As filed with the Securities and Exchange Commission on July 9, 2007
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-3802
LEHMAN BROTHERS INCOME FUNDS
----------------------------
(Exact Name of the Registrant as Specified in Charter)
605 Third Avenue, 2nd Floor
New York, New York 10158-0180
(Address of Principal Executive Offices - Zip Code)
Registrant's telephone number, including area code: (212) 476-8800
Peter E. Sundman, Chairman of the Board and Chief Executive Officer
Lehman Brothers Income Funds
605 Third Avenue, 2nd Floor
New York, New York 10158-0180
Arthur Delibert, Esq.
Kirkpatrick & Lockhart Preston Gates Ellis LLP
1601 K Street, N.W.
Washington, D.C. 20006-1600
(Names and Addresses of agents for service)
Date of fiscal year end: October 31, 2007
Date of reporting period: April 30, 2007
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 100 F Street, NE,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO SHAREHOLDERS
LEHMAN BROTHERS ASSET MANAGEMENT
Lehman Brothers
Investor Class Shares
Institutional Class Shares
Reserve Class Shares
Trust Class Shares
Lehman Brothers Core Bond Fund
Lehman Brothers High Income Bond Fund
Lehman Brothers Municipal Money Fund
Lehman Brothers Municipal Securities Trust
Lehman Brothers National Municipal Money Fund
Lehman Brothers New York Municipal Money Fund
Lehman Brothers Short Duration Bond Fund
Lehman Brothers Strategic Income Fund
Lehman Brothers Tax-Free Money Fund
Neuberger Berman Cash Reserves
Semi-Annual Report
April 30, 2007
<Page>
Contents
<Table>
THE FUNDS
Chairman's Letter 1
PORTFOLIO COMMENTARY
Lehman Brothers Core Bond Fund 2
Lehman Brothers High Income Bond Fund 4
Lehman Brothers Municipal Money Fund 6
Lehman Brothers Municipal Securities Trust 8
Lehman Brothers National Municipal Money Fund 10
Lehman Brothers New York Municipal Money Fund 12
Lehman Brothers Short Duration Bond Fund 14
Lehman Brothers Strategic Income Fund 16
Lehman Brothers Tax-Free Money Fund 19
Neuberger Berman Cash Reserves 21
FUND EXPENSE INFORMATION 27
SCHEDULE OF INVESTMENTS
Lehman Brothers Core Bond Fund 31
Lehman Brothers High Income Bond Fund 38
Lehman Brothers Municipal Money Fund 43
Lehman Brothers Municipal Securities Trust 53
Lehman Brothers National Municipal Money Fund 56
Lehman Brothers New York Municipal Money Fund 63
Lehman Brothers Short Duration Bond Fund 66
Lehman Brothers Strategic Income Fund 70
Lehman Brothers Tax-Free Money Fund 81
Neuberger Berman Cash Reserves 91
FINANCIAL STATEMENTS 98
</Table>
The "Neuberger Berman" name and logo are registered service marks of Neuberger
Berman, LLC. "Neuberger Berman Management Inc." and the individual fund names in
this report are either service marks or registered service marks of Neuberger
Berman Management Inc. (C)2007 Neuberger Berman Management Inc. All rights
reserved. (C)2007 Lehman Brothers Asset Management LLC. All rights reserved.
<Page>
<Table>
FINANCIAL HIGHLIGHTS/PER SHARE DATA
Lehman Brothers Core Bond Fund 119
Lehman Brothers High Income Bond Fund 121
Lehman Brothers Municipal Money Fund 122
Lehman Brothers Municipal Securities Trust 123
Lehman Brothers National Municipal Money Fund 124
Lehman Brothers New York Municipal Money Fund 125
Lehman Brothers Short Duration Bond Fund 126
Lehman Brothers Strategic Income Fund 128
Lehman Brothers Tax-Free Money Fund 130
Neuberger Berman Cash Reserves 131
Directory 135
Proxy Voting Policies and Procedures 136
Quarterly Portfolio Schedule 136
</Table>
The "Neuberger Berman" name and logo are registered service marks of Neuberger
Berman, LLC. "Neuberger Berman Management Inc." and the individual fund names in
this report are either service marks or registered service marks of Neuberger
Berman Management Inc. (C)2007 Neuberger Berman Management Inc. All rights
reserved. (C)2007 Lehman Brothers Asset Management LLC. All rights reserved.
<Page>
Chairman's Letter
Dear Shareholder,
Over the past six months, the fixed income market has been a somewhat
tempestuous place. Early in the period, bonds extended an impressive rally in
the wake of the Fed's mid-2006 decision to keep interest rates in place and as
economic data indicated a slowing economy (which tends to be beneficial to
bonds). However, the picture became somewhat more cloudy in early 2007, as
concerns about the potential impact of sub-prime mortgage failures on other
parts of the bond market, varied economic signals and still stubbornly high
inflation unsettled investors.
During the reporting period, our portfolio managers earned their keep, remaining
skeptical of overly optimistic market anticipation of rate cuts by the Federal
Reserve, but also finding opportunities in ongoing market volatility. Although
the Fed has eliminated the "tightening bias" in its policies, it remains focused
on data releases to determine its future course. In turn, our managers will
maintain a watchful eye as they look for income while seeking to maintain
principal as the outlook evolves.
As we have already communicated, 2007 marks an important point in our history,
as we have recently begun offering our income funds under the Lehman Brothers
name. This transition reinforces the strength of our affiliation with Lehman
Brothers and our desire to present our fixed income capabilities as one cohesive
unit. You can be assured that our long-standing investment disciplines and
processes will remain unchanged.
Over the past few years, our merger with Lehman Brothers has strengthened our
ability to attract and retain the highest level of investment talent, as shown
by the many additions to our professional staff. Our parent company values and
respects our investment expertise; and we continue to manage our portfolios as
we did before, aided by the extensive resources of Lehman Brothers. Most
importantly, we share a common culture--one focused on discipline, integrity and
a commitment to act in the best interests of our shareholders at all times.
In closing, we have worked hard to earn your trust and confidence, and look
forward to building on that tradition in the years ahead.
Sincerely,
/s/ Peter Sundman
- --------------------------------
PETER SUNDMAN
CHAIRMAN OF THE BOARD
LEHMAN BROTHERS INCOME FUNDS
1
<Page>
Lehman Brothers Core Bond Fund Portfolio Commentary
For the six months ended April 30, 2007, the Lehman Brothers Core Bond Fund
generated a positive return and outpaced its benchmark, the Lehman Brothers U.S.
Aggregate Index.
The bond market rallied in late calendar 2006, suffered some volatility in early
2007, but finished in the black on a total return basis. The yield curve
(reflecting yield levels from short to long maturities) remained roughly flat
throughout the period.
Early advances were driven by a combination of slower economic growth (which
encouraged bond investors) and a continued pause in the Federal Reserve's
two-year campaign to raise interest rates. Still, varied readings on the
economy, combined with a change in the Fed's language, led to significant
volatility for the bond market in the first four months of 2007. Recent data
indicate that the economy has been growing at a significantly slower rate than
in recent quarters. That, combined with concern that sub-prime mortgage weakness
could spread to other sectors, is shaping expectations that the Fed will ease
interest rates sometime during the second quarter. During calendar 2007, the
yield curve steepened as these expectations were built into market yields.
In terms of portfolio strategy, we shortened portfolio duration (or sensitivity
to interest rates) in calendar 2007 from neutral to a quarter-year below the
benchmark duration in response to the rally in late 2006, believing that the
market's expectation for an imminent rate cut was overly optimistic. And, in
January, after mortgage spreads narrowed to long time lows, we reduced our
overall position in mortgage pass-throughs, although mortgage-backed securities
remain, at 38.4%, a substantial part of the portfolio.
In other areas, we decreased exposure to corporate debt from 19.5% to 14.6% of
the portfolio, increased holdings in U.S. Treasury securities from 5.6% to
16.9%, slightly raised U.S. government agency holdings from 10.3% to 11.2%, and
kept asset-backed securities at approximately 11% of the portfolio.
Looking forward, the economic growth trajectory remains unclear. However, we
believe the growth rate should return to the long-term range of 2.5% to 3%
during 2007. Although "core" inflation (excluding food and energy) has declined
modestly from recent highs and energy costs have receded, strains from resource
utilization remain a concern. Current market prices reflect a view that
inflation will decline further.
In our view, the Federal Reserve remains comfortable with the Fed Funds rate at
5.25%. Inflation is currently above the upper horizon of the Fed's stated
preferred range, but guidance language relating to rate policy has changed to
neutral (meaning that it has no bias toward increasing or decreasing interest
rates). Market yields have declined around 25 basis points from late January
through the end of the period, reflecting optimism for an easing of interest
rates by the Fed. However, long-term real rates (excluding the impact of
inflation) are still below historical averages, suggesting that the Fed still
has room to increase rates should the need arise.
In closing, we believe that our systematic approach to managing risk continues
to contribute to the returns of the Fund, and we expect to be able to continue
to provide value for our shareholders in the future.
Sincerely,
/s/ Richard W. Knee
- --------------------------------
RICHARD W. KNEE
PORTFOLIO MANAGER
2
<Page>
PERFORMANCE HIGHLIGHTS
Lehman Brothers Core Bond Fund(2, 11, 13)
<Table>
<Caption>
TOTAL RETURN
SIX MONTH
PERIOD ENDED AVERAGE ANNUAL TOTAL RETURNS(7)
INCEPTION DATE 4/30/07 1 YEAR 5 YEARS 10 YEARS
INVESTOR CLASS 02/01/1997 2.71% 7.14% 4.74% 5.60%
INSTITUTIONAL CLASS 10/01/1995 2.91% 7.57% 5.16% 6.02%
</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.
FOR THE PERIOD ENDING APRIL 30, 2007, THE 30-DAY SEC YIELD OF THE INVESTOR CLASS
SHARES WAS 4.48% AND THE INSTITUTIONAL CLASS SHARES WAS 4.88%.
RATING SUMMARY
<Table>
AAA/Government/Government Agency 85.5%
AA 3.9
A 4.5
BBB 4.3
BB 0.2
B 0.0
CCC 0.0
CC 0.0
C 0.0
D 0.0
Short Term 1.6
</Table>
3
<Page>
Lehman Brothers High Income Bond Fund Portfolio Commentary
For the six months ended April 30, 2007, the Lehman Brothers High Income Bond
Fund provided a positive return, outpacing both the Lehman Brothers Intermediate
Ba U.S. High Yield Bond Index and the Lehman Brothers U.S. Corporate High Yield
2% Issuer Cap Index.
The high yield bond market performed well during the reporting period, as
investors continued to gravitate to higher yielding securities. Within the high
yield market itself, lower rated securities were the best performers, with
CCC-rated bonds returning substantial gains and outpacing both B-rated bonds and
BB-rated bonds. As of April 30, the Fund had a neutral credit quality profile
versus the 2% Issuer Cap Index.
The Fund's overweighting in the Health Care, Basic Industry (primarily chemicals
and metals and mining) and Communications (telecom and media-cable) sectors made
the greatest contribution to returns. The Fund's underweighting in lagging
sectors such as Financials, Utilities, and Energy also benefited performance
relative to the benchmark. Over the last several months, we have gradually
reduced exposure to cyclical sectors such as Basic Industry, Materials and
Technology, which could be negatively affected by a slowing economy.
Concurrently, we have been increasing our commitments in less economically
sensitive sectors such as Health Care, Media and Publishing, which traditionally
have enjoyed more stable cash flows.
The portfolio's weighted average maturity and duration (a standard measure of
interest rate risk) fluctuated modestly over this six-month reporting period.
This was a function of security selection rather that an attempt to anticipate
interest rate trends. Our bias toward intermediate maturity securities, which we
believe have more attractive risk/reward characteristics than longer maturity
bonds, will generally result in below-index weighted average maturity and
duration.
Demand for high yield securities has recently remained strong. If recent
patterns continue, full-year 2007 high yield bond issuance could come in at
approximately $190 billion, eclipsing the 2006 record of $150 billion. While
investors' hunger for yield is the primary driver of demand, the introduction of
a new risk factor in the fixed income markets--the high volume of private equity
deals, mergers, and takeovers--may be enhancing demand in the high yield market.
In many instances, these transactions increase the acquired company's debt,
causing the credit rating agencies to downgrade existing bonds and leaving
bondholders holding the proverbial bag. Ironically, because a much greater
percentage of high yield bonds have protective covenants such as clearly defined
bondholder rights and/or total debt limits, this deal activity can present a
greater risk for investment grade corporate bondholders than for high yield bond
investors.
Recently, demand for lower rated securities has been particularly strong. To
wit, in April, 2007, 60% of all new high yield issuance was in CCC-rated bonds,
which comprise only 17.6% of the market. Disciplined, valuation-sensitive
securities selection, targeting issuers with relatively strong balance sheets
and realistic business plans designed to reduce debt, is the key to managing
risk in this sector of the high yield market.
Some market observers have been expressing concern that, as the economy slows,
debt default rates will increase significantly, negatively affecting the high
yield bond market. We do not believe these concerns are justified. We expect the
economy to continue to expand at a rate that will support respectable cash flow
growth for most companies. While there is no way to be sure, we think high yield
default rates (1.53% at the end of March, near the lowest level since 1989),
could creep up somewhat. However, they would still probably be below the
historical average and in a range that we doubt will prompt much investor
anxiety. We believe our commitment to in-house credit quality research should
continue to help us avoid any potholes in the market.
Looking ahead, with the economy slowing and today's relatively tight credit
spreads, we expect high yield bond returns to moderate. Barring any
unforeseeable events that derail the economy, we believe that over the next 12
months, high yield bond returns are likely to be attractive relative to
prospective returns for investment grade corporate bonds and Treasury
securities. After a period in which a rising high yield market tide lifted
almost all boats, going forward, we believe that our focus on sector allocation
and individual security selection will be more critical than in the recent past
to performance success.
Sincerely,
/s/ Ann H. Benjamin /s/ Thomas P. O'Reilly
- ------------------------------------------
ANN H. BENJAMIN AND THOMAS P. O'REILLY
PORTFOLIO CO-MANAGERS
4
<Page>
PERFORMANCE HIGHLIGHTS
Lehman Brothers High Income Bond Fund(1, 10, 13)
<Table>
<Caption>
TOTAL RETURN
SIX MONTH
PERIOD ENDED AVERAGE ANNUAL TOTAL RETURNS(7)
INCEPTION DATE 4/30/07 1 YEAR 5 YEARS 10 YEARS
INVESTOR CLASS 02/01/1992 6.99% 11.35% 7.38% 7.04%
</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.
FOR THE PERIOD ENDING APRIL 30, 2007, THE 30-DAY SEC YIELD OF THE INVESTOR CLASS
SHARES WAS 7.14%.
RATING SUMMARY
<Table>
AAA/Government/Government Agency 0.0%
AA 0.0
A 0.0
BBB 0.0
BB 29.7
B 42.5
CCC 13.8
CC 0.0
C 0.0
D 0.0
Not Rated 0.0
Short Term 14.0
</Table>
5
<Page>
Lehman Brothers Municipal Money Fund Portfolio Commentary
With the Federal Reserve in neutral with regard to interest rates throughout the
six months ended April 30, 2007, the municipal money market was relatively
placid, and the sector continued to provide attractive after-tax yields. At the
end of the reporting period, municipal money fund yields were approximately 72%
of the yield on short-term Treasury securities, preserving a significant
after-tax advantage for investors in the 35% income tax bracket.
The Lehman Brothers Municipal Money Fund posted a positive return and slightly
outperformed its benchmark, the iMoneyNet Money Fund Report Tax-Free National
Retail Average. During the period, the Fund's seven-day tax-equivalent current
yield* (taxable at the highest federal income tax bracket) increased from 4.65%
to 5.12%, while its seven-day tax-equivalent effective yield (also taxable at
the highest federal income tax bracket) went from 4.76% to 5.25%.
The Fund's large allocation to variable rate demand notes (VRDNs) enhanced
returns as a significant bulge in supply promoted very attractive pricing.
Normally, VRDNs yield 10 to 20 basis points less than one-year municipal notes.
However, with the inventory of VRDNs swelling, they provided yields of 10 to 20
basis points above the one-year municipal note. If we continue to see such
advantageous pricing, we will very likely maintain the Fund's overweight in such
notes.
Throughout this six-month reporting period, the municipal money market yield
curve was flat, providing little financial incentive to extend the Fund's
weighted average maturity. Until we see a clear indication of where the Fed is
heading, our weighted average maturity target will likely be in the neutral
30-35 day range.
Trying to determine what the Fed is likely to do next has become exceptionally
difficult. We suspect that recent mixed economic signals may be confounding Fed
Chairman Bernanke and his colleagues as well. First quarter Gross Domestic
Product growth came in at an anemic 0.6% and could head even lower if the
housing slump is compounded by the problems of sub-prime lenders, which could
create a bigger drag on the economy. Also, with gasoline prices threatening to
reach $4 a gallon this summer and food bills rising as well, the resilient U.S.
consumer may suffer. While the Fed must be concerned about the potential for a
softening economy to slip into recession, its primary mandate is to control
inflation, which is still above the Fed's comfort level. Although the Fed
appears to believe that inflation will moderate with the slowing economy, rising
commodities prices, the tight U.S. job market, increasing inflationary pressures
overseas, and the weakening U.S. dollar could disrupt this scenario. Unless the
economy stalls or, conversely, inflation pressures diminish substantially, we
expect the Fed to remain in neutral for an extended period of time. This is
reasonably good news for municipal money fund investors who we believe should
continue to benefit from attractive after-tax yields.
Sincerely,
/s/ William J. Furrer /s/ Kristian J. Lind
- --------------------------------------------
WILLIAM J. FURRER AND KRISTIAN J. LIND
PORTFOLIO CO-MANAGERS
* Current yield more closely reflects current earnings than does total
return. Tax-equivalent yield is based on the maximum federal income tax
rate of 35%.
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.
6
<Page>
PERFORMANCE HIGHLIGHTS
Lehman Brothers Municipal Money Fund(1, 9, 14)
<Table>
<Caption>
FOR THE 7 DAYS ENDED 4/30/07
TAX-EQUIVALENT
INCEPTION DATE CURRENT YIELD(6) EFFECTIVE YIELD(6) EFFECTIVE YIELD(8)
INVESTOR CLASS 12/10/1984 3.33% 3.38% 5.25%
</Table>
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS. THE INVESTMENT RETURN ON AN INVESTMENT IN A MONEY MARKET FUND
WILL FLUCTUATE. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE
DATA QUOTED. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END VISIT
www.lehmanam.com. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE FUND ARE
SUBJECT TO CHANGE.
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.
MATURITY DIVERSIFICATION
<Table>
(% BY MATURITY)
1 - 7 Days 84.7%
8 - 30 Days 2.2
31 - 90 Days 4.0
91 - 180 Days 3.5
181+ Days 5.6
</Table>
7
<Page>
Lehman Brothers Municipal Securities Trust Portfolio Commentary
For the six months ended April 30, 2007, the Lehman Brothers Municipal
Securities Trust provided a modestly positive total return, finishing in a dead
heat with the Lipper Intermediate Municipal Debt Funds Average but slightly
lagging the Lehman Brothers 7-Year General Obligation Index.
Over the first two months of the reporting period, the municipal securities
market was relatively strong, especially in the last six weeks of 2006 when, as
generally occurs at the end of each calendar year, supply dried up and prices
firmed. However, in the first quarter of calendar 2007, new issuance spiked on
the way to what we think will be a record in full-year 2007 if recent patterns
continue. The bulge in supply was absorbed in the market in an orderly fashion,
but municipal securities subsequently lagged corporate bonds and Treasury
securities by a small margin.
Already narrow credit spreads (the yield differential between higher and lower
rated bonds) tightened even further in recent months as demand for lower rated
securities reached record levels. Today's extremely tight credit spreads do not
provide sufficient incentive for us to contemplate lowering the Fund's AA+
average credit rating. Because the yield curve (which shows yields on
instruments across the maturity spectrum) has been flat, there has been little
reason to extend the portfolio's weighted average maturity or duration (a common
measure of interest rate risk).
Over the course of this reporting period, the Fund's allocation to revenue bonds
increased from 55.5% of assets to 64.1%, a function of more attractive pricing
in the group. Concurrently, the allocation to general obligation bonds (GOs)
declined from 35.6% to 27.9%. The balance of assets are in pre-refunded/escrowed
bonds (5.5%) and short-term investments (2.5%). With the economy decelerating,
we will likely maintain a relatively large allocation to essential service
revenue bonds, which historically have been less vulnerable to economic
downturns and are often structured with secure legal provisions that further
protect bondholders.
Despite the slowing economy, in general, credit quality in the municipal
securities market remains good. However, there are some credit quality issues
worthy of investor attention. For example, municipal issuers with large
underfunded pension plans and other post-employment benefit expenses have a
dilemma. If they do not adequately fund their pension plans, they are vulnerable
to a credit rating downgrade. However, since raising the money would require
unpopular political decisions such as raising taxes or cutting other benefits,
the credit quality of these issuers may continue to deteriorate. Our commitment
to thorough in-house credit analysis of all potential investments helps us avoid
these types of potholes in the market.
Going forward, we expect municipal securities to trade in a narrow range until
there is some clear indication of a change in the Federal Reserve's neutral
posture. Currently, we think that the Fed is stuck between the proverbial rock
and a hard place. On the one hand, first quarter 2007 Gross Domestic Product
growth dipped to 0.6%. If the slump in housing deepens due to the demise of
sub-prime lenders, growth could slow even further. Meanwhile, rising gasoline
and food prices could take some starch out of the resilient U.S. consumer. On
the other hand, core inflation is still above 2%, which is the high end of the
Fed's comfort range. Also, the labor market remains tight, perhaps setting the
stage for wage inflation. Finally, higher raw materials costs for overseas
producers combined with the rapidly falling U.S. dollar has inflationary
implications in that imports could become more expensive.
Our conclusion is that, barring any unforeseeable event that disrupts the global
economy, or conversely, a real spike in core inflation, the Fed is likely to
remain in neutral for an extended period of time. Until we gain conviction that
the Fed is ready to either cut or hike interest rates (in our opinion, currently
a 50/50 proposition) we will likely maintain the portfolio's current weighted
average maturity and duration.
In closing, municipal securities continue to be priced attractively relative to
Treasury securities. With intermediate maturity municipal bond yields on average
about 82% of the 10-year Treasury bond yield, municipals provide a significant
yield advantage for investors in the 35% income tax bracket.
Sincerely,
/s/ William J. Furrer /s/ James L. Iselin
- -----------------------------------------
WILLIAM J. FURRER AND JAMES L. ISELIN
PORTFOLIO CO-MANAGERS
8
<Page>
PERFORMANCE HIGHLIGHTS
Lehman Brothers Municipal Securities Trust(1, 9, 13)
<Table>
<Caption>
TOTAL RETURN
SIX MONTH
PERIOD ENDED AVERAGE TOTAL RETURNS(7)
INCEPTION DATE 4/30/07 1 YEAR 5 YEARS 10 YEARS
INVESTOR CLASS 07/09/1987 1.11% 4.89% 3.54% 4.62%
</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.
FOR THE PERIOD ENDING APRIL 30, 2007, THE 30-DAY SEC YIELD OF THE MUNICIPAL
SECURITIES TRUST WAS 3.57% AND THE TAX EQUIVALENT YIELD WAS 5.49% FOR AN
INVESTOR IN THE HIGHEST FEDERAL INCOME TAX BRACKET (35%).
RATING SUMMARY
<Table>
AAA 66.1%
AA 26.0
A 3.8
BBB 2.7
BB 0.0
B 0.0
CCC 0.0
CC 0.0
C 0.0
D 0.0
Not Rated 0.0
Short Term 1.4
</Table>
9
<Page>
Lehman Brothers National Municipal Money Fund Portfolio Commentary
With the Federal Reserve "on hold" throughout this six month reporting period
ended April 30, 2007, short-term municipal securities traded in a relatively
narrow range and municipal money fund investors continued to benefit from
attractive after-tax yields. As of April 30, municipal money fund yields were
approximately 72% of comparable maturity U.S. Treasury securities, thus
maintaining a meaningful after-tax yield advantage for investors in the highest
federal income tax bracket.
For the reporting period, the Lehman Brothers National Municipal Money Fund
posted a positive total return, slightly surpassing its iMoneyNet Money Fund
Report Tax-Free National Institutional Average benchmark. Over the course of the
period, the Fund's seven-day tax-equivalent current yield* (taxable at the
highest federal income tax bracket) increased from 5.32% to 5.89%. Its seven-day
tax-equivalent effective yield (also taxable at the highest federal income tax
bracket) went from 5.46% to 6.06%.
The Fund's substantial overweight in variable rate demand notes (VRDNs)
significantly enhanced returns. Normally VRDNs yield 10 to 20 basis points less
than one-year municipal notes. However, surging supply in this sector resulted
in very attractive pricing, creating VRDN yields 10 to 20 basis points above
one-year municipal notes. On average, the Fund maintained mid-80% allocations to
VRDNs throughout this reporting period. If we continue to see a glut and bargain
pricing in variable rate demand notes, we will likely continue to maintain the
Fund's outsized position in this sector.
During the last six months, the municipal money market yield curve remained
quite flat, providing little reason to extend the Fund's weighted average
maturity. Until the Fed tips its hand regarding future monetary policy, our
weighted average maturity targets will likely remain in the neutral 30-35 day
range.
Although it is always a challenge to predict when the Federal Reserve will
change its policies, today's mixed economic signals make it even more difficult.
The monetary doves can point to first quarter 2007's rather anemic 0.6% Gross
Domestic Product growth, what appears to be a deepening slump in the
economically critical housing industry, and increased pressure on consumers from
rising gasoline and food prices, to argue that the Fed should ease interest
rates. However, the monetary hawks can counter with the fact that despite the
slowing economy, inflation remains above the Fed's comfort zone and that the
tight U.S. job market, rising commodities costs, inflationary pressures
overseas, and the sliding dollar may fan the inflationary flames. Faced with
this puzzle, we think the Fed is likely to remain in neutral for the foreseeable
future. This is reasonably good news for municipal money fund investors who we
believe should continue to enjoy attractive after-tax returns.
Sincerely,
/s/ William J. Furrer /s/ Kristian J. Lind
- --------------------------------------------
WILLIAM J. FURRER AND KRISTIAN J. LIND
PORTFOLIO CO-MANAGERS
* Current yield more closely reflects current earnings than does total
return. Tax-equivalent yield is based on the maximum federal income tax
rate of 35%.
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.
10
<Page>
PERFORMANCE HIGHLIGHTS
Lehman Brothers National Municipal Money Fund(4, 9, 14)
<Table>
<Caption>
FOR THE 7 DAYS ENDED 4/30/07
CURRENT EFFECTIVE TAX-EQUIVALENT
INCEPTION DATE YIELD(6) YIELD(6) EFFECTIVE YIELD(8)
RESERVE CLASS 12/19/2005 3.83% 3.90% 6.06%
</Table>
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS. THE INVESTMENT RETURN ON AN INVESTMENT IN A MONEY MARKET FUND
WILL FLUCTUATE. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE
DATA QUOTED. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END VISIT
www.lehmanam.com. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE FUND ARE
SUBJECT TO CHANGE.
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.
MATURITY DIVERSIFICATION
<Table>
<Caption>
(% BY MATURITY)
1 - 7 Days 82.8%
8 - 30 Days 0.6
31 - 90 Days 2.3
91 - 180 Days 3.6
181+ Days 10.7
</Table>
11
<Page>
Lehman Brothers New York Municipal Money Fund Portfolio Commentary
With the Federal Reserve in neutral throughout the six months ended April 30,
2007, it was "all quiet" on the municipal money front, and the sector continued
to provide attractive after-tax yields. At the end of the reporting period
municipal money fund yields were approximately 72% of the yield on short-term
Treasury securities, preserving a significant after-tax advantage for investors
in the 35% income tax bracket.
The Lehman Brothers New York Municipal Money Fund posted a positive return and
slightly outperformed its benchmark, the iMoneyNet Money Fund Report Tax-Free
State-Specific Retail Average. During the period, the Fund's seven-day
tax-equivalent current yield* (taxable at the highest federal state and city
income tax bracket) increased from 5.40% to 5.88%, while its seven-day
tax-equivalent effective yield (also taxable at the highest federal income tax
bracket) went from 5.55% to 6.05%.
The Fund's large allocation to variable rate demand notes (VRDNs) enhanced
returns as a significant bulge in supply promoted very attractive pricing.
Normally, VRDNs yield 10 to 20 basis points less than one-year municipal notes.
However, with the inventory of VRDNs swelling, they provided yields of 10 to 20
basis points above the one-year municipal note. If we continue to see such
advantageous pricing, we will very likely maintain the Fund's overweight in such
notes.
Throughout this six-month reporting period, the municipal money market yield
curve was flat, providing little financial incentive to extend the Fund's
weighted average maturity. Until we see a clear indication of where the Fed is
heading, our weighted average maturity target will likely be in the neutral
30-35 day range.
Trying to determine what the Fed is likely to do next has become exceptionally
difficult. We suspect that recent mixed economic signals may be confounding Fed
Chairman Bernanke and his colleagues as well. First quarter Gross Domestic
Product growth came in at an anemic 0.6% and could head even lower if the
housing slump is compounded by the problems of sub-prime lenders, which could
create a bigger drag on the economy. Also, with gasoline prices threatening to
reach $4 a gallon this summer and food bills rising as well, the resilient U.S.
consumer may suffer. While the Fed must be concerned about the potential for a
softening economy to slip into recession, its primary mandate is to control
inflation, which is still above the Fed's comfort level. Although the Fed
appears to believe that inflation will moderate with the slowing economy, rising
commodities prices, the tight U.S. job market, increasing inflationary pressures
overseas, and the weakening U.S. dollar could disrupt this scenario. Unless the
economy stalls or, conversely, inflation pressures diminish substantially, we
expect the Fed to remain in neutral for an extended period of time. This is
reasonably good news for municipal money fund investors who we believe should
continue to benefit from attractive after-tax yields.**
Sincerely,
/s/ William J. Furrer /s/ Kristian J. Lind
- --------------------------------------------
WILLIAM J. FURRER AND KRISTIAN J. LIND
PORTFOLIO CO-MANAGERS
* Current yield more closely reflects current earnings than does total
return. Tax-equivalent yields are based on the combined maximum federal,
New York state and New York City income tax rate of 41.8%.
** The U.S. Supreme Court has announced that it will consider a case from
Kentucky involving the question of whether a state can give a tax deduction
to holders of its bonds without giving such as deduction to holders of
other states' bonds. Although it is far too early to predict how the court
might decide such a case, we will watch it carefully as it has the
potential to affect single-state Funds.
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.
12
<Page>
PERFORMANCE HIGHLIGHTS
Lehman Brothers New York Municipal Money Fund(5, 9, 14)
<Table>
<Caption>
FOR THE 7 DAYS ENDED 4/30/07
CURRENT EFFECTIVE TAX-EQUIVALENT
INCEPTION DATE YIELD(6) YIELD(6) EFFECTIVE YIELD(8)
INVESTOR CLASS 12/19/2005 3.42% 3.48% 6.05%
</Table>
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS. THE INVESTMENT RETURN ON AN INVESTMENT IN A MONEY MARKET FUND
WILL FLUCTUATE. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE
DATA QUOTED. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END VISIT
www.lehmanam.com. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE FUND ARE
SUBJECT TO CHANGE.
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.
MATURITY DIVERSIFICATION
<Table>
<Caption>
(% BY MATURITY)
1 - 7 Days 86.3%
8 - 30 Days 0.5
31 - 90 Days 6.2
91 - 180 Days 5.2
181+ Days 1.8
</Table>
13
<Page>
Lehman Brothers Short Duration Bond Fund Portfolio Commentary
For the six months ended April 30, 2007, the Lehman Brothers Short Duration Bond
Fund provided a positive return, outpacing its benchmark, the Merrill Lynch 1-3
Year Treasury Index.
A combination of slower economic growth and a continued pause in the Federal
Reserve's two-year campaign to tighten monetary conditions were beneficial to
fixed income early in the reporting period. However, calendar 2007 saw increased
investor concerns about strains in the U.S. sub-prime mortgage market,
inflationary pressures, and a vibrant U.S. employment picture.
The Fed remained on hold throughout the first half of fiscal 2007. However, its
March 21 meeting appeared to mark the beginnings of a shift in policy, as a bias
toward tightening was removed from language accompanying its rate decision. This
suggests that the Fed may be a bit more sanguine with respect to economic
prospects.
Still, we believe that the market is overly optimistic in continuing to
anticipate aggressive, near-term rate cuts by the Fed. Meeting minutes
consistently express board members' concern that inflation risks persist. Given
the current rate of core inflation (excluding food and energy), which Fed
Chairman Ben Bernanke has described as "uncomfortably high," we do not feel that
Fed rate cuts are on the immediate horizon. Our view is that a more sustained
period of sub-trend growth will be needed to justify any cuts, and that the Fed
is on hold for now.
We have continued to maintain our defensive posture, albeit less than in the
recent past, with Fund duration (a standard measure of the sensitivity of a
bond's price to interest rate movements) at slightly lower levels than those of
our benchmark index. Our duration posture helped to protect the Fund from the
impact of higher interest rates, and we have made opportunistic sector
allocations in order to enhance yield.
The most significant sector reallocation during the past six months was toward
AAA-rated mortgage-backed securities that are primarily backed by shorter
duration adjustable rate mortgages. These purchases were funded through the sale
of foreign securities and asset-backed securities, and U. S. government agency
notes. These transactions allowed us to increase the yield of the portfolio and
also increase credit quality.
The economy has remained more resilient than many onlookers had forecast, but we
are still concerned about the effects of a cooling housing market, higher oil
prices and the potential for increased inflation. We are also concerned about
heightened event risk resulting from the recent increases in leveraged buy-out
activity. All of these factors may put pressure on issuers. To protect
principal, we have focused intently on credit quality, and are maintaining the
bulk of the portfolio in AAA, AA and A securities, with only a small allocation
to BBB-rated securities.
We expect to remain defensively positioned with regard to duration, and will
return to a neutral stance only when it becomes clearer that the risks of slower
growth and inflation have become more balanced. With corporate spreads still
tight and heightened event risk continuing to be an issue, we intend to maintain
our high-quality bias and avoid exposing the Fund to unnecessary credit risk.
Instead, we are likely to continue increasing our mortgage allocation and stand
ready to take advantage of widening corporate spreads should they occur.
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/ John Dugenske /s/ Thomas Sontag
- -------------------------------------
JOHN DUGENSKE AND THOMAS SONTAG
PORTFOLIO CO-MANAGERS
14
<Page>
PERFORMANCE HIGHLIGHTS
Lehman Brothers Short Duration Bond Fund(1, 13)
<Table>
<Caption>
TOTAL RETURN
SIX MONTH
PERIOD ENDED AVERAGE TOTAL RETURNS(7)
INCEPTION DATE 4/30/07 1 YEAR 5 YEARS 10 YEARS
INVESTOR CLASS 06/09/1986 2.44% 5.41% 3.04% 4.28%
TRUST CLASS 08/30/1993 2.51% 5.33% 2.93% 4.17%
</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.
THE 30-DAY SEC YIELD OF THE INVESTOR CLASS SHARES ENDING 4/30/07 WAS 4.90%, AND
THE TRUST CLASS SHARES WAS 4.79%.
RATING SUMMARY
<Table>
AAA/Government/Government Agency 71.8%
AA 9.9
A 8.3
BBB 7.9
BB 0.0
B 0.0
CCC 0.0
CC 0.0
C 0.0
D 0.0
Not Rated 0.0
Short Term 2.1
</Table>
15
<Page>
Lehman Brothers Strategic Income Fund Portfolio Commentary
For the six months ended April 30, 2007, the Lehman Brothers Strategic Income
Fund Institutional Class generated a positive return, surpassing that of the
Lehman Brothers U.S. Aggregate Index. The Fund's performance for the period
reflects the benefits of investing in a diversified portfolio of income
producing securities.
The portfolio represents an attractive mix of such investments, overseen by an
asset allocation committee whose primary responsibility is to adjust the
portfolio's structure among several market sectors. As of April 30, the Fund
included 34.8% in corporate bonds, 21.1% in common and preferred securities
(including real estate investment trusts or REITs); 19.5% in foreign bonds; and
23.8% in Treasury issues, agency obligations and mortgage backed securities, and
2.4% in convertible debt.
REITs
Real estate investment trusts (REITs) performed well through the first half of
the six-month reporting period but declined sharply along with the broad stock
market in mid-February. REITs rebounded following this sell-off, but failed to
keep pace with the S&P 500 Index, which was bolstered by strength in large
multi-national companies benefiting from the falling U.S. dollar.
For the period, the Fund's real estate component posted a respectable return but
trailed its FTSE NAREIT Equity REITs Index benchmark. This performance shortfall
was due primarily to an underweight in the strong Shopping Center and Regional
Mall sectors, lagging performance in the Office sector, and positions in REIT
preferred securities whose higher yields add ballast to the portfolio. The
Fund's overweight and solid performance in the Health Care sector enhanced
returns as did strong performance in the Commercial Real Estate Finance sector.
With the exception of the Apartments sector, commercial real estate fundamentals
have remained healthy. Increased demand coupled with restrained supply growth
due to higher development costs has translated into better occupancy rates,
rising rent levels, and strong earnings growth. In our opinion, such
fundamentals combined with ongoing M&A activity should continue to support REIT
returns.
HIGH YIELD SECURITIES
The high yield bond market performed well during the reporting period. Within
the sector, lower rated securities were the best performers. For the portfolio,
overweights in the Health Care, Basic Industry and Communications sectors made
contributions to returns, as did under-weightings in lagging sectors such as
Financials, Utilities, and Energy. Over the last several months, we have
gradually reduced exposure to cyclical sectors and increased exposure to less
economically sensitive sectors.
Looking ahead, with the economy slowing and today's relatively tight credit
spreads, we expect high yield bond returns to moderate. In our view, a focus on
sector allocation and individual security selection will be critical to
performance success.
INVESTMENT GRADE FIXED INCOME
The bond market rallied in late 2006, driven by the combination of slower
economic growth and a continued pause in the Federal Reserve's two-year
tightening campaign. However, investors' varied readings on the economy and a
change in the Federal Reserve's policy language contributed to bond volatility
for much of early 2007.
In the portfolio's investment grade fixed income segment, we continued to take
advantage of tightness in corporate spreads to upgrade overall credit quality
and we reduced our allocation to the mortgage sector. In our view, the key to
delivering competitive performance will continue to include careful sector and
yield curve positioning as well as security selection. We continue to search all
sectors for bonds with intrinsic value and attractive yields.
16
<Page>
FOREIGN SECURITIES
In this segment of the portfolio, we continue to hold government-issued
securities due to historically tight credit spreads. In Europe, we have had a
negative bias in our euro-denominated fixed income positioning as growth in the
region continues to exhibit surprising strength. However, rates are approaching
levels that, in our opinion, represent longer term value. And with the stronger
currency, we believe the economy will likely cool a bit over the next few
months.
Elsewhere, we are neutral in the Japanese fixed income markets. The Japanese
economy continues to struggle to create positive rates of inflation. And while
the Bank of Japan continues to communicate in hawkish terms, we do not believe
it will raise rates any further while inflation remains negative. We are
watching the Japanese market very closely with a bias to take a long position.
In the United Kingdom, the central bank is fighting to contain inflation. A
backdrop of robust job creation and a strong housing market suggests that bond
yields may remain under pressure for some time. As such, we have a bias toward
taking an underweight position.
INCOME ORIENTED EQUITY SECURITIES
The portion of the portfolio focusing on income producing equity securities
outperformed the S&P 500 in first-half fiscal 2007. During the period, stocks
suffered only one negative month, February, during which the portfolio segment
generated a slight gain. This outcome reflects our investments' defensive
qualities--including our use of convertible bonds and covered calls that tend to
limit upside during strong periods for the markets but also offer protection on
the downside. The corollary was also exhibited in April, as the index saw
healthy gains but the portfolio segment trailed modestly. Overall, Utility
shares--a strong sector for the market--were beneficial to our six-month
results, while some Energy shares were also a plus.
As part of its diversified investment mix, the portfolio now holds a number of
Canadian Income Trusts, which although focused largely on energy assets, are
like U.S. real estate investment trusts in that they avoid tax at the corporate
level and offer relatively high income yields to investors. We believe these
securities are reasonably valued, but due to the potential for a change in their
tax status in 2011, we continue to monitor them closely.
Sincerely,
STRATEGIC INCOME FUND
ASSET ALLOCATION COMMITTEE
17
<Page>
PERFORMANCE HIGHLIGHTS
Lehman Brothers Strategic Income Fund(3, 12, 13)
<Table>
<Caption>
TOTAL RETURN
SIX MONTH
PERIOD ENDED AVERAGE ANNUAL TOTAL RETURN(7)
INCEPTION DATE 4/30/2007 1 YEAR SINCE INCEPTION
INSTITUTIONAL CLASS 07/11/2003 4.40% 10.93% 8.96%
TRUST CLASS(12) 04/02/2007 4.40% 10.93% 8.96%
</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 HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. FOR
PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT
www.nb.com/performance.
FOR THE PERIOD ENDING APRIL 30, 2007, THE 30-DAY SEC YIELD OF THE INSTITUTIONAL
CLASS WAS 4.26% AND OF THE TRUST CLASS WAS 4.01%.
ASSET DIVERSIFICATION
<Table>
<Caption>
(% BY ASSET CLASS)
Corporate Debt 34.8%
Convertible Debt 2.4
Foreign Securities 19.5
U.S. Government Agency Securities 8.7
Mortgage-Backed Securities 10.5
U.S. Treasury Securities 4.6
Preferred Stock 0.8
Common Stock 20.3
Short Term Investments 4.3
Liabilities, less cash, receivables and other assets (5.9)
</Table>
18
<Page>
Lehman Brothers Tax-Free Money Fund Portfolio Commentary
With the Federal Reserve on hold throughout this six-month reporting period
ended April 30, 2007, short-term municipal securities traded in a relatively
narrow range and municipal money fund investors continued to benefit from
attractive after-tax yields. As of April 30, municipal money fund yields were
approximately 72% of comparable maturity U.S. Treasury securities, thus
maintaining a meaningful after-tax yield advantage for investors in the highest
federal income tax bracket.
For the reporting period, the Lehman Brothers Tax-Free Money Fund posted a
positive total return, slightly surpassing its iMoneyNet Money Fund Report
Tax-Free National Institutional Average benchmark. Over the course of the
period, the Fund's seven-day tax-equivalent current yield* (taxable at the
highest federal income tax bracket) increased from 5.22% to 5.71%. Its seven-day
tax-equivalent effective yield (also taxable at the highest federal income tax
bracket) went from 5.36% to 5.87%.
The Fund's substantial overweight in variable rate demand notes (VRDNs)
significantly enhanced returns. Normally VRDNs yield 10 to 20 basis points less
than one-year municipal notes. However, surging supply in this sector resulted
in very attractive pricing, creating VRDN yields 10 to 20 basis points above
one-year municipal notes. On average, the Fund maintained mid-80% allocations to
VRDNs throughout this reporting period. If we continue to see a glut and bargain
pricing in variable rate demand notes, we will likely continue to maintain the
Fund's outsized position in this sector.
During the last six months, the municipal money market yield curve remained
quite flat, providing little reason to extend the Fund's weighted average
maturity. Until the Fed tips its hand regarding future monetary policy, our
weighted average maturity targets will likely remain in the neutral 30-35 day
range.
Although it is always a challenge to predict when the Federal Reserve will
change its policies, today's mixed economic signals make it even more difficult.
The monetary doves can point to first quarter 2007's rather anemic 0.6% Gross
Domestic Product growth, what appears to be a deepening slump in the
economically critical housing industry, and increased pressure on consumers from
rising gasoline and food prices, to argue that the Fed should ease interest
rates. However, the monetary hawks can counter with the fact that despite the
slowing economy, inflation remains above the Fed's comfort zone and that the
tight U.S. job market, rising commodities costs, inflationary pressures
overseas, and the sliding dollar may fan the inflationary flames. Faced with
this puzzle, we think the Fed is likely to remain in neutral for the foreseeable
future. This is reasonably good news for municipal money fund investors who we
believe should continue to enjoy attractive after-tax returns.
Sincerely,
/s/ William J. Furrer /s/ Kristian J. Lind
- -------------------------------------------
WILLIAM J. FURRER AND KRISTIAN J. LIND
PORTFOLIO CO-MANAGERS
* Current yield more closely reflects current earnings than does total
return. Tax-equivalent yield is based on the maximum federal income tax
rate of 35%.
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.
19
<Page>
PERFORMANCE HIGHLIGHTS
Lehman Brothers Tax-Free Money Fund(4, 14)
<Table>
<Caption>
FOR THE 7 DAYS ENDED 4/30/07
CURRENT EFFECTIVE TAX-EQUIVALENT
INCEPTION DATE YIELD(6) YIELD(6) EFFECTIVE YIELD(8)
RESERVE CLASS 12/19/2005 3.71% 3.78% 5.87%
</Table>
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS. THE INVESTMENT RETURN ON AN INVESTMENT IN A MONEY MARKET FUND
WILL FLUCTUATE. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE
DATA QUOTED. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END VISIT
www.lehmanam.com. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE FUND ARE
SUBJECT TO CHANGE.
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.
MATURITY DIVERSIFICATION
<Table>
<Caption>
(% BY MATURITY)
1 - 7 Days 86.7%
8 - 30 Days 1.1
31 - 90 Days 2.4
91 - 180 Days 2.7
181+ Days 7.1
</Table>
20
<Page>
Neuberger Berman Cash Reserves Portfolio Commentary
We are pleased to report that Neuberger Berman Cash Reserves delivered a
positive return and outperformed the iMoneyNet Money Fund Report Taxable First
Tier Retail Average during the six months ended April 30, 2007. The Fund closed
the period with a seven-day current yield of 4.89% and a seven-day effective
yield of 5.01%.*
The reporting period began with a rally in bonds, due to a combination of slower
economic growth and a continued "pause" in interest rate policy after two years
of rate hikes by the Federal Reserve. In the first four months of 2007, however,
increased volatility emerged at times due to strains in the U.S. sub-prime
mortgage market, inflation statistics and a vibrant U.S. employment picture. The
Federal Reserve remained on hold throughout the period. In an important
development, the Fed removed language referring to what the market calls the
Fed's "tightening bias" from the statement accompanying its March meeting,
suggesting that Fed officials may be a little less concerned about inflationary
pressures from economic growth.
On the other hand, recent months have seen considerable anxiety about problems
involving sub-prime mortgages and their impact elsewhere in the market, as
mortgage delinquencies and foreclosures continue to climb higher. The employment
picture remains strong (which can be perceived as negative among bond investors)
as monthly non-farm payrolls for the first quarter of 2007 averaged gains of
152,000 and the unemployment rate dropped to 4.4% in March. Still, the Core
Personal Consumption Expenditures (PCE) Price Index, policy makers' preferred
measure of inflation, inched down to 2.0% in April, its lowest growth rate in a
year, easing inflationary fears.
Looking forward, we expect the Fed to leave rates unchanged in the short term as
it assesses the impact of a housing led slowdown on the broader economy.
Inherent problems persist in the sub-prime sector, although it is unclear
whether these problems will move to higher rated bonds. In addition, inflation
remains above the Fed's comfort level but we think the Fed will be hard-pressed
to raise short-term rates, despite its avowed willingness to do so.
Ultimately, we anticipate that the next move by the Fed will be to take rates
lower, or to take no action and remain neutral. In the interim, we think that
rates will remain in a limited range as the market and the Fed digest incoming
data. We will seek to capitalize on pockets of interest rate volatility in order
to provide consistent and secure returns to our shareholders.
Sincerely,
/s/ John C. Donohue /s/ Scott F. Riecke
- ------------------- -------------------
JOHN C. DONOHUE AND SCOTT F. RIECKE
PORTFOLIO CO-MANAGERS
* 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.
21
<Page>
PERFORMANCE HIGHLIGHTS
Neuberger Berman Cash Reserves(1, 13)
<Table>
<Caption>
FOR THE 7 DAYS ENDED 4/30/07
INCEPTION DATE CURRENT YIELD(6) EFFECTIVE YIELD(6)
INVESTOR CLASS 04/12/1988 4.89% 5.01%
</Table>
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS. THE INVESTMENT RETURN ON AN INVESTMENT IN A MONEY MARKET FUND
WILL FLUCTUATE. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE
DATA QUOTED. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END VISIT
www.nb.com. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE FUND ARE SUBJECT TO
CHANGE.
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.
MATURITY DIVERSIFICATION
<Table>
<Caption>
(% BY MATURITY)
1 - 7 Days 23.1%
8 - 30 Days 35.7
31 - 90 Days 18.8
91 - 180 Days 16.2
181+ Days 6.2
</Table>
22
<Page>
Endnotes
1. Neuberger Berman Management Inc. ("Management") has contractually
undertaken to reimburse the following Funds so that the total annual
operating expenses (exclusive of taxes, interest, brokerage commissions and
extraordinary expenses) are limited to 0.65% for Neuberger Berman Cash
Reserves (Investor Class), 1.00% for Lehman Brothers High Income Bond Fund
(Investor Class), 0.70% for Lehman Brothers Short Duration Bond Fund
(Investor Class), 0.80% for Lehman Brothers Short Duration Bond Fund (Trust
Class), 0.65% for Lehman Brothers Municipal Securities Trust (Investor
Class) and 0.59% for Lehman Brothers Municipal Money Fund (Investor Class)
of average daily net assets. Each undertaking lasts until October 31, 2010.
