As filed with the Securities and Exchange Commission on July 8, 2005
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 Nicholson Graham LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036
(Names and Addresses of agents for service)
Date of fiscal year end: October 31, 2005
Date of reporting period: April 30, 2005
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 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, 2005
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
CONTENTS
THE FUNDS
CHAIRMAN'S LETTER 2
PORTFOLIO COMMENTARY/
PERFORMANCE HIGHLIGHTS
Limited Maturity Bond Fund 4
High Income Bond Fund 6
Municipal Securities Trust 8
Municipal Money Fund 10
Cash Reserves 12
Government Money Fund 14
Fund Expense Information 18
SCHEDULE OF INVESTMENTS
Limited Maturity Bond Fund 20
High Income Bond Fund 23
Municipal Securities Trust 29
Municipal Money Fund 31
Cash Reserves 38
Government Money Fund 40
FINANCIAL STATEMENTS 44
FINANCIAL HIGHLIGHTS (ALL CLASSES)
PER SHARE DATA
Limited Maturity Bond Fund 59
High Income Bond Fund 60
Municipal Securities Trust 61
Municipal Money Fund 62
Cash Reserves 63
Government Money Fund 64
DIRECTORY 67
PROXY VOTING POLICIES AND PROCEDURES 68
QUARTERLY PORTFOLIO SCHEDULE 68
"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) 2005 Neuberger Berman Management Inc. All
rights reserved.
1
CHAIRMAN'S LETTER
[PHOTO OF PETER SUNDMAN]
DEAR FELLOW SHAREHOLDER,
The past year has been a rollercoaster ride for fixed-income investors. April 2
of 2004 was supposed to be the start of a major bear market in bonds. On that
date, the U.S. Department of Labor released a surprisingly strong jobs report,
which convinced investors that the economy was gaining enough momentum for the
Federal Reserve to begin hiking short-term interest rates. Bonds sold off
sharply over the following months, and as expected, in June 2004, the Fed
instituted the first in a series of 25 basis point rate hikes that lifted the
Fed Funds rate from 1% to 2.75% by the end of April 2005.
Yet despite continued Fed tightening, bonds rallied in the summer of 2004 and
held steady through January 2005. Hardly the start of a bear market, but we were
not out of the woods. Several events undermined bond investors' confidence.
First, fourth quarter 2004 Gross Domestic Product growth was revised upward,
indicating that Fed tightening had yet to take much steam out of the economy.
Then, Fed Chairman Alan Greenspan sent market observers scrambling for their
dictionaries when he described the failure of longer-term interest rates to
follow short-term rates higher as a "conundrum." Mr. Greenspan's conundrum soon
turned into a self-fulfilling prophecy as bond prices began to sag and yields to
rise. Economic data started to indicate that inflationary pressure was building,
spawning fear that the Fed would have to tighten more aggressively than
anticipated. This string of bad news for bonds sent the fixed income market
tumbling in February and March, bringing the bond bears out of hibernation.
However, almost as soon as they started growling, bonds came back strong in
April 2005.
How did Neuberger Berman Funds portfolio managers cope with this confounding
bond market? They did not trade bonds based on the economic data DU JOUR, nor
did they stick their heads in the sand. Instead, they remained true to our
firm's tradition of independent thinking: closely monitoring economic and market
dynamics, remaining alert to any significant changes in trend, and quickly and
decisively exploiting evolving opportunities.
As you read the individual fund letters that follow, this approach is clearly
2
NEUBERGER BERMAN APRIL 30, 2005 (UNAUDITED)
revealed. Consider how our portfolio managers guided the Limited Maturity Bond
Fund through choppy waters in the first half of fiscal 2005. By maintaining a
slightly below benchmark duration throughout this six-month reporting period,
they reduced interest rate risk heightened by Federal Reserve tightening. At the
same time, they enhanced portfolio yield by reducing the Fund's allocation to
U.S. Treasuries by nearly 30 percentage points and by substantially increasing
its allocations to asset-backed and U.S. government agency securities. Their
duration management strategy was conservative, consistent with the Neuberger
Berman's "capital preservation first" philosophy. Their asset allocation
strategy was simple, straightforward, and risk averse -- replacing expensive
Treasuries with safe, higher yielding alternatives.
Our portfolio managers' handling of the Government Money Fund was another good
example of skillful management. By keeping the Fund's weighted average maturity
(WAM) at relatively low levels, they were able to enhance portfolio yield as the
Fed tightened. They were responsive to evolving opportunities as well,
significantly reducing the allocation to U.S. Treasuries as they became
expensive and putting the proceeds into U.S. government agency securities, which
offered better value.
With the exception of the money markets (which enjoyed a sharp increase in
yields), fixed income returns were generally uninspiring in the first half of
fiscal 2005. Going forward, the outlook for the bond market remains cloudy. What
should investors be doing? In our opinion, they should be reminding themselves
that bonds offer a steady stream of income and relative safety of principal --
the reasons almost all investors should devote a portion of their assets to
bonds. You can be sure that our fixed income managers, as always, will be
working hard to get the most out of whatever the bond market has to offer.
Sincerely,
/s/ Peter Sundman
PETER SUNDMAN
CHAIRMAN OF THE BOARD
NEUBERGER BERMAN INCOME FUNDS
3
LIMITED MATURITY BOND FUND Portfolio Commentary
For the six months ending April 30, 2005, the Neuberger Berman Limited Maturity
Bond Fund Investor Class returned 0.14% versus 0.01% for the Merrill Lynch 1-3
Year Treasury Index benchmark.
Bond prices were relatively stable over the first three months of this six-month
reporting period. However, bonds retreated in February and March following an
upward revision in calendar fourth quarter 2004 GDP growth, the release of
economic data indicating increased inflationary pressure in the economy, and
Federal Reserve Chairman Alan Greenspan's expression of surprise that market
interest rates hadn't followed the Fed Funds Rate higher. In April, bonds staged
a "relief rally" -- relief that economic growth was beginning to slow enough to
head off any significant increase in inflation and more aggressive Fed
tightening. After the dust settled, yields were appreciably higher, with the
two-year Treasury yielding 3.66% at the end of the reporting period compared to
2.56% at its start.
We entered the first half of fiscal 2005 in a defensive posture, with a duration
(a standard measure of volatility in response to changes in market interest
rates) slightly lower than that of our benchmark index. Reflecting our concern
that low bond yields provided little cushion to offset potential price declines,
we maintained a below benchmark duration throughout the six-month period. This
conservative duration posture helped cushion the portfolio when bonds sold off
in February and March, but restrained returns during the April rally. Overall,
this strategy had a positive impact on relative returns over the reporting
period.
Over the course of first-half fiscal 2005, we enhanced portfolio yield by
increasing our allocation to higher yielding sectors that we viewed as safe
alternatives to U.S. Treasuries. Over this six-month reporting period, we
increased our allocation to corporate bonds from 44.4% to 51.0%, our allocation
to AAA rated asset-backed securities from 5.0% to 18.8% and our allocation to
government agency securities from 0% to 18.0%, while reducing our commitment to
Treasuries from 35.5% to 3.1%. We also lowered our weighting in mortgage-backed
securities from 9.2% to 1% because we believe this sector will underperform as
interest rates trend higher. This strategy was largely responsible for the
Fund's 30 basis point weighted average yield-to-maturity advantage over its
Merrill Lynch 1-3 Year Treasury Index benchmark at the close of this reporting
period.
Importantly, we have enhanced yield while maintaining our high credit quality
standards. We have been especially credit sensitive in the corporate bond arena.
In this uneven economic environment, in which some companies are prospering and
others are faltering, we have become even more diligent in evaluating
company-specific event risk. With all the negative publicity surrounding Fannie
Mae and Freddie Mac, increasing our exposure to government agency securities
could be perceived as risky business. However, we don't believe that the current
debate about restructuring and restricting the size of these agencies will hurt
the short duration issues in our portfolio. It has always been our policy to
enhance portfolio yield without sacrificing credit quality. We believe that this
can be accomplished through active duration management, opportunistic sector
allocation and, most importantly, research driven securities selection.
Bonds have held up remarkably well in the face of Federal Reserve rate hikes
that totaled 175 basis points through April. The bond market appears to be
telling us that the Federal Reserve is simply raising short-term interest rates
to more normalized levels rather than responding to a serious inflationary
threat. We don't believe that inflation is a near-term problem but we expect
interest rates to continue to drift higher. Consequently, we head into
second-half fiscal 2005 with a shorter-than-benchmark portfolio duration in
order to minimize interest rate risk. Of course, we will be carefully monitoring
employment and inflation trends that could prompt the Fed to tighten more
aggressively or, alternatively, to take its foot off the monetary brakes. We are
prepared to alter our portfolio duration in response to any significant change
in economic trends or Fed policy.
4
In closing, only hindsight reveals to us the best and worst times to be invested
in any particular asset class. A year ago, consensus wisdom dictated that bonds
would be major casualties of the reversal in Federal Reserve policy. Once again,
the consensus was wrong. Investors with true foresight realize that bonds
provide income and relative safety of principle -- two important ingredients in
the recipe for long-term investment success.
Sincerely,
/s/ Ted Giuliano
/s/ John Dugenske
TED GIULIANO
AND
JOHN DUGENSKE
PORTFOLIO CO-MANAGERS
PERFORMANCE HIGHLIGHTS
SIX MONTH AVERAGE ANNUAL TOTAL
NEUBERGER BERMAN INCEPTION PERIOD ENDED RETURNS ENDED 4/30/2005
LIMITED MATURITY BOND (1),(3) DATE 4/30/2005 1 YEAR 5 YEARS 10 YEARS
INVESTOR CLASS 06/09/1986 0.14% 1.00% 4.67% 4.80%
TRUST CLASS 08/30/1993 0.00% 0.88% 4.57% 4.68%
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST. RESULTS ARE SHOWN ON A "TOTAL RETURN" BASIS AND
INCLUDE REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. THE
COMPOSITION, INDUSTRIES AND HOLDINGS OF THE FUND ARE SUBJECT TO CHANGE.
CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED. FOR
PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT
www.nb.com/performance.
FOR THE PERIOD ENDING 4/30/05, THE 30-DAY SEC YIELD OF THE INVESTOR CLASS SHARES
WAS 3.17% AND THE TRUST CLASS SHARES WAS 3.06%.
RATING DIVERSIFICATION
(% BY RATINGS)
AAA/Government/Government Agency 50.4%
AA 6.5
A 30.0
BBB 10.4
BB 1.2
B 0.0
CCC 0.0
CC 0.0
C 0.0
D 0.0
Not Rated 0.0
Short Term 1.5
5
HIGH INCOME BOND FUND Portfolio Commentary
For the six months ending April 30, 2005, the Neuberger Berman High Income Bond
Fund posted a -1.52% return compared to a 0.31% return for the Lipper High
Current Yield Bond Funds Index and a -0.74% return for the Lehman Brothers
Intermediate Ba U.S. High Yield Index, the Fund's benchmark.
The high-yield segment of the bond market ended calendar 2004 on a reasonably
strong note and held onto that strength until March of this year. In
mid-February of 2005, the Treasury market began to more seriously consider
inflation and interest rate risks, with the 10-Year Treasury moving from a yield
range of 4.0%-4.2% out to 4.6% in the wake of Federal Reserve Chairman Alan
Greenspan's comment that he found the low rates on long-term bonds a
"conundrum." Concerned investors began to fear that he might seek to push
interest rates up more rapidly than expected. This movement was mostly absorbed
by spread narrowing in the high-yield market.
In mid-March, General Motors revised expectations of cash flows from $2 billion
to negative $2 billion, an announcement that focused investors on credit risk
and accelerated expectations for a ratings downgrade of GM. Auto and
auto-related sectors were hit particularly hard, but tight spreads generally
were increasingly viewed as inadequately pricing the risk in the marketplace. As
a result, high-yield spreads widened by about 125-135 basis points between the
end of February and the end of April 2005, both because absolute yields began to
rise, and because investors fled to the relative safety of U.S. Treasuries,
pushing Treasury yields back to the 4.0%-4.2% range.
The new issue market remained strong through mid-March of this year, but the
pace has slowed substantially since then. Quality companies that are financially
strong and have solid reputations still have access to the credit markets,
though riskier issues have found conditions more difficult, with some turning to
the bank loan market for financing. In the early stages of market weakness,
there is typically softness in the higher quality, shorter duration securities
that we emphasize in our portfolios, because these bonds provide liquidity to
the market. Historically, higher quality names have tended to outperform if
market weakness continues.
Given the period's news, autos and auto parts were, not surprisingly, among the
worst performing sectors in high yield, as were airlines that were hurt by
continuing high fuel prices and longer-maturity bonds in the homebuilders
sector, as the Fed has continued interest rate actions. Continued high oil
prices and concern that they will be an ongoing drag on economic growth
negatively affected related areas of the market. Relative to the broader
high-yield market, the Fund had less exposure to these underperforming sectors
and no exposure to airlines. Other high-yield sectors generally performed within
a range, with no standout performers on the upside or the downside.
In the current environment, we believe that a conservative approach is the best
strategy going forward. Therefore, we are maintaining a relatively short
duration and maturity stance and are continuing to pare back the number of
issuers in the portfolio. As of April 30, 2005, the Fund's average duration and
weighted average maturity were 3.8 years and 5.9 years, respectively.
Despite this difficult period, we are maintaining an optimistic, but cautious,
outlook for the high-yield market and for the Fund. We believe that the recent
disruptive environment provided an opportunity for reallocation within the
market. We exited selected issues at what we deemed to be acceptable price
levels and opportunistically acquired bonds we believed were temporarily
mispriced relative to our estimation of their total return potential.
Our optimism is buoyed by several factors specific to historical high-yield bond
performance. First, our analysis indicates that, during periods of rising
interest rates, high-yield bonds have outperformed other fixed income sectors.
Second, during periods of widening credit spreads, higher quality high-yield
issues have tended to outperform lower-rated non-investment grade issues.
Accordingly, we believe that select high-yield investments can generate
relatively strong returns in an environment of
6
gradually increasing interest rates. In addition, we believe that our
longstanding orientation toward higher quality issues and a shorter duration
profile than the broader non-investment grade market can also provide relative
support and opportunity should credit spreads continue to widen.
Sincerely,
/s/ Wayne C. Plewniak
WAYNE C. PLEWNIAK
SENIOR PORTFOLIO MANAGER
PERFORMANCE HIGHLIGHTS
SIX MONTH AVERAGE ANNUAL TOTAL
NEUBERGER BERMAN INCEPTION PERIOD ENDED RETURNS ENDED 4/30/2005
HIGH INCOME BOND FUND (1),(3) DATE 4/30/2005 1 YEAR 5 YEARS 10 YEARS
INVESTOR CLASS (6) 02/01/1992 (1.52%) 4.06% 7.45% 7.55%
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST. RESULTS ARE SHOWN ON A "TOTAL RETURN" BASIS AND
INCLUDE REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. THE
COMPOSITION, INDUSTRIES AND HOLDINGS OF THE FUND ARE SUBJECT TO CHANGE.
CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED. FOR
PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT
www.nb.com/performance.
FOR THE PERIOD ENDING 4/30/05, THE 30-DAY SEC YIELD OF THE INVESTOR CLASS SHARES
WAS 6.00%.
RATING DIVERSIFICATION
(% BY RATINGS)
AAA/Government/Government Agency 0.0%
AA 0.0
A 0.0
BBB 6.5
BB 47.5
B 42.3
CCC 0.0
CC 0.0
C 0.0
D 0.0
Not Rated 0.0
Short Term 3.7
7
MUNICIPAL SECURITIES TRUST Portfolio Commentary
For the six months ending April 30, 2005, the Neuberger Berman Municipal
Securities Trust returned 0.20%, compared to the Lehman 7-Year GO Index's 0.88%
and the Lipper Intermediate Municipal Debt Funds Index's 0.73% return.
As is our custom in challenging markets, capital preservation is our first
priority. Consequently, we entered the first half of fiscal 2005 with a
defensive 4.4 year duration (a common measure of interest rate risk), and by the
end of January 2005, had further reduced duration to 4.1 years. At the end of
April, duration stood at a below-benchmark 4.4 years.
Municipal bonds performed in line with the broad bond market in the six-month
reporting period. Prices were relatively stable from November 2004 through
January 2005. Then, muni bonds sold off in February and March when fixed income
investors became alarmed by the upward revision in fourth quarter 2004 Gross
Domestic Product (GDP) growth, the release of economic data with inflationary
implications, and comments by Federal Reserve Chairman Alan Greenspan expressing
surprise that longer-term market interest rates had not followed short-term
interest rates higher. Municipal bonds then rallied in April as investors saw
evidence that the economy was beginning to slow, diminishing the threat of more
aggressive Fed tightening.
We made no significant changes in sector allocation during the past six months.
The portfolio entered the reporting period with 48.1% in revenue bonds, 42.9% in
general obligation bonds (GOs), 6.2% in pre-refunded/escrow bonds and 2.8% in
variable rate demand notes. At the end of first-half fiscal 2005, the portfolio
had 45.8% of assets in revenue bonds, 44.6% in GOs, 6.4% in pre-refunded/escrow
bonds and 3.2% in variable rate demand notes.
The economic recovery has strengthened most municipal issuers' balance sheets
and, in general, credit quality in the municipal bond market has improved.
According to Standard & Poor's, calendar first quarter 2005 was the first
quarter in five years in which municipal bond credit upgrades exceeded
downgrades. However, there is now a relatively new issue to worry about --
underfunded municipal pension plans. We believe that all the publicity
surrounding the pension shortfalls at General Motors and United Airlines will
eventually have a negative impact on the securities of municipal bond issuers
that have not put aside enough money to cover retired workers' benefits.
Consequently, in our credit analysis of potential investments, we are making
sure that pension fund assets are sufficient to cover liabilities.
Over the short-term, our other primary concern relates to the potential for a
public debate on scrapping the current tax system and replacing it with a flat
tax or consumption tax. Currently, restructuring Social Security appears to be
the top priority of the Bush administration, but an overhaul of the tax code may
also be on the agenda. If so, investors may once again begin to worry whether
municipal securities will lose their after-tax return advantage over U.S.
Treasuries and corporate bonds. We have observed that, over the years, many
politicians have promised to simplify the tax system, but to-date no one has
mustered the political support to get it done. This may be because eliminating
the after-tax return advantage of municipals has significant disadvantages --
such as undermining the financial markets' ability to provide low cost capital
for important public projects such as building schools and maintaining the
existing infrastructure. It's worth noting that periods when debate on this
issue has intensified have proven to be ideal times to buy municipal bonds.
Looking ahead, barring any unforeseen events that would stall the economy, we
believe the Fed will continue to raise short-term interest rates at a "measured"
pace until they reach "normalized" levels. Once this is accomplished and the
economy has settled into a slower growth path, we expect inflationary fears to
subside, improving the outlook for the fixed income markets. Currently, with the
yield on a 10-year AAA rated municipal at
8
87% of the yield on the 10-Year Treasury, municipal bonds appear attractively
priced (on an after-tax basis) relative to Treasuries.
Sincerely,
/s/ Ted Giuliano
/s/ Thomas J. Brophy
TED GIULIANO
AND
THOMAS J. BROPHY
PORTFOLIO CO-MANAGERS
/s/ Lori Canell
/s/ Kelly Landron
LORI CANELL
AND
KELLY LANDRON
PORTFOLIO CO-MANAGERS
PERFORMANCE HIGHLIGHTS
SIX MONTH AVERAGE ANNUAL TOTAL
NEUBERGER BERMAN MUNICIPAL INCEPTION PERIOD ENDED RETURNS ENDED 4/30/2005
SECURITIES TRUST (1),(3),(4),(5) DATE 4/30/2005 1 YEAR 5 YEARS 10 YEARS
INVESTOR CLASS 07/09/1987 0.20% 3.49% 5.67% 5.14%
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST. RESULTS ARE SHOWN ON A "TOTAL RETURN" BASIS AND
INCLUDE REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. THE
COMPOSITION, INDUSTRIES AND HOLDINGS OF THE FUND ARE SUBJECT TO CHANGE.
CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED. FOR
PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT
www.nb.com/performance.
FOR THE PERIOD ENDING 4/30/05, THE 30-DAY SEC YIELD OF THE MUNICIPAL SECURITIES
TRUST WAS 2.89% AND THE TAX-EQUIVALENT YIELD WAS 4.45% FOR AN INVESTOR IN THE
HIGHEST FEDERAL INCOME TAX BRACKET (35%).
RATING DIVERSIFICATION
(% BY RATINGS)
AAA 73.4%
AA 24.3
A 0.1
BBB 0.0
BB 0.0
B 0.0
CCC 0.0
CC 0.0
C 0.0
D 0.0
Not Rated 0.0
Short Term 2.2
9
MUNICIPAL MONEY FUND Portfolio Commentary
For the six months ending April 30, 2005, the Neuberger Berman Municipal Money
Fund returned 0.63%, versus 0.60% for the Money Fund Report Tax-Free National
Retail Average. The Fund closed the period with a 2.11% 7-day current yield and
a 2.13% 7-day effective yield.*
The big news during the first half of fiscal 2005 was that Federal Reserve rate
hikes helped push up municipal money market yields. The Fund picked up 106 basis
points in 7-day current yield over the past six months. With the Fed signaling
its intention to raise short-term interest rates at a "measured" pace until they
reach "normalized" levels, our strategy was to reduce the Fund's weighted
average maturity (WAM) to more quickly rollover assets into higher yielding
securities. From mid-November 2004 through the end of April 2005, the
portfolio's WAM was cut nearly in half from 41.4 days to 21.7 days.
Unless inflation proves to be a much more serious problem than anticipated, we
expect to see a few more 25 basis point Fed rate hikes over the next six months.
Consequently, the Fund's weighted average maturity will likely remain in the
short end of its historical range. When we gain confidence that the Fed is ready
to stop tightening and if today's ultra-flat money market yield curve begins to
steepen, we will begin extending the portfolio's maturity.
Looking ahead, we feel quite constructive about the municipal money markets.
With one-year AAA rated municipal debt yielding approximately 78% of the
one-year Treasury bill yield, municipal money market instruments still enjoy a
meaningful after-tax return advantage over Treasuries. With yields continuing to
rise with short-term interest rates, favorable supply/demand dynamics may also
boost returns.
However, there is a short-term cloud on the horizon in the form of the Bush
administration's stated goal of overhauling the current federal income tax
system. In the past, when politicians have promised to scrap the graduated
income tax in favor of a flat tax or consumption tax, the fear that municipal
bonds would lose their after-tax return advantage disrupted the market. We note,
however, that no proponent of restructuring the tax system has been able to
muster the political support to do so and, in the past, whenever tax reform
became a major issue, it proved to be an ideal time to invest in municipal
securities.
Sincerely,
/s/ Ted Giuliano
/s/ Thomas J. Brophy
/s/ Kelly Landron
TED GIULIANO,
THOMAS J. BROPHY
AND
KELLY LANDRON
PORTFOLIO CO-MANAGERS
*Current yield more closely reflects current earnings than does total return.
10
PERFORMANCE HIGHLIGHTS
FOR THE 7 DAYS ENDED 4/30/2005
NEUBERGER BERMAN TAX-EQUIVALENT
MUNICIPAL MONEY FUND (5) INCEPTION DATE CURRENT YIELD (2) EFFECTIVE YIELD (2) EFFECTIVE YIELD (4)
INVESTOR CLASS 12/10/1984 2.11% 2.13% 3.30%
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS. THE INVESTMENT RETURN ON AN INVESTMENT IN A MONEY MARKET FUND
WILL FLUCTUATE. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE
DATA QUOTED. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END VISIT
www.nb.com/performance. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE FUND ARE
SUBJECT TO CHANGE.
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 4/30/05, THE 7-DAY CURRENT YIELD OF THE MUNICIPAL MONEY
FUND WAS 2.11% AND THE TAX-EQUIVALENT YIELD WAS 3.25% FOR AN INVESTOR IN THE
HIGHEST FEDERAL INCOME TAX BRACKET (35%). FOR THE PERIOD ENDING 4/30/05, THE
7-DAY EFFECTIVE YIELD WAS 2.13% AND THE TAX-EQUIVALENT EFFECTIVE YIELD WAS 3.30%
FOR AN INVESTOR IN THE HIGHEST FEDERAL INCOME TAX BRACKET (35%).
MATURITY DIVERSIFICATION
(% BY MATURITY)
1 Day 19.3%
2 - 7 Days 54.0
8 - 15 Days 3.4
16 - 30 Days 2.7
31 - 60 Days 8.2
61 - 90 Days 3.2
91 - 180 Days 7.8
181 - 270 Days 0.6
271+ Days 0.0
Cash and Cash Equivalents, receivables
and other assets, less liabilities 0.8
11
CASH RESERVES Portfolio Commentary
For the six months ending April 30, 2005, Neuberger Berman Cash Reserves
returned 0.92% compared to the Money Fund Report Taxable First Tier Retail
Average's 0.78%. The Fund closed first-half fiscal 2005 with a 2.46% 7-day
current yield and a 2.49% 7-day effective yield.*
For the better part of two years, the money markets remained largely dormant,
with yields near 45-year lows. When a strong March 2004 jobs report confirmed
that the economy had gained enough momentum for the Federal Reserve to begin
increasing short-term interest rates, money market yields started to rise.
During the first half of fiscal 2005, the Fed raised rates four times, lifting
the Fed Funds Rate from 1.75% to 2.75%. Because of the measured pace of Fed
tightening, this 1% increase translated into a 1.37% increase in the Fund's
7-day current yield.
We continued to lower the Fund's weighted average maturity as the Fed raised
rates so that we could more quickly rollover holdings into higher yielding
securities. At the start of first-half fiscal 2005, the Fund's average maturity
was 44.9 days. It moved down to 17.5 days in early March, and rose to 28.8 days
by the end of this reporting period.
Over the past six months, we significantly reduced our allocation to U.S.
Treasury securities. We also made modest reductions in U.S. government agencies,
time deposits, certificates of deposits (CDs), and short-term corporate/bank
notes. The proceeds went to corporate commercial paper, where our allocation
increased from 55.6% of portfolio assets to 75.5%. Our reasoning was simple. Due
to lower-than-average issuance, Treasuries had become quite expensive.
Commercial paper yields were and still are materially higher than Treasury
yields. Since we buy only the highest rated commercial paper, we were confident
that this strategy would enhance portfolio yield without adding significant
risk.
Looking ahead, if inflation remains subdued, we expect the Federal Reserve to
rest after several additional 25 basis point rate hikes, which would bring the
Fed Funds Rate to roughly 4.00% to 4.25%. Consequently, the portfolio's weighted
average maturity will stay in the lower end of its historical range. We will be
watching the inflation data and waiting for the Fed to tip its hand. When we
gain confidence that the Fed has finished tightening, and if we are adequately
compensated for owning longer maturity securities, we will likely begin
extending the portfolio's maturity.
Sincerely,
/s/ Ted Giuliano
/s/ John Dugenske
TED GIULIANO
AND
JOHN DUGENSKE
PORTFOLIO CO-MANAGERS
/s/ Cynthia Damian
/s/ Alyssa Juros
CYNTHIA DAMIAN
AND
ALYSSA JUROS
PORTFOLIO ASSOCIATE MANAGERS
*Current yield more closely reflects current earnings than does total return.
12
PERFORMANCE HIGHLIGHTS
FOR THE 7 DAYS ENDED 4/30/2005
NEUBERGER BERMAN CASH RESERVES(1) INCEPTION DATE CURRENT YIELD(2) EFFECTIVE YIELD(2)
INVESTOR CLASS 04/12/1988 2.46% 2.49%
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS. THE INVESTMENT RETURN ON AN INVESTMENT IN A MONEY MARKET FUND
WILL FLUCTUATE. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE
DATA QUOTED. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END VISIT
www.nb.com/performance. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE FUND ARE
SUBJECT TO CHANGE.
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.
MATURITY DIVERSIFICATION
(% BY MATURITY)
1 Day 0.0%
2 - 7 Days 24.4
8 - 15 Days 21.5
16 - 30 Days 22.6
31 - 60 Days 15.7
61 - 90 Days 18.6
91 - 180 Days 0.0
181 - 270 Days 0.0
271+ Days 0.0
Liabilities, less cash, receivables and
other assets (2.8)
13
GOVERNMENT MONEY FUND Portfolio Commentary
For the six months ending April 30, 2005, the Neuberger Berman Government Money
Fund returned 0.89%, compared to the Money Fund Report Government & Agencies
Retail Average's 0.79%. The Fund closed the first half of fiscal 2005 with a
2.35% 7-day current yield and a 2.38% 7-day effective yield.*
While rising interest rates generally have a negative impact on the broad fixed
income market, they tend to result in higher yields for money market funds.
During this six-month reporting period, the Federal Reserve raised short-term
interest rates four times, increasing the Fed Funds rate by 100 basis points
(1%). This translated into a 132 basis point (1.32%) increase in the Government
Money Fund's 7-day current yield. Put another way, our shareholders are being
paid more than twice the amount they were receiving just six months ago.
Over the course of first-half fiscal 2005, we reduced the portfolio's weighted
average maturity so that we could quickly rollover holdings into higher yielding
securities as interest rates moved up. At the start of the reporting period, the
Fund's average maturity was 47.4 days. It fell to 19.2 days in early March and
closed at 27.9 days.
Over the past six months, we adjusted our sector allocation, reducing our
commitment to U.S. Treasuries from 62.4% of assets to 14.1%, and increased our
allocation to U.S. government agency securities from 27.5% to 86.1%. Our
rationale was simple -- lower than average issuance of Treasury bills had made
Treasuries expensive. We received a materially higher yield from government
agency securities without, in our opinion, significantly increasing risk. If
inflation remains subdued, we believe that the Fed will be content with a few
more rate hikes, bringing the Fed Funds rate to around 4.0% to 4.25%. While the
Fed continues to tighten, the portfolio's weighted average maturity will remain
in the low end of its historical range. We will be watching inflation data
carefully and hoping that the Fed will continue to telegraph any changes in
policy. When we sense that the Fed is finished hiking rates, and if longer
maturity issues provide a meaningful yield advantage, we will likely begin to
extend the average maturity of the portfolio.
