As filed with the Securities and Exchange Commission on July 7, 2004
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
NEUBERGER BERMAN 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, Chief Executive Officer
Neuberger Berman Income Funds
605 Third Avenue, 2nd Floor
New York, New York 10158-0180
Arthur Delibert, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1221
(Names and Addresses of agents for service)
Date of fiscal year end: October 31, 2004
Date of reporting period: April 30, 2004
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 ("Act") (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, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
Item 1. Reports to Shareholders.
[NEUBERGER BERMAN LOGO]
A LEHMAN BROTHERS COMPANY
SEMI-ANNUAL REPORT
APRIL 30, 2004
NEUBERGER BERMAN
INCOME FUNDS
INVESTOR CLASS SHARES
TRUST CLASS SHARES
CASH RESERVES
GOVERNMENT MONEY FUND
HIGH INCOME BOND FUND
LIMITED MATURITY BOND FUND
MUNICIPAL MONEY FUND
MUNICIPAL SECURITIES TRUST
<Page>
CONTENTS
<Table>
THE FUNDS
CHAIRMAN'S LETTER 2
PORTFOLIO COMMENTARY/
PERFORMANCE HIGHLIGHTS
Limited Maturity Bond Fund 4
High Income Bond Fund 5
Municipal Securities Trust 6
Municipal Money Fund 8
Cash Reserves 9
Government Money Fund 10
SCHEDULE OF INVESTMENTS
Cash Reserves 13
Government Money Fund 15
High Income Bond Fund 16
Limited Maturity Bond Fund 22
Municipal Money Fund 25
Municipal Securities Trust 32
FINANCIAL STATEMENTS 36
FINANCIAL HIGHLIGHTS (ALL CLASSES)
PER SHARE DATA
Cash Reserves 50
Government Money Fund 51
High Income Bond Fund 52
Limited Maturity Bond Fund 53
Municipal Money Fund 54
Municipal Securities Trust 55
DIRECTORY 58
TRUSTEES AND OFFICERS 59
PROXY VOTING POLICIES AND PROCEDURES 67
</Table>
"Neuberger Berman" and the Neuberger Berman logo are service marks of Neuberger
Berman, LLC. "Neuberger Berman Management Inc." and the individual fund names in
this shareholder report are either service marks or registered service marks of
Neuberger Berman Management Inc.(C) 2004 Neuberger Berman Management Inc. All
rights reserved.
1
<Page>
CHAIRMAN'S LETTER
[PHOTO OF PETER SUNDMAN]
DEAR FELLOW SHAREHOLDER,
Bond traders are the grinches of the financial markets -- they hate
good economic news. Why? Strong economic growth spawns concern about
inflation, which in turn leads to Federal Reserve tightening and
higher interest rates. Higher interest rates translate into higher
coupons (interest payments to bond holders) on newly issued bonds.
Therefore, in order to provide a competitive yield to newly issued
bonds, the prices of bonds that are currently trading in the market
must come down.
We enjoyed a stable bond market from November 2003 through February
2004, a period in which economic news was mixed. However, when a
surprisingly strong March jobs report was released in early April, the
markets caught a whiff of potential inflation. Prior to the
publication of March jobs data, the consensus was that the Fed would
delay hiking short-term interest rates until after the election and
perhaps even wait until first quarter 2005. However, the data prompted
concerns that the Fed would begin tightening this summer. Bond prices
came under pressure immediately, with all sectors of the fixed-income
market declining in April.
While the bull market for bonds may be over for the time being, there
is significant disagreement over the short-term outlook for the
fixed-income markets. This debate focuses on inflation. Bond bears
point to rapidly rising commodities prices (especially oil), the
potential for upward pressure on wages if job growth remains strong,
and the prospect of price inflation returning as demand catches up
with supply. They argue that the Federal Reserve will have to increase
short-term rates quickly and substantially in order to head off
inflation. More optimistic market observers point to still significant
overcapacity in many industries, a labor force that by some standards
is still underemployed, disinflationary pressures in the form of
increased imports from low-labor-cost nations, and the lack of pricing
flexibility in most businesses. They believe that the Fed can afford
to take a cautious, measured approach and that, in total, Fed rate
hikes will be relatively modest.
We can't know which of the two perspectives will be proven right. We
do know, however, that with the April decline behind us, there is
already some bad news
2
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
baked into bond prices. Importantly, while our portfolio managers may
take sides in this debate, they won't put shareholders' hard-earned
money unduly at risk based on anyone's economic or market forecasts,
including their own. In this uncertain environment, all of our
fixed-income portfolios are defensively postured to hedge against
interest rate risk, even if it means giving up potential short-term
gains.
Of course, the upside to lower bond prices is higher yields. During
this extended period of historically low interest rates, bond yields
have been rather modest. With yields increasing, the current income
for shareholders will increase as well.
In closing, the four-year bull market in bonds may have come to an
end. We expect the fixed-income markets to remain unsettled for at
least the next few months. However, all of our fund portfolios are
postured defensively to diminish interest rate risk. As always, our
portfolio managers will be alert to any meaningful changes in bond
market trends and will be prepared to take advantage of evolving
opportunities.
Sincerely,
/s/ Peter Sundman
PETER SUNDMAN
CHAIRMAN OF THE BOARD
NEUBERGER BERMAN INCOME FUNDS
3
<Page>
LIMITED MATURITY BOND FUND PORTFOLIO COMMENTARY
For the six months ended April 30, 2004, the Neuberger Berman Limited
Maturity Bond Fund returned 0.56% versus 0.55% for the Merrill Lynch
1-3 Year Treasury Index benchmark.
At the beginning of fiscal 2004, the portfolio had a relatively
conservative duration of 1.4 years, moderately below the duration of
the benchmark index. This defensive posture was a reflection of our
recognition that low bond yields provide only a thin cushion to offset
potential price declines associated with the strengthening economy. We
further reduced the portfolio duration to approximately 1.3 years at
the end of March. After the surprisingly strong March employment
report, this posture helped preserve shareholder capital as the bond
market began anticipating and pricing in the increased probability of
a Federal Reserve rate hike.
We employed shifts in sector allocation to take advantage of evolving
opportunities in the market. In a tactical opportunity, we added a
small position in foreign government securities in January. In
February, we began increasing our position in cash equivalents,
raising it from 11.5% of portfolio assets at the end of January to
14.0% at the end of April. This increase is consistent with the
conservative structuring of the portfolio. In March, we increased our
allocation to U.S. Treasuries while reducing our exposure to
mortgage-backed securities, which tend not to perform well in more
volatile interest rate environments. We maintained the portfolio's
high credit quality.
Looking ahead, if job growth remains strong and the early signs of
price pressure persist, a potential Federal Reserve tightening will
become more likely -- and imminent. In the past, Fed Chairman Alan
Greenspan has employed a measured approach to adjusting the Fed Funds
Rate, taking small discrete steps and then patiently waiting to
evaluate the impact on the economy before proceeding further. In his
commentary, Mr. Greenspan has hinted that the Fed will use a similar
approach in the coming months. We will continue to evaluate these
factors and adjust the portfolio accordingly.
At the end of this reporting period (April 30, 2004) the portfolio had
a duration of 1.2 years versus approximately 1.7 years for the Merrill
Lynch 1-3 Year Treasury Index benchmark, an average Credit Rating of
AA-, and an Average Yield to Maturity of 2.22%.
In closing, with short-term interest rates reaching historically low
levels, investors in our fund have enjoyed strong returns over the
past few years. In this lower interest rate environment we are taking
a conservative approach and protecting these gains. As interest rates
rise and additional opportunities become more attractive, we will once
again reach out on the risk spectrum in search of ways to create value
in the fund.
Sincerely,
/s/ Ted Giuliano
TED GIULIANO
PORTFOLIO MANAGER
PERFORMANCE HIGHLIGHTS
<Table>
<Caption>
SIX MONTH AVERAGE ANNUAL
NEUBERGER BERMAN PERIOD ENDED TOTAL RETURNS (1)
LIMITED MATURITY BOND (2) INCEPTION DATE 4/30/2004 1 YEAR (1) 5 YEARS 10 YEARS
INVESTOR CLASS 06/09/1986 0.56% 1.30% 4.71% 5.21%
TRUST CLASS (6) 08/30/1993 0.56% 1.20% 4.60% 5.11%
</Table>
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.
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.
The 30-day SEC yield of the Investor Class Shares ending 4/30/04 was
1.71%, and the Trust Class Shares was 1.61%.
The composition, industries and holdings of the fund are subject to
change. Investment return will fluctuate. Share values of the classes
of the Limited Maturity Bond Fund will also fluctuate, and your
shares, when redeemed, may be worth more or less than you paid for
them. Past performance is no guarantee of future results.
4
<Page>
HIGH INCOME BOND FUND PORTFOLIO COMMENTARY
For the semi-annual report period ended April 30, 2004, the Neuberger
Berman High Income Bond Fund posted a gain of 3.80% compared to a
return of 5.28% for the Lipper High Current Yield Funds Index and a
return of 4.54% for the Lehman Brothers Intermediate Ba U.S. High
Yield Index, the Fund's benchmark. The Fund provided positive
performance for the period despite an increase in interest rates from
previously record low levels.
Given the ongoing improvement in economic activity, a stronger
employment picture, and continued consumer confidence, we expected
rates to rise at some point this year. Consequently, we had positioned
the portfolio between defensive and market, which we believe helped
cushion performance. As of April 30, 2004, the Fund's duration and
maturity stance remained relatively short at 3.6 years and 5.9 years,
respectively.
We would describe the six-month period from October 31, 2003 to April
30, 2004, as relatively sedate. There were no specific shocks to the
market or negative surprises among the portfolio's holdings. During
the period, new issuance and refinancings remained at high levels.
Many companies took advantage of the market's window of opportunity to
restructure the terms of their debt. Although the aggregate level of
debt for these companies (many of which we own) has not declined, the
average cost of their debt has, providing them with greater financial
flexibility going forward.
We may not like the price fluctuations that we see caused by the
recent adjustment in short-term interest rates, but we are optimistic
about the expansionary economic period that we believe we are
entering. In our view, improving economic conditions are providing the
wind at our backs. The Federal Reserve Board's actions are being taken
to ensure that the economy is not overheating, which is a positive for
companies in the portfolio over the long term.
Although the backup in interest rates was rather abrupt, we are
confident that the portfolio is well positioned going forward. We took
smaller positions in most of the portfolio's longer-dated bonds (those
with relatively lower coupons) and if companies, as we expect,
continue to refinance or call in their debt, we will look for
opportunities to roll those securities into higher coupon debt or buy
lower-coupon bonds for better prices.
Our investment orientation will remain toward keeping duration
relatively short. This part of the curve still provides compelling
income, yet minimizes risks related to rising interest rates. We also
intend to maintain our focus on credit selection and to remain well
diversified across industries.
Sincerely,
/s/ Wayne C. Plewniak
WAYNE C. PLEWNIAK
SENIOR PORTFOLIO MANAGER
PERFORMANCE HIGHLIGHTS
<Table>
<Caption>
SIX MONTH AVERAGE ANNUAL
NEUBERGER BERMAN PERIOD ENDED TOTAL RETURNS (1)
HIGH INCOME BOND FUND (2) INCEPTION DATE 4/30/2004 1 YEAR (1) 5 YEARS 10 YEARS
INVESTOR CLASS (8) 02/01/1992 3.80% 8.95% 6.63% 8.06%
</Table>
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.
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.
The 30-day SEC yield of the Investor Class Shares was 5.66% for the
period ending April 30, 2004.
The composition, industries and holdings of the fund are subject to
change. Investment return will fluctuate. Share values of the High
Income Bond Fund will also fluctuate, and your shares, when redeemed,
may be worth more or less than you paid for them. Past performance is
no guarantee of future results.
5
<Page>
MUNICIPAL SECURITIES TRUST PORTFOLIO COMMENTARY
For the six months ended April 30, 2004, the Neuberger Berman
Municipal Securities Trust returned 0.15% compared with the Lehman
Brothers 7-Year GO Index's 0.50% and the Lipper Intermediate Municipal
Debt Fund Index's 0.43% return.
The Fund enjoyed a stable bond market through the first five months of
this six-month reporting period. However, when a strong March jobs
report was released in early April and investors became convinced that
the Federal Reserve would begin tightening short-term interest rates
this summer, bond prices came under heavy pressure. The performance of
municipal bonds tracked that of the broad fixed-income market
throughout this reporting period.
Since preservation of capital is always our primary objective, we
assumed a more defensive posture long before the March jobs report
rattled the fixed-income markets. We began shortening the portfolio's
weighted average maturity and duration in December to hedge against
interest rate risk. Although this strategy was particularly effective
in April, we believe the portfolio's "safety first" posture will work
to shareholders' advantage in the months ahead. Our commitment to
quality also restrained relative returns, as lower-rated,
higher-yielding credits outperformed throughout this six-month
reporting period.
Our underweight in New York and California helped relative returns as
municipal securities from both states remained under pressure due to
large budget deficits. However, with New York and California making
some strides in getting their financial houses back in order, we may
increase our exposure to enhance portfolio yield. We did not alter
sector allocation significantly during the reporting period, keeping
around 50% of assets in revenue bonds (primarily essential purpose
issues) and approximately 40% of assets in general obligation bonds.
Approximately 5% of assets were in pre-refunded/escrowed bonds, and
between 1% and 3% were in cash equivalents.
Looking ahead, we believe that fixed-income markets will remain
unsettled for at least the next several months as investors continue
to ponder how much the Federal Reserve will raise short-term interest
rates. We believe that the Fed will take a cautious, measured approach
in raising short-term interest rates. We expect the Fed to tap lightly
on the monetary brakes this summer and then wait for the election year
dust to settle. If economic growth begins moderating in the second
half of 2004, the Fed may not tighten as much as the fixed-income
markets appear to be anticipating. With bond prices falling so sharply
in April (the yield on the 10-year U.S. Treasury Bond rose 67 basis
points in one month), much if not all of the potential bad news (in
the case of bonds, really good economic news), may already be
discounted in the market.
We will remain defensive until we see solid evidence that the bond
market is firming. Our sensitivity to interest rate risk is reflected
in the portfolio's weighted average maturity and duration, both of
which are approximately half a year below benchmark levels. Our
commitment to quality is demonstrated by the portfolio's AA+ credit
rating.
In closing, following a long bull market in bonds, the capital
appreciation potential of municipal bonds may be limited for the
foreseeable future. The good news is that the Fund's yield should rise
along with interest rates, boosting the income distributed to
shareholders.
Sincerely,
/s/ Ted Giuliano /s/ Thomas Brophy
/s/ Kelly Landron
TED GIULIANO,
THOMAS BROPHY
AND
KELLY LANDRON
PORTFOLIO CO-MANAGERS
6
<Page>
PERFORMANCE HIGHLIGHTS
<Table>
<Caption>
SIX MONTH AVERAGE ANNUAL
NEUBERGER BERMAN PERIOD ENDED TOTAL RETURNS (1)
MUNICIPAL SECURITIES TRUST (2),(3) INCEPTION DATE 4/30/2004 1 YEAR (1) 5 YEARS 10 YEARS
INVESTOR CLASS 07/09/1987 0.15% 1.09% 4.74% 5.26%
</Table>
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.
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.
For the period ending 4/30/04, the 30-day SEC yield of the Municipal
Securities Trust was 2.67% and the tax-equivalent yield was 4.11% For
an investor in the highest federal income tax bracket (35% for
calendar year 2004).
The composition, industries and holdings of the fund are subject to
change. Investment return will fluctuate. Share values of the
Municipal Securities Trust will also fluctuate, and your shares, when
redeemed, may be worth more or less than you paid for them. Past
performance is no guarantee of future results.
7
<Page>
MUNICIPAL MONEY FUND PORTFOLIO COMMENTARY
For the six months ended April 30, 2004, the Neuberger Berman
Municipal Money Fund returned 0.19% versus 0.20% for the Money Fund
Report Tax-Free National Retail Average.
In fiscal 2003, deteriorating credit quality was the big story in the
municipal money markets. With municipal balance sheets weakening as
tax revenues decreased, we had to be especially diligent in our credit
analysis in order to avoid potholes in the market. In first-half
fiscal 2004, the big story was the increasing probability that the
Federal Reserve would begin hiking short-term interest rates this
summer in response to more consistently good economic news in general
and the surprisingly strong March jobs report in particular.
Always sensitive to interest rate risk, we had begun shortening the
portfolio's weighted average maturity long before investors became
convinced that the Fed was ready to tighten and before longer maturity
municipal money market securities came under pressure. The Fund's
weighted average maturity peaked on February 11 at 54.2 days. By the
end of April, it had been reduced to 35.0 days. With the yield spread
between one-month and one-year securities increasing by 40 basis
points in the month of April, our cautious posture was rewarded. The
fact that during the reporting period, on average 71% of assets were
invested in securities that adjust interest rate payments in response
to rising rates also benefited returns when rates jumped in April. At
the end of April, 70.0% of portfolio assets remained in adjusted rate
paper, a reflection of our still defensive posture.
We never try to predict what the often unpredictable Federal Reserve
is likely to do in the future. That said, the Fed has become
increasingly sensitive to the impact of policy changes on the
financial markets, and therefore we believe it will take a cautious,
measured approach in its future efforts to defend against inflation.
With today's much steeper yield curve, it is tempting to begin
extending the portfolio's weighted average maturity to enhance yield.
However, we will very likely wait until the Fed makes its first move,
listen carefully to the tone of its message, and quickly assess the
impact on the municipal money markets before determining whether to
become more aggressive.
In closing, the Neuberger Berman Municipal Money Fund has met its dual
objectives of preserving shareholder capital and providing positive
returns. We remain committed to identifying evolving opportunities in
the marketplace and generating competitive returns.
Sincerely,
/s/ Ted Giuliano /s/ Thomas Brophy
/s/ Kelly Landron
TED GIULIANO,
THOMAS BROPHY
AND
KELLY LANDRON
PORTFOLIO CO-MANAGERS
PERFORMANCE HIGHLIGHTS
<Table>
<Caption>
FOR THE 7 DAYS ENDED 4/30/04
NEUBERGER BERMAN TAX-EQUIVALENT
MUNICIPAL MONEY FUND (5),(3) INCEPTION DATE CURRENT YIELD (4) EFFECTIVE YIELD (4) EFFECTIVE YIELD (7)
INVESTOR CLASS 12/10/1984 0.43% 0.43% 0.66%
</Table>
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. RESULTS ARE SHOWN ON A "TOTAL
RETURN" BASIS AND INCLUDE REINVESTMENT OF ALL DIVIDENDS. CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED.
FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END VISIT
www.nb.com/performance.
AN INVESTMENT IN A MONEY MARKET 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.
For the period ending 4/30/04, the 7-day current yield of the
Municipal Money Fund was 0.43% and the tax-equivalent yield was 0.66%
for an investor in the highest federal income tax bracket (35% for
calendar year 2004). The 7-day effective yield was 0.43% and the
tax-equivalent yield was 0.66% for an investor in the highest federal
income tax bracket (35% for calendar year 2004).
The composition, industries and holdings of the fund are subject to
change. Investment return will fluctuate. Past performance is no
guarantee of future results.
8
<Page>
CASH RESERVES PORTFOLIO COMMENTARY
For the six months ended April 30, 2004, Neuberger Berman Cash
Reserves returned 0.22%, compared with the Money Fund Report Taxable
First Tier Retail Average's 0.19%. The Fund closed the period with a
seven-day current yield and seven-day effective yield of 0.37%.
Through the first five months of this six-month reporting period, the
money markets remained largely unchanged, with rates near 45-year lows
and a relatively flat yield curve. Then, on April 2, 2004, a
surprisingly strong March jobs report was released and investors
became convinced the Federal Reserve would begin hiking short-term
interest rates this summer. The yield curve steepened immediately. To
put things in perspective, at the beginning of fiscal 2004, the
one-month LIBOR Rate (London InterBank Offered Rate) was 1.12% and the
12-month rate was 1.48% -- a narrow 36 basis point spread. This spread
remained quite narrow through the end of March. By the end of April,
the LIBOR spread had increased to 73 basis points, as securities in
the longer end of the money market maturity spectrum came under
pressure.
We entered fiscal 2004 defensively postured, with a weighted average
maturity of 56.8 days. We made modest adjustments over the next five
months, but the portfolio's average maturity remained in the lower end
of our range. When the March jobs report showing a 308,000 increase in
non-farm payrolls was released, we chose to remain defensive --keeping
the portfolio positioned at a point in the yield curve providing
respectable yield and moderate interest rate risk.
The primary shifts in sector allocation during this reporting period
reflected our desire to further mitigate risk by diversifying the
portfolio. We increased our allocation to U.S. Treasury bills and
built positions in time deposits and short-term bank notes. We reduced
our exposure to agencies, because we feared that the ongoing negative
publicity surrounding Freddie Mac and Fannie Mae could pressure other
agency securities. Since sector spreads were quite narrow, we were
able to diversify without sacrificing credit quality or giving up
yield.
Going forward, we will likely remain defensively positioned, waiting
to evaluate the impact that any change in Federal Reserve monetary
policy has on the money markets.
In closing, money market funds have achieved their dual objective --
preserving capital and providing positive returns. Our challenge is to
respond quickly to changing market conditions and take advantage of
evolving opportunities.
Sincerely,
/s/ Ted Giuliano /s/ Cynthia Damian
/s/ Alyssa Juros
TED GIULIANO CYNTHIA DAMIAN AND
PORTFOLIO MANAGER ALYSSA JUROS
PORTFOLIO
ASSOCIATE MANAGERS
PERFORMANCE HIGHLIGHTS
<Table>
<Caption>
FOR THE 7 DAYS ENDED 4/30/04
NEUBERGER BERMAN CASH RESERVES (2),(5) INCEPTION DATE CURRENT YIELD (4) EFFECTIVE YIELD (4)
INVESTOR CLASS 04/12/1988 0.37% 0.37%
</Table>
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. RESULTS ARE SHOWN ON A "TOTAL
RETURN" BASIS AND INCLUDE REINVESTMENT OF ALL DIVIDENDS. CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED.
FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END VISIT
www.nb.com/performance.
AN INVESTMENT IN A MONEY MARKET 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.
9
<Page>
GOVERNMENT MONEY FUND PORTFOLIO COMMENTARY
For the six months ended April 30, 2004, the Neuberger Berman
Government Money Fund returned 0.26%, compared with the Money Fund
Report Government & Agencies Retail Average's 0.18%. The Fund closed
first-half fiscal 2004 with a seven-day current yield and a seven-day
effective yield of 0.51%.*
Through the first five months of this reporting period, the money
markets were stable and the yield curve relatively flat. At the
beginning of first-half fiscal 2004, the yield spread between
three-month Treasury Bills and the one-year Treasury Note was just 27
basis points. Then, following the release of much stronger than
anticipated March jobs growth, the market started pricing in the
increased probability of Federal Reserve rate hikes. The yield curve
immediately steepened, with the yield spread between three-month and
one-year Treasury securities increasing to nearly 65 basis points by
the end of April.
In response to more consistently positive economic news in calendar
third quarter 2003, we maintained a defensive posture with a
relatively short weighted average maturity. Heading into first-half
fiscal 2004, the portfolio's average maturity was at 55.3 days. We
modestly extended average maturity through mid-March, but began
shortening again as we headed into April. When the March job data was
released on April 2 showing a 308,000 increase in non-farm payrolls,
bonds sold off sharply. As opposed to extending or shortening weighted
average maturity, we elected to remain defensive and keep average
maturity on that segment of the yield curve where it would generate
respectable yield with moderate interest rate risk. Our "safety first"
decision helped the Fund outperform its benchmark during this
reporting period.
Money market funds have done their job -- protecting assets and
delivering positive returns. When opportunities present themselves in
the market, we will strive to be positioned to take advantage of them.
Sincerely,
/s/ Ted Giuliano /s/ Cynthia Damian
/s/ Alyssa Juros
TED GIULIANO CYNTHIA DAMIAN AND
PORTFOLIO MANAGER ALYSSA JUROS
PORTFOLIO
ASSOCIATE MANAGERS
PERFORMANCE HIGHLIGHTS
<Table>
<Caption>
FOR THE 7 DAYS ENDED 4/30/04
NEUBERGER BERMAN GOVERNMENT MONEY FUND (2),(5) INCEPTION DATE CURRENT YIELD (4) EFFECTIVE YIELD (4)
INVESTOR CLASS 11/14/1983 0.51% 0.51%
</Table>
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. RESULTS ARE SHOWN ON A "TOTAL
RETURN" BASIS AND INCLUDE REINVESTMENT OF ALL DIVIDENDS. CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED.
FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END VISIT
www.nb.com/performance.
AN INVESTMENT IN A MONEY MARKET 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.
*Returns would have been lower if Neuberger Berman Management Inc, had not
capped a portion of its fees during the period. This voluntary expense cap is
terminated as of July 1, 2004.
10
<Page>
ENDNOTES
(1) One-year and average annual total returns are for the periods
ended April 30, 2004. Results are shown on a "total return" basis
and include reinvestment of all dividends and capital gain
distributions. 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 the shares, when redeemed, may be worth more or
less than their original cost.
(2) Neuberger Berman Management Inc. ("Management") has contractually
undertaken to reimburse the following funds so that the total
operating expenses exclusive of taxes, interest, brokerage
commissions and extraordinary expenses are limited to 0.65% for
Neuberger Berman Cash Reserves, 1.00% for Neuberger Berman High
Income Bond Fund, 0.70% for Neuberger Berman Limited Maturity
Bond Fund (Investor Class), 0.80% for Neuberger Berman Limited
Maturity Bond Fund (Trust Class), and 0.65% for Neuberger Berman
Municipal Securities Trust, of average daily net assets. Each
undertaking lasts until October 31, 2007. Each of these funds has
contractually undertaken to reimburse Management for the excess
expenses paid by Management, provided the reimbursements do not
cause its total operating expenses (exclusive of taxes, interest,
brokerage commissions and extraordinary expenses) to exceed the
above stated expense limitation and the reimbursements are made
within three years after the year that Management incurred the
expense. Management has voluntarily agreed to reimburse certain
operating expenses of Neuberger Berman Government Money Fund so
that expenses are limited to 0.45% of average daily net assets.
This arrangement can be terminated without notice to the fund.
For the six months ended April 30, 2004, there were no
reimbursements of expenses by Management to Neuberger Berman Cash
Reserves and Neuberger Berman High Income Bond Fund. Absent such
reimbursements, the total returns of Neuberger Berman's Limited
Maturity Bond Fund Investor Class, Limited Maturity Bond Fund
Trust Class, High Income Bond Fund, Municipal Securities Trust
and the yield of Government Money Fund would have been less.
(3) A portion of the income of Neuberger Berman Municipal Money Fund
and Neuberger Berman Municipal Securities Trust may be subject to
the Federal alternative minimum tax for certain investors.
(4) "Current yield" of a money market fund refers to the income
generated by an investment in the 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.
(5) An investment in a money market fund is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other
government agency. There can be no assurance that a money market
fund will be able to maintain a stable net asset value of $1.00
per share. The return on an investment in Neuberger Berman
Government Money Fund, Neuberger Berman Municipal Money Fund, or
Neuberger Berman Cash Reserves will fluctuate.
(6) Performance prior to August 1993 is for the Investor Class, which
has lower expenses and typically higher returns than the Trust
Class. In addition, Management caps the Trust Class expenses.
Absent such arrangement, which is subject to change, the total
return would have been less.
(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 taxes at the highest
Federal tax rate, currently 35% in 2004, assuming that all of the
Fund's income is exempt from Federal income taxes.
(8) This Fund is the successor to the Lipper High Income Bond Fund
("Lipper Fund"). The total return and data for the periods prior
to September 7, 2002, are those of the Lipper High Income Bond
Fund Premier Class. The data reflects performance of the Lipper
Fund for the period April 1, 1996, through September 6, 2002, and
the performance of Lipper Fund's predecessor partnership for the
period February 1, 1992 (date of inception), through March 31,
1996, as applicable. The investment policies, objectives,
guidelines and restrictions of the Fund are in all material
respects equivalent to those of the Lipper Fund which were in all
material respects equivalent to those of its predecessor
partnership. Had Lipper Fund's predecessor partnership been
subject to the provisions of the 1940 Act, its investment
performance may have been adversely affected. Returns would have
been lower if the manager of the Lipper Fund had not waived
certain of its fees during the periods shown.
11
<Page>
GLOSSARY OF INDICES
THE MERRILL LYNCH 1-3 YEAR TREASURY An unmanaged total return market value
INDEX: index consisting of all coupon-bearing
U.S. Treasury publicly placed debt
securities with maturities between 1
and 3 years.
THE LEHMAN BROTHERS 7-YEAR GENERAL An unmanaged total return performance
OBLIGATION INDEX: benchmark for the intermediate-term,
7-year, investment grade General
Obligations (State and Local)
tax-exempt bond market.
THE MONEY FUND REPORT TAXABLE FIRST Measures the performance of retail
TIER RETAIL AVERAGE: 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
("NRSRO") or one, if only one has rated
the security.
THE MONEY FUND REPORT TREASURY RETAIL Measures the performance of retail
AVERAGE: money market mutual funds which invest
only in obligations of the U.S.
Treasury (T-Bills).
THE MONEY FUND REPORT GOVERNMENT AND Measures the performance of retail
AGENCIES RETAIL AVERAGE: money market mutual funds which invest
in obligations of the U.S. Treasury
(T-Bills), repurchase agreements, or
U.S. Government Agency securities.
THE MONEY FUND REPORT TAX-FREE NATIONAL Measures all national tax-free and
RETAIL AVERAGE: municipal retail funds. Portfolio
holdings of tax-free funds includes
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.
LEHMAN BROTHERS INTERMEDIATE BA U.S. An unmanaged index comprised of BB
HIGH YIELD INDEX: rated bonds with maturities of less
than 10 years.
Please note that indices do not take into account any fees and expenses of
investing in the individual securities that they track, and that investors
cannot invest directly in any index or average. Data about the performance of
each index are prepared or obtained by Management and include reinvestment of
all dividends and capital gain distributions. Each Fund may invest in many
securities not included in its respective index.