Absent such reimbursements, the performance of each listed class of each
Fund except for Lehman Brothers High Income Bond Fund and Neuberger Berman
Cash Reserves would have been less.
Each of these Funds has contractually undertaken to reimburse Management
for the excess expenses paid by Management, provided the reimbursements do
not cause its total annual operating expenses (exclusive of taxes,
interest, brokerage commissions and extraordinary expenses) to exceed the
above stated expense limitation and the reimbursements are made within
three years after the year that Management incurred the expense. For the
six months ended April 30, 2007, there were no reimbursements of expenses
to Management.
2. Neuberger Berman Management Inc. ("Management") has contractually
undertaken to reimburse Lehman Brothers Core Bond Fund so that total annual
operating expenses (exclusive of taxes, interest, brokerage commissions and
extraordinary expenses) of the Fund are limited to 0.85% and 0.45% of
average daily net assets for the Investor Class and Institutional Class,
respectively. The undertakings last until October 31, 2017. The Fund has
contractually undertaken to reimburse Management for the excess expenses
paid by Management, provided the reimbursements do not cause total annual
operating expenses (exclusive of taxes, interest, brokerage commissions,
and extraordinary expenses) to exceed the above-stated expense limitation
and the reimbursements are made within three years after the year that
Management incurred the expense. Absent such reimbursements, the
performance of each class would have been lower. Management has voluntarily
agreed to waive its management fee in the amount of 0.25% (0.20% prior to
March 1, 2006) of the Fund's average daily net assets through April 30,
2007. Management has agreed to continue this voluntary waiver after this
date. If this voluntary waiver was not in place, performance would be lower
for the Fund.
3. Neuberger Berman Management Inc. ("Management") has contractually
undertaken to reimburse Lehman Brothers Strategic Income Fund so that total
annual operating expenses (exclusive of taxes, interest, brokerage
commissions and extraordinary expenses) of the Fund are limited to 1.10%
and 0.85% of average daily net assets for the Trust Class and Institutional
Class, respectively. The undertaking lasts until October 31, 2010 and
October 31, 2017 for the Trust Class and Institutional Class, respectively.
The Fund has contractually undertaken to reimburse Management for the
excess expenses paid by Management, provided the reimbursements do not
cause its total annual operating expenses (exclusive of taxes, interest,
brokerage commissions, and extraordinary expenses) to exceed the above
stated expense limitation and the reimbursements are made within three
years after the year that Management incurred the expense. Absent such
reimbursements, the performance of the Fund would have been lower.
4. Neuberger Berman Management Inc. ("Management") has voluntarily agreed to
reimburse or waive certain expenses of the Reserve Class Lehman Brothers
National Municipal Money Fund and Lehman Brothers Tax-Free Money Funds so
that the total annual operating expenses of each Fund (exclusive of taxes,
interest, brokerage commissions and extraordinary expenses) are limited to
0.17% and 0.20% (0.17% prior to June 1, 2006 for Lehman Brothers Tax-Free
Money Fund) of average daily net assets, respectively. Absent such
reimbursements or waivers, each Fund's yield would have been less.
Management expects that, in the future, it may voluntarily reimburse or
waive certain expenses of each Fund so that the total annual operating
expenses exclusive of taxes, interest, brokerage commissions and
extraordinary expenses are limited to 0.23% of average daily net assets.
Management may, at its sole discretion, modify or terminate these voluntary
commitments with notice to a Fund.
5. Management has contractually undertaken to reimburse the Investor Class of
Lehman Brothers New York Municipal Money Fund so that the total annual
operating expenses (exclusive of taxes, interest, brokerage commissions and
extraordinary expenses) of the Fund are limited to 0.59% of average daily
net assets. The undertaking lasts until October 31, 2010. Absent such
reimbursements, the performance of the Investor Class of the Fund would
have been less. The Fund has contractually undertaken to reimburse
Management for the excess
23
<Page>
expenses paid by Management, provided the reimbursements do not cause its
total annual operating expenses (exclusive of taxes, interest, brokerage
commissions and extraordinary expenses) to exceed the above stated expense
limitation and the reimbursements are made within three years after the
year that Management incurred the expense. For the six months ended April
30, 2007, there were no reimbursements of expenses to Management.
Effective June 5, 2006, Management voluntarily agreed to waive certain
expenses of the Investor Class of New York Municipal Money, so that the
total annual Operating Expenses of the Fund are limited to 0.52% of the
average daily net assets. In addition, effective January 17, 2007,
Management voluntarily agreed to waive certain expenses of the Investor
Class of the Fund, so that the total annual Operating Expenses of the Class
are limited to 0.47% of the average daily net assets. Absent such waivers,
the performance of the Investor Class of the Fund would have been less.
6. "Current yield" of a money market fund refers to the income generated by an
investment in a Fund over a recent 7-day period. This income is then
"annualized." The "effective yield" is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "current
yield" because of the compounding effect of this assumed reinvestment.
Yields of a money market fund will fluctuate and past performance is not a
guarantee of future results.
7. Annual total returns are for the period end April 30, 2007. Returns are
shown on a "total return" basis and assume reinvestment of all dividends
and capital gain distributions.
8. Tax-equivalent effective yield is the taxable effective yield that an
investor would have had to receive in order to realize the same level of
yield after federal income taxes at the highest federal tax rate, currently
35%, assuming that all of a Fund's income is exempt from federal income
taxes. For the Lehman Brothers New York Municipal Money Fund,
tax-equivalent yield is calculated based on federal, New York State, and
New York City tax rates for a combined rate of 41.8%.
9. A portion of the income of Lehman Brothers Municipal Securities Trust,
Lehman Brothers Municipal Money Fund, Lehman Brothers New York Municipal
Money Fund and Lehman Brothers National Municipal Money Fund may be a tax
preference item for purposes of the federal alternative minimum tax for
certain investors.
10. This Fund is the successor to the Lipper High Income Bond Fund ("Lipper
Fund"). The total return data for the periods prior to September 7, 2002,
are those of the Lipper High Income Bond Fund Premier Class. The data
reflect performance of the Lipper Fund for the period April 1, 1996,
through September 6, 2002. The investment policies, objectives, guidelines
and restrictions of the Fund are in all material respects equivalent to
those of the Lipper Fund. Returns would have been lower if the manager of
the Lipper Fund had not waived certain of its fees during the periods
shown.
11. The Fund is the successor to Ariel Premier Bond Fund ("Ariel Bond Fund").
The total return data for the periods prior to June 13, 2005 are those of
the Ariel Bond Fund Investor Class and Institutional Class. The data
reflects performance of Ariel Bond Fund Investor Class for the period
February 1, 1997 through June 10, 2005 and the performance of Ariel Bond
Fund Institutional Class for the period October 1, 1995 (date of inception)
through January 31, 1997. The investment policies, guidelines and
restrictions of the Fund are in all respects equivalent to Ariel Bond Fund.
Ariel Bond Fund Institutional Class had lower expenses and typically higher
returns than Ariel Bond Fund Investor Class. Returns would have been lower
if the manager of Ariel Bond Fund had not waived certain of its fees during
the periods shown.
12. Lehman Brothers Strategic Income Fund Trust Class ("Strategic Income Fund")
commenced operations on April 2, 2007. The performance information for the
Fund prior to its commencement of operations is for the Institutional
Class. Management has contractually agreed to forgo current payment of fees
and/or reimburse certain expenses of the Trust Class of the Fund through
10/31/2010, so that the total annual operating expenses of that class are
limited to 1.10% of average net assets. The Fund has agreed that the Trust
Class will repay Management for fees and expenses forgone or reimbursed for
that class provided that repayment does not cause its annual operating
expenses to exceed 1.10% of its average net assets. Any such repayment must
be made within three years after the year in which Management incurred the
expense.
13. Unaudited performance data current to the most recent month-end are
available at www.nb.com.
14. Unaudited performance data current to the most recent month-end are
available at www.lehmanam.com.
24
<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 An unmanaged total return
OBLIGATION INDEX: performance benchmark for the
intermediate-term, 7-year,
investment grade General
Obligations (State and Local)
tax-exempt bond market.
THE LEHMAN BROTHERS INTERMEDIATE BA An unmanaged index comprised of
U.S. HIGH YIELD INDEX: BB-rated bonds with maturities of
less than 10 years.
THE LEHMAN BROTHERS U.S. AGGREGATE INDEX: An unmanaged index that represents
the U.S. domestic investment grade
bond market. It is comprised of the
Lehman Brothers
Government/Corporate Bond Index,
Mortgage-Backed Securities Index,
and Asset-Backed Securities Index,
including securities that are of
investment-grade quality or better,
have at least one year to maturity,
and have an outstanding par value
of at least $100 million.
THE LEHMAN BROTHERS U.S. CORPORATE The Lehman Brothers U.S. Corporate
HIGH YIELD 2% ISSUER CAP INDEX: High Yield 2% Issuer Cap Index is
an unmanaged sub-index of the
Lehman Brothers U.S. Corporate High
Yield Index (which includes all
U.S. dollar-denominated, taxable,
fixed rate, non-investment grade
debt), capped such that no single
issuer accounts for more than 2% of
the index weight.
THE LIPPER INTERMEDIATE MUNICIPAL DEBT Measures the performance of mutual
FUNDS AVERAGE: funds that invest in municipal debt
issues with dollar-weighted average
maturities of five to ten years, as
tracked by Lipper.
THE iMoneyNet MONEY FUND REPORT TAX-FREE Measures all national tax-free and
NATIONAL INSTITUTIONAL AVERAGE: municipal institutionall funds.
Portfolio holdings of tax-free
funds include Rated and Unrated
Demand Notes, Rated and Unrated
General Market Notes, Commercial
Paper, Put Bonds--6 months or less,
Put Bonds--over 6 months, AMT
Paper, and Other Tax-Free holdings.
THE iMoneyNet MONEY FUND REPORT TAXABLE Measures the performance of retail
FIRST TIER RETAIL AVERAGE: money market mutual funds which
hold "First Tier" securities as
defined by Rule 2a-7 of the
Investment Company Act of 1940 (not
including Second Tier Commercial
Paper). First Tier securities are
those rated in the highest
short-term rating category by two
or more nationally recognized
statistical ratings organizations
or one, if only one has rated the
security.
THE iMoneyNet MONEY FUND REPORT TAX-FREE Measures all national tax-free and
NATIONAL RETAIL AVERAGE: municipal retail funds. Portfolio
holdings of tax-free funds include
Rated and Unrated Demand Notes,
Rated and Unrated General Market
Notes, Commercial Paper, Put
Bonds--6 months or less, Put
Bonds--over 6 months, AMT Paper,
and Other Tax-Free holdings.
</Table>
25
<Page>
<Table>
THE iMoneyNet MONEY FUND REPORT TAX-FREE Measures the performance of retail
STATE-SPECIFIC RETAIL AVERAGE: state-specific tax-free and
municipal money mutual funds.
Portfolio holdings of tax-free
funds include Rated and Unrated
Demand Notes, Rated and Unrated
General Market Notes, Commercial
Paper, Put Bonds--6 months or less,
Put Bonds--over 6 months, AMT
Paper, and Other Tax-Free holdings.
FTSE NAREIT EQUITY REITs INDEX: The FTSE NAREIT Equity REITs Index
tracks the performance of all
Equity REITs currently listed on
the New York Stock Exchange, the
NASDAQ National Market System and
the American Stock Exchange. REITs
are classified as Equity if 75% or
more of their gross invested book
assets are invested directly or
indirectly in equity of commercial
properties.
</Table>
Please note that indices do not take into account any fees and expenses or any
tax consequences of investing in the individual securities that they track and
that investors cannot invest directly in any index or average. Data about the
performance of each index or average are prepared or obtained by Management and
include reinvestment of all dividends and capital gain distributions. Each Fund
may invest in securities not included in its respective index.
26
<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 cost of shareholder reports, among
others. The following examples are based on an investment of $1,000 made at the
beginning of the six month period ended April 30, 2007 and held for the entire
period. The tables illustrate the fund's costs in two ways:
<Table>
ACTUAL EXPENSES AND PERFORMANCE: The first section of the tables provide
information about actual account values
and actual expenses in dollars, based on
the fund's actual performance during the
period. You may use the information in
this line, together with the amount you
invested, to estimate the expenses you
paid over the period. Simply divide your
account value by $1,000 (for example, an
$8,600 account value divided by $1,000 =
8.6), then multiply the result by the
number in the first section of the table
under the heading entitled "Expenses Paid
During the Period" to estimate the
expenses you paid over the period.
HYPOTHETICAL EXAMPLE FOR COMPARISON The second section of the tables provide
PURPOSES: 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>
27
<Page>
Expense Information As of 4/30/07 (Unaudited)
LEHMAN BROTHERS CORE BOND FUND
<Table>
<Caption>
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE VALUE THE PERIOD* EXPENSE
ACTUAL 11/1/06 4/30/07 11/1/06 - 4/30/07 RATIO
- -----------------------------------------------------------------------------------------
Investor Class $1,000.00 $1,027.10 $4.27 .85%
Institutional Class $1,000.00 $1,029.10 $2.27 .45%
HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES)***
Investor Class $1,000.00 $1,020.58 $4.26 .85%
Institutional Class $1,000.00 $1,022.56 $2.26 .45%
</Table>
LEHMAN BROTHERS HIGH INCOME BOND FUND
<Table>
<Caption>
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE VALUE THE PERIOD* EXPENSE
ACTUAL 11/1/06 4/30/07 11/1/06 - 4/30/07 RATIO
- -----------------------------------------------------------------------------------------
Investor Class $1,000.00 $1,069.90 $4.60 .90%
HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES)***
Investor Class $1,000.00 $1,020.35 $4.49 .90%
</Table>
LEHMAN BROTHERS MUNICIPAL MONEY FUND
<Table>
<Caption>
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE VALUE THE PERIOD* EXPENSE
ACTUAL 11/1/06 4/30/07 11/1/06 - 4/30/07 RATIO
- -----------------------------------------------------------------------------------------
Investor Class $1,000.00 $1,015.40 $2.94 .59%
HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES)***
Investor Class $1,000.00 $1,021.88 $2.95 .59%
</Table>
LEHMAN BROTHERS MUNICIPAL SECURITIES TRUST
<Table>
<Caption>
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE VALUE THE PERIOD* EXPENSE
ACTUAL 11/1/06 4/30/07 11/1/06 - 4/30/07 RATIO
- -----------------------------------------------------------------------------------------
Investor Class $1,000.00 $1,011.10 $3.25 .65%
HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES)***
Investor Class $1,000.00 $1,021.57 $3.26 .65%
</Table>
28
<Page>
Expense Information As of 4/30/07 cont'd (Unaudited)
LEHMAN BROTHERS NATIONAL MUNICIPAL MONEY FUND
<Table>
<Caption>
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE VALUE THE PERIOD* EXPENSE
ACTUAL 11/1/06 4/30/07 11/1/06 - 4/30/07 RATIO
- -----------------------------------------------------------------------------------------
Reserve Class $1,000.00 $1,017.90 $0.89 .18%
HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES)***
Reserve Class $1,000.00 $1,023.91 $0.89 .18%
</Table>
LEHMAN BROTHERS NEW YORK MUNICIPAL MONEY FUND
<Table>
<Caption>
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE VALUE THE PERIOD* EXPENSE
ACTUAL 11/1/06 4/30/07 11/1/06 - 4/30/07 RATIO
- -----------------------------------------------------------------------------------------
Investor Class $1,000.00 $1,015.80 $2.41 .48%
HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES)***
Investor Class $1,000.00 $1,022.40 $2.42 .48%
</Table>
LEHMAN BROTHERS SHORT DURATION BOND FUND
<Table>
<Caption>
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE VALUE THE PERIOD* EXPENSE
ACTUAL 11/1/06 4/30/07 11/1/06 - 4/30/07 RATIO
- -----------------------------------------------------------------------------------------
Investor Class $1,000.00 $1,024.40 $3.51 .70%
Trust Class $1,000.00 $1,025.10 $4.02 .80%
HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES)***
Investor Class $1,000.00 $1,021.32 $3.51 .70%
Trust Class $1,000.00 $1,020.83 $4.01 .80%
</Table>
29
<Page>
Expense Information As of 4/30/07 cont'd (Unaudited)
LEHMAN BROTHERS STRATEGIC INCOME FUND
<Table>
<Caption>
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE VALUE THE PERIOD* EXPENSE
ACTUAL 11/1/06 4/30/07 11/1/06 - 4/30/07 RATIO
- -----------------------------------------------------------------------------------------
Institutional Class $1,000.00 $1,044.00 $4.31 .85%
Trust Class** $1,000.00 $1,010.60 $0.93 1.09%
HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES)***
Institutional Class $1,000.00 $1,020.58 $4.26 .85%
Trust Class** $1,000.00 $1,003.32 $0.93 1.09%
</Table>
LEHMAN BROTHERS TAX-FREE MONEY FUND
<Table>
<Caption>
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE VALUE THE PERIOD* EXPENSE
ACTUAL 11/1/06 4/30/07 11/1/06 - 4/30/07 RATIO
- -----------------------------------------------------------------------------------------
Reserve Class $1,000.00 $1,017.30 $0.87 .17%
HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES)***
Reserve Class $1,000.00 $1,023.93 $0.87 .17%
</Table>
NEUBERGER BERMAN CASH RESERVES
<Table>
<Caption>
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE VALUE THE PERIOD* EXPENSE
ACTUAL 11/1/06 4/30/07 11/1/06 - 4/30/07 RATIO
- -----------------------------------------------------------------------------------------
Investor Class $1,000.00 $1,024.60 $2.29 .46%
HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES)***
Investor Class $1,000.00 $1,022.53 $2.29 .46%
</Table>
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class, multiplied by the average account value over the
period, multiplied by 181/365 (to reflect the one-half year period shown).
** Expenses are equal to the expense ratio for the class, multiplied by the
average account value over the period, multiplied by 31/365 (to reflect the
period shown of April 2, 2007 to April 30, 2007)
*** Hypothetical 5% annual return before expenses is calculated by multiplying
the number of days in the most recent period divided by 365.
30
<Page>
Schedule of Investments Lehman Brothers Core Bond Fund
(Unaudited)
<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 (16.7%)
$1,055 U.S. Treasury Bonds, 8.13%, due 8/15/19 TSY TSY $ 1,381(5)
2,275 U.S. Treasury Bonds, 6.00%, due 2/15/26 TSY TSY 2,583(5)
580 U.S. Treasury Notes, 3.50%, due 2/15/10 TSY TSY 564
9,140 U.S. Treasury Notes, 4.38%, due 8/15/12 TSY TSY 9,093
295 U.S. Treasury Strips, due 8/15/14 TSY TSY 212
TOTAL U.S. TREASURY SECURITIES-BACKED BY THE FULL
FAITH AND CREDIT OF THE U.S. GOVERNMENT (COST $13,795) 13,833
U.S. GOVERNMENT AGENCY SECURITIES (13.5%)
1,345 Fannie Mae, Notes, 5.13%, due 10/3/08 AGY AGY 1,344
915 Fannie Mae, Notes, 5.25%, due 1/29/09 & 9/15/16 AGY AGY 925
1,320 Fannie Mae, Notes, 4.30%, due 3/9/09 AGY AGY 1,307
110 Fannie Mae, Notes, 7.25%, due 1/15/10 AGY AGY 117
985 Fannie Mae, Notes, 5.38%, due 7/15/16 AGY AGY 1,014
210 Fannie Mae, Notes, 5.00%, due 5/11/17 AGY AGY 210
2,000 Federal Home Loan Bank, Discount Notes, due 5/1/07 AGY AGY 2,000
700 Federal Home Loan Bank, Bonds, 5.13%, due 6/18/08 AGY AGY 701
100 Federal Home Loan Bank, Bonds, 5.50%, due 7/15/36 AGY AGY 104
3,450 Freddie Mac, Notes, 4.75%, due 1/18/11 AGY AGY 3,443
TOTAL U.S. GOVERNMENT AGENCY SECURITIES (COST $11,178) 11,165
MORTGAGE-BACKED SECURITIES (53.9%)
ADJUSTABLE RATE MORTGAGES (23.7%)
71 Adjustable Rate Mortgage NIM Trust, Ser. 2006-6, Class A,
6.50%, due 4/27/36 A- 57(1)
115 Banc of America Commercial Mortgage, Inc., Ser. 2007-1,
Class A4, 5.45%, due 1/15/49 Aaa AAA 115
108 Banc of America Funding Corp., Ser. 2006-G, Class 2A2,
5.40%, due 5/20/07 Aaa AAA 108(6)(5)
124 Banc of America Funding Corp., Ser. 2006-G, Class 2A1,
5.54%, due 5/20/07 Aaa AAA 125(6)(5)
338 Banc of America Funding Corp., Ser. 2005-F, Class 4A1,
5.35%, due 9/20/35 Aaa AAA 339
422 Banc of America Funding Corp., Ser. 2006-A, Class 3A2,
5.90%, due 2/20/36 AAA 426
486 Bear Stearns ALT-A Trust, Ser. 2006-3, Class 22A1,
6.22%, due 5/25/36 Aaa AAA 494
178 Bear Stearns ALT-A Trust, Ser. 2006-4, Class 32A1,
6.48%, due 7/25/36 Aaa AAA 182
137 Chase Commercial Mortgage Securities Corp., Ser. 2000-3,
Class A1, 7.09%, due 10/15/32 AAA 137
630 Chase Commercial Mortgage Securities Corp., Ser. 2003-3,
Class A2, 7.32%, due 10/15/32 AAA 664
165 Countrywide Alternative Loan Trust, Ser. 2006-0C9,
Class A2B, 5.56%, due 5/25/07 Aaa AAA 166(6)(5)
850 Countrywide Asset-Backed Certificates, Ser. 2007-BC2,
Class 2A1, 5.43%, due 5/25/07 Aaa AAA 850(6)
305 Countrywide Asset-Backed Certificates, Ser. 2005-IM2,
Class A3, 5.59%, due 5/25/07 Aaa AAA 305(6)(5)
116 Credit Suisse First Boston Mortgage Securities Corp.,
Ser. 2005-CN2A, Class A1, 5.62%, due 5/15/07 Aaa AAA 116(1)(6)(5)
50 Credit Suisse First Boston Mortgage Securities Corp.,
Ser. 2005-CN2A, Class A2, 5.72%, due 5/15/07 Aaa AAA 50(1)(6)(5)
165 Credit Suisse First Boston Mortgage Securities Corp.,
Ser. 2001-CK6, Class A3, 6.39%, due 8/15/36 Aaa AAA 172
</Table>
See Notes to Schedule of Investments
31
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 225 Credit Suisse First Boston Mortgage Securities Corp.,
Ser. 2005-C4, Class A3, 5.12%, due 8/15/38 Aaa AAA $ 224
670 Credit Suisse Mortgage Capital Certificates, Ser.
2006-C4, Class A2, 5.36%, due 9/15/39 Aaa AAA 673
50 Credit Suisse Mortgage Capital Certificates, Ser.
2006-C4, Class A3, 5.47%, due 9/15/39 Aaa AAA 50
285 Credit Suisse Mortgage Capital Certificates, Ser.
2007-C1, Class A3, 5.38%, due 2/15/40 Aaa 284
80 Credit Suisse Mortgage Capital Certificates, Ser.
2007-C2, Class A3, 5.54%, due 1/15/49 Aaa AAA 80(4)
160 Credit Suisse/Morgan Stanley Commercial Mortgage Trust,
Ser. 2006-HC1A, Class A1, 5.51%, due 5/15/07 Aaa AAA 160(1)(6)(5)
385 First Franklin Mortgage Loan Asset-Backed Certificates,
Ser. 2006-FF4, Class A2, 5.51%, due 5/25/07 Aaa AAA 385(6)(5)
489 First Horizon Mortgage Pass-Through Trust, Ser.
2005-AR5, Class 2A1, 5.44%, due 11/25/35 AAA 489
277 GMAC Mortgage Corp. Loan Trust, Ser. 2006-AR1,
Class 1A1, 5.61%, due 4/19/36 Aaa AAA 278
136 GS Mortgage Securities Corp. II, Ser. 2006-FL8A,
Class A1, 5.42%, due 5/6/07 Aaa AAA 136(1)(6)(5)
1,132 GS Mortgage Securities Corp. II, Ser. 2004-C1, Class A1,
3.66%, due 10/10/28 Aaa 1,108
390 GSR Mortgage Loan Trust, Ser. 2005-AR3, Class 6A1,
5.02%, due 5/25/35 Aaa AAA 390
549 Harborview Mortgage Loan Trust, Ser. 2006-3, Class 1A1A,
6.39%, due 6/19/36 Aaa AAA 561
27 Harborview NIM Corp., Ser. 2006-9A, Class N1,
6.41%, due 11/19/36 27(1)(9)
372 HSI Asset Loan Obligation, Ser. 2007-AR1, Class 2A1,
6.17%, due 1/25/37 AAA 377
80 Indymac Index Mortgage Loan Trust, Ser. 2006-AR7,
Class 3A1, 6.11%, due 5/25/36 Aaa AAA 81
658 Indymac Index Mortgage Loan Trust, Ser. 2006-AR11,
Class 2A1, 5.87%, due 6/25/36 Aaa AAA 662
213 Indymac Loan Trust, Ser. 2006-L2, Class A1,
5.37%, due 5/25/07 Aaa AAA 213(6)(5)
250 Indymac Loan Trust, Ser. 2005-L2, Class A1,
5.54%, due 5/25/07 Aaa AAA 250(6)(5)
78 JP Morgan Alternative Loan Trust, Ser. 2006-A3,
Class 1A2, 5.39%, due 5/25/07 Aaa AAA 78(6)(5)
181 JP Morgan Alternative Loan Trust, Ser. 2006-A2,
Class 1A2, 5.40%, due 5/25/07 Aaa AAA 181(6)(5)
268 JP Morgan Alternative Loan Trust, Ser. 2006-S4,
Class A1B, 5.40%, due 5/25/07 Aaa AAA 268(6)(5)
130 JP Morgan Chase Commercial Mortgage Securities Corp.,
Ser. 2006-FL1A, Class A1A, 5.41%, due 5/15/07 Aaa AAA 130(1)(6)(5)
143 JP Morgan Chase Commercial Mortgage Securities Corp.,
Ser. 2005-FL1A, Class A1, 5.43%, due 5/15/07 Aaa AAA 143(1)(6)(5)
177 JP Morgan Chase Commercial Mortgage Securities Corp.,
Ser. 2006-CB11, Class A1, 4.52%, due 8/12/37 Aaa AAA 175
220 JP Morgan Chase Commercial Mortgage Securities Corp.,
Ser. 2005-LDP3, Class A3, 4.96%, due 8/15/42 Aaa AAA 217
335 JP Morgan Chase Commercial Mortgage Securities Corp.,
Ser. 2006-CB14, Class ASB, 5.51%, due 12/12/44 Aaa AAA 338
180 JP Morgan Chase Commercial Mortgage Securities Corp.,
Ser. 2006-LDP7, Class A4, 5.88%, due 4/15/45 Aaa AAA 187
1,325 JP Morgan Chase Commercial Mortgage Securities Corp.,
Ser. 2007-CB18, Class A4, 5.44%, due 6/12/47 Aaa AAA 1,327
200 JP Morgan Chase Commercial Mortgage Securities Corp.,
Ser. 2007-LDPX, Class A3, 5.42%, due 1/15/49 Aaa 200
1,104 JP Morgan Mortgage Trust, Ser. 2005-A3, Class 7CA1,
5.12%, due 6/25/35 AAA 1,102
</Table>
See Notes to Schedule of Investments
32
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 854 LB Commercial Conduit Mortgage Trust, Ser. 1998-C4,
Class A1B, 6.21%, due 10/15/35 Aaa AAA $ 860
463 Master Adjustable Rate Mortgages Trust, Ser. 2005-6,
Class 3A2, 5.06%, due 7/25/35 Aaa AAA 461
163 Merrill Lynch Mortgage Trust, Ser. 2005-MKB2, Class A1,
4.45%, due 9/12/42 Aaa AAA 161
300 Merrill Lynch/Countrywide Commercial Mortgage Trust,
Ser. 2007-5, Class A4, 5.38%, due 8/12/48 Aaa AAA 299
16 Morgan Stanley Capital I, Ser. 2006-XLF, Class A1,
5.41%, due 5/15/07 Aaa AAA 16(1)(6)(5)
140 Morgan Stanley Capital I, Ser. 2005-T17,
Class A5, 4.78%, due 12/13/41 AAA 136
115 Morgan Stanley Capital I, Ser. 2007-HQ11, Class A4,
5.45%, due 2/12/44 Aaa AAA 115
330 MortgageIT Trust, Ser. 2005-3, Class A1,
5.62%, due 5/25/07 Aaa AAA 330(6)(5)
0 Novastar NIM Trust, Ser. 2005-N1, 4.78%, due 10/26/35 A 0(1)
150 Residential Accredit Loans, Inc., Ser. 2006-QO7,
Class 3A2, 5.53%, due 5/25/07 Aaa AAA 150(6)(5)
391 Residential Accredit Loans, Inc., Ser. 2005-QA10,
Class A31, 5.61%, due 9/25/35 Aaa AAA 393
509 Residential Accredit Loans, Inc., Ser. 2006-QA1,
Class A21, 5.98%, due 1/25/36 Aaa AAA 515
99 Thornburg Mortgage Securities Trust, Ser. 2006-2,
Class A1B, 5.37%, due 5/25/07 Aaa AAA 99(6)(5)
412 Wachovia Bank Commercial Mortgage Trust, Ser. 2005-C17,
Class A1, 4.43%, due 3/15/42 Aaa AAA 406
245 Wachovia Bank Commercial Mortgage Trust, Ser. 2007-C30,
Class A5, 5.34%, due 12/15/43 Aaa AAA 244
330 Wachovia Bank Commercial Mortgage Trust, Ser. 2005-C22,
Class A4, 5.27%, due 12/15/44 Aaa AAA 330
19,595
FANNIE MAE (26.3%)
186 Pass-Through Certificates, 6.00%, due 11/1/15 AGY AGY 189
524 Pass-Through Certificates, 5.00%, due 3/1/21 & 8/1/35 AGY AGY 512
171 Pass-Through Certificates, 8.50%, due 4/1/34 AGY AGY 182
1,230 Pass-Through Certificates, 6.00%, TBA, 30 Year Maturity AGY AGY 1,239(4)
6,855 Pass-Through Certificates, 5.50%, TBA, 30 Year Maturity AGY AGY 6,778(4)
8,425 Pass-Through Certificates, 5.00%, TBA, 15 Year Maturity AGY AGY 8,304(4)
4,695 Pass-Through Certificates, 5.00%, TBA, 30 Year Maturity AGY AGY 4,535(4)
21,739
FREDDIE MAC (3.9%)
154 Pass-Thro ugh Certificates, 6.50%, due 11/1/25 AGY AGY 158
299 Pass-Thro ugh Certificates, 5.77%, due 6/1/36 AGY AGY 301
1,142 Pass-Thro ugh Certificates, 5.78%, due 7/1/36 AGY AGY 1,150
771 Pass-Thro ugh Certificates, 5.42%, due 2/1/37 AGY AGY 774
778 Pass-Through Certificates, 5.55%, due 2/1/37 AGY AGY 781
3,164
TOTAL MORTGAGE-BACKED SECURITIES (COST $44,490) 44,498
CORPORATE DEBT SECURITIES (14.4%)
BANK (0.9%)
255 Bank of America N.A., Subordinated Notes,
6.00%, due 10/15/36 Aa1 AA 259
245 JP Morgan Chase Capital XV, Guaranteed Notes,
5.88%, due 3/15/35 Aa3 A 238
255 Wachovia Corp., Senior Medium-Term Notes, Ser. G,
5.70%, due 8/1/13 Aa3 AA- 261
758
</Table>
See Notes to Schedule of Investments
33
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
FINANCE (5.0%)
$ 225 Bear Stearns Co., Senior Notes, 5.35%, due 2/1/12 A1 A+ $ 226
1,045 Citigroup, Inc., Subordinated Notes, 5.00%, due 9/15/14 Aa2 AA- 1,023
115 Countrywide Financial Corp., Subordinated Notes, 6.25%, due 5/15/16 Baa2 A- 116
415 Goldman Sachs Group, Inc., Notes, 5.25%, due 10/15/13 Aa3 AA- 413
140 Household Finance Corp., Notes, 4.75%, due 5/15/09 Aa3 AA- 139
90 Household Finance Corp., Unsecured Notes, 4.13%, due 11/16/09 Aa3 AA- 88
100 Household Finance Corp., Senior Unsubordinated Notes, 7.00%, due 5/15/12 Aa3 AA- 107
390 International Lease Finance Corp., Unsubordinated Notes, 4.75%, due 7/1/09 A1 AA- 388
185 International Lease Finance Corp., Unsecured Medium-Term Notes, Ser.R,
5.63%, due 9/20/13 A1 AA- 188
285 Merrill Lynch & Co., Subordinated Notes, 6.22%, due 9/15/26 A1 A+ 290
170 ProLogis, Secured Notes, 5.63%, due 11/15/15 Baa1 BBB+ 172
790 Simon Property Group L.P., Unsubordinated Notes, 5.25%, due 12/1/16 A3 A- 774
260 WEA Finance LLC/WCI Finance LLC, Senior Notes, 5.70%, due 10/1/16 A2 A- 263(1)
4,187
INDUSTRIAL (5.1%)
335 Alcoa, Inc., Bonds, 5.90%, due 2/1/27 A2 BBB+ 333
155 American Home Products Corp., Unsecured Notes, 6.70%, due 3/15/11 A3 A 165
265 Canadian Natural Resources Ltd., Unsecured Notes, 6.25%, due 3/15/38 Baa2 BBB 263
230 Continental Airlines, Inc., Pass-Through Certificates, Series A,
5.98%, due 4/19/22 Baa1 A 231
350 Cox Communications, Inc., Notes, 6.75%, due 3/15/11 Baa3 BBB- 368
205 Fedex Corp., Guaranteed Notes, 5.50%, due 8/15/09 Baa2 BBB 207
185 Home Depot, Inc., Senior Unsecured Notes, 5.88%, due 12/16/36 Aa3 A+ 179
190 Motorola, Inc., Debentures, 5.22%, due 10/1/97 Baa1 A- 143
390 News America, Inc., Senior Notes, 6.15%, due 3/1/37 Baa2 BBB 382(1)
280 Owens Corning, Inc., Senior Unsecured Notes, 7.00%, due 12/1/36 Baa3 BBB- 281(1)
340 Rogers Cable, Inc., Guaranteed Notes, 5.50%, due 3/15/14 Baa3 BBB- 337
220 Siemens Financieringsmaatschappij NV, Notes, 6.13%, due 8/17/26 Aa3 AA- 224(1)
555 Time Warner Cable, Inc., Senior Unsecured Notes, 5.85%, due 5/1/17 Baa2 BBB+ 558(1)
340 Time Warner, Inc., Guaranteed Notes, 6.50%, due 11/15/36 Baa2 BBB+ 340
180 USG Corp., Notes, 6.30%, due 11/15/16 Baa3 BB+ 180(1)
4,191
UTILITY - COMMUNICATIONS (1.7%)
385 AT&T Wireless Services, Inc., Senior Unsecured Notes, 7.88%, due 3/1/11 Baa1 A 422
185 AT&T Wireless Services, Inc., Senior Unsecured Notes, 8.75%, due 3/1/31 Baa1 A 242
335 Sprint Nextel Corp., Unsecured Notes, 6.00%, due 12/1/16 Baa3 BBB 329
200 Telefonos de Mexico S.A., Notes, 4.50%, due 11/19/08 A3 BBB+ 198
200 Verizon Virginia, Inc., Debentures, 4.63%, due 3/15/13 Baa1 A 190
1,381
UTILITY - ELECTRIC (1.7%)
155 DTE Energy Co., Senior Notes, 7.05%, due 6/1/11 Baa2 BBB- 165
280 Exelon Corp., Senior Unsecured Notes, 4.90%, due 6/15/15 Baa2 BBB 266
285 FirstEnergy Corp., Unsubordinated Notes, Ser. B, 6.45%, due 11/15/11 Baa3 BBB- 299
415 MidAmerican Energy Co., Senior Unsecured Notes, 5.80%, due 10/15/36 A2 A- 411
210 Northern States Power-Minnesota, Notes, Ser. B, 8.00%, due 8/28/12 A2 A- 238
1,379
TOTAL CORPORATE DEBT SECURITIES (COST $11,940) 11,896
</Table>
See Notes to Schedule of Investments
34
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
ASSET-BACKED SECURITIES (25.3%)
$ 7 ABSC NIMS Trust, Ser. 2005-HE6, Class A1, 5.05%, due 8/27/35 A- $ 7(1)
86 ACE Securities Corp., Ser. 2006-FM1, Class A2A, 5.36%, due 5/25/07 Aaa AAA 86(6)(5)
205 ACE Securities Corp., Ser. 2006-FM1, Class A2B, 5.41%, due 5/25/07 Aaa AAA 205(6)(5)
105 ARCap REIT, Inc., Ser. 2004-1A, Class D, 5.64%, due 4/21/39 A1 A- 105(1)
840 Asset Backed Securities Corp. Home Equity, Ser. 2005-HE6, Class A2B,
5.57%, due 5/25/07 Aaa AAA 841(6)(5)
275 Capital One Multi-Asset Execution Trust, Ser. 2002-A1, Class A1, 5.59%,
due 5/15/07 Aaa AAA 275(6)(5)
200 Capital One Prime Auto Receivables Trust, Ser. 2004-1, Class A4, 5.39%,
due 5/15/07 Aaa AAA 200(6)(5)
60 Carmax Auto Owner Trust, Ser. 2004-1, Class D, 3.52%, due 11/15/10 A3 AAA 59
330 Carrington Mortgage Loan Trust, Ser. 2006-NC3, Class A3, 5.47%, due
5/25/07 Aaa AAA 329(6)(5)
220 Carrington Mortgage Loan Trust, Ser. 2006-NC4, Class M2, 5.64%, due
5/25/07 Aa2 AA 217(6)(5)
49 Chase Funding Mortgage Loan Asset-Backed Certificates, Ser. 2004-1, Class
2A2, 5.55%, due 5/25/07 Aaa AAA 49(6)(5)
350 Chase Issuance Trust, Ser. 2007-A6, Class A6, 5.32%, due 5/15/07 Aaa AAA 350(6)(5)
250 Citibank Credit Card Issuance Trust, Ser. 2003-A11, Class A11, 5.41%, due
7/15/07 Aaa AAA 250(6)(5)
110 Citigroup Mortgage Loan Trust, Inc., Ser. 2006-WFH1, Class M2, 5.69%, due
5/25/07 Aa2 AA 110(6)(5)
299 College Loan Corp. Trust, Ser. 2003-2, Class A2, 5.50%, due 7/25/07 Aaa AAA 299(6)(5)
2 Collegiate Funding Services Education Loan Trust I, Ser. 2003-B, Class A1,
5.45%, due 6/28/07 Aaa AAA 2(6)(5)
800 Countrywide Asset-Backed Certificates, Ser. 2007-7, Class 2A1, 5.40%, due
5/25/07 Aaa AAA 800(6)(4)
51 Countrywide Asset-Backed Certificates, Ser. 2005-17, Class 4AV1, 5.43%,
due 5/25/07 Aaa AAA 51(6)(5)
254 Countrywide Asset-Backed Certificates, Ser. 2007-S3, Class A1, 5.46%, due
5/25/07 Aaa AAA 254(6)(5)
278 Countrywide Asset-Backed Certificates, Ser. 2006-BC1, Class 1A, 5.52%, due
5/25/07 Aaa AAA 278(6)(5)
30 Countrywide Asset-Backed Certificates, Ser. 2004-14, Class A2, 5.59%, due
5/25/07 Aaa AAA 30(6)(5)
50 Countrywide Asset-Backed Certificates, Ser. 2004-13, Class AV4, 5.61%, due
5/25/07 Aaa AAA 50(6)(5)
288 Countrywide Home Equity Loan Trust, Ser. 2005-A, Class 2A, 5.56%, due
5/15/07 Aaa AAA 288(6)(5)
278 Countrywide Home Equity Loan Trust, Ser. 2005-K, Class 2A1, 5.56%, due
5/15/07 Aaa AAA 278(6)(5)
54 Credit-Based Asset Servicing and Securitization, Ser. 2006-CB3, Class AV1,
5.38%, due 5/25/07 Aaa AAA 54(6)(5)
360 Credit-Based Asset Servicing and Securitization, Ser. 2006-CB6, Class A22,
5.41%, due 5/25/07 Aaa AAA 360(6)(5)
385 Credit-Based Asset Servicing and Securitization, Ser. 2005-CB5, Class AV2,
5.58%, due 5/25/07 Aaa AAA 386(6)(5)
17 Equifirst Mortgage Loan Trust, Ser. 2004-3, Class A2, 5.65%, due 5/25/07 Aaa AAA 17(6)(5)
51 Equifirst Mortgage Loan Trust, Ser. 2003-2, Class 3A3, 6.07%, due 5/25/07 Aaa AAA 51(6)(5)
49 Fannie Mae Grantor Trust, Ser. 2005-T5, Class A1, 5.56%, due 5/25/07 Aaa AAA 49(6)(5)
180 Fannie Mae Whole Loan, Ser. 2003-W5, Class A, 5.54%, due 5/25/07 Aaa AAA 180(6)(5)
775 First Franklin Mortgage Loan Trust, Asset-Backed Certificates,
Ser. 2006-FF11, Class 2A3, 5.47%, due 5/25/07 Aaa AAA 774(6)(5)
76 First Franklin Mortgage Loan Trust, Asset-Backed Certificates,
Ser. 2006-FF5, Class 2A1, 5.37%, due 5/25/07 Aaa AAA 76(6)(5)
153 First Franklin Mortgage Loan Trust, Asset-Backed Certificates,
Ser. 2006-FF3, Class A2A, 5.40%, due 5/25/07 Aaa AAA 153(6)(5)
75 First Franklin Mortgage Loan Trust, Asset-Backed Certificates,
Ser. 2004-FFH3, Class 2A1, 5.70%, due 5/25/07 Aaa 75(6)(5)
</Table>
See Notes to Schedule of Investments
35
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 565 Ford Credit Floorplan Master Owner Trust, Ser. 2004-1, Class A, 5.36%, due
5/15/07 Aaa AAA $565(6)(5)