Sincerely,
/s/ Ted Giuliano
/s/ John Dugenske
TED GIULIANO
AND
JOHN DUGENSKE
PORTFOLIO CO-MANAGERS
/s/ Cynthia Damian
/s/ Alyssa Juros
CYNTHIA DAMIAN
AND
ALYSSA JUROS
PORTFOLIO ASSOCIATE MANAGERS
*Current yield more closely reflects current earnings than does total return.
14
PERFORMANCE HIGHLIGHTS
FOR THE 7 DAYS ENDED 4/30/2005
NEUBERGER BERMAN GOVERNMENT MONEY FUND INCEPTION DATE CURRENT YIELD(2) EFFECTIVE YIELD(2)
INVESTOR CLASS 11/14/1983 2.35% 2.38%
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS. THE INVESTMENT RETURN ON AN INVESTMENT IN A MONEY MARKET FUND
WILL FLUCTUATE. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE
DATA QUOTED. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END VISIT
www.nb.com/performance. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE FUND ARE
SUBJECT TO CHANGE.
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.
MATURITY DIVERSIFICATION
(% BY MATURITY)
1 Day 0.0%
2 - 7 Days 32.4
8 - 15 Days 4.6
16 - 30 Days 27.3
31 - 60 Days 19.5
61 - 90 Days 16.4
91 - 180 Days 0.0
181 - 270 Days 0.0
271+ Days 0.0
Liabilities, less cash, receivables and
other assets (0.2)
15
ENDNOTES
1. 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, 2008. 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. For the six months ended April 30, 2005,
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, and
Municipal Securities Trust would have been less.
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 not a
guarantee of future results.
3. Returns would have been lower if Management had not reimbursed certain
expenses during the periods shown, as applicable.
4. Tax-equivalent effective yield is the taxable effective yield that an
investor would have had to receive in order to realize the same level of
yield after Federal income taxes at the highest Federal tax rate, currently
35% in 2005, assuming that all of the Fund's income is exempt from Federal
income taxes.
5. 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.
6. 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
reflect 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.
16
GLOSSARY OF INDICES
THE MERRILL LYNCH 1-3 YEAR TREASURY INDEX: An unmanaged total return market value index consisting of all
coupon-bearing U.S. Treasury publicly placed debt securities with
maturities between 1 and 3 years.
THE LEHMAN BROTHERS 7-YEAR GENERAL OBLIGATION INDEX: An unmanaged total return performance benchmark for the intermediate-term,
7-year, investment grade General Obligations (State and Local) tax-exempt
bond market.
THE iMONEYNET MONEY FUND REPORT TAXABLE Measures the performance of retail money market mutual funds which hold
FIRST TIER RETAIL AVERAGE: "First Tier" securities as defined by Rule 2a-7 of the Investment Company
Act of 1940 (not including Second Tier Commercial Paper). First Tier
securities are those rated in the highest short-term rating category by two
or more nationally recognized statistical ratings organizations or one, if
only one has rated the security.
THE iMONEYNET MONEY FUND REPORT Measures the performance of retail money market mutual funds which invest
TREASURY RETAIL AVERAGE: only in obligations of the U.S. Treasury (T-Bills).
THE iMONEYNET MONEY FUND REPORT Measures the performance of retail money market mutual funds which invest
GOVERNMENT AND AGENCIES RETAIL AVERAGE: in obligations of the U.S. Treasury (T-Bills), repurchase agreements, or
U.S. Government Agency securities.
THE iMONEYNET MONEY FUND REPORT Measures all national tax-free and municipal retail funds. Portfolio
TAX-FREE NATIONAL RETAIL AVERAGE: holdings of tax-free funds include Rated and Unrated Demand Notes, Rated
and Unrated General Market Notes, Commercial Paper, Put Bonds -- 6 months
or less, Put Bonds -- over 6 months, AMT Paper, and Other Tax-Free
holdings.
LEHMAN BROTHERS INTERMEDIATE BA U.S. HIGH YIELD INDEX: An unmanaged index comprised of BB-rated bonds with maturities of less than
10 years.
Please note that indices do not take into account any fees and expenses or any
tax consequences of investing in the individual securities that they track and
that investors cannot invest directly in any index or average. Data about the
performance of each index or average are prepared or obtained by Neuberger
Berman Management Inc. and include reinvestment of all dividends and capital
gain distributions. Each Fund may invest in securities not included in its
respective index.
17
INFORMATION ABOUT YOUR FUND'S EXPENSES
These tables are designed to provide information regarding costs related to your
investments. All mutual funds incur operating expenses, which include management
fees, fees for administrative services and costs of shareholder reports, among
others. The following examples are based on an investment of $1,000 made at the
beginning of the period shown and held for the entire period. The table
illustrates the fund's costs in two ways:
ACTUAL EXPENSES: The first section of the table provides information about actual account
values and actual expenses in dollars. You may use the information in this
line, together with the amount you invested, to estimate the expenses you
paid over the period. Simply divide your account value by $1,000 (for
example, an $8,600 account value divided by $1,000 = 8.6), then multiply
the result by the number in the first section of the table under the
heading entitled "Expenses Paid During the Period" to estimate the expenses
you paid over the period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES: The second section of the table provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return at 5% per year before expenses. This
return is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare
the ongoing costs of investing in these Funds versus other funds. To do so,
compare the expenses shown in this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other
funds.
18
EXPENSE INFORMATION As of 4/30/05 (Unaudited)
NEUBERGER BERMAN CASH RESERVES FUND
BEGINNING ENDING EXPENSES
ACCOUNT ACCOUNT PAID DURING
ACTUAL VALUE VALUE THE PERIOD*
- -------------------------------------------------------------------
Investor Class $ 1,000 $ 1,009.20 $ 2.59
HYPOTHETICAL (5% ANNUAL
RETURN BEFORE EXPENSES)**
- -------------------------------------------------------------------
Investor Class $ 1,000 $ 1,022.22 $ 2.61
NEUBERGER BERMAN GOVERNMENT MONEY FUND
BEGINNING ENDING EXPENSES
ACCOUNT ACCOUNT PAID DURING
ACTUAL VALUE VALUE THE PERIOD*
- -------------------------------------------------------------------
Investor Class $ 1,000 $ 1,008.90 $ 2.44
HYPOTHETICAL (5% ANNUAL
RETURN BEFORE EXPENSES)**
- -------------------------------------------------------------------
Investor Class $ 1,000 $ 1,022.36 $ 2.46
NEUBERGER BERMAN HIGH INCOME BOND FUND
BEGINNING ENDING EXPENSES
ACCOUNT ACCOUNT PAID DURING
ACTUAL VALUE VALUE THE PERIOD*
- -------------------------------------------------------------------
Investor Class $ 1,000 $ 984.80 $ 4.33
HYPOTHETICAL (5% ANNUAL
RETURN BEFORE EXPENSES)**
- -------------------------------------------------------------------
Investor Class $ 1,000 $ 1,020.43 $ 4.41
NEUBERGER BERMAN LIMITED MATURITY BOND FUND
BEGINNING ENDING EXPENSES
ACCOUNT ACCOUNT PAID DURING
ACTUAL VALUE VALUE THE PERIOD*
- -------------------------------------------------------------------
Investor Class $ 1,000 $ 1,001.40 $ 3.47
Trust Class $ 1,000 $ 1,000.00 $ 3.97
HYPOTHETICAL (5% ANNUAL
RETURN BEFORE EXPENSES)**
- -------------------------------------------------------------------
Investor Class $ 1,000 $ 1,021.32 $ 3.51
Trust Class $ 1,000 $ 1,020.83 $ 4.01
NEUBERGER BERMAN MUNICIPAL MONEY FUND
BEGINNING ENDING EXPENSES
ACCOUNT ACCOUNT PAID DURING
ACTUAL VALUE VALUE THE PERIOD*
- -------------------------------------------------------------------
Investor Class $ 1,000 $ 1,006.30 $ 3.48
HYPOTHETICAL (5% ANNUAL
RETURN BEFORE EXPENSES)**
- -------------------------------------------------------------------
Investor Class $ 1,000 $ 1,021.32 $ 3.51
NEUBERGER BERMAN MUNICIPAL SECURITIES TRUST
BEGINNING ENDING EXPENSES
ACCOUNT ACCOUNT PAID DURING
ACTUAL VALUE VALUE THE PERIOD*
- -------------------------------------------------------------------
Investor Class $ 1,000 $ 1,002.00 $ 3.23
HYPOTHETICAL (5% ANNUAL
RETURN BEFORE EXPENSES)**
- -------------------------------------------------------------------
Investor Class $ 1,000 $ 1,021.57 $ 3.26
* For each class of the Fund, expenses are equal to the expense ratio for the
class, multiplied by the average account value over the period, multiplied by
181/365 (to reflect the one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by multiplying
the number of days in the most recent half year divided by 365.
19
SCHEDULE OF INVESTMENTS Limited Maturity Bond Fund
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
U.S. TREASURY SECURITIES--BACKED BY THE FULL FAITH AND
CREDIT OF THE U.S. GOVERNMENT (3.1%)
$ 3,500 U.S. Treasury Notes, 2.25%, due 4/30/06 TSY TSY $ 3,461
1,500 U.S. Treasury Notes, 3.63%, due 4/30/07 TSY TSY 1,499
350 U.S. Treasury Notes, 3.00%, due 2/15/08 TSY TSY 343
----------
TOTAL U.S. TREASURY SECURITIES--BACKED BY THE FULL FAITH AND
CREDIT OF THE U.S. GOVERNMENT (COST $5,303) 5,303
----------
U.S. GOVERNMENT AGENCY SECURITIES (18.0%)
4,335 Fannie Mae, Notes, 5.25%, due 6/15/06 AGY AGY 4,408
12,985 Federal Home Loan Bank, Disc. Notes, 2.88%, due 8/15/06 AGY AGY 12,850
13,835 Federal Home Loan Mortgage Corp., Notes, 5.50%, due 7/15/06 AGY AGY 14,122
----------
TOTAL U.S. GOVERNMENT AGENCY SECURITIES (COST $31,517) 31,380
----------
MORTGAGE-BACKED SECURITIES (1.0%)
FANNIE MAE
402 Collateralized Mortgage Obligations, Planned Amortization
Certificates, Ser. 2003-16, Class PA, 4.50%, due 11/25/09 AGY AGY 403
FREDDIE MAC
27 ARM Certificates, 2.88%, due 1/1/17 AGY AGY 27
320 Pass-Through Certificates, 5.00%, due 2/1/07 AGY AGY 325
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
7 Pass-Through Certificates, 7.50%, due 10/15/09 - 8/15/10 AGY AGY 9
91 Pass-Through Certificates, 7.00%, due 4/15/11 AGY AGY 96
33 Pass-Through Certificates, 12.00%, due 12/15/12 - 5/15/14 AGY AGY 38
860 Pass-Through Certificates, 6.00%, due 1/15/33 AGY AGY 887
----------
TOTAL MORTGAGE-BACKED SECURITIES (COST $1,786) 1,785
----------
CORPORATE DEBT SECURITIES (51.0%)
2,450 Allstate Corp., Senior Notes, 7.88%, due 5/1/05 2,450^^
1,950 American Express, Notes, 5.50%, due 9/12/06 A1 A+ 1,989
1,310 AT&T Wireless Services, Inc., Senior Notes, 7.35%, due 3/1/06 Baa2 A 1,348
2,400 Bank of America Corp., Senior Notes, 3.88%, due 1/15/08 Aa2 AA- 2,383
1,745 Bank of New York Co., Inc., Senior Notes, 5.20%, due 7/1/07 Aa3 A+ 1,780
2,120 Bear Stearns Co., Inc., Notes, 6.50%, due 5/1/06 A1 A 2,174
2,000 Berkshire Hathaway Finance, Notes, 3.40%, due 7/2/07 Aaa AAA 1,972
1,750 Boeing Capital Corp., Senior Notes, 5.75%, due 2/15/07 A3 A 1,798
1,000 Capital One Bank, Senior Notes, 8.25%, due 6/15/05 Baa2 BBB 1,005
1,900 Caterpillar Financial Services Corp., Notes,
2.59%, due 7/15/06 A2 A 1,872
1,300 CBS Corp., Guaranteed Senior Notes, 7.15%, due 5/20/05 A3 A- 1,302
960 Chase Manhattan Corp., Subordinated Notes, 7.25%, due 6/1/07 A1 A 1,017
2,000 CIT Group, Inc., Senior Notes, 4.13%, due 2/21/06 A2 A 2,007
3,500 Citigroup Inc., Notes, 5.00%, due 3/6/07 Aa1 AA- 3,558
2,000 Coca-Cola Enterprises, Notes, 5.38%, due 8/15/06 A2 A 2,033
1,300 Comcast Cable Communications, Notes, 8.38%, due 5/1/07 Baa2 BBB 1,401
2,235 Credit Suisse First Boston USA, Inc., Notes, 5.88%,
due 8/1/06 Aa3 A+ 2,288
1,500 Daimler Chrysler N.A. Holdings Corp., Guaranteed Notes,
6.40%, due 5/15/06 A3 BBB 1,525
1,950 Diageo Finance BV, Guaranteed Notes, 3.00%, due 12/15/06 A2 A 1,916
715 Enterprise Products Operating, Senior Notes,
4.00%, due 10/15/07 Baa3 BB+ 702
3,600 General Electric Capital Corp., Notes, 3.50%, due 5/1/08 Aaa AAA 3,526
20
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 800 General Motors Acceptance Corp., Notes, 6.13%, due 9/15/06 Baa2 BB $ 795
540 General Motors Acceptance Corp., Notes, 6.13%, due 2/1/07 Baa2 BB 531
2,400 Goldman Sachs Group, Inc., Notes, 4.13%, due 1/15/08 Aa3 A+ 2,394
1,440 Hertz Corp., Senior Notes, 8.25%, due 6/1/05 Baa2 1,443
1,950 Hewlett-Packard Co., Senior Notes, 5.50%, due 7/1/07 A3 A- 2,005
1,900 HSBC Finance Corp., Notes, 5.75%, due 1/30/07 A1 A 1,952
340 IBP, Inc., Senior Notes, 6.13%, due 2/1/06 Baa3 BBB 345
1,900 International Lease Finance Corp., Notes, 5.75%, due 2/15/07 A1 AA- 1,949
1,630 John Deere Capital Corp., Notes, 5.13%, due 10/19/06 A3 A- 1,657
1,300 Kraft Foods, Inc., Notes, 4.63%, due 11/1/06 A3 BBB+ 1,309
1,000 Lear Corp., Guaranteed Senior Notes, Ser. B,
7.96%, due 5/15/05 Baa3 BBB- 1,001
1,200 Mallinckrodt Group, Inc., Notes, 6.50%, due 11/15/07 Baa3 BBB 1,256
2,400 Merrill Lynch & Co., Medium-Term Notes, 6.13%, due 5/16/06 Aa3 A+ 2,453
2,235 Morgan Stanley, Bonds, 5.80%, due 4/1/07 Aa3 A+ 2,298
1,900 National Rural Utilities Collateral Trust, 6.00%, due 5/15/06 A1 A+ 1,940
444 Raytheon Co., Notes, 6.50%, due 7/15/05 Baa3 BBB- 447
1,340 Reliant Energy Resources Corp., Notes, Ser. B,
8.13%, due 7/15/05 Ba1 BBB 1,353
1,500 Sara Lee Corp., Medium-Term Notes, Ser. B, 6.40%, due 6/9/05 A3 A 1,503
2,200 SBC Communications, Inc., Notes, 5.75%, due 5/2/06 A2 A 2,239
1,000 Sprint Capital Corp., Guaranteed Notes, 6.00%, due 1/15/07 Baa3 BBB- 1,027
1,950 Target Corp., Notes, 3.38%, due 3/1/08 A2 A+ 1,913
1,900 Time Warner, Inc., Notes, 5.63%, due 5/1/05 1,900^^^
1,850 Toyota Motor Credit Corp., Medium Term Notes,
2.70%, due 1/30/07 Aaa AAA 1,811
1,250 Union Bank Switzerland-NY, Subordinated Notes,
7.25%, due 7/15/06 Aa3 AA 1,293
950 Univision Communications, Inc., Guaranteed Notes,
3.50%, due 10/15/07 Baa2 BBB- 931
1,800 US Bank N.A., Notes, 2.85%, due 11/15/06 Aa1 AA- 1,772
2,375 Verizon Wireless Capital, Notes, 5.38%, due 12/15/06 A3 A+ 2,423
2,300 Wachovia Corporation, Notes, 4.95%, due 11/1/06 Aa3 A+ 2,331
1,750 Washington Mutual, Inc., Senior Notes, 5.63%, due 1/15/07 A3 A- 1,790
1,000 Weyerhaeuser Co., Notes, 6.00%, due 8/1/06 Baa2 BBB 1,026
1,750 Xcel Energy, Inc., Senior Notes, 3.40%, due 7/1/08 Baa1 BBB- 1,696
----------
TOTAL CORPORATE DEBT SECURITIES (COST $89,657) 88,829
----------
FOREIGN GOVERNMENT SECURITIES^ (4.1%)
EUR 3,600 Bundesobligation, 3.50%, due 10/10/08 Aaa AAA 4,801
EUR 1,810 Bundesobligation, 3.25%, due 4/17/09 Aaa AAA 2,392
----------
TOTAL FOREIGN GOVERNMENT SECURITIES (COST $6,817) 7,193
----------
ASSET-BACKED SECURITIES (18.8%)
3,300 Banc of America Commercial Mortgage Inc., Series 2005-1,
Class A1, 4.36%, due 11/10/42 AAA 3,316
3,000 Capital Auto Receivables Asset Trust, Ser. 2004-2,
3.58%, due 1/15/09 Aaa AAA 2,963
1,850 Capital One Prime Auto Receivables Trust, Series 2004-3,
3.39%, due 1/15/09 Aaa AAA 1,832
3,600 Chase Manhattan Auto Owner Trust, Ser. 2003-C, Class A4,
2.94%, due 6/15/10 Aaa AAA 3,531
3,750 Citibank Credit Card Issuance Trust, Ser. 2004-A1,
2.55%, due 1/20/09 Aaa AAA 3,664
See Notes to Schedule of Investments
21
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 4,000 Daimler Chrysler Auto Trust, Ser. 2003-B, Class A4,
2.86%, due 3/9/09 Aaa AAA $ 3,928
2,250 Ford Credit Auto Owner Trust, Ser. 2005-A, Class A3,
3.48%, due 11/15/08 Aaa AAA 2,235
4,120 Honda Auto Receivables Owner Trust, Ser. 2004, Class A4,
3.28%, due 2/18/10 Aaa AAA 4,010
3,750 MBNA Credit Card Master Note Trust, Ser. 2002-A1, Class A1,
4.95%, due 6/15/09 Aaa AAA 3,821
2,250 Nissan Auto Receivables Owner Trust, Ser. 2005-A, Class A3,
3.54%, due 10/15/08 Aaa AAA 2,234
1,100 USAA Auto Owner Trust, Series 2005-1, Class A3,
3.90%, due 7/15/09 Aaa AAA 1,098
----------
TOTAL ASSET-BACKED SECURITIES (COST $32,949) 32,632
----------
REPURCHASE AGREEMENTS (1.5%)
2,585 State Street Bank and Trust Co. Repurchase Agreement, 2.60%,
due 5/2/05, dated 4/29/05, Maturity Value $2,585,560,
Collateralized by $2,650,000 U.S. Treasury Bonds, 3.13%,
due 5/15/07 (Collateral Value $2,663,250) (COST $2,585) 2,585#
----------
TOTAL INVESTMENTS (97.5%) (COST $170,614) 169,707##
Cash, receivables and other assets, less liabilities (2.5%) 4,382
----------
TOTAL NET ASSETS (100.00%) $ 174,089
----------
22
SCHEDULE OF INVESTMENTS High Income Bond Fund
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
CORPORATE DEBT SECURITIES (94.6%)
$ 2,425 Abitibi-Consolidated, Inc., Notes, 6.95%, due 4/1/08 Ba3 BB- $ 2,340
2,575 Abitibi-Consolidated, Inc., Notes, 8.55%, due 8/1/10 Ba3 BB- 2,479
7,250 AES Corp., Senior Secured Notes, 8.75%, due 5/15/13 Ba3 B+ 7,848**
3,125 AGCO Corp., Guaranteed Notes, 9.50%, due 5/1/08 Ba3 BB- 3,273
5,750 Airgas, Inc., Senior Subordinated Notes, 9.13%, due 10/1/11 Ba2 BB- 6,210
5,150 Alderwoods Group, Inc., Senior Notes, 7.75%, due 9/15/12 B2 B 5,330**
4,000 Alliant Techsystems, Inc., Senior Subordinated Notes,
8.50%, due 5/15/11 B2 B 4,250
1,500 Allied Waste North America, Inc., Guaranteed Notes, Ser. B,
8.88%, due 4/1/08 B2 BB- 1,541
2,667 Allied Waste North America, Inc., Guaranteed Senior Secured
Notes, Ser. B, 9.25%, due 9/1/12 B2 BB- 2,814
2,000 Allied Waste North America, Inc., Senior Notes,
7.25%, due 3/15/15 B2 BB- 1,820**
6,275 Amerada Hess Corp., Notes, 6.65%, due 8/15/11 Ba1 BBB- 6,747
6,875 Amerigas Partners L.P., Senior Notes, Ser. B, 8.88%, due 5/20/11 BB- 7,459
5,000 Amerigas Partners L.P., Senior Unsecured Notes,
7.25%, due 5/20/15 B2 BB- 5,000+++++**
7,575 AMETEK, Inc., Senior Notes, 7.20%, due 7/15/08 Baa3 BBB 8,132
8,625 Arch Western Finance Corp., Senior Notes, 6.75%, due 7/1/13 Ba3 BB 8,647
4,250 Arvin Industries, Inc., Senior Notes, 6.75%, due 3/15/08 Ba1 BB+ 4,101
6,825 Aviall, Inc., Senior Notes, 7.63%, due 7/1/11 B1 BB 6,996
4,000 BCP Crystal Holdings Corp., Senior Subordinated Notes,
9.63%, due 6/15/14 B3 B- 4,410
4,750 Boise Cascade LLC, Floating Quarterly Senior Notes,
6.02%, due 10/15/12 B1 B+ 4,702**
2,500 Boise Cascade LLC, Senior Subordinated Notes,
7.13%, due 10/15/14 B2 B+ 2,375**
4,175 Bombardier Recreational Products, Senior Subordinated Notes,
8.38%, due 12/15/13 B3 B- 4,363
5,500 BoWater Canada Finance Corp., Guaranteed Notes,
7.95%, due 11/15/11 Ba3 BB 5,445
4,375 Case New Holland, Inc., Senior Notes, 6.00%, due 6/1/09 Ba3 BB- 4,036**
2,875 Case New Holland, Inc., Senior Notes, 9.25%, due 8/1/11 Ba3 BB- 2,932**
5,125 Charter Communications Operating LLC, Senior Notes,
8.00%, due 4/30/12 B2 B- 4,920**
2,500 Chesapeake Energy Corp., Guaranteed Senior Notes,
8.13%, due 4/1/11 Ba3 BB- 2,625
4,000 Chesapeake Energy Corp., Senior Notes, 7.00%, due 8/15/14 Ba3 BB- 4,100
3,500 Chiquita Brands International, Senior Notes,
7.50%, due 11/1/14 B3 B- 3,203
2,500 CITGO Petroleum Corp., Senior Notes, 7.88%, due 5/15/06 Ba2 BB 2,531
3,575 CITGO Petroleum Corp., Senior Notes, 6.00%, due 10/15/11 Ba2 BB 3,477**
4,750 CMS Energy Corp., Senior Notes, 8.90%, due 7/15/08 B1 B+ 5,059
3,000 CMS Energy Corp., Senior Notes, 7.75%, due 8/1/10 B1 B+ 3,082
5,750 Compass Minerals Group, Inc., Senior Subordinated Notes,
10.00%, due 8/15/11 B3 B- 6,267
6,075 Constellation Brands, Inc., Guaranteed Senior Subordinated
Notes, Ser. B, 8.13%, due 1/15/12 Ba3 B+ 6,227+++
2,625 Coventry Health Care, Inc., Senior Notes, 8.13%, due 2/15/12 Ba1 BBB- 2,822
8,750 CSC Holdings, Inc., Senior Notes, Ser. B, 8.13%, due 7/15/09 B1 BB- 8,969
See Notes to Schedule of Investments
23
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 3,175 D. R. Horton, Inc., Guaranteed Senior Unsecured Notes,
5.00%, due 1/15/09 Ba1 BB+ $ 3,140
6,000 D. R. Horton, Inc., Guaranteed Senior Notes,
8.50%, due 4/15/12 Ba1 BB+ 6,560++++++
4,325 Dana Corp., Notes, 6.50%, due 3/1/09 Ba2 BBB- 4,146
2,000 Davita, Inc., Senior Notes, 6.63%, due 3/15/13 B2 B 1,980**
2,000 Davita, Inc., Senior Subordinated Notes, 7.25%, due 3/15/15 B3 B 1,945**
2,500 Dean Foods Co., Senior Notes, 6.75%, due 6/15/05 Ba2 BB- 2,500
5,625 Dean Foods Co., Senior Notes, 6.63%, due 5/15/09 Ba2 BB- 5,709+++
2,625 Dole Foods Co., Inc., Debentures, 8.75%, due 7/15/13 B2 B+ 2,783
1,852 Dole Foods Co., Inc., Senior Notes, 8.63%, due 5/1/09 B2 B+ 1,949
3,750 Dresser, Inc., Guaranteed Senior Subordinated Notes,
9.38% due 4/15/11 B2 B 3,919
5,000 EchoStar DBS Corp., Senior Notes, 5.75%, due 10/1/08 Ba3 BB- 4,919
1,925 Edison Mission Energy, Senior Notes, 10.00%, due 8/15/08 B1 B+ 2,103
4,075 Edison Mission Energy, Senior Notes, 9.88%, due 4/15/11 B1 B+ 4,605
4,325 El Paso Natural Gas, Senior Notes, Ser. A, 7.63%, due 8/1/10 B1 B- 4,519
5,325 Entercom Radio/Capital, Guaranteed Senior Notes,
7.63%, due 3/1/14 Ba2 B+ 5,538
5,625 Enterprise Products Operating L.P., Guaranteed Senior Notes,
7.50%, due 2/1/11 Baa3 BB+ 6,260
7,575 Entravision Communications Corp., Guaranteed Notes,
8.13%, due 3/15/09 B3 B- 7,802
3,000 ERICO International Corp., Senior Subordinated Notes,
8.88%, due 3/1/12 B3 B- 3,030
6,575 Evergreen Resources, Inc., Senior Subordinated Notes,
5.88%, due 3/15/12 Baa3 BBB- 6,577
5,000 Felcor Lodging L.P., Senior Floating Rate Notes,
6.87%, due 6/1/11 B1 B- 5,125
7,000 Ferrellgas L.P., Senior Notes, 8.75%, due 6/15/12 B2 B- 7,070
1,750 Ferrellgas L.P., Senior Notes, 6.75%, due 5/1/14 Ba3 B+ 1,663
2,500 Fisher Scientific International, Inc., Senior Subordinated Notes,
8.13%, due 5/1/12 Ba3 BB+ 2,772
6,175 Fisher Scientific International, Inc., Senior Subordinated Notes,
8.00%, due 9/1/13 Ba3 BB+ 6,638
3,750 Flowserve Corp., Guaranteed Senior Subordinated Notes,
12.25%, due 8/15/10 B2 B 4,050