12
<Page>
SCHEDULE OF INVESTMENTS CASH RESERVES
<Table>
<Caption>
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 (10.9%)
$ 10,000 U.S. Treasury Bills, 0.92%, due 5/20/04 TSY TSY $ 9,996
20,000 U.S. Treasury Bills, 0.92%, due 7/8/04 TSY TSY 19,966
7,000 U.S. Treasury Notes, 2.88%, due 6/30/04 TSY TSY 7,020
13,000 U.S. Treasury Notes, 2.13%, due 8/31/04 TSY TSY 13,041
7,000 U.S. Treasury Notes, 1.75%, due 12/31/04 TSY TSY 7,027
6,000 U.S. Treasury Notes, 1.63%, due 1/31/05 TSY TSY 6,022
---------------
TOTAL U.S. TREASURY SECURITIES--BACKED BY THE FULL FAITH
AND CREDIT OF THE U.S. GOVERNMENT 63,072
---------------
U.S. GOVERNMENT AGENCY SECURITIES (6.7%)
10,000 Federal Farm Credit Bank, Disc. Notes, 0.90%, due 5/3/04 AGY AGY 10,000
7,000 Federal Farm Credit Bank, Disc. Notes, 1.09%, due 12/10/04 AGY AGY 6,953
2,000 Federal Farm Credit Bank, Disc. Notes, 1.15%, due 12/13/04 AGY AGY 1,986
20,000 Sallie Mae, Disc. Notes, 0.94%, due 5/12/04 AGY AGY 19,995
---------------
TOTAL U.S. GOVERNMENT AGENCY SECURITIES 38,934
---------------
CERTIFICATES OF DEPOSIT (19.8%)
7,000 American Express Centurion Bank, Domestic CD, 1.03%,
due 5/17/04 P-1 A-1 7,000
2,000 Australia & New Zealand Banking Group, Ltd., Yankee CD, 1.04%,
due 8/2/04 P-1 A-1+ 2,000
10,000 Bank of Montreal, Yankee CD, 1.02%, due 5/10/04 P-1 A-1+ 10,000
12,000 Deutsche Bank AG, Yankee CD, 1.02% - 1.16%,
due 5/11/04 - 12/30/04 P-1 A-1+ 12,000
15,000 HBOS Treasury Services, Yankee CD, 1.03% & 1.04%,
due 5/14/04 & 7/26/04 P-1 A-1+ 15,000
5,000 Lloyd's TSB Bank PLC, Yankee CD, 1.04%, due 5/20/04 & 6/30/04 P-1 A-1+ 5,000
10,000 Rabobank Nederland, Yankee CD, 1.13% & 1.16%,
due 6/30/04 & 10/15/04 P-1 A-1+ 10,000
11,000 Royal Bank of Scotland, Yankee CD, 1.07% & 1.12%,
due 7/19/04 & 9/7/04 P-1 A-1+ 11,001
13,000 Svenska Handelsbanken AB, Yankee CD, 1.03% & 1.06%,
due 6/24/04 & 7/20/04 P-1 A-1 13,000
14,550 Toronto Dominion Bank, Yankee CD, 1.03% - 1.13%,
due 5/5/04 - 12/31/04 P-1 A-1 14,550
15,000 Wells Fargo Bank NA, Domestic CD, 1.02% & 1.03%,
due 5/6/04 & 5/26/04 P-1 A-1+ 15,000
---------------
TOTAL CERTIFICATES OF DEPOSIT 114,551
---------------
COMMERCIAL PAPER (48.1%)
3,000 ABN AMRO North America Finance, Inc., 1.09%, due 8/5/04 P-1 A-1+ 2,992
6,000 American Express Credit Corp., 1.02%, due 5/4/04 & 5/7/04 P-1 A-1 6,000
12,000 ANZ (Delaware), Inc., 1.03%, due 6/3/04 & 6/24/04 P-1 A-1+ 11,983
14,000 Barclays U.S. Funding Corp., 1.05% & 1.17%,
due 9/1/04 & 11/24/04 P-1 A-1+ 13,932
10,000 Bear Stearns Co., Inc., 1.04%, due 6/2/04 P-1 A-1 9,991
15,000 BNP Paribas Finance, 1.00% - 1.18%, due 5/10/04 - 10/29/04 P-1 A-1+ 14,970
15,000 Citigroup Global Markets, Inc., 1.03% - 1.05%,
due 5/11/04 - 7/1/04 P-1 A-1+ 14,991
3,000 Dexia Delaware LLC, 1.03%, due 5/13/04 P-1 A-1+ 2,999
5,000 Diageo Capital PLC, 1.00%, due 5/12/04 P-1 A-1 4,999
11,500 duPont (E.I.) de Nemours & Co., 1.00%, due 5/10/04 P-1 A-1+ 11,498
</Table>
See Notes to Schedule of Investments
13
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 5,000 Eksportfinans ASA, 0.98%, due 5/4/04 P-1 A-1+ $ 5,000
10,000 Gannett Co., Inc., 1.00%, due 5/4/04 P-1 A-1 10,000
15,000 General Electric Capital Corp., 1.02% & 1.03%,
due 5/5/04 & 5/11/04 P-1 A-1+ 14,997
10,000 Goldman Sachs Group, Inc., 1.02% - 1.22%,
due 5/6/04 - 8/26/04 P-1 A-1 9,982
11,000 ING America Insurance Holdings, Inc., 1.05% & 1.08%,
due 6/9/04 & 9/3/04 P-1 A-1 10,967
10,000 KFW International Finance, Inc., 1.01%, due 6/15/04 P-1 A-1+ 9,988
13,000 Merrill Lynch & Co., 1.00% & 1.03%, due 5/3/04 & 5/6/04 P-1 A-1 12,999
5,000 MetLife Funding, Inc., 1.01%, due 6/9/04 P-1 A-1+ 4,995
12,000 Nestle Capital Corp., 1.04%, due 7/22/04 P-1 A-1+ 11,972
5,000 New York Life Capital Corp., 1.01%, due 5/18/04 P-1 A-1+ 4,998
9,600 Pfizer, Inc., 1.04%, due 9/7/04 P-1 A-1+ 9,565
5,000 Private Export Funding Corp., 1.04%, due 9/21/04 P-1 A-1+ 4,980
10,000 Procter & Gamble, Inc., 1.00%, due 6/2/04 P-1 A-1+ 9,992
14,000 Societe Generale NA, Inc., 1.14% & 1.17%,
due 5/28/04 & 9/7/04 P-1 A-1+ 13,962
13,000 Toyota Motor Credit Corp., 1.02%, due 5/6/04 & 5/20/04 P-1 A-1+ 12,998
5,000 UBS Finance (Delaware), Inc., 1.14%, due 5/10/04 P-1 A-1+ 4,999
14,073 Wal-Mart Stores, Inc., 1.00% & 1.09%, due 6/22/04 & 8/24/04 P-1 A-1+ 14,041
17,500 Westpac Capital Corp., 1.03% - 1.13%, due 7/7/04 - 10/6/04 P-1 A-1+ 17,451
---------------
TOTAL COMMERCIAL PAPER 278,241
---------------
BANK NOTES (4.3%)
7,000 Bank One NA, 1.07%, due 7/12/04 P-1 A-1 7,000
8,000 LaSalle Bank NA, 1.12%, due 8/30/04 P-1 A-1 8,000
10,000 U.S. Bank NA, 1.17%, due 11/17/04 P-1 A-1+ 10,001
---------------
TOTAL BANK NOTES 25,001
---------------
TIME DEPOSITS (6.8%)
13,000 Chase Manhattan Bank, Grand Cayman, 1.03%, due 5/3/04 P-1 A-1+ 13,000
13,000 Danske Bank A/S, Copenhagen, 1.04%, due 5/3/04 P-1 A-1+ 13,000
13,000 National City Bank, Grand Cayman, 1.03%, due 5/3/04 P-1 A-1 13,000
---------------
TOTAL TIME DEPOSITS 39,000
---------------
REPURCHASE AGREEMENTS (3.4%)
19,632 State Street Bank and Trust Co. Repurchase Agreement, 0.87%,
due 5/3/04, dated 4/30/04, Maturity Value $19,633,423,
Collateralized by $20,225,000 U.S. Treasury Notes, 1.50%,
due 7/31/05 (Collateral Value $20,225,000) 19,632
---------------
TOTAL INVESTMENTS (100.0%) 578,431
Liabilities, less cash, receivables and other assets [(0.0%)] (3)
---------------
TOTAL NET ASSETS (100.0%) $ 578,428
---------------
</Table>
14
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT VALUE ++
(000'S OMITTED) (000'S OMITTED)
U.S. TREASURY SECURITIES--BACKED BY THE FULL FAITH AND CREDIT OF THE U.S. GOVERNMENT (48.6%)
$ 55,000 U.S. Treasury Bills, 0.91%, due 5/6/04 $ 54,996
15,000 U.S. Treasury Bills, 1.05%, due 5/13/04 14,996
25,000 U.S. Treasury Bills, 1.02%, due 5/20/04 24,988
15,000 U.S. Treasury Bills, 1.02%, due 6/3/04 14,987
30,000 U.S. Treasury Bills, 0.94%, due 6/10/04 29,970
20,000 U.S. Treasury Bills, 0.95%, due 6/17/04 19,976
25,000 U.S. Treasury Bills, 0.95%, due 6/24/04 24,966
55,000 U.S. Treasury Bills, 0.93%, due 7/1/04 54,916
15,000 U.S. Treasury Bills, 1.01%, due 7/8/04 14,972
25,000 U.S. Treasury Bills, 0.93%, due 7/15/04 24,953
45,000 U.S. Treasury Bills, 0.93% & 0.95%, due 7/22/04 44,906
55,000 U.S. Treasury Bills, 0.95% & 0.96%, due 7/29/04 54,874
20,000 U.S. Treasury Bills, 0.99%, due 8/5/04 19,949
25,000 U.S. Treasury Bills, 0.98%, due 8/19/04 24,927
25,000 U.S. Treasury Bills, 0.99%, due 8/26/04 24,921
30,000 U.S. Treasury Bills, 0.99%, due 9/16/04 29,888
15,000 U.S. Treasury Bills, 1.10%, due 10/14/04 14,925
42,000 U.S. Treasury Notes, 2.88%, due 6/30/04 42,125
10,000 U.S. Treasury Notes, 2.25%, due 7/31/04 10,029
24,000 U.S. Treasury Notes, 2.13%, due 8/31/04 24,076
24,000 U.S. Treasury Notes, 1.75%, due 12/31/04 24,093
12,000 U.S. Treasury Notes, 1.63%, due 1/31/05 12,044
---------------
TOTAL U.S. TREASURY SECURITIES--BACKED BY THE FULL
FAITH AND CREDIT OF THE U.S. GOVERNMENT 606,477
---------------
U.S. GOVERNMENT AGENCY SECURITIES (35.2%)
45,000 Federal Farm Credit Bank, Disc. Notes, 0.97%, due 6/15/04 44,948
18,395 Federal Farm Credit Bank, Disc. Notes, 0.96%, due 6/17/04 18,373
17,000 Federal Farm Credit Bank, Disc. Notes, 0.97%, due 6/28/04 16,974
19,242 Federal Farm Credit Bank, Disc. Notes, 1.02% & 1.04%, due 8/9/04 19,188
7,900 Federal Farm Credit Bank, Disc. Notes, 1.01%, due 9/7/04 7,872
10,900 Federal Farm Credit Bank, Disc. Notes, 1.09%, due 12/10/04 10,827
50,000 Federal Home Loan Bank, Disc. Notes, 0.92%, due 5/3/04 50,000
50,000 Federal Home Loan Bank, Disc. Notes, 0.82%, due 5/4/04 49,999
50,000 Federal Home Loan Bank, Disc. Notes, 0.86%, due 5/6/04 49,996
20,239 Federal Home Loan Bank, Disc. Notes, 0.98%, due 5/12/04 20,234
10,000 Federal Home Loan Bank, Disc. Notes, 1.15%, due 6/3/04 9,990
25,000 Federal Home Loan Bank, Disc. Notes, 1.02%, due 8/4/04 24,935
40,000 Sallie Mae, Disc. Notes, 0.94%, due 5/12/04 39,991
20,000 Sallie Mae, Disc. Notes, 0.95%, due 6/15/04 19,977
25,000 Tennessee Valley Authority, Disc. Notes, 0.92%, due 5/6/04 24,998
30,000 Tennessee Valley Authority, Disc. Notes, 0.96%, due 6/17/04 29,964
---------------
TOTAL U.S. GOVERNMENT AGENCY SECURITIES 438,266
---------------
REPURCHASE AGREEMENTS (16.2%)
201,566 State Street Bank and Trust Co. Repurchase Agreement, 0.87%, due
5/3/04, dated 4/30/04, Maturity Value $201,580,614, Collateralized
by $190,390,000 U.S. Treasury Notes, 5.00% - 7.50%,
due 8/15/07 - 11/15/16 (Collateral Value $207,621,970) 201,566
---------------
TOTAL INVESTMENTS (100.0%) 1,246,309
Liabilities, less cash, receivables and other assets [(0.0%)] (187)
---------------
TOTAL NET ASSETS (100.0%) $ 1,246,122
---------------
</Table>
See Notes to Schedule of Investments
15
<Page>
SCHEDULE OF INVESTMENTS HIGH INCOME BOND FUND
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
CORPORATE DEBT SECURITIES (96.8%)
$ 2,825 Abitibi-Consolidated, Inc., Notes, 6.95%, due 4/1/08 Ba2 BB $ 2,911
5,125 Abitibi-Consolidated, Inc., Guaranteed Notes, 7.88%,
due 8/1/09 Ba2 BB 5,409
1,208 AES Corp., Senior Secured Notes, 10.00%, due 7/15/05 B2 BB 1,238**
3,325 AES Corp., Senior Notes, 8.75%, due 6/15/08 B3 B- 3,458
4,000 AES Corp., Senior Secured Notes, 8.75%, due 5/15/13 B2 B+ 4,350**
3,250 AGCO Corp., Senior Subordinated Notes, 8.50%, due 3/15/06 B1 BB- 3,258
2,000 AGCO Corp., Guaranteed Notes, 9.50%, due 5/1/08 Ba3 BB- 2,190
4,175 Airgas, Inc., Senior Subordinated Notes, 9.13%, due 10/1/11 Ba2 B+ 4,718
3,000 Alliant Techsystems, Inc., Senior Subordinated Notes, 8.50%,
due 5/15/11 B2 B 3,300
101 Allied Waste North America, Inc., Guaranteed Notes,
Ser. B, 7.88%, due 1/1/09 Ba3 BB- 105
3,000 Allied Waste North America, Inc., Secured Notes, 6.50%,
due 11/15/10 Ba3 BB- 3,000**
2,500 Allied Waste North America, Inc., Secured Notes, 6.38%,
due 4/15/11 Ba3 BB- 2,475**
2,500 Allied Waste North America, Inc., Guaranteed Notes,
Ser. B, 9.25%, due 9/1/12 Ba3 BB- 2,837
5,175 Amerigas Partners L.P., Senior Notes, Ser. B, 8.88%, due
5/20/11 B2 BB- 5,680
1,000 Amerigas Partners L.P., Senior Notes, Ser. D, 10.00%,
due 4/15/06 B2 BB- 1,095
4,275 AMETEK, Inc., Senior Notes, 7.20%, due 7/15/08 Ba1 BBB 4,576
5,125 Arch Western Finance Corp., Senior Notes, 6.75%, due 7/1/13 Ba2 BB+ 5,279**
5,000 Arvin Industries, Inc., Senior Notes, 6.75%, due 3/15/08 Ba1 BB+ 5,100
4,625 Aviall, Inc., Senior Notes, 7.63%, due 7/1/11 B1 BB 4,856
2,250 Aztar Corp., Senior Subordinated Notes, 8.88%, due 5/15/07 Ba3 B+ 2,323
1,875 Ball Corp., Guaranteed Senior Notes, 7.75%, due 8/1/06 Ba3 BB 2,006
3,125 Boise Cascade Corp., Notes, 7.50%, due 2/1/08 Ba2 BB 3,360
5,125 Bombardier Recreational Products, Senior Subordinated Notes,
8.38%, due 12/15/13 B3 B- 5,074**
3,875 BoWater Canada Finance Corp., Guaranteed Notes, 7.95%,
due 11/15/11 Ba2 BB 4,127
5,275 BRL Universal Equipment, Senior Notes, 8.88%, due 2/15/08 Ba3 BB- 5,671
3,000 California Steel Industries, Inc., Senior Notes, 6.13%,
due 3/15/14 Ba3 BB- 2,925**
1,990 Calpine Corp., Senior Floating Rate Notes, 6.87%, due 7/15/07 B 1,851
5,125 Calpine Corp., Senior Secured Notes, 8.50%, due 7/15/10 B 4,535**
1,000 Canandaigua Brands, Inc., Guaranteed Senior Notes, 8.63%,
due 8/1/06 Ba2 BB 1,100
4,125 Case Corp., Notes, 7.25%, due 8/1/05 Ba3 BB- 4,249
2,125 Case New Holland, Inc., Senior Notes, 9.25%, due 8/1/11 Ba3 BB- 2,369**
3,250 Charter Communications Operating LLC, Senior Notes, 8.00%,
due 4/30/12 B2 B- 3,201**
1,000 Charter Communications Operating LLC, Senior Notes, 8.38%,
due 4/30/14 B2 B- 985**
3,275 Citgo Petroleum Corp., Senior Notes, 7.88%, due 5/15/06 Ba3 BB 3,406
3,250 CK Witco Corp., Senior Notes, 8.50%, due 3/15/05 Ba2 BB 3,372+++
1,125 CMS Energy Corp., Senior Notes, 8.90%, due 7/15/08 B3 B+ 1,193
3,125 CMS Energy Corp., Senior Notes, 7.75%, due 8/1/10 B3 B+ 3,156**
2,250 CMS Energy Corp., CMS Energy X-TRAS Pass-Through Trust I,
Pass-Through Certificates, 7.00%, due 1/15/05 B3 B+ 2,273~~
</Table>
16
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 4,675 Compass Minerals Group, Inc., Senior Subordinated Notes,
10.00%, due 8/15/11 B3 B- $ 5,329
1,000 Corn Products International, Inc., Senior Notes, 8.25%,
due 7/15/07 Ba1 BBB- 1,110
4,875 Crown, Cork & Seal Co., Guaranteed Notes, 7.00%, due 12/15/06 B3 B 4,997
4,125 CSC Holdings, Inc., Senior Notes, Ser. B, 8.13%, due 7/15/09 B1 BB- 4,403
5,175 D. R. Horton, Inc., Guaranteed Senior Notes, 8.50%, due 4/15/12 Ba1 BB+ 5,809
3,825 Dana Corp., Notes, 6.50%, due 3/15/08 Ba3 BB 4,045
3,425 Dean Foods Co., Senior Notes, 6.75%, due 6/15/05 Ba2 BB- 3,536
1,325 Dean Foods Co., Senior Notes, 6.63%, due 5/15/09 Ba2 BB- 1,415
2,875 Dole Foods Co., Inc., Debentures, 8.75%, due 7/15/13 B2 BB- 3,076
2,500 Dole Foods Co., Inc., Variable Rate Senior Notes, 8.63%,
due 5/1/09 B2 BB- 2,675
2,150 Dresser, Inc., Guaranteed Senior Subordinated Notes, 9.38%,
due 4/15/11 B2 B 2,322
4,175 EchoStar DBS Corp., Senior Notes, 5.75%, due 10/1/08 Ba3 BB- 4,185**
3,825 Edison Mission Energy, Senior Notes, 10.00%, due 8/15/08 B2 B 4,016
2,250 Edison Mission Energy, Senior Notes, 9.88%, due 4/15/11 B2 B 2,318
4,575 El Paso Natural Gas, Senior Notes, Ser. A, 7.63%, due 8/1/10 B1 B- 4,712~~
4,750 El Paso Production Holdings, Guaranteed Senior Notes, 7.75%,
due 6/1/13 B3 B- 4,512
2,000 Emmis Operating Co., Senior Subordinated Notes, 6.88%,
due 5/15/12 B2 B- 1,995**~
825 ENSERCH Corp., Notes, 7.13%, due 6/15/05 Baa3 BBB 853
6,325 Entravision Communications Corp., Guaranteed Notes, 8.13%,
due 3/15/09 B3 B- 6,704
2,575 ERICO International Corp., Senior Subordinated Notes, 8.88%,
due 3/1/12 B3 B- 2,665**
3,250 Express Scripts, Inc., Guaranteed Senior Notes, 9.63%,
due 6/15/09 Ba1 BBB 3,429
5,525 Felcor Lodging L.P., Guaranteed Senior Notes, 9.50%,
due 9/15/08 B1 B- 5,898
7,125 Ferrellgas Partners L.P., Senior Notes, 8.75%, due 6/15/12 B2 B 7,802
2,725 Fisher Scientific International, Inc., Senior Subordinated
Notes, 8.13%, due 5/1/12 B2 B+ 2,957
4,500 Fisher Scientific International, Inc., Senior Subordinated
Notes, 8.00%, due 9/1/13 B2 B+ 4,927
3,725 Flowserve Corp., Guaranteed Senior Subordinated Notes,
12.25%, due 8/15/10 B2 B 4,284+++
4,125 Forest Oil Corp., Senior Notes, 8.00%, due 6/15/08 Ba3 BB 4,517
3,675 GCI, Inc., Senior Notes, 7.25%, due 2/15/14 B2 B+ 3,565**
4,125 General Cable Corp., Senior Notes, 9.50%, due 11/15/10 B2 B 4,517**
1,250 Georgia Gulf Corp., Notes, 7.63%, due 11/15/05 Ba3 BBB- 1,316
5,175 Georgia Pacific Corp., Senior Notes, 7.38%, due 7/15/08 Ba2 BB+ 5,628
1,500 Goodyear Tire and Rubber Co., Notes, 8.50%, due 3/15/07 B3 B 1,448++
2,600 Grant Prideco, Inc., Guaranteed Senior Notes, Ser. B, 9.63%,
due 12/1/07 Ba3 BB- 2,899
3,125 GulfMark Offshore, Inc., Guaranteed Senior Notes, 8.75%,
due 6/1/08 B1 BB- 3,211
5,000 GulfTerra Energy Partners, Senior Notes, 6.25%, due 6/1/10 Ba3 BB 5,175
5,075 Hanover Equipment Trust 2001 A, Senior Secured Notes,
Ser. A, 8.50%, due 9/1/08 B2 B+ 5,379
</Table>
See Notes to Schedule of Investments
17
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 5,175 Hines Nurseries, Inc., Senior Notes, 10.25%, due 10/1/11 B3 B $ 5,667
2,739 HMH Properties, Inc., Guaranteed Senior Notes, Ser. B, 7.88%,
due 8/1/08 Ba3 B+ 2,828
1,000 Host Marriott L.P., Guaranteed Senior Notes, Ser. I, 9.50%,
due 1/15/07 Ba3 B+ 1,110
3,250 Host Marriott L.P., Senior Notes, 7.13%, due 11/1/13 Ba3 B+ 3,299
2,750 Host Marriott L.P., Senior Notes, Ser. E, 8.38%, due 2/15/06 Ba3 B+ 2,932
1,000 IDEX Corp., Senior Notes, 6.88%, due 2/15/08 Baa3 BBB 1,078
4,325 Invista, Notes, 9.25%, due 5/1/12 B1 B+ 4,325**
4,750 Iron Mountain, Inc., Guaranteed Senior Notes, 8.63%,
due 4/1/13 B3 B 5,082~~
2,525 Iron Mountain, Inc., Guaranteed Senior Subordinated Notes,
8.25%, due 7/1/11 B3 B 2,632
3,000 istar Financial, Inc., Senior Notes, 5.13%, due 4/1/11 Ba1 BB+ 2,857**
1,000 ITT Corp., Notes, 6.75%, due 11/15/05 Ba1 BB+ 1,050
3,250 Jafra Cosmetics, Senior Subordinated Notes, 10.75%,
due 5/15/11 B3 B- 3,681
2,500 Jostens, Inc., Senior Subordinated Notes, 12.75%, due 5/1/10 B3 B- 2,812
3,037 K & F Industries, Inc., Senior Subordinated Notes, 9.25%,
due 10/15/07 B3 B 3,143
2,625 Kansas City Southern Railway Co., Guaranteed Senior Notes,
7.50%, due 6/15/09 B2 B+ 2,704
5,075 KB Home, Senior Subordinated Notes, 8.63%, due 12/15/08 Ba2 BB- 5,544
500 Kennametal, Inc., Senior Notes, 7.20%, due 6/15/12 Ba1 BBB 533
3,125 Key Energy Services, Inc., Guaranteed Senior Notes, Ser. C,
8.38%, due 3/1/08 Ba3 B+ 3,328
2,875 L-3 Communications Corp., Guaranteed Senior Subordinated
Notes, Ser. B, 8.00%, due 8/1/08 Ba3 BB- 3,008
2,125 L-3 Communications Corp., Senior Subordinated Notes,
7.63%, due 6/15/12 Ba3 BB- 2,290
5,825 Lamar Media Corp., Guaranteed Notes, 7.25%, due 1/1/13 Ba3 B 6,262
5,725 LNR Property Corp., Senior Subordinated Notes, 7.63%,
due 7/15/13 Ba3 B+ 5,897
1,500 Lyondell Chemical Co., Guaranteed Senior Notes, 9.50%,
due 12/15/08 B1 B+ 1,568
3,000 Massey Energy Co., Senior Notes, 6.63%, due 11/15/10 Ba3 BB 3,015
2,500 MCI Inc., Senior Notes, 5.91%, due 5/1/07 2,472^^
2,077 MCI Inc., Senior Notes, 6.69%, due 5/1/09 1,973^^
1,780 MCI Inc., Senior Notes, 7.74%, due 5/1/14 1,651^^
2,000 MGM Mirage, Inc., Guaranteed Senior Notes, 8.50%,
due 9/15/10 Ba1 BB+ 2,255
2,000 MGM Mirage, Inc., Guaranteed Senior Subordinated Notes,
9.75%, due 6/1/07 Ba2 BB- 2,260
3,525 MGM Mirage, Inc., Senior Notes, 6.00%, due 10/1/09 Ba1 BB+ 3,569
3,849 Midland Funding II, Debentures, Ser. A, 11.75%, due 7/23/05 Ba3 BB- 4,042
5,525 Millar Western Forest, Senior Notes, 7.75%, due 11/15/13 B3 B+ 5,801**
4,000 Millennium America, Inc., Guaranteed Notes, 7.00%,
due 11/15/06 B1 BB- 4,130
3,525 MSW Energy Holdings LLC, Guaranteed Senior Secured Notes,
7.38%, due 9/1/10 Ba2 BB- 3,648**
5,675 Nalco Co., Senior Notes, 7.75%, due 11/15/11 B2 B- 5,973**
5,325 Navistar International, Senior Subordinated Notes, Ser. B,
8.00%, due 2/1/08 B2 B 5,471+++
</Table>
18
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 7,125 NCI Building Systems, Inc., Senior Subordinated Notes, 9.25%,
due 5/1/09 B2 B $ 7,437
3,875 Nevada Power Co., General Refunding Mortgage Notes, Ser. E,
10.88%, due 10/15/09 Ba2 4,437
2,325 Nevada Power Co., General Refunding Mortgage Bonds, Ser. A,
8.25%, due 6/1/11 Ba2 BB 2,546
4,050 Newfield Exploration Co., Senior Notes, Ser. B, 7.45%,
due 10/15/07 Ba2 BB+ 4,435
5,125 Norampac, Inc., Senior Notes, 6.75%, due 6/1/13 Ba2 BB+ 5,330
3,125 Norske Skog Canada Ltd., Guaranteed Senior Notes, Ser. D,
8.63%, due 6/15/11 Ba3 BB 3,383+++
2,000 Nortek Holdings, Inc., Senior Floating Rate Notes, 4.17%,
due 12/31/10 B1 B+ 2,040**
1,250 Nortel Networks Corp., Guaranteed Notes, 7.40%, due 6/15/06 B3 B- 1,256
3,075 Northwest Pipeline Corp., Debentures, 6.63%, due 12/1/07 B1 B+ 3,213
5,825 NRG Energy, Inc., Secured Notes, 8.00%, due 12/15/13 B2 B+ 5,869**
2,750 NTL Cable PLC, Senior Notes, 8.75%, due 4/15/14 B3 B- 2,839**
6,525 NVR, Inc., Senior Notes, 5.00%, due 6/15/10 Ba1 BB+ 6,248
2,525 OMEGA Healthcare Investors, Inc., Notes, 6.95%, due 8/1/07 B1 BB- 2,651
4,125 Owens & Minor, Inc., Senior Subordinated Notes, 8.50%,
due 7/15/11 Ba3 BB- 4,579
4,125 Owens-Brockway Glass Container, Inc., Guaranteed Senior
Notes, 8.88%, due 2/15/09 B2 BB- 4,481
1,250 Owens-Brockway Glass Container, Inc., Senior Notes, 8.25%,
due 5/15/13 B3 B 1,290
2,500 Park Place Entertainment Corp., Senior Notes, 7.50%,
due 9/1/09 Ba1 BB+ 2,725
3,250 Park Place Entertainment Corp., Senior Subordinated Notes,
7.88%, due 12/15/05 Ba2 BB- 3,453
2,000 PG&E Corp., Senior Secured Notes, 6.88%, due 7/15/08 2,130**
1,250 Pilgrim's Pride Corp., Senior Notes, 9.63%, due 9/15/11 B1 BB- 1,363
4,500 Pilgrim's Pride Corp., Senior Subordinated Notes, 9.25%,
due 11/15/13 B2 B+ 4,702
3,000 Ply Gem Industries, Inc., Senior Subordinated Notes, 9.00%,
due 2/15/12 B3 B- 3,075**
1,250 Pogo Producing Co., Senior Subordinated Notes, Ser. B,
8.25%, due 4/15/11 Ba3 BB 1,403
2,750 Potlatch Corp., Guaranteed Senior Subordinated Notes,
10.00%, due 7/15/11 Ba1 BB- 3,094
3,425 Pride International, Inc., Senior Notes, 10.00%, due 6/1/09 Ba2 BB 3,613
1,875 Pride Petroleum Services, Inc., Senior Notes, 9.38%,
due 5/1/07 Ba2 BB 1,908
4,750 PSE&G Energy Holdings, Inc., Notes, 7.75%, due 4/16/07 Ba3 BB- 4,964
3,000 Qwest Corp., Tranche A, 6.50%, due 6/30/07 Ba3 B- 3,116
3,000 Qwest Corp., Tranche B, 6.95%, due 6/30/10 B- 2,993
4,175 Radio One, Inc., Guaranteed Senior Notes, 8.88%, due 7/1/11 B2 B- 4,624
3,250 Reddy Ice Group, Inc., Senior Subordinated Notes, 8.88%,
due 8/1/11 B3 B- 3,494
4,214 Reliant Resources, Inc., Term Loan, 5.33%, due 3/15/07 4,109^^
5,875 Rent-A-Center, Inc., Guaranteed Senior Notes, Ser. B, 7.50%,
due 5/1/10 B1 B+ 6,110
3,000 Rogers Cable, Inc., Secured Notes, 5.50%, due 3/15/14 Ba2 BBB- 2,733
3,325 Russel Metals, Inc., Senior Notes, 6.38%, due 3/1/14 Ba3 BB- 3,283**
</Table>
See Notes to Schedule of Investments
19
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 4,000 Ryland Group, Inc., Senior Notes, 8.00%, due 8/15/06 Ba1 BBB- $ 4,370
1,000 Ryland Group, Inc., Senior Notes, 5.38%, due 6/1/08 Ba1 BBB- 1,020
1,875 Salem Communications Holding Corp., Guaranteed Senior
Subordinated Notes, 7.75%, due 12/15/10 B3 B- 1,978
3,575 Salem Communications Holding Corp., Guaranteed Senior
Subordinated Notes, Ser. B, 9.00%, due 7/1/11 B3 B- 3,879
4,875 Scotts Co., Senior Subordinated Notes, 6.63%, due 11/15/13 Ba3 B+ 5,021**
2,000 Seminis Vegetable Seeds, Inc., Senior Subordinated Notes,
10.25%, due 10/1/13 B3 B- 2,220
4,325 Sequa Corp., Senior Notes, Ser. B, 8.88%, due 4/1/08 B1 BB- 4,714
81 Service Corp. International, Notes, 6.00%, due 12/15/05 B1 BB- 85
4,125 Service Corp. International, Notes, 6.88%, due 10/1/07 B1 BB- 4,352
3,250 Ship Finance International Ltd., Senior Notes, 8.50%,
due 12/15/13 B2 B 3,136**
3,250 Sinclair Broadcast Group, Inc., Guaranteed Senior Subordinated
Notes, 8.00%, due 3/15/12 B2 B 3,453
5,250 Six Flags, Inc., Senior Notes, 8.88%, due 2/1/10 B2 B- 5,342
1,175 Southern Natural Gas Co., Notes, 6.70%, due 10/1/07 B1 B- 1,210
1,325 Southern Natural Gas Co., Notes, 6.13%, due 9/15/08 B1 B- 1,262
1,000 Southern Star Central Corp., Senior Secured Notes, 8.50%,
due 8/1/10 B1 B+ 1,100
5,900 Standard Pacific Corp., Senior Notes, 6.50%, due 10/1/08 Ba2 BB 5,974
1,000 Standard Pacific Corp., Senior Notes, 5.13%, due 4/1/09 Ba2 BB 945
2,125 Stena AB, Senior Notes, 7.50%, due 11/1/13 Ba3 BB- 2,210
6,525 Stone Container Corp., Senior Notes, 9.75%, due 2/1/11 B2 B 7,243
750 Stone Container Finance, Guaranteed Senior Notes, 11.50%,
due 8/15/06 B2 B 767**
2,575 Suburban Propane Partners, L.P., Senior Notes, 6.88%,
due 12/15/13 B1 B 2,575**
5,875 Tembec Industries, Inc., Guaranteed Senior Notes, 8.63%,
due 6/30/09 Ba3 BB- 5,992
5,875 Tenet Healthcare Corp., Senior Notes, 6.38%, due 12/1/11 B3 B- 5,126
1,875 Toll Corp., Senior Subordinated Notes, 8.25%, due 12/1/11 Ba2 BB+ 2,072
2,500 Trac X N.A. HY, Notes, Ser. 2 - T3, 8.00%, due 3/25/09 B3 2,431+++**
5,000 Trac X N.A. HY, Secured Notes, Ser. 2 - T2, 6.05%, due 3/25/09 Ba3 4,900+++**
3,025 Transcontinental Gas Pipe Line Corp., Notes, 6.25%,
due 1/15/08 B1 B+ 3,116
2,625 Triad Hospitals, Inc., Guaranteed Senior Notes, Ser. B,
8.75%, due 5/1/09 B1 B+ 2,910
3,175 Triad Hospitals, Inc., Senior Notes, 7.00%, due 5/15/12 B2 B+ 3,183~
4,250 Triad Hospitals, Inc., Senior Subordinated Notes, 7.00%,
due 11/15/13 B3 B 4,112
3,250 Trinity Industries, Inc., Senior Notes, 6.50%, due 3/15/14 Ba3 BB- 3,161**
4,250 United Rentals, Inc., Senior Subordinated Notes, 7.75%,
due 11/15/13 B2 B+ 4,101
1,000 Universal City Development, Senior Notes, 11.75%, due 4/1/10 B2 B- 1,155
3,750 Venetian Casino Resort, LLC/Las Vegas Sands, Inc.,
Guaranteed Mortgage Notes, 11.00%, due 6/15/10 B3 B- 4,387
2,000 Vitro S.A. de C.V., Notes, 11.75%, due 11/1/13 B2 B- 1,890**
5,875 Vought Aircraft Industries, Inc., Senior Notes, 8.00%,
due 7/15/11 B2 B 5,963**
1,000 VWR International, Inc., Senior Notes, 6.88%, due 4/15/12 B2 B 1,033**
</Table>
20
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 1,000 VWR International, Inc., Senior Subordinated Notes, 8.00%,
due 4/15/14 B3 B $ 1,040**
2,250 Warnaco, Inc., Senior Notes, 8.88%, due 6/15/13 B2 B 2,419
3,500 Warner Music Group, Senior Subordinated Notes, 7.38%,
due 4/15/14 B3 B- 3,517**
2,325 Williams Cos., Inc., Senior Notes, 8.63%, due 6/1/10 B3 B+ 2,557
3,875 Williams Scotsman, Inc., Guaranteed Notes, 9.88%, due 6/1/07 B3 B- 3,856
1,000 Witco Corp., Notes, 6.13%, due 2/1/06 Ba2 BB 1,010
3,125 Young Broadcasting, Inc., Guaranteed Senior Notes, 8.50%,
due 12/15/08 B2 B 3,352
2,500 Young Broadcasting, Inc., Senior Notes, 8.50%, due 12/15/08 B2 B 2,681**
---------------
TOTAL CORPORATE DEBT SECURITIES (COST $637,551) 644,276
---------------
CONVERTIBLE BONDS (0.7%)
1,000 Key Energy Services, Inc., Subordinated Notes, 5.00%,
due 9/15/04 B1 998+++
4,250 Nortel Networks Corp., Notes, 4.25%, due 9/1/08 B3 B- 3,984
---------------
TOTAL CONVERTIBLE BONDS (COST $5,135) 4,982
---------------
REPURCHASE AGREEMENTS (1.4%)
9,410 State Street Bank and Trust Co. Repurchase Agreement, 0.87%,
due 5/3/04, dated 4/30/04, Maturity Value $9,410,682,
Collateralized by $7,605,000 U.S. Treasury Bonds, 7.50%,
due 11/15/16 (Collateral Value $9,696,634) (COST $9,410) 9,410#
---------------
SHORT-TERM INVESTMENTS (3.0%)
19,883 N&B Securities Lending Quality Fund, LLC (COST $19,883) 19,883!#
---------------
<Caption>
NUMBER OF SHARES
WARRANTS (0.0%)
500 Dayton Superior Corp. --*
11,952 Reliant Resources, Inc. --*
625 XM Satellite Radio, Inc. --*
---------------
TOTAL WARRANTS (COST $0) --
---------------
TOTAL INVESTMENTS (101.9%) (COST $671,979) 678,551##
Liabilities, less cash, receivables and other assets [(1.9%)] (12,712)
---------------
TOTAL NET ASSETS (100.0%) $ 665,839
---------------
</Table>
See Notes to Schedule of Investments
21
<Page>
SCHEDULE OF INVESTMENTS LIMITED MATURITY BOND FUND
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
U.S. TREASURY SECURITIES (28.3%)
$ 2,350 U.S. Treasury Notes, 2.00%, due 11/30/04 TSY TSY $ 2,360
490 U.S. Treasury Notes, 1.75%, due 12/31/04 TSY TSY 491
7,150 U.S. Treasury Notes, 1.63%, due 3/31/05 TSY TSY 7,156
740 U.S. Treasury Notes, 1.88%, due 11/30/05 TSY TSY 738
5,000 U.S. Treasury Notes, 1.88%, due 12/31/05 TSY TSY 4,980
21,000 U.S. Treasury Notes, 1.88%, due 1/31/06 TSY TSY 20,892
21,000 U.S. Treasury Notes, 2.00%, due 5/15/06 TSY TSY 20,859
2,700 U.S. Treasury Notes, 3.00%, due 11/15/07 TSY TSY 2,693
---------------
TOTAL U.S. TREASURY SECURITIES (COST $60,760) 60,169
---------------
U.S. GOVERNMENT AGENCY SECURITIES (11.6%)
24,715 Fannie Mae, Disc. Notes, 1.04%, due 10/4/04 (COST $24,604) AGY AGY 24,593
---------------
MORTGAGE-BACKED SECURITIES (5.5%)
FANNIE MAE
945 Collateralized Mortgage Obligations, Planned Amortization
Certificates, Ser. 2003-16, Class PA, 4.50%, due 11/25/09 AGY AGY 962
FREDDIE MAC
32 ARM Certificates, 2.88%, due 1/1/17 AGY AGY 33
1,048 Collateralized Mortgage Obligations, Planned Amortization
Certificates, Ser. 2592, Class PA, 4.50%, due 12/15/07 AGY AGY 1,056
632 Pass-Through Certificates, 5.00%, due 2/1/07 AGY AGY 645
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
14 Pass-Through Certificates, 7.50%, due 10/15/09 - 9/15/10 AGY AGY 15
159 Pass-Through Certificates, 7.00%, due 4/15/11 AGY AGY 171
53 Pass-Through Certificates, 12.00%, due 12/15/11 - 5/15/14 AGY AGY 61
8,600 Pass-Through Certificates, 6.00%, due 1/15/33 AGY AGY 8,822
---------------
TOTAL MORTGAGE-BACKED SECURITIES (COST $11,823) 11,765
---------------
CORPORATE DEBT SECURITIES (49.8%)
1,200 Abitibi-Consolidated, Inc., Bonds, 8.30%, due 8/1/05 Ba2 BB 1,253
840 Allied Waste North America, Inc., Guaranteed Senior Notes,
Ser. B, 7.63%, due 1/1/06 Ba3 BB- 886
850 Allied Waste North America, Inc., Guaranteed Notes, Ser. B,
8.88%, due 4/1/08 Ba3 BB- 944
2,450 Allstate Corp., Senior Notes, 7.88%, due 5/1/05 A1 A+ 2,590
970 American General Finance Corp., Floating Rate Notes, Ser. G,
1.49%, due 12/17/04 A1 A+ 972
1,430 Aon Corp., Notes, 8.65%, due 5/15/05 Baa2 A- 1,511
1,310 AT&T Wireless Services, Inc., Senior Notes, 7.35%,
due 3/1/06 Baa2 BBB 1,417
1,000 Bausch & Lomb, Inc., Notes, 6.75%, due 12/15/04 Ba1 BBB- 1,025
2,120 Bear Stearns Co., Inc., Notes, 6.50%, due 5/1/06 A1 A 2,273
1,300 Boeing Capital Corp., Senior Notes, 5.65%, due 5/15/06 A3 A 1,372
2,000 Boeing Co., Notes, 6.63%, due 6/1/05 A3 A 2,089
2,000 Bombardier Capital, Inc., Notes, 7.50%, due 8/15/04 Baa3 BBB- 2,034
800 Brascan Corp., Notes, 8.13%, due 12/15/08 Baa3 A- 909
2,700 British Telecom PLC, Notes, 7.63%, due 12/15/05 Baa1 A- 2,922
1,000 Capital One Bank, Senior Notes, 8.25%, due 6/15/05 Baa2 BBB- 1,063
2,400 Caterpillar Financial Services Corp., Notes, 6.88%,
due 8/1/04 A2 A 2,432
1,200 Caterpillar Financial Services Corp., Floating Rate
Medium-Term Notes, 1.16%, due 11/14/05 A2 A 1,200
</Table>
22
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 1,300 CBS Corp., Guaranteed Senior Notes, 7.15%, due 5/20/05 A3 A- $ 1,367
960 Chase Manhattan Corp., Subordinated Notes, 7.25%, due 6/1/07 A2 A 1,071
1,300 Comcast Cable Communications, Senior Notes, 6.38%,
due 1/30/06 Baa3 BBB 1,377
2,200 ConocoPhillips, Notes, 8.50%, due 5/25/05 A3 A- 2,349
1,250 Cox Communications, Inc., Notes, 7.75%, due 8/15/06 Baa2 BBB 1,380
530 Daimler Chrysler N.A. Holdings Corp., Floating Rate Notes,
Ser. C, 1.63%, due 8/2/04 A3 BBB 530
1,500 Daimler Chrysler N.A. Holdings Corp., Guaranteed Notes,
6.40%, due 5/15/06 A3 BBB 1,596
400 Delhaize America, Inc., Guaranteed Notes, 7.38%, due 4/15/06 Ba1 BB+ 428
2,400 Dow Chemical Co., Notes, 5.25%, due 5/14/04 A3 A- 2,402
660 EOP Operating Limited Partnership, Notes, 6.63%, due 2/15/05 Baa1 BBB+ 683
1,300 Everest Reinsurance Holdings, Inc., Senior Notes, 8.50%,
due 3/15/05 A3 A- 1,365
3,500 General Electric Capital Corp., Medium-Term Notes, Ser. A,
4.25%, due 1/28/05 Aaa AAA 3,568
3,390 General Motors Acceptance Corp., Notes, 6.85%, due 6/17/04 A3 BBB 3,413
800 General Motors Acceptance Corp., Notes, 6.13%, due 9/15/06 A3 BBB 844
540 General Motors Acceptance Corp., Notes, 6.13%, due 2/1/07 A3 BBB 570
1,000 Great Lakes Power, Inc., Notes, 8.30%, due 3/1/05 Baa3 BBB- 1,044
815 Hartford Life, Inc., Notes, 6.90%, due 6/15/04 A3 A- 820
1,750 HCA, Inc., Notes, 6.91%, due 6/15/05 Ba1 BBB- 1,821
1,900 HCA, Inc., Notes, 5.25%, due 11/6/08 Ba1 BBB- 1,901
1,440 Hertz Corp., Senior Notes, 8.25%, due 6/1/05 Baa2 1,511
340 IBP, Inc., Senior Notes, 6.13%, due 2/1/06 Baa3 BBB- 354
2,120 International Lease Finance Corp., Medium-Term Notes,
Ser. M, 5.50%, due 6/7/04 A1 AA- 2,128
1,365 International Lease Finance Corp., Floating Rate Notes,
2.39%, due 1/13/05 A1 AA- 1,376
1,335 ITT Corp., Notes, 6.75%, due 11/15/05 Ba1 BB+ 1,402
4,190 John Deere Capital Corp., Floating Rate Senior Notes, 1.42%,
due 5/20/05 A3 A- 4,199
1,400 Lear Corp., Guaranteed Senior Notes, Ser. B, 7.96%,
due 5/15/05 Baa3 BBB- 1,473
1,200 Mallinckrodt Group, Inc., Notes, 6.50%, due 11/15/07 Ba3 BBB- 1,299
1,200 Merrill Lynch & Co., Inc., Floating Rate Medium-Term Notes,
Ser. B, 1.38%, due 2/3/05 Aa3 A+ 1,202
1,000 National Rural Utilities Cooperative Finance Corp.,
Collateral Trust, 6.00%, due 5/15/06 A1 A+ 1,066
2,600 Pacific Bell, Notes, 6.25%, due 3/1/05 A1 A+ 2,695
1,200 Pemex Project Funding Master Trust, Guaranteed Notes, 9.13%,
due 10/13/10 Baa1 BBB- 1,404
745 Pioneer Natural Resources Co., Senior Notes, 8.25%,
due 8/15/07 Baa3 BBB- 846
1,000 Placer Dome, Inc., Notes, 6.91%, due 11/21/05 1,062^^
2,300 PNC Funding Corp., Guaranteed Notes, 7.00%, due 9/1/04 A2 A- 2,341
1,200 Powergen US Funding LLC, Notes, 4.50%, due 10/15/04 A3 BBB+ 1,213
620 Quest Diagnostics, Inc., Senior Notes, 6.75%, due 7/12/06 Baa2 BBB 670
1,645 Raytheon Co., Notes, 6.50%, due 7/15/05 Baa3 BBB- 1,725
1,340 Reliant Energy Resources Corp., Notes, Ser. B, 8.13%,
due 7/15/05 Ba1 BBB 1,422
</Table>
See Notes to Schedule of Investments
23
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 1,000 Royal Caribbean Cruises Ltd., Senior Notes, 8.13%,
due 7/28/04 Ba2 BB+ $ 1,010
1,500 Sara Lee Corp., Medium-Term Notes, Ser. B, 6.40%, due
6/9/05 A3 A+ 1,565
730 TCI Communications, Inc., Medium-Term Notes, 8.35%,
due 2/15/05 Baa3 BBB 765
2,575 Time Warner, Inc., Notes, 5.63%, due 5/1/05 Baa1 BBB+ 2,668
1,250 Tyco International Group S.A., Guaranteed Notes, 5.88%,
due 11/1/04 Ba2 BBB- 1,274
2,550 Tyco International Group S.A., Guaranteed Notes, 6.38%,
due 6/15/05 Ba2 BBB- 2,653
1,675 Tyson Foods, Inc., Notes, 6.63%, due 10/1/04 Baa3 BBB 1,702
1,500 Walt Disney Co., Notes, 4.88%, due 7/2/04 Baa1 BBB+ 1,509
2,500 Washington Mutual, Inc., Senior Notes, 5.63%, due 1/15/07 A3 A- 2,648
1,285 Wells Fargo & Co., Notes, 6.63%, due 7/15/04 Aa1 AA- 1,299
2,000 Weyerhaeuser Co., Notes, 5.50%, due 3/15/05 Baa2 BBB 2,061
1,750 Xcel Energy, Inc., Senior Notes, 3.40%, due 7/1/08 Baa1 BBB- 1,700
---------------
TOTAL CORPORATE DEBT SECURITIES (COST $104,140) 105,663
---------------
FOREIGN GOVERNMENT (2.1%)
EUR 3,600 Bundesobligation, 3.50%, due 10/10/08 (COST $4,629) AGY AGY 4,350^
---------------
REPURCHASE AGREEMENTS (1.6%)
3,445 State Street Bank and Trust Co. Repurchase Agreement,
0.87%, due 5/3/04, dated 4/30/04, Maturity Value
$3,445,250, Collateralized by $3,340,000 U.S. Treasury
Notes, 5.00%, due 2/15/11 (Collateral Value $3,551,846)
(COST $3,445) 3,445#
---------------
TOTAL INVESTMENTS (98.9%) (COST $209,401) 209,985##
Cash, receivables and other assets, less liabilities (1.1%) 2,306
---------------
TOTAL NET ASSETS (100.0%) $ 212,291
---------------
</Table>
24
<Page>
SCHEDULE OF INVESTMENTS MUNICIPAL MONEY FUND
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @ RATING @@ VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
MUNICIPAL NOTES (18.1%)
$ 7,000 Charleston Co. (SC) Sch. Dist. G.O. BANS, Ser. 2004, 2.00%,
due 11/4/04 MIG1 SP-1+ $ 7,037
5,000 Chicago (IL) G.O., Tender Notes, Ser. 2004, 1.05%, due
1/27/06 Putable 1/13/05 MIG1 SP-1+ 5,000
10,000 Cobb Co. (GA) Sch. Dist. Notes, Ser. 2004, 1.75%, due
12/31/04 MIG1 10,051
10,000 Davis Co. (UT) Sch. Dist. TANS, Ser. 2003, 1.50%, due
6/30/04 MIG1 10,009
7,260 Grapevine-Colleyville (TX) Independent Sch. Dist. TRANS,
Ser. 2003, 2.00%, due 6/30/04 SP-1+ 7,271
6,500 Minnesota Sch. Dist. Tax & Aid Anticipation Borrowing Prog.
