada, Floating Rate Medium-Term Notes, 5.12%,
due 11/1/07

P-1

A-1+

5,000

^ñ

3,000

Schreiber Capital Co., Floating Rate Bonds, 4.86%, due 11/1/07

P-1

3,000

Unicredito Italiano PLC, Guaranteed Floating Rate Medium-Term Notes,
5.14%, due 11/9/07

P-1

A-1

3,000

^ñ

33,000

Financial Services (9.4%)

5,000

American Express Bank FSB, Floating Rate Bank Notes, 5.05%, due 11/19/07

P-1

A-1

5,000

5,500

Bear Stearns Co., Inc., Floating Rate Medium-Term Notes,
Ser. B, 5.49% & 5.56%, due 11/5/07 & 11/8/07

P-1

A-1

5,503

8,000

CIT Group, Inc., Senior Unsecured Floating Rate Medium-Term Notes,
5.73%, due 11/23/07

P-1

A-1

8,001

5,000

Merrill Lynch & Co., Senior Unsecured Floating Rate Notes,
5.18%, due 11/19/07

P-1

A-1+

5,000

5,370

Morgan Stanley, Senior Floating Rate Medium-Term Notes,
Ser. F, 5.33%, due 1/18/08

P-1

A-1

5,370

28,874

Total Floating Rate Corporate Debt Securities

89,674

See Notes to Schedule of Investments 68

PRINCIPAL AMOUNT

RATING^§

VALUE^††

(000's omitted)

Moody's

S&P

(000's omitted)

Promissory Notes (3.3%)

10,000

Goldman Sachs Promissory Notes, 5.37%, due 11/1/07

P-1

A-1+

10,000

^µ

Repurchase Agreements (5.0%)

15,500

Bank of America Repurchase Agreement, 4.90%, due 11/1/07,
dated 10/31/07, Maturity Value $15,502,110,
Collateralized by $17,855,253, Freddie Mac, 5.50%,
due 9/1/35 and $2,685,417, Fannie Mae, 5.50%,
due 9/1/34 (Collateral Value $15,810,000)

15,500

Total Investments (102.3%)

313,977

Liabilities, less cash, receivables and other assets [(2.3%)]

(7,111

)

Total Net Assets (100.0%)

306,866

See Notes to Schedule of Investments 69

Notes to Schedule of Investments

† Investments in debt securities by Lehman Brothers Core Bond Fund ("Core Bond"), Lehman Brothers High Income Bond Fund ("High Income"), Lehman Brothers Municipal Securities Trust ("Municipal Securities Trust"), Lehman Brothers Short Duration Bond Fund ("Short Duration"), and Lehman Brothers Strategic Income Fund ("Strategic Income") are valued daily by obtaining bid price quotations from independent pricing services on all securities available in each service's data base. For all other debt securities requiring daily quotations, bid price quotations are obtained from principal market makers in those securities. Investments in equity securities are valued at the latest sale price where that price is readily available; equity securities for which no sales were reported, unless otherwise noted, are valued at the mean between the closing bid and asked prices. Securities traded primarily on the NASDAQ Stock Market are normally valued by a fund at the NASDAQ Official Closing Price ("NOCP") provided by NASDAQ each business day. The NOCP is the most recently reported price as of 4:00:02 p.m., Eastern time, unless that price is outside the range of the "inside" bid and asked prices (i.e., the bid and asked prices that dealers quote to each other when trading for their own accounts); in that case, NASDAQ will adjust the price to equal the inside bid or asked price, whichever is closer. Because of delays in reporting trades, the NOCP may not be based on the price of the last trade to occur before the market closes. Each Fund values all other securities, including securities for which the necessary last sale, asked and/or bid prices are not readily available, by methods the Board of Trustees of Lehman Brothers Income Funds (the "Board") has approved on the belief that they reflect fair value. Numerous factors may be considered when determining the fair value of a security, including available analyst, media or other reports, trading in futures or ADRs and whether the issuer of the security being fair valued has other securities outstanding. Foreign security prices are furnished by independent quotation services and expressed in local currency values. Foreign security prices are currently translated from the local currency into U.S. dollars using the exchange rate as of 4:00 p.m., Eastern time. The Board has approved the use of FT Interactive Data Corporation ("FT Interactive") to assist in determining the fair value of foreign equity securities when changes in the value of a certain index suggest that the closing prices on the foreign exchanges may no longer represent the amount that a fund could expect to receive for those securities. In this event, FT Interactive will provide adjusted prices for certain foreign equity securities using a statistical analysis of historical correlations of multiple factors. In the absence of precise information about the market values of these foreign securities as of the close of the New York Stock Exchange, the Board has determined on the basis of available data that prices adjusted in this way are likely to be closer to the prices a fund could realize on a current sale than are the prices of those securities established at the close of the foreign markets in which the securities primarily trade. However, fair value prices are necessarily estimates, and there is no assurance that such a price will be at or close to the price at which the security is next quoted or next trades. 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.

†† Investment securities of Lehman Brothers Municipal Money Fund ("Municipal Money"), Lehman Brothers New York Municipal Money Fund ("New York Municipal Money"), and Neuberger Berman Cash Reserves ("Cash Reserves") are valued at amortized cost, which approximates U.S. federal income tax cost.

Notes to Schedule of Investments (cont'd)

# At cost, which approximates market value.

## At October 31, 2007, selected fund information on a U.S. federal income tax basis was as follows:

(000's omitted)	Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation		Net Unrealized Appreciation (Depreciation)
Core Bond	$	113,174	$	546	$	1,552	$	(1,006	)
High Income		367,588		3,750		7,414		(3,664	)
Municipal Securities Trust		27,145		375		143		232
Short Duration		108,753		373		812		(439	)
Strategic Income		16,671		849		324		525

@@ Municipal securities held by Municipal Money and New York Municipal Money are within the two highest rating categories assigned by a nationally recognized statistical rating organization ("NRSRO") such as Moody's Investors Service, Inc. or Standard & Poor's or, where not rated, are determined by the fund's investment manager to be of comparable quality. Municipal securities held by Municipal Securities Trust are within the four highest rating categories assigned by a NRSRO or, where not rated, are determined by the fund's investment manager to be of comparable quality. Approximately 84%, 68% and 92% of the municipal securities held by Municipal Money, Municipal Securities Trust, and New York Municipal Money, respectively, have credit enhancement features backing them, which the funds may rely on, such as letters of credit, insurance, or guarantees. Without these credit enhancement features the securities may or may not meet the quality standards of the fund. Pre-refunded bonds are supported by securities in escrow issued or guaranteed by the U.S. Government, its agencies, or instrumentalities. The amount escrowed is sufficient to pay the periodic interest due and the principal of these bonds. Putable bonds give the funds the right to sell back the issue on the date specified.

‡‡ Where no rating appears from any NRSRO, the security is deemed unrated for purposes of Rule 2a-7 under the Investment Company Act of 1940, as amended. Each of these securities is an eligible security based on a comparable quality analysis performed by the fund's investment manager.

‡ Managed by an affiliate of Neuberger Berman Management Inc. ("Management") and could be deemed an affiliate of the fund (see Notes A & F of Notes to Financial Statements).

@ Neuberger Berman Prime Money Fund ("Prime Money") is also managed by Management and may be considered an affiliate since it has the same officers, Board members, and investment manager as the fund and because, at times, the fund may own 5% or more of the outstanding voting securities of Prime Money (see Notes A & F of Notes to Financial Statements).

* Security did not produce income during the last twelve months.

~ These securities were held in escrow at October 31, 2007, to cover the below listed outstanding call options written for Strategic Income:

Number of Shares		Securities and Options	Market Value of Options
	400	Schlumberger Ltd. November 07 @ 85	$	4,000
	1,500	General Electric January 08 @ 45		1,000
	1,000	National Fuel Gas January 08 @ 50		1,000
	2,600	Fording Canadian Coal Trust January 08 @ 45		1,000

Notes to Schedule of Investments (cont'd)

^^ Principal amount is stated in the currency in which the security is denominated.

AUD = Australian Dollar

CAD = Canadian Dollar

DKK = Danish Krone

EUR = Euro

GBP = British Pound

JPY = Japanese Yen

ñ Restricted security subject to restrictions on resale under federal securities laws. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers under Rule 144A under the Securities Act of 1933, as amended, and have been deemed by the investment manager to be liquid. At October 31, 2007, these securities amounted to approximately $3,085,000 or 3.7% of net assets for Core Bond, approximately $81,658,000 or 22.1% of net assets for High Income, approximately $30,930,000 or 3.5% of net assets for Municipal Money, approximately $50,325,000 or 7.0% of net assets for New York Municipal Money, approximately $4,847,000 or 4.6% of net assets for Short Duration, approximately $948,000 or 5.5% of net assets for Strategic Income, and approximately $59,983,000 or 19.5% of net assets for Cash Reserves.

È All or a portion of this security is on loan (see Note A of Notes to Financial Statements).

ß Security is guaranteed by the corporate or non-profit obligor.

Ø All or a portion of this security was purchased on a when-issued basis. At October 31, 2007, these securities amounted to $29,516,000 for Core Bond and $3,000,000 for Cash Reserves, respectively.

ØØ All or a portion of this security is segregated as collateral for when-issued purchase commitments, forward foreign currency contracts and/or financial futures contracts.

µ Floating rate securities are securities whose yields vary with a designated market index or market rate. These securities are shown at their current rates as of October 31, 2007.

** Denotes a step-up bond: a zero coupon bond that converts to a fixed rate of interest at a designated future date.

^ Not rated by a nationally recognized statistical rating organization.

§ Credit ratings are unaudited.

§§ Rated A- by Fitch Investors Services, Inc.

a Security is subject to a guarantee provided by ABN AMRO Bank NV, backing 100% of the total principal.

c Security is subject to a guarantee provided by Bank of America, backing 100% of the total principal.

d Security is subject to a guarantee provided by Bank of New York, backing 100% of the total principal.

e Security is subject to a guarantee provided by Bank of the West, backing 100% of the total principal.

g Security is subject to a guarantee provided by Branch Banking & Trust Co., backing 100% of the total principal.

h Security is subject to a guarantee provided by Bear Stearns, backing 100% of the total principal.

i Security is subject to a guarantee provided by BNP Paribas, backing 100% of the total principal.

j Security is subject to a guarantee provided by Calyon Bank, backing 100% of the total principal.

Notes to Schedule of Investments (cont'd)

k Security is subject to a guarantee provided by Citibank, N.A., backing 100% of the total principal.

l Security is subject to a guarantee provided by Citigroup Global Markets, backing 100% of the total principal.

m Security is subject to a guarantee provided by Comerica Bank, backing 100% of the total principal.

n Security is subject to a guarantee provided by Depfa Bank PLC, backing 100% of the total principal.

o Security is subject to a guarantee provided by Deutsche Bank, backing 100% of the total principal.

p Security is subject to a guarantee provided by Dexia Credit Locale de France, backing 100% of the total principal.

s Security is subject to a guarantee provided by JP Morgan Chase, backing 100% of the total principal.

t Security is subject to a guarantee provided by KBC Bank, backing 100% of the total principal.

u Security is subject to a guarantee provided by Key Bank, backing 100% of the total principal.

x Security is subject to a guarantee provided by Merrill Lynch Capital Markets, backing 100% of the total principal.

y Security is subject to a guarantee provided by Morgan Stanley, backing 100% of the total principal.

bb Security is subject to a guarantee provided by PNC Bank, backing 100% of the total principal.

cc Security is subject to a guarantee provided by Societe Generale, backing 100% of the total principal.

ee Security is subject to a guarantee provided by Svenska Handelsbank, backing 100% of the total principal.

hh Security is subject to a guarantee provided by U.S. Bank, backing 100% of the total principal.

ii Security is subject to a guarantee provided by Wachovia Bank & Trust Co., backing 100% of the total principal.

kk Security is subject to a guarantee provided by Federal Home Loan Bank, backing 100% of the total principal.

mm Security is subject to a guarantee provided by Westdeutsche Landesbank Girozentrale, backing 100% of the total principal.

nn Security is subject to a guarantee provided by Royal Bank of Canada, backing 100% of the total principal.

Statements of Assets and Liabilities

Lehman Brothers Income Funds
(000's omitted except per share amounts)

	Core Bond Fund			High Income Bond Fund			Municipal Money Fund		Municipal Securities Trust
	October 31, 2007			October 31, 2007			October 31, 2007		October 31, 2007
Assets
Investments in securities, at value*† (Notes A & F)—see Schedule of Investments:
Unaffiliated issuers	$	109,116		$	361,933		$	864,492	$	27,377
Affiliated issuers		3,052			1,991			—		—
Repurchase agreements		—			—			—		—
		112,168			363,924			864,492		27,377
Cash		—			820			820		141
Foreign currency		—			—			—		—
Dividends and interest receivable		609			8,038			6,559		408
Receivable for securities sold		8,552			7,025			651		—
Receivable for Fund shares sold		43			62			16		4
Receivable from administrator—net (Note B)		—			—			—		—
Receivable for securities lending income (Note A)		—			167			—		—
Prepaid expenses and other assets		—			5			19		—
Total Assets		121,372			380,041			872,557		27,930
Liabilities
Distributions payable		22			215			481		16
Options contracts written, at market value (Note A)		—			—			—		—
Net payable for forward foreign currency exchange contracts (Note C)		—			—			—		—
Due to custodian		—			—			—		—
Payable for collateral on securities loaned (Note A)		—			1,774			—		—
Payable for securities purchased		38,156			7,148			—		—
Payable for Fund shares redeemed		21			1,090			—		18
Payable to investment manager—net (Notes A & B)		—			152			181		6
Payable to administrator—net (Note B)		51			86			254		1
Payable for securities lending fees (Note A)		—			141			—		—
Payable for variation margin (Note A)		—			—			—		—
Accrued expenses and other payables		99			189			133		61
Total Liabilities		38,349			10,795			1,049		102
Net Assets at value	$	83,023		$	369,246		$	871,508	$	27,828
Net Assets consist of:
Paid-in capital	$	84,870		$	392,245		$	871,488	$	27,572
Undistributed net investment income (loss)		—			25			1		—
Distributions in excess of net investment income		(22	)		—			—		—
Accumulated net realized gains (losses) on investments		(853	)		(19,992	)		19		24
Net unrealized appreciation (depreciation) in value of investments		(972	)		(3,032	)		—		232
Net Assets at value	$	83,023		$	369,246		$	871,508	$	27,828
Net Assets
Investor Class	$	35,869		$	369,246		$	871,508	$	27,828
Institutional Class		47,154			—			—		—
Trust Class		—			—			—		—
Shares Outstanding ($.001 par value; unlimited shares authorized)
Investor Class		3,675			41,039			871,562		2,484
Institutional Class		4,826			—			—		—
Trust Class		—			—			—		—
Net Asset Value, offering and redemption price per share
Investor Class	$	9.76		$	9.00		$	1.00	$	11.20
Institutional Class		9.77			—			—		—
Trust Class		—			—			—		—
†Securities on loan, at market value:
Unaffiliated issuers	$	—		$	1,720		$	—	$	—
*Cost of Investments:
Unaffiliated issuers	$	110,088		$	364,965		$	864,492	$	27,145
Affiliated issuers		3,052			1,991			—		—
Total cost of investments	$	113,140		$	366,956		$	864,492	$	27,145
Total cost of foreign currency	$	—		$	—		$	—	$	—

See Notes to Financial Statements 74

	New York Municipal Money Fund		Short Duration Bond Fund			Strategic Income Fund		Cash Reserves
	October 31, 2007		October 31, 2007			October 31, 2007		October 31, 2007
Assets
Investments in securities, at value*† (Notes A & F)—see Schedule of Investments:
Unaffiliated issuers	$	717,723	$	106,084		$	17,072	$	298,477
Affiliated issuers		—		—			124		—
Repurchase agreements		—		2,230			—		15,500
		717,723		108,314			17,196		313,977
Cash		—		946			12		272
Foreign currency		—		—			17		—
Dividends and interest receivable		5,320		604			207		1,066
Receivable for securities sold		771		—			117		—
Receivable for Fund shares sold		—		36			—		391
Receivable from administrator—net (Note B)		—		—			37		—
Receivable for securities lending income (Note A)		—		—			1		—
Prepaid expenses and other assets		1		3			—		9
Total Assets		723,815		109,903			17,587		315,715
Liabilities
Distributions payable		355		34			—		475
Options contracts written, at market value (Note A)		—		—			7		—
Net payable for forward foreign currency exchange contracts (Note C)		—		—			72		—
Due to custodian		24		3			—		—
Payable for collateral on securities loaned (Note A)		—		—			28		—
Payable for securities purchased		—		3,037			153		8,000
Payable for Fund shares redeemed		—		145			—		132
Payable to investment manager—net (Notes A & B)		155		23			9		21
Payable to administrator—net (Note B)		125		4			—		72
Payable for securities lending fees (Note A)		—		—			1		—
Payable for variation margin (Note A)		—		50			—		—
Accrued expenses and other payables		15		109			96		149
Total Liabilities		674		3,405			366		8,849
Net Assets at value	$	723,141	$	106,498		$	17,221	$	306,866
Net Assets consist of:
Paid-in capital	$	723,130	$	122,788		$	15,929	$	306,917
Undistributed net investment income (loss)		—		480			55		4
Distributions in excess of net investment income		—		—			—		—
Accumulated net realized gains (losses) on investments		11		(16,639	)		661		(55	)
Net unrealized appreciation (depreciation) in value of investments		—		(131	)		576		—
Net Assets at value	$	723,141	$	106,498		$	17,221	$	306,866
Net Assets
Investor Class	$	723,141	$	93,389		$	—	$	306,866
Institutional Class		—		—			17,005		—
Trust Class		—		13,109			216		—
Shares Outstanding ($.001 par value; unlimited shares authorized)
Investor Class		723,130		10,230			—		306,917
Institutional Class		—		—			1,638		—
Trust Class		—		1,507			21		—
Net Asset Value, offering and redemption price per share
Investor Class	$	1.00	$	9.13		$	—	$	1.00
Institutional Class		—		—			10.38		—
Trust Class		—		8.70			10.38		—
†Securities on loan, at market value:
Unaffiliated issuers	$	—	$	—		$	28	$	—
*Cost of Investments:
Unaffiliated issuers	$	717,723	$	108,537		$	16,425	$	313,977
Affiliated issuers		—		—			124		—
Total cost of investments	$	717,723	$	108,537		$	16,549	$	313,977
Total cost of foreign currency	$	—	$	—		$	16	$	—

Statements of Operations

Lehman Brothers Income Funds
(000's omitted)

	CORE BOND FUND			HIGH INCOME BOND FUND			MUNICIPAL MONEY FUND			MUNICIPAL SECURITIES TRUST
	For the Year Ended October 31, 2007			For the Year Ended October 31, 2007			For the Year Ended October 31, 2007			For the Year Ended October 31, 2007
Investment Income:
Income (Note A):
Interest income—unaffiliated issuers	$	4,151		$	38,366		$	31,486		$	1,271
Dividend income—unaffiliated issuers		—			4			—			—
Income from securities loaned—net (Note F)		—			261			—			—
Income from investments in affiliated issuers (Note F)		136			643			—			—
Foreign taxes withheld		(1	)		(6	)		—			—
Total income	$	4,286		$	39,268		$	31,486		$	1,271
Expenses:
Investment management fees (Note B)		200			2,263			2,031			75
Administration fees (Note B)		48			283			508			18
Administration fees (Note B):
Investor Class		75			990			1,779			62
Institutional Class		40			—			—			—
Trust Class		—			—			—			—
Distribution fees (Note B):
Investor Class		88			—			—			—
Trust Class		—			—			—			—
Shareholder servicing agent fees:
Investor Class		42			273			119			23
Institutional Class		11			—			—			—
Trust Class		—			—			—			—
Audit fees		21			44			37			43
Custodian fees (Note B)		84			195			187			25
Insurance expense		3			20			24			1
Legal fees		60			43			39			39
Registration and filing fees		59			57			220			26
Shareholder reports		70			128			82			12
Trustees' fees and expenses		24			25			25			24
Miscellaneous		5			29			35			3
Total expenses		830			4,350			5,086			351
Expenses reimbursed by administrator (Note B)		(125	)		—			(51	)		(154	)
Management and administration fees waived (Notes A & B)		(200	)		(10	)		—			—
Expenses reduced by custodian fee expense offset and commission recapture arrangements (Note B)		(3	)		(17	)		(69	)		(3	)
Total net expenses		502			4,323			4,966			194
Net investment income (loss)	$	3,784		$	34,945		$	26,520		$	1,077
Realized and Unrealized Gain (Loss) on Investments (Note A)
Net realized gain (loss) on :
Sales of investment securities of unaffiliated issuers		268			6,088			19			24
Financial futures contracts		—			—			—			—
Option contracts written		—			—			—			—
Foreign currency		—			—			—			—
Net increase from payments by affiliates (Note B)		—			—			—			—
Change in net unrealized appreciation (depreciation) in value of:
Unaffiliated investment securities		(1,047	)		(7,504	)		—			(358	)
Financial futures contracts		—			—			—			—
Option contracts		—			—			—			—
Foreign currency		—			—			—			—
Net gain (loss) on investments		(779	)		(1,416	)		19			(334	)
Net increase (decrease) in net assets resulting from operations	$	3,005		$	33,529		$	26,539		$	743

See Notes to Financial Statements 76

	NEW YORK MUNICIPAL MONEY FUND			SHORT DURATION BOND FUND			STRATEGIC INCOME FUND			CASH RESERVES
	For the Year Ended October 31, 2007			For the Year Ended October 31, 2007			For the Year Ended October 31, 2007			For the Year Ended October 31, 2007
Investment Income:
Income (Note A):
Interest income—unaffiliated issuers	$	14,396		$	6,019		$	805		$	21,871
Dividend income—unaffiliated issuers		—			—			132			—
Income from securities loaned—net (Note F)		—			—			4			—
Income from investments in affiliated issuers (Note F)		—			—			9			—
Foreign taxes withheld		—			—			(5	)		—
Total income	$	14,396		$	6,019		$	945		$	21,871
Expenses:
Investment management fees (Note B)		970			287			114			407
Administration fees (Note B)		234			69			11			244
Administration fees (Note B):
Investor Class		817			211			—			855
Institutional Class		—			—			17			—
Trust Class		—			64			—			—
Distribution fees (Note B):
Investor Class		—			—			—			—
Trust Class		—			—			—			—
Shareholder servicing agent fees:
Investor Class		31			101			—			167
Institutional Class		—			—			22			—
Trust Class		—			21			1			—
Audit fees		16			46			49			37
Custodian fees (Note B)		76			97			118			99
Insurance expense		6			4			1			16
Legal fees		38			57			70			48
Registration and filing fees		6			54			64			74
Shareholder reports		15			34			30			52
Trustees' fees and expenses		24			24			24			24
Miscellaneous		9			11			3			21
Total expenses		2,242			1,080			524			2,044
Expenses reimbursed by administrator (Note B)		(382	)		(259	)		(360	)		—
Management and administration fees waived (Notes A & B)		—			—			—			(81	)
Expenses reduced by custodian fee expense offset and commission recapture arrangements (Note B)		(53	)		(3	)		(1	)		(5	)
Total net expenses		1,807			818			163			1,958
Net investment income (loss)	$	12,589		$	5,201		$	782		$	19,913
Realized and Unrealized Gain (Loss) on Investments (Note A)
Net realized gain (loss) on :
Sales of investment securities of unaffiliated issuers		11			302			969			(11	)
Financial futures contracts		—			108			—			—
Option contracts written		—			—			11			—
Foreign currency		—			(78	)		(142	)		—
Net increase from payments by affiliates (Note B)		—			6			—			—
Change in net unrealized appreciation (depreciation) in value of:
Unaffiliated investment securities		—			179			(513	)		—
Financial futures contracts		—			60			—			—
Option contracts		—			—			17			—
Foreign currency		—			28			(62	)		—
Net gain (loss) on investments		11			605			280			(11	)
Net increase (decrease) in net assets resulting from operations	$	12,600		$	5,806		$	1,062		$	19,902

Statements of Changes in Net Assets

Lehman Brothers Income Funds
(000's omitted)

	CORE BOND FUND						HIGH INCOME BOND FUND						MUNICIPAL MONEY FUND
	Year Ended October 31, 2007			Year Ended October 31, 2006			Year Ended October 31, 2007			Year Ended October 31, 2006			Year Ended October 31, 2007			Year Ended October 31, 2006
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss)	$	3,784		$	3,376		$	34,945		$	42,320		$	26,520		$	22,836
Net realized gain (loss) on investments		268			(643	)		6,088			(16,526	)		19			16
Net increase from payments by affiliates		—			—			—			—			—			—
Change in net unrealized appreciation (depreciation) of investments		(1,047	)		1,335			(7,504	)		15,068			—			—
Net increase (decrease) in net assets resulting from operations		3,005			4,068			33,529			40,862			26,539			22,852
Distributions to Shareholders From:
Net investment income:
Investor Class		(1,605	)		(1,386	)		(34,830	)		(42,445	)		(26,520	)		(22,836	)
Institutional Class		(2,197	)		(2,100	)		—			—			—			—
Trust Class		—			—			—			—			—			—
Net realized gain on investments:
Investor Class		—			(994	)		—			—			(14	)		—
Institutional Class		—			(1,396	)		—			—			—			—
Total distributions to shareholders		(3,802	)		(5,876	)		(34,830	)		(42,445	)		(26,534	)		(22,836	)
From Fund Share Transactions (Note D):
Proceeds from shares sold:
Investor Class		10,961			12,621			121,484			182,483			7,010,190			5,104,293
Institutional Class		30,887			4,949			—			—			—			—
Trust Class		—			—			—			—			—			—
Proceeds from reinvestment of dividends and distributions:
Investor Class		2,190			2,061			31,864			38,915			19,030			10,110
Institutional Class		1,360			3,491			—			—			—			—
Trust Class		—			—			—			—			—			—
Payments for shares redeemed:
Investor Class		(10,096	)		(11,837	)		(371,084	)		(411,231	)		(6,930,867	)		(4,928,381	)
Institutional Class		(29,846	)		(10,298	)		—			—			—			—
Trust Class		—			—			—			—			—			—
Net increase (decrease) from Fund share transactions		5,456			987			(217,736	)		(189,833	)		98,353			186,022
Net Increase (Decrease) in Net Assets		4,659			(821	)		(219,037	)		(191,416	)		98,358			186,038
Net Assets:
Beginning of period		78,364			79,185			588,283			779,699			773,150			587,112
End of period	$	83,023		$	78,364		$	369,246		$	588,283		$	871,508		$	773,150
Undistributed net investment income (loss) at end of period	$	—		$	—		$	25		$	—		$	1		$	1
Distributions in excess of net investment income at end of period	$	(22	)	$	(17	)	$	—		$	(100	)	$	—		$	—

See Notes to Financial Statements 78

	MUNICIPAL SECURITIES TRUST						NEW YORK MUNICIPAL MONEY FUND
	Year Ended October 31, 2007			Year Ended October 31, 2006			Year Ended October 31, 2007			Period From December 19, 2006 (Commencement of Operations ) to October 31, 2006
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss)	$	1,077		$	1,168		$	12,589		$	3,923
Net realized gain (loss) on investments		24			126			11			4
Net increase from payments by affiliates		—			—			—			—
Change in net unrealized appreciation (depreciation) of investments		(358	)		86			—			—
Net increase (decrease) in net assets resulting from operations		743			1,380			12,600			3,927
Distributions to Shareholders From:
Net investment income:
Investor Class		(1,077	)		(1,168	)		(12,589	)		(3,923	)
Institutional Class		—			—			—			—
Trust Class		—			—			—			—
Net realized gain on investments:
Investor Class		(126	)		(158	)		(4	)		—
Institutional Class		—			—			—			—
Total distributions to shareholders		(1,203	)		(1,326	)		(12,593	)		(3,923	)
From Fund Share Transactions (Note D):
Proceeds from shares sold:
Investor Class		4,183			4,122			2,697,772			851,383
Institutional Class		—			—			—			—
Trust Class		—			—			—			—
Proceeds from reinvestment of dividends and distributions:
Investor Class		974			1,101			8,590			1,866
Institutional Class		—			—			—			—
Trust Class		—			—			—			—
Payments for shares redeemed:
Investor Class		(8,962	)		(6,870	)		(2,156,418	)		(680,063	)
Institutional Class		—			—			—			—
Trust Class		—			—			—			—
Net increase (decrease) from Fund share transactions		(3,805	)		(1,647	)		549,944			173,186
Net Increase (Decrease) in Net Assets		(4,265	)		(1,593	)		549,951			173,190
Net Assets:
Beginning of period		32,093			33,686			173,190			—
End of period	$	27,828		$	32,093		$	723,141		$	173,190
Undistributed net investment income (loss) at end of period	$	—		$	—		$	—		$	—
Distributions in excess of net investment income at end of period	$	—		$	—		$	—		$	—

Statements of Changes in Net Assets (cont'd)

Lehman Brothers Income Funds
(000's omitted)

	SHORT DURATION BOND FUND						STRATEGIC INCOME FUND
	Year Ended October 31, 2007			Year Ended October 31, 2006			Year Ended October 31, 2007			Year Ended October 31, 2006
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss)	$	5,201		$	6,264		$	782		$	855
Net realized gain (loss) on investments		332			(1,023	)		838			870
Net increase from payments by affiliates		6			—			—			—
Change in net unrealized appreciation (depreciation) of investments		267			1,641			(558	)		525
Net increase (decrease) in net assets resulting from operations		5,806			6,882			1,062			2,250
Distributions to Shareholders From:
Net investment income:
Investor Class		(4,916	)		(6,508	)		—			—
Institutional Class		—			—			(810	)		(1,024	)
Trust Class		(694	)		(775	)		(4	)		—
Net realized gain on investments:
Institutional Class		—			—			(727	)		(2,009	)
Total distributions to shareholders		(5,610	)		(7,283	)		(1,541	)		(3,033	)
From Fund Share Transactions (Note D):
Proceeds from shares sold:
Investor Class		7,481			18,507			—			—
Institutional Class		—			—			823			1,994
Trust Class		3,314			4,183			272			—
Proceeds from reinvestment of dividends and distributions:
Investor Class		4,504			6,086			—			—
Institutional Class		—			—			913			1,980
Trust Class		673			744			4			—
Payments for shares redeemed:
Investor Class		(26,840	)		(67,970	)		—			—
Institutional Class		—			—			(4,654	)		(8,985	)
Trust Class		(7,510	)		(8,420	)		(60	)		—
Net increase (decrease) from Fund share transactions		(18,378	)		(46,870	)		(2,702	)		(5,011	)
Net Increase (Decrease) in Net Assets		(18,182	)		(47,271	)		(3,181	)		(5,794	)
Net Assets:
Beginning of period		124,680			171,951			20,402			26,196
End of period	$	106,498		$	124,680		$	17,221		$	20,402
Undistributed net investment income (loss) at end of period	$	480		$	168		$	55		$	51
Distributions in excess of net investment income at end of period	$	—		$	—		$	—		$	—

See Notes to Financial Statements 80

	CASH RESERVES
	Year Ended October 31, 2007			Year Ended October 31, 2006
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss)	$	19,913		$	24,485
Net realized gain (loss) on investments		(11	)		(33	)
Net increase from payments by affiliates		—			—
Change in net unrealized appreciation (depreciation) of investments		—			—
Net increase (decrease) in net assets resulting from operations		19,902			24,452
Distributions to Shareholders From:
Net investment income:
Investor Class		(19,913	)		(24,485	)
Institutional Class		—			—
Trust Class		—			—
Net realized gain on investments:
Institutional Class		—			—
Total distributions to shareholders		(19,913	)		(24,485	)
From Fund Share Transactions (Note D):
Proceeds from shares sold:
Investor Class		764,810			(796,495	)
Institutional Class		—			—
Trust Class		—			—
Proceeds from reinvestment of dividends and distributions:
Investor Class		11,724			14,143
Institutional Class		—			—
Trust Class		—			—
Payments for shares redeemed:
Investor Class		(1,075,515	)		(684,710	)
Institutional Class		—			—
Trust Class		—			—
Net increase (decrease) from Fund share transactions		(298,981	)		125,928
Net Increase (Decrease) in Net Assets		(298,992	)		125,895
Net Assets:
Beginning of period		605,858			479,963
End of period	$	306,866		$	605,858
Undistributed net investment income (loss) at end of period	$	4		$	4
Distributions in excess of net investment income at end of period	$	—		$	—

Notes to Financial Statements Income Funds

Note A—Summary of Significant Accounting Policies:

1 General: Lehman Brothers Core Bond Fund ("Core Bond"), Lehman Brothers High Income Bond Fund ("High Income") (formerly, Neuberger Berman High Income Bond Fund), Lehman Brothers Municipal Money Fund ("Municipal Money"), Lehman Brothers Municipal Securities Trust ("Municipal Securities Trust") (formerly, Neuberger Berman Municipal Securities Trust), Lehman Brothers New York Municipal Money Fund ("New York Municipal Money"), Lehman Brothers Short Duration Bond Fund ("Short Duration") (formerly, Neuberger Berman Limited Maturity Bond Fund), Lehman Brothers Strategic Income Fund ("Strategic Income") (formerly, Neuberger Berman Strategic Income Fund), and Neuberger Berman Cash Reserves ("Cash Reserves"), (individually a "Fund", collectively, the "Funds") are separate operating series of Lehman Brothers Income Funds (formerly, Neuberger Berman Income Funds), (the "Trust"), a Delaware statutory 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 (the "1940 Act"), and its shares are registered under the Securities Act of 1933, as amended (the "1933 Act"). Seven funds offer Investor Class shares, two offer Institutional Class shares, and two offer Trust Class shares. The Board of Trustees of the Trust (the "Board") 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.