7,125 Forest Oil Corp., Senior Notes, 8.00%, due 6/15/08 Ba3 BB- 7,552
5,875 Freescale Semiconductor, Senior Notes, 6.88%, due 7/15/11 Ba2 BB+ 6,022
4,125 General Cable Corp., Senior Notes, 9.50%, due 11/15/10 B2 B 4,373
3,000 General Motors Acceptance Corp., Floating Rate Notes,
4.05%, due 1/16/07 Baa2 BB 2,864
1,875 General Motors Acceptance Corp., Notes, 5.63%, due 5/15/09 Baa2 BB 1,697
2,575 Georgia Gulf Corp., Notes, 7.63%, due 11/15/05 Ba2 BBB- 2,607
6,325 Georgia Gulf Corp., Senior Notes, 7.13%, due 12/15/13 Ba3 BB- 6,483
5,125 Georgia Pacific Corp., Senior Notes, 7.38%, due 7/15/08 Ba2 BB+ 5,356
2,500 Grant Prideco, Inc., Guaranteed Senior Notes, Ser. B,
9.63%, due 12/1/07 Ba3 BB- 2,731
2,625 Grant Prideco, Inc., Guaranteed Notes, 9.00%, due 12/15/09 Ba3 BB- 2,862
3,875 GulfMark Offshore, Inc., Senior Notes, 7.75%, due 7/15/14 B2 BB- 3,914**
2,000 Hanover Equipment Trust 2001 A, Senior Secured Notes, Ser. A,
8.50%, due 9/1/08 B2 B+ 2,080
24
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 3,250 Hanover Equipment Trust 2001 B, Senior Secured Notes, Ser. B,
8.75%, due 9/1/11 B2 B+ $ 3,408
3,750 HCA, Inc., Notes, 5.50%, due 12/1/09 Ba2 BB+ 3,721
3,125 HCA, Inc., Notes, 6.30%, due 10/1/12 Ba2 BB+ 3,142
5,000 Hines Nurseries, Inc., Senior Notes, 10.25%, due 10/1/11 B3 B 5,250
613 HMH Properties, Inc., Guaranteed Senior Notes, Ser. B,
7.88%, due 8/1/08 Ba3 B+ 625
8,000 Host Marriott L.P., Senior Notes, Ser. M 7.00%, due 8/15/12 Ba3 B+ 8,080
7,125 Invista, Notes, 9.25%, due 5/1/12 B1 B+ 7,597**
5,000 iStar Financial, Inc., Senior Notes, 5.13%, due 4/1/11 Baa3 BBB- 4,922
2,500 Jafra Cosmetics, Senior Subordinated Notes,
10.75%, due 5/15/11 B3 B- 2,813
2,500 Jefferson Smurfit Corp., Guaranteed Senior Notes,
8.25%, due 10/1/12 B2 B 2,450
5,650 K. Hovnanian Enterprises, Guaranteed Notes,
6.00%, due 1/15/10 Ba2 B+ 5,509
1,000 K. Hovnanian Enterprises, Guaranteed Notes,
8.88%, due 4/1/12 Ba2 B+ 1,065
2,500 KB Home, Notes, 6.38%, due 8/15/11 Ba1 BB+ 2,577
3,250 KB Home, Senior Subordinated Notes, 8.63%, due 12/15/08 Ba2 BB- 3,541
3,125 Kennametal, Inc., Senior Notes, 7.20%, due 6/15/12 Ba1 BBB 3,476
4,875 L-3 Communications Corp., Guaranteed Senior Subordinated Notes,
7.63%, due 6/15/12 Ba3 BB+ 5,155
8,000 Lamar Media Corp., Guaranteed Notes, 7.25%, due 1/1/13 Ba3 B 8,240
5,000 Las Vegas Sands Corp., Senior Notes, 6.38%, due 2/15/15 B2 B 4,688**
4,700 LIN Television Corp., Senior Subordinated Notes,
6.50%, due 5/15/13 B1 B 4,500
1,175 LIN Television Corp., Senior Subordinated Notes,
6.50%, due 5/15/13 B1 B 1,125**
4,525 Louisiana Pacific Corp., Senior Notes, 8.88%, due 8/15/10 Baa3 BBB- 5,119
3,675 Lyondell Chemical Co., Guaranteed Senior Notes,
9.50%, due 12/15/08 B1 BB- 3,918
3,225 Lyondell Chemical Co., Guaranteed Senior Notes,
10.50%, due 6/1/13 B1 BB- 3,717
2,500 MGM Mirage, Inc., Guaranteed Senior Notes,
8.50%, due 9/15/10 Ba2 BB 2,725
6,825 MGM Mirage, Inc., Guaranteed Notes, 6.00%, due 10/1/09 Ba2 BB 6,731
5,175 Millar Western Forest, Senior Notes, 7.75%, due 11/15/13 B2 B+ 4,916
3,750 Millennium America, Inc., Guaranteed Notes,
7.00%, due 11/15/06 B1 BB- 3,816
5,750 Moog, Inc., Senior Subordinated Notes, 6.25%, due 1/15/15 Ba3 B+ 5,692
6,000 MSW Energy Holdings LLC, Guaranteed Senior Secured Notes,
Ser. B, 7.38%, due 9/1/10 Ba3 BB- 5,970
8,425 Nalco Co., Senior Notes, 7.75%, due 11/15/11 B2 B- 8,593
5,875 Navistar International Corp., Senior Notes,
7.50%, due 6/15/11 Ba3 BB- 5,552
3,525 Nevada Power Co., General Refunding Mortgage Notes, Ser. E,
10.88%, due 10/15/09 Ba2 3,913
3,000 Newfield Exploration Co., Senior Notes, Ser. B,
7.45%, due 10/15/07 Ba2 BB+ 3,135
4,250 Newfield Exploration Co., Senior Notes, 7.63%, due 3/1/11 Ba2 BB+ 4,569
7,000 Nextel Communications, Inc., Senior Notes,
6.88%, due 10/31/13 Ba3 BB 7,350
See Notes to Schedule of Investments
25
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 1,500 Noble Group, Ltd., Senior Notes, 6.63%, due 3/17/15 Ba1 BB+ $ 1,337**
6,500 Norampac, Inc., Senior Notes, 6.75%, due 6/1/13 Ba2 BB+ 6,435
7,500 Norske Skog Canada, Ltd., Guaranteed Senior Notes, Ser. D,
8.63%, due 6/15/11 Ba3 BB- 7,650+++
1,250 Nortel Networks Corp., Guaranteed Notes, 7.40%, due 6/15/06 B3 B- 1,266
5,125 Novelis, Inc., Senior Notes, 7.25%, due 2/15/15 B1 B 4,958**
7,575 NRG Energy, Inc., Secured Notes, 8.00%, due 12/15/13 B1 B 7,651**
7,000 NVR, Inc., Senior Notes, 5.00%, due 6/15/10 Baa3 BB+ 6,895
2,525 OMEGA Healthcare Investors, Inc., Notes, 6.95%, due 8/1/07 B1 BB- 2,566
3,075 Omnicare, Inc., Guaranteed Notes, Ser. B, 8.13%, due 3/15/11 Ba2 BB+ 3,229
5,175 Owens & Minor, Inc., Senior Subordinated Notes,
8.50%, due 7/15/11 Ba3 BB- 5,563
3,325 Owens-Brockway Glass Container, Inc., Guaranteed Senior Notes,
8.88%, due 2/15/09 B1 BB- 3,541
6,050 Owens-Brockway Glass Container, Inc., Guaranteed Senior Notes,
8.25%, due 5/15/13 B2 B 6,413
3,125 Park Place Entertainment Corp., Senior Notes,
7.50%, due 9/1/09 Ba1 BB+ 3,406
5,750 Peabody Energy Corp., Guaranteed Senior Notes, Ser. B,
6.88%, due 3/15/13 Ba3 BB- 5,951
2,000 Pilgrim's Pride Corp., Guaranteed Senior Notes,
9.63%, due 9/15/11 Ba2 BB- 2,185
2,500 Pilgrim's Pride Corp., Senior Subordinated Notes,
9.25%, due 11/15/13 Ba3 B+ 2,788
2,575 Plains E&P Co., Senior Notes, 7.13%, due 6/15/14 Ba2 BB- 2,678
7,250 Pogo Producing Co., Senior Subordinated Notes, Ser. B,
8.25%, due 4/15/11 Ba3 BB 7,703
5,225 Pride International, Inc., Senior Notes, 7.38%, due 7/15/14 Ba2 BB- 5,486
5,000 PSE&G Energy Holdings, Inc., Notes, 7.75%, due 4/16/07 Ba3 BB- 5,125
7,075 Radio One, Inc., Guaranteed Senior Notes, 8.88%, due 7/1/11 B2 B 7,570
4,125 Reliant Energy, Inc., Secured Notes, 6.75%, due 12/15/14 B1 B+ 3,651
5,000 Rent-A-Center, Inc., Guaranteed Senior Notes, Ser. B,
7.50%, due 5/1/10 B1 BB- 4,950
1,000 Rogers Cable, Inc., Secured Notes, 7.88%, due 5/1/12 Ba3 BB+ 1,030
3,000 Rogers Cable, Inc., Secured Notes, 5.50%, due 3/15/14 Ba3 BB+ 2,655
5,250 Rogers Wireless, Inc., Secured Notes, 7.25%, due 12/15/12 Ba3 BB 5,368
3,625 Ryland Group, Inc., Senior Notes, 5.38%, due 6/1/08 Baa3 BBB- 3,684
2,625 Salem Communications Holding Corp., Guaranteed Senior
Subordinated Notes, 7.75%, due 12/15/10 B2 B- 2,691
7,725 Salem Communications Holding Corp., Guaranteed Senior
Subordinated Notes, Ser. B, 9.00%, due 7/1/11 B2 B- 8,188
7,625 Scotts Co., Senior Subordinated Notes, 6.63%, due 11/15/13 Ba2 B+ 7,701
6,575 Sequa Corp., Senior Notes, Ser. B, 8.88%, due 4/1/08 B1 BB- 6,772
6,625 Service Corp. International, Notes, 6.88%, due 10/1/07 Ba3 BB 6,733
2,500 Sierra Pacific Power Co., General Refunding Mortgage Notes,
6.25%, due 4/15/12 Ba2 BB 2,494
6,625 Smithfield Foods, Inc., Senior Notes, 7.00%, due 8/1/11 Ba2 BB 6,774
4,500 Southern Star Central Corp., Senior Secured Notes,
8.50%, due 8/1/10 B1 B+ 4,815
6,525 Speedway Motorsports, Inc., Senior Subordinated Notes,
6.75%, due 6/1/13 Ba2 B+ 6,566
5,750 Standard Pacific Corp., Senior Notes, 6.50%, due 10/1/08 Ba2 BB 5,807
26
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 3,000 Starwood Hotels & Resorts, Worldwide, Inc., Guaranteed
Senior Notes, 7.88%, due 5/1/12 Ba1 BB+ $ 3,289
5,000 Steinway Musical Instruments, Guaranteed Notes,
8.75%, due 4/15/11 Ba3 B+ 5,250
2,875 Stena AB, Senior Notes, 9.63%, due 12/1/12 Ba3 BB- 3,112
3,125 Stewart Enterprises, Senior Notes, 6.25%, due 2/15/13 B1 BB- 3,031**
6,125 Stone Container Corp., Senior Notes, 9.75%, due 2/1/11 B2 B 6,416
3,875 Suburban Propane Partners L.P., Senior Notes,
6.88%, due 12/15/13 B1 B 3,720
5,750 Tembec Industries, Inc., Guaranteed Notes,
8.63%, due 6/30/09 B2 B 4,629
2,000 Tembec Industries, Inc., Guaranteed Senior Notes,
8.50%, due 2/1/11 B2 B 1,530
3,575 Tenet Healthcare Corp., Senior Notes, 6.38%, due 12/1/11 B3 B 3,325
1,500 Tenet Healthcare Corp., Senior Notes, 9.25%, due 2/1/15 B3 B 1,500**
7,250 Toll Corp., Senior Subordinated Notes, 8.25%, due 12/1/11 Ba2 BB+ 7,748+++
2,875 Transcontinental Gas Pipe Line Corp., Notes, Ser. B,
7.00%, due 8/15/11 Ba2 B+ 3,026
5,000 Triad Hospitals, Inc., Senior Notes, 7.00%, due 5/15/12 B2 B+ 5,125
4,375 TXU Corp., Notes, 4.80%, due 11/15/09 Ba1 BBB- 4,289**
5,750 Unisys Corp., Senior Notes, 6.88%, due 3/15/10 Ba1 BB+ 5,506
5,250 Valmont Industries, Inc., Guaranteed Notes, 6.88%, due 5/1/14 Ba3 B+ 5,145
5,000 Vintage Petroleum, Inc., Senior Notes, 8.25%, due 5/1/12 Ba3 BB- 5,388
5,875 Vought Aircraft Industries, Inc., Senior Notes, 8.00%, due 7/15/11 B2 B- 5,581
3,750 VWR International, Inc., Senior Notes, 6.88%, due 4/15/12 B3 B- 3,581
2,000 Warnaco, Inc., Senior Notes, 8.88%, due 6/15/13 B1 B 2,160
4,875 Warner Music Group, Senior Subordinated Notes,
7.38%, due 4/15/14 B3 B- 4,875
4,325 Westinghouse Air Brake, Senior Notes, 6.88%, due 7/31/13 Ba2 BB 4,347
6,000 Williams Cos., Inc., Notes, 8.13%, due 3/15/12 B1 B+ 6,570
5,875 Xerox Corp., Senior Notes, 6.88%, due 8/15/11 Ba2 BB- 6,095
4,825 Young Broadcasting, Inc., Guaranteed Senior Notes,
8.50%, due 12/15/08 B2 B- 5,166
----------
TOTAL CORPORATE DEBT SECURITIES (COST $784,041) 770,654
----------
CONVERTIBLE BONDS (1.3%)
4,325 Fairchild Semiconductor, Inc., Senior Subordinated Notes,
5.00%, due 11/1/08 B 4,255
7,125 Nortel Networks Corp., Notes, 4.25%, due 9/1/08 B3 B- 6,439
----------
TOTAL CONVERTIBLE BONDS (COST $11,197) 10,694
----------
REPURCHASE AGREEMENTS (3.7%)
30,110 State Street Bank and Trust Co. Repurchase Agreement, 2.60%,
due 5/2/05, dated 4/29/05, Maturity Value $30,116,524,
Collateralized by $30,860,000 U.S. Treasury Bonds, 3.13%, due
5/15/07 (Collateral Value $31,014,300) (COST $30,110) 30,110#
----------
SHORT-TERM INVESTMENTS (1.7%)
14,044 Neuberger Berman Securities Lending Quality Fund, LLC
(COST $14,044) 14,044#@@@
----------
See Notes to Schedule of Investments
27
NUMBER OF SHARES RATING VALUE +
MOODY'S S&P (000'S OMITTED)
WARRANTS (0.0%)
1 Dayton Superior Corp. $ --*
22 Reliant Resources, Inc. --*
1 XM Satellite Radio, Inc. --*
----------
TOTAL WARRANTS (COST $0) --
----------
TOTAL INVESTMENTS (101.3%) (COST $839,392) 825,502##
Liabilities, less cash, receivables and other assets [(1.3%)] (10,413)
----------
TOTAL NET ASSETS (100.0%) $ 815,089
----------
28
SCHEDULE OF INVESTMENTS Municipal Securities Trust
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 (6.3%)
$ 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 $ 1,146
1,000 Wisconsin St. G.O., Ser. 2002 C, 5.25%, due 5/1/14 PR 5/1/12 Aaa AAA 1,121
----------
2,267
----------
TAX-EXEMPT SECURITIES--BACKED BY INSURANCE (37.3%)
AMERICAN MUNICIPAL BOND ASSURANCE CORP.
1,000 Larimer Co. (CO) Sales & Use Tax Rev., Ser. 2000,
5.75%, due 12/15/15 Aaa AAA 1,123
FINANCIAL GUARANTY INSURANCE CO.
1,000 Dade Co. (FL) Wtr. & Swr. Sys. Rev., Ser. 1995,
6.25%, due 10/1/06 Aaa AAA 1,048
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 843
1,000 Grapevine (TX) Combination Tax & Tax Increment Reinvestment
Zone Rev., Ser. 2000, 5.63%, due 8/15/15 Aaa AAA 1,111
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 1,127
1,000 Tampa Bay (FL) Wtr. Util. Sys. Rev., Ser. 1998 B,
5.13%, due 10/1/09 Aaa AAA 1,080
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 572
1,000 Springfield (MO) Sch. Dist. Number R-12, Ref. G. O., Ser. 2002 A,
5.50%, due 3/1/13 AAA 1,138
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 891
MUNICIPAL BOND INVESTORS ASSURANCE CORP.
1,000 California St. Econ. Rec. G.O., Ser. 2004 A, 5.25%, due 7/1/13 Aaa AAA 1,126
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 1,052
1,000 New Jersey Econ. Dev. Au. St. Lease Rev. (Liberty St. Park Proj.),
Ser. 2005 B, 5.00%, due 3/1/17 Aaa AAA 1,093
1,000 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 1,112
----------
13,316
----------
TAX-EXEMPT SECURITIES--OTHER (53.0%)
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 1,060
1,000 Brazosport (TX) Independent Sch. Dist. Ref. Rev., Ser. 2005,
5.00%, due 2/15/15 Aaa 1,096
1,000 Columbus (OH) Var. Purp. Ltd. Tax G.O., Ser. 1998-1,
5.00%, due 6/15/08 Aaa AAA 1,061
400 Denver (CO) City & Co. Sch. Dist. No. 1 Ref. G.O., Ser. 1994 A,
6.50%, due 6/1/10 Aa3 AA- 461
1,000 Illinois St. Sales Tax Rev., Ser. 1997 Y, 5.25%, due 6/15/10 Aa2 AAA 1,097
1,000 Indiana St. Office Bldg. Commission Fac. Ref. Rev., Ser. 1998 A,
5.13%, due 7/1/14 Aa2 1,073
1,000 Lake Co. (IL) Forest Preserve Dist. Ref. G.O., Ser. 1997,
5.50%, due 2/1/09 Aa1 AAA 1,086
1,000 Lake Co. (IL) Sch. Dist. No. 109 Deerfield Ref. G.O., Ser. 1999 C,
5.00%, due 12/15/14 Aa2 AA+ 1,103
See Notes to Schedule of Investments
29
PRINCIPAL AMOUNT SECURITY @ RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 25 Mississippi Higher Ed. Assist. Corp. Std. Loan Sub. Rev.,
Ser. 1993 C, 6.05%, due 9/1/07 A $ 25
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 1,118
1,000 Nevada Ref. Ltd. Tax G.O., Ser. 1997 A-2, 6.00%, due 5/15/06 Aa2 AA 1,033
575 New Jersey Trans. Trust Fund Au. Trans. Sys. Rev., Ser. 1999 A,
5.63%, due 6/15/13 Aa3 AA 651
1,000 New York St. Thruway Au. Local Hwy. & Bridge Svc. Contract Rev.,
Ser. 1997, 5.25%, due 4/1/10 A3 AA- 1,063
500 New York Tobacco Settlement Fin. Corp. Asset-Backed Rev.,
Ser. 2003 A-1, 5.25%, due 6/1/12 AA- 513
1,000 Northside (TX) Independent Sch. Dist. Unlimited Tax Sch. Bldg. G.O.,
Ser. 1999 A, 6.38%, due 8/15/09 Aaa AAA 1,132
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+ 1,066
500 South Carolina St. Cap. Imp. G.O., Ser. 2001 B,
5.38%, due 4/1/13 AAA 563
1,000 Texas Pub. Fin. Au. Ref. G.O., Ser. 1998 B, 5.13%, due 10/1/09 Aa1 AA 1,074
1,000 Texas Wtr. Dev. Board St. Revolving Fund Sr. Lien Rev., Ser. 1996 B,
5.25%, due 7/15/13 AAA 1,037
1,000 Utah St. G.O., Ser. 2002 A, 5.00%, due 7/1/08 Aaa AAA 1,064
500 Wyoming St. Loan & Investment Board Cap. Fac. Ref. Rev.,
Ser. 2002, 5.00%, due 10/1/10 AA- 544
----------
18,920
----------
TAX-EXEMPT VARIABLE RATE DEMAND NOTES (0.3%)
100 Lower Neches Valley Au. (TX) IDC Exempt Fac. Rev. (Mobil Oil Corp.
Proj.), Ser. 1999, 3.01%, VRDN due 5/2/05 P-1 A-1+ 100++++
----------
TAX-EXEMPT VARIABLE RATE DEMAND NOTES--BACKED BY LETTERS OF CREDIT (2.0%)
SOCIETE GENERALE
700 Los Angeles (CA) Reg. Arpt. Imp. Corp. Term. Fac. Completion Rev.
(Los Angeles Int'l. Arpt.), Ser. 1989, 3.02%, VRDN due 5/2/05 A-1+ 700++++
----------
TOTAL INVESTMENTS (98.9%) (COST $34,046) 35,303##
Cash, receivables and other assets, less liabilities (1.1%) 403
----------
TOTAL NET ASSETS (100.0%) $ 35,706
----------
30
SCHEDULE OF INVESTMENTS Municipal Money Fund
PRINCIPAL AMOUNT SECURITY @ RATING @@ VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
MUNICIPAL NOTES (12.5%)
$ 6,400 Bridgewater & Raynham (MA) Reg. Sch. Dist. BANS, Ser. 2004,
3.00%, due 9/1/05 MIG1 $ 6,413
3,600 Colorado St. Gen. Fund TRANS, Ser. 2004, 3.00%, due 6/27/05 MIG1 SP-1+ 3,605
5,000 Iowa Sch. Corp. Warrant Cert. (Iowa Sch. Cash Anticipation
Prog.), Ser. 2004 A, 3.00%, due 6/30/05 MIG1 5,008
10,000 Kentucky Asset/Liability Commission Gen. Fund TRANS, Ser.
2004 A, 3.00%, due 6/29/05 MIG1 SP-1+ 10,023
7,400 Michigan St., Notes, Ser. 2004 A, 3.50%, due 9/30/05 MIG1 SP-1+ 7,445
8,000 New Jersey St. TRANS, Ser. 2004 A, 3.00%, due 6/24/05 MIG1 8,018
4,400 Orange Co. (FL) Sch. Dist. TANS, Ser. 2004, 3.00%, due
9/19/05 MIG1 4,415
15,000 Texas St. TRANS, Ser. 2004, 3.00%, due 8/31/05 MIG1 SP-1+ 15,070
10,000 Wichita City (KS) G.O. Renewal & Imp. Temporary Notes, Ser.
2005 - 213, 3.00%, due 8/4/05 MIG1 SP-1+ 10,027
----------
70,024
----------
TAX-EXEMPT SECURITIES--BACKED BY LETTERS OF CREDIT (2.4%)
BANK OF AMERICA
10,000 Tulsa Co. (OK) Ind. Au. Cap. Imp. Rev., Ser. 2003 A, 2.05%,
due 5/15/17 Putable 5/16/05 A-1+ 10,000
STATE STREET BANK
3,500 Chicago (IL) G.O., Tender Notes, Ser. 2004, 2.20%, due
1/27/06 Putable 12/8/05 MIG1 SP-1+ 3,500
----------
13,500
----------
TAX-EXEMPT SECURITIES--OTHER (1.4%)
3,000 Illinois Hlth. Fac. Au. Rev. (Advocate Hlth. Care Network),
Ser. 2003 A, 1.73%, due 11/15/22 Putable 7/6/05 VMIG1 A-1+ 3,000++++
5,000 Washington (MD) Suburban Sanitation Dist. Wtr. Supply Ref.
Rev., Ser. 2003, 4.00%, due 6/1/05 5,011
----------
8,011
----------
TAX-EXEMPT COMMERCIAL PAPER (2.7%)
15,000 Port of Port Arthur (TX) Navigation Dist. Rev. (BASF Corp.
Proj.), Ser. 2000 A, 2.10%, TECP due 6/9/05 P-1 15,000
----------
TAX-EXEMPT COMMERCIAL PAPER--BACKED BY LETTERS OF CREDIT (6.9%)
BANK OF NOVA SCOTIA
3,510 Sunshine St. (FL) Gov't. Fin. Comm. Rev., Ser. A, 1.98%,
TECP due 5/10/05 P-1 A-1 3,510
BAYERISCHE LANDESBANK GIROZENTRALE
4,448 Texas Dept. of Hsg. & Comm. Affairs Rev., 2.38%, TECP due
6/8/05 A-1+ 4,448
BNP PARIBAS
10,000 Clark Co. (NV) G.O., Ser. 2003 B, 2.00%, TECP due 6/8/05 VMIG1 A-1+ 10,000@@@@@
CREDIT SUISSE
5,000 Louisiana Pub. Fac. Au. Rev. (CHRISTUS Hlth.), Ser. 1999 B,
1.95%, TECP due 5/23/05 VMIG1 5,000
DEPFA BANK
2,331 Sunshine St. (FL) Gov't. Fin. Comm. Rev., Ser. A, 2.02%,
TECP due 5/10/05 P-1 A-1 2,331
See Notes to Schedule of Investments
31
PRINCIPAL AMOUNT SECURITY @ RATING @@ VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
DEXIA CREDIT LOCALE DE FRANCE
$ 5,100 South Carolina Pub. Svc. Au. Rev., 2.00%, TECP due 5/9/05 A-1+ $ 5,100~~~
TORONTO DOMINION BANK
1,100 Montgomery Co. (MD), 1.98%, TECP due 5/10/05 P-1 1,100
7,000 Montgomery Co. (MD), 2.35%, TECP due 5/10/05 P-1 A-1+ 7,000
----------
38,489
----------
TAX-EXEMPT VARIABLE RATE DEMAND NOTES (15.3%)
2,000 Colorado Hsg. & Fin. Au. Multi-Family Hsg. Ref. Rev.
(Huntersridge Proj.), Ser. 1996 E, 2.97%, VRDN due 5/4/05 A-1+ 2,000
1,000 Comm. Dev. Administration (MD) Multi-Family Dev. Ref. Rev.
(Avalon Ridge Apts. Proj.), Ser. 1997, 3.00%, VRDN due 5/4/05 VMIG1 1,000++++
4,350 Decatur City (AL) IDB Env. Fac. Rev. (BP Amoco Chemical Co.
Proj.), Ser. 2001, 3.07%, VRDN due 5/2/05 P-1 A-1+ 4,350++++
1,000 Delaware Co. (PA) IDA Res. Rec. Fac. Ref. Rev. (Gen. Elec.
Cap. Corp.), Ser. 1997 G, 2.95%, VRDN due 5/4/05 P-1 A-1+ 1,000++++
2,360 Florida Hsg. Fin. Agcy. Rev. (Heron Park Proj.), Ser. 1996
U, 2.97%, VRDN due 5/4/05 VMIG1 2,360++++
2,500 Gibson Co. (IN) PCR (Toyota Motor Mfg. Proj.), Ser. 1997,
3.04%, VRDN due 5/4/05 A-1+ 2,500++++
6,000 Gibson Co. (IN) PCR (Toyota Motor Mfg. Proj.), Ser. 2001,
3.04%, VRDN due 5/4/05 VMIG1 A-1+ 6,000++++
8,800 Gulf Coast (TX) Waste Disp. Au. Env. Fac. Rev. (Amoco Oil
Co. Proj.), Ser. 2001, 3.07%, VRDN due 5/2/05 VMIG1 A-1+ 8,800++++
1,600 Gulf Coast (TX) Waste Disp. Au. Env. Fac. Rev. (BP Prod.
North America Proj.), Ser. 2003, 3.07%, VRDN due 5/2/05 VMIG1 A-1+ 1,600++++
3,100 Gulf Coast (TX) Waste Disp. Au. Env. Fac. Rev. (ExxonMobil
Proj.), Ser. 2002, 3.01%, VRDN due 5/2/05 VMIG1 A-1+ 3,100++++
2,800 Kansas City (MO) Ind. Dev. Au. Rev. (Ewing Marion Kauffman
Foundation Proj.), Ser. 1997 A, 3.05%, VRDN due 5/2/05 A-1+ 2,800++++
2,100 Kansas Dev. Fin. Au. Multi-Family Hsg. Rev. (Summit Woods),
Ser. 2002 G-1, 3.05%, VRDN due 5/5/05 A-1+ 2,100++++
300 Louisville & Jefferson Co. (KY) Reg. Arpt. Au. Spec. Fac.
Rev. (UPS Worldwide Forwarding, Inc. Proj.), Ser. 1999 B,
3.08%, VRDN due 5/2/05 VMIG1 A-1+ 300++++
2,100 Lower Neches Valley Au. (TX) IDC Exempt Fac. Rev. (Mobil Oil
Corp. Proj.), Ser. 1999, 3.01%, VRDN due 5/2/05 P-1 A-1+ 2,100++++
3,000 Mount Vernon (IN) Poll. Ctrl. & Solid Waste Disp. Ref. Rev.
(General Elec. Co. Proj.), Ser. 2004, 3.00%, VRDN due 5/2/05 VMIG1 A-1+ 3,000++++
2,900 Mount Vernon (IN) Ref. PCR (General Elec. Co. Proj.), Ser.
1998, 3.00%, VRDN due 5/2/05 P-1 A-1+ 2,900++++
11,600 New York City (NY) Hsg. Dev. Corp. Multi-Family Rental Hsg.
Rev. (James Tower Dev.), Ser. 2002 A, 2.95%, VRDN due 5/4/05 P-1 A-1 11,600++++
1,500 New York City (NY) Hsg. Dev. Corp. Multi-Family Rental Hsg.
Rev. (Parkgate Dev.), Ser. 1998, 2.94%, VRDN due 5/4/05 A-1+ 1,500
2,200 New York City (NY) Hsg. Dev. Corp. Multi-Family Rental Hsg.
Rev. (The Foundry), Ser. 2002 A, 3.00%, VRDN due 5/4/05 A-1+ 2,200++++
7,900 New York St. Hsg. Fin. Agcy. Rev. (101 West End Avenue
Hsg.), Ser. 1999 A, 3.05%, VRDN due 5/4/05 VMIG1 7,900++++
4,615 Ohio Solid Waste Rev. (BP Exploration & Oil Inc. Proj.),
Ser. 2000, 3.08%, VRDN due 5/2/05 VMIG1 A-1+ 4,615++++
500 Ohio St. Solid Waste Ref. Rev. (BP Prod. North America, Inc.
Proj. - BP p.l.c.), Ser. 2002, 3.08%, VRDN due 5/2/05 VMIG1 A-1+ 500++++
3,400 Pinellas Co. (FL) Hsg. Fin. Au. Multi-Family Hsg. Ref. Rev.
(Foxbridge Apts. Proj.), Ser. 1995 A, 2.97%, VRDN due 5/4/05 A-1+ 3,400++++
32
PRINCIPAL AMOUNT SECURITY @ RATING @@ VALUE ++
(000'S OMITTED) MOODY'S S&P (000's OMITTED)
$ 3,100 Valdez (AK) Marine Term. Ref. Rev. (BP Pipelines Inc.
Proj.), Ser. 2003 A, 3.03%, VRDN due 5/2/05 VMIG1 A-1+ $ 3,100++++
2,250 Valdez (AK) Marine Term. Ref. Rev. (ExxonMobil Proj.), Ser.
2001, 2.89%, VRDN due 5/2/05 VMIG1 A-1+ 2,250++++
1,600 Valdez (AK) Marine Term. Rev. (Exxon Pipeline Co. Proj.),
Ser. 1985, 2.89%, VRDN due 5/2/05 P-1 A-1+ 1,600++++
500 Whiting (IN) Env. Fac. Rev. (Amoco Oil Co. Proj.), Ser.
2000, 3.07%, VRDN due 5/2/05 VMIG1 A-1+ 500++++
400 Whiting City (IN) Swr. & Solid Waste Disp. Ref. Rev. (Amoco
Oil Co. Proj.), Ser. 1999, 3.07%, VRDN due 5/2/05 VMIG1 A-1+ 400++++
----------
85,475
----------
TAX-EXEMPT VARIABLE RATE DEMAND NOTES-BACKED BY LETTERS OF CREDIT (40.5%)
ABN AMRO BANK NV
5,300 Clark Co. (NV) IDR (Nevada Cogeneration Assoc. 2 Proj.),
Ser. 1992, 3.07%, VRDN due 5/2/05 VMIG1 A-1+ 5,300
BANK OF AMERICA
1,200 Calhoun Co. (TX) Navigation IDA Port Rev. (Formosa Plastics
Corp., Texas Proj.), Ser. 1994, 3.05%, VRDN due 5/4/05 VMIG1 1,200++++
7,130 Clarksville City (TN) Pub. Bldg. Au. Rev. (Tennessee Muni.
