As filed with the Securities and Exchange Commission on January 9, 2006
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: October 31, 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
ANNUAL REPORT
OCTOBER 31, 2005
NEUBERGER BERMAN
INCOME FUNDS(R)
INSTITUTIONAL CLASS SHARES
STRATEGIC INCOME FUND
<Page>
NEUBERGER BERMAN OCTOBER 31, 2005
CONTENTS
<Table>
THE FUND
CHAIRMAN'S LETTER 2
PORTFOLIO COMMENTARY 4
FUND EXPENSE INFORMATION 9
SCHEDULE OF INVESTMENTS 10
FINANCIAL STATEMENTS 19
FINANCIAL HIGHLIGHTS
PER SHARE DATA 31
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 33
DIRECTORY 34
TRUSTEES AND OFFICERS 35
PROXY VOTING POLICIES AND PROCEDURES 43
QUARTERLY PORTFOLIO SCHEDULE 43
NOTICE TO SHAREHOLDERS 44
BOARD CONSIDERATION OF THE
MANAGEMENT AND SUB-ADVISORY
AGREEMENTS 45
</Table>
"Neuberger Berman" and the Neuberger Berman logo are service marks of Neuberger
Berman, LLC. "Neuberger Berman Management Inc." and the individual fund names in
this shareholder report are either service marks or registered service marks of
Neuberger Berman Management Inc. (C)2005 Neuberger Berman Management Inc. All
rights reserved.
1
<Page>
CHAIRMAN'S LETTER
[PHOTO OF PETER SUNDMAN]
DEAR SHAREHOLDER,
I am pleased to present to you this annual report for the Neuberger Berman
Strategic Income Fund for the fiscal year ending October 31, 2005. The report
includes portfolio commentary, a listing of the Fund's investments, and its
audited financial statements for the reporting period.
The portfolio represents an attractive mix of income-producing securities, which
include real estate investment trusts (REITs), investment grade debt, high yield
securities, foreign securities, and other dividend-paying equities. The Fund's
return over the reporting period demonstrates the benefits of investing in a
diverse portfolio of income-producing securities managed by investment
professionals who are experts in their areas of focus. Oversight from an Asset
Allocation Committee, whose primary responsibility is to tactically and
strategically adjust the portfolio's exposure to each of these market sectors,
offers additional flexibility to pursue long-term returns in the most attractive
segments.
Recently, investors have been scrutinizing the economic tea leaves, trying to
discern how the interplay of growth, inflation and the Federal Reserve will play
out in the markets. This latest round of Fed-watching has its roots back in the
spring of 2004, when after some strong economic reports, investors began
anticipating that the Fed would begin raising short-term rates to quell
inflationary pressures. Since then, even minor economic releases have seemed
cause for rejoicing or despondency, depending on your perspective. Yet even as
the Fed began a series of rate increases that continues to this day, long-term
interest rates hardly budged.
Early this year, the yields on long-term rates appeared so stubbornly steadfast
that Fed Chairman Alan Greenspan called the phenomenon a "conundrum" -- and
helped trigger a two-month swoon in the stock and bond markets, as investors
feared more dramatic action from the Fed. Bonds bounced back again in April (as
stocks did in May) and generally held steady through September, as the Fed
continued its campaign of "measured" increases. However, when the Fed hiked
rates following Hurricanes Katrina and Rita, and opined that the risk of
inflation was still greater than the risk of economic decline, the markets sold
off again -- as investors appeared to grasp the seriousness of the Fed's
intentions. Despite all
2
<Page>
this drama, the fiscal year proved relatively positive for the bond market and
the equity market as well.
The ongoing saga of the Fed, inflation and interest rates will undoubtedly
continue in the coming year. As of this writing, we have a new wrinkle in the
story as Ben S. Bernanke has been nominated to replace Alan Greenspan as Fed
chairman. The bond market, in particular, has reacted favorably to his
nomination, but is already debating his potential impact on the Fed and the
markets.
Of course, Neuberger Berman's portfolio managers do not risk shareholders' money
based on their opinions of the Fed's next move. The managers' job is to run
portfolios based on their underlying investment disciplines, standing ready to
capitalize on opportunities whenever they arise. Although past results are not
indicative of future returns, we believe that our emphasis on income and capital
preservation will, over the long term, work in our shareholders' best interests.
Sincerely,
/s/ Peter Sundman
PETER SUNDMAN
CHAIRMAN OF THE BOARD
NEUBERGER BERMAN INCOME FUNDS
3
<Page>
STRATEGIC INCOME FUND PORTFOLIO COMMENTARY
For the fiscal year ending October 31, 2005, the Neuberger Berman Strategic
Income Fund provided a total return of 6.68%, compared to the Lehman Brothers
U.S. Aggregate Index's return of 1.13%.
The Fund's return over the period demonstrates the benefit of investing in a
diversified portfolio of income-producing securities. We continue to maximize
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 limiting the Fund's exposure to U.S. Treasury securities and
high-grade corporate bonds.
During fiscal 2005, our strategy provided shareholders with returns well above
those of the broader bond market, 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 the reporting period, 18.9% of the Fund's 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 29% of net assets. The Fund held 25.8% of its net assets in
common and preferred stocks (including REIT securities) and 12.7% in foreign
bonds. Cash and cash equivalents accounted for 12.3% of net assets and
convertible debt represented 1.3% of net assets.
REITs
REITs performed well across the board -- office properties, regional malls,
apartments and industrial properties all provided strong returns. The office
sector benefited from improved economic growth and modest rent growth. Shares in
industrial properties rose as the demand for warehouse space increased, pension
funds became more interested in the sector and industrial property joint
ventures multiplied. Apartment properties fared well, reflecting the recent
improvement in fundamentals and rising occupancy rates. The apartment sector
also benefited from the perception that the market for housing sales has peaked.
Regional malls did well, in part due to healthy consumer spending and excellent
retail economics this year.
In this environment, the Fund benefited from the strength of -- and an
overweight position in -- the office sector. Health care REITs also performed
well and the Fund's holdings outperformed benchmark sector components. In the
apartment sector, the portfolio's market weight position in this strongly
performing segment helped overall returns. However, the hotel sector lagged, as
did our holdings in the group, as investors took gains made in 2004 and moved on
to other property areas. Community shopping centers also lagged behind other
REIT sectors, which we attribute to limited acquisition opportunities. We
believe that our emphasis on diversification across property sectors and
geographic regions continues to enhance the Fund's ability to deliver consistent
returns.
From a broader perspective, we remain optimistic about REIT fundamentals. As a
result of rising construction costs (a 10%-15% rise over the last 12 months,
concentrated in labor and raw materials), we believe that supply growth will
remain modest over the coming year. Furthermore, we remain positive on demand
growth, particularly in light of expectations for 3% GDP growth in 2006. We also
expect the Federal Reserve to complete its series of rate increases in the first
half of 2006. If this supply/demand environment continues, we anticipate a rise
in occupancy rates and rent levels for 2006, a scenario that bodes well for the
commercial real estate market.
The REIT industry's solid earnings growth through the first three quarters of
2005 suggests to us a favorable earnings outlook for 2006. Commercial real
estate fundamentals remain attractive, which is consistent with market
expectations. We expect REIT dividend growth also to be attractive, at around 3%
to 4% in the coming 12 months. In addition, continued healthy capital markets
would be expected to lead to an increase in merger and acquisition activity in
2006. We expect the Fund to be a beneficiary of this trend.
HIGH YIELD SECURITIES
The high yield market was volatile over the course of the fiscal year. High
yield bonds ended calendar 2004 on a reasonably strong note and held onto that
strength through February 2005. With fears of
4
<Page>
higher inflation, a spike in Treasury rates, and Federal Reserve Chairman
Greenspan's comments about a bond market "conundrum," high yield bonds declined
in March and were down slightly in April. May and June, in contrast, were solid
months, but September and October saw the return of declines, in part due to
rising Treasury rates.
In addition to the economic drivers of high yield returns, there were other
notable developments affecting the market. In mid-March, General Motors revised
its expectations for corporate cash flow from positive $2 billion to negative $2
billion. This announcement focused investors' attention on credit risk and
heightened 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.
Ultimately, GM was downgraded to below investment grade in May 2005, which in
turn created technical disruptions in the market. During the second half of the
year, the market recovered from this technical decline.
Given the current environment, we believe that a conservative approach is highly
appropriate. Therefore, we are currently maintaining a relatively short
duration/short maturity structure (thereby reducing exposure to a rise in
interest rates). At the same time, we are presently looking to reduce exposure
to deep cyclicals and increase exposure to defensive sectors. We are maintaining
an optimistic, but cautious, outlook for the high yield market and for the Fund.
We believe that the recent, unsettled environment has provided an opportunity
for reallocation within the market at favorable prices.
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 gradually increasing interest
rates. In addition, we believe that our longstanding orientation toward higher
quality issues and a shorter duration profile relative to the broader
non-investment grade market can also provide relative support and opportunity
should credit spreads continue to widen.
FOREIGN SECURITIES
In this segment of the portfolio, we continue to hold government-issued
securities due to the tight spread environment. Our holdings continue to be
primarily centered in Europe (euro-denominated bonds). We believe that in the
current rising interest rate environment, European bonds are likely to perform
better than other foreign issues.
As we indicated in our last letter, we have reduced our Japan exposure to a
below-benchmark weighting, as the country continues to move closer to
eliminating its "zero interest rate" policy.
We have increased our allocation to U.K. issues to a neutral weighting relative
to the benchmark. As expected, economic growth in the country has slowed and
interest rates have risen.
INCOME-ORIENTED SECURITIES
The segment of the portfolio focused on income-producing equity securities has
continued to outperform the S&P 500. The Fund's energy holdings in this area
have continued to do well on strength in oil prices, while the Fund's natural
resource companies also performed well. This area of the portfolio also
benefited from the recent trend toward dividend-paying stocks that now receive
more favorable tax treatment than they did in the past, as well as from
investors seeking income in a rising, albeit relatively benign, interest rate
environment. While there remains some risk, we expect the tax law favoring
qualified dividends, which is scheduled to expire in 2008, to be extended when
it comes before Congress.
Sincerely,
NEUBERGER BERMAN
STRATEGIC INCOME FUND
ASSET ALLOCATION COMMITTEE
5
<Page>
AVERAGE ANNUAL TOTAL RETURN(1)
ENDED 10/31/05
<Table>
<Caption>
LEHMAN BROTHERS
INSTITUTIONAL CLASS U.S. AGGREGATE INDEX
1 YEAR 6.68% 1.13%
LIFE OF FUND(2) 8.34% 2.53%
INCEPTION DATE 07/11/2003
</Table>
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST. RESULTS ARE SHOWN ON A "TOTAL RETURN" BASIS AND
INCLUDE REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS.
CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. FOR
PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT
www.nb.com/performance.
[CHART]
COMPARISON OF A $10,000 INVESTMENT
<Table>
<Caption>
LEHMAN BROTHERS
INSTITUTIONAL CLASS U.S. AGGREGATE INDEX
7/11/2003 $ 10,000 $ 10,000
7/31/2003 $ 9,870 $ 9,698
10/31/2003 $ 10,195 $ 9,927
1/31/2004 $ 10,638 $ 10,133
4/30/2004 $ 10,494 $ 10,051
7/31/2004 $ 10,736 $ 10,167
10/31/2004 $ 11,281 $ 10,476
1/31/2005 $ 11,463 $ 10,554
4/30/2005 $ 11,544 $ 10,579
7/31/2005 $ 12,156 $ 10,654
10/31/2005 $ 12,034 $ 10,595
</Table>
This chart shows the value of a hypothetical $10,000 investment in the Fund over
the past 10 fiscal years, or since the Fund's inception, if it has not operated
for 10 years. The result is compared with one or more benchmarks, which may
include a broad-based market index and/or a narrower index. Please note that
market indexes do not include expenses. All results include the reinvestment of
dividends and capital gain distributions. Results represent past performance and
do not indicate future results. The chart and table do not reflect the deduction
of taxes that a shareholder would pay on Fund distributions or the redemption of
Fund shares.
Please see Endnotes for additional information.
For the period ending October 31, 2005, the 30-day SEC yield of the
Institutional Class Shares was 3.84%.
ASSET DIVERSIFICATION
(% BY ASSET CLASS)
<Table>
Corporate Debt 29.0%
Convertible Debt 1.3
Foreign Securities 12.7
U.S. Government Agency Securities 1.8
Mortgage-Backed Securities 13.4
U.S. Treasury Securities 3.7
Preferred Stock 0.9
Common Stock 24.9
Short-Term Investments 9.6
Cash and Cash Equivalents, receivables
and other assets, less liabilities 2.7
</Table>
6
<Page>
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. If
this reimbursement was not made, performance would be lower. 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.
(2) From commencement of operations.
7
<Page>
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.
8
<Page>
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:
<Table>
ACTUAL EXPENSES AND PERFORMANCE: The first section of the table
provides information about actual
account values and actual expenses
in dollars, based on the fund's
actual performance during the
period. You may use the
information in this line, together
with the amount you invested, to
estimate the expenses you paid
over the period. Simply divide
your account value by $1,000 (for
example, an $8,600 account value
divided by $1,000 = 8.6), then
multiply the result by the number
in the first section of the table
under the heading entitled
"Expenses Paid During the Period"
to estimate the expenses you paid
over the period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES: The second section of the 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.
</Table>
EXPENSE INFORMATION AS OF 10/31/05 (UNAUDITED)
NEUBERGER BERMAN STRATEGIC INCOME FUND
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT ACCOUNT PAID DURING
VALUE VALUE THE PERIOD*
- ------------------------------------------------------------------------
ACTUAL
Institutional Class $ 1,000 $ 1,042.40 $ 4.39
HYPOTHETICAL (5% ANNUAL
RETURN BEFORE EXPENSES)**
Institutional Class $ 1,000 $ 1,020.90 $ 4.35
</Table>
* Expenses are equal to the expense ratio for the class, multiplied by the
average account value over the period, multiplied by 184/365 (to reflect the
one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by multiplying
the number of days in the most recent half year divided by 365.
9
<Page>
SCHEDULE OF INVESTMENTS STRATEGIC INCOME FUND
<Table>
<Caption>
MARKET VALUE +
NUMBER OF SHARES (000'S OMITTED)
COMMON STOCKS (24.9%)
APARTMENTS (2.0%)
2,500 Apartment Investment &
Management $ 96
2,400 Camden Property Trust 135
2,900 Equity Residential 114
1,100 Essex Property Trust 99
4,100 United Dominion Realty Trust 91
----------
535
BANKING & FINANCIAL (0.3%)
3,500 North Fork Bancorp 89++++
COMMUNICATIONS (0.4%)
3,500 Vodafone Group ADR 92++++
COMMUNITY CENTERS (0.6%)
1,800 Developers Diversified Realty 78
1,100 Pan Pacific Retail Properties 70
----------
148
CONSUMER CYCLICALS (0.2%)
2,500 Yankee Candle 57++++
CONSUMER STAPLES (0.3%)
2,000 Cadbury Schweppes ADR 79
DIVERSIFIED (1.2%)
4,200 Colonial Properties Trust 184
1,500 Vornado Realty Trust 121
----------
305
ENERGY (1.2%)
1,500 Burlington Resources 108++++
1,000 Enbridge Energy Management 51*
2,800 Mullen Group Income Fund 55
4,000 NiSource, Inc. 95
----------
309
FINANCE (1.3%)
4,500 Apollo Investment 84
2,500 Bank of America 110
2,000 Tortoise Energy Capital 48
3,000 Tortoise Energy Infrastructure 88
----------
330
FINANCIAL SERVICES (0.6%)
1,500 American Express 75++++
300 Ameriprise Financial 11*
3,000 Jackson Hewitt Tax Service 74++++
----------
160
HEALTH CARE (0.8%)
1,500 Nationwide Health Properties 35
1,500 Novartis AG ADR 81++++
3,200 Ventas, Inc. 98
----------
214
INDUSTRIAL (1.9%)
1,600 CenterPoint Properties $ 73
2,000 Dover Corp. 78++++
1,000 General Dynamics 116++++
1,500 Praxair, Inc. 74++++
3,900 ProLogis 168
----------
509
INSURANCE (0.2%)
1,000 American International Group 65
LODGING (0.8%)
5,200 Host Marriott 87
700 Starwood Hotels & Resorts
Worldwide 41
3,100 Strategic Hotel Capital 53
1,500 Sunstone Hotel Investors 33
----------
214
MINING (0.4%)
2,000 Freeport-McMoRan
Copper & Gold 99++++
OFFICE (3.4%)
1,000 Boston Properties 69
2,200 Brascan Corp. 101
2,800 Brookfield Properties 82
1,600 CarrAmerica Realty 53
3,300 Columbia Equity Trust 48
1,100 Mack-Cali Realty 47
4,900 Maguire Properties 147
2,800 SL Green Realty 191
7,200 Trizec Properties 160
----------
898
OFFICE--INDUSTRIAL (1.3%)
3,100 Digital Realty Trust 59
2,100 Liberty Property Trust 88
700 PS Business Parks 33
4,300 Reckson Associates Realty 151
----------
331
OIL & GAS (0.2%)
1,000 Exxon Mobil 56++++
OIL SERVICES (0.6%)
1,000 Canadian Oil Sands Trust 94
2,000 CCS Income Trust 50
----------
144
PHARMACEUTICAL (0.2%)
1,000 Johnson & Johnson 63
REAL ESTATE (0.1%)
800 AMB Property 35
</Table>
10
<Page>
<Table>
<Caption>
MARKET VALUE +
NUMBER OF SHARES (000'S OMITTED)
REGIONAL MALLS (2.2%)
2,000 CBL & Associates Properties $ 75
3,700 General Growth Properties 157
2,000 Mills Corp. 107
1,800 Simon Property Group 129
2,900 Taubman Centers 95
----------
563
RETAIL (0.2%)
2,000 Albertson's, Inc. 50++++
SEMICONDUCTORS (0.6%)
5,000 Applied Materials 82
3,500 Intel Corp. 82++++
----------
164
SOFTWARE (0.2%)
2,500 Microsoft Corp. 64
TECHNOLOGY (0.6%)
2,000 First Data 81++++
1,000 IBM 82
----------
163
TELECOMMUNICATIONS (0.4%)
4,000 Sprint Corp. 93++++
TRANSPORTATION (0.3%)
4,500 Ship Finance International 86
UTILITIES (2.4%)
1,500 Ameren Corp. 79
2,000 California Water Service Group 72
2,000 Cinergy Corp. 80
1,000 Dominion Resources 76++++
3,000 Duke Energy 79++++
1,500 FPL Group 65
1,930 National Grid ADR 88
2,500 Southern Co. 87
----------
626
TOTAL COMMON STOCKS
(COST $5,895) 6,541
----------
CONVERTIBLE PREFERRED STOCKS (0.9%)
1,250 Celanese Corp. 33
2,000 New York Community Capital
Trust V 95
1,500 Newell Financial Trust I 66
1,000 Sovereign Capital Trust IV 44
----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(COST $249) 238
----------
</Table>
See Notes to Schedule of Investments
11
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING~ VALUE+
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
U.S. TREASURY SECURITIES-BACKED BY THE FULL FAITH AND CREDIT OF THE U.S. GOVERNMENT (3.7%)
$ 401 U.S. Treasury Inflation Index Notes, 1.63%, due 1/15/15 TSY TSY $ 389
59 U.S. Treasury Notes, 3.63%, due 6/30/07 TSY TSY 58
50 U.S. Treasury Notes, 3.38%, due 2/15/08 TSY TSY 49
200 U.S. Treasury Notes, 4.13%, due 8/15/08 TSY TSY 199
110 U.S. Treasury Notes, 3.63%, due 1/15/10 TSY TSY 106
170 U.S. Treasury Notes, 4.13%, due 5/15/15 TSY TSY 164
--------
TOTAL U.S. TREASURY SECURITIES-BACKED BY THE FULL FAITH AND
CREDIT OF THE U.S. GOVERNMENT (COST $980) 965
--------
U.S. GOVERNMENT AGENCY SECURITIES (1.8%)
500 FEDERAL HOME LOAN BANK, BONDS, 2.75%, DUE 3/14/08
(COST $483) AGY AGY 479
MORTGAGE-BACKED SECURITIES (13.4%)
FANNIE MAE
52 Pass-Through Certificates, 4.50%, due 8/1/18 & 10/1/18 AGY AGY 50
213 Pass-Through Certificates, 5.00%, due 11/1/17 - 8/1/33 AGY AGY 209
192 Pass-Through Certificates, 5.50%, due 9/1/16 - 7/1/33 AGY AGY 192
135 Pass-Through Certificates, 6.00%, due 3/1/18 - 9/1/33 AGY AGY 138
101 Pass-Through Certificates, 6.50%, due 11/1/13 - 9/1/32 AGY AGY 104
35 Pass-Through Certificates, 7.00%, due 7/1/17 & 7/1/29 AGY AGY 36
6 Pass-Through Certificates, 7.50%, due 12/1/32 AGY AGY 7
FREDDIE MAC
24 Pass-Through Certificates, 4.50%, due 8/1/18 AGY AGY 23
75 Pass-Through Certificates, 5.00%, due 5/1/18 & 8/1/33 AGY AGY 73
156 Pass-Through Certificates, 5.50%, due 9/1/17 - 8/1/33 AGY AGY 154
111 Pass-Through Certificates, 6.00%, due 4/1/17 - 12/1/33 AGY AGY 112
64 Pass-Through Certificates, 6.50%, due 3/1/16 - 1/1/32 AGY AGY 66
9 Pass-Through Certificates, 7.00%, due 6/1/32 AGY AGY 10
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
572 Pass-Through Certificates, 4.50%, due 11/15/33 - 6/15/34 AGY AGY 541
1,742 Pass-Through Certificates, 5.00%, due 7/15/33 - 8/15/35 AGY AGY 1,700
38 Pass-Through Certificates, 5.50%, due 6/15/33 AGY AGY 38
24 Pass-Through Certificates, 6.00%, due 4/15/33 AGY AGY 25
13 Pass-Through Certificates, 6.50%, due 7/15/32 AGY AGY 14
10 Pass-Through Certificates, 7.00%, due 8/15/32 AGY AGY 11
4 Pass-Through Certificates, 7.50%, due 7/15/32 AGY AGY 4
--------
TOTAL MORTGAGE-BACKED SECURITIES (COST $3,572) 3,507
--------
CORPORATE DEBT SECURITIES (29.0%)
75 AES Corp., Secured Notes, 8.75%, due 5/15/13 Ba3 B+ 81**
75 Alderwoods Group, Inc., Guaranteed Notes, 7.75%, due 9/15/12 B2 B 77
100 Allied Waste North America, Inc., Guaranteed Senior Secured
Notes, Ser. B, 9.25%, due 9/1/12 B2 BB- 108
75 Amerigas Partners L.P., Senior Unsecured Notes, 7.25%,
due 5/20/15 B2 BB- 78**
100 Arch Western Finance Corp., Senior Notes, 6.75%, due 7/1/13 Ba3 BB- 101
75 Associates Corp. NA, Senior Notes, 6.25%, due 11/1/08 Aa1 AA- 78
40 Bank of America Corp., Subordinated Notes, 6.80%,
due 3/15/28 Aa3 A+ 45
20 Bank One Corp., Subordinated Notes, 7.88%, due 8/1/10 A1 A 22
</Table>
12
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING~ VALUE+
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 20 Boeing Capital Corp., Senior Notes, 6.13%, due 2/15/33 A3 A $ 21
125 Chesapeake Energy Corp., Senior Notes, 7.50%, due 9/15/13 Ba2 BB 132
25 ChevronTexaco Corp., Debentures, 8.00%, due 8/1/32 Aa3 AA 34
45 Coca-Cola Enterprises, Inc., Debentures, 6.95%, due 11/15/26 A2 A 51
55 ConocoPhillips Corp., Notes, 8.75%, due 5/25/10 A3 A- 64
25 Constellation Energy Group, Inc., Notes, 6.35%, due 4/1/07 Baa1 BBB 25
125 CSC Holdings, Inc., Senior Notes, Ser. B, 8.13%, due 7/15/09 B1 BB- 128
85 Daimler Chrysler N.A. Holdings Corp., Guaranteed Notes,
6.50%, due 11/15/13 A3 BBB 88
150 Daimler Chrysler N.A. Holdings Corp., Guaranteed Notes,
8.50%, due 1/18/31 A3 BBB 176
75 Edison Mission Energy, Senior Notes, 9.88%, due 4/15/11 B1 B+ 87
125 El Paso Natural Gas, Senior Notes, Ser. A, 7.63%,
due 8/1/10 B1 B 131
125 Ferrellgas, L.P., Senior Notes, 6.75%, due 5/1/14 Ba3 B+ 120
125 Ford Motor Credit Co., Notes, 6.50%, due 1/25/07 Baa3 BB+ 124
50 Forest Oil Corp., Senior Notes, 8.00%, due 6/15/08 Ba3 BB- 52
35 France Telecom SA, Notes, 8.00%, due 3/1/11 A3 A- 39
75 Freescale Semiconductor, Senior Notes, 6.88%, due 7/15/11 Ba2 BB+ 77
45 General Electric Capital Corp., Medium-Term Notes, Ser. A,
6.00%, due 6/15/12 Aaa AAA 47
125 General Motors Acceptance Corp., Notes, 6.13%, due 2/1/07 Ba1 BB 124
125 Georgia Gulf Corp., Senior Notes, 7.13%, due 12/15/13 Ba3 BB- 125
115 Goldman Sachs Group, Inc., Notes, 4.13%, due 1/15/08 Aa3 A+ 113
125 Hanover Equipment Trust 2001 B, Senior Secured Notes, Ser. B,
8.75%, due 9/1/11 B2 B+ 132
125 HCA, Inc., Senior Unsecured Notes, 5.50%, due 12/1/09 Ba2 BB+ 122
75 Host Marriott L.P., Senior Notes, Ser. M, 7.00%, due 8/15/12 Ba2 B+ 76
100 Household Finance Corp., Notes, 4.63%, due 1/15/08 A1 A 100
35 International Bank for Reconstruction & Development, Notes,
3.63%, due 5/21/13 Aaa AAA 33
100 INVISTA, Notes, 9.25%, due 5/1/12 B1 B+ 107**
125 J.P. Morgan Chase & Co., Senior Notes, 3.63%, due 5/1/08 Aa3 A+ 121
125 Jean Coutu Group (PJC), Inc., Senior Subordinated Notes,
8.50%, due 8/1/14 B3 B- 116
125 K. Hovnanian Enterprises, Guaranteed Notes, 8.88%,
due 4/1/12 Ba2 B+ 130
125 L-3 Communications Corp., Guaranteed Senior Subordinated
Notes, 7.63%, due 6/15/12 Ba3 BB+ 131
125 Lamar Media Corp., Guaranteed Notes, 7.25%, due 1/1/13 Ba3 B 130
100 LIN Television Corp., Senior Subordinated Notes, 6.50%,
due 5/15/13 B1 B- 95
125 Meditrust, Notes, 7.00%, due 8/15/07 Ba2 BB 127
120 Merrill Lynch & Co., Notes, 5.00%, due 1/15/15 Aa3 A+ 117
50 MGM Mirage, Inc., Guaranteed Notes, 6.00%, due 10/1/09 Ba2 BB 49
125 Mohegan Tribal Gaming, Senior Subordinated Notes,
6.38%, due 7/15/09 Ba3 B+ 125
125 MSW Energy Holdings LLC, Secured Notes, Ser. B, 8.50%,
due 9/1/10 Ba3 BB- 133
125 Nalco Co., Senior Notes, 7.75%, due 11/15/11 B2 B- 128
125 Newfield Exploration Co., Senior Subordinated Notes, 8.38%,
due 8/15/12 Ba3 BB- 134
</Table>
See Notes to Schedule of Investments
13
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING~ VALUE+
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 25 Norfolk Southern Corp., Senior Notes, 6.00%, due 4/30/08 Baa1 BBB+ $ 25
40 Norfolk Southern Corp., Bonds, 7.80%, due 5/15/27 Baa1 BBB+ 50
105 Norske Skog Canada, Ltd., Guaranteed Senior Notes, Ser. D,
8.63%, due 6/15/11 Ba3 BB- 101
103 NRG Energy, Inc., Guaranteed Notes, 8.00%, due 12/15/13 B1 B 112
100 Omnicare, Inc., Guaranteed Notes, Ser. B, 8.13%, due 3/15/11 Ba2 BB+ 104
125 Owens & Minor, Inc., Senior Subordinated Notes, 8.50%,
due 7/15/11 Ba3 BB+ 132
125 Owens-Brockway Glass Container, Inc., Guaranteed Senior
Notes, 8.25%, due 5/15/13 B2 B 127
75 PerkinElmer, Inc., Guaranteed Notes, 8.88%, due 1/15/13 Ba1 BB 84
50 PNC Funding Corp., Guaranteed Senior Notes, 5.75%, due
8/1/06 A2 A- 50
75 Province of Ontario, Senior Unsubordinated Notes, 5.50%,
due 10/1/08 Aa2 AA 77
50 Quebec Province, Debentures, 7.50%, due 9/15/29 A1 A+ 65
80 Republic of Italy, Senior Unsubordinated Notes, 5.25%,
due 4/5/06 AA- 80
125 Salem Communications Holding Corp., Guaranteed Senior
Subordinated Notes, Ser. B, 9.00%, due 7/1/11 B2 B- 132
100 Scotts Co., Senior Subordinated Notes, 6.63%,
due 11/15/13 Ba2 B+ 102
125 Sequa Corp., Senior Notes, Ser. B, 8.88%, due 4/1/08 B1 BB- 128
100 Shaw Communications, Inc., Senior Notes, 8.25%, due 4/11/10 Ba2 BB+ 108
125 Smithfield Foods, Inc., Senior Notes, 7.00%, due 8/1/11 Ba2 BB 127
30 Southern Power Co., Senior Notes, Ser. B, 6.25%, due 7/15/12 Baa1 BBB+ 31
125 Speedway Motorsports, Inc., Senior Subordinated Notes,
6.75%, due 6/1/13 Ba2 B+ 128
75 Sprint Capital Corp., Guaranteed Notes, 6.00%, due 1/15/07 Baa2 A- 76
125 Stena AB, Senior Notes, 9.63%, due 12/1/12 Ba3 BB- 135
125 Sungard Data Systems, Inc., Senior Unsecured Notes, 9.13%,
due 8/15/13 B3 B- 127**
55 Target Corp., Senior Unsecured Notes, 7.50%, due 8/15/10 A2 A+ 61
100 Time Warner, Inc., Guaranteed Notes, 6.15%, due 5/1/07 Baa1 BBB+ 102
125 Toll Corp., Senior Subordinated Notes, 8.25%, due 12/1/11 Ba2 BB+ 132
75 Tyco International Group SA, Guaranteed Senior Notes, 6.75%,
due 2/15/11 Baa3 BBB+ 80
40 Tyson Foods, Inc., Notes, 8.25%, due 10/1/11 Baa3 BBB 45
40 United Mexican States, Notes, 8.38%, due 1/14/11 Baa1 BBB 46
125 Valmont Industries, Inc., Guaranteed Notes, 6.88%,
due 5/1/14 Ba3 B+ 127
75 Ventas Realty L.P., Guaranteed Notes, 6.75%, due 6/1/10 Ba3 BB 76
70 Verizon Global Funding Corp., Senior Notes, 7.38%,
due 9/1/12 A2 A+ 78
125 Vintage Petroleum, Inc., Senior Notes, 8.25%, due 5/1/12 Ba3 BB- 135
100 Wells Fargo Co., Subordinated Notes, 6.25%, due 4/15/08 Aa2 A+ 103
50 Williams Scotsman, Inc., Senior Notes, 8.50%, due 10/1/15 B3 B 51**
--------
TOTAL CORPORATE DEBT SECURITIES (COST $7,733) 7,591
--------
FOREIGN GOVERNMENT SECURITIES^^ (12.7%)
EUR 50 Belgium Kingdom, Bonds, 3.00%, due 3/28/10 Aa1 AA+ 60
EUR 25 Bundesobligation, Bonds, 4.00%, due 2/16/07 Aaa AAA 30
EUR 70 Bundesrepublic Deutschland, Bonds, 5.00%, due 7/4/12 Aaa AAA 93
</Table>
14
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING~ VALUE+
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
CAD 150 Canadian Government, Bonds, 7.25%, due 6/1/07 AAA $ 134
CAD 40 Canadian Government, Bonds, 8.00%, due 6/1/27 AAA 51
JPY 27,000 Inter-American Development Bank, 1.90%, due 7/8/09 AAA AAA 244
JPY 18,000 Japan Development Bank, Bonds, 1.40%, due 6/20/12 AAA AA- 157
JPY 8,000 Japan Development Bank, Bonds, 1.05%, due 6/20/23 AAA AA- 59
JPY 20,000 Japan Financial Corp., Global Notes, 1.55%, due 2/21/12 AAA AA- 176
JPY 17,000 Quebec Province, Bonds, 1.60%, due 5/9/13 A+ 149
JPY 23,000 Republic of Austria, Bonds, 3.75%, due 2/3/09 AAA AAA 217
EUR 345 Republic of Germany, Bonds, 5.50%, due 1/4/31 AAA AAA 530@@
JPY 42,000 Republic of Italy, Bonds, 1.80%, due 2/23/10 AA2 AA- 378@@
EUR 450 Spain Government, Bonds, 5.00%, due 7/30/12 Aaa AAA 599
SEK 400 Swedish Government, Bonds, 5.50%, due 10/8/12 Aaa AAA 58@@
GBP 65 U K Treasury, Bonds, 8.50%, due 12/7/05 AAA AAA 116
GBP 70 U K Treasury, Bonds, 5.75%, due 12/7/09 AAA AAA 130
GBP 55 U K Treasury, Bonds, 8.00%, due 6/7/21 AAA AAA 137
--------
TOTAL FOREIGN GOVERNMENT SECURITIES (COST $3,128) 3,318
--------
CONVERTIBLE BONDS (1.3%)
75 Bristol-Myers Squibb, Floating Rate Notes, 3.37%,
due 12/15/05 A1 A+ 73~~
75 Edwards Lifescience Corp., Senior Notes, 3.88%, due 5/15/33 74^
65 Lamar Advertising Co., Senior Notes, 2.88%, due 12/31/10 B2 B 69
75 Thermo Electron Corp., Subordinated Debentures, 3.25%,
due 11/1/07 Baa3 BBB 74
65 Vishay Intertechnology, 3.63%, due 8/1/23 B3 B+ 61
--------
TOTAL CONVERTIBLE BONDS (COST $350) 351
--------
REPURCHASE AGREEMENTS (8.2%)
2,140 State Street Bank and Trust Co. Repurchase Agreement, 3.45%,
due 11/1/05, dated 10/31/05, Maturity Value $2,140,205
Collateralized by $2,140,000 Fannie Mae, 5.75%, due 2/15/08
(Collateral Value $2,221,290)
(COST $2,140) 2,140#
--------
NUMBER OF SHARES
SHORT-TERM INVESTMENTS (1.4%)
371,428 Neuberger Berman Prime Money Fund Trust Class (COST $371) 371@
--------
TOTAL INVESTMENTS (97.3%) (COST $24,901) 25,501##
Cash, receivables and other assets, less liabilities (2.7%) 695
--------
TOTAL NET ASSETS (100.0%) $ 26,196
--------
</Table>
See Notes to Schedule of Investments
15
<Page>
NOTES TO SCHEDULE OF INVESTMENTS
+ Investments in equity securities by Neuberger Berman Strategic Income Fund
(the "Fund") are valued at the latest sale price where that price is
readily available; equity securities for which no sales were reported,
unless otherwise noted, are valued at the mean between the closing bid and
asked prices. Securities traded primarily on the NASDAQ Stock Market are
normally valued by 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, including securities for which the necessary last sale,
asked, and/or bid prices are not readily available, by methods the Board
of Trustees of Neuberger Berman Income Funds (the "Board") has approved on
the belief that they reflect fair value. Numerous factors may be
considered when determining the fair value of a security, including
available analyst, media or other reports, trading in futures or ADRs and
whether the issuer of the security being fair valued has other securities
outstanding. Foreign security prices are furnished by independent
quotation services and expressed in local currency values. Foreign
security prices are 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 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. In this event,
FT Interactive will provide adjusted prices for certain foreign equity
securities using a statistical analysis of historical correlations of
multiple factors. In the absence of precise information about the market
values of these foreign securities as of the close of the New York Stock
Exchange, the Board has determined on the basis of available data that
prices adjusted in this way are likely to be closer to the prices 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 October 31, 2005, the cost of investments for U.S. Federal income tax
purposes was $25,057,000. Gross unrealized appreciation of investments was
$809,000 and gross unrealized depreciation of investments was $365,000,
resulting in net unrealized appreciation of $444,000, based on cost for
U.S. Federal income tax purposes.