It is the policy of Municipal Money, New York Municipal 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 each of these Funds will be able to maintain a stable net asset value per share. Each of these Funds complies with Rule 2a-7 of the 1940 Act.

The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires Neuberger Berman Management Inc. ("Management") to make estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates.

2 Portfolio valuation: Investment securities are valued as indicated in the notes following each Fund's Schedule of Investments.

3 Foreign currency translation: High Income, Short Duration and Strategic Income may invest in foreign securities denominated in foreign currencies. The accounting records of the Funds are maintained in U.S. dollars. Foreign currency amounts are currently translated into U.S. dollars using the exchange rate as of 4:00 p.m., Eastern time, 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. Net unrealized foreign currency gain (loss) arises from changes in the value of assets and liabilities, other than investments in securities, as a result of changes in exchange rates and is stated separately in the Statements of Operations.

4 Securities transactions and investment income: Securities transactions are recorded on trade date for financial reporting purposes. For Strategic Income, dividend income is recorded on the ex-dividend date or, for certain foreign dividends, as soon as the Fund becomes aware of the dividends. Non-cash dividends included in dividend income, if any, are recorded at the fair market value of the securities received. 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 (for each Fund) and foreign currency transactions (for High Income, Short Duration and Strategic Income), if any, are recorded on the basis of identified cost and stated separately in the Statements of Operations. Included in net realized gain (loss) on investments are proceeds from the settlements of class action litigation in which Core Bond, High Income

and Short Duration participated as a plaintiff. The amounts of such proceeds for the year ended October 31, 2007 were $315,630, $22,732 and $275,015 for Core Bond, High Income and Short Duration, respectively.

5 Income tax information: Each Fund is treated as a separate entity for U.S. federal income tax purposes. It is the policy of each Fund to continue to qualify as a regulated investment company by complying with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its earnings to its shareholders. Therefore, no federal income or excise tax provision is required.

Income distributions and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. These differences are primarily due to differing treatments of income and gains on various investment securities held by each Fund, timing differences and differing characterization of distributions made by each Fund as a whole. The Funds may also utilize earnings and profits distributed to shareholders on redemption of shares as a part of the dividends paid deduction for income tax purposes.

As determined on October 31, 2007, permanent differences resulting primarily from different book and tax accounting for amortization of bond premium, paydown gains and losses, expiration of capital loss carryforwards, characterization of distributions, the tax character of the proceeds from the settlement of class action litigations, distribution redesignations, and foreign currency gains and losses were reclassified at fiscal year-end. These reclassifications had no effect on net income, net asset value or net asset value per share of each Fund.

The tax character of distributions paid during the years ended October 31, 2007 and October 31, 2006 were as follows:

	Distributions Paid From:
	Taxable Income				Tax-Exempt Income				Long-Term Capital Gain				Total
	2007		2006		2007		2006		2007		2006		2007		2006
Core Bond	$	3,802,047	$	5,576,922	$	—	$	—	$	—	$	298,651	$	3,802,047	$	5,875,573
High Income		34,829,808		42,445,085		—		—		—		—		34,829,808		42,445,085
Municipal Money		14,262		—		26,520,266		22,836,205		—		—		26,534,528		22,836,205
Municipal Securities Trust		388		309		1,076,787		1,167,212		125,933		157,909		1,203,108		1,325,430
New York Municipal Money		4,144		—		12,589,326		3,923,358		—		—		12,593,470		3,923,358
Short Duration		5,609,665		7,282,810		—		—		—		—		5,609,665		7,282,810
Strategic Income		981,159		1,828,375		—		—		559,884		1,204,793		1,541,043		3,033,168
Cash Reserves		19,912,605		24,484,476		—		—		—		—		19,912,605		24,484,476

As of October 31, 2007, the components of distributable earnings (accumulated losses) on a U.S. federal income tax basis were as follows:

	Undistributed Ordinary Income		Undistributed Tax-Exempt Income		Undistributed Long-Term Gain		Unrealized Appreciation (Depreciation)			Loss Carryforwards and Deferrals			Total
Core Bond	$	—	$	—	$	—	$	(1,021,217	)	$	(804,070	)	$	(1,825,287	)
High Income		241,021		—		—		(3,663,807	)		(19,360,314	)		(22,783,100	)
Municipal Money		13,845		482,289		5,377		—			—			501,511
Municipal Securities Trust		—		16,172		24,194		231,360			—			271,726
New York Municipal Money		10,506		394,644		211		—			—			405,361
Short Duration		514,177		—		—		(436,945	)		(16,332,861	)		(16,255,629	)
Strategic Income		156,311		—		611,379		524,171			—			1,291,861
Cash Reserves		479,451		—		—		—			(55,883	)		423,568

The differences between book basis and tax basis distributable earnings are attributable primarily to timing differences of distribution payments, timing differences of wash sales, mark to market on certain foreign currency and futures contract transactions, capital loss carryforwards, amortization of bond premium, organization expenses and depletion basis adjustments.

To the extent each Fund's net realized capital gains, if any, can be offset by capital loss carryforwards, it is the policy of each Fund not to distribute such gains. As determined on October 31, 2007, the following Funds had unused capital loss carryforwards available for federal income tax purposes to offset net realized capital gains, if any, as follows:

	Expiring in:
	2008		2009		2010		2011		2012		2013		2014		2015
Core Bond	$	—	$	—	$	—	$	—	$	67,315	$	736,755	$	—	$	—
High Income⁽¹⁾		2,021,774		923,187		—		—		—		—		16,415,353		—
Short Duration⁽²⁾		7,177,986		456,883		—		—		2,468,731		3,168,736		2,244,689		815,836
Cash Reserves		—		—		—		—		—		10,879		33,043		11,961

(1) Of the total capital loss carryforwards shown above for High Income, $2,944,961 was acquired on September 6, 2002 in the merger with Neuberger Berman High Yield Bond Fund. The use of these losses to offset future gains may be limited in a given year.

(2) Of the total capital loss carryforwards shown above for Short Duration, $22,772 was acquired on February 9, 2001 in a tax-free reorganization. The use of these losses to offset future gains may be limited in a given year.

6 Distributions to shareholders: Each Fund earns income, net of expenses, daily on its investments. It is the policy of each Fund (except Strategic Income) to declare distributions from net investment income on each business day; such distributions are paid monthly. Strategic Income generally distributes substantially all of its net investment income, if any, at the end of each calendar quarter. Distributions from net realized capital gains, if any, are generally distributed in December. Distributions to shareholders are recorded on the ex-date.

Strategic Income invests a portion of its assets in securities issued by real estate companies, including real estate investment trusts ("REITs"). The distributions received from REITs held by the Fund are generally comprised of income, capital gains, and return of REIT capital, but the REITs do not report this information to the Fund until the following calendar year. At October 31, 2007, the Fund estimated these amounts within the financial statements since the information is not available from the REITs until after the Fund's fiscal year-end. For the year ended October 31, 2007, the character of distributions paid to shareholders is disclosed within the Statements of Changes and is also based on these estimates. All estimates are based upon REIT information sources available to the Fund together with actual IRS Forms 1099DIV received to date. Based on past experience it is probable that a portion of the Fund's distributions during the most recently completed fiscal year will be considered tax return of capital but the actual amount of tax return of capital, if any, is not determinable until after the Fund's fiscal year-end. After calendar year-end, when the Fund learns the nature of the distributions paid by REITs during that year, distributions previously identified as income are often recharacterized as return of capital and/or capital gain. After all applicable REITs have informed the Fund of the actual breakdown of distributions paid to the Fund during its fiscal year, estimates previously recorded are adjusted on the books of the Fund to reflect actual results. As a result, the composition of the Fund's distributions as reported herein may differ from the final composition determined after calendar year-end and reported to Fund shareholders on IRS Form 1099DIV.

7 Expense allocation: Certain expenses are applicable to multiple funds. Expenses directly attributable to a Fund are charged to that Fund. Expenses of the Trust that are not directly attributed to a Fund are allocated among the series of the Trust, on the basis of relative net assets, except where a more appropriate allocation of expenses to each of the series can otherwise be made fairly. Expenses borne by the complex of related investment companies, which includes open-end and closed-end investment companies for which Management serves as investment manager, that are not directly attributed to a Fund or the Trust are allocated among the Funds and the other investment companies in the complex or series thereof on the basis of relative net assets, except where a more appropriate

allocation of expenses to each investment company in the complex or series thereof can otherwise be made fairly. Each Fund's expenses (other than those specific to each class) are allocated proportionally each day between the classes based upon the relative net assets of each class.

8 Financial futures contracts: Core Bond, High Income, Municipal Securities Trust, Short Duration, and Strategic Income 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 Fund enters into a financial futures contract, it is required to deposit with the futures commission merchant 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 Funds 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 Fund recognizes a gain or loss. Risks of entering into futures contracts include the possibility there may be an illiquid market, possibly at a time of rapidly declining prices, 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 Fund may cause that Fund 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 Fund. Also, a Fund's losses on transactions involving futures contracts may be deferred rather than being taken into account currently in calculating such Fund's taxable income.

During the year ended October 31, 2007, Core Bond, High Income, Municipal Securities Trust, and Strategic Income did not enter into any financial futures contracts. During the year ended October 31, 2007, Short Duration entered into financial futures contracts. At October 31, 2007, open positions in financial futures contracts were:

Expiration

Open Contracts

Position

Unrealized Appreciation

December 2007

120 U.S. Treasury Notes, 2 Year

Long

89,285

At October 31, 2007, Short Duration had deposited $269,000 in Fannie Mae Whole Loan, 10.10%, due 6/25/44, in a segregated account to cover margin requirements on open futures contracts.

9 Forward foreign currency contracts: High Income, Short Duration, and Strategic Income 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 transactions on settlement date. Fluctuations in the value of such contracts are recorded for financial reporting purposes as unrealized gains or losses by each Fund until the contractual settlement date. The Funds could be exposed to risks if a counter party 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 Fund is determined using forward foreign currency exchange rates supplied by an independent pricing service.

10 Call options: Premiums received by Strategic Income upon writing a covered call option are recorded in the liability section of the Fund's Statement of Assets and Liabilities and are subsequently adjusted to the current market value. When an option is exercised, closed, or expired, the Fund realizes a gain or loss and the liability is eliminated. The Fund bears the risk of a decline in the price of the security during the period, although any potential loss during the period would be reduced by the amount of the option premium received. In general, written covered call options may serve as a partial hedge against decreases in value in the underlying securities to the extent of the premium received. All securities covering outstanding options are held in escrow by the custodian bank.

Summary of written option transactions for Strategic Income for the year ended October 31, 2007:

	Number			Value When Written
Contracts outstanding 10/31/2006		13,500		$	14,000
Contracts written		12,300			10,000
Contracts expired		(6,200	)		(5,000	)
Contracts exercised		(10,000	)		(10,000	)
Contracts closed		(4,100	)		(5,000	)
Contracts outstanding 10/31/2007		5,500		$	4,000

11 Security lending: A third party, eSecLending, assists Core Bond, High Income, Short Duration and Strategic Income in conducting a bidding process to attempt to identify agents/principals that would pay a guaranteed amount to each Fund in consideration of that Fund entering into an exclusive securities lending arrangement. Pursuant to such arrangements, eSecLending currently acts as lending agent for these Funds. Currently, Core Bond and Short Duration are not guaranteed any particular level of income from the program. These arrangements will change for certain Funds as a result of an auction held on October 31, 2007.

Under the securities lending arrangements, Core Bond, High Income, Short Duration and Strategic Income each receives cash collateral at the beginning of each transaction equal to at least 102% of the prior day's market value of the loaned securities (105% in the case of international securities). Each of these Funds may invest all the cash collateral in Neuberger Berman Securities Lending Quality Fund, LLC ("Quality Fund"), a fund managed by Lehman Brothers Asset Management LLC ("LBAM"), an affiliate of Management.

Net income from the applicable lending program represents the guaranteed amount, if applicable, plus income earned on the cash collateral invested in Quality Fund or in other investments, if applicable, less cash collateral fees and other expenses associated with the loans. For the year ended October 31, 2007, the approximate amount of net income received by High Income and Strategic Income under the securities lending arrangements, which is reflected in the Statements of Operations under the caption "Income from securities loaned-net"; the approximate amount of income earned on cash collateral and guaranteed amounts; and the approximate amount of fees and expenses paid on securities loaned are as follows:

	Net Income		Amount earned on cash collateral and guaranteed amounts*		Fees and Expenses Paid
High Income	$	260,895	$	3,632,218	$	3,371,323
Strategic Income		3,929		16,763		12,834

* The amount of income earned on cash collateral and guaranteed amounts includes the following approximate amounts of interest income earned from Quality Fund:

	Interest Income Earned From the Quality Fund
High Income	$	3,327,576
Strategic Income		11,413

12 Repurchase agreements: Each Fund may enter into repurchase agreements with institutions that Management has determined are creditworthy. Each repurchase agreement is recorded at cost. Each Fund requires that the securities purchased in a repurchase agreement be transferred to the custodian in a manner sufficient to enable the Fund to assert a perfected security interest in those securities in the event of a default under the repurchase agreement. Each Fund 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 the Fund under each such repurchase agreement.

13 Dollar rolls: Core Bond, High Income, Short Duration, and Strategic Income may enter into dollar roll transactions with respect to mortgage-backed securities. In a dollar roll transaction, a Fund sells securities for delivery in the current month and simultaneously agrees to repurchase substantially similar (i.e., same type and coupon) securities on a specified future date from the same party. During the period before this repurchase, a Fund forgoes principal and interest payments on the securities. A Fund is compensated by the difference between the current sales price and the forward price for the future purchase (often referred to as the "drop"), as well as by the interest earned on the cash proceeds of the initial sale. Dollar rolls may increase fluctuations in a Fund's net asset value and may be viewed as a form of leverage. There i s a risk that the counter party will be unable or unwilling to complete the transaction as scheduled, which may result in losses to a Fund.

14 Other: All net investment income and realized and unrealized capital gains and losses of each Fund are allocated, on the basis of relative net assets, pro rata among its respective classes.

15 Transactions with other funds managed by Neuberger Berman Management Inc.: Pursuant to an exemptive rule, the Funds may invest in a money market fund managed by Management or an affiliate. The Funds invest in Neuberger Berman Prime Money Fund ("Prime Money"), as approved by the Board. Prime Money seeks to provide the highest available current income consistent with safety and liquidity. For any cash that the Funds invest in Prime Money, Management waives a portion of its management fee equal to the management fee it receives from Prime Money on those assets (the "Arrangement"). For the year ended October 31, 2007, management fees waived under this Arrangement are reflected in the Statements of Operations under the caption "Investment management fees waived." For the year ended October 31, 2007, income earned under this Arrangement is reflected in the Statements of Operations under the caption "Income from investments in affiliated issuers." For the year ended October 31, 2007, management fees waived and income earned under this Arrangement were as follows:

	Management Fees Waived		Income Earned
Core Bond	$	2,122	$	135,411
High Income		9,901		643,053
Strategic Income		249		9,218

16 Foreign taxes: Foreign taxes withheld represent amounts withheld by foreign tax authorities, net of refunds recoverable.

17 Indemnifications: Like many other companies, the Trust's organizational documents provide that its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, both in some of its principal service contracts and in the normal course of its business, the Trust enters into contracts that provide indemnifications to other parties for certain types of losses or liabilities. The Trust's maximum exposure under these arrangements is unknown as this could involve future claims against the Trust.

Note B—Management Fees, Administration Fees, Distribution Arrangements, and Other Transactions with Affiliates:

Each Fund retains Management as its investment manager under a Management Agreement. For such investment management services, each Fund (except High Income, Strategic Income, and Cash Reserves) pays Management a fee at the annual rate of 0.25% of the first $500 million of that Fund'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 Income, Strategic Income, and Cash Reserves each pay Management a fee for investment management services at the annual rates of 0.48%, 0.60%, and 0.10%, respectively, of each Fund's average daily net assets. Management has voluntarily agreed to waive its management fee in the amount of 0.25% and 0.02% of the average daily net assets of Core Bond and Cash Reserves, respectively. Management may, at its sole discretion, terminate these agreements without notice to the Funds. For the year ended October 31, 2007, such waived fees amounted to $199,806 and $81,391 for Core Bond and Cash Reserves, respectively.

Each Fund retains Management as its administrator under an Administration Agreement. Each Fund pays Management an administration fee at the annual rate of 0.06% of its average daily net assets under this agreement. In addition, each Fund's Investor Class pays Management an administration fee at the annual rate of 0.21% of its average daily net assets, each Fund's Institutional Class pays Management an administration fee at the annual rate of 0.09% of its average daily net assets, and the Trust Class of Short Duration and Strategic Income pays Management an administration fee at the annual rate of 0.44% and 0.34%, respectively, of its average daily net assets under this agreement. Additionally, Management retains State Street Bank and Trust Company ("State Street") as its sub-administrator under a Sub-Administration Agreement. Management pays State Street a fee for all services received under the agreement.

Management has contractually undertaken to reimburse operating expenses (including fees payable to Management but excluding interest, taxes, brokerage commissions, and extraordinary expenses) ("Operating Expenses") which exceed the expense limitation as detailed in the following table:

Class	Contractual Expense Limitation⁽¹⁾			Expiration	Contractual Reimbursement from Management for the Year Ended October 31, 2007
Core Bond Investor Class		0.85	%	10/31/17	$	68,273
Core Bond Institutional Class		0.45	%	10/31/17		54,868
High Income Investor Class		1.00	%	10/31/10		—
Municipal Money Investor Class		0.59	%	10/31/10		50,949
Municipal Securities Trust Investor Class		0.65	%	10/31/10		153,618
New York Municipal Money Investor Class		0.59	%⁽²⁾	10/31/10		—
Short Duration Investor Class		0.70	%	10/31/10		204,360
Short Duration Trust Class		0.80	%	10/31/10		54,550
Strategic Income Institutional Class		0.85	%	10/31/17		356,257
Strategic Income Trust Class		1.10	%	10/31/10		3,394
Cash Reserves Investor Class		0.65	%	10/31/10		—

(1) Expense limitation per annum of the respective class' average daily net assets.

(2) Effective January 17, 2007, Management voluntarily agreed to waive certain expenses of the Investor Class of New York Municipal Money, so that the total annual Operating Expenses of the Fund are limited to 0.47% of the average daily net assets. For the year ended October 31, 2007, such voluntarily waived fees amounted to $382,406.

The Investor Classes of Core Bond, High Income, Municipal Money, Municipal Securities Trust, New York Municipal Money, Short Duration and Cash Reserves, the Institutional Classes of Core Bond and Strategic Income, and the Trust Classes of Short Duration and Strategic Income have each agreed to repay Management for their excess Operating Expenses previously reimbursed by Management, pursuant to a contractual expense limitation, so long as their annual Operating Expenses during that period do not exceed their respective expense limitations, and the repayments are made within three years after the year in which Management issued the reimbursement. During

the year ended October 31, 2007, there was no reimbursement to Management. At October 31, 2007, contingent liabilities to Management under the agreement were as follows:

	Expiring in
	2008			2009		2010		Total
Core Bond Investor Class	$	51,691	⁽¹⁾	$	119,159	$	68,273	$	239,123
Core Bond Institutional Class		91,826	⁽¹⁾		98,223		54,868		244,917
Municipal Money Investor Class		—			193,464		50,949		244,413
Municipal Securities Trust Investor Class		157,589			176,704		153,618		487,911
New York Municipal Money Investor Class		—			123,196		—		123,196
Short Duration Investor Class		145,616			144,034		204,360		494,010
Short Duration Trust Class		49,486			47,206		54,550		151,242
Strategic Income Institutional Class		297,154			336,211		356,257		989,622
Strategic Income Trust Class		—			—		3,394		3,394

(1) Certain amounts expire during the period as a result of the change in year end.

Management, Neuberger, a member firm of the New York Stock Exchange, and LBAM, are wholly owned subsidiaries of Lehman Brothers Holdings Inc., a publicly-owned holding company. LBAM, as the sub-adviser to High Income, Municipal Money, Municipal Securities Trust, Short Duration, and Cash Reserves, and Neuberger as sub-adviser to Strategic Income, are retained by Management to furnish it with investment recommendations and research information without added cost to each Fund it sub-advises. LBAM, as sub-adviser to Core Bond and New York Municipal, is retained by Management to provide day-to-day investment management services and receives a monthly fee paid by Management. As investment manager, Management is responsible for overseeing the investment activities of LBAM. Several individuals who are officers and/or Trustees of the Trust are also employees of LBAM and Neuberger and/or Management.

Each Fund also has a distribution agreement with Management with respect to each class of shares. Management receives no compensation therefore and no commissions for sales or redemptions of shares of beneficial interest of each share class, but receives fees from the Core Bond Investor Class and the Strategic Income Trust Class under their Plans, as described below.

For Core Bond's Investor Class and Strategic Income's Trust Class, Management acts as agent in arranging for the sale of class shares without commission and bears advertising and promotion expenses. The Board has adopted distribution plans (each a "Plan", collectively, the "Plans") with respect to these classes, pursuant to Rule 12b-1 under the 1940 Act. The Plans provide that, as compensation for administrative and other services provided to these classes, Management's activities and expenses related to the sale and distribution of these classes of shares, and ongoing services provided to investors in these classes, Management receives from each of these classes a fee at the annual rate of 0.25% of Core Bond Investor Class' average daily net assets and 0.10% of Strategic Income Trust Class' average daily net assets. Management receives this amount to provide distribution and shareholder servicing for these classes and pays a portion of it to institutions that provide such services. Those institutions may use the payments for, among other purposes, compensating employees engaged in sales and/or shareholder servicing. The amount of fees paid by each class during any year may be more or less than the cost of distribution and other services provided to that class. NASD rules limit the amount of annual distribution fees that may be paid by a mutual fund and impose a ceiling on the cumulative distribution fees paid. The Trust's Plans comply with those rules.

For the year ended October 31, 2007, Short Duration recorded a capital contribution from Management in the amount of $6,457. This amount was paid in connection with losses outside the Fund's direct control incurred in the disposition of foreign currency contracts. Management does not normally make payments for losses incurred in the disposition of foreign currency contracts.

Strategic Income has entered into a commission recapture program, which enables the Fund to pay some of its operational expenses by recouping a portion of the commissions it pays to a broker that is not a related party of the Funds. Pursuant to the agreement, brokers pay recaptured commissions to the Fund's custodian and the custodian directs these amounts toward payment of expenses such as custodial, transfer agency or accounting services. For the year ended October 31, 2007, the impact of this arrangement on Strategic Income was a reduction of expenses of $720.

Each Fund has an expense offset arrangement in connection with its custodian contract. For the year ended October 31, 2007, the impact of this arrangement was a reduction of expenses of $2,607, $16,759, $68,538, $2,958, $52,704, $2,629, $343, and $4,998 for Core Bond, High Income, Municipal Money, Municipal Securities Trust, New York Municipal Money, Short Duration, Strategic Income, and Cash Reserves, respectively.

Note C—Securities Transactions:

Cost of purchases and proceeds of sales and maturities of long-term securities (excluding short-term securities, financial futures contracts, foreign currency contracts, and option contracts) for the year ended October 31, 2007 were as follows:

	Purchases of U.S. Government and Agency Obligations		Purchases excluding U.S. Government and Agency Obligations		Sales and Maturities of U.S. Government and Agency Obligations		Sales and Maturities excluding U.S. Government and Agency Obligations
Core Bond	$	360,433,974	$	59,192,340	$	377,653,076	$	33,848,889
High Income		—		698,698,298		—		866,596,147
Municipal Securities Trust		—		2,629,630		—		7,404,785
Short Duration		11,498,558		47,632,533		14,911,781		58,490,165
Strategic Income		5,010,922		13,310,834		5,570,155		15,967,989

All securities transactions for Municipal Money, New York Municipal Money, and Cash Reserves were short-term.

During the year ended October 31, 2007, Strategic Income had entered into various contracts to deliver currencies at specified future dates. At October 31, 2007, open contracts were as follows:

Buy	Contracts to Deliver		In Exchange For		Settlement Date	Value		Net Unrealized Appreciation/ (Depreciation)
British Pound		202,000	$	407,030	12/13/07	$	419,066	$	12,036
Euro		273,000		383,069	12/13/07		395,178		12,109
Sell	Contracts to Deliver		In Exchange For		Settlement Date	Value		Net Unrealized Appreciation/ (Depreciation)
Australian Dollar		29,000	$	23,983	12/13/07	$	26,811	$	(2,828	)
British Pound		374,000		758,501	12/13/07		775,894		(17,393	)
Canadian Dollar		102,000		97,795	12/13/07		107,416		(9,621	)
Danish Krone		268,000		49,784	12/13/07		52,045		(2,261	)
Euro		1,354,000		1,873,340	12/13/07		1,959,964		(86,624	)
Japanese Yen		158,600,000		1,405,323	12/13/07		1,382,709		22,614

During the year ended October 31, 2007, brokerage commissions on securities transactions for Strategic Income amounted to $11,208, of which Neuberger received $410, Lehman Brothers received $1,810, and other brokers received $8,988.

Note D—Fund Share Transactions:

Share activity for the years ended October 31, 2007 and October 31, 2006 was as follows:

	For the Year Ended October 31, 2007										For the Year Ended October 31, 2006
(000's omitted)	Shares Sold		Shares Issued on Reinvestment of Dividends and Distributions		Shares Redeemed			Total			Shares Sold			Shares Issued on Reinvestment of Dividends and Distributions			Shares Redeemed			Total
Core Bond:
Investor Class		3,171		139		(3,072	)		238			1,293			210			(1,208	)		295
Institutional Class		1,120		223		(1,029	)		314			505			356			(1,046	)		(185	)
High Income:
Investor Class		13,237		3,483		(40,442	)		(23,722	)		20,191			4,309			(45,459	)		(20,959	)
Municipal Money:
Investor Class		7,010,190		19,030		(6,930,867	)		98,353			5,104,293			10,110			(4,928,381	)		186,022
Municipal Securities Trust:
Investor Class		371		87		(799	)		(341	)		365			98			(611	)		(148	)
New York Municipal Money:
Investor Class		2,697,772		8,590		(2,156,418	)		549,944			851,383	⁽¹⁾⁽²⁾		1,866	⁽¹⁾		(680,063	)⁽¹⁾		173,186	⁽¹⁾
Short Duration:
Investor Class		821		495		(2,947	)		(1,631	)		2,040			670			(7,473	)		(4,763	)
Trust Class		382		78		(866	)		(406	)		483			86			(971	)		(402	)
Strategic Income:
Institutional Class		79		89		(446	)		(278	)		188			195			(870	)		(487	)
Trust Class⁽³⁾		26		1		(6	)		21			—			—			—			—
Cash Reserves:
Investor Class		764,810		11,724		(1,075,515	)		(298,981	)		796,495			14,143			(684,710	)		125,928

(1) Period from December 19, 2005 (Commencement of operations) to October 31, 2006.

(2) Includes initial capitalization of $10 on December 19, 2005.

(3) Period from April 2, 2007 to October 31, 2007.

Note E—Line of Credit:

At October 31, 2007, Core Bond, High Income, Short Duration and Strategic Income were participants in a single committed, unsecured $150,000,000 line of credit with a consortium of banks organized by State Street, to be used only for temporary or emergency purposes. Other investment companies managed by Management also participate in this line of credit on the same terms. Interest is charged on borrowings under this agreement at the overnight Federal Funds Rate plus 0.50% per annum. A facility fee of 0.07% per annum of the available line of credit is charged, of which each Fund has agreed to pay its pro rata share, based on the ratio of its individual net assets to the net assets of all participants at the time the fee is due and payable. The fee is paid quarterly in arrears. Because

several investment companies participate, there is no assurance that an individual fund will have access to all or any part of the $150,000,000 at any particular time.

On May 25, 2007 Municipal Money, New York Municipal Money and Cash Reserves became participants in a single committed, unsecured $300,000,000 line of credit with State Street and Bank of New York, as agent, to be used only for temporary or emergency purposes. Other investment companies managed by Management also participate in this line of credit on the same terms. Interest is charged on borrowings under this agreement at the overnight Federal Funds Rate plus 0.375% per annum. A commitment fee of 0.075% per annum of the unused available line of credit is charged, of which each Fund has agreed to pay its pro rata share, based on the ratio of its individual net assets to the net assets of all participants at the time the fee is due and payable. The fee is paid quarterly in arrears. Because several investment companies participate, there is no assurance that an individual Fund will have access to all or any part of the $300,000,000 at any particular time.

On September 27, 2007 Municipal Money, New York Municipal Money and Cash Reserves became participants in a single uncommitted, unsecured $150,000,000 line of credit with State Street, as lender, to be used only for temporary or emergency purposes. Other investment companies managed by Management also participate in this line of credit on the same terms. Interest is charged on borrowings under this agreement at the overnight Federal Funds Rate plus 0.375% per annum. Because several investment companies participate, there is no assurance that an individual Fund will have access to all or any part of the $150,000,000 at any particular time.

The Funds had no loans outstanding pursuant to these lines of credit at October 31, 2007. During the year ended October 31, 2007, the Funds did not utilize these lines of credit.

Note F—Investments In Affiliates:

Core Bond:
Name of Issuer	Balance of Shares Held October 31, 2006		Gross Purchases and Additions		Gross Sales and Reductions		Balance of Shares Held October 31, 2007		Value October 31, 2007		Income from Investments in Affiliated Issuers Included in Total Income
Neuberger Berman Prime Money Fund Trust Class*		2,881,459		52,909,747		52,739,591		3,051,615	$	3,051,615	$	135,411
High Income:
Name of Issuer	Balance of Shares Held October 31, 2006		Gross Purchases and Additions		Gross Sales and Reductions		Balance of Shares Held October 31, 2007		Value October 31, 2007		Income from Investments in Affiliated Issuers Included in Total Income
Neuberger Berman Prime Money Fund Trust Class*		19,447,504		497,767,939		516,998,615		216,828	$	216,828	$	643,053
Neuberger Berman Securities Lending Quality Fund, LLC**		47,300,231		352,555,377		398,082,047		1,773,561		1,773,561		3,327,576
Total									$	1,990,389	$	3,970,629

Strategic Income:
Name of Issuer	Balance of Shares Held October 31, 2006		Gross Purchases and Additions		Gross Sales and Reductions		Balance of Shares Held October 31, 2007		Value October 31, 2007		Income from Investments in Affiliated Issuers Included in Total Income
Neuberger Berman Prime Money Fund Trust Class*		100,979		8,061,226		8,066,393		95,812	$	95,812	$	9,218
Neuberger Berman Securities Lending Quality Fund, LLC**		60,751		1,555,288		1,587,598		28,441		28,441		11,413
Total									$	124,253	$	20,631

* Prime Money is also managed by Management and may be considered an affiliate since it has the same officers, Board Members, and investment manager as the Fund and because, at times, the Fund may own 5% or more of the outstanding voting securities of Prime Money.

** Quality Fund, a fund managed by LBAM, an affiliate of Management, is used to invest cash the Fund receives as collateral for securities loans as approved by the Board. Because all shares of Quality Fund are held by funds in the related investment management complex, Quality Fund may be considered an affiliate of the Fund.

Note G—Recent Accounting Pronouncements:

On July 13, 2006, the Financial Accounting Standards Board ("FASB") released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 clarifies the accounting for income taxes, by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 requires that a "more-likely-than-not" threshold be met before the benefit of a tax position may be recognized in the financial statements and prescribes how such benefit should be measured. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. The Securities and Exchange Commission has permitted investment companies to delay implementation of FIN 48. Each Fund will have until April 30, 2008 to implement FIN 48. At this time, Management is evaluating the implications of FIN 48 and its impact in the financial statements has not yet been determined.

In September 2006, FASB issued FASB Statement No. 157, "Fair Value Measurement" ("SFAS 157"), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Management believes the adoption of SFAS 157 will not have a material impact on the Funds' financial position or results of operations.

Financial Highlights

Lehman Brothers Core Bond Fund

The following tables include selected data for a share outstanding throughout each period and other performance information derived from the Financial Statements.