Bond Fund), Ser. 1999, 3.00%, VRDN due 5/5/05 VMIG1 7,130
1,705 Hillsborough Co. (FL) Hsg. Fin. Au. Multi-Family Hsg. Rev.
(Lakewood Shores Apts. Proj.), Ser. 2000 A, 3.06%,
VRDN due 5/4/05 A-1+ 1,705++++
2,800 Nashville & Davidson Co. (TN) Metro Gov't. IDB Multi-Family
Hsg. Rev., Ser. 1996 A, 2.94%, VRDN due 5/4/05 VMIG1 2,800
1,700 Palm Beach Co. (FL) Rev. (The Norton Gallery and Sch. of
Art, Inc. Proj.), Ser. 2000, 2.97%, VRDN due 5/4/05 A-1+ 1,700++++
4,300 Port of Portland (OR) Spec. Oblig. Rev. (Horizon Air Ind.,
Inc. Proj.), Ser. 1997, 3.02%, VRDN due 5/2/05 A-1+ 4,300++++
BANK OF NEW YORK
2,800 Gulf Coast (TX) Ind. Dev. Au. Env. Fac. Rev. (CITGO Petroleum
Corp. Proj.), Ser. 2001, 3.08%, VRDN due 5/2/05 VMIG1 2,800++++
11,500 New York City (NY) G.O., Sub. Ser. 2002 C-5, 3.00%, VRDN
due 5/4/05 VMIG1 A-1+ 11,500
BANK OF NOVA SCOTIA
2,500 California Hsg. Fin. Agcy. Home Mtge. Rev., Ser. 2002 M,
3.04%, VRDN due 5/2/05 VMIG1 A-1+ 2,500
1,462 New York St. Local Govt. Assistance Corp. Rev. (A Pub.
Benefit Corp. of New York St.), Ser. 1995 G, 2.96%, VRDN
due 5/4/05 VMIG1 A-1+ 1,462
BANK OF SCOTLAND
6,150 Gulf Coast (TX) Ind. Dev. Au. Env. Fac. Rev. (CITGO Petroleum
Corp. Proj.), Ser. 2002, 3.08%, VRDN due 5/2/05 VMIG1 6,150++++
BANK ONE
1,100 Emery Co. (UT) Ref. PCR (PacifiCorp Proj.), Ser. 1991,
3.00%, VRDN due 5/4/05 VMIG1 A-1+ 1,100++++
BARCLAYS BANK INT'L., LTD.
5,150 Farmington City (NM) PCR (Arizona Pub. Svc. Co. Four
Corners Proj.), Ser. 1994 C, 3.00%, VRDN due 5/2/05 P-1 A-1+ 5,150++++
8,357 Michigan Strategic Fund Solid Waste Disp. Rev. (Grayling
Generating Proj.), Ser. 1990, 3.04%, VRDN due 5/4/05 VMIG1 8,357++++
See Notes to Schedule of Investments
33
PRINCIPAL AMOUNT SECURITY @ RATING @@ VALUE ++
(000'S OMITTED) MOODY'S S&P (000's OMITTED)
CITIBANK, N.A.
$ 1,100 Austin Co. (TX) Ind. Dev. Corp. IDR (Justin Ind., Inc.
Proj.), Ser. 1984, 3.00%, VRDN due 5/4/05 P-1 $ 1,100++++
100 Los Angeles (CA) Multi-Family Hsg. Ref. Rev. (Tri-City
Proj.), Ser. 2001 I, 2.99%, VRDN due 5/5/05 A-1+ 100++++
DEXIA CREDIT LOCALE DE FRANCE
1,000 Rhode Island Std. Loan Au. Prog. Rev., Ser. 1996-1, 3.03%,
VRDN due 5/4/05 A-1+ 1,000
2,000 Rhode Island Std. Loan Au. Prog. Rev., Ser. 1996-3, 3.03%,
VRDN due 5/4/05 A-1+ 2,000
1,470 Triborough Bridge & Tunnel Au. (NY) Gen. Rev., Ser. 2003 B,
3.01%, VRDN due 5/4/05 VMIG1 A-1+ 1,470
FIRST UNION NATIONAL BANK
1,275 Philadelphia (PA) Hosp. & Higher Ed. Fac. Au. Rev. (Temple
East, Inc.), Ser. 1999 B, 3.05%, VRDN due 5/5/05 A-1+ 1,275++++
1,335 Whitfield Co. (GA) Residential Care Fac. Rev. (Royal Oaks
Sr. Living Comm.), Ser. 1992, 3.00%, VRDN due 5/5/05 A-1 1,335
J.P. MORGAN SECURITIES
2,800 Austin (TX) Arpt. Sys. Prior Lien Rev., Ser. 1995 A, 3.04%,
VRDN due 5/4/05 P-1 2,800
2,000 Brazoria Co. (TX) Hlth. Fac. Dev. Corp. Hosp. Rev. (Brazosport
Mem. Hosp.), Ser. 1999, 3.05%, VRDN due 5/5/05 VMIG1 2,000++++
1,280 Douglas Co. (GA) Dev. Au. IDR (Whirlwind Steel Bldg., Inc.
Proj.), Ser. 1997, 3.09%, VRDN due 5/4/05 VMIG1 A-1 1,280++++
700 Lawrence Co. (SD) Ref. PCR (Homestake Mining Co. Proj.),
Ser. 1997 B, 3.03%, VRDN due 5/2/05 P-1 700++++
400 Lawrence Co. (SD) Solid Waste Disp. Rev. (Homestake Mining
Co. Proj.), Ser. 1997 A, 3.06%, VRDN due 5/2/05 P-1 400++++
5,000 Mississippi Bus. Fin. Corp. IDR (VC Reg. Assembly & Mfg.
Proj.), Ser. 2003, 3.04%, VRDN due 5/4/05 A-1+ 5,000++++
800 New York City (NY) G.O., Sub. Ser. 1993 B-2, 2.96%, VRDN
due 5/2/05 VMIG1 A-1+ 800
KEY BANK
2,400 New York St. Hsg. Fin. Agcy. Hsg. Rev. (521 West 42nd Street
Apts.), Ser. 2004 A, 2.95%, VRDN due 5/4/05 VMIG1 A-1 2,400++++
LASALLE NATIONAL BANK
1,700 Elmhurst City, DuPage & Cook Cos. (IL) IDR (Randall
Manufactured Prod., Inc. Proj.), Ser. 2002, 3.19%, VRDN
due 5/5/05 A-1+ 1,700++++
250 Grand Forks (ND) Hlth. Care Fac. Rev. (United Hosp. Oblig.
Group Proj.), Ser. 1992, 3.00%, VRDN due 5/2/05 VMIG1 250++++
LLOYD'S BANK
7,600 Maryland Comm. Dev. Admin. Dept. of Hsg. & Comm. Dev.
Residential Rev., Ser. 2004 C, 3.00%, VRDN due 5/5/05 VMIG1 7,600
5,000 North Dakota Hsg. Fin. Agcy. Home Mtge. Fin. Rev. (Hsg. Fin.
Prog.), Ser. 2004 C, 3.03%, VRDN due 5/4/05 VMIG1 5,000
5,705 North Texas Higher Ed. Au., Inc. Std. Loan Rev., Ser. 2001 A,
3.03%, VRDN due 5/4/05 A-1+ 5,705
10,000 North Texas Higher Ed. Au., Inc. Std. Loan Rev., Ser. 2004 A,
3.03%, VRDN due 5/4/05 A-1+ 10,000
34
PRINCIPAL AMOUNT SECURITY @ RATING @@ VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
NATIONAL WESTMINSTER BANK PLC
$ 300 Marion Co. (WV) Comm. Solid Waste Disp. Fac. Rev. (Grant
Town Cogeneration Proj.), Ser. 1990 A, 3.04%, VRDN
due 5/4/05 VMIG1 A-1+ $ 300++++
300 Marion Co. (WV) Comm. Solid Waste Disp. Fac. Rev. (Grant
Town Cogeneration Proj.), Ser. 1990 D, 3.05%, VRDN
due 5/4/05 VMIG1 A-1+ 300++++
NORTHERN TRUST CO.
200 St. Joseph Co. (IN) Ed. Fac. Rev. (Univ. of Notre Dame du
Lac Proj.), Ser. 2002, 2.92%, VRDN due 5/5/05 VMIG1 200~~++++
SOCIETE GENERALE
1,800 Chicago (IL) O'Hare Int'l. Arpt. Spec. Fac. Rev. (Compagnie
Nationale Air France Proj.), Ser. 1990, 3.05%, VRDN
due 5/4/05 A-1+ 1,800++++
10,900 Los Angeles (CA) Reg. Arpt. Imp. Corp. Fac. Sublease Rev.
(Los Angeles Int'l. Arpt.), Ser. 1985, 3.00%, VRDN
due 5/2/05 A-1+ 10,900++++
8,600 Los Angeles (CA) Reg. Arpt. Imp. Corp. Term. Fac. Completion
Rev. (Los Angeles Int'l. Arpt.), Ser. 1989, 3.02%, VRDN
due 5/2/05 A-1+ 8,600++++
5,000 Riverside-San Bernardino (CA) Hsg. & Fin. Agcy. Lease Rev.
Pass-Through Oblig., Ser. 2001 A, 3.00%, VRDN due 5/5/05 A-1+ 5,000
STATE STREET BANK
7,000 California St. Dept. of Veteran Affairs Home Purchase Rev.,
Sub. Ser. 2003 A-1, 2.92%, VRDN due 5/4/05 VMIG1 7,000
5,000 Maine St. Hsg. Au. Mtge. Purchase Rev., Ser. 2004 C-3,
3.03%, VRDN due 5/3/05 VMIG1 A-1+ 5,000
2,900 New York City (NY) G.O., Sub. Ser. 1993 E-4, 3.03%, VRDN
due 5/2/05 VMIG1 A-1 2,900
5,000 Oregon St. Hsg. & Comm. Svcs. Dept. Mtge. Rev. (Single
Family Mtge. Prog.), Ser. 2004 L, 3.05%, VRDN due 5/4/05 VMIG1 5,000
SUNTRUST BANK
5,000 Birmingham (AL) Med. Clinic Board Rev. (UAHSF), Ser. 1991,
3.00%, VRDN due 5/4/05 VMIG1 A-1+ 5,000
600 DeKalb (GA) Private Hosp. Au. Anticipation Cert. Rev.
(Egleston Children's Hosp.), Ser. 1994 A, 3.00%, VRDN
due 5/4/05 VMIG1 A-1+ 600++++
5,500 Lakeland (FL) Ed. Fac. Rev. (Florida Southern College
Proj.), Ser. 1999, 2.99%, VRDN due 5/4/05 VMIG1 5,500++++
800 Lee Co. (FL) Hosp. Board of Directors Hosp. Rev. (Mem. Hlth.
Sys.), Ser. 1997 B, 3.07%, VRDN due 5/2/05 VMIG1 A-1+ 800++++
700 Mayfield (KY) IDR (Seaboard Farms of Kentucky, Inc. Proj.),
Ser. 1989, 3.05%, VRDN due 5/5/05 VMIG1 700++++
200 Orlando (FL) Utils. Commission Wtr. & Elec. Rev., Ser. 2002 B,
3.00%, VRDN due 5/4/05 VMIG1 A-1+ 200
TORONTO DOMINION BANK
2,500 Indiana Muni. Pwr. Agcy. Pwr. Supply Sys. Ref. Rev., Ser.
1998 A, 3.00%, VRDN due 5/4/05 VMIG1 A-1+ 2,500
1,000 New York City (NY) G.O., Ser. 1995 F-2, 3.00%, VRDN
due 5/4/05 VMIG1 A-1 1,000
25,000 New York City (NY) Muni. Wtr. Fin. Au. Wtr. & Swr. Sys. Rev.,
Sub. Ser. 2002 C-2, 3.00%, VRDN due 5/5/05 VMIG1 A-1 25,000~~~~
See Notes to Schedule of Investments
35
PRINCIPAL AMOUNT SECURITY @ RATING @@ VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
UNION BANK OF SWITZERLAND
$ 300 Clark Co. (NV) Arpt. Sys. Sub. Lien Rev., Ser. 1995 A-2,
3.03%, VRDN due 5/4/05 VMIG1 A-1+ $ 300
1,500 Florence Co. (SC) Solid Waste Disp. & Wastewater Treatment
Fac. Rev. (Roche Carolina Inc. Proj.), Ser. 1997, 3.09%,
VRDN due 5/2/05 A-1+ 1,500++++
620 Pennsylvania Energy Dev. Au. Rev. (B & W Ebensburg Proj.),
Ser. 1986, 3.03%, VRDN due 5/4/05 VMIG1 620++++
WACHOVIA BANK & TRUST CO.
500 Fulco (GA) Hosp. Au. Anticipation Cert. Rev. (Shepherd Ctr.,
Inc. Proj.), Ser. 1997, 3.00%, VRDN due 5/4/05 A-1+ 500++++
4,300 Jackson-Union Cos. (IL) Reg. Port Dist. Port Fac. Ref. Rev.
(Enron Trans. Svc., L.P. Proj.), Ser. 1994, 2.95%, VRDN
due 5/4/05 VMIG1 A-1+ 4,300++++
500 Morgan Co. (UT) Solid Waste Disp. Rev. (Holnam Inc. Proj.),
Ser. 1996, 3.00%, VRDN due 5/4/05 VMIG1 A-1+ 500++++
9,000 North Carolina Med. Care Commission Hlth. Care Fac. Rev.
(FirstHealth of the Carolinas Proj.), Ser. 2002, 2.99%,
VRDN due 5/4/05 VMIG1 A-1 9,000++++
1,400 Ohio St. Wtr. Dev. Au. PCR (Ohio Edison Co. Proj.), Ser.
1988, 3.09%, VRDN due 5/2/05 P-1 1,400++++
1,200 South Carolina Jobs Econ. Dev. Au. Hosp. Rev. (Tuomey Reg.
Med. Ctr.), Ser. 1995 B, 3.00%, VRDN due 5/5/05 VMIG1 A-1+ 1,200++++
1,250 South Carolina Jobs Econ. Dev. Au. Rev. (Florence RHF Hsg.,
Inc. Proj.), Ser. 1987 A, 3.45%, VRDN due 5/4/05 P-1 1,250++++
WELLS FARGO & CO.
700 New Ulm (MN) Hosp. Ref. Rev. (Hlth. Central Sys. Proj.),
Ser. 1985, 3.10%, VRDN due 5/4/05 A-1+ 700
----------
226,639
----------
TAX-EXEMPT VARIABLE RATE DEMAND NOTES-BACKED BY INSURANCE (17.5%)
AMERICAN MUNICIPAL BOND ASSURANCE CORP.
800 California Hsg. Fin. Agcy. Home Mtge. Rev., Ser. 2001 R,
3.04%, VRDN due 5/2/05 VMIG1 A-1+ 800@@@@
1,500 Coastal Bend (TX) Hlth. Fac. Dev. Corp. Rev. (Incarnate Word
Hlth. Sys.), Ser. 1998 B, 2.95%, VRDN due 5/4/05 VMIG1 SP-1+ 1,500###++++
4,000 Maine Hsg. Au. Mtge. Purchase Rev., Ser. 2003 E-2, 3.03%,
VRDN due 5/5/05 VMIG1 A-1+ 4,000^^^^^
9,160 Michigan Higher Ed. Std. Loan Au. Ref. Rev., Ser. 1988
XII-B, 3.03%, VRDN due 5/4/05 VMIG1 A-1 9,160******
500 New York City (NY) G.O., Sub. Ser. 2001 A-7, 2.94%,
VRDN due 5/2/05 VMIG1 A-1+ 500~~~~
500 New York St. Energy Research & Dev. Au. Ref. PCR (Orange &
Rockland Utilities, Inc. Proj.), Ser. 1995 A, 2.98%, VRDN
due 5/4/05 VMIG1 A-1+ 500#####++++
8,500 Pennsylvania Higher Ed. Assist. Agcy. Std. Loan Rev., Ser.
1988 E, 3.00%, VRDN due 5/4/05 VMIG1 A-1+ 8,500####
2,000 Pennsylvania St. Higher Ed. Assist. Agcy. Std. Loan Rev.,
Ser. 1995 A, 3.00%, VRDN due 5/4/05 VMIG1 A-1+ 2,000~
2,000 Utah St. Board of Regents Std. Loan Rev., Ser. 1995 L,
3.03%, VRDN due 5/4/05 A-1+ 2,000
3,300 Arizona Hlth. Fac. Au. Rev. (Pooled Loan Prog.), Ser. 1985,
2.96%, VRDN due 5/4/05 VMIG1 A-1 3,300~~~~~
36
PRINCIPAL AMOUNT SECURITY @ RATING @@ VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
FINANCIAL GUARANTY INSURANCE CO.
$ 1,250 Central Bucks (PA) Sch. Dist., Ser. 2000 A, 3.05%,
VRDN due 5/5/05 VMIG1 $ 1,250
3,995 Detroit (MI) Wtr. Supply Sys. Second Lien Ref. Rev., Ser.
2001-C, 3.00%, VRDN due 5/4/05 VMIG1 3,995
680 Eastern Michigan Univ. Board of Regents Gen. Ref. Rev., Ser.
2001, 3.05%, VRDN due 5/2/05 A-1+ 680
9,285 Massachusetts Wtr. Res. Au. Multi-Modal Subordinated Gen.
Rev., Ser. 2001 A, 2.96%, VRDN due 5/4/05 A-1+ 9,285
800 New York City (NY) Muni. Wtr. Fin. Au. Wtr. & Swr. Sys.
Rev., Ser. 1992 C, 3.00%, VRDN due 5/2/05 VMIG1 A-1+ 800
1,200 New York City (NY) Muni. Wtr. Fin. Au. Wtr. & Swr. Sys.
Rev., Ser. 1994 C, 3.00%, VRDN due 5/2/05 VMIG1 A-1+ 1,200
FINANCIAL SECURITY ASSURANCE INC.
180 California Hsg. Fin. Agcy. Home Mtge. Rev., Ser. 2003 U,
3.03%, VRDN due 5/2/05 VMIG1 A-1+ 180^^^^^
7,000 Chicago (IL) Board Of Ed. G.O., Ser. 2004 C-2, 3.00%,
VRDN due 5/5/05 VMIG1 A-1+ 7,000^^^^
1,400 Clark Co. (NV) Sch. Dist. G.O., Ser. 2001 A, 2.97%,
VRDN due 5/2/05 VMIG1 A-1+ 1,400
1,100 Fayetteville City (NC) Pub. Works Commission Ref. Rev.,
Ser. 2003 A, 2.99%, VRDN due 5/4/05 VMIG1 A-1+ 1,100^^^^^
7,600 Long Island (NY) Pwr. Au. Elec. Sys. Gen. Rev., Ser. 2003 E,
2.98%, VRDN due 5/4/05 VMIG1 A-1+ 7,600^^^^^
4,820 Metro. Washington (DC) Arpt. Au. Sys. Ref. Rev., Ser. 2002 C,
3.05%, VRDN due 5/4/05 VMIG1 A-1+ 4,820^^^^^
2,900 Michigan St. Grant Anticipation Notes, Ser. 2002 B, 2.99%,
VRDN due 5/4/05 VMIG1 A-1+ 2,900^^^^^
MUNICIPAL BOND INVESTORS ASSURANCE CORP.
5,300 California Hsg. Fin. Agcy. Home Mtge. Rev., Ser. 2002 J,
3.03%, VRDN due 5/2/05 VMIG1 A-1+ 5,300@@@@
1,385 Charlotte (NC) Arpt. Ref. Rev., Ser. 1997 A, 3.03%,
VRDN due 5/4/05 VMIG1 A-1 1,385~~~~~
300 Harris Co. (TX) Hlth. Fac. Dev. Corp. Hosp. Rev. (Texas
Children's Hosp. Proj.), Ser. 1999 B-1, 3.04%, VRDN
due 5/2/05 VMIG1 A-1+ 300######++++
12,000 Indianapolis (IN) Local Pub. Imp. Bond Bank Ref. Rev., Ser.
2002 F-2, 2.98%, VRDN due 5/4/05 A-1 12,000*****
192 Massachusetts St. Hlth. & Ed. Fac. Au. Rev. (Cap. Asset Prog.),
Ser. 1985 D, 3.00%, VRDN due 5/2/05 VMIG1 192
4,360 Rhode Island Convention Ctr. Au. Ref. Rev., Ser. 2001 A,
3.00%, VRDN due 5/5/05 VMIG1 4,360^^^^^
----------
98,007
----------
TOTAL INVESTMENTS (99.2%) 555,145##
Cash, receivables and other assets, less liabilities (0.8%) 4,577
----------
TOTAL NET ASSETS (100.0%) $ 559,722
----------
See Notes to Schedule of Investments
37
SCHEDULE OF INVESTMENTS Cash Reserves
PRINCIPAL AMOUNT RATING VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
U.S. GOVERNMENT AGENCY SECURITIES (2.9%)
$ 14,467 Fannie Mae, Disc. Notes, 2.71%, due 5/2/05 AGY AGY $ 14,466
----------
CERTIFICATES OF DEPOSIT (21.5%)
12,000 American Express Centurion Bank, Domestic CD, 2.89%,
due 5/16/05 P-1 A-1 12,000
12,000 Bank of Montreal, Yankee CD, 2.74%, due 5/9/05 P-1 A-1+ 12,000
12,000 Barclays Bank NY, Yankee CD, 2.88%, due 5/23/05 P-1 A-1+ 12,000
13,000 BNP Paribas NY, Domestic CD, 3.05%, due 6/27/05 P-1 A-1+ 13,000
12,000 Deutsche Bank AG, Yankee CD, 2.76%, due 5/9/05 P-1 A-1+ 12,000
12,000 Natexis Banque NY, Yankee CD, 3.07%, due 7/21/05 P-1 A-1 12,000
10,000 Royal Bank of Scotland, Yankee CD, 2.81%, due 5/6/05 P-1 A-1+ 10,000
12,000 Svenska Handelsbanken AB, Yankee CD, 2.87%, due 5/16/05 P-1 A-1+ 12,000
12,000 Toronto Dominion Bank, Yankee CD, 3.01%, due 7/11/05 P-1 A-1 12,000
----------
TOTAL CERTIFICATES OF DEPOSIT 107,000
----------
COMMERCIAL PAPER (75.5%)
12,000 ABN AMRO North America Finance, Inc., 2.72%, due 5/6/05 P-1 A-1+ 11,995
13,450 American Honda Finance Corp., 2.84%, due 5/26/05 P-1 A-1 13,424
13,000 Amsterdam Funding Corp., 2.89% & 3.01%,
due 5/19/05 & 6/1/05 P-1 A-1 12,974
13,000 Atlantic Asset Securitization Corp., 2.86% & 3.00%,
due 5/11/05 & 5/12/05 P-1 A-1 12,989
5,000 AWB Harvest Finance, Inc., 2.93%, due 6/14/05 P-1 A-1+ 4,982
12,550 Banque Generale du Luxembourg, 2.94% & 3.04%,
due 6/9/05 & 7/6/05 P-1 A-1+ 12,487
12,000 Barton Capital Corp., 2.80%, due 5/6/05 P-1 A-1+ 11,995
12,000 Caisse d'Amortissement, 2.81%, due 5/5/05 P-1 A-1+ 11,996
5,000 Calyon NA, Inc., 2.75%, due 5/9/05 P-1 A-1+ 4,997
8,000 Citigroup Global Markets, Inc., 2.77%, due 5/2/05 P-1 A-1+ 7,999
12,000 Delaware Funding Co. LLC, 2.78%, due 5/11/05 P-1 A-1+ 11,991
12,000 Depfa Bank PLC, 2.82% & 3.07%, due 5/23/05 & 7/18/05 P-1 A-1+ 11,945
5,100 DNB Norway Bank, 2.95%, due 6/15/05 P-1 A-1 5,081
10,000 Edison Asset Securitization LLC, 2.92%, due 6/3/05 P-1 A-1+ 9,973
9,000 Fairway Finance Corp., 2.82% & 3.03%, due 5/9/05 & 7/14/05 P-1 A-1 8,966
13,000 Grampian Funding LLC, 3.00% & 3.06%, due 5/31/05 & 7/18/05 P-1 A-1+ 12,922
12,850 HBOS Treasury Services PLC, 2.82% - 3.04%,
due 5/24/05 - 7/18/05 P-1 A-1+ 12,777
5,000 ING America Insurance Holdings, Inc., 3.00%, due 6/23/05 P-1 A-1 4,978
11,657 Ivory Funding Corp., 3.06%, due 7/13/05 P-1 A-1 11,585
2,234 Jupiter Securitization Corp., 2.90%, due 5/13/05 P-1 A-1 2,232
12,000 Kitty Hawk Funding Corp., 2.97%, due 6/20/05 P-1 A-1+ 11,951
13,000 Merrill Lynch & Co., 2.90%, due 5/2/05 P-1 A-1 12,999
13,000 Morgan Stanley, 2.82%, due 5/11/05 P-1 A-1 12,990
10,000 Old Line Funding Corp., 2.80%, due 5/12/05 P-1 A-1+ 9,991
10,000 Park Avenue Receivables Corp., 2.79%, due 5/6/05 P-1 A-1 9,996
10,000 Preferred Receivables Funding, 2.98%, due 5/23/05 P-1 A-1 9,982
5,000 Rabobank US Financial Corp., 3.00%, due 7/11/05 P-1 A-1+ 4,970
11,897 Sheffield Receivables, 2.79% & 2.94%, due 5/2/05 & 5/20/05 P-1 A-1+ 11,884
10,000 Shell Finance, 2.84%, due 5/20/05 P-1 A-1+ 9,985
12,000 Societe Generale NA, Inc., 2.75%, due 5/9/05 P-1 A-1+ 11,993
12,000 Thunder Bay Funding Inc., 2.86% & 2.90%, due 5/18/05 P-1 A-1 11,984
38
PRINCIPAL AMOUNT RATING VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 12,000 Toyota Motor Credit Corp., 2.81%, due 5/12/05 P-1 A-1+ $ 11,990
13,000 UBS Finance (Delaware), Inc., 2.90%, due 5/31/05 P-1 A-1+ 12,969
12,000 Wal-Mart Stores, Inc., 2.72%, due 5/3/05 P-1 A-1+ 11,998
13,000 Westpac Capital Corp., 2.86% & 3.02%, due 6/8/05 & 7/14/05 P-1 A-1+ 12,932
9,016 Yorktown Capital LLC, 3.00%, due 5/20/05 P-1 A-1+ 9,002
----------
TOTAL COMMERCIAL PAPER 375,904
----------
TIME DEPOSITS (2.8%)
2,181 Canadian Imperial Bank of Commerce, 2.94%, due 5/2/05 P-1 A-1 2,181
12,000 Danske Bank A/S, Copenhagen, 2.90%, due 5/2/05 P-1 A-1+ 12,000
----------
TOTAL TIME DEPOSITS 14,181
----------
TOTAL INVESTMENTS (102.7%) 511,551
Liabilities, less cash, receivables and other assets [(2.7%)] (13,465)
----------
TOTAL NET ASSETS (100.0%) $ 498,086
----------
See Notes to Schedule of Investments
39
SCHEDULE OF INVESTMENTS Government Money Fund
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 (14.1%)
$ 20,000 U.S. Treasury Bills, 2.67%, due 5/26/05 $ 19,963
10,000 U.S. Treasury Bills, 2.67%, due 6/2/05 9,976
20,000 U.S. Treasury Bills, 2.72%, due 6/23/05 19,920
12,000 U.S. Treasury Bills, 2.84%, due 7/21/05 11,924
----------
TOTAL U.S. TREASURY SECURITIES-BACKED BY THE FULL 61,783
FAITH AND CREDIT OF THE U.S. GOVERNMENT ----------
U.S. GOVERNMENT AGENCY SECURITIES (86.1%)
8,650 Fannie Mae, Disc. Notes, 2.70% & 2.71%, due 5/2/05 8,649
10,000 Fannie Mae, Disc. Notes, 2.95%, due 8/29/05 9,998
4,500 Federal Farm Credit Bank, Disc. Notes, 2.68%, due 5/2/05 4,499
10,000 Federal Farm Credit Bank, Disc. Notes, 2.67%, due 5/5/05 9,997
24,500 Federal Farm Credit Bank, Disc. Notes, 2.66% & 2.75%, due 5/6/05 24,491
8,000 Federal Farm Credit Bank, Disc. Notes, 2.73%, due 5/13/05 7,993
20,000 Federal Farm Credit Bank, Disc. Notes, 2.72%, due 5/17/05 19,976
18,000 Federal Farm Credit Bank, Disc. Notes, 2.74%, due 5/19/05 17,975
11,965 Federal Home Loan Bank, Disc. Notes, 2.67% & 2.75%, due 5/2/05 11,964
20,000 Federal Home Loan Bank, Disc. Notes, 2.67% & 2.68%, due 5/3/05 19,997
10,000 Federal Home Loan Bank, Disc. Notes, 2.66%, due 5/4/05 9,998
3,572 Federal Home Loan Bank, Disc. Notes, 2.77%, due 5/6/05 3,571
10,000 Federal Home Loan Bank, Disc. Notes, 2.80%, due 5/20/05 9,985
10,000 Federal Home Loan Bank, Disc. Notes, 2.83%, due 5/27/05 9,980
7,000 Federal Home Loan Bank, Disc. Notes, 2.75%, due 5/31/05 6,984
25,000 Federal Home Loan Bank, Disc. Notes, 2.82% & 2.86%, due 6/30/05 24,882
25,432 Federal Home Loan Bank, Disc. Notes, 2.89% & 2.92%, due 7/1/05 25,307
12,000 Freddie Mac, Disc. Notes, 2.71%, due 5/2/05 11,999
25,000 Freddie Mac, Disc. Notes, 2.72%, due 5/4/05 24,994
12,000 Freddie Mac, Disc. Notes, 2.70%, due 5/5/05 11,996
12,000 Freddie Mac, Disc. Notes, 2.76%, due 5/10/05 11,992
10,000 Freddie Mac, Disc. Notes, 2.77%, due 5/17/05 9,988
10,896 Freddie Mac, Disc. Notes, 2.85%, due 5/24/05 10,876
8,000 Freddie Mac, Disc. Notes, 2.82%, due 5/25/05 7,985
13,000 Freddie Mac, Disc. Notes, 2.82%, due 5/27/05 12,974
19,000 Freddie Mac, Disc. Notes, 2.86%, due 6/13/05 18,935
12,590 Freddie Mac, Disc. Notes, 2.91%, due 6/17/05 12,542
7,000 Freddie Mac, Disc. Notes, 2.87%, due 6/20/05 6,972
10,000 Freddie Mac, Disc. Notes, 2.90%, due 6/30/05 9,952
----------
TOTAL U.S. GOVERNMENT AGENCY SECURITIES 377,451
----------
TOTAL INVESTMENTS (100.2%) 439,234
Liabilities, less cash, receivables and other assets [(0.2%)] (807)
----------
TOTAL NET ASSETS (100.0%) $ 438,427
----------
40
NOTES TO SCHEDULE OF INVESTMENTS
+ Investments in securities by Neuberger Berman High Income Bond Fund
("High Income"), Neuberger Berman Limited Maturity Bond Fund ("Limited
Maturity"), and Neuberger Berman Municipal Securities Trust
("Municipal Securities Trust") 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
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 and 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 noon, 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 Neuberger Berman Cash Reserves, Neuberger
Berman Government Money Fund and Neuberger Berman Municipal Money Fund
("Municipal Money") are valued at amortized cost, which approximates
U.S. Federal income tax cost.