Cert. of Participation, Ser. 2003 A, 1.75%, due 8/27/04 MIG1 6,516
5,000 Oregon St. TANS, Ser. 2003, 2.25%, due 11/15/04 MIG1 SP-1+ 5,031
8,000 Sacramento Co. (CA) TRANS, Ser. 2003 A, 2.00%, due 7/30/04 MIG1 SP-1+ 8,020
1,200 Santa Barbara Co. (CA) TRANS, Ser. 2003 A, 2.00%, due
7/23/04 SP-1+ 1,203
10,000 Texas St. TRANS, Ser. 2003, 2.00%, due 8/31/04 MIG1 SP-1+ 10,029
4,600 Wisconsin St. Operating Notes, Ser. 2003, 2.25%, due 6/15/04 MIG1 SP-1+ 4,606
---------------
74,773
---------------
TAX-EXEMPT SECURITIES--PRE-REFUNDED BACKED BY U.S. GOVERNMENT
SECURITIES (0.8%)
3,360 Ohio St. Bldg. Au. Fac. Rev. (Adult Correction Bldg. Fund
Proj.), Ser. 1995 A, 5.75%, due 10/1/08 PR 10/1/2004 3,458
---------------
TAX-EXEMPT SECURITIES--BACKED BY LETTERS OF CREDIT (0.2%)
STATE STREET BANK
1,000 Rhode Island Std. Loan Au. Prog. Rev., Ser. 1996-1, 1.05%,
due 6/1/26 Putable 6/1/04 A-1+ 1,000
---------------
TAX-EXEMPT SECURITIES--OTHER (1.2%)
2,000 Connecticut St. Hsg. Fin. Au. Hsg. Mtge. Fin. Prog. Rev.,
Sub. Ser. 2003 F-2, 1.20%, due 11/15/34 Putable 12/22/04 MIG1 SP-1+ 2,000
3,000 Illinois Hlth. Fac. Au. Rev. (Advocate Hlth. Care Network),
Ser. 2003 A, 1.05%, VRDN due 11/15/22 Putable 7/6/04 VMIG1 A-1+ 3,000++++
---------------
5,000
---------------
TAX-EXEMPT CASH EQUIVALENT SECURITIES (21.6%)
1,800 Berkeley Co. (SC) IDR (Nucor Corp. Proj.), Ser. 1995, 1.16%,
VRDN due 9/1/28 VMIG1 A-1+ 1,800++++
5,000 Berkeley Co. (SC) IDR (Nucor Corp. Proj.), Ser. 1996 A,
1.16%, VRDN due 3/1/29 VMIG1 A-1+ 5,000++++
8,300 Berkeley Co. (SC) IDR (Nucor Corp. Proj.), Ser. 1997, 1.16%,
VRDN due 4/1/30 VMIG1 A-1+ 8,300++++
1,800 Berkeley Co. (SC) IDR (Nucor Corp. Proj.), Ser. 1998, 1.16%,
VRDN due 4/1/31 VMIG1 A-1+ 1,800++++
2,000 Colorado Hsg. & Fin. Au. Multi-Family Hsg. Ref. Rev.
(Huntersridge Proj.), Ser. 1996 E, 1.08%, VRDN due 10/15/16 A-1+ 2,000
1,000 Comm. Dev. Administration (MD) Multi-Family Dev. Ref. Rev.
(Avalon Ridge Apts. Proj.), Ser. 1997, 1.05%, VRDN due
6/15/26 VMIG1 1,000++++
300 Delaware Co. (PA) IDA Arpt. Fac. Rev. (United Parcel Svc.
Proj.), Ser. 1985, 1.03%, VRDN due 12/1/15 A-1+ 300++++
1,000 Delaware Co. (PA) IDA Res. Rec. Fac. Ref. Rev. (Gen. Elec.
Cap. Corp.), Ser. 1997 G, 1.06%, VRDN due 12/1/31 P-1 A-1+ 1,000++++
1,000 Florida Hsg. Fin. Agcy. Multi-Family Hsg. Rev. (Beneva Place
Proj.), Ser. 1988 C, 1.03%, VRDN due 8/1/06 VMIG1 1,000
</Table>
See Notes to Schedule of Investments
25
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @ RATING @@ VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 2,360 Florida Hsg. Fin. Agcy. Rev. (Heron Park Proj.), Ser.
1996 U, 1.09%, VRDN due 12/1/29 VMIG1 $ 2,360++++
2,500 Gibson Co. (IN) PCR (Toyota Motor Mfg. Proj.), Ser. 1997,
1.11%, VRDN due 10/1/27 A-1+ 2,500++++
6,000 Gibson Co. (IN) PCR (Toyota Motor Mfg. Proj.), Ser. 2001,
1.11%, VRDN due 2/1/31 VMIG1 A-1+ 6,000++++
100 Gulf Coast (TX) Waste Disp. Au. Env. Fac. Rev. (Amoco Oil
Co. Proj.), Ser. 1998, 1.13%, VRDN due 1/1/26 VMIG1 A-1+ 100++++
1,600 Gulf Coast (TX) Waste Disp. Au. Env. Fac. Rev. (BP Prod.
North America Proj.), Ser. 2003, 1.13%, VRDN due 7/1/34 VMIG1 A-1+ 1,600++++
400 Gulf Coast (TX) Waste Disp. Au. Env. Fac. Rev.
(ExxonMobil Proj.), Ser. 2003, 1.05%, VRDN due 9/1/25 P-1 A-1+ 400++++
100 Gulf Coast (TX) Waste Disp. Au. PCR (Amoco Oil Co. Proj.),
Ser. 1994, 1.13%, VRDN due 6/1/24 VMIG1 A-1+ 100++++
200 Gulf Coast (TX) Waste Disp. Au. Ref. PCR (Exxon Proj.),
Ser. 1995, 1.03%, VRDN due 6/1/20 VMIG1 A-1+ 200++++
100 Harris Co. (TX) IDC PCR (Exxon Proj.), Ser. 1984, 1.03%,
VRDN due 3/1/24 A-1+ 100++++
2,800 Harris Co. (TX) IDC Solid Waste Disp. Rev. (Exxon Proj.),
Ser. 1997, 1.08%, VRDN due 4/1/32 VMIG1 A-1+ 2,800++++
100 Hurley (NM) PCR (Kennecott Sante Fe Corp. Proj.), Ser. 1985,
1.10%, VRDN due 12/1/15 P-1 A-1+ 100++++
1,400 Jackson Co. (MS) Port Fac. Ref. Rev. (Chevron U.S.A., Inc.
Proj.), Ser. 1993, 1.10%, VRDN due 6/1/23 P-1 1,400++++
100 Lincoln Co. (WY) PCR (Exxon Proj.), Ser. 1984 B, 1.03%,
VRDN due 11/1/14 P-1 A-1+ 100++++
800 Lincoln Co. (WY) PCR (Exxon Proj.), Ser. 1985, 1.04%,
VRDN due 8/1/15 P-1 A-1+ 800++++
200 Lincoln Co. (WY) PCR (Exxon Proj.), Ser. 1987 C, 1.08%,
VRDN due 7/1/17 P-1 A-1+ 200++++
300 Louisville & Jefferson Co. (KY) Reg. Arpt. Au. Spec. Fac.
Rev. (UPS Worldwide Forwarding, Inc. Proj.), Ser. 1999 B,
1.13%, VRDN due 1/1/29 VMIG1 A-1+ 300++++
700 Lower Neches Valley Au. (TX) IDC Exempt Fac. Rev. (Mobil Oil
Corp. Proj.), Ser. 1999, 1.05%, VRDN due 4/1/29 P-1 A-1+ 700++++
11,700 New York City (NY) Hsg. Dev. Corp. Multi-Family Rental Hsg.
Rev. (James Tower Dev.), Ser. 2002 A, 1.04%, VRDN due
6/15/32 P-1 A-1 11,700++++
1,500 New York City (NY) Hsg. Dev. Corp. Multi-Family Rental Hsg.
Rev. (Parkgate Dev.), Ser. 1998, 1.03%, VRDN due 10/15/28 A-1+ 1,500
2,200 New York City (NY) Hsg. Dev. Corp. Multi-Family Rental Hsg.
Rev. (The Foundry), Ser. 2002 A, 1.08%, VRDN due 8/15/32 A-1+ 2,200++++
7,900 New York St. Hsg. Fin. Agcy. Rev. (101 West End Avenue
Hsg.), Ser. 1999 A, 1.11%, VRDN due 5/1/31 VMIG1 7,900++++
500 Ohio St. Solid Waste Ref. Rev. (BP Prod. North America, Inc.
Proj. - BP p.l.c.), Ser. 2002, 1.13%, VRDN due 8/1/34 VMIG1 A-1+ 500++++
3,400 Pinellas Co. (FL) Hsg. Fin. Au. Multi-Family Hsg. Ref. Rev.
(Foxbridge Apts. Proj.), Ser. 1995 A, 1.04%, VRDN due
6/15/25 A-1+ 3,400++++
11,000 Port of Port Arthur (TX) Navigation Dist. Rev. (BASF Corp.
Proj.), Ser. 2000 A, 1.05%, TECP due 5/19/04 P-1 11,000
1,125 Salt Lake Co. (UT) Ref. PCR (Svc. Sta. Holdings, Inc.
Proj. - The British Petroleum Co. p.l.c.), Ser. 1994, 1.10%,
VRDN due 2/1/08 P-1 A-1+ 1,125++++
2,200 Stanton Co. (NE) IDR (Nucor Corp. Proj.), Ser. 1996, 1.16%,
VRDN due 11/1/26 VMIG1 A-1+ 2,200++++
</Table>
26
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @ RATING @@ VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 300 Uinta Co. (WY) Ref. PCR (Chevron U.S.A., Inc. Proj.), Ser.
1992, 1.10%, VRDN due 12/1/22 VMIG1 $ 300++++
2,600 Valdez (AK) Marine Term. Ref. Rev. (BP Pipelines, Inc.
Proj.), Ser. 2003 B, 1.10%, VRDN due 7/1/37 VMIG1 A-1+ 2,600++++
1,300 Valdez (AK) Marine Term. Ref. Rev. (BP Pipelines, Inc.
Proj.), Ser. 2003 C, 1.10%, VRDN due 7/1/37 VMIG1 A-1+ 1,300++++
700 Valdez (AK) Marine Term. Ref. Rev. (Exxon Pipeline Co.
Proj.), Ser. 1985, 1.03%, VRDN due 10/1/25 P-1 A-1+ 700++++
100 Valdez (AK) Marine Term. Ref. Rev. (ExxonMobil Proj.), Ser.
2001, 1.03%, VRDN due 1/1/31 VMIG1 100++++
100 West Side Calhoun Co. (TX) Nav. Dist. Sewage & Solid Waste
Disp. Rev. (BP Chemicals, Inc. Proj.), Ser. 1996, 1.13%,
VRDN due 4/1/31 P-1 100++++
500 Whiting (IN) Env. Fac. Rev. (Amoco Oil Co. Proj.), Ser.
2000, 1.13%, VRDN due 7/1/31 VMIG1 A-1+ 500++++
400 Whiting (IN) Swr. & Solid Waste Disp. Ref. Rev. (Amoco Oil
Co. Proj.), Ser. 1999, 1.13%, VRDN due 1/1/26 VMIG1 A-1+ 400++++
---------------
89,485
---------------
TAX-EXEMPT CASH EQUIVALENT SECURITIES--BACKED BY LETTERS OF
CREDIT (36.5%)
ABN AMRO BANK NV
1,000 Clark Co. (NV) IDR (Nevada Cogeneration Assoc. 2 Proj.),
Ser. 1992, 1.13%, VRDN due 12/1/22 VMIG1 A-1+ 1,000++++
150 Grand Forks (ND) Hlth. Care Fac. Rev. (United Hosp. Oblig.
Group Proj.), Ser. 1992, 1.10%, VRDN due 12/1/16 VMIG1 150++++
BANK OF AMERICA
1,200 Calhoun Co. (TX) Navigation IDA Port Rev. (Formosa Plastics
Corp., Texas Proj.), Ser. 1994, 1.15%, VRDN due 11/1/15 VMIG1 1,200++++
2,400 Florida Hsg. Fin. Corp. Rev. (The Club at Vero Arpt. Proj.),
Ser. 1998 E, 1.07%, VRDN due 6/1/17 A-1+ 2,400++++
7,600 Hapeville (GA) Dev. Au. IDR (Hapeville Hotel Ltd.
Partnership Proj.), Ser. 1985, 1.08%, VRDN due 11/1/15 P-1 7,600++++
1,785 Hillsborough Co. (FL) Hsg. Fin. Au. Multi-Family Hsg. Rev.
(Lakewood Shores Apts. Proj.), Ser. 2000 A, 1.15%,
VRDN due 4/1/33 A-1+ 1,785++++
300 Louisiana Pub. Fac. Au. IDR (Kenner Hotel L.P. Proj.), Ser.
1985, 1.08%, VRDN due 12/1/15 P-1 300++++
2,800 Nashville & Davidson Co. (TN) Metro Gov't. IDB Multi-Family
Hsg. Rev., Ser. 1996 A, 1.13%, VRDN due 9/1/06 VMIG1 2,800
1,700 Palm Beach Co. (FL) Rev. (The Norton Gallery and Sch. of
Art, Inc. Proj.), Ser. 2000, 1.10%, VRDN due 5/1/30 A-1+ 1,700++++
BANK OF NEW YORK
10,000 New York City (NY) G.O., Sub. Ser. 2002 C-5, 1.09%,
VRDN due 8/1/20 VMIG1 A-1+ 10,000
BANK OF NOVA SCOTIA
3,400 California Hsg. Fin. Agcy. Home Mtge. Rev., Ser. 2000 M,
1.10%, VRDN due 8/1/33 VMIG1 A-1 3,400
3,510 Sunshine St. (FL) Gov't. Fin. Comm. Rev., Ser. A, 0.95%,
TECP due 5/12/04 P-1 A-1 3,510
2,331 Sunshine St. (FL) Gov't. Fin. Comm. Rev., Ser. A, 1.00%,
TECP due 5/12/04 P-1 A-1 2,331
2,000 Wisconsin St. G.O., Ser. A, 0.95%, TECP due 5/7/04 P-1 A-1 2,000L
</Table>
27
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @ RATING @@ VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
BANK ONE
$ 2,000 Colorado Hlth. Fac. Au. Hosp. Rev. (Boulder Comm. Hosp.
Proj.), Ser. 2000, 1.23%, VRDN due 10/1/30 VMIG1 A-1 $ 2,000++++
1,100 Emery Co. (UT) Ref. PCR (PacifiCorp Proj.), Ser. 1991,
1.11%, VRDN due 7/1/15 VMIG1 A-1+ 1,100++++
1,200 Galveston (TX) Ind. Dev. Corp. Ref. Rev. (Mitchell Interests
Proj.), Ser. 1993 A, 1.30%, VRDN due 9/1/13 A-1 1,200
2,000 Lake Charles (LA) Harbor & Rev. Dist. Ref. Rev. (Conoco,
Inc. Proj.), Ser. 1999 A, 1.08%, VRDN due 9/1/29 VMIG1 A-1+ 2,000++++
4,000 Midlothian (TX) IDC Env. Fac. Rev. (Holnam TX L.P. Proj.),
Ser. 1999, 1.12%, VRDN due 9/1/31 A-1 4,000++++
BARCLAYS BANK INT'L., LTD.
950 Farmington City (NM) PCR (Arizona Pub. Svc. Co. Four Corners
Proj.), Ser. 1994 C, 1.08%, VRDN due 9/1/24 P-1 A-1+ 950++++
9,132 Michigan Strategic Fund Solid Waste Disp. Rev. (Grayling
Generating Proj.), Ser. 1990, 1.11%, VRDN due 1/1/14 VMIG1 9,132++++
1,400 Ohio St. Wtr. Dev. Au. PCR (Ohio Edison Co. Proj.), Ser.
1988, 1.13%, VRDN due 9/1/18 P-1 1,400++++
CHASE MANHATTAN BANK, N.A.
2,000 Brazoria Co. (TX) Hlth. Fac. Dev. Corp. Hosp. Rev.
(Brazosport Mem. Hosp.), Ser. 1999, 1.13%, VRDN due 7/1/13 VMIG1 2,000++++
1,370 Douglas Co. (GA) Dev. Au. IDR (Whirlwind Steel Bldg., Inc.
Proj.), Ser. 1997, 1.16%, VRDN due 12/1/12 VMIG1 A-1 1,370++++
700 Lawrence Co. (SD) Ref. PCR (Homestake Mining Co. Proj.),
Ser. 1997 B, 1.12%, VRDN due 7/1/32 P-1 700++++
400 Lawrence Co. (SD) Solid Waste Disp. Rev. (Homestake Mining
Co. Proj.), Ser. 1997 A, 1.15%, VRDN due 7/1/32 P-1 400++++
5,000 Mississippi Bus. Fin. Corp. IDR (VC Reg. Assembly & Mfg.
Proj.), Ser. 2003, 1.14%, VRDN due 12/1/18 A-1+ 5,000++++
CITIBANK, N.A.
1,100 Austin Co. (TX) Ind. Dev. Corp. IDR (Justin Ind., Inc.
Proj.), Ser. 1984, 1.10%, VRDN due 12/1/14 P-1 1,100++++
CREDIT SUISSE
3,400 King George Co. (VA) IDA Exempt Fac. Rev. (Birchwood Pwr.
Partners, L.P. Proj.), Ser. 1995, 1.12%, VRDN due 11/1/25 A-1 3,400++++
5,000 Lousiana Pub. Fac. Au. Rev. (CHRISTUS Hlth.), Ser. 1999 B,
1.02%, TECP due 6/9/04 VMIG1 5,000
1,000 Texas Capital Hlth. Fac. Dev. Corp. (Island on Lake Travis
Ltd. Proj.), Ser. 1986, 1.12%, VRDN due 12/1/16 A-1+ 1,000
DEUTSCHE BANK AG
2,000 Elk Co. (PA) IDA Solid Waste Disp. Rev. (Willamette Ind.,
Inc. Proj.), Ser. 1992, 1.12%, VRDN due 8/1/10 A-1+ 2,000++++
1,900 Lincoln Parish (LA) Exempt Fac. Rev. (Willamette Ind.,
Inc. Proj.), Ser. 1996, 1.12%, VRDN due 4/1/26 A-1+ 1,900++++
DEXIA CREDIT LOCALE DE FRANCE
150 New York City (NY) Muni. Wtr. Fin. Au. Wtr. & Swr. Sys.
Rev., Ser. 2000 C, 1.06%, VRDN due 6/15/33 P-1 A-1+ 150
FIRST UNION NATIONAL BANK
1,385 Philadelphia (PA) Hosp. & Higher Ed. Fac. Au. Rev. (Temple
East, Inc.), Ser. 1999 B, 1.11%, VRDN due 6/1/14 A-1+ 1,385++++
3,100 Washington Co. (PA) Au. Lease Rev. (Higher Ed. Pooled Equip.
Leasing Prog.), Ser. 1985 A, 1.12%, VRDN due 11/1/05 VMIG1 3,100
1,340 Whitfield Co. (GA) Residential Care Fac. Rev. (Royal Oaks
Sr. Living Comm.), Ser. 1992, 1.10%, VRDN due 11/1/25 A-1 1,340
</Table>
28
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @ RATING @@ VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
HARRIS TRUST AND SAVINGS BANK
$ 100 Illinois Dev. Fin. Au. IDR (Grayhill, Inc. Proj.), Ser. 1995
C, 1.23%, VRDN due 2/1/05 A-1+ $ 100
300 Illinois Dev. Fin. Au. IDR (Overton Gear & Tool Corp.
Proj.), Ser. 1994, 1.28%, VRDN due 10/1/08 A-1+ 300
2,080 Illinois Hlth. Fac. Au. Rev. (Healthcare), Ser. 2002,
1.10%, VRDN due 8/15/32 VMIG1 A-1+ 2,080
LASALLE NATIONAL BANK
1,900 Elmhurst City, DuPage & Cook Cos. (IL) IDR (Randall
Manufactured Prod., Inc. Proj.), Ser. 2002, 1.29%,
VRDN due 2/1/27 A-1+ 1,900++++
MORGAN GUARANTY TRUST CO.
2,800 Austin (TX) Arpt. Sys. Prior Lien Rev., Ser. 1995 A, 1.14%,
VRDN due 11/15/17 P-1 2,800
300 New York City (NY) G.O., Sub. Ser. 1993 A-10, 1.06%,
VRDN due 8/1/17 VMIG1 A-1+ 300
100 New York City (NY) G.O., Sub. Ser. 1994 E-2, 1.06%,
VRDN due 8/1/20 VMIG1 A-1+ 100
5,200 Rochester (MN) Hlth. Care Fac. Rev. (Mayo Clinic), Ser.
2000 A, 1.05%, TECP due 8/4/04 A-1+ 5,200
NATIONAL WESTMINSTER BANK PLC
300 Marion Co. (WV) Comm. Solid Waste Disp. Fac. Rev. (Grant
Town Cogeneration Proj.), Ser. 1990 A, 1.12%, VRDN due
10/1/17 VMIG1 A-1+ 300++++
300 Marion Co. (WV) Comm. Solid Waste Disp. Fac. Rev. (Grant
Town Cogeneration Proj.), Ser. 1990 D, 1.18%, VRDN due
10/1/17 VMIG1 A-1+ 300++++
NORTHERN TRUST CO.
200 Iowa Higher Ed. Loan Au. Rev. (Private College - St.
Ambrose), Ser. 2003, 1.10%, VRDN due 4/1/33 A-1+ 200++++
200 St. Joseph Co. (IN) Ed. Fac. Rev. (Univ. of Notre Dame du
Lac Proj.), Ser. 2002, 0.95%, VRDN due 3/1/37 VMIG1 200uu++++
SOCIETE GENERALE
2,665 Chicago (IL) O'Hare Int'l. Arpt. Gen. Arpt. 2nd Lien Rev.,
Ser. 1984 B, 1.06%, VRDN due 1/1/15 VMIG1 A-1+ 2,665
1,800 Chicago (IL) O'Hare Int'l. Arpt. Spec. Fac. Rev. (Compagnie
Nationale Air France Proj.), Ser. 1990, 1.15%, VRDN due
5/1/18 A-1+ 1,800++++
400 Los Angeles (CA) Reg. Arpt. Imp. Corp. Fac. Sublease Rev.
(Los Angeles Int'l. Arpt.), Ser. 1985, 1.10%, VRDN due
12/1/25 A-1+ 400++++
300 Los Angeles (CA) Reg. Arpt. Imp. Corp. Term. Fac. Completion
Rev. (Los Angeles Int'l. Arpt.), Ser. 1989, 1.12%,
VRDN due 12/1/25 A-1+ 300++++
3,500 Ohio St. Air Quality Dev. Au. Rev. (JMG Funding L.P. Proj.),
Ser. 1994 B, 1.20%, VRDN due 4/1/28 VMIG1 A-1+ 3,500
2,900 Ohio St. Air Quality Dev. Au. Rev. (JMG Funding L.P. Proj.),
Ser. 1995 A, 1.10%, VRDN due 4/1/29 A-1+ 2,900
5,000 Riverside-San Bernardino (CA) Hsg. & Fin. Agcy. Lease Rev.
Pass-Through Oblig., Ser. 2001 A, 1.10%, VRDN due 7/1/06 A-1+ 5,000++++
STATE STREET BANK
2,800 New York City (NY) G.O., Sub. Ser. 1993 E-4, 1.08%,
VRDN due 8/1/22 VMIG1 A-1+ 2,800
700 Rhode Island Std. Loan Au. Prog. Rev., Ser. 1995-1, 1.15%,
VRDN due 7/1/19 A-1+ 700
2,000 Rhode Island Std. Loan Au. Prog. Rev., Ser. 1996-3, 1.15%,
VRDN due 6/1/26 A-1+ 2,000
</Table>
See Notes to Schedule of Investments
29
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @ RATING @@ VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
SUNTRUST BANK
$ 600 DeKalb (GA) Private Hosp. Au. Anticipation Cert. Rev.
(Egleston Children's Hosp.), Ser. 1994 A, 1.10%, VRDN due
3/1/24 VMIG1 A-1+ $ 600++++
700 Mayfield (KY) IDR (Seaboard Farms of Kentucky, Inc. Proj.),
Ser. 1989, 1.20%, VRDN due 8/1/19 VMIG1 700++++
TORONTO DOMINION BANK
2,500 Indiana Muni. Pwr. Agcy. Pwr. Supply Sys. Ref. Rev., Ser.
1998 A, 1.10%, VRDN due 1/1/18 VMIG1 A-1+ 2,500
1,000 Montgomery Co. (MD), 1.03%, TECP due 8/11/04 P-1 1,000
UNION BANK OF SWITZERLAND
300 Clark Co. (NV) Arpt. Sys. Sub. Lien Rev., Ser. 1995 A-2,
1.11%, VRDN due 7/1/25 VMIG1 A-1+ 300
690 Pennsylvania Energy Dev. Au. Rev. (B & W Ebensburg Proj.),
Ser. 1986, 1.12%, VRDN due 12/1/11 VMIG1 690++++
WACHOVIA BANK & TRUST CO.
500 Fulco (GA) Hosp. Au. Anticipation Cert. Rev. (Shepherd Ctr.,
Inc. Proj.), Ser. 1997, 1.10%, VRDN due 9/1/17 A-1+ 500++++
4,300 Jackson-Union Cos. (IL) Reg. Port Dist. Port Fac. Ref. Rev.
(Enron Trans. Svc., L.P. Proj.), Ser. 1994, 1.09%, VRDN due
4/1/24 VMIG1 A-1+ 4,300++++
500 Morgan Co. (UT) Solid Waste Disp. Rev. (Holnam, Inc. Proj.),
Ser. 1996, 1.18%, VRDN due 8/1/31 VMIG1 A-1+ 500++++
9,000 North Carolina Med. Care Commission Hlth. Care Fac. Rev.
(FirstHealth of the Carolinas Proj.), Ser. 2002, 1.09%,
due 10/1/32 VMIG1 A-1 9,000++++
1,200 South Carolina Jobs Econ. Dev. Au. Hosp. Rev. (Tuomey Reg.
Med. Ctr.), Ser. 1995 B, 1.08%, VRDN due 11/1/25 VMIG1 A-1+ 1,200++++
1,650 South Carolina Jobs Econ. Dev. Au. Rev. (Florence RHF Hsg.,
Inc. Proj.), Ser. 1987 A, 1.60%, VRDN due 11/1/07 P-1 1,650++++
WELLS FARGO & CO.
800 New Ulm (MN) Hosp. Ref. Rev. (Hlth. Central Sys. Proj.),
Ser. 1985, 1.10%, VRDN due 8/1/14 A-1+ 800
---------------
151,388
---------------
TAX-EXEMPT CASH EQUIVALENT SECURITIES--BACKED BY INSURANCE (19.1%)
AMERICAN MUNICIPAL BOND ASSURANCE CORP.
1,500 Coastal Bend (TX) Hlth. Fac. Dev. Corp. Rev. (Incarnate Word
Hlth. Sys.), Ser. 1998 B, 1.11%, VRDN due 8/15/28 VMIG1 SP-1+ 1,500BB++++
9,160 Michigan Higher Ed. Std. Loan Au. Ref. Rev., Ser. 1988
XII-B, 1.12%, VRDN due 10/1/13 VMIG1 A-1 9,160EE
1,300 Michigan Higher Ed. Std. Loan Au. Rev., Ser. 1991 XII-F,
1.12%, VRDN due 10/1/20 VMIG1 1,300EE
2,000 Pennsylvania St. Higher Ed. Assist. Agcy. Std. Loan Rev.,
Ser. 1995 A, 1.11%, VRDN due 12/1/25 VMIG1 A-1+ 2,000u
2,000 Utah St. Board of Regents Std. Loan Rev., Ser. 1995 L,
1.13%, VRDN due 11/1/25 A-1+ 2,000
3,300 Wisconsin St. Hlth. & Ed. Fac. Au. Rev. (ProHealthCare,
Inc.), Ser. 2001 B, 1.10%, VRDN due 8/15/30 VMIG1 A-1 3,300E++++
FINANCIAL GUARANTY INSURANCE CO.
3,300 Arizona Hlth. Fac. Au. Rev. (Pooled Loan Prog.), Ser. 1985,
1.11%, VRDN due 10/1/15 VMIG1 A-1 3,300&&
1,295 Central Bucks (PA) Sch. Dist., Ser. 2000 A, 1.15%,
VRDN due 2/1/20 VMIG1 1,295
4,000 Detroit (MI) Wtr. Supply Sys. Second Lien Ref. Rev., Ser.