Investor Class

	Year Ended October 31,						Period from October 1, 2005 to October 31,			Year Ended September 30,
	2007			2006			2005			2005^‡‡			2004^ÿ			2003^§§
Net Asset Value, Beginning of Period	$	9.85		$	10.09		$	10.21		$	10.51		$	10.80		$	10.72
Income From Investment Operations:
Net Investment Income (Loss)		.44	^@		.41	^@		.03	^@		.31	^@		.23			.28
Net Gains or Losses on Securities (both realized and unrealized)		(.09	)		.09			(.12	)		(.04	)		.11			.24
Total From Investment Operations		.35			.50			(.09	)		.27			.34			.52
Less Distributions From:
Net Investment Income		(.44	)		(.43	)		(.03	)		(.31	)		(.23	)		(.28	)
Net Capital Gains		—			(.31	)		—			(.26	)		(.40	)		(.16	)
Total Distributions		(.44	)		(.74	)		(.03	)		(.57	)		(.63	)		(.44	)
Net Asset Value, End of Period	$	9.76		$	9.85		$	10.09		$	10.21		$	10.51		$	10.80
Total Return^††		+3.67	%		+5.21	%		(.87	)%**		+2.64	%		+3.29	%		+5.01	%
Ratios/Supplemental Data
Net Assets, End of Period (in millions)	$	35.9		$	33.9		$	31.7		$	31.2		$	26.0		$	26.1
Ratio of Gross Expenses to Average Net Assets^#		.85	%		.86	%		.85	%*		.86	%		.85	%		.85	%
Ratio of Net Expenses to Average Net Assets		.85	%^‡		.85	%^‡		.85	%*^‡		.85	%^‡		.85	%		.85	%
Ratio of Net Investment Income (Loss) to Average Net Assets		4.51	%		4.22	%		3.51	%*		3.03	%		2.21	%		2.63	%
Portfolio Turnover Rate		404	%		399	%		34	%**		462	%		390	%		343	%

See Notes to Financial Highlights 94

Financial Highlights

Institutional Class

	Year Ended October 31,						Period from October 1, 2005 to October 31,			Year Ended September 30,
	2007			2006			2005			2005^‡‡			2004^ÿ			2003^§§
Net Asset Value, Beginning of Period	$	9.86		$	10.11		$	10.22		$	10.52		$	10.81		$	10.73
Income From Investment Operations
Net Investment Income (Loss)		.48	^@		.45	^@		.03	^@		.33	^@		.28			.33
Net Gains or Losses on Securities (both realized and unrealized)		(.09	)		.08			(.11	)		(.02	)		.11			.24
Total From Investment Operations		.39			.53			(.08	)		.31			.39			.57
Less Distributions From:
Net Investment Income		(.48	)		(.47	)		(.03	)		(.35	)		(.28	)		(.33	)
Net Capital Gains		—			(.31	)		—			(.26	)		(.40	)		(.16	)
Total Distributions		(.48	)		(.78	)		(.03	)		(.61	)		(.68	)		(.49	)
Net Asset Value, End of Period	$	9.77		$	9.86		$	10.11		$	10.22		$	10.52		$	10.81
Total Return^††		+4.08	%		+5.52	%		(.73	)%**		+3.05	%		+3.72	%		+5.43	%
Ratios/Supplemental Data
Net Assets, End of Period (in millions)	$	47.2		$	44.5		$	47.5		$	48.5		$	233.6		$	215.5
Ratio of Gross Expenses to Average Net Assets^#		.45	%		.46	%		.45	%*		.45	%		.45	%		.45	%
Ratio of Net Expenses to Average Net Assets		.45	%‡		.45	%^‡		.45	%*^‡		.45	%^‡		.45	%		.45	%
Ratio of Net Investment Income (Loss) to Average Net Assets		4.91	%		4.60	%		3.91	%*		3.17	%		2.61	%		3.04	%
Portfolio Turnover Rate		404	%		399	%		34	%**		462	%		390	%		343	%

See Notes to Financial Highlights 95

Financial Highlights

Lehman Brothers High Income Bond Fund

The following table includes selected data for a share outstanding throughout each year and other performance information derived from the Financial Statements.

Investor Class

	Year Ended October 31,
	2007			2006			2005			2004			2003
Net Asset Value, Beginning of Year	$	9.08		$	9.10		$	9.54		$	9.25		$	8.81
Income From Investment Operations:
Net Investment Income (Loss)^@		.68			.59			.55			.58			.60
Net Gains or Losses on Securities (both realized and unrealized)		(.08	)		(.02	)		(.44	)		.29			.44
Total From Investment Operations		.60			.57			.11			.87			1.04
Less Distributions From:
Net Investment Income		(.68	)		(.59	)		(.55	)		(.58	)		(.60	)
Net Asset Value, End of Year	$	9.00		$	9.08		$	9.10		$	9.54		$	9.25
Total Return^††		+6.73	%		+6.53	%		+1.17	%		+9.68	%		+12.14	%
Ratios/Supplemental Data
Net Assets, End of Year (in millions)	$	369.2		$	588.3		$	779.7		$	813.2		$	519.7
Ratio of Gross Expenses to Average Net Assets^#		.92	%		.90	%		.91	%		.90	%		.90	%
Ratio of Net Expenses to Average Net Assets		.92	%^‡		.89	%^‡		.91	%		.90	%		.90	%^§
Ratio of Net Investment Income (Loss) to Average Net Assets		7.41	%		6.52	%		5.88	%		6.16	%		6.54	%
Portfolio Turnover Rate		153	%		136	%		63	%		79	%		148	%

See Notes to Financial Highlights 96

Financial Highlights

Lehman Brothers Municipal Money Fund

The following table includes selected data for a share outstanding throughout each year and other performance information derived from the Financial Statements.

Investor Class

	Year Ended October 31,
	2007			2006			2005			2004			2003
Net Asset Value, Beginning of Year	$	.9998		$	.9998		$	.9998		$	.9998		$	.9998
Income From Investment Operations:
Net Investment Income (Loss)		.0313			.0276			.0158			.0051			.0050
Net Gains or Losses on Securities		.0001			.0000			—			—			—
Total From Investment Operations		.0314			.0276			.0158			.0051			.0050
Less Distributions From:
Net Investment Income		(.0313	)		(.0276	)		(.0158	)		(.0051	)		(.0050	)
Net Capital Gains		(.0000	)		—			—			—			—
Total Distributions		(.0313	)		(.0276	)		(.0158	)		(.0051	)		(.0050	)
Net Asset Value, End of Year	$	.9999		$	.9998		$	.9998		$	.9998		$	.9998
Total Return^††		+3.18	%		+2.80	%		+1.59	%		+.51	%		+.50	%
Ratios/Supplemental Data
Net Assets, End of Year (in millions)	$	871.5		$	773.2		$	587.1		$	426.1		$	410.9
Ratio of Gross Expenses to Average Net Assets^#		.59	%		.59	%		.60	%		.61	%		.61	%
Ratio of Net Expenses to Average Net Assets		.59	%^‡		.59	%^‡		.60	%		.61	%		.61	%
Ratio of Net Investment Income (Loss) to Average Net Assets		3.13	%		2.81	%		1.62	%		.51	%		.50	%

See Notes to Financial Highlights 97

Financial Highlights

Lehman Brothers Municipal Securities Trust

The following table includes selected data for a share outstanding throughout each year and other performance information derived from the Financial Statements.

Investor Class

	Year Ended October 31,
	2007			2006			2005			2004			2003
Net Asset Value, Beginning of Year	$	11.36		$	11.33		$	11.81		$	11.86		$	11.80
Income From Investment Operations:
Net Investment Income (Loss)^@		.41			.40			.40			.40			.40
Net Gains or Losses on Securities (both realized and unrealized)		(.12	)		.08			(.41	)		(.00	)		.12
Total From Investment Operations		.29			.48			(.01	)		.40			.52
Less Distributions From:
Net Investment Income		(.41	)		(.40	)		(.40	)		(.40	)		(.40	)
Net Capital Gains		(.04	)		(.05	)		(.07	)		(.05	)		(.06	)
Total Distributions		(.45	)		(.45	)		(.47	)		(.45	)		(.46	)
Net Asset Value, End of Year	$	11.20		$	11.36		$	11.33		$	11.81		$	11.86
Total Return^††		+2.61	%		+4.38	%		(.09	)%		+3.43	%		+4.50	%
Ratios/Supplemental Data
Net Assets, End of Year (in millions)	$	27.8		$	32.1		$	33.7		$	37.1		$	42.3
Ratio of Gross Expenses to Average Net Assets^#		.66	%		.66	%		.66	%		.65	%		.65	%
Ratio of Net Expenses to Average Net Assets^‡		.65	%		.65	%		.66	%		.65	%		.65	%
Ratio of Net Investment Income (Loss) to Average Net Assets		3.61	%		3.56	%		3.44	%		3.40	%		3.37	%
Portfolio Turnover Rate		9	%		28	%		16	%		8	%		12	%

See Notes to Financial Highlights 98

Financial Highlights

Lehman Brothers New York Municipal Money Fund

The following table includes selected data for a share outstanding throughout each period and other performance information derived from the Financial Statements.

Investor Class

	Year Ended October 31, 2007			Period from December 19, 2005^{^}to October 31 2006
Net Asset Value, Beginning of Period	$	1.0000		$	1.0000
Income From Investment Operations:
Net Investment Income (Loss)		.0322			.0249
Net Gains or Losses on Securities		.0000			.0000
Total From Investment Operations		.0322			.0249
Less Distributions From:
Net Investment Income		(.0322	)		(.0249	)
Net Capital Gains		(.0000	)		—
Total Distributions		(.0322	)		(.0249	)
Net Asset Value, End of Period	$	1.0000		$	1.0000
Total Return^††		+3.27	%		+2.51	%**
Ratios/Supplemental Data
Net Assets, End of Period (in millions)	$	723.1		$	173.2
Ratio of Gross Expenses to Average Net Assets^#		.48	%		.55	%*
Ratio of Net Expenses to Average Net Assets^‡		.46	%		.54	%*
Ratio of Net Investment Income (Loss) to Average Net Assets		3.22	%		2.94	%*

See Notes to Financial Highlights 99

Financial Highlights

Lehman Brothers Short Duration Bond Fund

The following tables include selected data for a share outstanding throughout each year and other performance information derived from the Financial Statements.

Investor Class

	Year Ended October 31,
	2007			2006			2005			2004			2003
Net Asset Value, Beginning of Year	$	9.11		$	9.13		$	9.41		$	9.61		$	9.65
Income From Investment Operations:
Net Investment Income (Loss)^@		.41			.35			.25			.24			.28
Net Gains or Losses on Securities (both realized and unrealized)		.06			.03			(.18	)		(.11	)		.03
Total From Investment Operations		.47			.38			.07			.13			.31
Less Distributions From:
Net Investment Income		(.45	)		(.40	)		(.35	)		(.33	)		(.35	)
Net Asset Value, End of Year	$	9.13		$	9.11		$	9.13		$	9.41		$	9.61
Total Return^††		+5.24	%		+4.28	%		+.77	%		+1.43	%		+3.23	%
Ratios/Supplemental Data
Net Assets, End of Year (in millions)	$	93.4		$	108.1		$	151.8		$	162.6		$	199.4
Ratio of Gross Expenses to Average Net Assets^#		.70	%		.71	%		.71	%		.70	%		.70	%
Ratio of Net Expenses to Average Net Assets^‡		.70	%		.70	%		.70	%		.70	%		.70	%
Ratio of Net Investment Income (Loss) to Average Net Assets		4.54	%		3.80	%		2.75	%		2.49	%		2.88	%
Portfolio Turnover Rate		53	%		74	%		166	%		94	%		129	%

See Notes to Financial Highlights 100

Financial Highlights

Trust Class

	Year Ended October 31,
	2007			2006			2005			2004			2003
Net Asset Value, Beginning of Year	$	8.68		$	8.70		$	8.97		$	9.15		$	9.20
Income From Investment Operations:
Net Investment Income (Loss)^@		.39			.32			.23			.22			.26
Net Gains or Losses on Securities (both realized and unrealized)		.05			.03			(.17	)		(.09	)		.01
Total From Investment Operations		.44			.35			.06			.13			.27
Less Distributions From:
Net Investment Income		(.42	)		(.37	)		(.33	)		(.31	)		(.32	)
Net Asset Value, End of Year	$	8.70		$	8.68		$	8.70		$	8.97		$	9.15
Total Return^††		+5.15	%		+4.16	%		+.64	%		+1.44	%		+3.00	%
Ratios/Supplemental Data
Net Assets, End of Year (in millions)	$	13.1		$	16.6		$	20.1		$	27.0		$	36.5
Ratio of Gross Expenses to Average Net Assets^#		.80	%		.81	%		.81	%		.80	%		.80	%
Ratio of Net Expenses to Average Net Assets^‡		.80	%		.80	%		.81	%		.80	%		.80	%
Ratio of Net Investment Income (Loss) to Average Net Assets		4.44	%		3.69	%		2.64	%		2.38	%		2.80	%
Portfolio Turnover Rate		53	%		74	%		166	%		94	%		129	%

See Notes to Financial Highlights 101

Financial Highlights

Lehman Brothers Strategic Income Fund

The following tables include selected data for a share outstanding throughout each period and other performance information derived from the Financial Statements.

Institutional Class

	Year Ended October 31,												Period from July 11, 2003^{^}to October 31,
	2007			2006			2005			2004			2003
Net Asset Value, Beginning of Period	$	10.65		$	10.90		$	10.72		$	10.11		$	10.00
Income From Investment Operations:
Net Investment Income (Loss)^@		.43			.38			.37			.36			.10
Net Gains or Losses on Securities (both realized and unrealized)		.15			.65			.34			.69			.09
Total From Investment Operations		.58			1.03			.71			1.05			.19
Less Distributions From:
Net Investment Income		(.45	)		(.46	)		(.45	)		(.44	)		(.08	)
Net Capital Gains		(.40	)		(.82	)		(.08	)		—			—
Total Distributions		(.85	)		(1.28	)		(.53	)		(.44	)		(.08	)
Net Asset Value, End of Period	$	10.38		$	10.65		$	10.90		$	10.72		$	10.11
Total Return^††		+5.64	%		+10.34	%		+6.68	%		+10.65	%		+1.95	%**
Ratios/Supplemental Data
Net Assets, End of Period (in millions)	$	17.0		$	20.4		$	26.2		$	29.4		$	23.6
Ratio of Gross Expenses to Average Net Assets^#		.86	%		.86	%		.86	%		.85	%		.85	%*
Ratio of Net Expenses to Average Net Assets^‡		.85	%		.85	%		.85	%		.84	%		.84	%*
Ratio of Net Investment Income (Loss) to Average Net Assets		4.10	%		3.66	%		3.43	%		3.44	%		3.51	%*
Portfolio Turnover Rate		99	%		111	%		89	%		85	%		34	%**

See Notes to Financial Highlights 102

Financial Highlights

Trust Class

	Period from April 2, 2007^{^}to October 31, 2007
Net Asset Value, Beginning of Period	$	10.39
Income From Investment Operations:
Net Investment Income (Loss)^@		.24
Net Gains or Losses on Securities (both realized and unrealized)		(.02	)
Total From Investment Operations		.22
Less Distributions From:
Net Investment Income		(.23	)
Total Distributions		(.23	)
Net Asset Value, End of Period	$	10.38
Total Return^††		+2.16	%**
Ratios/Supplemental Data
Net Assets, End of Period (in millions)	$	.2
Ratio of Gross Expenses to Average Net Assets^#		1.11	%*
Ratio of Net Expenses to Average Net Assets^‡		1.10	%*
Ratio of Net Investment Income (Loss) to Average Net Assets		3.92	%*
Portfolio Turnover Rate		99	%^{^^}

See Notes to Financial Highlights 103

Financial Highlights

Neuberger Berman Cash Reserves

The following table includes selected data for a share outstanding throughout each year and other performance information derived from the Financial Statements.

Investor Class

	Year Ended October 31,
	2007			2006			2005			2004			2003
Net Asset Value, Beginning of Year	$	1.0000		$	1.0000		$	1.0000		$	1.0000		$	1.0000
Income From Investment Operations:
Net Investment Income (Loss)		.0488			.0441			.0239			.0056			.0066
Net Gains or Losses on Securities		(.0000	)		(.0000	)		(.0000	)		.0000			.0000
Total From Investment Operations		.0488			.0441			.0239			.0056			.0066
Less Distributions From:
Net Investment Income		(.0488	)		(.0441	)		(.0239	)		(.0056	)		(.0066	)
Net Capital Gains		—			—			—			(.0000	)		—
Total Distributions		(.0488	)		(.0441	)		(.0239	)		(.0056	)		(.0066	)
Net Asset Value, End of Year	$	1.0000		$	1.0000		$	1.0000		$	1.0000		$	1.0000
Total Return^††		+5.00	%		+4.50	%		+2.42	%		+.57	%		+.66	%
Ratios/Supplemental Data
Net Assets, End of Year (in millions)	$	306.9		$	605.9		$	480.0		$	481.2		$	617.7
Ratio of Gross Expenses to Average Net Assets^#		.48	%		.45	%		.49	%		.63	%		.59	%
Ratio of Net Expenses to Average Net Assets		.48	%^‡		.45	%^‡		.49	%^‡		.63	%		.59	%
Ratio of Net Investment Income (Loss) to Average Net Assets		4.89	%		4.45	%		2.40	%		.55	%		.68	%

See Notes to Financial Highlights 104

Notes to Financial Highlights Income Funds

†† 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. Current returns may be lower or higher than the performance data quoted. Investment returns and principal may fluctuate and shares when redeemed may be worth more or less than original cost. For each Fund, total return would have been lower if Management had not reimbursed and/or waived certain expenses. For the year ended October 31, 2007, Management reimbursed Short Duration for losses incurred in connection with the disposition of foreign currency contracts, which had no impact on total return.

# The Fund is required to calculate an expense ratio without taking into consideration any expense reductions related to expense offset arrangements.

‡ After reimbursement of expenses and/or waiver of a portion of the investment management fee by Management. Had Management not undertaken such actions, the annualized ratios of net expenses to average daily net assets would have been:

	Year Ended October 31,						Period from October 1, 2005 to October 31,			Year Ended September 30,
	2007			2006			2005			2005
Core Bond Fund Investor Class		1.30	%		1.46	%		1.58	%		1.05	%
Core Bond Fund Institutional Class		.83	%		.91	%		1.05	%		.55	%

	Year Ended October 31,
	2007			2006			2005			2004			2003
Municipal Money Fund Investor Class		.59	%		.61	%		—			—			—
Municipal Securities Trust Investor Class		1.17	%		1.19	%		1.10	%		1.06	%		.98	%
Short Duration Bond Fund Investor Class		.90	%		.80	%		.80	%		.77	%		.74	%
Short Duration Bond Fund Trust Class		1.18	%		1.06	%		1.02	%		.95	%		.93	%
Cash Reserves Investor Class		.50	%		.47	%		.51	%		—			—
	Year Ended October 31,
	2007			2006			2005			2004			2003
High Income Bond Fund Investor Class		.92	%		.90	%		—			—			—

				Year Ended October 31, 2007				Period from December 19, 2005 to October 31, 2006
New York Municipal Money Fund Investor Class					.57	%			.69	%

105

Notes to Financial Highlights Income Funds (cont'd)

	Year Ended October 31,												Period from July 11, 2003 to October 31,
	2007			2006			2005			2004			2003
Strategic Income Fund Institutional Class		2.73	%		2.29	%		1.82	%		1.72	%		3.77	%
Strategic Income Fund Trust Class		4.81	%⁽¹⁾		—			—			—			—

(1) Period from April 2, 2007 to October 31, 2007

§ After reimbursement of expenses previously paid by Management. Had Management not been reimbursed, the annualized ratio of net expenses to average daily net assets would have been:

				Year Ended October 31, 2003
High Income Bond Fund Investor Class					.90	%

^ The date investment operations commenced.

* Annualized.

** Not annualized.

@ The per share amounts which are shown for the periods ended October 31, 2003 and thereafter (September 30, 2005 and thereafter for Core Bond Fund) have been calculated based on the average number of shares outstanding during each fiscal period.

‡‡ Effective after the close of business on June 10, 2005, Management succeeded Ariel Capital Management, LLC, as the Fund's investment manager. The financial highlights for the year ended September 30, 2005 include the income and expenses attributable to the Ariel Premier Bond Fund for the period from October 1, 2004 through June 10, 2005 and the income and expenses of the Fund, thereafter.

ÿ Audited by other auditors whose report dated November 15, 2004 expressed an unqualified opinion.

§§ Audited by other auditors whose report dated October 17, 2003 expressed an unqualified opinion.

^^ Portfolio turnover is calculated at the Fund level. Percentage indicated was calculated for the year ended October 31, 2007 for Strategic Income Fund.

106

Report of Independent Registered Public Accounting Firm

To the Board of Trustees of Lehman Brothers Income Funds and Shareholders of:
Lehman Brothers High Income Bond Fund
Lehman Brothers Municipal Money Fund
Lehman Brothers Municipal Securities Trust
Lehman Brothers Short Duration Bond Fund
Lehman Brothers Strategic Income Fund
Neuberger Berman Cash Reserves

We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of the Lehman Brothers High Income Bond Fund (formerly Neuberger Berman High Income Bond Fund), Lehman Brothers Municipal Money Fund, Lehman Brothers Municipal Securities Trust (formerly Neuberger Berman Municipal Securities Trust), Lehman Brothers Short Duration Bond Fund (formerly Neuberger Berman Limited Maturity Bond Fund), Lehman Brothers Strategic Income Fund (formerly Neuberger Berman Strategic Income Fund), and Neuberger Berman Cash Reserves, seven of the series constituting the Lehman Brothers Income Funds (formerly Neuberger Berman Income Funds) (the "Trust"), as of October 31, 2007, 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Trust's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2007, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 Lehman Brothers Income Funds at October 31, 2007, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.

Boston, Massachusetts
December 14, 2007

107

Report of Independent Registered Public Accounting Firm

To the Board of Trustees
Lehman Brothers Income Funds and
Shareholders of
Lehman Brothers Core Bond Fund
Lehman Brothers New York Municipal Money Fund

We have audited the accompanying statement of assets and liabilities of the Lehman Brothers Core Bond Fund and the Lehman Brothers New York Municipal Money Fund, each a series of the Lehman Brothers Income Funds (the "Trust"), including the schedules of investments, as of October 31, 2007, and the related statements of operations for the year then ended, and for the Lehman Brothers Core Bond Fund, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for the two years in the period then ended and for the period October 1, 2005 through October 31, 2005, and for the year ended September 30, 2005, and for the Lehman Brothers New York Municipal Money Fund, the statements of changes in net assets and the financial highlights for the year then ended and for the period December 19, 2005 (commencement of operations) to October 31, 2006. 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. The financial highlights of the Lehman Brothers Core Bond Fund for each of the two years in the period ended September 30, 2004 have been audited by other auditors, whose reports dated November 15, 2004 and October 17, 2003 expressed unqualified opinions on such financial statements and financial highlights.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2007, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 the Lehman Brothers Core Bond Fund and the Lehman Brothers New York Municipal Money Fund, as of October 31, 2007, the results of their operations, the changes in their net assets, and the financial highlights for the periods indicated above, in conformity with accounting principles generally accepted in the United States of America.

Philadelphia, Pennsylvania
December 14, 2007

108

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-Advisers

Lehman Brothers Asset Management LLC
200 South Wacker Drive
Suite 2100
Chicago, IL 60601

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

For Investor Class Shareholders Address correspondence to:

Neuberger Berman Funds
Boston Service Center
P.O. Box 8403
Boston, MA 02266-8403
800.877.9700 or 212.476.8800

For Institutional Class, and Trust Class Shareholders Address correspondence to:

Neuberger Berman Management Inc.
605 Third Avenue, 2nd Floor
New York, NY 10158-0180
Attn: Institutional Services 800.366.6264

Legal Counsel

Kirkpatrick & Lockhart Preston Gates Ellis LLP
1601 K Street, NW
Washington, DC 20006

Independent Registered Public Accounting Firms

Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116

Tait, Weller & Baker LLP
1818 Market Street
Suite 2400
Philadelphia, PA 19103

109

Trustee and Officer Information

The following tables set forth information concerning the trustees ("Trustees") and officers ("Officers") of Lehman Brothers Income Funds (the "Trust"). All persons named as Trustees and Officers also serve in similar capacities for other funds administered or managed by Neuberger Berman Management Inc. ("Management"), Lehman Brothers Asset Management LLC ("LBAM") and Neuberger Berman, LLC ("Neuberger"). The Statement of Additional Information includes additional information about the Trustees and Officers and is available upon request, without charge, by calling (800) 877-9700.

Information about the Board of Trustees

Name, Age, and Address⁽¹⁾

Position and
Length of
Time Served⁽²⁾

Principal Occupation(s)⁽³⁾

Number of
Funds in
Fund Complex Overseen by
Trustee⁽⁴⁾

Other Directorships Held
Outside Fund Complex by
Trustee

Independent Trustees

John Cannon (77)

Trustee since 1994

Consultant; formerly, Chairman, CDC Investment Advisers (registered investment adviser), 1993 to January 1999; formerly, President and Chief Executive Officer, AMA Investment Advisors, an affiliate of the American Medical Association.

Independent Trustee or Director of three series of Oppenheimer Funds: Oppenheimer Limited Term New York Municipal Fund, Rochester Fund Municipals, and Oppenheimer Convertible Securities Fund since 1992.

Faith Colish (72)

Trustee since 2000

Counsel, Carter Ledyard & Milburn LLP (law firm) since October 2002; formerly, Attorney-at-Law and President, Faith Colish, A Professional Corporation, 1980 to 2002.

Formerly, Director (1997 to 2003) and Advisory Director (2003 to 2006), ABA Retirement Funds (formerly, American Bar Retirement Association) (not-for-profit membership corporation).

110

Name, Age, and Address⁽¹⁾

Position and
Length of
Time Served⁽²⁾

Principal Occupation(s)⁽³⁾

Number of
Funds in
Fund Complex Overseen by
Trustee⁽⁴⁾

Other Directorships Held
Outside Fund Complex by
Trustee

Martha C. Goss (58)

Trustee since 2007

President, Woodhill Enterprises Inc./Chase Hollow Associates LLC (personal investment vehicle), since 2006; Chief Operating and Financial Officer, Hopewell Holdings LLC/Amwell Holdings, LLC (a holding company for a healthcare reinsurance company start-up), since 2003; formerly, Consultant, Resources Connection (temporary staffing), 2002 to 2006.

Director, Ocwen Financial Corporation (mortgage servicing), since 2005; Director, American Water (water utility), since 2003; Director, Channel Reinsurance (financial guaranty reinsurance), since 2006; Advisory Board Member, Attensity (software developer), since 2005; Director, Allianz Life of New York (insurance), since 2005; Director, Financial Women's Association of New York (not for profit association), since 2003; Trustee Emerita, Brown University, since 1998.

C. Anne Harvey (70)

Trustee since 2000

President, C.A. Harvey Associates since October 2001; formerly, Director, AARP, 1978 to December 2001.

Formerly, President, Board of Associates to The National Rehabilitation Hospital's Board of Directors, 2001 to 2002; formerly, Member, Individual Investors Advisory Committee to the New York Stock Exchange Board of Directors, 1998 to June 2002.

Robert A. Kavesh (80)

Trustee since 1993

Marcus Nadler Professor Emeritus of Finance and Economics, New York University Stern School of Business; formerly, Executive Secretary-Treasurer, American Finance Association, 1961 to 1979.

Formerly, Director, The Caring Community (not-for-profit), 1997 to 2006; formerly, Director, DEL Laboratories, Inc. (cosmetics and pharmaceuticals), 1978 to 2004; formerly, Director, Apple Bank for Savings, 1979 to 1990; formerly, Director, Western Pacific Industries, Inc., 1972 to 1986 (public company).

111

Name, Age, and Address⁽¹⁾

Position and
Length of
Time Served⁽²⁾

Principal Occupation(s)⁽³⁾

Number of
Funds in
Fund Complex Overseen by
Trustee⁽⁴⁾

Other Directorships Held
Outside Fund Complex by
Trustee

Michael M. Knetter (47)

Trustee since 2007

Dean, School of Business, University of Wisconsin — Madison; formerly, Professor of International Economics and Associate Dean, Amos Tuck School of Business — Dartmouth College, 1998 to 2002.

Trustee, Northwestern Mutual Series Fund, Inc. since February 2007; Director, Wausau Paper since 2005; Director, Great Wolf Resorts since 2004.

Howard A. Mileaf (70)

Trustee since 2000

Retired; formerly, Vice President and General Counsel, WHX Corporation (holding company), 1993 to 2001.

Director, Webfinancial Corporation (holding company) since December 2002; formerly, Director WHX Corporation (holding company), January 2002 to June 2005; formerly, Director, State Theatre of New Jersey (not-for-profit theater), 2000 to 2005.

George W. Morriss (60)

Trustee since 2007

Formerly, Executive Vice President and Chief Financial Officer, People's Bank (a financial services company), 1991 to 2001.

Manager, Old Mutual 2100 fund complex (consisting of six funds) since October 2006 for four funds and since February 2007 for two funds.

Edward I. O'Brien (79)

Trustee since 2000

Formerly, Member, Investment Policy Committee, Edward Jones, 1993 to 2001; President, Securities Industry Association ("SIA") (securities industry's representative in government relations and regulatory matters at the federal and state levels), 1974 to 1992; Adviser to SIA, November 1992 to November 1993.

Director, Legg Mason, Inc. (financial services holding company) since 1993; formerly, Director, Boston Financial Group (real estate and tax shelters), 1993 to 1999.

112

Name, Age, and Address⁽¹⁾

Position and
Length of
Time Served⁽²⁾

Principal Occupation(s)⁽³⁾

Number of
Funds in
Fund Complex
Overseen by Trustee⁽⁴⁾

Other Directorships Held
Outside Fund Complex by
Trustee

William E. Rulon (75)

Trustee since 1993

Retired; formerly, Senior Vice President, Foodmaker, Inc. (operator and franchiser of restaurants) until January 1997.

Formerly, Director, Pro-Kids Golf and Learning Academy (teach golf and computer usage to "at risk" children), 1998 to 2006; formerly, Director, Prandium, Inc. (restaurants), March 2001 to July 2002.

Cornelius T. Ryan (76)

Trustee since 2000

Founding General Partner, Oxford Partners and Oxford Bioscience Partners (venture capital investing) and President, Oxford Venture Corporation since 1981.

None.

Tom D. Seip (57)

Trustee since 2000; Lead Independent Trustee beginning 2006

General Partner, Seip Investments LP (a private investment partnership); formerly, President and CEO, Westaff, Inc. (temporary staffing), May 2001 to January 2002; formerly, Senior Executive at the Charles Schwab Corporation, 1983 to 1998, including Chief Executive Officer, Charles Schwab Investment Management, Inc. and Trustee, Schwab Family of Funds and Schwab Investments, 1997 to 1998, and Executive Vice President-Retail Brokerage, Charles Schwab & Co., Inc., 1994 to 1997.

Director, H&R Block, Inc. (financial services company) since May 2001; Chairman, Compensation Committee, H&R Block, Inc. since 2006; Director, America One Foundation since 1998; formerly, Chairman, Governance and Nominating Committee, H&R Block, Inc., 2004 to 2006; formerly, Director, Forward Management, Inc. (asset management company), 1999 to 2006; formerly Director, E-Bay Zoological Society, 1999 to 2003; formerly, Director, General Magic (voice recognition software), 2001 to 2002; formerly, Director, E-Finance Corporation (credit decisioning services), 1999 to 2003; formerly, Director, Save-Daily.com (micro investing services), 1999 to 2003.

113

Name, Age, and Address⁽¹⁾

Position and
Length of
Time Served⁽²⁾

Principal Occupation(s)⁽³⁾

Number of
Funds in
Fund Complex Overseen by
Trustee⁽⁴⁾

Other Directorships Held
Outside Fund Complex by
Trustee

Candace L. Straight (60)

Trustee since 1993

Private investor and consultant specializing in the insurance industry; formerly, Advisory Director, Securitas Capital LLC (a global private equity investment firm dedicated to making investments in the insurance sector), 1998 to December 2003.

Director, Montpelier Re (reinsurance company) since 2006; Director, National Atlantic Holdings Corporation (property and casualty insurance company) since 2004; Director, The Proformance Insurance Company (property and casualty insurance company) since March 2004; formerly, Director, Providence Washington Insurance Company (property and casualty insurance company), December 1998 to March 2006; formerly, Director, Summit Global Partners (insurance brokerage firm), 2000 to 2005.

Peter P. Trapp (63)

Trustee since 2000

Retired; formerly, Regional Manager for Mid-Southern Region, Ford Motor Credit Company, September 1997 to 2007; formerly, President, Ford Life Insurance Company, April 1995 to August 1997.

None.

Jack L. Rivkin* (67)

President and Trustee since 2002

Executive Vice President and Chief Investment Officer, Neuberger Berman Inc. (holding company) since 2002 and 2003, respectively; Managing Director and Chief Investment Officer, Neuberger, since December 2005 and 2003, respectively; formerly, Executive Vice President, Neuberger, December 2002 to 2005; Director and Chairman, Management since December 2002; formerly, Executive Vice President, Citigroup Investments, Inc., September 1995 to February 2002; formerly, Executive Vice President, Citigroup Inc., September 1995 to February 2002.

Director, Dale Carnegie and Associates, Inc. (private company) since 1998; Director, Solbright, Inc. (private company) since 1998.

114

Name, Age, and Address⁽¹⁾

Position and
Length of
Time Served⁽²⁾

Principal Occupation(s)⁽³⁾

Number of
Funds in
Fund Complex Overseen by
Trustee⁽⁴⁾

Other Directorships Held
Outside Fund Complex by
Trustee

Peter E. Sundman* (48)

Chairman of the Board and Trustee since 2000; Chief Executive Officer since 1999; President from 1999 to 2000

Executive Vice President, Neuberger Berman Inc. (holding company) since 1999; Head of Neuberger Berman Inc.'s Mutual Funds Business (since 1999) and Institutional Business (1999 to October 2005); responsible for Managed Accounts Business and intermediary distribution since October 1999; President and Director, Management since 1999; Managing Director, Neuberger since 2005; formerly, Executive Vice President, Neuberger, 1999 to December 2005; formerly, Principal, Neuberger, 1997 to 1999; formerly, Senior Vice President, Management, 1996 to 1999.

Director and Vice President, Neuberger & Berman Agency, Inc. since 2000; formerly, Director, Neuberger Berman Inc. (holding company), October 1999 to March 2003; Trustee, Frost Valley YMCA; Trustee, College of Wooster.

(1) The business address of each listed person is 605 Third Avenue, New York, New York 10158.