# At cost, which approximates market value.
## At April 30, 2005, selected Fund information on a U.S. Federal income
tax basis was as follows:
NET
GROSS GROSS UNREALIZED
(000'S OMITTED) UNREALIZED UNREALIZED APPRECIATION
NEUBERGER BERMAN COST APPRECIATION DEPRECIATION (DEPRECIATION)
HIGH INCOME $ 839,392 $ 5,253 $ 19,143 $ (13,890)
LIMITED MATURITY 170,614 496 1,405 (907)
MUNICIPAL SECURITIES TRUST 34,046 1,315 58 1,257
@ Municipal securities held by Municipal Money and 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 83% and
47% 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.
@@@ Managed by an affiliate of Neuberger Berman Management Inc. and could
be deemed an affiliate of the Fund (see Notes A & F of Notes to
Financial Statements).
* Non-income producing security.
See Notes to Financial Statements
41
** 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 and are deemed liquid. At April 30, 2005, these securities
amounted to $86,455,000 or 10.6% of net assets for High Income.
+++ All or a portion of this security is on loan (see Note A of the Notes
to Financial Statements).
++++ Security is guaranteed by the corporate or non-profit obligor.
~ 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.
~~ Security is subject to a fractional guarantee provided by Northern
Trust Co. and Fifth Third Bank, each backing 50% of the total
principal.
~~~ Security is subject to a fractional guarantee provided by BNP Paribas
and Dexia, each backing 50% of the total principal.
### Security is subject to a guarantee provided by the First National Bank
of Chicago, backing 100% of the total principal.
#### Security is subject to a guarantee provided by Wachovia, backing 100%
of the total principal.
+++++ All or a portion of this security was purchased on a when-issued
basis. At April 30, 2005, these securities amounted to $5,000,000 for
High Income.
++++++ All or a portion of this security is segregated as collateral for
when-issued purchase commitments.
~~~~ Security is subject to a guarantee provided by the Bank of Nova
Scotia, backing 100% of the total principal.
~~~~~ Security is subject to a guarantee provided by J.P. Morgan Chase,
backing 100% of the total principal.
@@@@ Security is subject to a guarantee provided by Lloyds Bank, p.l.c.,
backing 100% of the total principal
@@@@@ Security is subject to a guarantee provided by Bayerische Landesbank,
backing 100% of the total principal.
^^^^ Security is subject to a guarantee provided by Depfa, Inc., backing
100% of the total principal.
^^^^^ Security is subject to a guarantee provided by Dexia, Inc., backing
100% of the total principal
***** Security is subject to a guarantee provided by Bank One Corp., backing
100% of the total principal.
****** Security is subject to a guarantee provided by Kredietbank, backing
100% of the total principal.
##### Security is subject to a guarantee provided by National Australia
Bank, backing 100% of the total principal.
###### Security is subject to a guarantee provided by Morgan Guaranty Trust,
backing 100% of the total principal.
^ Principal amount is stated in the currency in which the security is
denominated.
EUR = Euro Currency
^^ Rated A+ by Fitch Investors Services, Inc.
^^^ Rated BBB+ by Fitch Investors Services, Inc.
42
This page has been left blank intentionally
43
STATEMENTS OF ASSETS AND LIABILITIES
NEUBERGER BERMAN INCOME FUNDS CASH GOVERNMENT
(000'S OMITTED EXCEPT PER SHARE AMOUNTS) RESERVES MONEY FUND
ASSETS
INVESTMENTS IN SECURITIES, AT VALUE*+ (NOTES A & F)--SEE
SCHEDULE OF INVESTMENTS:
Unaffiliated issuers $ 511,551 $ 439,234
Affiliated issuers -- --
Repurchase agreements -- --
- --------------------------------------------------------------------------------------------------
511,551 439,234
Cash 0 1
Interest receivable 237 2
Net receivable for forward currency exchange contracts sold (Note C) -- --
Receivable for securities sold -- --
Receivable for Fund shares sold 37 62
Receivable from administrator--net (Note B) -- --
Prepaid expenses and other assets 24 20
- --------------------------------------------------------------------------------------------------
TOTAL ASSETS 511,849 439,319
- --------------------------------------------------------------------------------------------------
LIABILITIES
Dividends payable 495 703
Due to custodian -- --
Payable for collateral on securities loaned (Note A) -- --
Payable for securities purchased 13,000 --
Payable for Fund shares redeemed 51 7
Payable to investment manager--net (Note B) 32 28
Payable to administrator--net (Note B) 110 95
Accrued expenses and other payables 75 59
- --------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 13,763 892
- --------------------------------------------------------------------------------------------------
NET ASSETS AT VALUE $ 498,086 $ 438,427
- --------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid-in capital $ 498,083 $ 438,426
Undistributed net investment income (loss) -- --
Distributions in excess of net investment income -- --
Accumulated net realized gains (losses) on investments 3 1
Net unrealized appreciation (depreciation) in value of investments -- --
- --------------------------------------------------------------------------------------------------
NET ASSETS AT VALUE $ 498,086 $ 438,427
- --------------------------------------------------------------------------------------------------
NET ASSETS
Investor Class $ 498,086 $ 438,427
Trust Class -- --
SHARES OUTSTANDING ($.001 PAR VALUE; UNLIMITED SHARES AUTHORIZED)
Investor Class 498,083 438,426
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:
Unafilliated issuers $ -- $ --
- --------------------------------------------------------------------------------------------------
TOTAL SECURITIES ON LOAN, AT MARKET VALUE $ -- $ --
- --------------------------------------------------------------------------------------------------
*COST OF INVESTMENTS:
Unafilliated issuers $ 511,551 $ 439,234
Affiliated issuers -- --
- --------------------------------------------------------------------------------------------------
TOTAL COST OF INVESTMENTS $ 511,551 $ 439,234
- --------------------------------------------------------------------------------------------------
See Notes to Financial Statements
44
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*+ (NOTES A & F)--SEE
SCHEDULE OF INVESTMENTS:
Unaffiliated issuers $ 781,348 $ 167,122
Affiliated issuers 14,044 --
Repurchase agreements 30,110 2,585
- ----------------------------------------------------------------------------------------------------------------
825,502 169,707
Cash 8 5
Interest receivable 16,380 2,101
Net receivable for forward currency exchange contracts sold (Note C) -- 24
Receivable for securities sold 5,368 12,119
Receivable for Fund shares sold 887 694
Receivable from administrator--net (Note B) -- --
Prepaid expenses and other assets 36 10
- ----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 848,181 184,660
- ----------------------------------------------------------------------------------------------------------------
LIABILITIES
Dividends payable 342 32
Due to custodian -- --
Payable for collateral on securities loaned (Note A) 14,044 --
Payable for securities purchased 9,968 10,320
Payable for Fund shares redeemed 8,183 101
Payable to investment manager--net (Note B) 306 33
Payable to administrator--net (Note B) 172 22
Accrued expenses and other payables 77 63
- ----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 33,092 10,571
- ----------------------------------------------------------------------------------------------------------------
NET ASSETS AT VALUE $ 815,089 $ 174,089
- ----------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid-in capital $ 833,752 $ 198,402
Undistributed net investment income (loss) 25 --
Distributions in excess of net investment income -- (829)
Accumulated net realized gains (losses) on investments (4,798) (22,601)
Net unrealized appreciation (depreciation) in value of investments (13,890) (883)
- ----------------------------------------------------------------------------------------------------------------
NET ASSETS AT VALUE $ 815,089 $ 174,089
- ----------------------------------------------------------------------------------------------------------------
NET ASSETS
Investor Class $ 815,089 $ 152,076
Trust Class -- 22,013
SHARES OUTSTANDING ($.001 PAR VALUE; UNLIMITED SHARES AUTHORIZED)
Investor Class 89,267 16,460
Trust Class -- 2,501
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Investor Class $ 9.13 $ 9.24
Trust Class -- 8.80
+SECURITIES ON LOAN, AT MARKET VALUE:
Unafilliated issuers $ 13,610 $ --
- ----------------------------------------------------------------------------------------------------------------
TOTAL SECURITIES ON LOAN, AT MARKET VALUE $ 13,610 $ --
- ----------------------------------------------------------------------------------------------------------------
*COST OF INVESTMENTS:
Unafilliated issuers $ 825,348 $ 170,614
Affiliated issuers 14,044 --
- ----------------------------------------------------------------------------------------------------------------
TOTAL COST OF INVESTMENTS $ 839,392 $ 170,614
- ----------------------------------------------------------------------------------------------------------------
NEUBERGER BERMAN INCOME FUNDS MUNICIPAL MONEY MUNICIPAL SECURITIES
(000'S OMITTED EXCEPT PER SHARE AMOUNTS) FUND TRUST
ASSETS
INVESTMENTS IN SECURITIES, AT VALUE*+ (NOTES A & F)--SEE
SCHEDULE OF INVESTMENTS:
Unaffiliated issuers $ 555,145 $ 35,303
Affiliated issuers -- --
Repurchase agreements -- --
- -------------------------------------------------------------------------------------------------------------------
555,145 35,303
Cash -- 10
Interest receivable 2,895 457
Net receivable for forward currency exchange contracts sold (Note C) -- --
Receivable for securities sold 2,651 --
Receivable for Fund shares sold 10 1
Receivable from administrator--net (Note B) -- 4
Prepaid expenses and other assets 21 2
- -------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 560,722 35,777
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES
Dividends payable 709 12
Due to custodian 57 --
Payable for collateral on securities loaned (Note A) -- --
Payable for securities purchased -- --
Payable for Fund shares redeemed 1 19
Payable to investment manager--net (Note B) 111 7
Payable to administrator--net (Note B) 120 --
Accrued expenses and other payables 2 33
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,000 71
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS AT VALUE $ 559,722 $ 35,706
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid-in capital $ 559,728 $ 34,362
Undistributed net investment income (loss) 1 --
Distributions in excess of net investment income -- --
Accumulated net realized gains (losses) on investments (7) 87
Net unrealized appreciation (depreciation) in value of investments -- 1,257
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS AT VALUE $ 559,722 $ 35,706
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS
Investor Class $ 559,722 $ 35,706
Trust Class -- --
SHARES OUTSTANDING ($.001 PAR VALUE; UNLIMITED SHARES AUTHORIZED)
Investor Class 559,802 3,089
Trust Class -- --
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Investor Class $ 1.00 $ 11.56
Trust Class -- --
+SECURITIES ON LOAN, AT MARKET VALUE:
Unafilliated issuers $ -- $ --
- -------------------------------------------------------------------------------------------------------------------
TOTAL SECURITIES ON LOAN, AT MARKET VALUE $ -- $ --
- -------------------------------------------------------------------------------------------------------------------
*COST OF INVESTMENTS:
Unafilliated issuers $ 555,145 $ 34,046
Affiliated issuers -- --
- -------------------------------------------------------------------------------------------------------------------
TOTAL COST OF INVESTMENTS $ 555,145 $ 34,046
- -------------------------------------------------------------------------------------------------------------------
45
STATEMENTS OF OPERATIONS
GOVERNMENT
NEUBERGER BERMAN INCOME FUNDS CASH MONEY
(000'S OMITTED) RESERVES FUND
INVESTMENT INCOME
Interest income--unaffiliated issuers (Note A) $ 5,693 $ 5,319
Income from securities loaned--affiliated issuer (Notes A&F) -- --
- -------------------------------------------------------------------------------------------------
Total income $ 5,693 $ 5,319
- -------------------------------------------------------------------------------------------------
EXPENSES:
Investment management fee (Note B) 351 347
Administration fee (Note B):
Investor Class 651 638
Trust Class -- --
Shareholder servicing agent fees:
Investor Class 101 37
Trust Class -- --
Audit fees 17 16
Custodian fees (Note B) 79 66
Insurance expense 8 14
Legal fees 13 14
Registration and filing fees 19 19
Shareholder reports 13 19
Trustees' fees and expenses 11 12
Miscellaneous 13 4
- -------------------------------------------------------------------------------------------------
Total expenses 1,276 1,186
Expenses reimbursed by administrator (Note B) -- --
Investment management fee waived (Note B) (34) (32)
Expenses reduced by custodian fee expense offset arrangement (Note B) (0) (2)
- -------------------------------------------------------------------------------------------------
Total net expenses 1,242 1,152
- -------------------------------------------------------------------------------------------------
Net investment income (loss) $ 4,451 $ 4,167
- -------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE A)
Net realized gain (loss) on:
Sales of investment securities of unaffiliated issuers (1) 16
Foreign currency -- --
Change in net unrealized appreciation (depreciation) in value of:
Unaffiliated investment securities -- --
Foreign currency -- --
------------------------------------------------------------------------------------------
Net gain (loss) on investments (1) 16
- -------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 4,450 $ 4,183
- -------------------------------------------------------------------------------------------------
See Notes to Financial Statements
46
HIGH INCOME LIMITED
NEUBERGER BERMAN INCOME FUNDS BOND MATURITY
(000'S OMITTED) FUND BOND FUND
INVESTMENT INCOME
Interest income--unaffiliated issuers (Note A) $ 27,816 $ 2,931
Income from securities loaned--affiliated issuer (Notes A&F) 28 --
- --------------------------------------------------------------------------------------------------------------
Total income $ 27,844 $ 2,931
- --------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment management fee (Note B) 2,021 225
Administration fee (Note B):
Investor Class 1,137 211
Trust Class -- 60
Shareholder servicing agent fees:
Investor Class 276 72
Trust Class -- 10
Audit fees 20 19
Custodian fees (Note B) 119 68
Insurance expense 10 3
Legal fees 19 14
Registration and filing fees 65 28
Shareholder reports 31 9
Trustees' fees and expenses 12 12
Miscellaneous 24 6
- --------------------------------------------------------------------------------------------------------------
Total expenses 3,734 737
Expenses reimbursed by administrator (Note B) -- (93)
Investment management fee waived (Note B) -- --
Expenses reduced by custodian fee expense offset arrangement (Note B) (6) (0)
- --------------------------------------------------------------------------------------------------------------
Total net expenses 3,728 644
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ 24,116 $ 2,287
- --------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE A)
Net realized gain (loss) on:
Sales of investment securities of unaffiliated issuers 2,364 (151)
Foreign currency -- (177)
Change in net unrealized appreciation (depreciation) in value of:
Unaffiliated investment securities (39,269) (1,913)
Foreign currency -- 95
-------------------------------------------------------------------------------------------------------
Net gain (loss) on investments (36,905) (2,146)
- --------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (12,789) $ 141
- --------------------------------------------------------------------------------------------------------------
MUNICIPAL MUNICIPAL
NEUBERGER BERMAN INCOME FUNDS MONEY SECURITIES
(000'S OMITTED) FUND TRUST
INVESTMENT INCOME
Interest income--unaffiliated issuers (Note A) $ 4,628 $ 751
Income from securities loaned--affiliated issuer (Notes A&F) -- --
- -----------------------------------------------------------------------------------------------------------------
Total income $ 4,628 $ 751
- -----------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment management fee (Note B) 616 46
Administration fee (Note B):
Investor Class 665 49
Trust Class -- --
Shareholder servicing agent fees:
Investor Class 11 16
Trust Class -- --
Audit fees 17 18
Custodian fees (Note B) 77 17
Insurance expense 7 1
Legal fees 14 14
Registration and filing fees 26 12
Shareholder reports 10 5
Trustees' fees and expenses 12 12
Miscellaneous 8 2
- -----------------------------------------------------------------------------------------------------------------
Total expenses 1,463 192
Expenses reimbursed by administrator (Note B) -- (72)
Investment management fee waived (Note B) -- --
Expenses reduced by custodian fee expense offset arrangement (Note B) (3) (1)
- -----------------------------------------------------------------------------------------------------------------
Total net expenses 1,460 119
- -----------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3,168 632
- -----------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE A)
Net realized gain (loss) on:
Sales of investment securities of unaffiliated issuers -- 87
Foreign currency -- --
Change in net unrealized appreciation (depreciation) in value of:
Unaffiliated investment securities -- (672)
Foreign currency -- --
----------------------------------------------------------------------------------------------------------
Net gain (loss) on investments -- (585)
- -----------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 3,168 $ 47
- -----------------------------------------------------------------------------------------------------------------
47
STATEMENTS OF CHANGES IN NET ASSETS
CASH RESERVES GOVERNMENT MONEY FUND
-----------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
APRIL 30, OCTOBER 31, APRIL 30, OCTOBER 31,
NEUBERGER BERMAN INCOME FUNDS 2005 2004 2005 2004
(000'S OMITTED) (UNAUDITED) (UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) $ 4,451 $ 3,220 $ 4,167 $ 4,706
Net realized gain (loss) on investments (1) 4 16 (15)
Change in net unrealized appreciation (depreciation) of investments -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 4,450 3,224 4,183 4,691
- ---------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
NET INVESTMENT INCOME:
Investor Class (4,451) (3,220) (4,167) (4,706)
Trust Class -- -- -- --
NET REALIZED GAIN ON INVESTMENTS:
Investor Class -- (10) -- (19)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (4,451) (3,230) (4,167) (4,725)
- ---------------------------------------------------------------------------------------------------------------------------
FROM FUND SHARE TRANSACTIONS (NOTE D):
PROCEEDS FROM SHARES SOLD:
Investor Class 339,614 827,773 403,604 1,173,062
Trust Class -- -- -- --
PROCEEDS FROM REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS:
Investor Class 2,173 1,232 583 467
Trust Class -- -- -- --
PAYMENTS FOR SHARES REDEEMED:
Investor Class (324,931) (965,468) (420,494) (1,797,122)
Trust Class -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from Fund share transactions 16,856 (136,463) (16,307) (623,593)
- ---------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 16,855 (136,469) (16,291) (623,627)
NET ASSETS:
Beginning of period 481,231 617,700 454,718 1,078,345
- ---------------------------------------------------------------------------------------------------------------------------
End of period $ 498,086 $ 481,231 $ 438,427 $ 454,718
- ---------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income (loss) at end of period $ -- $ -- $ -- $ --
- ---------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income at end of period $ -- $ -- $ -- $ --
- ---------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements
48
HIGH INCOME BOND FUND LIMITED MATURITY BOND FUND
------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
APRIL 30, OCTOBER 31, APRIL 30, OCTOBER 31,
NEUBERGER BERMAN INCOME FUNDS 2005 2004 2005 2004
(000'S OMITTED) (UNAUDITED) (UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) $ 24,116 $ 40,651 $ 2,287 $ 5,200
Net realized gain (loss) on investments 2,364 7,409 (328) (538)
Change in net unrealized appreciation (depreciation) of investments (39,269) 13,566 (1,818) (1,638)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations (12,789) 61,626 141 3,024
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
NET INVESTMENT INCOME:
Investor Class (24,116) (40,651) (3,071) (6,315)
Trust Class -- -- (460) (1,063)
NET REALIZED GAIN ON INVESTMENTS:
Investor Class -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (24,116) (40,651) (3,531) (7,378)
- ----------------------------------------------------------------------------------------------------------------------------
FROM FUND SHARE TRANSACTIONS (NOTE D):
PROCEEDS FROM SHARES SOLD:
Investor Class 271,046 563,304 11,506 29,706
Trust Class -- -- 3,141 9,114
- ----------------------------------------------------------------------------------------------------------------------------
PROCEEDS FROM REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS:
Investor Class 21,425 35,997 2,865 5,903
Trust Class -- -- 446 1,044
PAYMENTS FOR SHARES REDEEMED:
Investor Class (253,710) (326,694) (21,958) (68,721)
Trust Class -- -- (8,149) (19,020)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from Fund share transactions 38,761 272,607 (12,149) (41,974)
- ----------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 1,856 293,582 (15,539) (46,328)
NET ASSETS:
Beginning of period 813,233 519,651 189,628 235,956
- ----------------------------------------------------------------------------------------------------------------------------
End of period $ 815,089 $ 813,233 $ 174,089 $ 189,628
- ----------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income (loss) at end of period $ 25 $ 25 $ -- $ 415
- ----------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income at end of period $ -- $ -- $ (829) $ --
- ----------------------------------------------------------------------------------------------------------------------------
MUNICIPAL MONEY FUND MUNICIPAL SECURITIES TRUST
-----------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
APRIL 30, OCTOBER 31, APRIL 30, OCTOBER 31,
NEUBERGER BERMAN INCOME FUNDS 2005 2004 2005 2004
(000'S OMITTED) (UNAUDITED) (UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) $ 3,168 $ 2,217 $ 632 $ 1,319
Net realized gain (loss) on investments -- -- 87 226
Change in net unrealized appreciation (depreciation) of investments -- -- (672) (248)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 3,168 2,217 47 1,297
- ---------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
NET INVESTMENT INCOME:
Investor Class (3,168) (2,217) (632) (1,319)
Trust Class -- -- -- --
NET REALIZED GAIN ON INVESTMENTS:
Investor Class -- -- (225) (159)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (3,168) (2,217) (857) (1,478)
- ---------------------------------------------------------------------------------------------------------------------------
FROM FUND SHARE TRANSACTIONS (NOTE D):
PROCEEDS FROM SHARES SOLD:
Investor Class 725,746 688,114 3,205 8,289
Trust Class -- -- -- --
PROCEEDS FROM REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS:
Investor Class 262 115 755 1,283
Trust Class -- -- -- --
PAYMENTS FOR SHARES REDEEMED:
Investor Class (592,433) (673,006) (4,553) (14,609)
Trust Class -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from Fund share transactions 133,575 15,223 (593) (5,037)
- ---------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 133,575 15,223 (1,403) (5,218)
NET ASSETS:
Beginning of period 426,147 410,924 37,109 42,327
- ---------------------------------------------------------------------------------------------------------------------------
End of period $ 559,722 $ 426,147 $ 35,706 $ 37,109
- ---------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income (loss) at end of period $ 1 $ 1 $ -- $ --
- ---------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income at end of period $ -- $ -- $ -- $ --
- ---------------------------------------------------------------------------------------------------------------------------
49
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 (the "Board") may establish additional
series or classes of shares without the approval of shareholders.
The assets of each Fund belong only to that Fund, and the liabilities of
each Fund are borne solely by that Fund and no other.
It is the policy of 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 each of these Funds will
be able to maintain a stable net asset value per share.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires Neuberger Berman Management Inc.
("Management") to make estimates and assumptions at the date of the
financial statements. Actual results could differ from those estimates.
2 PORTFOLIO VALUATION: Investment securities are valued as indicated in the
notes following 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 noon 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. 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 High
Income and Limited Maturity, foreign
50
currency transactions), if any, are recorded on the basis of identified
cost and stated separately in the Statements of Operations.
5 INCOME TAX INFORMATION: Each Fund is treated as a separate entity for U.S.
Federal income tax purposes. It is the policy of each Fund to continue to
qualify as a regulated investment company by complying with the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to distribute substantially all of its
earnings to its shareholders. Therefore, no Federal income or excise tax
provision is required.
Income dividends and capital gain distributions are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments of income and gains on various investment securities
held by each Fund, timing differences and differing characterization of
distributions made by each Fund as a whole. The Funds may also utilize
earnings and profits distributed to shareholders on redemption of shares as
a part of the dividends paid deduction for income tax purposes.
As determined on October 31, 2004, permanent differences resulting
primarily from different book and tax accounting for amortization of bond
premium, mortgage dollar rolls, paydown gains and losses and, foreign
currency gains and losses (for Limited Maturity) were reclassified at year
end. These reclassifications had no effect on net income, net assets or net
assets per share of each Fund.
The tax character of distributions paid during the years ended October 31,
2004 and October 31, 2003 were as follows:
DISTRIBUTIONS PAID FROM:
TAXABLE INCOME TAX-EXEMPT INCOME
2004 2003 2004 2003
CASH RESERVES $ 3,230,039 $ 4,960,914 $ -- $ --
GOVERNMENT MONEY 4,724,895 8,969,360 -- --
HIGH INCOME 40,651,447 22,129,548 -- --
LIMITED MATURITY 7,378,305 9,294,630 -- --
MUNICIPAL MONEY -- -- 2,217,371 2,502,940
MUNICIPAL SECURITIES TRUST 55,790 601 1,319,090 1,437,169
DISTRIBUTIONS PAID FROM:
LONG-TERM CAPITAL GAIN TOTAL
2004 2003 2004 2003
CASH RESERVES $ -- $ -- $ 3,230,039 $ 4,960,914
GOVERNMENT MONEY -- -- 4,724,895 8,969,360
HIGH INCOME -- -- 40,651,447 22,129,548
LIMITED MATURITY -- -- 7,378,305 9,294,630
MUNICIPAL MONEY -- -- 2,217,371 2,502,940
MUNICIPAL SECURITIES TRUST 103,115 199,702 1,477,995 1,637,472
As of October 31, 2004, the components of distributable earnings
(accumulated losses) on a U.S. Federal income tax basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED UNDISTRIBUTED UNREALIZED LOSS
ORDINARY TAX-EXEMPT LONG-TERM APPRECIATION CARRYFORWARDS
INCOME INCOME GAIN (DEPRECIATION) AND DEFERRALS TOTAL
CASH RESERVES $ 262,377 $ -- $ -- $ -- $ -- $ 262,377
GOVERNMENT MONEY 322,516 -- -- -- (14,846) 307,670
HIGH INCOME 467,360 -- -- 25,339,429 (7,122,418) 18,684,371
LIMITED MATURITY 369,713 -- -- (874,085) (20,386,277) (20,890,649)
MUNICIPAL MONEY -- 350,025 -- -- (6,798) 343,227
MUNICIPAL SECURITIES TRUST 57,922 10,566 167,401 1,928,462 -- 2,164,351
The differences between book basis and tax basis distributable earnings are
attributable primarily to timing differences of distribution payments,
timing differences of wash sales, mark to market on certain forward foreign
currency contracts, mortgage dollar rolls, and amortization of bond
premium.
51
To the extent each Fund's net realized capital gains, if any, can be offset
by capital loss carryforwards, it is the policy of each Fund not to
distribute such gains. As determined on October 31, 2004, the following
Funds had unused capital loss carryforwards available for Federal income
tax purposes to offset net realized capital gains, if any, as follows:
EXPIRING IN:
2005 2006 2007 2008 2009 2010 2011 2012
GOVERNMENT MONEY $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ 14,846
HIGH INCOME(1) -- -- 2,845,092 2,021,774 923,187 1,332,365 -- --
LIMITED MATURITY(2) 1,100,286 4,035,877 5,146,514 7,177,986 456,883 -- -- 2,468,731
MUNICIPAL MONEY -- -- -- 6,744 -- -- 54 --
(1) Of the total capital loss carryforwards shown above for High Income,
$5,790,053 was acquired on September 6, 2002 in the merger with
Neuberger Berman High Yield Bond Fund. The use of these losses to
offset future gains may be limited in a given year.
(2) Of the total capital loss carryforwards shown above for Limited
Maturity, $2,860,480 was acquired on February 9, 2001 in a tax-free
reorganization. The use of these losses to offset future gains may be
limited in a given year.
6 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 distributions from net investment income on each business day; such
distributions are paid monthly. Distributions from net realized capital
gains, if any, are generally distributed in December. Income dividends and
capital gain distributions to shareholders are recorded on the ex-dividend
date.
7 EXPENSE ALLOCATION: Certain expenses are applicable to multiple funds.
Expenses directly attributable to a Fund are charged to that Fund. Expenses
of the Trust that are not directly attributed to a Fund are allocated among
the 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
52
exchange on which such futures contract is traded. Subsequent payments,
known as "variation margin," to and from the broker are made on a daily
basis as the market price of the financial futures contract fluctuates.
Daily variation margin adjustments, arising from this "mark to market," are
recorded by the Funds as unrealized gains or losses.
Although some financial futures contracts by their terms call for actual
delivery or acceptance of financial instruments, in most cases the
contracts are closed out prior to delivery by offsetting purchases or sales
of matching financial futures contracts. When the contracts are closed, a
Fund recognizes a gain or loss. Risks of entering into futures contracts
include the possibility there may be an illiquid market, possibly at a time
of rapidly declining prices, and/or a change in the value of the contract
may not correlate with changes in the value of the underlying securities.
For U.S. Federal income tax purposes, the futures transactions undertaken
by a Fund may cause that Fund to recognize gains or losses from marking to
market even though its positions have not been sold or terminated, may
affect the character of the gains or losses recognized as long-term or
short-term, and may affect the timing of some capital gains and losses
realized by the Fund. Also, a Fund's losses on transactions involving
futures contracts may be deferred rather than being taken into account
currently in calculating such Fund's taxable income.