2001-C, 1.08%, VRDN due 7/1/29 VMIG1 4,000
</Table>
30
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @ RATING @@ VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 680 Eastern Michigan Univ. Board of Regents Gen. Ref. Rev.,
Ser. 2001, 1.10%, VRDN due 6/1/27 A-1+ $ 680
9,485 Massachusetts Wtr. Res. Au. Multi-Modal Subordinated Gen.
Rev., Ser. 2001 A, 1.07%, VRDN due 8/1/23 A-1+ 9,485
700 New York City (NY) Muni. Wtr. Fin. Au. Wtr. & Swr. Sys.
Rev., Ser. 1992 C, 1.08%, VRDN due 6/15/22 VMIG1 A-1+ 700
FINANCIAL SECURITY ASSURANCE INC.
2,400 California Hsg. Fin. Agcy. Home Mtge. Rev., Ser. 2001 J,
1.11%, VRDN due 2/1/32 VMIG1 A-1+ 2,400Y
200 California Hsg. Fin. Agcy. Home Mtge. Rev., Ser. 2003 U,
1.11%, VRDN due 2/1/32 VMIG1 A-1+ 200!!
2,200 Clark Co. (NV) Sch. Dist. G.O., Ser. 2001 A, 1.07%,
VRDN due 6/15/21 VMIG1 A-1+ 2,200
7,600 Long Island (NY) Pwr. Au. Elec. Sys. Gen. Rev., Ser. 2003 E,
1.06%, VRDN due 12/1/29 VMIG1 A-1+ 7,600!!
5,000 Metro. Washington (DC) Arpt. Au. Sys. Ref. Rev., Ser. 2002
C, 1.13%, VRDN due 10/1/21 VMIG1 A-1+ 5,000!!
2,900 Michigan St. Grant Anticipation Notes, Ser. 2002 B, 1.09%,
VRDN due 9/1/09 VMIG1 A-1+ 2,900!!
MUNICIPAL BOND INVESTORS ASSURANCE CORP.
1,700 California Hsg. Fin. Agcy. Home Mtge. Rev., Ser. 2001 U,
1.11%, VRDN due 8/1/32 VMIG1 A-1+ 1,700&
200 California Hsg. Fin. Agcy. Home Mtge. Rev., Ser. 2002 J,
1.11%, VRDN due 2/1/33 VMIG1 A-1+ 200Y
1,485 Charlotte (NC) Arpt. Ref. Rev., Ser. 1997 A, 1.12%,
VRDN due 7/1/17 VMIG1 A-1 1,485&&
325 Clark Co. (NV) Arpt. Sub. Lien Rev., Ser. 1998 B, 1.12%,
VRDN due 7/1/28 VMIG1 A-1+ 325YY
410 Harris Co. (TX) Hlth. Fac. Dev. Corp. Hosp. Rev. (Texas
Children's Hosp. Proj.), Ser. 1999 B-1, 1.11%, VRDN due
10/1/29 VMIG1 A-1+ 410++++
12,000 Indianapolis (IN) Local Pub. Imp. Bond Bank Ref. Rev.,
Ser. 2002 F-2, 1.07%, VRDN due 2/1/20 A-1 12,000E
900 Kentucky Higher Ed. Std. Loan Corp. Rev., Ser. 1996 A,
1.13%, VRDN due 6/1/26 VMIG1 A-1+ 900LL
200 Massachusetts St. Hlth. & Ed. Fac. Au. Rev. (Cap. Asset
Prog.), Ser. 1985 D, 1.08%, VRDN due 1/1/35 VMIG1 200
2,585 Michigan St. Hsg. Dev. Au. Rental Hsg. Rev., Ser. 2002 C,
1.07%, VRDN due 4/1/21 A-1+ 2,585LL
85 New York City (NY) G.O., Sub. Ser. 1995 B-3, 1.08%,
VRDN due 8/15/04 VMIG1 A-1+ 85B
---------------
78,910
---------------
TOTAL INVESTMENTS (97.5%) 404,014
Cash, receivables and other assets, less liabilities (2.5%) 10,328
---------------
TOTAL NET ASSETS (100.0%) $ 414,342
---------------
</Table>
See Notes to Schedule of Investments
31
<Page>
SCHEDULE OF INVESTMENTS MUNICIPAL SECURITIES TRUST
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @ RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
TAX-EXEMPT SECURITIES--PRE-REFUNDED BACKED BY U.S. GOVERNMENT
SECURITIES (7.9%)
$ 750 Clark Co. (NV) Sch. Dist. Imp. G.O., Ser. 1995 A, 5.60%,
due 6/15/08 PR 6/15/05 Aaa AAA $ 792
1,000 Phoenix (AZ) Civic Imp. Corp. Jr. Lien Wastewater Sys. Rev.,
Ser. 2000, 6.00%, due 7/1/12 PR 7/1/10 Aaa AAA 1,157
1,000 Wisconsin St. G.O., Ser. 2002 C, 5.25%, due 5/1/14 PR 5/1/12 Aaa AAA 1,105
---------------
3,054
---------------
TAX-EXEMPT SECURITIES--BACKED BY INSURANCE (38.6%)
AMERICAN MUNICIPAL BOND ASSURANCE CORP.
1,000 Atlanta (GA) Arpt. Fac. Ref. Rev., Ser. 1996, 6.50%,
due 1/1/06 Aaa AAA 1,073
1,000 Larimer Co. (CO) Sales & Use Tax Rev., Ser. 2000, 5.75%,
due 12/15/15 Aaa AAA 1,117
FINANCIAL GUARANTY INSURANCE CO.
1,000 Dade Co. (FL) Wtr. & Swr. Sys. Rev., Ser. 1995, 6.25%,
due 10/1/06 Aaa AAA 1,099
750 Detroit (MI) Wayne Co. Sch. Dist. Sch. Bldg. & Site Imp.
Ref. G.O., Ser. 1998 C, 5.25%, due 5/1/13 Aaa AAA 821
1,000 Grapevine (TX) Combination Tax & Tax Increment Reinvestment
Zone Rev., Ser. 2000, 5.63%, due 8/15/15 Aaa AAA 1,101
1,000 Monterey Co. (CA) Salinas Union High Sch. Dist. G.O. (Middle
Sch. Imp. Dist.), Ser. 2003 A, 5.25%, due 10/1/14 Aaa AAA 1,092
500 Scottsdale (AZ) Excise Tax Rev., Ser. 1998, 6.00%,
due 7/1/07 Aaa AAA 555
1,000 Tampa Bay (FL) Wtr. Util. Sys. Rev., Ser. 1998 B, 5.13%,
due 10/1/09 Aaa AAA 1,107
FINANCIAL SECURITY ASSURANCE INC.
500 New York St. Urban Dev. Corp. Ref. Rev.,
(Correctional Facs.), Ser. 1994 A, 5.50%, due 1/1/14 Aaa AAA 557
1,000 Springfield (MO) Sch. Dist. Number R-12 Ref. G. O.,
Ser. 2002 A, 5.50%, due 3/1/13 AAA 1,116
800 Will & Kendall Cos. (IL) Plainfield Comm. Cons. Sch. Dist.
Number 202 Sch. Bldg. G.O., Ser. 2001, 5.38%, due 1/1/13 AAA 871
MUNICIPAL BOND INVESTORS ASSURANCE CORP.
1,395 Florida Muni. Loan Council Rev., Ser. 2002 C, 5.25%,
due 11/1/15 AAA 1,513
500 Metro. (IL) Pier & Exposition Au. Dedicated St. Tax Rev.
(McCormick Place Expansion), Ser. 2002 A, 5.25%, due 6/15/08 Aaa AAA 548
1,000 Mississippi Dev. Bank Spec. Oblig. Rev. (Muni. Gas Au.
Natural Gas Supply Proj.), Ser. 1998, 5.00%, due 1/1/08 Aaa AAA 1,081
1,100 Orange Co. (CA) Local Trans. Au. Measure M Sales Tax
(Limited Tax) Second Sr. Rev., Ser. 1998 A, 5.50%,
due 2/15/10 Aaa AAA 1,230
---------------
14,881
---------------
TAX-EXEMPT SECURITIES--OTHER (51.7%)
1,000 Board of Regents of the Texas A&M Univ. Sys. Perm. Univ.
Fund Rev., Ser. 1998, 5.00%, due 7/1/08 Aaa AAA 1,088
1,000 Columbus (OH) Var. Purp. Ltd. Tax G.O., Ser. 1998-1, 5.00%,
due 6/15/08 Aaa AAA 1,091
400 Denver (CO) City & Co. Sch. Dist. No. 1 Ref. G.O.,
Ser. 1994 A, 6.50%, due 6/1/10 Aa3 AA- 468
500 Florida St. Board of Ed. Cap. Outlay Ref. G.O.,
Ser. 1998 B, 5.25%, due 6/1/09 Aa2 AA+ 552
1,000 Illinois St. Sales Tax Rev., Ser. 1997 Y, 5.25%, due 6/15/10 Aa2 AAA 1,101
</Table>
32
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @ RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 1,000 Indiana St. Office Bldg. Commission Fac. Ref. Rev.,
Ser. 1998 A, 5.13%, due 7/1/14 Aa2 $ 1,057
1,000 Lake Co. (IL) Forest Preserve Dist. Ref. G.O., Ser. 1997,
5.50%, due 2/1/09 Aa1 AAA 1,107
1,000 Lake Co. (IL) Sch. Dist. No. 109 Deerfield Ref. G.O.,
Ser. 1999 C, 5.00%, due 12/15/14 Aa2 AA+ 1,072
45 Mississippi Higher Ed. Assist. Corp. Std. Loan Sub. Rev.,
Ser. 1993 C, 6.05%, due 9/1/07 A 45
1,000 Missouri St. Env. Imp. & Energy Res. Au. Wtr. Ref. PCR
(St. Revolving Fund Prog.-Master Trust), Ser. 2001 B,
5.50%, due 1/1/11 Aaa AAA 1,119
1,000 Nevada Ref. Ltd. Tax G.O., Ser. 1997 A-2, 6.00%, due 5/15/06 Aa2 AA 1,080
575 New Jersey Trans. Trust Fund Au. Trans. Sys. Rev.,
Ser. 1999 A, 5.63%, due 6/15/13 Aa3 AA 642
1,000 New York St. Thruway Au. Local Hwy. & Bridge Svc. Contract
Rev., Ser. 1997, 5.25%, due 4/1/10 A3 AA- 1,086
500 New York Tobacco Settlement Fin. Corp. Asset-Backed Rev.,
Ser. 2003 A-1, 5.25%, due 6/1/12 AA- 523
1,000 Northside (TX) Independent Sch. Dist. Unlimited Tax Sch.
Bldg. G.O., Ser. 1999 A, 6.38%, due 8/15/09 Aaa AAA 1,152
500 Oklahoma City (OK) Ref. G.O., Ser. 1993, 5.55%, due 8/1/11 Aa2 AA 563
735 Ramsey Co. (MN) Cap. Imp. Plan G.O., Ser. 2000 A, 5.80%,
due 2/1/16 Aaa AAA 809
1,000 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 AA+ 1,058
500 South Carolina St. Cap. Imp. G.O., Ser. 2001 B, 5.38%,
due 4/1/13 AAA 550
1,000 Texas Pub. Fin. Au. Ref. G.O., Ser. 1998 B, 5.13%,
due 10/1/09 Aa1 AA 1,089
1,000 Texas Wtr. Dev. Board St. Revolving Fund Sr. Lien Rev.,
Ser. 1996 B, 5.25%, due 7/15/13 AAA 1,067
1,000 Utah St. G.O., Ser. 2002 A, 5.00%, due 7/1/08 Aaa AAA 1,091
500 Wyoming St. Loan & Investment Board Cap. Fac. Ref. Rev.,
Ser. 2002, 5.00%, due 10/1/10 AA- 543
---------------
19,953
---------------
TAX-EXEMPT CASH EQUIVALENT SECURITIES--BACKED BY LETTERS OF CREDIT
(0.5%) SOCIETE GENERALE
100 Los Angeles (CA) Reg. Arpt. Imp. Corp. Fac. Sublease Rev.
(Los Angeles Int'l. Arpt.), Ser. 1985, 1.10%,
VRDN due 12/1/25 VMIG1 A-1+ 100++++
100 Los Angeles (CA) Reg. Arpt. Imp. Corp. Term. Fac. Completion
Rev. (Los Angeles Int'l. Arpt.), Ser. 1989, 1.12%,
VRDN due 12/1/25 VMIG1 A-1+ 100++++
---------------
200
---------------
TOTAL INVESTMENTS (98.7%) (COST $36,681) 38,088##
Cash, receivables and other assets, less liabilities (1.3%) 516
---------------
TOTAL NET ASSETS (100.0%) $ 38,604
---------------
</Table>
See Notes to Schedule of Investments
33
<Page>
NOTES TO SCHEDULE OF INVESTMENTS
+ Investments in securities by the Fund 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 securities requiring daily quotations, bid prices are
obtained from principal market makers in those securities or, if
quotations are not available, by a method the Board of Trustees
of Neuberger Berman Income Funds (the "Trust") believes
accurately reflects 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 expressed in
local currency values. Foreign security prices are translated
from the local currency into U.S. dollars using the exchange rate
as of 12:00 p.m., Eastern time. 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 the Fund are valued at amortized cost,
which approximates U.S. Federal income tax cost.
# At cost, which approximates market value.
## At April 30, 2004, selected Fund information on a U.S. Federal
income tax basis was as follows:
<Table>
<Caption>
GROSS GROSS NET
(000'S OMITTED) UNREALIZED UNREALIZED UNREALIZED
NEUBERGER BERMAN COST APPRECIATION DEPRECIATION APPRECIATION
HIGH INCOME BOND FUND $ 671,979 $ 11,846 $ 5,274 $ 6,572
LIMITED MATURITY BOND FUND 209,401 2,916 2,332 584
MUNICIPAL SECURITIES TRUST 36,681 1,507 100 1,407
</Table>
@ Municipal securities held by Neuberger Berman Municipal Money
Fund ("Municipal Money") and Neuberger Berman Municipal
Securities Trust ("Municipal Securities Trust") are within the
two and four highest rating categories, respectively, assigned by
a nationally recognized statistical rating organization ("NRSRO")
such as Moody's Investors Service, Inc. or Standard & Poor's or,
where not rated, are determined by the Fund's investment manager
to be of comparable quality. Approximately 78% and 48% of the
municipal securities held by Municipal Money and Municipal
Securities Trust, 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 Funds. 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.
! Affiliated issuer (see Note A of Notes to Financial Statements).
* Non-income producing security.
** Security exempt from registration under the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers under
Rule 144A. At April 30, 2004, these securities amounted to
$135,469,000 or 20.3% of net assets for Neuberger Berman High
Income Bond Fund ("High Income").
See Notes to Financial Statements
34
<Page>
+++ All or a portion of this security is on loan (see Note A of Notes
to Financial Statements).
++++ Security is guaranteed by the corporate or non-profit obligor.
L Security is subject to a fractional guarantee provided by Bank of
Nova Scotia and Lloyds Bank, p.l.c., each backing 50% of the
total principal.
LL Security is subject to a guarantee provided by Landesbank
Hessen-Thueringen Girozentrale, backing 100% of the total
principal.
u Security is subject to a fractional guarantee provided by Credit
Suisse First Boston, Inc. and American Municipal Bond Assurance
Corp., each backing 50% of the total principal.
uu Security is subject to a fractional guarantee provided by the
Northern Trust Co. and Fifth Third Bank, each backing 50% of the
total principal.
& Security is subject to a guarantee provided by the Bank of New
York, backing 100% of the total principal.
&& Security is subject to a guarantee provided by Chase Manhattan
Bank, N.A., backing 100% of the total principal.
Y Security is subject to a guarantee provided by Lloyds Bank,
p.l.c., backing 100% of the total principal.
YY Security is subject to a guarantee provided by Westdeutsche
Landesbank Girozentrale, backing 100% of the total principal.
!! Security is subject to a guarantee provided by Dexia, Inc.,
backing 100% of the total principal.
E Security is subject to a guarantee provided by Bank One Corp.,
backing 100% of the total principal.
EE Security is subject to a guarantee provided by Kredietbank,
backing 100% of the total principal.
B Security is subject to a guarantee provided by Bank of Nova
Scotia, backing 100% of the total principal.
BB Security is subject to a guarantee provided by First National
Bank of Chicago, backing 100% of the total principal.
~ Security purchased on a when-issued basis. At April 30, 2004,
these securities amounted to $5,178,000 for High Income.
~~ Security is segregated as collateral for when-issued purchase
commitments.
^ Principal amount is stated in the currency in which the security
is denominated.
EUR = Euro Currency
^^ Not rated by a nationally recognized statistical rating
organization.
See Notes to Financial Statements
35
<Page>
STATEMENTS OF ASSETS AND LIABILITIES
<Table>
<Caption>
NEUBERGER BERMAN INCOME FUNDS CASH GOVERNMENT
(000'S OMITTED EXCEPT PER SHARE AMOUNTS) RESERVES MONEY FUND
ASSETS
INVESTMENTS IN SECURITIES, AT VALUE*+ (NOTE A)--SEE
SCHEDULE OF INVESTMENTS:
Unaffiliated issuers $ 558,799 $ 1,044,743
Non-controlled affiliated issuers -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Repurchase agreements 19,632 201,566
===================================================================================================================================
578,431 1,246,309
Cash 1 1
- -----------------------------------------------------------------------------------------------------------------------------------
Interest receivable 409 765
Receivable for securities sold -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 145 165
Receivable from administrator--net (Note B) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Prepaid expenses and other assets 20 33
===================================================================================================================================
TOTAL ASSETS 579,006 1,247,273
===================================================================================================================================
LIABILITIES
Dividends payable 114 539
Payable for forward foreign currency exchange contracts sold (Note C) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Payable for collateral on securities loaned (Note A) -- --
Payable for securities purchased -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Payable for Fund shares redeemed 133 145
Payable for variation margin (Note A) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Payable to investment manager (Note B) 121 248
Payable to administrator--net (Note B) 133 161
- -----------------------------------------------------------------------------------------------------------------------------------
Accrued expenses and other payables 77 58
===================================================================================================================================
TOTAL LIABILITIES 578 1,151
===================================================================================================================================
NET ASSETS AT VALUE $ 578,428 $ 1,246,122
===================================================================================================================================
NET ASSETS CONSIST OF:
Paid-in capital $ 578,424 $ 1,246,114
Undistributed net investment income (loss) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income -- --
Accumulated net realized gains (losses) on investments 4 8
- -----------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) in value of investments -- --
===================================================================================================================================
NET ASSETS AT VALUE $ 578,428 $ 1,246,122
===================================================================================================================================
NET ASSETS
Investor Class $ 578,428 $ 1,246,122
Trust Class -- --
- -----------------------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING ($.001 PAR VALUE; UNLIMITED SHARES AUTHORIZED)
Investor Class 578,424 1,246,114
Trust Class -- --
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Investor Class $ 1.00 $ 1.00
Trust Class -- --
- -----------------------------------------------------------------------------------------------------------------------------------
+SECURITIES ON LOAN, AT MARKET VALUE:
Unaffiliated issuers $ -- $ --
*COST OF INVESTMENTS:
Unaffiliated issuers $ 578,431 $ 1,246,309
Non-controlled affiliated issuers -- --
===================================================================================================================================
TOTAL COST OF INVESTMENTS $ 578,431 $ 1,246,309
===================================================================================================================================
</Table>
See Notes to Financial Statements
36
<Page>
<Table>
<Caption>
NEUBERGER BERMAN INCOME FUNDS HIGH INCOME BOND LIMITED MATURITY
(000'S OMITTED EXCEPT PER SHARE AMOUNTS) FUND BOND FUND
ASSETS
INVESTMENTS IN SECURITIES, AT VALUE*+ (NOTE A)--SEE
SCHEDULE OF INVESTMENTS:
Unaffiliated issuers $ 649,258 $ 206,540
Non-controlled affiliated issuers 19,883 --
- -----------------------------------------------------------------------------------------------------------------------------------
Repurchase agreements 9,410 3,445
===================================================================================================================================
678,551 209,985
Cash 839 4
- -----------------------------------------------------------------------------------------------------------------------------------
Interest receivable 13,868 2,504
Receivable for securities sold 8,429 --
- -----------------------------------------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 2,073 28
Receivable from administrator--net (Note B) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Prepaid expenses and other assets 15 9
===================================================================================================================================
TOTAL ASSETS 703,775 212,530
===================================================================================================================================
LIABILITIES
Dividends payable 399 32
Payable for forward foreign currency exchange contracts sold (Note C) -- 9
- -----------------------------------------------------------------------------------------------------------------------------------
Payable for collateral on securities loaned (Note A) 19,883 --
Payable for securities purchased 8,636 --
- -----------------------------------------------------------------------------------------------------------------------------------
Payable for Fund shares redeemed 8,572 31
Payable for variation margin (Note A) -- 15
- -----------------------------------------------------------------------------------------------------------------------------------
Payable to investment manager (Note B) 257 42
Payable to administrator--net (Note B) 145 14
- -----------------------------------------------------------------------------------------------------------------------------------
Accrued expenses and other payables 44 96
===================================================================================================================================
TOTAL LIABILITIES 37,936 239
===================================================================================================================================
NET ASSETS AT VALUE $ 665,839 $ 212,291
===================================================================================================================================
NET ASSETS CONSIST OF:
Paid-in capital $ 666,321 $ 233,242
Undistributed net investment income (loss) 25 --
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income -- (2,404)
Accumulated net realized gains (losses) on investments (7,079) (19,272)
- -----------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) in value of investments 6,572 725
===================================================================================================================================
NET ASSETS AT VALUE $ 665,839 $ 212,291
===================================================================================================================================
NET ASSETS
Investor Class $ 665,839 $ 180,591
Trust Class -- 31,700
- -----------------------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING ($.001 PAR VALUE; UNLIMITED SHARES AUTHORIZED)
Investor Class 71,496 19,037
Trust Class -- 3,507
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Investor Class $ 9.31 $ 9.49
Trust Class -- 9.04
- -----------------------------------------------------------------------------------------------------------------------------------
+SECURITIES ON LOAN, AT MARKET VALUE:
Unaffiliated issuers $ 19,412 $ --
*COST OF INVESTMENTS:
Unaffiliated issuers $ 652,096 $ 209,401
Non-controlled affiliated issuers 19,883 --
===================================================================================================================================
TOTAL COST OF INVESTMENTS $ 671,979 $ 209,401
===================================================================================================================================
<Caption>
NEUBERGER BERMAN INCOME FUNDS MUNICIPAL MONEY MUNICIPAL SECURITIES
(000'S OMITTED EXCEPT PER SHARE AMOUNTS) FUND TRUST
ASSETS
INVESTMENTS IN SECURITIES, AT VALUE*+ (NOTE A)--SEE
SCHEDULE OF INVESTMENTS:
Unaffiliated issuers $ 404,014 $ 38,088
Non-controlled affiliated issuers -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Repurchase agreements -- --
===================================================================================================================================
404,014 38,088
Cash 65 4
- -----------------------------------------------------------------------------------------------------------------------------------
Interest receivable 1,266 569
Receivable for securities sold 22,400 --
- -----------------------------------------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 3 --
Receivable from administrator--net (Note B) -- 12
- -----------------------------------------------------------------------------------------------------------------------------------
Prepaid expenses and other assets 12 1
===================================================================================================================================
TOTAL ASSETS 427,760 38,674
===================================================================================================================================
LIABILITIES
Dividends payable 142 14
Payable for forward foreign currency exchange contracts sold (Note C) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Payable for collateral on securities loaned (Note A) -- --
Payable for securities purchased 13,000 --
- -----------------------------------------------------------------------------------------------------------------------------------
Payable for Fund shares redeemed 30 18
Payable for variation margin (Note A) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Payable to investment manager (Note B) 90 8
Payable to administrator--net (Note B) 97 --
- -----------------------------------------------------------------------------------------------------------------------------------
Accrued expenses and other payables 59 30
===================================================================================================================================
TOTAL LIABILITIES 13,418 70
===================================================================================================================================
NET ASSETS AT VALUE $ 414,342 $ 38,604
===================================================================================================================================
NET ASSETS CONSIST OF:
Paid-in capital $ 414,348 $ 37,021
Undistributed net investment income (loss) 1 --
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income -- --
Accumulated net realized gains (losses) on investments (7) 176
- -----------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) in value of investments -- 1,407
===================================================================================================================================
NET ASSETS AT VALUE $ 414,342 $ 38,604
===================================================================================================================================
NET ASSETS
Investor Class $ 414,342 $ 38,604
Trust Class -- --
- -----------------------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING ($.001 PAR VALUE; UNLIMITED SHARES AUTHORIZED)
Investor Class 414,422 3,319
Trust Class -- --
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Investor Class $ 1.00 $ 11.63
Trust Class -- --
- -----------------------------------------------------------------------------------------------------------------------------------
+SECURITIES ON LOAN, AT MARKET VALUE:
Unaffiliated issuers $ -- $ --
*COST OF INVESTMENTS:
Unaffiliated issuers $ 404,014 $ 36,681
Non-controlled affiliated issuers -- --
===================================================================================================================================
TOTAL COST OF INVESTMENTS $ 404,014 $ 36,681
===================================================================================================================================
</Table>
37
<Page>
STATEMENTS OF OPERATIONS
<Table>
<Caption>
GOVERNMENT
NEUBERGER BERMAN INCOME FUNDS CASH MONEY
(000'S OMITTED) RESERVES FUND
INVESTMENT INCOME
Interest income (Note A) $ 3,209 $ 5,794
Income from securities loaned-net (Note A) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Foreign taxes withheld (Note A) -- --
===================================================================================================================================
Total income 3,209 5,794
===================================================================================================================================
EXPENSES:
Investment management fee (Note B) 740 1,382
Administration fee (Note B):
- -----------------------------------------------------------------------------------------------------------------------------------
Investor Class 814 1,614
Trust Class -- --
----------------------------------------------------------------------------------------------------------------------------
Shareholder servicing agent fees:
Investor Class 122 42
----------------------------------------------------------------------------------------------------------------------------
Trust Class -- --
Audit fees 16 16
- -----------------------------------------------------------------------------------------------------------------------------------
Custodian fees (Note B) 91 108
Insurance expense 3 5
- -----------------------------------------------------------------------------------------------------------------------------------
Legal fees 14 14
Registration and filing fees 29 43
- -----------------------------------------------------------------------------------------------------------------------------------
Shareholder reports 19 26
Trustees' fees and expenses 14 14
- -----------------------------------------------------------------------------------------------------------------------------------
Miscellaneous 50 90
===================================================================================================================================
Total expenses 1,912 3,354
Expenses reimbursed by administrator (Note B) -- (664)
Expenses reduced by custodian fee expense offset arrangement (Note B) -- --
===================================================================================================================================
Total net expenses 1,912 2,690
===================================================================================================================================
Net investment income (loss) 1,297 3,104
===================================================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investment securities sold in unaffiliated issuers 4 8
Net realized gain (loss) on financial futures contracts (Note A) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on foreign currency (Note A) -- --
Change in net unrealized appreciation (depreciation) in value of:
- -----------------------------------------------------------------------------------------------------------------------------------
Investment securities (Note A) -- --
Financial futures contracts (Note A) -- --
----------------------------------------------------------------------------------------------------------------------------
Foreign currency (Note A) -- --
============================================================================================================================
Net gain (loss) on investments 4 8
===================================================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 1,301 $ 3,112
===================================================================================================================================
</Table>
See Notes to Financial Statements
38
<Page>
NEUBERGER BERMAN FOR THE SIX MONTHS ENDED APRIL 30, 2004 (UNAUDITED)
<Table>
<Caption>
HIGH INCOME LIMITED
NEUBERGER BERMAN INCOME FUNDS BOND MATURITY
(000'S OMITTED) FUND BOND FUND
INVESTMENT INCOME
Interest income (Note A) $ 21,387 $ 3,619
Income from securities loaned-net (Note A) 46 --
- -----------------------------------------------------------------------------------------------------------------------------------
Foreign taxes withheld (Note A) (19) --
===================================================================================================================================
Total income 21,414 3,619
===================================================================================================================================
EXPENSES:
Investment management fee (Note B) 1,445 276
Administration fee (Note B):
- -----------------------------------------------------------------------------------------------------------------------------------
Investor Class 813 253
Trust Class -- 83
----------------------------------------------------------------------------------------------------------------------------
Shareholder servicing agent fees:
Investor Class 192 87
----------------------------------------------------------------------------------------------------------------------------
Trust Class -- 10
Audit fees 18 19
- -----------------------------------------------------------------------------------------------------------------------------------
Custodian fees (Note B) 104 76
Insurance expense 2 1
- -----------------------------------------------------------------------------------------------------------------------------------
Legal fees 31 14
Registration and filing fees 30 41
- -----------------------------------------------------------------------------------------------------------------------------------
Shareholder reports 40 9
Trustees' fees and expenses 14 14
- -----------------------------------------------------------------------------------------------------------------------------------
Miscellaneous 46 20
===================================================================================================================================
Total expenses 2,735 903
Expenses reimbursed by administrator (Note B) -- (114)
Expenses reduced by custodian fee expense offset arrangement (Note B) (3) --
===================================================================================================================================
Total net expenses 2,732 789
===================================================================================================================================
Net investment income (loss) 18,682 2,830
===================================================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investment securities sold in unaffiliated issuers 7,492 130
Net realized gain (loss) on financial futures contracts (Note A) -- (70)
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on foreign currency (Note A) -- 242
Change in net unrealized appreciation (depreciation) in value of:
- -----------------------------------------------------------------------------------------------------------------------------------
Investment securities (Note A) (5,241) (1,989)
Financial futures contracts (Note A) -- 154
----------------------------------------------------------------------------------------------------------------------------
Foreign currency (Note A) -- (13)
============================================================================================================================
Net gain (loss) on investments 2,251 (1,546)
===================================================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 20,933 $ 1,284
===================================================================================================================================
<Caption>
MUNICIPAL MUNICIPAL
NEUBERGER BERMAN INCOME FUNDS MONEY SECURITIES
(000'S OMITTED) FUND TRUST
INVESTMENT INCOME
Interest income (Note A) $ 2,171 $ 820
Income from securities loaned-net (Note A) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Foreign taxes withheld (Note A) -- --
===================================================================================================================================
Total income 2,171 820
===================================================================================================================================
EXPENSES:
Investment management fee (Note B) 534 50
Administration fee (Note B):
- -----------------------------------------------------------------------------------------------------------------------------------
Investor Class 577 54
Trust Class -- --
----------------------------------------------------------------------------------------------------------------------------
Shareholder servicing agent fees:
Investor Class 13 18
----------------------------------------------------------------------------------------------------------------------------
Trust Class -- --
Audit fees 16 18
- -----------------------------------------------------------------------------------------------------------------------------------
Custodian fees (Note B) 99 20
Insurance expense 2 --
- -----------------------------------------------------------------------------------------------------------------------------------
Legal fees 14 14
Registration and filing fees 22 16
- -----------------------------------------------------------------------------------------------------------------------------------
Shareholder reports 11 2
Trustees' fees and expenses 14 14
- -----------------------------------------------------------------------------------------------------------------------------------
Miscellaneous 37 7
===================================================================================================================================
Total expenses 1,339 213
Expenses reimbursed by administrator (Note B) -- (82)
Expenses reduced by custodian fee expense offset arrangement (Note B) (1) --
===================================================================================================================================
Total net expenses 1,338 131
===================================================================================================================================
Net investment income (loss) 833 689
===================================================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investment securities sold in unaffiliated issuers -- 177
Net realized gain (loss) on financial futures contracts (Note A) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on foreign currency (Note A) -- --
Change in net unrealized appreciation (depreciation) in value of:
- -----------------------------------------------------------------------------------------------------------------------------------
Investment securities (Note A) -- (770)
Financial futures contracts (Note A) -- --
----------------------------------------------------------------------------------------------------------------------------
Foreign currency (Note A) -- --
============================================================================================================================
Net gain (loss) on investments -- (593)
===================================================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 833 $ 96
===================================================================================================================================
</Table>
39
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
CASH RESERVES GOVERNMENT MONEY FUND
---------------------------------------------------------
NEUBERGER BERMAN INCOME FUNDS SIX MONTHS SIX MONTHS
(000'S OMITTED) ENDED YEAR ENDED YEAR
APRIL 30, ENDED APRIL 30, ENDED
2004 OCTOBER 31, 2004 OCTOBER 31,
(UNAUDITED) 2003 (UNAUDITED) 2003
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) $ 1,297 $ 4,961 $ 3,104 $ 8,963
Net realized gain (loss) on investments 4 11 8 19
- ----------------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investments -- -- -- --
==================================================================================================================================
Net increase (decrease) in net assets resulting from operations 1,301 4,972 3,112 8,982
==================================================================================================================================
DISTRIBUTIONS TO SHAREHOLDERS FROM:
NET INVESTMENT INCOME:
Investor Class (1,297) (4,961) (3,104) (8,963)
Trust Class -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN ON INVESTMENTS:
Investor Class (10) -- (19) (6)
==================================================================================================================================
Total distributions to shareholders (1,307) (4,961) (3,123) (8,969)
==================================================================================================================================
FROM FUND SHARE TRANSACTIONS (NOTE D):
PROCEEDS FROM SHARES SOLD:
Investor Class 387,994 673,876 875,886 1,592,662
Trust Class -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
PROCEEDS FROM REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS:
Investor Class 492 1,517 217 631
Trust Class -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
PAYMENTS FOR SHARES REDEEMED:
Investor Class (427,752) (899,709) (708,315) (1,860,116)
Trust Class -- -- -- --
==================================================================================================================================
Net increase (decrease) from Fund share transactions (39,266) (224,316) 167,788 (266,823)
==================================================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS (39,272) (224,305) 167,777 (266,810)
NET ASSETS:
Beginning of period 617,700 842,005 1,078,345 1,345,155
==================================================================================================================================
End of period $ 578,428 $ 617,700 $ 1,246,122 $ 1,078,345
==================================================================================================================================
Undistributed net investment income (loss) at end of period $ -- $ -- $ -- $ --
==================================================================================================================================
Distributions in excess of net investment income at end of period $ -- $ -- $ -- $ --
==================================================================================================================================
</Table>
See Notes to Financial Statements
40
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
<Table>
<Caption>
HIGH INCOME BOND FUND LIMITED MATURITY BOND FUND
---------------------------------------------------------
NEUBERGER BERMAN INCOME FUNDS SIX MONTHS SIX MONTHS
(000'S OMITTED) ENDED YEAR ENDED YEAR
APRIL 30, ENDED APRIL 30, ENDED
2004 OCTOBER 31, 2004 OCTOBER 31,
(UNAUDITED) 2003 (UNAUDITED) 2003
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) $ 18,682 $ 22,130 $ 2,830 $ 7,419
Net realized gain (loss) on investments 7,492 4,436 302 2,566
- ----------------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investments (5,241) 11,135 (1,848) (1,935)
==================================================================================================================================
Net increase (decrease) in net assets resulting from operations 20,933 37,701 1,284 8,050
==================================================================================================================================
DISTRIBUTIONS TO SHAREHOLDERS FROM:
NET INVESTMENT INCOME:
Investor Class (18,682) (22,130) (3,425) (7,850)
Trust Class -- -- (585) (1,444)
- ----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN ON INVESTMENTS:
Investor Class -- -- -- --
==================================================================================================================================
Total distributions to shareholders (18,682) (22,130) (4,010) (9,294)
==================================================================================================================================
FROM FUND SHARE TRANSACTIONS (NOTE D):
PROCEEDS FROM SHARES SOLD:
Investor Class 318,636 531,470 18,520 470,006
Trust Class -- -- 4,198 34,721
- ----------------------------------------------------------------------------------------------------------------------------------
PROCEEDS FROM REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS:
Investor Class 16,611 19,570 3,209 7,192
Trust Class -- -- 574 1,422
- ----------------------------------------------------------------------------------------------------------------------------------
PAYMENTS FOR SHARES REDEEMED:
Investor Class (191,310) (195,576) (38,233) (496,981)
Trust Class -- -- (9,207) (42,372)
==================================================================================================================================
Net increase (decrease) from Fund share transactions 143,937 355,464 (20,939) (26,012)
==================================================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS 146,188 371,035 (23,665) (27,256)
NET ASSETS:
Beginning of period 519,651 148,616 235,956 263,212
==================================================================================================================================
End of period $ 665,839 $ 519,651 $ 212,291 $ 235,956
==================================================================================================================================
Undistributed net investment income (loss) at end of period $ 25 $ 25 $ -- $ --
==================================================================================================================================
Distributions in excess of net investment income at end of period $ -- $ -- $ (2,404) $ (1,224)
==================================================================================================================================
<Caption>
MUNICIPAL MONEY FUND MUNICIPAL SECURITIES TRUST
---------------------------------------------------------
NEUBERGER BERMAN INCOME FUNDS SIX MONTHS SIX MONTHS
(000'S OMITTED) ENDED YEAR ENDED YEAR
APRIL 30, ENDED APRIL 30, ENDED
2004 OCTOBER 31, 2004 OCTOBER 31,
(UNAUDITED) 2003 (UNAUDITED) 2003
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) $ 833 $ 2,503 $ 689 $ 1,438
Net realized gain (loss) on investments -- -- 177 158
- ----------------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investments -- -- (770) 251
==================================================================================================================================
Net increase (decrease) in net assets resulting from operations 833 2,503 96 1,847
==================================================================================================================================
DISTRIBUTIONS TO SHAREHOLDERS FROM:
NET INVESTMENT INCOME:
Investor Class (833) (2,503) (689) (1,438)
Trust Class -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN ON INVESTMENTS:
Investor Class -- -- (159) (200)
==================================================================================================================================
Total distributions to shareholders (833) (2,503) (848) (1,638)
==================================================================================================================================
FROM FUND SHARE TRANSACTIONS (NOTE D):
PROCEEDS FROM SHARES SOLD:
Investor Class 334,364 496,599 3,731 26,568
Trust Class -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
PROCEEDS FROM REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS:
Investor Class 31 78 730 1,447
Trust Class -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
PAYMENTS FOR SHARES REDEEMED:
Investor Class (330,977) (619,029) (7,432) (23,783)
Trust Class -- -- -- --
==================================================================================================================================
Net increase (decrease) from Fund share transactions 3,418 (122,352) (2,971) 4,232
==================================================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS 3,418 (122,352) (3,723) 4,441
NET ASSETS:
Beginning of period 410,924 533,276 42,327 37,886
==================================================================================================================================
End of period $ 414,342 $ 410,924 $ 38,604 $ 42,327
==================================================================================================================================
Undistributed net investment income (loss) at end of period $ 1 $ 1 $ -- $ --
==================================================================================================================================
Distributions in excess of net investment income at end of period $ -- $ -- $ -- $ --
==================================================================================================================================
</Table>
41
<Page>
NOTES TO FINANCIAL STATEMENTS INCOME FUNDS
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1 GENERAL: Neuberger Berman Cash Reserves ("Cash Reserves"),
Neuberger Berman Government Money Fund ("Government Money"),
Neuberger Berman High Income Bond Fund ("High Income"), Neuberger
Berman Limited Maturity Bond Fund ("Limited Maturity"), Neuberger
Berman Municipal Money Fund ("Municipal Money"), and Neuberger
Berman Municipal Securities Trust ("Municipal Securities Trust")
(individually a "Fund", collectively, the "Funds") are separate
operating series of 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"). All of the Funds offer Investor Class
shares and Limited Maturity also offers Trust Class shares. The
Board of Trustees of the Trust may establish additional series or
classes of shares without the approval of shareholders.