* Non-income producing security.
** Restricted security subject to restrictions on resale under federal
securities laws. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers under Rule
144A and are deemed liquid. At October 31, 2005, these securities amounted
to $444,000 or 1.7% of net assets for the Fund.
16
<Page>
@ 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.
++++ The following securities were held in escrow at October 31, 2005, to cover
outstanding call options written:
<Table>
<Caption>
MARKET VALUE PREMIUM MARKET VALUE
SHARES SECURITIES AND OPTIONS OF SECURITIES ON OPTIONS OF OPTIONS
2,000 Albertson's, Inc.
December 2005 @ 30 $ 50,000 $ 1,000 $ 0
1,500 American Express
April 2006 @ 60 75,000 4,000 0
1,500 Burlington Resources
November 2005 @ 60 108,000 3,000 18,000
1,000 Dominion Resources
January 2006 @ 95 76,000 1,000 1,000
2,000 Dover Corp.
December 2005 @ 45 78,000 1,000 0
3,000 Duke Energy
January 2006 @ 32.50 79,000 1,000 0
1,000 Exxon Mobil
January 2006 @ 65 56,000 1,000 0
2,000 First Data
November 2005 @ 45 81,000 1,000 0
2,000 Freeport-McMoRan
Copper & Gold
November 2005 @ 45 99,000 1,000 10,000
1,000 General Dynamics
November 2005 @ 120 116,000 1,000 1,000
3,500 Intel Corp.
January 2006 @ 30 82,000 1,000 0
3,000 Jackson Hewitt Tax Service
April 2006 @ 25 74,000 3,000 5,000
3,500 North Fork Bancorp
November 2005 @ 32.50 89,000 3,000 0
1,500 Novartis AG ADR
April 2006 @ 55 81,000 1,000 3,000
1,500 Praxair, Inc.
April 2006 @ 55 74,000 2,000 2,000
4,000 Sprint Corp.
November 2005 @ 27.50 93,000 2,000 0
3,500 Vodafone Group ADR
January 2006 @ 30 92,000 2,000 0
2,500 Yankee Candle
January 2006 @ 25 57,000 1,000 1,000
</Table>
^^ Principal amount is stated in the currency in which the security is
denominated.
CAD = Canadian Dollar
EUR = Euro Currency
GBP = Great Britain Pound
JPY = Japanese Yen
SEK = Swedish Krona
See Notes to Financial Statements
17
<Page>
^ Not rated by a nationally recognized statistical rating organization.
@@ All or a portion of this security is segregated as collateral for forward
foreign currency contracts and/or written options.
~ Credit Ratings are unaudited.
~~ Floating rate securities are securities whose yields vary with a
designated market index or market rate. This security is shown at its
current rate as of October 31, 2005.
18
<Page>
STATEMENT OF ASSETS AND LIABILITIES
<Table>
<Caption>
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 $ 25,130
Affiliated issuers 371
- -----------------------------------------------------------------------------------------------------------------
25,501
Cash 74
Foreign currency 640
Net receivable for forward foreign currency exchange contracts sold (Note C) 26
Dividends and interest receivable 253
Receivable for securities sold 23
Receivable from administrator--net (Note B) 20
- -----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 26,537
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES
Option contracts written, at market value (Note A) 41
Payable for securities purchased 209
Payable to investment manager--net (Notes A & B) 13
Accrued expenses and other payables 78
- -----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 341
- -----------------------------------------------------------------------------------------------------------------
NET ASSETS AT VALUE $ 26,196
- -----------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid-in capital $ 23,642
Undistributed net investment income (loss) 147
Accumulated net realized gains (losses) on investments 1,798
Net unrealized appreciation (depreciation) in value of investments 609
------------------------------------------------------------------------------------------------------------
NET ASSETS AT VALUE $ 26,196
- -----------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING ($.001 PAR VALUE; UNLIMITED SHARES AUTHORIZED) 2,403
- -----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE $ 10.90
- -----------------------------------------------------------------------------------------------------------------
*COST OF INVESTMENTS:
Unaffiliated issuers $ 24,530
Affiliated issuers 371
TOTAL COST OF INVESTMENTS $ 24,901
- -----------------------------------------------------------------------------------------------------------------
TOTAL COST OF FOREIGN CURRENCY $ 645
- -----------------------------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements
19
<Page>
STATEMENT OF OPERATIONS
<Table>
<Caption>
NEUBERGER BERMAN INCOME FUNDS STRATEGIC
(000'S OMITTED) INCOME FUND
INVESTMENT INCOME
INCOME (NOTE A):
Interest income--unaffiliated issuers $ 1,055
Dividend income--unaffiliated issuers 259
Income from securities loaned--affiliated issuers (Note F) 4
Income from investments in affiliated issuers (Note F) 8
Foreign taxes withheld (2)
- -----------------------------------------------------------------------------------------------------------------
Total income 1,324
- -----------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment management fee (Notes A & B) 186
Administration fee (Note B) 47
Audit fees 39
Custodian fees (Note B) 151
Insurance expense 1
Legal fees 28
Registration and filing fees 29
Shareholder reports 27
Shareholder servicing agent fees 25
Trustees' fees and expenses 28
Miscellaneous 2
- -----------------------------------------------------------------------------------------------------------------
Total expenses 563
Investment management fee waived (Note A) (0)
Expenses reimbursed by administrator (Note B) (297)
Expenses reduced by custodian fee expense offset and commission recapture arrangements (Note B) (3)
- -----------------------------------------------------------------------------------------------------------------
Total net expenses 263
- -----------------------------------------------------------------------------------------------------------------
Net investment income (loss) 1,061
- -----------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE A)
Net realized gain (loss) on:
Sales of investment securities of unaffiliated issuers 1,832
Financial futures contracts 1
Option contracts written 69
Foreign currency 258
Change in net unrealized appreciation (depreciation) in value of:
Unaffiliated investment securities (1,133)
Financial futures contracts 3
Option contracts written 3
Foreign currency 75
----------------------------------------------------------------------------------------------------------
Net gain (loss) on investments 1,108
- -----------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 2,169
- -----------------------------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements
20
<Page>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
STRATEGIC INCOME FUND
------------------------
NEUBERGER BERMAN INCOME FUNDS YEAR ENDED OCTOBER 31,
(000'S OMITTED) 2005 2004
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) $ 1,061 $ 940
Net realized gain (loss) on investments 2,160 512
Change in net unrealized appreciation (depreciation) of investments (1,052) 1,319
- -----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 2,169 2,771
- -----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE A):
Net investment income (1,232) (1,171)
Net realized gain on investments (230) --
- -----------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (1,462) (1,171)
- -----------------------------------------------------------------------------------------------------------------
FROM FUND SHARE TRANSACTIONS (NOTE D):
Proceeds from shares sold 9,241 4,693
Proceeds from reinvestment of dividends and distributions 1,016 825
Payments for shares redeemed (14,145) (1,354)
- -----------------------------------------------------------------------------------------------------------------
Net increase (decrease) from Fund share transactions (3,888) 4,164
- -----------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (3,181) 5,764
NET ASSETS:
Beginning of year 29,377 23,613
- -----------------------------------------------------------------------------------------------------------------
End of year $ 26,196 $ 29,377
- -----------------------------------------------------------------------------------------------------------------
Undistributed net investment income (loss) at end of year $ 147 $ 79
- -----------------------------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements
21
<Page>
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 assets of the Fund belong only to the Fund, and the liabilities of the
Fund are borne solely by the Fund and no other.
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 distributions and capital gain distributions are determined in
accordance with income tax regulations, which may differ from U.S.
generally accepted accounting principles. These differences are
22
<Page>
primarily due to differing treatments of income and gains on various
investment securities held by the 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, 2005, 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 years ended October 31,
2005 and October 31, 2004 were as follows:
DISTRIBUTIONS PAID FROM:
<Table>
<Caption>
LONG-TERM TAX RETURN
ORDINARY INCOME CAPITAL GAIN OF CAPITAL TOTAL
2005 2004 2005 2004 2005 2004 2005 2004
$ 1,461,463 $ 1,171,018 $ -- $ -- $ -- $ -- $ 1,461,463 $ 1,171,018
</Table>
As of October 31, 2005, the components of distributable earnings
(accumulated losses) on a U.S. Federal income tax basis were as follows:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED UNREALIZED LOSS
ORDINARY LONG-TERM APPRECIATION CARRYFORWARDS
INCOME GAIN (DEPRECIATION) AND DEFERRALS TOTAL
$ 943,893 $ 1,184,507 $ 426,403 $ -- $ 2,554,803
</Table>
The difference between book basis and tax basis distributable earnings is
attributable primarily to the timing differences of wash sales,
amortization of bond premium, and mark to market on certain forward foreign
currency.
6 FOREIGN TAXES: Foreign taxes withheld represent amounts withheld by foreign
tax authorities, net of refunds recoverable.
7 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 distributions and capital gain
distributions to shareholders are recorded on the ex-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, 2005, the Fund estimated these amounts within the financial
statements since the information is not available from the REITs until
after the Fund's fiscal year-end. For the year ended October 31, 2005, the
character of distributions paid to
23
<Page>
shareholders is disclosed within the Statement of Changes and is also based
on these estimates. All estimates are based upon REIT information sources
available to the Fund together with actual IRS Forms 1099DIV received to
date. Based on past experience it is probable that a portion of the Fund's
distributions during the current fiscal year will be considered tax return
of capital but the actual amount of tax return of capital, if any, is not
determinable until after the Fund's fiscal year. After calendar year-end,
when the Fund learns the nature of the distributions paid by REITs during
that year, distributions previously identified as income are often
recharacterized as return of capital and/or capital gain. After all
applicable REITs have informed the Fund of the actual breakdown of
distributions paid to the Fund during its fiscal year, estimates previously
recorded are adjusted to reflect actual results. As a result, the
composition of the Fund's distributions as reported herein may differ from
the final composition determined after calendar year-end and reported to
Fund shareholders on IRS Form 1099DIV.
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 the 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 written option transactions for the year ended October 31, 2005:
<Table>
<Caption>
VALUE WHEN
NUMBER WRITTEN
Contracts outstanding 10/31/2004 43,000 $ 40,000
Contracts written 125,000 99,000
Contracts expired (40,000) (22,000)
Contracts exercised (26,000) (31,000)
Contracts closed (62,000) (56,000)
---------- ----------
Contracts outstanding 10/31/2005 40,000 $ 30,000
---------- ----------
</Table>
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
24
<Page>
portfolio securities denominated in a foreign currency. The gain or loss
arising from the difference between the original contract price and the
closing price of such contract is included in net realized gains or losses
on foreign currency transactions on settlement date. Fluctuations in the
value of forward foreign currency contracts are recorded for financial
reporting purposes as unrealized gains or losses by the Fund until the
contractual settlement date. The Fund has no specific limitation on the
percentage of assets which may be committed to these types of contracts,
but the Fund may not invest more than 20% of its net assets in foreign
securities denominated in or indexed to foreign currencies. The Fund could
be exposed to risks if a counter party to a contract 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 ("Neuberger Agreement") on July 1, 2004 with Neuberger Berman,
LLC ("Neuberger"), an affiliate of the Fund, pursuant to which Neuberger
acted as the Fund's lending agent. Under the Neuberger Agreement, Neuberger
guaranteed a certain amount of revenue to the Fund and received any revenue
earned in excess of the guaranteed amount as a lending agency fee. For the
year ended October 31, 2005, Neuberger did not receive any revenue under
this agreement.
On October 4, 2005, the Fund entered into new securities lending
arrangements using a third party, eSecLending, to secure bids. Pursuant to
such arrangements, eSecLending currently acts as agent for the Fund.
Under the Neuberger Agreement and the new securities lending arrangements,
the Fund receives cash collateral at the beginning of each transaction
equal to at least 102% of the prior day's market value of the loaned
securities (105% in the case of international securities). 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, an affiliate of Management, as
approved by the Board.
Income earned on the securities loaned, if any, is reflected in the
Statement of Operations under the caption "Income from securities
loaned-affiliated issuers."
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.
25
<Page>
13 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.
14 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.
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 year ended October 31, 2005, the Fund entered into financial
futures contracts. At October 31, 2005, the Fund did not have any open
positions in financial futures contracts.
15 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
26
<Page>
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 year
ended October 31, 2005, management fees waived under this Arrangement with
respect to the Cash Fund and Prime Money amounted to $34 and $226,
respectively, and is reflected in the Statement of Operations under the
caption "Investment management fee waived." For the year ended October 31,
2005, income earned under this Arrangement with respect to the Cash Fund
and Prime Money amounted to $583 and $7,468, respectively, and is reflected
in the Statement of Operations under the caption "Income from investments
in affiliated issuers."
16 INDEMNIFICATIONS: Like many other companies, the Trust's organizational
documents provide that its officers and trustees are indemnified against
certain liabilities arising out of the performance of their duties to the
Trust. In addition, both in some of its principal service contracts and in
the normal course of its business, the Trust enters into contracts that
provide indemnifications to other parties for certain types of losses or
liabilities. The Trust's maximum exposure under these arrangements is
unknown as this could involve future claims against the Trust.
NOTE B--MANAGEMENT FEES, ADMINISTRATION FEES, DISTRIBUTION ARRANGEMENTS,
AND OTHER TRANSACTIONS WITH AFFILIATES:
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:
<Table>
<Caption>
REIMBURSEMENT FROM
MANAGEMENT FOR THE
EXPENSE YEAR ENDED
CLASS LIMITATION(1) EXPIRATION OCTOBER 31, 2005
INSTITUTIONAL 0.85% 10/31/15 $ 297,154
</Table>
(1) Expense limitation per annum of the 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
27
<Page>
not exceed its expense limitation, and the repayments are made within three
years after the year in which Management issued the reimbursement.
During the year ended October 31, 2005, there was no reimbursement to
Management. At October 31, 2005, the Fund had a contingent liability to
Management under the agreement of $742,823 of which $204,845 expires in
2006, $240,824 expires in 2007, and $297,154 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 year ended October 31, 2005, the impact of this
arrangement was a reduction of expenses of $744.
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 year ended October 31, 2005, the
impact of this arrangement was a reduction of expenses of $2,588.
NOTE C--SECURITIES TRANSACTIONS:
Cost of purchases and proceeds of sales and maturities of long-term
securities (excluding short-term securities, financial futures contracts,
foreign currency contracts, and option contracts) for the year ended
October 31, 2005 were as follows:
<Table>
<Caption>
SALES AND
PURCHASES OF PURCHASES EXCLUDING SALES AND MATURITIES MATURITIES EXCLUDING
U.S. GOVERNMENT U.S. GOVERNMENT OF U.S. GOVERNMENT U.S. GOVERNMENT
AND AGENCY OBLIGATIONS AND AGENCY OBLIGATIONS AND AGENCY OBLIGATIONS AND AGENCY OBLIGATIONS
$ 9,560,095 $ 16,474,973 $ 10,288,589 $ 21,689,377
</Table>
During the year ended October 31, 2005, the Fund had entered into various
contracts to deliver currencies at specified future dates. At October 31,
2005, open contracts were as follows:
<Table>
<Caption>
NET UNREALIZED
IN EXCHANGE SETTLEMENT APPRECIATION
BUY CONTRACTS FOR DATE VALUE (DEPRECIATION)
AUSTRALIAN DOLLAR 76,000 AUD $ 56,498 1/19/06 $ 56,677 $ 179
</Table>
28
<Page>
<Table>
<Caption>
NET UNREALIZED
IN EXCHANGE SETTLEMENT APPRECIATION
SELL CONTRACTS FOR DATE VALUE (DEPRECIATION)
CANADIAN DOLLAR 170,000 CAD $ 144,558 1/19/06 $ 144,427 $ 131
EURO DOLLAR 1,767,000 EUR 2,136,115 1/19/06 2,128,835 7,280
JAPANESE YEN 160,716,000 JPY 1,414,754 1/19/06 1,394,046 20,708
POUND STERLING 167,000 GBP 292,885 1/19/06 295,248 (2,363)
</Table>
During the year ended October 31, 2005, brokerage commissions on securities
transactions amounted to $28,834, of which Neuberger received $1,287,
Lehman received $6,381, and other brokers received $21,166.
NOTE D--FUND SHARE TRANSACTIONS:
Share activity for the years ended October 31, 2005 and October 31, 2004
was as follows:
<Table>
<Caption>
FOR THE YEAR ENDED OCTOBER 31, 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 852 93 (1,282) (337) 455 79 (130) 404
</Table>
NOTE E--LINE OF CREDIT:
At October 31, 2005, the Fund was a participant in a single committed,
unsecured $150,000,000 line of credit with a consortium of banks organized
by State Street, to be used only for temporary or emergency purposes.
Interest is charged on borrowings under this agreement at the overnight
Federal Funds Rate plus 0.50% per annum. A facility fee of 0.09% 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.
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. There were
no loans outstanding pursuant to this line of credit at October 31, 2005.
During the year ended October 31, 2005, the Fund did not utilize this line
of credit.
29
<Page>
NOTE F--INVESTMENTS IN AFFILIATES*:
<Table>
<Caption>
INCOME FROM
BALANCE OF BALANCE OF INVESTMENTS IN
SHARES GROSS GROSS SHARES AFFILIATED
HELD PURCHASES SALES HELD VALUE ISSUERS
OCTOBER 31, AND AND OCTOBER 31, OCTOBER 31, INCLUDED IN TOTAL
NAME OF ISSUER 2004 ADDITIONS REDUCTIONS 2005 2005 INCOME
Neuberger Berman Securities
Lending Quality Fund, LLC** 160,000 7,584,412 7,744,412 0 $ 0 $ 4,408
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 6,492,244 6,120,816 371,428 371,428 7,468
----------- ------------
TOTAL $ 371,428 $ 12,459
----------- ------------
</Table>
* Affiliated issuers, as defined in the 1940 Act.
** 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 (formerly Lincoln Capital Fixed Income Management
Company, 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.
30
<Page>
FINANCIAL HIGHLIGHTS Strategic Income Fund
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the Financial
Statements.
INSTITUTIONAL CLASS
<Table>
<Caption>
PERIOD FROM
JULY 11, 2003^
YEAR ENDED OCTOBER 31, TO OCTOBER 31,
------------------------- --------------
2005 2004 2003
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.72 $ 10.11 $ 10.00
---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME (LOSS)@ .37 .36 .10
NET GAINS OR LOSSES ON SECURITIES
(BOTH REALIZED AND UNREALIZED) .34 .69 .09
---------- ---------- ----------
TOTAL FROM INVESTMENT OPERATIONS .71 1.05 .19
---------- ---------- ----------
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (.45) (.44) (.08)
NET CAPITAL GAINS (.08) -- --
---------- ---------- ----------
TOTAL DISTRIBUTIONS (.53) (.44) (.08)
---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 10.90 $ 10.72 $ 10.11
---------- ---------- ----------
TOTAL RETURN~~ +6.68% +10.65% +1.95%**
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 26.2 $ 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 3.43% 3.44% 3.51%*
PORTFOLIO TURNOVER RATE 89% 85% 34%**
</Table>
See Notes to Financial Highlights
31
<Page>
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:
<Table>
<Caption>
PERIOD FROM
JULY 11, 2003
YEAR ENDED OCTOBER 31, TO OCTOBER 31,
2005 2004 2003
1.82% 1.72% 3.77%
</Table>
^ The date investment operations commenced.
* Annualized.
** Not annualized.
@ Calculated based on the average number of shares outstanding during the
fiscal period.
32
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees
of Neuberger Berman Income Funds and
Shareholders of Neuberger Berman Strategic Income Fund
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments of Neuberger Berman Strategic Income Fund (the
"Fund"), one of the series constituting Neuberger Berman Income Funds, as of
October 31, 2005, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of October 31, 2005, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Neuberger Berman Strategic Income Fund at October 31, 2005, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and its financial highlights for each of
the periods indicated therein, in conformity with U.S. generally accepted
accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
December 9, 2005
33
<Page>
DIRECTORY
INVESTMENT MANAGER, ADMINISTRATOR AND DISTRIBUTOR
Neuberger Berman Management Inc.
605 Third Avenue, 2nd Floor
New York, NY 10158-0180
800.877.9700 or 212.476.8800
Institutional Services 800.366.6264
SUB-ADVISER
Neuberger Berman, LLC
605 Third Avenue
New York, NY 10158-3698
CUSTODIAN AND SHAREHOLDER SERVICING AGENT
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
ADDRESS CORRESPONDENCE TO:
Neuberger Berman Funds
Institutional Services
605 Third Avenue 2nd Floor
New York, NY 10158-0180
LEGAL COUNSEL
Kirkpatrick & Lockhart Nicholson Graham LLP
1800 Massachusetts Avenue, NW
2nd Floor
Washington, DC 20036
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
34
<Page>
TRUSTEE AND OFFICER INFORMATION (Unaudited)
The following tables set forth information concerning the trustees and officers
of the Trust. All persons named as trustees and officers also serve in similar
capacities for other funds administered or managed by NB Management and
Neuberger Berman. The Statement of Additional Information includes additional
information about fund trustees and is available upon request, without charge,
by calling (800) 877-9700.
INFORMATION ABOUT THE BOARD OF TRUSTEES
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITION AND FUND COMPLEX
LENGTH OF TIME OVERSEEN BY OTHER DIRECTORSHIPS HELD OUTSIDE
NAME, AGE, AND ADDRESS (1) SERVED (2) PRINCIPAL OCCUPATION(S) (3) TRUSTEE (4) FUND COMPLEX BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
John Cannon (75) Trustee since Consultant. Formerly, 45 Independent Trustee or Director of
1994 Chairman, CDC Investment three series of Oppenheimer Funds:
Advisers (registered Limited Term New York Municipal
investment adviser), 1993 Fund, Rochester Fund Municipals, and
to January 1999; formerly, Oppenheimer Convertible Securities
President and Chief Fund, since 1992.
Executive Officer, AMA
Investment Advisors, an
affiliate of the American
Medical Association.
Faith Colish (70) Trustee since Counsel, Carter Ledyard & 45 Director, American Bar Retirement
2000 Milburn LLP (law firm) Association (ABRA) since 1997
since October 2002; (not-for-profit membership
formerly, Attorney-at-Law association).
and President, Faith
Colish, A Professional
Corporation, 1980 to 2002.
C. Anne Harvey (68) Trustee since Consultant, C.A. Harvey 45 President, Board of Associates to
2000 Associates since June 2001; The National Rehabilitation
formerly, Director, AARP, Hospital's Board of Directors since
1978 to December 2001. 2002; formerly, Member, Individual
Investors Advisory Committee to the
New York Stock Exchange Board of
Directors, 1998 to June 2002;
formerly, Member, American Savings
Education Council's Policy Board
(ASEC), 1998 to 2000; formerly,
Member, Executive Committee, Crime
Prevention Coalition of America,
1997 to 2000.
</Table>
35
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITION AND FUND COMPLEX
LENGTH OF TIME OVERSEEN BY OTHER DIRECTORSHIPS HELD OUTSIDE
NAME, AGE, AND ADDRESS (1) SERVED (2) PRINCIPAL OCCUPATION(S) (3) TRUSTEE (4) FUND COMPLEX BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------
Barry Hirsch (72) Trustee since Attorney-at-Law. Formerly, 45 None.
1993 Senior Counsel, Loews
Corporation (diversified
financial corporation) May
2002 to April 2003;
formerly, Senior Vice
President, Secretary and
General Counsel, Loews
Corporation.
Robert A. Kavesh (78) Trustee since Marcus Nadler Professor 45 Director, The Caring Community
1993 Emeritus of Finance and (not-for-profit); formerly,
Economics, New York Director, DEL Laboratories, Inc.
University Stern School of (cosmetics and pharmaceuticals),
Business; formerly, 1978 to 2004; formerly, Director,
Executive Secretary- Apple Bank for Savings, 1979 to
Treasurer, American Finance 1990; formerly, Director, Western
Association, 1961 to 1979. Pacific Industries, Inc., 1972 to
1986 (public company).
Howard A. Mileaf (68) Trustee since Retired. Formerly, Vice 45 Director, WHX Corporation (holding
2000 President and Special company) since August 2002;
Counsel, WHX Corporation Director, Webfinancial Corporation
(holding company) 1993 to (holding company) since December
2001. 2002; Director, State Theatre of New
Jersey (not-for-profit theater)
since 2000; formerly, Director,
Kevlin Corporation (manufacturer of
microwave and other products).
Edward I. O'Brien (77) Trustee since Formerly, Member, 45 Director, Legg Mason, Inc.
2000 Investment Policy (financial services holding company)
Committee, Edward Jones, since 1993; formerly, Director,
1993 to 2001; President, Boston Financial Group (real estate
Securities Industry and tax shelters) 1993 to 1999.
Association ("SIA")
(securities industry's
representative in
government relations and
regulatory matters at the
federal and state levels)
1974 to 1992; Adviser to
SIA, November 1992 to
November 1993.
</Table>
36
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITION AND FUND COMPLEX
LENGTH OF TIME OVERSEEN BY OTHER DIRECTORSHIPS HELD OUTSIDE
NAME, AGE, AND ADDRESS (1) SERVED (2) PRINCIPAL OCCUPATION(S) (3) TRUSTEE (4) FUND COMPLEX BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------
William E. Rulon (73) Trustee since Retired. Formerly, Senior 45 Director, Pro-Kids Golf and Learning
1993 Vice President, Foodmaker, Academy (teach golf and computer
Inc. (operator and usage to "at risk" children) since
franchiser of restaurants) 1998; formerly, Director, Prandium,
until January 1997. Inc. (restaurants) from March 2001
to July 2002.
Cornelius T. Ryan (74) Trustee since Founding General Partner, 45 Director, Capital Cash Management
2000 Oxford Partners and Oxford Trust (money market fund),
Bioscience Partners Naragansett Insured Tax-Free Income
(venture capital Fund, Rocky Mountain Equity Fund,
partnerships) and Prime Cash Fund, several private
President, Oxford Venture companies and QuadraMed Corporation
Corporation. (NASDAQ).
Tom D. Seip (55) Trustee since General Partner, Seip 45 Director, H&R Block, Inc. (financial
2000 Investments LP (a private services company) since May 2001;
investment partnership); Director, Forward Management, Inc.
formerly, President and (asset management) since 2001;
CEO, Westaff, Inc. formerly, Director, General Magic
(temporary staffing), May (voice recognition software) 2001 to
2001 to January 2002; 2002; formerly, Director, E-Finance
Senior Executive at the Corporation (credit decisioning
Charles Schwab Corporation services) 1999 to 2003; formerly,
from 1983 to 1999, Director, Save-Daily.com (micro
including Chief Executive investing services) 1999 to 2003;
Officer, Charles Schwab Director, Offroad Capital Inc.
Investment Management, Inc. (pre-public internet commerce
and Trustee, Schwab Family company).
of Funds and Schwab
Investments from 1997 to
1998; and Executive Vice
President-Retail Brokerage,
Charles Schwab Investment
Management from 1994 to
1997.
</Table>
37
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITION AND FUND COMPLEX
LENGTH OF TIME OVERSEEN BY OTHER DIRECTORSHIPS HELD OUTSIDE
NAME, AGE, AND ADDRESS (1) SERVED (2) PRINCIPAL OCCUPATION(S) (3) TRUSTEE (4) FUND COMPLEX BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------
Candace L. Straight (58) Trustee since Private investor and 45 Director, The Proformance Insurance
1993 consultant specializing in Company (personal lines property and
the insurance industry; casualty insurance company) since
formerly, Advisory March 2004; Director, Providence
Director, Securitas Capital Washington (property and casualty
LLC (a global private insurance company) since December
equity investment firm 1998; Director, Summit Global
dedicated to making Partners (insurance brokerage firm)
investments in the since October 2000.
insurance sector) 1998 to
December 2002.
Peter P. Trapp (61) Trustee since Regional Manager for 45 None.
2000 Atlanta Region, Ford Motor
Credit Company since August
1997; formerly, President,
Ford Life Insurance
Company, April 1995 to
August 1997.
TRUSTEES WHO ARE "INTERESTED PERSONS"
Jack L. Rivkin* (65) President and Executive Vice President 45 Director, Dale Carnegie and
Trustee since and Chief Investment Associates, Inc. (private company)
2002 Officer, Neuberger Berman since 1998; Director, Emagin Corp.
Inc. (holding company) (public company) since 1997;
since 2002 and 2003, Director, Solbright, Inc. (private
respectively; Executive company) since 1998; Director,
Vice President and Chief Infogate, Inc. (private company)
Investment Officer, since 1997; Director, Broadway
Neuberger Berman since Television Network (private company)
December 2002 and 2003, since 2000.
respectively; Director and
Chairman, Management since
December 2002; formerly,
Executive Vice President,
Citigroup Investments, Inc.
from September 1995 to
February 2002; formerly,
Executive Vice President,
Citigroup Inc. from
September 1995 to February
2002.
</Table>
38
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITION AND FUND COMPLEX
LENGTH OF TIME OVERSEEN BY OTHER DIRECTORSHIPS HELD OUTSIDE
NAME, AGE, AND ADDRESS (1) SERVED (2) PRINCIPAL OCCUPATION(S) (3) TRUSTEE (4) FUND COMPLEX BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------
Peter E. Sundman* (46) Chairman of Executive Vice President, 45 Director and Vice President,
the Board Neuberger Berman Inc. Neuberger & Berman Agency, Inc.
and Trustee (holding company) since since 2000; formerly, Director,
since 2000; 1999; Head of Neuberger Neuberger Berman Inc. (holding
Chief Berman Inc.'s Mutual Funds company) from October 1999 to March
Executive Business (since 1999) and 2003; Trustee, Frost Valley YMCA.
Officer Institutional Business
since 1999; (from 1999 to October
President 2005); responsible for
from 1999 to Managed Accounts Business
2000. and intermediary
distribution since October
2005; President and
Director, Management since
1999; Executive Vice
President, Neuberger Berman
since 1999; formerly,
Principal, Neuberger Berman
from 1997 to 1999;
formerly, Senior Vice
President, Management from
1996 to 1999.
</Table>
(1) The business address of each listed person is 605 Third Avenue, New York,
New York 10158.
(2) Pursuant to the Trust's Trust Instrument, each Trustee shall hold office
for life or until his or her successor is elected or the Trust terminates;
except that (a) any Trustee may resign by delivering a written resignation;
(b) any Trustee may be removed with or without cause at any time by a
written instrument signed by at least two-thirds of the other Trustees; (c)
any Trustee who requests to be retired, or who has become unable to serve,
may be retired by a written instrument signed by a majority of the other
Trustees; and (d) any Trustee may be removed at any shareholder meeting by
a vote of at least two-thirds of the outstanding shares.
(3) Except as otherwise indicated, each individual has held the positions shown
for at least the last five years.
(4) For funds organized in a master-feeder structure, we count the master fund
and its associated feeder funds as a single portfolio.
* Indicates a Trustee who is an "interested person" within the meaning of the
1940 Act. Mr. Sundman and Mr. Rivkin are interested persons of the Trust by
virtue of the fact that they are officers and/or directors of Management
and Executive Vice Presidents of Neuberger Berman.
39
<Page>
INFORMATION ABOUT THE OFFICERS OF THE TRUST/FUND
<Table>
<Caption>
POSITION AND
NAME, AGE, AND ADDRESS (1) LENGTH OF TIME SERVED (2) PRINCIPAL OCCUPATION(S) (3)
- ------------------------------------------------------------------------------------------------------------
Michael J. Bradler (35) Assistant Treasurer since Employee, Management since 1997; Assistant
2005 Treasurer, fifteen registered investment
companies for which Management acts as investment
manager and administrator since 2005.
Claudia A. Brandon (49) Secretary since 1985 Vice President-Mutual Fund Board Relations,
Management since 2000 and Assistant Secretary
since 2004; Vice President, Neuberger Berman
since 2002 and employee since 1999; Assistant
Secretary, Management since 2004; formerly, Vice
President, Management from 1986 to 1999;
Secretary, fifteen registered investment
companies for which Management acts as investment
manager and administrator (three since 2000, four
since 2002, three since 2003, four since 2004 and
one since 2005).
Robert Conti (49) Vice President since 2000 Senior Vice President, Neuberger Berman since
2003; formerly, Vice President, Neuberger Berman
from 1999 to 2003; Senior Vice President,
Management since 2000; formerly, Controller,
Management until 1996; formerly, Treasurer,
Management from 1996 to 1999; Vice President,
fifteen registered investment companies for which
Management acts as investment manager and
administrator (three since 2000, four since 2002,
three since 2003, four since 2004 and one since
2005).
Brian J. Gaffney (52) Vice President since 2000 Managing Director, Neuberger Berman since 1999;
Senior Vice President, Management since 2000;
formerly, Vice President, Management from 1997 to
1999; Vice President, fifteen registered
investment companies for which Management acts as
investment manager and administrator (three since
2000, four since 2002, three since 2003, four
since 2004 and one since 2005).