38 Fremont Home Loan Trust, Ser. 2004-4, Class 1A1, 5.70%, due 5/25/07 Aaa AAA 38(6)(5)
9 Fremont NIM Trust, Ser. 2005-C, 5.58%, due 7/25/35 BBB 5(1)
640 GE Dealer Floorplan Master Note Trust, Ser. 2004-2, Class A, 5.40%, due
5/20/07 Aaa AAA 640(6)(5)
240 GMAC Mortgage Corp. Loan Trust, Ser. 2004-HE4, Class A2, 5.51%, due
5/25/07 Aaa AAA 240(6)(5)
360 GSAMP Trust, Ser. 2006-HE6, Class A3, 5.47%, due 5/25/07 Aaa AAA 360(6)(5)
280 GSAMP Trust, Ser. 2006-HE6, Class M2, 5.63%, due 5/25/07 Aa2 AA 279(6)(5)
150 Household Home Equity Loan Trust, Ser. 2006-1, Class A1, 5.48%, due
5/20/07 Aaa AAA 150(6)(5)
184 Household Home Equity Loan Trust, Ser. 2006-2, Class A2, 5.50%, due
5/20/07 Aaa AAA 184(6)(5)
195 HSI Asset Securitization Corp. Trust, Ser. 2006-WMC1, Class A2,
5.42%, due 5/25/07 Aaa AAA 195(6)(5)
108 HSI Asset Securitization Corp. Trust, Ser. 2005-I1, Class 2A1,
5.44%, due 5/25/07 Aaa AAA 108(6)(5)
717 Indymac Seconds Asset-Backed Trust, Ser. 2006-2B, Class A, 5.49%, due
5/25/07 Aaa AAA 716(6)(5)
340 JP Morgan Mortgage Acquisition Corp., Ser. 2006-CW2, Class AV3,
5.42% due 5/25/07 Aaa AAA 340(6)(5)
658 Knollwood CDO Ltd., Ser. 2006-2A, Class A2J, 5.78%, due 7/13/07 Aaa AAA 625(1)(6)(5)
35 Long Beach Mortgage Loan Trust, Ser. 2005-1, Class 2A3, 5.70%, due 5/25/07 Aaa AAA 35(6)(5)
64 Master Asset Backed Securities Trust, Ser. 2005-NC1, Class A1, 5.61%, due
5/25/07 Aaa AAA 64(6)(5)
2,050 MBNA Credit Card Master Note Trust, Ser. 2006-A4, Class A4, 5.31%, due
5/15/07 Aaa AAA 2,050(6)(5)
685 MBNA Credit Card Master Note Trust, Ser. 2004-A7, Class A7, 5.42%, due
5/15/07 Aaa AAA 686(6)(5)
505 MBNA Credit Card Master Note Trust, Ser. 2002-A13, Class A, 5.45%, due
5/15/07 Aaa AAA 505(6)(5)
800 Merrill Lynch First Franklin Mortgage Loan, Ser. 2007-2, Class A2A,
5.43%, due 5/25/07 Aaa AAA 800(6)(5)
161 MSCC Heloc Trust, Ser. 2003-2, Class A, 5.58%, due 5/25/07 Aaa AAA 162(6)(5)
260 Newcastle CDO Ltd., Ser. 2004-4A, Class 3FX, 5.11%, due 3/24/39 A2 A 247(1)
281 Novastar Home Equity Loan, Ser. 2005-3, Class A2B, 5.51%, due 5/25/07 Aaa AAA 281(6)(5)
800 Option One Mortgage Loan Trust, Ser. 2006-2, Class 2A2, 5.42%, due 5/25/07 Aaa AAA 800(6)(5)
250 Option One Mortgage Loan Trust, Ser. 2005-4, Class M2, 5.78%, due 5/25/07 Aa2 AA 250(6)(5)
234 Popular ABS Mortgage Pass-Through Trust, Ser. 2006-E, Class A1,
5.41%, due 5/25/07 Aaa AAA 234(6)(5)
14 Renaissance Home Equity Loan Trust, Ser. 2005-4, Class N, 7.14%,
due 2/25/36 BBB 13(1)
30 Residential Asset Mortgage Products, Inc., Ser. 2003-RS2, Class AII,
5.66%, due 5/25/07 Aaa AAA 30(6)(5)
84 Residential Asset Mortgage Products, Inc., Ser. 2003-RS3, Class AII,
5.68%, due 5/25/07 Aaa AAA 84(6)(5)
155 Residential Asset Mortgage Products, Inc., Ser. 2005-EFC5, Class M2,
5.76%, due 5/25/07 Aa2 AA+ 154(6)(5)
12 Residential Asset Securities Corp., Ser. 2003-KS1, Class A2,
6.06%, due 5/25/07 Aaa AAA 12(6)(5)
9 Saxon Asset Securities Trust, Ser. 2004-1, Class A, 5.59%, due 5/25/07 Aaa AAA 9(6)(5)
465 SLM Student Loan Trust, Ser. 2005-A, Class A1, 5.39%, due 6/15/07 Aaa AAA 465(6)(5)
799 SLM Student Loan Trust, Ser. 2005-10, Class A2, 5.37%, due 7/25/07 Aaa AAA 799(6)(5)
1 SLM Student Loan Trust, Ser. 2004-10, Class A2, 5.38%, due 7/25/07 Aaa AAA 1(6)(5)
4 Specialty Underwriting & Residential Finance, Ser. 2003-BC1, Class A,
5.66%, due 5/25/07 Aaa 4(6)(5)
350 Textron Financial Floorplan Master Note Trust, Ser. 2005-1A, Class A,
5.44%, due 5/13/07 Aaa AAA 350(1)(6)(5)
</Table>
See Notes to Schedule of Investments
36
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 665 Volkswagen Credit Auto Master Trust, Ser. 2005-1, Class A, 5.34%, due
5/20/07 Aaa AAA $ 665(6)(5)
141 Wachovia Asset Securitization, Inc., Ser. 2003-HE3, Class A, 5.57%, due
5/25/07 Aaa AAA 141(6)(5)
52 WFS Financial Owner Trust, Ser. 2004-1, Class D, 3.17%, due 8/22/11 Aa3 A 52
TOTAL ASSET-BACKED SECURITIES (COST $20,990) 20,926
NUMBER OF SHARES
SHORT-TERM INVESTMENTS (2.0%)
1,652,877 Neuberger Berman Prime Money Fund Trust Class (COST $1,653) 1,653#@
TOTAL INVESTMENTS (125.8%) (COST $104,046) 103,971##
Liabilities, less cash, receivables and other assets [(25.8%)] (21,335)
TOTAL NET ASSETS (100.0%) $ 82,636
</Table>
See Notes to Schedule of Investments
37
<Page>
Schedule of Investments Lehman Brothers High Income Bond Fund
(Unaudited)
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
CORPORATE DEBT SECURITIES (96.2%)
AEROSPACE/DEFENSE (1.6%)
$5,780 L-3 Communications Corp., Guaranteed Senior
Unsecured Subordinated Notes, 7.63%, due 6/15/12 Ba3 BB+ $ 5,989
1,645 L-3 Communications Corp., Guaranteed Senior
Subordinated Notes, Ser. B, 6.38%, due 10/15/15 Ba3 BB+ 1,637
7,626
AIRLINES (0.8%)
3,424 Continental Airlines, Inc., Pass-Through Certificates, 9.80%, due 4/1/21 Ba1 BB+ 3,835
APPAREL/TEXTILES (0.5%)
2,080 Levi Strauss & Co., Senior Unsubordinated Notes, 9.75%, due 1/15/15 B2 B 2,283
AUTO LOANS (4.5%)
3,395 Ford Motor Credit Co., Unsecured Notes, 7.38%, due 10/28/09 B1 B 3,397
6,115 Ford Motor Credit Co., Senior Unsecured Notes, 9.75%, due 9/15/10 B1 B 6,471(2)
7,015 Ford Motor Credit Co., Bonds, 7.38%, due 2/1/11 B1 B 6,938
4,915 General Motors Acceptance Corp., Unsecured Notes, 7.00%, due 2/1/12 Ba1 BB+ 4,951(2)
21,757
AUTO PARTS & EQUIPMENT (0.5%)
1,010 Goodyear Tire & Rubber Co., Senior Notes, 8.63%, due 12/1/11 B2 B- 1,091(1)
1,400 Goodyear Tire & Rubber Co., Senior Notes, 9.00%, due 7/1/15 B2 B- 1,543
2,634
AUTOMOTIVE (1.4%)
2,940 General Motors Corp., Senior Unsecured Debentures, 8.25%, due 7/15/23 Caa1 B- 2,661(2)
4,715 General Motors Corp., Senior Unsubordinated Notes, 8.38%, due 7/15/33 Caa1 B- 4,261(2)
6,922
BEVERAGE (0.5%)
2,545 Constellation Brands, Inc., Guaranteed Notes, 7.25%, due 9/1/16 Ba3 BB- 2,590(2)
CHEMICALS (2.9%)
1,450 Chemtura Corp., Guaranteed Notes, 6.88%, due 6/1/16 Ba1 BB+ 1,428
3,400 Hexion US Finance Corp., Senior Notes, 9.75%, due 11/15/14 B3 B- 3,672(1)
1,475 Lyondell Chemical Co., Guaranteed Notes, 8.25%, due 9/15/16 B1 B+ 1,578
3,580 MacDermid, Inc., Senior Subordinated Notes, 9.50%, due 4/15/17 Caa1 CCC+ 3,715(1)
3,540 PQ Corp., Guaranteed Notes, 7.50%, due 2/15/13 B3 B- 3,726
14,119
CONSUMER - PRODUCTS (0.8%)
1,900 Amscan Holdings, Inc., Senior Subordinated Notes, 8.75%, due 5/1/14 Caa1 CCC+ 1,914
2,130 Yankee Acquisition Corp., Senior Subordinated Notes, 9.75%, due 2/15/17 Caa1 CCC+ 2,194(1)(2)
4,108
ELECTRIC - GENERATION (4.3%)
3,840 Dynegy-Roseton Danskamme, Pass-Through Certificates,
Ser. B, 7.67%, due 11/8/16 Ba3 B 4,090
5,190 Midwest Generation LLC, Secured Notes, 8.75%, due 5/1/34 Ba2 B+ 5,735
</Table>
See Notes to Schedule of Investments
38
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$3,870 Mirant Americas Generation, Inc., Senior Unsecured Notes,
8.30%, due 5/1/11 Caa1 B- $ 4,092
2,400 NRG Energy, Inc., Guaranteed Notes, 7.38%, due 2/1/16 B1 B- 2,493
4,590 NRG Energy, Inc., Guaranteed Notes, 7.38%, due 1/15/17 B1 B- 4,756
21,166
ELECTRONICS (3.2%)
5,440 Flextronics Int'l., Ltd., Senior Subordinated Notes, 6.50%, due 5/15/13 Ba2 BB- 5,392(2)
5,625 Freescale Semiconductor, Inc., Senior Notes, 9.13%, due 12/15/14 B1 B 5,597(1)
1,240 NXP BV Funding LLC, Secured Notes, 7.88%, due 10/15/14 Ba2 BB+ 1,290(1)
3,000 NXP BV Funding LLC, Senior Notes, 9.50%, due 10/15/15 B2 B+ 3,150(1)
15,429
ENERGY-EXPLORATION & PRODUCTION (3.8%)
5,500 Chesapeake Energy Corp., Guaranteed Senior Notes, 7.50%, due 9/15/13 Ba2 BB 5,748(2)
530 Energy Partners Ltd., Senior Notes, 9.75%, due 4/15/14 Caa1 B- 539(1)
2,890 Forest Oil Corp., Guaranteed Senior Unsecured Notes, 7.75%, due 5/1/14 B1 B+ 2,962(2)
8,920 Sabine Pass L.P., Secured Notes, 7.50%, due 11/30/16 Ba3 BB 9,143(1)(5)
18,392
ENVIRONMENTAL (0.9%)
3,020 Allied Waste North America, Inc., Secured Notes, Ser. B, 5.75%, due 2/15/11 B1 BB 2,967(2)
1,310 Allied Waste North America, Inc., Guaranteed Notes, 6.88%, due 6/1/17 B1 BB 1,328(2)
4,295
FOOD & DRUG RETAILERS (1.2%)
5,330 Jean Coutu Group PJC, Inc., Guaranteed Notes, 8.50%, due 8/1/14 Caa2 B- 5,770
FOOD - WHOLESALE (0.7%)
3,590 Dean Foods Co., Guaranteed Notes, 7.00%, due 6/1/16 B1 B+ 3,635
FORESTRY/PAPER (0.7%)
3,080 Bowater, Inc., Debentures, 9.00%, due 8/1/09 B3 B+ 3,238(2)
GAMING (4.2%)
1,955 Chukchansi Economic Development Authority, Senior Notes,
8.00%, due 11/15/13 B2 BB- 2,026(1)
5,450 Majestic Star LLC, Senior Unsecured Notes, 9.75%, due 1/15/11 Caa1 CCC+ 5,232
2,815 MGM Grand, Inc., Guaranteed Senior Notes, 6.00%, due 10/1/09 Ba2 BB 2,819
845 Park Place Entertainment, Senior Subordinated Notes, 7.88%, due 3/15/10 Ba1 B+ 885
3,595 Pokagon Gaming Authority, Senior Notes, 10.38%, due 6/15/14 B3 B 4,026(1)
2,290 San Pasqual Casino, Notes, 8.00%, due 9/15/13 B2 B+ 2,359(1)
3,330 Station Casinos, Inc., Senior Unsecured Subordinated Notes,
6.88%, due 3/1/16 Ba3 B 3,130
20,477
GAS DISTRIBUTION (5.1%)
2,530 AmeriGas Partners, L.P., Senior Unsecured Notes, 7.25%, due 5/20/15 B1 2,574
3,555 El Paso Natural Gas Co., Bonds, 8.38%, due 6/15/32 Baa3 BB 4,440
3,020 Ferrellgas Partners L.P., Senior Unsecured Notes, 8.75%, due 6/15/12 B2 B- 3,141
2,455 Kinder Morgan, Inc., Senior Notes, 6.50%, due 9/1/12 Baa2 BB- 2,527
2,755 Kinder Morgan, Inc., Guaranteed Notes, 5.70%, due 1/5/16 Baa2 BB- 2,638
6,480 Regency Energy Partners, Senior Unsecured Notes, 8.38%, due 12/15/13 B2 B 6,674(1)
2,585 Targa Resources, Inc., Guaranteed Notes, 8.50%, due 11/1/13 B3 B- 2,663(1)
24,657
</Table>
See Notes to Schedule of Investments
39
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
HEALTH SERVICES (9.6%)
$5,285 CDRV Investors, Inc., Senior Unsecured Notes, Step-Up,
0.00%/9.63%, due 1/1/15 Caa1 CCC+ $ 4,624**
5,065 HCA, Inc., Senior Unsecured Notes, 6.50%, due 2/15/16 Caa1 B- 4,413(2)
5,790 HCA, Inc., Secured Notes, 9.25%, due 11/15/16 B2 BB- 6,311(1)
7,120 HCA, Inc., Secured Notes, 9.63%, due 11/15/16 B2 BB- 7,770(1)
705 Omnicare, Inc., Senior Subordinated Notes, 6.13%, due 6/1/13 Ba3 BB+ 679
865 Omnicare, Inc., Guaranteed Notes, 6.88%, due 12/15/15 Ba3 BB+ 862
2,460 Service Corp. Int'l, Senior Unsecured Notes, 7.38%, due 10/1/14 B1 BB- 2,558
5,555 Service Corp. Int'l, Senior Notes, 6.75%, due 4/1/15 B1 BB- 5,611(1)
120 Service Corp. Int'l, Senior Notes, 7.00%, due 6/15/17 B1 BB- 119
1,800 Service Corp. Int'l, Senior Notes, 7.50%, due 4/1/27 B1 BB- 1,800(1)
1,945 Spheris, Inc., Senior Subordinated Notes, 11.00%, due 12/15/12 Caa1 CCC 1,960
3,245 United Surgical Partners Int'l, Inc., Senior Subordinated Notes,
9.25%, due 5/1/17 Caa1 CCC+ 3,338(1)
1,225 US Oncology, Inc., Senior Unsecured Floating Rate Notes,
9.80%, due 9/17/07 B3 B- 1,240(1)(6)
2,060 US Oncology, Inc., Guaranteed Notes, 9.00%, due 8/15/12 B1 B- 2,194
3,065 Ventas Realty L.P., Guaranteed Notes, 6.75%, due 6/1/10 Ba2 BB+ 3,134
46,613
HOTELS (1.0%)
3,680 Host Hotels & Resorts L.P., Secured Notes, 6.88%, due 11/1/14 BB 3,767
1,250 Host Marriott L.P., Guaranteed Senior Notes, 7.13%, due 11/1/13 Ba1 BB 1,288(2)
5,055
INVESTMENTS & MISC. FINANCIAL SERVICES (1.1%)
5,110 Cardtronics, Inc., Guaranteed Notes, 9.25%, due 8/15/13 B3 B- 5,404
LEISURE (0.5%)
2,210 AMF Bowling Worldwide, Inc., Guaranteed Senior
Subordinated Notes, 10.00%, due 3/1/10 B3 CCC+ 2,298
MEDIA - BROADCAST (5.2%)
5,255 CMP Susquehanna Corp., Senior Subordinated Notes, 9.88%, due 5/15/14 B3 CCC 5,360(1)
2,030 Entercom Radio/Capital, Guaranteed Senior Notes, 7.63%, due 3/1/14 B1 B 2,066
4,930 LIN Television Corp., Senior Subordinated Notes, 6.50%, due 5/15/13 B1 B- 4,856(2)
4,085 Paxson Communications, Secured Floating Rate Notes, 11.61%, due 7/16/07 Caa2 CCC- 4,248(1)(6)
4,650 Umbrella Acquisition, Inc., Senior Notes, 9.75%, due 3/15/15 B3 CCC+ 4,668(1)(2)
1,845 Young Broadcasting, Inc., Guaranteed Notes, 10.00%, due 3/1/11 Caa1 CCC- 1,877
2,355 Young Broadcasting, Inc., Senior Subordinated Notes, 8.75%, due 1/15/14 Caa1 CCC- 2,296(2)
25,371
MEDIA - CABLE (5.3%)
1,305 CCH I Holdings LLC, Guaranteed Notes, 10.00%, due 5/15/14 Caa3 CCC 1,217(2)
7,300 CCH I Holdings LLC, Secured Notes, 11.00%, due 10/1/15 Caa2 CCC 7,756
4,385 Charter Communications Operating LLC, Senior Notes, 8.38%, due 4/30/14 B3 B 4,599(1)
1,595 DirecTV Holdings LLC, Senior Notes, 8.38%, due 3/15/13 Ba3 BB- 1,683
5,175 EchoStar DBS Corp., Guaranteed Notes, 6.38%, due 10/1/11 Ba3 BB- 5,227
2,570 EchoStar DBS Corp., Guaranteed Notes, 7.00%, due 10/1/13 Ba3 BB- 2,669
2,555 EchoStar DBS Corp., Guaranteed Notes, 7.13%, due 2/1/16 Ba3 BB- 2,660(2)
25,811
MEDIA - SERVICES (2.0%)
2,385 Lamar Media Corp., Guaranteed Notes, 7.25%, due 1/1/13 Ba3 B 2,439
3,685 WMG Acquisition Corp., Senior Subordinated Notes, 7.38%, due 4/15/14 B2 B 3,537
</Table>
See Notes to Schedule of Investments
40
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000's OMITTED) MOODY'S S&P (000's OMITTED)
$ 5,180 WMG Holdings Corp., Guaranteed Notes, Step-Up,
0.00%/9.50%, due 12/15/14 B2 B $ 3,937(2)**
9,913
METALS/MINING EXCLUDING STEEL (5.0%)
1,750 Aleris Int'l., Inc., Senior Notes, 9.00%, due 12/15/14 B3 B- 1,857(1)
2,125 Aleris Int'l., Inc., Senior Subordinated Notes, 10.00%, due 12/15/16 Caa1 B- 2,218(1)
3,820 Arch Western Finance Corp., Guaranteed Notes, 6.75%, due 7/1/13 B1 BB- 3,791
745 Freeport-McMoRan Copper & Gold, Senior Unsecured Notes,
8.25%, due 4/1/15 Ba3 BB 806
4,555 Freeport-McMoRan Copper & Gold, Senior Unsecured Notes,
8.38%, due 4/1/17 Ba3 BB 4,982
8,630 Massey Energy Co., Guaranteed Notes, 6.88%, due 12/15/13 B2 B+ 8,328
2,465 Peabody Energy Corp., Guaranteed Senior Notes, Ser. B,
6.88%, due 3/15/13 Ba1 BB 2,496(2)
24,478
NON-FOOD & DRUG RETAILERS (1.9%)
725 Blockbuster, Inc., Senior Subordinated Notes, 9.00%, due 9/1/12 Caa2 CCC+ 740
1,525 Bon-Ton Department Stores, Inc., Guaranteed Notes,
10.25%, due 3/15/14 B3 B- 1,651(2)
4,905 GSC Holdings Corp., Guaranteed Notes, 8.00%, due 10/1/12 Ba3 B+ 5,230
2,840 Michaels Stores, Inc., Subordinated Notes, Step-Up,
0.00%/13.00%, due 11/1/16 Caa1 CCC 1,860(1)**
9,481
PACKAGING (3.6%)
10,815 Ball Corp., Guaranteed Notes, 6.88%, due 12/15/12 Ba1 BB 11,058(2)
2,360 Crown Americas LLC, Guaranteed Senior Notes, 7.75%, due 11/15/15 B1 B 2,496(2)
1,565 Graham Packaging Co., Inc., Guaranteed Notes, 9.88%, due 10/15/14 Caa1 CCC+ 1,620(2)
2,410 Owens-Brockway Glass Container, Inc., Guaranteed Notes,
8.75%, due 11/15/12 Ba2 BB- 2,539
17,713
PRINTING & PUBLISHING (5.9%)
670 Dex Media West LLC, Senior Unsecured Notes, Ser. B,
8.50%, due 8/15/10 B1 B 702
1,960 Dex Media West LLC, Guaranteed Senior Notes, Ser. B,
9.88%, due 8/15/13 B2 B 2,134
2,765 Dex Media, Inc., Senior Disc. Notes, Step-Up,
0.00%/9.00%, due 11/15/13 B3 B 2,606(2)**
6,595 Idearc, Inc., Senior Notes, 8.00%, due 11/15/16 B2 B+ 6,875(1)
645 Primedia, Inc., Senior Floating Rate Notes, 10.74%, due 5/15/07 B2 B 667(6)
4,835 Primedia, Inc., Guaranteed Senior Unsecured Notes,
8.88%, due 5/15/11 B2 B 4,980(2)
6,545 R.H. Donnelley Corp., Senior Notes, Ser A-3, 8.88%, due 1/15/16 B3 B 7,101
3,975 Reader's Digest Association, Inc., Senior Subordinated Notes,
9.00%, due 2/15/17 Caa1 CCC+ 3,896(1)
28,961
RAILROADS (1.2%)
5,400 TFM SA de C.V., Senior Notes, 9.38%, due 5/1/12 B3 B- 5,832
REAL ESTATE DEV. & MGT. (1.1%)
5,010 American Real Estate Partners, L.P., Senior Notes, 8.13%, due 6/1/12 Ba3 BB+ 5,110
RESTAURANTS (0.6%)
1,510 NPC Int'l., Inc., Guaranteed Notes, 9.50%, due 5/1/14 Caa1 B- 1,586
1,105 OSI Restaurant Partners, Inc., Senior Notes, 9.63%, due 5/15/15 Caa1 B- 1,138(1)(4)
2,724
</Table>
See Notes to Schedule of Investments
41
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000's OMITTED) MOODY'S S&P (000's OMITTED)
SOFTWARE/SERVICES (0.3%)
$ 1,135 SunGard Data Systems, Inc., Guaranteed Notes, 9.13%, due 8/15/13 Caa1 B- $ 1,217(2)
STEEL PRODUCERS/PRODUCTS (0.8%)
3,670 Tube City IMS Corp., Senior Subordinated Notes, 9.75%, due 2/1/15 B3 B- 3,872(1)
SUPPORT-SERVICES (5.8%)
4,060 Aramark Corp., Senior Notes, 8.50%, due 2/1/15 B3 B- 4,248(1)(2)
1,920 KAR Holdings, Inc., Senior Subordinated Notes, 10.00%, due 5/1/15 Caa1 CCC 1,990(1)(2)
5,460 Knowledge Learning Corp., Inc., Guaranteed Notes, 7.75%, due 2/1/15 B2 B- 5,460(1)
4,300 Language Line, Inc., Guaranteed Senior Subordinated Notes,
11.13%, due 6/15/12 B3 CCC+ 4,622
5,650 Monitronics Int'l., Inc., Guaranteed Notes, 11.75%, due 9/1/10 B3 B- 5,904
3,985 Rural/Metro Corp., Guaranteed Notes, 9.88%, due 3/15/15 B3 CCC+ 4,244
1,825 United Rentals N.A., Inc., Guaranteed Notes, 6.50%, due 2/15/12 B1 B+ 1,843(2)
28,311
TELECOM - FIXED LINE (0.3%)
1,555 Level 3 Financing, Inc., Senior Notes, 9.25%, due 11/1/14 B3 CCC+ 1,615(1)
TELECOM - INTEGRATED/SERVICES (6.3%)
3,650 Citizens Utilities Co., Bonds, 6.63%, due 3/15/15 Ba2 BB+ 3,646(1)
1,220 Citizens Utilities Co., Bonds, 7.13%, due 3/15/19 Ba2 BB+ 1,229(1)
1,500 Dycom Industries, Inc., Guaranteed Notes, 8.13%, due 10/15/15 Ba3 B+ 1,583
3,830 Intelsat Subsidiary Holdings Co. Ltd., Guaranteed Notes,
8.63%, due 1/15/15 B2 B+ 4,093
1,915 Nordic Telephone Co. Holdings, Secured Notes, 8.88%, due 5/1/16 B2 B 2,059(1)
7,850 Qwest Corp., Senior Notes, 7.88%, due 9/1/11 Ba1 BB+ 8,360
2,660 Qwest Corp., Notes, 8.88%, due 3/15/12 Ba1 BB+ 2,939
2,480 Windstream Corp., Guaranteed Notes, 8.13%, due 8/1/13 Ba3 BB- 2,691(2)
3,695 Windstream Corp., Guaranteed Notes, 8.63%, due 8/1/16 Ba3 BB- 4,055
30,655
THEATERS & ENTERTAINMENT (0.9%)
1,995 AMC Entertainment, Inc., Guaranteed Notes, Ser. B,
8.63%, due 8/15/12 Ba3 B- 2,125
1,840 AMC Entertainment, Inc., Guaranteed Notes, 11.00%, due 2/1/16 B3 CCC+ 2,111
4,236
TRANSPORTATION EXCLUDING AIR/RAIL (0.2%)
1,203 Stena AB, Senior Unsecured Notes, 7.00%, due 12/1/16 Ba3 BB- 1,185
TOTAL CORPORATE DEBT SECURITIES (COST $453,966) 468,788
NUMBER OF SHARES
SHORT-TERM INVESTMENTS (15.6%)
9,540,075 Neuberger Berman Prime Money Fund Trust Class 9,540@
66,474,725 Neuberger Berman Securities Lending Quality Fund, LLC 66,475++
TOTAL SHORT-TERM INVESTMENTS (COST $76,015) 76,015#
TOTAL INVESTMENTS (111.8%) (COST $529,981) 544,803##
Liabilities, less cash, receivables and other assets [(11.8%)] (57,674)
TOTAL NET ASSETS (100.0%) $487,129
</Table>
See Notes to Schedule of Investments
42
<Page>
Schedule of Investments Lehman Brothers Municipal Money Fund
(Unaudited)
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING ~~ VALUE ++
(000's OMITTED) MOODY'S S&P (000's OMITTED)
MUNICIPAL NOTES (98.6%)
ALABAMA (2.1%)
$ 300 Decatur IDB Solid Waste Disp. Rev. (Amoco Chemical Co. Proj.),
Ser. 1995, 4.13%, due 5/1/07 VMIG1 $ 300(6)(3)
16,500 Stevenson IDB Env. Imp. Rev. (Mead Corp. Proj.), Ser. 1998 B,
(LOC: JP Morgan Chase), 4.03%, due 5/2/07 A-1+ 16,500(6)(3)
16,800
ARIZONA (1.5%)
1,000 Coconino Co. Ind. Dev. Au. IDR (Scuff Steel Proj.), Ser. 2007,
(LOC: Wells Fargo Bank NA), 4.02%, due 5/3/07 A-1+ 1,000(6)
8,000 Scottsdale Ind. Dev. Au. Hosp. Rev., Ser. 2006,
(LOC: Citigroup Global Markets), 3.98%, due 5/3/07 VMIG1 8,000(6)
2,750 Tucson Ind. Dev. Au. Joint Single Family Mtge. Rev., Ser. 2006 B,
(LOC: Government National Mortgage Association), 4.90%, due 8/3/07 VMIG1 2,756
11,756
CALIFORNIA (2.2%)
2,205 Alameda Co. Ind. Dev. Au. Rev. (Lumber Inc. Proj.), Ser. 2003,
(LOC: Comerica Bank), 3.96%, due 5/3/07 A-1 2,205(6)(3)
2,980 Arcadia Unified Sch. Dist. (Putters), Ser. 2007-1716, (FSA Insured),
3.95%, due 5/3/07 VMIG1 2,980(6)s
2,000 BB&T Muni. Trust, Ser. 2000 (FSA Insured), 3.92%, due 5/3/07 VMIG1 2,000(6)g
3,060 California Infrastructure & Econ. Dev. Bank IDR (Studio Moulding
Proj.), Ser. 2001 A, (LOC: Comerica Bank), 3.98%, due 5/3/07 VMIG1 3,060(6)(3)
100 California St. (Putters), Ser. 2004-630 (AMBAC Insured),
3.92%, due 5/3/07 VMIG1 100(6)s
1,686 Los Angeles Comm. Redev. Agcy. Multi-Family Hsg. Rev., Ser. 2003 A
(LOC: Citibank NA), 3.96%, due 5/3/07 VMIG1 1,686(6)(3)
1,900 Riverside Co. Ind. Dev. Au. IDR (Rockwin Corp. Proj.), Ser. 1987 II,
(LOC: Royal Bank of Canada), 4.07%, due 5/2/07 1,900(6)
3,715 Roseville Natural Gas Fin. Au. Gas Rev., Ser. 2007,
(LOC: Goldman Sachs), 3.73%, due 5/3/07 3,715(6)
17,646
COLORADO (1.4%)
4,765 Broomfield CTFS Partners (Floats), Ser. 2002, (AMBAC Insured),
3.99%, due 5/3/07 4,765(6)x
2,000 Colorado Hsg. & Fin. Au. Mfg. Rev. (Ready Foods Inc. Proj.),
Ser. 2007 A, (LOC: U.S. Bank NA), 4.00%, due 5/3/07 A-1+ 2,000(6)(3)
4,900 Denver City & Co. Arpt. Rev., Sub. Ser. 2005 C-2, (CIFG Insured),
3.98%, due 5/2/07 VMIG1 A-1 4,900(6)y
11,665
DELAWARE (0.6%)
4,855 Wilmington G.O., Ser. 2006 B, (FGIC Insured), 4.00%, due 5/3/07 VMIG1 A-1+ 4,855(6)c
DISTRICT OF COLUMBIA (1.5%)
1,945 District of Columbia Rev. Ref. (Maret Sch. Inc.), Ser. 2003,
(LOC: SunTrust Bank), 3.96%, due 5/2/07 VMIG1 1,945(6)(3)
4,440 Metro. Washington Arpt. Au. Sys. Ref. Rev., Ser. 2002 C,
(FSA Insured), 3.97%, due 5/2/07 VMIG1 A-1+ 4,440(6)p
5,650 Metro. Washington Arpt. Au. Sys. Ref. Rev., Ser. 2006 D,
(FSA Insured), 3.99%, due 5/3/07 5,650(6)q
12,035
</Table>
See Notes to Schedule of Investments
43
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING ~~ VALUE ++
(000's OMITTED) MOODY'S S&P (000's OMITTED)
FLORIDA (3.3%)
$ 3,000 Brevard Co. Hsg. Fin. Au. Single Family Mtge. Rev., Ser. 2005 MT-052,
(LOC: Merrill Lynch Capital Markets) , 4.01%, due 5/3/07 VMIG1 $ 3,000(6)
6,720 Florida Hsg. Fin. Corp. Rev. (Merlots), Ser. 2006 B17,
(LOC: Government National Mortgage Association), 4.04%, due 5/2/07 A-1+ 6,720(6)i
3,225 Florida St. Div. Bond Fin. Dept. Gen. Svcs. Rev. (Dept. Env. Protection),
Ser. 1997 B, (AMBAC Insured), 5.75%, due 7/1/07 3,236
8,895 Miami-Dade Co. Aviation Rev. (Floaters), Ser. 2006, (CIFG Insured),
4.00%, due 5/3/07 VMIG1 8,895(6)y
2,500 Miami-Dade Co. Ind. Dev. Au. Solid Waste Disp. Rev.
(Florida Pwr. & Light Co. Proj.), Ser. 2003, 4.11%, due 5/1/07 VMIG1 2,500(6)(3)
1,195 Miami-Dade Co. Sch. Board CTFS Partner, Ser. 2003, (FGIC Insured),
3.96%, due 5/3/07 VMIG1 1,195(6)l
1,000 St. Lucie Co. Solid Waste Disp. Ref. Rev. (Florida Pwr. & Light Co. Proj.),
Ser. 2003, 4.11%, due 5/1/07 VMIG1 1,000(6)(3)
26,546
GEORGIA (4.4%)
2,975 Atlanta Arpt. Rev. (Merlots), Ser. 2004 C14, (FSA Insured),
4.04%, due 5/2/07 VMIG1 2,975(1)(6)ii
6,450 Atlanta Urban Residential Fin. Au. Multi-Family Hsg. Rev.
(Capitol Gateway Apts.), Ser. 2005, (LOC: Bank of America),
4.05%, due 5/3/07 A-1+ 6,450(6)(3)(5)
1,575 Columbus Dev. Au. Rev., Ser. 2007, (LOC: Columbus Bank & Trust),
3.97%, due 5/3/07 1,575(6)(3)
2,875 Crisp Co. Cordele IDA Rev. (Goldens Foundry & Mach Co. Proj.),
Ser. 2007, (LOC: Columbus Bank & Trust), 4.02%, due 5/3/07 2,875(6)
3,100 Georgia St. Hsg. & Fin. Au. Rev. (Merlots), Ser. 2006 B11,
(LOC: Wachovia Bank & Trust Co.), 4.04%, due 5/2/07 A-1+ 3,100(6)
5,000 Kennesaw Dev. Au. Multi-Family Hsg. Rev. (Walton Ridenour Apts. Proj.),
Ser. 2004, (LOC: SunTrust Bank), 4.00%, due 5/2/07 VMIG1 5,000(6)(3)
3,500 Laurens Co. Dev. Au. Solid Waste Disp. Rev.
(Southeast Paper Mfg. Co. Proj.), Ser. 1997, (LOC: Toronto Dominion Bank),
4.01%, due 5/3/07 3,500(6)(3)
4,715 Muni. Elec. Au. Spec. Oblig., Ser. 1994 SGA-1, (MBIA Insured),
3.97%, due 5/2/07 A-1+ 4,715(6)cc
1,985 Savannah Econ. Dev. Au. Rev. (Exempt Fac. Cons. Util. Proj.), Ser. 1999,
(LOC: Branch Banking & Trust Co.), 4.05%, due 5/3/07 VMIG1 1,985(6)(3)
1,195 Savannah Econ. Dev. Au. Rev. (Kennickell Printing Co. Proj.), Ser. 2001,
(LOC: Branch Banking & Trust Co.), 4.05%, due 5/3/07 VMIG1 1,195(6)(3)
2,110 Turner Co. Dev. Au. IDR (Mcelroy Metal Mill Inc.), Ser. 2005,
(LOC: AmSouth Bank), 4.02%, due 5/3/07 P-1 2,110(6)
35,480
IDAHO (2.6%)
20,715 Idaho Hlth. Fac. Au. Rev. (St. Luke's Med. Ctr.), Ser. 2000, (FSA Insured),
4.09%, due 5/1/07 VMIG1 A-1+ 20,715(6)(3)r
ILLINOIS (6.6%)
2,350 Chicago Enterprise Zone Rev. (J & A LLC Proj.), Ser. 2002,
(LOC: Charter One Bank), 4.06%, due 5/3/07 2,350(6)
12,000 Chicago Midway Arpt. Rev. (Second Lien), Ser. 1998 A, (MBIA Insured),
4.07%, due 5/1/07 VMIG1 A-1+ 12,000(6)s
2,317 Chicago Ref. G.O., Ser. 2005, (MBIA Insured), 3.97%, due 5/3/07 2,317(6)y
4,400 Illinois Dev. Fin. Au. IDR (Amtex Steel Inc. Proj.), Ser. 1999,
(LOC: LaSalle National Bank), 4.01%, due 5/3/07 A-1 4,400(6)(3)
2,400 Illinois Dev. Fin. Au. IDR (Univ. Press Inc. Proj.), Ser. 2000 A,
(LOC: LaSalle National Bank), 4.01%, due 5/3/07 A-1 2,400(6)(3)
1,000 Illinois Dev. Fin. Au. Solid Waste Disp. Rev. (Waste Management Inc. Proj.),
Ser. 2003, (LOC: Wachovia Bank & Trust Co.), 4.00%, due 5/3/07 A-1+ 1,000(6)(3)
</Table>
See Notes to Schedule of Investments
44
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING ~~ VALUE ++
(000's OMITTED) MOODY'S S&P (000's OMITTED)
$ 3,400 Illinois Fin. Au. IDR (Injection Plastic Corp.), Ser. 2006 A,
(LOC: Wachovia Bank & Trust Co.), 4.10%, due 5/2/07 $ 3,400(6)(3)
4,000 Illinois Fin. Au. Rev. (Reliable Materials Proj.), Ser. 2006,
(LOC: Marshall & Ilsley), 4.00%, due 5/2/07 A-1 4,000(6)(3)
2,850 Illinois Hlth. Fac. Au. Rev. (Advocate Hlth. Care Network), Ser. 2003 A,
3.85%, due 11/15/22 Putable 7/6/07 VMIG1 A-1+ 2,850(3)
4,100 Illinois Hsg. Dev. Au. Multi-Family Rev. (Galesburg Towers), Ser. 2005,
(LOC: Harris Trust & Savings), 4.00%, due 5/3/07 A-1+ 4,100(6)(3)
3,670 Illinois St. G.O., Ser. 2004, (MBIA Insured), 3.90%, due 5/3/07 VMIG1 3,670(6)l
9,000 Will Co. Solid Waste Disp. Rev. (BASF Corp. Proj.), Ser. 1997,
4.21%, due 5/1/07 P-1 9,000(6)(3)
1,150 Woodridge Ind. Rev. (Mc David Knee Guard), Ser. 1996,
(LOC: Marshall & Ilsley), 4.05%, due 5/2/07 A-1 1,150(6)(3)
52,637
INDIANA (8.6%)
13,795 ABN Amro Munitops Cert. Trust , Ser. 2003, (FGIC Insured),
3.97%, due 5/3/07 VMIG1 13,795(1)(6)a
2,670 Anderson Econ. Dev. Rev. (Gateway Village Proj.), Ser. 1996,
(LOC: Federal Home Loan Bank), 4.02%, due 5/3/07 VMIG1 2,670(6)
1,000 Angola Ed. Fac. Rev. (Tri-State Univ. Proj.), Ser. 2006,
(LOC: Fifth Third Bank), 3.98%, due 5/4/07 1,000(6)(3)
5,230 Bartholomew Cons. Sch. Corp. Ind. Tax Anticipation Warrants, Ser. 2007,
4.00%, due 12/31/07 5,241
2,300 East Porter Co. Sch. Bldg. Corp. Rev., Ser. 2005, (MBIA Insured),
3.96%, due 5/3/07 A-1+ 2,300(6)(4)
1,915 GCS Sch. Bldg. Corp. One Ind. Rev., Ser. 2005, (FSA Insured),
4.00%, due 5/3/07 A-1+ 1,915(6)x
6,010 Greencastle IDR (Crown Equip. Corp. Proj.), Ser. 1996, (LOC: Key Bank),
4.00%, due 5/3/07 A1 6,010(6)(3)
2,500 Hamilton Southeastern Sch. Warrants, Ser. 2007, 3.80%, due 12/31/07 2,502
2,735 Hammond Econ. Dev. Rev. (Annex at Douglas Pointe), Ser. 1996 A,
(LOC: Federal Home Loan Bank), 4.02%, due 5/3/07 VMIG1 2,735(6)
2,250 Indiana Bond Bank Rev. (Adv. Fdg. Prog. Notes), Ser. 2007 A,
(LOC: Bank of New York), 4.25%, due 1/31/08 SP-1+ 2,260
15,700 Indiana Hlth. & Ed. Fac. Fin. Au. Rev. (South Greenwood Village Proj.),
Ser. 2006 A, (LOC: Sovereign Bank), 3.98%, due 5/3/07 15,700(6)(3)b
2,400 Indiana St. Dev. Fin. Au. IDR (TTP, Inc. Proj.), Ser. 2001,
(LOC: LaSalle National Bank), 4.01%, due 5/3/07 A-1 2,400(6)(3)
1,695 Indiana St. Fin. Au. Wtr. Fac. Rev., Ser. 2006-111, (AMBAC Insured),
4.00%, due 5/3/07 VMIG1 A-1+ 1,695(6)c
1,200 La Porte Co. Econ. Dev. Rev. (Pedcor Investments-Woodland),
Ser. 1994, (LOC: Federal Home Loan Bank), 4.05%, due 5/3/07 VMIG1 1,200(6)
4,800 Noblesville Econ. Dev. Rev. (Greystone Apts. Proj.), Ser. 2006 A,
(LOC: LaSalle National Bank), 4.01%, due 5/3/07 A-1 4,800(6)(3)
2,500 Northern Wells Comm. Sch. Tax Anticipation Warrants, Ser. 2007,
3.70%, due 12/31/07 2,501
68,724
IOWA (1.3%)
5,000 Davenport Comm. Sch. Dist. Anticipation Warrants, Ser. 2006,
4.50%, due 6/29/07 5,006
3,600 Iowa Fin. Au. Single Family Mtge. Rev., Ser. 2006,
(LOC: Government National Mortgage Association), 4.01%, due 5/3/07 VMIG1 3,600(6)k
1,500 Iowa Fin. Au. Single-Family Rev., Ser. 2005 E,
(LOC: Government National Mortgage Association), 4.00%, due 5/3/07 VMIG1 A-1+ 1,500(6)dd
10,106
</Table>
See Notes to Schedule of Investments
45
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING ~~ VALUE ++
(000's OMITTED) MOODY'S S&P (000's OMITTED)
KENTUCKY (3.0%)
$3,220 Boone Co. Ind. Bldg. Rev. (Bonfiglioli USA Inc. Proj.), Ser. 2006,
(LOC: Fifth Third Bank), 4.05%, due 5/4/07 $ 3,220(6)(3)
1,630 Georgetown Ind. Bldg. Rev. (Georgetown College Proj.), Ser. 2006,
(LOC: Fifth Third Bank), 3.96%, due 5/4/07 VMIG1 1,630(6)(3)
2,700 Graves Co. Solid Waste Disp. Rev. (Waste Management LLC Proj.), Ser. 2003,
(LOC: Wachovia Bank & Trust Co.), 4.00%, due 5/3/07 A-1+ 2,700(6)(3)
670 Jefferson Co. Retirement Home Rev. (Nazareth Library Proj.), Ser. 1999,
(LOC: Fifth Third Bank), 3.98%, due 5/4/07 670(6)(3)
3,000 Kentucky Econ. Dev. Fin. Au. Ind. Bldg. Rev. (Republic Svcs., Inc. Proj.),
Ser. 2001, (LOC: Bank of America), 3.98%, due 5/3/07 A-1+ 3,000(6)
2,000 Kentucky Econ. Dev. Fin. Au. Ind. Bldg. Rev. (Republic Svcs., Inc. Proj.),
Ser. 2003, (LOC: Bank One), 3.98%, due 5/3/07 A-1+ 2,000(6)(3)
4,995 Kentucky Hsg. Corp. Hsg. Rev., Ser. 2006,
(LOC: Merrill Lynch Capital Markets), 4.01%, due 5/3/07 A-1+ 4,995(6)
2,200 Kentucky Rural Wtr. Fin. Corp. Pub. Proj. Rev. (Construction Notes),
Ser. 2007 A-1, 3.70%, due 4/1/09 Putable 10/1/07 MIG1 2,200(6)
1,300 Louisville & Jefferson Co. Reg. Arpt. Au. Spec. Fac. Rev.
(UPS Worldwide Forwarding Inc. Proj.), Ser. 1999 B, 4.07%, due 5/1/07 VMIG1 A-1+ 1,300(6)(3)
1,000 Minor Lane Heights Solid Waste Disp. Rev. (Waste Management LLC Proj.),
Ser. 2003, (LOC: Wachovia Bank & Trust Co.), 4.00%, due 5/3/07 A-1+ 1,000(6)(3)
1,450 Ohio Co. Solid Waste Disp. Rev. (Waste Management LLC Proj.),
Ser. 2003, (LOC: Wachovia Bank & Trust Co.), 4.00%, due 5/3/07 A-1+ 1,450(6)(3)
24,165
LOUISIANA (3.7%)
7,000 Ascension Parish Rev. (BASF Corp. Proj.), Ser. 1997, 4.21%, due 5/1/07 P-1 7,000(6)(3)
5,000 Ascension Parish Rev. (BASF Corp. Proj.), Ser. 1998, 4.21%, due 5/1/07 P-1 5,000(6)(3)
5,700 East Baton Rouge Swr. Commission Rev., Ser. 2006, (FSA Insured),
3.97%, due 5/3/07 5,700(6)y
4,685 Louisiana HFA Single Family Mtge. Rev. (Floaters), Ser. 2006,
(LOC: Depfa Bank), 4.00%, due 5/3/07 A-1 4,685(6)y
5,000 Louisiana Local Gov't. Env. Facs. & CDA Rev. (Mid South Extrusion, Inc. Proj.),
Ser. 2006, (LOC: Regions Bank), 4.01%, due 5/3/07 A-1 5,000(6)(3)
2,000 Louisiana Local Govt. Env. Facs. & Comm. Dev. (SRL Holdings LLC Proj.),
Ser. 2007, (LOC: Branch Banking & Trust Co.), 4.05%, due 5/3/07 2,000(6)(3)
29,385
MAINE (0.3%)
2,700 Maine St. Hsg. Au. Mtge. Purchase Rev., Ser. 2004 B-3,
(LOC: State Street Bank & Trust Co.), 3.98%, due 5/3/07 VMIG1 A-1+ 2,700(6)
MARYLAND (0.3%)
2,380 Maryland St. Comm. Dev. Admin. Dept. Hsg. & Comm. Dev. Res.,
Ser. 2006 R, 3.64%, due 12/14/07 MIG1 2,380
MASSACHUSETTS (1.7%)
1,300 Massachusetts Bay Trans. Au. Rev., Ser. 2006, (LOC: Citibank, N.A.),
3.97%, due 5/3/07 VMIG1 1,300(6)
125 Massachusetts St. Hlth. & Ed. Fac. Au. Rev. (Sherrill House), Ser. 2002 A-1,
(LOC: Sovereign Bank), 3.97%, due 5/3/07 A-1+ 125(6)(3)m
1,000 Massachusetts St. Turnpike Au. Metro. Hwy. Sys. Rev., (Floaters), Ser. 2000,
(MBIA Insured), 3.95%, due 5/3/07 VMIG1 1,000(6)y
3,000 Montachusett Reg. Trans. Au. RANS, Ser. 2006, 4.50%, due 6/15/07 3,002
1,900 Southeastern Reg. Trans. Au. RANS, Ser. 2006, 3.85%, due 9/7/07 1,901
6,000 Worcester Reg. Trans. Au. G.O. RANS, Ser. 2006, 4.25%, due 6/29/07 6,002
13,330
</Table>
See Notes to Schedule of Investments
46
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING ~~ VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
MICHIGAN (0.9%)
$ 1,370 Michigan St. Hosp. Fin. Au. Rev., Ser. 2006, (LOC: Citibank, N.A.),
3.98%, due 5/3/07 VMIG1 $ 1,370(6)
700 Michigan St. Hsg. Dev. Au. Ltd. Oblig. Rev.
(JAS Non-Profit Hsg. Corp. IV), Ser. 2000,
(LOC: Bank One Michigan), 3.95%, due 5/3/07 A-1+ 700(6)(3)
1,900 Michigan St. Job. Dev. Au. IDR (Kentwood Residence Assoc. Proj.),
Ser. 1984, (LOC: Wells Fargo & Co.), 3.05%, due 5/1/07 A-1+ 1,900(6)
2,500 Michigan St. Strategic Fund Ltd. Oblig. Rev.
(Behr Sys., Inc. Proj.), Ser. 2001, (LOC: National City Bank),
4.06%, due 5/3/07 2,500(6)(3)
1,075 Wayne Co. Arpt. Au. Rev. (Floaters), Ser. 2006-1327, (MBIA Insured),
4.00%, due 5/3/07 VMIG1 1,075(6)y
7,545
MINNESOTA (0.2%)
1,400 Plymouth Multi-Family Hsg. Ref. Rev. (At the Lake Apts. Proj.),
Ser. 2004, (LOC: Freddie Mac), 4.02%, due 5/3/07 VMIG1 1,400(6)(3)
MISSISSIPPI (0.6%)
5,000 Mississippi Bus. Fin. Corp. IDR (VC Reg. Assembly & Mfg. Proj.),
Ser. 2003, (LOC: JP Morgan Chase), 4.03%, due 5/2/07 A-1+ 5,000(6)(3)
MISSOURI (2.3%)
3,500 Blue Springs Ind. Dev. Au. Multi-Family Rev. Hsg.
(Autumn Place Apts. Proj.), Ser. 2004, (LOC: Fannie Mae),
4.02%, due 5/3/07 VMIG1 3,500(6)(3)
1,000 Kansas City Ind. Dev. Au. Rev. (KC Downtown Arena Proj.),
Ser. 2005 C, (AMBAC Insured), 3.98%, due 5/2/07 VMIG1 A-1+ 1,000(6)p
4,000 Missouri Higher Ed. Loan Au. Std. Loan Rev., Ser. 2005 E,
(MBIA Insured), 4.01%, due 5/3/07 VMIG1 A-1+ 4,000(6)n
800 Missouri St. Dev. Fin. Board Infrastructure Fac. Rev.
(St. Louis Convention Ctr.), Ser. 2000 C, (LOC: U.S. Bank),
4.11%, due 5/1/07 A-1+ 800(6)
1,490 Missouri St. Hlth. & Ed. Fac. Au. Ed. Fac. Rev. (Drury College),
Ser. 1999, (LOC: Bank of America), 4.11%, due 5/1/07 VMIG1 1,490(6)(3)
200 Missouri St. Hlth. & Ed. Fac. Au. Ed. Fac. Rev. (St. Louis Univ.),
Ser. 1999 B, (LOC: Bank of America), 4.09%, due 5/1/07 VMIG1 A-1+ 200(6)(3)
1,230 Missouri St. Hlth. & Ed. Fac. Au. Hlth. Fac. Rev.
(Bethesda Hlth. Group, Inc.), Ser. 2004, (LOC: U.S. Bank),
4.11%, due 5/1/07 VMIG1 1,230(6)(3)
4,600 Missouri St. Hsg. Dev. Commission Single Family Mtge. Rev.
(Putters), Ser. 2006,
(LOC: Government National Mortgage Association), 4.02%, due 5/3/07 A-1+ 4,600(6)s
1,500 Missouri St. Pub. Utils. Commission Rev.
(Interim Construction Notes), Ser. 2006, 4.50%, due 9/15/07 MIG1 1,505
18,325
NEBRASKA (0.6%)
4,945 Scotts Bluff Co. Hosp. Au. Number 1 Hosp. Ref. Rev.
(Reg. West Med. Ctr.), Ser. 2005, (Radian Insured),
4.01%, due 5/3/07 VMIG1 4,945(6)(3)u
NEVADA (0.3%)
2,185 Clark Co. IDR (Floaters), Ser. 2006, (AMBAC Insured),
4.00%, due 5/3/07 VMIG1 2,185(6)y
NEW HAMPSHIRE (2.3%)
1,800 Cheshire Co. G.O. TANS, Ser. 2007, 3.75%, due 12/27/07 1,800
1,225 Manchester Hsg. Au. Multi-Family Rev. (Wall Street Tower),
Ser. 1990 B, (LOC: PNC Bank), 4.03%, due 5/3/07 A-1 1,225(6)
2,000 Merrimack Co. G.O. TANS, Ser. 2007, 4.25%, due 12/28/07 2,006
4,200 New Hampshire St. Bus. Fin. Au. Rev. (Taylor Home), Ser. 2005 B,
(LOC: TD Banknorth N.A.), 3.96%, due 5/3/07 VMIG1 4,200(6)(3)
</Table>
See Notes to Schedule of Investments
47
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING ~~ VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 2,760 New Hampshire St. Bus. Fin. Au. Rev. (Valley Reg. Hosp.), Ser. 2003,
(LOC: Sovereign Bank), 3.95%, due 5/3/07 A-1+ $ 2,760(6)(3)d
3,000 New Hampshire St. Hsg. Fin. Au. Multi-Family Rev., Ser. 2006,
(LOC: Merrill Lynch Capital Markets), 4.01%, due 5/3/07 VMIG1 3,000(6)
3,600 Strafford Co. G.O. TANS, Ser. 2007, 3.75%, due 12/31/07 3,601
18,592
NEW JERSEY (0.5%)
710 Bernardsville BANS, Ser. 2006, 4.50%, due 5/2/07 710
3,000 Perth Amboy G.O. BANS, Ser. 2006, 4.35%, due 10/19/07 MIG1 3,009
3,719
NEW MEXICO (0.3%)
2,800 New Mexico Rev. (ABN Amro Munitops Cert. Trust), Ser. 2005,
(AMBAC Insured), 3.99%, due 5/3/07 2,800(1)(6)a
NEW YORK (4.3%)
5,900 ABN Amro Munitops Cert. Trust, Ser. 2006, (XLCA Insured),
3.97%, due 5/3/07 VMIG1 5,900(1)(6)a
2,870 ABN Amro Munitops Cert. Trust, Ser. 2006, (FSA Insured),
4.02%, due 5/3/07 VMIG1 2,870(1)(6)a
6,000 Gloversville City Sch. Dist. G.O. BANS, Ser. 2006,
3.74%, due 9/27/07 6,001
6,400 Greater Southern Tier Board Coop. Ed. Svcs. Sole Supervisory Dist.
RANS, Ser. 2006, 3.75%, due 6/29/07 6,401
3,000 Jamestown City Sch. Dist. G.O. BANS, Ser. 2006, 4.50%, due 5/23/07 3,001
1,900 New York City Muni. Wtr. Fin. Au. Rev., Ser. 2001,
(LOC: Merrill Lynch Capital Markets), 3.97%, due 5/3/07 A-1+ 1,900(6)
1,200 New York St. Dorm. Au. Rev. Secondary Issues (Floaters), Ser. 2005,
(AMBAC Insured), 3.96%, due 5/3/07 1,200(6)y
2,000 New York St. Thruway Au. Gen. Rev. (Floaters), Ser. 2006,
(FSA Insured), 3.96%, due 5/3/07 A-1 2,000(6)y
10 Utica IDA Civic Fac. Rev. (Utica College Proj.), Ser. 2005 A,
(LOC: Citizens Bank), 3.95%, due 5/3/07 VMIG1 10(6)(3)
5,200 Warren & Washington Cos. IDA Civic Fac. Rev.