The assets of each Fund belong only to that Fund, and the
liabilities of each Fund are borne solely by that Fund and no
other.
It is the policy of Cash Reserves, Government Money, and
Municipal Money 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 the Funds will be able to
maintain a stable net asset value per share.
The preparation of financial statements in accordance with
accounting principles generally accepted in the United States
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 the Funds' Schedule of
Investments.
3 FOREIGN CURRENCY TRANSLATION: High Income and Limited Maturity
may invest in foreign securities denominated in foreign currency.
The accounting records of the Funds are maintained in U.S.
dollars. Foreign currency amounts are translated into U.S.
dollars using the exchange rate as of 12:00 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.
42
<Page>
4 SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Interest income,
including accretion of discount (adjusted for original issue
discount, where applicable) and amortization of premium, where
applicable, is recorded on the accrual basis. Realized gains and
losses from securities transactions and foreign currency
transactions are recorded on the basis of identified cost and
stated separately in the Statements of Operations.
5 FEDERAL INCOME TAXES: The Funds are treated as separate entities
for U.S. Federal income tax purposes. It is the policy of each
Fund to continue to qualify as a regulated investment company by
complying with the provisions available to certain investment
companies, as defined in applicable sections of the Internal
Revenue Code, and to make distributions of investment company
taxable income and net capital gains (after reduction for any
amounts available for U.S. Federal income tax purposes as capital
loss carryforwards) sufficient to relieve them from all, or
substantially all, U.S. Federal income taxes. Accordingly, each
Fund paid no U.S. Federal income taxes and no provision for U.S.
Federal income taxes was required.
6 DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Each Fund earns
income, net of expenses, daily on its investments. It is the
policy of each Fund to declare dividends from net investment
income on each business day; such dividends are paid monthly.
Distributions from net realized capital gains, if any, are
normally distributed in December. Income dividends and capital
gain distributions to shareholders are recorded on the
ex-dividend date. 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. At October
31, 2003, the capital loss carryforwards for each Fund were as
follows:
<Table>
<Caption>
EXPIRING IN:
2004 2005 2006 2007
HIGH INCOME(1) $ -- $ -- $ -- $ 4,117,873
LIMITED MATURITY(2) 1,656,586 1,100,286 4,035,877 5,146,514
MUNICIPAL MONEY -- -- -- --
<Caption>
2008 2009 2010 2011
HIGH INCOME(1) $ 4,635,521 $ 2,182,233 $ 3,608,017 $ --
LIMITED MATURITY(2) 7,177,986 456,883 -- --
MUNICIPAL MONEY 6,744 -- -- 54
</Table>
(1) The capital loss carryforwards shown above for High Income
include $4,117,873, $2,021,774, and $923,187, expiring in
2007, 2008, and 2009, respectively, which were 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 for Limited
Maturity, $2,909,146 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.
Each Fund distinguishes between dividends on a tax basis and a
financial reporting basis and only distributions in excess of tax
basis earnings and profits are reported in the financial
statements as a tax return of capital. Differences in the
recognition or classification of income between the financial
statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains in the components of net assets on
the Statements of Assets and Liabilities.
43
<Page>
The tax character of distributions paid during the periods ended
October 31, 2003 and 2002 were as follows:
DISTRIBUTIONS PAID FROM:
<Table>
<Caption>
TAXABLE INCOME TAX-EXEMPT INCOME
2003 2002 2003 2002
CASH RESERVES $ 4,960,914 $ 13,654,658 $ -- $ --
GOVERNMENT MONEY 8,969,360 17,335,773 -- --
HIGH INCOME 22,129,548 6,861,462 -- --
LIMITED MATURITY 9,294,630 11,475,249 -- --
MUNICIPAL MONEY -- -- 2,502,940 4,213,462
MUNICIPAL SECURITIES TRUST 601 3,663 1,437,169 1,223,734
<Caption>
LONG-TERM CAPITAL GAIN TOTAL
2003 2002 2003 2002
CASH RESERVES $ -- $ -- $ 4,960,914 $ 13,654,658
GOVERNMENT MONEY -- -- 8,969,360 17,335,773
HIGH INCOME -- -- 22,129,548 6,861,462
LIMITED MATURITY -- -- 9,294,630 11,475,249
MUNICIPAL MONEY -- -- 2,502,940 4,213,462
MUNICIPAL SECURITIES TRUST 199,702 -- 1,637,472 1,227,397
</Table>
As of October 31, 2003, the components of distributable earnings
(accumulated losses) on a U.S. Federal income tax basis were as
follows:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED UNDISTRIBUTED
ORDINARY TAX-EXEMPT LONG-TERM
INCOME INCOME GAIN
CASH RESERVES $ 183,040 $ -- $ --
GOVERNMENT MONEY 568,742 -- --
HIGH INCOME 334,865 -- --
LIMITED MATURITY 462,654 -- --
MUNICIPAL MONEY -- 130,086 --
MUNICIPAL SECURITIES TRUST 55,510 15,417 102,895
<Caption>
UNREALIZED LOSS
APPRECIATION CARRYFORWARDS
(DEPRECIATION) AND DEFERRALS TOTAL
CASH RESERVES $ -- $ -- $ 183,040
GOVERNMENT MONEY -- -- 568,742
HIGH INCOME 11,785,106 (14,543,644) (2,423,673)
LIMITED MATURITY 922,021 (19,574,132) (18,189,457)
MUNICIPAL MONEY -- (6,798) 123,288
MUNICIPAL SECURITIES TRUST 2,176,957 -- 2,350,779
</Table>
The difference between book basis and tax basis is attributable
primarily to the tax deferral of losses on wash sales, foreign
bond bifurcation, timing differences of dividend payments, and
amortization of bond premium.
7 EXPENSE ALLOCATION: 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 Funds, on the basis
of relative net assets, except where a more appropriate
allocation of expenses to each of the Funds 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: High Income, Limited Maturity, and
Municipal Securities Trust 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 its custodian a specified amount of cash or
liquid securities, known as "initial margin," ranging upward from
1.1% of the value of the financial futures contract being traded.
Each day, the futures contract is valued at the official
settlement price of the board of trade or U.S. commodity exchange
on which such futures contract is traded. Subsequent payments,
known as "variation margin," to and from the broker are made on a
daily basis as the market price of the financial futures contract
fluctuates. Daily variation margin adjustments, arising from this
"mark to market," are recorded by the Funds as unrealized gains
or losses.
44
<Page>
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 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 six months ended April 30, 2004, High Income and
Municipal Securities Trust did not enter into any financial
futures contracts. During the six months ended April 30, 2004,
Limited Maturity entered into various financial futures
contracts. At April 30, 2004, open positions in financial futures
contracts for Limited Maturity were as follows:
<Table>
<Caption>
EXPIRATION OPEN CONTRACTS POSITION UNREALIZED DEPRECIATION
June 2004 75 U.S. Treasury Notes, 5 Year Short $ 154,375
</Table>
At April 30, 2004, Limited Maturity had deposited $103,000 in
U.S. Treasury Notes, 1.88%, due 1/31/06, in a segregated account
to cover margin requirements on open financial futures contracts.
9 FORWARD FOREIGN CURRENCY CONTRACTS: High Income and Limited
Maturity 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. Fluctuations in the
value of forward foreign currency contracts are recorded for
financial reporting purposes as unrealized gains or losses by
each Fund. Neither Fund has a specific limitation on the
percentage of assets which may be committed to these types of
contracts, but neither Fund may invest more than 25% of its net
assets in foreign securities denominated in or indexed to foreign
currencies. 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.
45
<Page>
10 SECURITY LENDING: High Income entered into a securities lending
agreement with Bear Stearns Securities Corp. ("Bear Stearns") on
December 26, 2002. Securities loans involve certain risks in the
event Bear Stearns should default or fail financially, including
delays or inability to recover the loaned securities or foreclose
against the collateral. The investment manager, under the general
supervision of the Trust's Board of Trustees, monitors the
creditworthiness of the parties to whom High Income makes
security loans. High Income receives cash collateral equal to at
least 102% of the current market value of the loaned securities.
High Income invests the cash collateral in the N&B Securities
Lending Quality Fund, LLC, which is managed by State Street Bank
and Trust Company ("State Street") pursuant to guidelines
approved by the Trust's investment manager. High Income pays a
fee to Bear Stearns with respect to the cash collateral that it
receives and retains the income earned on the reinvestment of
that cash collateral. High Income also receives payments from
Bear Stearns equal to income earned on loaned securities during
the time that they are on loan. Income earned on the securities
loaned, if any, is reflected in the Statements of Operations
under the caption Income from securities loaned-net.
11 REPURCHASE AGREEMENTS: Each Fund may enter into repurchase
agreements with institutions that the Fund's investment manager
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.
12 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.
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) 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 pays Management a fee for investment management services
at the annual rate of 0.48% of the Fund's average daily net
assets.
Each Fund retains Management as its administrator under an
Administration Agreement. Each Fund's Investor Class pays
Management an administration fee at the annual rate of 0.27% of
its average daily net assets and the Trust Class of Limited
Maturity pays Management an administration fee at the annual rate
of 0.50% of its average daily net assets under this agreement.
Additionally, Management retains State Street as its
sub-administrator under a Sub-Administration Agreement.
Management pays State Street a fee for all services received
under the agreement.
46
<Page>
Management has 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:
<Table>
<Caption>
REIMBURSEMENT FROM
MANAGEMENT FOR THE
EXPENSE CONTRACTUAL/ SIX MONTHS ENDED
CLASS LIMITATION(1) VOLUNTARY EXPIRATION(2) APRIL 30, 2004
CASH RESERVES INVESTOR CLASS 0.65% Contractual 10/31/07 $ --
GOVERNMENT MONEY FUND INVESTOR CLASS 0.45% Voluntary -- 663,778
HIGH INCOME BOND FUND INVESTOR CLASS 1.00% Contractual 10/31/07 --
LIMITED MATURITY BOND FUND INVESTOR CLASS 0.70% Contractual 10/31/07 85,542
LIMITED MATURITY BOND FUND TRUST CLASS 0.80% Contractual 10/31/07 28,216
MUNICIPAL SECURITIES TRUST INVESTOR CLASS 0.65% Contractual 10/31/07 81,926
</Table>
(1) Expense limitation per annum of the respective class'
average daily net assets.
(2) For Government Money, this undertaking is terminated as of
July 1, 2004.
The Investor Classes of Cash Reserves, High Income, Limited
Maturity and Municipal Securities Trust and the Trust Class of
Limited Maturity have agreed to repay Management for their excess
Operating Expenses previously reimbursed by Management, 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 six months ended April 30,
2004, there was no reimbursement to Management. At April 30,
2004, contingent liabilities to Management under the agreement
were as follows:
<Table>
CASH RESERVES INVESTOR CLASS $ --
HIGH INCOME BOND FUND INVESTOR CLASS --
LIMITED MATURITY BOND FUND INVESTOR CLASS 204,550
LIMITED MATURITY BOND FUND TRUST CLASS 116,313
MUNICIPAL SECURITIES TRUST INVESTOR CLASS 332,104
</Table>
On October 31, 2003, Management and Neuberger Berman, LLC
("Neuberger"), a member firm of the New York Stock Exchange and
sub-adviser to each Fund, became indirect wholly owned
subsidiaries of Lehman Brothers Holdings Inc., a publicly-owned
holding company (the "Transaction"). Upon completion of the
Transaction, the Trust's management and sub-advisory agreements
automatically terminated. To provide for continuity of
management, the shareholders of the Funds voted on September 23,
2003, to approve new management and sub-advisory agreements,
which took effect upon closing of the Transaction. Neuberger is
retained by Management to furnish it with investment
recommendations and research information without added cost to
each Fund. Several individuals who are officers and/or Trustees
of the Trust are also employees of Neuberger and/or Management.
Each class of shares also has a distribution agreement with
Management. Management receives no compensation therefor and no
commissions for sales or redemptions of shares of beneficial
interest of each share class.
47
<Page>
Each Fund has an expense offset arrangement in connection with
its custodian contract. The impact of this arrangement, reflected
in the Statements of Operations under the caption Custodian fees,
was a reduction of $1, $6, $2,768, $164, $511 and $213 for Cash
Reserves, Government Money, High Income, Limited Maturity,
Municipal Money, and Municipal Securities Trust, 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, and foreign currency contracts) for the six
months ended April 30, 2004 were as follows:
<Table>
<Caption>
PURCHASES OF PURCHASES EXCLUDING
U.S. GOVERNMENT U.S. GOVERNMENT
AND AGENCY OBLIGATIONS AND AGENCY OBLIGATIONS
High Income $ -- $ 518,962,000
Limited Maturity 99,196,000 23,568,000
Municipal Securities Trust -- 2,806,000
<Caption>
SALES AND
SALES AND MATURITIES MATURITIES EXCLUDING
OF U.S. GOVERNMENT U.S. GOVERNMENT
AND AGENCY OBLIGATIONS AND AGENCY OBLIGATIONS
High Income $ -- $ 358,448,000
Limited Maturity 93,460,000 23,478,000
Municipal Securities Trust -- 4,962,000
</Table>
All securities transactions for Cash Reserves, Government Money,
and Municipal Money were short-term.
During the six months ended April 30, 2004, Limited Maturity had
entered into various contracts to deliver currencies at specified
future dates. At April 30, 2004, open contracts were as follows:
<Table>
<Caption>
CONTRACTS TO IN EXCHANGE SETTLEMENT NET UNREALIZED
SELL DELIVER FOR DATE VALUE DEPRECIATION
Euro Dollar 555,000 $ 786,496 6/23/04 $ 795,250 $ 8,754
</Table>
NOTE D--FUND SHARE TRANSACTIONS:
Share activity for the six months ended April 30, 2004 and for
the year ended October 31, 2003 was as follows:
<Table>
<Caption>
FOR THE SIX MONTHS ENDED APRIL 30, 2004
SHARES
ISSUED ON
REINVESTMENT
OF DIVIDENDS
(000'S SHARES AND SHARES
OMITTED) SOLD DISTRIBUTIONS REDEEMED TOTAL
CASH
RESERVES:
Investor Class 387,994 492 (427,752) (39,266)
GOVERNMENT
MONEY:
Investor Class 875,886 217 (708,315) 167,788
HIGH
INCOME:
Investor Class 33,970 1,773 (20,400) 15,343
LIMITED
MATURITY:
Investor Class 1,933 335 (3,991) (1,723)
Trust Class 460 63 (1,008) (485)
<Caption>
FOR THE YEAR ENDED OCTOBER 31, 2003
SHARES
ISSUED ON
REINVESTMENT
OF DIVIDENDS
(000'S SHARES AND SHARES
OMITTED) SOLD DISTRIBUTIONS REDEEMED TOTAL
CASH
RESERVES:
Investor Class 673,876 1,517 (899,709) (224,316)
GOVERNMENT
MONEY:
Investor Class 1,592,662 631 (1,860,116) (266,823)
HIGH
INCOME:
Investor Class 58,726 2,153 (21,592) 39,287
LIMITED
MATURITY:
Investor Class 48,587 744 (51,398) (2,067)
Trust Class 3,768 154 (4,600) (678)
</Table>
48
<Page>
<Table>
<Caption>
FOR THE SIX MONTHS ENDED APRIL 30, 2004
SHARES
ISSUED ON
REINVESTMENT
OF DIVIDENDS
(000'S SHARES AND SHARES
OMITTED) SOLD DISTRIBUTIONS REDEEMED TOTAL
MUNICIPAL
MONEY:
Investor Class 334,364 31 (330,977) 3,418
MUNICIPAL
SECURITIES
TRUST:
Investor Class 311 62 (623) (250)
<Caption>
FOR THE YEAR ENDED OCTOBER 31, 2003
SHARES
ISSUED ON
REINVESTMENT
OF DIVIDENDS
(000'S SHARES AND SHARES
OMITTED) SOLD DISTRIBUTIONS REDEEMED TOTAL
MUNICIPAL
MONEY:
Investor Class 496,599 78 (619,029) (122,352)
MUNICIPAL
SECURITIES
TRUST:
Investor Class 2,246 122 (2,010) 358
</Table>
NOTE E--LINE OF CREDIT:
At April 30, 2004, High Income and Limited Maturity were two
participants in a single committed, unsecured $150,000,000
($200,000,000 prior to September 26, 2003) line of credit with
State Street, to be used only for temporary or emergency
purposes. Interest is charged on borrowings under this agreement
at the overnight Federal Funds Rate plus 0.50% per annum. A
facility fee of 0.10% 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. No compensating
balance is required. Other investment companies managed by
Management also participate in this line of credit on the same
terms. Because several investment companies participate, there is
no assurance that an individual Fund will have access to the
entire $150,000,000 at any particular time. High Income and
Limited Maturity had no loans outstanding pursuant to this line
of credit at April 30, 2004. During the six months ended April
30, 2004, High Income and Limited Maturity did not utilize this
line of credit.
NOTE F--UNAUDITED FINANCIAL INFORMATION:
The financial information included in this interim report is
taken from the records of each Fund without audit by independent
auditors. Annual reports contain audited financial statements.
49
<Page>
FINANCIAL HIGHLIGHTS CASH RESERVES
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the Financial
Statements.
<Table>
<Caption>
INVESTOR CLASS+ SIX MONTHS ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
---------------- -----------------------------------------------------------------
2004 2003 2002 2001 2000 1999
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.0000 $ 1.0000 $ 1.0001 $ 1.0000 $ 1.0000 $ 1.0000
---------------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (LOSS) .0021 .0066 .0154 .0440 .0562 .0453
NET GAINS OR LOSSES ON SECURITIES .0000 .0000 (.0000) .0001 -- --
---------------- --------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS .0021 .0066 .0154 .0441 .0562 .0453
---------------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.0021) (.0066) (.0154) (.0440) (.0562) (.0453)
FROM NET CAPITAL GAINS (.0000) -- (.0001) -- -- --
---------------- --------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (.0021) (.0066) (.0155) (.0440) (.0562) (.0453)
---------------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0001 $ 1.0000 $ 1.0000
---------------- --------- --------- --------- --------- ---------
TOTAL RETURN++ +.22%** +.66% +1.56% +4.49% +5.76% +4.63%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD
(IN MILLIONS) $ 578.4 $ 617.7 $ 842.0 $ 1,116.0 $ 1,324.8 $ 1,104.2
RATIO OF GROSS EXPENSES TO AVERAGE
NET ASSETS# .63%* .59% .60% .55% .60% .61%
RATIO OF NET EXPENSES TO AVERAGE
NET ASSETS .63%* .59% .60% .55% .60% .61%
RATIO OF NET INVESTMENT INCOME
(LOSS) TO AVERAGE NET ASSETS .43%* .68% 1.54% 4.59% 5.61% 4.55%
</Table>
See Notes to Financial Highlights
50
<Page>
FINANCIAL HIGHLIGHTS GOVERNMENT MONEY FUND
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the Financial
Statements.
<Table>
<Caption>
INVESTOR CLASS+ SIX MONTHS ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
---------------- -----------------------------------------------------------------
2004 2003 2002 2001 2000 1999
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0001
---------------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (LOSS) .0026 .0078 .0149 .0423 .0509 .0406
NET GAINS OR LOSSES ON SECURITIES .0000 .0000 .0000 -- -- --
---------------- --------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS .0026 .0078 .0149 .0423 .0509 .0406
---------------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.0026) (.0078) (.0149) (.0423) (.0509) (.0406)
FROM NET CAPITAL GAINS (.0000) (.0000) (.0000) -- -- (.0001)
---------------- --------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (.0026) (.0078) (.0149) (.0423) (.0509) (.0407)
---------------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
---------------- --------- --------- --------- --------- ---------
TOTAL RETURN++ +.26%** +.78% +1.50% +4.31% +5.22% +4.14%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD
(IN MILLIONS) $ 1,246.1 $ 1,078.3 $ 1,345.2 $ 571.9 $ 303.8 $ 653.4
RATIO OF GROSS EXPENSES TO AVERAGE
NET ASSETS# .45%* .45% .47% .59% .67% .60%
RATIO OF NET EXPENSES TO AVERAGE
NET ASSETS .45%*~ .45%~ .47%~ .59% .67% .60%
RATIO OF NET INVESTMENT INCOME
(LOSS) TO AVERAGE NET ASSETS .52%* .78% 1.45% 3.92% 4.99% 4.08%
</Table>
See Notes to Financial Highlights
51
<Page>
FINANCIAL HIGHLIGHTS HIGH INCOME BOND FUND
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the Financial
Statements.@
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED TEN MONTHS ENDED
INVESTOR CLASS*** APRIL 30, OCTOBER 31, OCTOBER 31,
---------------- ---------- ----------------
2004 2003 2002L
(UNAUDITED)
NET ASSET VALUE, BEGINNING
OF PERIOD $ 9.25 $ 8.81 $ 9.03
---------------- ----------- ----------------
INCOME FROM INVESTMENT
OPERATIONS
NET INVESTMENT INCOME
(LOSS) .29 .60 .52Y
NET GAINS OR LOSSES ON
SECURITIES (BOTH REALIZED
AND UNREALIZED) .06 .44 (.21)Y
---------------- ----------- ----------------
TOTAL FROM INVESTMENT
OPERATIONS .35 1.04 .31
---------------- ----------- ----------------
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.29) (.60) (.53)
IN EXCESS OF NET INVESTMENT
INCOME -- -- --
FROM NET CAPITAL GAINS -- -- --
---------------- ----------- ----------------
TOTAL DISTRIBUTIONS (.29) (.60) (.53)
---------------- ----------- ----------------
NET ASSET VALUE, END OF
PERIOD $ 9.31 $ 9.25 $ 8.81
---------------- ----------- ----------------
TOTAL RETURN++ +3.80%** +12.14% +3.52%**
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD
(IN MILLIONS) $ 665.8 $ 519.7 $ 148.6
RATIO OF GROSS EXPENSES TO
AVERAGE NET ASSETS# .91%* .90% 1.00%*
RATIO OF NET EXPENSES TO
AVERAGE NET ASSETS .91%* .90%~~~ 1.00%*~
RATIO OF NET INVESTMENT
INCOME (LOSS) TO AVERAGE
NET ASSETS 6.20%* 6.54% 6.96%*Y
PORTFOLIO TURNOVER RATE 54% 148% 95%~~
<Caption>
INVESTOR CLASS*** YEAR ENDED DECEMBER 31,
------------------------------------------------
2001 2000 1999 1998
NET ASSET VALUE, BEGINNING
OF PERIOD $ 8.90 $ 9.22 $ 9.57 $ 10.11
--------- --------- --------- ---------
INCOME FROM INVESTMENT
OPERATIONS
NET INVESTMENT INCOME
(LOSS) .69 .75 .74 .84
NET GAINS OR LOSSES ON
SECURITIES (BOTH REALIZED
AND UNREALIZED) .12 (.33) (.35) (.48)
--------- --------- --------- ---------
TOTAL FROM INVESTMENT
OPERATIONS .81 .42 .39 .36
--------- --------- --------- ---------
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.68) (.74) (.74) (.86)
IN EXCESS OF NET INVESTMENT
INCOME -- -- -- (.00)
FROM NET CAPITAL GAINS -- -- -- (.04)
--------- --------- --------- ---------
TOTAL DISTRIBUTIONS (.68) (.74) (.74) (.90)
--------- --------- --------- ---------
NET ASSET VALUE, END OF
PERIOD $ 9.03 $ 8.90 $ 9.22 $ 9.57
--------- --------- --------- ---------
TOTAL RETURN++ +9.27% +4.81% +4.20% +3.61%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD
(IN MILLIONS) $ 92.8 $ 60.3 $ 66.2 $ 85.7
RATIO OF GROSS EXPENSES TO
AVERAGE NET ASSETS# 1.00% 1.00% 1.00% 1.00%
RATIO OF NET EXPENSES TO
AVERAGE NET ASSETS 1.00%~ 1.00%~ 1.00%~ 1.00%~
RATIO OF NET INVESTMENT
INCOME (LOSS) TO AVERAGE
NET ASSETS 7.54% 8.15% 7.72% 8.50%
PORTFOLIO TURNOVER RATE 85% 63% 103% 110%
</Table>
See Notes to Financial Highlights
52
<Page>
FINANCIAL HIGHLIGHTS LIMITED MATURITY BOND FUND
The following tables include selected data for a share outstanding throughout
each period and other performance information derived from the Financial
Statements.@
<Table>
<Caption>
SIX MONTHS ENDED
INVESTOR CLASS+ APRIL 30, YEAR ENDED OCTOBER 31,
---------------- -----------------------------------------------------------------
2004 2003 2002 2001 2000 1999
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.61 $ 9.65 $ 9.78 $ 9.31 $ 9.51 $ 9.91
---------------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (LOSS) .12 .28 .43Y .58 .61 .59
NET GAINS OR LOSSES ON SECURITIES
(BOTH REALIZED AND UNREALIZED) (.07) .03 (.11)##Y .47 (.20) (.40)
---------------- --------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS .05 .31 .32 1.05 .41 .19
---------------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.17) (.35) (.45) (.58) (.58) (.59)
TAX RETURN OF CAPITAL -- -- -- -- (.03) --
---------------- --------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (.17) (.35) (.45) (.58) (.61) (.59)
---------------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.49 $ 9.61 $ 9.65 $ 9.78 $ 9.31 $ 9.51
---------------- --------- --------- --------- --------- ---------
TOTAL RETURN++ +.56%** +3.23% +3.42% +11.62% +4.47% +1.98%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD
(IN MILLIONS) $ 180.6 $ 199.4 $ 220.3 $ 204.8 $ 167.9 $ 227.0
RATIO OF GROSS EXPENSES TO AVERAGE
NET ASSETS# .70%* .70% .70% .70% .70% .70%
RATIO OF NET EXPENSES TO AVERAGE
NET ASSETS~ .70%* .70% .70% .70% .70% .70%
RATIO OF NET INVESTMENT INCOME
(LOSS) TO AVERAGE NET ASSETS 2.58%* 2.88% 4.44%Y 6.05% 6.43% 5.98%
PORTFOLIO TURNOVER RATE 57% 129% 140% 147% 105% 102%
</Table>
<Table>
<Caption>
SIX MONTHS ENDED
TRUST CLASS+ APRIL 30, YEAR ENDED OCTOBER 31,
---------------- -----------------------------------------------------------------
2004 2003 2002 2001 2000 1999
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.15 $ 9.20 $ 9.32 $ 8.88 $ 9.06 $ 9.45
---------------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (LOSS) .11 .26 .40Y .55 .57 .56
NET GAINS OR LOSSES ON SECURITIES
(BOTH REALIZED AND UNREALIZED) (.06) .01 (.10)##Y .44 (.18) (.39)
---------------- --------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS .05 .27 .30 .99 .39 .17
---------------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.16) (.32) (.42) (.55) (.54) (.55)
IN EXCESS OF NET INVESTMENT INCOME -- -- -- -- -- (.01)
TAX RETURN OF CAPITAL -- -- -- -- (.03) --
---------------- --------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (.16) (.32) (.42) (.55) (.57) (.56)
---------------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.04 $ 9.15 $ 9.20 $ 9.32 $ 8.88 $ 9.06
---------------- --------- --------- --------- --------- ---------
TOTAL RETURN++ +.56%** +3.00% +3.35% +11.41% +4.50% +1.86%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD
(IN MILLIONS) $ 31.7 $ 36.5 $ 42.9 $ 38.1 $ 26.9 $ 41.5
RATIO OF GROSS EXPENSES TO AVERAGE
NET ASSETS# .80%* .80% .80% .80% .80% .81%
RATIO OF NET EXPENSES TO AVERAGE
NET ASSETS~ .80%* .80% .80% .80% .80% .80%
RATIO OF NET INVESTMENT INCOME
(LOSS) TO AVERAGE NET ASSETS 2.48%* 2.80% 4.31%Y 5.95% 6.34% 5.87%
PORTFOLIO TURNOVER RATE 57% 129% 140% 147% 105% 102%
</Table>
See Notes to Financial Highlights
53
<Page>
FINANCIAL HIGHLIGHTS 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.
<Table>
<Caption>
SIX MONTHS ENDED
INVESTOR CLASS+ APRIL 30, YEAR ENDED OCTOBER 31,
---------------- -----------------------------------------------------------------
2004 2003 2002 2001 2000 1999
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF PERIOD $ .9998 $ .9998 $ .9998 $ .9997 $ .9998 $ .9997
---------------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (LOSS) .0019 .0050 .0092 .0269 .0336 .0256
NET GAINS OR LOSSES ON SECURITIES -- -- -- .0001## -- .0001
---------------- --------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS .0019 .0050 .0092 .0270 .0336 .0257
---------------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.0019) (.0050) (.0092) (.0269) (.0336) (.0256)
FROM NET CAPITAL GAINS -- -- -- -- (.0001) --
---------------- --------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (.0019) (.0050) (.0092) (.0269) (.0337) (.0256)
---------------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ .9998 $ .9998 $ .9998 $ .9998 $ .9997 $ .9998
---------------- --------- --------- --------- --------- ---------
TOTAL RETURN++ +.19%** +.50% +.93% +2.72% +3.41% +2.59%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD
(IN MILLIONS) $ 414.3 $ 410.9 $ 533.3 $ 455.2 $ 255.5 $ 293.8
RATIO OF GROSS EXPENSES TO AVERAGE
NET ASSETS# .63%* .61% .62% .61% .68% .68%
RATIO OF NET EXPENSES TO AVERAGE
NET ASSETS .63%* .61% .62% .60% .67% .67%
RATIO OF NET INVESTMENT INCOME
(LOSS) TO AVERAGE NET ASSETS .39%* .50% .92% 2.60% 3.33% 2.58%
</Table>
See Notes to Financial Highlights
54
<Page>
FINANCIAL HIGHLIGHTS MUNICIPAL SECURITIES TRUST
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the Financial
Statements.@
<Table>
<Caption>
SIX MONTHS ENDED
INVESTOR CLASS+ APRIL 30, YEAR ENDED OCTOBER 31,
---------------- -----------------------------------------------------------------
2004 2003 2002 2001 2000 1999
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.86 $ 11.80 $ 11.62 $ 11.00 $ 10.78 $ 11.34
---------------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (LOSS) .20 .40 .43 .45 .46 .45
NET GAINS OR LOSSES ON SECURITIES
(BOTH REALIZED AND UNREALIZED) (.18) .12 .18 .62 .22 (.56)
---------------- --------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS .02 .52 .61 1.07 .68 (.11)
---------------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.20) (.40) (.43) (.45) (.46) (.45)
FROM NET CAPITAL GAINS (.05) (.06) -- -- -- --
---------------- --------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (.25) (.46) (.43) (.45) (.46) (.45)
---------------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 11.63 $ 11.86 $ 11.80 $ 11.62 $ 11.00 $ 10.78
---------------- --------- --------- --------- --------- ---------
TOTAL RETURN++ +.15%** +4.50% +5.35% +9.89% +6.46% -1.03%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD
(IN MILLIONS) $ 38.6 $ 42.3 $ 37.9 $ 32.8 $ 28.7 $ 35.0
RATIO OF GROSS EXPENSES TO AVERAGE
NET ASSETS# .65%* .65% .65% .66% .66% .66%
RATIO OF NET EXPENSES TO AVERAGE
NET ASSETS~ .65%* .65% .65% .65% .65% .65%
RATIO OF NET INVESTMENT INCOME
(LOSS) TO AVERAGE NET ASSETS 3.42%* 3.37% 3.67% 3.96% 4.22% 4.03%
PORTFOLIO TURNOVER RATE 7% 12% 17% 26% 37% 17%
</Table>
See Notes to Financial Highlights
55
<Page>
NOTES TO FINANCIAL HIGHLIGHTS INCOME FUNDS
+ The per share amounts and ratios which are shown reflect income and
expenses, including each Fund's proportionate share of its corresponding
Portfolio's income and expenses through February 9, 2001 under the prior
master-feeder fund structure.
++ 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
(excluding Cash Reserves and Municipal Money), total return would have been
lower if Management had not reimbursed certain expenses. Performance data
current to the most recent month-end are available at www.nb.com.
# The Fund is required to calculate an expense ratio without taking into
consideration any expense reductions related to expense offset
arrangements.
## The amounts shown at this caption for a share outstanding may not accord
with the change in aggregate gains and losses in securities for the year
because of the timing of sales and repurchases of Fund shares.
~ After reimbursement of expenses by the investment manager. Had the
investment manager not undertaken such action, the annualized ratios of net
expenses to average daily net assets would have been:
<Table>
<Caption>
SIX MONTHS ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
2004 2003 2002 2001 2000 1999
GOVERNMENT MONEY FUND INVESTOR CLASS .56% .57% .55% -- -- --
LIMITED MATURITY BOND FUND INVESTOR CLASS .79% .74% .73% .74% .76% .72%
LIMITED MATURITY BOND FUND TRUST CLASS .97% .93% .92% 1.01% 1.26% 1.12%
MUNICIPAL SECURITIES TRUST INVESTOR CLASS 1.06% .98% 1.10% 1.07% 1.22% 1.07%
</Table>
<Table>
<Caption>
TEN MONTHS ENDED
OCTOBER 31, YEAR ENDED DECEMBER 31,
2002 2001 2000 1999 1998
HIGH INCOME BOND FUND INVESTOR CLASS 1.31% 1.15% 1.18% 1.15% 1.15%
</Table>
~~~ After reimbursement of expenses previously paid by the investment manager.
Had the investment manager not been reimbursed, the annualized ratio of net
expenses to average daily net assets would have been:
<Table>
<Caption>
YEAR ENDED
OCTOBER 31,
2003
HIGH INCOME BOND FUND INVESTOR CLASS .90%
</Table>
~~ Portfolio turnover excludes purchases and sales of securities by Neuberger
Berman High Yield Bond Fund prior to the merger date.