(2) Pursuant to the Trust's Trust Instrument, each Trustee shall hold office for life or until his or her successor is elected or the Trust terminates; except that (a) any Trustee may resign by delivering a written resignation; (b) any Trustee may be removed with or without cause at any time by a written instrument signed by at least two-thirds of the other Trustees; (c) any Trustee who requests to be retired, or who has become unable to serve, may be retired by a written instrument signed by a majority of the other Trustees; and (d) any Trustee may be removed at any shareholder meeting by a vote of at least two-thirds of the outstanding shares.

(3) Except as otherwise indicated, each individual has held the positions shown for at least the last five years.

(4) For funds organized in a master-feeder structure, we count the master fund and its associated feeder funds as a single portfolio.

* Indicates a Trustee who is an "interested person" within the meaning of the 1940 Act. Mr. Sundman and Mr. Rivkin are interested persons of the Trust by virtue of the fact that they are officers and/or directors of Management, LBAM and/or Neuberger.

115

Information about the Officers of the Trust

Name, Age, and Address⁽¹⁾	Position and Length of Time Served⁽²⁾	Principal Occupation(s)⁽³⁾
Andrew B. Allard (46)	Anti-Money Laundering Compliance Officer since 2002	Senior Vice President, Neuberger since 2006; Deputy General Counsel, Neuberger since 2004; formerly, Vice President, Neuberger, 2000 to 2005; formerly, Associate General Counsel, Neuberger, 1999 to 2004; Anti-Money Laundering Compliance Officer, sixteen registered investment companies for which Management acts as investment manager and administrator (six since 2002, three since 2003, four since 2004, one since 2005 and two since 2006).

Michael J. Bradler (37)	Assistant Treasurer since 2005	Vice President, Neuberger since 2006; Employee, Management since 1997; Assistant Treasurer, sixteen registered investment companies for which Management acts as investment manager and administrator (fourteen since 2005 and two since 2006).

Claudia A. Brandon (51)	Secretary since 1985	Senior Vice President, Neuberger since 2007; Vice President-Mutual Fund Board Relations, Management since 2000 and Assistant Secretary since 2004; formerly, Vice President, Neuberger, 2002 to 2006 and Employee since 1999; Secretary, sixteen registered investment companies for which Management acts as investment manager and administrator (three since 1985, three since 2002, three since 2003, four since 2004, one since 2005 and two since 2006).

Robert Conti (51)	Vice President since 2000	Managing Director, Neuberger since 2007; formerly, Senior Vice President, Neuberger, 2003 to 2006; formerly, Vice President, Neuberger, 1999 to 2003; Senior Vice President, Management since 2000; Vice President, sixteen registered investment companies for which Management acts as investment manager and administrator (three since 2000, three since 2002, three since 2003, four since 2004, one since 2005 and two since 2006).

Brian J. Gaffney (54)	Vice President since 2000	Managing Director, Neuberger since 1999; Senior Vice President, Management since 2000; Vice President, sixteen registered investment companies for which Management acts as investment manager and administrator (three since 2000, three since 2002, three since 2003, four since 2004, one since 2005 and two since 2006).

Maxine L. Gerson (56)	Chief Legal Officer since 2005 (only for purposes of sections 307 and 406 of the Sarbanes-Oxley Act of 2002)	Senior Vice President, Neuberger since 2002; Deputy General Counsel and Assistant Secretary, Neuberger since 2001; Senior Vice President, Management since 2006; Secretary and General Counsel, Management since 2004; Chief Legal Officer (only for purposes of sections 307 and 406 of the Sarbanes-Oxley Act of 2002), sixteen registered investment companies for which Management acts as investment manager and administrator (fourteen since 2005 and two since 2006).

116

Name, Age, and Address⁽¹⁾	Position and Length of Time Served⁽²⁾	Principal Occupation(s)⁽³⁾
Sheila R. James (42)	Assistant Secretary since 2002	Assistant Vice President, Neuberger since 2007 and Employee since 1999; Assistant Secretary, sixteen registered investment companies for which Management acts as investment manager and administrator (six since 2002, three since 2003, four since 2004, one since 2005 and two since 2006).

Kevin Lyons (52)	Assistant Secretary since 2003	Employee, Neuberger since 1999; Assistant Secretary, sixteen registered investment companies for which Management acts as investment manager and administrator (nine since 2003, four since 2004, one since 2005 and two since 2006).

John M. McGovern (37)	Treasurer and Principal Financial and Accounting Officer since 2005; prior thereto, Assistant Treasurer since 2002	Senior Vice President, Neuberger since 2007; formerly, Vice President, Neuberger, 2004 to 2006; Employee, Management since 1993; Treasurer and Principal Financial and Accounting Officer, sixteen registered investment companies for which Management acts as investment manager and administrator (fourteen since 2005 and two since 2006); formerly, Assistant Treasurer, fourteen registered investment companies for which Management acts as investment manager and administrator, 2002 to 2005.

Frank Rosato (36)	Assistant Treasurer since 2005	Vice President, Neuberger since 2006; Employee, Management since 1995; Assistant Treasurer, sixteen registered investment companies for which Management acts as investment manager and administrator (fourteen since 2005 and two since 2006).

Frederic B. Soule (61)	Vice President since 2000	Senior Vice President, Neuberger since 2003; formerly, Vice President, Neuberger, 1999 to 2002; Vice President, sixteen registered investment companies for which Management acts as investment manager and administrator (three since 2000, three since 2002, three since 2003, four since 2004, one since 2005 and two since 2006).

Chamaine Williams (36)	Chief Compliance Officer since 2005	Senior Vice President, Neuberger since 2007; Chief Compliance Officer, Management since 2006; Senior Vice President, Lehman Brothers Inc. since 2007; formerly, Vice President, Lehman Brothers Inc., 2003 to 2006; Chief Compliance Officer, sixteen registered investment companies for which Management acts as investment manager and administrator (fifteen since 2005 and one since 2006); Chief Compliance Officer, Lehman Brothers Asset Management Inc. since 2003; Chief Compliance Officer, Lehman Brothers Alternative Investment Management LLC since 2003; formerly, Vice President, UBS Global Asset Management (US) Inc. (formerly, Mitchell Hutchins Asset Management, a wholly-owned subsidiary of PaineWebber Inc.), 1997 to 2003.

(1) The business address of each listed person is 605 Third Avenue, New York, New York 10158.

(2) Pursuant to the By-Laws of the Trust, each Officer elected by the Trustees shall hold office until his or her successor shall have been elected and qualified or until his or her earlier death, inability to serve, or resignation. Officers serve at the pleasure of the Trustees and may be removed at any time with or without cause.

(3) Except as otherwise indicated, each individual has held the positions shown for at least the last five years.

117

Proxy Voting Policies and Procedures

A description of the policies and procedures that the Trust uses to determine how to vote proxies relating to portfolio securities is available, without charge, by calling 1-800-877-9700 (toll-free) and on the website of the Securities and Exchange Commission, at www.sec.gov. Information regarding how the Trust voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is also available without charge, by calling 1-800-877-9700 (toll-free), on the website of the Securities and Exchange Commission, at www.sec.gov, and on Management's website at www.nb.com.

Quarterly Portfolio Schedule

The Trust files a complete schedule of portfolio holdings for each Fund with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Trust's Forms N-Q are available on the Securities and Exchange Commission's website at www.sec.gov and may be reviewed and copied at the Securities and Exchange Commission's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The information on Form N-Q is available upon request, without charge, by calling 1-800-877-9700 (toll-free).

Notice to Shareholders (Unaudited)

For Lehman Brothers Strategic Income Fund 3.9% of the dividends distributed during the fiscal year ended October 31, 2007 qualifies for the dividends received deduction for corporate shareholders.

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, 2007. This information should not be used to complete your tax returns.

	U.S. Treasury Obligations			Other Direct U.S. Government Obligations			Other Indirect U.S. Government Obligations			Repurchase Agreements
Lehman Brothers High Income Bond Fund		0.0	%		0.0	%		0.0	%		0.0	%
Lehman Brothers Short Duration Bond Fund		0.0			0.0			7.3			2.0
Lehman Brothers Strategic Income Fund		2.9			0.6			10.7			0.6
Neuberger Berman Cash Reserves		0.0			0.9			0.3			6.0

In January 2008, you will receive information to be used in filing your 2007 tax returns, which will include a notice of the exact tax status of all dividends paid to you by each Fund during calendar year 2007. Please consult your own tax advisor for details as to how this information should be reflected on your tax returns.

For the fiscal year ended October 31, 2007, the percentage representing the portion of distributions from net investment income, which are exempt from federal income tax, other than alternative minimum tax for the Lehman Brothers Municipal Securities Trust Fund is 99.96%.

118

For the fiscal year ended October 31, 2007, Lehman Brothers High Income Bond Fund and Lehman Brothers Strategic Income Fund designates $3,750 and $153,683, respectively, or up to the maximum amount of such dividends allowable pursuant to the Internal Revenue Code, as qualified dividend income eligible for reduced tax rates. These lower rates range from 5% to 15% depending upon an individual's tax bracket. Complete information regarding the Fund's distributions during the calendar year 2007 will be reported in conjunction with Form 1099DIV.

For the fiscal period ended October 31, 2007, the percentages representing the portion of distributions from net investment income, which are exempt from federal tax, other than alternative minimum tax are as follows:

Lehman Brothers Municipal Money Fund 100%
Lehman Brothers New York Municipal Money Fund 100%

Lehman Brothers Municipal Securities Trust and Lehman Brothers Strategic Income Fund hereby designate $125,933 and $559,884, respectively, as a capital gain distribution.

Board Consideration of the Management and Sub-Advisory Agreements

At a meeting held on September 27, 2007, the Board of Trustees of Lehman Brothers Income Funds ("Board"), including the Trustees who are not "interested persons" of Neuberger Berman Management Inc. ("Management") or Lehman Brothers Income Funds ("Independent Fund Trustees"), approved the continuance of the Management and Sub-Advisory Agreements ("Agreements") between Management and each of Lehman Brothers Core Bond Fund, Lehman Brothers High Income Bond Fund, Lehman Brothers Municipal Money Fund, Lehman Brothers Municipal Securities Trust, Lehman Brothers New York Municipal Money Fund, Lehman Brothers Short Duration Bond Fund, Lehman Brothers Strategic Income Fund and Neuberger Berman Cash Reserves (each a "Fund").

In evaluating the Agreements, the Board, including the Independent Fund Trustees, reviewed materials furnished by Management and Lehman Brothers Asset Management LLC ("LBAM") in response to questions submitted by counsel to the Independent Fund Trustees, and met with senior representatives of Management and LBAM regarding their personnel and operations. The Independent Fund Trustees were advised by counsel that is experienced in Investment Company Act of 1940 matters and that is independent of Management and LBAM. The Independent Fund Trustees received a memorandum from independent counsel discussing the legal standards for their consideration of the proposed continuance of the Agreements. They met with such counsel separately from representatives of Management to discuss the annual contract review. The annual contract review extends over two regular meetings of the Board to ensure that Management and LBAM have time to respond t o any questions the Independent Fund Trustees may have on their initial review of the report and that the Independent Fund Trustees have time to consider those responses. In addition, during this process, the Board held a separate meeting devoted to reviewing and discussing Fund performance.

The Board considered the following factors, among others, in connection with its approval of the continuance of the Agreements: (1) the nature, extent, and quality of the services provided by Management and LBAM; (2) the performance of each Fund compared to relevant market indices and a peer group of investment companies; (3) the costs of the services provided and profits or losses historically realized by Management and its affiliates from their relationship with the Funds; (4) the extent to which economies of scale might be realized as each Fund grows; and (5) whether fee levels reflect any such potential economies of scale for the benefit of investors in each Fund. In their deliberations, the Board members did not identify any particular information that was all-important or controlling, and each Trustee may have attributed different weights to the various factors.

The Board evaluated the terms of the Agreements, the overall fairness of the Agreements to each Fund and whether the Agreements were in the best interests of each Fund and its shareholders.

With respect to the nature, extent and quality of the services provided, the Board considered the performance of each Fund and the experience and staffing of the portfolio management and investment research personnel who perform services for the Funds. The Board noted that Management also provides certain administrative services, including fund accounting and compliance oversight. The Board also considered Management's and LBAM's policies and practices regarding brokerage. The Board considered the quality of brokerage execution obtained by Management. The Board's

119

Portfolio Transactions and Pricing Committee from time to time reviews the quality of the brokerage services that Lehman Brothers Inc. provides, and periodically reviews studies by an independent firm engaged to review and evaluate the quality of brokerage execution received by the Funds. The Board also reviewed whether Management and LBAM used brokers to execute Fund transactions that provide research and other services to Management and LBAM, and the types of benefits potentially derived by Management, LBAM, the Funds and other clients of Management and LBAM from such services. In addition, the Board noted the positive compliance history of Management, as the firm has been free of significant compliance problems.

With respect to the performance of each Fund, the Board considered the performance of each Fund relative to its benchmark and a peer group of investment companies pursuing broadly similar strategies to the Fund. The Board also considered performance in relation to the degree of risk undertaken by the portfolio manager(s).

With respect to the overall fairness of the Agreements, the Board considered the fee structure for each Fund under the Agreements as compared to a peer group of comparable funds and fall-out benefits likely to accrue to Management or LBAM or their affiliates from their relationship with each Fund. The Board also considered the profitability of Management and its affiliates from their association with each Fund.

The Board reviewed a comparison of each Fund's management fee and overall expense ratio to a peer group of broadly comparable funds. Where a Fund's management fee was higher than the peer group mean and/or median, the Board considered whether specific portfolio management or administration needs contributed to the management fee. In addition, the Board considered the contractual limits on Fund expenses undertaken by Management for each class of each Fund. The Board noted that certain classes of certain Funds also have voluntary limits which further reduce Fund expenses. The Board noted that Management incurred a loss on Lehman Brothers Core Bond Fund, Lehman Brothers Municipal Securities Trust and Lehman Brothers Strategic Income Fund.

The Board considered whether there were other funds that were advised or sub-advised by Management or its affiliates or separate accounts managed by Management or its affiliates with similar investment objectives, policies and strategies to the Funds. The Board compared the fees charged to each Fund at various asset levels to the fees charged to any such funds or separate accounts. The Board considered the appropriateness and reasonableness of any differences between the fees charged to each Fund and any such funds or separate accounts and determined that the differences in fees were consistent with the management and other services provided.

The Board also evaluated any apparent or anticipated economies of scale in relation to the services Management provides to each Fund. The Board considered whether each Fund's fee structure provides for a reduction of payments resulting from the use of breakpoints and whether those breakpoints are set at appropriate asset levels.

In concluding that the benefits accruing to Management and its affiliates by virtue of their relationship to the Funds were reasonable in comparison with the benefits accruing to each Fund, the Board reviewed specific data as to Management's profit or loss on each Fund for a recent period and the trend in profit or loss over time. The Board also carefully examined Management's cost allocation methodology and in recent years had an independent consultant review the methodology. It also reviewed an analysis from an independent data service on profitability margins in the investment management industry. The Board recognized that Management should be entitled to earn a reasonable level of profits for services it provides to the Funds and, based on its review, concluded that Management's level of profitability was not excessive.

Conclusions

In approving the Agreements, the Board concluded that the terms of each Agreement are fair and reasonable and that approval of the Agreements is in the best interests of each Fund and its shareholders. In reaching this determination, the Board considered that Management and LBAM could be expected to provide a high level of service to each Fund; that the performance of each Fund was satisfactory; that each Fund's fee structure appeared to the Board to be reasonable given the nature and quality of services provided; and that the benefits accruing to Management and its affiliates by virtue of their relationship to the Funds were reasonable in comparison with the benefits accruing to each Fund.

120

This page has been left blank intentionally

Investment manager: Neuberger Berman Management Inc.

Sub-advisers: Lehman Brothers Asset Management LLC
Neuberger Berman LLC

Neuberger Berman Management Inc.
605 Third Avenue, 2nd Floor
New York, NY 10158-0180
Retail Services: 800.877.9700
Broker/Dealer and Institutional Services: 800.366.6264 Web site: www.nb.com
Lehman Brothers New York Municipal Money Fund Inquiries:
888.556.9030 Web site: www.lehmanam.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.

H0648 12/07

Lehman Brothers Tax-Free Money Fund

Lehman Brothers National Municipal Money Fund

Annual Report

October 31, 2007

Contents

THE FUNDS

Chairman's Letter					1

PORTFOLIO COMMENTARY/MATURITY DIVERSIFICATION

Lehman Brothers Tax-Free Money Fund					2

Lehman Brothers National Municipal Money Fund					2

Fund Expense Information					6

FINANCIAL STATEMENTS					8

FINANCIAL HIGHLIGHTS/PER SHARE DATA

Lehman Brothers Tax-Free Money Fund					16

Lehman Brothers National Municipal Money Fund					17

Reports of Independent Registered Public Accounting Firms					19

THE MASTER SERIES

SCHEDULE OF INVESTMENTS

Tax-Exempt Master Series					21

Municipal Master Series					34

FINANCIAL STATEMENTS					46

FINANCIAL HIGHLIGHTS

Tax-Exempt Master Series					52

Municipal Master Series					53

Reports of Independent Registered Public Accounting Firms					55

Directory					57

Trustees and Officers					58

Proxy Voting Policies and Procedures					66

Quarterly Portfolio Schedule					66

Notice to Shareholders					66

Board Consideration of the Management and Sub-Advisory Agreements					66

Chairman's Letter

We are pleased to present to you the annual report for the Lehman Brothers Tax-Free Money Fund and the Lehman Brothers National Municipal Money Fund for the fiscal year ended October 31, 2007.

The Funds' investment objectives are simple and straightforward—seeking the highest available current income exempt from federal income tax through investment strategies consistent with the highest standards for safety and liquidity. Portfolio Co-Managers William Furrer and Kristian Lind employ strategies including active weighted average maturity management (positioning the portfolio in the most advantageous points on the yield curve), sector allocation (taking advantage of opportunistic pricing in the different sectors of the municipal securities markets) and, most importantly, security selection.

Over the many years that we have been investing in municipal money markets, we have developed an extensive national network of regional brokers who provide considerable assistance in identifying high quality, attractively priced securities. We also do our own internal credit analysis on every issue we invest in. We believe that our ongoing commitment to assessing the credit quality of potential investments will continue to reward our shareholders.

Sincerely,

Peter Sundman
Chairman of the Board
Lehman Brothers Income Funds

Lehman Brothers Tax-Free Money Fund
Lehman Brothers National Municipal Money Fund
Portfolio Commentary

In the fiscal year ended October 31, 2007, activity in the financial markets was largely uneventful until June, when investors appeared to begin contemplating the repercussions of rising subprime mortgage defaults and the ownership by financial institutions of subprime mortgage-backed securities. By July, it became clear to many investors that it was difficult to quantify financial companies' exposure and the credit markets nearly ground to a halt. A large infusion of capital from the Federal Reserve and two subsequent Fed Funds rate cuts totaling 75 basis points helped get the credit markets working again. However, toward the end of this 12-month reporting period, the market continued to experience turmoil as prominent financial companies took big write-downs on their subprime mortgage-backed securities holdings.

This difficult situation penalized the stock and corporate bond markets as investors fled to the safety of U.S. Treasuries and municipal money market funds. Because demand for short-term Treasuries was particularly robust, municipal money market funds provided relatively attractive after-tax returns.

Usually, interest rate cuts by the Federal Reserve would result in a steeper yield curve (with higher yields for longer maturity debt). As such, generally, our response would be to extend the Funds' weighted average maturities to lock in the higher yields on longer maturity securities. However, this time, the municipal money market yield curve remained inverted as variable rate demand notes (VRDNs) with one-day, one-week or one-month maturities yielded more than one-year municipal debt. Also, maintaining large allocations to VRDNs can help keep the Funds more liquid to meet any demands due to market uncertainties. As such, we maintained a large commitment to VRDNs, which is the primary reason the Funds' weighted average maturity declined over the course of fiscal 2007.

After coming to the credit markets' rescue in July and August, the Federal Reserve now finds itself in an extremely difficult situation. On the one hand, the extent of the damage of the subprime mortgage debacle on financial institutions and the economy is still difficult to assess. If things are worse than currently perceived, we believe the Fed will probably be forced to ease further. However, this would likely undermine the already shaky dollar. Also, with commodities prices (oil, agricultural products, gold and industrial materials) rising, additional rate cuts could further fan inflationary flames. We think the Fed will wait as long as possible before making its next move. In the interim, as long as VRDNs are priced so attractively, they will remain by far our largest positions and we will likely maintain the Funds' relatively short weighted-average maturities.

Lehman Brothers Tax-Free Money Fund^1,2

For the fiscal year, the Lehman Brothers Tax-Free Money Fund Reserve Class posted a total return of 3.56%, surpassing the iMoneyNet Money Fund Report Tax-Free National Institutional Average's 3.36% return. The Fund's seven-day tax-equivalent current yield (taxable at the highest federal income tax bracket) decreased from 5.22% on October 31, 2006 to 5.11% on October 31, 2007. Its seven-day tax-equivalent effective yield (also taxable at the highest federal income tax bracket) went from 5.36% on October 31, 2006 to 5.24% on October 31, 2007. Current yield and effective yield more closely reflect current earnings than six-month or one-year figures.

MATURITY DIVERSIFICATION

(% by Maturity)
1 - 7 Days	85.6	%
8 - 30 Days	2.2
31 - 90 Days	2.7
91 - 180 Days	2.8
181+ Days	6.7

Lehman Brothers National Municipal Money Fund^1,2,3

For the fiscal year, the Lehman Brothers National Municipal Money Fund Reserve Class posted a total return of 3.68%, outpacing the iMoneyNet Money Fund Report Tax-Free National Institutional Average's 3.36% return. Over the course of the reporting period, the Fund's seven-day tax-equivalent current yield (taxable at the highest federal income tax bracket) decreased from 5.32% on October 31, 2006 to 5.28% on October 31, 2007. Its seven-day tax-equivalent effective yield (also taxable at the highest federal income tax bracket) went from 5.46% on October 31, 2006 to 5.42% on October 31, 2007. Current yield and effective yield more closely reflect current earnings than six-month or one-year figures.

MATURITY DIVERSIFICATION

(% by Maturity)
1 - 7 Days	86.9	%
8 - 30 Days	0.3
31 - 90 Days	4.8
91 - 180 Days	1.5
181+ Days	6.5

Sincerely,

William J. Furrer and Kristian Lind
Portfolio Co-Managers

Performance data quoted represent past performance, which is no guarantee of future results. The investment return on an investment in a money market fund will fluctuate. Current performance may be lower or higher than the performance data quoted. For performance data current to the most recent month-end visit www.lehmanam.com/publiccp/LAM/americas/cash_mgmt.html. The composition, industries and holdings of each Fund are subject to change.

An investment in a Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although each Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a Fund.

Endnotes

1 Neuberger Berman Management Inc. ("Management") has voluntarily agreed to reimburse or waive certain expenses of the Reserve Class of Lehman Brothers Tax-Free Money Fund and Lehman Brothers National Municipal Money Fund so that the total annual operating expenses of the Reserve Class of each Fund (exclusive of taxes, interest, brokerage commissions and extraordinary expenses) are limited to 0.20% and 0.17% of average daily net assets, respectively. Absent such reimbursements or waivers, each Fund's yield would have been less. Management expects that, in the future, it may voluntarily reimburse or waive certain expenses of each Fund so that the total annual operating expenses exclusive of taxes, interest, brokerage commissions and extraordinary expenses are limited to 0.23% of average daily net assets. Management may, at its sole discretion, modify or terminate these voluntary commitments with notice to a Fund.

2 "Current yield" of a money market fund refers to the income generated by an investment in a Fund over a recent 7-day period. This income is then "annualized." The "effective yield" is calculated similarly but, when annualized, the income earned by an investment in the Fund is assumed to be reinvested. The "effective yield" will be slightly higher than the "current yield" because of the compounding effect of this assumed reinvestment. Yields of a money market fund will fluctuate and past performance is not a guarantee of future results. Tax-equivalent effective yield is the taxable effective yield that an investor would have had to receive in order to realize the same level of yield after federal income taxes at the highest federal tax rate, currently 35%, assuming that all of a Fund's income is exempt from federal income taxes.

3 A portion of the income of Lehman Brothers National Municipal Money Fund may be a tax preference item for purposes of the federal alternative minimum tax for certain investors.

Glossary of Indices

iMoneyNet Money Fund Report Tax-Free National Institutional Average:				Measures all national tax-free and municipal institutional funds. Portfolio holdings of tax-free funds include Rated and Unrated Demand Notes, Rated and Unrated General Market Notes, Commercial Paper, Put Bonds—6 months or less, Put Bonds—over 6 months, AMT Paper, and Other Tax-Free holdings.

Please note that the index does not take into account any fees and expenses or any tax consequences of investing in the individual securities that it tracks and that investors cannot invest directly in any index. Data about the performance of the index are prepared or obtained by Management and include reinvestment of all dividends and capital gain distributions. Each Fund may invest in securities not included in the above-described index.

Information About Your Fund's Expenses

These tables are designed to provide information regarding costs related to your investments. All mutual funds incur operating expenses, which include each fund's proportionate share of expenses of its corresponding master series, administrative service fees and other expenses. The following examples are based on an investment of $1,000 made at the beginning of the six month period ended October 31, 2007 and held for the entire period. The tables illustrate each fund's costs in two ways:

Actual Expenses and Performance:				The first section of the tables provide information about actual account values and actual expenses in dollars, based on the fund's actual performance during the period. You may use the information in this line, together with the amount you invested, to estimate the expenses you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section of the table under the heading entitled "Expenses Paid During the Period" to estimate the expenses you paid over the period.

Hypothetical Example for Comparison Purposes:				The second section of the tables provide information about hypothetical account values and hypothetical expenses based on the fund's actual expense ratio and an assumed rate of return at 5% per year before expenses. This return is not the fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in these funds versus other funds. To do so, compare the expenses shown in this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Expense Information as of 10/31/07 (Unaudited)

TAX-FREE MONEY FUND

Actual	Beginning Account Value 5/1/07		Ending Account Value 10/31/07		Expenses Paid During the Period* 5/1/07 - 10/31/07		Expense Ratio
Reserve Class	$	1,000.00	$	1,018.00	$	0.92		.18	%
Hypothetical (5% annual return before expenses)**
Reserve Class	$	1,000.00	$	1,024.30	$	0.92		.18	%

NATIONAL MUNICIPAL MONEY FUND

Actual	Beginning Account Value 5/1/07		Ending Account Value 10/31/07		Expenses Paid During the Period* 5/1/07 - 10/31/07		Expense Ratio
Reserve Class	$	1,000.00	$	1,018.50	$	0.76		.15	%
Hypothetical (5% annual return before expenses) **
Reserve Class	$	1,000.00	$	1,024.45	$	0.77		.15	%

* Expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period shown). Each fund's expense ratio includes its proportionate share of the expenses of its corresponding master series.

** Hypothetical 5% annual return before expenses is calculated by multiplying the number of days in the most recent half year divided by 365.

Statements of Assets and Liabilities

Lehman Brothers Income Funds
(000's omitted except per share amounts)

	TAX-FREE MONEY FUND			NATIONAL MUNICIPAL MONEY FUND
	October 31, 2007			October 31, 2007
Assets
Investment in corresponding Master Series, at value (Note A)	$	1,754,218		$	479,153
Interest receivable		1			4
Receivable from administrator—net (Note B)		—			13
Prepaid expenses and other assets		59			28
Total Assets		1,754,278			479,198
Liabilities
Distributions payable		850			—
Payable to administrator—net (Note B)		115			—
Accrued expenses and other payables		17			67
Total Liabilities		982			67
Net Assets at value	$	1,753,296		$	479,131
Net Assets consist of:
Paid-in capital	$	1,753,274		$	479,146
Distributions in excess of net investment income		(7	)		—
Accumulated net realized gains (losses) on investments		29			(15	)
Net Assets at value	$	1,753,296		$	479,131
Shares Outstanding ($.001 par value; unlimited shares authorized)
Reserve Class		1,753,274			479,146
Net Asset Value, offering and redemption price per share
Reserve Class	$	1.00		$	1.00

See Notes to Financial Statements 8

Statements of Operations

Lehman Brothers Income Funds
(000's omitted)

	TAX-FREE MONEY FUND			NATIONAL MUNICIPAL MONEY FUND
	For the Year Ended October 31, 2007			For the Year Ended October 31, 2007
Investment Income
Investment income from corresponding Master Series (Note A)	$	10,215		$	2,873
Expenses from corresponding Master Series (Notes A & B)		(186	)		(81	)
Net investment income from corresponding Master Series		10,029			2,792
Interest income—unaffiliated issuers		42,477			11,440
Total income	$	52,506		$	14,232
Expenses:
Investment management fees (Note B)		2,633			759
Administration fees (Note B)		1,146			304
Shareholder servicing agent fees		28			26
Audit fees		15			11
Custodian fees (Note B)		181			83
Insurance expense		30			8
Legal fees		36			39
Registration and filing fees		160			138
Shareholder reports		56			12
Trustees' fees and expenses		24			23
Miscellaneous		52			16
Total expenses		4,361			1,419
Investment management fees waived (Notes A & B)		(1,869	)		(874	)
Expenses reduced by custodian fee expense offset arrangement (Note B)		(222	)		(40	)
Total net expenses		2,270			505
Net investment income (loss)		50,236			13,727
Realized and Unrealized Gain (Loss) on Investments (Note A)
Net realized gain (loss):
On sales of investment securities of unaffiliated issuers		23			(20	)
From corresponding Master Series		6			5
Net gain (loss) on investments		29			(15	)
Net increase (decrease) in net assets resulting from operations	$	50,265		$	13,712

See Notes to Financial Statements 9

Statements of Changes in Net Assets

Lehman Brothers Income Funds
(000's omitted)

	TAX-FREE MONEY FUND						NATIONAL MUNICIPAL MONEY FUND
	Year Ended October 31, 2007			Period from December 19, 2005 (Commencement of Operations) to October 31, 2006			Year Ended October 31, 2007			Period from December 19, 2005 (Commencement of Operations) to October 31, 2006
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss)	$	50,236		$	17,837		$	13,727		$	4,618
Net realized gain (loss) on investments		29			52			(15	)		16
Net increase (decrease) in net assets resulting from operations		50,265			17,889			13,712			4,634
Distributions to Shareholders From (Note A):
Net investment income		(50,243	)		(17,837	)		(13,727	)		(4,618	)
Net realized gain on investments		(52	)		—			(16	)		—
Total distributions to shareholders		(50,295	)		(17,837	)		(13,743	)		(4,618	)
From Fund Share Transactions (Note D):
Proceeds from shares sold		14,020,213			7,375,109			5,085,798			1,805,891
Proceeds from reinvestment of dividends and distributions		39,270			14,793			13,225			3,040
Payments for shares redeemed		(13,471,278	)		(6,224,833	)		(4,790,405	)		(1,638,403	)
Net increase (decrease) from Fund share transactions		588,205			1,165,069			308,618			170,528
Net Increase (Decrease) in Net Assets		588,175			1,165,121			308,587			170,544
Net Assets:
Beginning of period		1,165,121			—			170,544			—
End of period	$	1,753,296		$	1,165,121		$	479,131		$	170,544
Distributions in excess of net investment income at end of period	$	(7	)	$	—		$	—		$	—

See Notes to Financial Statements 10

Notes to Financial Statements Income Funds

Note A—Summary of Significant Accounting Policies:

1 General: Lehman Brothers Tax-Free Money Fund ("Tax-Free Money") and Lehman Brothers National Municipal Money Fund ("National Municipal Money") (individually a "Fund", collectively, the "Funds") are separate operating series of Lehman Brothers Income Funds (the "Trust"), a Delaware statutory 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 (the "1940 Act"), and its shares are registered under the Securities Act of 1933, as amended (the "1933 Act"). The Funds offer Reserve Class shares. The Board of Trustees of the Trust (the "Board") may establish additional series or classes of shares without the approval of shareholders.

On September 10, 2007, each Fund converted from a single-fund structure to a "master-feeder" structure. Under the master feeder structure, rather than investing directly in securities, each Fund is a "feeder fund," meaning that it invests in a corresponding "master series." The master series in turn invests in securities, using the strategies as described in the Funds' prospectus.

Each Fund seeks to achieve its investment objective by investing all of its net investable assets in a Master Series of Institutional Liquidity Trust (each a "Master Series," collectively, the "Master Series") that has an investment objective identical to, and a name similar to, that of each respective Fund. Tax-Free Money invests in Tax-Exempt Master Series (commencement of operations September 10, 2007). National Municipal Money invests in Municipal Master Series (commencement of operations September 10, 2007). The value of each Fund's investment in its corresponding Master Series reflects the Fund's proportionate interest in the net assets of its corresponding Master Series (92.42% for Tax-Free Money and 77.59% for National Municipal Money, at October 31, 2007). The performance of each Fund is directly affected by the performance of its corresponding Master Series. The financial statements of the Master Series, including the Schedules of Investments, are included elsewhere in this report and should be read in conjunction with the Funds' financial statements.

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.

It is the policy of the Funds to maintain a continuous net asset value per share of $1.00; each of the 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 the Funds will be able to maintain a stable net asset value per share. Each of these Funds complies with Rule 2a-7 of the 1940 Act.

2 Fund valuation: Each Fund records its investment in its corresponding Master Series at value. Investment securities held by the corresponding Master Series are valued as indicated in the notes following the Master Series' Schedules of Investments. Prior to September 10, 2007, investments in securities were valued at amortized cost, which approximated U.S. federal income tax cost.