During the six months ended April 30, 2005, High Income, Limited Maturity,
and Municipal Securities Trust did not enter into any 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.
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. Neuberger, under the
general supervision of the Board, 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. Prior to February 7, 2005, High Income invested the cash
collateral in the N&B Securities Lending Quality Fund, LLC ("Old
53
Fund"), which was managed by State Street Bank and Trust Company ("State
Street") pursuant to guidelines approved by Management. Effective February
7, 2005, High Income changed the collateral investment vehicle from the
Old Fund to the Neuberger Berman Securities Lending Quality Fund, LLC
("Quality Fund"), a fund managed by Lehman Brothers Asset Management LLC
(formerly Lincoln Capital Fixed Income Management Company, LLC), an
affiliate of Management, as approved by the Board. 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
Statement of Operations under the caption "Income from securities
loaned-affiliated issuer."
11 REPURCHASE AGREEMENTS: Each Fund may enter into repurchase agreements with
institutions that Management has determined are creditworthy. Each
repurchase agreement is recorded at cost. Each Fund requires that the
securities purchased in a repurchase agreement be transferred to the
custodian in a manner sufficient to enable the Fund to assert a perfected
security interest in those securities in the event of a default under the
repurchase agreement. Each Fund monitors, on a daily basis, the value of
the securities transferred to ensure that their value, including accrued
interest, is greater than amounts owed to the Fund under each such
repurchase agreement.
12 DOLLAR ROLLS: Limited Maturity may enter into dollar roll transactions with
respect to mortgage-backed securities. In a dollar roll transaction, the
Fund sells securities for delivery in the current month and simultaneously
agrees to repurchase substantially similar (i.e., same type and coupon)
securities on a specified future date from the same party. During the
period before this repurchase, the Fund forgoes principal and interest
payments on the securities. The Fund is compensated by the difference
between the current sales price and the forward price for the future
purchase (often referred to as the "drop"), as well as by the interest
earned on the cash proceeds of the initial sale. Dollar rolls may increase
fluctuations in the Fund's net asset value and may be viewed as a form of
leverage. There is a risk that the counterparty will be unable or unwilling
to complete the transaction as scheduled, which may result in losses to the
Fund.
13 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.
14 INDEMNIFICATIONS: Like many other companies, the Trust's organizational
documents provide that its officers and trustees are indemnified against
certain liabilities arising out of the performance of their duties to the
Trust. In addition, both in some of its principal service contracts and in
the normal course of its business, the Trust enters into contracts that
provide indemnifications to other parties for certain types of losses or
liabilities. The Trust's maximum exposure under these arrangements is
unknown as this could involve future claims against the Trust.
54
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. Effective December 27,
2004, Cash Reserves and Government Money pay Management a fee for
investment management services at the annual rate of 0.10% of each Fund's
average daily net assets. Management has voluntarily agreed to waive its
management fee in the amount of 0.02% of the average daily net assets of
Cash Reserves and Government Money. For the six months ended April 30,
2005, such waived fees amounted to $33,631 and $32,485 for Cash Reserves
and Government Money, respectively.
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.
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:
REIMBURSEMENT FROM
MANAGEMENT FOR THE
EXPENSE SIX MONTHS ENDED
CLASS LIMITATION(1) CONTRACTUAL/VOLUNTARY EXPIRATION APRIL 30, 2005
CASH RESERVES INVESTOR CLASS 0.65% Contractual 10/31/07 $ --
HIGH INCOME BOND FUND INVESTOR CLASS 1.00% Contractual 10/31/07 --
LIMITED MATURITY BOND FUND INVESTOR CLASS 0.70% Contractual 10/31/07 69,142
LIMITED MATURITY BOND FUND TRUST CLASS 0.80% Contractual 10/31/07 24,351
MUNICIPAL SECURITIES TRUST INVESTOR CLASS 0.65% Contractual 10/31/07 72,106
(1) Expense limitation per annum of the respective class' average daily
net assets.
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, 2005, there
was no
55
reimbursement to Management. At April 30, 2005, contingent liabilities to
Management under the agreement were as follows:
EXPIRING IN:
2005 2006 2007 2008 TOTAL
CASH RESERVES INVESTOR CLASS $ -- $ -- $ -- $ -- $ --
HIGH INCOME BOND FUND INVESTOR CLASS -- -- -- -- --
LIMITED MATURITY BOND FUND INVESTOR CLASS 37,633 81,375 118,706 69,142 306,856
LIMITED MATURITY BOND FUND TRUST CLASS 34,703 53,395 47,081 24,351 159,530
MUNICIPAL SECURITIES TRUST INVESTOR CLASS 109,936 140,242 156,342 72,106 478,626
Management and Neuberger Berman, LLC ("Neuberger"), a member firm of the
New York Stock Exchange and sub-adviser to each Fund, are wholly-owned
subsidiaries of Lehman Brothers Holdings Inc., a publicly-owned holding
company. 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. For the six months ended April 30, 2005, the impact of
this arrangement was a reduction of expenses of $407, $2,338, $5,920, $484,
$3,262 and $613 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, 2005
were as follows:
PURCHASES PURCHASES SALES AND
OF U.S. EXCLUDING MATURITIES
GOVERNMENT U.S. SALES AND EXCLUDING U.S.
AND AGENCY GOVERNMENT MATURITIES OF U.S. GOVERNMENT AND
OBLIGATIONS AND AGENCY GOVERNMENT AND AGENCY OBLIGATIONS
OBLIGATIONS AGENCY OBLIGATIONS
HIGH INCOME $ -- $ 292,048,041 $ -- $ 249,200,905
LIMITED MATURITY 81,744,765 71,247,090 120,352,750 32,628,383
MUNICIPAL SECURITIES TRUST -- 2,189,050 -- 2,997,379
All securities transactions for Cash Reserves, Government Money, and
Municipal Money were short-term.
56
During the six months ended April 30, 2005, Limited Maturity had entered
into various contracts to deliver currencies at specified future dates. At
April 30, 2005, open contracts were as follows:
CONTRACTS TO IN EXCHANGE SETTLEMENT NET UNREALIZED
SELL DELIVER FOR DATE VALUE APPRECIATION
Euro Dollar 5,530,000 EUR $ 7,184,963 7/19/05 $ 7,160,844 $ 24,119
NOTE D--FUND SHARE TRANSACTIONS:
Share activity for the six months ended April 30, 2005 and for the year
ended October 31, 2004 was as follows:
FOR THE SIX MONTHS ENDED APRIL 30, 2005 FOR THE YEAR ENDED OCTOBER 31, 2004
-------------------------------------------------- --------------------------------------------------
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
CASH
RESERVES:
Investor
Class 339,614 2,173 (324,931) 16,856 827,773 1,232 (965,468) (136,463)
GOVERNMENT
MONEY:
Investor
Class 403,604 583 (420,494) (16,307) 1,173,062 467 (1,797,122) (623,593)
HIGH
INCOME:
Investor
Class 28,697 2,282 (26,988) 3,991 60,298 3,851 (35,026) 29,123
LIMITED
MATURITY:
Investor
Class 1,236 308 (2,359) (815) 3,119 621 (7,225) (3,485)
Trust Class 354 51 (918) (513) 1,007 115 (2,100) (978)
MUNICIPAL
MONEY:
Investor
Class 725,746 262 (592,433) 133,575 688,114 115 (673,006) 15,223
MUNICIPAL
SECURITIES
TRUST:
Investor
Class 275 65 (392) (52) 703 108 (1,239) (428)
NOTE E--LINE OF CREDIT:
At April 30, 2005, High Income and Limited Maturity were participants in a
single committed, unsecured $150,000,000 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
57
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 all or any part of the
$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, 2005.
During the six months ended April 30, 2005, High Income and Limited
Maturity did not utilize this line of credit.
NOTE F--INVESTMENTS IN AFFILIATES*:
HIGH INCOME:
INCOME FROM
BALANCE OF BALANCE OF INVESTMENTS IN
SHARES GROSS GROSS SHARES AFFILIATED
HELD PURCHASES SALES HELD VALUE ISSUERS
OCTOBER 31, AND AND APRIL 30, APRIL 30, INCLUDED IN
NAME OF ISSUER 2004 ADDITIONS REDUCTIONS 2005 2005 TOTAL INCOME
Neuberger Berman
Securities Lending
Quality Fund, LLC** 115,456,120 4,306,159,820 4,407,571,370 14,044,570 $ 14,044,570 $ 27,506
* Affiliated issuers, as defined in the 1940 Act, include issuers in
which the Fund held 5% or more of the outstanding voting securities.
** Prior to February 7, 2005, the Old Fund, an investment vehicle
established by the Fund's custodian, was used to invest cash the Fund
received as collateral for securities loans. Effective February 7,
2005, the Fund changed the collateral investment vehicle from the Old
Fund to the Quality Fund, a fund managed by Lehman Brothers Asset
Management LLC, an affiliate of Management, as approved by the Board.
The Fund's shares in the Old Fund and Quality Fund were and are
non-voting. However, because all shares of the Old Fund and Quality
Fund were and are held by funds in the related investment company
complex, the Old Fund and Quality Fund may have been and may be
considered affiliates of the Fund.
NOTE G--UNAUDITED FINANCIAL INFORMATION:
The financial information included in this interim report is taken from the
records of each Fund without audit by an independent registered public
accounting firm. Annual reports contain audited financial statements.
58
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.@
SIX MONTHS ENDED
INVESTOR CLASS+ APRIL 30, YEAR ENDED OCTOBER 31,
---------------- ------------------------------------------------------------
2005 2004 2003 2002 2001 2000
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.41 $ 9.61 $ 9.65 $ 9.78 $ 9.31 $ 9.51
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME (LOSS) .12 .24 .28 .43~ .58 .61
NET GAINS OR LOSSES ON SECURITIES
(BOTH REALIZED AND UNREALIZED) (.12) (.11) .03 (.11)##~ .47 (.20)
-------- -------- -------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS (.00) .13 .31 .32 1.05 .41
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (.17) (.33) (.35) (.45) (.58) (.58)
TAX RETURN OF CAPITAL -- -- -- -- -- (.03)
-------- -------- -------- -------- -------- --------
TOTAL DISTRIBUTIONS (.17) (.33) (.35) (.45) (.58) (.61)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.24 $ 9.41 $ 9.61 $ 9.65 $ 9.78 $ 9.31
-------- -------- -------- -------- -------- --------
TOTAL RETURN++ +.14%** +1.43% +3.23% +3.42% +11.62% +4.47%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 152.1 $ 162.6 $ 199.4 $ 220.3 $ 204.8 $ 167.9
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 2.55%* 2.49% 2.88% 4.44%~ 6.05% 6.43%
PORTFOLIO TURNOVER RATE 88% 94% 129% 140% 147% 105%
SIX MONTHS ENDED
TRUST CLASS+ APRIL 30, YEAR ENDED OCTOBER 31,
---------------- ------------------------------------------------------------
2005 2004 2003 2002 2001 2000
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.97 $ 9.15 $ 9.20 $ 9.32 $ 8.88 $ 9.06
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME (LOSS) .11 .22 .26 .40~ .55 .57
NET GAINS OR LOSSES ON SECURITIES
(BOTH REALIZED AND UNREALIZED) (.12) (.09) .01 (.10)##~ .44 (.18)
-------- -------- -------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS (.01) .13 .27 .30 .99 .39
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (.16) (.31) (.32) (.42) (.55) (.54)
TAX RETURN OF CAPITAL -- -- -- -- -- (.03)
-------- -------- -------- -------- -------- --------
TOTAL DISTRIBUTIONS (.16) (.31) (.32) (.42) (.55) (.57)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 8.80 $ 8.97 $ 9.15 $ 9.20 $ 9.32 $ 8.88
-------- -------- -------- -------- -------- --------
TOTAL RETURN++ +.00%** +1.44% +3.00% +3.35% +11.41% +4.50%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 22.00 $ 27.0 $ 36.5 $ 42.9 $ 38.1 $ 26.9
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS# .80%* .80% .80% .80% .80% .80%
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS+++ .80%* .80% .80% .80% .80% .80%
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS 2.44%* 2.38% 2.80% 4.31%~ 5.95% 6.34%
PORTFOLIO TURNOVER RATE 88% 94% 129% 140% 147% 105%
See Notes to Financial Highlights
59
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.@
SIX MONTHS ENDED TEN MONTHS ENDED
INVESTOR CLASS~~ APRIL 30, YEAR ENDED OCTOBER 31, OCTOBER 31,
---------------- ----------------------------- ------------------
2005 2004 2003 2002^^
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.54 $ 9.25 $ 8.81 $ 9.03
--------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME (LOSS) .27 .58 .60 .52~
NET GAINS OR LOSSES ON SECURITIES
(BOTH REALIZED AND UNREALIZED) (.41) .29 .44 (.21)~
--------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS (.14) .87 1.04 .31
--------- --------- --------- ---------
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (.27) (.58) (.60) (.53)
EXCESS OF NET INVESTMENT INCOME -- -- -- --
NET CAPITAL GAINS -- -- -- --
--------- --------- --------- ---------
TOTAL DISTRIBUTIONS (.27) (.58) (.60) (.53)
--------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.13 $ 9.54 $ 9.25 $ 8.81
--------- --------- --------- ---------
TOTAL RETURN++ (1.52%)** +9.68% +12.14% +3.52%**
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 815.1 $ 813.2 $ 519.7 $ 148.6
RATIO OF GROSS EXPENSES TO AVERAGE
NET ASSETS# .89%* .90% .90% 1.00%*
RATIO OF NET EXPENSES TO AVERAGE
NET ASSETS .89%* .90% .90%^ 1.00%*+++
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS 5.73%* 6.16% 6.54% 6.96%*~
PORTFOLIO TURNOVER RATE 31% 79% 148% 95%++++
INVESTOR CLASS~~ YEAR ENDED DECEMBER 31,
-----------------------------------------
2001 2000 1999
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.90 $ 9.22 $ 9.57
--------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME (LOSS) .69 .75 .74
NET GAINS OR LOSSES ON SECURITIES
(BOTH REALIZED AND UNREALIZED) .12 (.33) (.35)
--------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS .81 .42 .39
--------- --------- ---------
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (.68) (.74) (.74)
EXCESS OF NET INVESTMENT INCOME -- -- --
NET CAPITAL GAINS -- -- --
--------- --------- ---------
TOTAL DISTRIBUTIONS (.68) (.74) (.74)
--------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.03 $ 8.90 $ 9.22
--------- --------- ---------
TOTAL RETURN++ +9.27% +4.81% +4.20%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 92.8 $ 60.3 $ 66.2
RATIO OF GROSS EXPENSES TO AVERAGE
NET ASSETS# 1.00% 1.00% 1.00%
RATIO OF NET EXPENSES TO AVERAGE
NET ASSETS 1.00%+++ 1.00%+++ 1.00%+++
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS 7.54% 8.15% 7.72%
PORTFOLIO TURNOVER RATE 85% 63% 103%
See Notes to Financial Highlights
60
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.@
SIX MONTHS ENDED
INVESTOR CLASS+ APRIL 30, YEAR ENDED OCTOBER 31,
------------------ -------------------------------------------------------------
2005 2004 2003 2002 2001 2000
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.81 $ 11.86 $ 11.80 $ 11.62 $ 11.00 $ 10.78
--------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME (LOSS) .20 .40 .40 .43 .45 .46
NET GAINS OR LOSSES ON SECURITIES
(BOTH REALIZED AND UNREALIZED) (.20) (.00) .12 .18 .62 .22
--------- --------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS (.00) .40 .52 .61 1.07 .68
--------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (.20) (.40) (.40) (.43) (.45) (.46)
NET CAPITAL GAINS (.05) (.05) (.06) -- -- --
--------- --------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (.25) (.45) (.46) (.43) (.45) (.46)
--------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 11.56 $ 11.81 $ 11.86 $ 11.80 $ 11.62 $ 11.00
--------- --------- --------- --------- --------- ---------
TOTAL RETURN++ +.20%** +3.43% +4.50% +5.35% +9.89% +6.46%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 35.7 $ 37.1 $ 42.3 $ 37.9 $ 32.8 $ 28.7
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS# .65%* .65% .65% .65% .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 3.46%* 3.40% 3.37% 3.67% 3.96% 4.22%
PORTFOLIO TURNOVER RATE 6% 8% 12% 17% 26% 37%
See Notes to Financial Highlights
61
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.
SIX MONTHS ENDED
INVESTOR CLASS+ APRIL 30, YEAR ENDED OCTOBER 31,
------------------ -------------------------------------------------------------
2005 2004 2003 2002 2001 2000
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF PERIOD $ .9998 $ .9998 $ .9998 $ .9998 $ .9997 $ .9998
--------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME (LOSS) .0063 .0051 .0050 .0092 .0269 .0336
NET GAINS OR LOSSES ON SECURITIES .0001 -- -- -- .0001## --
--------- --------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS .0064 .0051 .0050 .0092 .0270 .0336
--------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (.0063) (.0051) (.0050) (.0092) (.0269) (.0336)
NET CAPITAL GAINS -- -- -- -- -- (.0001)
--------- --------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (.0063) (.0051) (.0050) (.0092) (.0269) (.0337)
--------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ .9999 $ .9998 $ .9998 $ .9998 $ .9998 $ .9997
--------- --------- --------- --------- --------- ---------
TOTAL RETURN++ +.63%** +.51% +.50% +.93% +2.72% +3.41%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 559.7 $ 426.1 $ 410.9 $ 533.3 $ 455.2 $ 255.5
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS# .59%* .61% .61% .62% .61% .68%
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS .59%* .61% .61% .62% .60% .67%
RATIO OF NET INVESTMENT INCOME (LOSS) TO AVERAGE
NET ASSETS 1.29%* .51% .50% .92% 2.60% 3.33%
See Notes to Financial Highlights
62
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.
SIX MONTHS ENDED
INVESTOR CLASS+ APRIL 30, YEAR ENDED OCTOBER 31,
------------------ -------------------------------------------------------------
2005 2004 2003 2002 2001 2000
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0001 $ 1.0000 $ 1.0000
--------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME (LOSS) .0092 .0056 .0066 .0154 .0440 .0562
NET GAINS OR LOSSES ON SECURITIES .0000 .0000 .0000 (.0000) .0001 --
--------- --------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS .0092 .0056 .0066 .0154 .0441 .0562
--------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (.0092) (.0056) (.0066) (.0154) (.0440) (.0562)
NET CAPITAL GAINS -- (.0000) -- (.0001) -- --
--------- --------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (.0092) .0056 (.0066) (.0155) (.0440) (.0562)
--------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0001 $ 1.0000
--------- --------- --------- --------- --------- ---------
TOTAL RETURN++ +.92%** +.57% +.66% +1.56% +4.49% +5.76%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 498.1 $ 481.2 $ 617.7 $ 842.0 $ 1,116.0 $ 1,324.8
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS# .52%* .63% .59% .60% .55% .60%
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS .52%*+++ .63% .59% .60% .55% .60%
RATIO OF NET INVESTMENT INCOME (LOSS) TO AVERAGE
NET ASSETS 1.85%* .55% .68% 1.54% 4.59% 5.61%
See Notes to Financial Highlights
63
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.
SIX MONTHS ENDED
INVESTOR CLASS+ APRIL 30, YEAR ENDED OCTOBER 31,
------------------ -------------------------------------------------------------
2005 2004 2003 2002 2001 2000
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
--------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME (LOSS) .0088 .0060 .0078 .0149 .0423 .0509
NET GAINS OR LOSSES ON SECURITIES .0000 .0000 .0000 .0000 -- --
--------- --------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS .0088 .0060 .0078 .0149 .0423 .0509
--------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (.0088) (.0060) (.0078) (.0149) (.0423) (.0509)
NET CAPITAL GAINS (.0000) (.0000) (.0000) (.0000) -- --
--------- --------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (.0088) (.0060) (.0078) (.0149) (.0423) (.0509)
--------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
--------- --------- --------- --------- --------- ---------
TOTAL RETURN++ +.89%** +.61% +.78% +1.50% +4.31% +5.22%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 438.4 $ 454.7 $ 1,078.3 $ 1,345.2 $ 571.9 $ 303.8
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS# .49%* .49% .45% .47% .59% .67%
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS .49%*+++ .49%+++ .45%+++ .47%+++ .59% .67%
RATIO OF NET INVESTMENT INCOME (LOSS) TO AVERAGE
NET ASSETS 1.76%* .57% .78% 1.45% 3.92% 4.99%
See Notes to Financial Highlights
64
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 Municipal Money), total return would have been lower if
Management had not reimbursed and/or waived 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 and/or waiver of a portion of the
investment management fee by Management. Had Management not undertaken such
actions, the annualized ratios of net expenses to average daily net assets
would have been:
SIX MONTHS ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
2005 2004 2003 2002 2001 2000
CASH RESERVES INVESTOR CLASS .53% -- -- -- -- --
GOVERNMENT MONEY FUND INVESTOR CLASS .50% .58% .57% .55% -- --
LIMITED MATURITY BOND FUND INVESTOR CLASS .79% .77% .74% .73% .74% .76%
LIMITED MATURITY BOND FUND TRUST CLASS 1.00% .95% .93% .92% 1.01% 1.26%
MUNICIPAL SECURITIES TRUST INVESTOR CLASS 1.05% 1.06% .98% 1.10% 1.07% 1.22%
TEN MONTHS ENDED
OCTOBER 31, YEAR ENDED DECEMBER 31,
2002 2001 2000 1999
HIGH INCOME BOND FUND INVESTOR CLASS 1.31% 1.15% 1.18% 1.15%
^ After reimbursement of expenses previously paid by Management. Had
Management not been reimbursed, the annualized ratio of net expenses to
average daily net assets would have been:
YEAR ENDED
OCTOBER 31,
2003
HIGH INCOME BOND FUND INVESTOR CLASS .90%
++++ 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.
65
^^ Effective after the close of business on September 6, 2002, Management
succeeded Lipper & Company, L.L.C., as the Fund's investment manager.
~ 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:
HIGH INCOME BOND FUND INVESTOR CLASS TEN MONTHS ENDED
OCTOBER 31,
2002
NET INVESTMENT INCOME (.01)
NET GAINS OR LOSSES ON SECURITIES .01
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS (.19%)
LIMITED MATURITY BOND FUND INVESTOR CLASS YEAR ENDED
OCTOBER 31,
2002
NET INVESTMENT INCOME (.02)
NET GAINS OR LOSSES ON SECURITIES .02
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS (.26%)
LIMITED MATURITY BOND FUND TRUST CLASS YEAR ENDED
OCTOBER 31,
2002
NET INVESTMENT INCOME (.02)
NET GAINS OR LOSSES ON SECURITIES .02
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS (.26%)
~ 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.
66
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 Nicholson Graham LLP
1800 Massachusetts Avenue, NW
2nd Floor
Washington, DC 20036-1221
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
67
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies relating to portfolio securities is available, without
charge, by calling 1-800-877-9700 (toll-free) and on the website of the
Securities and Exchange Commission at www.sec.gov. Information regarding how the
Trust voted proxies relating to portfolio securities during the most recent
12-month period ended June 30 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 Trust's website at www.nb.com.
QUARTERLY PORTFOLIO SCHEDULE
The Trust files a complete schedule of portfolio holdings for each Fund with the
Securities and Exchange Commission for the first and third quarters of each
fiscal year on Form N-Q. The Trust's Forms N-Q are available on the Securities
and Exchange Commission's website at www.sec.gov and may be reviewed and copied
at the Securities and Exchange Commission's Public Reference Room in Washington,
DC. Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330. The information on Form N-Q is available upon request,
without charge, by calling 1-800-877-9700 (toll-free).
68
Statistics and projections in this report are derived from sources deemed to be
reliable but cannot be regarded as a representation of future results of the
Funds. This report is prepared for the general information of shareholders and
is not an offer of shares of the Funds. Shares are sold only through the
currently effective prospectus, which must precede or accompany this report.
[NEUBERGER BERMAN 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
www.nb.com
[RECYCLED SYMBOL] BO524 06/05
[NEUBERGER BERMAN LOGO]
A LEHMAN BROTHERS COMPANY
SEMI-ANNUAL REPORT
APRIL 30, 2005
NEUBERGER BERMAN
INCOME FUNDS(R)
INSTITUTIONAL CLASS SHARES
STRATEGIC INCOME FUND
NEUBERGER BERMAN APRIL 30, 2005 (UNAUDITED)
CONTENTS
THE FUND
CHAIRMAN'S LETTER 2
PORTFOLIO COMMENTARY 3
FUND EXPENSE INFORMATION 7
SCHEDULE OF INVESTMENTS 8
FINANCIAL STATEMENTS 18
FINANCIAL HIGHLIGHTS PER SHARE DATA 31
DIRECTORY 33
PROXY VOTING POLICIES AND PROCEDURES 34
QUARTERLY PORTFOLIO SCHEDULE 34
"Neuberger Berman" and the Neuberger Berman logo are service marks of Neuberger
Berman, LLC. "Neuberger Berman Management Inc." and the individual fund name in
this shareholder report are either service marks or registered service marks of
Neuberger Berman Management Inc.(C) 2005 Neuberger Berman Management Inc. All
rights reserved.
1
CHAIRMAN'S LETTER
[PHOTO OF PETER SUNDMAN]
DEAR SHAREHOLDER,
I am pleased to present to you this semi-annual report for the Neuberger Berman
Strategic Income Fund for the period ending April 30, 2005. The report includes
portfolio commentary, a listing of the Fund's investments, and its unaudited
financial statements for the reporting period.
The past year has been a rollercoaster ride for fixed income investors. Strong
economic data in the spring of 2004 caused fears about potential action by the
Federal Reserve. As expected, the Fed soon instituted the first in a series of
rate hikes that have lifted the Fed Funds rate from 1% in June 2004 to 2.75% in
the end of April 2005. Still, bonds rallied over the summer, and held steady
through January. Later, renewed concerns about economic growth and the potential
for more intense rate increases caused a sharp pullback, which was followed by a
bond rally in April of this year. All told, bond market returns were generally
uninspiring for the six-month reporting period, but money markets enjoyed an
increase in yields.
Looking forward, the outlook for the bond market remains cloudy. Given the
constant tension between inflationary concerns and the impact of the Fed's
tightening campaign, we feel that it remains crucial to guard our clients'
assets. As such, we intend to proceed with caution, patience and vigilance
through an uncertain time, capitalizing on opportunities as they arise.
Thank you for your confidence in Neuberger Berman. We will continue to do our
best to earn it.
Sincerely,
/s/ Peter Sundman
PETER SUNDMAN
CHAIRMAN OF THE BOARD
NEUBERGER BERMAN INCOME FUNDS
2
STRATEGIC INCOME FUND Portfolio Commentary
We are pleased to report that for the six months ending April 30, 2005, the
Neuberger Berman Strategic Income Fund returned 2.34%, compared to the Lehman
Brothers U.S. Aggregate Index, which returned 0.98%. Since its inception on July
11, 2003, the Fund has returned an annualized 8.27% compared to the Lehman
Index's 3.16%.
The Fund's returns over these periods have demonstrated the benefits of
investing in a diversified portfolio of income-producing securities. As we did
in the previous reporting period, we maximized the Fund's exposure to
nontraditional fixed income sectors, including European bonds, real estate
investment trusts (REITs), dividend-paying equities and high-yield bonds, while
minimizing the Fund's exposure to U.S. Treasury securities and high-grade
corporate bonds. Our strategy provided shareholders with returns well above
those of the broader bond market, as measured by the Lehman U.S. Aggregate
Index, while remaining cognizant of risk. 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, 20.7% of the Fund's net assets were
invested in the core area of U.S. Treasury issues, agency obligations and
mortgage-backed securities. Our largest holdings outside of this area were in
corporate bonds, which accounted for 28.2% of net assets. The Fund held 27.1% of
its net assets in common and preferred stocks (including REIT securities) and
14.3% in foreign bonds. Cash and cash equivalents accounted for 8.0% of net
assets and convertible debt represented 1.7% of net assets.
REITs
In our opinion, positive returns generated during the reporting period reflect
the general strength of the REIT market and are an indication of continued
investor interest and improving fundamentals for REIT securities. We believe
that these positive trends will remain intact as investors continue to search
for higher yielding securities in a rising, but still low interest rate
environment. Commercial real estate fundamentals in particular have continued to
improve, as evidenced by increasing rent and occupancy levels.
The current economic environment is characterized by rising short-term interest
rates, benign long-term interest rates and expected GDP growth of 3%. We
believe, absent a recession, that REITs are on track for 8-9% earnings-per-share
growth in calendar 2005 as demand for real estate continues to outstrip supply.
The first quarter earnings season confirmed this trend. If there is continued
evidence of earnings acceleration, it should benefit REIT share prices as we
move through the year. We continue to seek companies with improving
fundamentals, strong financial positions and opportunistic management teams.
HIGH-YIELD SECURITIES
The high-yield segment of the bond market ended 2004 on a reasonably strong note
and held on to that strength until March of this year. In mid-February 2005, the
Treasury market began to weaken in the wake of Federal Reserve Chairman Alan
Greenspan's comment that he found the low rates on long-term bonds a
"conundrum," which heightened investor fears that interest rates might rise more
rapidly than expected. This movement was mostly absorbed by spread narrowing in
the high-yield market in February.
In mid-March of this year, General Motors dramatically revised guidance
downward, focusing the market on credit risk and accelerating expectations for a
ratings downgrade of GM. As a result, tight spreads generally were increasingly
viewed as inadequately pricing the risk in the marketplace. Spreads in high
yield widened both because absolute yields began to rise and because investors
fled to the relative safety of U.S. Treasuries, pushing Treasury yields back to
early February levels.
Despite the difficult period, we are maintaining an optimistic, but cautious,
outlook for the high-yield market. We believe that the recent disruptive
environment provided an opportunity for reallocation within the market. We
exited selected issues at what we deemed to be acceptable price levels and
opportunistically acquired bonds we believed were
3
temporarily mispriced relative to our estimation of their total return
potential.