Sheila R. James (40) Assistant Secretary since Employee, Neuberger Berman since 1999; formerly,
2002 Employee, Management from 1991 to 1999; Assistant
Secretary, fifteen registered investment
companies for which Management acts as investment
manager and administrator (seven since 2002,
three since 2003, four since 2004 and one since
2005).
</Table>
40
<Page>
<Table>
<Caption>
POSITION AND
NAME, AGE, AND ADDRESS (1) LENGTH OF TIME SERVED (2) PRINCIPAL OCCUPATION(S) (3)
- ------------------------------------------------------------------------------------------------------------
Kevin Lyons (50) Assistant Secretary since Employee, Neuberger Berman since 1999; formerly,
2003 Employee, Management from 1993 to 1999; Assistant
Secretary, fifteen registered investment
companies for which Management acts as investment
manager and administrator (ten since 2003, four
since 2004 and one since 2005).
John M. McGovern (35) Treasurer and Principal Vice President, Neuberger Berman since January
Financial and Accounting 2004; Employee, Management since 1993; Treasurer
Officer since 2005; prior and Principal Financial and Accounting Officer,
thereto, Assistant fifteen registered investment companies for which
Treasurer since 2002 Management acts as investment manager and
administrator (fifteen since 2005); formerly,
Assistant Treasurer, fifteen registered
investment companies for which Management acts as
investment manager and administrator from 2002 to
2005.
Frank Rosato (34) Assistant Treasurer since Employee, Management since 1995; Assistant
2005 Treasurer, fifteen registered investment
companies for which Management acts as investment
manager and administrator since 2005.
Frederic B. Soule (59) Vice President since 2000 Senior Vice President, Neuberger Berman since
2003; formerly, Vice President, Neuberger Berman
from 1999 to 2003; formerly, Vice President,
Management from 1995 to 1999; Vice President,
fifteen registered investment companies for which
Management acts as investment manager and
administrator (three since 2000, four since 2002,
three since 2003, four since 2004 and one since
2005).
Chamaine Williams (34) Chief Compliance Officer Vice President, Lehman Brothers Inc. since 2003;
since 2005 Chief Compliance Officer, fifteen registered
investment companies for which Management acts as
investment manager and administrator (fifteen
since 2005); Chief Compliance Officer, Lehman
Brothers Asset Management Inc. since 2003; Chief
Compliance Officer, Lehman Brothers Alternative
Investment Management LLC since 2003; formerly,
Vice President, UBS Global Asset Management (US)
Inc. (formerly, Mitchell Hutchins Asset
Management, a wholly-owned subsidiary of
PaineWebber Inc.) from 1997-2003.
</Table>
41
<Page>
- ----------
(1) The business address of each listed person is 605 Third Avenue, New York,
New York 10158.
(2) Pursuant to the By-Laws of the Trust, each officer elected by the Trustees
shall hold office until his or her successor shall have been elected and
qualified or until his or her earlier death, inability to serve, or
resignation. Officers serve at the pleasure of the Trustees and may be
removed at any time with or without cause.
(3) Except as otherwise indicated, each individual has held the positions shown
for at least the last five years.
42
<Page>
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies relating to portfolio securities is available, without
charge, by calling 1-800-877-9700 (toll-free) and on the website of the
Securities and Exchange Commission at www.sec.gov. Information regarding how the
Trust voted proxies relating to portfolio securities during the most recent
12-month period ended June 30 is also available without charge, by calling
1-800-877-9700 (toll-free), on the website of the Securities and Exchange
Commission at www.sec.gov and on 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).
43
<Page>
NOTICE TO SHAREHOLDERS (UNAUDITED)
For Neuberger Berman Strategic Income Fund 2.2% of the dividends distributed
during the fiscal year ended October 31, 2005 qualifes for the dividends
received deduction for corporate shareholders.
Under most state tax laws, mutual fund dividends which are derived from direct
investments in U.S. Government obligations are not taxable, as long as a Fund
meets certain requirements. Some states require that a Fund must provide
shareholders with a written notice, within 60 days of the close of a Fund's
taxable year, designating the portion of the dividends which represents interest
which those states consider to have been earned on U.S. Government obligations.
The chart below shows the percentage of income derived from such investments for
the twelve months ended October 31, 2005. This information should not be used to
complete your tax returns.
<Table>
<Caption>
OTHER DIRECT OTHER INDIRECT
U.S TREASURY U.S. GOVERNMENT U.S. GOVERNMENT REPURCHASE
OBLIGATIONS OBLIGATIONS OBLIGATIONS AGREEMENTS
3.6% 0.0% 10.7% 2.1%
</Table>
For the fiscal year ended October 31, 2005, Neuberger Berman Strategic Income
Fund designates $63,205, or up to the maximum amount of such dividends allowable
pursuant to the Internal Revenue Code, as qualified dividend income eligible for
reduced tax rates. These lower rates range from 5% to 15% depending upon an
individual's tax bracket. Complete information regarding the Fund's
distributions during the calendar year 2005 will be reported in conjunction with
Form 1099-DIV.
You will receive information to be used in filing your 2005 tax returns, which
will include a notice of the exact tax status of all dividends paid to you by
each Fund during calendar year 2005. Please consult your own tax advisor for
details as to how this information should be reflected on your tax
returns.
44
<Page>
BOARD CONSIDERATION OF THE MANAGEMENT AND SUB-ADVISORY AGREEMENTS
At a meeting held on September 21, 2005, the Board of Trustees ("Board") of
Neuberger Berman Income Funds, including the Trustees who are not "interested
persons" of the Trust ("Independent Fund Trustees"), approved continuance of the
Management and Sub-Advisory Agreements ("Agreements") for Neuberger Berman
Strategic Income Fund ("Fund").
In evaluating the Agreements, the Board, including the Independent Fund
Trustees, reviewed materials furnished by Management and Neuberger Berman, LLC
("Neuberger") in response to questions submitted by counsel to the Independent
Fund Trustees, and met with senior representatives of Management and Neuberger
regarding their personnel and operations. The Independent Fund Trustees were
advised by counsel that is experienced in Investment Company Act of 1940 matters
and that is independent of Management and Neuberger. The Independent Fund
Trustees received a memorandum from independent counsel discussing the legal
standards for their consideration of the proposed continuance of the Agreements.
They met with such counsel separately from representatives of Management to
discuss the annual contract review. The annual contract review extends over two
regular meetings of the Board to ensure that Management and Neuberger have time
to respond to any questions the Independent Fund Trustees may have on their
initial review of the report and that the Independent Fund Trustees have time to
consider those responses. In addition, during this process, the Board held a
separate meeting devoted to reviewing and discussing Fund performance.
The Board considered the following factors, among others, in connection with its
approval of the continuance of the Agreements: (1) the nature, extent, and
quality of the services to be provided by Management and Neuberger; (2) the
performance of the Fund compared to relevant market indices and a peer group of
investment companies; (3) the costs of the services to be provided and profits
historically realized by Management and its affiliates from the relationship
with the Fund; (4) the extent to which economies of scale might be realized as
the Fund grows; and (5) whether fee levels reflect those potential economies of
scale for the benefit of investors in the Fund. In their deliberations, the
Board members did not identify any particular information that was all-important
or controlling, and each Trustee may have attributed different weights to the
various factors.
The Board evaluated the terms of the Agreements and whether the Agreements were
in the best interests of the Fund and its shareholders. The Board considered,
with respect to the Fund, the nature, extent and quality of the services
provided under the Agreements and the overall fairness of the Agreements to the
Fund. The Board requested and evaluated a report from Management and Neuberger
that addressed specific factors designed to inform the Board's consideration of
these and other issues. The Board also retained an independent consultant to
provide additional data.
With respect to the nature, extent and quality of the services provided, the
Board considered the performance of the Fund and the degree of risk undertaken
by the portfolio managers. The Board considered the experience and staffing of
portfolio management and the investment research personnel of Management and
Neuberger dedicated to performing services for the Fund. The Board noted that
Management also provides certain administrative services, including fund
accounting and compliance oversight. The Board also considered Management's and
Neuberger's policies and practices regarding brokerage and allocation of
portfolio transactions for the Fund. The Board considered the quality of
brokerage execution provided by Management and its affiliates. The Board's
Portfolio Transactions and Pricing Committee from time to time reviews the
quality of the brokerage services that Neuberger and Lehman provide, and has
reviewed studies by independent firms engaged to review and evaluate the quality
of brokerage execution received by the Fund. In addition, the Board noted the
positive compliance history of Management and Neuberger, as each firm has been
free of significant compliance problems.
With respect to the performance of the Fund, the Board considered the
performance of the Fund relative to its benchmark and a peer group of investment
companies pursuing broadly similar strategies. The Board also considered the
performance in relation to the degree of risk undertaken by the portfolio
managers.
With respect to the overall fairness of the Agreements, the Board considered the
fee structure of the Agreements as compared to a peer group of comparable funds
and any fall-out benefits likely to accrue to Management or Neuberger or their
affiliates. The Board also considered the profitability of Management and its
affiliates from their association with the Fund.
45
<Page>
The Board received a detailed report from an independent consultant that
compares the Fund's management fee and overall expense ratio to a peer group of
comparable funds. The Board considered the range and average of the management
fees and expense ratios of the peer group. The Board noted that the Fund's
actual management fee was higher than the peer group median. The Board
considered whether specific portfolio management or administration needs
contributed to the higher fee. With regard to the sub-advisory fee paid to
Neuberger, the Board noted that this fee is reflective of an "at cost" basis and
there is no profit to Neuberger with regard to these fees.
The Board considered the Fund's overall expenses in relation to the overall
expenses of the peer group median. In addition, the Board considered the
contractual limits on Fund expenses undertaken by Management. The Board noted
that Management incurred a loss on the Fund on an after-tax basis.
The Board considered whether there were other funds that were sub-advised by
Management or its affiliates or separate accounts managed by Management with
similar investment objectives, policies and strategies as the Fund. The Board
noted that there were no comparable sub-advised funds or separate accounts.
The Board also evaluated any actual or anticipated economies of scale in
relation to the services Management provides to the Fund. The Board considered
whether the Fund's fee structure should provide for a reduction of payments
resulting from the use of breakpoints.
In concluding that the benefits accruing to Management and its affiliates by
virtue of their relationship to the Fund were reasonable in comparison with the
costs of providing the investment advisory services and the benefits accruing to
the Fund, the Board reviewed specific data as to Management's profit or loss on
the Fund for a recent period and the trend in profit or loss since the Fund's
inception. The Board also carefully examined Management's cost allocation
methodology and had an independent expert review the methodology. It also
reviewed an analysis from an independent data service on investment management
profitability margins. The Board also reviewed whether Management and Neuberger
used brokers to execute Fund transactions that provide research and other
services to Management and Neuberger, and the types of benefits potentially
derived by the Fund and by other clients of Management and Neuberger from such
services. The Board recognized that Management should be entitled to earn a
reasonable level of profits for services it provides to the Fund and, based on
its review, concluded it was satisfied that Management's level of profitability
from its relationship with the Fund was not excessive.
CONCLUSIONS
In approving the Agreements, the Board concluded that the terms of each
Agreement are fair and reasonable and that approval of the Agreements is in the
best interest of the Fund and its shareholders. In reaching this determination,
the Board considered that Management and Neuberger could be expected to provide
a high level of service to the Fund; the performance of the Fund was
satisfactory; that the Fund's fee structure appeared to the Board to be
reasonable given the quality of services expected to be provided; and that the
benefits accruing to Management and its affiliates by virtue of their
relationship to the Fund were reasonable in comparison with the costs of
providing the investment advisory services and the benefits accruing to the
Fund.
46
<Page>
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<Page>
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<Page>
[NEUBERGER BERMAN LOGO]
A LEHMAN BROTHERS COMPANY
NEUBERGER BERMAN MANAGEMENT INC.
605 Third Avenue, 2nd Floor
New York, NY 10158-0180
SHAREHOLDER SERVICES
800.877.9700
INSTITUTIONAL SUPPORT SERVICES
800.366.6264
www.nb.com
STATISTICS AND PROJECTIONS IN THIS REPORT ARE DERIVED FROM SOURCES DEEMED TO BE
RELIABLE BUT CANNOT BE REGARDED AS A REPRESENTATION OF FUTURE RESULTS OF THE
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.
[RECYCLED SYMBOL] BO909 12/05
[NEUBERGER BERMAN LOGO]
A LEHMAN BROTHERS COMPANY
ANNUAL REPORT
OCTOBER 31, 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
<Page>
CONTENTS
<Table>
THE FUNDS
CHAIRMAN'S LETTER 2
PORTFOLIO COMMENTARY
Cash Reserves 4
Government Money Fund 5
High Income Bond Fund 6
Limited Maturity Bond Fund 8
Municipal Money Fund 10
Municipal Securities Trust 11
Fund Expense Information 15
SCHEDULE OF INVESTMENTS
Cash Reserves 17
Government Money Fund 19
High Income Bond Fund 20
Limited Maturity Bond Fund 25
Municipal Money Fund 28
Municipal Securities Trust 35
FINANCIAL STATEMENTS 40
FINANCIAL HIGHLIGHTS (ALL CLASSES)
PER SHARE DATA
Cash Reserves 55
Government Money Fund 56
High Income Bond Fund 57
Limited Maturity Bond Fund 58
Municipal Money Fund 59
Municipal Securities Trust 60
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 63
DIRECTORY 64
TRUSTEES AND OFFICERS 65
PROXY VOTING POLICIES AND PROCEDURES 73
QUARTERLY PORTFOLIO SCHEDULE 73
NOTICE TO SHAREHOLDERS 74
BOARD CONSIDERATION OF THE MANAGEMENT
AND SUB-ADVISORY AGREEMENTS 75
</Table>
"Neuberger Berman" and the Neuberger Berman logo are service marks of Neuberger
Berman, LLC. "Neuberger Berman Management Inc." and the individual fund names in
this shareholder report are either service marks or registered service marks of
Neuberger Berman Management Inc.(C)2005 Neuberger Berman Management Inc. All
rights reserved.
1
<Page>
CHAIRMAN'S LETTER
[PHOTO OF PETER SUNDMAN]
Dear Fellow Shareholder,
At times, the bond market can look like some kind of funhouse mirror --
good economic news appears bad and bad economic news appears good. The
reason for this seeming illogic is actually quite simple. Historically,
when the economy has grown too fast for too long, inflation accelerates,
eroding the "real" rate of return for bonds and forcing the Federal Reserve
to dampen economic growth by raising the cost of capital through higher
interest rates.
Recently, investors have been scrutinizing the economic tea leaves, trying
to discern how the interplay of growth, inflation and the Fed will play out
in the markets. This latest round of Fed-watching has its roots back in the
spring of 2004, when after some strong economic reports, investors began
anticipating that the Fed would begin raising short-term rates to quell
inflationary pressures. Since then, even minor economic releases have
seemed cause for rejoicing or despondency, depending on your perspective.
Yet even as the Fed began a series of rate increases that continues to this
day, long-term interest rates have hardly budged.
Early this year, the yields on long term rates appeared so stubbornly
steadfast that Fed Chairman Alan Greenspan called the phenomenon a
"conundrum" -- and helped trigger a two-month swoon in the bond market, as
investors feared more dramatic action from the Fed. Bonds bounced back
again in April and generally held steady through September, as the Fed
continued its campaign of "measured" increases. However, when the Fed hiked
rates following Hurricanes Katrina and Rita, and opined that the risk of
inflation was still greater than the risk of economic decline, bonds sold
off again -- as investors appeared to grasp the seriousness of the Fed's
intentions.
Despite all this drama, the fiscal year proved relatively positive for the
bond market. I am especially happy to note that all but one of our fixed
income funds are in the black for the 12-month period.
Still, one question that many investors are asking is why the bond market
has held up so well despite the Fed's best efforts to tighten monetary
conditions. The most commonly accepted theory is that deflationary forces
such as cheaper goods from
2
<Page>
NEUBERGER BERMAN OCTOBER 31, 2005
overseas have offset pressures from the price increases of oil and other
commodities, making bond investors relatively sanguine about prospects for
inflation. Indeed, price hikes at the wholesale level have yet to translate
into increases on the consumer side, as measured by the "core" Consumer
Price Index (the CPI excluding the volatile prices of food and energy).
Such a contagion is exactly what the Fed is worried about, should the
economy fail to slow down a bit. However, there are some signs of cooling.
As of this writing, oil prices have fallen to below $60 per barrel, and
there are indications that the red-hot housing market may be cooling.
Unfortunately, heating costs will probably be high this winter, straining
the pocketbooks of many homeowners. In the sometimes upside-down logic of
investing, a slowing economy could improve the outlook for the fixed income
markets.
The ongoing saga of the Fed, inflation and interest rates will undoubtedly
continue in the coming year. As of this writing, we have a new wrinkle in
the story as Ben S. Bernanke has been nominated to replace Alan Greenspan
as Fed chairman. The bond market has reacted favorably to his nomination,
but is already debating his potential impact on the Fed and the markets.
Of course, Neuberger Berman's portfolio managers do not risk shareholders'
money based on their opinions of the Fed's next move. The managers' job,
which we believe they do quite well, is to run portfolios based on
prevailing economic trends and market dynamics while standing ready to
respond quickly to any changes dictating a shift in investment tactics. Our
adherence to this "safety first" investment philosophy may keep our fixed
income funds from finishing at the very top of their peer groups during any
given quarter or year. However, we are confident that, over the long term,
making capital preservation a top priority will work in our shareholders'
best interests.
Sincerely,
/s/ Peter Sundman
PETER SUNDMAN
CHAIRMAN OF THE BOARD
NEUBERGER BERMAN INCOME FUNDS
3
<Page>
CASH RESERVES PORTFOLIO COMMENTARY
For the fiscal year ending October 31, 2005, Neuberger Berman Cash Reserves
posted a 2.42% return, versus a 2.10% advance by the Fund's benchmark, the
iMoneyNet Money Fund Report Taxable First Tier Retail Average. The Fund
closed fiscal 2005 with a 3.44% 7-day current yield and a 3.50% 7-day
effective yield.*
In fiscal 2005, the Federal Reserve's Open Market Committee (FOMC) raised
the Federal Funds Rate eight times in 25 basis point increments, with a
ninth 25 basis point move coming on November 1, 2005, the day after the
close of our fiscal year. In statements following each of its meetings, the
FOMC signaled that it would continue to raise rates at a "measured pace."
Since the beginning of the tightening cycle in June 2004, the Federal Funds
Rate has increased 300 basis points, and many observers expect more rate
hikes to follow.
During Fed tightening cycles, we typically reduce the portfolio's weighted
average maturity. This strategy enables the Fund to quickly capture higher
market interest rates. At the start of fiscal 2005, the Fund's weighted
average maturity was 44.9 days. By the close of fiscal 2005, its weighted
average maturity was 37.4 days.
Over the course of the fiscal year, we significantly altered the Fund's
sector allocation. A widening in the yield spread between U.S. government
securities (Treasuries and agencies) and corporate commercial paper
motivated us to eliminate Treasuries and agencies and increase the Fund's
allocation to higher yielding corporate commercial paper. We also added to
our holdings of floating rate debt (corporate floating rate notes and bank
notes). Floating rate debt is advantageous during tightening cycles,
because the securities adjust rapidly to higher market rates. We increased
the Fund's allocation to bank certificates of deposit, because of the
attractive yields on debt backed by the highest quality banking companies.
At the close of the fiscal year, the Fund had 57.9% of assets in corporate
commercial paper, 3.9% in corporate debt securities, 9.1% in bank CDs, 6.7%
in floating rate CDs, and 22.9% in corporate floating rate notes.
Going forward, we believe that the Fed will continue to raise the Federal
Funds Rate at a measured pace until economic data indicate that growth is
moderating, diminishing inflationary pressure. Consequently, we currently
plan to maintain our cautious duration stance and will strive to capitalize
on opportunities presented by pockets of market volatility typically
associated with a rising rate environment. We believe Fed policy will
remain consistent when newly nominated Fed Chairman Ben Bernanke takes over
for retiring Chairman Alan Greenspan.
Sincerely,
/s/ Ted Giuliano /s/ Cynthia Damian
/s/ John Dugenske /s/ Alyssa Juros
TED GIULIANO CYNTHIA DAMIAN
AND AND
JOHN DUGENSKE ALYSSA JUROS
PORTFOLIO PORTFOLIO
CO-MANAGERS ASSOCIATE MANAGERS
MATURITY DIVERSIFICATION
(% BY MATURITY)
<Table>
1 - 7 Days 15.2%
8 - 30 Days 48.8
31 - 90 Days 29.0
91 - 180 Days 3.4
181+ Days 3.6
</Table>
*Current yield more closely reflects current earnings than does total return.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the Fund.
The composition, industries and holdings of the Fund are subject to change.
Investment return will fluctuate. Past performance is no guarantee of future
results.
4
<Page>
GOVERNMENT MONEY FUND PORTFOLIO COMMENTARY
For the fiscal year ending October 31, 2005, the Neuberger Berman
Government Money Fund returned 2.33% compared to the iMoneyNet Money Fund
Report Government & Agencies Retail Average's 2.12% advance. The Fund
closed fiscal 2005 with a 3.39% 7-day current yield and a 3.45% 7-day
effective yield.*
The Federal Reserve's Open Market Committee (FOMC) steadily raised rates
throughout fiscal 2005, initiating eight 25 basis point Fed Funds Rate
hikes. A ninth 25 basis point hike came on November 1, a day after the end
of our fiscal year. In statements following each of its meetings, the FOMC
signaled that rates would continue to be increased at a "measured pace."
Since the Fed tightening cycle began in June 2004, the Federal Funds Rate
has increased by 300 basis points, and many observers expect that more rate
hikes will follow.
During Fed tightening cycles, we typically reduce the portfolio's weighted
average maturity. This strategy enables the Fund to quickly capture higher
market interest rates. At the start of fiscal 2005, the Fund's weighted
average maturity was 47.4 days. By the close of fiscal 2005, its weighted
average maturity was 38 days.
Over the course of the fiscal year, we significantly altered the Fund's
sector allocation, eliminating U.S. Treasury securities entirely and
positioning the portfolio exclusively in U.S. government agency securities,
which provided materially higher yields without materially increasing risk.
As of fiscal year end, 9% of our agency holdings were floating rate
securities, which tend to be advantageous during Fed tightening cycles
because they rapidly adjust to higher market interest rates.
Going forward, we believe that the Fed will continue to raise the Federal
Funds rate at a measured pace until economic data indicate that growth is
moderating, diminishing inflationary pressure. Consequently, we currently
plan to maintain the Fund's cautious duration stance while attempting to
capitalize on evolving opportunities in a rising interest rate environment.
We believe that Fed policy will remain consistent when newly nominated Fed
Chairman Ben Bernanke takes over for retiring Chairman Alan Greenspan.
Sincerely,
/s/ Ted Giuliano /s/ Cynthia Damian
/s/ John Dugenske /s/ Alyssa Juros
TED GIULIANO CYNTHIA DAMIAN
AND AND
JOHN DUGENSKE ALYSSA JUROS
PORTFOLIO PORTFOLIO
CO-MANAGERS ASSOCIATE MANAGERS
MATURITY DIVERSIFICATION
(% BY MATURITY)
<Table>
1 - 7 Days 20.9%
8 - 30 Days 38.2
31 - 90 Days 27.9
91 - 180 Days 9.4
181+ Days 3.6
</Table>
*Current yield more closely reflects current earnings than does total return.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the Fund.
The composition, industries and holdings of the Fund are subject to change.
Investment return will fluctuate. Past performance is no guarantee of future
results.
5
<Page>
HIGH INCOME BOND FUND PORTFOLIO COMMENTARY
For the fiscal year ending October 31, 2005, the Neuberger Berman High
Income Bond Fund posted a 1.17% return, versus a 3.03% advance by the
Fund's benchmark, the Lehman Brothers Intermediate Ba U.S. High Yield
Index.
The high yield market was volatile over the course of the fiscal year. High
yield bonds ended calendar 2004 on a reasonably strong note and held onto
that strength through February 2005. With fears of higher inflation, a
spike in Treasury rates, and Federal Reserve Chairman Greenspan's comments
about a bond market "conundrum," high yield bonds declined in March and
were down slightly in April. May and June, in contrast, were solid months,
but September and October saw the return of declines, in part due to rising
Treasury rates.
In addition to the economic drivers of high yield returns, there were other
notable developments affecting the market. In mid-March, General Motors
revised its expectations for corporate cash flow from positive $2 billion
to negative $2 billion. This announcement focused investors' attention on
credit risk and heightened 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.
Ultimately, GM was downgraded to below investment grade in May 2005, which
in turn created technical disruptions in the market. GM represents about
15% of the Lehman Ba Index, significantly more than any other issuer. Due
to the Fund's internal diversification guidelines, which limit weights in
individual issuers, the Fund underperformed the Index when GM rallied off
its lows. The rally in GM bonds and the Fund's underweight accounted for a
significant portion of the portfolio's underperformance versus the
benchmark.
The Fund benefited from lower-than-market exposure to the airline sector,
among others. Continued high oil prices and concern that they will be an
ongoing drag on economic growth negatively affected this sector and others
with significant exposure to commodity prices. Other high yield sectors
generally performed within a relatively narrow range, with no standout
performers on the upside or the downside.
Given the current environment, we believe that a conservative approach is
highly appropriate. Therefore, we are maintaining a relatively short
duration/short maturity structure (thereby reducing exposure to a rise in
interest rates). At the same time, we are looking to reduce exposure to
deep cyclicals and increase exposure to defensive sectors. We are
maintaining an optimistic, but cautious, outlook for the high yield market
and for the Fund. We believe that the recent, unsettled environment has
provided an opportunity for reallocation within the market at favorable
prices.
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
gradually increasing interest rates. In addition, we believe that our
longstanding orientation toward higher quality issues and a shorter
duration profile relative to the broader non-investment grade market can
also provide relative support and opportunity should credit spreads
continue to widen.
Sincerely,
/s/ Ann H. Benjamin /s/ Thomas P. O'Reilly
ANN H. BENJAMIN
AND
THOMAS P. O'REILLY
SENIOR PORTFOLIO MANAGER
6
<Page>
AVERAGE ANNUAL TOTAL RETURNS(1)
ENDED 10/31/05
<Table>
<Caption>
LEHMAN BROTHERS
INTERMEDIATE BA
INVESTOR CLASS(3),(6) US HIGH YIELD INDEX
1 YEAR 1.17% 3.03%
5 YEAR 7.31% 7.64%
10 YEAR 7.22% 7.17%
LIFE OF FUND 7.93% 8.10%
INCEPTION DATE 02/01/1992
</Table>
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST. RESULTS ARE SHOWN ON A "TOTAL RETURN" BASIS AND
INCLUDE REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. 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.
[CHART]
COMPARISON OF A $10,000 INVESTMENT
<Table>
<Caption>
LEHMAN BROTHERS INTERMEDIATE
INVESTOR CLASS BA U.S. HIGH YIELD INDEX
10/31/1995 $ 10,000 $ 10,000
10/31/1996 $ 11,003 $ 11,004
10/31/1997 $ 12,380 $ 12,318
10/31/1998 $ 12,643 $ 12,844
10/31/1999 $ 13,331 $ 13,288
10/31/2000 $ 14,105 $ 13,828
10/31/2001 $ 15,145 $ 15,081
10/31/2002 $ 16,132 $ 14,560
10/31/2003 $ 18,091 $ 17,586
10/31/2004 $ 19,842 $ 19,393
10/31/2005 $ 20,074 $ 19,981
</Table>
This chart shows the value of a hypothetical $10,000 investment in the Fund over
the past 10 fiscal years. The result is compared with one or more benchmarks,
which may include a broad-based market index and/or a narrower index. Please
note that market indexes do not include expenses. All results include the
reinvestment of dividends and capital gain distributions. Results represent past
performance and do not indicate future results. The chart and table do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
Please see Endnotes for additional information.
For the period ending October 31, 2005, the 30-day SEC yield of the Investor
Class Shares was 6.08%.
RATING SUMMARY
<Table>
AAA/Government/Government Agency 0.0%
AA 0.0
A 1.0
BBB 2.0
BB 53.2
B 42.1
CCC 0.0
CC 0.0
C 0.0
D 0.0
Not Rated 0.0
Short Term 1.7
</Table>
7
<Page>
LIMITED MATURITY BOND FUND PORTFOLIO COMMENTARY
For the fiscal year ending October 31, 2005, the Neuberger Berman Limited
Maturity Bond Fund Investor Class returned 0.77%, versus 0.67% for the
Merrill Lynch 1-3 Year Treasury Index benchmark.
Throughout the reporting period, the Federal Reserve continued the campaign
of tightening monetary policy that it began in June 2004. The Fed's
interest rate increases were largely anticipated by the fixed income
markets, which resulted in relative stability for bond prices through early
2005. In February, however, Fed Chairman Alan Greenspan unsettled bond
investors with his much-quoted "conundrum" statement, expressing puzzlement
that long-term bond yields were not responding to the Fed's increases to
short-term interest rates. These comments, along with upward revisions in
GDP growth and new evidence of inflation, caused investors to fear more
aggressive tightening, which put pressure on bond prices.
This, in turn, was followed by a rally in the beginning of the second
quarter, as further data seemed to show that economic growth had moderated
enough to hold inflation in check, and led many observers to believe that
the Fed would maintain its "measured pace" of rate increases. Still, by
October, the tide had turned yet again, and it appeared that the economy
remained strong despite two major hurricanes, and that inflation would
remain an ongoing concern.
Over the course of a tempestuous fiscal year, we maintained our defensive
posture, with portfolio duration (a standard measure of the sensitivity of
a bond's price to interest rate movements) at slightly lower levels than
that of our benchmark index. Our duration posture helped to protect the
portfolio from the impact of higher interest rates, and we made
opportunistic sector allocations in order to enhance yield.
We substantially reduced our allocation to Treasuries during the period,
from 29.5% to 0.6%, and invested the proceeds from these sales in higher
yielding but conservative alternatives. These included a significant
increase in our allocation to AAA-rated asset-backed and mortgage-backed
securities with seasoned maturities, from 14.2% at the beginning of the
fiscal year to 35.1% at fiscal year end.
Our exposure to U.S. government agency securities increased as well, from a
zero weighting at the start of period to 13.0% on October 31. These
securities offer portfolio diversification and higher yields than
Treasuries. While we made strategic adjustments to our corporate bond
holdings throughout the fiscal year based on our view of the economy and
the markets, we ended the period at about the same level, or roughly 40% of
the portfolio.
Our commitment to protecting principal while enhancing yield has led us to
focus on maintaining high credit quality standards. Given the current
economic environment, including high oil prices and the potential for
increased inflation and tighter monetary policy, we decreased our
allocation of BBB-rated securities and at fiscal year end held most of the
portfolio (56.0%) in AAA securities.
We continue to see opportunities to add value in the bond market, which has
held up well despite Fed rate increases totaling 225 basis points since
September 2004. Although we think that more rate hikes are likely, we feel
the Fed is getting close to a more "neutral" Fed Funds rate. However, this
may not be accomplished before Greenspan's exit from office in January
2006. Energy prices remain a concern, and we will be carefully monitoring
the market's inflation expectations. In order to protect the portfolio from
interest rate risk, we currently plan to maintain duration at slightly
shorter than benchmark levels. The portfolio's positioning with respect to
non-Treasury sectors will likely remain conservative as well, given that
credit spreads remain at tight absolute levels.
8
<Page>
In closing, our investment philosophy of research- driven security selection,
opportunistic sector allocation and duration management has allowed us to
provide our investors with consistent and secure returns, regardless of interest
rates and market cycles.
Sincerely,
/s/ Ted Giuliano /s/ John Dugenske
TED GIULIANO
AND
JOHN DUGENSKE
PORTFOLIO CO-MANAGERS
AVERAGE ANNUAL TOTAL RETURNS(1),(3)
ENDED 10/31/05
<Table>
<Caption>
MERRILL LYNCH 1- 3 YEAR
INVESTOR CLASS TRUST CLASS TREASURY INDEX
1 YEAR 0.77% 0.64% 0.67%
5 YEAR 4.02% 3.90% 3.96%
10 YEAR 4.38% 4.28% 4.89%
LIFE OF FUND 5.71% 5.66% 6.18%
INCEPTION DATE 06/09/1986 08/30/1993
</Table>
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST. RESULTS ARE SHOWN ON A "TOTAL RETURN" BASIS AND
INCLUDE REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. 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.
[CHART]
COMPARISON OF A $10,000 INVESTMENT
<Table>
MERRILL LYNCH 1-3 YEAR
INVESTOR CLASS TREASURY INDEX
10/31/1995 $ 10,000 $ 10,000
10/31/1996 $ 10,544 $ 10,591
10/31/1997 $ 11,278 $ 11,278
10/31/1998 $ 11,833 $ 12,146
10/31/1999 $ 12,067 $ 12,510
10/31/2000 $ 12,606 $ 13,270
10/31/2001 $ 14,071 $ 14,707
10/31/2002 $ 14,551 $ 15,427
10/31/2003 $ 15,022 $ 15,737
10/31/2004 $ 15,236 $ 16,009
10/31/2005 $ 15,354 $ 16,116
</Table>
This chart shows the value of a hypothetical $10,000 investment in the Fund over
the past 10 fiscal years. The graphs are based on the Investor Class shares
only; performance of other classes will vary due to differences in fee
structures (see Average Annual Total Returns chart above). The result is
compared with one or more benchmarks, which may include a broad-based market
index and/or a narrower index. Please note that market indexes do not include
expenses. All results include the reinvestment of dividends and capital gain
distributions. Results represent past performance and do not indicate future
results. The chart and table do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.
Please see Endnotes for additional information.
For the period ending 10/31/05, the 30-day SEC yield of the Investor Class
Shares was 3.91% and the Trust Class Shares was 3.81%.
RATING SUMMARY
<Table>
AAA/Government/
Government Agency 56.0%
AA 5.6
A 27.1
BBB 5.5
BB 0.4
B 0.0
CCC 0.0
CC 0.0
C 0.0
D 0.0
Not Rated 0.0
Short Term 5.4
</Table>
9
<Page>
MUNICIPAL MONEY FUND PORTFOLIO COMMENTARY
For the fiscal year ending October 31, 2005, the Neuberger Berman Municipal
Money Fund(5) returned 1.59%, versus 1.54% for the iMoneyNet Money Fund
Report Tax-Free National Retail Average. The Fund closed fiscal 2005 with a
2.11% 7-day current yield and 2.13% 7-day effective yield.*
At the start of the fiscal year, the portfolio had a weighted average
maturity of 34.7 days, which was lower than our typical range. We
anticipated a prolonged period of Federal Reserve tightening and wanted the
ability to quickly roll over existing holdings into higher yielding
securities as they were issued. By the end of the fiscal year, the Fund's
weighted average maturity was 35.9 days, in line with benchmark levels.