3 Securities transactions and investment income: Prior to September 10, 2007, the Fund recorded securities transactions on trade date for financial reporting purposes. Interest income, including accretion of discount (adjusted for original issue discount, where applicable) and amortization of premium, where applicable, was recorded on the accrual basis. Realized gains and losses from securities transactions were recorded on the basis of identified cost and stated separately in the Statements of Operations.

4 Income tax information: Each Fund is treated as a separate entity for U.S. federal income tax purposes. It is the policy of each Fund to continue to qualify as a regulated investment company by complying with the requirements

of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its earnings to its shareholders. Therefore, no federal income or excise tax provision is required.

Income distributions and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. These differences are primarily due to differing treatments of income and gains on various investment securities held by each Master Series, timing differences and differing characterization of distributions made by each Fund as a whole.

As determined on October 31, 2007, there were no permanent differences resulting primarily from different book and tax accounting for the Funds.

The tax character of distributions paid during the year ended October 31, 2007 and the period ended October 31, 2006 were as follows:

					Distributions Paid From:
	Taxable Income				Tax-Exempt Income				Total
	2007		2006		2007		2006		2007		2006
Tax-Free Money	$	51,582	$	—	$	50,242,930	$	17,837,465	$	50,294,512	$	17,837,465
National Municipal Money		16,762		—		13,726,404		4,617,630		13,743,166		4,617,630

As of October 31, 2007, the components of distributable earnings (accumulated losses) on a U.S. federal income tax basis were as follows:

	Undistributed Ordinary Income		Undistributed Tax-Exempt Income		Loss Carryforwards and Deferrals			Total
Tax-Free Money	$	29,078	$	863,076	$	—		$	892,154
National Municipal Money		—		20,210		(14,295	)		5,915

The differences between book basis and tax basis distributable earnings are attributable primarily to timing differences of distribution payments and organization expenses.

To the extent each Fund's net realized capital gains, if any, can be offset by capital loss carryforwards, it is the policy of each Fund not to distribute such gains. As determined on October 31, 2007, each Fund had unused capital loss carryforwards available for federal income tax purposes to offset net realized capital gains, if any, as follows:

	Expiring in:
	2015
Tax-Free Money	$	—
National Municipal Money		14,295

5 Distributions to shareholders: Each Fund earns income, net of expenses, daily on its investment in the Master Series. It is the policy of each Fund to declare distributions from net investment income on each business day; such distributions are paid monthly. Distributions from net realized capital gains, if any, are generally distributed in December. Distributions to shareholders are recorded on the ex-date.

6 Expense allocation: Certain expenses are applicable to multiple funds. Expenses directly attributable to a Fund are charged to that Fund. Expenses of the Trust that are not directly attributed to a Fund are allocated among the series of the Trust, on the basis of relative net assets, except where a more appropriate allocation of expenses to each of the series can otherwise be made fairly. Expenses borne by the complex of related investment companies, which includes open-end and closed-end investment companies for which Management serves as investment manager, that are not directly attributed to a Fund or the Trust, are allocated among the Funds and the other investment companies in the complex or series thereof, on the basis of relative net assets, except where a more appropriate allocation of expenses to each investment company in the co mplex or series thereof can otherwise be made fairly.

Each Fund bears its proportionate share of its corresponding Master Series' expenses.

7 Other: All net investment income and realized and unrealized capital gains and losses of a Master Series are allocated pro rata among its respective Fund and any other investors in the Master Series (including any other investment companies), if any.

8 Indemnifications: Like many other companies, the Trust's organizational documents provide that its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, both in some of its principal service contracts and in the normal course of its business, the Trust enters into contracts that provide indemnifications to other parties for certain types of losses or liabilities. The Trust's maximum exposure under these arrangements is unknown as this could involve future claims against the Trust.

Note B—Management Fees, Administration Fees, Distribution Arrangements, and Other Transactions with Affiliates:

Each Fund retains Management as its administrator under an Administration Agreement. The Reserve Class of each Fund pays Management an administration fee at the annual rate of 0.08% of its average daily net assets under this agreement. Additionally, Management retains State Street Bank and Trust Company ("State Street") as its sub-administrator under a Sub-Administration Agreement. Management pays State Street a fee for all services received under the agreement.

Prior to September 10, 2007, each Fund directly retained Management as its investment manager under a Management Agreement. For such investment management services, each Fund paid Management a fee at the annual rate of 0.25% of the first $500 million of that Fund'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. Effective September 11, 2007, each Fund indirectly pays for investment management services through its investment in the corresponding Master Series at the same annual rate of its average daily net assets (see Note B of Notes to Financial Statements of the Institutional Liquidity Trust). As a result of a waiver at the Master Series level, each Fund indirectly received a management fee waiver limiting the management fee to 0.08% of its average daily net assets from Septembe r 10, 2007 to October 31, 2007. The waiver resulted in a reduction of expenses borne by the Fund from its corresponding Master Series of $363,178 for Tax-Free Money and $126,245 for National Municipal Money (See Note B of Notes to Financial Statements of the Institutional Liquidity Trust).

Prior to September 10, 2007, Lehman Brothers Asset Management, LLC ("LBAM"), as sub-adviser to the Funds, received a monthly fee paid by Management. These Funds did not pay a fee directly to LBAM for such services. During that time, LBAM was retained by Management to provide day-to-day investment management services. As investment manager, Management was responsible for overseeing the investment activities of LBAM.

Management has voluntarily undertaken to reimburse and/or waive operating expenses (including fees payable to Management but excluding interest, taxes, brokerage commissions, and extraordinary expenses) ("Operating Expenses") which exceed the expense limitation as detailed in the following table:

Class	Voluntary Expense Limitation⁽¹⁾			Investment Management and Administration Fees Waived for the Year Ended October 31, 2007		Voluntary Reimbursement from Management for the Year Ended October 31, 2007
Tax-Free Money Reserve Class		0.20	%⁽²⁾	$	1,868,708	$	—
National Municipal Money Reserve Class		0.17	%⁽²⁾		874,059		—

(1) Expense limitation per annum of the class' average daily net assets. Management may, at its sole discretion, terminate this agreement with notice to each Fund.

(2) Management expects that, in the future, it may voluntarily reimburse or waive certain expenses of each Fund so that the total annual Operating Expenses of each Fund are limited to 0.23% of average net assets.

Management and LBAM are wholly owned subsidiaries of Lehman Brothers Holdings Inc., a publicly-owned holding company. Several individuals who are officers and/or trustees of the Trust are also employees of LBAM and/or Management.

Each Fund also has a distribution agreement with Management. Management receives no compensation therefore and no commissions for sales or redemptions of shares of beneficial interest of the Funds.

Each Fund (for the period November 1, 2006 to September 10, 2007) and effective September 11, 2007, the Master Series has an expense offset arrangement in connection with its custodian contract. For the year ended October 31, 2007, the impact of this arrangement was a reduction of expenses of $324,702 and $73,657 for Tax-Free Money and National Municipal Money, respectively.

Note C—Investment Transactions:

Prior to September 11, 2007, all securities transactions for Tax-Free Money and National Municipal Money were short-term.

For the period September 11, 2007 to October 31, 2007, contributions and withdrawals in each Fund's investment in its corresponding Master Series were as follows:

(000's omitted)	Contributions		Withdrawals
Tax-Free Money	$	3,080,286	$	1,336,101
National Municipal Money		983,349		506,994

Note D—Fund Share Transactions:

Share activity at $1.00 per share for the year ended October 31, 2007 and the period ended October 31, 2006 was as follows:

	For the Year Ended October 31, 2007									For the Period Ended October 31, 2006⁽¹⁾
(000's omitted)	Shares Sold		Shares Issued on Reinvestment of Dividends and Distributions		Shares Redeemed			Total		Shares Sold			Shares Issued on Reinvestment of Dividends and Distributions		Shares Redeemed			Total
Tax-Free Money:
Reserve Class		14,020,213		39,270		(13,471,278	)		588,205		7,375,109	⁽²⁾		14,793		(6,224,833	)		1,165,069
National Municipal Money:
Reserve Class		5,085,798		13,225		(4,790,405	)		308,618		1,805,891	⁽²⁾		3,040		(1,638,403	)		170,528

(1) Period from December 19, 2005 (Commencement of operations) to October 31, 2006.

(2) Includes initial capitalization of $10 on December 19, 2005.

Note E—Line of Credit:

From May 25, 2007 to September 10, 2007, each Fund was a participant in a single committed, unsecured $300,000,000 line of credit with State Street and Bank of New York, as agent, to be used only for temporary or emergency purposes. Other investment companies managed by Management also participate in this line of credit on the same terms. Interest is charged on borrowings under this agreement at the overnight Federal Funds Rate plus 0.375% per annum. A commitment fee of 0.075% per annum of the unused available line of credit is charged, of which each Fund had agreed to pay its pro rata share, based on the ratio of its individual net assets to the net assets of all participants at the time the fee is due and payable. The fee is paid quarterly in arrears. Because several investment companies participate, there was no assurance that an individual Fund would have access to all or any part of the $300,000,000 at any particular time. During the period May 25, 2007 to September 10, 2007, the Funds did not utilize this line of credit. Effective September 11, 2007, each Master Series participates in this line of credit (See Note D of Notes to Financial Statements of the Master Series).

Note F—Recent Accounting Pronouncements:

On July 13, 2006, the Financial Accounting Standards Board ("FASB") released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 clarifies the accounting for income taxes, by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 requires that a "more-likely-than-not" threshold be met before the benefit of a tax position may be recognized in the financial statements and prescribes how such benefit should be measured. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. The Securities and Exchange Commission has permitted investment companies to delay implementation of FIN 48. Each Fund has until March 31, 2008 to implement FIN 48. At this time, Management is evaluating the implications of FIN 48 and its impact in the financial statements has not yet been determined.

Note G—Change in Year End:

The Board of Trustees adopted a change in each Fund's fiscal year and tax year end date to March 31. This change is effective with the next fiscal period, which runs from November 1, 2007 to March 31, 2008.

Financial Highlights

Lehman Brothers Tax-Free Money Fund^†

The following table includes selected data for a share outstanding throughout each period and other performance information derived from the Financial Statements. It should be read in conjunction with its corresponding Master Series' Financial Statements and notes thereto.

Reserve Class

	Year Ended October 31, 2007			Period from December 19, 2005^{^}to October 31, 2006
Net Asset Value, Beginning of Period	$	1.0000		$	1.0000
Income From Investment Operations:
Net Investment Income (Loss)		.0350			.0282
Net Gains or Losses on Securities		.0000			.0000
Total From Investment Operations		.0350			.0282
Less Distributions From:
Net Investment Income		(.0350	)		(.0282	)
Net Capital Gains		(.0000	)		—
Total Distributions		(.0350	)		(.0282	)
Net Asset Value, End of Period	$	1.0000		$	1.0000
Total Return^††@@		+3.56	%		+2.86	%**
Ratios/Supplemental Data
Net Assets, End of Period (in millions)	$	1,753.3		$	1,165.1
Ratio of Gross Expenses to Average Net Assets^#		.19	%		.19	%*
Ratio of Net Expenses to Average Net Assets^‡		.18	%		.17	%*
Ratio of Net Investment Income (Loss) to Average Net Assets		3.51	%		3.30	%*

See Notes to Financial Highlights 16

Financial Highlights

Lehman Brothers National Municipal Money Fund^†

Reserve Class

	Year Ended October 31, 2007			Period from December 19, 2005^{^}to October 31, 2006
Net Asset Value, Beginning of Period	$	1.0001		$	1.0000
Income From Investment Operations:
Net Investment Income (Loss)		.0361			.0287
Net Gains or Losses on Securities		(.0000	)		.0001
Total From Investment Operations		.0361			.0288
Less Distributions From:
Net Investment Income		(.0361	)		(.0287	)
Net Capital Gains		(.0001	)		—
Total Distributions		(.0362	)		(.0287	)
Net Asset Value, End of Period	$	1.0000		$	1.0001
Total Return^††@@		+3.68	%		+2.90	%**
Ratios/Supplemental Data
Net Assets, End of Period (in millions)	$	479.1		$	170.5
Ratio of Gross Expenses to Average Net Assets^#		.17	%		.17	%*
Ratio of Net Expenses to Average Net Assets^‡		.16	%		.16	%*
Ratio of Net Investment Income (Loss) to Average Net Assets		3.61	%		3.28	%*

See Notes to Financial Highlights 17

Notes to Financial Highlights Income Funds

† The per share amounts and ratios which are shown reflect income and expenses, including the Fund's proportionate share of its corresponding Master Series' income and expenses (except for the period from December 19, 2005 to September 10, 2007 when each Fund was organized in a single-fund structure).

@@ Total return would have been lower if Management had not reimbursed and/or waived certain expenses (see Note B of Notes to Financial Statements of Income Funds).

# The Fund is required to calculate an expense ratio without taking into consideration any expense reductions related to expense offset arrangements.

‡ After reimbursement of expenses and/or waiver of a portion of the investment management fee by Management (see Note B of Notes to Financial Statements of Income Funds). Had Management not undertaken such actions, the annualized ratios of net expenses to average daily net assets would have been:

	Year Ended October 31, 2007			Period from December 19, 2005 (Commencement of Operations) to October 31, 2006
Tax-Free Money Fund Reserve Class		.33	%		.36	%
National Municipal Money Fund Reserve Class		.42	%		.53	%

^ The date investment operations commenced.

* Annualized.

** Not annualized.

Report of Independent Registered Public Accounting Firm

To the Board of Trustees
Lehman Brothers Income Funds and
Shareholders of
Lehman Brothers Tax-Free Money Fund

We have audited the accompanying statement of assets and liabilities of the Lehman Brothers Tax-Free Money Fund (formerly, Tax-Free Money Fund), a series of the Lehman Brothers Income Funds (the "Trust"), as of October 31, 2007, and the related statement of operations for the year then ended, and the statement of changes in net assets and the financial highlights for the year then ended and for the period December 19, 2005 (commencement of operations) to October 31, 2006. 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 the standards of the Public Company Accounting Oversight Board (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. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2007, by correspondence with the custodian. 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 the Lehman Brothers Tax-Free Money Fund, as of October 31, 2007, and the result of its operations, the changes in its net assets, and the financial highlights for the periods indicated above, in conformity with accounting principles generally accepted in the United States of America.

Philadelphia, Pennsylvania
December 14, 2007

Report of Independent Registered Public Accounting Firm

To the Board of Trustees of Lehman Brothers Income Funds and Shareholders of Lehman Brothers National Municipal Money Fund:

We have audited the accompanying statement of assets and liabilities of Lehman Brothers National Municipal Money Fund (formerly, National Municipal Money Fund) (one of the series constituting Lehman Brothers Income Funds (formerly Neuberger Berman Income Funds) (the "Fund"), as of October 31, 2007, and the related statement of operations for the year then ended, the statement of changes in net assets for the year then ended and the period from December 19, 2005 (commencement of operations) to October 31, 2006, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund'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 the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2007, by correspondence with the custodian and brokers. 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 Lehman Brothers National Municipal Money Fund, a series of Lehman Brothers Income Funds, at October 31, 2007, the results of its operations for the year then ended, changes in its net assets for the year then ended and the period from December 19, 2005 (commencement of operations) to October 31, 2006, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.

Boston, Massachusetts
December 14, 2007

Schedule of Investments Tax-Exempt Master Series

PRINCIPAL AMOUNT

SECURITY^@@

RATING^‡‡§

VALUE^††

(000's omitted)

Moody's

S&P

(000's omitted)

Alabama (0.3%)

1,600

Gulf Shores Med. Clinic Board Rev. (Colonial Pinnacle MOB Proj.), Ser. 2007,
(LOC: Regions Bank), 3.53%, due 11/1/07

P-1

1,600

^µß

1,245

Lee Co. Ind. Dev. Au. Rev. (Lifesouth Comm. Blood Ctr.), Ser. 2001,
(LOC: SunTrust Bank), 3.31%, due 11/7/07

VMIG1

1,245

^µß

3,100

Mobile IDB PCR Ref. (Alabama Pwr. Co. Proj.), Ser. 1994,
3.58%, due 11/1/07

VMIG1

A-1

3,100

^µß

5,945

Alaska (0.1%)

1,250

Alaska Ind. Dev. & Export Au. Rev., Ser. 2004, (FSA Insured),
3.51%, due 11/1/07

VMIG1

1,250

^µi

Arizona (1.9%)

5,800

ABN Amro Munitops Cert. Trust Rev., Ser. 2005, (MBIA Insured),
3.50%, due 11/1/07

VMIG1

5,800

^µa

19,545

Arizona Hlth. Fac. Au. Hosp. Sys. Rev., Ser. 2007,
(LOC: Citigroup Global Markets), 3.51%, due 11/1/07

VMIG1

19,545

^µ

10,000

Scottsdale Ind. Dev. Au. Hosp. Rev., Ser. 2006,
(LOC: Citigroup Global Markets), 3.51%, due 11/1/07

VMIG1

10,000

^µ

35,345

Arkansas (0.9%)

11,500

ABN Amro Munitops Cert. Trust Rev., Ser. 2006, (FGIC Insured),
3.50%, due 11/1/07

VMIG1

11,500

ñµa

6,330

North Little Rock Residential Hsg. Fac. Board Multi-Family Rev. (Floaters),
Ser. 2004, (LOC: Government National Mortgage Association),
3.58%, due 11/1/07

VMIG1

6,330

µr

17,830

California (1.8%)

5,450

Austin Trust St. Cert., Ser. 2007-315, (LOC: State Street Bank & Trust Co.),
3.49%, due 11/1/07

VMIG1

5,450

^µc

3,215

California Statewide Comm. Dev. Au. Rev. (Floaters), Ser. 2007-2089,
(LOC: Wells Fargo Bank & Trust Co.), 3.53%, due 11/1/07

VMIG1

3,215

^µ

9,050

Northern California Gas Au. Number 1 Gas Proj. Rev. (Floaters),
Ser. 2007-55, (LOC: Goldman Sachs), 3.49%, due 11/1/07

9,050

^µ

16,280

Puttable Floating Option Tax Exempt Receipts (Floaters), Ser. 2006,
(LOC: Merrill Lynch Capital Markets), 3.65%, due 11/1/07

16,280

33,995

See Notes to Schedule of Investments 21

PRINCIPAL AMOUNT

SECURITY^@@

RATING^‡‡§

VALUE^††

(000's omitted)

Moody's

S&P

(000's omitted)

Colorado (3.5%)

4,300

Adams 12 Five Star Sch. (Putters), Ser. 2007-1728, (MBIA Insured),
3.50%, due 11/1/07

VMIG1

4,300

^µo

4,725

Broomfield Cert. Participation (Floaters), Ser. 2002-1643, (AMBAC Insured),
3.52%, due 11/1/07

4,725

^µr

1,500

Central Platte Valley Metro. Dist., Ser. 2006, (LOC: BNP Paribas),
3.70%, due 12/1/07

A-1+

1,500

^µ

9,875

Colorado Ed. & Cultural Fac. Au. Rev. (Colorado Christian Univ. Proj.),
Ser. 2004, (LOC: Evangelical Christian Credit Union), 3.48%, due 11/1/07

A-1+

9,875

^µßw

3,625

Colorado Ed. & Cultural Fac. Au. Rev. (Emmanuel Sch. Religion Proj.),
Ser. 2006, (LOC: AmSouth Bank), 3.48%, due 11/1/07

VMIG1

3,625

^µß

5,350

Commerce City Northern Infrastructure Gen. Imp. Dist. G.O., Ser.2006,
(LOC: U.S. Bank), 3.48%, due 11/1/07

A-1+

5,350

^µ

20,000

Dawson Ridge Metro. Dist. Number 1 (Merlots), Ser. 2007-D03,
(LOC: Wachovia Bank & Trust Co.), 3.40%, due 11/7/07

VMIG1

20,000

^µ

5,040

Denver City & Co. Arpt. Rev. (Floaters), Ser. 2006-63TP, (FGIC Insured),
3.49%, due 11/1/07

5,040

^µm

7,485

Deutsche Bank Spears/Lifers Trust Var. St. (Colorado Health Facs. Au.),
Ser. 2007-132, (LOC: Deutsche Bank), 3.73%, due 11/1/07

7,485

^µ

5,405

Summit Co. Sch. Dist. G.O., Ser. 2004, (FSA Insured), 3.51%, due 11/1/07

VMIG1

5,405

^µi

67,305

Delaware (0.7%)

12,585

New Castle Co. Delaware Student Hsg. Rev. (University Courtyard Apts.),
Ser. 2005, (LOC: Bank of New York), 3.49%, due 11/1/07

VMIG1

12,585

^µß

District of Columbia (0.3%)

2,085

District of Columbia G.O. (Merlots), Ser. 2001-A127, (MBIA Insured),
3.34%, due 11/7/07

A-1+

2,085

^µv

2,235

District of Columbia Rev. Ref. (Maret Sch., Inc.), Ser. 2003,
(LOC: SunTrust Bank), 3.26%, due 11/7/07

VMIG1

2,235

^µß

1,435

District of Columbia Wtr. & Swr. Au. Pub. Util. Rev. (Floaters), Ser. 2006,
(FSA Insured), 3.49%, due 11/1/07

1,435

^µl

5,755

Florida (4.7%)

3,250

Alachua Co. Hlth. Fac. Au. Continuing Care Rev.
(Oak Hammock Univ. Proj. A), Ser. 2002, 3.58%, due 11/1/07

VMIG1

3,250

^µß

9,045

Alachua Co. Sch. Board Cert. Participation, Ser. 2004, (AMBAC Insured),
3.52%, due 11/1/07

VMIG1

A-1+

9,045

^µd

14,080

Broward Co. Professional Sports Fac. Tax Rev. (Floaters), Ser. 2007-1939,
(AMBAC Insured), 3.50%, due 11/1/07

14,080

^µs

7,700

Deutsche Bank Spears/Lifers Trust Var. St. Rev. (Manatee Co.),
Ser. 2007-243, (MBIA Insured), 3.50%, due 11/1/07

A-1+

7,700

^µk

2,755

Eclipse Funding Trust (Solar Eclipse-Palm Bay Sales), Ser. 2006-0136,
(FSA Insured), 3.49%, due 11/1/07

A-1+

2,755

^µu

8,980

Eclipse Funding Trust (Solar Eclipse-Winter Haven Utils. Sys.),
Ser. 2006-0054, (MBIA Insured), 3.49%, due 11/1/07

A-1+

8,980

^ñµu

2,690

Florida St. Board of Ed. Muni. Sec. Trust Receipts, Ser. 2003-SGA138,
(MBIA Insured), 3.32%, due 11/7/07

A-1+

2,690

^µt

6,000

Martin Co. PCR (Florida Pwr. & Lt. Proj.), Ser. 2000, 3.59%, due 11/1/07

VMIG1

A-1

6,000

^µß

1,000

Miami-Dade Co. Sch. Board Cert. Participation (Putters), Ser. 2006-1317,
(AMBAC Insured), 3.49%, due 11/1/07

A-1+

1,000

^µo

1,000

Miami-Dade Co. Sch. Board Cert. Participation, (Eagle), Ser. 2006 A,
(AMBAC Insured), 3.52%, due 11/1/07

A-1+

1,000

^µh

8,610

Muni. Sec. Trust Cert. Rev., Ser. 2007-9068, (MBIA Insured), 3.50%,
due 11/1/07

A-1

8,610

^ñµe

9,030

Orlando Util. Commission Wtr. & Elec. Rev. (Floaters), Ser. 2006,
(LOC: Dexia Credit Locale de France), 3.52%, due 11/1/07

9,030

^µ

15,355

Puttable Floating Option Tax Exempt Receipts (Floaters)
(South Miami Hlth. Fac. Au.), Ser. 2007-1498,
(LOC: Merrill Lynch Capital Markets), 3.58%, due 11/1/07

A-1

15,355

^µ

89,495

See Notes to Schedule of Investments 22

PRINCIPAL AMOUNT		SECURITY^@@	RATING^‡‡§		VALUE^††
(000's omitted)			Moody's	S&P	(000's omitted)
Georgia (1.8%)
$	7,555	Athens Area Fac. Corp. Cert. Participation, Ser. 2007, (LOC: Citibank, N.A.), 3.51%, due 11/1/07	VMIG1		$	7,555	^µ
	3,135	De Kalb Co. Wtr. & Swr. Rev., Ser. 2006, (LOC: Citibank, N.A.), 3.51%, due 11/1/07	VMIG1			3,135	^µ
	500	Gwinnett Co. Dev. Au. Rev. (Greater Atlanta Christian), Ser. 1998, (LOC: SunTrust Bank), 3.44%, due 11/7/07				500	^µß
	2,500	Marietta Hsg. Au. Multi-Family Rev. (Franklin Walk Apts. Proj.), Ser. 1990, (LOC: Freddie Mac), 3.58%, due 11/1/07	VMIG1			2,500	^µß
	4,715	Muni. Elec. Au. Spec. Oblig., Ser. 1994-SGA1, (MBIA Insured), 3.32%, due 11/7/07		A-1+		4,715	^µt
	3,995	Puttable Floating Option Tax Exempt Receipts (Floaters), Ser. 2007-4174, (AMBAC Insured), 3.52%, due 11/1/07				3,995	^µl
	11,480	Richmond Co. Dev. Au. Rev., Ser. 2007-10025Z, (LOC: Citigroup Global Markets), 3.52%, due 11/1/07		A-1+		11,480	^µ
						33,880
Illinois (6.9%)
	8,050	Chicago Board Ed. (Floaters), Ser. 2006-3620, (AMBAC Insured), 3.49%, due 11/1/07				8,050	^µl
	7,145	Chicago O'Hare Int'l. Arpt. Rev., Ser. 2005, (FGIC Insured), 3.57%, due 11/1/07				7,145	^µk
	5,080	Chicago O'Hare Int'l. Arpt. Rev. (Floaters), Ser. 2007-1933, (FGIC Insured), 3.50%, due 11/1/07	VMIG1			5,080	^µs
	3,845	De Witt Ford Co. Comm. College Dist. Number 540 (Merlots), Ser. 2007-D13, (FSA Insured), 3.34%, due 11/7/07	VMIG1			3,845	^µv
	16,520	Deutsche Bank Spears/Lifers Trust Var. St. (Chicago Illinois Board), Ser. 2007-315, (FGIC Insured), 3.51%, due 11/1/07				16,520	^µk
	14,180	Deutsche Bank Spears/Lifers Trust Var. St. (Chicago Illinois Board), Ser. 2007-316, (FGIC Insured), 3.51%, due 11/1/07				14,180	^µk
	15,670	Deutsche Bank Spears/Lifers Trust Var. St. (Chicago), Ser. 2007-308, (FGIC Insured), 3.51%, due 11/1/07				15,670	^µk
	4,555	Deutsche Bank Spears/Lifers Trust Var. St. (Chicago), Ser. 2007-346, (FGIC Insured), 3.57%, due 11/1/07				4,555	^µk
	3,815	Deutsche Bank Spears/Lifers Trust Var. St. (Northern Illinois Muni.), Ser. 2007-320, (MBIA Insured), 3.50%, due 11/1/07				3,815	^µk
	8,000	Illinois Fin. Au. Rev. (Clare Oaks), Ser. 2006 D, (LOC: Sovereign Bank), 3.47%, due 11/1/07				8,000	^µbß
	1,900	Illinois Fin. Au. Rev. (IIT Research Institute), Ser. 2004, (LOC: Fifth Third Bank), 3.47%, due 11/1/07	VMIG1			1,900	^µß
	1,850	Illinois Fin. Au. Rev. (Lawrence Hall Youth Svcs.), Ser. 2006, (LOC: Fifth Third Bank), 3.45%, due 11/2/07	VMIG1			1,850	^µß
	5,000	Lake Co. Sch. Dist. Number 109 Deerfield Rev., Ser. 2006, (LOC: JP Morgan Chase), 3.28%, due 11/7/07	VMIG1			5,000	^µ
	4,000	Metro. Pier & Exposition Au. Hospitality Fac. Rev. (Floaters), Ser. 2006, (LOC: Dexia Credit Locale de France), 3.49%, due 11/1/07				4,000	^µ
	8,260	Muni. Sec. Trust Cert. G.O., Ser. 2007-347-A, (FSA Insured), 3.50%, due 11/1/07	VMIG1			8,260	^ñµe
	6,805	Muni. Sec. Trust Cert. G.O., Ser. 2007-3031-A, (FGIC Insured), 3.51%, due 11/1/07	VMIG1			6,805	^ñµe
	2,780	Quad Cities Reg. Econ. Dev. Au. Rev. (Two Rivers YMCA Proj.), Ser. 2002, (LOC: U.S. Bank), 3.63%, due 11/1/07		A-1+		2,780	^µß
	5,905	Reg. Trans. Au. G.O. (Floaters), Ser. 2006, (MBIA Insured), 3.58%, due 11/1/07				5,905	^µl
	8,445	Reg. Trans. Au. G.O. (Merlots), Ser. 2002-A24, (MBIA Insured), 3.34%, due 11/7/07	VMIG1			8,445	^µd
						131,805

See Notes to Schedule of Investments 23

PRINCIPAL AMOUNT		SECURITY^@@	RATING^‡‡§		VALUE^††
(000's omitted)			Moody's	S&P	(000's omitted)
Indiana (7.1%)
$	8,055	ABN Amro Munitops Cert. Trust Rev., Ser. 2006, (AMBAC Insured), 3.50%, due 11/1/07			$	8,055	^ñµa
	7,490	Bartholomew Cons. Sch. Corp. Ind. Tax Anticipation Warrants, Ser. 2007, 4.00%, due 12/31/07				7,494
	5,085	Carmel Clay Parks Bldg. Corp. (Putters), Ser. 2004-539, (MBIA Insured), 3.50%, due 11/1/07		A-1+		5,085	^µo
	6,000	Carmel Clay Sch. Tax Anticipation Warrants, Ser. 2007, 3.90%, due 12/28/07				6,001
	13,885	Carmel Redev. Au. Lease Rental Rev. (Floaters), Ser. 2006-1275, (LOC: Morgan Stanley), 3.50%, due 11/1/07		A-1+		13,885	^µ
	2,065	Carmel Redev. Au. Lease Rental Rev. (Putters), Ser. 2006-1503, (LOC: JP Morgan Chase), 3.50%, due 11/1/07		A-1+		2,065	^µ
	6,860	Columbus Renovation Sch. Bldg. Corp. (Floaters), Ser. 2005, (MBIA Insured), 3.58%, due 11/1/07		A-1+		6,860	^µr
	11,530	Eclipse Funding Trust (Solar Eclipse-Hamilton Southeastern Indiana), Ser. 2007-0006, (FSA Insured), 3.50%, due 11/1/07		A-1+		11,530	^µu
	7,000	Eclipse Funding Trust (Solar Eclipse-IPS Multi-Sch. Bldg. Corp. Ltd.), Ser. 2007-0026, (MBIA Insured), 3.49%, due 11/1/07		A-1+		7,000	^µu
	3,990	Eclipse Funding Trust (Solar Eclipse-Wayne Township Marion), Ser. 2006-0015, (FGIC Insured), 3.49%, due 11/1/07		A-1+		3,990	^ñµu
	3,300	Hamilton Southeastern Sch. Warrants, Ser. 2007, 3.80%, due 12/31/07				3,300
	2,500	Indiana Bond Bank Rev. (Adv. Fdg. Prog. Notes), Ser. 2007 A, (LOC: Bank of New York), 4.25%, due 1/31/08		SP-1+		2,504
	14,600	Indiana Hlth. & Ed. Fac. Fin. Au. Hosp. Rev. (Floyd Mem. Hosp. & Hlth. Proj.), Ser. 2006, (LOC: National City Bank), 3.63%, due 11/1/07		A-1		14,600	^µß
	4,000	Indiana Hlth. & Ed. Fac. Fin. Au. Hosp. Rev. (Harrison Co. Hosp. Proj.), Ser. 2005, (LOC: JP Morgan Chase), 3.58%, due 11/1/07		A-1+		4,000	^µß
	5,320	Indiana Hlth. & Ed. Fac. Fin. Au. Hosp. Rev. (Schneck Mem. Hosp. Proj.), Ser. 2006 B, (LOC: Fifth Third Bank), 3.58%, due 11/1/07		A-1+		5,320	^µß
	2,935	Indiana Trans. Fin. Au. Hwy. Rev., Ser. 2003, (FSA Insured), 3.51%, due 11/1/07		A-1+		2,935	^µi
	6,620	Indianapolis Loc. Pub. Imp. Bond Bank (Putters), Ser. 2007-2120, (MBIA Insured), 3.55%, due 11/1/07	VMIG1			6,620	^µo
	5,000	Indianapolis Loc. Pub. Imp. Bond Bank Ltd. Recourse Notes, Ser. 2007 E, 4.25%, due 10/2/08		SP-1+		5,024
	4,420	Lafayette Sewage Works Rev. (Merlots), Ser. 2006 D08, (FGIC Insured), 3.34%, due 11/7/07		A-1+		4,420	^µv
	2,000	Logansport Comm. Sch. Corp. TANS, Ser. 2007, 4.00%, due 12/31/07				2,001
	2,085	Puttable Floating Option Tax Exempt Receipts, Ser. 2007-212, (XLCA Insured), 3.58%, due 11/1/07				2,085	^µr
	5,720	Univ. Southern Indiana Rev., Ser. 2004, (AMBAC Insured), 3.51%, due 11/1/07	VMIG1			5,720	^µi
	4,745	Wayne Township Marion Co. Sch. Bldg. Corp. (Merlots), Ser. 2006-D02, (FGIC Insured), 3.34%, due 11/7/07		A-1+		4,745	^µv
						135,239

See Notes to Schedule of Investments 24

PRINCIPAL AMOUNT

SECURITY^@@

RATING^‡‡§

VALUE^††

(000's omitted)