* Annualized.
** Not annualized.
@ The per share amounts which are shown for the periods ended October 31,
2001 (October 31, 2002 for High Income) and thereafter, have been computed
based on the average number of shares outstanding during each fiscal
period.
56
<Page>
L Effective after the close of business on September 6, 2002, Neuberger
Berman Management Inc. succeeded Lipper & Company, L.L.C., as the Fund's
investment manager.
Y For fiscal years ended after October 31, 2001, funds are required by the
American Institute of Certified Public Accountants to amortize premiums and
discounts on fixed income securities. Accordingly, for the year ended
October 31, 2002, the per share amounts and ratios shown decreased or
increased as follows:
<Table>
<Caption>
TEN MONTHS
ENDED OCTOBER 31,
HIGH INCOME BOND FUND INVESTOR CLASS 2002
NET INVESTMENT INCOME (.01)
NET GAINS OR LOSSES ON SECURITIES .01
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS (.19%)
<Caption>
YEAR ENDED
OCTOBER 31,
LIMITED MATURITY BOND FUND INVESTOR CLASS 2002
NET INVESTMENT INCOME (.02)
NET GAINS OR LOSSES ON SECURITIES .02
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS (.26%)
<Caption>
YEAR ENDED
OCTOBER 31,
LIMITED MATURITY BOND FUND TRUST CLASS 2002
NET INVESTMENT INCOME (.02)
NET GAINS OR LOSSES ON SECURITIES .02
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS (.26%)
</Table>
*** The financial highlights for the periods ended December 31, 2001 and prior
are those of the Premier Shares of Lipper High Income, and have been
audited by other auditors whose report dated February 25, 2002 expressed an
unqualified opinion. The financial highlights for the ten-month period
ended October 31, 2002 include the income and expenses attributable to the
Lipper High Income Premier Shares for the period from January 1, 2002
through September 6, 2002 and the income and expenses of High Income,
thereafter.
57
<Page>
DIRECTORY
INVESTMENT MANAGER, ADMINISTRATOR AND DISTRIBUTOR
Neuberger Berman Management Inc.
605 Third Avenue 2nd Floor
New York, NY 10158-0180
800.877.9700 or 212.476.8800
Institutional Services 800.366.6264
SUB-ADVISER
Neuberger Berman, LLC
605 Third Avenue
New York, NY 10158-3698
CUSTODIAN AND SHAREHOLDER SERVICING AGENT
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
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 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 LLP
1800 Massachusetts Avenue, NW
2nd Floor
Washington, DC 20036-1221
58
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables set forth information concerning the Trustees and officers
of the Trust. All persons named as Trustees and officers also serve in similar
capacities for other funds administered or managed by NB Management and
Neuberger Berman. The Statement of Additional Information includes additional
information about the Trustees and is available upon request, without charge, by
calling (800) 877-9700.
INFORMATION ABOUT THE BOARD OF TRUSTEES
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITION AND FUND COMPLEX
LENGTH OF TIME OVERSEEN BY OTHER DIRECTORSHIPS HELD OUTSIDE
NAME, AGE, AND ADDRESS (1) SERVED (2) PRINCIPAL OCCUPATION(S) (3) TRUSTEE FUND COMPLEX BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
John Cannon (74) Trustee since Consultant. Formerly, Chairman and 38 Independent Trustee or Director of
1994 Chief Investment Officer, CDC three series of OppenheimerFunds:
Investment Advisors (registered Limited Term New York Municipal
investment adviser) (1993-January Fund, Rochester Fund Municipals,
1999); prior thereto, President and and Oppenheimer Convertible
Chief Executive Officer, AMA Securities Fund since 1992.
Investment Advisors, an affiliate
of the American Medical
Association.
Faith Colish (68) Trustee since Counsel, Carter Ledyard & Milburn 38 Director, American Bar Retirement
2000 LLP (law firm) since October 2002; Association (ABRA) since 1997
formerly, Attorney at Law and (not-for-profit membership
President, Faith Colish, A association).
Professional Corporation, 1980 to
2002.
Walter G. Ehlers (71) Trustee since Consultant; Retired President and 38 None.
2000 Trustee, Teachers Insurance &
Annuity (TIAA) and College
Retirement Equities Fund (CREF).
</Table>
59
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITION AND FUND COMPLEX
LENGTH OF TIME OVERSEEN BY OTHER DIRECTORSHIPS HELD OUTSIDE
NAME, AGE, AND ADDRESS (1) SERVED (2) PRINCIPAL OCCUPATION(S) (3) TRUSTEE FUND COMPLEX BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
C. Anne Harvey (66) Trustee since Consultant, C.A. Harvey Associates 38 Formerly, Member, Individual
2000 since June 2001; formerly, Investors Advisory Committee to the
Director, AARP, 1978 to December New York Stock Exchange Board of
2001. Directors, 1998 to June 2002;
President, Board of Associates to
The National Rehabilitation
Hospital's Board of Directors since
2002; Member, American Savings
Education Council's Policy Board
(ASEC), 1998-2000; Member,
Executive Committee, Crime
Prevention Coalition of America,
1997-2000.
Barry Hirsch (71) Trustee since Attorney at Law. Formerly, Senior 38 None.
1993 Counsel, Loews Corporation
(diversified financial corporation)
May 2002 until April 2003;
formerly, Senior Vice President,
Secretary and General Counsel,
Loews Corporation.
Robert A. Kavesh (76) Trustee since Marcus Nadler Professor of Finance 38 Director, DEL Laboratories, Inc.
1993 and Economics Emeritus, New York (cosmetics and pharmaceuticals)
University Stern School of since 1978; Director, The Caring
Business. Community (not-for-profit).
</Table>
60
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITION AND FUND COMPLEX
LENGTH OF TIME OVERSEEN BY OTHER DIRECTORSHIPS HELD OUTSIDE
NAME, AGE, AND ADDRESS (1) SERVED (2) PRINCIPAL OCCUPATION(S) (3) TRUSTEE FUND COMPLEX BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
Howard A. Mileaf (67) Trustee since Retired. Formerly, Vice President 38 Director, WHX Corporation (holding
2000 and Special Counsel, WHX company) since August 2002;
Corporation (holding company) Director, Webfinancial Corporation
1993-2001. (holding company) since December
2002; Director, State Theatre of
New Jersey (not-for-profit theater)
since 2000; formerly, Director,
Kevlin Corporation (manufacturer of
microwave and other products).
William E. Rulon (71) Trustee since Retired. Senior Vice President, 38 Director, Pro-Kids Golf and
1993 Foodmaker, Inc. (operator and Learning Academy (teach golf and
franchiser of restaurants) until computer usage to "at risk"
January 1997. children) since 1998; formerly,
Director, Prandium, Inc.
(restaurants) from March 2001 until
July 2002.
Cornelius T. Ryan (72) Trustee since Founding General Partner, Oxford 38 Director, Capital Cash Management
2000 Partners and Oxford Bioscience Trust (money market fund),
Partners (venture capital Narragansett Insured Tax-Free
partnerships) and President, Oxford Income Fund, Rocky Mountain Equity
Venture Corporation. Fund, Prime Cash Fund, several
private companies and QuadraMed
Corporation (NASDAQ).
</Table>
61
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITION AND FUND COMPLEX
LENGTH OF TIME OVERSEEN BY OTHER DIRECTORSHIPS HELD OUTSIDE
NAME, AGE, AND ADDRESS (1) SERVED (2) PRINCIPAL OCCUPATION(S) (3) TRUSTEE FUND COMPLEX BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
Tom Decker Seip (54) Trustee since General Partner, Seip Investments 38 Director, H&R Block, Inc.
2000 LP (a private investment (financial services company) since
partnership); formerly, President May 2001; Director, Forward
and CEO, Westaff, Inc. (temporary Management, Inc. (asset management)
staffing), May 2001 to January since 2001; formerly, Director,
2002; Senior Executive at the General Magic (voice recognition
Charles Schwab Corporation from software) November 2001 until 2002;
1983 to 1999; including Chief Director, E-Finance Corporation
Executive Officer, Charles Schwab (credit decisioning services)
Investment Management, Inc. and 1999-2003; Director, Save-Daily.com
Trustee, Schwab Family of Funds and (micro investing services)
Schwab Investments from 1997 to 1999-2003; Director, Offroad
1998 and Executive Vice Capital Inc. (pre-public internet
President-Retail Brokerage, Charles commerce company).
Schwab Investment Management from
1994 to 1997.
Candace L. Straight (56) Trustee since Private investor and consultant 38 Director, The Proformance Insurance
1993 specializing in the insurance Company (personal lines property
industry; formerly, Advisory and casualty insurance company)
Director, Securitas Capital LLC (a since March 2004; Director,
global private equity investment Providence Washington (property and
firm dedicated to making casualty insurance company) since
investments in the insurance December 1998; Director, Summit
sector) 1998 until December 2002. Global Partners (insurance
brokerage firm) since October 2000.
Peter P. Trapp (59) Trustee since Regional Manager for Atlanta 38 None.
2000 Region, Ford Motor Credit Company
since August 1997; formerly,
President, Ford Life Insurance
Company, April 1995 until August
1997.
</Table>
62
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITION AND FUND COMPLEX
LENGTH OF TIME OVERSEEN BY OTHER DIRECTORSHIPS HELD OUTSIDE
NAME, AGE, AND ADDRESS (1) SERVED (2) PRINCIPAL OCCUPATION(S) (3) TRUSTEE FUND COMPLEX BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
TRUSTEES WHO ARE "INTERESTED
PERSONS"
Edward I. O'Brien* (75) Trustee since Formerly, Member, Investment Policy 38 Director, Legg Mason, Inc.
2000 Committee, Edward Jones, 1993-2001; (financial services holding
President, Securities Industry company) since 1993; formerly,
Association ("SIA") (securities Director, Boston Financial Group
industry's representative in (real estate and tax shelters)
government relations and regulatory 1993-1999.
matters at the federal and state
levels) from 1974-1992; Adviser to
SIA, November 1992-November 1993.
Jack L. Rivkin* (63) President and Executive Vice President and Chief 38 Director, Dale Carnegie and
Trustee since Investment Officer, Neuberger Associates, Inc. (private company)
December 2002 Berman Inc. (holding company) since since 1998; Director, Emagin Corp.
2002 and 2003, respectively; (public company) since 1997;
Executive Vice President and Chief Director, Solbright, Inc. (private
Investment Officer, Neuberger company) since 1998; Director,
Berman since 2002 and 2003, Infogate, Inc. (private company)
respectively; Director and since 1997.
Chairman, NB Management since
December 2002; formerly, Executive
Vice President, Citigroup
Investments, Inc. from September
1995 to February 2002; Executive
Vice President, Citigroup Inc. from
September 1995 to February 2002.
</Table>
63
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITION AND FUND COMPLEX
LENGTH OF TIME OVERSEEN BY OTHER DIRECTORSHIPS HELD OUTSIDE
NAME, AGE, AND ADDRESS (1) SERVED (2) PRINCIPAL OCCUPATION(S) (3) TRUSTEE FUND COMPLEX BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
Peter E. Sundman* (44) Chairman of Executive Vice President, Neuberger 38 Director, Neuberger Berman Inc.
the Board, Berman Inc. (holding company) since (holding company) from October 1999
Chief 1999; Head of Neuberger Berman through March 2003; President and
Executive Inc.'s Mutual Funds and Director, NB Management since 1999;
Officer and Institutional Business since 1999; Director and Vice President,
Trustee since Executive Vice President, Neuberger Neuberger & Berman Agency, Inc.
2000 Berman since 1999; Principal, since 2000.
President and Neuberger Berman from 1997 until
Chief 1999; Senior Vice President, NB
Executive Management from 1996 until 1999.
Officer from
1999 to 2000
</Table>
(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.
* 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 NB Management
and Executive Vice Presidents of Neuberger Berman. Mr. O'Brien is an
interested person of the Trust by virtue of the fact that he is a director
of Legg Mason, Inc., a wholly owned subsidiary of which, from time to time,
serves as a broker or dealer to the Fund and other funds for which NB
Management serves as investment manager.
64
<Page>
INFORMATION ABOUT THE OFFICERS OF THE TRUST
<Table>
<Caption>
POSITION AND
NAME, AGE, AND ADDRESS (1) LENGTH OF TIME SERVED (2) PRINCIPAL OCCUPATION(S) (3)
- -----------------------------------------------------------------------------------------------------------------------------
Claudia A. Brandon (47) Secretary since 1985 Vice President-Mutual Fund Board Relations, NB
Management since 2000; Vice President, Neuberger Berman
since 2002 and employee since 1999; Vice President, NB
Management from 1986 to 1999; Secretary, eleven
registered investment companies for which NB Management
acts as investment manager and administrator (four
since 2002, three since 2003, and one since 2004).
Robert Conti (47) Vice President since 2000 Senior Vice President, Neuberger Berman since 2003;
Vice President, Neuberger Berman from 1999 until 2003;
Senior Vice President, NB Management since 2000;
Controller, NB Management until 1996; Treasurer, NB
Management from 1996 until 1999; Vice President, eleven
registered investment companies for which NB Management
acts as investment manager and administrator (three
since 2000, four since 2002, three since 2003, and one
since 2004).
Brian P. Gaffney (50) Vice President since 2000 Managing Director, Neuberger Berman since 1999; Senior
Vice President, NB Management since 2000; Vice
President, NB Management from 1997 until 1999; Vice
President, eleven registered investment companies for
which NB Management acts as investment manager and
administrator (three since 2000, four since 2002, three
since 2003, and one since 2004).
Sheila R. James (38) Assistant Secretary since 2002 Employee, Neuberger Berman since 1999; Employee, NB
Management from 1991 to 1999; Assistant Secretary,
eleven registered investment companies for which NB
Management acts as investment manager and administrator
(seven since 2002, three since 2003, and one since
2004).
Kevin Lyons (48) Assistant Secretary since 2003 Employee, Neuberger Berman since 1999; Employee, NB
Management from 1993 to 1999; Assistant Secretary,
eleven registered investment companies for which NB
Management acts as investment manager and administrator
(ten since 2003 and one since 2004).
</Table>
65
<Page>
<Table>
<Caption>
POSITION AND
NAME, AGE, AND ADDRESS (1) LENGTH OF TIME SERVED (2) PRINCIPAL OCCUPATION(S) (3)
- -----------------------------------------------------------------------------------------------------------------------------
John M. McGovern (34) Assistant Treasurer since 2002 Vice President, Neuberger Berman since 2004; Employee,
NB Management since 1993; Assistant Treasurer, eleven
registered investment companies for which NB Management
acts as investment manager and administrator (seven
since 2002, three since 2003, and one since 2004).
Barbara Muinos (45) Treasurer and Principal Financial Vice President, Neuberger Berman since 1999; Assistant
and Accounting Officer since Vice President, NB Management from 1993 to 1999;
2002 Treasurer and Principal Financial and Accounting
Officer, eleven registered investment companies for
which NB Management acts as investment manager and
administrator (seven since 2002, three since 2003, and
one since 2004); Assistant Treasurer, three registered
investment companies for which NB Management acts as
investment manager and administrator from 1996 until
2002.
Frederic B. Soule (57) Vice President since 2000 Senior Vice President, Neuberger Berman since 2003;
Vice President, Neuberger Berman from 1999 until 2003;
Vice President, NB Management from 1995 until 1999;
Vice President, eleven registered investment companies
for which NB Management acts as investment manager and
administrator (three since 2000, four since 2002, three
since 2003, and one since 2004).
Trani Jo Wyman (34) Assistant Treasurer since 2002 Employee, NB Management since 1991; Assistant
Treasurer, eleven registered investment companies for
which NB Management acts as investment manager and
administrator (seven since 2002, three since 2003, and
one since 2004).
</Table>
- ----------
(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.
66
<Page>
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Funds use 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. Beginning September 2004, information
regarding how the Funds voted proxies relating to portfolio securities during
the most recent 12-month period ended June 30 will also be 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 the Funds' website at www.nb.com
[http://www.nb.com].
67
<Page>
This page has been left blank intentionally
<Page>
[NEUBERGER BERMAN LOGO]
A LEHMAN BROTHERS COMPANY
NEUBERGER BERMAN MANAGEMENT INC.
605 Third Avenue 2nd Floor
New York, NY 10158-0180
SHAREHOLDER SERVICES
800.877.9700
INSTITUTIONAL SERVICES
800.366.6264
Statistics and projections in this
report are derived from sources deemed www.nb.com
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. [RECYCLED SYMBOL] B0524 06/04
<Page>
Semi-Annual Report [NEUBERGER BERMAN LOGO]
April 30, 2004 A LEHMAN BROTHERS COMPANY
Neuberger Berman
INCOME FUNDS(R)
TRUST CLASS SHARES Institutional Cash Fund
INSTITUTIONAL CLASS SHARES Strategic Income Fund
<Page>
CONTENTS
- --------
<Table>
THE FUNDS
CHAIRMAN'S LETTER 2
PORTFOLIO COMMENTARY/
PERFORMANCE HIGHLIGHTS
Institutional Cash Fund 3
Strategic Income Fund 4
SCHEDULE OF INVESTMENTS
Institutional Cash Fund 7
Strategic Income Fund 9
FINANCIAL STATEMENTS 18
FINANCIAL HIGHLIGHTS
PER SHARE DATA
Institutional Cash Fund 29
Strategic Income Fund 30
DIRECTORY 32
TRUSTEES AND OFFICERS 33
PROXY VOTING POLICIES
AND PROCEDURES 41
</Table>
"Neuberger Berman" and the Neuberger Berman logo are service marks of Neuberger
Berman, LLC. "Neuberger Berman Management Inc." and the individual fund names in
this shareholder report are either service marks or registered service marks of
Neuberger Berman Management Inc.(C)2004 Neuberger Berman Management Inc. All
rights reserved.
1
<Page>
CHAIRMAN'S LETTER
- -----------------
[PHOTO OF PETER SUNDMAN]
DEAR FELLOW SHAREHOLDER,
I am pleased to present to you this semi-annual report of the
Neuberger Berman Institutional Cash Fund and the Neuberger Berman
Strategic Income Fund for the period ending April 30, 2004. The report
includes portfolio commentary, a listing of the Funds' investments,
and their financial statements for the reporting period.
The bond market overall generated positive returns over the reporting
period. We took advantage of this strength to realize profits and
lower the risk in our income-oriented portfolios. In our opinion, the
significant fixed-income gains of the past few years are unlikely to
be repeated soon, and it is incumbent upon us to guard against
potential losses if conditions reverse. In the event that the bull
market in bonds has run its course, we have taken precautions to lower
duration and raise corporate credit quality. Generally speaking, we
have "battened down the hatches."
The interest rate environment remains low, but improving economic
conditions lead us to believe that the risk of rising interest rates
remains high. Therefore, we will proceed with caution, patience, and
vigilance to protect our shareholders' assets. If we're wrong, our
returns may not be as high as funds that take on greater risk, but we
prefer to err on the side of safety with our clients' hard-earned
assets.
Thank you for your confidence in Neuberger Berman. We will continue to
do our best to keep earning it.
Sincerely,
/s/ Peter Sundman
PETER SUNDMAN
CHAIRMAN OF THE BOARD
NEUBERGER BERMAN INCOME FUNDS
2
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
INSTITUTIONAL CASH FUND Portfolio Commentary
- --------------------------------------------
For the six months ended April 30, 2004, the Neuberger Berman
Institutional Cash Fund returned 0.39% compared to the Money Fund
Report Taxable First Tier Institutional Average's 0.36%.
Through the first five months of this six-month reporting period, the
money markets remained largely unchanged, with rates near 45-year lows
and a relatively flat yield curve. Then on April 2, 2004, a
surprisingly strong March jobs report was released and investors
became convinced the Federal Reserve would begin hiking short-term
interest rates this summer. The yield curve steepened immediately. At
the beginning of fiscal 2004, the one-month LIBOR Rate (London
InterBank Offered Rate) was 1.12% and the 12-month rate was 1.48% -- a
narrow 36 basis point spread. This spread remained quite narrow
through the end of March. By the end of April, the LIBOR spread had
increased to 73 basis points as securities in the longer end of the
money market maturity spectrum came under pressure.
We entered fiscal 2004 defensively postured, with a weighted average
maturity of 52.7 days. We made modest adjustments over the next five
months, but the portfolio's average maturity remained in the lower
half of our range. When the surprisingly strong March jobs report was
released, we elected to remain defensive -- keeping the portfolio
positioned at a point in the yield curve providing respectable yield
and moderate interest rate risk.
Increasing the allocation to corporate commercial paper and
certificates of deposit, and substantially decreasing the allocation
to Agency securities were the primary shifts in sector allocation
during this reporting period. We reduced our exposure to Agencies
because we feared that the ongoing negative publicity surrounding
Freddie Mac and Fannie Mae could pressure other Agency securities.
Since sector spreads were quite narrow, we were able make these
allocation shifts without sacrificing credit quality or giving up
yield.
Going forward, we will likely remain defensively positioned, waiting
to evaluate the impact any change in Federal Reserve monetary policy
has on the money markets. When opportunities present themselves in the
market, we will strive to be positioned to take advantage of them.
Sincerely,
/s/ Cynthia Damian
/s/ Ted Giuliano /s/ Alyssa Juros
TED GIULIANO CYNTHIA DAMIAN AND
PORTFOLIO MANAGER ALYSSA JUROS
PORTFOLIO
ASSOCIATE MANAGERS
----------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
NEUBERGER BERMAN INSTITUTIONAL CASH FUND (1)
<Table>
<Caption>
INCEPTION DATE FOR THE 7 DAYS ENDED 4/30/04
CURRENT YIELD (2) EFFECTIVE YIELD (2)
TRUST CLASS 05/08/2000 0.75% 0.75%
</Table>
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. RESULTS ARE SHOWN ON A "TOTAL
RETURN" BASIS AND INCLUDE REINVESTMENT OF ALL DIVIDENDS. CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED.
FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END VISIT
www.nb.com/performance.
AN INVESTMENT IN A MONEY MARKET 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.
3
<Page>
STRATEGIC INCOME FUND Portfolio Commentary
- ------------------------------------------
We are pleased to report that for the six months ended April 30, 2004,
the Neuberger Berman Strategic Income Fund returned 2.93% compared to
the Lehman Brothers U.S. Aggregate Bond Index, which returned 1.25%.
Since its inception on July 11, 2003, the Fund returned 4.94% compared
to a return of 0.51% for the Lehman Aggregate Bond Index.
The Fund's performance over the past six months, and since its
inception, demonstrates the benefits of investing in a diversified
portfolio of income-producing securities. Through diversification
beyond traditional fixed-income asset classes, the Fund provided
shareholders with returns well above the broader bond market, as
measured by the Lehman Aggregate Bond Index, without taking on greater
risk, in our opinion. We believe that our ability to strategically and
tactically adjust our mix of investments provides the flexibility to
pursue the long-term return potential of better performing
income-producing market sectors.
At the end of this reporting period, we had invested 19.6% of the
Fund's total net assets in the core area of U.S. Treasury issues,
agency obligations, and mortgage-backed securities. Our largest
holding outside of this area was in corporate bonds, which accounted
for 31.8% of net assets. The Fund held 24.2% of its net assets in
common and preferred stocks (including REIT securities) and 16.5% in
foreign securities. Cash and cash equivalents accounted for 6.4% of
net assets and convertible debt represented 1.5% of net assets.
In terms of credit quality, we maintained a core of the
highest-quality triple-A or government bonds, representing 42.5% of
the fixed-income portion of the portfolio, while higher-yielding below
investment grade bonds represented 34.0% of the fixed-income portion.
We believe this represents moderate, but not excessive risk, which
helps enable the portfolio to achieve its high-income goal.
Although the Federal Reserve Board has held interest rates steady, it
has been hinting that the risks to the economy, such as higher
inflation, are more heavily weighted to the upside. In this
environment, we believe that the Fund, with its exposure to
non-traditional fixed-income and income-related securities, is better
positioned against potentially higher interest rates than an all-bond
portfolio.
We hope that the Neuberger Berman Strategic Income Fund will become a
core holding of your portfolio. We believe our conservative investing
philosophy and disciplined investment process will benefit you with
superior income without undue risk to principal, in both the near and
long term.
Sincerely,
NEUBERGER BERMAN STRATEGIC INCOME FUND
ASSET ALLOCATION COMMITTEE
----------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
NEUBERGER BERMAN STRATEGIC INCOME FUND (1)
<Table>
<Caption>
SIX MONTH CUMULATIVE
PERIOD ENDED TOTAL RETURN
INCEPTION DATE 4/30/2004 SINCE INCEPTION
INSTITUTIONAL CLASS 07/11/2003 2.93% 4.94%
</Table>
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.
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.
The 30-day SEC Yield of the Institutional Class shares was 3.56% for the period
ending April 30, 2004.
The composition, industries and holdings of the fund are subject to change.
Investment return will fluctuate. Past performance is no guarantee of future
results.
4
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
ENDNOTES
- --------
(1) Neuberger Berman Management Inc. ("Management") has contractually
undertaken to reimburse Neuberger Berman Institutional Cash Fund
and Neuberger Berman Strategic Income Fund so that total
operating expenses exclusive of taxes, interest, brokerage
commissions and extraordinary expenses of each Fund are limited
to 0.41% and 0.85%, respectively, of average daily net assets.
Each undertaking lasts until October 31, 2007. Each Fund has
contractually undertaken to reimburse Management for the excess
expenses paid by Management, provided the reimbursements do not
cause operating expenses (exclusive of taxes, interest, brokerage
commissions, and extraordinary expenses) to exceed the above
stated expense limitation and the reimbursements are made within
three years after the year that Management incurred the expense.
For the six months ended April 30, 2004 there was no
reimbursement of expenses by Management to Neuberger Berman
Institutional Cash Fund. For Neuberger Berman Strategic Income
Fund, if this reimbursement was not made, performance would be
lower.
(2) "Current yield" of a money market fund refers to the income
generated by an investment in the 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 no guarantee of future results.
(3) An investment in a money market fund is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other
government agency. There can be no assurance that a money market
fund will be able to maintain a stable net asset value of $1.00
per share. The return on an investment in the Fund will
fluctuate.
5
<Page>
GLOSSARY OF INDICES
- -------------------
<Table>
THE MONEY FUND REPORT TAXABLE FIRST TIER Measures the performance of institutional money market
INSTITUTIONAL AVERAGE: mutual funds which invest in anything allowable, except
Second Tier Commercial Paper. Investors cannot invest
directly in the Average.
LEHMAN BROTHERS U.S. AGGREGATE INDEX: Represents securities that are U.S. domestic, taxable,
and dollar denominated. The index covers the U.S.
investment grade fixed rate bond market, with index
components for government and corporate securities,
mortgage pass-through securities, and asset-backed
securities.
</Table>
Please note that the indices do not take into account any fees and expenses 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 are prepared or obtained by Management and includes reinvestment of
all dividends and capital gain distributions. Each Fund may invest in many
securities not included in its respective index.