The portfolio's sector allocation changed substantially over the course of
fiscal 2005. At the beginning of the period, 74.3% of assets were in
variable rate demand notes (VRDNs), 13% in municipal notes, 6.6% in
tax-exempt commercial paper, 2.8% in revenue bonds, 2.4% in general
obligation bonds, and the balance in "put-able" bonds. At the end of the
fiscal year, 85.7% of assets were in VRDNs, 8.2% in revenue bonds, 4% in
municipal notes, and the balance in put-able bonds.
We eliminated our exposure to tax-exempt commercial paper, because we were
finding much better value in other sectors, especially VRDNs, which were
priced attractively. Over the longer term, we expect sector allocation to
balance out at approximately 70% variable rate demand notes and 30% in the
other market sectors. Going forward, we are likely to limit our exposure to
tax-exempt commercial paper, because the sector tends to be priced more
advantageously for issuers than buyers. Aided by our close working
relationships with a network of regional brokers, we will continue to look
for price inefficiencies in the market in the form of overlooked municipal
money market securities.
For investors in higher federal income tax brackets, municipal money market
securities remain attractively priced versus Treasuries, with the AAA-rated
one-year municipal yield providing 67% of the yield on the one-year
Treasury bill.
Looking ahead, it appears that the Federal Reserve is committed to at least
a few more rate hikes. Consequently, we will likely maintain the
portfolio's conservative weighted average maturity until we see convincing
evidence that the Fed is ready to shift into neutral. Our investment
objective remains to generate superior long-term performance through
prudent management of weighted average maturity and value oriented security
selection.
Sincerely,
/s/ Janet A. Fiorenza /s/ William J. Furrer
/s/ Kelly Landron
JANET A. FIORENZA,
WILLIAM J. FURRER
AND
KELLY LANDRON
PORTFOLIO CO-MANAGERS
MATURITY DIVERSIFICATION
(% BY MATURITY)
<Table>
1 - 7 Days 84.1%
8 - 30 Days 2.0
31 - 90 Days 3.2
91 - 180 Days 1.0
181+ Days 9.7
</Table>
*Current yield more closely reflects current earnings than does total return.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the Fund.
For the period ending 10/31/05, 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 10/31/05, 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%).
The composition, industries and holdings of the Fund are subject to change.
Investment return will fluctuate. Past performance is no guarantee of future
results.
10
<Page>
MUNICIPAL SECURITIES TRUST PORTFOLIO COMMENTARY
For the fiscal year ending October 31, 2005, the Neuberger Berman Municipal
Securities Trust posted a roughly flat return, declining -0.09%, versus the
Lehman Brothers 7-Year GO Index's 0.71% advance.
In general, municipal bonds performed in line with the broad fixed income
market during the 12-month reporting period. Prices were relatively stable
from November 2004 to January 2005, fell in February and March, rebounded
in April and held steady through August before retreating again in
September and October. The fixed income markets' ups and downs were largely
the result of mixed economic signals, with bond investors cheered by news
suggesting that the economy might be slowing but discouraged by data
revealing that it was not. Bond investors were also carefully watching for
signs of policy change at the Federal Reserve. Ultimately, the Fed's
ongoing monetary tightening campaign, coupled with the news of economic
strength, undermined bond returns.
As portfolio managers, capital preservation is always crucial to us.
Consequently, we were especially risk averse in the fiscal year's
challenging market environment. At the start of the period, the portfolio
had a relatively defensive 4.4 year duration, which we further reduced to
4.1 by January 31, before finishing the fiscal year end with 4.5--still
materially below the duration of our benchmark index.
In terms of asset allocation, the only material change during the 12-month
reporting period was an increase in the Fund's commitment to
pre-refunded/escrowed bonds, which became more attractively priced this
summer, as issuers rushed to refinance debt before interest rates moved
higher. The portfolio entered the fiscal year with 48.1% in revenue bonds,
42.9% in general obligation bonds (GOs), 6.2% in pre-refunded/escrow bonds,
and 2.8% in other assets and short term investments. At the end of fiscal
2005, the portfolio had 46.2% of assets in revenue bonds, 41.9% in GOs,
9.8% in pre-refunded/escrow bonds, and 2.1% in other assets and short term
investments. With the robust economy increasing state and local tax
revenues, credit quality in the municipal bond market improved. We upgraded
the average credit rating of the portfolio from a strong AA+ to AAA by the
end of the period.
Shortly after the end of the fiscal year, a bipartisan committee appointed
by President Bush to study ways to streamline the U.S. tax code released
its report. One of its recommendations is to eliminate the deductibility of
municipal bond interest for corporate buyers--primarily insurance
companies, which represent about one-third of the market for municipal
securities. If passed, this reform might not be good news for municipal
issuers, because it may increase their cost of capital. However, after the
initial shock to the market, it might be a positive for individual
investors, who would likely be paid more in yield to take up the demand
slack. As always, it is anyone's guess as to whether substantive tax reform
will make the transition from political rhetoric to actual legislation.
Over the short term, we believe that Fed policy will call the tune for the
fixed income markets. We expect the Fed to continue to raise rates at a
measured pace until it sees convincing evidence that the economy is
slowing, which in turn would diminish the threat of inflation. In our
opinion, this may happen sooner than is generally expected. Leading
homebuilder Toll Brothers' recent announcement that sales are slowing, and
the fact that sales inventories of existing homes have been rising,
indicate that the housing market may be softening. In our view, a slower
housing market would take a bite out of GDP and could also undermine
consumer confidence. Also, higher heating bills could tighten household
budgets, potentially dampening Christmas retail sales. Together these
factors could, we believe, prompt the Fed to begin taking its foot off the
monetary brakes.
Overall, we think that the outlook for fixed income securities, including
municipal bonds, will improve in the year ahead. We are likely to maintain
the portfolio's defensive posture until we see conclusive evidence that
economic growth is moderating sufficiently to put the Fed in a more
accommodating mood.
11
<Page>
MUNICIPAL SECURITIES TRUST
In closing, we believe that shareholders should be encouraged by how well
municipal securities have held up during a prolonged period of Fed
tightening and by the fact that yields are now significantly more generous
than they have been for some time.
Sincerely,
/s/ Ted Giuliano /s/ Thomas J. Brophy
/s/ Lori Canell /s/ Kelly Landron
TED GIULIANO, THOMAS J. BROPHY,
LORI CANELL AND KELLY LANDRON
PORTFOLIO CO-MANAGERS
AVERAGE ANNUAL TOTAL RETURNS(1)
ENDED 10/31/05
<Table>
<Caption>
LEHMAN BROTHERS
INVESTOR CLASS(5),(3) 7-YEAR GO INDEX
1 YEAR (0.09%) 0.71%
5 YEAR 4.57% 5.40%
10 YEAR 4.59% 5.34%
LIFE OF FUND 5.54% 6.35%
INCEPTION DATE 07/09/1987
</Table>
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST. RESULTS ARE SHOWN ON A "TOTAL RETURN" BASIS AND
INCLUDE REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. 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.
[CHART]
COMPARISON OF A $10,000 INVESTMENT
<Table>
<Caption>
LEHMAN BROTHERS
INVESTOR CLASS 7-YEAR GO INDEX
10/31/1995 $ 10,000 $ 10,000
10/31/1996 $ 10,392 $ 10,476
10/31/1997 $ 11,090 $ 11,270
10/31/1998 $ 11,891 $ 12,109
10/31/1999 $ 11,768 $ 12,118
10/31/2000 $ 12,529 $ 12,937
10/31/2001 $ 13,768 $ 14,193
10/31/2002 $ 14,505 $ 15,062
10/31/2003 $ 15,157 $ 15,916
10/31/2004 $ 15,677 $ 16,710
10/31/2005 $ 15,663 $ 16,829
</Table>
This chart shows the value of a hypothetical $10,000 investment in the Fund over
the past 10 fiscal years. The result is compared with one or more benchmarks,
which may include a broad-based market index and/or a narrower index. Please
note that market indexes do not include expenses. All results include the
reinvestment of dividends and capital gain distributions. Results represent past
performance and do not indicate future results. The chart and table do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
For the period ending 10/31/05, the 30-day SEC yield of the Municipal Securities
Trust was 3.19% and the tax-equivalent yield was 4.91% for an investor in the
highest federal income tax bracket (35%).
RATING SUMMARY
<Table>
AAA 79.5%
AA 19.3
A 0.0
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 1.2
</Table>
12
<Page>
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.
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.
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 year ended October 31, 2005, there were no
reimbursements of expenses by Management to Neuberger Berman Cash
Reserves and Neuberger Berman High Income Bond Fund.
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 period 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 data and 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. 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.
13
<Page>
GLOSSARY OF INDICES
<Table>
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 Measures the performance of retail money market mutual funds
TAXABLE FIRST TIER RETAIL AVERAGE: which hold "First Tier" securities as defined by Rule 2a-7 of the
Investment Company Act of 1940 (not including Second Tier
Commercial Paper). First Tier securities are those rated in the
highest short-term rating category by two or more nationally
recognized statistical ratings organizations or one, if only one
has rated the security.
THE iMONEYNET MONEY FUND REPORT Measures the performance of retail money market mutual funds
TREASURY RETAIL AVERAGE: which invest only in obligations of the U.S. Treasury (T-Bills).
THE iMONEYNET MONEY FUND REPORT GOVERNMENT Measures the performance of retail money market mutual funds
AND AGENCIES RETAIL AVERAGE: which invest 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.
TAX-FREE NATIONAL RETAIL AVERAGE: Portfolio holdings of tax-free funds include Rated and Unrated
Demand Notes, Rated and Unrated General Market Notes, Commercial
Paper, Put Bonds - 6 months or less, Put Bonds - over 6 months,
AMT Paper, and Other Tax-Free holdings.
LEHMAN BROTHERS INTERMEDIATE BA An unmanaged index comprised of BB-rated bonds with maturities
U.S. HIGH YIELD INDEX: 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.
</Table>
14
<Page>
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:
<Table>
ACTUAL EXPENSES AND PERFORMANCE: The first section of the table provides information about actual
account values and actual expenses in dollars, based on the
fund's actual performance during the period. You may use the
information in this line, together with the amount you invested,
to estimate the expenses you paid over the period. Simply divide
your account value by $1,000 (for example, an $8,600 account
value divided by $1,000 = 8.6), then multiply the result by the
number in the first section of the table under the heading
entitled "Expenses Paid During the Period" to estimate the
expenses you paid over the period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES: The second section of the 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.
</Table>
15
<Page>
EXPENSE INFORMATION AS OF 10/31/05 (UNAUDITED)
NEUBERGER BERMAN CASH RESERVES
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT ACCOUNT PAID DURING
VALUE VALUE THE PERIOD*
- --------------------------------------------------------------------------------
ACTUAL
Investor Class $ 1,000 $ 1,014.90 $ 2.37
HYPOTHETICAL (5% ANNUAL
RETURN BEFORE EXPENSES)**
Investor Class $ 1,000 $ 1,022.86 $ 2.38
</Table>
NEUBERGER BERMAN GOVERNMENT MONEY FUND
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT ACCOUNT PAID DURING
VALUE VALUE THE PERIOD*
- --------------------------------------------------------------------------------
ACTUAL
Investor Class $ 1,000 $ 1,014.30 $ 2.33
HYPOTHETICAL (5% ANNUAL
RETURN BEFORE EXPENSES)**
Investor Class $ 1,000 $ 1,022.89 $ 2.34
</Table>
NEUBERGER BERMAN HIGH INCOME BOND FUND
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT ACCOUNT PAID DURING
VALUE VALUE THE PERIOD*
- --------------------------------------------------------------------------------
ACTUAL
Investor Class $ 1,000 $ 1,027.20 $ 4.76
HYPOTHETICAL (5% ANNUAL
RETURN BEFORE EXPENSES)**
Investor Class $ 1,000 $ 1,020.51 $ 4.74
</Table>
NEUBERGER BERMAN LIMITED MATURITY BOND FUND
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT ACCOUNT PAID DURING
VALUE VALUE THE PERIOD*
- --------------------------------------------------------------------------------
ACTUAL
Investor Class $ 1,000 $ 1,006.30 $ 3.56
Trust Class $ 1,000 $ 1,006.40 $ 4.07
HYPOTHETICAL (5% ANNUAL
RETURN BEFORE EXPENSES)**
Investor Class $ 1,000 $ 1,021.66 $ 3.59
Trust Class $ 1,000 $ 1,021.15 $ 4.10
</Table>
NEUBERGER BERMAN MUNICIPAL MONEY FUND
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT ACCOUNT PAID DURING
VALUE VALUE THE PERIOD*
- --------------------------------------------------------------------------------
ACTUAL
Investor Class $ 1,000 $ 1,009.60 $ 3.08
HYPOTHETICAL (5% ANNUAL
RETURN BEFORE EXPENSES)**
Investor Class $ 1,000 $ 1,022.14 $ 3.10
</Table>
NEUBERGER BERMAN MUNICIPAL SECURITIES TRUST
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT ACCOUNT PAID DURING
VALUE VALUE THE PERIOD*
- --------------------------------------------------------------------------------
ACTUAL
Investor Class $ 1,000 $ 997.10 $ 3.29
HYPOTHETICAL (5% ANNUAL
RETURN BEFORE EXPENSES)**
Investor Class $ 1,000 $ 1,021.91 $ 3.33
</Table>
* 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 184/365 (to reflect the one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by multiplying
the number of days in the most recent half year divided by 365.
16
<Page>
NEUBERGER BERMAN OCTOBER 31, 2005
SCHEDULE OF INVESTMENTS CASH RESERVES
<Table>
<Caption>
PRINCIPAL AMOUNT RATING ### VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
CERTIFICATES OF DEPOSIT (9.1%)
$ 10,000 Deutsche Bank, Euro CD, 4.13%, due 3/28/06 P-1 A-1+ $ 10,000
12,000 Lloyd's TSB Bank PLC, Yankee CD, 4.04%, due 1/6/06 P-1 A-1+ 12,000
10,000 Natexis Banque Populair, Yankee CD, 3.83%,
due 12/19/05 P-1 A-1 10,000
12,000 Wells Fargo Bank NA, Domestic CD, 3.86%, due 11/14/05 P-1 A-1+ 12,000
---------------
TOTAL CERTIFICATES OF DEPOSIT 44,000
---------------
FLOATING RATE CERTIFICATES OF DEPOSIT (6.9%)~
13,000 Barclays Bank NY, Floating Rate Yankee CD, 3.81%,
due 11/1/05 P-1 A-1+ 13,000
10,000 BNP Paribas NY, Floating Rate Domestic CD, 3.80%,
due 11/4/05 P-1 A-1+ 9,998
10,000 Westpac Banking Corp. NY, Floating Rate Yankee CD, 3.78%,
due 11/28/05 P-1 A-1+ 9,998
---------------
TOTAL FLOATING RATE CERTIFICATES OF DEPOSIT 32,996
---------------
COMMERCIAL PAPER (57.9%)
8,000 ABN AMRO North America Finance, Inc., 3.90%, due 12/27/05 P-1 A-1+ 7,951
5,000 Amstel Funding Corp., 3.81%, due 11/29/05 P-1 A-1+ 4,985
5,000 Amstel Funding Corp., 3.95%, due 1/26/06 P-1 A-1 4,953
12,000 Amsterdam Funding Corp., 3.83%, due 11/16/05 P-1 A-1 11,981
14,000 Atlantic Asset Securitization Corp., 3.82% - 3.88%,
due 11/10/05 - 12/19/05 P-1 A-1 13,945
5,000 AWB Harvest Finance, Inc., 3.85%, due 11/14/05 P-1 A-1+ 4,993
12,000 Banque Generale du Luxembourg, 3.68% & 4.00%,
due 11/9/05 & 1/12/06 P-1 A-1+ 11,969
12,620 Cancara Asset Securitization Ltd., 3.82%, due 12/16/05 P-1 A-1+ 12,560
10,000 Ciesco LLC, 3.95%, due 12/16/05 P-1 A-1+ 9,951
5,000 CRC Funding LLC, 3.68%, due 11/1/05 P-1 A-1+ 5,000
6,000 CRC Funding LLC, 3.88%, due 11/22/05 P-1 A-1+ 5,986**
5,100 Danske Corp., 3.77%, due 11/8/05 P-1 A-1+ 5,096
13,000 DNB Norway Bank, 3.68% & 3.90%, due 11/21/05 & 12/22/05 P-1 A-1 12,953
11,000 Eiffel Funding LLC, 3.85%, due 12/19/05 P-1 A-1 10,943
5,000 General Electric Capital Corp., 3.77%, due 11/28/05 P-1 A-1+ 4,986
2,000 Grampian Funding LLC, 3.53%, due 11/7/05 P-1 A-1+ 1,999
10,000 ING America Insurance Holdings, Inc., 3.97%, due 1/5/06 P-1 A-1+ 9,928
8,738 Ivory Funding Corp., 3.72% - 3.87%, due 11/15/05 - 12/12/05 P-1 A-1 8,716
7,000 Jupiter Securitization Corp., 3.89%, due 11/17/05 P-1 A-1 6,988
12,000 National Australia Funding (Delaware), Inc., 3.74%,
due 11/10/05 P-1 A-1+ 11,989
11,572 Old Line Funding Corp., 3.90%, due 11/28/05 P-1 A-1+ 11,538
5,233 Park Avenue Receivables Corp., 3.79%, due 11/2/05 P-1 A-1 5,232
6,000 Park Avenue Receivables Corp., 3.84%, due 11/9/05 P-1 A-1 5,995**
7,000 Preferred Receivables Funding, 3.84%, due 11/21/05 P-1 A-1 6,985
11,000 Rabobank USA Financial Corp., 3.84% & 3.90%,
due 11/8/05 & 12/30/05 P-1 A-1+ 10,958
12,000 Royal Bank of Scotland, 3.70%, due 11/16/05 P-1 A-1+ 11,981
5,000 Sheffield Receivables, 3.82%, due 11/7/05 P-1 A-1+ 4,997
10,000 Societe Generale NA, Inc., 3.71%, due 12/9/05 P-1 A-1+ 9,961
10,500 Target Corp., 4.03%, due 11/1/05 P-1 A-1 10,500
12,000 Thunder Bay Funding Inc., 3.87%, due 11/22/05 P-1 A-1+ 11,973
12,000 UBS Finance (Delaware), Inc., 3.53%, due 11/14/05 P-1 A-1+ 11,985
8,000 Yorktown Capital LLC, 3.92%, due 11/17/05 P-1 A-1+ 7,986
---------------
TOTAL COMMERCIAL PAPER 277,963
---------------
</Table>
See Notes to Schedule of Investments
17
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING ### VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
CORPORATE DEBT SECURITIES (3.9%)
$ 1,325 Bank One Corp., Notes, 6.50%, due 2/1/06 Aa3 A+ $ 1,332
10,000 Credit Suisse First Boston USA, Inc., Notes, 5.88%,
due 8/1/06 Aa3 A+ 10,101
7,220 HBOS Treasury Services PLC, Notes, 2.25%, due 5/1/06 Aa2 AA 7,146**
---------------
TOTAL CORPORATE DEBT SECURITIES 18,579
---------------
FLOATING RATE CORPORATE DEBT SECURITIES (22.7%)~
6,000 American Express Bank, Floating Rate Notes, 3.94%,
due 11/14/05 Aa3 A+ 6,001
7,000 American Express Credit Corp., Floating Rate Senior Notes,
4.14%, due 11/16/05 Aa3 A+ 7,008
10,000 CIT Group, Inc, Senior Floating Rate Medium-Term Notes,
3.83%, due 11/18/05 A2 A 10,003
1,000 Citigroup, Inc., Floating Rate Notes, 4.02%, due 12/20/05 Aa1 AA- 1,000
5,000 General Electric Capital Corp., Floating Rate Medium-Term
Notes, Ser. A, 4.02%, due 12/19/05 Aaa AAA 5,006
6,700 Goldman Sachs Group, Inc., Floating Rate Medium-Term
Notes. Ser. B, 4.09% & 4.37%, due 1/5/06 & 1/30/06 Aa3 A+ 6,706
14,000 HSBC Finance Corp., Floating Rate Medium-Term Notes,
4.20% & 4.94%, due 11/1/05 & 1/23/06 A1 A 14,023
10,600 K2 (USA) LLC, Guaranteed Floating Rate Medium-Term Notes,
3.85%, due 12/15/05 Aaa AAA 10,598**
11,400 Links Finance LLC, Floating Rate Medium-Term Notes,
4.06%, due 11/28/05 AAA 11,400**
14,000 Merrill Lynch & Co., Inc., Floating Rate Medium-Term Notes,
Ser. C, 4.03% & 4.23%, due 11/17/05 & 1/19/06 Aa3 A+ 14,008
13,150 Morgan Stanley, Floating Rate Notes, 3.81%, due 11/9/05 Aa3 A+ 13,160
10,000 National City Bank, Floating Rate Notes, 3.83%, due 11/7/05 Aa3 A+ 9,999
---------------
TOTAL FLOATING RATE CORPORATE DEBT SECURITIES 108,912
---------------
TOTAL INVESTMENTS (100.5%) 482,450
Liabilities, less cash, receivables and other assets [(0.5%)] (2,487)
---------------
TOTAL NET ASSETS (100.0%) $ 479,963
---------------
</Table>
18
<Page>
SCHEDULE OF INVESTMENTS GOVERNMENT MONEY FUND
<Table>
<Caption>
PRINCIPAL AMOUNT VALUE ++
(000'S OMITTED) (000'S OMITTED)
U.S. GOVERNMENT AGENCY SECURITIES (91.1%)
$ 30,000 Fannie Mae, Disc. Notes, 3.72%, due 11/1/05 $ 30,000
4,900 Fannie Mae, Disc. Notes, 3.61%, due 11/9/05 4,896
6,416 Fannie Mae, Disc. Notes, 3.65%, due 11/10/05 6,410
22,650 Fannie Mae, Notes, 5.50%, due 2/15/06 22,730
10,000 Fannie Mae, Disc. Notes, 4.12%, due 4/19/06 9,807
5,047 Federal Home Loan Bank, Disc. Notes, 3.60%, due 11/9/05 5,043
10,000 Federal Home Loan Bank, Disc. Notes, 3.62%, due 11/10/05 9,991
18,176 Federal Home Loan Bank, Disc. Notes, 3.60%, due 11/14/05 18,152
10,000 Federal Home Loan Bank, Disc. Notes, 3.67%, due 11/18/05 9,983
10,000 Federal Home Loan Bank, Disc. Notes, 3.62%, due 12/2/05 9,969
10,000 Federal Home Loan Bank, Disc. Notes, 3.61%, due 12/9/05 9,962
15,000 Federal Home Loan Bank, Disc. Notes, 3.72%, due 12/16/05 14,930
55,750 Freddie Mac, Disc. Notes, 3.67% - 3.73%, due 11/1/05 55,750
10,000 Freddie Mac, Disc. Notes, 3.49%, due 11/8/05 9,993
5,000 Freddie Mac, Disc. Notes, 3.58%, due 11/15/05 4,993
30,000 Freddie Mac, Disc. Notes, 3.84%, due 11/22/05 29,933
20,000 Freddie Mac, Disc. Notes, 3.70%, due 11/29/05 19,942
70,000 Freddie Mac, Disc. Notes, 3.61% - 3.87%, due 12/12/05 69,697
10,000 Freddie Mac, Disc. Notes, 3.95%, due 1/10/06 9,923
6,000 Freddie Mac, Disc. Notes, 3.96%, due 2/14/06 5,931
15,000 Freddie Mac, Disc. Notes, 4.12%, due 5/10/06 14,674
---------------
TOTAL U.S. GOVERNMENT AGENCY SECURITIES 372,709
---------------
FLOATING RATE U.S. GOVERNMENT AGENCY SECURITIES (9.0%)~
20,000 Federal Farm Credit Bank, Floating Rate Notes, 3.93%, due 11/25/05 20,002
17,090 Federal Home Loan Bank, Floating Rate Notes, 3.89%, due 11/21/05 17,089
---------------
TOTAL FLOATING RATE U.S. GOVERNMENT AGENCY SECURITIES 37,091
---------------
TOTAL INVESTMENTS (100.1%) 409,800
Liabilities, less cash, receivables and other assets [(0.1%)] (532)
---------------
TOTAL NET ASSETS (100.0%) $ 409,268
---------------
</Table>
See Notes to Schedule of Investments
19
<Page>
SCHEDULE OF INVESTMENTS HIGH INCOME BOND FUND
<Table>
<Caption>
PRINCIPAL AMOUNT RATING ### VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
CORPORATE DEBT SECURITIES (95.6%)
$ 2,250 Abitibi-Consolidated, Inc., Notes, 6.95%, due 4/1/08 Ba3 BB- $ 2,239
1,800 Abitibi-Consolidated, Inc., Notes, 8.55%, due 8/1/10 Ba3 BB- 1,759
8,000 AES Corp., Senior Secured Notes, 8.75%, due 5/15/13 Ba3 B+ 8,640**
5,750 Airgas, Inc., Senior Subordinated Notes, 9.13%, due 10/1/11 Ba2 BB- 6,102(OO)
6,375 Alderwoods Group, Inc., Guaranteed Notes, 7.75%,
due 9/15/12 B2 B 6,582(OO)
4,000 Alliant Techsystems, Inc., Senior Subordinated Notes,
8.50%, due 5/15/11 B2 B 4,180
4,075 Allied Waste North America, Inc., Guaranteed Notes, Ser. B,
8.88%, due 4/1/08 B2 BB- 4,248+++
3,125 Allied Waste North America, Inc., Guaranteed Senior Secured
Notes, Ser. B, 9.25%, due 9/1/12 B2 BB- 3,368+++
2,500 American Towers, Inc., Guaranteed Notes, 7.25%, due 12/1/11 Ba2 BB- 2,613
5,325 Amerigas Partners L.P., Senior Unsecured Notes, 7.25%,
due 5/20/15 B2 BB- 5,511**
2,500 AMETEK, Inc., Senior Notes, 7.20%, due 7/15/08 Baa3 BBB 2,614
8,750 Arch Western Finance Corp., Senior Notes, 6.75%,
due 7/1/13 Ba3 BB- 8,794
7,825 Aviall, Inc., Senior Notes, 7.63%, due 7/1/11 B1 BB 7,942
5,325 BCP Crystal Holdings Corp., Senior Subordinated Notes,
9.63%, due 6/15/14 B3 B- 5,857+++
4,175 Bombardier Recreational Products, Senior Subordinated Notes,
8.38%, due 12/15/13 B3 B 4,258+++
5,125 BoWater Canada Finance Corp., Guaranteed Notes, 7.95%,
due 11/15/11 Ba3 BB 4,894+++
4,000 Case New Holland, Inc., Guaranteed Notes, 6.00%,
due 6/1/09 Ba3 BB- 3,820
2,750 Case New Holland, Inc., Guaranteed Notes, 9.25%,
due 8/1/11 Ba3 BB- 2,894
6,125 Chesapeake Energy Corp., Senior Notes, 7.50%,
due 9/15/13 Ba2 BB 6,492+++
2,825 Chesapeake Energy Corp., Senior Notes, 7.00%,
due 8/15/14 Ba2 BB 2,938
4,500 Chiquita Brands International, Senior Notes, 7.50%,
due 11/1/14 B3 B- 4,241
4,100 Chukchansi Economic Development Authority, Senior Notes,
8.00%, due 11/15/13 B2 BB- 4,131**(O)
2,500 CITGO Petroleum Corp., Senior Unsecured Notes, 7.88%,
due 5/15/06 Ba1 BB 2,537
3,875 CITGO Petroleum Corp., Senior Notes, 6.00%, due 10/15/11 Ba1 BB 4,069+++
6,000 CMS Energy Corp., Senior Notes, 8.90%, due 7/15/08 B1 B+ 6,420
3,000 CMS Energy Corp., Senior Notes, 7.75%, due 8/1/10 B1 B+ 3,165+++
5,750 Compass Minerals Group, Inc., Senior Subordinated Notes,
10.00%, due 8/15/11 B3 B- 6,196
6,075 Constellation Brands, Inc., Guaranteed Senior Subordinated
Notes, Ser. B, 8.13%, due 1/15/12 Ba3 B+ 6,326
4,125 Coventry Health Care, Inc., Senior Notes, 8.13%,
due 2/15/12 Ba1 BBB- 4,393
8,875 CSC Holdings, Inc., Senior Notes, Ser. B, 8.13%,
due 7/15/09 B1 BB- 9,075
6,125 D. R. Horton, Inc., Guaranteed Senior Notes, 8.50%,
due 4/15/12 Ba1 BB+ 6,570
6,250 Dean Foods Co., Senior Notes, 6.63%, due 5/15/09 Ba2 BB- 6,375+++
</Table>
20
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING ### VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 2,625 Dole Foods Co., Inc., Debentures, 8.75%, due 7/15/13 B2 B+ $ 2,737
2,250 Dole Foods Co., Inc., Senior Notes, 8.63%, due 5/1/09 B2 B+ 2,326
4,250 Edison Mission Energy, Senior Notes, 9.88%, due 4/15/11 B1 B+ 4,951
6,250 El Paso Natural Gas Co., Senior Notes, Ser. A, 7.63%,
due 8/1/10 B1 B 6,559
6,525 Entercom Radio/Capital, Guaranteed Senior Notes, 7.63%,
due 3/1/14 Ba2 B+ 6,655
2,500 Enterprise Products Operating L.P., Guaranteed Senior Notes,
7.50%, due 2/1/11 Baa3 BB+ 2,700
5,000 Felcor Lodging L.P., Senior Floating Rate Notes, 7.78%,
due 12/1/05 B1 B- 5,144~
5,425 Ferrellgas L.P., Senior Notes, 8.75%, due 6/15/12 B2 B- 5,371
2,175 Ferrellgas L.P., Senior Notes, 6.75%, due 5/1/14 Ba3 B+ 2,088
3,000 Fisher Scientific International, Inc., Senior Subordinated
Notes, 6.13%, due 7/1/15 Ba2 BB+ 2,978**
9,875 Ford Motor Credit Co., Notes, 6.50%, due 1/25/07 Baa3 BB+ 9,758
6,875 Forest Oil Corp., Senior Notes, 8.00%, due 6/15/08 Ba3 BB- 7,202
8,875 Freescale Semiconductor, Senior Notes, 6.88%, due 7/15/11 Ba2 BB+ 9,163