Moody's

S&P

(000's omitted)

Iowa (1.9%)

6,840

Ankeny G.O. BANS, Ser. 2006 A, 4.10%, due 6/1/08

MIG1

6,841

4,255

Austin Trust Various Sts. (Iowa Din Au.), Ser. 2007-1011,
(LOC: Bank of America), 3.53%, due 11/1/07

A-1+

4,255

^µ

3,905

Iowa Fin. Au. Private College Rev. (Morningside College Proj.), Ser. 2007,
(LOC: U.S. Bank), 3.63%, due 11/1/07

A-1+

3,905

^µ

3,500

Iowa Fin. Au. Private College Rev. (Morningside College Proj.), Ser. 2006,
(LOC: U.S. Bank), 3.63%, due 11/1/07

A-1+

3,500

^µß

430

Iowa Fin. Au. Rev. (Private Sch. Fac. Rev. Kuemper Proj.), Ser. 1998,
(LOC: Allied Irish Bank), 3.63%, due 11/1/07

430

^µß

1,340

Iowa Higher Ed. Loan Au. Rev. (Private College Des Moines Proj.), Ser. 2004,
(LOC: Allied Irish Bank), 3.63%, due 11/1/07

VMIG1

A-1+

1,340

^µß

285

Iowa Higher Ed. Loan Au. Rev. (Private College Des Moines Proj.), Ser. 2003,
(LOC: Allied Irish Bank), 3.63%, due 11/1/07

VMIG1

285

^µß

5,545

Iowa Higher Ed. Loan Au. Rev. (Private College Wartburg Proj.), Ser. 2000,
(LOC: American Trust & Savings), 3.63%, due 11/1/07

VMIG1

5,545

^µß

3,535

Iowa Higher Ed. Loan Au. Rev. (Univ. of Dubuque), Ser. 2007 C,
4.50%, due 5/20/08

SP-1

3,549

^ß

1,860

Iowa Higher Ed. Loan Au. Rev. RANS, Ser. 2007 B, 4.91%, due 5/20/08

SP-1

1,871

^ß

4,125

Mason City IDR (SUPERVALU, Inc. Proj.), Ser. 1994,
(LOC: Wachovia Bank & Trust Co.), 3.42%, due 11/7/07

4,125

^µß

35,646

Kansas (2.3%)

6,145

Junction City G.O. Temporary Notes, Ser. 2007 C, 5.00%, due 6/1/08

6,180

3,865

Shawnee Co. Temporary Notes, Ser. 2007-2, 3.70%, due 10/1/08

MIG1

3,866

13,135

Wyandotte Co. Kansas City Unified G.O. Gov't. Muni. Temp. Notes,
Ser. 2007 III, 3.55%, due 4/1/08

MIG1

13,135

20,200

Wyandotte Co. Kansas City Unified G.O. Gov't. Muni. Temp. Notes,
Ser. 2007 V, 3.55%, due 11/1/08

MIG1

20,200

43,381

Kentucky (1.3%)

12,300

Kentucky Rural Wtr. Fin. Corp. Pub. Proj. Rev. (Construction Notes),
Ser. 2007 A-1, 3.65%, due 4/1/09 Putable 4/1/08

MIG1

12,300

^µ

9,990

Muni. Sec. Trust Cert. Rev., Ser. 2002-9027, (FSA Insured),
3.50%, due 11/1/07

A-1

9,990

^ñµe

3,530

Simpson Co. Hosp. Rev. (Med. Ctr. Franklin, Inc.), Ser. 2006,
(LOC: Branch Banking & Trust Co.), 3.48%, due 11/1/07

3,530

^µß

25,820

Louisiana (0.3%)

5,365

Jefferson Sales Tax Dist. Spec. Sales Tax Rev., Ser. 2005,
(AMBAC Insured), 3.57%, due 11/1/07

5,365

^µk

Maryland (2.9%)

30,215

JP Morgan Chase & Co. (Putters), Ser. 2007-1941P, (LOC: JP Morgan Chase),
3.54%, due 11/1/07

30,215

^µ

15,815

JP Morgan Chase & Co. (Putters), Ser. 2007-1684P, (LOC: JP Morgan Chase),
3.64%, due 11/1/07

15,815

^µ

7,000

Maryland St. Comm. Dev. Admin. Dept. Hsg. & Comm. Dev. (Residential),
Ser. 2006 Q, 3.59%, due 12/14/07

MIG1

7,000

1,300

Washington Suburban Sanitation Dist. BANS, Ser. 2003 A,
(LOC: Landesbank Hessen-Thveringen Girozentrale), 3.20%, due 11/7/07

VMIG1

1,300

^µ

54,330

See Notes to Schedule of Investments 25

PRINCIPAL AMOUNT

SECURITY^@@

RATING^‡‡§

VALUE^††

(000's omitted)

Moody's

S&P

(000's omitted)

Massachusetts (1.7%)

10,495

Deutsche Bank Spears/Lifers Trust Var. St., Ser. 2007-129,
(LOC: Deutsche Bank), 3.73%, due 11/1/07

10,495

^µ

6,400

Massachusetts St. Dev. Fin. Agcy. Rev. (Suffolk Univ.), Ser. 2005 A,
(LOC: JP Morgan Chase), 3.34%, due 11/7/07

VMIG1

6,400

^µß

9,470

Worcester G.O. BANS, Ser. 2006 A, 4.00%, due 11/8/07

MIG1

9,470

6,300

Worcester Reg. Trans. Au. RANS, Ser. 2007, 4.00%, due 6/27/08

6,302

32,667

Michigan (1.7%)

11,675

Detroit City Sch. Dist. G.O. (Floaters), Ser. 2006-3519, (FSA Insured),
3.49%, due 11/1/07

11,675

^µl

3,955

Detroit Sewage Disp. Rev. (Putters), Ser. 2006-1453, (FGIC Insured),
3.50%, due 11/1/07

A-1+

3,955

^µo

2,400

Eastern Michigan Univ. Rev., Ser. 2001, (FGIC Insured),
3.58%, due 11/1/07

A-1+

2,400

^µl

3,775

Grand Rapids Hsg. Corp. Rev. (Floaters), Ser. 2005-3152, (FHA Insured),
3.58%, due 11/1/07

A-1

3,775

^µ

1,840

Hartland Cons. Sch. Dist. G.O. (Floaters), Ser. 2005-1204,
(LOC: Morgan Stanley), 3.50%, due 11/1/07

VMIG1

1,840

^µ

5,000

Muni. Sec. Trust Cert. G.O., Ser. 2006-7012A, (FSA Insured),
3.50%, due 11/1/07

VMIG1

5,000

^ñµe

3,000

Waterford Sch. Dist. G.O. (St. Aid Anticipation Notes), Ser. 2006,
3.85%, due 11/30/07

3,001

31,646

Minnesota (1.7%)

6,532

Arden Hills Hsg. & Hlth. Care Fac. Rev. (Presbyterian Homes), Ser. 1999 A,
(LOC: U.S. Bank), 3.63%, due 11/1/07

A-1+

6,532

^µß

11,905

Deutsche Bank Spears/Lifers Trust Var. St. (Roseville), Ser. 2007-134,
(LOC: Deutsche Bank), 3.71%, due 11/1/07

11,905

^µ

1,000

Mankato Multi-Family Rev. Hsg. (Highland), Ser. 1997,
(LOC: LaSalle National Bank), 3.63%, due 11/1/07

A-1+

1,000

^µß

3,950

Mankato Rev. (Bethany Lutheran College), Ser. 2000 B,
(LOC: Wells Fargo & Co.), 3.58%, due 11/1/07

A-1+

3,950

^µß

7,485

Minneapolis & St. Paul Metro. Apts. Commission Arpt. Rev. (Merlots),
Ser. 2000 ZZ, (FGIC Insured), 3.34%, due 11/7/07

VMIG1

7,485

^µv

935

Roseville Private Sch. Fac. Rev. (Northwestern College Proj.), Ser. 2002,
(LOC: Marshall & Ilsley), 3.63%, due 11/1/07

VMIG1

935

^µß

31,807

Mississippi (0.1%)

2,900

Mississippi Bus. Fin. Corp. Rev. (Hattiesburg Clinic), Ser. 2006,
(LOC: AmSouth Bank), 3.49%, due 11/1/07

VMIG1

2,900

^µß

See Notes to Schedule of Investments 26

PRINCIPAL AMOUNT

SECURITY^@@

RATING^‡‡§

VALUE^††

(000's omitted)

Moody's

S&P

(000's omitted)

Missouri (3.8%)

9,435

ABN Amro Munitops Cert. Trust Rev., Ser. 2004-35, (FGIC Insured),
3.50%, due 11/1/07

VMIG1

9,435

^µa

4,440

Deutsche Bank Spears/Lifers Trust Var. St., Ser. 2007-124,
(LOC: Deutsche Bank), 3.73%, due 11/1/07

A-1+

4,440

^µ

2,000

Kansas City Ind. Dev. Au. Rev. (Ewing Marion Kaufman Foundation),
Ser. 2001, 3.58%, due 11/1/07

A-1+

2,000

^µß

1,500

Missouri St. Dev. Fin. Board Infrastructure Fac. Rev. (St. Louis Convention Ctr.),
Ser. 2000 C, (LOC: U.S. Bank), 3.63%, due 11/1/07

A-1+

1,500

^µ

11,650

Missouri St. Hlth. & Ed. Fac. Au. Ed. Fac. Rev. (Christian Brothers),
Ser. 2002 A, (LOC: Commerce Bank N.A.), 3.63%, due 11/1/07

A-1

11,650

^µß

5,015

Missouri St. Hlth. & Ed. Fac. Au. Ed. Fac. Rev. (Drury College), Ser. 1999,
(LOC: Bank of America), 3.63%, due 11/1/07

VMIG1

5,015

^µß

185

Missouri St. Hlth. & Ed. Fac. Au. Ed. Fac. Rev. (Drury Univ.), Ser. 2003,
(LOC: Bank of America), 3.63%, due 11/1/07

VMIG1

185

^µß

5,500

Missouri St. Hlth. & Ed. Fac. Au. Ed. Fac. Rev. (Kansas City Art Institute),
Ser. 2005, (LOC: Commerce Bank N.A.), 3.63%, due 11/1/07

A-1

5,500

^µß

1,800

Missouri St. Hlth. & Ed. Fac. Au. Ed. Fac. Rev. (St. Louis Univ.), Ser. 1999 B,
(LOC: Bank of America), 3.61%, due 11/1/07

VMIG1

A-1+

1,800

^µß

3,565

Missouri St. Hlth. & Ed. Fac. Au. Ed. Fac. Rev. (St. Louis Univ.), Ser. 2002,
(LOC: U.S. Bank), 3.61%, due 11/1/07

VMIG1

3,565

^µß

3,800

Missouri St. Hlth. & Ed. Fac. Au. Hlth. Fac. Rev. (Bethesda Hlth. Group),
Ser. 2001 A, (LOC: U.S. Bank), 3.58%, due 11/1/07

VMIG1

3,800

^µß

900

Missouri St. Hlth. & Ed. Fac. Au. Hlth. Fac. Rev. (Lutheran Sr. Svcs.),
Ser. 2000, (LOC: U.S. Bank), 3.26%, due 11/7/07

VMIG1

900

^µß

1,230

Missouri St. Hlth. & Ed. Fac. Au. Hlth. Fac. Rev. (St. Francis Med. Ctr.),
Ser. 1996 A, (LOC: Bank of America), 3.58%, due 11/1/07

A-1+

1,230

^µß

2,075

Missouri St. Pub. Utils. Comm. Rev. Construction Notes, Ser. 2007,
4.75%, due 9/1/08

MIG1

2,091

4,130

Muni. Sec. Trust Cert. Rev., Ser. 2007-336A, (AMBAC Insured),
3.50%, due 11/1/07

VMIG1

4,130

^ñµe

11,125

OFallon Cert. Participation (Floaters), Ser. 2002-1396, (MBIA Insured),
3.52%, due 11/1/07

VMIG1

11,125

^µr

3,950

St. Louis Ind. Dev. Au. Ind. Rev. (Schnuck Markets, Inc.), Ser. 1985,
(LOC: U.S. Bank), 3.50%, due 11/1/07

P-1

3,950

^µß

72,316

Montana (0.2%)

2,745

Montana St. Board of Investments Rev. (Muni. Fin. Cons. Act-Intercap),
Ser. 1994, 3.85%, due 3/1/09 Putable 3/1/08

VMIG1

2,745

^µ

2,000

Montana St. Board of Investments Rev. (Muni. Fin. Cons. Act-Intercap),
Ser. 2000, 3.85%, due 3/1/25 Putable 3/1/08

VMIG1

2,000

^µ

4,745

Nebraska (0.3%)

5,215

Central Plains Energy Proj. Rev. (Nebgas Proj.), Ser. 2007-E09,
(LOC: Wachovia Bank & Trust Co.), 3.34%, due 11/7/07

A-1+

5,215

^µ

See Notes to Schedule of Investments 27

PRINCIPAL AMOUNT		SECURITY^@@	RATING^‡‡§		VALUE^††
(000's omitted)			Moody's	S&P	(000's omitted)
Nevada (1.6%)
$	1,900	ABN Amro Munitops Cert. Trust Rev., Ser. 2006, (MBIA Insured), 3.50%, due 11/1/07	VMIG1		$	1,900	^ñµa
	1,065	Clark Co. Sch. Dist. (Merlots), Ser. 2006-D12, (AMBAC Insured), 3.34%, due 11/7/07		A-1+		1,065	^µv
	10,000	Henderson Hlth. Care Fac. Rev., Ser. 2007, (LOC: Citibank, N.A.), 3.51%, due 11/1/07	VMIG1			10,000	^µ
	9,660	JP Morgan Chase & Co. (Putters), Ser. 2006-1633P, (LOC: JP Morgan Chase), 3.64%, due 11/1/07				9,660	^µ
	3,300	Nevada St. G.O. (Floaters), Ser. 2000-344, (FGIC Insured), 3.50%, due 11/1/07	VMIG1			3,300	^µs
	4,265	Nevada Sys. Higher Ed. Univ. Rev. (Floaters), Ser. 2005-1240, (AMBAC Insured), 3.50%, due 11/1/07		A-1+		4,265	^µs
						30,190
New Hampshire (1.1%)
	3,200	Cheshire Co. G.O. TANS, Ser. 2007, 3.75%, due 12/27/07				3,200
	7,000	Merrimack Co. G.O. TANS, Ser. 2007, 4.05%, due 12/28/07				7,001
	4,000	Merrimack Co. G.O. TANS, Ser. 2007, 4.25%, due 12/28/07				4,003
	800	New Hampshire Hlth. & Ed. Fac. Au. Rev. (Seacoast Hospice), Ser. 2006, (LOC: Citizens Bank), 3.53%, due 11/1/07				800	^µ
	5,400	Strafford Co. G.O. TANS, Ser. 2007, 3.75%, due 12/31/07				5,400
						20,404
New Jersey (1.4%)
	4,900	Allamuchy Township Board Ed. G.O. Temporary Notes, Ser. 2007, 4.00%, due 3/14/08				4,905
	3,289	Highlands G.O. BANS, Ser. 2007, 4.00%, due 1/30/08				3,291
	14,200	Hoboken G.O. BANS, Ser. 2007, 3.90%, due 9/12/08				14,212
	4,840	New Jersey Econ. Dev. Au. Econ. Dev. Rev. (Comm. Options Inc. Proj.), Ser. 2007, (LOC: Wachovia Bank & Trust Co.), 3.50%, due 11/1/07				4,840	^µß
						27,248
New York (0.6%)
	1,900	Muni. Sec. Trust Cert., Ser. 2001, (LOC: Bear Stearns), 3.57%, due 11/1/07	VMIG1			1,900	^ñµ
	4,970	New York City Transitional Fin. Au. Rev., Ser. 2002-2A, (LOC: Dexia Credit Locale de France), 3.50%, due 11/1/07	VMIG1	A-1+		4,970	^µ
	4,515	New York G.O., Ser. 2004 H1, (LOC: Bank of New York), 3.50%, due 11/1/07	VMIG1	A-1+		4,515	^µ
	495	Sales Tax Asset Receivable Corp., Ser. 2006, (AMBAC Insured), 3.50%, due 11/1/07	VMIG1			495	^µh
						11,880
North Carolina (0.5%)
	1,990	Cabarrus Co. Cert. Participation, Ser. 2003-4520, (AMBAC Insured), 3.51%, due 11/1/07		A-1+		1,990	^µi
	2,485	Eclipse Funding Trust (Solar Eclipse-Union Co.), Ser. 2006-0155, (AMBAC Insured), 3.49%, due 11/1/07		A-1+		2,485	^µu
	3,600	North Carolina Med. Care Comm. Hlth. Care Fac. Rev. (Sisters of Mercy Svcs. Corp.), Ser. 2007, (LOC: Branch Banking & Trust Co.), 3.48%, due 11/1/07	VMIG1			3,600	^µß
	1,270	Puttable Floating Option Tax Exempt Receipts (Floaters), Ser. 2000, (LOC: Merrill Lynch Capital Markets), 3.63%, due 11/1/07		A-1		1,270	^µ
						9,345

See Notes to Schedule of Investments 28

PRINCIPAL AMOUNT		SECURITY^@@	RATING^‡‡§		VALUE^††
(000's omitted)			Moody's	S&P	(000's omitted)
Ohio (4.3%)
$	1,010	Clermont Co. Econ. Dev. Rev. (John Q Hammons Proj.), Ser. 1989, (LOC: Fifth Third Bank), 2.00%, due 5/1/12 Putable 11/1/07			$	1,010	^µß
	3,455	Cleveland-Cuyahoga Co. Port Au. Ed. Fac. Rev. (Laurel Sch. Proj.), Ser. 2004, (LOC: Key Bank), 3.51%, due 11/1/07				3,455	^µß
	3,850	Deerfield Township G.O. BANS, Ser. 2006, 3.61%, due 11/29/07	MIG1			3,850
	4,750	Hamilton G.O. BANS, Ser. 2007, 4.00%, due 9/11/08				4,760
	1,100	Licking Co. Career & Technology Ed. Ctrs. G.O. BANS (Sch. Fac. Construction), Ser. 2007, 4.50%, due 9/10/08				1,107
	3,500	Lucas Co. G.O. Purp. Imp. Notes, Ser. 2007-1, 4.00%, due 9/18/08	MIG1	SP-1+		3,510
	4,660	Marysville G.O. BANS, Ser. 2007, 4.13%, due 6/5/08	MIG1			4,672
	3,500	Marysville Tax Increment Fin. Rev. (Coleman's Crossing Rd.), Ser. 2007, (LOC: Fifth Third Bank), 4.25%, due 9/11/08				3,515
	6,650	Muni. Sec. Trust Cert. G.O., Ser. 2001-133A, (FSA Insured), 3.49%, due 11/1/07		A-1		6,650	^ñµe
	2,830	Ohio St. G.O., Ser. 2005-7508, (LOC: Citibank, N.A.), 3.51%, due 11/1/07	VMIG1			2,830	^µ
	3,200	Ohio Univ. Gen. Receipts Athens BANS, Ser. 2007, 4.25%, due 1/16/08	MIG1			3,204
	3,000	Richland Co. G.O. BANS (Correctional Fac.), Ser. 2007, 4.50%, due 2/21/08				3,007
	660	Sidney City Sch. Dist. G.O. BANS (Energy Construction), Ser. 2006, 4.28%, due 11/29/07				660
	1,200	Sidney City Sch. Dist. G.O. BANS (Sch. Construction), Ser. 2006, 4.07%, due 11/29/07				1,200
	4,850	Stark Co. Port Au. Econ. Dev. Rev. (Vision FC LLC Proj.), Ser. 2007, (LOC: Fifth Third Bank), 3.47%, due 11/2/07				4,850	^µ
	19,500	Union Township Tax Increment Rev. BANS, Ser. 2007, 4.25%, due 9/17/08	MIG1			19,607
	3,000	Univ. of Cincinnati Gen. Receipts Bonds BANS, Ser. 2007 C, 4.50%, due 1/24/08	MIG1	SP-1+		3,006
	1,485	Univ. of Toledo Gen. Receipts Bonds, Ser. 2002, (FGIC Insured), 3.58%, due 11/1/07	VMIG1	A-1+		1,485	^µu
	7,300	Univ. of Toledo Gen. Receipts Bonds, Ser. 2001-SGA125, (FGIC Insured), 3.30%, due 11/7/07		A-1+		7,300	^µt
	2,330	Wickliffe BANS (Capital Improvements), Ser. 2007, 4.25%, due 12/6/07				2,331
						82,009
Oklahoma (1.5%)
	5,995	Hulbert Econ. Dev. Au. Econ. Dev. Rev., Ser. 2007-301, (LOC: Bank of America), 3.52%, due 11/1/07	VMIG1			5,995	^µ
	22,000	Tulsa Co. Ind. Au. Cap. Imp. Rev., Ser. 2003 A, (LOC: Bank of America), 3.70%, due 5/15/17 Putable 11/15/07		A-1+		22,000	^µ
						27,995
Oregon (0.7%)
	1,000	Multnomah Co. Higher Ed. Rev. (Concordia Univ. Portland Proj.), Ser. 1999, (LOC: Key Bank), 3.63%, due 11/1/07	VMIG1			1,000	^µß
	6,315	Oregon Sch. Boards Assoc. Short-Term Borrowing Prog. Cert. Participation, Ser. 2007 A, 3.80%, due 5/30/08				6,315
	5,545	Oregon St. Homeowner Rev. (Floaters), Ser. 2006-229, (LOC: Lloyd's Bank), 3.53%, due 11/1/07	VMIG1			5,545	^µ
						12,860
Pennsylvania (3.3%)
	14,125	Butler Co. Gen. Au. Rev. (Hampton Township Sch. Dist. Proj.), Ser. 2007, (FSA Insured), 3.46%, due 11/1/07				14,125	^µv
	12,270	Deutsche Bank Spears/Lifers Trust Var. St., Ser. 2007-247, (AMBAC Insured), 3.49%, due 11/1/07		A-1+		12,270	^µk
	2,115	Lawrence Co. Ind. Dev. Au. Rev. (Villa Maria Proj.), Ser. 2003, (LOC: Allied Irish Bank), 3.47%, due 11/1/07	VMIG1			2,115	^µß
	7,700	Muni. Sec. Trust Cert. Rev., Ser. 2007-7065, (AMBAC Insured), 3.50%, due 11/1/07	VMIG1			7,700	^ñµe
	21,530	Pennsylvania Econ. Dev. Fin. Au. Rev. (Merlots), Ser. 2007-F01, (LOC: Wachovia Bank & Trust Co.), 3.34%, due 11/7/07		A-1+		21,530	^µ
	5,000	St. Pub. Sch. Bldg. Au. Sch. Rev., Ser. 2006-566, (FSA Insured), 3.51%, due 11/1/07	VMIG1			5,000	^µh
						62,740

See Notes to Schedule of Investments 29

PRINCIPAL AMOUNT

SECURITY^@@

RATING^‡‡§

VALUE^††

(000's omitted)

Moody's

S&P

(000's omitted)

Puerto Rico (0.9%)

2,900

Puerto Rico Sales Tax Fin. Corp. Sales Tax Rev. (Floater), Ser. 2007-1984,
(LOC: Morgan Stanley), 3.50%, due 11/1/07

A-1+

2,900

^µ

13,500

Puerto Rico Sales Tax Fin. Corp. Sales Tax Rev. (Floaters), Ser. 2007-2019,
(LOC: Morgan Stanley), 3.50%, due 11/1/07

A-1+

13,500

^µ

16,400

South Carolina (2.5%)

3,700

Charleston Ed. Excellence Fin. Corp. Rev., Ser. 2006-515,
(LOC: Citibank, N.A.), 3.51%, due 11/1/07

3,700

^µ

23,385

Greenville Co. Sch. Dist. Installment Purchase Ref. Rev. (Floaters),
Ser. 2004-982, (LOC: Morgan Stanley), 3.50%, due 11/1/07

A-1+

23,385

^µ

4,505

Jasper Co. Rev. BANS, Ser. 2007, 3.85%, due 7/1/08

4,505

1,300

Macon Trust Var. St., Ser. 2007-303, (LOC: Bank of America),
3.52%, due 11/1/07

VMIG1

1,300

^µ

Muni. Sec. Trust Cert. Rev., Ser. 2007-293A, (FSA Insured),
3.50%, due 11/1/07

VMIG1

^ñµe

4,685

Three Rivers Solid Waste Au. Solid Waste Disp. Fac. Rev. BANS,
Ser. 2007, 3.75%, due 6/1/08

SP-1+

4,685

9,365

Western Carolina Reg. Sewer Au. Sewer Sys. Rev., Ser. 2007-11123,
(FSA Insured), 3.51%, due 11/1/07

A-1+

9,365

^µh

46,945

South Dakota (0.3%)

3,000

South Dakota St. Hlth. & Ed. Fac. Au. Rev. (Rapid City Regional Hosp.),
Ser. 2003, (MBIA Insured), 3.58%, due 11/1/07

VMIG1

3,000

^µßu

3,600

Watertown IDR (SUPERVALU, Inc. Proj.), Ser. 1994,
(LOC: Wachovia Bank & Trust Co.), 3.42%, due 11/7/07

3,600

^µß

6,600

Tennessee (2.4%)

600

Blount Co. Pub. Bldg. Au. (Gov't. Pub. Imp.), Ser. 2001 A-2F,
(AMBAC Insured), 3.62%, due 11/1/07

VMIG1

600

^µy

500

Blount Co. Pub. Bldg. Au. (Local Gov't. Pub. Imp.), Ser. 2001 A-1-D,
(AMBAC Insured), 3.62%, due 11/1/07

VMIG1

500

^µy

1,400

Memphis-Shelby Co. IDB Rev. (Medical Group, Inc.), Ser. 1999,
(LOC: SunTrust Bank), 3.46%, due 11/1/07

P-1

1,400

^µß

7,450

Metro. Gov't. Nashville & Davidson Co. IDB Multi-Family Hsg. Rev.
(Spinnaker), Ser. 2002, (LOC: Fannie Mae), 3.30%, due 11/7/07

A-1+

7,450

^µß

3,250

Sevier Co. Pub. Bldg. Au. (Pub. Construction Notes Proj.), Ser. 2007-A6,
3.80%, due 4/1/10 Putable 4/1/08

MIG1

3,250

^µ

450

Sevier Co. Pub. Bldg. Au. Rev. (Local Gov't. Pub. Imp.), Ser. 2002
(AMBAC Insured), 3.62%, due 11/1/07

VMIG1

450

^µo

14,785

Tennessee Energy Acquisition Corp. Gas Rev. (Floaters), Ser. 2007-2020,
(LOC: Morgan Stanley), 3.55%, due 11/1/07

VMIG1

14,785

^µ

3,355

Tennessee Energy Acquisition Corp. Gas Rev. (Floaters), Ser. 2006-3646,
(LOC: Merrill Lynch Capital Markets), 3.58%, due 11/1/07

3,355

^µ

14,135

Tennessee Energy Acquisition Corp. Gas Rev. (Putters), Ser. 2007-2251,
(LOC: JP Morgan Chase), 3.53%, due 11/1/07

VMIG1

14,135

^µ

45,925

Texas (18.0%)

11,675

ABN Amro Munitops Cert. Trust Rev., Ser. 2006-30, (PSF Insured),
3.50%, due 11/1/07

VMIG1

11,675

^ñµa

6,105

Aledo Independent Sch. Dist. (Floaters), Ser. 2005-2769, (PSF Insured),
3.58%, due 11/1/07

6,105

^µr

6,345

Austin Convention Enterprises, Inc. Convention Ctr. (Putters),
Ser. 2006-1614, (XLCA Insured), 3.50%, due 11/1/07

A-1+

6,345

^µo

7,945

Austin Hsg. Fin. Corp. Multi-Family Hsg. Rev. (Merlots), Ser. 2007-G02,
(LOC: Bank of New York), 3.34%, due 11/7/07

A-1+

7,945

^µ

See Notes to Schedule of Investments 30

PRINCIPAL AMOUNT		SECURITY^@@	RATING^‡‡§		VALUE^††
(000's omitted)			Moody's	S&P	(000's omitted)
$	4,600	Austin Wtr. & Wastewater Sys. Rev. (Merlots), Ser. 2006-D10, (FSA Insured), 3.34%, due 11/7/07		A-1+	$	4,600	^µv
	10,565	BB&T Muni. Trust Var. St. (Floaters), Ser. 2007-2010, (LOC: Branch Banking & Trust Co.), 3.49%, due 11/1/07	VMIG1			10,565	^µ
	3,005	BB&T Muni. Trust Var. St. (Floaters), Ser. 2007-2036, (LOC: Branch Banking & Trust Co.), 3.51%, due 11/1/07	VMIG1			3,005	^µ
	5,360	Beaumont G.O., Ser. 2006-2223, (CIFG Insured), 3.51%, due 11/1/07	VMIG1			5,360	^µi
	27,500	Deutsche Bank Spears/Lifers Trust Var. St., Ser. 2007-292, (LOC: Deutsche Bank), 3.53%, due 11/1/07		A-1+		27,500	^µ
	6,795	Dickinson Independent Sch. Dist. (Putters), Ser. 2007-1518B, (PSF Insured), 3.50%, due 11/1/07	VMIG1			6,795	^µo
	2,970	Dickinson Independent Sch. Dist. (Putters), Ser. 2007-1517B, (PSF Insured), 3.50%, due 11/1/07	VMIG1			2,970	^µo
	4,700	Eclipse Funding Trust (Solar Eclipse-Houston Independent Sch.), Ser. 2006-0019, (FSA Insured), 3.49%, due 11/1/07	VMIG1			4,700	^ñµu
	3,200	El Paso Independent Sch. Dist. (Putters), Ser. 2007-2230, (PSF Insured), 3.50%, due 11/1/07	VMIG1	A-1+		3,200	^µo
	4,345	Frenship Independent Sch. Dist. (Floaters), Ser. 2005, (PSF Insured), 3.58%, due 11/1/07				4,345	^µk
	6,480	Harris Co. Hlth. Fac. Dev. Corp. Rev. (Putters), Ser. 2005-1018, (LOC: JP Morgan Chase), 3.49%, due 11/1/07	VMIG1	A-1+		6,480	^µ
	1,370	Hidalgo Co. G.O. (Merlots), Ser. 2007-C03, (FSA Insured), 3.34%, due 11/7/07		A-1+		1,370	^µd
	7,780	Keller Ind. Sch. Dist. G.O. (ABN Amro Munitops Cert. Trust), Ser. 2006-30, (PSF Insured), 3.50%, due 11/1/07	VMIG1			7,780	^ñµa
	5,270	Lufkin Hlth. Fac. Dev. Corp. Hlth. Sys. Ref. Rev. (Mem. Hlth. Sys. East Texas), Ser. 1998, 5.70%, due 2/15/28 Pre-Refunded 2/15/08				5,450	^ß
	15,585	Lufkin Hlth. Fac. Dev. Corp. Hlth. Sys. Ref. Rev. (Memorial Hlth. Sys.), Ser. 2005 A, (LOC: Allied Irish Bank PLC), 3.61%, due 11/1/07		A-1		15,585	^µß
	9,935	McKinney Independent Sch. Dist. (Floaters), Ser. 2006-26TP, (PSF Insured), 3.49%, due 11/1/07				9,935	^µx
	8,990	Muni. Sec. Trust Cert. G.O., Ser. 2000-9005A, (FSA Insured), 3.50%, due 11/1/07		A-1		8,990	^ñµe
	7,995	Muni. Sec. Trust Cert. G.O., Ser. 2007-312A, (LOC: Bear Stearns), 3.50%, due 11/1/07	VMIG1			7,995	^ñµe
	9,520	Muni. Sec. Trust Cert. G.O., Ser. 2007-315A, (FSA Insured), 3.50%, due 11/1/07	VMIG1			9,520	^ñµe
	3,775	Muni. Sec. Trust Cert. G.O., Ser. 2006-279A, (PSF Insured), 3.51%, due 11/1/07	VMIG1			3,775	^ñµe
	14,860	Muni. Sec. Trust Cert. G.O., Ser. 2007-338A, (PSF Insured), 3.51%, due 11/1/07	VMIG1			14,860	^ñµe
	8,450	Muni. Sec. Trust Cert. G.O., Ser. 2007-3082A, (MBIA Insured), 3.60%, due 11/1/07	VMIG1			8,450	^ñµe
	29,740	Munitops II Trust, Ser. 2007-63, (PSF Insured), 3.50%, due 11/1/07				29,740	^µc
	22,695	Munitops II Trust, Ser. 2007-67, (PSF Insured), 3.50%, due 11/1/07				22,695	^ñµc
	5,750	Puttable Floating Option Tax Exempt Receipts, Ser. 2007, (MBIA Insured), 3.58%, due 11/1/07				5,750	^µr
	8,190	Puttable Floating Option Tax Exempt Receipts (Lampasasa), Ser. 2007-4309, (PSF Insured), 3.52%, due 11/1/07				8,190	^µr
	9,230	Puttable Floating Option Tax Exempt Receipts (Leander Sch. Dist.), Ser. 2007-256, (PSF Insured), 3.53%, due 11/1/07				9,230	^µr
	5,105	San Antonio Wtr. Rev., Ser. 2006-7028, (MBIA Insured), 3.51%, due 11/1/07	VMIG1			5,105	^µi
	20,525	Texas Muni. Gas Acquisition & Supply Corp. II Gas Supply Rev., Ser. 2007-10014, (LOC: Dexia Credit Locale de France), 3.58%, due 11/1/07		A-1+		20,525	^µ
	24,745	Texas St. Turnpike Au. Central Turnpike Sys. Rev., Ser. 2007-10041, (AMBAC Insured), 3.51%, due 11/1/07		A-1+		24,745	^µi
	7,241	Texas St. Turnpike Au. Central Turnpike Sys. Rev. (Floaters), Ser. 2006-1408, (AMBAC Insured), 3.50%, due 11/1/07		A-1+		7,241	^µs
	3,520	Univ. of Texas Univ. Rev., Ser. 2007-1080, (LOC: Citigroup Global Markets), 3.51%, due 11/1/07	VMIG1			3,520	^µ
						342,041