6
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
SCHEDULE OF INVESTMENTS Institutional Cash Fund
- -----------------------------------------------
<Table>
<Caption>
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 (7.6%)
$ 40,000 U.S. Treasury Bills, 0.92%, due 5/20/04 TSY TSY $ 39,983
30,000 U.S. Treasury Bills, 0.92%, due 7/8/04 TSY TSY 29,949
25,000 U.S. Treasury Notes, 2.88%, due 6/30/04 TSY TSY 25,070
53,000 U.S. Treasury Notes, 2.13%, due 8/31/04 TSY TSY 53,168
25,000 U.S. Treasury Notes, 1.75%, due 12/31/04 TSY TSY 25,097
20,000 U.S. Treasury Notes, 1.63%, due 1/31/05 TSY TSY 20,073
----------
TOTAL U.S. TREASURY SECURITIES--BACKED BY THE FULL
FAITH AND CREDIT OF THE U.S. GOVERNMENT 193,340
----------
U.S. GOVERNMENT AGENCY SECURITIES (5.3%)
23,000 Federal Farm Credit Bank, Disc. Notes, 0.90%, due 5/3/04 AGY AGY 23,000
17,500 Federal Farm Credit Bank, Disc. Notes, 1.17%, due 5/28/04 AGY AGY 17,486
23,000 Federal Farm Credit Bank, Disc. Notes, 1.14%, due 7/23/04 AGY AGY 22,941
20,000 Federal Farm Credit Bank, Disc. Notes, 1.04%, due 8/9/04 AGY AGY 19,943
12,000 Federal Farm Credit Bank, Disc. Notes, 1.09%, due 12/10/04 AGY AGY 11,920
15,000 Federal Farm Credit Bank, Disc. Notes, 1.15%, due 12/13/04 AGY AGY 14,892
25,000 Sallie Mae, Disc. Notes, 0.94%, due 5/12/04 AGY AGY 24,994
----------
TOTAL U.S. GOVERNMENT AGENCY SECURITIES 135,176
----------
CERTIFICATES OF DEPOSIT (22.9%)
30,000 American Express Centurion Bank, Domestic CD,
1.03%, due 5/17/04 P-1 A-1 30,000
37,000 Australia & New Zealand Banking Group, Ltd., Yankee CD,
1.04%, due 5/28/04 & 8/2/04 P-1 A-1+ 36,999
50,000 Bank of Montreal, Yankee CD, 1.02%, due 5/10/04 P-1 A-1+ 50,000
25,000 Bank of Scotland NY, Yankee CD, 1.05%, due 6/30/04 P-1 A-1+ 25,001
10,000 Canadian Imperial Bank, Yankee CD, 1.30%, due 2/18/05 P-1 A-1 10,002
60,000 Deutsche Bank AG, Yankee CD, 1.02% - 1.16%,
due 5/11/04 - 12/30/04 P-1 A-1+ 60,000
50,000 HBOS Treasury Services, Yankee CD, 1.03% & 1.04%,
due 5/14/04 & 7/26/04 P-1 A-1+ 50,000
50,000 Lloyd's TSB Bank PLC, Yankee CD, 1.04%,
due 5/20/04 & 6/30/04 P-1 A-1+ 50,000
40,000 Rabobank Nederland, Yankee CD, 1.13% & 1.16%,
due 6/30/04 & 10/15/04 P-1 A-1+ 40,001
50,000 Royal Bank of Scotland, Yankee CD, 1.07% & 1.12%,
due 7/19/04 & 9/7/04 P-1 A-1+ 50,002
60,000 Svenska Handelsbanken AB, Yankee CD, 1.03% - 1.06%,
due 6/4/04 - 7/20/04 P-1 A-1 60,001
48,000 Toronto Dominion Bank, Yankee CD, 1.03% - 1.13%,
due 5/5/04 - 12/31/04 P-1 A-1 48,000
70,800 Wells Fargo Bank NA, Domestic CD, 1.02% - 1.03%,
due 5/6/04 - 5/26/04 P-1 A-1+ 70,800
----------
TOTAL CERTIFICATES OF DEPOSIT 580,806
----------
COMMERCIAL PAPER (50.2%)
25,000 ABN AMRO North America Finance, Inc., 1.09%, due 8/5/04 P-1 A-1+ 24,929
35,000 American Express Credit Corp., 1.02%, due 5/4/04 & 5/7/04 P-1 A-1 34,998
25,000 ANZ (Delaware), Inc., 1.03%, due 6/24/04 P-1 A-1+ 24,963
70,000 Barclays U.S. Funding Corp., 1.05% - 1.17%,
due 8/2/04 - 11/24/04 P-1 A-1+ 69,730
40,000 Bear Stearns Co., Inc., 1.04%, due 6/2/04 P-1 A-1 39,965
70,000 BNP Paribas Finance, 1.00% - 1.18%, due 5/10/04 - 10/29/04 P-1 A-1+ 69,802
</Table>
See Notes to Schedule of Investments
7
<Page>
SCHEDULE OF INVESTMENTS Institutional Cash Fund cont'd
- ------------------------------------------------------
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 21,500 Canadian Wheat Board, Canada, 1.01%, due 8/6/04 P-1 A-1+ $ 21,443
60,000 Citigroup Global Markets, Inc., 1.03% - 1.05%,
due 5/11/04 - 7/1/04 P-1 A-1+ 59,949
45,560 Dexia Delaware LLC, 1.03% & 1.04%, due 5/13/04 & 5/28/04 P-1 A-1+ 45,531
40,000 duPont (E.I.) de Nemours & Co., 1.00%, due 5/18/04 P-1 A-1+ 39,983
25,000 Eksportfinans ASA, 0.98%, due 5/4/04 P-1 A-1+ 24,999
70,000 General Electric Capital Corp., 1.02% - 1.16%,
due 5/5/04 - 9/30/04 P-1 A-1+ 69,873
55,000 Goldman Sachs Group, Inc., 1.02% - 1.22%,
due 5/6/04 - 8/26/04 P-1 A-1 54,873
49,300 ING America Insurance Holdings, Inc., 1.05% - 1.08%,
due 6/9/04 - 9/14/04 P-1 A-1 49,149
62,400 KFW International Finance, Inc., 1.00% & 1.01%,
due 6/2/04 & 6/15/04 P-1 A-1+ 62,337
65,417 Merrill Lynch & Co., 1.00% & 1.03%, due 5/3/04 & 5/6/04 P-1 A-1 65,412
20,000 MetLife Funding, Inc., 1.01%, due 6/9/04 P-1 A-1+ 19,979
38,725 Nestle Capital Corp., 1.04%, due 7/22/04 P-1 A-1+ 38,636
20,000 New York Life Capital Corp., 1.01%, due 5/18/04 P-1 A-1+ 19,992
40,200 Paccar Financial Corp., 1.01%, due 6/3/04 P-1 A-1+ 40,165
57,000 Pfizer, Inc., 1.00% & 1.04%, due 5/3/04 & 9/8/04 P-1 A-1+ 56,900
34,000 Private Export Funding Corp., 1.04% & 1.12%,
due 9/21/04 & 9/28/04 P-1 A-1+ 33,854
45,000 Procter & Gamble, Inc., 1.00%, due 5/6/04 & 6/2/04 P-1 A-1+ 44,978
67,000 Societe Generale NA, Inc., 1.09% - 1.17%, due 5/28/04 - 9/7/04 P-1 A-1+ 66,839
50,000 Toyota Motor Credit Corp., 1.02%, due 5/6/04 & 5/20/04 P-1 A-1+ 49,986
25,000 UBS Finance (Delaware), Inc., 1.14%, due 5/10/04 P-1 A-1+ 24,995
55,000 Wal-Mart Stores, Inc., 1.00% & 1.09%, due 6/22/04 & 8/24/04 P-1 A-1+ 54,883
66,150 Westpac Capital Corp., 1.06% - 1.13%, due 6/15/04 - 10/6/04 P-1 A-1+ 65,888
----------
TOTAL COMMERCIAL PAPER 1,275,031
----------
BANK NOTES (3.2%)
30,000 Bank One NA, 1.07%, due 7/12/04 P-1 A-1 30,000
25,000 LaSalle Bank NA, 1.12%, due 8/30/04 P-1 A-1 25,000
25,000 U.S. Bank NA, 1.17%, due 11/17/04 P-1 A-1+ 25,003
----------
TOTAL BANK NOTES 80,003
----------
TIME DEPOSITS (10.2%)
65,000 Chase Manhattan Bank, Grand Cayman, 1.03%, due 5/3/04 P-1 A-1+ 65,000
65,000 Danske Bank A/S, Copenhagen, 1.04%, due 5/3/04 P-1 A-1+ 65,000
65,000 National City Bank, Grand Cayman, 1.03%, due 5/3/04 P-1 A-1 65,000
65,000 SunTrust Banks, Inc., 1.03%, due 5/3/04 P-1 A-1+ 65,000
----------
TOTAL TIME DEPOSITS 260,000
----------
REPURCHASE AGREEMENTS (0.6%)
14,559 State Street Bank and Trust Co. Repurchase Agreement, 0.87%,
due 5/3/04, dated 4/30/04, Maturity Value $14,560,056,
Collateralized by $15,220,000 U.S. Treasury Notes, 2.63%,
due 5/15/08 (Collateral Value $14,999,021) 14,559
----------
TOTAL INVESTMENTS (100.0%) 2,538,915
Liabilities, less cash, receivables and other assets [(0.0%)] (126)
----------
TOTAL NET ASSETS (100.0%) $2,538,789
----------
</Table>
8
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
SCHEDULE OF INVESTMENTS Strategic Income Fund
- ---------------------------------------------
<Table>
<Caption>
NUMBER OF SHARES MARKET VALUE +
(000'S OMITTED)
COMMON STOCKS (22.8%)
AEROSPACE (0.3%)
2,000 Lockheed Martin $ 95++++
APARTMENTS (2.1%)
3,700 Archstone-Smith Trust 102
2,200 Avalonbay Communities 109
5,300 Equity Residential 145
2,800 Home Properties 105
6,100 United Dominion Realty Trust 109
------
570
BANKING & FINANCIAL (0.3%)
1,500 Wachovia Corp. 69
BASIC MATERIALS (0.2%)
700 Rio Tinto 63++++
COMMUNICATIONS (0.2%)
2,500 Vodafone Group ADR 61++++
COMMUNITY CENTERS (0.8%)
1,400 Chelsea Property Group 71
1,800 Pan Pacific Retail Properties 79
2,000 Tanger Factory Outlet Centers 77
------
227
CONSUMER CYCLICALS (0.6%)
2,000 Cox Communications 65*++++
2,000 Target Corp. 87++++
------
152
CONSUMER STAPLES (0.2%)
1,500 Viacom Inc. Class B 58++++
DIVERSIFIED (1.1%)
3,700 Colonial Properties Trust 130
3,500 Vornado Realty Trust 177
------
307
ENERGY (1.0%)
1,500 BP PLC ADR 79++++
1,500 Enbridge Energy Management 66
1,601 Kinder Morgan Management 59
1,000 Murphy Oil 69++++
------
273
FINANCE (0.3%)
1,000 Bank of America 81++++
FINANCIAL SERVICES (0.3%)
1,500 Citigroup Inc. 72++++
FOOD & BEVERAGE (0.8%)
1,500 Anheuser-Busch 77++++
2,000 Constellation Brands 66*
1,500 PepsiCo, Inc. 82++++
------
225
HEALTH CARE (1.2%)
1,500 Abbott Laboratories $ 66++++
1,000 Anthem, Inc. 89*++++
2,000 Sierra Health Services 74*++++
5,000 Ventas, Inc. 110
------
339
INDUSTRIAL (1.7%)
1,500 CenterPoint Properties 108
2,000 Dover Corp. 80++++
1,200 EastGroup Properties 35
1,000 General Dynamics 94++++
1,800 Keystone Property Trust 36
4,100 ProLogis 121
------
474
INSURANCE (0.3%)
1,000 American International Group 72++++
LODGING (1.2%)
7,600 Host Marriott 90*
13,000 La Quinta 94
6,400 LaSalle Hotel Properties 141
------
325
MANUFACTURED HOMES (0.5%)
4,800 Manufactured Home Communities 150
OFFICE (3.7%)
2,200 Alexandria Real Estate Equities 125
1,300 Arden Realty 37
3,000 Boston Properties 141
3,400 Brandywine Realty Trust 86
3,800 Brookfield Properties 106
3,400 CarrAmerica Realty 97
3,600 HRPT Properties Trust 34
3,300 Kilroy Realty 104
3,500 Koger Equity 73
2,700 SL Green Realty 110
6,200 Trizec Properties 89
------
1,002
OFFICE--INDUSTRIAL (0.7%)
2,700 Bedford Property Investors 73
3,000 PS Business Parks 114
------
187
OIL & GAS (0.6%)
1,500 Anadarko Petroleum 80++++
1,500 Schlumberger Ltd. 88++++
------
168
PHARMACEUTICAL (0.5%)
1,500 Johnson & Johnson 81++++
1,500 Pfizer Inc. 54++++
------
135
</Table>
See Notes to Schedule of Investments
9
<Page>
SCHEDULE OF INVESTMENTS Strategic Income Fund cont'd
- ----------------------------------------------------
<Table>
<Caption>
NUMBER OF SHARES MARKET VALUE +
(000'S OMITTED)
REGIONAL MALLS (1.1%)
1,500 CBL & Associates Properties $ 76
2,700 General Growth Properties 73
1,800 Macerich Co. 75
4,300 Taubman Centers 84
------
308
RETAIL STORES (0.2%)
3,000 Pier 1 Imports 62++++
SEMICONDUCTORS (0.1%)
1,400 Taiwan Semiconductor
Manufacturing ADR 13++++
TECHNOLOGY (0.5%)
2,000 First Data 91++++
2,500 Hewlett-Packard 49++++
300 Nokia Corp. ADR 4
------
144
TELECOMMUNICATIONS (0.3%)
2,000 Verizon Communications 75
UTILITIES (2.0%)
10,000 Calpine Corp. 43*++++
2,500 Cinergy Corp. 95
1,400 Dominion Resources 89
4,000 Duke Energy 84
1,500 Exelon Corp. 101
1,000 FPL Group 64
3,500 ONEOK, Inc. 73
------
549
TOTAL COMMON STOCKS
(COST $6,122) 6,256
------
CONVERTIBLE PREFERRED STOCKS (1.4%)
1,500 CNF.T Trust I, Ser. T 77
2,000 General Motors 52
1,500 International Paper Capital Trust 76
5,000 Morgan Stanley 58
1,500 Newell Financial Trust I 65
1,000 Unocal Corp. 52
------
TOTAL CONVERTIBLE PREFERRED STOCKS
(COST $376) 380
------
</Table>
10
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
SCHEDULE OF INVESTMENTS Strategic Income Fund cont'd
- ----------------------------------------------------
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
U.S. TREASURY SECURITIES (7.0%)
$ 265 U.S. Treasury Bonds, 6.00%, due 2/15/26 TSY TSY $ 287
575 U.S. Treasury Notes, 1.25%, due 5/31/05 TSY TSY 572
100 U.S. Treasury Notes, 2.00%, due 5/15/06 TSY TSY 99
525 U.S. Treasury Notes, 3.00%, due 11/15/07 TSY TSY 524
150 U.S. Treasury Notes, 5.75%, due 8/15/10 TSY TSY 165
290 U.S. Treasury Notes, 3.63%, due 5/15/13 TSY TSY 274
-------
TOTAL U.S. TREASURY SECURITIES (COST $1,976) 1,921
-------
U.S. GOVERNMENT AGENCY SECURITIES (3.6%)
435 Fannie Mae, Notes, 3.25%, due 11/15/07 AGY AGY 433
120 Fannie Mae, Notes, 6.63%, due 11/15/10 AGY AGY 135
45 Fannie Mae, Notes, 4.38%, due 3/15/13 AGY AGY 43
60 Fannie Mae, Notes, 6.63%, due 11/15/30 AGY AGY 67
300 Freddie Mac, Notes, 4.25%, due 6/15/05 AGY AGY 308
-------
TOTAL U.S. GOVERNMENT AGENCY SECURITIES (COST $1,008) 986
-------
MORTGAGE-BACKED SECURITIES (9.0%)
FANNIE MAE
65 Pass-Through Certificates, 4.50%, due 8/1/18 & 10/1/18 AGY AGY 64
395 Pass-Through Certificates, 5.00%, due 11/1/17 - 8/1/33 AGY AGY 392
520 Pass-Through Certificates, 5.50%, due 9/1/16 - 7/1/33 AGY AGY 526
255 Pass-Through Certificates, 6.00%, due 3/1/18 - 9/1/33 AGY AGY 263
188 Pass-Through Certificates, 6.50%, due 11/1/13 - 9/1/32 AGY AGY 195
58 Pass-Through Certificates, 7.00%, due 7/1/17 & 7/1/29 AGY AGY 62
17 Pass-Through Certificates, 7.50%, due 12/1/32 AGY AGY 18
FREDDIE MAC
29 Pass-Through Certificates, 4.50%, due 8/1/18 AGY AGY 28
98 Pass-Through Certificates, 5.00%, due 5/1/18 & 8/1/33 AGY AGY 96
233 Pass-Through Certificates, 5.50%, due 9/1/17 - 8/1/33 AGY AGY 234
196 Pass-Through Certificates, 6.00%, due 4/1/17 - 12/1/33 AGY AGY 201
130 Pass-Through Certificates, 6.50%, due 3/1/16 - 1/1/32 AGY AGY 136
25 Pass-Through Certificates, 7.00%, due 6/1/32 AGY AGY 26
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
24 Pass-Through Certificates, 5.00%, due 7/15/33 AGY AGY 24
63 Pass-Through Certificates, 5.50%, due 6/15/33 AGY AGY 63
54 Pass-Through Certificates, 6.00%, due 4/15/33 AGY AGY 55
40 Pass-Through Certificates, 6.50%, due 7/15/32 AGY AGY 41
27 Pass-Through Certificates, 7.00%, due 8/15/32 AGY AGY 29
14 Pass-Through Certificates, 7.50%, due 7/15/32 AGY AGY 15
-------
TOTAL MORTGAGE-BACKED SECURITIES (COST $2,502) 2,468
-------
CORPORATE DEBT SECURITIES (31.8%)
125 AES Corp., Senior Notes, 8.75%, due 6/15/08 B3 B- 130
14 Allied Waste North America, Inc., Guaranteed Senior Notes,
Ser. B, 7.88%, due 1/1/09 Ba3 BB- 14
125 Allied Waste North America, Inc., Guaranteed Senior Secured
Notes, Ser. B, 9.25%, due 9/1/12 Ba3 BB- 142
30 American Electric Power Co., Senior Notes, Ser. D,
5.25%, due 6/1/15 Baa3 BBB 29
125 ArvinMeritor, Inc., Notes, 6.80%, due 2/15/09 Ba1 BB+ 127
75 Associates Corp. NA, Senior Notes, 6.25%, due 11/1/08 Aa1 AA- 82
</Table>
See Notes to Schedule of Investments
11
<Page>
SCHEDULE OF INVESTMENTS Strategic Income Fund cont'd
- ----------------------------------------------------
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 40 Bank of America Corp., Subordinated Notes,
6.80%, due 3/15/28 Aa3 A $ 43
20 Bank One Corp., Subordinated Notes, 7.88%, due 8/1/10 A1 A- 23
20 Boeing Capital Corp., Senior Notes, 6.13%, due 2/15/33 A3 A 20
125 Bombardier Recreational Products, Senior Subordinated Notes,
8.38%, due 12/15/13 B3 B- 124**
125 Cablevision Systems Corp., Senior Notes, 8.00%, due 4/15/12 B3 B+ 125**
125 Calpine Corp., Senior Secured Notes, 8.50%, due 7/15/10 B 111**
125 Case New Holland, Inc., Senior Notes, 9.25%, due 8/1/11 Ba3 BB- 139**
15 Champion International Corp., Debentures, 7.35%, due 11/1/25 Baa2 BBB 16
125 Charter Communications Operating LLC, Senior Notes,
8.00%, due 4/30/12 B2 B- 123**
25 ChevronTexaco Corp., Debentures, 8.00%, due 8/1/32 Aa3 AA 32
125 CMS Energy Corp., Senior Notes, 7.75%, due 8/1/10 B3 B+ 126**
45 Coca-Cola Enterprises, Inc., Debentures, 6.95%, due 11/15/26 A2 A 50
40 Comcast Corp., Notes, 5.30%, due 1/15/14 Baa3 BBB 39
40 ConocoPhillips Corp., Notes, 8.75%, due 5/25/10 A3 A- 49
25 Constellation Energy Group, Inc., Notes, 6.35%, due 4/1/07 Baa1 BBB 27
125 Crown, Cork & Seal Co., Guaranteed Notes,
7.00%, due 12/15/06 B3 B 128
25 CSX Corp., Senior Notes, 4.88%, due 11/1/09 Baa2 BBB 25
125 D. R. Horton, Inc., Guaranteed Senior Notes,
8.50%, due 4/15/12 Ba1 BB+ 140
150 Dole Foods Co., Inc., Debentures, 8.75%, due 7/15/13 B2 BB- 160
30 Duke Capital Corp., Senior Notes, 6.75%, due 2/15/32 Baa3 BBB- 30
125 Edison Mission Energy, Senior Notes, 9.88%, due 4/15/11 B2 B 129
250 El Paso Natural Gas, Senior Notes, Ser. A, 7.63%, due 8/1/10 B1 B- 257
70 Ford Motor Credit Co., Senior Notes, 5.80%, due 1/12/09 A3 BBB- 71
125 Fort James Corp., Senior Notes, 6.88%, due 9/15/07 Ba2 BB+ 134
20 France Telecom SA, Notes, 9.00%, due 3/1/11 Baa2 BBB+ 24
45 General Electric Capital Corp., Medium-Term Notes, Ser. A,
6.00%, due 6/15/12 Aaa AAA 48
65 General Motors Acceptance Corp., Notes, 6.88%, due 8/28/12 A3 BBB 68
65 Goldman Sachs Group, Inc., Notes, 4.13%, due 1/15/08 Aa3 A+ 66
70 Hertz Corp., Notes, 4.70%, due 10/2/06 Baa2 BBB- 71
94 HMH Properties, Inc., Guaranteed Senior Notes, Ser. B,
7.88%, due 8/1/08 Ba3 B+ 97
125 Host Marriott L.P., Guaranteed Senior Notes, Ser. I,
9.50%, due 1/15/07 Ba3 B+ 139
80 Household Finance Corp., Notes, 4.63%, due 1/15/08 A1 A 82
35 International Bank for Reconstruction & Development, Notes,
3.63%, due 5/21/13 Aaa AAA 33
55 International Lease Finance Corp., Notes, 2.95%, due 5/23/06 A1 AA- 55
125 Invista, Notes, 9.25%, due 5/1/12 B1 B+ 125**
125 Iron Mountain, Inc., Guaranteed Senior Notes,
8.63%, due 4/1/13 B3 B 134
175 istar Financial, Inc., Senior Notes, 6.00%, due 12/15/10 Ba1 BB+ 176
75 J.P. Morgan Chase & Co., Senior Notes, 3.63%, due 5/1/08 A1 A+ 74
125 LNR Property Corp., Senior Subordinated Notes,
7.63%, due 7/15/13 Ba3 B+ 129
125 Lyondell Chemical Co., Guaranteed Senior Notes,
9.50%, due 12/15/08 B1 B+ 131
</Table>
12
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
SCHEDULE OF INVESTMENTS Strategic Income Fund cont'd
- ----------------------------------------------------
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 125 Millennium America, Inc., Guaranteed Notes,
7.00%, due 11/15/06 B1 BB- $ 129
50 Morgan Stanley Dean Witter & Co., Senior Notes,
5.30%, due 3/1/13 Aa3 A+ 50
125 NCI Building Systems, Inc., Senior Subordinated Notes,
9.25%, due 5/1/09 B2 B 130
55 News America Holdings, Senior Debentures, 8.88%, due 4/26/23 Baa3 BBB- 69
15 Norfolk Southern Corp., Bonds, 7.80%, due 5/15/27 Baa1 BBB 17
50 Occidental Petroleum Corp., Senior Notes, 6.50%, due
4/1/05 Baa1 BBB+ 52
125 Owens & Minor, Inc., Guaranteed Senior Notes,
8.50%, due 7/15/11 Ba3 BB- 139
125 Owens-Brockway Glass Container, Inc., Guaranteed Senior
Notes, 8.88%, due 2/15/09 B2 BB- 136
20 Petroleos Mexicanos, Guaranteed Notes, 6.50%, due 2/1/05 Baa1 BBB- 21
50 PNC Funding Corp., Guaranteed Senior Notes,
5.75%, due 8/1/06 A2 A- 53
125 Pride Petroleum Services, Inc., Senior Notes,
9.38%, due 5/1/07 Ba2 BB 127
50 Province of Ontario, Senior Unsubordinated Notes,
5.50%, due 10/1/08 Aa2 AA 53
25 Quebec Province, Debentures, 7.50%, due 9/15/29 A1 A+ 31
125 Rent-A-Center, Inc., Guaranteed Senior Notes, Ser. B,
7.50%, due 5/1/10 B1 B+ 130
80 Republic of Italy, Senior Unsubordinated Notes,
5.25%, due 4/5/06 Aa2 AA 85
125 Salem Communications Holding Corp., Guaranteed Senior
Subordinated Notes, Ser. B, 9.00%, due 7/1/11 B3 B- 136
125 Sequa Corp., Senior Notes, Ser. B, 8.88%, due 4/1/08 B1 BB- 136
30 Southern Power Co., Senior Notes, Ser. B, 6.25%, due 7/15/12 Baa1 BBB+ 32
50 Sprint Capital Corp., Guaranteed Notes, 6.00%, due 1/15/07 Baa3 BBB- 53
125 Standard Pacific Corp., Senior Notes, 6.50%, due 10/1/08 Ba2 BB 127
150 Stena AB, Senior Notes, 9.63%, due 12/1/12 Ba3 BB- 169
125 Suburban Propane Partners, L.P., Senior Notes,
6.88%, due 12/15/13 B1 B 125**
55 Target Corp., Senior Notes, 7.50%, due 8/15/10 A2 A+ 64
125 Tembec Industries, Inc., Guaranteed Senior Notes,
8.63%, due 6/30/09 Ba3 BB- 127
125 Tenet Healthcare Corp., Senior Notes, 6.38%, due 12/1/11 B3 B- 109
125 Thornburg Mortgage, Inc., Senior Notes, 8.00%, due 5/15/13 Ba2 BB- 128
55 Time Warner Co., Inc., Notes, 7.75%, due 6/15/05 Baa1 BBB+ 58
1,000 Trac-X N.A. HV, Notes, Ser. 2-T1, 7.38%, due 3/25/09 B3 974**
150 Triad Hospitals, Inc., Guaranteed Senior Notes, Ser. B,
8.75%, due 5/1/09 B1 B+ 166
175 Triad Hospitals, Inc., Senior Subordinated Notes,
7.00%, due 11/15/13 B3 B 170
75 Tyco International Group SA, Guaranteed Senior Notes,
6.75%, due 2/15/11 Ba2 BBB- 81
40 Tyson Foods, Inc., Notes, 8.25%, due 10/1/11 Baa3 BBB 47
40 United Mexican States, Notes, 8.38%, due 1/14/11 Baa2 BBB- 46
125 United Rentals N. A., Inc., Senior Subordinated Notes,
7.75%, due 11/15/13 B2 B+ 121
30 Verizon Global Funding Corp., Senior Notes, 7.38%, due
9/1/12 A2 A+ 34
125 Warnaco, Inc., Senior Notes, 8.88%, due 6/15/13 B2 B 134
</Table>
See Notes to Schedule of Investments
13
<Page>
SCHEDULE OF INVESTMENTS Strategic Income Fund cont'd
- ----------------------------------------------------
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 75 Wells Fargo Co., Subordinated Notes, 6.25%, due 4/15/08 Aa2 A+ $ 82
125 Westinghouse Air Brake, Senior Notes, 6.88%, due 7/31/13 Ba2 BB 130
125 Williams Cos., Inc., Senior Notes, 8.63%, due 6/1/10 B3 B+ 137
-------
TOTAL CORPORATE DEBT SECURITIES (COST $8,742) 8,705
-------
FOREIGN GOVERNMENT SECURITIES^^ (16.5%)
CAD 150 Canadian Government, Bonds, 7.25%, due 6/1/07 Aaa AAA 122
CAD 40 Canadian Government, Bonds, 8.00%, due 6/1/27 Aaa AAA 40
EUR 495 Government of France, Bonds, 7.75%, due 10/25/05 Aaa AAA 638
JPY 27,000 Inter-American Development Bank, 1.90%, due 7/8/09 Aaa AAA 257
JPY 18,000 Japan Development Bank, Bonds, 1.40%, due 6/20/12 Aaa AA- 164
JPY 20,000 Japan Financial Corp., Global Notes, 1.55%, due 2/21/12 Aaa AA- 183
EUR 400 Netherlands Government, Bonds, 5.25%, due 7/15/08 Aaa AAA 517
DKK 502 Nykredit, Mortgage-Backed Securities, Ser. 02A,
5.00%, due 10/1/22 Aa1 AA 82
JPY 17,000 Quebec Province, Bonds, 1.60%, due 5/9/13 A+ AA- 153
AUD 70 Queensland Treasury, Bonds, 8.00%, due 9/14/07 Aaa AAA 54
JPY 23,000 Republic of Austria, Bonds, 3.75%, due 2/3/09 Aaa AAA 236
EUR 270 Republic of Germany, Bonds, 5.00%, due 8/19/05 Aaa AAA 335
EUR 295 Republic of Germany, Bonds, 5.50%, due 1/4/31 Aaa AAA 385
JPY 42,000 Republic of Italy, Bonds, 1.80%, due 2/23/10 Aa2 AA 400
EUR 450 Spain Government, Bonds, 5.00%, due 7/30/12 Aaa AA+ 574
SEK 400 Swedish Government, Bonds, 5.50%, due 10/8/12 Aaa AAA 56
GBP 65 U K Treasury, Bonds, 8.50%, due 12/7/05 Aaa AAA 122
GBP 40 U K Treasury, Bonds, 5.75%, due 12/7/09 Aaa AAA 74
GBP 50 U K Treasury, Bonds, 8.00%, due 6/7/21 Aaa AAA 120
-------
TOTAL FOREIGN GOVERNMENT SECURITIES (COST $4,361) 4,512
-------
CONVERTIBLE BONDS (1.5%)
75 Devon Energy Corp., Senior Notes, 4.95%, due 8/15/08 Baa2 BBB 78
75 Edwards Lifescience Corp., Senior Notes, 3.88%, due 5/15/33 77
50 Hilton Hotels Corp., Notes, 3.38%, due 4/15/23 Ba1 BBB- 54
65 Lamar Advertising Co., Notes, 2.88%, due 12/31/10 B2 B 70
75 Morgan Stanley Group, Inc., Senior Notes, 1.25%, due 12/30/08 Aa3 A+ 67
75 SCI Systems, Inc., Notes, 3.00%, due 3/15/07 B1 B 72
-------
TOTAL CONVERTIBLE BONDS (COST $403) 418
-------
REPURCHASE AGREEMENTS (4.3%)
1,175 State Street Bank and Trust Co. Repurchase Agreement, 0.87%,
due 5/3/04, dated 4/30/04, Maturity Value $1,175,085,
Collateralized by $1,140,000 U.S. Treasury Notes, 5.00%, due
2/15/11 (Collateral Value $1,212,307) (COST $1,175) 1,175#
-------
SHORT-TERM INVESTMENTS (1.0%)
273 Neuberger Berman Institutional Cash Fund Trust Class
(COST $273) 273@#
-------
TOTAL INVESTMENTS (98.9%) (COST $26,938) 27,094##
Cash, receivables and other assets, less liabilities (1.1%) 295
-------
TOTAL NET ASSETS (100.0%) $27,389
-------
</Table>
14
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
NOTES TO SCHEDULE OF INVESTMENTS
- --------------------------------
+ Investments in equity securities by the Fund are valued at the
latest sales 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 the 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. Investments in fixed income
securities by the Fund 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 fixed income
securities requiring daily quotations, bid prices are obtained
from principal market makers in those securities. The Fund values
all other securities by a method the Board of Trustees of
Neuberger Berman Income Funds (the "Board") believes accurately
reflects 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 expressed in local currency
values. Foreign security prices are translated from the local
currency into U.S. dollars using the exchange rate as of 12:00
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 the Fund's foreign equity
securities in the wake of certain significant events.
Specifically, when changes in the value of a certain index
suggest that the closing prices on the foreign exchanges no
longer represent the amount that the Fund could expect to receive
for those securities, FT Interactive will provide adjusted prices
for certain foreign equity securities based on an analysis
showing historical correlations between the prices of those
securities and changes in the index. 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 the 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 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 the Fund are valued at amortized cost,
which approximates U.S. Federal income tax cost.
# At cost, which approximates market value.
## At April 30, 2004, the cost of investments for U.S. Federal
income tax purposes was $26,938,000. Gross unrealized
appreciation of investments was $669,000 and gross unrealized
depreciation of investments was $513,000, resulting in net
unrealized appreciation of $156,000, based on cost for U.S.
Federal income tax purposes.
* Non-income producing security.
** Security exempt from registration under the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers under
Rule 144A. At
See Notes to Financial Statements
15
<Page>
NOTES TO SCHEDULE OF INVESTMENTS cont'd
- ---------------------------------------
April 30, 2004, these securities amounted to $1,972,000 or 7.2%
of net assets for Neuberger Berman Strategic Income Fund.
@ Neuberger Berman Institutional Cash Fund is also managed by
Neuberger Berman Management Inc. (see Note A of Notes to
Financial Statements).
++++ The following securities were held in escrow at April 30, 2004,
to cover outstanding call options written:
<Table>
<Caption>
MARKET VALUE PREMIUM MARKET VALUE
NEUBERGER BERMAN SHARES SECURITIES AND OPTIONS OF SECURITIES ON OPTIONS OF OPTIONS
Strategic Income 1,500 Abbott Laboratories
August 2004 @ 50 $66,000 $1,000 $1,000
1,000 American International Group
May 2004 @ 65 72,000 3,000 7,000
1,500 Anadarko Petroleum
August 2004 @ 55 80,000 2,000 4,000
1,500 Anheuser-Busch
June 2004 @ 55 77,000 1,000 1,000
1,000 Anthem, Inc.
June 2004 @ 80 89,000 3,000 10,000
1,000 Bank of America
November 2004 @ 85 81,000 2,000 2,000
1,500 BP PLC ADR
January 2005 @ 60 79,000 1,000 1,000
10,000 Calpine Corp.
July 2004 @ 8 43,000 3,000 1,000
1,500 Citigroup Inc.
June 2004 @ 55 72,000 1,000 0
2,000 Cox Communications
June 2004 @ 37.5 65,000 2,000 0
2,000 Dover Corp.
September 2004 @ 45 80,000 2,000 6,000
2,000 First Data
August 2004 @ 42.5 91,000 2,000 8,000
1,000 General Dynamics
May 2004 @ 95 94,000 1,000 1,000
2,500 Hewlett-Packard
May 2004 @ 27.5 49,000 1,000 0
1,500 Johnson & Johnson
October 2004 @ 55 81,000 2,000 3,000
1,500 Lockheed Martin
June 2004 @ 55 71,250 1,000 0
1,000 Murphy Oil
October 2004 @ 70 69,000 4,000 4,000
1,500 PepsiCo, Inc.
July 2004 @ 50 82,000 2,000 8,000
1,500 Pfizer Inc.
June 2004 @ 37.5 54,000 1,000 1,000
3,000 Pier 1 Imports
September 2004 @ 25 62,000 4,000 1,000
700 Rio Tinto
July 2004 @ 110 63,000 2,000 0
1,500 Schlumberger Ltd.
May 2004 @ 50 88,000 3,000 13,000
2,000 Sierra Health Services
June 2004 @ 35 74,000 4,000 7,000
</Table>
16
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
NOTES TO SCHEDULE OF INVESTMENTS cont'd
- ---------------------------------------
<Table>
<Caption>
MARKET VALUE PREMIUM MARKET VALUE
NEUBERGER BERMAN SHARES SECURITIES AND OPTIONS OF SECURITIES ON OPTIONS OF OPTIONS
Strategic Income 1,400 Taiwan Semiconductor
Manufacturing ADR
July 2004 @ 15 $13,000 $1,000 $0
2,000 Target Corp. July 2004 @ 42.5 87,000 3,000 6,000
1,500 Viacom Inc. Class B
June 2004 @ 45 58,000 2,000 0
2,500 Vodafone Group ADR
October 2004 @ 30 61,000 1,000 1,000
</Table>
^^ Principal amount is stated in the currency in which the security
is denominated.
AUD = Australian Dollar
CAD = Canadian Dollar
DKK = Danish Krone
EUR = Euro Currency
GBP = Great Britain Pound
JPY = Japanese Yen
SEK = Swedish Krona
See Notes to Financial Statements
17
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
STATEMENTS OF ASSETS AND LIABILITIES
- ------------------------------------
<Table>
<Caption>
NEUBERGER BERMAN INCOME FUNDS INSTITUTIONAL CASH STRATEGIC INCOME
(000'S OMITTED EXCEPT PER SHARE AMOUNTS) FUND(1) FUND(2)
ASSETS
INVESTMENTS IN SECURITIES, AT VALUE* (NOTE A)--SEE
SCHEDULE OF INVESTMENTS:
Unaffiliated issuers $2,538,915 $26,821
Non-controlled affiliated issuers -- 273
=============================================================================================================================
2,538,915 27,094
Cash 1 241
- -----------------------------------------------------------------------------------------------------------------------------
Dividends and interest receivable 1,824 349
Receivable for securities sold -- 374
- -----------------------------------------------------------------------------------------------------------------------------
Receivable from administrator--net (Note B) -- 14
Prepaid expenses and other assets 70 --
=============================================================================================================================
TOTAL ASSETS 2,540,810 28,072
=============================================================================================================================
LIABILITIES
Dividends payable 1,361 --
Option contracts written, at market value (Note A) -- 86
- -----------------------------------------------------------------------------------------------------------------------------
Payable for securities sold short, at market value (Note A) -- 4
Net payable for forward foreign currency exchange contracts sold (Note C) -- 20
- -----------------------------------------------------------------------------------------------------------------------------
Payable for securities purchased -- 529
Payable to investment manager (Note B) 221 13
- -----------------------------------------------------------------------------------------------------------------------------
Payable to administrator (Note B) 331 --
Accrued expenses and other payables 108 31
=============================================================================================================================
TOTAL LIABILITIES 2,021 683
=============================================================================================================================
NET ASSETS AT VALUE $2,538,789 $27,389
=============================================================================================================================
NET ASSETS CONSIST OF:
Paid-in capital $2,538,779 $27,005
Undistributed (distributions in excess of) net investment income -- (59)
- -----------------------------------------------------------------------------------------------------------------------------
Accumulated net realized gains (losses) on investments 10 340
Net unrealized appreciation (depreciation) in value of investments -- 103
=============================================================================================================================
NET ASSETS AT VALUE $2,538,789 $27,389
=============================================================================================================================
SHARES OUTSTANDING ($.001 PAR VALUE; UNLIMITED SHARES AUTHORIZED) 2,538,779 2,689
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE $ 1.00 $ 10.18
- -----------------------------------------------------------------------------------------------------------------------------
*COST OF INVESTMENTS:
Unaffiliated issuers $2,538,915 $26,665
Non-controlled affiliated issuers -- 273
=============================================================================================================================
TOTAL COST OF INVESTMENTS $2,538,915 $26,938
=============================================================================================================================
</Table>
(1) Institutional Cash Fund currently offers Trust Class Shares.
(2) Strategic Income Fund currently offers Institutional Class Shares.
See Notes to Financial Statements
18
<Page>
NEUBERGER BERMAN FOR THE SIX MONTHS ENDED APRIL 30, 2004 (UNAUDITED)
STATEMENTS OF OPERATIONS
- ------------------------
<Table>
<Caption>
NEUBERGER BERMAN INCOME FUNDS INSTITUTIONAL STRATEGIC
(000'S OMITTED) CASH FUND(1) INCOME FUND(2)
INVESTMENT INCOME
INCOME:
Interest income (Note A) $14,378 $ 459
Income from investments in affiliated issuers (Note A) -- 1
- ---------------------------------------------------------------------------------------------------------------------------------
Dividend income--unaffiliated issuers -- 104
Income from securities loaned--net (Note A) -- 10
=================================================================================================================================
Total income 14,378 574
=================================================================================================================================
EXPENSES:
Investment management fee (Note B) 1,353 78
Administration fee (Note B) 2,030 20
- ---------------------------------------------------------------------------------------------------------------------------------
Audit fees 16 9
Custodian fees (Note B) 240 51
- ---------------------------------------------------------------------------------------------------------------------------------
Insurance expense 12 2
Legal fees 15 12
- ---------------------------------------------------------------------------------------------------------------------------------
Registration and filing fees 57 18
Shareholder reports 26 5
- ---------------------------------------------------------------------------------------------------------------------------------
Shareholder servicing agent fees 6 5
Trustees' fees and expenses 19 14
- ---------------------------------------------------------------------------------------------------------------------------------
Miscellaneous 50 1
=================================================================================================================================
Total expenses 3,824 215
Expenses reimbursed by administrator (Note B) -- (103)
Expenses reduced by custodian fee expense offset and commission recapture arrangements (Note B) (1) (1)
=================================================================================================================================
Total net expenses 3,823 111
=================================================================================================================================
Net investment income (loss) 10,555 463
=================================================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investment securities sold in unaffiliated issuers 10 580
Net realized gain (loss) on option contracts written (Note A) -- (4)
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on foreign currency (Note A) -- (76)
Change in net unrealized appreciation (depreciation) in value of:
- ---------------------------------------------------------------------------------------------------------------------------------
Investment securities (Note A) -- (224)
Foreign currency (Note A) -- (15)
==========================================================================================================================
Net gain (loss) on investments 10 261
=================================================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $10,565 $ 724
=================================================================================================================================
</Table>
(1) Institutional Cash Fund currently offers Trust Class Shares.
(2) Strategic Income Fund currently offers Institutional Class Shares.
See Notes to Financial Statements
19
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------
<Table>
<Caption>
INSTITUTIONAL CASH FUND(1) STRATEGIC INCOME FUND(2)
---------------------------------------------------------
PERIOD FROM
SIX MONTHS SIX MONTHS JULY 11, 2003
ENDED YEAR ENDED (COMMENCEMENT
APRIL 30, ENDED APRIL 30, OF OPERATIONS) TO
NEUBERGER BERMAN INCOME FUNDS 2004 OCTOBER 31, 2004 OCTOBER 31,
(000'S OMITTED) (UNAUDITED) 2003 (UNAUDITED) 2003
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) $ 10,555 $ 28,059 $ 463 $ 246
Net realized gain (loss) on investments 10 61 500 (151)
- ----------------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investments -- -- (239) 342
==================================================================================================================================
Net increase (decrease) in net assets resulting from operations 10,565 28,120 724 437
==================================================================================================================================
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (10,555) (28,059) (587) (190)
Net realized gain on investments (60) -- -- --
==================================================================================================================================
Total distributions to shareholders (10,615) (28,059) (587) (190)
==================================================================================================================================
FROM FUND SHARE TRANSACTIONS (NOTE D):
Proceeds from shares sold 4,344,652 12,498,219 3,250 24,659
Proceeds from reinvestment of dividends and distributions 2,324 4,312 415 143
- ----------------------------------------------------------------------------------------------------------------------------------
Payments for shares redeemed (4,490,271) (12,976,936) (26) (1,436)
==================================================================================================================================
Net increase (decrease) from Fund share transactions (143,295) (474,405) 3,639 23,366
==================================================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS (143,345) (474,344) 3,776 23,613
NET ASSETS:
Beginning of period 2,682,134 3,156,478 23,613 --
==================================================================================================================================
End of period $ 2,538,789 $ 2,682,134 $27,389 $23,613
==================================================================================================================================
Undistributed (distributions in excess of) net investment income at
end of period $ -- $ -- $ (59) $ 65
==================================================================================================================================
</Table>
(1) Institutional Cash Fund currently offers Trust Class Shares.
(2) Strategic Income Fund currently offers Institutional Class Shares.
See Notes to Financial Statements
20
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
NOTES TO FINANCIAL STATEMENTS Income Funds
- ------------------------------------------
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1 GENERAL: Neuberger Berman Institutional Cash Fund ("Institutional Cash")
and Neuberger Berman Strategic Income Fund ("Strategic Income")
(individually a "Fund", collectively, the "Funds") are separate operating
series of 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,
and its shares are registered under the Securities Act of 1933, as
amended (the "1933 Act"). Institutional Cash offers Trust Class shares
and Strategic Income offers Institutional Class shares. The Institutional
Class of Strategic Income had no operations until July 11, 2003 other
than matters relating to its organization and registration of its shares
under the 1933 Act. The Board of Trustees of the Trust may establish
additional series or classes of shares without the approval of
shareholders.
The assets of each Fund belong only to that Fund, and the liabilities of
each Fund are borne solely by that Fund and no other.
It is the policy of Institutional Cash to maintain a continuous net asset
value per share of $1.00; the Fund has adopted certain investment,
valuation, and dividend and distribution policies, which conform to
general industry practice, to enable it to do so. However, there is no
assurance the Fund will be able to maintain a stable net asset value per
share.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States 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 the Funds' Schedule of Investments.
3 FOREIGN CURRENCY TRANSLATION: Strategic Income may invest in foreign
securities denominated in foreign currency. The accounting records of the
Fund are maintained in U.S. dollars. Foreign currency amounts are
translated into U.S. dollars using the exchange rate as of 12:00 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 a trade date basis. 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 and (for
21
<Page>
NOTES TO FINANCIAL STATEMENTS Income Funds cont'd
- -------------------------------------------------
Strategic Income) foreign currency transactions are recorded on the basis
of identified cost and stated separately in the Statements of Operations.