4,125 General Cable Corp., Senior Notes, 9.50%, due 11/15/10 B2 B 4,352
12,175 General Motors Acceptance Corp., Notes, 6.13%, due 2/1/07 Ba1 BB 12,055
8,125 Georgia Gulf Corp., Senior Notes, 7.13%, due 12/15/13 Ba3 BB- 8,125
4,500 Georgia Pacific Corp., Senior Notes, 7.38%, due 7/15/08 Ba1 BB+ 4,680
2,400 Georgia Pacific Corp., Guaranteed Notes, 9.38%, due 2/1/13 Ba1 BB+ 2,646+++
3,000 Grant Prideco, Inc., Senior Unsecured Notes, 6.13%,
due 8/15/15 Ba2 BB 3,008**
1,773 Hanover Equipment Trust 2001 A, Senior Secured Notes,
Ser. A, 8.50%, due 9/1/08 B2 B+ 1,844
3,250 Hanover Equipment Trust 2001 B, Senior Secured Notes,
Ser. B, 8.75%, due 9/1/11 B2 B+ 3,445
4,275 HCA, Inc., Notes, 5.50%, due 12/1/09 Ba2 BB+ 4,165
3,250 HCA, Inc., Notes, 6.30%, due 10/1/12 Ba2 BB+ 3,198
6,750 Host Marriott L.P., Senior Notes, Ser. M, 7.00%, due 8/15/12 Ba2 B+ 6,801+++
4,325 Houghton Mifflin Co., Senior Notes, 8.25%, due 2/1/11 B3 B- 4,422
4,275 Ikon Office Solutions, Senior Notes, 7.75%, due 9/15/15 Ba2 BB 4,051**
5,875 IMC Global, Inc., Guaranteed Notes, Ser. B, 10.88%,
due 6/1/08 Ba3 BB 6,573
7,125 INVISTA, Notes, 9.25%, due 5/1/12 B1 B+ 7,650**
3,262 Jafra Cosmetics, Senior Subordinated Notes, 10.75%,
due 5/15/11 B3 B- 3,580
3,000 Jean Coutu Group (PJC), Inc., Senior Subordinated Notes,
8.50%, due 8/1/14 B3 B- 2,783+++
5,650 K. Hovnanian Enterprises, Guaranteed Notes, 6.00%,
due 1/15/10 Ba2 B+ 5,278
3,525 KB Home, Notes, 6.38%, due 8/15/11 Ba1 BB+ 3,471
4,375 KB Home, Senior Subordinated Notes, 8.63%, due 12/15/08 Ba2 BB- 4,610
2,500 Kennametal, Inc., Senior Notes, 7.20%, due 6/15/12 Baa3 BBB 2,697
1,750 Kerr-McGee Corp., Secured Notes, 7.00%, due 11/1/11 Ba3 BB+ 1,750
7,675 L-3 Communications Corp., Guaranteed Senior Subordinated
Notes, 7.63%, due 6/15/12 Ba3 BB+ 8,020
8,000 Lamar Media Corp., Guaranteed Notes, 7.25%, due 1/1/13 Ba3 B 8,300
3,000 Las Vegas Sands Corp., Guaranteed Notes, 6.38%,
due 2/15/15 B2 B 2,843
</Table>
See Notes to Schedule of Investments
21
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING ### VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 6,325 LIN Television Corp., Senior Subordinated Notes, 6.50%,
due 5/15/13 B1 B- $ 5,993+++
5,000 Lousiana Pacific Corp., Senior Notes, 8.88%, due 8/15/10 Baa3 BBB- 5,548
3,225 Lyondell Chemical Co., Guaranteed Senior Notes, 10.50%,
due 6/1/13 B1 BB- 3,656
7,125 MCI, Inc., Senior Unsecured Notes, 7.69%, due 5/1/09 B2 B+ 7,383
5,325 Meditrust, Notes, 7.00%, due 8/15/07 Ba2 BB 5,405
2,500 MGM Mirage, Inc., Guaranteed Senior Notes, 8.50%,
due 9/15/10 Ba2 BB 2,681
6,500 MGM Mirage, Inc., Guaranteed Notes, 6.00%, due 10/1/09 Ba2 BB 6,386
3,000 MidWest Generation LLC, Pass-Through Certificates, Ser. A,
8.30%, due 7/2/09 B1 B+ 3,135
5,175 Millar Western Forest, Senior Notes, 7.75%, due 11/15/13 B2 B+ 4,218
5,000 Mohegan Tribal Gaming, Senior Subordinated Notes,
8.00%, due 4/1/12 Ba3 B+ 5,206
5,750 Moog, Inc., Senior Subordinated Notes, 6.25%, due 1/15/15 Ba3 B+ 5,721
4,875 MSW Energy Holdings LLC, Guaranteed Senior Secured Notes,
Ser. B, 7.38%, due 9/1/10 Ba3 BB- 5,046
2,750 Mylan Laboratories, Inc., Senior Notes, 5.75%, due 8/15/10 Ba1 BB+ 2,716**
5,125 Mylan Laboratories, Inc., Senior Notes, 6.38%, due 8/15/15 Ba1 BB+ 5,061+++**
7,650 Nalco Co., Senior Notes, 7.75%, due 11/15/11 B2 B- 7,813+++
5,875 Navistar International Corp., Senior Notes, 7.50%,
due 6/15/11 Ba3 BB- 5,581
2,500 NBTY, Inc., Senior Subordinated Notes, 7.13%, due 10/1/15 B1 B+ 2,438**
3,125 Nell AF SARL, Senior Notes, 8.38%, due 8/15/15 B2 B- 3,000**
2,250 Nevada Power Co., General Refunding Mortgage Notes, Ser. E,
10.88%, due 10/15/09 Ba1 2,464
3,875 Newfield Exploration Co., Senior Notes, 7.63%, due 3/1/11 Ba2 BB+ 4,127
3,525 Newfield Exploration Co., Senior Subordinated Notes, 8.38%,
due 8/15/12 Ba3 BB- 3,780
7,500 Nextel Communications, Senior Notes, Ser. E, 6.88%,
due 10/31/13 Baa2 A- 7,846
5,250 Norampac, Inc., Senior Notes, 6.75%, due 6/1/13 Ba2 BB+ 4,935
6,125 Norske Skog Canada, Ltd., Guaranteed Senior Notes, Ser. D,
8.63%, due 6/15/11 Ba3 BB- 5,911
1,250 Nortel Networks Corp., Guaranteed Notes, 7.40%,
due 6/15/06 B- 1,253
6,750 Novelis, Inc., Senior Notes, 7.25%, due 2/15/15 B1 B 6,159**
8,125 NRG Energy, Inc., Guaranteed Notes, 8.00%, due 12/15/13 B1 B 8,856+++
2,525 OMEGA Healthcare Investors, Inc., Notes, 6.95%,
due 8/1/07 B1 BB- 2,538
7,325 Omnicare, Inc., Guaranteed Notes, Ser. B, 8.13%,
due 3/15/11 Ba2 BB+ 7,645
6,275 Owens & Minor, Inc., Senior Subordinated Notes, 8.50%,
due 7/15/11 Ba3 BB+ 6,620
3,325 Owens-Brockway Glass Container, Inc., Guaranteed Senior
Notes, 8.88%, due 2/15/09 B1 BB- 3,475
5,125 Owens-Brockway Glass Container, Inc., Guaranteed Senior
Notes, 8.25%, due 5/15/13 B2 B 5,227+++
5,750 Peabody Energy Corp., Guaranteed Senior Notes, Ser. B,
6.88%, due 3/15/13 Ba3 BB- 5,937
2,000 Pilgrim's Pride Corp., Guaranteed Senior Notes, 9.63%,
due 9/15/11 Ba2 BB- 2,140
</Table>
22
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING ### VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 2,500 Pilgrim's Pride Corp., Senior Subordinated Notes, 9.25%,
due 11/15/13 Ba3 B+ $ 2,744
5,750 Plains E&P Co., Senior Notes, 7.13%, due 6/15/14 Ba2 BB- 5,966+++
8,000 Pogo Producing Co., Senior Subordinated Notes, Ser. B,
8.25%, due 4/15/11 Ba3 B+ 8,380
6,000 Pride International, Inc., Senior Notes, 7.38%, due 7/15/14 Ba2 BB- 6,465+++
5,000 PSE&G Energy Holdings, Inc., Notes, 7.75%, due 4/16/07 Ba3 BB- 5,075
7,575 Radio One, Inc., Guaranteed Senior Notes, 8.88%,
due 7/1/11 B2 B 8,001
4,875 Reliant Energy, Inc., Secured Notes, 6.75%, due 12/15/14 B1 B+ 4,534+++
5,750 Rogers Cable, Inc., Secured Notes, 7.88%, due 5/1/12 Ba3 BB+ 6,095
6,250 Rogers Wireless, Inc., Secured Notes, 7.25%, due 12/15/12 Ba3 BB 6,562
7,725 Salem Communications Holding Corp., Guaranteed Senior
Subordinated Notes, Ser. B, 9.00%, due 7/1/11 B2 B- 8,150
7,875 Scotts Co., Senior Subordinated Notes, 6.63%,
due 11/15/13 Ba2 B+ 8,032
8,075 Sequa Corp., Senior Notes, Ser. B, 8.88%, due 4/1/08 B1 BB- 8,277
6,250 Service Corp. International, Senior Notes, 7.70%,
due 4/15/09 Ba3 BB 6,516
2,950 Shaw Communications, Inc., Senior Notes, 8.25%,
due 4/11/10 Ba2 BB+ 3,179
2,750 Sierra Pacific Power Co., General Refunding Mortgage Notes,
6.25%, due 4/15/12 Ba1 BB 2,757
7,125 Smithfield Foods, Inc., Senior Notes, 7.00%, due 8/1/11 Ba2 BB 7,232
4,500 Southern Star Central Corp., Senior Secured Notes, 8.50%,
due 8/1/10 B1 B+ 4,781
8,575 Speedway Motorsports, Inc., Senior Subordinated Notes,
6.75%, due 6/1/13 Ba2 B+ 8,768
5,125 Standard Pacific Corp., Senior Notes, 6.50%, due 10/1/08 Ba2 BB 5,023
2,375 Standard Pacific Corp., Senior Notes, 6.50%, due 8/15/10 Ba2 BB 2,235
3,175 Starwood Hotels & Resorts, Worldwide, Inc., Guaranteed
Senior Notes, 7.88%, due 5/1/12 Ba1 BB+ 3,421
6,125 Steinway Musical Instruments, Guaranteed Notes, 8.75%,
due 4/15/11 Ba3 B+ 6,416
5,000 Stena AB, Senior Notes, 9.63%, due 12/1/12 Ba3 BB- 5,400
4,725 Stewart Enterprises, Senior Notes, 6.25%, due 2/15/13 B1 BB- 4,465**
4,475 Stone Container Corp., Senior Notes, 9.75%, due 2/1/11 B2 B 4,475
5,575 Sungard Data Systems, Inc., Senior Unsecured Notes, 9.13%,
due 8/15/13 B3 B- 5,659**
3,425 Targa Resources, Inc., Guaranteed Notes, 8.50%,
due 11/1/13 B2 B- 3,476**
3,575 Texas Genco LLC, Senior Notes, 6.88%, due 12/15/14 B1 B 3,825**
4,875 Texas Industries, Inc., Senior Notes, 7.25%, due 7/15/13 Ba3 BB- 5,070**
8,000 Toll Corp., Senior Subordinated Notes, 8.25%, due 12/1/11 Ba2 BB+ 8,460
2,875 Transcontinental Gas Pipe Line Corp., Notes, Ser. B, 7.00%,
due 8/15/11 Ba2 B+ 3,004
5,175 Triad Hospitals, Inc., Senior Notes, 7.00%, due 5/15/12 B2 BB- 5,253
4,700 TXU Corp., Senior Notes, Ser. O, 4.80%, due 11/15/09 Ba1 BB+ 4,454
2,000 Universal Compression, Inc., Senior Notes, 7.25%,
due 5/15/10 Ba3 B 2,040
5,875 Valmont Industries, Inc., Guaranteed Notes, 6.88%,
due 5/1/14 Ba3 B+ 5,992
4,000 Ventas Realty LP, Guaranteed Notes, 7.13%, due 6/1/15 Ba3 BB 4,130
</Table>
See Notes to Schedule of Investments
23
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING ### VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 1,500 Videotron Ltee, Guaranteed Notes, 6.88%, due 1/15/14 Ba3 B+ $ 1,515
1,875 Videotron Ltee, Notes, 6.38%, due 12/15/15 Ba3 B+ 1,852**
6,650 Vintage Petroleum Inc., Senior Notes, 8.25%, due 5/1/12 Ba3 BB- 7,165
3,875 Vought Aircraft Industries, Inc., Senior Notes, 8.00%,
due 7/15/11 B2 B- 3,662
2,250 Warnaco, Inc., Senior Notes, 8.88%, due 6/15/13 B1 BB- 2,424
4,875 Warner Music Group, Senior Subordinated Notes, 7.38%,
due 4/15/14 B3 B- 4,753
6,000 Williams Cos., Inc., Notes, 8.13%, due 3/15/12 B1 B+ 6,480
3,000 Williams Scotsman, Inc., Senior Notes, 8.50%, due 10/1/15 B3 B 3,045**
6,725 Xerox Corp., Senior Notes, 6.88%, due 8/15/11 Ba2 BB- 6,927
---------------
TOTAL CORPORATE DEBT SECURITIES (COST $755,853) 745,257
---------------
REPURCHASE AGREEMENTS (1.6%)
12,800 State Street Bank and Trust Co. Repurchase Agreement, 3.45%,
due 11/1/05, dated 10/31/05, Maturity Value $12,801,227
Collateralized by $12,730,000 Fannie Mae, 5.75%,
due 2/15/08 (Collateral Value $13,184,881) (COST $12,800) 12,800#
---------------
NUMBER OF SHARES
SHORT-TERM INVESTMENTS (6.6%)
51,539,041 Neuberger Berman Securities Lending Quality Fund, LLC
(COST $51,539) 51,539#(C)
---------------
WARRANTS (0.0%)
500 Dayton Superior Corp. --*
22,136 Reliant Resources, Inc. --*
625 XM Satellite Radio, Inc. --*
---------------
TOTAL WARRANTS (COST $0) --
---------------
TOTAL INVESTMENTS (103.8%) (COST $820,192) 809,596##
Liabilities, less cash, receivables and other assets [(3.8%)] (29,897)
---------------
TOTAL NET ASSETS (100.0%) $ 779,699
---------------
</Table>
24
<Page>
SCHEDULE OF INVESTMENTS LIMITED MATURITY BOND FUND
<Table>
<Caption>
PRINCIPAL AMOUNT RATING ### VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
U.S. TREASURY SECURITIES-BACKED BY THE FULL FAITH AND CREDIT OF THE U.S. GOVERNMENT (0.6%)
$ 1,100 U.S. Treasury Notes, 2.25%, due 4/30/06 (COST $1,094) TSY TSY $ 1,089(OO)
---------------
U.S. GOVERNMENT AGENCY SECURITIES (13.0%)
4,400 Fannie Mae, Notes, 5.25%, due 4/15/07 AGY AGY 4,439
13,500 Federal Home Loan Bank, Notes, 3.38%, due 9/14/07 AGY AGY 13,203
4,735 Freddie Mac, Notes, 3.75%, due 4/15/07 AGY AGY 4,680
---------------
TOTAL U.S. GOVERNMENT AGENCY SECURITIES (COST $22,427) 22,322
---------------
MORTGAGE-BACKED SECURITIES (1.4%)
FANNIE MAE
56 Collateralized Mortgage Obligations, Planned Amortization
Certificates, Ser. 2003-16, Class PA, 4.50%, due 11/25/09 AGY AGY 56
FREDDIE MAC
24 ARM Certificates, 2.88%, due 1/1/17 AGY AGY 24~
234 Pass-Through Certificates, 5.00%, due 2/1/07 AGY AGY 235
1,799 Pass-Through Certificates, 8.50%, due 10/1/30 AGY AGY 1,931
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
6 Pass-Through Certificates, 7.50%, due 10/15/09 - 8/15/10 AGY AGY 6
59 Pass-Through Certificates, 7.00%, due 4/15/11 AGY AGY 62
32 Pass-Through Certificates, 12.00%, due 12/15/12 - 5/15/14 AGY AGY 37
---------------
TOTAL MORTGAGE-BACKED SECURITIES (COST $2,380) 2,351
---------------
CORPORATE DEBT SECURITIES (41.7%)
1,950 American Express, Notes, 5.50%, due 9/12/06 A1 A+ 1,963
1,310 AT&T Wireless Services, Inc., Senior Notes, 7.35%,
due 3/1/06 Baa2 A 1,321
1,200 Bank of America Corp., Senior Notes, 3.88%, due 1/15/08 Aa2 AA- 1,177
1,745 Bank of New York Co., Inc., Senior Notes, 5.20%, due 7/1/07 Aa3 A+ 1,757
1,800 Bear Stearns Co., Inc., Notes, 4.00%, due 1/31/08 A1 A 1,768
2,000 Berkshire Hathaway Finance, Notes, 3.40%, due 7/2/07 Aaa AAA 1,954
1,750 Boeing Capital Corp., Senior Notes, 5.75%, due 2/15/07 A3 A 1,770
1,900 Caterpillar Financial Services Corp., Notes, 2.59%,
due 7/15/06 A2 A 1,873
960 Chase Manhattan Corp., Subordinated Notes, 7.25%,
due 6/1/07 A1 A 993
1,750 CIT Group Inc., Senior Notes, 3.88%, due 11/3/08 A2 A 1,696
3,500 Citigroup, Inc., Notes, 5.00%, due 3/6/07 Aa1 AA- 3,512
2,000 Coca-Cola Enterprises, Notes, 5.38%, due 8/15/06 A2 A 2,012
1,675 Comcast Cable Communications, Notes, 8.38%, due 5/1/07 Baa2 BBB+ 1,756
2,200 Credit Suisse First Boston USA, Inc., Notes, 4.63%,
due 1/15/08 Aa3 A+ 2,190
1,300 Daimler Chrysler N.A. Holdings Corp., Guaranteed Notes,
4.05%, due 6/4/08 A3 BBB 1,262
1,950 Diageo Finance BV, Guaranteed Notes, 3.00%, due 12/15/06 A3 A- 1,911
715 Enterprise Products Operating, Senior Notes, 4.00%,
due 10/15/07 Baa3 BB+ 699
1,800 General Electric Capital Corp., Notes, 3.50%, due 5/1/08 Aaa AAA 1,745
2,400 Goldman Sachs Group, Inc., Notes, 4.13%, due 1/15/08 Aa3 A+ 2,363
1,950 Hewlett-Packard Co., Senior Notes, 5.50%, due 7/1/07 A3 A- 1,972
1,900 HSBC Finance Corp., Notes, 5.75%, due 1/30/07 A1 A 1,921
1,900 International Lease Finance Corp., Notes, 5.75%, due 2/15/07 A1 AA- 1,915
</Table>
See Notes to Schedule of Investments
25
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING ### VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 1,630 John Deere Capital Corp., Notes, 5.13%, due 10/19/06 A3 A- $ 1,636
1,300 Kraft Foods, Inc., Notes, 4.63%, due 11/1/06 A3 BBB+ 1,296
1,200 Mallinckrodt Group, Inc., Notes, 6.50%, due 11/15/07 Baa3 BBB+ 1,228
1,250 MBNA Corp., Notes, 4.63%, due 9/15/08 Baa2 BBB 1,240
2,300 Merrill Lynch & Co., Notes, 4.25%, due 9/14/07 Aa3 A+ 2,280
2,235 Morgan Stanley, Bonds, 5.80%, due 4/1/07 Aa3 A+ 2,262
1,900 National Rural Utilities Collateral Trust, 6.00%,
due 5/15/06 A1 A+ 1,914
2,200 SBC Communications, Inc., Notes, 5.75%, due 5/2/06 A2 A 2,212
1,000 Sprint Capital Corp., Guaranteed Notes, 6.00%, due 1/15/07 Baa2 A- 1,013
1,950 Target Corp., Notes, 3.38%, due 3/1/08 A2 A+ 1,890
1,650 Time Warner, Inc., Notes, 7.25%, due 9/1/08 Baa1 BBB+ 1,737
1,850 Toyota Motor Credit Corp., Medium Term Notes, 2.70%,
due 1/30/07 Aaa AAA 1,800
1,250 Union Bank Switzerland-NY, Subordinated Notes, 7.25%,
due 7/15/06 Aa3 AA 1,271
950 Univision Communications, Inc., Guaranteed Notes, 3.50%,
due 10/15/07 Baa2 BBB- 920
1,800 US Bank N.A., Notes, 2.85%, due 11/15/06 Aa1 AA- 1,760
1,800 Verizon Global Funding Corp., Notes, 4.00%, due 1/15/08 A2 A+ 1,765
1,800 Verizon Wireless Capital, Notes, 5.38%, due 12/15/06 A3 A+ 1,810
2,300 Wachovia Corp., Notes, 4.95%, due 11/1/06 Aa3 A+ 2,302
1,750 Washington Mutual, Inc., Senior Notes, 5.63%, due 1/15/07 A3 A- 1,764
---------------
TOTAL CORPORATE DEBT SECURITIES (COST $72,749) 71,630
---------------
FOREIGN GOVERNMENT SECURITIES^ (3.8%)
EUR 3,600 Bundesobligation, 3.50%, due 10/10/08 Aaa AAA 4,405
EUR 1,810 Bundesobligation, 3.25%, due 4/17/09 Aaa AAA 2,200
---------------
TOTAL FOREIGN GOVERNMENT SECURITIES^ (COST $6,813) 6,605
---------------
ASSET-BACKED SECURITIES (33.7%)
3,178 Adjustable Rate Mortgage Trust, Ser. 2005-10, Class 4A1,
5.39%, due 1/25/36 AAA 3,188
2,804 Banc of America Commercial Mortgage Inc., Series 2005-1,
Class A1, 4.36%, due 11/10/42 Aaa AAA 2,787
1,358 Banc of America Funding Corp., Ser. 2005-F, Class 4A1,
5.45%, due 9/20/35 Aa1 AAA 1,354
3,250 Banc of America Funding Corp., Ser. 2005-H, Class 7A1,
5.72%, due 11/20/35 Aaa AAA 3,280
3,000 Capital Auto Receivables Asset Trust, Ser. 2004-2, 3.58%,
due 1/15/09 Aaa AAA 2,936
2,345 Chase Funding Mortgage Loan, Ser. 2003-6, Class 1A3, 3.34%,
due 5/25/26 Aaa AAA 2,300
3,600 Chase Manhattan Auto Owner Trust, Ser. 2003-C, Class A4,
2.94%, due 6/15/10 Aaa AAA 3,507
3,750 Citibank Credit Card Issuance Trust, Ser. 2004-A1, 2.55%,
due 1/20/09 Aaa AAA 3,649
2,017 Countrywide Home Loans, Ser. 2005-R2, Class 2A4, 8.50%,
due 6/25/35 Aaa AAA 2,161**
3,220 First Horizon Mortgage Pass-Through Trust, Ser. 2005-AR5,
Class 2A1, 5.47%, due 11/25/35 Aaa AAA 3,218
2,250 Ford Credit Auto Owner Trust, Ser. 2005-A, Class A3, 3.48%,
due 11/15/08 Aaa AAA 2,220
</Table>
26
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING ### VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 910 GSMPS Mortgage Loan Trust, Ser. 2005-RP3, Class 1A4, 8.50%,
due 9/25/35 Aaa AAA $ 970
2,994 Harborview Mortgage Loan Trust, Floating Rate, Ser. 2004-4,
Class 3A, 2.98%, due 11/19/05 Aaa AAA 2,932~
3,323 Indymac Index Mortgage Loan Trust, Ser. 2005-AR23,
Class 2A1, 5.59%, due 11/25/35 Aaa AAA 3,323
1,250 John Deere Owner Trust, Ser. 2005-A, Class A3, 3.98%,
due 6/15/09 Aaa AAA 1,234
2,257 JP Morgan Mortgage Trust, Ser. 2005-A4, Class 2A1, 5.08%,
due 7/25/35 Aaa AAA 2,236
3,259 JP Morgan Mortgage Trust, Ser. 2005-ALT1, Class 2A1, 5.66%,
due 10/25/35 Aaa AAA 3,273
3,750 MBNA Credit Card Master Note Trust, Ser. 2002-A1, Class A1,
4.95%, due 6/15/09 Aaa AAA 3,765
2,250 Nissan Auto Receivables Owner Trust, Ser. 2005-A, Class A3,
3.54%, due 10/15/08 Aaa AAA 2,216
1,402 Nomura Asset Acceptance Corp., Ser. 2005-S3, Class AIO,
20.00%, due 8/25/35 Aaa AAA 310
3,233 Residential Accredit Loans, Inc., Ser. 2005-QA10, Class A31,
5.64%, due 9/25/35 Aaa AAA 3,245
2,690 Saxon Asset Securities Trust, Ser. 2004-2, Class AF2, 4.15%,
due 8/25/35 Aaa AAA 2,665
1,100 USAA Auto Owner Trust, Ser. 2005-1, Class A3, 3.90%,
due 7/15/09 Aaa AAA 1,087
---------------
TOTAL ASSET-BACKED SECURITIES (COST $58,448) 57,856
---------------
REPURCHASE AGREEMENTS (5.3%)
9,160 State Street Bank and Trust Co. Repurchase Agreement, 3.45%,
due 11/1/05, dated 10/31/05, Maturity Value $9,160,878
Collateralized by $9,110,000 Fannie Mae, 5.75%,
due 2/15/08 (Collateral Value $9,435,528) (COST $9,160) 9,160#
---------------
TOTAL INVESTMENTS (99.5%) (COST $173,071) 171,013##
Cash, receivables and other assets, less liabilities (0.5%) 938
---------------
TOTAL NET ASSETS (100.0%) $ 171,951
---------------
</Table>
See Notes to Schedule of Investments
27
<Page>
SCHEDULE OF INVESTMENTS MUNICIPAL MONEY FUND
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @ RATING @@### VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
MUNICIPAL NOTES (8.0%)
$ 1,785 American Muni. Pwr. (Ohio Inc. BANS), Cleveland Pub. Pwr.
Notes Ser. 2005, 3.10%, due 8/17/06 $ 1,785
1,000 American Muni. Pwr. (Ohio Inc. BANS), Ser. 2005, 3.35%,
due 11/2/06 1,000(O)
1,000 Barrington (NJ) Sch. Dist. Grant Anticipation Notes,
Ser. 2005, 4.25%, due 10/20/06 1,010
2,000 Beacon (NY) Sch. Dist. BANS, Ser. 2005, 3.50%,
due 12/29/05 2,002
1,000 Burlington Area (WI) Sch. Dist. TRANS, Ser. 2005, 3.85%,
due 9/21/06 1,007
3,000 DC Everest Area (WI) Sch. Dist. TRANS, Ser. 2005, 3.25%,
due 8/28/06 A-1 3,007
1,300 East China (MI) Sch. Dist. St. Aid Anticipation Notes,
Ser. 2005, 3.25%, due 3/15/06 1,301
1,570 Fairborn (OH) BANS, Ser. 2005, 4.00%, due 6/28/06 1,582
1,900 Hampden-Wilbraham (MA) Sch. Dist. BANS, Ser. 2005,
4.25%, due 10/13/06 1,920
2,000 Hunting Valley (OH) BANS, Ser. 2005, 3.75%, due 10/5/06 2,014
8,000 Kentucky Asset/Liability Commission Gen. Fund TRANS,
Ser. 2005 A, 4.00%, due 6/28/06 MIG1 SP-1+ 8,068
2,000 King Co. (WA) BANS, Ser. 2005 B, 4.50%, due 11/1/06 MIG1 SP-1+ 2,029(O)
2,150 Michigan Muni. Bond Au. Notes, Ser. 2005 B-1, 4.00%,
due 8/18/06 SP-1+ 2,169
2,000 Missouri Pub. Utils. Commission Rev. Interim Construction
Notes, Ser. 2005, 4.00%, due 9/15/06 MIG1 2,016
1,350 Pepper Pike (OH) BANS, Ser. 2005, 3.00%, due 6/22/06 1,351
7,700 Strafford Co. (NH) TANS, Ser. 2005, 3.75%, due 12/28/05 7,712
4,500 Texas St. TRANS, Ser. 2005, 4.50%, due 8/31/06 MIG1 SP-1+ 4,552
2,500 West Allis West Milwaukee (WI) Sch. Dist. TRANS, Ser. 2005,
4.25%, due 9/25/06 MIG1 2,525(O)
---------------
47,050
---------------
TAX-EXEMPT SECURITIES--BACKED BY INSURANCE (0.3%)
MUNICIPAL BOND ASSURANCE CORP.
1,700 Cumberland Co. (PA) Muni. Au. Dickenson College Rev.
Ser. 2000 B, 3.20%, due 11/1/24 VMIG1 1,700++++(O)(uu)
---------------
TAX-EXEMPT SECURITIES--BACKED BY LETTERS OF CREDIT (3.3%)
BANK OF AMERICA
10,000 Tulsa Co. (OK) Ind. Au. Cap. Imp. Rev., Ser. 2003 A, 2.95%,
due 5/15/17 Putable 11/15/05 A-1+ 10,000
CITIZENS BANK
1,400 Allegheny Co. (PA) Ind. Dev. Au. Rev. (Pittsburgh
Theological Seminary), Ser. 2001, 2.85%, due 8/1/31
Putable 8/1/06 VMIG1 1,400++++
DEPFA BANK
4,500 Northside (TX) Independent Sch. Dist. Sch. Bldg. Rev.,
Ser. 2005, 2.85%, due 6/15/35 Putable 6/15/06 VMIG1 A-1+ 4,500
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
---------------
19,400
---------------
TAX-EXEMPT SECURITIES--OTHER (4.2%)
5,000 Chicago (IL) Park Dist. Corp. Purp. Tax Anticipation
Warrants, Ser. 2005 A, 4.00%, due 5/1/06 MIG1 SP-1+ 5,027
</Table>
28
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @ RATING @@### VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 3,000 Illinois Hlth. Fac. Au. Rev. (Advocate Hlth. Care Network),
Ser. 2003 A, 2.74%, due 11/15/22 Putable 7/6/2006 VMIG1 A-1+ $ 3,000++++
3,000 North Wales (PA) Wtr. Au. Rev. (Rural Wtr. Proj.),
Ser. 2005, 4.00%, due 10/1/06 MIG1 3,023
3,000 Racine (WI) Unified Sch. Dist. TRANS, Ser. 2005, 4.00%,
due 7/14/06 MIG1 3,025
5,000 Sevier Co. (TN) Pub. Bldg. Au. Pub. Proj. Construction Notes
(Taud Loan Prog.), Ser. 2005 A-3, 2.85%, due 4/1/06 VMIG1 5,000
5,700 Tippecanoe (IN) Sch. Corp. Temporary Loan Warrants,
Ser. 2005, 3.25%, due 12/30/05 5,703
---------------
24,778
---------------
TAX-EXEMPT VARIABLE RATE DEMAND NOTES (8.4%)~
2,000 Berkeley Co. (SC) Exempt Fac. Ind. Rev. (Amoco Chemical Co.
Proj.), Ser. 1998, 2.79%, due 11/1/05 VMIG1 A-1+ 2,000++++
15,000 Brazos River (TX) Harbor Navigation Dist. of Brazoria Co.
Rev. (BASF Corp. Proj.), Ser. 1997, 2.79%, due 11/1/05 P-1 15,000++++
2,500 Gibson Co. (IN) PCR (Toyota Motor Mfg. Proj.), Ser. 1997,
2.75%, due 11/2/05 A-1+ 2,500++++
6,000 Gibson Co. (IN) PCR (Toyota Motor Mfg. Proj.), Ser. 2001 B,
2.75%, due 11/2/05 P-1 6,000++++
3,200 Gulf Coast (TX) Ind. Dev. Au. Exempt Fac. Ind. Rev.
(BP Global Pwr. Corp. Proj.), Ser. 2003, 2.79%, due 11/1/05 VMIG1 3,200++++
100 Gulf Coast (TX) Waste Disp. Au. Env. Fac. Rev. (BP Amoco
Chemical Co. Proj.), Ser. 2003, 2.79%, due 11/1/05 VMIG1 A-1+ 100++++
1,100 Gulf Coast (TX) Waste Disp. Au. Env. Fac. Rev. (BP Prod.
North America Proj.), Ser. 2003, 2.79%, due 11/1/05 VMIG1 A-1+ 1,100++++
1,600 Gulf Coast (TX) Waste Disp. Au. Env. Fac. Rev. (ExxonMobil
Oil Corp. Proj.), Ser. 2002, 2.81%, due 11/1/05 VMIG1 A-1+ 1,600++++
1,200 Gulf Coast (TX) Waste Disp. Au. PCR (Amoco Oil Co. Proj.),
Ser. 1994, 2.79%, due 11/1/05 VMIG1 A-1+ 1,200++++
3,900 Gulf Coast (TX) Waste Disp. Au. Solid Waste Disp. Rev.
(Amoco Oil Co. Proj.), Ser. 1995, 2.79%, due 11/1/05 VMIG1 3,900++++
5,700 Harris Co. (TX) IDC Solid Waste Disp. Rev. (Exxon Proj.),
Ser. 1997, 2.68%, due 11/1/05 VMIG1 A-1+ 5,700++++
300 Louisville & Jefferson Co. (KY) Reg. Arpt. Au. Spec. Fac.
Rev. (UPS Worldwide Forwarding, Inc. Proj.), Ser. 1999 B,
2.75%, due 11/1/05 VMIG1 A-1+ 300++++
4,615 Ohio Solid Waste Rev. (BP Exploration & Oil Inc. Proj.),
Ser. 2000, 2.80%, due 11/1/05 VMIG1 A-1+ 4,615++++
500 Ohio St. Solid Waste Ref. Rev. (BP Prod. North America, Inc.
Proj. - BP p.l.c.), Ser. 2002, 2.80%, due 11/1/05 VMIG1 A-1+ 500++++
1,000 St. Lucie Co. (FL) Solid Waste Disp. Ref. Rev. (Florida Pwr.
& Light Co. Proj.), Ser. 2003, 2.79%, due 11/1/05 VMIG1 1,000++++
500 Whiting (IN) Env. Fac. Rev. (Amoco Oil Co. Proj.), Ser.
2000, 2.79%, due 11/1/05 VMIG1 A-1+ 500++++
---------------
49,215
---------------
TAX-EXEMPT VARIABLE RATE DEMAND NOTES--BACKED BY LETTERS OF CREDIT (55.9%)~
ABN AMRO BANK NV
8,300 Amarillo (TX) Independent Sch. Dist. G.O. (ABN Amro Munitops
Cert. Trust), Ser. 2005, 2.76%, due 11/3/05 VMIG1 8,300
5,300 Clark Co. (NV) IDR (Nevada Cogeneration Assoc. 2 Proj.),
Ser. 1992, 2.79%, due 11/1/05 VMIG1 A-1+ 5,300
BANK OF AMERICA
4,125 Atlanta (GA) Urban Residential Fin. Au. Multi-Family Hsg.
Rev. (Capitol Gateway Apts.), Ser. 2005, 2.79%, due 11/3/05 A-1+ 4,125++++
</Table>
See Notes to Schedule of Investments
29
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @ RATING @@### VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 1,200 Calhoun Co. (TX) Navigation IDA Port Rev. (Formosa Plastics
Corp., Texas Proj.), Ser. 1994, 2.75%, due 11/2/05 VMIG1 $ 1,200++++
1,700 Palm Beach Co. (FL) Rev. (The Norton Gallery and Sch. of
Art, Inc. Proj.), Ser. 2000, 2.73%, due 11/2/05 A-1+ 1,700++++
2,250 Washington St. Hsg. Fin. Commission Multi-Family Rev.
(Fairwinds Redmond Proj.), Ser. 2005 A, 2.79%, due 11/4/05 VMIG1 2,250++++
BANK OF NEW YORK
3,000 Idaho Hsg. & Fin. Assoc. Non Profit Fac. Rev. (Comm. Sch.
Proj.), Ser. 2005, 2.70%, due 11/1/05 VMIG1 3,000++++
1,700 Lynchburg (VA) Ind. Dev. Au. Hosp. Rev. (VHA Mid-Atlantic
St., Inc. Cap. Asset Fin. Prog.), Ser. 1985 E, 2.72%,
due 11/3/05 A-1+ 1,700
BANK ONE
1,300 Michigan St. Hsg. Dev. Au. Ltd. Oblig. Rev. (Shoal Creek
Apts.), Ser. 1985, 2.75%, due 11/2/05 VMIG1 1,300
CITIBANK, N.A.
5,000 Colorado Springs (CO) Utils. Rev., Ser. 2005, 2.74%,
due 11/3/05 VMIG1 5,000
100 Los Angeles (CA) Multi-Family Hsg. Ref. Rev. (Tri-City Proj.),
Ser. 2001 I, 2.64%, due 11/3/05 A-1+ 100++++
6,300 New York St. Dorm. Au. Rev., Ser. 2005, 2.73%, due 11/3/05 VMIG1 6,300(E)
4,985 Wyandotte Co./Kansas City (KS) Unified Govt. Spec. Oblig.
Rev., Ser. 2005, 2.77%, due 11/3/05 4,985
CREDIT LYONNAIS
1,900 Denver (CO) City & Co. Multi-Family Hsg. Rev. (Ogden
Residences Proj.), Ser. 1985, 2.73%, due 11/1/05 VMIG1 1,900
DEPFA BANK
7,900 Pennsylvania Hsg. Fin. Agcy. (Single Family Mtge.),
Ser. 2005, 2.72%, due 11/2/05 VMIG1 A-1+ 7,900
2,750 Univ. of Pittsburgh (PA) Commonwealth Sys. of Higher Ed.
Ref. Rev. (Univ. Cap. Proj.), Ser. 2000 A, 2.68%,
due 11/3/05 VMIG1 A-1+ 2,750
DEXIA CREDIT LOCALE DE FRANCE
1,000 Rhode Island Std. Loan Au. Prog. Rev., Ser. 1996-1, 2.73%,
due 11/2/05 A-1+ 1,000
2,000 Rhode Island Std. Loan Au. Prog. Rev., Ser. 1996-3,
2.73%, due 11/2/05 A-1+ 2,000
FANNIE MAE
4,600 Fulton Co. (GA) Hsg. Au. Multi-Family Hsg. Ref. Rev.
(Champions Green Apts. Proj.), Ser. 1994 B, 2.71%,
due 11/2/05 VMIG1 4,600++++
4,400 Gwinnett Co. (GA) Hsg. Au. Multi-Family Hsg. Ref. Rev.
(Greens Apts. Proj.), Ser. 1995, 2.71%, due 11/2/05 A-1+ 4,400++++
6,050 Montgomery Co. (PA) Redev. Au. Multi-Family Hsg. Rev.