See Notes to Schedule of Investments 31

PRINCIPAL AMOUNT

SECURITY^@@

RATING^‡‡§

VALUE^††

(000's omitted)

Moody's

S&P

(000's omitted)

Utah (0.8%)

4,800

Central Wtr. Conservancy Dist. G.O., Ser. 1998 E, (AMBAC Insured),
3.31%, due 11/7/07

VMIG1

A-1+

4,800

^µp

2,950

Lehi Elec. Util. Rev., Ser. 2005, (FSA Insured), 3.37%, due 11/7/07

2,950

^µl

8,500

Utah Trans. Au. Sales Tax Rev. (Floaters), Ser. 2007-63Z, (MBIA Insured),
3.50%, due 11/1/07

8,500

^µm

16,250

Vermont (0.2%)

3,400

Vermont Ed. & Hlth. Bldg. Fin. Agcy. Rev. (Middlebury College Proj.),
Ser. 2002 B, 3.58%, due 11/1/32 Putable 11/1/07

3,400

^µ

195

Vermont Ed. & Hlth. Bldg. Fin. Agcy. Rev. (Northeastern Hosp.), Ser. 2004 A,
(LOC: TD Banknorth N.A.), 3.55%, due 11/1/07

VMIG1

195

^µß

3,595

Virginia (3.0%)

26,280

BB&T Muni. Trust Var. St. (Floaters), Ser. 2007-1002,
(LOC: Branch Banking & Trust Co.), 3.61%, due 11/1/07

VMIG1

26,280

^µ

15,265

BB&T Muni. Trust Var. St. (Floaters), Ser. 2007-1004,
(LOC: Branch Banking & Trust Co.), 3.61%, due 11/1/07

VMIG1

15,265

^µ

7,500

ABN Amro Munitops. Cert. Trust Rev., Ser. 2005-48,
(LOC: ABN Amro Bank N.V.), 3.50%, due 11/1/07

VMIG1

7,500

^ñµ

7,050

BB&T Muni. Trust Var. St. (Floaters), Ser. 2007-1006,
(LOC: Branch Banking & Trust Co.), 3.61%, due 11/1/07

VMIG1

7,050

^µ

56,095

Washington (3.9%)

6,865

Deutsche Bank Spears/Lifers Trust Var. St. (Everett Hsg.), Ser. 2007-131,
(LOC: Deutsche Bank), 3.73%, due 11/1/07

6,865

^µ

3,700

Everett Pub. Fac. Dist. Proj. Rev., Ser. 2007,
(LOC: Dexia Credit Locale de France), 3.63%, due 11/1/07

A-1+

3,700

^µ

4,622

King Co. Swr. Rev. (Floaters), Ser. 2005-1091, (FSA Insured), 3.50%,
due 11/1/07

4,622

^µs

5,335

Muni. Sec. Trust Cert. G.O., Ser. 2007-301A, (AMBAC Insured),
3.50%, due 11/1/07

5,335

^ñµe

12,335

NJB Prop. Lease Rev., Ser. 2007, (LOC: Citigroup Global Markets),
3.51%, due 11/1/07

A-1+

12,335

^µ

3,175

Pierce Co. Sch. Dist. Number 010 Tacoma G.O. (Floaters), Ser. 2005-3316,
(FSA Insured), 3.58%, due 11/1/07

VMIG1

3,175

^µr

2,607

Port of Seattle Rev. (Floaters), Ser. 2002-739D, (FGIC Insured),
3.50%, due 11/1/07

A-1+

2,607

^µs

7,240

Port of Seattle Rev. (Floaters), Ser. 2006-3499, (XLCA Insured),
3.52%, due 11/1/07

7,240

^µr

7,745

Seattle Museum Dev. Au. Spec. Oblig. Rev. (Merlots), Ser. 2005-D03,
(LOC: Wachovia Bank & Trust Co.), 3.34%, due 11/7/07

A-1+

7,745

^µ

17,000

Washington St. Hlth. Care Fac. Au. Rev. (Swedish Hlth. Svcs.), Ser. 2006,
(LOC: Citibank, N.A.), 3.34%, due 11/7/07

VMIG1

A-1+

17,000

^µß

1,000

Washington St. Hsg. Fin. Commission Non-Profit Rev.
(St. Vincent de Paul Proj.), Ser. 2000 A,
(LOC: Wells Fargo Bank & Trust Co.), 3.44%, due 11/1/07

A-1+

1,000

^µß

1,800

Washington St. Hsg. Fin. Commission Non-Profit Rev.
(Tacoma Art Museum Proj.), Ser. 2002, (LOC: Northern Trust Co.),
3.63%, due 11/1/07

VMIG1

1,800

^µß

73,424

See Notes to Schedule of Investments 32

PRINCIPAL AMOUNT

SECURITY^@@

RATING^‡‡§

VALUE^††

(000's omitted)

Moody's

S&P

(000's omitted)

Wisconsin (4.0%)

3,000

Antigo Unified Sch. Dist. TRANS, Ser. 2006, 3.85%, due 11/1/07

3,000

1,560

Appleton Waterworks Rev., Ser. 2007-A, (MBIA Insured), 4.00%, due 1/1/08

1,561

19,310

Eclipse Funding Trust Var. St. (Solar Eclipse-Wisconsin St.), Ser. 2007-0004,
(FSA Insured), 3.50%, due 11/1/07

A-1+

19,310

^µu

6,500

Muni. Sec. Trust Cert. Rev., Ser. 2007-335, (LOC: Bear Stearns),
3.50%, due 11/1/07

VMIG1

6,500

^ñµ

4,250

New Richmond Sch. Dist. BANS, Ser. 2007, 4.13%, due 6/6/08

MIG1

4,255

3,000

Wisconsin Sch. Dist. Cash Flow Management Prog. Cert. Participation,
Ser. 2006 B, 4.25%, due 11/1/07

MIG1

3,000

500

Wisconsin St. Hlth. & Ed. Fac. Au. Rev. (Alverno College Proj.), Ser. 1997,
(LOC: Allied Irish Bank), 3.63%, due 11/1/07

VMIG1

500

^µß

4,125

Wisconsin St. Hlth. & Ed. Fac. Au. Rev. (Blood Ctr.), Ser. 1994 A,
(LOC: Marshall & Ilsley), 3.29%, due 11/7/07

A-1

4,125

^µß

3,145

Wisconsin St. Hlth. & Ed. Fac. Au. Rev.
(Concordia Univ. of Wisconsin, Inc. Proj.), Ser. 2006, (LOC: Marshall & Ilsley),
3.54%, due 11/1/07

3,145

^µß

3,175

Wisconsin St. Hlth. & Ed. Fac. Au. Rev. (Edgewood College), Ser. 2006,
(LOC: U.S. Bank), 3.63%, due 11/1/07

A-1+

3,175

^µß

8,090

Wisconsin St. Hlth. & Ed. Fac. Au. Rev. (Floaters), Ser. 2003-858,
(MBIA Insured), 3.52%, due 11/1/07

8,090

^µp

12,100

Wisconsin St. Hlth. & Ed. Fac. Au. Rev. (Fort Healthcare Inc.), Ser. 2007 A,
(LOC: JP Morgan Chase), 3.61%, due 11/1/07

A-1+

12,100

^µß

1,390

Wisconsin St. Hlth. & Ed. Fac. Au. Rev. (Gundersen Lutheran), Ser. 2000 A,
(FSA Insured), 3.58%, due 11/1/07

A-1+

1,390

^µßl

1,400

Wisconsin St. Hlth. & Ed. Fac. Au. Rev. (Lutheran College Proj.), Ser. 2003,
(LOC: U.S. Bank), 3.63%, due 11/1/07

A-1+

1,400

^µß

3,100

Wisconsin St. Hlth. & Ed. Fac. Au. Rev. (Prohealth Inc.), Ser. 2001 B,
(AMBAC Insured), 3.58%, due 11/1/07

VMIG1

A-1+

3,100

^µoß

935

Wisconsin St. Hlth. & Ed. Fac. Au. Rev. (Riverview Hosp. Assoc.), Ser. 2001,
(LOC: U.S. Bank), 3.63%, due 11/1/07

A-1+

935

^µß

75,586

Total Investments (99.2%)

1,883,799

Cash, receivables and other assets, less liabilities (0.8%)

14,359

Total Net Assets (100.0%)

1,898,158

See Notes to Schedule of Investments 33

Schedule of Investments Municipal Master Series

PRINCIPAL AMOUNT

SECURITY^@@

RATING^‡‡§

VALUE^††

(000's omitted)

Moody's

S&P

(000's omitted)

Alabama (0.2%)

988

Birmingham Pub. Park & Rec. Board Rev., Ser. 1997, (LOC: AmSouth Bank),
3.58%, due 11/1/07

988

^µß

Arizona (1.5%)

8,995

RBC Muni. Prod., Inc. Trust Var. St. Rev. (Floater Cert.), Ser. 2007 C-6,
(LOC: Royal Bank of Canada), 3.57%, due 11/1/07

VMIG1

8,995

^µ

Arkansas (1.4%)

8,560

Morgan Keegan Muni. Prod., Inc. Var. St. Trust Receipts, Ser. 2006 D,
(LOC: IXIS Funding Corp.), 3.57%, due 11/1/07

A-1+

8,560

^µq

California (5.6%)

1,335

California Statewide Comm. Dev. Corp. Rev. (RL Group LLC), Ser. 1998 C,
(LOC: Mellon 1st Business Bank), 3.40%, due 11/7/07

1,335

^µß

5,000

Contra Costa Co. Multi-Family Hsg. Rev. (Pleasant Hill BART Transit),
Ser. 2006 A, 3.95%, due 4/15/46 Putable 12/20/07

5,002

^ß

1,605

Deutsche Bank Spears/Lifers Trust Var. St. Rev., Ser. 2007-386,
(FGIC Insured), 3.63%, due 11/1/07

1,605

^µk

22,010

Deutsche Bank Spears/Lifers Trust Var. St. Rev., Ser. 2007-116,
(LOC: Deutsche Bank), 3.71%, due 11/1/07

22,010

^µ

4,890

Puttable Floating Option Tax Exempt Receipts (Floaters), Ser. 2006,
(LOC: Merrill Lynch Capital Markets), 3.65%, due 11/1/07

4,890

^µ

34,842

Colorado (1.5%)

1,000

Central Platte Valley Metro. Dist., Ser. 2006, (LOC: BNP Paribas),
3.70%, due 12/1/07

A-1+

1,000

^µ

2,225

Colorado Hsg. & Fin. Au. Econ. Dev. Rev. (Kapteyn-Murnane Labs Inc.),
Ser. 2007, (LOC: Wells Fargo Bank & Trust Co.), 3.63%, due 11/1/07

2,225

^µ

4,110

Deutsche Bank Spears/Lifers Trust Var. St. Rev., Ser. 2007, (MBIA Insured),
3.52%, due 11/1/07

A-1+

4,110

^µk

1,995

El Paso Co. Single Family Mtge. Rev. (Merlots), Ser. 2007 C44,
(LOC: Government National Mortgage Association), 3.39%, due 11/7/07

VMIG1

1,995

^µd

9,330

Delaware (0.1%)

450

Delaware St. Econ. Dev. Au. Multi-Family Rev. (Sch. House Proj.), Ser. 1985,
(LOC: HSBC Bank), 3.40%, due 11/7/07

VMIG1

450

^µ

District of Columbia (1.8%)

5,000

Metro. Washington DC Arpts. Au. Sys. Rev. (Merlots), Ser. 2007-B01,
(FGIC Insured), 3.39%, due 11/7/07

A-1+

5,000

^µv

6,000

Metro. Washington DC Arpts. Au. Sys. Rev. (Merlots), Ser. 2007-C96,
(MBIA Insured), 3.39%, due 11/7/07

A-1+

6,000

^µd

11,000

See Notes to Schedule of Investments 34

PRINCIPAL AMOUNT

SECURITY^@@

RATING^‡‡§

VALUE^††

(000's omitted)

Moody's

S&P

(000's omitted)

Florida (4.3%)

2,400

Deutsche Bank Spears/Lifers Trust Var. St. Rev., Ser. 2007-351,
(AMBAC Insured), 3.57%, due 11/1/07

A-1+

2,400

^µk

5,505

Deutsche Bank Spears/Lifers Trust Var. St. Rev., Ser. 2007, (MBIA Insured),
3.57%, due 11/1/07

5,505

^µk

3,250

Florida Dev. Fin. Corp. IDR (4504 30th Street West LLC Proj.), Ser. 2007,
(LOC: Branch Banking & Trust Co.), 3.58%, due 11/1/07

3,250

^µ

960

Ocean Hwy. & Port Au. Rev., Ser. 1990, (LOC: Wachovia Bank & Trust Co.),
3.40%, due 11/7/07

VMIG1

A-1+

960

^µ

690

Orange Co. Hsg. Fin. Au. Multi-Family Rev., Ser. 2000 E,
(LOC: Bank of America), 3.44%, due 11/7/07

VMIG1

690

^µß

1,090

Orange Co. Hsg. Fin. Au. Multi-Family Rev. (Putters), Ser. 2005-1179,
(LOC: JP Morgan Chase), 3.55%, due 11/1/07

VMIG1

1,090

^µ

12,815

Puttable Floating Option Tax Exempt Receipts (Floaters), Ser. 2007-1497,
(LOC: Merrill Lynch Capital Markets), 3.73%, due 11/1/07

A-1

12,815

^µ

26,710

Georgia (4.2%)

1,000

Atlanta Arpt. Rev. (Merlots), Ser. 2004 C14, (FSA Insured),
3.39%, due 11/7/07

VMIG1

1,000

^µv

4,000

Atlanta Arpt. Rev. (Merlots), Ser. 2000 CCC, (FGIC Insured),
3.39%, due 11/7/07

VMIG1

4,000

^µv

1,800

Atlanta Urban Residential Fin. Au. Multi-Family Hsg. Rev.
(Capitol Gateway Apts.), Ser. 2005, (LOC: Bank of America),
3.54%, due 11/1/07

A-1+

1,800

^µß

355

Canton Hsg. Au. Multi-Family Rev. (Canton Mill Lofts Proj.), Ser. 1999,
(LOC: Branch Banking &Trust Co.), 3.58%, due 11/1/07

A-1+

355

^µß

2,450

Carroll Co. Dev. Au. Rev. (Royal Metal Prod., Inc. Proj.), Ser. 2007,
(LOC: Branch Banking & Trust Co.), 3.58%, due 11/1/07

VMIG1

2,450

^µß

2,000

Cartersville Dev. Au. IDR (Bliss & Laughlin), Ser. 1988,
(LOC: Bank of America), 3.59%, due 11/1/07

2,000

^µß

7,900

Cobb Co. Hsg. Au. Multi-Family Hsg. Rev. (Woodchase Village Apts. Proj.),
Ser. 2003, (LOC: Regions Bank), 3.55%, due 11/1/07

VMIG1

7,900

^µß

1,015

Douglas Co. Dev. Au. IDR (Whirlwind Steel Bldg.), Ser. 1997,
(LOC: JP Morgan Chase), 3.73%, due 11/1/07

1,015

^µß

2,405

Gordon Co. Dev. Au. IDR (Nance Carpet & Rug, Inc. Proj.), Ser. 2006,
(LOC: Branch Banking & Trust Co.), 3.58%, due 11/1/07

2,405

^µß

1,035

Gwinnett Co. Dev. Au. IDR (Color Image Inc. Proj.), Ser. 1999,
(LOC: SouthTrust Bank), 3.58%, due 11/1/07

1,035

^µß

2,250

Jasper Co. Dev. Au. IDR (PermaTherm, Inc. Proj.), Ser. 2007,
(LOC: Branch Banking & Trust Co.), 3.58%, due 11/1/07

2,250

^µß

26,210

Idaho (4.3%)

14,115

Idaho Hsg. & Fin. Assoc. Single Family Mtge. Rev., Ser. 2007-11192,
(LOC: Citibank, N.A.), 3.59%, due 11/1/07

VMIG1

14,115

^µ

12,695

Puttable Floating Option Tax Exempt Receipts (Floaters), Ser. 2007-4049,
(LOC: Merrill Lynch Capital Markets), 3.61%, due 11/1/07

VMIG1

12,695

^µ

26,810

See Notes to Schedule of Investments 35

PRINCIPAL AMOUNT		SECURITY^@@	RATING^‡‡§		VALUE^††
(000's omitted)			Moody's	S&P	(000's omitted)
Illinois (12.8%)
$	2,440	Aurora IDR (FIS Aurora Invest LLC Proj.), Ser. 2001 A, (LOC: National City Bank), 3.56%, due 11/1/07			$	2,440	^µß
	10,570	Aurora Single Family Mtge. Rev., Ser. 2007-10213, (LOC: Government National Mortgage Association), 3.59%, due 11/1/07		A-1+		10,570	^µi
	7,395	Aurora Single Family Mtge. Rev. (Merlots), Ser. 2007 E04, (LOC: Government National Mortgage Association), 3.39%, due 11/7/07		A-1+		7,395	^µd
	2,900	Aurora Single Family Mtge. Rev. (Merlots), Ser. 2007 C55, (LOC: Government National Mortgage Association), 3.39%, due 11/7/07		A-1+		2,900	^µd
	4,500	Chicago Enterprise Zone Rev. (J & A LLC Proj.), Ser. 2002, (LOC: Charter One Bank), 3.56%, due 11/1/07				4,500	^µ
	2,920	Chicago IDR (Evans Food Prod. Co. Proj.), Ser. 1998, (LOC: LaSalle National Bank), 3.55%, due 11/1/07		A-1+		2,920	^µ
	1,160	Chicago Multi-Family Hsg. Rev. (Churchview Supportive Living Fac.), Ser. 2003, (LOC: Harris Trust & Savings Bank), 3.58%, due 11/1/07	VMIG1			1,160	^µß
	7,245	Chicago O'Hare Int'l. Arpt. Rev. (Putters), Ser. 2005-844Z, (MBIA Insured), 3.55%, due 11/1/07		A-1+		7,245	^µo
	2,500	Chicago Single Family Mtge. Rev., Ser. 2007 2F, (LOC: Government National Mortgage Association), 3.93%, due 7/1/08				2,500	^f
	4,000	Chicago Single Family Mtge. Rev., Ser. 2007 2D, (LOC: Government National Mortgage Association), 3.95%, due 7/1/08				4,000	^j
	2,011	Decatur Park Dist. G.O., Ser. 2007 B, 4.25%, due 12/15/07				2,012
	1,639	Dundee Township Park Dist. G.O., Ser. 2006, 4.35%, due 12/1/07				1,640
	1,400	Elgin IDR (Bailey Dev. LLC Proj.), Ser. 1996 A, (LOC: LaSalle National Bank), 3.60%, due 11/1/07		A-1+		1,400	^µß
	1,500	Elmhurst IDR (Randall Mfg. Prod. Proj.), Ser. 2002, (LOC: LaSalle National Bank), 3.63%, due 11/1/07		A-1+		1,500	^µß
	4,150	Illinois Dev. Fin. Au. IDR (Amtex Steel, Inc. Proj.), Ser. 1999, (LOC: LaSalle National Bank), 3.55%, due 11/1/07		A-1+		4,150	^µß
	700	Illinois Dev. Fin. Au. IDR (Florence Corp. Proj.), Ser. 1997, (LOC: Bank One), 3.73%, due 11/1/07				700	^µß
	915	Illinois Dev. Fin. Au. IDR (JVM LLC Proj.), Ser. 2001, (LOC: Fifth Third Bank), 3.56%, due 11/1/07				915	^µß
	4,570	Illinois Dev. Fin. Au. IDR (Trim-Rite Food Corp. Proj.), Ser. 2000, (LOC: Fifth Third Bank), 3.54%, due 11/2/07				4,570	^µß
	700	Illinois Dev. Fin. Au. Rev. (American Academy), Ser. 2001, (LOC: Bank One), 3.55%, due 11/1/07				700	^µß
	500	Illinois Fin. Au. IDR (E Kinast Proj.), Ser. 2005 A, (LOC: JP Morgan Chase), 3.73%, due 11/1/07				500	^µß
	3,400	Illinois Fin. Au. IDR (Injection Plastic Corp.), Ser. 2006 A, (LOC: Wachovia Bank & Trust Co.), 3.43%, due 11/7/07				3,400	^µß
	1,000	Illinois Fin. Au. IDR (Meyer Ind. LLC Proj.), Ser. 2006, (LOC: Fifth Third Bank), 3.56%, due 11/1/07				1,000	^µß
	930	Illinois Fin. Au. IDR (Transparent Container Proj.), Ser. 2004, (LOC: Bank One), 3.59%, due 11/1/07	VMIG1			930	^µß
	7,500	Illinois Fin. Au. Rev. (Reliable Materials Proj.), Ser. 2006, (LOC: Marshall & Ilsley), 3.44%, due 11/7/07		A-1		7,500	^µß
	2,620	Upper Illinois River Valley Dev. Au. IDR (Advanced Drainage Sys.), Ser. 2002, (LOC: National City Bank), 3.56%, due 11/1/07				2,620	^µß
						79,167

See Notes to Schedule of Investments 36

PRINCIPAL AMOUNT		SECURITY^@@	RATING^‡‡§		VALUE^††
(000's omitted)			Moody's	S&P	(000's omitted)
Indiana (5.1%)
$	2,000	Bartholomew Cons. Sch. Corp. Ind. Tax Anticipation Warrants, Ser. 2007, 4.00%, due 12/31/07			$	2,001
	2,680	Concord Comm. Sch. Tax Anticipation Warrants, Ser. 2007, 3.90%, due 12/31/07				2,681
	2,970	Crawfordsville Econ. Dev. Ref. Rev. (Pedcor Investments-Shady), Ser. 1993, (LOC: Federal Home Loan Bank), 3.55%, due 11/1/07	VMIG1			2,970	^µß
	3,540	Elkhart Co. Econ. Dev. Rev. (Carriage, Inc. Proj.), Ser. 2006, (LOC: National City Bank), 3.56%, due 11/1/07				3,540	^µ
	585	Elkhart Co. Econ. Dev. Rev. (Pinnacle Bldg. Sys. Corp.), Ser. 1999, (LOC: Bank One Indiana N.A.), 3.58%, due 11/7/07				585	^µß
	1,400	Hamilton Southeastern Sch. Warrants, Ser. 2007, 3.80%, due 12/31/07				1,400
	500	Hammond Econ. Dev. Rev. (A.M. Castle & Co. Proj.), Ser. 1994, (LOC: Bank of America), 3.73%, due 11/1/07				500	^µß
	3,695	Indiana St. Fin. Au. Wtr. Fac. Rev., Ser. 2006-111, (AMBAC Insured), 3.53%, due 11/1/07	VMIG1	A-1+		3,695	^µc
	2,650	Johnson Co. Tax Anticipation Warrants, Ser. 2007, 4.35%, due 12/31/07				2,653
	970	Kendallville Econ. Dev. Rev. (Metal Shred Ind. Proj.), Ser. 2006, (LOC: Fifth Third Bank), 3.54%, due 11/2/07				970	^µß
	1,890	Kokomo Econ. Dev. Rev. (Village Comm. Partners IV Proj.), Ser. 1995, (LOC: Federal Home Loan Bank), 3.55%, due 11/1/07	VMIG1			1,890	^µß
	1,069	La Porte Co. Econ. Dev. Rev. (Pedcor Investments-Woodland Crossing Apt.), Ser. 1994, (LOC: Federal Home Loan Bank), 3.56%, due 11/1/07	VMIG1			1,069	^µß
	2,600	La Porte Co. Econ. Dev. Rev. (Van Air Proj.), Ser. 2007, (LOC: LaSalle National Bank), 3.60%, due 11/1/07				2,600	^µß
	1,087	Noblesville Econ. Dev. Rev. (Princeton Lakes Apts. Proj.), Ser. 2003 B, (LOC: Federal Home Loan Bank), 3.57%, due 11/1/07		A-1+		1,087	^µ
	1,105	North Vernon Econ. Dev. Rev. (Oak Meadows Apt. Proj.), Ser. 1995, (LOC: Federal Home Loan Bank), 3.40%, due 11/7/07		A-1+		1,105	^µß
	2,150	Spencer Owen Comm. Schs. Tax Anticipation Warrants, Ser. 2007, 3.90%, due 12/31/07				2,150
	500	Tippecanoe Co. Econ. Dev. Ref. Rev. (Lafayette Venetian Blind), Ser. 2004, (LOC: PNC Bank), 3.56%, due 11/1/07				500	^µß
						31,396
Iowa (1.5%)
	400	Mason City IDR (SUPERVALU, Inc. Proj.), Ser. 1994, (LOC: Wachovia Bank & Trust Co.), 3.42%, due 11/7/07				400	^µß
	6,315	Muni. Sec. Trust Cert. G.O., Ser. 2007 7042A, (LOC: Government National Mortgage Association), 3.55%, due 11/1/07	VMIG1			6,315	ñµe
	2,215	Sergeant Bluff IDR (Sioux City Brick & Tile Proj.), Ser.1996, (LOC: U.S. Bank), 3.59%, due 11/1/07				2,215	^µß
						8,930
Kansas (0.6%)
	3,925	Junction City G.O., Ser. 2007 A, 5.00%, due 6/1/08				3,947

See Notes to Schedule of Investments 37

PRINCIPAL AMOUNT		SECURITY^@@	RATING^‡‡§		VALUE^††
(000's omitted)			Moody's	S&P	(000's omitted)
Kentucky (2.3%)
$	200	Bardstown Ind. Rev. (JAV Invt. LLC Proj.), Ser. 2001, (LOC: Bank One Michigan), 3.73%, due 11/1/07			$	200	^µß
	2,790	Boone Co. Ind. Bldg. Rev. (Benda-Lutz Corp. Proj.), Ser. 2005, (LOC: Fifth Third Bank), 3.54%, due 11/2/07				2,790	^µß
	2,700	Boone Co. Ind. Bldg. Rev. (Kiswel, Inc. Proj.), Ser. 2007, (LOC: Branch Banking & Trust Co.), 3.58%, due 11/1/07	VMIG1			2,700	^µß
	2,665	Fort Mitchell Ind. Bldg. Rev. (Grandview/Hemmer Proj.), Ser. 1986, (LOC: PNC Bank), 3.90%, due 2/1/08				2,665	^µ
	4,000	Fulton Co. Ind. Bldg. Rev. (Burke-Parsons-Bowlby Corp.), Ser. 2006, (LOC: Branch Banking & Trust Co.), 3.58%, due 11/1/07				4,000	^µß
	1,800	Lexington-Fayette Urban Co. Arpt. Corp. Rev. Ref. (1st Mtg.), Ser. 1998 C, (MBIA Insured), 3.63%, due 11/1/07	VMIG1			1,800	^µl
	315	Trimble Co. Econ. Dev. Rev. (Synthetic Materials Proj.), Ser. 2000, (LOC: Citizens Bank), 3.60%, due 11/1/07				315	^µß
						14,470
Louisiana (1.9%)
	300	Ascension Parish Rev. (BASF Corp. Proj.), Ser. 1998, 3.69%, due 11/1/07	P-1			300	^µß
	1,000	Calcasieu Parish Pub. Trust Au. Gulf Opportunity Zone Rev. (Delta Equine Ctr. LLC Proj.), Ser. 2007, (LOC: Branch Banking & Trust Co.), 3.58%, due 11/1/07				1,000	^µß
	4,940	Deutsche Bank Spears/Lifers Trust Var. St., Ser. 2007-137, (LOC: Deutsche Bank), 3.71%, due 11/1/07				4,940	^µ
	3,310	Louisiana HFA Single Family Mtge. Rev. (Floaters), Ser. 2006-1566, (LOC: Depfa Bank), 3.55%, due 11/1/07		A-1+		3,310	^µs
	2,000	Louisiana Local Gov't. Env. Facs. & Comm. Dev. Rev. (SRL Holdings LLC Proj.), Ser. 2007, (LOC: Branch Banking & Trust Co.), 3.58%, due 11/1/07				2,000	^µß
						11,550
Maine (1.1%)
	6,000	Maine St. Hsg. Au. Mtge. Purchase Bonds, Ser. 2007 F, 3.85%, due 11/15/34 Putable 9/22/08	VMIG1	A-1+		6,000
	500	Westbrook Rev. (Corriveau-Routhier, Inc. Proj.), Ser. 1986, (LOC: Fleet National Bank), 3.90%, due 12/15/07				500	^µß
						6,500
Maryland (1.8%)
	1,660	Howard Co. IDR (Preston CT Ltd. Partnership), Ser. 1986, (LOC: SunTrust Bank), 3.70%, due 11/1/07		A-1+		1,660	^µ
	9,280	Maryland St. Comm. Dev. Admin. Dept. Hsg. & Comm. Dev., Ser. 2007 2078, (LOC: Wells Fargo Bank), 3.55%, due 11/1/07	VMIG1			9,280	^µ
						10,940
Massachusetts (1.4%)
	3,000	Cape Cod Reg. Transit Au. RANS, Ser. 2007, 4.00%, due 7/31/08				3,001
	2,400	Greater Attleboro-Taunton Reg. Transit Au. RANS, Ser. 2007, 4.00%, due 8/22/08				2,402
	1,150	Massachusetts St. HFA, Ser. 2005 A, (FSA Insured), 3.85%, due 6/1/08				1,150
	1,975	Massachusetts St. Ind. Fin. Agcy. Rev. (Sr. Living Fac.-Forge Hill Proj.), Ser. 1998, 6.75%, due 4/1/30 Pre Refunded 4/1/08				2,044	^ß
						8,597

See Notes to Schedule of Investments 38

PRINCIPAL AMOUNT

SECURITY^@@

RATING^‡‡§

VALUE^††

(000's omitted)

Moody's

S&P

(000's omitted)

Michigan (1.1%)

1,000

ABN Amro Munitops Cert. Trust Rev., Ser. 2004-2,
(LOC: Government National Mortgage Association), 3.54%, due 11/1/07

VMIG1

1,000

^µa

5,600

Michigan St. Hsg. Dev. Au. Ltd. Oblig. Multi-Family Hsg. Rev.
(Benton Harbor Proj.), Ser. 2006, (LOC: Fifth Third Bank), 4.35%, due 6/1/41
Putable 7/1/08

VMIG1

5,604

^ß

6,604

Minnesota (1.6%)

100

Blaine IDR (SUPERVALU, Inc. Proj.), Ser. 1993,
(LOC: Wachovia Bank & Trust Co.), 3.42%, due 11/7/07

100

^µß

5,600

Dakota Co. Comm. Dev. Agcy. Multi-Family Hsg. Rev.
(Brentwood Hills Apts. Proj.), Ser. 2003 A, (LOC: LaSalle National Bank),
3.68%, due 11/1/07

VMIG1

5,600

^µß

2,415

Plymouth Multi-Family Hsg. Ref. Rev. (At the Lake Apts. Proj.), Ser. 2004,
(LOC: Freddie Mac), 3.53%, due 11/1/07

VMIG1

2,415

^µß

280

Roseville Private Sch. Fac. Rev. (Northwestern College Proj.), Ser. 2002,
(LOC: Marshall & Ilsley), 3.63%, due 11/1/07

VMIG1

280

^µß

500

Rush City IDR (Plastech Corp. Proj.), Ser. 1999, (LOC: U.S. Bank),
3.73%, due 11/1/07

500

^µ

1,155

St. Paul Hsg. & Redev. Au. Rev. (Goodwill/Easter Seals Proj.), Ser. 2000,
(LOC: U.S. Bank), 3.64%, due 11/1/07

1,155

^µß

100

Woodbury Private Sch. Fac. Rev. (St. Ambrose Proj.), Ser. 1999,
(LOC: U.S. Bank), 3.47%, due 11/7/07

100

^µß

10,150

Missouri (0.8%)

1,000

Clayton Ind. Dev. Au. Ind. Ref. Rev. (Bailey Court Proj.), Ser. 1989,
(LOC: Commerce Bank N.A.), 3.58%, due 11/1/07

A-1

1,000

^µ

300

Hannibal Ind. Dev. Au. Ind. Rev. (Buckhorn Rubber Prods. Proj.), Ser. 1995,
(LOC: JP Morgan Chase), 3.73%, due 11/1/07

300

^µß

100

Jefferson Co. Ind. Dev. Au. Ind. Rev. (GHF Holdings LLC Proj.), Ser. 1994,
(LOC: LaSalle National Bank), 3.73%, due 11/1/07

100

^µß

4,000

Missouri St. Env. Imp. & Energy Res. Au. Env. Imp. Rev.
(UtiliCorp United, Inc. Proj.), Ser. 1993, (LOC: Citibank, N.A.),
3.58%, due 11/7/07

P-1

A-1+

4,000

^µß

5,400

Montana (1.9%)

9,965

Montana St. Board Hsg. (Merlots), Ser. 2007-H11,
(LOC: Wachovia Bank & Trust Co.), 3.39%, due 11/7/07