(Glen at Hiland Meadows Proj.), Ser. 2000,
(LOC: Sovereign Bank), 3.97%, due 5/2/07 A-1 5,200(6)(3)bb
34,483
NORTH CAROLINA (0.3%)
2,800 North Carolina Cap. Fac. Fin. Agcy. Rev. (Eagle), Ser. 2006 A,
(LOC: Citibank, N.A.), 3.99%, due 5/3/07 A-1+ 2,800(6)
OHIO (2.3%)
2,339 American Muni. Pwr. Inc. G.O. BANS, Ser. 2006, 3.80%, due 8/16/07 2,339
1,000 Butler Co. G.O. BANS, Ser. 2006 C, 4.50%, due 9/20/07 MIG1 1,003
1,755 Clark Co. BANS, Ser. 2006, 4.00%, due 5/10/07 1,755
1,200 Greene Co. G.O., Ser. 2007 B, 5.50%, due 8/14/07 MIG1 1,206
3,945 Hamilton Co. Hlth. Care Fac. Rev. (Sisters of Charity Sr. Care),
Ser. 2002, (LOC: Fifth Third Bank), 3.97%, due 5/3/07 3,945(6)(3)
2,325 Ohio St. Wtr. Dev. Au. Rev., Ser. 2005, (LOC: Rabobank Nederland),
3.97%, due 5/3/07 A-1+ 2,325(6)
1,500 Richland Co. BANS (Correctional Facs.), Ser. 2007,
3.75%, due 2/21/08 1,500
2,000 Univ. of Cincinnati BANS, Ser. 2007 C, 4.50%, due 1/24/08 MIG1 SP-1+ 2,013
2,194 Wood Co. IDR (Reclamation Technologies), Ser. 2006,
(LOC: National City Bank), 4.06%, due 5/3/07 2,194(6)(3)
18,280
</Table>
See Notes to Schedule of Investments
48
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING ~~ VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
OKLAHOMA (1.6%)
$ 3,235 Oklahoma HFA Single Family Rev., Ser. 2001,
(LOC: Merrill Lynch Capital Markets), 3.68%, due 5/1/07 VMIG1 $ 3,235(6)
10,000 Tulsa Co. Ind. Au. Cap. Imp. Rev., Ser. 2003 A,
(LOC: Bank of America), 3.60%, due 5/15/17 Putable 11/15/07 A-1+ 10,000(6)
13,235
PENNSYLVANIA (6.3%)
1,400 Allegheny Co. Ind. Dev. Au. Rev. (Pittsburgh Theological Seminary
at the Presbyterian Church), Ser. 2001, (LOC: Citizens Bank),
3.82%, due 8/1/31 Putable 8/1/07 VMIG1 1,400(3)
3,900 Allegheny Co. Residential Fin. Au. Single Family Mtge. Rev.,
Ser. 2004 PP, (LOC: Government National Mortgage Association),
3.96%, due 5/3/07 VMIG1 3,900(6)bb
5,150 Allegheny Co. Residential Fin. Au. Single Family Mtge. Rev.,
Ser. 2005 SS, (LOC: Government National Mortgage Association),
3.98%, due 5/3/07 VMIG1 5,150(6)bb
900 Berks Co. Ind. Dev. Au. Rev. (Mfg. Facs. Ram. Ind. Proj.),
Ser. 1996, (LOC: PNC Bank), 3.99%, due 5/2/07 900(6)(3)
4,850 Blair Co. Ind. Dev. Au. Rev. (NCP Inc. Proj.), Ser. 2002,
(LOC: PNC Bank), 4.04%, due 5/3/07 4,850(6)
2,535 Bradford Co. Ind. Dev. Au. Rev. (Econ. Dev. Towanda Print),
Ser. 2001, (LOC: PNC Bank), 4.04%, due 5/3/07 2,535(6)(3)
2,700 Cumberland Co. Muni. Au. Rev. (Presbyterian Homes Proj.),
Ser. 2005 B, (Radian Insured), 3.65%, due 12/1/26 Putable 12/1/07 A-1+ 2,700(3)ii
1,765 Lackawanna Co. Ind. Dev. Au. Rev. (Material Technology Proj.),
Ser. 2006, (LOC: Wachovia Bank & Trust Co.), 4.10%, due 5/3/07 1,765(6)(3)
4,000 Neshaminy Sch. Dist. G.O. TRANS, Ser. 2006, 4.75%, due 6/29/07 4,005
2,005 Northampton Co. Ind. Dev. Au. IDR (Losco Family Properties,
LLC Proj.), Ser. 2005, (LOC: Wachovia Bank & Trust Co.),
4.10%, due 5/3/07 2,005(6)(3)
3,200 Pennsylvania Econ. Dev. Fin. Au. Econ. Dev. Rev., Ser. 1995 D7,
(LOC: PNC Bank), 4.00%, due 5/3/07 3,200(6)
800 Pennsylvania Econ. Dev. Fin. Au. Econ. Dev. Rev., Ser. 2000 H7,
(LOC: PNC Bank), 4.00%, due 5/3/07 A-1 800(6)(3)
300 Pennsylvania Econ. Dev. Fin. Au. Econ. Dev. Rev., Ser. 2000,
(LOC: PNC Bank), 4.00%, due 5/3/07 VMIG1 300(6)(3)
4,700 Pennsylvania Econ. Dev. Fin. Au. Econ. Dev. Rev., Ser. 2002 B5,
(LOC: PNC Bank), 4.00%, due 5/3/07 A-1 4,700(6)(3)
800 Pennsylvania Econ. Dev. Fin. Au. Econ. Dev. Rev.
(North American Communication Proj.), Ser. 2004,
(LOC: PNC Bank), 4.00%, due 5/3/07 A-1 800(6)(3)
11,000 Pennsylvania Econ. Dev. Fin. Au. Exempt Fac. Rev.
(Shippingport Proj.), Ser. 2005 A,
(LOC: PNC Bank), 3.99%, due 5/2/07 VMIG1 A-1 11,000(6)(3)
800 Sayre Hlth. Care Fac. Au. Rev. (VHR of PA Cap. Fin. Proj.),
Ser. 1985 M, (AMBAC Insured), 3.93%, due 5/2/07 A-1+ 800(6)b
50,810
RHODE ISLAND (1.1%)
5,750 Rhode Island Hsg. & Mtge. Fin. Corp., Ser. 2007,
(FGIC Insured), 4.00%, due 5/3/07 A-1 5,750(6)y
1,000 Rhode Island St. Std. Loan Au. Prog. Rev., Ser. 1996-1,
(LOC: Dexia Credit Locale de France), 4.02%, due 5/2/07 A-1+ 1,000(6)
2,000 Rhode Island St. Std. Loan Au. Prog. Rev., Ser. 1996-3,
(LOC: Dexia Credit Locale de France), 4.02%, due 5/2/07 A-1+ 2,000(6)
8,750
</Table>
See Notes to Schedule of Investments
49
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING ~~ VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
SOUTH CAROLINA (0.7%)
$ 1,130 Greenville Co. Sch. Dist. Installment Purchase Rev., Ser. 2006,
(LOC: Landesbank Hessen-Thueringen Girozentrale), 3.96%, due 5/3/07 A-1 $ 1,130(6)
4,125 South Carolina Jobs Econ. Dev. Au. Econ. Dev. Rev.
(Woodhead LLC Proj.), Ser. 2007 A,
(LOC: Columbus Bank & Trust), 4.02%, due 5/3/07 4,125(6)
5,255
TENNESSEE (1.2%)
1,095 Franklin Co. Hlth. & Ed. Fac. Board Rev. (Univ. of the South Proj.),
Ser. 1990, 3.80%, due 5/1/07 A-1 1,095(6)(3)
5,355 Metro. Nashville Arpt. Au. Spec. Fac. Rev.
(Aero Nashville LLC Proj.), Ser. 2006 A, (LOC: JP Morgan Chase),
3.99%, due 5/3/07 A-1+ 5,355(6)(3)
2,890 Shelby Co. Hlth. Ed. & Hsg. Fac. Board Rev. (Flag Manor), Ser. 1995,
(LOC: Federal Home Loan Bank), 4.02%, due 5/3/07 VMIG1 2,890(6)
9,340
TEXAS (11.0%)
9,940 ABN Amro Munitops Cert. Trust, Ser. 2002, (PSF Insured),
3.98%, due 5/3/07 VMIG1 9,940(1)(6)a
2,800 Austin Arpt. Sys. Prior Lien Rev., Ser. 1995 A,
(LOC: JP Morgan Chase), 4.03%, due 5/2/07 P-1 A-1+ 2,800(6)
10,125 Bexar Co. Hsg. Fin. Corp. Multi-Family Hsg. Rev., Ser. 2007,
(LOC: Citigroup Global Markets), 4.05%, due 5/3/07 VMIG1 10,125(6)
1,800 Brazoria Co. Hlth. Fac. Dev. Corp. Hosp. Rev.
(Brazosport Mem. Hosp.), Ser. 1999,
(LOC: Chase Bank of Texas), 3.95%, due 5/3/07 VMIG1 1,800(6)(3)
15,000 Brazos River Harbor Navigation Dist. of Brazoria Co. Rev.
(BASF Corp. Proj.), Ser. 1997, 4.21%, due 5/1/07 P-1 15,000(6)(3)
1,200 Calhoun Co. Navigation IDA Port Rev. (Formosa Plastics Corp.,
Texas Proj.), Ser. 1994, (LOC: Bank of America), 4.03%, due 5/2/07 VMIG1 1,200(6)(3)
1,200 Dallas Fort Worth Int'l. Arpt. Rev. (Putters), Ser. 2004,
(FGIC Insured), 4.02%, due 5/3/07 VMIG1 A-1+ 1,200(6)s
9,120 Dallas Fort Worth Int'l. Arpt. Rev. (Putters), Ser. 2006,
(LOC: JP Morgan Chase), 3.90%, due 5/3/07 A-1+ 9,120(6)
5,685 El Paso Hsg. Fin. Corp. Multi-Family Hsg. Rev.
(Viva Apts. Proj.), Ser. 1993, (LOC: Bank of America),
4.04%, due 5/2/07 A-1+ 5,685(6)(3)
100 Gulf Coast Waste Disp. Au. Env. Fac. Rev.
(BP Amoco Chemical Co. Proj.), Ser. 2003, 4.13%, due 5/1/07 VMIG1 A-1+ 100(6)(3)
1,000 Gulf Coast Waste Disp. Au. Rev., Ser. 2004 A,
(LOC: JP Morgan Chase), 4.00%, due 5/3/07 A-1+ 1,000(6)(3)
1,000 Houston Arpt. Sys. Rev. (Floaters), Ser. 2006, (FGIC Insured),
4.00%, due 5/3/07 VMIG1 1,000(6)y
2,745 Houston Ind. Sch. Dist. G.O., Ser. 2005, (LOC: Morgan Stanley),
3.97%, due 5/3/07 A-1 2,745(6)
1,465 San Antonio Arpt. Sys. Ref. Rev., Ser. 2006, (FSA Insured),
5.00%, due 7/1/07 1,469
700 San Antonio Arpt. Sys. Rev. Spec. Fac. (Cessna Aircraft),
Ser. 1995, (LOC: Bank of America), 4.05%, due 5/3/07 A-1+ 700(6)(3)
1,500 Texas Muni. Gas Acquisition & Supply Corp. I Gas Supply Rev.
Sr. Lien, Ser. 2006 A, 5.00%, due 12/15/07 1,513
14,250 Texas St. Dept. Hsg. & Comm. Affairs Multi-Family Hsg. Rev.
(Lancaster Apts.), Ser. 2007, (LOC: Fannie Mae), 4.02%, due 5/3/07 VMIG1 14,250(6)(3)
3,000 Texas St. TRANS, Ser. 2006, 4.50%, due 8/31/07 MIG1 SP-1+ 3,009
5,785 Victory Street Pub. Fac. Corp. Multi-Family Rev., Ser. 2007,
(LOC: Citigroup Global Markets), 4.05%, due 5/3/07 VMIG1 5,785(6)
88,441
</Table>
See Notes to Schedule of Investments
50
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING ~~ VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
UTAH (0.6%)
$ 2,055 Utah St. HFA Rev. (Merlots), Ser. 2001 A14,
(LOC: Wachovia Bank & Trust Co.), 4.04%, due 5/2/07 VMIG1 $ 2,055(6)
2,475 Utah St. HFA Rev. (Merlots), Ser. 2001 A62,
(LOC: Wachovia Bank & Trust Co.), 4.04%, due 5/2/07 VMIG1 2,475(6)
4,530
VERMONT (0.4%)
3,300 Vermont Ed. & Hlth. Bldg. Fin. Agcy. Rev.
(Middlebury College Proj.),
Ser. 2002 B, 3.58%, due 11/1/32 Putable 11/1/07 3,300
VIRGINIA (2.8%)
2,700 Tazewell Co. Ind. Dev. Au. Rev. (Jennmar Corp. Inc.), Ser. 2007,
(LOC: PNC Bank), 4.04%, due 5/3/07 2,700(6)(3)
7,985 Virginia St. Hsg. Dev. Au. (Merlots), Ser. 2006 C,
(LOC: Bank of New York), 4.04%, due 5/2/07 A-1+ 7,985(6)
6,285 Virginia St. Hsg. Dev. Au. Commonwealth Mtge. (Merlots),
Ser. 2006-B20, (LOC: Wachovia Bank & Trust Co.), 4.04%, due 5/2/07 A-1+ 6,285(6)
5,700 Virginia St. Hsg. Dev. Au. Commonwealth Mtge. (Merlots),
Ser. 2006-C07, (LOC: Bank of New York), 4.04%, due 5/2/07 A-1+ 5,700(6)
22,670
WASHINGTON (10.3%)
4,622 King Co. Swr. Rev., Ser. 2005, (FSA Insured), 3.97%, due 5/3/07 4,623(6)y
4,200 Seattle Hsg. Au. Rev. (High Point Proj.), Ser. 2003,
(LOC: Bank of America), 4.01%, due 5/3/07 VMIG1 4,200(6)(3)
15,195 Washington St. Hsg. Fin. Commission Multi-Family Hsg. Rev.
(Ballard Landmark Inn), Ser. 2006 A, (LOC: Fannie Mae),
4.02%, due 5/3/07 VMIG1 15,195(6)(3)
6,365 Washington St. Hsg. Fin. Commission Multi-Family Hsg. Rev.
(Eagles Landing Apt. Proj.), Ser. 2006 A, (LOC: Fannie Mae),
4.02%, due 5/3/07 VMIG1 6,365(6)(3)
3,000 Washington St. Hsg. Fin. Commission Multi-Family Hsg. Rev.
(Highland Park Apts. Proj.), Ser. 2005 A,
(LOC: Bank of America), 4.19%, due 5/1/07 VMIG1 3,000(6)(3)
3,000 Washington St. Hsg. Fin. Commission Multi-Family Hsg. Rev.
(Lake City Sr. Apts. Proj.), Ser. 2006 A,
(LOC: Freddie Mac), 4.01%, due 5/3/07 A-1+ 3,000(6)(3)
10,000 Washington St. Hsg. Fin. Commission Multi-Family Hsg. Rev.
(New Haven Apts. Proj.), Ser. 2005 A, (LOC: U.S. Bank),
4.03%, due 5/3/07 VMIG1 10,000(6)(3)
6,125 Washington St. Hsg. Fin. Commission Multi-Family Hsg. Rev.
(Rolling Hills Apts. Proj.), Ser. 2004 A, (LOC: Fannie Mae),
4.02%, due 5/3/07 VMIG1 6,125(6)(3)
5,734 Washington St. Hsg. Fin. Commission Multi-Family Hsg. Rev.
(Scenic Vista Apts. Proj.), Ser. 2005 A,
(LOC: Bank of America), 4.03%, due 5/3/07 VMIG1 5,734(6)(3)
6,275 Washington St. Hsg. Fin. Commission Multi-Family Mtge. Rev.
(Canyon Lakes II Proj.), Ser. 1994,
(LOC: Wells Fargo & Co.), 4.03%, due 5/3/07 VMIG1 6,275(6)(3)
1,300 Washington St. Hsg. Fin. Commission Multi-Family Mtge. Rev.
(Wandering Creek Proj.), Ser. 1995,
(LOC: Freddie Mac), 4.03%, due 5/2/07 VMIG1 1,300(6)
5,860 Washington St. Hsg. Fin. Commission Multi-Family Rev.
(Bridgewood Four Seasons), Ser. 2002 A,
(LOC: Fannie Mae), 4.02%, due 5/3/07 A-1+ 5,860(6)(3)
2,250 Washington St. Hsg. Fin. Commission Multi-Family Rev.
(Fairwinds Redmond Proj.), Ser. 2005 A,
(LOC: Bank of America), 4.03%, due 5/3/07 VMIG1 2,250(6)(3)
5,775 Washington St. Hsg. Fin. Commission Multi-Family Rev.
(Rosemont Apts. Proj.), Ser. 2003 A,
(LOC: Umpqua Bank), 4.05%, due 5/1/07 A-1 5,775(6)(3)e
</Table>
See Notes to Schedule of Investments
51
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING ~~ VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 700 Washington St. Hsg. Fin. Commission Non-Profit Rev.
(Tacoma Art Museum Proj.), Ser. 2002,
(LOC: Northern Trust Co.), 4.11%, due 5/1/07 VMIG1 $ 700(6)(3)
2,580 Washington St. Hsg. Fin. Commission Rev. (Merlots),
Ser. 2002 A29, (LOC: Government National Mortgage Association),
4.04%, due 5/2/07 2,580(6)ii
82,982
WISCONSIN (2.6%)
1,210 Germantown Ind. Rev. (Great Lakes Packaging Corp.), Ser. 1996,
(LOC: Marshall & Ilsley), 4.03%, due 5/3/07 A-1 1,210(6)(3)
4,000 Greenfield Sch. Dist. BANS, Ser. 2007, 4.25%, due 11/30/07 MIG1 4,007(4)
2,800 Menomonee Falls Sch. Dist. BANS, Ser. 2007 A, 4.46%, due 12/1/07 MIG1 2,813
1,800 Nicolet High Sch. Dist. TRANS, Ser. 2006, 4.25%, due 10/30/07 1,805
2,000 Whitehall IDR (Whitehall Specialties), Ser. 2007,
(LOC: JP Morgan Chase), 4.00%, due 5/3/07 2,000(6)(3)
1,800 Wisconsin Sch. Dist. Cash Flow Management Prog. CTFS Partner,
Ser. 2006 A-2, 4.50%, due 9/19/07 MIG1 1,806
2,925 Wisconsin Sch. Dist. Cash Flow Management Prog. CTFS Partner,
Ser. 2006 B, 4.25%, due 11/1/07 MIG1 2,936
4,000 Wisconsin St. Hlth. & Ed. Fac. Au. Rev.
(St. Joseph's Comm. Hosp. Proj.), Ser. 2005,
(LOC: Marshall & Ilsley), 3.98%, due 5/3/07 A-1 4,000(6)(3)
20,577
TOTAL MUNICIPAL NOTES 790,889
ASSET-BACKED SECURITIES (1.2%)
9,969 FHLMC Multi-Family Certs.,
Ser. M010, Class A, 3.83%, due 5/15/07 9,969(6)
TOTAL INVESTMENTS (99.8%) 800,858
Cash, receivables and other assets, less liabilities (0.2%) 1,387
TOTAL NET ASSETS (100.0%) $802,245
</Table>
See Notes to Schedule of Investments
52
<Page>
Schedule of Investments Lehman Brothers Municipal Securities Trust
(Unaudited)
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
ALABAMA (3.6%)
$1,000 Jefferson Co. Cap. Imp. & Ref. Warrants, Ser. 2003-A, (MBIA Insured),
5.00%, due 4/1/18 Aaa AAA $ 1,047
ALASKA (2.9%)
795 Alaska St. Int'l. Arpts. Ref. Rev., Ser. 2006 A, (MBIA Insured),
5.00%, due 10/1/17 Aaa AAA 852
CALIFORNIA (11.2%)
1,000 California St. Econ. Rec. G.O., Ser. 2004 A, (MBIA Insured),
5.25%, due 7/1/13 Aaa AAA 1,086
1,000 California St. Pub. Works Board Lease Rev. Dept. of Mental Hlth.
(Coalinga St. Hosp.), Ser. 2004 A, 5.50%, due 6/1/21 A2 A 1,088
1,000 Sacramento Muni. Util. Dist. Fin. Au. Rev. (Cosumnes Proj.), Ser. 2006,
(MBIA Insured), 5.00%, due 7/1/20 Aaa AAA 1,076
3,250
COLORADO (3.7%)
1,000 Larimer Co. Sales & Use Tax Rev., Ser. 2000, (AMBAC Insured),
5.75%, due 12/15/15 Aaa AAA 1,067
GEORGIA (3.6%)
1,000 George L. Smith II World Congress Center Au. Rev. (Domed Stadium
Proj.), Ser. 2000, (MBIA Insured), 5.75%, due 7/1/15 Aaa AAA 1,062
ILLINOIS (10.4%)
1,000 Chicago O'Hare Int'l. Arpt. Gen. Arpt. Third Lien Ref. Rev., Ser. 2005 B,
(MBIA Insured), 5.25%, due 1/1/17 Aaa AAA 1,102
1,000 Lake Co. Sch. Dist. No. 109 Deerfield Ref. G.O., Ser. 1999 C,
5.00%, due 12/15/14 Aa2 1,073
800 Will & Kendall Cos. Plainfield Comm. Cons. Sch. Dist.
Number 202 Sch. Bldg. G.O., Ser. 2001, (FSA Insured),
5.38%, due 1/1/13, Pre-Refunded 1/1/12 Aaa AAA 856
3,031
INDIANA (3.5%)
1,000 Indiana St. Office Bldg. Commission Fac. Ref. Rev., Ser. 1998 A,
5.13%, due 7/1/14 Aa2 AA 1,026
LOUISIANA (3.7%)
1,000 Louisiana St. Citizens Prop. Insurance Corp. Assessment Rev., Ser. 2006 B,
(AMBAC Insured), 5.00%, due 6/1/18 Aaa AAA 1,072
MICHIGAN (2.8%)
750 Detroit Wayne Co. Sch. Dist. Sch. Bldg. & Site Imp. Ref. G.O., Ser. 1998 C,
(FGIC Insured), 5.25%, due 5/1/13 Aaa AAA 808
</Table>
See Notes to Schedule of Investments
53
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
MISSOURI (5.6%)
$ 500 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 $ 531
1,000 Springfield Sch. Dist. Number R-12, Ref. G.O., Ser. 2002 A,
(FSA Insured), 5.50%, due 3/1/13 Aaa AAA 1,093
1,624
NEW JERSEY (11.5%)
1,000 New Jersey Econ. Dev. Au. St. Lease Rev. (Liberty St. Park Proj.),
Ser. 2005 B, (MBIA Insured), 5.00%, due 3/1/17 Aaa AAA 1,076
575 New Jersey Trans. Trust Fund Au. Trans. Sys. Rev., Ser. 1999 A,
5.63%, due 6/15/13 A1 AA- 629
500 New Jersey Trans. Trust Fund Au. Trans. Sys. Rev., Ser. 2004 A,
(FGIC Insured), 5.00%, due 6/15/22, Pre-Refunded 6/15/14 Aaa AAA 539
1,000 New Jersey Trans. Trust Fund Au. Trans. Sys. Rev., Ser. 2006 A,
5.25%, due 12/15/19 A1 AA- 1,113
3,357
NEW YORK (9.2%)
800 Battery Park City Au. Sr. Rev., Ser. 2003 A, 5.25%, due 11/1/22 Aaa AAA 865
250 New York City IDA Spec. Fac. Rev. (Term. One Group Assoc., L.P. Proj.),
Ser. 2005, 5.50%, due 1/1/16 A3 BBB+ 274(3)
500 New York St. Env. Fac. Corp. Solid Waste Disp. Rev.
(Waste Management, Inc. Proj.), Ser. 2004 A, 4.45%, due 7/1/17 BBB 502(3)
500 New York St. Thruway Au. Local Hwy. & Bridge Svc. Contract Rev.,
Ser. 1997, 5.25%, due 4/1/10 A1 AA- 510
500 New York St. Urban Dev. Corp. Ref. Rev. (Correctional Facs.), Ser. 1994 A,
(FSA Insured), 5.50%, due 1/1/14 Aaa AAA 539
2,690
SOUTH CAROLINA (4.9%)
400 Berkeley Co. Exempt Fac. Ind. Rev. (Amoco Chemical Co. Proj.),
Ser. 1998, 4.13%, due 5/1/07 VMIG1 A-1+ 400(6)(3)
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 1,028
1,428
TENNESSEE (3.8%)
1,000 Tennessee Energy Acquisition Corp. Gas Rev., Ser. 2006 A,
5.25%, due 9/1/17 Aa3 AA- 1,096
TEXAS (14.5%)
1,000 Brazosport Independent Sch. Dist. Ref. G.O., Ser. 2005, (PSF Insured),
5.00%, due 2/15/15 Aaa 1,067
1,000 Grapevine Combination Tax & Tax Increment Reinvestment Zone Rev.
Cert. of Oblig. G.O., Ser. 2000, (FGIC Insured), 5.63%, due 8/15/15 Aaa AAA 1,057
1,045 San Antonio Passenger Fac. Charge & Sub. Lien Arpt. Sys. Imp. Rev.,
Ser. 2005, (FSA Insured), 5.25%, due 7/1/12 Aaa AAA 1,107
1,000 Texas Muni. Gas Acquisition & Supply Corp. I Gas Supply Rev.,
Ser. 2006 B, 4.15%, due 6/15/07 Aa3 AA- 1,000(6)
4,231
</Table>
See Notes to Schedule of Investments
54
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
WISCONSIN (3.7%)
$1,000 Wisconsin St. G.O., Ser. 2002 C, (MBIA Insured),
5.25%, due 5/1/14, Pre-Refunded 5/1/12 Aaa AAA $ 1,070
TOTAL INVESTMENTS (98.6%) (COST $28,394) 28,711##
Cash, receivables and other assets, less liabilities (1.4%) 406
TOTAL NET ASSETS (100.0%) $29,117
</Table>
See Notes to Schedule of Investments
55
<Page>
Schedule of Investments Lehman Brothers National Municipal Money Fund
(Unaudited)
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING ~~ VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
ARIZONA (0.4%)
$ 1,000 Tucson Ind. Dev. Au. Joint Single Family Mtge. Rev., Ser. 2006 B,
(LOC: Government National Mortgage Association), 4.90%, due 8/3/07 VMIG1 $ 1,002
CALIFORNIA (2.2%)
4,980 California Infrastructure & Econ. Dev. Bank IDR (Kruger & Sons Inc. Proj.),
Ser. 2002, (LOC: Bank of the West), 4.00%, due 5/3/07 VMIG1 4,980(6)(3)
1,335 California Statewide Comm. Dev. Corp. Rev. (RL Group LLC), Ser. 1998 C,
(LOC: Mellon 1st Business Bank), 4.07%, due 5/2/07 1,335(6)(3)w
6,315
COLORADO (1.9%)
1,000 Central Platte Valley Metro. Dist., Ser. 2006, (LOC: BNP Paribas),
3.70%, due 12/1/07 A-1+ 1,000(6)
2,500 Denver City & Co. Arpt. Rev., Sub. Ser. 2005 C-2, (CIFG Insured),
3.98%, due 5/2/07 VMIG1 A-1 2,500(6)y
1,816 Rev. Bond Cert. Ser. Trust Var. St., (Sterling Park), Ser. 2006, (AIG Insured),
4.17%, due 5/3/07 1,816(6)
5,316
FLORIDA (8.9%)
6,700 Brevard Co. Hsg. Fin. Au. Single Family Family Mtge. Rev., Ser. 2005 MT-052,
(LOC: Merrill Lynch Capital Markets), 4.01%, due 5/3/07 VMIG1 6,700(6)
4,250 Lee Co. HFA Single Family Mtge. Rev., Ser. 2006 D,
(LOC: TransAmerica Bank), 3.90%, due 9/5/07 MIG1 4,250(5)
960 Ocean Hwy. & Port Au. Rev., Ser. 1990, (LOC: Wachovia Bank & Trust Co.),
4.00%, due 5/2/07 VMIG1 A-1+ 960(6)
690 Orange Co. HFA Multi-Family Rev., Ser. 2000 E, (LOC: Bank of America),
4.08%, due 5/2/07 VMIG1 690(6)(3)
8,090 Orange Co. HFA Multi-Family Rev. (Putters), Ser. 2005-1179,
(LOC: JP Morgan Chase), 4.02%, due 5/3/07 VMIG1 8,090(6)
4,400 St. John's Co. Ind. Dev. Au. IDR (Rulon Co. Proj.), Ser. 2004,
(LOC: Coastal Bank of Georgia), 4.02%, due 5/3/07 4,400(6)(3)
25,090
GEORGIA (8.0%)
4,000 Atlanta Arpt. Rev. (Merlots), Ser. 2000 CCC, (FGIC Insured),
4.04%, due 5/2/07 VMIG1 4,000(1)(6)ii
1,000 Atlanta Arpt. Rev. (Merlots), Ser. 2004 C14, (FSA Insured),
4.04%, due 5/2/07 VMIG1 1,000(1)(6)ii
1,800 Atlanta Urban Residential Fin. Au. Multi-Family Hsg. Rev.
(Capitol Gateway Apts.), Ser. 2005, (LOC: Bank of America),
4.05%, due 5/3/07 A-1+ 1,800(6)(3)
2,450 Carroll Co. Dev. Au. Rev. (Royal Metal Prod., Inc., Proj.), Ser. 2007,
(LOC: Branch Banking & Trust Co.), 4.05%, due 5/3/07 VMIG1 2,450(6)(3)
2,000 Cartersville Dev. Au. IDR (Bliss & Laughlin), Ser. 1988,
(LOC: Bank of America), 4.11%, due 5/3/07 2,000(6)(3)
7,900 Cobb Co. Hsg. Au. Multi-Family Hsg. Rev. (Woodchase Village Apts. Proj.),
Ser. 2003, (LOC: Regions Bank), 4.05%, due 5/3/07 VMIG1 7,900(6)(3)
1,015 Douglas Co. Dev. Au. IDR (Whirlwind Steel Bldg.), Ser. 1997,
(LOC: JP Morgan Chase), 4.20%, due 5/3/07 Aaa 1,015(6)(3)
2,520 Gordon Co. Dev. Au. IDR (Nance Carpet & Rug, Inc., Proj.),
Ser. 2006, (LOC: Branch Banking & Trust Co.), 4.05%, due 5/3/07 2,520(6)(3)
22,685
</Table>
See Notes to Schedule of Investments
56
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING ~~ VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
ILLINOIS (11.8%)
$ 2,440 Aurora IDR (FIS Aurora Invest LLC Proj.), Ser. 2001 A,
(LOC: National City Bank), 4.06%, due 5/3/07 $ 2,440(6)(3)
4,500 Chicago Enterprise Zone Rev. (J & A LLC Proj.), Ser. 2002,
(LOC: Charter One Bank), 4.06%, due 5/3/07 4,500(6)
1,165 Chicago Multi-Family Hsg. Rev. (Churchview Supportive Living Fac.),
Ser. 2003, (LOC: Harris Trust & Savings), 4.07%, due 5/3/07 VMIG1 1,165(6)(3)
2,011 Decatur Park Dist. G.O., Ser. 2007 B, 4.25%, due 12/15/07 2,017
3,000 Du Page & Cook Co. Comm. Unit Sch. Dist. No. 205
Tax Anticipation Warrants (Ed. Purp.), Ser. 2007, 4.33%, due 6/28/07 3,001'o'
1,639 Dundee Township Park Dist. G.O., Ser. 2006, 4.35%, due 12/1/07 1,645
1,500 Elmhurst IDR (Randall Mfg. Prod. Proj.), Ser. 2002,
(LOC: LaSalle National Bank), 4.12%, due 5/3/07 A-1 1,500(6)(3)
700 Illinois Dev. Fin. Au. IDR (Florence Corp. Proj.), Ser. 1997, (LOC: Bank One),
4.20%, due 5/3/07 700(6)(3)
980 Illinois Dev. Fin. Au. IDR (JVM LLC Proj.), Ser. 2001,
(LOC: Fifth Third Bank), 4.07%, due 5/3/07 980(6)(3)
4,570 Illinois Dev. Fin. Au. IDR (Trim Rite Food Corp. Proj.), Ser. 2000,
(LOC: Fifth Third Bank), 4.05%, due 5/4/07 4,570(6)(3)
500 Illinois Dev. Fin. Au. Rev. (Providence St. Mel Sch. Proj.), Ser. 2002,
(LOC: Bank One), 3.95%, due 5/2/07 VMIG1 500(6)(3)
500 Illinois Fin. Au. IDR (E Kinast Proj.), Ser. 2005 A, (LOC: JP Morgan Chase),
4.20%, due 5/3/07 500(6)(3)
1,000 Illinois Fin. Au. IDR (Meyer Ind. LLC Proj.), Ser. 2006,
(LOC: Fifth Third Bank), 4.07%, due 5/3/07 1,000(6)(3)
1,000 Illinois Fin. Au. IDR (Transparent Container Proj.), Ser. 2004,
(LOC: Bank One), 4.00%, due 5/3/07 VMIG1 1,000(6)(3)
930 Illinois Std. Assist. Commission Std. Loan Rev., Ser. 1997 A,
(LOC: Bank One), 3.97%, due 5/2/07 VMIG1 930(6)
4,200 Lake Co. Multi-Family Hsg. Rev. (Rosewood Apt. Proj.), Ser. 2004,
(LOC: Freddie Mac), 4.02%, due 5/3/07 A-1+ 4,200(6)(3)
2,710 Upper Illinois River Valley Dev. Au. IDR (Advanced Drainage Sys.), Ser. 2002,
(LOC: National City Bank), 4.06%, due 5/3/07 2,710(6)(3)
33,358
INDIANA (11.4%)
2,000 Bartholomew Cons. Sch. Corp. Ind. Tax Anticipation Warrants,
Ser. 2007, 4.00%, due 12/31/07 2,005
7,700 Columbus Econ. Dev. Rev. (Arbors at Waters Edge Apts.), Ser. 2004,
(LOC: Federal Home Loan Bank), 4.02%, due 5/3/07 VMIG1 7,700(6)
2,680 Concord Comm. Sch. Tax Anticipation Warrants, Ser. 2007,
3.90%, due 12/31/07 2,683
2,000 Crawfordsville Econ. Dev. Ref. Rev., Ser. 1993,
(LOC: Federal Home Loan Bank), 4.04%, due 5/3/07 VMIG1 2,000(6)
3,600 Elkhart Co. Econ. Dev. Rev. (Carriage Inc., Proj.), Ser. 2006,
(LOC: National City Bank), 4.06%, due 5/3/07 3,600(6)
1,400 Hamilton Southeastern Sch. Warrants, Ser. 2007, 3.80%, due 12/31/07 1,401
500 Hammond Econ. Dev. Rev. (A.M. Castle & Co. Proj.), Ser. 1994,
(LOC: Bank of America), 4.20%, due 5/3/07 500(6)(3)
2,000 Indiana St. Fin. Au. Wtr. Fac. Rev., Ser. 2006-111, (AMBAC Insured),
4.00%, due 5/3/07 VMIG1 A-1+ 2,000(6)c
2,650 Johnson Co. Tax Anticipation Warrants, Ser. 2007, 4.35%, due 12/31/07 2,660
1,840 Kokomo Econ. Dev. Rev. (Village Comm. Partners IV Proj.), Ser. 1995,
(LOC: Federal Home Loan Bank), 4.04%, due 5/3/07 VMIG1 1,840(6)(3)
1,089 La Porte Co. Econ. Dev. Rev. (Pedcor Investments-Woodland), Ser. 1994,
(LOC: Federal Home Loan Bank), 4.05%, due 5/3/07 VMIG1 1,089(6)
1,094 Noblesville Econ. Dev. Rev. (Princeton Lakes Apts. Proj.), Ser. 2003 B,
(LOC: Federal Home Loan Bank), 4.06%, due 5/3/07 A-1+ 1,094(6)
</Table>
See Notes to Schedule of Investments
57
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING ~~ VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 1,105 North Vernon Econ. Dev. Rev. (Oak Meadows Apt. Proj.), Ser. 1995,
(LOC: Federal Home Loan Bank), 4.00%, due 5/2/07 A-1+ $ 1,105(6)
2,150 Spencer Owen Comm. Schs. Tax Anticipation Warrants, Ser. 2007,
3.90%, due 12/31/07 2,152
500 Tippecanoe Co. Econ. Dev. Ref. Rev. (Lafayette Venetian Blind), Ser. 2004,
(LOC: PNC Bank), 4.04%, due 5/3/07 500(6)(3)
32,329
IOWA (1.2%)
1,800 Iowa Std. Loan Liquidity Corp. Std. Loan Rev., Ser. 1998 B,
(AMBAC Insured), 4.02%, due 5/2/07 VMIG1 A-1+ 1,800(6)aa
1,535 Sergeant Bluff IDR (Sioux City Brick & Tile Proj.), Ser.1996,
(LOC: U.S. Bank), 4.00%, due 5/3/07 1,535(6)(3)
3,335
KENTUCKY (5.6%)
200 Bardstown Ind. Rev. (JAV Invt. LLC Proj.), Ser. 2001,
(LOC: Bank One Michigan), 4.20%, due 5/3/07 200(6)(3)
3,150 Boone Co. Ind. Bldg. Rev. (Benda-Lutz Corp. Proj.), Ser. 2005,
(LOC: Fifth Third Bank), 4.05%, due 5/4/07 3,150(6)(3)
2,875 Fort Mitchell Ind. Bldg. Rev. (Grandview/Hemmer Proj.), Ser. 1986,
(LOC: PNC Bank), 3.90%, due 8/1/16 Putable 8/1/2007 2,875(6)
3,000 Fulton Co. Ind. Bldg. Rev. (Burke Parsons Bowlby Corp.), Ser. 2006,
(LOC: Branch Banking & Trust Co.), 4.05%, due 5/3/07 3,000(6)(3)
2,000 Lexington-Fayette Urban Co. Arpt. Corp. Rev. Ref. (1st Mtg.),
Ser. 1998 C, (MBIA Insured), 4.10%, due 5/1/07 VMIG1 2,000(6)p
4,000 Minor Lane Heights Solid Waste Disp. Rev. (Waste Management LLC Proj.),
Ser. 2003, (LOC: Wachovia Bank & Trust Co.), 4.00%, due 5/3/07 A-1+ 4,000(6)(3)
630 Trimble Co. Econ. Dev. Rev. (Synthetic Materials Proj.), Ser. 2000,
(LOC: Citizens Bank), 4.10%, due 5/3/07 630(6)(3)
15,855
MAINE (0.2%)
500 Westbrook Rev. (Corriveau-Routhier, Inc., Proj.), Ser. 1986,
(LOC: Fleet National Bank), 3.90%, due 12/15/07 500(6)(3)
MARYLAND (0.6%)
1,755 Howard Co. IDR (Preston CT Ltd. Partnership), Ser. 1986,
(LOC: SunTrust Bank), 3.90%, due 5/1/07 A-1+ 1,755(6)
MASSACHUSETTS (0.2%)
500 Montachusett Reg. Trans. Au. RANS, Ser. 2006, 4.50%, due 6/15/07 500
MICHIGAN (0.3%)
790 Wayne Co. Arpt. Au. Rev. (Floaters), Ser. 2006-1327, (MBIA Insured),
4.00%, due 5/3/07 VMIG1 790(6)y
MINNESOTA (2.9%)
5,000 Dakota Co. Comm. Dev. Agcy. Multi-Family Hsg. Rev.
(Brentwood Hills Apts. Proj.), Ser. 2003 A, (LOC: LaSalle National Bank),
4.16%, due 5/1/07 VMIG1 5,000(6)(3)
100 Mankato Rev. (Bethany Lutheran College), Ser. 2000 B,
(LOC: Wells Fargo & Co.), 4.06%, due 5/1/07 A-1+ 100(6)(3)
</Table>
See Notes to Schedule of Investments
58
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING ~~ VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$2,415 Plymouth Multi-Family Hsg. Ref. Rev. (At the Lake Apts. Proj.), Ser.
2004, (LOC: Freddie Mac), 4.02%, due 5/3/07 VMIG1 $2,415 (6)(3)
280 Roseville Private Sch. Fac. Rev. (Northwestern College Proj.),
Ser. 2002, (LOC: Marshall & Ilsley), 4.11%, due 5/1/07 VMIG1 280 (6)(3)
500 Rush City IDR (Plastech Corp. Proj.), Ser. 1999, (LOC: U.S. Bank), 4.17%,
due 5/3/07 500 (6)
8,295
MISSOURI (1.9%)
1,000 Clayton Ind. Dev. Au. Ind. Ref. Rev. (Bailey Court Proj.), Ser. 1989,
(LOC: Commerce Bank N.A.), 4.08%, due 5/2/07 A-1 1,000 (6)
300 Hannibal Ind. Dev. Au. Ind. Rev. (Buckhorn Rubber Prods. Proj.), Ser.
1995, (LOC: JP Morgan Chase), 4.20%, due 5/3/07 300 (6)(3)
100 Jefferson Co. Ind. Dev. Au. Ind. Rev. (GHF Holdings LLC Proj.), Ser.
1994, (LOC: LaSalle National Bank), 4.20%, due 5/3/07 100 (6)(3)
3,000 Missouri St. Env. Imp. & Energy Res. Au. Env. Imp. Rev.
(UtiliCorp United Inc. Proj.), Ser. 1993, (LOC: Citibank, N.A.),
4.20%, due 5/2/07 P-1 A-1+ 3,000 (6)(3)
1,015 Missouri St. Pub. Utils. Commission Rev. (Interim Construction Notes),
Ser. 2006, 4.50%, due 9/15/07 MIG1 1,018
5,418
MONTANA (0.7%)
2,000 Montana St. Board of Investments Rev. (Muni. Fin. Cons. Act-Intercap),
Ser. 1994, 3.85%, due 3/1/09 Putable 3/1/08 VMIG1 2,000 (6)
NEBRASKA (0.0%)
100 Norfolk IDR (SUPERVALU, Inc., Proj.), Ser. 1994,
(LOC: Wachovia Bank & Trust Co.), 4.05%, due 5/2/07 100 (6)(3)
NEW HAMPSHIRE (1.5%)
1,200 Cheshire Co. G.O. TANS, Ser. 2007, 3.75%, due 12/27/07 1,200
1,500 Merrimack Co. G.O. TANS, Ser. 2007, 4.25%, due 12/28/07 1,505
1,660 New Hampshire St. Hsg. Fin. Au. Multi-Family Rev., Ser. 2006,
(LOC: Merrill Lynch Capital Markets), 4.01%, due 5/3/07 VMIG1 1,660 (6)
4,365
NEW YORK (0.4%)
1,200 Greater Southern Tier Board Coop. Ed. Svcs. Sole Supervisory Dist.
RANS, Ser. 2006, 3.75%, due 6/29/07 1,200
NORTH CAROLINA (4.5%)
1,550 Iredell Co. Ind. Fac. & Poll. Ctrl. Fin. Au. Ind. Rev. (Riley
Technologies Proj.), Ser. 2006, (LOC: Branch Banking & Trust Co.), 4.05%,
due 5/3/07 1,550 (6)(3)
1,875 North Carolina HFA, Ser. 2002, (LOC: Citibank, N.A.), 4.01%, due 5/3/07 VMIG1 1,875 (6)
9,195 North Carolina HFA (Merlots), Ser. 2006 B12,
(LOC: Wachovia Bank & Trust Co.), 4.04%, due 5/2/07 VMIG1 9,195 (6)
12,620
NORTH DAKOTA (0.4%)
265 Bismarck IDR Ref. (SUPERVALU, Inc., Proj.), Ser. 1995,
(LOC: Wachovia Bank & Trust Co.), 4.05%, due 5/2/07 265 (6)(3)
1,000 North Dakota HFA Rev. (Fin. Prog. Home Mtge.), Ser. 2004 B, (LOC: KBC
Bank N.V.), 4.03%, due 5/2/07 VMIG1 1,000(6)
1,265
</Table>
See Notes to Schedule of Investments
59
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING ~~ VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
OHIO (3.2%)
$ 1,000 American Muni. Pwr. BANS (Bryan Elec. Sys.), Ser. 2006, 3.90%, due
8/17/07 $1,000
2,060 American Muni. Pwr. BANS (Shelby Proj.), Ser. 2006, 3.70%, due 11/15/07 2,060
1,775 Marion Co. IDR (Mid-Ohio Packaging Co. Proj.), Ser. 1995, (LOC:
JP Morgan Chase), 4.11%, due 5/3/07 1,775(6)
1,910 Marysville Wtr. & Swr. G.O. BANS, Ser. 2007, 4.50%, due 1/24/08 1,922
115 Trumbull Co. IDR (UTD Steel Svc. Inc. Proj.), Ser. 2000, (LOC: Bank One),
4.35%, due 5/3/07 115(6)(3)
1,155 Warren Co. IDR (PAC Mfg. Proj.), Ser. 2000, (LOC: Bank of America),
4.16%, due 5/1/07 A-1+ 1,155(6)(3)
974 Wood Co. IDR (Reclamation Technologies), Ser. 2006, (LOC: National City
Bank), 4.06%, due 5/3/07 974(6)(3)
9,001
OREGON (0.2%)
705 Marion Co. Hsg. Au. Rev. (Residence at Marian), Ser. 1997, (LOC: U.S.
Bank), 4.07%, due 5/3/07 A-1+ 705(6)(3)
PENNSYLVANIA (3.9%)
4,000 Crawford Co. Ind. Dev. Au. Rev. (Acutec Precision), Ser. 2007, (LOC:
National City Bank), 4.06%, due 5/3/07 4,000(6)(3)
3,200 Fayette Co. Ind. Dev. Au. IDR (Coastal Lumber Co. Proj.), Ser. 2006,
(LOC: Branch Banking & Trust Co.), 4.05%, due 5/3/07 3,200(6)(3)
2,805 Lackawanna Co. Ind. Dev. Au. Rev. (Material Technology Proj.), Ser. 2006,
(LOC: Wachovia Bank & Trust Co.), 4.10%, due 5/3/07 2,805(6)(3)
1,150 Pennsylvania Econ. Dev. Fin. Au. Econ. Dev. Rev., Ser. 2006 A2, (LOC:
PNC Bank), 4.00%, due 5/3/07 A-1 1,150(6)(3)
11,155
RHODE ISLAND (2.3%)
5,000 Rhode Island Hsg. & Mtge. Fin. Corp., Ser. 2006 P, (LOC: Merrill Lynch
Capital Markets), 4.01%, due 5/3/07 A-1+ 5,000(6)
1,380 Rhode Island St. Ind. Facs. Corp. IDR (Precision Turned Components
Proj.), Ser. 2000, (LOC: Bank of America), 4.04%, due 5/2/07 A-1+ 1,380(6)(3)
6,380
SOUTH CAROLINA (2.5%)
2,775 Jasper Co. BANS, 4.25%, due 2/15/08 2,784
500 South Carolina Jobs Econ. Dev. Au. Econ. Dev. Rev. (Mancor Ind., Inc.,
Proj.), Ser. 1999, (LOC: PNC Bank), 4.04%, due 5/3/07 500(6)(3)
350 South Carolina Jobs Econ. Dev. Au. IDR (Florence RHF Hsg. Proj.), Ser.
1987 A, (LOC: Wachovia Bank & Trust Co.), 4.19%, due 5/2/07 350(6)(3)
3,420 Three Rivers Solid Waste Au. Solid Waste Disposal Fac. Ref. Rev. BANS,
Ser. 2007, 3.72%, due 1/15/08 SP-1+ 3,420
7,054
TENNESSEE (3.5%)
270 Memphis G.O., Ser. 1995 A, (LOC: Westdeutsche Landesbank Girozentrale),
4.15%, due 5/2/07 VMIG1 A-1+ 270(6)
600 Memphis G.O., Ser. 1995 B, (LOC: Westdeutsche Landesbank Girozentrale),
4.20%, due 5/2/07 VMIG1 A-1+ 600(6)
2,110 Rutherford Co. IDB IDR (Tenn. Farmers Coop. Proj.), Ser. 1999, (LOC:
AMSouth Bank), 4.07%, due 5/3/07 2,110(6)(3)
3,200 Shelby Co. Hlth., Ed. & Hsg. Fac. Board Multi-Family Hsg. Rev.