(Kingswood Apts. Proj.), Ser. 2001 A, 2.67%, due 11/3/05 A-1+ 6,050++++
2,670 New Mexico Mtge. Fin. Au. Rev., Ser. 2005, 2.78%,
due 11/3/05 A-1+ 2,670(ZZ)
2,200 New York City (NY) Hsg. Dev. Corp. Multi-Family Rental Hsg.
Rev. (The Foundry), Ser. 2002 A, 2.71%, due 11/2/05 A-1+ 2,200++++
2,100 Northampton Co. (PA) Ind. Dev. Au. IDR (Losco Family
Properties, LLC Proj.), Ser. 2005, 2.85%, due 11/3/05 2,100++++
3,200 Shelby Co. (TN) Hlth. Ed. & Hsg. Fac. Board Multi-Family
Hsg. Rev. (Lexington), Ser. 2005 A, 2.80%, due 11/3/05 VMIG1 3,200
1,100 Tarrant Co. (TX) Hsg. Fin. Corp. Multi-Family Ref. Rev.
(Sierra Spring Apts. Proj.), Ser. 1999, 2.71%, due 11/3/05 A-1+ 1,100++++
</Table>
30
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING @@### VALUE ++
(000'S OMITTED) SECURITY @ MOODY'S S&P (000'S OMITTED)
FREDDIE MAC
$ 5,305 El Paso Co. (CO) Multi-Family Hsg. Ref. Rev. (Briarglen
Apts. Proj.), Ser. 1995, 2.71%, due 11/2/05 A-1+ $ 5,305++++
2,100 Independence (MO) Ind. Dev. Au. Multi-Family Hsg. Ref. Rev.
(The Mansions Proj.), Ser. 2005, 2.70%, due 11/3/05 VMIG1 2,100++++
3,900 Metro Govt. Nashville & Davidson Co. (TN) IDB Multi-Family
Hsg. Ref. Rev. (Ridgelake Apts. Proj.), Ser. 2004, 2.71%,
due 11/3/05 A-1+ 3,900++++
5,220 Montgomery Co. (MD) Hsg. Opportunities Commission
Multi-Family Hsg. Rev. (Oakwood), Ser. 1991 A, 2.71%,
due 11/2/05 A-1+ 5,220
11,700 Newport News (VA) Redev. & Hsg. Au. Multi-Family Hsg. Ref.
Rev. (Springhouse Apts. Proj.), Ser. 2001, 2.71%,
due 11/3/05 A-1+ 11,700++++
1,300 Washington St. Hsg. Fin. Commission Multi-Family Mtge. Rev.
(Wandering Creek Proj.), Ser. 1995, 2.76%, due 11/2/05 VMIG1 1,300
HARRIS TRUST AND SAVINGS BANK
3,000 Camp Co. (TX) Ind. Dev. Corp. Env. Fac. Rev. (Pilgrim's
Pride Corp. Proj.), Ser. 1999, 2.13%, due 11/2/05 VMIG1 A-1+ 3,000++++
800 Minnesota St. Higher Ed. Fac. Au. Rev. (St. Olaf College),
Ser. 2002 M2, 2.73%, due 11/1/05 VMIG1 800
J.P. MORGAN CHASE
2,800 Austin (TX) Arpt. Sys. Prior Lien Rev., Ser. 1995 A, 2.74%,
due 11/2/05 P-1 A-1+ 2,800
1,800 Brazoria Co. (TX) Hlth. Fac. Dev. Corp. Hosp. Rev.
(Brazosport Mem. Hosp.), Ser. 1999, 2.75%, due 11/3/05 VMIG1 1,800++++
1,280 Douglas Co. (GA) Dev. Au. IDR (Whirlwind Steel Bldg., Inc.
Proj.), Ser. 1997, 2.80%, due 11/3/05 Aa2 1,280++++
6,480 Harris Co. (TX) Hlth. Fac. Dev. Corp. Rev., Ser. 2005-1018,
2.74%, due 11/3/05 VMIG1 A-1+ 6,480
5,760 Indiana Univ. Std. Residence Sys. Rev., Ser. 1998, 2.69%,
due 11/2/05 VMIG1 A-1+ 5,760
5,000 Mississippi Bus. Fin. Corp. IDR (VC Reg. Assembly & Mfg.
Proj.), Ser. 2003, 2.74%, due 11/2/05 A-1+ 5,000++++
KEY BANK
4,390 Erie (CO) Cert. of Participation, Ser. 2005, 2.69%,
due 11/2/05 VMIG1 A-1 4,390(O)
5,500 New Albany (OH) Comm. Au. Multi-Purp. Infrastructure Imp.
Ref. Rev., Ser. 2004 C, 2.73%, due 11/3/05 VMIG1 5,500
2,400 New York St. Hsg. Fin. Agcy. Hsg. Rev. (521 West 42nd Street
Apts.), Ser. 2004 A, 2.72%, due 11/2/05 VMIG1 2,400++++
LANDESBANK BADEN-WURTTMBERG
1,600 Massachusetts St. G.O. (Central Artery), Ser. 2000 A, 2.72%,
due 11/1/05 A-1+ 1,600
LASALLE NATIONAL BANK
1,700 Elmhurst City, DuPage & Cook Cos. (IL) IDR (Randall
Manufactured Prod., Inc. Proj.), Ser. 2002, 2.90%,
due 11/3/05 A-1 1,700++++
3,000 Indiana Dev. Fin. Au. IDR (Enterprise Ctr. II Proj.), Ser.
1992, 2.79%, due 11/2/05 A-1 3,000++++
LLOYD'S BANK
7,600 Maryland Comm. Dev. Admin. Dept. of Hsg. & Comm. Dev.
Residential Rev., Ser. 2004 C, 2.72%, due 11/3/05 VMIG1 7,600
</Table>
See Notes to Schedule of Investments
31
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING @@### VALUE ++
(000'S OMITTED) SECURITY @ MOODY'S S&P (000'S OMITTED)
$ 6,000 Minnesota St. Hsg. Fin. Agcy. Residential Hsg. Rev.,
Ser. 2003 J, 2.75%, due 11/3/05 VMIG1 A-1+ $ 6,000
5,000 North Dakota Hsg. Fin. Agcy. Home Mtge. Fin. Rev. (Hsg. Fin.
Prog.), Ser. 2004 C, 2.73%, due 11/2/05 VMIG1 5,000
5,705 North Texas Higher Ed. Au., Inc. Std. Loan Rev., Ser. 2001 A,
2.75%, due 11/2/05 A-1+ 5,705
10,000 North Texas Higher Ed. Au., Inc. Std. Loan Rev., Ser. 2004 A,
2.75%, due 11/2/05 A-1+ 10,000
MARSHALL & ILSLEY
3,650 Roseville (MN) Private Sch. Fac. Rev. (Northwestern College
Proj.), Ser. 2002, 2.78%, due 11/1/05 VMIG1 3,650++++
MERRILL LYNCH CAPITAL MARKETS
6,480 North Little Rock (AR) Residential Hsg. Fac. Board
Multi-Family Rev., Ser. 2004, 2.74%, due 11/3/05 VMIG1 6,480
9,320 Port of Portland (OR) Arpt. Rev., Ser. 2005, 2.82%,
due 11/3/05 9,320
MORGAN STANLEY
4,075 Energy Northwest (WA) Elec. Rev., Ser. 2005-1096, 2.73%,
due 11/3/05 VMIG1 4,075
NATIONAL CITY BANK
2,000 Indiana Hlth. & Ed. Fac. Fin. Au. Hosp. Rev. (Howard Reg.
Hlth. Sys. Proj.), Ser. 2005 B, 2.78%, due 11/1/05 A-1 2,000++++
3,200 Michigan Strategic Fund Ltd. Oblig. Rev. (Behr Sys., Inc.
Proj.), Ser. 2001, 2.81%, due 11/3/05 3,200++++
NORTHERN TRUST CO.
6,400 Illinois Dev. Fin. Au. Rev. (Chicago Symphony Orchestra
Proj.), Ser. 1994, 2.69%, due 11/2/05 VMIG1 A-1+ 6,400++++
PNC BANK N.A.
6,600 Pennsylvania Econ. Dev. Fin. Au. Rev. (Philadelphia Area
Independent Sch. Bus. Officers Assoc. Fin. Prog.),
Ser. 2000 J-4, 2.72%, due 11/3/05 A-1 6,600++++
RABOBANK NEDERLAND
2,590 Ohio Str Wtr. Dev. Au. Rev., Ser. 2005-1118, 2.73%,
due 11/3/05 A-1+ 2,590
STATE STREET BANK
5,000 Maine St. Hsg. Au. Mtge. Purchase Rev., Ser. 2004 C-3,
2.75%, due 11/3/05 VMIG1 A-1+ 5,000
5,000 Oregon St. Hsg. & Comm. Svcs. Dept. Mtge. Rev. (Single
Family Mtge. Prog.), Ser. 2004 L, 2.75%, due 11/2/05 VMIG1 5,000
SUNTRUST BANK
5,000 Birmingham (AL) Med. Clinic Board Rev. (UAHSF), Ser. 1991,
2.70%, due 11/2/05 VMIG1 A-1+ 5,000(Y)
600 DeKalb (GA) Private Hosp. Au. Anticipation Cert. Rev.
(Egleston Children's Hosp.), Ser. 1994 A, 2.70%, due 11/2/05 VMIG1 A-1+ 600++++
TD BANKNORTH
4,200 New Hampshire St. Bus. Fin. Au. Rev. (Taylor Home),
Ser. 2005 B, 2.73%, due 11/3/05 VMIG1 4,200++++
TORONTO DOMINION BANK
2,500 Indiana Muni. Pwr. Agcy. Pwr. Supply Sys. Ref. Rev.,
Ser. 1998 A, 2.70%, due 11/2/05 VMIG1 A-1+ 2,500
</Table>
32
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING @@### VALUE ++
(000'S OMITTED) SECURITY @ MOODY'S S&P (000'S OMITTED)
UNION BANK OF SWITZERLAND
$ 1,500 Florence Co. (SC) Solid Waste Disp. & Wastewater Treatment
Fac. Rev. (Roche Carolina Inc. Proj.), Ser. 1997, 2.81%,
due 11/1/05 A-1+ $ 1,500++++
U.S. BANK
7,749 Arden Hills (MN) Hlth. Care & Hsg. Ref. Rev. (Presbyterian
Homes of Arden Hills, Inc. Proj.), Ser. 1999 A, 2.78%,
due 11/1/05 A-1+ 7,749++++
3,000 Iowa Fin. Au. Private College Rev. (Drake Univ. Proj.),
Ser. 2001, 2.78%, due 11/1/05 A-1+ 3,000++++
2,600 Iowa Fin. Au. Private College Fac. Rev. (Morningside
College Proj.), Ser. 2001, 2.78%, due 11/1/05 A-1+ 2,600++++
1,700 Kansas St. Dev. Fin. Au. Rev. (Hays Med. Ctr.), Ser. 2000 N,
2.78%, due 11/1/05 VMIG1 1,700++++
1,230 Missouri St. Hlth. & Ed. Fac. Au. Hlth. Fac. Rev. (Bethesda
Hlth. Group Inc.), Ser. 2004, 2.78%, due 11/1/05 VMIG1 1,230++++
970 Wisconsin St. Hlth & Ed. Fac. Au. Rev. (Riverview Hosp.
Assoc.), Ser. 2001, 2.78%, due 11/1/05 A-1+ 970++++
WACHOVIA BANK & TRUST CO.
6,000 Birmingham (AL) Med. Clinic Board Rev. (UAHSF Med. Clinic),
Ser. 1998, 2.75%, due 11/4/05 6,000++++
500 Fulco (GA) Hosp. Au. Anticipation Cert. Rev. (Shepherd Ctr.,
Inc. Proj.), Ser. 1997, 2.70%, due 11/2/05 A-1+ 500++++
5,100 Lincoln Co. (NE) Elec. Sys. Rev., Ser. 2003 B-1, 2.72%,
due 11/3/05 VMIG1 5,100
5,995 Missouri St. Board of Pub. Bldgs. Spec. Oblig. Rev.,
Ser. 2003 B-38, 2.72%, due 11/2/05 VMIG1 5,995
500 Morgan Co. (UT) Solid Waste Disp. Rev. (Holnam Inc. Proj.),
Ser. 1996, 2.75%, due 11/2/05 VMIG1 A-1+ 500++++
1,400 Ohio St. Wtr. Dev. Au. PCR (Ohio Edison Co. Proj.),
Ser. 1988, 2.80%, due 11/1/05 P-1 A-1+ 1,400++++
8,500 Pennsylvania Higher Ed. Assist. Agcy. Std. Loan Rev.,
Ser. 1988 E, 2.73%, due 11/2/05 VMIG1 A-1+ 8,500####
1,000 South Carolina Jobs Econ. Dev. Au. Rev. (Florence RHF Hsg.,
Inc. Proj.), Ser. 1987 A, 2.95%, due 11/2/05 1,000++++
1,255 Whitfield Co. (GA) Residential Care Fac. Rev. (Royal Oaks
Sr. Living Comm.), Ser. 1992, 2.70%, due 11/3/05 A-1+ 1,255
WELLS FARGO & CO.
2,140 Mankato (MN) Rev. (Bethany Lutheran College), Ser. 2000 B,
2.78%, due 11/1/05 A-1+ 2,140++++
1,900 Michigan Job. Dev. Au. Ind. Dev. Rev. (Kentwood Residence
Assoc. Proj.), Ser. 1984, 2.75%, due 11/30/05 A-1+ 1,900
700 New Ulm (MN) Hosp. Ref. Rev. (Hlth. Central Sys. Proj.),
Ser. 1985, 2.65%, due 11/2/05 A-1+ 700
7,040 Seattle (WA) Hsg. Au. Low-Income Hsg. Assist. Rev. (Foss
Home Proj.), Ser. 1994, 2.73%, due 11/3/05 A-1+ 7,040++++
200 Washington St. Hsg. Fin. Commission Non Profit Hsg. Rev.
(Rockwood Retirement Prog.), Ser. 1999 A, 2.80%,
due 11/1/05 VMIG1 200++++
WESTDEUTSCHE LANDESBANK GIROZENTRALE
4,100 Massachusetts Bay Trans. Au. Gen. Trans. Sys. Rev.,
Ser. 2000, 2.68%, due 11/2/05 VMIG1 A-1+ 4,100
---------------
328,164
---------------
</Table>
See Notes to Schedule of Investments
33
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING @@### VALUE ++
(000'S OMITTED) SECURITY @ MOODY'S S&P (000'S OMITTED)
TAX-EXEMPT VARIABLE RATE DEMAND NOTES--BACKED BY INSURANCE (21.4%)~
AMERICAN MUNICIPAL BOND ASSURANCE CORP.
$ 7,000 Delaware Econ. Dev. Au. Rev. (Hosp. Billing & Collection
Svc., Ltd Proj.), Ser. 1985 C, 2.69%, due 11/3/05 VMIG1 A-1 $ 7,000(E)++++
5,000 Houston (TX) G.O., Ser. 2005-1151, 2.73%, due 11/3/05 5,000(E)
3,600 Lynchburg (VA) Ind. Dev. Au. Hosp. Rev. (VHA Mid-Atlantic
St., Inc. Cap. Asset Fin. Prog.), Ser. 1985 D, 2.72%,
due 11/2/05 A-1+ 3,600####
4,000 Maine Hsg. Au. Mtge. Purchase Rev., Ser. 2003 E-2,
2.75%, due 11/3/05 VMIG1 A-1+ 4,000~~
9,160 Michigan Higher Ed. Std. Loan Au. Ref. Rev., Ser. 1988
XII-B, 2.73%, due 11/2/05 VMIG1 A-1 9,160(CC)
2,000 Pennsylvania Higher Ed. Assist. Agcy. Std. Loan Rev.,
Ser. 1995 A, 2.73%, due 11/2/05 VMIG1 A-1+ 2,000^^
3,600 Sayre (PA) Hlth. Care Fac. Au. Hosp. Rev. (VHA of PA, Inc.
Cap. Asset Fin. Proj.), Ser. 1985, 2.72%, due 11/2/05 A-1+ 3,600####
2,000 Utah St. Board of Regents Std. Loan Rev., Ser. 1995 L,
2.75%, due 11/2/05 A-1+ 2,000
FINANCIAL GUARANTY INSURANCE CO.
1,250 Central Bucks (PA) Sch. Dist., Ser. 2000 A, 2.75%,
due 11/3/05 VMIG1 1,250
8,600 Las Vegas Valley (NV) Wtr. Dist. G.O. (ABN Amro Munitops
Cert. Trust), Ser. 2005, 2.76%, due 11/3/05 VMIG1 8,600(U)
FINANCIAL SECURITY ASSURANCE CORP.
5,320 Broward Co. (FL) Sch. Board Cert. of Participation,
Ser. 2005, 2.73%, due 11/3/05 A-1 5,320(Z)
4,623 King Co. (WA) Swr. Rev., Ser. 2005-1091, 2.73%, due 11/3/05 4,623(E)
4,630 Metro. Washington (DC) Arpt. Au. Arpt. Sys. Ref. Rev.,
Ser. 2002 C, 2.75%, due 11/2/05 VMIG1 A-1+ 4,630~~
5,525 Zionsville (IN) Comm. Sch. Bldg. Corp. Rev., Ser. 2005-938,
2.74%, due 11/3/05 A-1 5,525(NN)
MUNICIPAL BOND INVESTORS ASSURANCE CORP.
4,300 Chicago (IL) Ref. G.O., Ser. 2005-1026, 2.73%, due 11/3/05 4,300(E)
2,300 East Porter Co. (IN) Sch. Bldg. Corp. Ind. Rev., Ser. 2005
DB-145, 2.74%, due 11/3/05 A-1+ 2,300(EE)
5,800 Greater (AZ) Dev. Au. Rev. (ABN Amro Munitops Cert. Trust),
Ser. 2005-49, 2.74%, due 11/2/05 VMIG1 5,800(U)
8,070 Honolulu (HI) City & Co. G.O., Ser. 2005, 2.74%, due 11/4/05 8,070(Z)
5,875 Indiana Bond Bank Rev., Ser. 2002-670, 2.73%, due 11/3/05 A-1 5,875(E)
6,880 Intermountain Pwr. Agcy. (UT) Pwr. Supply Rev., Ser. 2002
A-59, 2.72%, due 11/2/05 VMIG1 6,880(YY)
5,390 Miami-Dade Co. (FL) G.O., Ser. 2005, 2.73%, due 11/4/05 5,390(Z)
7,730 San Juan Co. (NM) Gross Receipts Tax Rev., Ser. 2004,
2.74%, due 11/3/05 A-1 7,730(N)
RADIAN
13,000 Maryland Hlth. & Higher Ed. Fac. Au. Rev. (Pickersgill
Issue), Ser. 2005 A, 2.72%, due 11/2/05 A-1 13,000++++***
---------------
125,653
---------------
TOTAL INVESTMENTS (101.5%) 595,960
Liabilities, less cash, receivables and other assets [(1.5%)] (8,848)
---------------
TOTAL NET ASSETS (100.0%) $ 587,112
---------------
</Table>
34
<Page>
SCHEDULE OF INVESTMENTS MUNICIPAL SECURITIES TRUST
<Table>
<Caption>
PRINCIPAL AMOUNT RATING ### VALUE +
(000'S OMITTED) SECURITY @ MOODY'S S&P (000'S OMITTED)
TAX-EXEMPT SECURITIES--PRE-REFUNDED BACKED BY U.S. GOVERNMENT SECURITIES (9.8%)
$ 1,000 New Jersey Trans. Trust Fund Au. Trans. Sys. Rev., Ser. 2004 A,
5.00%, due 6/15/22 PR 6/15/14 Aaa $ 1,080
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 1,118
1,000 Wisconsin St. G.O., Ser. 2002 C, 5.25%, due 5/1/14 PR 5/1/12 Aaa AAA 1,092
---------------
3,290
---------------
TAX-EXEMPT SECURITIES--BACKED BY INSURANCE (38.8%)
AMERICAN MUNICIPAL BOND ASSURANCE CORP.
1,000 Larimer Co. (CO) Sales & Use Tax Rev., Ser. 2000, 5.75%,
due 12/15/15 Aaa AAA 1,094
FINANCIAL GUARANTY INSURANCE CO.
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 819
1,000 Grapevine (TX) Combination Tax & Tax Increment Reinvestment
Zone Rev., Ser. 2000, 5.63%, due 8/15/15 Aaa AAA 1,084
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 1,097
1,000 Tampa Bay (FL) Wtr. Util. Sys. Rev., Ser. 1998 B, 5.13%,
due 10/1/09 Aaa AAA 1,061
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 545
1,045 San Antonio (TX) Passenger Fac. Charge & Sub. Lien Arpt.
Sys. Imp. Rev., Ser. 2005, 5.25%, due 7/1/12 Aaa AAA 1,109
1,000 Springfield (MO) Sch. Dist. Number R-12 Ref. G. O.,
Ser. 2002 A, 5.50%, due 3/1/13 AAA 1,106
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 869
MUNICIPAL BOND INVESTORS ASSURANCE CORP.
1,000 California St. Econ. Rec. G.O., Ser. 2004 A, 5.25%,
due 7/1/13 Aaa AAA 1,097
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 1,036
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 1,068
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 1,087
---------------
13,072
---------------
TAX-EXEMPT SECURITIES--OTHER (49.1%)
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 1,043
1,000 Brazosport (TX) Independent Sch. Dist. Ref. Rev., Ser. 2005,
5.00%, due 2/15/15 Aaa 1,064
1,000 Illinois St. Sales Tax Rev., Ser. 1997 Y, 5.25%, due 6/15/10 Aa3 AAA 1,070
1,000 Indiana St. Office Bldg. Commission Fac. Ref. Rev.,
Ser. 1998 A, 5.13%, due 7/1/14 Aa2 AA- 1,051
1,000 Jefferson Co. (AL) Cap. Imp. & Ref. Warrants, Ser. 2003-A,
5.00%, due 4/1/18 AAA 1,051
1,000 Lake Co. (IL) Forest Preserve Dist. Ref. G.O., Ser. 1997,
5.50%, due 2/1/09 Aa1 AAA 1,065
1,000 Lake Co. (IL) Sch. Dist. No. 109 Deerfield Ref. G.O.,
Ser. 1999 C, 5.00%, due 12/15/14 Aa2 AA+ 1,070
10 Mississippi Higher Ed. Assist. Corp. Std. Loan Sub. Rev.,
Ser. 1993 C, 6.05%, due 9/1/07 A 10
</Table>
See Notes to Schedule of Investments
35
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING ### VALUE +
(000'S OMITTED) SECURITY @ MOODY'S S&P (000'S OMITTED)
$ 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 $ 1,091
575 New Jersey Trans. Trust Fund Au. Trans. Sys. Rev., Ser.
1999 A,
5.63%, due 6/15/13 A1 AA- 632
1,000 New York St. Thruway Au. Local Hwy. & Bridge Svc. Contract
Rev., Ser. 1997, 5.25%, due 4/1/10 A2 AA- 1,046
1,000 Northside (TX) Independent Sch. Dist. Unlimited Tax Sch.
Bldg. G.O., Ser. 1999 A, 6.38%, due 8/15/09 Aaa AAA 1,103
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 1,043
500 South Carolina St. Cap. Imp. G.O., Ser. 2001 B, 5.38%,
due 4/1/13 AAA 549
1,000 Texas Pub. Fin. Au. Ref. G.O., Ser. 1998 B, 5.13%,
due 10/1/09 Aa1 AA 1,055
1,000 Texas Wtr. Dev. Board St. Revolving Fund Sr. Lien Rev., Ser.
1996 B, 5.25%, due 7/15/13 AAA 1,023
1,000 Utah St. G.O., Ser. 2002 A, 5.00%, due 7/1/08 Aaa AAA 1,044
500 Wyoming St. Loan & Investment Board Cap. Fac. Ref. Rev.,
Ser. 2002, 5.00%, due 10/1/10 AA 532
---------------
16,542
---------------
TAX-EXEMPT VARIABLE RATE DEMAND NOTES--OTHER (1.2%)~
400 Lower Neches Valley (TX) Au. IDC Exempt Fac. Rev. (Mobil Oil
Corp. Proj.), Ser. 1999, 2.81%, due 11/1/05 P-1 A-1+ 400++++
---------------
TOTAL INVESTMENTS (98.9%) (COST $32,801) 33,304##
Cash, receivables and other assets, less liabilities (1.1%) 382
---------------
TOTAL NET ASSETS (100.0%) $ 33,686
---------------
</Table>
36
<Page>
NEUBERGER BERMAN OCTOBER 31, 2005
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, bid prices are obtained from principal market
makers in those securities or, if quotations are not available, by methods
the Board of Trustees of Neuberger Berman Income Funds has approved on the
belief that they reflect fair value. Numerous factors may be considered
when determining the fair value of a security, including available analyst,
media or other reports, trading in futures or ADRs and whether the issuer
of the security being fair valued has other securities outstanding. Foreign
security prices are furnished by independent quotation services and
expressed in local currency values. Foreign security prices are 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 October 31, 2005, selected Fund information on a U.S. Federal income tax
basis was as follows:
<Table>
<Caption>
NET
GROSS GROSS UNREALIZED
(000'S OMITTED) UNREALIZED UNREALIZED APPRECIATION
NEUBERGER BERMAN COST APPRECIATION DEPRECIATION (DEPRECIATION)
HIGH INCOME $ 820,319 $ 5,335 $ 16,058 $ (10,723)
LIMITED MATURITY 174,010 30 3,027 (2,997)
MUNICIPAL SECURITIES TRUST 32,801 726 223 503
</Table>
@ 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 89% 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.
(C) 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).
37
<Page>
* Non-income producing security.
** Restricted security subject to restrictions on resale under federal
securities laws. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers under Rule 144A
and are deemed liquid. At October 31, 2005, these securities amounted to
$41,125,000 or 8.6% of net assets for Cash Reserves, $82,735,000 or 10.6%
of net assets for High Income, and $2,161,000 or 1.3% of net assets for
Limited Maturity, respectively.
+++ 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.
(O) All or a portion of this security was purchased on a when-issued basis. At
October 31, 2005, these securities amounted to $4,131,000 for High Income
and $11,644,000 for Municipal Money, respectively.
(OO) All or a portion of this security is segregated as collateral for
when-issued purchase commitments and/or forward foreign currency contracts.
~ Floating rate securities are securities whose yields vary with a designated
market index or market rate. These securities are shown at their current
rates as of October 31, 2005.
~~ Security is subject to a guarantee provided by Dexia Credit Local de
France, backing 100% of the total principal.
(Z) Security is subject to a guarantee provided by Merrill Lynch, backing 100%
of the total principal.
(ZZ) Security is subject to a guarantee provided by Citibank, N.A., backing 100%
of the total principal.
(E) Security is subject to a guarantee provided by Morgan Stanley, backing 100%
of the total principal.
(EE) Security is subject to a guarantee provided by Deutsche Bank, backing 100%
of the total principal.
#### Security is subject to a guarantee provided by Bank of New York, backing
100% of the total principal.
(U) Security is subject to a guarantee provided by ABN Amro, backing 100% of
the total principal.
(UU) Security is subject to a guarantee provided by Bank of America, backing
100% of the total principal.
^^ Security is subject to a guarantee provided by Credit Suisse First Boston,
backing 100% of the total principal.
(CC) Security is subject to a guarantee provided by Kredietbank NV, backing 100%
of the total principal.
(Y) Security is subject to a guarantee provided by Amsouth, backing 100% of the
total principal.
(YY) Security is subject to a guarantee provided by Wachovia Bank & Trust Co.,
backing 100% of the total principal.
(N) Security is subject to a guarantee provided by Westdeutsche Landesbank
Girozentrale, backing 100% of the total principal.
(NN) Security is subject to a guarantee provided by J.P. Morgan Chase, backing
100% of the total principal.
*** Security is subject to a guarantee provided by Branch Banking & Trust Co.,
backing 100% of the total principal.
^ Principal amount is stated in the currency in which the security is
denominated.