A-1+

9,965

^µ

2,000

Montana St. Board of Investments Rev. (Muni. Fin. Cons. Act-Intercap),
Ser. 1994, 3.85%, due 3/1/09 Putable 3/1/08

VMIG1

2,000

^µ

11,965

Nebraska (0.1%)

400

Norfolk IDR Ref. (SUPERVALU, Inc. Proj.), Ser. 1994,
(LOC: Wachovia Bank & Trust Co.), 3.42%, due 11/7/07

400

^µß

Nevada (0.2%)

1,495

Clark Co. IDR (Floaters), Ser. 2007-1843, (AMBAC Insured),
3.50%, due 11/1/07

A-1+

1,495

^µs

See Notes to Schedule of Investments 39

PRINCIPAL AMOUNT		SECURITY^@@	RATING^‡‡§		VALUE^††
(000's omitted)			Moody's	S&P	(000's omitted)
New Hampshire (0.7%)
$	1,200	Cheshire Co. G.O. TANS, Ser. 2007, 3.75%, due 12/27/07			$	1,200
	1,500	Merrimack Co. G.O. TANS, Ser. 2007, 4.25%, due 12/28/07				1,501
	1,660	New Hampshire St. Hsg. Fin. Au. Multi-Family Rev. (Floaters), Ser. 2006-3438, (LOC: Merrill Lynch Capital Markets), 3.61%, due 11/1/07	VMIG1			1,660	^µ
						4,361
New Jersey (1.4%)
	7,665	New Jersey Econ. Dev. Au. Econ. Dev. Rev. (Stamato Realty LLC Proj.), Ser. 2001, (LOC: Comerica Bank), 3.65%, due 11/1/07				7,665	^µß
	705	New Jersey Econ. Dev. Au. Econ. Dev. Rev. (Wearbest SIL-TEX Mills Proj.), Ser. 2000, (LOC: Bank of New York), 3.45%, due 11/7/07				705	^µß
						8,370
New Mexico (1.5%)
	225	Las Cruces IDR (Parkview Metal Prod. Proj.), Ser. 1997, (LOC: America National Bank & Trust Co.), 3.73%, due 11/1/07				225	^µß
	9,045	New Mexico Ed. Assist. Foundation (Merlots), Ser. 2002-A26, (LOC: Wachovia Bank & Trust Co.), 3.39%, due 11/7/07	VMIG1			9,045	^µ
						9,270
New York (0.3%)
	1,806	Rev. Bond Cert. Ser. Trust Var. St., (Sterling Park), Ser. 2006-6, (AIG Insured), 3.65%, due 11/1/07				1,806	^µ
North Carolina (0.9%)
	1,550	Iredell Co. Ind. Fac. & Poll. Ctrl. Fin. Au. Ind. Rev. (Riley Technologies Proj.), Ser. 2006, (LOC: Branch Banking & Trust Co.), 3.58%, due 11/1/07				1,550	^µß
	2,000	Lincoln Co. Ind. Fac. & Poll. Ctrl. Fin. Au. Rev. Ind. Dev. (Sabo USA, Inc. Proj.), Ser. 2007, (LOC: LaSalle National Bank), 3.58%, due 11/1/07	VMIG1			2,000	^µß
	1,675	North Carolina HFA, Ser. 2002, (LOC: Citibank, N.A.), 3.59%, due 11/1/07	VMIG1			1,675	^µ
						5,225
North Dakota (0.3%)
	800	Bismarck IDR Ref. (SUPERVALU, Inc. Proj.), Ser. 1995, (LOC: Wachovia Bank & Trust Co.), 3.42%, due 11/7/07				800	^µß
	1,000	North Dakota HFA Rev. (Fin. Prog. Home Mtge.), Ser. 2004 B, (LOC: KBC Bank N.V.), 3.32%, due 11/7/07	VMIG1			1,000	^µ
						1,800
Ohio (2.1%)
	1,750	American Muni. Pwr. BANS (Montpelier Proj.), Ser. 2007, 3.95%, due 7/3/08				1,750
	2,060	American Muni. Pwr. BANS (Shelby Proj.), Ser. 2006, 3.70%, due 11/15/07				2,060
	1,775	Marion Co. IDR (Mid Ohio Packaging Co. Proj.), Ser. 1995, (LOC: JP Morgan Chase), 3.61%, due 11/1/07				1,775	^µ
	1,910	Marysville Wtr. & Swr. G.O. BANS, Ser. 2007, 4.50%, due 1/24/08				1,914
	1,800	Revenue Bond Cert. Ser. Trust Var. St. (Park Trails), Ser. 2007-3 (AIG Insured), 3.65%, due 11/1/07				1,800	^ñµ
	115	Trumbull Co. IDR (UTD Steel Svc., Inc. Proj.), Ser. 2000, (LOC: JP Morgan Chase), 3.88%, due 11/1/07				115	^µß
	1,445	Vandalia Land Acquisition G.O. BANS, Ser. 2007, 3.88%, due 8/22/08				1,445
	1,155	Warren Co. IDR (PAC Mfg. Proj.), Ser. 2000, (LOC: Bank of America), 3.68%, due 11/1/07		A-1+		1,155	^µß��
	946	Wood Co. IDR (Reclamation Technologies), Ser. 2006, (LOC: National City Bank), 3.56%, due 11/1/07				946	^µß
						12,960

See Notes to Schedule of Investments 40

PRINCIPAL AMOUNT

SECURITY^@@

RATING^‡‡§

VALUE^††

(000's omitted)

Moody's

S&P

(000's omitted)

Oregon (0.1%)

705

Marion Co. Hsg. Au. Rev. (Residence at Marian), Ser. 1997,
(LOC: U.S. Bank), 3.63%, due 11/1/07

A-1+

705

^µß

Pennsylvania (4.0%)

3,900

Allegheny Co. Residential Fin. Au. Single Family Mtge. Rev., Ser. 2004 PP,
(LOC: Government National Mortgage Association), 3.50%, due 11/1/07

VMIG1

3,900

4,525

Blair Co. Ind. Dev. Au. Rev. (NCP, Inc. Proj.), Ser. 2002, (LOC: NPC Bank),
3.56%, due 11/1/07

4,525

^µ

4,000

Crawford Co. Ind. Dev. Au. Rev. (Acutec Precision), Ser. 2007,
(LOC: National City Bank), 3.56%, due 11/1/07

4,000

^µß

3,200

Fayette Co. Ind. Dev. Au. IDR (Coastal Lumber Co. Proj.), Ser. 2006,
(LOC: Branch Banking & Trust Co.), 3.58%, due 11/1/07

3,200

^µß

2,805

Lackawanna Co. Ind. Dev. Au. Rev. (Material Technology Proj.), Ser. 2006,
(LOC: Wachovia Bank & Trust Co.), 3.60%, due 11/1/07

2,805

^µß

3,425

Montgomery Co. Ind. Dev. Au. Rev. (RAF Pennsburg Proj.), Ser. 2006 A,
(LOC: Wachovia Bank & Trust Co.), 3.55%, due 11/1/07

VMIG1

3,425

^µß

3,000

Pennsylvania Econ. Dev. Fin. Au. Econ. Dev. Rev., Ser. 1995 D7,
(LOC: PNC Bank), 3.52%, due 11/1/07

3,000

^µ

24,855

Rhode Island (0.2%)

1,080

Rhode Island St. Ind. Facs. Corp. IDR (Precision Turned Components Proj.),
Ser. 2000, (LOC: Bank of America), 3.45%, due 11/7/07

A-1+

1,080

^µß

South Carolina (2.7%)

2,775

Jasper Co. BANS, Ser. 2007, 4.25%, due 2/15/08

2,778

3,000

South Carolina Jobs Econ. Dev. Au. Econ. Dev. Rev.
(Advanced Composite Materials), Ser. 2007,
(LOC: National Bank of South Carolina), 3.55%, due 11/1/07

3,000

^µ

1,000

South Carolina Jobs Econ. Dev. Au. Econ. Dev. Rev.
(Blue Ridge Log Cabins LLC), Ser. 2007, (LOC: Branch Banking & Trust Co.),
3.58%, due 11/1/07

VMIG1

1,000

^µß

1,985

South Carolina Jobs Econ. Dev. Au. Econ. Dev. Rev. (DCS Diversified Coating),
Ser. 2002, (LOC: Branch Banking & Trust Co.), 3.58%, due 11/1/07

VMIG1

1,985

^µß

500

South Carolina Jobs Econ. Dev. Au. Econ. Dev. Rev. (Mancor Ind., Inc. Proj.),
Ser. 1999, (LOC: PNC Bank), 3.56%, due 11/1/07

500

^µß

4,125

South Carolina Jobs Econ. Dev. Au. Econ. Dev. Rev. (Woodhead LLC Proj.),
Ser. 2007 A, (LOC: Columbus Bank & Trust), 3.53%, due 11/1/07

4,125

^µß

South Carolina Jobs Econ. Dev. Au. IDR (Florence RHF Hsg. Proj.),
Ser. 1987 A, (LOC: Wachovia Bank & Trust Co.), 3.60%, due 11/7/07

^µß

3,420

Three Rivers Solid Waste Au. Solid Waste Disposal Fac. Ref. Rev. BANS,
Ser. 2007, 3.72%, due 1/15/08

SP-1+

3,420

16,858

South Dakota (0.0%)

125

Watertown IDR (SUPERVALU, Inc. Proj.), Ser. 1994,
(LOC: Wachovia Bank & Trust Co.), 3.42%, due 11/7/07

125

^µß

Watertown IDR Ref. (Ramkota, Inc. Proj.), Ser. 1993, (LOC: U.S. Bank),
3.64%, due 11/1/07

^µß

205

See Notes to Schedule of Investments 41

PRINCIPAL AMOUNT

SECURITY^@@

RATING^‡‡§

VALUE^††

(000's omitted)

Moody's

S&P

(000's omitted)

Tennessee (3.5%)

3,785

Franklin Co. Ind. Dev. Board IDR (Zanini Proj.), Ser. 2005 B,
(LOC: Regions Bank), 3.57%, due 11/1/07

VMIG1

3,785

^µß

11,410

Morgan Keegan Muni. Prod. Inc. Var. St. Rev., Ser. 2007 F,
(LOC: BNP Paribas), 3.57%, due 11/1/07

A-1+

11,410

^µ

2,110

Rutherford Co. IDB IDR (Tenn. Farmers Coop. Proj.), Ser. 1999,
(LOC: AMSouth Bank), 3.58%, due 11/1/07

2,110

^µß

3,200

Shelby Co. Hlth., Ed. & Hsg. Fac. Board Multi-Family Hsg. Rev. (Lexington),
Ser. 2005 A, (LOC: Fannie Mae), 3.63%, due 11/1/07

VMIG1

3,200

^µ

300

Stewart Co. IDB Rev. (Synthetic Materials Proj.), Ser. 1999 A,
(LOC: Citizens Bank), 3.60%, due 11/1/07

300

^µß

730

Stewart Co. IDB Rev. (Synthetic Materials Proj.), Ser. 1999 C,
(LOC: Citizens Bank), 3.60%, due 11/1/07

730

^µß

21,535

Texas (12.1%)

4,660

Alliance Arpt. Au. Inc. Spec. Fac. Rev. (Floaters), Ser. 2007-2088,
(LOC: Wells Fargo & Co.), 3.58%, due 11/1/07

A-1+

4,660

^µ

615

Bell Co. Hlth. Fac. Dev. Corp. Rev. (Hlth. Fac. Baptist Care, Inc.), Ser. 1998,
(LOC: Broadway National Bank), 3.68%, due 11/1/07

VMIG1

615

^µßg

5,625

Bexar Co. Hsg. Fin. Corp. Multi-Family Hsg. Rev., Ser. 2007-749CE,
(LOC: Citigroup Global Markets), 3.63%, due 11/1/07

VMIG1

5,625

^µ

20,000

Brazos River Harbor Navigation Dist. Brazoria Co. Rev. (BASF Corp. Proj.),
Ser. 2001, 3.63%, due 11/7/07

A-1+

20,000

^µß

1,300

Dallas Fort Worth Int'l Arpt. Rev. (Putters), Ser. 2004-385, (FGIC Insured),
3.55%, due 11/1/07

VMIG1

A-1+

1,300

^µo

5,095

Dallas Fort Worth Int'l Arpt. Rev. (Putters), Ser. 2007-2236, (XLCA Insured),
3.55%, due 11/1/07

VMIG1

5,095

^µo

5,140

Deutsche Bank Spears/Lifers Trust Var. St., Ser. 2007-366, (AMBAC Insured),
3.57%, due 11/1/07

A-1+

5,140

^µk

1,600

Haltom City Ind. Dev. Corp. Rev. (Molded Prod. Co. Proj.), Ser. 1995,
(LOC: Bank of America), 3.45%, due 11/7/07

A-1+

1,600

^µß

4,200

McAllen Ind. Dev. Au. Rev. (Ridge Sharyland), Ser. 2000,
5.46%, due 11/1/07

4,263

^µ

9,000

Port of Houston Au. Harris Co. (Putters), Ser. 2007-2173, (MBIA Insured),
3.55%, due 11/1/07

A-1+

9,000

^µo

1,200

Port of Port Arthur Navigation Dist. Rev. (Fina Oil & Chemical Co. Proj.),
Ser. 1998, 3.64%, due 11/1/07

VMIG1

1,200

^µß

8,200

Tarrant Co. Hsg. Fin. Corp. Rev. (Floaters), Ser. 2007-2050,
(LOC: Government National Mortgage Association), 3.55%, due 11/1/07

A-1+

8,200

^µs

7,970

Victory Street Pub. Fac. Corp. Multi-Family Rev., Ser. 2007-832CE,
(LOC: Citigroup Global Markets), 3.63%, due 11/1/07

VMIG1

7,970

^µ

74,668

Vermont (1.0%)

6,000

Vermont HFA Multi. Purp. Notes, Ser. 2007 D, (LOC: Calyon Bank),
3.85%, due 9/25/08

6,000

See Notes to Schedule of Investments 42

PRINCIPAL AMOUNT

SECURITY^@@

RATING^‡‡§

VALUE^††

(000's omitted)

Moody's

S&P

(000's omitted)

Virginia (3.4%)

2,500

Amherst Co. Econ. Dev. Au. IDR (Englands Stove Works Proj.), Ser. 2007,
(LOC: Branch Banking & Trust Co.), 3.58%, due 11/1/07

2,500

^µß

7,050

BB&T Muni. Trust Var. St. (Floaters), Ser. 2007-1006,
(LOC: Branch Banking & Trust Co.), 3.61%, due 11/1/07

VMIG1

7,050

^µ

2,210

Southampton Co. Ind. Dev. Au. Rev. (Feridies Proj.), Ser. 2006,
(LOC: Branch Banking & Trust Co.), 3.58%, due 11/1/07

2,210

^µß

3,000

Sussex Co. Ind. Dev. Au. IDR (McGill Env. Sys.), Ser. 2007,
(LOC: Branch Banking & Trust Co.), 3.58%, due 11/1/07

VMIG1

3,000

^µß

2,865

Tazewell Co. Ind. Dev. Au. Rev. (Jennmar Corp., Inc.), Ser. 2007,
(LOC: PNC Bank), 3.56%, due 11/1/07

2,865

^µß

1,865

Virginia St. Hsg. Dev. Au. Commonwealth Mtge. (Merlots), Ser. 2006 C07,
(LOC: Bank of New York), 3.39%, due 11/7/07

A-1+

1,865

^µ

1,380

Wythe Co. Ind. Dev. Au. Rev. (Klockner-Pentaplast of America), Ser. 1989,
(LOC: Bayerische Hypo-und Vereinsbank AG), 3.59%, due 11/1/07

1,380

^µß

20,870

Washington (1.2%)

7,395

Washington St. Hsg. Fin. Commission Multi-Family Hsg. Rev.,
Ser. 2007-10003CE, (LOC: Citigroup Global Markets), 3.63%, due 11/1/07

VMIG1

7,395

^µ

300

Washington St. Hsg. Fin. Commission Non-Profit Rev.
(Tacoma Art Museum Proj.), Ser. 2002, (LOC: Northern Trust Co.),
3.63%, due 11/1/07

VMIG1

300

^µß

7,695

Wisconsin (4.9%)

2,000

Antigo Unified Sch. Dist.TRANS, Ser. 2007, 3.60%, due 10/30/08

2,001

425

Elkhorn IDR (Lanco Precision Plus Proj.), Ser. 1999, (LOC: Bank One),
3.58%, due 11/7/07

425

^µß

19,945

Puttable Floating Option Tax Exempt Receipts (Floaters), Ser. 2007-4391,
(LOC: Dexia Credit Locale de France), 3.57%, due 11/1/07

VMIG1

19,945

^µ

1,800

Superior IDR (AMSOIL Inc. Proj.), Ser. 2007,
(LOC: Wells Fargo Bank & Trust Co.), 3.53%, due 11/1/07

A-1+

1,800

^µ

6,000

Whitehall IDR (Whitehall Specialties), Ser. 2007, (LOC: JP Morgan Chase),
3.59%, due 11/1/07

6,000

^µß

200

Wisconsin St. Hlth. & Ed. Fac. Au. Rev. (Meriter Hosp., Inc. Proj.), Ser. 2002,
(LOC: Marshall & Ilsley), 3.63%, due 11/1/07

A-1

200

^µß

30,371

Total Investments (99.4%)

614,040

Cash, receivables and other assets, less liabilities (0.6%)

3,520

Total Net Assets (100.0%)

617,560

See Notes to Schedule of Investments 43

Notes to Schedule of Investments Institutional Liquidity Trust

†† Investment securities are valued at amortized cost, which approximates U.S. federal income tax cost.

@@ Municipal securities held by Tax-Exempt Master Series and Municipal Master Series are within the two highest rating categories assigned by a nationally recognized statistical rating organization ("NRSRO") such as Moody's Investors Service, Inc. or Standard & Poor's or, where not rated, are determined by the master series' investment manager to be of comparable quality. Approximately 87% and 91% of the municipal securities held by Tax-Exempt Master Series and Municipal Master Series, respectively, have credit enhancement features backing them, which the funds may rely on, such as letters of credit, insurance, or guarantees. Without these credit enhancement features the securities may or may not meet the quality standards of the fund. Pre-refunded bonds are supported by securities in escrow issued or guaranteed by the U.S. Government, its agencies, or instrumentalities. The amount escrowed is sufficient to pay the periodic interest due and the principal of these bonds. Putable bonds give the funds the right to sell back the issue on the date specified.

ß Security is guaranteed by the corporate or non-profit obligor.

µ Floating rate securities are securities whose yields vary with a designated market index or market rate. These securities are shown at their current rates as of October 31, 2007.

^§ Credit ratings are unaudited.

a Security is subject to a guarantee provided by ABN AMRO Bank NV, backing 100% of the total principal.

b Security is subject to a guarantee provided by Banco Santander, backing 100% of the total principal.

c Security is subject to a guarantee provided by Bank of America, backing 100% of the total principal.

d Security is subject to a guarantee provided by Bank of New York, backing 100% of the total principal.

e Security is subject to a guarantee provided by Bear Stearns, backing 100% of the total principal.

f Security is subject to a guarantee provided by Calyon Bank, backing 100% of the total principal.

g Security is subject to a guarantee provided by Chase Bank, backing 100% of the total principal.

h Security is subject to a guarantee provided by Citibank, N.A., backing 100% of the total principal.

i Security is subject to a guarantee provided by Citigroup Global Markets, backing 100% of the total principal.

j Security is subject to a guarantee provided by Depfa Bank PLC, backing 100% of the total principal.

k Security is subject to a guarantee provided by Deutsche Bank, backing 100% of the total principal.

l Security is subject to a guarantee provided by Dexia Credit Locale de France, backing 100% of the total principal.

m Security is subject to a guarantee provided by Goldman Sachs, backing 100% of the total principal.

o Security is subject to a guarantee provided by JP Morgan Chase, backing 100% of the total principal.

Notes to Schedule of Investments Institutional Liquidity Trust (cont'd)

p Security is subject to a guarantee provided by Landesbank Hessen-Thveringen Girozentrale, backing 100% of the total principal.

q Security is subject to a guarantee provided by Lloyd's Bank, backing 100% of the total principal.

r Security is subject to a guarantee provided by Merrill Lynch Capital Markets, backing 100% of the total principal.

s Security is subject to a guarantee provided by Morgan Stanley, backing 100% of the total principal.

t Security is subject to a guarantee provided by Societe Generale, backing 100% of the total principal.

u Security is subject to a guarantee provided by U.S. Bank, backing 100% of the total principal.

v Security is subject to a guarantee provided by Wachovia Bank & Trust Co., backing 100% of the total principal.

w Security is subject to a guarantee provided by Wescorp Credit Union, backing 100% of the total principal.

x Security is subject to a guarantee provided by Wells Fargo Bank & Trust Co., backing 100% of the total principal.

y Security is subject to a guarantee provided by KBC Bank, backing 50% of the total principal and Landesbank Baden-Wurttemberg, backing 50% of the total principal.

z Security is subject to a guarantee provided by PNC Bank, backing 100% of the total principal.

Statements of Assets and Liabilities

Institutional Liquidity Trust
(000's omitted)

	TAX-EXEMPT MASTER SERIES		MUNICIPAL MASTER SERIES
	October 31, 2007		October 31, 2007
Assets
Investments in securities, at value* (Note A)—see Schedule of Investments:
Unaffiliated issuers	$	1,883,799	$	614,040
Interest receivable		16,234		4,005
Receivable for securities sold		8,685		8,979
Prepaid expenses and other assets		184		32
Total Assets		1,908,902		627,056
Liabilities
Due to custodian		10,595		9,429
Payable to investment manager—net (Note B)		149		52
Accrued expenses and other payables		—		15
Total Liabilities		10,744		9,496
Net Assets Applicable to investors' beneficial interests	$	1,898,158	$	617,560
Net Assets consist of:
Paid-in capital	$	1,898,158	$	617,560
*Cost of investments:
Unaffiliated issuers	$	1,883,799	$	614,040

See Notes to Financial Statements 46

Statements of Operations

Institutional Liquidity Trust
(000's omitted)

	TAX-EXEMPT MASTER SERIES			MUNICIPAL MASTER SERIES
	Period from September 10, 2007 (Commencement of Operations) to October 31, 2007			Period from September 10, 2007 (Commencement of Operations) to October 31, 2007
Investment Income
Income:
Interest income—unaffiliated issuers (Note A)	$	10,784		$	3,484
Expenses:
Investment management fees (Note B)		618			228
Audit fees		11			32
Custodian fees (Note B)		54			30
Legal fees		1			1
Rating agency fees		1			1
Trustees' fees and expenses		4			4
Miscellaneous		3			—
Total expenses		692			296
Investment management fees waived (Note B)		(383	)		(153	)
Expenses reduced by custodian fee expense offset arrangement (Note B)		(111	)		(45	)
Total net expenses		198			98
Net investment income	$	10,586		$	3,386
Realized and Unrealized Gain (Loss) on Investments (Note A)
Net realized gain (loss) on:
Sales of investment securities of unaffiliated issuers		5			6
Net increase (decrease) in net assets resulting from operations	$	10,591		$	3,392

See Notes to Financial Statements 47

Statements of Changes in Net Assets

Institutional Liquidity Trust
(000's omitted)

	TAX-EXEMPT MASTER SERIES			MUNICIPAL MASTER SERIES
	Period from September 10, 2007 (Commencement of Operations) to October 31, 2007			Period from September 10, 2007 (Commencement of Operations) to October 31, 2007
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss)	$	10,586		$	3,386
Net realized gain (loss) on investments		5			6
Net increase (decrease) in net assets resulting from operations		10,591			3,392
Transactions in Investors' Beneficial Interest:
Contributions		3,250,661			1,154,509
Withdrawals		(1,363,094	)		(540,341	)
Net increase (decrease) from transactions in investors' beneficial interest		1,887,567			614,168
Net Increase (Decrease) in Net Assets		1,898,158			617,560
Net Assets:
Beginning of period		—			—
End of period	$	1,898,158		$	617,560

See Notes to Financial Statements 48

Notes to Financial Statements Institutional Liquidity Trust

Note A—Summary of Significant Accounting Policies:

1 General: Tax-Exempt Master Series and Municipal Master Series (individually a "Master Series," collectively, the "Master Series") are separate operating series of Institutional Liquidity Trust (the "Trust"), a Delaware statutory trust organized pursuant to a Trust Instrument dated October 1, 2004. The Trust is registered as a diversified, open-end management investment company under the Investment Company Act of 1940, as amended. Tax-Exempt Master Series and Municipal Master Series each had no operations until September 10, 2007 other than matters relating to its organization.

Other investment companies sponsored by Neuberger Berman Management Inc. ("Management"), the Master Series' investment manager, whose financial statements are not presented herein, also invest in the Master Series.

The assets of each Master Series belong only to that Master Series, and the liabilities of each Master Series are borne solely by that Master Series and no other series of the Trust.

The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires Management to make estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates.

2 Portfolio valuation: Investment securities are valued as indicated in the notes following the Master Series' Schedule of Investments.

3 Securities transactions and investment income: Securities transactions are recorded on trade date for financial reporting purposes. 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 are recorded on the basis of identified cost and stated separately in the Statements of Operations.

4 Income tax information: Each Master Series intends to comply with the requirements of the Internal Revenue Code. Each Master Series also intends to conduct their operations so that each of its investors that are regulated investment companies and invest substantially all of their net investable assets therein will be able to qualify as such. Each Master Series will be treated as a partnership for U.S. federal income tax purposes and is therefore not subject to U.S. federal income tax.

5 Expense allocation: Certain expenses are applicable to multiple funds. Expenses directly attributable to a Master Series are charged to that Master Series. Expenses of the Trust that are not directly attributed to a Master Series are allocated among the series of the Trust, on the basis of relative net assets, except where a more appropriate allocation of expenses to each of the series can otherwise be made fairly. Expenses borne by the complex of related investment companies, which includes open-end and closed-end investment companies for which Management serves as investment manager, that are not directly attributed to a Master Series or the Trust, are allocated among the Master Series and the other investment companies in the complex or series thereof, on the basis of relative net assets, except where a more appropriate allocation of expenses to each investment company in the complex or series thereof can otherwise be made fairly.

6 Repurchase agreements: Each Master Series may enter into repurchase agreements with institutions that Management has determined are creditworthy. Each repurchase agreement is recorded at cost. Each Master Series requires that the securities purchased in a repurchase agreement be transferred to the custodian in a manner sufficient to enable the Master Series to assert a perfected security interest in those securities in the event of a default under the repurchase agreement. Each Master Series 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 the Master Series under each such repurchase agreement.

7 Indemnifications: Like many other companies, the Trust's organizational documents provide that its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, both in some of its principal service contracts and in the normal course of its business, the Trust enters into contracts that provide indemnifications to other parties for certain types of losses or liabilities. The Trust's maximum exposure under these arrangements is unknown as this could involve future claims against the Trust.

Note B—Management Fees and Other Transactions with Affiliates:

Each Master Series retains Management as its investment manager under a Management Agreement. For such investment management services, each Master Series pays Management a fee at the annual rate of 0.25% of the first $500 million of 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. Management contractually agreed to waive its management fee, limiting the management fee to 0.08% of each Master Series' average daily net assets. For the period ended October 31, 2007, such waived fees amounted to $383,486 for Tax-Exempt Master Series and $153,107 for Municipal Master Series, respectively.

Management and Lehman Brothers Asset Management LLC ("LBAM"), the sub-adviser to the Master Series, are wholly-owned subsidiaries of Lehman Brothers Holdings Inc., a publicly-owned holding company. LBAM is retained by Management to provide day-to-day investment management services. LBAM, as sub-adviser to each Master Series, receives a monthly fee paid by Management, based on an annual rate of each Master Series' average daily net assets. The Master Series do not pay a fee directly to LBAM for such services. As investment adviser, Management is responsible for overseeing the investment activities of LBAM. Several individuals who are officers and/or trustees of the Trust are also employees of LBAM and/or Management.

Each Master Series has an expense offset arrangement in connection with its custodian contract. For the period ended October 31, 2007, the impact of this arrangement was a reduction of expenses of $110,670 and $44,585 for Tax-Exempt Master Series and Municipal Master Series, respectively.

Note C—Securities Transactions:

All securities transactions for Tax-Exempt Master Series and Municipal Master Series were short-term.

Note D—Line of Credit:

At commencement of operations, the Master Series became a participant in a single committed, unsecured $300,000,000 line of credit with State Street Bank and Trust Company ("State Street") and Bank of New York, as agent, to be used only for temporary or emergency purposes. Other investment companies managed by Management also participate in this line of credit on the same terms. Interest is charged on borrowings under this agreement at the overnight Federal Funds Rate plus 0.375% per annum. A commitment fee of 0.075% per annum of the unused available line of credit is charged, of which the Master Series has agreed to pay its pro rata share, based on the ratio of its individual net assets to the net assets of all participants at the time the fee is due and payable. The fee is paid quarterly in arrears. Because several investment companies participate, there is no assurance that an individual Master Series will have access to all or any part of the $300,000,000 at any particular time.

On September 27, 2007 the Master Series became a participant in a single uncommitted, unsecured $150,000,000 line of credit with State Street, as lender, to be used only for temporary or emergency purposes. Other investment companies managed by Management also participate in this line of credit on the same terms. Interest is charged on borrowings under this agreement at the overnight Federal Funds Rate plus 0.375% per annum. Because several investment companies participate, there is no assurance that an individual Master Series will have access to all or any part of the $150,000,000 at any particular time.

The Master Series had no loans outstanding pursuant to either line of credit at October 31, 2007. During the period ended October 31, 2007, the Master Series did not utilize either line of credit.

Note E—Recent Accounting Pronouncement:

In September 2006, Financial Accounting Standards Board ("FASB") issued FASB Statement No. 157, "Fair Value Measurement" ("SFAS 157"), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Management believes the adoption of SFAS 157 will not have a material impact on the Master Series' financial position or results or operations.

Note F—Change in Year End:

The Board of Trustees adopted a change in each Master Series' fiscal year and tax year end date to March 31. This change is effective with the next fiscal period, which runs from November 1, 2007 to March 31, 2008.

Financial Highlights

Tax-Exempt Master Series

	Period from September 10, 2007^{^}to October 31, 2007
Ratios to Average Net Assets:
Gross Expenses^#		.13	%*
Net Expenses^‡		.09	%*
Net Investment Income (Loss)		3.61	%*
Total Return^†@@		+.52	%**
Net Assets, End of Period (in millions)	$	1,898.2

See Notes to Financial Highlights 52

Financial Highlights

Municipal Master Series

	Period from September 10, 2007^{^}to October 31, 2007
Ratios to Average Net Assets:
Gross Expenses^#		.18	%*
Net Expenses^‡		.13	%*
Net Investment Income (Loss)		3.63	%*
Total Return^†@@		+.52	%**
Net Assets, End of Period (in millions)	$	617.6

See Notes to Financial Highlights 53

Notes to Financial Highlights Institutional Liquidity Trust

# The Master Series is required to calculate an expense ratio without taking into consideration any expense reductions related to expense offset arrangements.

‡ After waiver of a portion of the investment management fee by Management. Had Management not undertaken such action, the annualized ratios of net expenses to average daily net assets would have been:

	Period Ended October 31, 2007⁽¹⁾
Tax-Exempt Master Series		0.22	%
Municipal Master Series		0.30	%

(1) Period from September 10, 2007 (commencement of operations) to October 31, 2007.

† Total return for the Master Series has been calculated based on the total return for the feeder funds that invest all of their net investable assets in the Master Series. Total return assumes all distributions were reinvested and adjusted for the difference in expenses as set forth in the Notes to the Financial Statements of the feeder funds. Results represent past performance and do not guarantee future results. Current returns may be lower or higher than the performance data quoted.

@@ Total return would have been lower had Management not waived a portion of the investment management fee.

^ The date investment operations commenced.

* Annualized.

** Not annualized.

Report of Independent Registered Public Accounting Firm

To the Board of Trustees of Institutional Liquidity Trust and Owners of Beneficial Interest of Tax-Exempt Master Series

We have audited the accompanying statement of assets and liabilities of Tax-Exempt Master Series (the "Portfolio"), a series of Institutional Liquidity Trust, including the schedule of investments, as of October 31, 2007, and the related statement of operations, the statement of changes in net assets, and the financial highlights for the period September 10, 2007 (commencement of operations) to October 31, 2007. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (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. The Portfolio is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2007, by correspondence with the custodian. We believe that our audit provides 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 Tax-Exempt Master Series as of October 31, 2007, the results of its operations, the changes in its net assets, and the financial highlights for the period from September 10, 2007 to October 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

Philadelphia, Pennsylvania
December 14, 2007

Report of Independent Registered Public Accounting Firm

To the Board of Trustees of Institutional Liquidity Trust and Owners of Beneficial Interest of Municipal Master Series:

We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Municipal Master Series (one of the series constituting Institutional Liquidity Trust) (the "Portfolio"), as of October 31, 2007, and the related statements of operations and changes in net assets, and the financial highlights for the period from September 10, 2007 (commencement of operations) to October 31, 2007. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Portfolio's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2007, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audit provides 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 Municipal Master Series, a portfolio of Institutional Liquidity Trust, at October 31, 2007, the results of its operations, the changes in its net assets, and its financial highlights for the period from September 10, 2007 (commencement of operations) to October 31, 2007, in conformity with U.S. generally accepted accounting principles.

Boston, Massachusetts
December 14, 2007

Neuberger Berman Strategic Income Fund (NRSIX) N-CSRCertified annual shareholder report (management investment company)