(Lexington), Ser. 2005 A, (LOC: Fannie Mae), 4.07%, due 5/3/07 VMIG1 3,200(6)
440 Stewart Co. IDB Rev. (Synthetic Materials Proj.), Ser. 1999 A, (LOC:
Citizens Bank), 4.10%, due 5/3/07 440(6)(3)
</Table>
See Notes to Schedule of Investments
60
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING ~~ VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 1,065 Stewart Co. IDB Rev. (Synthetic Materials Proj.), Ser. 1999 C, (LOC:
Citizens Bank), 4.10%, due 5/3/07 $1,065(6)(3)
2,200 Tennessee Energy Acquisition Corp. Gas Rev. (Merlots), Ser. 2006 C05,
(LOC: Bank of New York), 4.00%, due 5/2/07 VMIG1 2,200(6)
9,885
TEXAS (12.2%)
200 ABN Amro Munitops Cert. Trust (Texas Non-AMT Trust Cert.), Ser. 2005-21,
(PSF Insured), 3.99%, due 5/3/07 VMIG1 200(1)(6)a
615 Bell Co. Hlth. Fac. Dev. Corp. Rev. (Hlth. Fac. Baptist Care, Inc.),
Ser. 1998, (LOC: Broadway National Bank), 4.15%, due 5/3/07 VMIG1 615(6)(3)j
13,450 Brazos River Harbor Navigation Dist. Brazoria Co. Rev. (BASF Corp.
Proj.), Ser. 2001, 4.18%, due 5/2/07 A-1+ 13,450(6)(3)
1,300 Dallas Fort Worth Int'l. Arpt. Rev. (Putters), Ser. 2004, (FGIC Insured),
4.02%, due 5/3/07 VMIG1 A-1+ 1,300(6)s
5,000 El Paso Hsg. Fin. Corp. Multi-Family Hsg. Rev. (Viva Apts. Proj.),
Ser. 1993, (LOC: Bank of America), 4.04%, due 5/2/07 A-1+ 5,000(6)(3)
420 Harris Co. Ind. Dev. Corp. IDR (North American Galvanizing), Ser. 2000,
(LOC: JP Morgan Chase), 4.00%, due 5/2/07 420(6)(3)
1,340 Harris Co. Ind. Dev. Corp. IDR (Precision Gen., Inc., Proj.), Ser. 1991,
(LOC: Morgan Guaranty Trust), 4.00%, due 5/3/07 A-1+ 1,340(6)(3)
4,200 McAllen Ind. Dev. Au. Rev. (Ridge Sharyland), Ser. 2000, 5.94%,
due 5/3/07 4,234(6)
8,000 Victory Street Pub. Fac. Corp. Multi-Family Rev., Ser. 2007, (LOC:
Citigroup Global Markets), 4.05%, due 5/3/07 VMIG1 8,000(6)
34,559
VIRGINIA (4.1%)
1,250 Amherst Co. Econ. Dev. Au. IDR (Englands Stove Works Proj.), Ser. 2007,
(LOC: Branch Banking & Trust Co.), 4.05%, due 5/3/07 1,250(6)(3)
2,210 Southampton Co. IDA Rev. (Feridies Proj.), Ser. 2006, (LOC: Branch
Banking & Trust Co.), 4.05%, due 5/3/07 2,210(6)(3)
3,000 Sussex Co. Ind. Dev. Au. IDR (McGill Env. Sys.), Ser. 2007, (LOC: Branch
Banking & Trust Co.), 4.05%, due 5/3/07 VMIG1 3,000(6)
3,000 Tazewell Co. Ind. Dev. Au. Rev. (Jennmar Corp. Inc.), Ser. 2007,
(LOC: PNC Bank), 4.04%, due 5/3/07 3,000(6)(3)
1,865 Virginia St. Hsg. Dev. Au. Commonwealth Mtge. (Merlots), Ser. 2006-C07,
(LOC: Bank of New York), 4.04%, due 5/2/07 A-1+ 1,865(6)
250 Wythe Co. Ind. Dev. Au. Rev. (Klockner-Pentaplast of America), Ser. 1989,
(LOC: Deutsche Bank), 4.11%, due 5/3/07 250(6)(3)
11,575
WASHINGTON (1.7%)
100 Seattle Hsg. Au. Rev. (High Point Proj.), Ser. 2003, (LOC: Bank of
America), 4.01%, due 5/3/07 VMIG1 100(6)(3)
4,630 Washington St. Hsg. Fin. Commission Multi-Family Hsg. Rev. (New Haven
Apts. Proj.), Ser. 2005 A, (LOC: U.S. Bank), 4.03%, due 5/3/07 VMIG1 4,630(6)(3)
4,730
</Table>
See Notes to Schedule of Investments
61
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING ~~ VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
WISCONSIN (2.2%)
$2,000 Freedom NANS, Ser. 2006, 4.13%, due 10/1/07 $2,002
4,000 Whitehall IDR (Whitehall Specialties), Ser. 2007, (LOC: JP Morgan Chase),
4.00%, due 5/3/07 4,000(6)(3)
200 Wisconsin St. Hlth. & Ed. Fac. Au. Rev., Ser. 2002, (LOC: Marshall &
Ilsley), 4.11%, due 5/1/07 A-1 200(6)(3)
6,202
TOTAL INVESTMENTS (100.8%) 285,339
Liabilities, less cash, receivables and other assets [(0.8%)] (2,389)
TOTAL NET ASSETS (100.0%) $282,950
</Table>
See Notes to Schedule of Investments
62
<Page>
Schedule of Investments Lehman Brothers New York Municipal Money Fund
(Unaudited)
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING ~~ VALUE ++
(000's omitted) Moody's S&P (000's omitted)
NEW YORK (98.8%)
$ 6,710 ABN Amro Munitops Cert. Trust, Ser. 2006,
(LOC: ABN AMRO Bank NV), 3.97%, due 5/3/07 VMIG1 $ 6,710(1)(6)
6,000 ABN Amro Munitops Cert. Trust, Ser. 2006, (FSA Insured),
4.02%, due 5/3/07 VMIG1 6,000(1)(6)a
2,430 ABN Amro Munitops Cert. Trust, Ser. 2006, (XLCA Insured),
3.97%, due 5/3/07 VMIG1 2,430(1)(6)a
4,800 Albany IDA Civic Fac. Rev. (Albany Med. Ctr. Proj.), Ser. 2006 A,
(LOC: Citizens Bank), 3.96%, due 5/3/07 VMIG1 4,800(6)(3)
3,800 Albany IDA Civic Fac. Rev. (Research Foundation of the
St. Univ. of New York Proj.), Ser. 2002 A, 4.07%, due 5/3/07 VMIG1 3,800(6)(3)
3,320 Albany IDA Civic Fac. Rev. (Univ. of Albany Foundation Std. Hsg.),
Ser. 2001 A, (AMBAC Insured), 3.99%, due 5/3/07 VMIG1 A-1 3,320(6)(3)(6)
1,970 Albany IDA Civic Fac. Rev. (Univ. of Albany Foundation Std. Hsg.),
Ser. 2001 D, (AMBAC Insured), 3.99%, due 5/3/07 VMIG1 A-1 1,970(6)(3)(6)
1,650 Allegany Co. IDA Env. Fac. Ref. Rev. (Atlantic Richfield Proj.),
Ser. 2002, (LOC: BP PLC ), 4.11%, due 5/1/07 VMIG1 A-1+ 1,650(6)(3)
5,175 Amherst IDA Civic Fac. Rev. (Multi-Mode-Daemen College Proj.),
Ser. 2006 B, (Radian Insured), 4.00%, due 5/3/07 A-1 5,175(6)(3)v
975 Auburn Ind. Dev. Au. IDR (Goulds Pumps Inc. Proj.), Ser. 1989,
(LOC: Deutsche Bank), 4.20%, due 5/2/07 975(6)
1,980 Battery Park City Au. Rev., Ser. 2003,
(LOC: Merrill Lynch Capital Markets), 3.96%, due 5/3/07 1,980(6)
1,000 Clarence Central Sch. Dist. G.O. BANS, Ser. 2006, 4.50%, due 7/5/07 1,001
3,000 Clinton Co. IDA Civic Fac. Rev. (Champlain Valley Hosp. Proj.),
Ser. 2006 A, (LOC: Key Bank), 3.94%, due 5/3/07 VMIG1 3,000(6)(3)
3,000 Corning City Sch. Dist. G.O. BANS, Ser. 2006, 4.25%, due 6/29/07 3,002
4,181 Geneva G.O. BANS, Ser. 2007 B, 3.85%, due 5/22/08 4,183(4)
2,405 Gloversville City Sch. Dist. G.O. BANS, Ser. 2006,
3.74%, due 9/27/07 2,405
6,000 Greater Southern Tier Board Coop. Ed. Svcs. Sole Supervisory Dist.
RANS, Ser. 2006, 3.75%, due 6/29/07 6,001
5,200 Haverstraw Stony Point Central Sch. Dist. G.O. (Merlots),
Ser. 2007 D, (FSA Insured), 3.99%, due 5/2/07 VMIG1 5,200(6)ii
8,850 Hempstead Town IDA Multi-Family Rev., Ser. 2007,
(LOC: Bank of America), 3.97%, due 5/3/07 VMIG1 8,850(6)(5)
1,095 Herkimer Co. IDA Civic Fac. Rev. (Templeton Foundation Proj.),
Ser. 2000, (LOC: Key Bank), 4.01%, due 5/3/07 1,095(6)(3)
1,900 Hilton Central Sch. Dist. G.O. RANS, Ser. 2006, 4.13%, due 6/19/07 1,901
2,305 Jamestown Comm. College Reg. Board Trustees RANS,
Ser. 2006, 3.75%, due 8/31/07 2,305
1,100 Jamestown City Sch. Dist. G.O. BANS, Ser. 2006, 4.50%, due 5/23/07 1,100
3,100 Liberty Dev. Corp. Rev., Ser. 2006, (LOC: Citibank, N.A.),
3.97%, due 5/3/07 VMIG1 3,100(6)
2,000 Long Island Pwr. Au. Elec. Sys. Rev. (Floaters), Ser. 2007,
(MBIA Insured), 3.96%, due 5/3/07 A-1 2,000(6)y
7,000 Metro. Trans. Au. Dedicated Tax Fund, Ser. 2006 A, (MBIA Insured),
3.98%, due 5/3/07 A-1+ 7,000(6)k
4,400 Muni. Sec. Trust Cert., Ser. 2007 A, (FHA Insured),
3.92%, due 5/3/07 A-1 4,400(1)(6)h
3,400 Muni. Sec. Trust Cert., Ser. 2007 A,
(LOC: Branch Banking & Trust Co.), 3.95%, due 5/3/07 VMIG1 3,400(1)(6)
2,350 Nassau Co. IDA Civic Fac. Rev. (North Shore Hebrew Academy Proj.),
Ser. 2005, (LOC: Sovereign Bank), 3.94%, due 5/3/07 VMIG1 2,350(6)(3)m
5,824 New York City G.O. (Floaters), Ser. 2006, (LOC: Morgan Stanley),
3.99%, due 5/3/07 A-1 5,824(6)
421 New York City G.O. (Floaters), Ser. 2006, (LOC: Morgan Stanley),
3.99%, due 5/3/07 A-1 421(6)
1,000 New York City Hsg. Dev. Corp. Multi-Family Mtge. Rev.
(Target V. Apts.), Ser. 2006 A,
(LOC: Citibank, N.A.), 3.96%, due 5/2/07 A-1+ 1,000(6)(3)
</Table>
See Notes to Schedule of Investments
63
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING ~~ VALUE ++
(000's omitted) Moody's S&P (000's omitted)
$ 7,775 New York City Hsg. Dev. Corp. Multi-Family Rental Hsg. Rev.
(Progress of Peoples Dev.), Ser. 2005 A,
(LOC: Fannie Mae), 3.95%, due 5/2/07 A-1+ $ 7,775(6)
3,500 New York City IDA Civic Fac. Rev. (Ethical Culture Sch. Proj.),
Ser. 2005 A, (XLCA Insured), 3.95%, due 5/3/07 VMIG1 A-1+ 3,500(6)(3) p
6,920 New York City IDA Spec. Fac. Rev. (Korean Air Lines Co.),
Ser. 1997 A, (LOC: HSBC Bank N.A.), 3.97%, due 5/2/07 VMIG1 A-1+ 6,920(6)(3)
2,000 New York City Muni. Wtr. Fin. Au. Rev., Ser. 2001,
(LOC: Merrill Lynch Capital Markets), 3.97%, due 5/3/07 A-1+ 2,000(6)
5,255 New York St. Dorm. Au. Rev., Ser. 2005,
(CIFG Insured), 3.96%, due 5/3/07 A-1+ 5,255(6)x
6,300 New York St. Dorm. Au. Rev. Secondary Issues, Ser. 2006,
(FHA Insured), 3.96%, due 5/3/07 A-1+ 6,300(6)x
1,985 New York St. Dorm. Au. Rev. Secondary Issues (Putters),
Ser. 2005, (FSA Insured), 3.96%, due 5/3/07 1,985(6)s
1,990 New York St. Dorm. Au. Rev. (Merlots), Ser. 2003,
(FGIC Insured), 3.99%, due 5/2/07 VMIG1 1,990(6)ii
5,925 New York St. Dorm. Au. Rev. Secondary Issues, Ser. 2006,
(AMBAC Insured), 3.94%, due 5/3/07 5,925(6)p
4,800 New York St. Dorm. Au. Rev. Secondary Issues (Floaters),
Ser. 2005, (AMBAC Insured), 3.96%, due 5/3/07 4,800(6)y
5,010 New York St. Dorm. Au. Rev. Secondary Issues (Floaters),
Ser. 2006, (LOC: Morgan Stanley), 3.96%, due 5/3/07 A-1 5,010(6)
1,100 New York St. Energy Research & Dev. Au. Elec. Fac. Rev.
(Long Island Lighting Co.), Ser. 1997 A,
(LOC: Royal Bank of Scotland), 3.93%, due 5/2/07 VMIG1 1,100(6)(3)
3,600 New York St. Energy Research & Dev. Au. Fac. Rev.
(Cons. Edison Co.), Ser. 2004 C, (LOC: Citibank, N.A.), 3.95%,
due 5/2/07 VMIG1 A-1+ 3,600(6)(3)
7,000 New York St. HFA (Capitol Green Apts.), Ser. 2006 A,
(LOC: Fannie Mae), 3.99%, due 5/2/07 VMIG1 7,000(6)
1,200 New York St. HFA Rev. (Biltmore Tower Hsg.),
Ser. 2002 A, (LOC: Fannie Mae), 3.93%, due 5/2/07 VMIG1 1,200(6)(3)
2,000 New York St. HFA Rev. (Clinton Green South Hsg.),
Ser. 2006 A, (LOC: Bank of America), 3.93%, due 5/2/07 VMIG1 2,000(6)(3)
4,500 New York St. HFA Rev. (Tribeca), Ser. 1997 A,
(LOC: Fannie Mae), 3.92%, due 5/2/07 VMIG1 4,500(6)
3,090 New York St. HFA Rev. Multi-Family Hsg., Ser. 1988 A,
(AMBAC Insured), 3.99%, due 5/2/07 VMIG1 A-1+ 3,090(6)ii
1,000 New York St. Mtge. Agcy. Rev. (AMT Homeowner Mtge.),
Ser. 2005, (LOC: Dexia Credit Locale de France), 3.96%, due 5/2/07 VMIG1 1,000(6)
2,375 New York St. Mtge. Agcy. Rev. (Putters), Ser. 2005,
(LOC: JP Morgan Chase), 4.02%, due 5/3/07 VMIG1 2,375(6)
2,010 New York St. Thruway Au. Gen. Rev. (Floaters), Ser. 2006,
(FSA Insured), 3.96%, due 5/3/07 A-1 2,010(6)y
3,415 New York St. Thruway Au. Gen. Rev. (Putters), Ser. 2005,
(FSA Insured), 3.96%, due 5/3/07 VMIG1 3,415(6)s
2,000 New York St. Thruway Au. Hwy. & Bridge Trust Fund Rev.,
Ser. 2005, (AMBAC Insured), 3.94%, due 5/3/07 2,000(6)ee
1,400 New York St. Urban Dev. Corp. Correctional & Youth Fac. Svcs.
Contract Rev. (Putters), Ser. 2002, (LOC: JP Morgan Chase),
4.07%, due 5/3/07 A-1+ 1,400(6)
1,540 Oneida Co. IDA Civic Fac. Rev. (Mohawk Valley St. Luke's),
Ser. 2006 E, (LOC: Bank of America), 3.95%, due 5/3/07 VMIG1 1,540(6)(3)
3,825 Onondaga Co. IDA Civic Fac. Rev. (Comm. College Hsg. Dev.),
Ser. 2005 A, (LOC: Citizens Bank), 3.96%, due 5/3/07 A-1+ 3,825(6)
2,365 Orange Co. IDA Civic Fac. Rev. (St. Luke's Cornwall Hosp. Proj.),
Ser. 2006, (LOC: Key Bank), 3.99%, due 5/3/07 VMIG1 2,365(6)(3)
4,000 Port Au. New York & New Jersey (Merlots), Ser. 2007 C01,
(FSA Insured), 4.04%, due 5/2/07 A-1+ 4,000(6)d
1,005 Riverhead IDA Civic Fac. Rev. (Central Suffolk Hosp. Proj.),
Ser. 2006 A, (LOC: HSBC Bank N.A.), 3.94%, due 5/3/07 VMIG1 1,005(6)(3)
1,200 Riverhead IDA Civic Fac. Rev. (Central Suffolk Hosp. Proj.),
Ser. 2006 B, (LOC: HSBC Bank N.A.), 3.94%, due 5/3/07 VMIG1 1,200(6)(3)
</Table>
See Notes to Schedule of Investments
64
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING ~~ VALUE ++
(000's omitted) Moody's S&P (000's omitted)
$ 2,295 Riverhead IDA Civic Fac. Rev. (Central Suffolk Hosp. Proj.),
Ser. 2006 C, (LOC: HSBC Bank N.A.), 3.94%, due 5/3/07 VMIG1 $ 2,295(6)(3)
1,100 Saugerties Central Sch. Dist. G.O. BANS,
Ser. 2006, 4.25%, due 8/15/07 1,102
810 Schenectady IDA IDR (Fortitech Holding Corp. Proj.), Ser. 1995 A,
(LOC: Bank of America), 4.07%, due 5/3/07 VMIG1 810(6)(3)
6,550 Tonawanda Town G.O. BANS, Ser. 2006, 3.70%, due 9/10/07 6,552
1,980 Triborough Bridge & Tunnel Au. Rev. (Putters), Ser. 2002,
(MBIA Insured), 3.96%, due 5/3/07 A-1+ 1,980(6)s
4,100 Utica IDA Civic Fac. Rev. (Utica College Proj.), Ser. 2005 A,
(LOC: Citizens Bank), 3.95%, due 5/3/07 VMIG1 4,100(6)(3)
4,805 Warren & Washington Cos. IDA Civic Fac. Rev.
(Glen at Hiland Meadows Proj.), Ser. 2000,
(LOC: Sovereign Bank), 3.97%, due 5/2/07 A-1 4,805(6)(3)bb
3,000 Wayne-Finger Lakes Board Coop Ed. Svcs. Sole Supervisory RANS,
Ser. 2006, 4.25%, due 6/28/07 3,002
233,079
PUERTO RICO (2.3%)
5,000 Puerto Rico Commonwealth Aqueduct & Swr. Au. Rev., Ser. 2006,
(LOC: Citigroup Global Markets), 3.98%, due 5/3/07 VMIG1 5,000(6)
400 Puerto Rico Commonwealth Hwy. & Tran. Au. Grant Anticipation Rev.,
Ser. 2004, (MBIA Insured), 3.95%, due 5/3/07 A-1+ 400(6)l
5,400
TOTAL INVESTMENTS (101.1%) 238,479
Liabilities, less cash, receivables and other assets [(1.1%)] (2,634)
TOTAL NET ASSETS (100.0%) $235,845
</Table>
See Notes to Schedule of Investments
65
<Page>
Schedule of Investments Lehman Brothers Short Duration Bond Fund
(Unaudited)
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING VALUE +
(000's omitted) Moody's S&P (000's omitted)
U.S. GOVERNMENT AGENCY SECURITIES (0.6%)
$ 725 Fannie Mae, Notes, 4.13%, due 5/15/10 (COST $711) AGY AGY $ 711
MORTGAGE-BACKED SECURITIES (67.8%)
ADJUSTABLE ALT-A JUMBO BALANCE (2.2%)
2,452 JP Morgan Alternative Loan Trust, Ser. 2006-A2, Class 3A1,
5.95%, due 5/25/36 AAA 2,488(5)
ADJUSTABLE ALT-A MIXED BALANCE (11.9%)
3,873 Bear Stearns ALT-A Trust, Ser. 2006-4, Class 32A1,
6.48%, due 7/25/36 Aaa AAA 3,959(5)
2,528 First Horizon Alternative Mortgage Securities Trust, Ser. 2006-AA7,
Class A1, 6.58%, due 1/25/37 Aaa 2,592
4,379 Nomura Asset Acceptance Corp., Ser. 2006-AR2, Class 2A2,
6.58%, due 4/25/36 Aaa AAA 4,500
2,441 Residential Accredit Loans, Inc., Ser. 2005-QA10, Class A31,
5.61%, due 9/25/35 Aaa AAA 2,458
13,509
ADJUSTABLE ALT-B MIXED BALANCE (1.7%)
1,899 Lehman XS Trust, Ser. 2005-1, Class 2A1, 4.66%, due 5/25/08 Aaa AAA 1,885(6)
ADJUSTABLE CONFORMING BALANCE (4.3%)
2,490 Adjustable Rate Mortgage Trust, Ser. 2005-10, Class 4A1, .
5.38%, due 1/25/36 Aaa AAA 2,497
2,410 Indymac INDX Mortgage Loan Trust, Ser. 2005-AR23, Class 2A1,
5.54%, due 11/25/35 Aaa AAA 2,422
4,919
ADJUSTABLE JUMBO BALANCE (6.5%)
1,017 Banc of America Funding Corp., Ser. 2005-F, Class 4A1,
5.36%, due 9/20/35 Aaa AAA 1,017
2,435 Banc of America Funding Corp., Ser. 2006-H, Class 2A3,
6.71%, due 9/20/46 AAA 2,476
3,725 Harborview Mortgage Loan Trust, Ser. 2006-3, Class 1A1A,
6.41%, due 6/19/36 Aaa AAA 3,804(5)
7,297
ADJUSTABLE MIXED BALANCE (16.0%)
2,441 Banc of America Funding Corp., Ser. 2005-H, Class 7A1,
5.68%, due 11/20/35 AAA 2,471
1,432 Countrywide Home Loans, Ser. 2006-HYB3, Class 1A1A,
5.49%, due 5/20/36 Aaa AAA 1,448
2,524 Credit Suisse First Boston Mortgage Securities Corp., Ser. 2004-AR4,
Class 2A1, 4.67%, due 5/25/34 Aaa AAA 2,516(5)
2,543 First Horizon Mortgage Pass-Through Trust, Ser. 2005-AR5, Class 2A1,
5.44%, due 11/25/35 AAA 2,542
2,473 GMAC Mortgage Corp. Loan Trust, Ser. 2006-AR1, Class 1A1,
5.61%, due 4/19/36 Aaa AAA 2,485
2,302 Harborview Mortgage Loan Trust, Floating Rate, Ser. 2004-4,
Class 3A, 2.97%, due 5/19/07 Aaa AAA 2,298(6)
2,170 Master Adjustable Rate Mortgages Trust, Ser. 2005-6, Class 3A2,
5.07%, due 7/25/35 Aaa AAA 2,159
2,250 WaMu Mortgage Pass-Through Certificates, Ser. 2004-AR9, Class A7,
4.15%, due 8/25/34 Aaa AAA 2,203
18,122
</Table>
See Notes to Schedule of Investments
66
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000's omitted) Moody's S&P (000's omitted)
COMMERCIAL MORTGAGE BACKED (16.0%)
$1,074 Banc of America Commercial Mortgage, Inc., Ser. 2005-1, Class A1,
4.36%, due 11/10/42 AAA $ 1,069
2,630 Credit Suisse First Boston Mortgage Securities Corp., Ser. 2005-C6, Class A1,
4.94%, due 12/15/40 Aaa AAA 2,614
1,775 GE Capital Commercial Mortgage Corp., Ser. 2005-C3, Class A2,
4.85%, due 7/10/45 AAA 1,761
792 GMAC Commercial Mortgage Securities, Inc., Ser. 2006-C1, Class A1,
4.97%, due 11/10/45 AAA 789
2,265 JP Morgan Chase Commercial Mortgage Securities Corp., Ser. 2004-C2,
Class A1, 4.28%, due 5/15/41 Aaa 2,229
3,013 JP Morgan Chase Commercial Mortgage Securities Corp., Ser. 2005-LDP5,
Class A1, 5.03%, due 12/15/44 Aaa AAA 2,999
3,474 JP Morgan Chase Commercial Mortgage Securities Corp., Ser. 2006-LDP7,
Class A1, 5.83%, due 4/15/45 Aaa AAA 3,518
3,147 LB-UBS Commercial Mortgage Trust, Ser. 2006-C3, Class A1,
5.48%, due 3/15/39 Aaa AAA 3,164
18,143
MORTGAGE-BACKED NON-AGENCY (4.7%)
1,390 Countrywide Home Loans, Ser. 2005-R2, Class 2A4, 8.50%, due 6/25/35 Aaa AAA 1,525(1)
2,916 GSMPS Mortgage Loan Trust, Ser. 2005-RP2, Class 1A4, 8.50%, due 3/25/35 Aaa AAA 3,107(1)
587 GSMPS Mortgage Loan Trust, Ser. 2005-RP3, Class 1A4, 8.50%, due 9/25/35 Aaa AAA 626(1)
5,258
FANNIE MAE (1.4%)
1,448 Whole Loan, Ser. 2004-W8, Class PT, 10.11%, due 6/25/44 AGY AGY 1,619(5)
FREDDIE MAC (3.0%)
17 ARM Certificates, 6.50%, due 2/1/08 AGY AGY 17(6)
1,849 Pass-Through Certificates, 8.00%, due 11/1/26 AGY AGY 1,964
1,271 Pass-Through Certificates, 8.50%, due 10/1/30 AGY AGY 1,366
3,347
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (0.1%)
45 Pass-Through Certificates, 7.00%, due 4/15/11 AGY AGY 47(5)
4 Pass-Through Certificates, 7.50%, due 10/15/09 - 8/15/10 AGY AGY 4
25 Pass-Through Certificates, 12.00%, due 12/15/12 - 5/15/14 AGY AGY 29
80
TOTAL MORTGAGE-BACKED SECURITIES (COST $76,457) 76,667
CORPORATE DEBT SECURITIES (28.6%)
AUTOMOBILE MANUFACTURERS (1.1%)
1,300 DaimlerChrysler N.A. Holdings Corp., Guaranteed Unsecured Notes,
4.05%, due 6/4/08 Baa1 BBB 1,282
BANKS (2.5%)
1,200 Bank of America Corp., Senior Unsecured Notes, 3.88%, due 1/15/08 Aa1 AA 1,187(5)
1,700 Wells Fargo & Co., Unsecured Notes, 3.13%, due 4/1/09 Aa1 AA+ 1,642
2,829
</Table>
See Notes to Schedule of Investments
67
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000's omitted) Moody's S&P (000's omitted)
COMPUTERS (1.7%)
$1,950 Hewlett-Packard Co., Senior Unsecured Notes, 5.50%, due 7/1/07 A2 A $ 1,950(5)
DIVERSIFIED FINANCIAL SERVICES (13.0%)
1,800 Bear Stearns Co., Inc., Senior Unsecured Notes, 4.00%, due 1/31/08 A1 A+ 1,784
2,125 General Electric Capital Corp., Medium-Term Notes, Ser. A,
5.00%, due 6/15/07 Aaa AAA 2,124(5)
2,200 HSBC Finance Corp., Notes, 4.13%, due 12/15/08 Aa3 AA- 2,163(5)
2,200 International Lease Finance Corp., Unsubordinated Unsecured Notes,
3.50%, due 4/1/09 A1 AA- 2,136(5)
1,700 John Deere Capital Corp., Unsecured Notes, 3.90%, due 1/15/08 A2 A 1,683
500 JP Morgan Chase & Co., Unsecured Subordinated Notes,
7.25%, due 6/1/07 Aa3 A+ 501(5)
825 JP Morgan Chase & Co., Senior Notes, 3.63%, due 5/1/08 Aa2 AA- 811
1,250 MBNA Corp., Notes, 4.63%, due 9/15/08 Aa1 AA 1,240
2,300 Merrill Lynch & Co., Medium-Term Notes, Ser. C, 4.25%, due 9/14/07 Aa3 AA- 2,289(5)
14,731
HEALTHCARE - PRODUCTS (1.1%)
1,200 Mallinckrodt Group, Inc., Notes, 6.50%, due 11/15/07 Baa3 BBB+ 1,204
MEDIA (5.3%)
1,250 British Sky Broadcasting, Guaranteed Senior Unsecured Notes,
8.20%, due 7/15/09 Baa2 BBB 1,326
1,675 Comcast Cable Communications, Unsecured Notes, 8.38%, due 5/1/07 Baa2 BBB+ 1,675
1,210 News America Holdings, Inc., Guaranteed Notes, 7.38%, due 10/17/08 Baa2 BBB 1,243
1,650 Time Warner Entertainment LP, Notes, 7.25%, due 9/1/08 Baa2 BBB+ 1,690
5,934
OIL & GAS (0.6%)
715 Enterprise Products Operating LP, Guaranteed Notes, 4.00%, due 10/15/07 Baa3 BBB- 711
RETAIL (1.7%)
1,950 Target Corp., Notes, 3.38%, due 3/1/08 A1 A+ 1,918(5)
TELECOMMUNICATIONS (1.6%)
1,800 Verizon Global Funding Corp., Senior Unsecured Notes, 4.00%, due 1/15/08 A3 A 1,784
TOTAL CORPORATE DEBT SECURITIES (COST $32,505) 32,343
ASSET-BACKED SECURITIES (3.1%)
1,003 Chase Funding Mortgage Loan, Ser. 2003-6, Class 1A3, 3.34%, due 5/25/26 Aaa AAA 991
42 Chase Manhattan Auto Owner Trust, Ser. 2003-C, Class A4,
2.94%, due 6/15/10 Aaa AAA 42
830 John Deere Owner Trust, Ser. 2005-A, Class A3, 3.98%, due 6/15/09 Aaa AAA 825
2,017 Nomura Asset Acceptance Corp., Ser. 2005-S3, Class AIO, 20.00%,
Interest Only Security, due 8/25/35 Aaa AAA 164
4,153 Nomura Asset Acceptance Corp., Ser. 2005-S4, Class AIO, 20.00%,
Interest Only Security, due 10/25/35 Aaa AAA 435
4,055 Nomura Asset Acceptance Corp., Ser. 2006-AP1, Class AIO, 4.50%,
Interest Only Security, due 1/25/36 Aaa AAA 95
3,277 Nomura Asset Acceptance Corp., Ser. 2006-S2, Class AIO, 10.00%,
Interest Only Security, due 4/25/36 Aaa AAA 235(1)
686 Saxon Asset Securities Trust, Ser. 2004-2, Class AF2, 4.15%, due 8/25/35 Aaa AAA 682
TOTAL ASSET-BACKED SECURITIES (COST $3,596) 3,469
</Table>
See Notes to Schedule of Investments
68
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT VALUE +
(000's omitted) (000's omitted)
REPURCHASE AGREEMENTS (2.1%)
$2,410 Repurchase Agreement with Fixed Income Clearing Corp.,
4.89%, due 5/1/07, dated 4/30/07, Maturity Value $2,410,327,
Collateralized by $2,405,000 Federal Home Loan Bank, 5.25%,
due 6/10/11 (Collateral Value $2,483,163) (COST $2,410) $ 2,410#
TOTAL INVESTMENTS (102.2%) (COST $115,679) 115,600##
Liabilities, less cash, receivables and other assets [(2.2%)] (2,527)
TOTAL NET ASSETS (100.0%) $113,073
</Table>
See Notes to Schedule of Investments
69
<Page>
Schedule of Investments Lehman Brothers Strategic Income Fund
(Unaudited)
<Table>
<Caption>
NUMBER OF SHARES MARKET VALUE +
(000'S OMITTED)
COMMON STOCKS (20.3%)
APARTMENTS (2.9%)
800 Apartment Investment & Management $ 44
2,000 Archstone-Smith Trust 104
700 Avalonbay Communities 86
1,200 Camden Property Trust 84
2,400 Equity Residential 111
200 Essex Property Trust 26
1,000 Home Properties 56
1,500 UDR, Inc. 45
556
BASIC MATERIALS (0.2%)
2,200 Gold Fields ADR 40
COAL (0.4%)
3,400 Fording Canadian Coal Trust 82
COMMERCIAL SERVICES (0.2%)
1,000 Macquarie Infrastructure 43
COMMUNITY CENTERS (0.8%)
800 Acadia Realty Trust 22
1,300 Developers Diversified Realty 85
600 Regency Centers 49
156
DIVERSIFIED (0.5%)
800 Vornado Realty Trust 95
FINANCE (1.0%)
1,000 Bank of America 51
1,000 Crystal River Capital 26
2,000 Tortoise Energy Capital 63
1,400 Tortoise Energy Infrastructure 57
197
FINANCIAL SERVICES (0.5%)
3,500 Aeroplan Income Fund 61
2,400 PennantPark Investment Corp. 36*
97
FOOD & BEVERAGE (0.3%)
1,000 Anheuser-Busch 49!
HEALTH CARE (0.5%)
1,000 Nationwide Health Properties 32
1,000 Novartis AG ADR 58!
400 Ventas, Inc. 17
107
INDUSTRIAL (0.8%)
1,500 General Electric 55!
1,600 ProLogis 104
159
INSURANCE (0.5%)
700 American International Group 49!
2,000 Arthur J. Gallagher 56
105
</Table>
See Notes to Schedule of Investments
70
<Page>
<Table>
<Caption>
NUMBER OF SHARES MARKET VALUE +
(000'S OMITTED)
LODGING (0.4%)
2,201 Host Hotels & Resorts $ 57
1,100 Sunstone Hotel Investors 31
88
OFFICE (2.5%)
700 Alexandria Real Estate Equities 74
800 Boston Properties 94
1,700 Brookfield Asset Management Class A 99
2,200 Brookfield Properties 90
900 SL Green Realty 127
484
OFFICE - INDUSTRIAL (0.7%)
800 Digital Realty Trust 32
2,200 Duke Realty 95
127
OIL & GAS (1.3%)
1,120 Enbridge Energy Management 65*
600 Enerplus Resources Fund 26
800 ENI ADR 53
2,000 Hugoton Royalty Trust 53
1,700 Sasol Limited ADR 58
255
OIL SERVICES (1.0%)
2,500 Canadian Oil Sands Trust 68
5,000 Cathedral Energy Services Income Trust 50
1,600 CCS Income Trust 52
400 Schlumberger Ltd. 30
200
PHARMACEUTICAL (0.5%)
800 Johnson & Johnson 51
800 Wyeth 45!
96
REAL ESTATE (0.5%)
1,500 AMB Property 91
REGIONAL MALLS (2.3%)
1,400 General Growth Properties 89
2,300 Kimco Realty 111
600 Macerich Co. 57
1,200 Simon Property Group 138
800 Taubman Centers 45
440
SELF STORAGE (0.2%)
400 Public Storage 37
SOFTWARE (0.3%)
2,000 Microsoft Corp. 60
TECHNOLOGY (0.6%)
1,500 First Data 49!