EUR = Euro Currency
### Credit ratings are unaudited.
See Notes to Financial Statements
38
<Page>
STATEMENTS OF ASSETS AND LIABILITIES
<Table>
<Caption>
NEUBERGER BERMAN INCOME FUNDS CASH GOVERNMENT
(000'S OMITTED EXCEPT PER SHARE AMOUNTS) RESERVES MONEY FUND
ASSETS
INVESTMENTS IN SECURITIES, AT VALUE*+ (NOTES A & F)--SEE
SCHEDULE OF INVESTMENTS:
Unaffiliated issuers $ 482,450 $ 409,800
Affiliated issuers - -
Repurchase agreements - -
- -----------------------------------------------------------------------------------------------------------------------------
482,450 409,800
Cash 353 252
Foreign currency - -
Interest receivable 992 301
Net receivable for forward currency exchange contracts (Note C) - -
Receivable for securities sold - -
Receivable for Fund shares sold 102 27
Receivable from administrator--net (Note B) - -
Prepaid expenses and other assets 10 8
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 483,907 410,388
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Dividends payable 636 898
Due to custodian - -
Payable for collateral on securities loaned (Note A) - -
Payable for securities purchased 2,711 -
Payable for Fund shares redeemed 344 13
Payable to investment manager--net (Notes A & B) 32 27
Payable to administrator--net (Note B) 109 91
Accrued expenses and other payables 112 91
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 3,944 1,120
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS AT VALUE $ 479,963 $ 409,268
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid-in capital $ 479,970 $ 409,285
Undistributed net investment income (loss) 4 -
Accumulated net realized gains (losses) on investments (11) (17)
Net unrealized appreciation (depreciation) in value of investments - -
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS AT VALUE $ 479,963 $ 409,268
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Investor Class $ 479,963 $ 409,268
Trust Class - -
SHARES OUTSTANDING ($.001 PAR VALUE; UNLIMITED SHARES AUTHORIZED)
Investor Class 479,970 409,285
Trust Class - -
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Investor Class $ 1.00 $ 1.00
Trust Class - -
+SECURITIES ON LOAN, AT MARKET VALUE:
Unaffiliated issuers $ - $ -
*COST OF INVESTMENTS:
Unaffiliated issuers $ 482,450 $ 409,800
Affiliated issuers - -
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL COST OF INVESTMENTS $ 482,450 $ 409,800
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL COST OF FOREIGN CURRENCY $ - $ -
- -----------------------------------------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements
40
<Page>
<Table>
<Caption>
NEUBERGER BERMAN INCOME FUNDS HIGH INCOME BOND LIMITED MATURITY
(000'S OMITTED EXCEPT PER SHARE AMOUNTS) FUND BOND FUND
ASSETS
INVESTMENTS IN SECURITIES, AT VALUE*+ (NOTES A & F)--SEE
SCHEDULE OF INVESTMENTS:
Unaffiliated issuers $ 745,257 $ 161,853
Affiliated issuers 51,539 -
Repurchase agreements 12,800 9,160
- -----------------------------------------------------------------------------------------------------------------------------
809,596 171,013
Cash - 4,822
Foreign currency - 151
Interest receivable 16,051 1,385
Net receivable for forward currency exchange contracts (Note C) - 21
Receivable for securities sold 12,062 14,677
Receivable for Fund shares sold 900 38
Receivable from administrator--net (Note B) - -
Prepaid expenses and other assets 49 4
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 838,658 192,111
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Dividends payable 340 29
Due to custodian 493 -
Payable for collateral on securities loaned (Note A) 51,539 -
Payable for securities purchased 4,100 19,857
Payable for Fund shares redeemed 1,732 112
Payable to investment manager--net (Notes A & B) 325 37
Payable to administrator--net (Note B) 183 27
Accrued expenses and other payables 247 98
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 58,959 20,160
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS AT VALUE $ 779,699 $ 171,951
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid-in capital $ 801,386 $ 197,218
Undistributed net investment income (loss) 25 184
Accumulated net realized gains (losses) on investments (11,116) (23,412)
Net unrealized appreciation (depreciation) in value of investments (10,596) (2,039)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS AT VALUE $ 779,699 $ 171,951
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Investor Class $ 779,699 $ 151,805
Trust Class - 20,146
SHARES OUTSTANDING ($.001 PAR VALUE; UNLIMITED SHARES AUTHORIZED)
Investor Class 85,720 16,624
Trust Class - 2,315
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Investor Class $ 9.10 $ 9.13
Trust Class - 8.70
+SECURITIES ON LOAN, AT MARKET VALUE:
Unaffiliated issuers $ 50,293 $ -
*COST OF INVESTMENTS:
Unaffiliated issuers $ 768,653 $ 173,071
Affiliated issuers 51,539 -
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL COST OF INVESTMENTS $ 820,192 $ 173,071
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL COST OF FOREIGN CURRENCY $ - $ 152
- -----------------------------------------------------------------------------------------------------------------------------
<Caption>
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 $ 595,960 $ 33,304
Affiliated issuers - -
Repurchase agreements - -
- -----------------------------------------------------------------------------------------------------------------------------
595,960 33,304
Cash 252 35
Foreign currency - -
Interest receivable 3,125 438
Net receivable for forward currency exchange contracts (Note C) - -
Receivable for securities sold 530 -
Receivable for Fund shares sold 3 3
Receivable from administrator--net (Note B) - 7
Prepaid expenses and other assets 6 1
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 599,876 33,788
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Dividends payable 824 14
Due to custodian - -
Payable for collateral on securities loaned (Note A) - -
Payable for securities purchased 11,644 -
Payable for Fund shares redeemed 12 24
Payable to investment manager--net (Notes A & B) 125 7
Payable to administrator--net (Note B) 137 -
Accrued expenses and other payables 22 57
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 12,764 102
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS AT VALUE $ 587,112 $ 33,686
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid-in capital $ 587,113 $ 33,024
Undistributed net investment income (loss) 1 -
Accumulated net realized gains (losses) on investments (2) 158
Net unrealized appreciation (depreciation) in value of investments - 504
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS AT VALUE $ 587,112 $ 33,686
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Investor Class $ 587,112 $ 33,686
Trust Class - -
SHARES OUTSTANDING ($.001 PAR VALUE; UNLIMITED SHARES AUTHORIZED)
Investor Class 587,187 2,973
Trust Class - -
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Investor Class $ 1.00 $ 11.33
Trust Class - -
+SECURITIES ON LOAN, AT MARKET VALUE:
Unaffiliated issuers $ - $ -
*COST OF INVESTMENTS:
Unaffiliated issuers $ 595,960 $ 32,801
Affiliated issuers - -
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL COST OF INVESTMENTS $ 595,960 $ 32,801
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL COST OF FOREIGN CURRENCY $ - $ -
- -----------------------------------------------------------------------------------------------------------------------------
</Table>
41
<Page>
NEUBERGER BERMAN FOR THE YEAR ENDED OCTOBER 31, 2005
STATEMENTS OF OPERATIONS
<Table>
<Caption>
GOVERNMENT
NEUBERGER BERMAN INCOME FUNDS CASH MONEY
(000'S OMITTED) RESERVES FUND
INVESTMENT INCOME
INCOME (NOTE A):
Interest income--unaffiliated issuers $ 14,195 $ 12,089
Income from securities loaned--affiliated issuers (Note F) - -
- -----------------------------------------------------------------------------------------------------------------------------
Total income 14,195 12,089
- -----------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment management fee (Note B) 601 554
Administration fee (Note B):
Investor Class 1,327 1,196
Trust Class - -
Shareholder servicing agent fees:
Investor Class 195 71
Trust Class - -
Audit fees 34 33
Custodian fees (Note B) 153 134
Insurance expense 22 27
Legal fees 31 29
Registration and filing fees 40 48
Shareholder reports 35 32
Trustees' fees and expenses 25 29
Miscellaneous 34 27
- -----------------------------------------------------------------------------------------------------------------------------
Total expenses 2,497 2,180
Expenses reimbursed by administrator (Note B) - -
Investment management fee waived (Note B) (84) (74)
Expenses reduced by custodian fee expense offset arrangement (Note B) (4) (4)
- -----------------------------------------------------------------------------------------------------------------------------
Total net expenses 2,409 2,102
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 11,786 9,987
- -----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE A)
Net realized gain (loss) on:
Sales of investment securities of unaffiliated issuers (11) (2)
Foreign currency - -
Change in net unrealized appreciation (depreciation) in value of:
Unaffiliated investment securities - -
Foreign currency - -
- -----------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments (11) (2)
- -----------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 11,775 $ 9,985
- -----------------------------------------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements
42
<Page>
<Table>
<Caption>
HIGH INCOME LIMITED
NEUBERGER BERMAN INCOME FUNDS BOND MATURITY
(000'S OMITTED) FUND BOND FUND
INVESTMENT INCOME
INCOME (NOTE A):
Interest income--unaffiliated issuers $ 56,755 $ 6,147
Income from securities loaned--affiliated issuers (Note F) 100 -
- -----------------------------------------------------------------------------------------------------------------------------
Total income 56,855 6,147
- -----------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment management fee (Note B) 4,041 448
Administration fee (Note B):
Investor Class 2,273 422
Trust Class - 114
Shareholder servicing agent fees:
Investor Class 593 134
Trust Class - 20
Audit fees 40 39
Custodian fees (Note B) 280 127
Insurance expense 36 9
Legal fees 40 28
Registration and filing fees 135 73
Shareholder reports 84 23
Trustees' fees and expenses 28 27
Miscellaneous 90 12
- -----------------------------------------------------------------------------------------------------------------------------
Total expenses 7,640 1,476
Expenses reimbursed by administrator (Note B) - (195)
Investment management fee waived (Note B) - -
Expenses reduced by custodian fee expense offset arrangement (Note B) (17) (3)
- -----------------------------------------------------------------------------------------------------------------------------
Total net expenses 7,623 1,278
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 49,232 4,869
- -----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE A)
Net realized gain (loss) on:
Sales of investment securities of unaffiliated issuers (3,954) (947)
Foreign currency - 338
Change in net unrealized appreciation (depreciation) in value of:
Unaffiliated investment securities (35,975) (3,065)
Foreign currency - 91
- -----------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments (39,929) (3,583)
- -----------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 9,303 $ 1,286
- -----------------------------------------------------------------------------------------------------------------------------
<Caption>
MUNICIPAL MUNICIPAL
NEUBERGER BERMAN INCOME FUNDS MONEY SECURITIES
(000'S OMITTED) FUND TRUST
INVESTMENT INCOME
INCOME (NOTE A):
Interest income--unaffiliated issuers $ 11,660 $ 1,460
Income from securities loaned--affiliated issuers (Note F) - -
- -----------------------------------------------------------------------------------------------------------------------------
Total income 11,660 1,460
- -----------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment management fee (Note B) 1,309 90
Administration fee (Note B):
Investor Class 1,421 97
Trust Class - -
Shareholder servicing agent fees:
Investor Class 24 34
Trust Class - -
Audit fees 34 37
Custodian fees (Note B) 165 35
Insurance expense 21 2
Legal fees 27 29
Registration and filing fees 86 27
Shareholder reports 29 13
Trustees' fees and expenses 27 27
Miscellaneous 32 2
- -----------------------------------------------------------------------------------------------------------------------------
Total expenses 3,175 393
Expenses reimbursed by administrator (Note B) - (158)
Investment management fee waived (Note B) - -
Expenses reduced by custodian fee expense offset arrangement (Note B) (12) (1)
- -----------------------------------------------------------------------------------------------------------------------------
Total net expenses 3,163 234
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 8,497 1,226
- -----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE A)
Net realized gain (loss) on:
Sales of investment securities of unaffiliated issuers 5 159
Foreign currency - -
Change in net unrealized appreciation (depreciation) in value of:
Unaffiliated investment securities - (1,425)
Foreign currency - -
- -----------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments 5 (1,266)
- -----------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 8,502 $ (40)
- -----------------------------------------------------------------------------------------------------------------------------
</Table>
43
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
CASH RESERVES GOVERNMENT MONEY FUND
------------------------------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
NEUBERGER BERMAN INCOME FUNDS OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
(000'S OMITTED) 2005 2004 2005 2004
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) $ 11,786 $ 3,220 $ 9,987 $ 4,706
Net realized gain (loss) on investments (11) 4 (2) (15)
Change in net unrealized appreciation (depreciation) of investments - - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 11,775 3,224 9,985 4,691
- ----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
NET INVESTMENT INCOME:
Investor Class (11,786) (3,220) (9,987) (4,706)
Trust Class - - - -
NET REALIZED GAIN ON INVESTMENTS:
Investor Class - (10) - (19)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (11,786) (3,230) (9,987) (4,725)
- ----------------------------------------------------------------------------------------------------------------------------------
FROM FUND SHARE TRANSACTIONS (NOTE D):
PROCEEDS FROM SHARES SOLD:
Investor Class 682,200 827,773 726,079 1,173,062
Trust Class - - - -
PROCEEDS FROM REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS:
Investor Class 5,828 1,232 1,388 467
Trust Class - - - -
PAYMENTS FOR SHARES REDEEMED:
Investor Class (689,285) (965,468) (772,915) (1,797,122)
Trust Class - - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from Fund share transactions (1,257) (136,463) (45,448) (623,593)
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (1,268) (136,469) (45,450) (623,627)
NET ASSETS:
Beginning of year 481,231 617,700 454,718 1,078,345
- ----------------------------------------------------------------------------------------------------------------------------------
End of year $ 479,963 $ 481,231 $ 409,268 $ 454,718
- ----------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income (loss) at end of year $ 4 $ - $ - $ -
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements
44
<Page>
<Table>
<Caption>
HIGH INCOME BOND FUND LIMITED MATURITY BOND FUND
------------------------------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
NEUBERGER BERMAN INCOME FUNDS OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
(000'S OMITTED) 2005 2004 2005 2004
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) $ 49,232 $ 40,651 $ 4,869 $ 5,200
Net realized gain (loss) on investments (3,954) 7,409 (609) (538)
Change in net unrealized appreciation (depreciation) of investments (35,975) 13,566 (2,974) (1,638)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 9,303 61,626 1,286 3,024
- ----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
NET INVESTMENT INCOME:
Investor Class (49,232) (40,651) (5,893) (6,315)
Trust Class - - (837) (1,063)
NET REALIZED GAIN ON INVESTMENTS:
Investor Class - - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (49,232) (40,651) (6,730) (7,378)
- ----------------------------------------------------------------------------------------------------------------------------------
FROM FUND SHARE TRANSACTIONS (NOTE D):
PROCEEDS FROM SHARES SOLD:
Investor Class 441,424 563,304 24,916 29,706
Trust Class - - 6,127 9,114
PROCEEDS FROM REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS:
Investor Class 44,181 35,997 5,521 5,903
Trust Class - - 811 1,044
PAYMENTS FOR SHARES REDEEMED:
Investor Class (479,210) (326,694) (36,488) (68,721)
Trust Class - - (13,120) (19,020)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from Fund share transactions 6,395 272,607 (12,233) (41,974)
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (33,534) 293,582 (17,677) (46,328)
NET ASSETS:
Beginning of year 813,233 519,651 189,628 235,956
- ----------------------------------------------------------------------------------------------------------------------------------
End of year $ 779,699 $ 813,233 $ 171,951 $ 189,628
- ----------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income (loss) at end of year $ 25 $ 25 $ 184 $ 415
- ----------------------------------------------------------------------------------------------------------------------------------
<Caption>
MUNICIPAL MONEY FUND MUNICIPAL SECURITIES TRUST
------------------------------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
NEUBERGER BERMAN INCOME FUNDS OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
(000'S OMITTED) 2005 2004 2005 2004
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) $ 8,497 $ 2,217 $ 1,226 $ 1,319
Net realized gain (loss) on investments 5 - 159 226
Change in net unrealized appreciation (depreciation) of investments - - (1,425) (248)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 8,502 2,217 (40) 1,297
- ----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
NET INVESTMENT INCOME:
Investor Class (8,497) (2,217) (1,226) (1,319)
Trust Class - - - -
NET REALIZED GAIN ON INVESTMENTS:
Investor Class - - (226) (159)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (8,497) (2,217) (1,452) (1,478)
- ----------------------------------------------------------------------------------------------------------------------------------
FROM FUND SHARE TRANSACTIONS (NOTE D):
PROCEEDS FROM SHARES SOLD:
Investor Class 1,941,892 688,114 4,948 8,289
Trust Class - - - -
PROCEEDS FROM REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS:
Investor Class 1,006 115 1,271 1,283
Trust Class - - - -
PAYMENTS FOR SHARES REDEEMED:
Investor Class (1,781,938) (673,006) (8,150) (14,609)
Trust Class - - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from Fund share transactions 160,960 15,223 (1,931) (5,037)
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 160,965 15,223 (3,423) (5,218)
NET ASSETS:
Beginning of year 426,147 410,924 37,109 42,327
- ----------------------------------------------------------------------------------------------------------------------------------
End of year $ 587,112 $ 426,147 $ 33,686 $ 37,109
- ----------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income (loss) at end of year $ 1 $ 1 $ - $ -
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
45
<Page>
NOTES TO FINANCIAL STATEMENTS INCOME FUNDS
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1 GENERAL: Neuberger Berman Cash Reserves ("Cash Reserves"), Neuberger Berman
Government Money Fund ("Government Money"), Neuberger Berman High Income
Bond Fund ("High Income"), Neuberger Berman Limited Maturity Bond Fund
("Limited Maturity"), Neuberger Berman Municipal Money Fund ("Municipal
Money"), and Neuberger Berman Municipal Securities Trust ("Municipal
Securities Trust") (individually a "Fund", collectively, the "Funds") are
separate operating series of Neuberger Berman Income Funds (the "Trust"), a
Delaware statutory trust organized pursuant to a Trust Instrument dated
December 23, 1992. The Trust is registered as a diversified, open-end
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), and its shares are registered under the
Securities Act of 1933, as amended (the "1933 Act"). All of the Funds offer
Investor Class shares and Limited Maturity also offers Trust Class shares.
The Board of Trustees of the Trust (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
46
<Page>
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 distributions and capital gain distributions are determined in
accordance with income tax regulations, which may differ from U.S.
generally accepted accounting principles. These differences are primarily
due to differing treatments of income and gains on various investment
securities held by each Fund, timing differences and differing
characterization of distributions made by each Fund as a whole. The Funds
may also utilize earnings and profits distributed to shareholders on
redemption of shares as a part of the dividends paid deduction for income
tax purposes.
As determined on October 31, 2005, permanent differences resulting
primarily from different book and tax accounting for amortization of bond
premium, 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,
2005 and October 31, 2004 were as follows:
DISTRIBUTIONS PAID FROM:
<Table>
<Caption>
TAXABLE INCOME TAX-EXEMPT INCOME LONG-TERM CAPITAL GAIN TOTAL
2005 2004 2005 2004 2005 2004 2005 2004
CASH RESERVES $ 11,786,263 $ 3,230,039 $ -- $ -- $ -- $ -- $ 11,786,263 $ 3,230,039
GOVERNMENT MONEY 9,987,018 4,724,895 -- -- -- -- 9,987,018 4,724,895
HIGH INCOME 49,232,483 40,651,447 -- -- -- -- 49,232,483 40,651,447
LIMITED MATURITY 6,729,866 7,378,305 -- -- -- -- 6,729,866 7,378,305
MUNICIPAL MONEY -- -- 8,497,236 2,217,371 -- -- 8,497,236 2,217,371
MUNICIPAL SECURITIES
TRUST 58,183 55,790 1,226,282 1,319,090 167,792 103,115 1,452,257 1,477,995
</Table>
As of October 31, 2005, the components of distributable earnings
(accumulated losses) on a U.S. Federal income tax basis were as follows:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED UNDISTRIBUTED UNREALIZED LOSS
ORDINARY TAX-EXEMPT LONG-TERM APPRECIATION CARRYFORWARDS
INCOME INCOME GAIN (DEPRECIATION) AND DEFERRALS TOTAL
CASH RESERVES $ 640,836 $ -- $ -- $ -- $ (10,879) $ 629,957
GOVERNMENT MONEY 898,114 -- -- 2 (16,932) 881,184
HIGH INCOME 365,142 -- -- (10,723,035) (10,988,295) (21,346,188)
LIMITED MATURITY 214,523 -- -- (2,996,151) (22,454,727) (25,236,355)
MUNICIPAL MONEY -- 824,977 -- -- (1,808) 823,169
MUNICIPAL SECURITIES TRUST -- 13,654 157,900 503,763 -- 675,317
</Table>
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, capital loss carryforwards, and amortization of bond
premium.
47
<Page>
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, 2005, the following
Funds had unused capital loss carryforwards available for Federal income
tax purposes to offset net realized capital gains, if any, as follows:
<Table>
<Caption>
EXPIRING IN:
2006 2007 2008 2009 2010 2011 2012 2013
CASH RESERVES $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ 10,879
GOVERNMENT MONEY -- -- -- -- -- -- 14,846 2,086
HIGH INCOME(1) -- 2,845,092 2,021,774 923,187 1,332,365 -- -- 3,865,877
LIMITED MATURITY(2) 4,035,877 5,146,514 7,177,986 456,883 -- -- 2,468,731 3,168,736
MUNICIPAL MONEY -- -- 1,754 -- -- 54 -- --
</Table>
(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 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 distributions
and capital gain distributions to shareholders are recorded on the ex-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
48
<Page>
exchange on which such futures contract is traded. Subsequent payments,
known as "variation margin," to and from the broker are made on a daily
basis as the market price of the financial futures contract fluctuates.
Daily variation margin adjustments, arising from this "mark to market," are
recorded by the Funds as unrealized gains or losses.
Although some financial futures contracts by their terms call for actual
delivery or acceptance of financial instruments, in most cases the
contracts are closed out prior to delivery by offsetting purchases or sales
of matching financial futures contracts. When the contracts are closed, a
Fund recognizes a gain or loss. Risks of entering into futures contracts
include the possibility there may be an illiquid market, possibly at a time
of rapidly declining prices, and/or a change in the value of the contract
may not correlate with changes in the value of the underlying securities.
For U.S. Federal income tax purposes, the futures transactions undertaken
by a Fund may cause that Fund to recognize gains or losses from marking to
market even though its positions have not been sold or terminated, may
affect the character of the gains or losses recognized as long-term or
short-term, and may affect the timing of some capital gains and losses
realized by the Fund. Also, a Fund's losses on transactions involving
futures contracts may be deferred rather than being taken into account
currently in calculating such Fund's taxable income.
During the year ended October 31, 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 on settlement date.
Fluctuations in the value of forward foreign currency contracts are
recorded for financial reporting purposes as unrealized gains or losses by
each Fund until the contractual settlement date. 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
("Bear Stearns Agreement") with Bear Stearns Securities Corp. ("Bear
Stearns") on December 26, 2002. Under the Bear Stearns Agreement, High
Income paid a fee to Bear Stearns with respect to the cash collateral that
it received and retained the income earned on the reinvestment of that cash
collateral. High Income also received payments from Bear Stearns equal to
income earned on loaned securities during the time that they were on loan.
49
<Page>
On September 13, 2005, High Income entered into new securities lending
arrangements using a third party, eSecLending, to secure bids. Pursuant to
such arrangements, eSecLending currently acts as agent for High Income.
Under the Bear Stearns Agreement and the new securities lending
arrangements, High Income receives cash collateral at the beginning of each
transaction equal to at least 102% of the prior day's market value of the
loaned securities. Prior to February 7, 2005, High Income 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,
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, an affiliate of
Management, as approved by the Board.
Income earned on the securities loaned, if any, is reflected in the
Statement of Operations under the caption "Income from securities
loaned-affiliated issuers."
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 counter party 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.
50
<Page>
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 daily net assets of Cash
Reserves and Government Money. For the year ended October 31, 2005, such
waived fees amounted to $83,671 and $73,845 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:
<Table>
<Caption>
REIMBURSEMENT FROM
MANAGEMENT FOR THE
EXPENSE YEAR ENDED
CLASS LIMITATION(1) CONTRACTUAL/VOLUNTARY EXPIRATION OCTOBER 31, 2005
CASH RESERVES INVESTOR CLASS 0.65% Contractual 10/31/08 $ --
HIGH INCOME BOND FUND INVESTOR CLASS 1.00% Contractual 10/31/08 --
LIMITED MATURITY BOND FUND INVESTOR
CLASS 0.70% Contractual 10/31/08 145,616
LIMITED MATURITY BOND FUND TRUST CLASS 0.80% Contractual 10/31/08 49,486
MUNICIPAL SECURITIES TRUST INVESTOR
CLASS 0.65% Contractual 10/31/08 157,589
</Table>
(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 year ended October 31, 2005,
51
<Page>
there was no reimbursement to Management. At October 31, 2005, contingent
liabilities to Management under the agreement were as follows:
<Table>
<Caption>
EXPIRING IN:
2006 2007 2008 TOTAL
LIMITED MATURITY BOND FUND INVESTOR CLASS $ 81,375 $ 118,706 $ 145,616 $ 345,697
LIMITED MATURITY BOND FUND TRUST CLASS 53,395 47,081 49,486 149,962
MUNICIPAL SECURITIES TRUST INVESTOR CLASS 140,242 156,342 157,589 454,173
</Table>
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 year ended October 31, 2005, the impact of this
arrangement was a reduction of expenses of $3,556, $3,891, $16,701, $2,973,
$11,570 and $1,317 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 year ended October 31, 2005 were as
follows:
<Table>
<Caption>
PURCHASES
PURCHASES EXCLUDING SALES AND
OF U.S. U.S. SALES AND MATURITIES
GOVERNMENT GOVERNMENT MATURITIES OF U.S. EXCLUDING U.S.
AND AGENCY AND AGENCY GOVERNMENT AND GOVERNMENT AND
OBLIGATIONS OBLIGATIONS AGENCY OBLIGATIONS AGENCY OBLIGATIONS
HIGH INCOME $ -- $ 563,183,616 $ -- $ 506,013,443
LIMITED MATURITY 154,701,381 129,830,431 200,877,071 86,452,410
MUNICIPAL SECURITIES TRUST -- 5,501,991 -- 7,098,238
</Table>
All securities transactions for Cash Reserves, Government Money, and
Municipal Money were short-term.
During the year ended October 31, 2005, Limited Maturity had entered into
various contracts to deliver currencies at specified future dates. At
October 31, 2005, open contracts were as follows:
<Table>
<Caption>
CONTRACTS TO IN EXCHANGE SETTLEMENT NET UNREALIZED
SELL DELIVER FOR DATE VALUE APPRECIATION
Euro Dollar 5,530,000 $ 6,683,503 1/19/06 $ 6,662,399 $ 21,104
</Table>
52
<Page>
NOTE D--FUND SHARE TRANSACTIONS:
Share activity for the years ended October 31, 2005 and October 31, 2004
was as follows:
<Table>
<Caption>
FOR THE YEAR ENDED OCTOBER 31, 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 682,200 5,828 (689,285) (1,257) 827,773 1,232 (965,468) (136,463)
GOVERNMENT
MONEY:
Investor
Class 726,079 1,388 (772,915) (45,448) 1,173,062 467 (1,797,122) (623,593)
HIGH
INCOME:
Investor
Class 47,164 4,746 (51,466) 444 60,298 3,851 (35,026) 29,123
LIMITED
MATURITY:
Investor
Class 2,691 597 (3,939) (651) 3,119 621 (7,225) (3,485)
Trust Class 694 92 (1,485) (699) 1,007 115 (2,100) (978)
MUNICIPAL
MONEY:
Investor
Class 1,941,892 1,006 (1,781,938) 160,960 688,114 115 (673,006) 15,223
MUNICIPAL
SECURITIES
TRUST:
Investor
Class 427 110 (705) (168) 703 108 (1,239) (428)
</Table>
NOTE E--LINE OF CREDIT:
At October 31, 2005, High Income and Limited Maturity were participants in
a single committed, unsecured $150,000,000 line of credit with a consortium
of banks organized by State Street, to be used only for temporary or
emergency purposes. Interest is charged on borrowings under this agreement
at the overnight Federal Funds Rate plus 0.50% per annum. A facility fee of
0.09% per annum of the available line of credit is charged, of which each
Fund has agreed to pay its pro rata share, based on the ratio of its
individual net assets to the net assets of all participants at the time the
fee is due and payable. The fee is paid quarterly in arrears. No
compensating balance is required. Other investment companies managed by
Management also participate in this line of credit on the same terms.
Because several investment companies participate, there is no assurance
that an individual Fund will have access to 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 October 31, 2005.
During the year ended October 31, 2005, High Income and Limited Maturity
did not utilize this line of credit.
53
<Page>
NOTE F--INVESTMENTS IN AFFILIATES*:
HIGH INCOME:
<Table>
<Caption>
INCOME FROM
BALANCE OF BALANCE OF INVESTMENTS IN
SHARES GROSS SHARES AFFILIATED
HELD GROSS SALES HELD VALUE ISSUERS
OCTOBER 31, PURCHASES AND OCTOBER 31, OCTOBER 31, INCLUDED IN
NAME OF ISSUER 2004 AND ADDITIONS REDUCTIONS 2005 2005 TOTAL INCOME
Neuberger Berman
Securities Lending
Quality Fund, LLC** 115,456,120 4,397,584,681 4,461,501,760 51,539,041 $ 51,539,041 $ 99,505
</Table>
* Affiliated issuers, as defined in the 1940 Act.
** 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 (formerly Lincoln Capital Fixed Income Management
Company, 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.
54
<Page>
FINANCIAL HIGHLIGHTS CASH RESERVES
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the Financial
Statements.
INVESTOR CLASS+
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------
2005 2004 2003 2002 2001
NET ASSET VALUE, BEGINNING OF YEAR $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0001 $ 1.0000
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME (LOSS) .0239 .0056 .0066 .0154 .0440
NET GAINS OR LOSSES ON SECURITIES (.0000) .0000 .0000 (.0000) .0001
--------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS .0239 .0056 .0066 .0154 .0441
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (.0239) (.0056) (.0066) (.0154) (.0440)
NET CAPITAL GAINS -- (.0000) -- (.0001) --
--------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (.0239) (.0056) (.0066) (.0155) (.0440)
--------- --------- --------- --------- ---------
NET ASSET VALUE, END OF YEAR $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0001
--------- --------- --------- --------- ---------
TOTAL RETURN++ +2.42% +.57% +.66% +1.56% +4.49%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF YEAR (IN MILLIONS) $ 480.0 $ 481.2 $ 617.7 $ 842.0 $ 1,116.0
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS# .49% .63% .59% .60% .55%
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS .49%+++ .63% .59% .60% .55%
RATIO OF NET INVESTMENT INCOME (LOSS) TO AVERAGE NET ASSETS 2.40% .55% .68% 1.54% 4.59%
</Table>
See Notes to Financial Highlights
55
<Page>
FINANCIAL HIGHLIGHTS GOVERNMENT MONEY FUND
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the Financial
Statements.
INVESTOR CLASS+
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------
2005 2004 2003 2002 2001
NET ASSET VALUE, BEGINNING OF YEAR $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME (LOSS) .0230 .0060 .0078 .0149 .0423
NET GAINS OR LOSSES ON SECURITIES (.0000) .0000 .0000 .0000 -
--------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS .0230 .0060 .0078 .0149 .0423
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (.0230) (.0060) (.0078) (.0149) (.0423)
NET CAPITAL GAINS - (.0000) (.0000) (.0000) -
--------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (.0230) (.0060) (.0078) (.0149) (.0423)
--------- --------- --------- --------- ---------
NET ASSET VALUE, END OF YEAR $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
--------- --------- --------- --------- ---------
TOTAL RETURN++ +2.33% +.61% +.78% +1.50% +4.31%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF YEAR (IN MILLIONS) $ 409.3 $ 454.7 $ 1,078.3 $ 1,345.2 $ 571.9
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS# .48% .49% .45% .47% .59%
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS .47%+++ .49%+++ .45%+++ .47%+++ .59%
RATIO OF NET INVESTMENT INCOME (LOSS) TO AVERAGE NET ASSETS 2.25% .57% .78% 1.45% 3.92%
</Table>
See Notes to Financial Highlights
56
<Page>
FINANCIAL HIGHLIGHTS HIGH INCOME BOND FUND
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the Financial
Statements.
INVESTOR CLASS~
<Table>
<Caption>
TEN MONTHS
ENDED
YEAR ENDED OCTOBER 31, OCTOBER 31, YEAR ENDED DECEMBER 31,
-------------------------------- ----------- -------------------------
2005 2004 2003 2002^^^ 2001 2000
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.54 $ 9.25 $ 8.81 $ 9.03 $ 8.90 $ 9.22
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME (LOSS) .55@ .58@ .60@ .52(y)@ .69 .75
NET GAINS OR LOSSES ON SECURITIES
(BOTH REALIZED AND UNREALIZED) (.44) .29 .44 (.21)(y) .12 (.33)
-------- -------- -------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS .11 .87 1.04 .31 .81 .42
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (.55) (.58) (.60) (.53) (.68) (.74)
-------- -------- -------- -------- -------- --------
TOTAL DISTRIBUTIONS (.55) (.58) (.60) (.53) (.68) (.74)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.10 $ 9.54 $ 9.25 $ 8.81 $ 9.03 $ 8.90
-------- -------- -------- -------- -------- --------
TOTAL RETURN++ +1.17% +9.68% +12.14% +3.52%** +9.27% +4.81%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 779.7 $ 813.2 $ 519.7 $ 148.6 $ 92.8 $ 60.3
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS# .91% .90% .90% 1.00%* 1.00% 1.00%
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS .91% .90% .90%### 1.00%*+++ 1.00%+++ 1.00%+++
RATIO OF NET INVESTMENT INCOME (LOSS) TO AVERAGE
NET ASSETS 5.88% 6.16% 6.54% 6.96%*(y) 7.54% 8.15%
PORTFOLIO TURNOVER RATE 63% 79% 148% 95%++++ 85% 63%
</Table>
See Notes to Financial Highlights
57
<Page>
FINANCIAL HIGHLIGHTS LIMITED MATURITY BOND FUND
The following tables include selected data for a share outstanding throughout
each year and other performance information derived from the Financial
Statements.
INVESTOR CLASS+
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------
2005 2004 2003 2002 2001
NET ASSET VALUE, BEGINNING OF YEAR $ 9.41 $ 9.61 $ 9.65 $ 9.78 $ 9.31
--------- --------- --------- -------- ---------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME (LOSS)@ .25 .24 .28 .43(y) .58
NET GAINS OR LOSSES ON SECURITIES
(BOTH REALIZED AND UNREALIZED) (.18) (.11) .03 (.11)##(y) .47
--------- --------- --------- -------- ---------
TOTAL FROM INVESTMENT OPERATIONS .07 .13 .31 .32 1.05
--------- --------- --------- -------- ---------
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (.35) (.33) (.35) (.45) (.58)
--------- --------- --------- -------- ---------
TOTAL DISTRIBUTIONS (.35) (.33) (.35) (.45) (.58)
--------- --------- --------- -------- ---------
NET ASSET VALUE, END OF YEAR $ 9.13 $ 9.41 $ 9.61 $ 9.65 $ 9.78
--------- --------- --------- -------- ---------
TOTAL RETURN++ +.77% +1.43% +3.23% +3.42% +11.62%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF YEAR (IN MILLIONS) $ 151.8 $ 162.6 $ 199.4 $ 220.3 $ 204.8
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS# .71% .70% .70% .70% .70%
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS+++ .70% .70% .70% .70% .70%
RATIO OF NET INVESTMENT INCOME (LOSS) TO AVERAGE NET ASSETS 2.75% 2.49% 2.88% 4.44%(y) 6.05%
PORTFOLIO TURNOVER RATE 166% 94% 129% 140% 147%
</Table>
TRUST CLASS+
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------
2005 2004 2003 2002 2001
NET ASSET VALUE, BEGINNING OF YEAR $ 8.97 $ 9.15 $ 9.20 $ 9.32 $ 8.88
--------- --------- --------- -------- ---------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME (LOSS)@ .23 .22 .26 .40(y) .55
NET GAINS OR LOSSES ON SECURITIES
(BOTH REALIZED AND UNREALIZED) (.17) (.09) .01 (.10)##(y) .44
--------- --------- --------- -------- ---------
TOTAL FROM INVESTMENT OPERATIONS .06 .13 .27 .30 .99
--------- --------- --------- -------- ---------
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (.33) (.31) (.32) (.42) (.55)
--------- --------- --------- -------- ---------
TOTAL DISTRIBUTIONS (.33) (.31) (.32) (.42) (.55)
--------- --------- --------- -------- ---------
NET ASSET VALUE, END OF YEAR $ 8.70 $ 8.97 $ 9.15 $ 9.20 $ 9.32
--------- --------- --------- -------- ---------
TOTAL RETURN++ +.64% +1.44% +3.00% +3.35% +11.41%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF YEAR (IN MILLIONS) $ 20.1 $ 27.0 $ 36.5 $ 42.9 $ 38.1
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS# .81% .80% .80% .80% .80%
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS+++ .81% .80% .80% .80% .80%
RATIO OF NET INVESTMENT INCOME (LOSS) TO AVERAGE NET ASSETS 2.64% 2.38% 2.80% 4.31%(y) 5.95%
PORTFOLIO TURNOVER RATE 166% 94% 129% 140% 147%
</Table>
See Notes to Financial Highlights
58
<Page>
FINANCIAL HIGHLIGHTS MUNICIPAL MONEY FUND
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the Financial
Statements.
INVESTOR CLASS+
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------
2005 2004 2003 2002 2001
NET ASSET VALUE, BEGINNING OF YEAR $ .9998 $ .9998 $ .9998 $ .9998 $ .9997
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME (LOSS) .0158 .0051 .0050 .0092 .0269
NET GAINS OR LOSSES ON SECURITIES - - - - .0001##
--------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS .0158 .0051 .0050 .0092 .0270
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (.0158) (.0051) (.0050) (.0092) (.0269)
NET CAPITAL GAINS - - - - -
--------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (.0158) (.0051) (.0050) (.0092) (.0269)
--------- --------- --------- --------- ---------
NET ASSET VALUE, END OF YEAR $ .9998 $ .9998 $ .9998 $ .9998 $ .9998
--------- --------- --------- --------- ---------
TOTAL RETURN++ +1.59% +.51% +.50% +.93% +2.72%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF YEAR (IN MILLIONS) $ 587.1 $ 426.1 $ 410.9 $ 533.3 $ 455.2
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS# .60% .61% .61% .62% .61%
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS .60% .61% .61% .62% .60%
RATIO OF NET INVESTMENT INCOME (LOSS) TO AVERAGE NET ASSETS 1.62% .51% .50% .92% 2.60%
</Table>
See Notes to Financial Highlights
59
<Page>
FINANCIAL HIGHLIGHTS MUNICIPAL SECURITIES TRUST
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the Financial
Statements.
INVESTOR CLASS+
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------
2005 2004 2003 2002 2001
NET ASSET VALUE, BEGINNING OF YEAR $ 11.81 $ 11.86 $ 11.80 $ 11.62 $ 11.00
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME (LOSS)@ .40 .40 .40 .43 .45
NET GAINS OR LOSSES ON SECURITIES
(BOTH REALIZED AND UNREALIZED) (.41) (.00) .12 .18 .62
--------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS (.01) .40 .52 .61 1.07
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (.40) (.40) (.40) (.43) (.45)
NET CAPITAL GAINS (.07) (.05) (.06) - -
--------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (.47) (.45) (.46) (.43) (.45)
--------- --------- --------- --------- ---------
NET ASSET VALUE, END OF YEAR $ 11.33 $ 11.81 $ 11.86 $ 11.80 $ 11.62
--------- --------- --------- --------- ---------
TOTAL RETURN++ (.09)% +3.43% +4.50% +5.35% +9.89%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF YEAR (IN MILLIONS) $ 33.7 $ 37.1 $ 42.3 $ 37.9 $ 32.8
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS# .66% .65% .65% .65% .66%
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS+++ .66% .65% .65% .65% .65%
RATIO OF NET INVESTMENT INCOME (LOSS) TO AVERAGE NET ASSETS 3.44% 3.40% 3.37% 3.67% 3.96%
PORTFOLIO TURNOVER RATE 16% 8% 12% 17% 26%
</Table>
See Notes to Financial Highlights
60
<Page>
NOTES TO FINANCIAL HIGHLIGHTS INCOME FUNDS
+ The per share amounts and ratios which are shown reflect income and
expenses, including each Fund's proportionate share of its corresponding
Portfolio's income and expenses through February 9, 2001 under the prior
master-feeder fund structure.
++ Total return based on per share net asset value reflects the effects of
changes in net asset value on the performance of each Fund during each
fiscal period and assumes dividends and other distributions, if any, were
reinvested. Results represent past performance and do not guarantee future
results. Current returns may be lower or higher than the performance data
quoted. Investment returns and principal may fluctuate and shares when
redeemed may be worth more or less than original cost. For each Fund
(excluding 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:
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
2005 2004 2003 2002 2001
CASH RESERVES INVESTOR CLASS .51% -- -- -- --
GOVERNMENT MONEY FUND INVESTOR CLASS .49% .58% .57% .55% --
LIMITED MATURITY BOND FUND INVESTOR CLASS .80% .77% .74% .73% .74%
LIMITED MATURITY BOND FUND TRUST CLASS 1.02% .95% .93% .92% 1.01%
MUNICIPAL SECURITIES TRUST INVESTOR CLASS 1.10% 1.06% .98% 1.10% 1.07%
</Table>
<Table>
<Caption>
TEN MONTHS ENDED
OCTOBER 31, YEAR ENDED DECEMBER 31,
2002 2001 2000
HIGH INCOME BOND FUND INVESTOR CLASS 1.31% 1.15% 1.18%
</Table>
### 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:
<Table>
<Caption>
YEAR ENDED
OCTOBER 31,
2003
HIGH INCOME BOND FUND INVESTOR CLASS .90%
</Table>
++++ Portfolio turnover excludes purchases and sales of securities by Neuberger
Berman High Yield Bond Fund prior to the merger date.