5 FEDERAL INCOME TAXES: The Funds are treated as separate entities for U.S.
Federal income tax purposes. It is the policy of each Fund to continue to
qualify as a regulated investment company by complying with the
provisions available to certain investment companies, as defined in
applicable sections of the Internal Revenue Code, and to make
distributions of investment company taxable income and net capital gains
(after reduction for any amounts available for U.S. Federal income tax
purposes as capital loss carryforwards) sufficient to relieve them from
all, or substantially all, U.S. Federal income taxes. Accordingly, each
Fund paid no U.S. Federal income taxes and no provision for U.S. Federal
income taxes was required.
6 FOREIGN TAXES: Foreign taxes withheld represent amounts withheld by
foreign tax authorities, net of refunds recoverable.
7 DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Each Fund earns income, net
of expenses, daily on its investments. It is the policy of Institutional
Cash to declare dividends from net investment income on each business
day; such dividends 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 normally distributed in December. Income dividends and
capital gain distributions to shareholders are recorded on the
ex-dividend date. To the extent each Fund's net realized capital gains,
if any, can be offset by capital loss carryforwards ($168,103 expiring in
2011, determined as of October 31, 2003 for Strategic Income), it is the
policy of each Fund not to distribute such gains.
Each Fund distinguishes between dividends on a tax basis and a financial
reporting basis and only distributions in excess of tax basis earnings
and profits are reported in the financial statements as a tax return of
capital. Differences in the recognition or classification of income
between the financial statements and tax earnings and profits which
result in temporary over-distributions for financial statement purposes
are classified as distributions in excess of net investment income or
accumulated net realized gains in the components of net assets on the
Statements of Assets and Liabilities.
The tax character of distributions paid during the periods ended October
31, 2003 and 2002 were as follows:
DISTRIBUTIONS PAID FROM:
<Table>
<Caption>
LONG-TERM TAX RETURN
ORDINARY INCOME CAPITAL GAIN OF CAPITAL TOTAL
2003 2002 2003 2002 2003 2002 2003 2002
INSTITUTIONAL CASH $28,059,371 $47,830,521 $ -- $ -- $ -- $ -- $28,059,371 $47,830,521
STRATEGIC INCOME 189,760 -- -- -- -- -- 189,760 --
</Table>
As of October 31, 2003, the components of distributable earnings
(accumulated losses) on a U.S. Federal income tax basis were as follows:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED UNREALIZED LOSS
ORDINARY LONG-TERM APPRECIATION CARRYFORWARDS
INCOME GAIN (DEPRECIATION) AND DEFERRALS TOTAL
INSTITUTIONAL CASH $1,551,933 $ -- $ -- $ -- $1,551,933
STRATEGIC INCOME 97,152 -- 317,966 (168,103) 247,015
</Table>
22
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
The difference between book basis and tax basis for Institutional Cash is
attributable primarily to timing differences of dividend payments. The
difference between book basis and tax basis for Strategic Income is
attributable primarily to the amortization of bond premium and the
reclassification for tax purposes of realized foreign currency gain or
loss to ordinary income.
8 EXPENSE ALLOCATION: 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 Funds, on the basis of relative net assets,
except where a more appropriate allocation of expenses to each of the
Funds 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.
9 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 option transactions for the six months ended April 30, 2004:
<Table>
<Caption>
VALUE WHEN
STRATEGIC INCOME NUMBER WRITTEN
Contracts outstanding 10/31/2003 39,000 $ 40,000
Contracts written 67,200 71,000
Contracts expired (1,300) (1,000)
Contracts exercised (13,200) (13,000)
Contracts closed (40,100) (42,000)
------- --------
Contracts outstanding 4/30/2004 51,600 $ 55,000
------- --------
</Table>
10 FORWARD FOREIGN CURRENCY CONTRACTS: Strategic Income may enter into
forward foreign currency contracts ("contracts") in connection with
planned purchases or sales of securities to hedge the U.S. dollar value
of portfolio securities denominated in a foreign currency. The gain or
loss arising from the difference between the original contract price and
the closing price of such contract is included in net realized gains or
losses on foreign currency transactions. Fluctuations in the value of
forward foreign currency contracts are recorded for financial reporting
purposes as unrealized gains or losses by the Fund. The Fund has no
specific limitation on the percentage of assets which may be committed to
these types of contracts, but the Fund may not invest more than 20% of
its net assets in foreign securities denominated in or indexed to
foreign currencies. The Fund could be exposed to risks if a counter party
to a contract
23
<Page>
NOTES TO FINANCIAL STATEMENTS Income Funds cont'd
- -------------------------------------------------
were unable to meet the terms of its contract or if the value of the
foreign currency changes unfavorably. The U.S. dollar value of foreign
currency underlying all contractual commitments held by the Fund is
determined using forward foreign currency exchange rates supplied by an
independent pricing service.
11 SECURITY LENDING: Pursuant to an Exemptive Order issued by the Securities
and Exchange Commission, Strategic Income entered into a Securities
Lending Agreement ("Agreement") with Neuberger Berman, LLC ("Neuberger").
Securities loans involve certain risks in the event a borrower should
fail financially, including delays or inability to recover the lent
securities or foreclose against the collateral. The investment manager,
under the general supervision of the Trust's Board of Trustees, monitors
the creditworthiness of the parties to whom the Fund makes security
loans. The Fund will not lend securities on which covered call options
have been written, or lend securities on terms which would prevent the
Fund from qualifying as a regulated investment company. The Fund receives
cash collateral equal to at least 102% of the current market value of the
loaned securities. The Fund invests the cash collateral in the N&B
Securities Lending Quality Fund, LLC, which is managed by State Street
Bank and Trust Company ("State Street") pursuant to guidelines approved
by the Trust's investment manager. Neuberger guarantees a minimum revenue
to the Fund under the Agreement, and receives a portion of any revenue
earned in excess of the guaranteed amount as a lending agency fee. At
April 30, 2004, Strategic Income had not paid Neuberger any fees under
the Agreement.
Income earned on the securities loaned, if any, is reflected in the
Statements of Operations under the caption Income from securities
loaned-net.
12 REPURCHASE AGREEMENTS: Each Fund may enter into repurchase agreements
with institutions that the Fund's investment manager 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 SHORT SALES: Strategic Income may enter into short sales of securities it
owns or has the right to acquire at no added cost through conversion or
exchange of other securities it owns (short sales "against the box"). To
make delivery to the purchaser in a short sale the executing broker
borrows the securities being sold short on behalf of the Fund, and the
Fund is obligated to replace the securities borrowed by purchasing them
at the market price at a date in the future. When a Fund sells short, it
establishes a margin account with the broker effecting the short sale and
deposits collateral with the broker. In addition, the Fund maintains, in
a segregated account with its custodian, the securities that could be
used to cover the short sale. The Fund is required to pay the lender any
dividends and may be required to pay premium or interest, in connection
with the short sales.
The Fund may also attempt to limit exposure to a possible decline in the
market value of securities through short sales of securities that
Management believes possess volatility characteristics similar to
those being hedged. In such case, any loss in the Fund's long position
after the short sale should be
24
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
reduced by a corresponding gain in the short position. The Fund also may
use short sales in an attempt to realize gains. The Fund will realize a
gain if the security declines in price between the date of the short sale
and the date on which the Fund replaces the borrowed security. The Fund
will incur a loss if the price of the security increases between those
dates. The amount of any gain will be decreased, and the amount of any
loss increased, by the amount of any premium or interest the Fund is
required to pay in connection with the short sale. A short position may
be adversely affected by imperfect correlation between movements in the
price of the securities sold short and the securities being hedged.
At April 30, 2004, open positions in short sales for Strategic Income
were as follows:
<Table>
<Caption>
UNREALIZED
SHARES SOLD SHORT DESCRIPTION PROCEEDS MARKET VALUE DEPRECIATION
150 Hospira, Inc. $4,268 $4,269 $1
</Table>
14 TRANSACTIONS WITH OTHER FUNDS MANAGED BY NEUBERGER BERMAN MANAGEMENT
INC.: Pursuant to an Exemptive Order issued by the Securities and
Exchange Commission, Strategic Income may invest in Institutional Cash.
Institutional Cash seeks to provide as high a level of current income as
is consistent with the preservation of capital and the maintenance of
liquidity. For any cash that Strategic Income invests in Institutional
Cash, Management waives a portion of its management fee equal to the
management fee it receives from Institutional Cash on those assets. For
the six months ended April 30, 2004, income earned on this investment by
Strategic Income amounted to $818 and is reflected in the Statements of
Operations under the caption Income from investments in affiliated
issuers. For the six months ended April 30, 2004, management fees waived
on Strategic Income's investment in Institutional Cash amounted to $112.
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 pays
Management a fee at the annual rate of 0.10% and 0.60%, for Institutional
Cash and Strategic Income, respectively, of its average daily net assets.
Each Fund retains Management as its administrator under an Administration
Agreement. Each Fund pays Management an administration fee at the annual
rate of 0.15% of its average daily net assets under this agreement.
Additionally, Management retains 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 the 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:
<Table>
<Caption>
REIMBURSEMENT FROM
MANAGEMENT FOR THE SIX
EXPENSE MONTHS ENDED
CLASS LIMITATION(1) EXPIRATION APRIL 30, 2004
INSTITUTIONAL CASH FUND TRUST CLASS 0.41% 10/31/07 $ --
STRATEGIC INCOME FUND INSTITUTIONAL CLASS 0.85% 10/31/14 103,005
</Table>
(1) Expense limitation per annum of the respective class' average
daily net assets.
25
<Page>
NOTES TO FINANCIAL STATEMENTS Income Funds cont'd
- -------------------------------------------------
The Trust Class of Institutional Cash and the Institutional Class of
Strategic Income have agreed to repay Management for their excess
Operating Expenses previously reimbursed by Management, 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 six months ended April 30, 2004, there was no reimbursement to
Management. At April 30, 2004, Strategic Income had a contingent
liability to Management under the agreement of $307,850.
On October 31, 2003, Management and Neuberger, a member firm of the New
York Stock Exchange and sub-adviser to each Fund, became indirect wholly
owned subsidiaries of Lehman Brothers Holdings Inc. ("Lehman"), a
publicly-owned holding company (the "Transaction"). Upon completion of
the Transaction, the Trust's management and sub-advisory agreements
automatically terminated. To provide for continuity of management, the
shareholders of each Fund voted on September 23, 2003, to approve new
management and sub-advisory agreements, which took effect upon closing of
the Transaction. Neuberger is retained by Management to furnish it with
investment recommendations and research information without added cost to
each Fund. Several individuals who are officers and/or Trustees of the
Trust are also employees of Neuberger and/or Management.
Each class of shares also has a distribution agreement with Management.
Management receives no compensation therefor and no commissions for sales
or redemptions of shares of beneficial interest of each share class.
Each Fund has an expense offset arrangement in connection with its
custodian contract. The impact of this arrangement, reflected in the
Statements of Operations under the caption Custodian fees, was a
reduction of $635 and $289, for Institutional Cash and Strategic Income,
respectively.
Strategic Income has entered into a commission recapture program, which
enables it 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
Fund. Expenses paid through this program may include costs of custodial,
transfer agency or accounting services. For the six months ended April
30, 2004, the impact of this arrangement was a reduction of expenses of
$1,007.
NOTE C--SECURITIES TRANSACTIONS:
Cost of purchases and proceeds of sales and maturities of long-term
securities (excluding short-term securities, foreign currency contracts,
and option contracts) for the six months ended April 30, 2004 were as
follows:
STRATEGIC INCOME
<Table>
<Caption>
SALES AND
PURCHASES OF PURCHASES EXCLUDING SALES AND MATURITIES MATURITIES EXCLUDING
U.S. GOVERNMENT U.S. GOVERNMENT OF U.S. GOVERNMENT U.S. GOVERNMENT
AND AGENCY OBLIGATIONS AND AGENCY OBLIGATIONS AND AGENCY OBLIGATIONS AND AGENCY OBLIGATIONS
$1,323,017 $13,796,603 $179,120 $11,309,012
</Table>
All securities transactions for Institutional Cash were short-term.
26
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
During the six months ended April 30, 2004, Strategic Income had entered
into various contracts to deliver currencies at specified future dates.
At April 30, 2004, open contracts were as follows:
<Table>
<Caption>
NET UNREALIZED
IN EXCHANGE SETTLEMENT APPRECIATION
SELL CONTRACTS FOR DATE VALUE (DEPRECIATION)
CANADIAN DOLLAR 170,000 $ 124,959 6/23/04 $ 123,811 $ 1,148
EURO DOLLAR 2,221,000 2,626,777 6/23/04 2,656,015 (29,238)
JAPANESE YEN 160,716,000 1,467,726 6/23/04 1,458,684 9,042
POUND STERLING 189,000 332,829 6/23/04 333,690 (861)
</Table>
During the six months ended April 30, 2004, brokerage commissions on
securities transactions for Strategic Income amounted to $17,278, of
which Neuberger received $556, Lehman received $2,356, and other brokers
received $14,366.
NOTE D--FUND SHARE TRANSACTIONS:
Share activity for the six months ended April 30, 2004 and for the year
ended October 31, 2003 was as follows:
<Table>
<Caption>
FOR THE SIX MONTHS ENDED APRIL 30, 2004 FOR THE YEAR ENDED OCTOBER 31, 2003
SHARES SHARES
ISSUED ON ISSUED ON
REINVESTMENT REINVESTMENT
OF DIVIDENDS OF DIVIDENDS
(000'S SHARES AND SHARES SHARES AND SHARES
OMITTED) SOLD DISTRIBUTIONS REDEEMED TOTAL SOLD DISTRIBUTIONS REDEEMED TOTAL
INSTITUTIONAL
CASH:
TRUST CLASS 4,344,652 2,324 (4,490,271) (143,295) 12,498,219 4,312 (12,976,936) (474,405)
<Caption>
FOR THE SIX MONTHS ENDED APRIL 30, 2004 FOR THE PERIOD ENDED OCTOBER 31, 2003*
STRATEGIC
INCOME:
INSTITUTIONAL
CLASS 316 40 (3) 353 2,466 14 (144) 2,336
</Table>
* Period from July 11, 2003 (commencement of operations) to October
31, 2003.
NOTE E--LINE OF CREDIT:
At April 30, 2004, each Fund was a participant in a single committed,
unsecured $150,000,000 ($200,000,000 prior to September 26, 2003) line of
credit with State Street, to be used only for temporary or emergency
purposes. Interest is charged on borrowings under this agreement at the
overnight Federal Funds Rate plus 0.50% per annum. A facility fee of
0.10% 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. No
compensating balance is required. Other investment companies managed by
Management also participate in this line of credit on the same terms.
Because several investment companies participate, there is no assurance
that an individual Fund will have access to the entire
27
<Page>
NOTES TO FINANCIAL STATEMENTS Income Funds cont'd
- -------------------------------------------------
$150,000,000 at any particular time. There were no loans outstanding
pursuant to this line of credit at April 30, 2004. During the six months
ended April 30, 2004, neither Fund utilized this line of credit.
NOTE F--UNAUDITED FINANCIAL INFORMATION:
The financial information included in this interim report is taken from
the records of each Fund without audit by independent auditors. Annual
reports contain audited financial statements.
28
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
FINANCIAL HIGHLIGHTS Institutional Cash Fund
- --------------------------------------------
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the Financial
Statements.
<Table>
<Caption>
TRUST CLASS+ PERIOD FROM
SIX MONTHS ENDED MAY 8, 2000^
APRIL 30, YEAR ENDED OCTOBER 31, TO OCTOBER 31,
---------------- ----------------------------------- --------------
2004 2003 2002 2001 2000
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $1.0000
-------- -------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (LOSS) .0039 .0096 .0176 .0466 .0307
-------- -------- -------- -------- -------
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.0039) (.0096) (.0176) (.0466) (.0307)
FROM NET CAPITAL GAINS (.0000) -- (.0000) -- --
-------- -------- -------- -------- -------
TOTAL DISTRIBUTIONS (.0039) (.0096) (.0176) (.0466) (.0307)
-------- -------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $1.0000
-------- -------- -------- -------- -------
TOTAL RETURN++ +0.39%** +0.97% +1.77% +4.76% +3.11%**
RATIOS/SUPPLEMENTAL DATA +0.39%** +0.97% +1.77% +4.76% +3.11%**
NET ASSETS, END OF PERIOD (IN MILLIONS) $2,538.8 $2,682.1 $3,156.5 $2,125.1 $ 635.4
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS# .28%* .28% .28% .29% .36%*
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS .28%* .28% .28% .29% .35%*
RATIO OF NET INVESTMENT INCOME
(LOSS) TO AVERAGE NET ASSETS .78%* .97% 1.74% 4.52% 6.45%*
</Table>
See Notes to Financial Highlights
29
<Page>
FINANCIAL HIGHLIGHTS Strategic Income Fund
- ------------------------------------------
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the Financial
Statements.
<Table>
<Caption>
INSTITUTIONAL CLASS PERIOD FROM
SIX MONTHS ENDED JULY 11, 2003^
APRIL 30, TO OCTOBER 31,
---------------- --------------
2004 2003
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF PERIOD $10.11 $10.00
------ ------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (LOSS) .18 .10
NET GAINS OR LOSSES ON SECURITIES (BOTH REALIZED AND UNREALIZED) .12 .09
------ ------
TOTAL FROM INVESTMENT OPERATIONS .30 .19
------ ------
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.23) (.08)
------ ------
NET ASSET VALUE, END OF PERIOD $10.18 $10.11
------ ------
TOTAL RETURN++ +2.93%** +1.95%**
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 27.4 $ 23.6
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS# .86%* .85%*
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS*** .85%* .84%*
RATIO OF NET INVESTMENT INCOME (LOSS) TO AVERAGE NET ASSETS 3.54%* 3.51%*
PORTFOLIO TURNOVER RATE 47% 34%
</Table>
See Notes to Financial Highlights
30
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
NOTES TO FINANCIAL HIGHLIGHTS
- -----------------------------
+ The per share amounts and ratios which are shown reflect income and
expenses, including the Fund's proportionate share of the Portfolio's
income and expenses through February 9, 2001 under the prior master-feeder
fund structure.
++ 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 Strategic
Income, total return would have been lower if Management had not reimbursed
certain expenses. Performance data current to the most recent month-end are
available at www.nb.com.
# 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 by Management. Had Management not
undertaken such action, the annualized ratios of net expenses to average
daily net assets would have been:
<Table>
<Caption>
SIX MONTHS ENDED PERIOD ENDED
APRIL 30, OCTOBER 31,
2004 2003(1)
Strategic Income Institutional Class 1.64% 3.77%
</Table>
(1) Period from July 11, 2003 to October 31, 2003.
^ The date investment operations commenced.
* Annualized.
** Not annualized.
31
<Page>
DIRECTORY
- ---------
INVESTMENT MANAGER, ADMINISTRATOR AND DISTRIBUTOR
Neuberger Berman Management Inc.
605 Third Avenue 2nd Floor
New York, NY 10158-0180
800.877.9700 or 212.476.8800
Institutional Services 800.366.6264
SUB-ADVISER
Neuberger Berman, LLC
605 Third Avenue
New York, NY 10158-3698
CUSTODIAN AND SHAREHOLDER SERVICING AGENT
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
ADDRESS CORRESPONDENCE TO:
Neuberger Berman Funds
Institutional Services
605 Third Avenue 2nd Floor
New York, NY 10158-0180
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, NW
2nd Floor
Washington, DC 20036-1221
32
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
TRUSTEES AND OFFICERS (Unaudited)
- ---------------------------------
The following tables set forth information concerning the Trustees and officers
of the Trust. All persons named as Trustees and officers also serve in similar
capacities for other funds administered or managed by NB Management and
Neuberger Berman. The Statement of Additional Information includes additional
information about the Trustees and is available upon request, without charge, by
calling (800) 877-9700.
INFORMATION ABOUT THE BOARD OF TRUSTEES
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITION AND FUND COMPLEX
LENGTH OF TIME OVERSEEN BY OTHER DIRECTORSHIPS HELD OUTSIDE
NAME, AGE, AND ADDRESS (1) SERVED (2) PRINCIPAL OCCUPATION(S) (3) TRUSTEE FUND COMPLEX BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
John Cannon (74) Trustee since Consultant. Formerly, 38 Independent Trustee or
1994 Chairman and Chief Director of three series
Investment Officer, CDC of OppenheimerFunds:
Investment Advisors Limited Term New York
(registered investment Municipal Fund, Rochester
adviser) (1993-January Fund Municipals, and
1999); prior thereto, Oppenheimer Convertible
President and Chief Securities Fund since
Executive Officer, AMA 1992.
Investment Advisors, an
affiliate of the American
Medical Association.
Faith Colish (68) Trustee since Counsel, Carter Ledyard & 38 Director, American Bar
2000 Milburn LLP (law firm) Retirement Association
since October 2002; (ABRA) since 1997
formerly, Attorney at Law (not-for-profit
and President, Faith membership association).
Colish, A Professional
Corporation, 1980 to
2002.
Walter G.Ehlers (71) Trustee since Consultant; Retired 38 None.
2000 President and Trustee,
Teachers Insurance &
Annuity (TIAA) and
College Retirement
Equities Fund (CREF).
</Table>
33
<Page>
TRUSTEES AND OFFICERS (Unaudited) cont'd
- ----------------------------------------
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITION AND FUND COMPLEX
LENGTH OF TIME OVERSEEN BY OTHER DIRECTORSHIPS HELD OUTSIDE
NAME, AGE, AND ADDRESS (1) SERVED (2) PRINCIPAL OCCUPATION(S) (3) TRUSTEE FUND COMPLEX BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
C.Anne Harvey (66) Trustee since Consultant, C.A.Harvey 38 Formerly, Member,
2000 Associates since June Individual Investors
2001; formerly, Director, Advisory Committee to the
AARP, 1978 to December New York Stock Exchange
2001. Board of Directors, 1998
to June 2002; President,
Board of Associates to
The National
Rehabilitation Hospital's
Board of Directors since
2002; Member, American
Savings Education
Council's Policy Board
(ASEC), 1998-2000;
Member, Executive
Committee, Crime
Prevention Coalition of
America, 1997-2000.
Barry Hirsch (71) Trustee since Attorney at Law. 38 None.
1993 Formerly, Senior Counsel,
Loews Corporation
(diversified financial
corporation) May 2002
until April 2003;
formerly, Senior Vice
President, Secretary and
General Counsel, Loews
Corporation.
Robert A.Kavesh (76) Trustee since Marcus Nadler Professor 38 Director, DEL
1993 of Finance and Economics Laboratories,
Emeritus, New York Inc. (cosmetics and
University Stern School pharmaceuticals) since
of Business. 1978; Director, The
Caring Community
(not-for-profit).
</Table>
34
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITION AND FUND COMPLEX
LENGTH OF TIME OVERSEEN BY OTHER DIRECTORSHIPS HELD OUTSIDE
NAME, AGE, AND ADDRESS (1) SERVED (2) PRINCIPAL OCCUPATION(S) (3) TRUSTEE FUND COMPLEX BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Howard A.Mileaf (67) Trustee since Retired. Formerly, Vice 38 Director, WHX Corporation
2000 President and Special (holding company) since
Counsel, WHX Corporation August 2002; Director,
(holding company) Webfinancial Corporation
1993-2001. (holding company) since
December 2002; Director,
State Theatre of New
Jersey (not-for-profit
theater) since 2000;
formerly, Director,
Kevlin Corporation
(manufacturer of
microwave and other
products).
William E.Rulon (71) Trustee since Retired. Senior Vice 38 Director, Pro-Kids Golf
1993 President, Foodmaker, and Learning Academy
Inc. (operator and (teach golf and computer
franchiser of usage to "at risk"
restaurants) until children) since 1998;
January 1997. formerly, Director,
Prandium, Inc.
(restaurants) from March
2001 until July 2002.
Cornelius T.Ryan (72) Trustee since Founding General Partner, 38 Director, Capital Cash
2000 Oxford Partners and Management Trust (money
Oxford Bioscience market fund),
Partners (venture capital Narragansett Insured
partnerships) and Tax-Free Income Fund,
President, Oxford Venture Rocky Mountain Equity
Corporation. Fund, Prime Cash Fund,
several private companies
and QuadraMed Corporation
(NASDAQ).
</Table>
35
<Page>
TRUSTEES AND OFFICERS (Unaudited) cont'd
- ----------------------------------------
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITION AND FUND COMPLEX
LENGTH OF TIME OVERSEEN BY OTHER DIRECTORSHIPS HELD OUTSIDE
NAME, AGE, AND ADDRESS (1) SERVED (2) PRINCIPAL OCCUPATION(S) (3) TRUSTEE FUND COMPLEX BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Tom Decker Seip (54) Trustee since General Partner, Seip 38 Director, H&R Block, Inc.
2000 Investments LP (a private (financial services
investment partnership); company) since May 2001;
formerly, President and Director, Forward
CEO, Westaff, Inc. Management, Inc. (asset
(temporary staffing), May management) since 2001;
2001 to January 2002; formerly, Director,
Senior Executive at the General Magic (voice
Charles Schwab recognition software)
Corporation from 1983 to November 2001 until 2002;
1999; including Chief Director, E-Finance
Executive Officer, Corporation (credit
Charles Schwab Investment decisioning services)
Management, Inc. and 1999-2003; Director, Save-
Trustee, Schwab Family of Daily.com (micro
Funds and Schwab investing services)
Investments from 1997 to 1999-2003; Director,
1998 and Executive Vice Offroad Capital
President-Retail Inc. (pre-public internet
Brokerage, Charles Schwab commerce company).
Investment Management
from 1994 to 1997.
Candace L.Straight (56) Trustee since Private investor and 38 Director, The Proformance
1993 consultant specializing Insurance Company
in the insurance (personal lines property
industry; formerly, Advisory and casualty insurance
Director, Securitas company) since March
Capital LLC (a global 2004;Director, Providence
private equity investment Washington (property and
firm dedicated to making casualty insurance
investments in the company) since December
insurance sector) 1998 1998; Director, Summit
until December 2002. Global Partners
(insurance brokerage
firm) since October 2000.
Peter P.Trapp (59) Trustee since Regional Manager for 38 None.
2000 Atlanta Region, Ford
Motor Credit Company
since August 1997;
formerly, President, Ford
Life Insurance Company,
April 1995 until August
1997.
</Table>
36
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITION AND FUND COMPLEX
LENGTH OF TIME OVERSEEN BY OTHER DIRECTORSHIPS HELD OUTSIDE
NAME, AGE, AND ADDRESS (1) SERVED (2) PRINCIPAL OCCUPATION(S) (3) TRUSTEE FUND COMPLEX BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
TRUSTEES WHO ARE "INTERESTED PERSONS"
Edward I. O'Brien* (75) Trustee since Formerly, Member, 38 Director, Legg Mason,
2000 Investment Policy Inc. (financial services
Committee, Edward holding company) since
Jones, 1993-2001; 1993; formerly, Director,
President, Securities Boston Financial Group
Industry Association (real estate and tax
("SIA") (securities shelters) 1993-1999.
industry's representative
in government relations
and regulatory matters at
the federal and state
levels) from 1974-1992;
Adviser to SIA, November
1992-November 1993.
Jack L. Rivkin* (63) President and Executive Vice President 38 Director, Dale Carnegie
Trustee since and Chief Investment and Associates, Inc.
December Officer, Neuberger Berman (private company)
2002 Inc. (holding company) since 1998; Director,
since 2002 and 2003, Emagin Corp. (public
respectively; Executive company) since 1997;
Vice President and Chief Director, Solbright, Inc.
Investment Officer, (private company) since
Neuberger Berman since 1998; Director, Infogate,
2002 and 2003, Inc. (private company)
respectively; Director since 1997.
and Chairman, NB
Management since December
2002; formerly, Executive
Vice President, Citigroup
Investments, Inc. from
September 1995 to
February 2002; Executive
Vice President, Citigroup
Inc. from September 1995
to February 2002.
</Table>
37
<Page>
TRUSTEES AND OFFICERS (Unaudited) cont'd
- ----------------------------------------
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITION AND FUND COMPLEX
LENGTH OF TIME OVERSEEN BY OTHER DIRECTORSHIPS HELD OUTSIDE
NAME, AGE, AND ADDRESS (1) SERVED (2) PRINCIPAL OCCUPATION(S) (3) TRUSTEE FUND COMPLEX BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Peter E. Sundman* (44) Chairman of Executive Vice President, 38 Director, Neuberger
the Board, Neuberger Berman Berman Inc. (holding
Chief Inc. (holding company) company) from October
Executive since 1999; Head of 1999 through March 2003;
Officer and Neuberger Berman Inc.'s President and Director,
Trustee since Mutual Funds and NB Management since 1999;
2000 President Institutional Business Director and Vice
and Chief since 1999; Executive President, Neuberger &
Executive Vice President, Neuberger Berman Agency, Inc. since
Officer from Berman since 1999; 2000.
Management Principal, Neuberger
from 1999 to Berman from 1997 until
2000 1999; Senior Vice
President, NB 1996 until
1999.
</Table>
(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.
* 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 NB Management
and Executive Vice Presidents of Neuberger Berman. Mr. O'Brien is an
interested person of the Trust by virtue of the fact that he is a director
of Legg Mason, Inc., a wholly owned subsidiary of which, from time to time,
serves as a broker or dealer to the Fund and other funds for which NB
Management serves as investment manager.
38
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
INFORMATION ABOUT THE OFFICERS OF THE TRUST
<Table>
<Caption>
POSITION AND
NAME, AGE, AND ADDRESS (1) LENGTH OF TIME SERVED (2) PRINCIPAL OCCUPATION(S) (3)
- -------------------------------------------------------------------------------------------------------------------------
Claudia A. Brandon (47) Secretary since 1985 Vice President-Mutual Fund Board Relations, NB
Management since 2000; Vice President, Neuberger
Berman since 2002 and employee since 1999; Vice
President, NB Management from 1986 to
1999; Secretary, eleven registered investment
companies for which NB Management acts as
investment manager and administrator (four since
2002, three since 2003, and one since 2004).
Robert Conti (47) Vice President since 2000 Senior Vice President, Neuberger Berman since 2003;
Vice President, Neuberger Berman from 1999 until
2003; Senior Vice President, NB Management since
2000; Controller, NB Management until 1996;
Treasurer, NB Management from 1996 until 1999;
Vice President, eleven registered investment
companies for which NB Management acts as
investment manager and administrator (three since
2000, four since 2002, three since 2003, and one
since 2004).
Brian P. Gaffney (50) Vice President since 2000 Managing Director, Neuberger Berman since 1999;
Senior Vice President, NB Management since 2000;
Vice President, NB Management from 1997 until
1999; Vice President, eleven registered investment
companies for which NB Management acts as
investment manager and administrator (three since
2000, four since 2002, three since 2003, and one
since 2004).
Sheila R. James (38) Assistant Secretary since 2002 Employee, Neuberger Berman since 1999; Employee,
NB Management from 1991 to 1999; Assistant
Secretary, eleven registered investment companies
for which NB Management acts as investment manager
and administrator (seven since 2002, three since
2003, and one since 2004).
Kevin Lyons (48) Assistant Secretary since 2003 Employee, Neuberger Berman since 1999; Employee,
NB Management from 1993 to 1999; Assistant
Secretary, eleven registered investment companies
for which NB Management acts as investment manager
and administrator (ten since 2003 and one since
2004).
</Table>
39
<Page>
TRUSTEES AND OFFICERS (Unaudited) cont'd
- ----------------------------------------
<Table>
<Caption>
POSITION AND
NAME, AGE, AND ADDRESS (1) LENGTH OF TIME SERVED (2) PRINCIPAL OCCUPATION(S) (3)
- -------------------------------------------------------------------------------------------------------------------------
John M. McGovern (34) Assistant Treasurer since 2002 Vice President, Neuberger Berman since 2004;
Employee, NB Management since 1993; Assistant
Treasurer, eleven registered investment companies
for which NB Management acts as investment manager
and administrator (seven since 2002, three since
2003, and one since 2004).
Barbara Muinos (45) Treasurer and Principal Financial Vice President, Neuberger Berman since 1999;
and Accounting Officer since Assistant Vice President, NB Management from 1993
2002 to 1999; Treasurer and Principal Financial and
Accounting Officer, eleven registered investment
companies for which NB Management acts as
investment manager and administrator (seven since
2002, three since 2003, and one since 2004);
Assistant Treasurer, three registered investment
companies for which NB Management acts as
investment manager and administrator from 1996
until 2002.
Frederic B. Soule (57) Vice President since 2000 Senior Vice President, Neuberger Berman since
2003; Vice President, Neuberger Berman from 1999
until 2003; Vice President, NB Management from
1995 until 1999; Vice President, eleven registered
investment companies for which NB Management acts
as investment manager and administrator (three
since 2000, four since 2002, three since 2003, and
one since 2004).
Trani Jo Wyman (34) Assistant Treasurer since 2002 Employee, NB Management since 1991; Assistant
Treasurer, eleven registered investment companies
for which NB Management acts as investment manager
and administrator (seven since 2002, three since
2003, and one since 2004).
</Table>
- ----------
(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.
40
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
- ------------------------------------
A description of the policies and procedures that the Funds use 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. Beginning September 2004, information
regarding how the Funds voted proxies relating to portfolio securities during
the most recent 12-month period ended June 30 will also be 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 the Funds' website at www.nb.com
[http://www.nb.com].
41
<Page>
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<Page>
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<Page>
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<Page>
[NEUBERGER BERMAN LOGO]
A LEHMAN BROTHERS COMPANY
NEUBERGER BERMAN MANAGEMENT INC.
605 Third Avenue 2nd Floor
New York, NY 10158-0180
Statistics and projections in this SHAREHOLDER SERVICES
report are derived from sources deemed 800.877.9700
to be reliable but cannot be regarded as INSTITUTIONAL SERVICES
a representation of future results of 800.366.6264
the Funds. This report is prepared for INTERNAL SALES & SERVICES
the general information of shareholders 877.461.1899
and is not an offer of shares of the
Funds. Shares are sold only through www.nb.com
the currently effective prospectus, which
must precede or accompany this report. [RECYCLED SYMBOL] B0586 06/04
Item 2. Code of Ethics.
Not Applicable. Only required in an annual report.
Item 3. Audit Committee Financial Expert.
Not Applicable. Only required in an annual report.
Item 4. Principal Accountant Fees and Services.
Not Applicable. Only required in an annual report.
Item 5. Audit Committee of Listed Registrants.
Not applicable to the Registrant.
Item 6. Schedule of Investments.
Not Yet Applicable. Item applies to periods ending on or after July 9, 2004.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-end
Management Investment Companies.
Not applicable to the Registrant.
Item 8. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable to the Registrant.
Item 9. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 10. Controls and Procedures.
(a) Based on an evaluation of the disclosure controls and procedures (as
defined in rule 30a-3(c) under the Act) as of a date within 90 days of
the filing date of this document, the Chief Executive Officer and
Treasurer and Principal Financial and Accounting Officer of the
Registrant have concluded that such disclosure controls and procedures
are effectively designed to ensure that information required to be
disclosed by the Registrant is accumulated and communicated to the
Registrant's management to allow timely decisions regarding required
disclosure.
(b) There were no significant changes in the Registrant's internal controls
over financial reporting (as defined in rule 30a-3(d) under the Act) that
occurred during the Registrant's last fiscal half-year that have
materially affected, or are reasonably likely to materially affect, the
Registrant's internal control over financial reporting.
Item 11. Exhibits
(a)(1) Not Applicable. Only required in an annual report.
(a)(2) The certifications required by Rule 30a-2(a) of the Act and Section 302
of the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley Act") are attached
hereto
(b) The certification required by Rule 30a-2(b) of the Act and Section 906 of
the Sarbanes-Oxley Act is attached hereto.
The certification provided pursuant to Section 906 of the Sarbanes-Oxley Act is
not deemed "filed" for purposes of Section 18 of the Securities Exchange Act of
1934 ("Exchange Act"), or otherwise subject to the liability of that section.
Such certifications will not be deemed to be incorporated by reference into any
filing under the Securities Act of 1933 or the Exchange Act, except to the
extent that the Registrant specifically incorporates them by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Neuberger Berman Income Funds
By: /s/ Peter E. Sundman
--------------------
Peter E. Sundman
Chief Executive Officer
Date: June 28, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By: /s/ Peter E. Sundman
--------------------
Peter E. Sundman
Chief Executive Officer
Date: June 28, 2004
By: /s/ Barbara Muinos
------------------
Barbara Muinos
Treasurer and Principal Financial
and Accounting Officer
Date: June 28, 2004