FOREIGN SECURITIES
Most of our holdings in this segment of the portfolio are centered in Europe
(euro-denominated bonds) and comprise approximately 8% of the overall
portfolio's net assets. We believe that, in the current rising interest rate
environment, European bonds are likely to perform better than other foreign
issues.
Most of the portfolio's other foreign holdings are invested in Japan. The
interest rate environment there has remained stable and the yield curve is
fairly steep. In a rising interest rate environment, this relative stability has
provided a measure of downside protection. At some point in the future, we may
consider reducing our allocation to Japan as the country moves closer to
eliminating its "zero interest rate" policy.
U.K. issues make up a small portion of the portfolio's foreign holdings, but we
may begin to increase our allocation there based on our expectation that
economic growth will begin to slow and interest rates will decline over the
medium term.
INCOME-ORIENTED SECURITIES
This portion of the portfolio consists of significant weighting in utility
stocks, a sector of the market that has performed quite well over the reporting
period. A combination of investors seeking yield in a rising, yet still
historically low interest rate environment and last year's dividend tax cut have
benefited this segment of the portfolio. We also have a meaningful weighting in
convertible bonds and convertible preferreds (both stocks and bonds), which
performed as expected.
We hope that the Neuberger Berman Strategic Income Fund will become a core
holding of your portfolio. We believe that 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)
SIX MONTH AVERAGE ANNUAL TOTAL
PERIOD ENDED RETURN ENDED 4/30/2005
INCEPTION DATE 4/30/2005 1 YEAR SINCE INCEPTION
INSTITUTIONAL CLASS 07/11/2003 2.34% 10.01% 8.27%
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.
ASSET DIVERSIFICATION
(% BY ASSET CLASS)
Asset Backed 0.0%
Corporate Debt 28.2
Convertible Debt 1.7
Foreign Securities 14.3
U.S. Government Agency Securities 2.3
Mortgage-Backed Securities 9.7
U.S. Treasury Securities 8.7
Preferred Stock 0.7
Common Stock 26.4
Other 0.0
Cash and Cash Equivalents, receivables and other assets, less liabilities 8.0
For the period ending 4/30/05, the 30-day SEC yield of the Institutional Class
Shares was 3.37%. The composition, industries and holdings of the fund are
subject to change.
4
ENDNOTES
(1). Neuberger Berman Management Inc. ("Management") has contractually
undertaken to reimburse Neuberger Berman Strategic Income Fund so that
total operating expenses exclusive of taxes, interest, brokerage
commissions and extraordinary expenses of the Fund are limited to 0.85% of
average daily net assets. The undertaking lasts until October 31, 2015. The
Fund 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. If this reimbursement was not
made, performance would be lower.
5
GLOSSARY OF INDICES
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.
Please note that the index does not take into account any fees and expenses or
any tax consequences of investing in the individual securities that it tracks
and that investors cannot invest directly in any index. Data about the
performance of the index is prepared or obtained by Neuberger Berman Management
Inc. and includes reinvestment of all dividends and capital gain distributions.
The Fund may invest in securities not included in its index.
6
INFORMATION ABOUT YOUR FUND'S EXPENSES
This table is designed to provide information regarding costs related to your
investments. All mutual funds incur operating expenses, which include management
fees, fees for administrative services and costs of shareholder reports, among
others. The following examples are based on an investment of $1,000 made at the
beginning of the period shown and held for the entire period. The table
illustrates the fund's costs in two ways:
ACTUAL EXPENSES: The first section of the table provides information about actual
account values and actual expenses in dollars. You may use the
information in this line, together with the amount you invested, to
estimate the expenses you paid over the period. Simply divide your
account value by $1,000 (for example, an $8,600 account value divided
by $1,000 = 8.6), then multiply the result by the number in the first
section of the table under the heading entitled "Expenses Paid During
the Period" to estimate the expenses you paid over the period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES: The second section of the table provides information about
hypothetical account values and hypothetical expenses based on the
Fund's actual expense ratio and an assumed rate of return at 5% per
year before expenses. This return is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing
in this Fund versus other funds. To do so, compare the expenses shown
in this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds.
EXPENSE INFORMATION As of 4/30/05 (Unaudited)
NEUBERGER BERMAN STRATEGIC INCOME FUND
BEGINNING ENDING EXPENSES
ACCOUNT ACCOUNT PAID DURING
ACTUAL VALUE VALUE THE PERIOD*
- ---------------------------------------------------------------------
Institutional Class $ 1,000 $ 1,023.40 $ 4.26
HYPOTHETICAL (5% ANNUAL
RETURN BEFORE EXPENSES)**
- ---------------------------------------------------------------------
Institutional Class $ 1,000 $ 1,020.58 $ 4.26
* Expenses are equal to the expense ratio for the class, multiplied by the
average account value over the period, multiplied by 181/365 (to reflect
the one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by multiplying
the number of days in the most recent half year divided by 365.
7
SCHEDULE OF INVESTMENTS Strategic Income Fund
MARKET VALUE+
NUMBER OF SHARES (000'S OMITTED)
COMMON STOCKS (26.4%)
AEROSPACE (0.3%)
2,000 Lockheed Martin $ 122++++
APARTMENTS (2.2%)
4,000 Apartment Investment & Management 152
700 Avalonbay Communities 50
4,200 Camden Property Trust 214
2,100 Essex Property Trust 160
7,700 United Dominion Realty Trust 171
--------
747
BANKING & FINANCIAL (0.3%)
3,500 North Fork Bancorp 99
BUSINESS SERVICES (0.2%)
3,000 FTI Consulting 66*++++
COMMUNICATIONS (0.2%)
2,500 Vodafone Group ADR 65++++
COMMUNITY CENTERS (0.8%)
3,900 Developers Diversified Realty 165
1,900 Pan Pacific Retail Properties 115
--------
280
CONSUMER CYCLICALS (0.2%)
5,000 Corinthian Colleges 71*++++
CONSUMER STAPLES (0.3%)
1,500 Diageo PLC ADR 90++++
DIVERSIFIED (1.9%)
6,500 Colonial Properties Trust 251
2,700 Pennsylvania REIT 114
3,600 Vornado Realty Trust 275
--------
640
ENERGY (1.3%)
1,500 BP PLC ADR 91++++
1,500 Burlington Resources 73++++
2,153 Enbridge Energy Management 107
4,000 NiSource, Inc. 93
1,500 PetroChina Co. 90++++
--------
454
FINANCE (0.6%)
2,500 Bank of America 112
3,000 Tortoise Energy Infrastructure 88
--------
200
FINANCIAL SERVICES (0.6%)
1,500 American Express 79
1,500 Citigroup Inc. 71
3,000 Jackson Hewitt Tax Service 55
--------
205
HEALTH CARE (0.4%)
2,500 NBTY, Inc. $ 53*
1,500 Novartis AG ADR 73
--------
126
INDUSTRIAL (1.9%)
1,000 3M Co. 77++++
2,500 CenterPoint Properties 103
2,000 Dover Corp. 73
1,000 General Dynamics 105++++
1,500 Praxair, Inc. 70++++
4,900 ProLogis 194
3,000 Wright Express 50
--------
672
INSURANCE (0.3%)
1,000 American International Group 51
2,000 Willis Group Holdings 67++++
--------
118
LODGING (1.1%)
3,300 Hilton Hotels 72
10,700 Host Marriott 180
6,200 MeriStar Hospitality 42*
900 Starwood Hotels & Resorts Worldwide 49
2,500 Sunstone Hotel Investors 55
--------
398
MANUFACTURED HOMES (0.3%)
3,200 Equity Lifestyle Properties 117
MINING (0.2%)
4,000 Pan American Silver 55*++++
OFFICE (5.0%)
1,500 Alexandria Real Estate Equities 103
2,700 Arden Realty 96
1,900 Boston Properties 126
5,000 Brandywine Realty Trust 142
3,600 Brascan Corp. 130
6,600 Brookfield Properties 168
1,600 CarrAmerica Realty 53
8,400 Equity Office Properties Trust 264
1,200 Kilroy Realty 52
3,400 Mack-Cali Realty 150
3,200 SL Green Realty 195
11,900 Trizec Properties 238
--------
1,717
OFFICE--INDUSTRIAL (0.3%)
2,300 PS Business Parks 93
OIL & GAS (0.2%)
1,000 Schlumberger Ltd. 68++++
8
MARKET VALUE+
NUMBER OF SHARES (000'S OMITTED)
OIL SERVICES (0.3%)
1,500 Canadian Oil Sands Trust $ 97
REGIONAL MALLS (2.3%)
1,600 CBL & Associates Properties 124
5,000 General Growth Properties 195
1,400 Mills Corp. 80
3,900 Simon Property Group 258
5,000 Taubman Centers 148
--------
805
RESTAURANTS (0.2%)
2,500 Ruby Tuesday 56
SELF STORAGE (0.6%)
2,400 Public Storage 141
1,800 Sovran Self Storage 77
--------
218
SEMICONDUCTORS (0.2%)
3,500 Intel Corp. 82++++
SOFTWARE (0.2%)
2,500 Microsoft Corp. 63
TECHNOLOGY (0.7%)
2,000 First Data 76++++
1,000 IBM 76
4,000 Texas Instruments 100++++
--------
252
TELECOMMUNICATIONS (0.5%)
4,000 Sprint Corp. 89
2,000 Verizon Communications 72
--------
161
TRANSPORTATION (0.2%)
4,500 Ship Finance International 84
UTILITIES (2.6%)
2,000 Ameren Corp. 103
3,000 California Water Service Group 100
2,500 Cinergy Corp. 99
1,400 Dominion Resources 105
3,000 Duke Energy 88
2,800 FPL Group 114
2,200 National Grid Transco 109
2,000 ONEOK, Inc. 58++++
3,500 Southern Co. 115
--------
891
TOTAL COMMON STOCKS
(COST $8,201) 9,112
--------
CONVERTIBLE PREFERRED STOCKS (0.7%)
1,250 Celanese Corp. $ 28
3,000 General Motors, Ser. A 68
1,500 New York Community Capital Trust V 73
1,500 Newell Financial Trust I 68
--------
TOTAL CONVERTIBLE PREFERRED STOCKS
(COST $254) 237
--------
See Notes to Schedule of Investments
9
PRINCIPAL AMOUNT RATING VALUE+
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
U.S. TREASURY SECURITIES-BACKED BY THE FULL FAITH AND CREDIT OF THE U.S. GOVERNMENT (8.7%)
$ 502 U.S. Treasury Inflation Index Notes, 1.63%, due 1/15/15 TSY TSY $ 503
575 U.S. Treasury Notes, 1.25%, due 5/31/05 TSY TSY 574
305 U.S. Treasury Notes, 2.00%, due 5/15/06 TSY TSY 301
525 U.S. Treasury Notes, 3.00%, due 11/15/07 TSY TSY 516
150 U.S. Treasury Notes, 3.38%, due 2/15/08 TSY TSY 149
425 U.S. Treasury Notes, 3.63%, due 1/15/10 TSY TSY 420
265 U.S. Treasury Notes, 6.00%, due 2/15/26 TSY TSY 314
185 U.S. Treasury Notes, 5.38%, due 2/15/31 TSY TSY 209
---------------
TOTAL U.S. TREASURY SECURITIES-BACKED BY THE FULL FAITH
AND CREDIT OF THE U.S. GOVERNMENT (COST $2,992) 2,986
---------------
U.S. GOVERNMENT AGENCY SECURITIES (2.3%)
500 Federal Home Loan Bank, Bonds, 2.75%, due 3/14/08 AGY AGY 484
300 Freddie Mac, Notes, 4.25%, due 6/15/05 AGY AGY 301
---------------
TOTAL U.S. GOVERNMENT AGENCY SECURITIES (COST $794) 785
---------------
MORTGAGE-BACKED SECURITIES (9.7%)
FANNIE MAE
55 Pass-Through Certificates, 4.50%, due 8/1/18 & 10/1/18 AGY AGY 55
240 Pass-Through Certificates, 5.00%, due 11/1/17 - 8/1/33 AGY AGY 241
222 Pass-Through Certificates, 5.50%, due 9/1/16 - 7/1/33 AGY AGY 228
158 Pass-Through Certificates, 6.00%, due 3/1/18 - 9/1/33 AGY AGY 163
112 Pass-Through Certificates, 6.50%, due 11/1/13 - 9/1/32 AGY AGY 117
41 Pass-Through Certificates, 7.00%, due 7/1/17 & 7/1/29 AGY AGY 43
8 Pass-Through Certificates, 7.50%, due 12/1/32 AGY AGY 9
FREDDIE MAC
25 Pass-Through Certificates, 4.50%, due 8/1/18 AGY AGY 25
82 Pass-Through Certificates, 5.00%, due 5/1/18 & 8/1/33 AGY AGY 81
177 Pass-Through Certificates, 5.50%, due 9/1/17 - 8/1/33 AGY AGY 180
136 Pass-Through Certificates, 6.00%, due 4/1/17 - 12/1/33 AGY AGY 140
79 Pass-Through Certificates, 6.50%, due 3/1/16 - 1/1/32 AGY AGY 83
13 Pass-Through Certificates, 7.00%, due 6/1/32 AGY AGY 13
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
641 Pass-Through Certificates, 4.50%, due 11/15/33 - 6/15/34 AGY AGY 625
1,235 Pass-Through Certificates, 5.00%, due 7/15/33 - 4/15/35 AGY AGY 1,234
45 Pass-Through Certificates, 5.50%, due 6/15/33 AGY AGY 46
36 Pass-Through Certificates, 6.00%, due 4/15/33 AGY AGY 37
19 Pass-Through Certificates, 6.50%, due 7/15/32 AGY AGY 20
14 Pass-Through Certificates, 7.00%, due 8/15/32 AGY AGY 15
5 Pass-Through Certificates, 7.50%, due 7/15/32 AGY AGY 5
---------------
TOTAL MORTGAGE-BACKED SECURITIES (COST $3,352) 3,360
---------------
CORPORATE DEBT SECURITIES (28.2%)
83 Allied Waste North America, Inc., Guaranteed Senior Secured
Notes, Ser. B, 9.25%, due 9/1/12 B2 BB- 88
30 American Electric Power Co., Senior Notes,
5.25%, due 6/1/15 Baa3 BBB 30
125 Amerigas Partners L.P., Senior Notes, Ser. B,
8.88%, due 5/20/11 BB- 136
125 Amerigas Partners L.P., Senior Unsecured Notes,
7.25%, due 5/20/15 B2 BB- 125**~~
10
PRINCIPAL AMOUNT RATING VALUE+
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 125 Arch Western Finance Corp., Senior Notes, 6.75%, due 7/1/13 Ba3 BB $ 125
75 Associates Corp. NA, Senior Notes, 6.25%, due 11/1/08 Aa1 AA- 80
40 Bank of America Corp., Subordinated Notes, 6.80%,
due 3/15/28 Aa3 A+ 46
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 22
125 Case New Holland, Inc., Senior Notes, 9.25%, due 8/1/11 Ba3 BB- 128**
15 Champion International Corp., Debentures, 7.35%,
due 11/1/25 Baa2 BBB 17
125 Charter Communications Operating LLC, Senior Notes, 8.00%,
due 4/30/12 B2 B- 120**
25 ChevronTexaco Corp., Debentures, 8.00%, due 8/1/32 Aa3 AA 36
125 CMS Energy Corp., Senior Notes, 7.75%, due 8/1/10 B1 B+ 128
45 Coca-Cola Enterprises, Inc., Debentures, 6.95%, due 11/15/26 A2 A 54
55 ConocoPhillips Corp., Notes, 8.75%, due 5/25/10 A3 A- 66
125 Constellation Brands, Inc., Senior Notes, Ser. B, 8.00%,
due 2/15/08 Ba2 BB 130~
25 Constellation Energy Group, Inc., Notes, 6.35%, due 4/1/07 Baa1 BBB 26
125 CSC Holdings, Inc., Senior Notes, Ser. B, 8.13%, due 7/15/09 B1 BB- 128
125 D. R. Horton, Inc., Guaranteed Senior Notes, 8.50%,
due 4/15/12 Ba1 BB+ 137
85 Daimler Chrysler N.A. Holdings Corp., Guaranteed Notes,
6.50%, due 11/15/13 A3 BBB 87
90 Daimler Chrysler N.A. Holdings Corp., Guaranteed Notes,
8.50%, due 1/18/31 A3 BBB 103
125 Dean Foods Co., Senior Notes, 6.63%, due 5/15/09 Ba2 BB- 127
1,000 Dow Jones CDX High Yield, Pass-Thru Certificates, Ser.4-T1,
8.25%, due 6/29/10 B3 966**
125 Edison Mission Energy, Senior Notes, 9.88%, due 4/15/11 B1 B+ 141
125 Ferrellgas, L. P., Senior Notes, 6.75%, due 5/1/14 Ba3 B+ 119
125 Fisher Scientific International, Inc., Senior Subordinated
Notes, 8.00%, due 9/1/13 Ba3 BB+ 134
125 Forest Oil Corp., Senior Notes, 8.00%, due 6/15/08 Ba3 BB- 132
35 France Telecom SA, Notes, 8.00%, due 3/1/11 Baa1 A- 40
125 Gaylord Entertainment Co., Senior Notes, 6.75%,
due 11/15/14 B3 B- 116**
45 General Electric Capital Corp., Medium-Term Notes, Ser. A,
6.00%, due 6/15/12 Aaa AAA 48
100 General Motors Acceptance Corp., Notes, 7.50%, due 7/15/05 Baa2 BB 100
50 General Motors Acceptance Corp., Floating Rate Notes,
4.05%, due 1/16/07 Baa2 BB 48
50 General Motors Acceptance Corp., Notes, 5.63%, due 5/15/09 Baa2 BB 45
125 Georgia Gulf Corp., Senior Notes, 7.13%, due 12/15/13 Ba3 BB- 128
65 Goldman Sachs Group, Inc., Notes, 4.13%, due 1/15/08 Aa3 A+ 65
125 Hanover Equipment Trust 2001 B, Senior Secured Notes,
Ser. B, 8.75%, due 9/1/11 B2 B+ 131
125 HCA, Inc., Notes, 5.50%, due 12/1/09 Ba2 BB+ 124
150 Host Marriott L.P., Senior Notes, Ser. M, 7.00%, due 8/15/12 Ba3 B+ 151
80 Household Finance Corp., Notes, 4.63%, due 1/15/08 A1 A 81
35 International Bank for Reconstruction & Development, Notes,
3.63%, due 5/21/13 Aaa AAA 34
100 Invista, Notes, 9.25%, due 5/1/12 B1 B+ 107**
100 J.P. Morgan Chase & Co., Senior Notes, 3.63%, due 5/1/08 Aa3 A+ 98
See Notes to Schedule of Investments
11
PRINCIPAL AMOUNT RATING VALUE+
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 150 Jean Coutu Group (PJC), Inc., Senior Subordinated Notes,
8.50%, due 8/1/14 B3 B $ 141
125 Jefferson Smurfit Corp., Guaranteed Senior Notes, 8.25%,
due 10/1/12 B2 B 123
125 K. Hovnanian Enterprises, Guaranteed Notes, 8.88%,
due 4/1/12 Ba2 B+ 133
125 L-3 Communications Corp., Guaranteed Senior Subordinated
Notes, 7.63%, due 6/15/12 Ba3 BB+ 132
125 Lamar Media Corp., Guaranteed Notes, 7.25%, due 1/1/13 Ba3 B 129
135 Lyondell Chemical Co., Guaranteed Senior Notes, 9.50%,
due 12/15/08 B1 BB- 144
125 MGM Mirage, Inc., Guaranteed Notes, 6.00%, due 10/1/09 Ba2 BB 123
125 Mohegan Tribal Gaming, Senior Subordinated Notes, 6.38%,
due 7/15/09 Ba3 B+ 125
50 Morgan Stanley Dean Witter & Co., Senior Notes, 5.30%,
due 3/1/13 Aa3 A+ 51
125 MSW Energy Holdings LLC, Senior Secured Notes, Ser. B,
8.50%, due 9/1/10 Ba3 BB 129
125 Nalco Co., Senior Notes, 7.75%, due 11/15/11 B2 B- 128
125 Navistar International Corp., Senior Notes, 7.50%,
due 6/15/11 Ba3 BB- 118
55 News America Holdings, Senior Debentures, 8.88%,
due 4/26/23 Baa3 BBB- 72
25 Norfolk Southern Corp., Senior Notes, 6.00%, due 4/30/08 Baa1 BBB 26
15 Norfolk Southern Corp., Bonds, 7.80%, due 5/15/27 Baa1 BBB 19
125 Norske Skog Canada, Ltd., Guaranteed Senior Notes, Ser. D,
8.63%, due 6/15/11 Ba3 BB- 128
125 NRG Energy, Inc., Secured Notes, 8.00%, due 12/15/13 B1 B 126**
125 Owens & Minor, Inc., Senior Subordinated Notes, 8.50%,
due 7/15/11 Ba3 BB- 134
125 Owens-Brockway Glass Container, Inc., Guaranteed Senior
Notes, 8.25%, due 5/15/13 B2 B 132
50 PNC Funding Corp., Guaranteed Senior Notes, 5.75%,
due 8/1/06 A2 A- 51
125 Pride International, Inc., Senior Notes, 7.38%, due 7/15/14 Ba2 BB- 133
50 Province of Ontario, Senior Unsubordinated Notes, 5.50%,
due 10/1/08 Aa2 AA 52
25 Quebec Province, Debentures, 7.50%, due 9/15/29 A1 A+ 33
125 Reliant Energy Inc., Secured Notes, 6.75%, due 12/15/14 B1 B+ 111
125 Rent-A-Center, Inc., Guaranteed Senior Notes, Ser. B, 7.50%,
due 5/1/10 B1 BB- 124
80 Republic of Italy, Senior Unsubordinated Notes, 5.25%,
due 4/5/06 Aa2 AA- 81
125 Rogers Cable Inc., Secured Notes, 5.50%, due 3/15/14 Ba3 BB+ 111
125 Salem Communications Holding Corp., Guaranteed Senior
Subordinated Notes, Ser. B, 9.00%, due 7/1/11 B2 B- 132
125 Sequa Corp., Senior Notes, Ser. B, 8.88%, due 4/1/08 B1 BB- 129
125 Smithfield Foods, Inc., Senior Notes, 7.00%, due 8/1/11 Ba2 BB 128
30 Southern Power Co., Senior Notes, Ser. B, 6.25%, due 7/15/12 Baa1 BBB+ 32
125 Speedway Motorsports, Inc., Senior Subordinated Notes,
6.75%, due 6/1/13 Ba2 B+ 127
50 Sprint Capital Corp., Guaranteed Notes, 6.00%, due 1/15/07 Baa3 BBB- 51
125 Stena AB, Senior Notes, 9.63%, due 12/1/12 Ba3 BB- 135
12
PRINCIPAL AMOUNT RATING VALUE+
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 125 Stewart Enterprises, Senior Notes, 6.25%, due 2/15/13 B1 BB- $ 121**
125 Suburban Propane Partners L.P., Senior Notes, 6.88%,
due 12/15/13 B1 B 120
55 Target Corp., Senior Notes, 7.50%, due 8/15/10 A2 A+ 63
125 Tembec Industries, Inc., Guaranteed Senior Notes, 8.50%,
due 2/1/11 B2 B 96
55 Time Warner Co., Inc., Notes, 7.75%, due 6/15/05 Baa1 BBB+ 55
125 Toll Corp., Senior Subordinated Notes, 8.25%, due 12/1/11 Ba2 BB+ 134
75 Tyco International Group SA, Guaranteed Senior Notes,
6.75%, due 2/15/11 Baa3 BBB 82
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 Baa1 BBB 46
45 Verizon Global Funding Corp., Senior Notes, 7.38%,
due 9/1/12 A2 A+ 52
125 Vintage Petroleum, Inc., Senior Notes, 8.25%, due 5/1/12 Ba3 BB- 135
125 Warner Music Group, Senior Subordinated Notes, 7.38%,
due 4/15/14 B3 B- 125
75 Wells Fargo Co., Subordinated Notes, 6.25%, due 4/15/08 Aa2 A+ 79
125 Xerox Corp., Senior Notes, 6.88%, due 8/15/11 Ba2 BB- 130
125 Young Broadcasting, Inc., Guaranteed Senior Notes, 8.50%,
due 12/15/08 B2 B- 134
---------------
TOTAL CORPORATE DEBT SECURITIES (COST $9,930) 9,732
---------------
FOREIGN GOVERNMENT SECURITIES^^ (14.3%)
EUR 50 Belgium Kingdom, Bonds, 3.00%, due 3/28/10 Aa1 AA+ 65
EUR 25 Bundesobligation, Bonds, 4.00%, due 2/16/07 Aaa AAA 33
EUR 70 Bundesrepublic Deutschland, Bonds, 5.00%, due 7/4/12 Aaa AAA 101
CAD 150 Canadian Government, Bonds, 7.25%, due 6/1/07 AAA 129
CAD 40 Canadian Government, Bonds, 8.00%, due 6/1/27 AAA 47
EUR 495 Government of France, Bonds, 7.75%, due 10/25/05 Aaa AAA 656~
JPY 27,000 Inter-American Development Bank, 1.90%, due 7/8/09 Aaa AAA 276
JPY 18,000 Japan Development Bank, Bonds, 1.40%, due 6/20/12 Aaa AA- 179
JPY 8,000 Japan Development Bank, Bonds, 1.05%, due 6/20/23 Aaa AA- 68
JPY 20,000 Japan Financial Corp., Global Notes, 1.55%, due 2/21/12 Aaa AA- 200
EUR 400 Netherlands Government, Bonds, 5.25%, due 7/15/08 Aaa AAA 561
JPY 17,000 Quebec Province, Bonds, 1.60%, due 5/9/13 A+ 169
AUD 70 Queensland Treasury, Bonds, 8.00%, due 9/14/07 Aaa AAA 58
JPY 23,000 Republic of Austria, Bonds, 3.75%, due 2/3/09 Aaa AAA 248
EUR 345 Republic of Germany, Bonds, 5.50%, due 1/4/31 Aaa AAA 556
JPY 42,000 Republic of Italy, Bonds, 1.80%, due 2/23/10 Aa2 AA- 427
EUR 450 Spain Government, Bonds, 5.00%, due 7/30/12 Aaa AAA 650
SEK 400 Swedish Government, Bonds, 5.50%, due 10/8/12 Aaa AAA 65
GBP 65 U K Treasury, Bonds, 8.50%, due 12/7/05 Aaa AAA 127
GBP 70 U K Treasury, Bonds, 5.75%, due 12/7/09 Aaa AAA 141
GBP 70 U K Treasury, Bonds, 8.00%, due 6/7/21 Aaa AAA 187
---------------
TOTAL FOREIGN GOVERNMENT SECURITIES (COST $4,302) 4,943
---------------
CONVERTIBLE BONDS (1.7%)
75 Echostar Communications Corp., Subordinated Notes, 5.75%,
due 5/15/08 B2 B 73
75 Edwards Lifescience Corp., Senior Notes, 3.88%, due 5/15/33 77^
50 Hilton Hotels Corp., Notes, 3.38%, due 4/15/23 Baa3 BBB- 57
See Notes to Schedule of Investments
13
PRINCIPAL AMOUNT RATING VALUE+
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 65 Lamar Advertising Co., Notes, 2.88%, due 12/31/10 B2 B $ 59
75 Morgan Stanley Group, Inc., Senior Notes, 1.25%,
due 12/30/08 Aa3 A+ 68
125 Nortel Networks Corp., Notes, 4.25%, due 9/1/08 B3 B- 113
75 SCI Systems, Inc., Notes, 3.00%, due 3/15/07 B1 B 70
75 Thermo Electron Corp., Subordinated Debentures, 3.25%,
due 11/1/07 Baa3 BBB 74
---------------
TOTAL CONVERTIBLE BONDS (COST $601) 591
---------------
REPURCHASE AGREEMENTS (7.0%)
2,410 State Street Bank and Trust Co. Repurchase Agreements, 2.60%,
due 5/2/05, dated 4/29/05, Maturity Value $2,410,522,
Collateralized by $2,510,000 U.S. Treasury Notes, 2.75% and
3.13%, due 5/15/07 and 8/15/07 (Collateral Value $2,495,831)
(COST $2,410) 2,410#
---------------
SHORT-TERM INVESTMENTS (1.5%)
525 Neuberger Berman Prime Money Fund Trust Class 525@
0 Neuberger Berman Securities Lending Quality Fund, LLC 0++
---------------
TOTAL SHORT-TERM INVESTMENTS (COST $525) 525#
---------------
TOTAL INVESTMENTS (100.5%) (COST $33,361) 34,681##
Liabilities, less cash, receivables and other assets [(0.5%)] (155)
---------------
TOTAL NET ASSETS (100.0%) $ 34,526
---------------
14
NOTES TO SCHEDULE OF INVESTMENTS
+ Investments in equity securities by Neuberger Berman Strategic Income Fund
(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 debt 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 debt 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 and 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 noon, 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. When changes in the
value of a certain index suggest that the closing prices on the foreign
exchanges may no longer represent the amount that the Fund could expect to
receive for those securities, FT Interactive will provide adjusted prices
for certain foreign equity securities using an analysis based on 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.
# At cost, which approximates market value.
## At April 30, 2005, the cost of investments for U.S. Federal income tax
purposes was $33,361,000. Gross unrealized appreciation of investments was
$1,808,000 and gross unrealized depreciation of investments was $488,000,
resulting in net unrealized appreciation of $1,320,000, 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 and are deemed liquid. At
April 30, 2005, these securities amounted to $1,809,000 or 5.2% of net
assets for the Fund.
See Notes to Financial Statements
15
@ Neuberger Berman Prime Money Fund ("Prime Money") is also managed by
Neuberger Berman Management Inc. (see Notes A & F of Notes to Financial
Statements) and may be considered an affiliate since it has the same
officers, Board members, and investment manager as the Fund and because, at
times, the Fund may own 5% or more of the outstanding voting securities of
Prime Money.
++ Managed by an affiliate of Neuberger Berman Management Inc. and could be
deemed an affiliate of the Fund (see Notes A & F of Notes to Financial
Statements).