1,500 Microchip Technology 60
109
UTILITIES (1.4%)
1,500 California Water Service Group 58
1,000 National Fuel Gas 47
750 National Grid ADR 59
1,100 New Jersey Resources 59
</Table>
See Notes to Schedule of Investments
71
<Page>
<Table>
<Caption>
NUMBER OF SHARES MARKET VALUE +
(000'S OMITTED)
1,500 PNM Resources $ 49
272
TOTAL COMMON STOCKS (COST $3,363) 3,945
CONVERTIBLE PREFERRED STOCKS (0.8%)
500 Chesapeake Energy, Ser. D 51
1,000 New York Community Capital Trust V 48
1,200 Sovereign Capital Trust IV 60
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $153) 159
</Table>
<Table>
<Caption>
PRINCIPAL AMOUNT
(000'S OMITTED)
CONVERTIBLE BONDS (2.4%)
$ 50 American Tower Corp., Notes, 5.00%, due 2/15/10, Moody's Rating Ba2, S&P Rating BB- 50
75 Edwards Lifesciences Corp., Debentures, 3.88%, due 5/15/33 78^
50 Invitrogen Corp., Senior Unsecured Notes, 3.25%, due 6/15/25 49^
50 Ivax Corp., Senior Subordinated Notes, 4.50%, due 5/15/08 50^
60 Level 3 Communications, Inc., Subordinated Notes, 6.00%, due 3/15/10, Moody's Rating Caa3,
S&P Rating CCC 57
50 Prudential Financial, Inc., Senior Unsecured Floating Rate Notes, 2.60%, due 5/15/07, Moody's Rating A3,
S&P Rating A+ 53(6)
60 St. Jude Medical, Inc., Debentures, 2.80%, due 12/15/35 60^
75 US Bancorp, Floating Rate Debentures, 3.68%, due 5/21/07, Moody's Rating Aa2, S&P Rating AA 75(6)
TOTAL CONVERTIBLE BONDS (COST $461) 472
</Table>
See Notes to Schedule of Investments
72
<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 (4.6%)
$ 90 U.S. Treasury Bill, 4.60%, due 6/7/07 TSY TSY $ 89
450 U.S. Treasury Notes, 4.38%, due 8/15/12 TSY TSY 448(5)
160 U.S. Treasury Notes, 4.13%, due 5/15/15 TSY TSY 155
50 U.S. Treasury Notes, 4.88%, due 8/15/16 TSY TSY 51
125 U.S. Treasury Notes, 6.75%, due 8/15/26 TSY TSY 154(5)
TOTAL U.S. TREASURY SECURITIES-BACKED BY THE
FULL FAITH AND CREDIT OF THE
U.S. GOVERNMENT (COST $892) 897
U.S. GOVERNMENT AGENCY SECURITIES (8.7%)
65 Fannie Mae, Notes, 5.25%, due 1/29/09 AGY AGY 65
120 Fannie Mae, Notes, 5.38%, due 7/15/16 AGY AGY 124
300 Federal Home Loan Bank, Bonds, 2.75%, due 3/14/08 AGY AGY 294(5)
1,200 Freddie Mac, Discount Notes, due 5/11/07 AGY AGY 1,198(5)
TOTAL U.S. GOVERNMENT AGENCY SECURITIES (COST $1,685) 1,681
MORTGAGE-BACKED SECURITIES (10.5%)
FANNIE MAE (8.6%)
42 Pass-Through Certificates, 4.50%, due 8/1/18 & 10/1/18 AGY AGY 41
166 Pass-Through Certificates, 5.00%, due 11/1/17 - 8/1/33 AGY AGY 165
323 Pass-Through Certificates, 5.50%, due 9/1/16 - 4/1/37 AGY AGY 321
98 Pass-Through Certificates, 6.00%, due 3/1/18 - 9/1/33 AGY AGY 99
75 Pass-Through Certificates, 6.50%, due 11/1/13 - 9/1/32 AGY AGY 79
25 Pass-Through Certificates, 7.00%, due 7/1/17 & 7/1/29 AGY AGY 26
4 Pass-Through Certificates, 7.50%, due 12/1/32 AGY AGY 4
965 Pass-Through Certificates, TBA, 30 Year Maturity, 5.00%, due 12/31/99 AGY AGY 932(4)
1,667
FREDDIE MAC (1.8%)
19 Pass-Through Certificates, 4.50%, due 8/1/18 AGY AGY 18
64 Pass-Through Certificates, 5.00%, due 5/1/18 & 8/1/33 AGY AGY 62
124 Pass-Through Certificates, 5.50%, due 9/1/17 - 8/1/33 AGY AGY 123
91 Pass-Through Certificates, 6.00%, due 4/1/17 - 12/1/33 AGY AGY 93
45 Pass-Through Certificates, 6.50%, due 3/1/16 - 1/1/32 AGY AGY 46
6 Pass-Through Certificates, 7.00%, due 6/1/32 AGY AGY 6
348
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (0.1%)
8 Pass-Through Certificates, 6.50%, due 7/15/32 AGY AGY 9
7 Pass-Through Certificates, 7.00%, due 8/15/32 AGY AGY 7
16
TOTAL MORTGAGE-BACKED SECURITIES (COST $2,049) 2,031
CORPORATE DEBT SECURITIES (34.8%)
AEROSPACE (0.3%)
55 L-3 Communications Corp., Guaranteed Senior Unsecured
Subordinated Notes, 7.63%, due 6/15/12 Ba3 BB+ 57
AIRLINES (0.2%)
28 Continental Airlines, Inc., Pass-Through Certificates, 9.80%, due 4/1/21 Ba1 BB+ 32
APPAREL/TEXTILES (0.1%)
20 Levi Strauss & Co., Senior Unsubordinated Notes, 9.75%, due 1/15/15 B2 B 22
AUTO LOANS (1.2%)
35 Ford Motor Credit Co., Unsecured Notes, 7.38%, due 10/28/09 B1 B 35
135 Ford Motor Credit Co., Bonds, 7.38%, due 2/1/11 B1 B 134(5)
60 General Motors Acceptance Corp., Notes, 6.88%, due 9/15/11 Ba1 BB+ 60
229
</Table>
See Notes to Schedule of Investments
73
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
AUTO PARTS & EQUIPMENT (0.1%)
$ 15 Goodyear Tire & Rubber Co., Senior Notes, 9.00%, due 7/1/15 B2 B- $ 16
10 Goodyear Tire & Rubber Co., Senior Notes, 8.63%, due 12/1/11 B2 B- 11(1)
27
AUTOMOTIVE (0.3%)
30 General Motors Corp., Senior Unsecured Debentures, 8.25%, due 7/15/23 Caa1 B- 27
45 General Motors Corp., Senior Unsubordinated Notes, 8.38%, due 7/15/33 Caa1 B- 41(2)
68
BANKS(1.3%)
40 Bank of America Corp., Unsecured Subordinated Notes, 6.80%, due 3/15/28 Aa2 AA- 44
20 Bank One Corp., Unsecured Subordinated Notes, 7.88%, due 8/1/10 Aa3 A+ 22
85 Wachovia Corp., Senior Medium-Term Notes, Ser. G, 5.70%, due 8/1/13 Aa3 AA- 87
100 Wells Fargo Co., Unsecured Subordinated Notes, 6.25%, due 4/15/08 Aa2 AA 101
254
BEVERAGES (0.9%)
45 Coca-Cola Enterprises, Inc., Unsecured Debentures, 6.95%, due 11/15/26 A2 A 50
20 Constellation Brands, Inc., Guaranteed Notes, 7.25%, due 9/1/16 Ba3 BB- 21
100 Diageo Capital PLC, Notes, 3.50%, due 11/19/07 A3 A- 99(5)
170
CHEMICALS (0.6%)
10 Chemtura Corp., Guaranteed Notes, 6.88%, due 6/1/16 Ba1 BB+ 10
30 Hexion US Finance Corp., Senior Notes, 9.75%, due 11/15/14 B3 B- 32(1)
10 Lyondell Chemical Co., Guaranteed Notes, 8.25%, due 9/15/16 B1 B+ 11
30 MacDermid, Inc., Senior Subordinated Notes, 9.50%, due 4/15/17 Caa1 CCC+ 31(1)
30 PQ Corp., Guaranteed Notes, 7.50%, due 2/15/13 B3 B- 32
116
CONSUMER - PRODUCTS (0.2%)
20 Amscan Holdings, Inc., Senior Subordinated Notes, 8.75%, due 5/1/14 Caa1 CCC+ 20
20 Yankee Acquisition Corp., Senior Subordinated Notes, 9.75%, due 2/15/17 Caa1 CCC+ 21(1)(2)
41
DIVERSIFIED FINANCIAL SERVICES (3.2%)
75 Associates Corp. NA, Senior Notes, 6.25%, due 11/1/08 Aa1 AA 76
75 Bear Stearns Co., Senior Notes, 5.35%, due 2/1/12 A1 A+ 75
85 Citigroup, Inc., Senior Notes, 4.13%, due 2/22/10 Aa1 AA 83
45 General Electric Capital Corp., Senior Unsecured Medium-Term Notes, Ser. A,
6.00%, due 6/15/12 Aaa AAA 47
115 Goldman Sachs Group, Inc., Unsecured Notes, 4.13%, due 1/15/08 Aa3 AA- 114(5)
100 HSBC Finance Corp., Senior Unsecured Notes, 4.63%, due 1/15/08 Aa3 AA- 100
125 JP Morgan Chase & Co., Senior Notes, 3.63%, due 5/1/08 Aa2 AA- 123(5)
5 Merrill Lynch & Co., Medium-Term Notes, Ser. C, 5.00%, due 1/15/15 Aa3 AA- 5
623
ELECTRIC (0.5%)
100 Dominion Resources, Inc., Notes, 4.13%, due 2/15/08 Baa2 BBB 99
</Table>
See Notes to Schedule of Investments
74
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
ELECTRIC - GENERATION (1.0%)
$ 30 Dynegy-Roseton Danskamme, Pass-Through Certificates, Ser. B,
7.67%, due 11/8/16 Ba3 B $ 32
45 Midwest Generation LLC, Secured Notes, 8.75%, due 5/1/34 Ba2 B+ 50
35 Mirant Americas Generation, Inc., Senior Unsecured Notes,
8.30%, due 5/1/11 Caa1 B- 37
25 NRG Energy, Inc., Guaranteed Notes, 7.38%, due 2/1/16 B1 B- 26
40 NRG Energy, Inc., Guaranteed Notes, 7.38%, due 1/15/17 B1 B- 41
186
ELECTRONICS (0.9%)
50 Flextronics Int'l., Ltd., Senior Subordinated Notes, 6.50%, due 5/15/13 Ba2 BB- 49
55 Freescale Semiconductor, Inc., Senior Notes, 9.13%, due 12/15/14 B1 B 55(1)
75 NXP BV Funding LLC, Secured Notes, 7.88%, due 10/15/14 Ba2 BB+ 78(1)
182
ENERGY-EXPLORATION & PRODUCTION (1.1%)
65 Chesapeake Energy Corp., Guaranteed Notes, 7.50%, due 9/15/13 Ba2 BB 68
10 Chesapeake Energy Corp., Guaranteed Notes, 6.38%, due 6/15/15 Ba2 BB 10
5 Energy Partners Ltd., Senior Notes, 9.75%, due 4/15/14 Caa1 B- 5(1)
30 Forest Oil Corp., Guaranteed Senior Unsecured Notes, 7.75%, due 5/1/14 B1 B+ 31
100 Sabine Pass L.P., Secured Notes, 7.50%, due 11/30/16 Ba3 BB 102(1)(5)
216
ENVIRONMENTAL (0.2%)
15 Allied Waste North America, Inc., Guaranteed Notes, 6.88%, due 6/1/17 B1 BB 15
30 Allied Waste North America, Inc., Secured Notes, Ser. B, 5.75%, due 2/15/11 B1 BB 30
45
FOOD & DRUG RETAILERS (0.2%)
45 Jean Coutu Group PJC, Inc., Guaranteed Notes, 8.50%, due 8/1/14 Caa2 B- 49
FOOD - WHOLESALE (0.2%)
35 Dean Foods Co., Guaranteed Notes, 7.00%, due 6/1/16 B1 B+ 35
FORESTRY/PAPER (0.2%)
30 Bowater, Inc., Debentures, 9.00%, due 8/1/09 B3 B+ 31
GAMING (1.1%)
20 Chukchansi Economic Development Authority, Senior Notes,
8.00%, due 11/15/13 B2 BB- 21(1)
55 Majestic Star LLC, Senior Unsecured Notes, 9.75%, due 1/15/11 Caa1 CCC+ 53
25 MGM Grand, Inc., Guaranteed Senior Notes, 6.00%, due 10/1/09 Ba2 BB 25
15 Mohegan Tribal Gaming, Guaranteed Subordinated Notes, 6.38%,
due 7/15/09 Ba2 B 15
10 Park Place Entertainment, Senior Subordinated Notes, 7.88%, due 3/15/10 Ba1 B+ 10
35 Pokagon Gaming Authority, Senior Notes, 10.38%, due 6/15/14 B3 B 39(1)
25 San Pasqual Casino, Notes, 8.00%, due 9/15/13 B2 B+ 26(1)
35 Station Casinos, Inc., Senior Unsecured Subordinated Notes,
6.88%, due 3/1/16 Ba3 B 33
222
</Table>
See Notes to Schedule of Investments
75
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
GAS DISTRIBUTION (1.4%)
$20 AmeriGas Partners, L.P., Senior Unsecured Notes, 7.25%, due 5/20/15 B1 $ 20
35 El Paso Natural Gas Co., Bonds, 8.38%, due 6/15/32 Baa3 BB 44
25 Ferrellgas Partners L.P., Senior Unsecured Notes, 8.75%, due 6/15/12 B2 B- 26
30 Kinder Morgan, Inc., Senior Notes, 6.50%, due 9/1/12 Baa2 BB- 31
25 Kinder Morgan, Inc., Guaranteed Notes, 5.70%, due 1/5/16 Baa2 BB- 24
65 Regency Energy Partners, Senior Unsecured Notes, 8.38%, due 12/15/13 B2 B 67(1)
25 Targa Resources, Inc., Guaranteed Notes, 8.50%, due 11/1/13 B3 B- 26(1)
30 Transcontinental Gas Pipe Line Corp., Senior Unsecured Notes,
6.40%, due 4/15/16 Ba1 BB+ 31
269
GOVERNMENT (0.4%)
75 Province of Ontario, Senior Unsubordinated Unsecured Notes,
5.50%, due 10/1/08 Aa1 AA 75
HEALTH SERVICES (2.3%)
45 CDRV Investors, Inc., Senior Unsecured Notes, Step-Up,
0.00%/9.63%, due 1/1/15 Caa1 CCC+ 39**
50 HCA, Inc., Senior Unsecured Notes, 6.50%, due 2/15/16 Caa1 B- 44(2)
70 HCA, Inc., Secured Notes, 9.63%, due 11/15/16 B2 BB- 76(1)
60 HCA, Inc., Secured Notes, 9.25%, due 11/15/16 B2 BB- 65(1)
10 Omnicare, Inc., Senior Subordinated Notes, 6.13%, due 6/1/13 Ba3 BB+ 10
35 Service Corp. Int'l, Senior Unsecured Notes, 7.38%, due 10/1/14 B1 BB- 36
60 Service Corp. Int'l, Senior Notes, 6.75%, due 4/1/15 B1 BB- 61(1)
15 Spheris, Inc., Senior Subordinated Notes, 11.00%, due 12/15/12 Caa1 CCC 15
30 United Surgical Partners, Int'l, Inc., Senior Subordinated Notes,
9.25%, due 5/1/17 Caa1 CCC+ 31(1)
10 US Oncology, Inc., Senior Unsecured Floating Rate Notes,
9.80%, due 9/17/07 B3 B- 10(1)(6)
20 US Oncology, Inc., Guaranteed Notes, 9.00%, due 8/15/12 B1 B- 21
30 Ventas Realty L.P., Guaranteed Notes, 6.75%, due 6/1/10 Ba2 BB+ 31
439
HOTELS (0.2%)
45 Host Hotels & Resorts L.P., Secured Notes, 6.88%, due 11/1/14 BB 46
INSURANCE (0.4%)
70 American Int'l. Group, Inc., Medium-Term Notes, Ser. G,
5.60%, due 10/18/16 Aa2 AA 71
INVESTMENTS & MISC. FINANCIAL SERVICES (0.2%)
45 Cardtronics, Inc., Guaranteed Notes, 9.25%, due 8/15/13 B3 B- 48
LEISURE (0.1%)
20 AMF Bowling Worldwide, Inc., Guaranteed Notes, 10.00%, due 3/1/10 B3 CCC+ 21
MEDIA (0.7%)
25 AOL Time Warner, Inc., Guaranteed Unsecured Debentures,
7.70%, due 5/1/32 Baa2 BBB+ 28
80 AOL Time Warner, Inc., Guaranteed Unsecured Notes, 6.88%, due 5/1/12 Baa2 BBB+ 85
15 News America, Inc., Guaranteed Notes, 6.20%, due 12/15/34 Baa2 BBB 15
128
</Table>
See Notes to Schedule of Investments
76
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
MEDIA - BROADCAST (1.2%)
$45 CMP Susquehanna Corp., Senior Subordinated Notes, 9.88%, due 5/15/14 B3 CCC $ 46(1)
20 Entercom Radio/Capital, Guaranteed Senior Unsecured Notes,
7.63%, due 3/1/14 B1 B 20
50 LIN Television Corp., Senior Subordinated Notes, 6.50%, due 5/15/13 B1 B- 49
40 Paxson Communications, Secured Floating Rate Notes, 11.61%, due 7/16/07 Caa2 CCC- 42(1)(6)
40 Umbrella Acquisition, Inc., Senior Notes, 9.75%, due 3/15/15 B3 CCC+ 40(1)(2)
20 Young Broadcasting, Inc., Guaranteed Notes, 10.00%, due 3/1/11 Caa1 CCC- 20
25 Young Broadcasting, Inc., Senior Subordinated Notes, 8.75%, due 1/15/14 Caa1 CCC- 25
242
MEDIA - CABLE (1.3%)
70 CCH I Holdings LLC, Secured Notes, 11.00%, due 10/1/15 Caa2 CCC 74
10 CCH I Holdings LLC, Guaranteed Notes, 10.00%, due 5/15/14 Caa3 CCC 9(2)
40 Charter Communications Operating LLC, Senior Notes, 8.38%, due 4/30/14 B3 B 42(1)
15 DirecTV Holdings LLC, Senior Notes, 8.38%, due 3/15/13 Ba3 BB- 16
20 EchoStar DBS Corp., Guaranteed Notes, 7.13%, due 2/1/16 Ba3 BB- 21
30 EchoStar DBS Corp., Guaranteed Notes, 7.00%, due 10/1/13 Ba3 BB- 31
50 EchoStar DBS Corp., Guaranteed Notes, 6.38%, due 10/1/11 Ba3 BB- 51
244
MEDIA - SERVICES (0.5%)
25 Lamar Media Corp., Guaranteed Notes, 7.25%, due 1/1/13 Ba3 B 25
35 WMG Acquisition Corp., Senior Subordinated Notes, 7.38%, due 4/15/14 B2 B 34
55 WMG Holdings Corp., Guaranteed Notes, Step-Up,
0.00%/9.50%, due 12/15/14 B2 B 42**
101
METALS/MINING EXCLUDING STEEL (1.2%)
20 Aleris Int'l., Inc., Senior Notes, 9.00%, due 12/15/14 B3 B- 21(1)
20 Aleris Int'l., Inc., Senior Subordinated Notes, 10.00%, due 12/15/16 Caa1 B- 21(1)
35 Arch Western Finance Corp., Guaranteed Notes, 6.75%, due 7/1/13 B1 BB- 35
5 Freeport-McMoRan Copper & Gold, Senior Unsecured Notes,
8.25%, due 4/1/15 Ba3 BB 5
40 Freeport-McMoRan Copper & Gold, Senior Unsecured Notes,
8.38%, due 4/1/17 Ba3 BB 44
90 Massey Energy Co., Guaranteed Notes, 6.88%, due 12/15/13 B2 B+ 87
25 Peabody Energy Corp., Guaranteed Notes, Ser. B, 6.88%, due 3/15/13 Ba1 BB 25
238
MINING (0.3%)
55 Alcoa, Inc., Bonds, 5.90%, due 2/1/27 A2 BBB+ 55
MULTI-NATIONAL (0.2%)
35 Int'l. Bank for Reconstruction & Development, Notes, 3.63%, due 5/21/13 Aaa AAA 33
NON-FOOD & DRUG RETAILERS (0.5%)
5 Blockbuster, Inc., Senior Subordinated Notes, 9.00%, due 9/1/12 Caa2 CCC+ 5
15 Bon-Ton Department Stores, Inc., Guaranteed Notes, 10.25%, due 3/15/14 B3 B- 16(2)
45 GSC Holdings Corp., Guaranteed Notes, 8.00%, due 10/1/12 Ba3 B+ 48
30 Michaels Stores, Inc., Subordinated Notes, Step-Up,
0.00%/13.00%, due 11/1/16 Caa1 CCC 20(1)**
89
</Table>
See Notes to Schedule of Investments
77
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
OIL & GAS (0.6%)
$ 50 Canadian Natural Resources Ltd., Unsecured Notes, 5.70%, due 5/15/17 Baa2 BBB $ 50
55 ConocoPhillips Corp., Unsecured Notes, 8.75%, due 5/25/10 A1 A- 61
111
PACKAGING (0.9%)
110 Ball Corp., Guaranteed Notes, 6.88%, due 12/15/12 Ba1 BB 112
20 Crown Americas LLC, Guaranteed Notes, 7.75%, due 11/15/15 B1 B 21
15 Graham Packaging Co., Inc., Guaranteed Notes, 9.88%, due 10/15/14 Caa1 CCC+ 16(2)
20 Owens-Brockway Glass Container, Inc., Guaranteed Notes,
8.75%, due 11/15/12 Ba2 BB- 21
170
PHARMACEUTICALS (0.4%)
75 Wyeth, Unsecured Notes, 5.50%, due 2/15/16 A3 A 76
PRINTING & PUBLISHING (1.5%)
20 Dex Media West LLC, Guaranteed Notes, Ser. B, 9.88%, due 8/15/13 B2 B 22
15 Dex Media West LLC, Senior Unsecured Notes, Ser. B, 8.50%, due 8/15/10 B1 B 16
25 Dex Media, Inc., Senior Disc. Notes, Step-Up, 0.00%/9.00%, due 11/15/13 B3 B 24**
65 Idearc, Inc., Senior Notes, 8.00%, due 11/15/16 B2 B+ 68(1)
50 Primedia, Inc., Guaranteed Senior Unsecured Notes, 8.88%, due 5/15/11 B2 B 51
10 Primedia, Inc., Senior Floating Rate Notes, 10.74%, due 5/15/07 B2 B 10(6)
65 R.H. Donnelley Corp., Senior Notes, Ser A-3, 8.88%, due 1/15/16 B3 B 70
35 Reader's Digest Association, Inc., Senior Subordinated Notes,
9.00%, due 2/15/17 Caa1 CCC+ 34(1)
295
RAILROADS (0.4%)
10 Kansas City Southern Mexico, Senior Notes, 7.63%, due 12/1/13 B3 B- 10(1)
55 TFM SA de C.V., Senior Notes, 9.38%, due 5/1/12 B3 B- 59
69
REAL ESTATE DEV. & MGT. (0.2%)
45 American Real Estate Partners, L.P., Senior Notes, 8.13%, due 6/1/12 Ba3 BB+ 46
REITS (0.3%)
65 Simon Property Group L.P., Unsubordinated Notes, 5.75%, due 12/1/15 A3 A- 66
RESTAURANTS (0.1%)
10 NPC Int'l., Inc., Guaranteed Notes, 9.50%, due 5/1/14 Caa1 B- 11
10 OSI Restaurant Partners, Inc., Senior Notes, 9.63%, due 5/15/15 Caa1 B- 10(1)(4)
21
RETAIL (0.3%)
55 Target Corp., Senior Unsecured Notes, 7.50%, due 8/15/10 A1 A+ 59
SOFTWARE/SERVICES (0.1%)
10 SunGard Data Systems, Inc., Guaranteed Notes, 9.13%, due 8/15/13 Caa1 B- 11
STEEL PRODUCERS/PRODUCTS (0.2%)
35 Tube City IMS Corp., Senior Subordinated Notes, 9.75%, due 2/1/15 B3 B- 37(1)
</Table>
See Notes to Schedule of Investments
78
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000's omitted) Moody's S&P (000's omitted)
SUPPORT - SERVICES (1.4%)
$40 Aramark Corp., Senior Notes, 8.50%, due 2/1/15 B3 B- $ 42(1)
20 KAR Holdings, Inc., Senior Subordinated Notes, 10.00%, due 5/1/15 Caa1 CCC 21(1)
55 Knowledge Learning Corp., Inc., Guaranteed Notes, 7.75%, due 2/1/15 B2 B- 55(1)
40 Language Line, Inc., Guaranteed Notes, 11.13%, due 6/15/12 B3 CCC+ 43
60 Monitronics Int'l., Inc., Guaranteed Notes, 11.75%, due 9/1/10 B3 B- 63
35 Rural/Metro Corp., Guaranteed Notes, 9.88%, due 3/15/15 B3 CCC+ 37
20 United Rentals N.A., Inc., Guaranteed Notes, 6.50%, due 2/15/12 B1 B+ 20
281
TELECOM - FIXED LINE (0.1%)
15 Level 3 Financing, Inc., Senior Notes, 9.25%, due 11/1/14 B3 CCC+ 15(1)
TELECOM - INTEGRATED/SERVICES (1.9%)
35 Citizens Utilities Co., Bonds, 6.63%, due 3/15/15 Ba2 BB+ 35(1)
10 Citizens Utilities Co., Bonds, 7.13%, due 3/15/19 Ba2 BB+ 10(1)
30 Dycom Industries, Inc., Guaranteed Notes, 8.13%, due 10/15/15 Ba3 B+ 32
35 Intelsat Subsidiary Holdings Co. Ltd., Guaranteed Notes,
8.63%, due 1/15/15 B2 B+ 37
75 Nordic Telephone Co. Holdings, Secured Notes, 8.88%, due 5/1/16 B2 B 81(1)
35 Qwest Corp., Notes, 8.88%, due 3/15/12 Ba1 BB+ 39
20 Qwest Corp., Senior Unsecured Notes, 7.50%, due 10/1/14 Ba1 BB+ 21
55 Qwest Corp., Senior Notes, 7.88%, due 9/1/11 Ba1 BB+ 58
20 Windstream Corp., Guaranteed Notes, 8.13%, due 8/1/13 Ba3 BB- 22(2)
40 Windstream Corp., Guaranteed Notes, 8.63%, due 8/1/16 Ba3 BB- 44
379
TELECOMMUNICATIONS (0.9%)
45 AT&T Wireless Services, Inc., Senior Unsecured Notes,
8.75%, due 3/1/31 Baa1 A 59(5)
40 Sprint Nextel Corp., Unsecured Notes, 6.00%, due 12/1/16 Baa3 BBB 39
80 Verizon Global Funding Corp., Senior Notes, 5.85%, due 9/15/35 A3 A 77
175
THEATERS & ENTERTAINMENT (0.3%)
30 AMC Entertainment, Inc., Guaranteed Notes, Ser. B, 8.63%, due 8/15/12 Ba3 B- 32
15 AMC Entertainment, Inc., Guaranteed Notes, 11.00%, due 2/1/16 B3 CCC+ 17
49
TRANSPORTATION (0.2%)
20 Norfolk Southern Corp., Senior Notes, 7.80%, due 5/15/27 Baa1 BBB+ 24
25 Norfolk Southern Corp., Senior Unsecured Notes, 6.00%, due 4/30/08 Baa1 BBB+ 25
49
TRANSPORTATION EXCLUDING AIR/RAIL (0.3%)
50 Stena AB, Senior Unsecured Notes, 7.00%, due 12/1/16 Ba3 BB- 49
TOTAL CORPORATE DEBT SECURITIES (COST $6,628) 6,761
</Table>
See Notes to Schedule of Investments
79
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000's omitted) Moody's S&P (000's omitted)
FOREIGN GOVERNMENT SECURITIES^^ (19.5%)
EUR 129 Belgium Kingdom, Bonds, 3.00%, due 3/28/10 Aa1 AA+ $ 171(5)
EUR 115 Bundesrepublik Deutschland, 4.00%, due 7/4/16 Aaa AAA 155
EUR 115 Bundesrepublik Deutschland, 4.00%, due 1/4/37 Aaa AAA 149
CAD 51 Canadian Government, Bonds, 7.25%, due 6/1/07 Aaa AAA 46(5)
CAD 95 Canadian Government, Bonds, 4.00%, due 6/1/16 Aaa AAA 84
JPY 14,000 Development Bank of Japan, Bonds, 1.05%, due 6/20/23 Aaa AA- 101(5)
EUR 253 France Government, Bonds, 4.00%, due 10/25/13 Aaa AAA 342(5)
JPY 27,000 Inter-American Development Bank, Bonds, 1.90%, due 7/8/09 Aaa AAA 231(5)
JPY 14,000 Japan Finance Corp. for Municipal Enterprise, Bonds, 1.35%, due 11/26/13 Aaa AA- 117(5)
JPY 16,000 KFW, Guaranteed Bonds, 2.05%, due 2/16/26 Aaa AAA 135
DKK 243 Kingdom of Denmark, Bonds, 5.00%, due 11/15/13 Aaa AAA 47
JPY 17,000 Quebec Province, Bonds, 1.60%, due 5/9/13 A+ 144(5)
AUD 29 Queensland Treasury Corp., Bonds, 6.00%, due 6/14/11 Aaa AAA 24
JPY 23,000 Republic of Austria, Bonds, 3.75%, due 2/3/09 Aaa AAA 202(5)
EUR 175 Republic of Germany, Bonds, 5.50%, due 1/4/31 Aaa AAA 279
JPY 19,000 Republic of Italy, Bonds, 1.80%, due 2/23/10 Aa2 A+ 162(5)
EUR 450 Spain Government, Bonds, 5.00%, due 7/30/12 Aaa AAA 638(5)
GBP 43 UK Government, Bonds, 4.00%, due 9/7/16 Aaa AAA 79(5)
GBP 90 UK Treasury, Bonds, 5.75%, due 12/7/09 Aaa AAA 181(5)
GBP 176 UK Treasury, Bonds, 4.75%, due 6/7/10 Aaa AAA 345(5)
GBP 87 UK Treasury, Bonds, 4.25%, due 3/7/36 Aaa AAA 167
TOTAL FOREIGN GOVERNMENT SECURITIES (COST $3,635) 3,799
REPURCHASE AGREEMENTS (0.7%)
145 Repurchase Agreement with Fixed Income Clearing Corp., 4.89%,
due 5/1/07, dated 4/30/07, Maturity Value $145,020,
Collateralized by $150,000 Fannie Mae, 5.63%,
due 4/30/12 (Collateral Value $150,000) (COST $145) 145#
NUMBER OF SHARES
SHORT-TERM INVESTMENTS (3.6%)
490,329 Neuberger Berman Prime Money Fund Trust Class 490@
203,299 Neuberger Berman Securities Lending Quality Fund, LLC 203~
TOTAL SHORT-TERM INVESTMENTS (COST $693) 693#
TOTAL INVESTMENTS (105.9%) (COST $19,704) 20,583##
Liabilities, less cash, receivables and other assets [(5.9%)] (1,153)
TOTAL NET ASSETS (100.0%) $19,430
</Table>
See Notes to Schedule of Investments
80
<Page>
Schedule of Investments Lehman Brothers Tax-Free Money Fund
(Unaudited)
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING ~~ VALUE ++
(000's omitted) Moody's S&P (000's omitted)
MUNICIPAL NOTES (99.5%)
ALABAMA (1.6%)
$18,200 Columbia IDB PCR (Alabama Pwr. Co. Proj.), Ser. 1995 E,
4.10%, due 5/1/07 VMIG1 A-1 $18,200(6)(3)
1,245 Lee Co. Ind. Dev. Au. Rev. (Lifesouth Comm. Blood Ctr.), Ser. 2001,
(LOC: SunTrust Bank), 4.01%, due 5/2/07 VMIG1 1,245(6)(3)
1,000 Mobile Spring Hill College Ed. Bldg. Au. Rev.
(Spring Hill College Proj.), Ser. 2004 B, (LOC: Regions Bank),
3.96%, due 5/2/07 VMIG1 1,000(6)
20,445
ALASKA (0.1%)
1,000 Alaska Ind. Dev. & Export Au. Rev., Ser. 2004, (FSA Insured),
3.98%, due 5/3/07 VMIG1 1,000(6)l
ARIZONA (0.6%)
5,800 ABN Amro Munitops Cert. Trust Rev., Ser. 2005, (MBIA Insured),
3.99%, due 5/3/07 VMIG1 5,800(1)(6)a
2,000 Scottsdale Ind. Dev. Au. Hosp. Rev., Ser. 2006,
(LOC: Citigroup Global Markets), 3.98%, due 5/3/07 VMIG1 2,000(6)
7,800
ARKANSAS (1.0%)
6,200 ABN Amro Munitops Cert. Trust, Ser. 2006, (FGIC Insured),
3.99%, due 5/3/07 MIG1 6,200(1)(6)a
6,330 North Little Rock Residential Hsg. Fac. Board Multi-Family Rev.,
Ser. 2004, (LOC: Government National Mortgage Association),
3.99%, due 5/2/07 VMIG1 6,330(6)x
12,530
CALIFORNIA (0.6%)
7,290 Roseville Natural Gas Fin. Au. Gas Rev., Ser. 2007,
(LOC: Goldman Sachs), 3.73%, due 5/3/07 7,290(6)
COLORADO (4.4%)
4,300 Adams 12 Five Star Sch. (Putters), Ser. 2007 1728, (MBIA Insured),
3.98%, due 5/3/07 VMIG1 4,300(6)s
7,142 Arkansas River Pwr. Au. Pwr. Rev. (Floaters),
Ser. 2006, (XLCA Insured), 3.97%, due 5/3/07 VMIG1 7,143(6)y
1,500 Central Platte Valley Metro. Dist., Ser. 2006, (LOC: BNP Paribas),
3.70%, due 12/1/07 A-1+ 1,500(6)
3,625 Colorado Ed. & Cultural Fac. Au. Rev. (Emmanuel Sch. Religion Proj.),
Ser. 2006, (LOC: AmSouth Bank), 3.97%, due 5/3/07 VMIG1 3,625(6)(3)
6,250 Colorado Ed. & Cultural Fac. Au. Rev. (Linfield Christian Sch. Proj.),
Ser. 2005, (LOC: Evangelical Christian), 3.98%, due 5/3/07 A-1+ 6,250(6)(3)jj
10,000 Colorado Ed. & Cultural Fac. Au. Rev. (Pueblo Serra Worship Hldgs.),
Ser. 2006, (LOC: Wells Fargo & Co.), 3.98%, due 5/3/07 10,000(6)
5,350 Commerce City Northern Infrastructure Gen. Imp. Dist. G.O., Ser. 2006,
(LOC: U.S. Bank), 3.97%, due 5/3/07 A-1+ 5,350(6)
7,675 Cornerstone Metro. Dist. Number 1 Rev., Ser. 2006,
(LOC: Bank of America), 3.95%, due 5/3/07 A-1+ 7,675(6)
5,040 Denver City & Co. Arpt. Rev. (Floaters), Ser. 2006-63 TP,
(FGIC Insured), 3.96%, due 5/3/07 5,040(6)q
5,420 Summit Co. Sch. Dist. G.O., Ser. 2004, (FSA Insured),
3.98%, due 5/3/07 VMIG1 5,420(6)l
56,303
</Table>
See Notes to Schedule of Investments
81
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING ~~ VALUE ++
(000's omitted) Moody's S&P (000's omitted)
CONNECTICUT (0.5%)
$5,935 Connecticut Dev. Au. Arpt. Hotel Rev. (Bradley Arpt. Hotel Proj.),
Ser. 2006, (LOC: TD Banknorth N.A.), 3.95%, due 5/3/07 VMIG1 $ 5,935(6)(3)
DISTRICT OF COLUMBIA (1.1%)
2,095 District of Columbia G.O. (Merlots), Ser. 2001 A, (MBIA Insured),
3.99%, due 5/2/07 A-1+ 2,095(6)ii
10,000 District of Columbia Rev. (Stars), Ser. 2007-027, (AMBAC Insured),
3.97%, due 5/3/07 VMIG1 10,000(6)i
1,435 District of Columbia Wtr. & Swr. Au. Pub. Util. Rev., Ser. 2006,
(FSA Insured), 3.98%, due 5/3/07 1,435(6)p
13,530
FLORIDA (4.5%)
1,300 Alachua Co. Hlth. Fac. Au. Continuing Care Ref. Rev. (Oak
Hammock Univ.), Ser. 2007, (LOC: BNP Paribas), 4.06%, due 5/1/07 VMIG1 1,300(6)(3)
1,760 Eclipse Funding Trust (Solar Eclipse-Palm Bay Sales), Ser. 2006-0136,
(FSA Insured), 3.97%, due 5/3/07 A-1+ 1,760(1)(6)hh
2,390 Florida St. Board of Ed., Ser. 2003 SGA, (MBIA Insured), 3.97%, due 5/2/07 A-1+ 2,390(6)cc
4,725 Highlands Co. Hlth. Fac. Au. Rev., Ser. 2006, (LOC: Citibank, N.A.),
3.98%, due 5/3/07 VMIG1 4,725(6)
1,530 Jacksonville Florida Ed. Fac. Rev. (Edwards Wtr. College Proj.), Ser. 2001,
(LOC: Wachovia Bank & Trust Co.), 3.70%, due 10/1/21 Putable 10/1/07 1,530(3)
25,000 Martin Co. PCR (Florida Pwr. & Lt. Proj.), Ser. 2000, 4.10%,
due 5/1/07 VMIG1 A-1 25,000(6)(3)
1,000 Miami-Dade Co. Sch. Board Cert. Participation (Putters), Ser. 2006-1317,
(AMBAC Insured), 3.98%, due 5/3/07 A-1+ 1,000(6)s
1,000 Miami-Dade Co. Sch. Board Cert. Participation, (Partner Eagle),
Ser. 2006 A, (AMBAC Insured), 3.99%, due 5/3/07 A-1+ 1,000(6)k
3,750 Muni. Sec. Trust Cert. G.O., Ser. 2006 A, (LOC: Bear Stearns), 3.97%,
due 5/3/07 VMIG1 3,750(1)(6)
6,525 Orlando & Orange Co. Expressway Au. Expressway Ref. Rev.,
Ser. 2003 C4, (FSA Insured), 3.92%, due 5/3/07 VMIG1 A-1+ 6,525(6)p
9,090 Orlando Util. Commission Wtr. & Elec. Rev., Ser. 2006, (LOC:
Dexia Credit Locale de France), 3.99%, due 5/3/07 9,090(6)
58,070
GEORGIA (1.8%)
3,135 De Kalb Co. Wtr. & Swr. Rev., Ser. 2006, (LOC: Citibank, N.A.),
3.98%, due 5/3/07 VMIG1 3,135(6)
500 Gwinnett Co. Dev. Au. Rev. (Greater Atlanta Christian), Ser. 1998,
(LOC: SunTrust Bank), 3.96%, due 5/2/07 Aa2 500(6)(3)
2,500 Gwinnett Co. Hsg. Au. Multi-Family Hsg. Rev. (Greens Apts. Proj.),
Ser. 1995, (LOC: Fannie Mae), 3.97%, due 5/2/07 A-1+ 2,500(6)(3)
11,000 Main St. Natural Gas Inc. Gas Proj. Ref. Rev. (Merlots), Ser. 2007 C-11,
(LOC: Bank of New York), 4.00%, due 5/2/07 A-1+ 11,000(6)
2,500 Marietta Hsg. Au. Multi-Family Rev. (Franklin Walk Apts. Proj.),
Ser. 1990, (LOC: Freddie Mac), 3.95%, due 5/3/07 VMIG1 2,500(6)(3)
3,625 Muni. Sec. Trust Cert. Rev., Ser. 2007, (LOC: Branch Banking & Trust Co.),
3.97%, due 5/3/07 VMIG1 3,625(1)(6)
23,260
HAWAII (0.7%)
8,765 Hawaii St. G.O., Ser. 2005, (AMBAC Insured), 3.99%, due 5/2/07 8,765(6)x
ILLINOIS (5.3%)
7,150 Chicago O'Hare Int'l. Arpt. Rev., Ser. 2005, (FGIC Insured), 3.98%,
due 5/3/07 7,150(6)o
8,000 Illinois Fin. Au. Rev. (Clare Oaks), Ser. 2006 D, (LOC: Sovereign Bank),
3.98%, due 5/3/07 8,000(6)(3)b
2,000 Illinois Fin. Au. Rev. (IIT Research Institute), Ser. 2004, (LOC: Fifth Third
Bank), 3.98%, due 5/3/07 VMIG1 2,000(6)(3)
</Table>
See Notes to Schedule of Investments
82
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING ~~ VALUE ++
(000's omitted) Moody's S&P (000's omitted)
$1,850 Illinois Fin. Au. Rev. (Lawrence Hall Youth Svcs.), Ser. 2006,
(LOC: Fifth Third Bank), 3.96%, due 5/4/07 VMIG1 $ 1,850(6)(3)
3,100 Illinois Hlth. Fac. Au. Rev. (Servantcor Falcon II), Ser. 1996 A,
(LOC: JP Morgan Chase), 3.95%, due 5/2/07 A-1+ 3,100(6)(3)
1,775 Illinois St. (Muni. Sec. Trust Receipts), Ser. 2000, (LOC: Societe
Generale), 4.04%, due 5/1/07 A-1+ 1,775(6)
1,620 Illinois St. G.O., Ser. 2004, (MBIA Insured), 3.90%, due 5/3/07 VMIG1 1,620(6)l
16,880 Illinois St. G.O. (Merlots), Ser. 2003 B-4, (FSA Insured), 3.99%, due 5/2/07 VMIG1 16,880(6)ii
5,000 Lake Co. Sch. Dist. Number 109 Deerfield Rev., Ser. 2006,
(LOC: JP Morgan Chase), 3.93%, due 5/2/07 VMIG1 5,000(6)
4,015 Metro. Pier & Exposition Au. Hospitality Fac. Rev., Ser. 2006,
(LOC: Dexia Credit Locale de France), 3.98%, due 5/3/07 4,015(6)
2,480 Quad Cities Reg. Econ. Dev. Au. Rev. (Two Rivers YMCA Proj.), Ser. 2002,
(LOC: U.S. Bank), 4.11%, due 5/1/07 A-1+ 2,480(6)(3)
5,920 Reg. Trans. Au., Ser. 2006, (MBIA Insured), 3.99%, due 5/3/07 5,920(6)p
7,460 Reg. Trans. Au. G.O. (Merlots), Ser. 2002 A24, (MBIA Insured),
3.99%, due 5/2/07 VMIG1 7,460(6)d
67,250
INDIANA (8.0%)
8,055 ABN Amro Munitops Cert. Trust Rev., Ser. 2006, (AMBAC Insured),
3.99%, due 5/3/07 8,055(1)(6)a
7,490 Bartholomew Cons. Sch. Corp. Ind. Tax Anticipation Warrants,
Ser. 2007, 4.00%, due 12/31/07 7,506
9,000 Carmel Waterworks Rev. BANS, Ser. 2006 A, 4.50%, due 9/21/07 9,029
5,100 Carmel Clay Parks Bldg. Corp. (Putters), Ser. 2004, (MBIA Insured),
3.98%, due 5/3/07 A-1+ 5,100(6)s
13,885 Carmel Redev. Au. Lease Rental Rev. (Floaters), Ser. 2006 1275,
(LOC: Morgan Stanley), 3.97%, due 5/3/07 A-1 13,885(6)
2,065 Carmel Redev. Au. Lease Rental Rev. (Putters), Ser. 2006 1503,
(LOC: JP Morgan Chase), 3.98%, due 5/3/07 A-1+ 2,065(6)
6,880 Columbus Renovation Sch. Bldg. Corp., Ser. 2005, (MBIA Insured),
4.00%, due 5/2/07 A-1+ 6,880(6)x
6,305 Daviess Co. Econ. Dev. Ref. Rev. & Imp., Ser. 2006, (Radian Insured),
3.99%, due 5/3/07 VMIG1 6,305(6)(3)u
3,990 Eclipse Funding Trust (Solar Eclipse-Wayne Township Marion),
Ser. 2006 0015, (FGIC Insured), 3.97%, due 5/3/07 A-1+ 3,990(1)(6)hh
3,300 Hamilton Southeastern Sch. Warrants, Ser. 2007, 3.80%, due 12/31/07 3,302
2,500 Indiana Bond Bank Rev. (Adv. Fdg. Prog. Notes), Ser. 2007 A,
(LOC: Bank of New York), 4.25%, due 1/31/08 SP-1+ 2,511
1,400 Indiana Hlth. & Ed. Fac. Fin. Au. Hosp. Rev. (Floyd Mem. Hosp. &
Hlth. Proj.), Ser. 2006, (LOC: National City Bank), 4.11%, due 5/1/07 A-1 1,400(6)(3)
6,200 Indiana Hlth. & Ed. Fac. Fin. Au. Hosp. Rev. (Howard Reg. Hlth. Sys. Proj.),
Ser. 2005 B, (LOC: National City Bank), 4.11%, due 5/1/07 A-1 6,200(6)(3)
2,200 Indiana St. Fin. Au. Rev. (Univ. High Sch. Proj.), Ser. 2006,
(LOC: Key Bank), 3.96%, due 5/3/07 VMIG1 2,200(6)(3)
2,945 Indiana Trans. Fin. Au. Hwy. Rev., Ser. 2003, (FSA Insured), 3.98%,
due 5/3/07 A-1+ 2,945(6)l
1,100 Indiana Trans. Fin. Au. Hwy. Rev. (Muni Sec. Trust Receipts), Ser. 2000,
(LOC: Societe Generale), 4.04%, due 5/1/07 A-1+ 1,100(6)
2,000 Logansport Comm. Sch. Corp. TANS, Ser. 2007, 4.00%, due 12/31/07 2,004
12,500 Marshall Co. Econ. Dev. Rev. (Culver Ed. Foundation Proj.), Ser. 2000,
(LOC: Bank of New York), 3.98%, due 5/3/07 A-1+ 12,500(6)(3)
5,735 Univ. Southern Indiana Rev., Ser. 2004, (AMBAC Insured), 3.98%, due 5/3/07 VMIG1 5,735(6)l
102,712
IOWA (1.7%)
2,350 Coralville G.O. BANS, Ser. 2006, 4.50%, due 6/1/07 MIG1 2,352
3,500 Iowa Fin. Au. Private College Rev. (Morningside College Proj.),
Ser. 2006, (LOC: U.S. Bank), 4.11%, due 5/1/07 A-1+ 3,500(6)(3)
430 Iowa Fin. Au. Private Sch. Fac. Rev. (Kuemper Proj.), Ser. 1998,
(LOC: Allied Irish Bank), 4.11%, due 5/1/07 430(6)(3)
</Table>
See Notes to Schedule of Investments
83
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING ~~ VALUE ++
(000's omitted) Moody's S&P (000's omitted)
$ 190 Iowa Higher Ed. Loan Au. Rev. (Private College Des Moines), Ser. 2003,
(LOC: Allied Irish Bank), 4.11%, due 5/1/07 VMIG1 $ 190(6)(3)
1,390 Iowa Higher Ed. Loan Au. Rev. (Private College Des Moines), Ser. 2004,
(LOC: Allied Irish Bank), 4.11%, due 5/1/07 VMIG1 A-1+ 1,390(6)(3)
7,000 Iowa Higher Ed. Loan Au. Rev. (Private College Fac., Loras College Proj.),
Ser. 2000, (LOC: LaSalle National Bank), 4.06%, due 5/1/07 A-1 7,000(6)(3)
700 Iowa Higher Ed. Loan Au. Rev. (Private College Fac., Wartburg Proj.),
Ser. 2000, (LOC: American Trust & Savings), 4.11%, due 5/1/07 VMIG1 700(6)(3)
4,125 Mason City IDR (SUPERVALU, Inc. Proj.), Ser. 1994, (LOC: Wachovia
Bank & Trust Co.), 4.05%, due 5/2/07 4,125(6)(3)
2,400 Mississippi Bend Area Ed. Agcy. Anticipation Warrants, Ser. 2006,
4.50%, due 6/21/07 2,402
22,089
KANSAS (0.8%)
10,000 Mission Multi-Family Hsg. Ref. Rev. (Silverwood Apt. Proj.), Ser. 1996,
(LOC: Fannie Mae), 3.98%, due 5/2/07 A-1+ 10,000(6)
KENTUCKY (1.4%)
9,800 Christian Co. Assoc. of Co. Leasing Trust Lease Prog., Ser. 2007 A,
(LOC: U.S. Bank), 4.02%, due 5/1/07 VMIG1 9,800(6)
1,500 Kentucky Rural Wtr. Fin. Corp. Pub. Proj. Rev. (Construction Notes),
Ser. 2007 A-1, 3.70%, due 4/1/09 Putable 10/1/07 MIG1 1,500(6)
3,383 Kentucky St. Turnpike Au. Econ. Dev. Road Rev. (Floaters), Ser. 2005,
(AMBAC Insured), 3.88%, due 5/3/07 VMIG1 3,383(6)y
3,530 Simpson Co. Hosp. Rev. (Franklin Med. Ctr., Inc.), Ser. 2006,
(LOC: Branch Banking & Trust Co.), 3.95%, due 5/3/07 3,530(6)(3)
18,213
LOUISIANA (0.4%)
5,365 Jefferson Sales Tax Dist. Spec. Sales Tax Rev., Ser. 2005, (AMBAC Insured),
3.98%, due 5/3/07 5,365(6)o
MARYLAND (0.5%)
7,000 Maryland St. Comm. Dev. Admin. Dept. Hsg. & Comm. Dev. Rev. (Residential),
Ser. 2006 Q, 3.59%, due 12/14/07 MIG1 7,000
MASSACHUSETTS (3.1%)
2,750 Greater Attleboro Taunton Reg. Transit Au. RANS, Ser. 2006, 3.95%,
due 8/23/07 2,751
8,800 Massachusetts St. Dev. Fin. Agcy. Rev. (Boston College High Sch.),
Ser. 2006, (LOC: Citizens Bank), 3.98%, due 5/2/07 VMIG1 8,800(6)(3)
990 Massachusetts St. Dev. Fin. Agcy. Rev. (Suffolk Univ.), Ser. 2005 A,
(LOC: Citizens Bank), 4.00%, due 5/2/07 VMIG1 990(6)(3)
2,400 Montachusett Reg. Trans. Au. RANS, Ser. 2006, 4.50%, due 6/15/07 2,402
10,700 Muni. Sec. Trust Cert., Ser. 2007 A, (AMBAC Insured), 3.97%, due 5/3/07 VMIG1 10,700(1)(6)h
1,500 Southeastern Reg. Trans. Au. RANS, Ser. 2006, 3.85%, due 9/7/07 1,500
9,470 Worcester G.O. BANS, Ser. 2006 A, 4.00%, due 11/8/07 MIG1 9,480
3,530 Worcester Reg. Trans. Au. G.O. RANS, Ser. 2006, 4.25%, due 6/29/07 3,531
40,154
MICHIGAN (2.2%)
2,800 Bridgeport Spaulding Comm. Sch. Dist. G.O., Ser. 2006, 4.10%,
due 6/27/07 2,802
11,695 Detroit City Sch. Dist. G.O., Ser. 2006, (FSA Insured), 3.98%,
due 5/4/07 11,695(6)p
3,955 Detroit Sewage Disp. Rev. (Putters), Ser. 2006 1453, (FGIC Insured),
3.98%, due 5/3/07 A-1+ 3,955(6)s
3,845 Grand Rapids Hsg. Corp. Rev., Ser. 2005, (LOC: Merrill Lynch Capital
Markets), 3.99%, due 5/2/07 A-1+ 3,845(6)
</Table>
See Notes to Schedule of Investments
84
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING ~~ VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
<s>
$ 2,940 Hartland Cons. Sch. Dist. G.O. (Floaters), Ser. 2005, (LOC: Morgan Stanley),
3.97%, due 5/3/07 VMIG1 $ 2,940(6)
3,000 Waterford Sch. Dist. G.O. Std. Aid Anticipation Notes, Ser. 2006, 3.85%,
due 11/30/07 3,003
28,240
MINNESOTA (2.8%)
1,000 Mankato Multi-Family Rev. Hsg. (Highland), Ser. 1997,
(LOC: LaSalle National Bank), 4.11%, due 5/1/07 A-1+ 1,000(6)(3)
7,490 Minneapolis & St. Paul Metro. Apts. Commission Arpt. Rev. (Merlots),
Ser. 2000 ZZ, (FGIC Insured), 3.99%, due 5/2/07 VMIG1 7,490(6)ii
8,250 Minneapolis & St. Paul Metro. Apts. Commission Arpt. Rev. (Muni. Sec.
Trust Receipts), Ser. 2001, (FGIC Insured), 3.97%, due 5/2/07 A-1+ 8,250(6)cc
17,970 Muni. Sec. Trust Cert. Rev., Ser. 2007, (AMBAC Insured), 3.98%, due 5/3/07 A-1 17,970(1)(6)h
935 Roseville Private Sch. Fac. Rev. (Northwestern College Proj.), Ser. 2002,
(LOC: Marshall & Ilsley), 4.11%, due 5/1/07 VMIG1 935(6)(3)
35,645
MISSISSIPPI (1.0%)
6,900 Mississippi Bus. Fin. Corp. Rev. (Hattiesburg Clinic), Ser. 2006,
(LOC: AmSouth Bank), 3.96%, due 5/3/07 VMIG1 6,900(6)(3)
5,770 Mississippi Bus. Fin. Corp. Rev. (Jackson Academy Proj.), Ser. 2005,
(LOC: AmSouth Bank), 3.96%, due 5/3/07 VMIG1 5,770(6)(3)
12,670
MISSOURI (3.8%)
6,985 Eclipse Funding Trust Rev. (Solar Eclipse Columbia Spec. Oblig. Elec.),
Ser. 2006, (AMBAC Insured), 3.90%, due 6/7/07 A-1+ 6,985(1)(6)hh
11,950 Missouri St. Hlth. & Ed. Fac. Au. Ed. Fac. Rev. (Christian Brothers),
Ser. 2002 A, (LOC: Commerce Bank N.A.), 4.11%, due 5/1/07 A-1 11,950(6)(3)
5,105 Missouri St. Hlth. & Ed. Fac. Au. Ed. Fac. Rev. (Drury College), Ser. 1999,
(LOC: Bank of America), 4.11%, due 5/1/07 VMIG1 5,105(6)(3)
200 Missouri St. Hlth. & Ed. Fac. Au. Ed. Fac. Rev. (Drury Univ.), Ser. 2003,
(LOC: Bank of America), 4.11%, due 5/1/07 VMIG1 200(6)(3)
5,500 Missouri St. Hlth. & Ed. Fac. Au. Ed. Fac. Rev. (Kansas City Art Institute),
Ser. 2005, (LOC: Commerce Bank N.A.), 4.11%, due 5/1/07 A-1 5,500(6)(3)
1,580 Missouri St. Hlth. & Ed. Fac. Au. Hlth. Fac. Rev. (St. Francis Med. Ctr.),
Ser. 1996 A, (LOC: Bank of America), 4.06%, due 5/1/07 A-1+ 1,580(6)(3)
1,200 Missouri St. Pub. Utils. Commission Rev. (Interim Construction Notes),
Ser. 2006, 4.50%, due 9/15/07 MIG1 1,204
2,360 Springfield Spec. Oblig. BANS, Ser. 2006, 4.00%, due 12/1/07 2,362
3,950 St. Louis Ind. Dev. Au. Ind. Rev. (Schnuck Markets, Inc.), Ser. 1985,
(LOC: U.S. Bank), 4.02%, due 5/3/07 P-1 3,950(6)
9,435 Wentzville Sch. Dist. Number R 04 G.O. (ABN Amro Munitops
Cert. Trust), Ser. 2004, (FGIC Insured), 3.99%, due 5/3/07 VMIG1 9,435(1)(6)a
48,271
MONTANA (0.4%)
2,745 Montana St. Board Investment Rev. (Muni. Fin. Cons. Act-Intercap),
Ser. 1994, 3.85%, due 3/1/09 Putable 3/1/08 VMIG1 2,745(6)
2,000 Montana St. Board Investment Rev. (Muni. Fin. Cons. Act-Intercap),
Ser. 2000, 3.85%, due 3/1/25 Putable 3/1/08 VMIG1 2,000
4,745
NEVADA (1.8%)
5,230 Clark Co. G.O., Ser. 2006, (FSA Insured), 3.96%, due 5/3/07 A-1+ 5,230(6)i
8,595 Las Vegas Valley Wtr. Dist. G.O. (ABN Amro Munitops Cert. Trust),
Ser. 2005, (FGIC Insured), 3.99%, due 5/3/07 VMIG1 8,595(1)(6)a
3,300 Nevada St. G.O. (Floaters), Ser. 2000, (FGIC Insured), 3.97%, due 5/3/07 VMIG1 3,300(6)y
</Table>
See Notes to Schedule of Investments
85
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING ~~ VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
<s>
$ 4,265 Nevada Sys. Higher Ed. Univ. Rev. (Floaters), Ser. 2005 1240,
(AMBAC Insured), 3.97%, due 5/3/07 A-1 $ 4,265(6)y
1,700 North Las Vegas G.O. (ABN Amro Munitops Cert. Trust), Ser. 2006,
(MBIA Insured), 3.99%, due 5/3/07 VMIG1 1,700(1)(6)a
23,090
NEW HAMPSHIRE (2.0%)
3,200 Cheshire Co. G.O. TANS, Ser. 2007, 3.75%, due 12/27/07 3,201
4,000 Merrimack Co. G.O. TANS, Ser. 2007, 4.25%, due 12/28/07 4,011
5,000 New Hampshire Hlth. & Ed. Fac. Au. Rev. (Frisbie Mem. Hosp.),
Ser. 2006, (LOC: Bank of America), 3.98%, due 5/3/07 VMIG1 5,000(6)(3)
800 New Hampshire Hlth. & Ed. Fac. Au. Rev. (Seacoast Hospice),
Ser. 2006, (LOC: Citizens Bank), 4.03%, due 5/3/07 800(6)
4,000 New Hampshire St. Bus. Fin. Au. Rev. (The Taylor Home),
Ser. 2005 A, (LOC: TD Banknorth N.A.), 3.96%, due 5/3/07 VMIG1 4,000(6)(3)
3,300 New Hampshire St. Bus. Fin. Au. Rev. (Valley Reg. Hosp.),
Ser. 2003, (LOC: Sovereign Bank), 3.95%, due 5/3/07 A-1+ 3,300(6)(3)d
5,400 Strafford Co. G.O. TANS, Ser. 2007, 3.75%, due 12/31/07 5,401
25,713
NEW JERSEY (1.8%)
2,100 Absecon G.O. BANS, Ser. 2006, 4.50%, due 5/10/07 2,100
4,900 Allamuchy Township Board Ed. G.O., Ser. 2007, 4.00%, due 3/14/08 4,912
3,289 Highlands G.O. BANS, Ser. 2007, 4.00%, due 1/30/08 3,296
8,280 Muni. Sec. Trust Cert., Ser. 2006 A, (FSA Insured), 3.98%, due 5/3/07 VMIG1 8,280(1)(6)h
3,800 Perth Amboy G.O. BANS, Ser. 2006, 4.35%, due 10/19/07 MIG1 3,812
22,400
NEW MEXICO (0.3%)
4,450 Rio Rancho Wtr. & Wastewtr. Sys. Rev. (Putters), Ser. 2005 953,
(AMBAC Insured), 3.89%, due 5/3/07 A-1+ 4,450(6)s
NEW YORK (4.0%)
2,500 Board Coop. Ed. Svc. Sole Supervisory Dist. RANS, Ser. 2006, 3.75%,
due 6/26/07 2,500
5,000 Gloversville City Sch. Dist. G.O. BANS, Ser. 2006, 3.74%, due 9/27/07 5,001
5,300 Greater Southern Tier Board Coop. Ed. Svcs. Sole Supervisory
Dist. RANS, Ser. 2006, 3.75%, due 6/29/07 5,301
3,600 Haverstraw Stony Point Central Sch. Dist. G.O. (Merlots), Ser. 2007 D,
(FSA Insured), 3.99%, due 5/2/07 VMIG1 3,600(6)ii
2,000 Hilton Central Sch. Dist. G.O. RANS, Ser. 2006, 4.13%, due 6/19/07 2,001
2,000 Metro. Trans. Au. Dedicated Tax Fund, Ser. 2006 A, (MBIA Insured),
3.98%, due 5/3/07 A-1+ 2,000(6)k
7,100 Muni. Sec. Trust Cert., Ser. 2007 A, (FHA Insured), 3.92%, due 5/3/07 A-1 7,100(1)(6)h
16,695 Muni. Sec. Trust Cert., Ser. 2006, (LOC: Branch Banking & Trust Co.),
3.99%, due 5/3/07 VMIG1 16,695(1)(6)
1,000 New York St. Dorm. Au. Rev., Ser. 2005, (AMBAC Insured), 3.97%,
due 5/3/07 VMIG1 1,000(6)k
1,200 New York St. Thruway Au. Gen. Rev., Ser. 2005, (FSA Insured), 3.97%,
due 5/3/07 VMIG1 1,200(6)l
3,100 New York St. Thruway Au. Gen. Rev. (Putters), Ser. 2005, (FSA Insured),
3.96%, due 5/3/07 VMIG1 3,100(6)s
995 Sales Tax Asset Receivable Corp., Ser. 2006, (AMBAC Insured),
3.97%, due 5/3/07 VMIG1 995(6)k
50,493
NORTH CAROLINA (0.4%)
1,995 Cabarrus Co. Cert. Participation, Ser. 2003, (AMBAC Insured), 3.98%, .
due 5/3/07 A-1+ 1,995(6)l
2,490 Eclipse Funding Trust (Solar Eclipse-Union Co.), Ser. 2006 0155,
(AMBAC Insured), 3.97%, due 5/3/07 A-1+ 2,490(1)(6)hh(5)
4,485
</Table>
See Notes to Schedule of Investments
86
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING ~~ VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
<s>
NORTH DAKOTA (0.0%)
$ 500 North Dakota Rural Wtr. Fin. Corp. Rev. (Pub. Proj. Construction Notes),
Ser. 2004 A-1, 3.70%, due 10/1/07 MIG1 $ 500(6)
OHIO (4.1%)
3,525 Cleveland-Cuyahoga Co. Port Au. Ed. Fac. Rev. (Laurel Sch. Proj.),
Ser. 2004, (LOC: Key Bank), 4.01%, due 5/3/07 3,525(6)(3)
3,850 Deerfield Township G.O. BANS, Ser. 2006, 3.61%, due 11/29/07 MIG1 3,850
12,065 Eclipse Funding Trust (Solar Eclipse Hamilton Co.), Ser. 2006,
(MBIA Insured), 3.60%, due 6/6/07 A-1+ 12,065(1)(6)hh
4,000 Franklin Co. Hlth. Care Fac. Rev. (Ohio Presbyterian Retirement Svcs.