* Annualized.
** Not annualized.
@ The per share amounts which are shown for the periods ended October 31,
2001 (October 31, 2002 for High Income) and thereafter, have been
calculated based on the average number of shares outstanding during each
fiscal period.
^^^ Effective after the close of business on September 6, 2002, Management
succeeded Lipper & Company, L.L.C., as the Fund's investment manager.
61
<Page>
(y) For fiscal years ended after October 31, 2001, funds are required by the
American Institute of Certified Public Accountants to amortize premiums and
discounts on fixed income securities. Accordingly, for the year ended
October 31, 2002, the per share amounts and ratios shown decreased or
increased as follows:
<Table>
<Caption>
TEN MONTHS ENDED
HIGH INCOME BOND FUND INVESTOR CLASS OCTOBER 31,
2002
NET INVESTMENT INCOME (.01)
NET GAINS OR LOSSES ON SECURITIES .01
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS (.19%)
<Caption>
YEAR ENDED
LIMITED MATURITY BOND FUND INVESTOR CLASS OCTOBER 31,
2002
NET INVESTMENT INCOME (.02)
NET GAINS OR LOSSES ON SECURITIES .02
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS (.26%)
<Caption>
YEAR ENDED
LIMITED MATURITY BOND FUND TRUST CLASS OCTOBER 31,
2002
NET INVESTMENT INCOME (.02)
NET GAINS OR LOSSES ON SECURITIES .02
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS (.26%)
</Table>
~ The financial highlights for the periods ended December 31, 2001 and prior
are those of the Premier Shares of Lipper High Income, and have been
audited by other auditors whose report dated February 25, 2002 expressed an
unqualified opinion. The financial highlights for the ten-month period
ended October 31, 2002 include the income and expenses attributable to the
Lipper High Income Premier Shares for the period from January 1, 2002
through September 6, 2002 and the income and expenses of High Income,
thereafter.
62
<Page>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of Neuberger Berman Income Funds and Shareholders of:
Neuberger Berman Cash Reserves
Neuberger Berman Government Money Fund
Neuberger Berman High Income Bond Fund
Neuberger Berman Limited Maturity Bond Fund
Neuberger Berman Municipal Money Fund
Neuberger Berman Municipal Securities Trust
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of the Neuberger Berman Cash Reserves, Neuberger
Berman Government Money Fund, Neuberger Berman High Income Bond Fund, Neuberger
Berman Limited Maturity Bond Fund, Neuberger Berman Municipal Money Fund and
Neuberger Berman Municipal Securities Trust, six of the series constituting the
Neuberger Berman Income Funds (the "Trust"), as of October 31, 2005, and the
related statements of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of October 31, 2005, by correspondence with the custodian
and brokers or other appropriate auditing procedures where replies from brokers
were not received. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the above mentioned series of Neuberger Berman Income Funds at October 31,
2005, the results of their operations for the year then ended, the changes in
their net assets for each of the two years in the period then ended, and their
financial highlights for each of the periods indicated therein, in conformity
with U.S. generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
December 9, 2005
63
<Page>
DIRECTORY
INVESTMENT MANAGER, ADMINISTRATOR AND DISTRIBUTOR
Neuberger Berman Management Inc.
605 Third Avenue, 2nd Floor
New York, NY 10158-0180
800.877.9700 or 212.476.8800
Institutional Services 800.366.6264
SUB-ADVISER
Neuberger Berman, LLC
605 Third Avenue
New York, NY 10158-3698
CUSTODIAN AND SHAREHOLDER SERVICING AGENT
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
FOR INVESTOR CLASS SHAREHOLDERS
ADDRESS CORRESPONDENCE TO:
Neuberger Berman Funds
Boston Service Center
P.O. Box 8403
Boston, MA 02266-8403
800.877.9700 or 212.476.8800
FOR TRUST CLASS SHAREHOLDERS
ADDRESS CORRESPONDENCE TO:
Neuberger Berman Management Inc.
605 Third Avenue, 2nd Floor
New York, NY 10158-0180
Attn: Institutional Services
800.366.6264
LEGAL COUNSEL
Kirkpatrick & Lockhart Nicholson Graham LLP
1800 Massachusetts Avenue, NW
2nd Floor
Washington, DC 20036
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
64
<Page>
TRUSTEE AND OFFICER INFORMATION
The following tables set forth information concerning the trustees and officers
of the Trust. All persons named as trustees and officers also serve in similar
capacities for other funds administered or managed by Management and Neuberger.
The Statement of Additional Information includes additional information about
fund trustees and is available upon request, without charge, by calling (800)
877-9700.
INFORMATION ABOUT THE BOARD OF TRUSTEES
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITION AND FUND COMPLEX
LENGTH OF TIME OVERSEEN BY OTHER DIRECTORSHIPS HELD OUTSIDE
NAME, AGE, AND ADDRESS(1) SERVED(2) PRINCIPAL OCCUPATION(S)(3) TRUSTEE(4) FUND COMPLEX BY TRUSTEE
- ------------------------- --------------- ---------------------------- -------------- ----------------------------------
INDEPENDENT TRUSTEES
John Cannon (75) Trustee since Consultant. Formerly, 45 Independent Trustee or Director of
1994 Chairman, CDC Investment three series of Oppenheimer Funds:
Advisers (registered Limited Term New York Municipal
investment adviser), 1993 to Fund, Rochester Fund Municipals,
January 1999; formerly, and Oppenheimer Convertible
President and Chief Securities Fund, since 1992.
Executive Officer, AMA
Investment Advisors, an
affiliate of the American
Medical Association.
Faith Colish (70) Trustee since Counsel, Carter Ledyard & 45 Director, American Bar Retirement
2000 Milburn LLP (law firm) since Association (ABRA) since 1997
October 2002; formerly, (not-for-profit membership
Attorney-at-Law and association).
President, Faith Colish, A
Professional Corporation,
1980 to 2002.
C. Anne Harvey (68) Trustee since Consultant, C.A. Harvey 45 President, Board of Associates to
2000 Associates since June 2001; The National Rehabilitation
formerly, Director, AARP, Hospital's Board of Directors
1978 to December 2001. since 2002; formerly, Member,
Individual Investors Advisory
Committee to the New York Stock
Exchange Board of Directors, 1998
to June 2002; formerly, Member,
American Savings Education
Council's Policy Board (ASEC),
1998 to 2000; formerly, Member,
Executive Committee, Crime
Prevention Coalition of America,
1997 to 2000.
</Table>
65
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITION AND FUND COMPLEX
LENGTH OF TIME OVERSEEN BY OTHER DIRECTORSHIPS HELD OUTSIDE
NAME, AGE, AND ADDRESS(1) SERVED(2) PRINCIPAL OCCUPATION(S)(3) TRUSTEE(4) FUND COMPLEX BY TRUSTEE
- ------------------------- --------------- ---------------------------- -------------- ----------------------------------
Barry Hirsch (72) Trustee since Attorney-at-Law. Formerly, 45 None
1993 Senior Counsel, Loews
Corporation (diversified
financial corporation) May
2002 to April 2003;
formerly, Senior Vice
President, Secretary and
General Counsel, Loews
Corporation.
Robert A. Kavesh (78) Trustee since Marcus Nadler Professor 45 Director, The Caring Community
1993 Emeritus of Finance and (not-for-profit); formerly,
Economics, New York Director, DEL Laboratories, Inc.
University Stern School of (cosmetics and pharmaceuticals),
Business; formerly, 1978 to 2004; formerly, Director,
Executive Apple Bank for Savings, 1979 to
Secretary-Treasurer, 1990; formerly, Director, Western
American Finance Pacific Industries, Inc., 1972 to
Association, 1961 to 1979. 1986 (public company).
Howard A. Mileaf (68) Trustee since Retired. Formerly, Vice 45 Director, WHX Corporation (holding
2000 President and Special company) since August 2002;
Counsel, WHX Corporation Director, Webfinancial Corporation
(holding company) 1993 to (holding company) since December
2001. 2002; Director, State Theatre of
New Jersey (not-for-profit
theater) since 2000; formerly,
Director, Kevlin Corporation
(manufacturer of microwave and
other products).
Edward I. O'Brien (77) Trustee since Formerly, Member, Investment Director, Legg Mason, Inc.
2000 Policy Committee, Edward (financial services holding
Jones, 1993 to 2001; company) since 1993; formerly,
President, Securities Director, Boston Financial Group
Industry Association ("SIA") (real estate and tax shelters)
(securities industry's 1993 to 1999.
representative in government
relations and regulatory
matters at the federal and
state levels) 1974 to 1992;
Adviser to SIA, November
1992 to November 1993.
</Table>
66
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITION AND FUND COMPLEX
LENGTH OF TIME OVERSEEN BY OTHER DIRECTORSHIPS HELD OUTSIDE
NAME, AGE, AND ADDRESS(1) SERVED(2) PRINCIPAL OCCUPATION(S)(3) TRUSTEE(4) FUND COMPLEX BY TRUSTEE
- ------------------------- --------------- ---------------------------- -------------- ----------------------------------
William E. Rulon (73) Trustee since Retired. Formerly, Senior 45 Director, Pro-Kids Golf and
1993 Vice President, Foodmaker, Learning Academy (teach golf and
Inc. (operator and computer usage to "at risk"
franchiser of restaurants) children) since 1998; formerly,
until January 1997. Director, Prandium, Inc.
(restaurants) from March 2001 to
July 2002.
Cornelius T. Ryan (74) Trustee since Founding General Partner, 45 Director, Capital Cash Management
2000 Oxford Partners and Oxford Trust (money market fund),
Bioscience Partners (venture Naragansett Insured Tax-Free
capital partnerships) and Income Fund, Rocky Mountain Equity
President, Oxford Venture Fund, Prime Cash Fund, several
Corporation. private companies and QuadraMed
Corporation (NASDAQ).
Tom D. Seip (55) Trustee since General Partner, Seip 45 Director, H&R Block, Inc.
2000 Investments LP (a private (financial services company) since
investment partnership); May 2001; Director, Forward
formerly, President and CEO, Management, Inc. (asset
Westaff, Inc. (temporary management) since 2001; formerly,
staffing), May 2001 to Director, General Magic (voice
January 2002; Senior recognition software) 2001 to
Executive at the Charles 2002; formerly, Director,
Schwab Corporation from 1983 E-Finance Corporation (credit
to 1999, including Chief decisioning services) 1999 to
Executive Officer, Charles 2003; formerly, Director,
Schwab Investment Save-Daily.com (micro investing
Management, Inc. and services) 1999 to 2003; Director,
Trustee, Schwab Family of Offroad Capital Inc. (pre-public
Funds and Schwab Investments internet commerce company).
from 1997 to 1998; and
Executive Vice
President-Retail Brokerage,
Charles Schwab Investment
Management from 1994 to
1997.
</Table>
67
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITION AND FUND COMPLEX
LENGTH OF TIME OVERSEEN BY OTHER DIRECTORSHIPS HELD OUTSIDE
NAME, AGE, AND ADDRESS(1) SERVED(2) PRINCIPAL OCCUPATION(S)(3) TRUSTEE(4) FUND COMPLEX BY TRUSTEE
- ------------------------- --------------- ---------------------------- -------------- ----------------------------------
Candace L. Straight (58) Trustee since Private investor and 45 Director, The Proformance
1993 consultant specializing in Insurance Company (personal lines
the insurance industry; property and casualty insurance
formerly, Advisory Director, company) since March 2004;
Securitas Capital LLC (a Director, Providence Washington
global private equity (property and casualty insurance
investment firm dedicated to company) since December 1998;
making investments in the Director, Summit Global Partners
insurance sector) 1998 to (insurance brokerage firm) since
December 2002. October 2000.
Peter P. Trapp (61) Trustee since Regional Manager for Atlanta 45 None.
2000 Region, Ford Motor Credit
Company since August 1997;
formerly, President, Ford
Life Insurance Company,
April 1995 to August 1997
TRUSTEES WHO ARE "INTERESTED PERSONS"
Jack L. Rivkin* (65) President and Executive Vice President and 45 Director, Dale Carnegie and
Trustee since Chief Investment Officer, Associates, Inc. (private company)
2002 Neuberger Berman Inc. since 1998; Director, Emagin Corp.
(holding company) since 2002 (public company) since 1997;
and 2003, respectively; Director, Solbright, Inc. (private
Executive Vice President and company) since 1998; Director,
Chief Investment Officer, Infogate, Inc. (private company)
Neuberger Berman since since 1997; Director, Broadway
December 2002 and 2003, Television Network (private
respectively; Director and company) since 2000.
Chairman, Management since
December 2002; formerly,
Executive Vice President,
Citigroup Investments, Inc.
from September 1995 to
February 2002; formerly,
Executive Vice President,
Citigroup Inc. from
September 1995 to February
2002.
</Table>
68
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITION AND FUND COMPLEX
LENGTH OF TIME OVERSEEN BY OTHER DIRECTORSHIPS HELD OUTSIDE
NAME, AGE, AND ADDRESS(1) SERVED(2) PRINCIPAL OCCUPATION(S)(3) TRUSTEE(4) FUND COMPLEX BY TRUSTEE
- ------------------------- --------------- ---------------------------- -------------- ----------------------------------
Peter E. Sundman* (46) Chairman of the Executive Vice President, 45 Director and Vice President,
Board and Neuberger Berman Inc. Neuberger & Berman Agency, Inc.
Trustee since (holding company) since since 2000; formerly, Director,
2000; Chief 1999; Head of Neuberger Neuberger Berman Inc. (holding
Executive Berman Inc.'s Mutual Funds company) from October 1999 to
Officer since Business (since 1999) and March 2003; Trustee, Frost Valley
1999; President Institutional Business (from YMCA.
from 1999 to 1999 to October 2005);
2000. responsible for Managed
Accounts Business and
intermediary distribution
since October 2005;
President and Director,
Management since 1999;
Executive Vice President,
Neuberger Berman since 1999;
formerly, Principal,
Neuberger Berman from 1997
to 1999; formerly, Senior
Vice President, Management
from 1996 to 1999.
</Table>
(1) The business address of each listed person is 605 Third Avenue, New
York, New York 10158.
(2) Pursuant to the Trust's Trust Instrument, each Trustee shall hold
office for life or until his or her successor is elected or the Trust
terminates; except that (a) any Trustee may resign by delivering a
written resignation; (b) any Trustee may be removed with or without
cause at any time by a written instrument signed by at least two-thirds
of the other Trustees; (c) any Trustee who requests to be retired, or
who has become unable to serve, may be retired by a written instrument
signed by a majority of the other Trustees; and (d) any Trustee may be
removed at any shareholder meeting by a vote of at least two-thirds of
the outstanding shares.
(3) Except as otherwise indicated, each individual has held the positions
shown for at least the last five years.
(4) For funds organized in a master-feeder structure, we count the master
fund and its associated feeder funds as a single portfolio.
* Indicates a Trustee who is an "interested person" within the meaning of
the 1940 Act. Mr. Sundman and Mr. Rivkin are interested persons of the
Trust by virtue of the fact that they are officers and/or directors of
Management and Executive Vice Presidents of Neuberger Berman.
69
<Page>
TRUSTEE AND OFFICER INFORMATION
INFORMATION ABOUT THE OFFICERS OF THE TRUST/FUND
<Table>
<Caption>
POSITION AND
NAME, AGE, AND ADDRESS(1) LENGTH OF TIME SERVED(2) PRINCIPAL OCCUPATION(S)(3)
- -------------------------------------------------------------------------------------------------------
Michael J. Bradler (35) Assistant Treasurer since 2005 Employee, Management since 1997; Assistant
Treasurer, fifteen registered investment
companies for which Management acts as
investment manager and administrator since
2005.
Claudia A. Brandon (49) Secretary since 1985 Vice President -- Mutual Fund Board
Relations, Management since 2000 and
Assistant Secretary since 2004; Vice
President, Neuberger Berman since 2002 and
employee since 1999; Assistant Secretary,
Management since 2004; formerly, Vice
President, Management from 1986 to 1999;
Secretary, fifteen registered investment
companies for which Management acts as
investment manager and administrator
(three since 2000, four since 2002, three
since 2003, four since 2004 and one since
2005).
Robert Conti (49) Vice President since 2000 Senior Vice President, Neuberger Berman
since 2003; formerly, Vice President,
Neuberger Berman from 1999 to 2003; Senior
Vice President, Management since 2000;
formerly, Controller, Management until
1996; formerly, Treasurer, Management from
1996 to 1999; Vice President, fifteen
registered investment companies for which
Management acts as investment manager and
administrator (three since 2000, four
since 2002, three since 2003, four since
2004 and one since 2005).
Brian J. Gaffney (52) Vice President since 2000 Managing Director, Neuberger Berman since
1999; Senior Vice President, Management
since 2000; formerly, Vice President,
Management from 1997 to 1999; Vice
President, fifteen registered investment
companies for which Management acts as
investment manager and administrator
(three since 2000, four since 2002, three
since 2003, four since 2004 and one since
2005).
</Table>
70
<Page>
<Table>
<Caption>
POSITION AND
NAME, AGE, AND ADDRESS(1) LENGTH OF TIME SERVED(2) PRINCIPAL OCCUPATION(S)(3)
- -------------------------------------------------------------------------------------------------------
Sheila R. James (40) Assistant Secretary since 2002 Employee, Neuberger Berman since 1999;
formerly, Employee, Management from 1991
to 1999; Assistant Secretary, fifteen
registered investment companies for which
Management acts as investment manager and
administrator (seven since 2002, three
since 2003, four since 2004 and one since
2005).
Kevin Lyons (50) Assistant Secretary since 2003 Employee, Neuberger Berman since 1999;
formerly, Employee, Management from 1993
to 1999; Assistant Secretary, fifteen
registered investment companies for which
Management acts as investment manager and
administrator (ten since 2003, four since
2004 and one since 2005).
John M. McGovern (35) Treasurer and Principal Vice President, Neuberger Berman since
Financial and Accounting January 2004; Employee, Management since
Officer since 2005; prior 1993; Treasurer and Principal Financial
thereto, Assistant Treasurer and Accounting Officer, fifteen registered
since 2002 investment companies for which Management
acts as investment manager and
administrator (fifteen since 2005);
formerly, Assistant Treasurer, fifteen
registered investment companies for which
Management acts as investment manager and
administrator from 2002 to 2005.
Frank Rosato (34) Assistant Treasurer since 2005 Employee, Management since 1995; Assistant
Treasurer, fifteen registered investment
companies for which Management acts as
investment manager and administrator since
2005.
Frederic B. Soule (59) Vice President since 2000 Senior Vice President, Neuberger Berman
since 2003; formerly, Vice President,
Neuberger Berman from 1999 to 2003;
formerly, Vice President, Management from
1995 to 1999; Vice President, fifteen
registered investment companies for which
Management acts as investment manager and
administrator (three since 2000, four
since 2002, three since 2003, four since
2004 and one since 2005).
</Table>
71
<Page>
<Table>
<Caption>
POSITION AND
NAME, AGE, AND ADDRESS(1) LENGTH OF TIME SERVED(2) PRINCIPAL OCCUPATION(S)(3)
- -------------------------------------------------------------------------------------------------------
Chamaine Williams (34) Chief Compliance Officer since Vice President, Lehman Brothers Inc. since
2005 2003; Chief Compliance Officer, fifteen
registered investment companies for which
Management acts as investment manager and
administrator (fifteen since 2005); Chief
Compliance Officer, Lehman Brothers Asset
Management Inc. since 2003; Chief
Compliance Officer, Lehman Brothers
Alternative Investment Management LLC
since 2003; formerly, Vice President, UBS
Global Asset Management (US) Inc.
(formerly, Mitchell Hutchins Asset
Management, a wholly-owned subsidiary of
PaineWebber Inc.) from 1997-2003.
</Table>
- ----------
(1) The business address of each listed person is 605 Third Avenue, New York,
New York 10158.
(2) Pursuant to the By-Laws of the Trust, each officer elected by the Trustees
shall hold office until his or her successor shall have been elected and
qualified or until his or her earlier death, inability to serve, or
resignation. Officers serve at the pleasure of the Trustees and may be
removed at any time with or without cause.
(3) Except as otherwise indicated, each individual has held the positions shown
for at least the last five years.
72
<Page>
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies relating to portfolio securities is available, without
charge, by calling 1-800-877-9700 (toll-free) and on the website of the
Securities and Exchange Commission, at www.sec.gov. Information regarding how
the Trust voted proxies relating to portfolio securities during the most recent
12-month period ended June 30 is also available, without charge, by calling
1-800-877-9700 (toll-free), on the website of the Securities and Exchange
Commission at www.sec.gov, and on 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).
73
<Page>
NOTICE TO SHAREHOLDERS (UNAUDITED)
Under most state tax laws, mutual fund dividends which are derived from direct
investments in U.S. Government obligations are not taxable, as long as a Fund
meets certain requirements. Some states require that a Fund must provide
shareholders with a written notice, within 60 days of the close of a Fund's
taxable year, designating the portion of the dividends which represents interest
which those states consider to have been earned on U.S. Government obligations.
The chart below shows the percentage of income derived from such investments for
the twelve months ended October 31, 2005. This information should not be used to
complete your tax returns.
<Table>
<Caption>
OTHER DIRECT U.S. OTHER INDIRECT U.S.
U.S. TREASURY GOVERNMENT GOVERNMENT REPURCHASE
NEUBERGER BERMAN OBLIGATIONS OBLIGATIONS OBLIGATIONS AGREEMENTS
- ------------------------------------------------------------------------------------------------------------------
GOVERNMENT MONEY FUND 23.0% 39.2% 36.1% 0.8%
CASH RESERVES 0.9 1.7 0.8 0.2
LIMITED MATURITY BOND FUND 5.5 4.6 7.0 2.3
HIGH INCOME BOND FUND 0.0 0.0 0.0 0.9
</Table>
In January 2006, you will receive information to be used in filing your 2005 tax
returns, which will include a notice of the exact tax status of all dividends
paid to you by each Fund during calendar year 2005. Please consult your own tax
advisor for details as to how this information should be reflected on your tax
returns.
Neuberger Berman Municipal Securities Trust hereby designates $167,792 as a
capital gain distribution.
For the fiscal year ended October 31, 2005, the percentages representing the
portion of distributions from net investment income, which are exempt from
federal income tax, other than alternative minimum tax are as follows:
<Table>
<Caption>
NEUBERGER BERMAN
- -----------------------------------------------------
MUNICIPAL MONEY FUND 100.0%
MUNICIPAL SECURITIES TRUST FUND 99.98
</Table>
74
<Page>
BOARD CONSIDERATION OF THE MANAGEMENT AND SUB-ADVISORY AGREEMENTS
At a meeting held on September 21, 2005, the Board of Trustees ("Board") of
Neuberger Berman Income Funds, including the Trustees who are not "interested
persons" of the Trust ("Independent Fund Trustees"), approved continuance of the
Management and Sub-Advisory Agreements ("Agreements") for Neuberger Berman Cash
Reserves, Neuberger Berman Government Money Fund, Neuberger Berman High Income
Bond Fund, Neuberger Berman Limited Maturity Bond Fund, Neuberger Berman
Municipal Money Fund and Neuberger Berman Municipal Securities Trust (each a
"Fund").
In evaluating the Agreements, the Board, including the Independent Fund
Trustees, reviewed materials furnished by Management and Neuberger Berman, LLC
("Neuberger") in response to questions submitted by counsel to the Independent
Fund Trustees, and met with senior representatives of Management and Neuberger
regarding their personnel and operations. The Independent Fund Trustees were
advised by counsel that is experienced in Investment Company Act of 1940 matters
and that is independent of Management and Neuberger. The Independent Fund
Trustees received a memorandum from independent counsel discussing the legal
standards for their consideration of the proposed continuance of the Agreements.
They met with such counsel separately from representatives of Management to
discuss the annual contract review. The annual contract review extends over two
regular meetings of the Board to ensure that Management and Neuberger have time
to respond to any questions the Independent Fund Trustees may have on their
initial review of the report and that the Independent Fund Trustees have time to
consider those responses. In addition, during this process, the Board held a
separate meeting devoted to reviewing and discussing Fund performance.
The Board considered the following factors, among others, in connection with its
approval of the continuance of the Agreements: (1) the nature, extent, and
quality of the services to be provided by Management and Neuberger; (2) the
performance of each Fund compared to relevant market indices and a peer group of
investment companies; (3) the costs of the services to be provided and profits
historically realized by Management and its affiliates from the relationship
with the Funds; (4) the extent to which economies of scale might be realized as
each Fund grows; and (5) whether fee levels reflect those potential economies of
scale for the benefit of investors in each Fund. In their deliberations, the
Board members did not identify any particular information that was all-important
or controlling, and each Trustee may have attributed different weights to the
various factors.
The Board evaluated the terms of the Agreements and whether the Agreements were
in the best interests of each Fund and its shareholders. The Board considered,
with respect to each Fund, the nature, extent and quality of the services
provided under the Agreements and the overall fairness of the Agreements to the
Funds. The Board requested and evaluated a report from Management and Neuberger
that addressed specific factors designed to inform the Board's consideration of
these and other issues. The Board also retained an independent consultant to
provide additional data.
With respect to the nature, extent and quality of the services provided, the
Board considered the performance of each Fund and the degree of risk undertaken
by the portfolio manager(s). The Board considered the experience and staffing of
portfolio management and the investment research personnel of Management and
Neuberger dedicated to performing services for the Funds. The Board noted that
Management also provides certain administrative services, including fund
accounting and compliance oversight. The Board also considered Management's and
Neuberger's policies and practices regarding brokerage and allocation of
portfolio transactions for the Funds. In addition, the Board noted the positive
compliance history of Management and Neuberger, as each firm has been free of
significant compliance problems.
With respect to the performance of each Fund, the Board considered the short-,
intermediate- and long-term performance of each Fund relative to its benchmark
and a peer group of investment companies pursuing broadly similar strategies.
The Board also considered long-term performance in relation to the degree of
risk undertaken by the portfolio manager(s). In the case of those Funds that had
underperformed their peer group and/or relevant market indices, the Board
discussed each Fund's performance with Management and discussed steps that
Management had taken, or intended to take, to improve each Fund's performance.
The Board also considered Management's resources and responsiveness with respect
to the Funds that experienced lagging performance.
With respect to the overall fairness of the Agreements, the Board considered the
fee structure of the Agreements as compared to a peer group of comparable funds
and any fall-out benefits likely to accrue to Management or Neuberger or their
affiliates. The Board also considered the profitability of Management and its
affiliates from their association with the Funds.
75
<Page>
The Board received a detailed report from an independent consultant that
compares each Fund's management fee and overall expense ratio to a peer group of
comparable funds. The Board considered the range and average of the management
fees and expense ratios of the peer group. Where a Fund's actual management fee
was higher than the peer group median, the Board considered whether specific
portfolio management or administration needs contributed to the higher fee. With
regard to the sub-advisory fee paid to Neuberger, the Board noted that this fee
is reflective of an "at cost" basis and there is no profit to Neuberger with
regard to these fees.
The Board considered each Fund's overall expenses in relation to the overall
expenses of the peer group median. In addition, the Board considered the
contractual limits on Fund expenses undertaken by Management for Neuberger
Berman Cash Reserves, Neuberger Berman High Income Bond Fund, Neuberger Berman
Limited Maturity Bond Fund and Neuberger Berman Municipal Securities Trust, and
the management fee waivers undertaken for Neuberger Berman Cash Reserves and
Neuberger Berman Government Money Fund. The Board noted that Management incurred
a loss on Neuberger Berman Municipal Securities Trust on an after-tax basis.
The Board considered whether there were other funds that were sub-advised by
Management or its affiliates or separate accounts managed by Management with
similar investment objectives, policies and strategies as the Funds. The Board
noted that there were no comparable sub-advised funds. The Board compared the
fees charged to comparable separate accounts to the fees charged to the Funds at
various asset levels. The Board considered the appropriateness and
reasonableness of the differences between the fees charged between each Fund and
the comparable separate accounts and determined that the differences in fees
were consistent with the management and other services provided.
The Board also evaluated any actual or anticipated economies of scale in
relation to the services Management provides to each Fund. The Board considered
whether each Fund's fee structure provides for a reduction of payments resulting
from the use of breakpoints and whether those breakpoints are set at appropriate
asset levels.
In concluding that the benefits accruing to Management and its affiliates by
virtue of their relationship to the Funds were reasonable in comparison with the
costs of providing the investment advisory services and the benefits accruing to
each Fund, the Board reviewed specific data as to Management's profit or loss on
each Fund for a recent period and the trend in profit or loss over recent years.
The Board also carefully examined Management's cost allocation methodology and
had an independent expert review the methodology. It also reviewed an analysis
from an independent data service on investment management profitability margins.
The Board also reviewed whether Management and Neuberger used brokers to execute
Fund transactions that provide research and other services to Management and
Neuberger, and the types of benefits potentially derived by the Funds and by
other clients of Management and Neuberger from such services. The Board
recognized that Management should be entitled to earn a reasonable level of
profits for services it provides to the Funds and, based on its review,
concluded it was satisfied that Management's level of profitability from its
relationship with the Funds was not excessive.
CONCLUSIONS
In approving the Agreements, the Board concluded that the terms of each
Agreement are fair and reasonable and that approval of the Agreements is in the
best interest of each Fund and its shareholders. In reaching this determination,
the Board considered that Management and Neuberger could be expected to provide
a high level of service to each Fund; the performance of each Fund was
satisfactory over time or, in the case of underperforming Funds, that it
retained confidence in Management's and Neuberger's capabilities to manage the
Funds; that each Fund's fee structure appeared to the Board to be reasonable
given the quality of services expected to be provided; and that the benefits
accruing to Management and its affiliates by virtue of their relationship to the
Funds were reasonable in comparison with the costs of providing the investment
advisory services and the benefits accruing to each Fund.
76
<Page>
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] BO778 12/05
ITEM 2. CODE OF ETHICS
The 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"). A copy of the Code of Ethics is
filed as Exhibit 12(a)(1) to this Form N-CSR. 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 two audit committee financial
experts serving on its audit committee. The Registrant's audit committee
financial experts are John Cannon and Howard Mileaf. Mr. Cannon and Mr. Mileaf
are independent directors as defined by Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The financial information provided below is that of the registrant, Neuberger
Berman Income Funds. This N-CSR relates only to Neuberger Berman Municipal
Securities Trust, Strategic Income Fund, Cash Reserves, Government Money Fund,
High Income Bond Fund, Limited Maturity Bond Fund, and Lehman Brothers Municipal
Money Fund, each a series of Neuberger Berman Income Funds (collectively, the
"Funds"). Ernst & Young, LLP ("E&Y") serves as independent registered public
accounting firm to the Funds.
(a) Audit Fees
----------
The aggregate fees billed for professional services rendered by E&Y for the
audit of the annual financial statements or services that are normally provided
by E&Y in connection with statutory and regulatory filings or engagements were
$215,900 and $215,600 for the fiscal years ended 2004 and 2005, respectively.
(b) Audit-Related Fees
------------------
The aggregate fees billed to the Registrant for assurance and related services
by E&Y that are reasonably related to the performance of the audit of the
Registrant's financial statements and are not reported above in AUDIT FEES were
$0 and $0 for the fiscal years ended 2004 and 2005, respectively.
The fees billed to other entities in the investment company complex for
assurance and related services by E&Y that are reasonably related to the
performance of the audit that the Audit Committee was required to approve
because the engagement related directly to the operations and financial
reporting of the Registrant were $0 and $0 for the fiscal years ended 2004 and
2005, respectively.
(c) Tax Fees
--------
The aggregate fees billed to the Registrant for professional services rendered
by E&Y for tax compliance, tax advice, and tax planning were $69,800 and $61,200
for the fiscal years ended 2004 and 2005, respectively. The nature of the
services provided were tax compliance, tax advice, and tax planning. The Audit
Committee approved 0% and 0% of these services provided by E&Y for the fiscal
years ended 2004 and 2005, respectively, pursuant to the waiver provisions of
Rule 2-01(c)(7)(i)(C) of Regulation S-X.
The fees billed to other entities in the investment company complex for tax
compliance, tax advice, and tax planning that the Audit Committee was required
to approve because the engagement related directly to the operations and
financial reporting of the Registrant were $0 and $0 for the fiscal years ended
2004 and 2005, respectively.
(d) All Other Fees
--------------
The aggregate fees billed to the Registrant for products and services provided
by E&Y, other than services reported in AUDIT FEES, AUDIT-RELATED FEES, and TAX
FEES were $0 and $0 for the fiscal years ended 2004 and 2005, respectively.
The fees billed to other entities in the investment company complex for products
and services provided by E&Y, other than services reported in AUDIT FEES,
AUDIT-RELATED FEES, and TAX FEES that the Audit Committee was required to
approve because the engagement related directly to the operations and financial
reporting of the Registrant were $0 and $0 for the fiscal years ended 2004 and
2005, respectively.
(e) Audit Committee's Pre-pproval Policies and Procedures
------------------------------------------------------
(1) The Audit Committee's pre-approval policies and procedures for the
Registrant to engage an accountant to render audit and non-audit services
delegate to the Chair of the Committee the power to pre-approve services between
meetings of the Committee.
(2) None of the services described in paragraphs (b) through (d) above were
approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01
of Regulation S-X.
(f) Hours Attributed to Other Persons
---------------------------------
Not applicable.
(g) Non-audit Fees
--------------
Non-audit fees billed by E&Y for services rendered to the Registrant were
$69,800 and $61,200 for the fiscal years ended 2004 and 2005, respectively.
Non-audit fees billed by E&Y for services rendered to the Registrant's
investment adviser and any entity controlling, controlled by, or under common
control with the adviser that provides ongoing services to the Registrant were
$146,100 and $154,400 for the fiscal years ended 2004 and 2005, respectively.
(h) The Audit Committee of the Board considered whether the provision of
non-audit services rendered to the Registrant's investment adviser and any
entity controlling, controlled by, or under common control with the adviser that
provides ongoing services to the Registrant that were not pre-approved by the
Audit Committee because the engagement did not relate directly to the operations
and financial reporting of the Registrant is compatible with maintaining Ernst &
Young's independence.
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. PURCHASE 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 filed herewith.
(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.
(a)(3) Not applicable to the Registrant.
(b) The certifications required by Rule 30a-2(b) of the Act and Section 906
of the Sarbanes-Oxley Act are 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: January 9, 2006
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: January 9, 2006
By: /s/ John M. McGovern
------------------------
John M. McGovern
Treasurer and Principal Financial
and Accounting Officer
Date: January 9, 2006