++++ The following securities were held in escrow at April 30, 2005, to cover
outstanding call options written:
MARKET VALUE PREMIUM MARKET VALUE
SHARES SECURITIES AND OPTIONS OF SECURITIES ON OPTIONS OF OPTIONS
1,500 BP PLC ADR
July 2005 @ 65 $ 91,000 $ 1,000 $ 1,000
1,500 Burlington Resources
August 2005 @ 60 73,000 2,000 1,000
5,000 Corinthian Colleges
August 2005 @ 20 71,000 4,000 0
1,500 Diageo PLC ADR
July 2005 @ 60 90,000 1,000 3,000
2,000 First Data
May 2005 @ 45 76,000 1,000 0
3,000 FTI Consulting
September 2005 @ 22.50 66,000 2,000 3,000
1,000 General Dynamics
August 2005 @ 115 105,000 2,000 1,000
3,500 Intel Corp.
October 2005 @ 27.50 82,000 2,000 1,000
2,000 Lockheed Martin
December 2005 @ 65 122,000 4,000 5,000
2,000 ONEOK, Inc.
July 2005 @ 32.50 58,000 1,000 0
4,000 Pan American Silver
July 2005 @ 17.50 55,000 3,000 1,000
1,500 PetroChina Co.
June 2005 @ 60 90,000 1,000 3,000
1,500 Praxair, Inc.
July 2005 @ 50 70,000 1,000 1,000
1,000 Schlumberger Ltd.
August 2005 @ 80 68,000 1,000 0
4,000 Texas Instruments
July 2005 @ 27.50 100,000 2,000 2,000
1,000 3M Co.
July 2005 @ 95 77,000 1,000 0
2,500 Vodafone Group ADR
October 2005 @ 30 65,000 1,000 0
1,000 Willis Group Holdings
July 2005 @ 45 67,000 0 0
^^ Principal amount is stated in the currency in which the security is
denominated.
AUD = Australian Dollar
CAD = Canadian Dollar
EUR = Euro Currency
GBP = Great Britain Pound
16
JPY = Japanese Yen
SEK = Swedish Krona
^ Not rated by a nationally recognized statistical rating organization.
~~ All or a portion of this security was purchased on a when-issued basis. At
April 30, 2005, these securities amounted to $125,000.
~ All or a portion of this security is segregated as collateral for
when-issued purchase commitments and/or financial futures contracts margin.
See Notes to Financial Statements
17
STATEMENT OF ASSETS AND LIABILITIES
NEUBERGER BERMAN INCOME FUNDS STRATEGIC
(000'S OMITTED EXCEPT PER SHARE AMOUNTS) INCOME FUND
ASSETS
INVESTMENTS IN SECURITIES, AT VALUE* (NOTES A & F)--SEE
SCHEDULE OF INVESTMENTS:
Unaffiliated issuers $ 34,156
Affiliated issuers 525
- -----------------------------------------------------------------------------------------------
34,681
Cash 23
Foreign currency 21
Dividends and interest receivable 361
Receivable for securities sold 93
Receivable for variation margin (Note A) 1
Receivable from administrator--net (Note B) 16
Prepaid expenses and other assets 2
- -----------------------------------------------------------------------------------------------
TOTAL ASSETS 35,198
- -----------------------------------------------------------------------------------------------
LIABILITIES
Option contracts written, at market value (Note A) 22
Net payable for forward foreign currency exchange contracts sold (Note C) 3
Payable for securities purchased 597
Payable to investment manager--net (Notes A & B) 15
Accrued expenses and other payables 35
- -----------------------------------------------------------------------------------------------
TOTAL LIABILITIES 672
- -----------------------------------------------------------------------------------------------
NET ASSETS AT VALUE $ 34,526
- -----------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid-in capital $ 32,787
Distributions in excess of net investment income (14)
Accumulated net realized gains (losses) on investments 430
Net unrealized appreciation (depreciation) in value of investments 1,323
- -----------------------------------------------------------------------------------------------
NET ASSETS AT VALUE $ 34,526
- -----------------------------------------------------------------------------------------------
SHARES OUTSTANDING ($.001 PAR VALUE; UNLIMITED SHARES AUTHORIZED) 3,229
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE $ 10.69
- -----------------------------------------------------------------------------------------------
*COST OF INVESTMENTS:
Unaffiliated issuers $ 32,836
Affiliated issuers 525
- -----------------------------------------------------------------------------------------------
TOTAL COST OF INVESTMENTS $ 33,361
- -----------------------------------------------------------------------------------------------
TOTAL COST OF FOREIGN CURRENCY $ 21
- -----------------------------------------------------------------------------------------------
See Notes to Financial Statements
18
NEUBERGER BERMAN FOR THE SIX MONTHS ENDED APRIL 30, 2005 (UNAUDITED)
STATEMENT OF OPERATIONS
NEUBERGER BERMAN INCOME FUNDS STRATEGIC
(000'S OMITTED) INCOME FUND
INVESTMENT INCOME
INCOME (NOTE A):
Interest income-unaffiliated issuers $ 528
Dividend income-unaffiliated issuers 130
Income from securities loaned-affiliated issuer (Note F) 2
Income from investments in affiliated issuers (Note F) 3
Foreign taxes withheld (1)
- -----------------------------------------------------------------------------------------------
Total income 662
- -----------------------------------------------------------------------------------------------
EXPENSES:
Investment management fee (Notes A & B) 94
Administration fee (Note B) 24
Audit fees 14
Custodian fees (Note B) 72
Legal fees 17
Registration and filing fees 13
Shareholder reports 5
Shareholder servicing agent fees 8
Trustees' fees and expenses 12
Miscellaneous 1
- -----------------------------------------------------------------------------------------------
Total expenses 260
Investment management fee waived (Note A) (0)
Expenses reimbursed by administrator (Note B) (125)
Expenses reduced by custodian fee expense offset and commission
recapture arrangements (Note B) (2)
- -----------------------------------------------------------------------------------------------
Total net expenses 133
- -----------------------------------------------------------------------------------------------
Net investment income (loss) 529
- -----------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE A)
Net realized gain (loss) on:
Sales of investment securities of unaffiliated issuers 563
Financial futures contracts 6
Option contracts written 51
Foreign currency (106)
Change in net unrealized appreciation (depreciation) in value of:
Unaffiliated investment securities (413)
Financial futures contracts 1
Option contracts written 22
Foreign currency 52
------------------------------------------------------------------------------------------
Net gain (loss) on investments 176
- -----------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 705
- -----------------------------------------------------------------------------------------------
See Notes to Financial Statements
19
STATEMENT OF CHANGES IN NET ASSETS
STRATEGIC INCOME FUND
---------------------------
SIX MONTHS
ENDED YEAR
APRIL 30, ENDED
NEUBERGER BERMAN INCOME FUNDS 2005 OCTOBER 31,
(000'S OMITTED) (UNAUDITED) 2004
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) $ 529 $ 940
Net realized gain (loss) on investments 514 512
Change in net unrealized appreciation (depreciation) of investments (338) 1,319
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 705 2,771
- -----------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE A):
Net investment income (622) (1,171)
Net realized gain on investments (191) --
- -----------------------------------------------------------------------------------------------
Total distributions to shareholders (813) (1,171)
- -----------------------------------------------------------------------------------------------
FROM FUND SHARE TRANSACTIONS (NOTE D):
Proceeds from shares sold 5,500 4,693
Proceeds from reinvestment of dividends and distributions 573 825
Payments for shares redeemed (816) (1,354)
- -----------------------------------------------------------------------------------------------
Net increase (decrease) from Fund share transactions 5,257 4,164
- -----------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 5,149 5,764
NET ASSETS:
Beginning of period 29,377 23,613
- -----------------------------------------------------------------------------------------------
End of period $ 34,526 $ 29,377
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (loss) at end of period $ -- $ 79
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income at end of period $ (14) $ --
- -----------------------------------------------------------------------------------------------
See Notes to Financial Statements
20
NEUBERGER BERMAN APRIL 30, 2005 (UNAUDITED)
NOTES TO FINANCIAL STATEMENTS Strategic Income Fund
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1 GENERAL: Neuberger Berman Strategic Income Fund (the "Fund") is a 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"). The Fund offers Institutional Class
shares. The Board of Trustees of the Trust (the "Board") may establish
additional series or classes of shares without the approval of
shareholders.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires Neuberger Berman Management Inc.
("Management") to make estimates and assumptions at the date of the
financial statements. Actual results could differ from those estimates.
2 PORTFOLIO VALUATION: Investment securities are valued as indicated in the
notes following the Schedule of Investments.
3 FOREIGN CURRENCY TRANSLATION: The Fund 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 noon, 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 Statement 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 foreign currency transactions are
recorded on the basis of identified cost and stated separately in the
Statement of Operations.
5 INCOME TAX INFORMATION: It is the policy of the Fund to continue to qualify
as a regulated investment company by complying with the requirements of
Subchapter M of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its earnings to
its shareholders. Therefore, no Federal income or excise tax provision is
required.
Income dividends and capital gain distributions are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments of income and gains on various investment securities
held by the
21
Fund, timing differences and differing characterization of distributions
made by the Fund as a whole. The Fund may also utilize earnings and profits
distributed to shareholders on redemption of shares as a part of the
dividends paid deduction for income tax purposes.
As determined on October 31, 2004, permanent differences resulting
primarily from different book and tax accounting for foreign currency gains
and losses, paydown gains and losses, mortgage dollar rolls, and
amortization of bond premium were reclassified at year end. These
reclassifications had no effect on net income, net assets or net assets per
share of the Fund.
The tax character of distributions paid during the periods ended October
31, 2004 and October 31, 2003 were as follows:
DISTRIBUTIONS PAID FROM:
LONG-TERM TAX RETURN
ORDINARY INCOME CAPITAL GAIN OF CAPITAL TOTAL
2004 2003 2004 2003 2004 2003 2004 2003
$ 1,171,018 $ 189,760 $ -- $ -- $ -- $ -- $ 1,171,018 $ 189,760
As of October 31, 2004, the components of distributable earnings
(accumulated losses) on a U.S. Federal income tax basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED UNREALIZED LOSS
ORDINARY LONG-TERM APPRECIATION CARRYFORWARDS
INCOME GAIN (DEPRECIATION) AND DEFERRALS TOTAL
$ 286,404 $ -- $ 1,561,869 $ -- $ 1,848,273
The difference between book basis and tax basis distributable earnings is
attributable primarily to the timing differences of wash sales,
amortization of bond premium, mark to market on certain forward foreign
currency and futures contracts, and mortgage dollar rolls.
6 FOREIGN TAXES: Foreign taxes withheld represent amounts withheld by foreign
tax authorities, net of refunds recoverable.
7 DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: The Fund earns income, net of
expenses, daily on its investments. The Fund generally distributes
substantially all of its net investment income, if any, at the end of each
calendar quarter. Distributions from net realized capital gains, if any,
are generally distributed in December. Income dividends and capital gain
distributions to shareholders are recorded on the ex-dividend date.
The Fund invests a portion of its assets in securities issued by real
estate companies, including real estate investment trusts ("REITs"). The
distributions received from REITs held by the Fund are generally comprised
of income, capital gains, and return of REIT capital, but the REITs do not
report this information to the Fund until the following calendar year. At
October 31, 2004, the Fund estimated these amounts within the financial
statements since the information is not available from the REITs until
after the Fund's fiscal year end. At April 30, 2005, the Fund estimated
these amounts for the period January 1, 2005 through April 30, 2005 within
the financial statements since the 2005 information is not available from
the REITs until after the Fund's fiscal year end. For the year ended
October 31, 2004, the character of distributions paid to shareholders is
disclosed within the Statement of Changes and is also based on these
estimates.
22
All estimates are based upon REIT information sources available to the Fund
together with actual IRS Forms 1099 received to date. After calendar
year-end, when the Fund learns the actual nature of the distributions paid
by REITs during that year, distributions previously identified as income
are often recharacterized as return of capital and/or capital gain. After
all applicable REITs have informed the Fund of the actual breakdown of
distributions paid to the Fund during its fiscal year, estimates previously
recorded are adjusted to reflect actual results. As a result, the
composition of the Fund's distributions as reported herein may differ from
the final composition determined after calendar year-end and reported to
Fund shareholders on IRS Form 1099.
8 EXPENSE ALLOCATION: Certain expenses are applicable to multiple funds.
Expenses directly attributable to the Fund are charged to the Fund.
Expenses of the Trust that are not directly attributed to the 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 Fund 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 the Fund 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, 2005:
VALUE WHEN
NUMBER WRITTEN
Contracts outstanding 10/31/2004 43,000 $ 40,000
Contracts written 69,000 54,000
Contracts expired (31,000) (17,000)
Contracts exercised (17,000) (23,000)
Contracts closed (24,000) (24,000)
-------- -----------
Contracts outstanding 4/30/2005 40,000 $ 30,000
-------- -----------
10 FORWARD FOREIGN CURRENCY CONTRACTS: The Fund 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
23
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 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, the Fund entered into a Securities Lending
Agreement ("Agreement") with Neuberger Berman, LLC ("Neuberger"), an
affiliate of the Fund, pursuant to which Neuberger acts as the Fund's
lending agent. Securities loans involve certain risks including delays or
inability to recover the loaned securities or, in the event a borrower
should fail financially, foreclose against the collateral. Neuberger, under
the general supervision of the Board, 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. Prior to
February 7, 2005, the Fund invested the cash collateral in the N&B
Securities Lending Quality Fund, LLC ("Old Fund"), which was managed by
State Street Bank and Trust Company ("State Street") pursuant to guidelines
approved by Management. Effective February 7, 2005, the Fund changed the
collateral investment vehicle from the Old Fund to the Neuberger Berman
Securities Lending Quality Fund, LLC ("Quality Fund"), a fund managed by
Lehman Brothers Asset Management LLC (formerly Lincoln Capital Fixed Income
Management Company, LLC), an affiliate of Management, as approved by the
Board.
Under the Agreement, Neuberger guarantees a certain amount of revenue to
the Fund and receives any revenue earned in excess of the guaranteed amount
as a lending agency fee. For the six months ended April 30, 2005, Neuberger
did not receive any revenue under the Agreement.
Income earned on the securities loaned, if any, is reflected in the
Statement of Operations under the caption "Income from securities
loaned-affiliated issuer."
12 REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements with
institutions that Management has determined are creditworthy. Each
repurchase agreement is recorded at cost. The 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. The 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: The Fund 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 the Fund sells short, it
establishes a margin account with
24
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 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, 2005, there were no open positions in short sales for the Fund.
14 DOLLAR ROLLS: The Fund may enter into dollar roll transactions with respect
to mortgage-backed securities. In a dollar roll transaction, the Fund sells
securities for delivery in the current month and simultaneously agrees to
repurchase substantially similar (i.e., same type and coupon) securities on
a specified future date from the same party. During the period before the
repurchase, the Fund forgoes principal and interest payments on the
securities. The Fund is compensated by the difference between the current
sales price and the forward price for the future purchase (often referred
to as the "drop"), as well as by the interest earned on the cash proceeds
of the initial sale. Dollar rolls may increase fluctuations in the Fund's
net asset value and may be viewed as a form of leverage. There is a risk
that the counter party will be unable or unwilling to complete the
transaction as scheduled, which may result in losses to the Fund.
15 FINANCIAL FUTURES CONTRACTS: The Fund may buy and sell financial futures
contracts to hedge against changes in securities prices resulting from
changes in prevailing interest rates. At the time the 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 Fund
as unrealized gains or losses.
Although some financial futures contracts by their terms call for actual
delivery or acceptance of financial instruments, in most cases the
contracts are closed out prior to delivery by offsetting purchases or sales
of matching financial futures contracts. When the contracts are closed, the
Fund recognizes a gain or loss. Risks of entering into futures contracts
include the possibility there may be an illiquid market, possibly at a time
of rapidly declining prices, and/or a change in the value of the contract
may not correlate with changes in the value of the underlying securities.
25
For U.S. Federal income tax purposes, the futures transactions undertaken
by the Fund may cause it 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, the Fund's losses on transactions involving
futures contracts may be deferred rather than being taken into account
currently in calculating the Fund's taxable income.
During the six months ended April 30, 2005, the Fund entered into financial
futures contracts. At April 30, 2005, open positions in financial futures
contracts were as follows:
UNREALIZED
EXPIRATION OPEN CONTRACTS POSITION DEPRECIATION
June 2005 4 U.S. Treasury Notes, 5 Year Short $ 1,813
At April 30, 2005, the Fund had deposited $575,000 in U.S. Treasury Notes,
1.25%, due 5/31/05, in a segregated account to cover margin requirements on
open financial futures contracts.
16 TRANSACTIONS WITH OTHER FUNDS MANAGED BY NEUBERGER BERMAN MANAGEMENT INC.:
Pursuant to an Exemptive Order issued by the Securities and Exchange
Commission, the Fund may invest in a money market fund managed by
Management or an affiliate. Prior to December 2004, the Fund invested in
the Neuberger Berman Institutional Cash Fund (the "Cash Fund"), as approved
by the Board. As of December 2004, the Fund changed its investment from the
Cash Fund to the newly created Neuberger Berman Prime Money Fund ("Prime
Money"), as approved by the Board. The Cash Fund and Prime Money each seek
to provide the highest available current income consistent with safety and
liquidity. For any cash that the Fund invests in the Cash Fund or Prime
Money, Management waives a portion of its management fee equal to the
management fee it receives from the Cash Fund and Prime Money on those
assets (the "Arrangement"). For the six months ended April 30, 2005,
management fees waived under this Arrangement with respect to the Cash Fund
and Prime Money amounted to $34 and $107, respectively. For the six months
ended April 30, 2005, income earned under this Arrangement with respect to
the Cash Fund and Prime Money amounted to $583 and $2,717, respectively,
and is reflected in the Statement of Operations under the caption "Income
from investments in affiliated issuers."
17 INDEMNIFICATIONS: Like many other companies, the Trust's organizational
documents provide that its officers and trustees are indemnified against
certain liabilities arising out of the performance of their duties to the
Trust. In addition, both in some of its principal service contracts and in
the normal course of its business, the Trust enters into contracts that
provide indemnifications to other parties for certain types of losses or
liabilities. The Trust's maximum exposure under these arrangements is
unknown as this could involve future claims against the Trust.
26
NOTE B--MANAGEMENT FEES, ADMINISTRATION FEES, DISTRIBUTION ARRANGEMENTS, AND
OTHER TRANSACTIONS WITH AFFILIATES:
The Fund retains Management as its investment manager under a Management
Agreement. For such investment management services, the Fund pays Management a
fee at an annual rate of 0.60% of its average daily net assets.
The Fund retains Management as its administrator under an Administration
Agreement. The 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:
REIMBURSEMENT FROM
MANAGEMENT FOR THE SIX
EXPENSE MONTHS ENDED
CLASS LIMITATION(1) EXPIRATION APRIL 30, 2005
INSTITUTIONAL CLASS 0.85% 10/31/15 $ 124,891
(1) Expense limitation per annum of the class' average daily net assets.
The Institutional Class of the Fund has agreed to repay Management for its
excess Operating Expenses previously reimbursed by Management, so long as its
annual Operating Expenses during that period do not exceed its expense
limitation, and the repayments are made within three years after the year in
which Management issued the reimbursement.
During the six months ended April 30, 2005, there was no reimbursement to
Management. At April 30, 2005, the Fund had a contingent liability to Management
under the agreement of $570,560 of which $204,845 expires in 2006, $240,824
expires in 2007, and $124,891 expires in 2008.
Management and Neuberger, a member firm of the New York Stock Exchange and
sub-adviser to the Fund, are wholly-owned subsidiaries of Lehman Brothers
Holdings Inc. ("Lehman"), a publicly-owned holding company. Neuberger is
retained by Management to furnish it with investment recommendations and
research information without added cost to the Fund. Several individuals who are
officers and/or Trustees of the Trust are also employees of Neuberger and/or
Management.
The Institutional Class of the Fund also has a distribution agreement with
Management. Management receives no compensation therefor and no commissions for
sales or redemptions of shares of beneficial interest of the share class.
The Fund has an expense offset arrangement in connection with its custodian
contract. For the six months ended April 30, 2005, the impact of this
arrangement was a reduction of expenses of $434.
27
The Fund 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, 2005, the impact of this
arrangement was a reduction of expenses of $1,081.
NOTE C--SECURITIES TRANSACTIONS:
Cost of purchases and proceeds of sales and maturities of long-term securities
(excluding short-term securities, financial futures contracts, foreign currency
contracts, and option contracts) for the six months ended April 30, 2005 were as
follows:
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
$ 6,313,416 $ 7,454,114 $ 5,278,354 $ 5,722,602
During the six months ended April 30, 2005, the Fund had entered into various
contracts to deliver currencies at specified future dates. At April 30, 2005,
open contracts were as follows:
NET UNREALIZED
IN EXCHANGE SETTLEMENT APPRECIATION
BUY CONTRACTS FOR DATE VALUE (DEPRECIATION)
EURO DOLLAR 118,000 EUR $ 155,852 5/9/05 $ 152,480 $ (3,372)
NET UNREALIZED
IN EXCHANGE SETTLEMENT APPRECIATION
SELL CONTRACTS FOR DATE VALUE (DEPRECIATION)
CANADIAN DOLLAR 170,000 CAD $ 137,451 7/19/05 $ 135,429 $ 2,022
EURO DOLLAR 118,000 EUR 158,290 5/9/05 152,480 5,810
EURO DOLLAR 2,205,000 EUR 2,864,670 7/19/05 2,855,273 9,397
JAPANESE YEN 160,716,000 JPY 1,529,900 7/19/05 1,547,025 (17,125)
POUND STERLING 189,000 GBP 359,799 7/19/05 360,037 (238)
During the six months ended April 30, 2005, brokerage commissions on securities
transactions amounted to $11,194, of which Neuberger received $1,068, Lehman
received $1,992, and other brokers received $8,134.
NOTE D--FUND SHARE TRANSACTIONS:
Share activity for the six months ended April 30, 2005 and for the year ended
October 31, 2004 was as follows:
FOR THE SIX MONTHS ENDED APRIL 30, 2005 FOR THE YEAR ENDED OCTOBER 31, 2004
-------------------------------------------- --------------------------------------------
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
Class 512 53 (76) 489 455 79 (130) 404
28
NOTE E--LINE OF CREDIT:
At April 30, 2005, the Fund was a participant in a single committed, unsecured
$150,000,000 line of credit with State Street, to be used only for temporary or
emergency purposes. Other investment companies managed by Management also
participate in this line of credit on the same terms. Interest is charged on
borrowings under this agreement at the overnight Federal Funds Rate plus 0.50%
per annum. A facility fee of 0.10% per annum of the available line of credit is
charged, of which the 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. Because several investment companies
participate, there is no assurance that an individual Fund will have access to
all or any part of the $150,000,000 at any particular time. There were no loans
outstanding pursuant to this line of credit at April 30, 2005. During the six
months ended April 30, 2005, the Fund did not utilize this line of credit.
NOTE F--INVESTMENTS IN AFFILIATES*:
INCOME FROM
BALANCE OF BALANCE OF INVESTMENTS IN
SHARES GROSS GROSS SHARES AFFILIATED
HELD PURCHASES SALES HELD VALUE ISSUERS
OCTOBER 31, AND AND APRIL 30, APRIL 30, INCLUDED IN TOTAL
NAME OF ISSUER 2004 ADDITIONS REDUCTIONS 2005 2005 INCOME
Neuberger Berman Securities
Lending Quality Fund, LLC** 160,000 6,751,352 6,911,352 0 $ 0 $ 2,480
Neuberger Berman Institutional
Cash Fund Trust Class*** 200,025 833,906 1,033,931 0 0 583
Neuberger Berman Prime Money
Fund Trust Class*** 0 3,110,438 2,585,303 525,135 525,135 2,717
--------- ---------
TOTAL $ 525,135 $ 5,780
========= =========
* Affiliated issuers, as defined in the 1940 Act, include issuers in which
the Fund held 5% or more of the outstanding voting securities.
** Prior to February 7, 2005, the Old Fund, an investment vehicle established
by the Fund's custodian, was used to invest cash the Fund received as
collateral for securities loans. Effective February 7, 2005, the Fund
changed the collateral investment vehicle from the Old Fund to the Quality
Fund, a fund managed by Lehman Brothers Asset Management LLC, an affiliate
of Management, as approved by the Board. The Fund's shares in the Old Fund
and Quality Fund were and are non-voting. However, because all shares of
the Old Fund and Quality Fund were and are held by funds in the related
investment company complex, the Old Fund and Quality Fund may have been and
may be considered affiliates of the Fund.
*** The Cash Fund and Prime Money are also managed by Management and may be
considered affiliates since they have the same officers, Board members, and
investment manager as the Fund and because, at times, the Fund may own 5%
or more of the outstanding voting securities of the Cash Fund or Prime
Money, respectively.
29
NOTE G--UNAUDITED FINANCIAL INFORMATION:
The financial information included in this interim report is taken from the
records of the Fund without audit by an independent registered public accounting
firm. Annual reports contain audited financial statements.
30
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.^^
INSTITUTIONAL CLASS
PERIOD FROM
SIX MONTHS ENDED YEAR ENDED JULY 11, 2003^
APRIL 30, OCTOBER 31, TO OCTOBER 31,
---------------- -------------- ---------------
2005 2004 2003
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.72 $ 10.11 $ 10.00
--------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME (LOSS) .18 .36 .10
NET GAINS OR LOSSES ON SECURITIES
(BOTH REALIZED AND UNREALIZED) .07 .69 .09
--------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS .25 1.05 .19
--------- --------- ---------
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (.21) (.44) (.08)
FROM NET CAPITAL GAINS (.07) -- --
--------- --------- ---------
TOTAL DISTRIBUTIONS (.28) (.44) (.08)
--------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 10.69 $ 10.72 $ 10.11
--------- --------- ---------
TOTAL RETURN++ +2.34%** +10.65% +1.95%**
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 34.5 $ 29.4 $ 23.6
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS# .86%* .85% .85%*
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS+++ .85%* .84% .84%*
RATIO OF NET INVESTMENT INCOME (LOSS) TO AVERAGE NET ASSETS 3.38%* 3.44% 3.51%*
PORTFOLIO TURNOVER RATE 36% 85% 34%
See Notes to Financial Highlights
31
NOTES TO FINANCIAL HIGHLIGHTS Strategic Income Fund
++ Total return based on per share net asset value reflects the effects of
changes in net asset value on the performance of the 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. Total return would
have been lower if Management had not reimbursed and/or waived 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 the administrator and/or waiver of a
portion of the investment management fee. Had Management not undertaken
such actions, the annualized ratios of net expenses to average daily net
assets would have been:
SIX MONTHS ENDED YEAR ENDED PERIOD ENDED
APRIL 30, OCTOBER 31, OCTOBER 31,
2005 2004 2003(1)
1.65% 1.72% 3.77%
(1) Period from July 11, 2003 to October 31, 2003.
^ The Date investment operations commenced.
* Annualized.
** Not annualized.
^^ The per share amounts which are shown, have been computed based on the
average number of shares outstanding during each fiscal period.
32
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 Nicholson Graham LLP
1800 Massachusetts Avenue, NW
2nd Floor
Washington, DC 20036-1221
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
33
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies relating to portfolio securities is available, without
charge, by calling 1-800-877-9700 (toll-free) and on the website of the
Securities and Exchange Commission at www.sec.gov. Information regarding how the
Trust voted proxies relating to portfolio securities during the most recent
12-month period ended June 30 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 Trust's website at www.nb.com.
QUARTERLY PORTFOLIO SCHEDULE
The Trust files a complete schedule of portfolio holdings for the Fund with the
Securities and Exchange Commission for the first and third quarters of each
fiscal year on Form N-Q. The Trust's Forms N-Q are available on the Securities
and Exchange Commission's website at www.sec.gov and may be reviewed and copied
at the Securities and Exchange Commission's Public Reference Room in Washington,
DC. Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330. The information on Form N-Q is available upon request,
without charge, by calling 1-800-877-9700 (toll-free).
34
This page has been left blank intentionally
This page has been left blank intentionally
Statistics and projections in this report are derived from sources deemed to be
reliable but cannot be regarded as a representation of future results of the
Fund. This report is prepared for the general information of shareholders and is
not an offer of shares of the Fund. Shares are sold only through the currently
effective prospectus, which must precede or accompany this report.
[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 SUPPORT SERVICES
800.366.6264
www.nb.com
[RECYCLED SYMBOL] BO586 06/05
ITEM 2. CODE OF ETHICS
The Board of Trustees ("Board") of Neuberger Berman Income Funds ("Registrant")
adopted a code of ethics that applies to the Registrant's principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions ("Code of Ethics"). For the
period covered by this Form N-CSR, there were no amendments to the Code of
Ethics and there were no waivers from the Code of Ethics granted to the
Registrant's principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions.
A copy of the Code of Ethics was included as an exhibit to the Registrant's Form
N-CSR filed on January 9, 2004. The Code of Ethics is also available, without
charge, by calling 1-800-877-9700 (toll-free).
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
The Board has determined that the Registrant has one audit committee financial
expert serving on its audit committee. The Registrant's audit committee
financial expert is John Cannon. Mr. Cannon is an independent director as
defined by Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Only required in the annual report.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable to the Registrant.
ITEM 6. SCHEDULE OF INVESTMENTS
The complete schedule of investments for each series is disclosed in the
Registrant's Annual Report, which is included as Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable to the Registrant.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no changes to the procedures by which shareholders may recommend
nominees to the Board.
ITEM 11. CONTROLS AND PROCEDURES
(a) Based on an evaluation of the disclosure controls and procedures (as
defined in rule 30a-3(c) under the Investment Company Act of 1940, as
amended (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 12. EXHIBITS
(a)(1) A copy of the Code of Ethics is incorporated by reference to
Registrant's Form N-CSR, Investment Company Act file number 811-3802
(filed January 9, 2004).
(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 certifications provided pursuant to Section 906 of the Sarbanes-Oxley Act
are 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, 2005
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, 2005
By: /s/ John McGovern
--------------------
John McGovern
Treasurer and Principal Financial
and Accounting Officer
Date: June 28, 2005