Foundation), Ser. 2006 A, (Radian Insured), 3.99%, due 5/3/07 A-1 4,000(6)(3)z
2,275 New Albany Comm. Au. Infrastructure Imp. Ref., Rev. Ser. 2004 C,
(LOC: Key Bank), 3.99%, due 5/3/07 VMIG1 2,275(6)
2,835 Ohio St. G.O., Ser. 2005, (LOC: Citibank, N.A.), 3.98%, due 5/3/07 VMIG1 2,835(6)
6,500 Ohio St. Higher Ed. Fac. Comm. Rev. (Kenyon College), Ser. 1998,
(LOC: Bank One Illinois N.A.), 3.93%, due 5/2/07 VMIG1 A-1 6,500(6)(3)
3,200 Ohio Univ. Gen. Receipts Athens BANS, Ser. 2007, 4.25%, due 1/16/08 MIG1 3,214
1,220 Olmsted Falls BANS, Ser. 2006, 3.90%, due 10/18/07 1,221
3,000 Richland Co. G.O. BANS (Correctional Fac.), Ser. 2007, 4.50%,
due 2/21/08 3,018
1,200 Sidney City Sch. Dist. G.O. BANS, Ser. 2006, 4.07%, due 11/29/07 1,203
660 Sidney City Sch. Dist. G.O. BANS, Ser. 2006, 4.28%, due 11/29/07 662
3,000 Univ. of Cincinnati BANS, Ser. 2007 C, 4.50%, due 1/24/08 MIG1 SP-1+ 3,019
1,700 Univ. of Toledo Gen. Receipts Bonds, Ser. 2002, (FGIC Insured), 4.06%,
due 5/1/07 VMIG1 A-1+ 1,700(6)hh
1,400 Wauseon Exempted Village Sch. Dist. G.O. BANS, Ser. 2007, 4.34%,
due 5/10/07 1,400
2,330 Wickliffe BANS, Ser. 2007, 4.25%, due 12/6/07 2,337(4)
52,824
OKLAHOMA (1.3%)
6,995 Hulbert Econ. Dev. Au. Econ. Dev. Rev., Ser. 2007, (LOC: Bank of
America), 3.97%, due 5/3/07 VMIG1 6,995(6)
10,000 Tulsa Co. Ind. Au. Cap. Imp. Rev., Ser. 2003 A, (LOC: Bank of America),
3.60%, due 5/15/17 Putable 11/15/07 A-1+ 10,000(6)
16,995
OREGON (1.3%)
1,560 Clackamas Co. Hosp. Fac. Au. Rev. Sr. Living Fac. (Mary's Woods),
Ser. 2005, (LOC: Sovereign Bank), 3.97%, due 5/3/07 A-1+ 1,560(6)(3)t
1,300 Multnomah Co. Higher Ed. Rev. (Concordia Univ. Portland Proj.),
Ser. 1999, (LOC: Key Bank), 4.11%, due 5/1/07 VMIG1 1,300(6)(3)
9,295 Oregon St. Homeowner Rev., Ser. 2006, (LOC: Lloyd's Bank), 4.00%,
due 5/3/07 VMIG1 9,295(6)gg
4,800 Portland Econ. Dev. Rev. (Broadway Hsg. LLC Proj.), Ser. 2003 A,
(AMBAC Insured), 3.96%, due 5/3/07 VMIG1 A-1 4,800(6)(3)u
16,955
PENNSYLVANIA (1.1%)
2,115 Lawrence Co. Ind. Dev. Au. Rev. (Villa Maria Proj.), Ser. 2003,
(LOC: Allied Irish Bank PLC), 3.96%, due 5/3/07 VMIG1 2,115(6)(3)(5)
3,955 Neshaminy Sch. Dist. G.O. TRANS, Ser. 2006, 4.75%, due 6/29/07 3,960
5,000 St. Pub. Sch. Bldg. Au. Sch. Rev., Ser. 2006, (FSA Insured), 3.98%,
due 5/3/07 VMIG1 5,000(6)k
3,220 Washington Co. Hosp. Au. Rev. (Washington Hosp. Proj.),
Ser. 2001, (LOC: PNC Bank), 3.90%, due 7/1/31 Putable 7/1/07 VMIG1 3,222(3)
14,297
</Table>
See Notes to Schedule of Investments
87
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING ~~ VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
SOUTH CAROLINA (4.2%)
$ 3,700 Charleston Ed. Excellence Fin. Corp. Rev., Ser. 2006, (LOC: Citibank, N.A.),
3.98%, due 5/3/07 $ 3,700(6)
4,500 Columbia Parking Fac. Rev. (Floaters), Ser. 2006 1299, (CIFG Insured),
3.97%, due 5/3/07 VMIG1 4,500(6)y
7,645 Greenville Co. Sch. Dist. Installment Purchase Ref. Rev., Ser. 2006-169,
(LOC: BNP Paribas), 3.97%, due 5/3/07 VMIG1 7,645(6)
22,785 Greenville Co. Sch. Dist. Installment Purchase Ref. Rev. (Floaters),
Ser. 2004-982, (LOC: Morgan Stanley), 3.97%, due 5/3/07 A-1 22,785(6)
6,080 Greenville Co. Sch. Dist. Installment Purchase Rev., Ser. 2006,
(LOC: Landesbank Hessen-Thueringen Girozentrale), 3.96%, due 5/3/07 A-1 6,080(6)
1,300 Macon Trust Var. St., Ser. 2007-303, (LOC: Bank of America), 3.98%,
due 5/3/07 VMIG1 1,300(6)
7,270 Muni. Sec. Trust Cert., Ser. 2007, (FSA Insured), 3.97%, due 5/3/07 VMIG1 7,270(1)(6)h
53,280
SOUTH DAKOTA (0.3%)
3,600 Watertown Ind. Dev. Ref. Rev. (SUPERVALU, Inc. Proj.), Ser. 1994,
(LOC: Wachovia Bank & Trust Co.), 4.05%, due 5/2/07 3,600(6)(3)
TENNESSEE (5.5%)
12,400 Chattanooga Hlth. Ed. & Hsg. Fac. Board Ref. Rev. (Expansion-Girls
Preparatory Sch.), Ser. 1999, (LOC: AmSouth Bank), 3.96%, due 5/3/07 A-1 12,400(6)(3)
7,350 Metro. Gov't. Nashville & Davidson Co. IDB Multi-Family Hsg. Rev.
(Spinnaker), Ser. 2002, (LOC: Fannie Mae), 3.97%, due 5/2/07 A-1+ 7,350(6)(3)
12,875 Muni. Energy Acquisition Corp. Gas Rev. (Putters), Ser. 2006,
(LOC: JP Morgan Chase), 3.98%, due 5/3/07 VMIG1 12,875(6)
2,700 Sevier Co. Pub. Bldg. Au. Rev. (Pub. Construction Notes Proj.),
Ser. 2006 A, 3.70%, due 10/1/08 Putable 10/1/07 MIG1 2,700
2,000 Sevier Co. Pub. Bldg. Au. Rev. (Pub. Construction Notes Proj.),
Ser. 2007 A, 3.75%, due 4/1/10 MIG1 2,000
1,150 Shelby Co. G.O., Ser. 1999 A, (LOC: Morgan Stanley), 3.93%, due 5/2/07 VMIG1 A-1+ 1,150(6)
15,555 Tennessee Energy Acquisition Corp. Gas Rev., Ser. 2006, (LOC: Merrill
Lynch Capital Markets), 3.98%, due 5/3/07 15,555(6)
16,285 Tennessee Energy Acquisition Corp. Gas Rev. (Merlots), Ser. 2006 C05,
(LOC: Bank of New York), 4.00%, due 5/2/07 VMIG1 16,285(6)
70,315
TEXAS (11.3%)
11,475 ABN Amro Munitops Cert. Trust (Texas Non-AMT Trust Cert.),
Ser. 2005-21, (PSF Insured), 3.99%, due 5/3/07 VMIG1 11,475(1)(6)a
6,125 Aledo Texas Independent Sch. Dist., Ser. 2005, (PSF Insured), 3.99%,
due 5/3/07 6,125(6)x
4,595 Austin Wtr. & Wastewater Sys. Rev. (Merlots), Ser. 2006 D,
(FSA Insured), 3.99%, due 5/2/07 A-1+ 4,595(6)ii
10,090 Cypress Fairbanks Independent Sch. Dist. (Merlots), Ser. 2007 C,
(PSF Insured), 3.99%, due 5/2/07 A-1+ 10,090(6)d
6,950 Dickinson Independent Sch. Dist. (Putters), Ser. 2006, (PSF Insured),
3.98%, due 5/3/07 VMIG1 6,950(6)s
2,075 Dickinson Independent Sch. Dist. (Putters), Ser. 2006, (PSF Insured),
3.99%, due 5/3/07 VMIG1 2,075(6)s
4,360 Frenship Independent Sch. Dist., Ser. 2005, (PSF Insured), 4.00%,
due 5/2/07 4,360(6)o
490 Gulf Coast Waste Disp. Au. Rev. (Armco, Inc. Proj.), Ser. 1998,
(LOC: PNC Bank), 3.94%, due 5/3/07 490(6)(3)
6,480 Harris Co. Hlth. Fac. Dev. Corp. Rev. (Putters), Ser. 2005,
(LOC: JP Morgan Chase), 3.98%, due 5/3/07 VMIG1 A-1+ 6,480(6)
5,000 Harris Co. Rev., Ser. 2005 R, (FSA Insured), 3.98%, due 5/3/07 VMIG1 5,000(6)k
9,800 Harrison Co. Hlth. Fac. Dev. Corp. Rev. (Marshall Reg. Med. Ctr.),
Ser. 2006, (LOC: AmSouth Bank), 3.95%, due 5/3/07 VMIG1 9,800(6)(3)
8,730 Hidalgo Co. G.O. (Merlots), Ser. 2007, (FSA Insured), 3.99%, due 5/2/07 A-1+ 8,730(6)d
</Table>
See Notes to Schedule of Investments
88
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING ~~ VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 7,780 Keller Ind. Sch. Dist. G.O. (ABN Amro Munitops Cert. Trust),
Ser. 2006-30, (PSF Insured), 3.99%, due 5/3/07 VMIG1 $ 7,780(1)(6)a
5,270 Lufkin Hlth. Fac. Dev. Corp. Hlth. Sys. Ref. Rev. (Memorial Hlth. Sys. of
East Texas), Ser. 1998, 5.70%, due 2/15/28 5,455(3)
5,800 Lufkin Hlth. Fac. Dev. Corp. Hlth. Sys. Ref. Rev. (Memorial Hlth. Sys.),
Ser. 2005 A, (LOC: Allied Irish Bank PLC), 4.12%, due 5/1/07 A-1 5,800(6)(3)
8,000 Muni. Gas Acquisition & Supply Corp. I Gas Supply Rev., Ser. 2006,
(LOC: Merrill Lynch Capital Markets), 3.99%, due 5/2/07 A-1+ 8,000(6)
3,620 Muni. Sec. Trust Cert., Ser. 2006 A, (PSF Insured), 3.98%, due 5/3/07 VMIG1 3,620(1)(6)h
9,530 Muni. Sec. Trust Cert. (McLennan Co. Junior College), Ser. 2007,
(FSA Insured), 3.97%, due 5/3/07 VMIG1 9,530(1)(6)h
1,500 Muni. Sec. Trust Cert. (Univ. Texas Perm. Univ.), Ser. 2007 A,
(LOC: Branch Banking & Trust Co.), 3.97%, due 5/3/07 VMIG1 1,500(1)(6)
5,110 San Antonio Wtr. Rev., Ser. 2006, (MBIA Insured), 3.98%, due 5/3/07 VMIG1 5,110(6)l
6,145 Texas A & M Univ. Sys. Board Reg. Perm. Univ. Fund (Floaters),
Ser. 2006, (LOC: Goldman Sachs), 3.96%, due 5/3/07 6,145(6)
10,000 Texas Muni. Gas Acquisition & Supply Corp. I Gas Supply Rev.,
Ser. 2007 R, (LOC: Merrill Lynch Capital Markets), 4.00%, due 5/3/07 A-1+ 10,000(6)
2,000 Texas St. TRANS, Ser. 2006, 4.50%, due 8/31/07 MIG1 SP-1+ 2,006
3,530 Univ. of Texas Univ. Rev., Ser. 2007, (LOC: Citigroup Global Markets),
3.98%, due 5/3/07 VMIG1 3,530(6)
144,646
UTAH (1.6%)
6,000 Central Wtr. Conservancy Dist. G.O. Ref., Ser. 1998 E, (AMBAC
Insured), 3.98%, due 5/2/07 VMIG1 A-1+ 6,000(6)f
3,000 Lehi Elec. Util. Rev., Ser. 2005, (FSA Insured), 4.03%, due 5/2/07 3,000(6)p
12,000 Riverton Hosp. Rev. (Putters), Ser. 2007, (LOC: JP Morgan Chase),
3.98%, due 5/3/07 VMIG1 12,000(6)
21,000
VERMONT (0.9%)
3,975 Vermont Ed. & Hlth. Bldg. Fin. Agcy. Rev. (Landmark College),
Ser. 2004 B, (Radian Insured), 3.97%, due 5/3/07 A-1+ 3,975(6)(3)ff
3,400 Vermont Ed. & Hlth. Bldg. Fin. Agcy. Rev. (Middlebury College Proj.),
Ser. 2002 B, 3.58%, due 11/1/32 Putable 11/1/07 3,400
4,000 Vermont Ed. & Hlth. Bldg. Fin. Agcy. Rev. (Porter Hosp.), Ser. 2005 A,
(LOC: TD Banknorth N.A), 3.96%, due 5/3/07 VMIG1 4,000(6)(3)
11,375
VIRGINIA (0.5%)
6,500 ABN Amro Muni. Cert. Trust, Ser. 2005, (LOC: ABN Amro Bank NV),
3.98%, due 5/3/07 VMIG1 6,500(1)(6)
WASHINGTON (4.7%)
4,000 Everett Pub. Fac. Dist. Proj. Rev., Ser. 2007, (LOC: Dexia Credit
Locale de France), 4.11%, due 5/1/07 A-1+ 4,000(6)
1,000 King Co. Sch. Dist. Number 411 (Issaquah) G.O., Ser. 2006,
(FSA Insured), 3.98%, due 5/3/07 VMIG1 1,000(6)i
5,350 Muni. Sec. Trust Cert., Ser. 2007 A, (AMBAC Insured), 3.97%, due 5/3/07 VMIG1 5,350(1)(6)h
5,290 Pierce Co. Sch. Dist. Number 010 Tacoma G.O., Ser. 2005,
(FSA Insured), 3.99%, due 5/3/07 VMIG1 5,290(6)x
1,617 Port of Seattle Rev. (Floaters), Ser. 2002, (FGIC Insured), 3.97%, due 5/3/07 A-1 1,617(6)y
7,240 Port of Seattle Rev., Ser. 2006, (Merrill Lynch Capital Markets), 3.99%,
due 5/3/07 7,240(6)
3,120 Reset Optional Cert. Trust, Ser. 2006, (Radian Insured), 3.99%, due 5/3/07 3,120(6)k
3,770 Seattle Museum Dev. Au. Spec. Oblig. Rev. (Merlots), Ser. 2005 D,
(LOC: Wachovia Bank & Trust Co.), 3.99%, due 5/2/07 A-1+ 3,770(6)
17,000 Washington St. Hlth. Care Fac. Au. Rev. (Swedish Hlth. Svcs.), Ser. 2006,
(LOC: Citibank, N.A.), 4.06%, due 5/2/07 VMIG1 A-1+ 17,000(6)(3)
</Table>
See Notes to Schedule of Investments
89
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT SECURITY @@ RATING ~~ VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 8,000 Washington St. Hsg. Fin. Commission Non-Profit Rev. (Eastside
Catholic Sch.), Ser. 2007 B, (LOC: Key Bank), 3.99%, due 5/3/07 VMIG1 $ 8,000(6)(3)
1,400 Washington St. Hsg. Fin. Commission Non-Profit Rev. (St. Vincent
de Paul Proj.), Ser. 2000 A, (LOC: Wells Fargo Bank & Trust Co.), 3.81%,
due 5/3/07 A-1+ 1,400(6)(3)
1,900 Washington St. Hsg. Fin. Commission Non-Profit Rev. (Tacoma Art
Museum Proj.), Ser. 2002, (LOC: Northern Trust Co.), 4.11%, due 5/1/07 VMIG1 1,900(6)(3)
59,687
WISCONSIN (4.1%)
3,000 Antigo Unified Sch. Dist. TRANS, Ser. 2006, 3.85%, due 11/1/07 3,002
1,560 Appleton Waterworks Rev., Ser. 2007 A, (MBIA Insured), 4.00%,
due 1/1/08 1,564
4,540 Edgerton Sch. Dist. G.O. TRANS, Ser. 2006, 3.71%, due 10/24/07 4,541
2,000 Nicolet High Sch. Dist. TRANS, Ser. 2006, 4.25%, due 10/30/07 2,006
2,250 Oak Creek Franklin Joint Sch. Dist. BANS, Ser. 2007, 4.25%, due 2/1/08 MIG1 2,253
1,700 Wisconsin Sch. Dist. Cash Flow Management Prog. CTFS Partner,
Ser. 2006 A-2, 4.50%, due 9/19/07 MIG1 1,706
3,000 Wisconsin Sch. Dist. Cash Flow Management Prog. CTFS Partner,
Ser. 2006 B, 4.25%, due 11/1/07 MIG1 3,011
8,275 Wisconsin St. Hlth. & Ed. Fac. Au. Rev., Ser. 2003, (MBIA Insured),
3.99%, due 5/3/07 8,275(6)
4,315 Wisconsin St. Hlth. & Ed. Fac. Au. Rev. (Blood Ctr.), Ser. 1994 A,
(LOC: Marshall & Ilsley), 3.98%, due 5/2/07 A-1 4,315(6)(3)
3,250 Wisconsin St. Hlth. & Ed. Fac. Au. Rev. (Concordia Univ. of
Wisconsin Inc. Proj.), Ser. 2006, (LOC: Marshall & Ilsley), 4.03%,
due 5/3/07 3,250(6)(3)
3,280 Wisconsin St. Hlth. & Ed. Fac. Au. Rev. (Edgewood College), Ser. 2006,
(LOC: U.S. Bank), 4.11%, due 5/1/07 A-1+ 3,280(6)(3)
1,400 Wisconsin St. Hlth. & Ed. Fac. Au. Rev. (Lutheran College Proj.),
Ser. 2003, (LOC: U.S. Bank), 4.11%, due 5/1/07 A-1+ 1,400(6)(3)
8,500 Wisconsin St. Hlth. & Ed. Fac. Au. Rev. (Marshfield), Ser. 2006 B,
(LOC: Marshall & Ilsley), 3.98%, due 5/3/07 A-1 8,500(6)(3)
4,000 Wisconsin St. Hlth. & Ed. Fac. Au. Rev. (Oakwood Village), Ser. 2005,
(LOC: Marshall & Ilsley), 3.97%, due 5/3/07 VMIG1 4,000(6)(3)
970 Wisconsin St. Hlth. & Ed. Fac. Au. Rev. (Riverview Hosp. Assoc.),
Ser. 2001, (LOC: U.S. Bank), 4.11%, due 5/1/07 A-1+ 970(6)(3)
52,073
TOTAL INVESTMENTS (99.5%) 1,271,960
Cash, receivables and other assets, less liabilities (0.5%) 6,150
TOTAL NET ASSETS (100.0%) $1,278,110
</Table>
See Notes to Schedule of Investments
90
<Page>
Schedule of Investments Neuberger Berman Cash Reserves
(Unaudited)
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
U.S. GOVERNMENT AGENCY SECURITIES (0.8%)
$ 3,000 Federal Home Loan Bank, Bonds, 5.38%, due 4/9/08 AGY AGY $ 3,000
CERTIFICATES OF DEPOSIT (2.2%)
500 Bank of America NA, 5.32%, due 9/21/07 P-1 A-1+ 500
5,000 Barclays Bank PLC, Yankee CD, 5.38%, due 5/9/08 P-1 A-1+ 5,000
2,000 Royal Bank of Canada NY, Yankee CD, 5.38%, due 2/14/08 P-1 A-1+ 2,000
690 Unicredito Italiano, Yankee CD, 5.30%, due 11/21/07 P-1 A-1 689
TOTAL CERTIFICATES OF DEPOSIT 8,189
FLOATING RATE CERTIFICATES OF DEPOSIT (1.0%)(6)
4,000 Fortis Bank NY, Floating Rate Yankee CD, 5.27%, due 5/15/07 P-1 A-1+ 3,999
COMMERCIAL PAPER (48.4%)
ASSET-BACKED SECURITIES (23.6%)
1,100 Bank of America NA, 5.20%, due 8/7/07 P-1 A-1+ 1,084
14,250 Chariot Funding LLC, 5.21% & 5.24%, due 5/23/07 & 6/8/07 P-1 A-1 14,195
5,000 Charta LLC, 5.24%, due 5/24/07 P-1 A-1 4,983
5,481 Crown Point Capital Co., 5.19% & 5.26%, due 6/15/07 & 7/9/07 P-1 A-1 5,444
6,000 Erasmus Capital Corp., 5.24%, due 6/26/07 P-1 A-1+ 5,951
2,305 Fairway Finance, 5.21% & 5.24%, due 6/14/07 & 7/23/07 P-1 A-1 2,280
3,500 Grampian Funding LLC, 5.22%, due 7/20/07 P-1 A-1+ 3,459(1)
1,000 Grampian Funding LLC, 5.22%, due 5/15/07 P-1 A-1+ 998
6,000 Ivory Funding Corp., 5.23%, due 5/17/07 P-1 A-1 5,986
2,500 K2 (USA) LLC, 5.23%, due 7/17/07 P-1 A-1+ 2,472
281 North Sea Funding BV, 5.30%, due 5/3/07 P-1 A-1+ 281(1)
5,961 North Sea Funding BV, 5.23% & 5.30%, due 5/9/07 & 6/27/07 P-1 A-1+ 5,919
361 Old Line Funding Corp., 5.28%, due 5/4/07 P-1 A-1+ 361
10,000 Regency Markets No. 1 LLC, 5.24%, due 5/15/07 P-1 A-1 9,980
10,000 Sheffield Receivables Corp., 5.08%, due 9/4/07 P-1 A-1+ 9,822
10,000 Thames Asset Securitization LLC, 5.21%, due 6/7/07 P-1 A-1 9,947
750 Westpac Bank Corp., 5.20% & 5.23%, due 8/7/07 P-1 A-1+ 739
4,687 Yorktown Capital, 5.25%, due 5/2/07 P-1 A-1+ 4,686
88,587
AUTOMOTIVE/AUTO MANUFACTURING (0.3%)
1,312 Amstel Funding Corp., 5.24%, due 6/15/07 P-1 A-1+ 1,304
BANKING/DOMESTIC (12.2%)
9,000 Barclays U.S. Funding Corp., 5.19% & 5.20%, due 5/9/07 & 8/7/07 P-1 A-1+ 8,937
10,000 BNP Paribas Finance, 5.21%, due 6/7/07 P-1 A-1+ 9,946
10,000 KBC Finance Products Ltd., 5.21%, due 8/6/07 P-1 A-1+ 9,860
5,000 Morgan Stanley, 5.24%, due 5/1/07 P-1 A-1 5,000
4,000 Nationwide Building, 5.18%, due 10/15/07 P-1 A-1+ 3,904
8,000 Sigma Finance, Inc., 5.19% & 5.20%, due 8/16/07 & 8/29/07 P-1 A-1+ 7,868
45,515
BANKING/FOREIGN (12.3%)
1,966 Atlantic Asset Securitization Corp., 5.24%, due 7/6/07 P-1 A-1 1,947(1)
5,000 Bank of Ireland, 5.13%, due 8/28/07 P-1 A-1 4,915
6,100 Danske Corp., 5.14% & 5.19%, due 8/1/07 & 11/9/07 P-1 A-1+ 5,954
4,000 Depfa Bank PLC, 5.18%, due 8/24/07 P-1 A-1+ 3,934
12,705 DZ Bank AG, 5.24% - 5.27%, due 5/9/07 - 5/29/07 P-1 A-1 12,675
400 ING America Insurance Holdings, 5.24%, due 7/6/07 P-1 A-1+ 396
</Table>
See Notes to Schedule of Investments
91
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 6,859 UBS Finance LLC, 5.19% - 5.27%, due 6/18/07 - 8/10/07 P-1 A-1+ $ 6,770
5,500 Unicredito Italiano PLC, 5.20% - 5.24%, due 5/24/07 - 7/31/07 P-1 A-1 5,455
4,000 Westpac Bank Corp., 5.20%, due 8/8/07 P-1 A-1+ 3,943
45,989
TOTAL COMMERCIAL PAPER 181,395
FLOATING RATE COMMERCIAL PAPER (2.7%)(6)
FINANCIAL SERVICES (2.7%)
10,000 Morgan Stanley, 5.25%, due 5/1/07 P-1 A-1 10,000
CORPORATE DEBT SECURITIES (2.7%)
FINANCIAL SERVICES (2.7%)
10,000 Cullinan Finance Corp., Medium-Term Notes, 5.36% & 5.41%, due 11/28/07 P-1 A-1 10,000(1)
FLOATING RATE CORPORATE DEBT SECURITIES (39.3%)(6)
ASSET-BACKED SECURITIES (10.3%)
5,000 Beta Finance, Inc., Guaranteed Floating Rate Medium-Term Notes,
5.31%, due 5/18/07 P-1 A-1+ 4,999(1)
1,000 BMW US Capital LLC, Guaranteed Floating Rate Notes, 5.34%,
due 5/15/07 P-1 A-1 1,000(1)
11,700 K2 (USA) LLC, Guaranteed Floating Rate Medium-Term Notes,
5.28% - 5.32%, due 5/8/07 - 6/11/07 P-1 A-1+ 11,698(1)
11,000 Links Finance LLC, Floating Rate Medium-Term Notes, 5.32 & 5.33%,
due 5/15/07 & 5/24/07 P-1 A-1+ 10,999(1)
5,000 Parkland (USA) LLC, Floating Rate Medium-Term Notes, 5.34%, due 7/6/07 P-1 A-1+ 5,000(1)
5,000 Whistlejacket Capital LLC, Floating Rate Medium-Term Notes, 5.32%,
due 6/5/07 P-1 A-1+ 5,000(1)
38,696
BANKING/FOREIGN (17.5%)
5,000 Bank of Ireland, Unsecured Floating Rate Medium-Term Notes, 5.30%,
due 5/21/07 P-1 A-1 5,000(1)
3,500 Cullinan Finance Corp., Floating Rate Medium-Term Notes, 5.32%,
due 5/14/07 P-1 A-1+ 3,500(1)
10,900 LP Pinewood SPV, Floating Rate Notes, 5.32%, due 5/3/07 P-1 10,900
15,000 Natexis Banques Populaires, Floating Rate Notes, 5.33%, due 5/15/07 P-1 A-1+ 15,000(1)
10,000 Nationwide Building, Floating Rate Notes, 5.37%, due 5/8/07 P-1 A-1 10,000(1)
10,000 Royal Bank of Canada, Floating Rate Medium-Term Notes, 5.31%,
due 5/1/07 P-1 A-1+ 10,000(1)
3,000 Schreiber Capital Co., Floating Rate Bonds, 5.32%, due 5/3/07 P-1 3,000
8,000 Unicredito Italiano PLC, Guaranteed Floating Rate Notes, 5.34%,
due 5/9/07 P-1 A-1 8,000(1)
65,400
FINANCIAL SERVICES (11.5%)
10,500 Bear Stearns Co., Inc., Floating Rate Medium-Term Notes,
Ser. B, 5.44% - 5.56%, due 5/1/07 - 5/8/07 P-1 A-1 10,508
10,500 CIT Group, Inc., Senior Floating Rate Medium-Term Notes,
5.60%, due 5/23/07 P-1 A-1 10,515
2,000 DNB Norbank ASA, Floating Rate Medium-Term Notes, Ser. E, 5.40%,
due 5/25/07 P-1 A-1 2,000
5,000 Merrill Lynch & Co., Floating Rate Medium-Term Notes, 5.36%, due 5/1/07 P-1 A-1+ 5,000
5,000 Merrill Lynch & Co., Senior Unsecured Floating Rate Notes, 5.30%, due 5/18/07 P-1 A-1 5,000
5,000 Northern Rock PLC, Floating Rate Notes, 5.33%, due 7/23/07 P-1 A-1 5,000(1)
5,000 Tango Finance Corp., Floating Rate Notes, 5.37%, due 5/21/07 P-1 A-1+ 5,001(1)
43,024
TOTAL FLOATING RATE CORPORATE DEBT SECURITIES 147,120
</Table>
See Notes to Schedule of Investments
92
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE ++
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
PROMISSORY NOTES (2.7%)
$10,000 Goldman Sachs Promissory Notes, 5.37%, due 5/1/07 P-1 A-1+ $ 10,000(6)
TOTAL INVESTMENTS (99.8%) 373,703
Cash, receivables and other assets, less liabilities (0.2%) 893
TOTAL NET ASSETS (100.0%) $374,596
</Table>
See Notes to Schedule of Investments
93
<Page>
Notes to Schedule of Investments (Unaudited)
+ Investments in debt securities by Lehman Brothers Core Bond Fund ("Core
Bond"), Lehman Brothers High Income Bond Fund ("High Income"), Lehman
Brothers Municipal Securities Trust ("Municipal Securities Trust"), Lehman
Brothers Short Duration Bond Fund ("Short Duration"), and Lehman Brothers
Strategic Income Fund ("Strategic Income") are valued daily by obtaining
bid price quotations from independent pricing services on all securities
available in each service's data base. For all other debt securities
requiring daily quotations, bid price quotations are obtained from
principal market makers in those securities. Investments in equity
securities are valued at the latest sale price where that price is readily
available; equity securities for which no sales were reported, unless
otherwise noted, are valued at the mean between the closing bid and asked
prices. Securities traded primarily on the NASDAQ Stock Market are normally
valued by a fund at the NASDAQ Official Closing Price ("NOCP") provided by
NASDAQ each business day. The NOCP is the most recently reported price as
of 4:00:02 p.m., Eastern time, unless that price is outside the range of
the "inside" bid and asked prices (i.e., the bid and asked prices that
dealers quote to each other when trading for their own accounts); in that
case, NASDAQ will adjust the price to equal the inside bid or asked price,
whichever is closer. Because of delays in reporting trades, the NOCP may
not be based on the price of the last trade to occur before the market
closes. Each Fund values all other securities, including securities for
which the necessary last sale, asked and/or bid prices are not readily
available, by methods the Board of Trustees of Lehman Brothers Income Funds
(the "Board") has approved on the belief that they reflect fair value.
Numerous factors may be considered when determining the fair value of a
security, including available analyst, media or other reports, trading in
futures or ADRs and whether the issuer of the security being fair valued
has other securities outstanding. Foreign security prices are furnished by
independent quotation services and expressed in local currency values.
Foreign security prices are currently translated from the local currency
into U.S. dollars using the exchange rate as of 4:00 p.m., Eastern time.
The Board has approved the use of FT Interactive Data Corporation ("FT
Interactive") to assist in determining the fair value of foreign equity
securities when changes in the value of a certain index suggest that the
closing prices on the foreign exchanges may no longer represent the amount
that a fund could expect to receive for those securities. In this event, FT
Interactive will provide adjusted prices for certain foreign equity
securities using a statistical analysis of historical correlations of
multiple factors. In the absence of precise information about the market
values of these foreign securities as of the close of the New York Stock
Exchange, the Board has determined on the basis of available data that
prices adjusted in this way are likely to be closer to the prices a fund
could realize on a current sale than are the prices of those securities
established at the close of the foreign markets in which the securities
primarily trade. However, fair value prices are necessarily estimates, and
there is no assurance that such a price will be at or close to the price at
which the security next trades. Short-term debt securities with less than
60 days until maturity may be valued at cost which, when combined with
interest earned, approximates market value.
++ Investment securities of Lehman Brothers Municipal Money Fund ("Municipal
Money"), Lehman Brothers National Municipal Money Fund ("National Municipal
Money"), Lehman Brothers New York Municipal Money Fund ("New York Municipal
Money"), Lehman Brothers Tax-Free Money Fund ("Tax-Free Money") , and
Neuberger Berman Cash Reserves ("Cash Reserves") are valued at amortized
cost, which approximates U.S. federal income tax cost.
# At cost, which approximates market value.
## At April 30, 2007, selected fund information on a U.S. federal income tax
basis was as follows:
<Table>
<Caption>
NET
GROSS GROSS UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
(000'S OMITTED) COST APPRECIATION DEPRECIATION (DEPRECIATION)
CORE BOND $104,095 $ 277 $401 $ (124)
HIGH INCOME 530,430 15,021 648 14,373
MUNICIPAL SECURITIES TRUST 28,394 459 142 317
SHORT DURATION 116,206 365 971 (606)
STRATEGIC INCOME 19,834 981 232 749
</Table>
94
<Page>
Notes to Schedule of Investments (cont'd)
@@ Municipal securities held by Municipal Money, National Municipal Money, New
York Municipal Money, and Tax-Free Money are within the two highest rating
categories assigned by a nationally recognized statistical rating
organization ("NRSRO") such as Moody's Investors Service, Inc. or Standard
& Poor's or, where not rated, are determined by the fund's investment
manager to be of comparable quality. Municipal securities held by Municipal
Securities Trust are within the four highest rating categories assigned by
a NRSRO or, where not rated, are determined by the fund's investment
manager to be of comparable quality. Approximately 87%, 65%, 85%, 85% and
88% of the municipal securities held by Municipal Money, Municipal
Securities Trust, National Municipal Money, New York Municipal Money, and
Tax-Free Money, respectively, have credit enhancement features backing
them, which the funds may rely on, such as letters of credit, insurance, or
guarantees. Without these credit enhancement features the securities may or
may not meet the quality standards of the fund. Pre-refunded bonds are
supported by securities in escrow issued or guaranteed by the U.S.
Government, its agencies, or instrumentalities. The amount escrowed is
sufficient to pay the periodic interest due and the principal of these
bonds. Putable bonds give the funds the right to sell back the issue on the
date specified.
~~ Where no rating appears from any NRSRO, the security is deemed unrated for
purposes of Rule 2a-7 under the Investment Company Act of 1940, as amended.
Each of these securities is an eligible security based on a comparable
quality analysis performed by the fund's investment manager.
~ Managed by an affiliate of Neuberger Berman Management Inc. ("Management")
and could be deemed an affiliate of the fund (see Notes A & F of Notes to
Financial Statements).
@ Neuberger Berman Prime Money Fund ("Prime Money") is also managed by
Management and may be considered an affiliate since it has the same
officers, Board members, and investment manager as the fund and because, at
times, the fund may own 5% or more of the outstanding voting securities of
Prime Money (see Notes A & F of Notes to Financial Statements).
* Security did not produce income during the last twelve months.
! These securities were held in escrow at April 30, 2007, to cover the below
listed outstanding call options written for Strategic Income:
<Table>
<Caption>
NUMBER OF MARKET VALUE
SHARES SECURITIES AND OPTIONS OF OPTIONS
700 American International Group May 2007 @ 80 $ 0
1,000 Anheuser-Busch September 2007 @ 55 0
1,500 First Data May 2007 @ 27.5 8,000
1,500 General Electric June 2007 @ 40 0
1,000 Novartis AG ADR July 2007 @ 65 0
800 Wyeth July 2007 @ 55 2,000
</Table>
^^ Principal amount is stated in the currency in which the security is
denominated.
AUD = Australian Dollar
CAD = Canadian Dollar
DKK = Danish Krone
EUR = Euro
GBP = British Pound
JPY = Japanese Yen
95
<Page>
Notes to Schedule of Investments (cont'd)
(1) 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 have been deemed by the investment manager to be liquid. At April 30,
2007, these securities amounted to $4,075,000 or 4.9% of net assets for
Core Bond, $135,047,000 or 27.7% of net assets for High Income, $38,280,000
or 4.8% of net assets for Municipal Money, $5,200,000 or 1.8% of net assets
for National Municipal Money, $22,940,000 or 9.7% of net assets for New
York Municipal Money, $5,493,000 or 4.9% of net assets for Short Duration,
$1,407,000 or 7.2% of net assets for Strategic Income, $188,220,000 or
14.7% of net assets for Tax-Free Money and $115,884,000 or 30.9% of net
assets for Cash Reserves.
(2) All or a portion of this security is on loan (see Note A of Notes to
Financial Statements).
(3) Security is guaranteed by the corporate or non-profit obligor.
(4) All or a portion of this security was purchased on a when-issued basis. At
April 30, 2007, these securities amounted to $21,736,000 for Core Bond,
$1,138,000 for High Income, $4,007,000 for Municipal Money, $3,001,000 for
National Municipal Money, $4,183,000 for New York Municipal Money, $942,000
for Strategic Income and $2,337,000 for Tax-Free Money, respectively.
(5) All or a portion of this security is segregated as collateral for
when-issued purchase commitments, forward foreign currency contracts and/or
financial futures contracts.
(6) 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 April 30, 2007.
(7) Denotes a step-up bond: a zero coupon bond that converts to a fixed rate of
interest at a designated future date.
(8) Not rated by a nationally recognized statistical rating organization.
(9) Rated A- by Fitch Investors Services, Inc.
a Security is subject to a guarantee provided by ABN AMRO Bank NV, backing
100% of the total principal.
b Security is subject to a guarantee provided by Banco Santander, backing
100% of the total principal.
c Security is subject to a guarantee provided by Bank of America, backing
100% of the total principal.
d Security is subject to a guarantee provided by Bank of New York, backing
100% of the total principal.
e Security is subject to a guarantee provided by Bank of the West, backing
100% of the total principal.
f Scurity is subject to a guarantee provided by Landesbank Hessen-Thveringen
Girozentrale, backing 100% of the total principal.
g Security is subject to a guarantee provided by Branch Banking & Trust Co.,
backing 100% of the total principal.
h Security is subject to a guarantee provided by Bear Stearns, backing 100%
of the total principal.
i Security is subject to a guarantee provided by BNP Paribas, backing 100% of
the total principal.
j Security is subject to a guarantee provided by Chase Bank, backing 100% of
the total principal.
k Security is subject to a guarantee provided by Citibank, N.A., backing 100%
of the total principal.
l Security is subject to a guarantee provided by Citigroup Global Markets,
backing 100% of the total principal.
m Security is subject to a guarantee provided by Comerica Bank, backing 100%
of the total principal.
n Security is subject to a guarantee provided by by Depfa Bank PLC, backing
100% of the total principal.
96
<Page>
Notes to Schedule of Investments (cont'd)
o Security is subject to a guarantee provided by Deutsche Bank, backing 100%
of the total principal.
p Security is subject to a guarantee provided by Dexia Credit Locale de
France, backing 100% of the total principal.
q Security is subject to a guarantee provided by Goldman Sachs, backing 100%
of the total principal.
r Security is subject to a guarantee provided by Harris Trust & Savings Bank,
backing 100% of the total principal.
s Security is subject to a guarantee provided by JP Morgan Chase, backing
100% of the total principal.
t Security is subject to a guarantee provided by KBC Bank, backing 100% of
the total principal.
u Security is subject to a guarantee provided by Key Bank, backing 100% of
the total principal.
v Security is subject to a guarantee provided by M&T Bank, backing 100% of
the total principal.
w Security is subject to a guarantee provided by Mellon Bank, backing 100% of
the total principal.
x Security is subject to a guarantee provided by Merrill Lynch Capital
Markets, backing 100% of the total principal.
y Security is subject to a guarantee provided by Morgan Stanley, backing 100%
of the total principal.
z Security is subject to a guarantee provided by National City Bank, backing
100% of the total principal.
aa Security is subject to a guarantee provided by Norwest Bank, backing 100%
of the total principal.
bb Security is subject to a guarantee provided by PNC Bank, backing 100% of
the total principal.
cc Security is subject to a guarantee provided by Societe Generale, backing
100% of the total principal.
dd Security is subject to a guarantee provided by State Street Bank & Trust
Co., backing 100% of the total principal.
ee Security is subject to a guarantee provided by Svenska Handelsbank, backing
100% of the total principal.
ff Security is subject to a guarantee provided by TD Banknorth N.A., backing
100% of the total principal.
gg Security is subject to a guarantee provided by Trinity Funding Co. LLC,
backing 100% of the total principal.
hh Security is subject to a guarantee provided by U.S. Bank, backing 100% of
the total principal.
ii Security is subject to a guarantee provided by Wachovia Bank & Trust Co.,
backing 100% of the total principal.
jj Security is subject to a guarantee provided by WesCorp Credit Union,
backing 100% of the total principal.
97
<Page>
STATEMENTS OF ASSETS AND LIABILITIES (Unaudited)
LEHMAN BROTHERS INCOME FUNDS
(000's OMITTED EXCEPT PER SHARE AMOUNTS)
<Table>
<Caption>
CORE BOND HIGH INCOME MUNICIPAL
FUND BOND FUND MONEY FUND
-------------- -------------- --------------
APRIL 30, 2007 APRIL 30, 2007 APRIL 30, 2007
ASSETS
Investments in securities, at value*+ (Notes A & F)--see Schedule of
Investments:
Unaffiliated issuers $102,318 $468,788 $800,858
Affiliated issuers 1,653 76,015 --
Repurchase agreements -- -- --
103,971 544,803 800,858
Cash -- -- --
Foreign currency -- -- --
Dividends and interest receivable 590 10,040 6,196
Receivable for securities sold 85 9,320 125
Receivable for variation margin (Note A) -- -- --
Receivable for Fund shares sold 141 348 3
Receivable from administrator--net (Note B) -- -- --
Receivable for securities lending income (Note A) -- 339 --
Prepaid expenses and other assets 2 12 41
------------------------------------------------
Total Assets 104,789 564,862 807,223
------------------------------------------------
LIABILITIES
Distributions payable 23 265 496
Option contracts written, at market value (Note A) -- -- --
Net payable for forward foreign currency exchange contracts (Note C) -- -- --
Due to custodian -- -- 28
Payable for collateral on securities loaned (Note A) -- 66,475 --
Payable for securities purchased 21,945 8,149 4,007
Payable for Fund shares redeemed 94 2,069 6
Payable to investment manager--net (Notes A & B) -- 192 166
Payable to administrator--net (Note B) 7 109 160
Payable for securities lending fees (Note A) -- 320 --
Accrued expenses and other payables 84 154 115
------------------------------------------------
Total Liabilities 22,153 77,733 4,978
------------------------------------------------
Net Assets at value $ 82,636 $487,129 $802,245
------------------------------------------------
NET ASSETS CONSIST OF:
Paid-in capital $ 83,366 $493,566 $802,230
Undistributed net investment income (loss) -- 23 1
Distributions in excess of net investment income (4) -- --
Accumulated net realized gains (losses) on investments (651) (21,282) 14
Net unrealized appreciation (depreciation) in value of investments (75) 14,822 --
------------------------------------------------
Net Assets at value $ 82,636 $487,129 $802,245
------------------------------------------------
NET ASSETS
Investor Class $ 37,256 $487,129 $802,245
Institutional Class 45,380 -- --
Reserve Class -- -- --
Trust Class -- -- --
SHARES OUTSTANDING ($.001 PAR VALUE; UNLIMITED SHARES AUTHORIZED)
Investor Class 3,766 51,975 802,304
Institutional Class 4,582 -- --
Reserve Class -- -- --
Trust Class -- -- --
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Investor Class $ 9.89 $ 9.37 $ 1.00
Institutional Class 9.90 -- --
Reserve Class -- -- --
Trust Class -- -- --
+SECURITIES ON LOAN, AT MARKET VALUE:
Unaffiliated issuers $ -- $ 64,861 $ --
*COST OF INVESTMENTS:
Unaffiliated issuers $102,393 $453,966 $800,858
Affiliated issuers 1,653 76,015 --
------------------------------------------------
Total cost of investments $104,046 $529,981 $800,858
------------------------------------------------
Total cost of foreign currency $ -- $ -- $ --
------------------------------------------------
</Table>
See Notes to Financial Statements
98
<Page>
<Table>
<Caption>
NATIONAL NEW YORK
MUNICIPAL MUNICIPAL MUNICIPAL
SECURITIES TRUST MONEY FUND MONEY FUND
---------------- -------------- --------------
APRIL 30, 2007 APRIL 30, 2007 APRIL 30, 2007
ASSETS
Investments in securities, at value*+ (Notes A & F)- see Schedule of
Investments:
Unaffiliated issuers $28,711 $285,339 $238,479
Affiliated issuers -- -- --
Repurchase agreements -- -- --
28,711 285,339 238,479
Cash 12 -- --
Foreign currency -- -- --
Dividends and interest receivable 433 1,591 2,094
Receivable for securities sold -- 5 85
Receivable for variation margin (Note A) -- -- --
Receivable for Fund shares sold 37 -- --
Receivable from administrator-net (Note B) 6 39 --
Receivable for securities lending income (Note A) -- -- --
Prepaid expenses and other assets 1 13 7
------------------------------------------------
Total Assets 29,200 286,987 240,665
------------------------------------------------
LIABILITIES
Distributions payable 18 -- 264
Option contracts written, at market value (Note A) -- -- --
Net payable for forward foreign currency exchange contracts (Note C) -- -- --
Due to custodian -- 1,030 268
Payable for collateral on securities loaned (Note A) -- -- --
Payable for securities purchased -- 3,001 4,183
Payable for Fund shares redeemed 21 -- --
Payable to investment manager-net (Notes A & B) 6 -- 17
Payable to administrator-net (Note B) -- -- 55
Payable for securities lending fees (Note A) -- -- --
Accrued expenses and other payables 38 6 33
------------------------------------------------
Total Liabilities 83 4,037 4,820
------------------------------------------------
Net Assets at value $29,117 $282,950 $235,845
-----------------------------------------------
NET ASSETS CONSIST OF: $28,757 $282,958 $235,836
Paid-in capital -- -- --
Undistributed net investment income (loss) -- -- --
Distributions in excess of net investment income 43 (8) 9
Accumulated net realized gains (losses) on investments 317 -- --
------------------------------------------------
Net unrealized appreciation (depreciation) in value of investments $29,117 $282,950 $235,845
------------------------------------------------
Net Assets at value
NET ASSETS $29,117 $ -- $235,845
Investor Class -- -- --
Institutional Class -- 282,950 --
Reserve Class -- -- --
Trust Class
SHARES OUTSTANDING ($.001 PAR VALUE; UNLIMITED SHARES AUTHORIZED)
Investor Class 2,591 -- 235,836
Institutional Class -- -- --
Reserve Class -- 282,958 --
Trust Class -- -- --
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Investor Class $ 11.24 $ -- $ 1.00
Institutional Class -- -- --
Reserve Class -- 1.00 --
Trust Class -- -- --
+SECURITIES ON LOAN, AT MARKET VALUE:
Unaffiliated issuers $ -- $ -- $ --
*COST OF INVESTMENTS:
Unaffiliated issuers $28,394 $285,339 $238,479
Affiliated issuers -- -- --
------------------------------------------------
Total cost of investments $28,394 $285,339 $238,479
------------------------------------------------
Total cost of foreign currency $ -- $ -- $ --
------------------------------------------------
</Table>
<Table>
<Caption>
SHORT DURATION STRATEGIC TAX-FREE
BOND FUND INCOME FUND MONEY FUND CASH RESERVES
-------------- -------------- -------------- --------------
APRIL 30, 2007 APRIL 30, 2007 APRIL 30, 2007 APRIL 30, 2007
ASSETS
Investments in securities, at value*+ (Notes A & F)--see Schedule of
Investments:
Unaffiliated issuers $ 113,190 $ 19,745 $ 1,271,960 $ 373,703
Affiliated issuers -- 693 -- --
Repurchase agreements 2,410 145 -- --
115,600 20,583 1,271,960 373,703
Cash 5 -- -- 235
Foreign currency -- 24 -- --
Dividends and interest receivable 828 228 11,310 1,324
Receivable for securities sold -- 86 25 --
Receivable for variation margin (Note A) 17 -- -- --
Receivable for Fund shares sold 94 -- -- 216
Receivable from administrator-net (Note B) -- 39 -- --
Receivable for securities lending income (Note A) -- 1 -- --
Prepaid expenses and other assets 5 -- 331 17
---------------------------------------------------------------
Total Assets 116,549 20,961 1,283,626 375,495
---------------------------------------------------------------
LIABILITIES
Distributions payable 48 -- 629 549
Option contracts written, at market value (Note A) -- 10 -- --
Net payable for forward foreign currency exchange contracts (Note C) -- 70 -- --
Due to custodian -- 77 2,358 --
Payable for collateral on securities loaned (Note A) -- 203 -- --
Payable for securities purchased -- 1,123 2,337 --
Payable for Fund shares redeemed 3,336 -- -- 153
Payable to investment manager-net (Notes A & B) 24 10 71 32
Payable to administrator-net (Note B) 3 -- 87 107
Payable for securities lending fees (Note A) -- 1 -- --
Accrued expenses and other payables 65 37 34 58
---------------------------------------------------------------
Total Liabilities 3,476 1,531 5,516 899
---------------------------------------------------------------
Net Assets at value $ 113,073 $ 19,430 $ 1,278,110 $ 374,596
---------------------------------------------------------------
NET ASSETS CONSIST OF: $ 134,610 $ 17,904 $ 1,278,093 $ 374,642
Paid-in capital -- 27 -- 4
Undistributed net investment income (loss) (78) -- (2) --
Distributions in excess of net investment income (21,420) 689 19 (50)
Accumulated net realized gains (losses) on investments (39) 810 -- --
---------------------------------------------------------------
Net unrealized appreciation (depreciation) in value of investments $ 113,073 $ 19,430 $ 1,278,110 $ 374,596
---------------------------------------------------------------
Net Assets at value
NET ASSETS $ 99,073 $ -- $ -- $ 374,596
Investor Class -- 19,329 -- --
Institutional Class -- -- 1,278,110 --
Reserve Class 14,000 101 -- --
Trust Class
SHARES OUTSTANDING ($.001 PAR VALUE; UNLIMITED SHARES AUTHORIZED)
Investor Class 10,865 -- -- 374,642
Institutional Class -- 1,840 -- --
Reserve Class -- -- 1,278,093 --
Trust Class 1,611 10 -- --
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Investor Class $ 9.12 $ -- $ -- $ 1.00
Institutional Class -- 10.50 -- --
Reserve Class -- -- 1.00 --
Trust Class 8.69 10.50 -- --
+SECURITIES ON LOAN, AT MARKET VALUE:
Unaffiliated issuers $ -- $ 199 $ -- $ --
*COST OF INVESTMENTS:
Unaffiliated issuers $ 115,679 $ 19,011 $ 1,271,960 $ 373,703
Affiliated issuers -- 693 -- --
---------------------------------------------------------------
Total cost of investments $ 115,679 $ 19,704 $ 1,271,960 $ 373,703
---------------------------------------------------------------
Total cost of foreign currency $ -- $ 24 $ -- $ --
---------------------------------------------------------------
</Table>
99
<Page>
Statements of Operations (Unaudited)
LEHMAN BROTHERS INCOME FUNDS
(000'S OMITTED)
<Table>
<Caption>
CORE BOND HIGH INCOME MUNICIPAL
FUND BOND FUND MONEY FUND
-------------- -------------- --------------
FOR THE SIX FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED MONTHS ENDED
APRIL 30, 2007 APRIL 30, 2007 APRIL 30, 2007
INVESTMENT INCOME
Income (Note A):
Interest income--unaffiliated issuers $2,079 $21,343 $15,155
Dividend income--unaffiliated issuers -- 4 --
Income from securities loaned--net (Note F) -- 135 --
Income from investments in affiliated issuers (Notes A & F) 72 405 --
Foreign taxes withheld -- (5) --
----------------------------------------------
Total income 2,151 21,882 15,155
EXPENSES:
Investment management fees (Note B) 98 1,272 989
Administration fees (Note B) 23 159 247
Administration fees (Note B):
Investor Class 36 556 865
Institutional Class 20 -- --
Reserve Class -- -- --
Trust Class -- -- --
Distribution fees (Note B):
Investor Class 43 -- --
Shareholder servicing agent fees:
Investor Class 14 139 41
Institutional Class 8 -- --
Reserve Class -- -- --
Trust Class -- -- --
Audit fees 10 21 18
Custodian fees (Note B) 44 98 135
Insurance expense 1 11 9
Legal fees 63 25 19
Registration and filing fees 27 29 156
Shareholder reports 33 44 48
Trustees' fees and expenses 11 11 11
Miscellaneous 1 22 28
----------------------------------------------
Total expenses 432 2,387 2,566
Expenses reimbursed by administrator (Note B) (86) -- (115)
Management and administration fees waived (Notes A & B) (99) (6) --
Expenses reduced by custodian fee expense offset and
commission recapture arrangements (Note B) (1) (7) (27)
----------------------------------------------
Total net expenses 246 2,374 2,424
----------------------------------------------
Net investment income (loss) 1,905 19,508 12,731
----------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE A)
NET REALIZED GAIN (LOSS) ON:
Sales of investment securities of unaffiliated issuers 457 6,360 14
Financial futures contracts -- -- --
Option contracts written -- -- --
Foreign currency -- -- --
Net increase from payments by affiliates (Note B) -- -- --
CHANGE IN NET UNREALIZED APPRECIATION
(DEPRECIATION) IN VALUE OF:
Unaffiliated investment securities (150) 10,350 --
Financial futures contracts -- -- --
Option contracts -- -- --
Foreign currency -- -- --
----------------------------------------------
Net gain (loss) on investments 307 16,710 14
----------------------------------------------
Net increase (decrease) in net assets resulting from
operations $2,212 $36,218 $12,745
----------------------------------------------
</Table>
See Notes to Financial Statements
100
<Page>
<Table>
<Caption>
MUNICIPAL NATIONAL NEW YORK SHORT
SECURITIES MUNICIPAL MUNICIPAL DURATION
TRUST MONEY FUND MONEY FUND BOND FUND
-------------- -------------- -------------- --------------
FOR THE SIX FOR THE SIX FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
APRIL 30, 2007 APRIL 30, 2007 APRIL 30, 2007 APRIL 30, 2007
INVESTMENT INCOME
Income (Note A):
Interest income--unaffiliated issuers $ 672 $5,606 $4,247 $3,078
Dividend income--unaffiliated issuers -- -- --
Income from securities loaned--net (Note F) -- -- --
Income from investments in affiliated issuers (Notes A & F) -- -- -- --
Foreign taxes withheld -- -- -- --
--------------------------------------------------------------
Total income 672 5,606 4,247 3,078
EXPENSES:
Investment management fees (Note B) 39 374 291 149
Administration fees (Note B) 10 89 19 36
Administration fees (Note B):
Investor Class 33 -- 295 110
Institutional Class -- -- -- --
Reserve Class -- 30 -- --
Trust Class -- -- -- 33
Distribution fees (Note B):
Investor Class -- -- -- --
Shareholder servicing agent fees:
Investor Class 12 -- 16 47
Institutional Class -- -- -- --
Reserve Class -- 6 -- --
Trust Class -- -- -- 11
Audit fees 20 1 8 22
Custodian fees (Note B) 16 106 41 50
Insurance expense -- 5 2 3
Legal fees 21 13 13 31
Registration and filing fees 12 56 3 36
Shareholder reports 4 8 7 14
Trustees' fees and expenses 11 11 11 11
Miscellaneous 1 3 6 7
--------------------------------------------------------------
Total expenses 179 702 712 560
Expenses reimbursed by administrator (Note B) (75) -- (144) (133)
Management and administration fees waived (Notes A & B) -- (431) -- --
Expenses reduced by custodian fee expense offset and
commission recapture arrangements (Note B) (1) (4) (6) (1)
--------------------------------------------------------------
Total net expenses 103 267 562 426
--------------------------------------------------------------
Net investment income (loss) 569 5,339 3,685 2,652
--------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE A)
NET REALIZED GAIN (LOSS) ON:
Sales of investment securities of unaffiliated issuers 43 (8) 9 98
Financial futures contracts -- -- -- (43)
Option contracts written -- -- -- --
Foreign currency -- -- -- (79)
Net increase from payments by affiliates (Note B) -- -- -- 6
CHANGE IN NET UNREALIZED APPRECIATION
(DEPRECIATION) IN VALUE OF:
Unaffiliated investment securities (273) -- -- 323
Financial futures contracts -- -- -- 8
Option contracts -- -- -- --
Foreign currency -- -- -- 28
--------------------------------------------------------------
Net gain (loss) on investments (230) (8) 9 341
--------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $ 339 $5,331 $3,694 $2,993
--------------------------------------------------------------
<Caption>
STRATEGIC TAX-FREE CASH
INCOME FUND MONEY FUND RESERVES
-------------- -------------- --------------
FOR THE SIX FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED MONTHS ENDED
APRIL 30, 2007 APRIL 30, 2007 APRIL 30, 2007
INVESTMENT INCOME
Income (Note A):
Interest income--unaffiliated issuers $400 $22,803 $13,599
Dividend income--unaffiliated issuers 77 -- --
Income from securities loaned--net (Note F) 2 -- --
Income from investments in affiliated issuers (Notes A & F) 5 -- --
Foreign taxes withheld (2) -- --
----------------------------------------------
Total income 482 22,803 13,599
EXPENSES:
Investment management fees (Note B) 59 1,443 253
Administration fees (Note B) 6 377 152
Administration fees (Note B):
Investor Class -- -- 532
Institutional Class 9 -- --
Reserve Class -- 126 --
Trust Class -- -- --
Distribution fees (Note B):
Investor Class -- -- --
Shareholder servicing agent fees:
Investor Class -- -- 82
Institutional Class 11 -- --
Reserve Class -- 8 --
Trust Class -- -- --
Audit fees 22 7 18
Custodian fees (Note B) 56 21 79
Insurance expense -- 9 8
Legal fees 27 13 20
Registration and filing fees 34 92 20
Shareholder reports 14 21 15
Trustees' fees and expenses 11 11 11
Miscellaneous 1 30 18
----------------------------------------------
Total expenses 250 2,158 1,208
Expenses reimbursed by administrator (Note B) (167) -- --
Management and administration fees waived (Notes A & B) -- (924) (51)
Expenses reduced by custodian fee expense offset and
commission recapture arrangements (Note B) -- (144) (3)
----------------------------------------------
Total net expenses 83 1,090 1,154
----------------------------------------------
Net investment income (loss) 399 21,713 12,445
----------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE A)
NET REALIZED GAIN (LOSS) ON:
Sales of investment securities of unaffiliated issuers 814 19 (6)
Financial futures contracts -- -- --
Option contracts written 4 -- --
Foreign currency (18) -- --
Net increase from payments by affiliates (Note B) -- -- --
CHANGE IN NET UNREALIZED APPRECIATION
(DEPRECIATION) IN VALUE OF:
Unaffiliated investment securities (281) -- --
Financial futures contracts -- -- --
Option contracts 16 -- --
Foreign currency (59) -- --
----------------------------------------------
Net gain (loss) on investments 476 19 (6)
----------------------------------------------
Net increase (decrease) in net assets resulting from
operations $875 $21,732 $12,439
----------------------------------------------
</Table>
See Notes to Financial Statements
101
<Page>
Statements of Changes in Net Assets
LEHMAN BROTHERS INCOME FUNDS
(000'S OMITTED)
<Table>
<Caption>
CORE BOND FUND HIGH INCOME BOND FUND
------------------------ ------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
APRIL 30, OCTOBER 31, APRIL 30, OCTOBER 31,
2007 2006 2007 2006
(UNAUDITED) (UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) $ 1,905 $ 3,376 $ 19,508 $ 42,320
Net realized gain (loss) on investments 457 (643) 6,360 (16,526)
Net increase from payments by affiliates (Note B) -- -- -- --
Change in net unrealized appreciation
(depreciation) of investments (150) 1,335 10,350 15,068
Net increase (decrease) in net assets resulting from
operations 2,212 4,068 36,218 40,862
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class (782) (1,386) (19,385) (42,445)
Institutional Class (1,110) (2,100) -- --
Reserve Class -- -- -- --
Trust Class -- -- -- --
Net realized gain on investments:
Investor Class -- (994) -- --
Institutional Class -- (1,396) -- --
Reserve Class -- -- -- --
Total distributions to shareholders (1,892) (5,876) (19,385) (42,445)
FROM FUND SHARE TRANSACTIONS (NOTE D):
Proceeds from shares sold:
Investor Class 9,395 12,621 71,280 182,483
Institutional Class 3,159 4,949 -- --
Reserve Class -- -- -- --
Trust Class -- -- -- --
Proceeds from reinvestment of dividends
and distributions:
Investor Class 671 2,061 17,765 38,915
Institutional Class 1,111 3,491 -- --
Reserve Class -- -- -- --
Trust Class -- -- -- --
Payments for shares redeemed:
Investor Class (6,806) (11,837) (207,032) (411,231)
Institutional Class (3,578) (10,298) -- --
Reserve Class -- -- -- --
Trust Class -- -- -- --
Net increase (decrease) from Fund share transactions 3,952 987 (117,987) (189,833)
NET INCREASE (DECREASE) IN NET ASSETS 4,272 (821) (101,154) (191,416)
NET ASSETS:
Beginning of period 78,364 79,185 588,283 779,699
End of period $82,636 $ 78,364 $ 487,129 $ 588,283
Undistributed net investment income (loss) at
end of period $ -- $ -- $ 23 $ --
Distributions in excess of net investment income at
end of period $ (4) $ (17) $ -- $ (100)
</Table>
See Notes to Financial Statements
102
<Page>
<Table>
<Caption>
MUNICIPAL NATIONAL MUNICIPAL
MUNICIPAL MONEY FUND SECURITIES TRUST MONEY FUND
------------------------ ----------------------- ---------------------------
PERIOD FROM
DECEMBER 19,
2005
SIX MONTHS YEAR SIX MONTHS YEAR SIX MONTHS (COMMENCEMENT
ENDED ENDED ENDED ENDED ENDED OF OPERATIONS)
APRIL 30, OCTOBER 31, APRIL 30, OCTOBER 31, APRIL 30, TO OCTOBER 31,
2007 2006 2007 2006 2007 2006
(UNAUDITED) (UNAUDITED) (UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) $ 12,731 $ 22,836 $ 569 $ 1,168 $ 5,339 $ 4,618
Net realized gain (loss) on investments 14 16 43 126 (8) 16
Net increase from payments by affiliates (Note B) -- -- -- -- -- --
Change in net unrealized appreciation
(depreciation) of investments -- -- (273) 86 -- --
Net increase (decrease) in net assets resulting from
operations 12,745 22,852 339 1,380 5,331 4,634
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class (12,731) (22,836) (569) (1,168) -- --
Institutional Class -- -- -- -- -- --
Reserve Class -- -- -- -- (5,339) (4,618)
Trust Class -- -- -- -- -- --
Net realized gain on investments:
Investor Class (14) -- (126) (158) -- --
Institutional Class -- -- -- -- -- --
Reserve Class -- -- -- -- (16) --
Total distributions to shareholders (12,745) (22,836) (695) (1,326) (5,355) (4,618)
FROM FUND SHARE TRANSACTIONS (NOTE D):
Proceeds from shares sold:
Investor Class 3,494,514 5,104,293 2,827 4,122 -- --
Institutional Class -- -- -- -- -- --
Reserve Class -- -- -- -- 1,819,903 1,805,891
Trust Class -- -- -- -- -- --
Proceeds from reinvestment of dividends
and distributions:
Investor Class 8,796 10,110 562 1,101 -- --
Institutional Class -- -- -- -- -- --
Reserve Class -- -- -- -- 5,188 3,040
Trust Class -- -- -- -- -- --
Payments for shares redeemed:
Investor Class (3,474,215) (4,928,381) (6,009) (6,870) -- --
Institutional Class -- -- -- -- -- --
Reserve Class -- -- -- -- (1,712,661) (1,638,403)
Trust Class -- -- -- -- -- --
Net increase (decrease) from Fund share transactions 29,095 186,022 (2,620) (1,647) 112,430 170,528
NET INCREASE (DECREASE) IN NET ASSETS 29,095 186,038 (2,976) (1,593) 112,406 170,544
NET ASSETS:
Beginning of period 773,150 587,112 32,093 33,686 170,544 --
End of period $ 802,245 $ 773,150 $29,117 $32,093 $ 282,950 $ 170,544
Undistributed net investment income (loss) at
end of period $ 1 $ 1 $ -- $ -- $ -- $ --
Distributions in excess of net investment income at
end of period $ -- $ -- $ -- $ -- $ -- $ --
</Table>
103
<Page>
Statements of Changes in Net Assets (cont'd)
LEHMAN BROTHERS INCOME FUNDS
(000's OMITTED)
<Table>
<Caption>
NEW YORK MUNICIPAL MONEY FUND SHORT DURATION BOND FUND
------------------------------- -------------------------
PERIOD FROM
SIX MONTHS DECEMBER 19, 2005 SIX MONTHS YEAR
ENDED (COMMENCEMENT OF ENDED ENDED
APRIL 30, OPERATIONS) TO APRIL 30, OCTOBER 31,
2007 OCTOBER 31, 2006 2007 2006
(UNAUDITED) (UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) $ 3,685 $ 3,923 $ 2,652 $ 6,264
Net realized gain (loss) on investments 9 4 (24) (1,023)
Net increase from payments by affiliates (Note B) -- -- 6 --
Change in net unrealized appreciation
(depreciation) of investments -- -- 359 1,641
Net increase (decrease) in net assets resulting from
operations 3,694 3,927 2,993 6,882
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class (3,685) (3,923) (2,537) (6,508)
Institutional Class -- -- -- --
Reserve Class -- -- -- --
Trust Class -- -- (361) (775)
Net realized gain on investments:
Investor Class (4) -- -- --
Institutional Class -- -- -- --
Reserve Class -- -- -- --
Total distributions to shareholders (3,689) (3,923) (2,898) (7,283)
FROM FUND SHARE TRANSACTIONS (NOTE D):
Proceeds from shares sold:
Investor Class 853,845 851,383 3,916 18,507
Institutional Class -- -- -- --
Reserve Class -- -- -- --
Trust Class -- -- 1,678 4,183
Proceeds from reinvestment of dividends
and distributions:
Investor Class 2,119 1,866 2,324 6,086
Institutional Class -- -- -- --
Reserve Class -- -- -- --
Trust Class -- -- 350 744
Payments for shares redeemed:
Investor Class (793,314) (680,063) (15,320) (67,970)
Institutional Class -- -- -- --
Reserve Class -- -- -- --
Trust Class -- -- (4,650) (8,420)
Net increase (decrease) from Fund share transactions 62,650 173,186 (11,702) (46,870)
NET INCREASE (DECREASE) IN NET ASSETS 62,655 173,190 (11,607) (47,271)
NET ASSETS:
Beginning of period 173,190 -- 124,680 171,951
End of period $ 235,845 $ 173,190 $ 113,073 $ 124,680
Undistributed net investment income (loss) at
end of period $ -- $ -- $ -- $ 168
Distributions in excess of net investment income at
end of period $ -- $ -- $ (78) $ --
</Table>
See Notes to Financial Statements
104
<Page>
<Table>
<Caption>
STRATEGIC INCOME FUND TAX-FREE MONEY FUND
------------------------- -------------------------------
PERIOD FROM
SIX MONTHS YEAR SIX MONTHS DECEMBER 19, 2005
ENDED ENDED ENDED (COMMENCEMENT OF
APRIL 30, OCTOBER 31, APRIL 30, OPERATIONS) TO
2007 2006 2007 OCTOBER 31, 2006
(UNAUDITED) (UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) $ 399 $ 855 $ 21,713 $ 17,837
Net realized gain (loss) on investments 800 870 19 52
Net increase from payments by affiliates (Note B) -- -- -- --
Change in net unrealized appreciation
(depreciation) of investments (324) 525 -- --
Net increase (decrease) in net assets resulting from
operations 875 2,250 21,732 17,889
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class -- -- -- --
Institutional Class (423) (1,024) -- --
Reserve Class -- -- (21,715) (17,837)
Trust Class -- -- -- --
Net realized gain on investments:
Investor Class -- -- -- --
Institutional Class (697) (2,009) -- --
Reserve Class -- -- (52) --
Total distributions to shareholders (1,120) (3,033) (21,767) (17,837)
FROM FUND SHARE TRANSACTIONS (NOTE D):
Proceeds from shares sold:
Investor Class -- -- -- --
Institutional Class 776 1,994 -- --
Reserve Class -- -- 6,452,005 7,375,109
Trust Class 100 -- -- --
Proceeds from reinvestment of dividends
and distributions:
Investor Class -- -- -- --
Institutional Class 658 1,980 -- --
Reserve Class -- -- 17,976 14,793
Trust Class -- -- -- --
Payments for shares redeemed:
Investor Class -- -- -- --
Institutional Class (2,261) (8,985) -- --
Reserve Class -- -- (6,356,957) (6,224,833)
Trust Class -- -- -- --
Net increase (decrease) from Fund share transactions (727) (5,011) 113,024 1,165,069
NET INCREASE (DECREASE) IN NET ASSETS (972) (5,794) 112,989 1,165,121
NET ASSETS:
Beginning of period 20,402 26,196 1,165,121 --
End of period $ 19,430 $ 20,402 $ 1,278,110 $ 1,165,121
Undistributed net investment income (loss) at
end of period $ 27 $ 51 $ -- $ --
Distributions in excess of net investment income at
end of period $ -- $ -- $ (2) $ --
<Caption>
CASH RESERVES
-------------------------
SIX MONTHS
ENDED YEAR
APRIL 30, ENDED
2007 OCTOBER 31,
(UNAUDITED) 2006
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) $ 12,445 $ 24,485
Net realized gain (loss) on investments (6) (33)
Net increase from payments by affiliates (Note B) -- --
Change in net unrealized appreciation
(depreciation) of investments -- --
Net increase (decrease) in net assets resulting from
operations 12,439 24,452
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class (12,445) (24,485)
Institutional Class -- --
Reserve Class -- --
Trust Class -- --
Net realized gain on investments:
Investor Class -- --
Institutional Class -- --
Reserve Class -- --
Total distributions to shareholders (12,445) (24,485)
FROM FUND SHARE TRANSACTIONS (NOTE D):
Proceeds from shares sold:
Investor Class 400,472 796,495
Institutional Class -- --
Reserve Class -- --
Trust Class -- --
Proceeds from reinvestment of dividends
and distributions:
Investor Class 7,988 14,143
Institutional Class -- --
Reserve Class -- --
Trust Class -- --
Payments for shares redeemed:
Investor Class (639,716) (684,710)
Institutional Class -- --
Reserve Class -- --
Trust Class -- --
Net increase (decrease) from Fund share transactions (231,256) 125,928
NET INCREASE (DECREASE) IN NET ASSETS (231,262) 125,895
NET ASSETS:
Beginning of period 605,858 479,963
End of period $ 374,596 $ 605,858
Undistributed net investment income (loss) at
end of period $ 4 $ 4
Distributions in excess of net investment income at
end of period $ -- $ --
</Table>
105
<Page>
Notes to Financial Statements Income Funds (Unaudited)
Note A--Summary of Significant Accounting Policies:
1 GENERAL: Lehman Brothers Core Bond Fund ("Core Bond"), Lehman Brothers High
Income Bond Fund ("High Income") (formerly, Neuberger Berman High Income
Bond Fund), Lehman Brothers Municipal Money Fund ("Municipal Money"),
Lehman Brothers Municipal Securities Trust ("Municipal Securities
Trust")(formerly, Neuberger Berman Municipal Securities Trust ), Lehman
Brothers National Municipal Money Fund ("National Municipal
Money")(formerly, National Municipal Money Fund), Lehman Brothers New York
Municipal Money Fund ("New York Municipal Money"), Lehman Brothers Short
Duration Bond Fund ("Short Duration") (formerly, Neuberger Berman Limited
Maturity Bond Fund), Lehman Brothers Strategic Income Fund ("Strategic
Income") (formerly, Neuberger Berman Strategic Income Fund), Lehman
Brothers Tax-Free Money Fund ("Tax-Free Money")(formerly, Tax-Free Money
Fund), and Neuberger Berman Cash Reserves ("Cash Reserves"), (individually
a "Fund", collectively, the "Funds") are separate operating series of
Lehman Brothers Income Funds (formerly, Neuberger Berman Income Funds) (the
"Trust"), a Delaware statutory trust organized pursuant to a Trust
Instrument dated December 23, 1992. The Trust is registered as a
diversified, open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"), and its shares are
registered under the Securities Act of 1933, as amended (the "1933 Act").
Seven funds offer Investor Class shares, two offer Institutional Class
shares, two offer Reserve Class shares, and two offer Trust Class shares.
The Board of Trustees of the Trust (the "Board") may establish additional
series or classes of shares without the approval of shareholders.
The assets of each Fund belong only to that Fund, and the liabilities of
each Fund are borne solely by that Fund and no other.
It is the policy of Municipal Money, National Municipal Money, New York
Municipal Money, Tax-Free Money, and Cash Reserves to maintain a continuous
net asset value per share of $1.00; each of these Funds has adopted certain
investment, valuation, and dividend and distribution policies, which
conform to general industry practice, to enable it to do so. However, there
is no assurance each of these Funds will be able to maintain a stable net
asset value per share. Each of these Funds complies with Rule 2a-7 of the
1940 Act.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires Neuberger Berman Management Inc.
("Management") to make estimates and assumptions at the date of the
financial statements. Actual results could differ from those estimates.
2 PORTFOLIO VALUATION: Investment securities are valued as indicated in the
notes following each Fund's Schedule of Investments.
3 FOREIGN CURRENCY TRANSLATION: High Income, Short Duration and Strategic
Income may invest in foreign securities denominated in foreign currency.
The accounting records of the Funds are maintained in U.S. dollars. Foreign
currency amounts are currently translated into U.S. dollars using the
exchange rate as of 4:00 p.m., Eastern time, to determine the value of
investments, other assets and liabilities. Purchase and sale prices of
securities, and income and expenses, are translated into U.S. dollars at
the prevailing rate of exchange on the respective dates of such
transactions. Net unrealized foreign currency gain (loss) arises from
changes in the value of assets and liabilities, other than investments in
securities, as a result of changes in exchange rates and is stated
separately in the Statements of Operations.
4 SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on trade date for financial reporting purposes. For Strategic
Income, dividend income is recorded on the ex-dividend date or, for certain
foreign dividends, as soon as the Fund becomes aware of the dividends.
Non-cash dividends included in dividend income, if any, are recorded at the
fair market value of the securities received. Interest income, including
accretion of discount (adjusted for original issue discount, where
applicable) and amortization of premium, where applicable, is recorded on
the accrual basis. Realized gains and losses from securities transactions
and (for High Income, Short Duration and Strategic Income, foreign currency
transactions), if any, are recorded on the basis of
106
<Page>
identified cost and stated separately in the Statements of Operations.
Included in net realized gain (loss) on investments are proceeds from the
settlements of class action litigation in which Core Bond and High Income
participated as a plaintiff. The amounts of such proceeds for the six
months ended April 30, 2007 were $315,581 and $22,732 for Core Bond and
High Income, respectively.
5 INCOME TAX INFORMATION: Each Fund is treated as a separate entity for U.S.
federal income tax purposes. It is the policy of each Fund to continue to
qualify as a regulated investment company by complying with the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to distribute substantially all of its
earnings to its shareholders. Therefore, no federal income or excise tax
provision is required.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations, which may differ from U.S.
generally accepted accounting principles. These differences are primarily
due to differing treatments of income and gains on various investment
securities held by each Fund, timing differences and differing
characterization of distributions made by each Fund as a whole. The Funds
may also utilize earnings and profits distributed to shareholders on
redemption of shares as a part of the dividends paid deduction for income
tax purposes.
As determined on October 31, 2006, permanent differences resulting
primarily from different book and tax accounting for amortization of bond
premium, paydown gains and losses, expiration of capital loss
carryforwards, characterization of distributions, the tax character of the
proceeds from the settlement of class action litigations, distribution
redesignations, and foreign currency gains and losses were reclassified at
fiscal year-end. These reclassifications had no effect on net income, net
asset value or net asset value per share of each Fund.
The tax character of distributions paid during the years ended October 31,
2006 and October 31, 2005 were as follows:
<Table>
<Caption>
DISTRIBUTIONS PAID FROM:
---------------------------------------------------------------------------------------------------------
TAX-EXEMPT LONG-TERM
TAXABLE INCOME INCOME CAPITAL GAIN TOTAL
-------------------------- ----------------------- ----------------------- ---------------------------
2006 2005 2006 2005 2006 2005 2006 2005
CORE BOND $ 5,576,922 $ 245,947(1) $ -- $ -- $ 298,651 $ --(2) $ 5,875,573 $ 245,947(3)
HIGH INCOME 42,445,085 49,232,483 -- -- -- -- 42,445,085 49,232,483
MUNICIPAL MONEY -- -- 22,836,205 8,497,236 -- -- 22,836,205 8,497,236
MUNICIPAL SECURITIES TRUST 309 58,183 1,167,212 1,226,282 157,909 167,792 1,325,430 1,452,257
NATIONAL MUNICIPAL MONEY -- -- 4,617,630 -- -- -- 4,617,630 --
NEW YORK MUNICIPAL MONEY -- -- 3,923,358 -- -- -- 3,923,358 --
SHORT DURATION 7,282,810 6,729,866 -- -- -- -- 7,282,810 6,729,866
STRATEGIC INCOME 1,828,375 1,461,463 -- -- 1,204,793 -- 3,033,168 1,461,463
TAX-FREE MONEY -- -- 17,837,465 -- -- -- 17,837,465 --
CASH RESERVES 24,484,476 11,786,263 -- -- -- -- 24,484,476 11,786,263
</Table>
(1) For the period October 1, 2005 to October 31, 2005. $7,871,574 for the year
ended September 30, 2005.
(2) For the period October 1, 2005 to October 31, 2005. $2,180,786 for the year
ended September 30, 2005.
(3) For the period October 1, 2005 to October 31, 2005. $10,052,360 for the
year ended September 30, 2005.
107
<Page>
As of October 31, 2006, 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
CORE BOND $ -- $ -- $ -- $ 28,705 ($1,062,175) ($1,033,470)
HIGH INCOME 181,177 -- -- 4,368,112 (27,538,641) (22,989,352)
MUNICIPAL MONEY 14,262 755,942 -- -- -- 770,204
MUNICIPAL SECURITIES TRUST -- 17,266 125,735 589,561 -- 732,562
NATIONAL MUNICIPAL MONEY 16,094 21,937 -- -- -- 38,031
NEW YORK MUNICIPAL MONEY 4,144 249,588 -- -- -- 253,732
SHORT DURATION 205,527 -- -- (1,136,927) (20,663,539) (21,594,939)
STRATEGIC INCOME 214,260 -- 553,746 1,002,852 -- 1,770,858
TAX-FREE MONEY 51,582 398,522 -- -- -- 450,104
CASH RESERVES 977,500 -- -- -- (43,922) 933,578
</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 foreign
currency transactions, capital loss carryforwards, amortization of bond
premium, and organization expenses.
To the extent each Fund's net realized capital gains, if any, can be offset
by capital loss carryforwards, it is the policy of each Fund not to
distribute such gains. As determined on October 31, 2006, 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:
----------------------------------------------------------------------------------------------
2007 2008 2009 2010 2011 2012 2013 2014
CORE BOND $ -- $ -- $ -- $ -- $-- $ 325,420 $ 736,755 $ --
HIGH INCOME(1) 2,845,092 2,021,774 923,187 1,332,365 -- -- 3,865,877 16,550,346
SHORT DURATION(2) 5,146,514 7,177,986 456,883 -- -- 2,468,731 3,168,736 2,244,689
CASH RESERVES -- -- -- -- -- -- 10,879 33,043
</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 Short Duration,
$1,470,666 was acquired on February 9, 2001 in a tax-free reorganization.
The use of these losses to offset future gains may be limited in a given
year.
6 DISTRIBUTIONS TO SHAREHOLDERS: Each Fund earns income, net of expenses,
daily on its investments. It is the policy of each Fund (except Strategic
Income) to declare distributions from net investment income on each
business day; such distributions are paid monthly. Strategic Income
generally distributes substantially all of its net investment income, if
any, at the end of each calendar quarter. Distributions from net realized
capital gains, if any, are generally distributed in December. Distributions
to shareholders are recorded on the ex-date.
Strategic Income invests a portion of its assets in securities issued by
real estate companies, including real estate investment trusts ("REITs").
The distributions received from REITs held by the Fund are generally
comprised of income, capital gains, and return of REIT capital, but the
REITs do not report this information to the Fund until the following
calendar year. At October 31, 2006, the Fund estimated these amounts within
the financial statements since the information is not available from the
REITs until after the Fund's fiscal year-end. At April 30, 2007, the Fund
estimated these amounts for the period January 1, 2007 to April 30, 2007
within the financial statements since the 2007 information is not available
from the REITs until after the Fund's fiscal period. For the year ended
108
<Page>
October 31, 2006, the character of distributions paid to shareholders is
disclosed within the Statements of Changes and is also based on these
estimates. All estimates are based upon REIT information sources available
to the Fund together with actual IRS Forms 1099DIV received to date. Based
on past experience it is probable that a portion of the Fund's
distributions during the 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-end. After calendar
year-end, when the Fund learns the nature of the distributions paid by
REITs during that year, distributions previously identified as income are
often recharacterized as return of capital and/or capital gain. After all
applicable REITs have informed the Fund of the actual breakdown of
distributions paid to the Fund during its fiscal year, estimates previously
recorded are adjusted on the books of the Fund to reflect actual results.
As a result, the composition of the Fund's distributions as reported herein
may differ from the final composition determined after calendar year-end
and reported to Fund shareholders on IRS Form 1099DIV.
7 EXPENSE ALLOCATION: Certain expenses are applicable to multiple funds.
Expenses directly attributable to a Fund are charged to that Fund. Expenses
of the Trust that are not directly attributed to a Fund are allocated among
the series of the Trust, on the basis of relative net assets, except where
a more appropriate allocation of expenses to each of the series can
otherwise be made fairly. Expenses borne by the complex of related
investment companies, which includes open-end and closed-end investment
companies for which Management serves as investment manager, that are not
directly attributed to a Fund or the Trust are allocated among the Funds
and the other investment companies in the complex or series thereof on the
basis of relative net assets, except where a more appropriate allocation of
expenses to each investment company in the complex or series thereof can
otherwise be made fairly. Each Fund's expenses (other than those specific
to each class) are allocated proportionally each day between the classes
based upon the relative net assets of each class.
8 FINANCIAL FUTURES CONTRACTS: Core Bond, High Income, Municipal Securities
Trust, Short Duration, and Strategic Income may each buy and sell financial
futures contracts to hedge against changes in securities prices resulting
from changes in prevailing interest rates. At the time a Fund enters into a
financial futures contract, it is required to deposit with the futures
commission merchant a specified amount of cash or liquid securities, known
as "initial margin," ranging upward from 1.1% of the value of the financial
futures contract being traded. Each day, the futures contract is valued at
the official settlement price of the board of trade or U.S. commodity
exchange on which such futures contract is traded. Subsequent payments,
known as "variation margin," to and from the broker are made on a daily
basis as the market price of the financial futures contract fluctuates.
Daily variation margin adjustments, arising from this "mark to market," are
recorded by the Funds as unrealized gains or losses.
Although some financial futures contracts by their terms call for actual
delivery or acceptance of financial instruments, in most cases the
contracts are closed out prior to delivery by offsetting purchases or sales
of matching financial futures contracts. When the contracts are closed, a
Fund recognizes a gain or loss. Risks of entering into futures contracts
include the possibility there may be an illiquid market, possibly at a time
of rapidly declining prices, and/or a change in the value of the contract
may not correlate with changes in the value of the underlying securities.
For U.S. federal income tax purposes, the futures transactions undertaken
by a Fund may cause that Fund to recognize gains or losses from marking to
market even though its positions have not been sold or terminated, may
affect the character of the gains or losses recognized as long-term or
short-term, and may affect the timing of some capital gains and losses
realized by the Fund. Also, a Fund's losses on transactions involving
futures contracts may be deferred rather than being taken into account
currently in calculating such Fund's taxable income.
During the six months ended April 30, 2007, Core Bond, High Income,
Municipal Securities Trust, and Strategic Income did not enter into any
financial futures contracts. During the six months ended April 30, 2007,
Short Duration entered into financial futures contracts. At April 30, 2007,
open positions in financial futures contracts were:
<Table>
<Caption>
EXPIRATION OPEN CONTRACTS POSITION UNREALIZED APPRECIATION
June 2007 80 U.S. Treasury Notes, 2 Year Long $36,922
</Table>
109
<Page>
At April 30, 2007, Short Duration had deposited $146,000 in Fannie Mae
Whole Loan, 10.11%, due 6/25/44, in a segregated account to cover margin
requirements on open futures contracts.
9 FORWARD FOREIGN CURRENCY CONTRACTS: High Income, Short Duration, and
Strategic Income may each enter into forward foreign currency contracts
("contracts") in connection with planned purchases or sales of securities
to hedge the U.S. dollar value of portfolio securities denominated in a
foreign currency. The gain or loss arising from the difference between the
original contract price and the closing price of such contract is included
in net realized gains or losses on foreign currency transactions on
settlement date. Fluctuations in the value of such contracts are recorded
for financial reporting purposes as unrealized gains or losses by each Fund
until the contractual settlement date. The Funds could be exposed to risks
if a counter party to a contract were unable to meet the terms of its
contract or if the value of the foreign currency changes unfavorably. The
U.S. dollar value of foreign currency underlying all contractual
commitments held by each Fund is determined using forward foreign currency
exchange rates supplied by an independent pricing service.
10 CALL OPTIONS: Premiums received by Strategic Income upon writing a covered
call option are recorded in the liability section of the Fund's Statement
of Assets and Liabilities and are subsequently adjusted to the current
market value. When an option is exercised, closed, or expired, the Fund
realizes a gain or loss and the liability is eliminated. The Fund bears the
risk of a decline in the price of the security during the period, although
any potential loss during the period would be reduced by the amount of the
option premium received. In general, written covered call options may serve
as a partial hedge against decreases in value in the underlying securities
to the extent of the premium received. All securities covering outstanding
options are held in escrow by the custodian bank.
Summary of written option transactions for Strategic Income for the six
months ended April 30, 2007:
<Table>
<Caption>
NUMBER VALUE WHEN WRITTEN
CONTRACTS OUTSTANDING 10/31/2006 13,500 $14,000
CONTRACTS WRITTEN 6,800 6,600
CONTRACTS EXPIRED (2,000) (1,200)
CONTRACTS EXERCISED (7,700) (7,600)
CONTRACTS CLOSED (4,100) (5,400)
CONTRACTS OUTSTANDING 4/30/2007 6,500 $ 6,400
</Table>
11 SECURITY LENDING: Since 2005, a third party, eSecLending, has assisted Core
Bond, High Income, Short Duration and Strategic Income in conducting a
bidding process to attempt to identify agents/principals that would pay a
guaranteed amount to each Fund in consideration of that Fund entering into
an exclusive securities lending arrangement. Pursuant to such arrangements,
eSecLending currently acts as lending agent for these Funds. Currently,
Core Bond and Short Duration are not guaranteed any particular level of
income from the program.
Under the securities lending arrangements, Core Bond, High Income, Short
Duration and Strategic Income each receives cash collateral at the
beginning of each transaction equal to at least 102% of the prior day's
market value of the loaned securities (105% in the case of international
securities). Each of these Funds may invest all the cash collateral in
Neuberger Berman Securities Lending Quality Fund, LLC ("Quality Fund"), a
fund managed by Lehman Brothers Asset Management LLC ("LBAM"), an affiliate
of Management.
Net income from the applicable lending program represents the guaranteed
amount, if applicable, plus income earned on the cash collateral invested
in Quality Fund or in other investments, if applicable, less cash
collateral fees and other expenses associated with the loans. For the six
months ended April 30, 2007, the approximate amount of net income received
by High Income and Strategic Income under the securities lending
arrangements, which is reflected in the Statements of Operations under the
caption "Income from securities loaned-net"; the approximate
110
<Page>
amount of income earned on cash collateral and guaranteed amounts; and the
approximate amount of fees and expenses paid on securities loaned are as
follows:
<Table>
<Caption>
AMOUNT EARNED ON CASH
NET INCOME COLLATERAL AND GUARANTEED AMOUNTS* FEES AND EXPENSES PAID
HIGH INCOME $135,048 $1,894,229 $1,759,181
STRATEGIC INCOME 1,818 7,830 6,012
</Table>
* The amount of income earned on cash collateral and guaranteed amounts
includes the following approximate amounts of interest income earned from
Quality Fund:
<Table>
<Caption>
INTEREST INCOME EARNED
FROM THE QUALITY FUND
HIGH INCOME $1,726,526
STRATEGIC INCOME 5,269
</Table>
12 REPURCHASE AGREEMENTS: Each Fund may enter into repurchase agreements with
institutions that Management has determined are creditworthy. Each
repurchase agreement is recorded at cost. Each Fund requires that the
securities purchased in a repurchase agreement be transferred to the
custodian in a manner sufficient to enable the Fund to assert a perfected
security interest in those securities in the event of a default under the
repurchase agreement. Each Fund monitors, on a daily basis, the value of
the securities transferred to ensure that their value, including accrued
interest, is greater than amounts owed to the Fund under each such
repurchase agreement.
13 DOLLAR ROLLS: Core Bond, High Income, Short Duration, and Strategic Income
may enter into dollar roll transactions with respect to mortgage-backed
securities. In a dollar roll transaction, a Fund sells securities for
delivery in the current month and simultaneously agrees to repurchase
substantially similar (i.e., same type and coupon) securities on a
specified future date from the same party. During the period before this
repurchase, a Fund forgoes principal and interest payments on the
securities. A Fund is compensated by the difference between the current
sales price and the forward price for the future purchase (often referred
to as the "drop"), as well as by the interest earned on the cash proceeds
of the initial sale. Dollar rolls may increase fluctuations in a Fund's net
asset value and may be viewed as a form of leverage. There is a risk that
the counter party will be unable or unwilling to complete the transaction
as scheduled, which may result in losses to a Fund.
14 OTHER: All net investment income and realized and unrealized capital gains
and losses of each Fund are allocated, on the basis of relative net assets,
pro rata among its respective classes.
15 TRANSACTIONS WITH OTHER FUNDS MANAGED BY NEUBERGER BERMAN MANAGEMENT INC.:
Pursuant to an Exemptive Order issued by the Securities and Exchange
Commission, the Funds may invest in a money market fund managed by
Management or an affiliate. The Funds invest in Neuberger Berman Prime
Money Fund ("Prime Money"), as approved by the Board. Prime Money seeks to
provide the highest available current income consistent with safety and
liquidity. For any cash that the Funds invest in Prime Money, Management
waives a portion of its management fee equal to the management fee it
receives from Prime Money on those assets (the "Arrangement"). For the six
months ended April 30, 2007, management fees waived under this Arrangement
are reflected in the Statements of Operations under the caption "Investment
management fees waived." For the six months ended April 30, 2007, income
earned under this Arrangement is reflected in the Statements of Operations
under the caption "Income
111
<Page>
from investments in affiliated issuers." For the six months ended April 30,
2007, management fees waived and income earned under this Arrangement were
as follows:
<Table>
<Caption>
MANAGEMENT FEES WAIVED INCOME EARNED
CORE BOND $1,131 $72,296
HIGH INCOME 6,275 405,394
STRATEGIC INCOME 83 5,499
</Table>
16 FOREIGN TAXES: Foreign taxes withheld represent amounts withheld by foreign
tax authorities, net of refunds recoverable.
17 INDEMNIFICATIONS: Like many other companies, the Trust's organizational
documents provide that its officers and trustees are indemnified against
certain liabilities arising out of the performance of their duties to the
Trust. In addition, both in some of its principal service contracts and in
the normal course of its business, the Trust enters into contracts that
provide indemnifications to other parties for certain types of losses or
liabilities. The Trust's maximum exposure under these arrangements is
unknown as this could involve future claims against the Trust.
Note B--Management Fees, Administration Fees, Distribution Arrangements, and
Other Transactions with Affiliates:
Each Fund retains Management as its investment manager under a Management
Agreement. For such investment management services, each Fund (except High
Income, Strategic Income, and Cash Reserves) pays Management a fee at the
annual rate of 0.25% of the first $500 million of that Fund's average daily
net assets, 0.225% of the next $500 million, 0.20% of the next $500
million, 0.175% of the next $500 million, and 0.15% of average daily net
assets in excess of $2 billion. High Income, Strategic Income, and Cash
Reserves each pay Management a fee for investment management services at
the annual rates of 0.48%, 0.60%, and 0.10%, respectively, of each Fund's
average daily net assets. Management has voluntarily agreed to waive its
management fee in the amount of 0.25% and 0.02% of the average daily net
assets of Core Bond and Cash Reserves, respectively. Management may, at its
sole discretion, terminate these agreements without notice to the Funds.
For the six months ended April 30, 2007, such waived fees amounted to
$98,302 and $50,635 for Core Bond and Cash Reserves, respectively.
LBAM, as sub-adviser to all Funds except for Strategic Income, and
Neuberger Berman, LLC ("Neuberger"), as sub-adviser to Strategic Income,
receive a monthly fee paid by Management. These Funds do not pay a fee
directly to LBAM or Neuberger for such services.
Each Fund retains Management as its administrator under an Administration
Agreement. Each Fund pays Management an administration fee at the annual
rate of 0.06% of its average daily net assets under this agreement. In
addition, each Fund's Investor Class pays Management an administration fee
at the annual rate of 0.21% of its average daily net assets, each Fund's
Institutional Class pays Management an administration fee at the annual
rate of 0.09% of its average daily net assets, each Fund's Reserve Class
pays Management an administration fee at the annual rate of 0.02% of its
average daily net assets, and the Trust Class of Short Duration and
Strategic Income pays Management an administration fee at the annual rate
of 0.44% and 0.34%, respectively, of its average daily net assets under
this agreement. Additionally, Management retains State Street Bank and
Trust Company ("State Street") as its sub-administrator under a
Sub-Administration Agreement. Management pays State Street a fee for all
services received under the agreement.
112
<Page>
Management has contractually undertaken to reimburse operating expenses
(including fees payable to Management but excluding interest, taxes, brokerage
commissions, and extraordinary expenses) ("Operating Expenses") which exceed the
expense limitation as detailed in the following table:
<Table>
<Caption>
CONTRACTUAL
REIMBURSEMENT
CONTRACTUAL FROM MANAGEMENT
EXPENSE FOR THE SIX MONTHS
CLASS LIMITATION(1) EXPIRATION ENDED APRIL 30, 2007
CORE BOND INVESTOR CLASS 0.85% 10/31/17 $ 39,209
CORE BOND INSTITUTIONAL CLASS 0.45% 10/31/17 46,556
HIGH INCOME INVESTOR CLASS 1.00% 10/31/10 --
MUNICIPAL MONEY INVESTOR CLASS 0.59% 10/31/10 114,952
MUNICIPAL SECURITIES TRUST INVESTOR CLASS 0.65% 10/31/10 75,444
NEW YORK MUNICIPAL MONEY INVESTOR CLASS 0.59%(2) 10/31/10 25,802
SHORT DURATION INVESTOR CLASS 0.70% 10/31/10 104,765
SHORT DURATION TRUST CLASS 0.80% 10/31/10 28,318
STRATEGIC INCOME INSTITUTIONAL CLASS 0.85% 10/31/17 166,530
STRATEGIC INCOME TRUST CLASS 1.10% 10/31/10 400
CASH RESERVES INVESTOR CLASS 0.65% 10/31/10 --
</Table>
(1) Expense limitation per annum of the respective class' average daily net
assets.
(2) Effective June 5, 2006, Management voluntarily agreed to waive certain
expenses of the Investor Class of New York Municipal Money, so that the
total annual Operating Expenses of the Fund are limited to 0.52% of the
average daily net assets. In addition, effective January 17, 2007,
Management voluntarily agreed to waive certain expenses of the Investor
Class of New York Municipal Money, so that the total annual Operating
Expenses of the Fund are limited to 0.47% of the average daily net assets.
For the six months ended April 30, 2007, such voluntarily waived fees
amounted to $118,089.
The Investor Classes of Core Bond, High Income, Municipal Money, Municipal
Securities Trust, New York Municipal Money, Short Duration and Cash
Reserves, the Institutional Classes of Core Bond and Strategic Income, and
the Trust Classes of Short Duration and Strategic Income have each agreed
to repay Management for their excess Operating Expenses previously
reimbursed by Management, pursuant to a contractual expense limitation, so
long as their annual Operating Expenses during that period do not exceed
their respective expense limitations, and the repayments are made within
three years after the year in which Management issued the reimbursement.
During the six months ended April 30, 2007, there was no reimbursement to
Management. At April 30, 2007, contingent liabilities to Management under
the agreement were as follows:
<Table>
<Caption>
EXPIRING IN:
--------------------------------------------------------
2007 2008 2009 2010 TOTAL
CORE BOND INVESTOR CLASS $ -- $ 51,691(1) $119,159 $ 39,209 $ 210,059
CORE BOND INSTITUTIONAL CLASS 91,826(1) 98,223 46,556 236,605
MUNICIPAL MONEY INVESTOR CLASS -- -- 193,464 114,952 308,416
MUNICIPAL SECURITIES TRUST INVESTOR CLASS 156,342 157,589 176,704 75,444 566,079
NEW YORK MUNICIPAL MONEY INVESTOR CLASS -- -- 123,196 25,802 148,998
SHORT DURATION INVESTOR CLASS 118,706 145,616 144,034 104,765 510,330
SHORT DURATION TRUST CLASS 47,081 49,486 47,206 28,318 171,679
STRATEGIC INCOME INSTITUTIONAL CLASS 240,824 297,154 336,211 166,530 1,040,719
STRATEGIC INCOME TRUST CLASS -- -- -- 400 400
</Table>
(1) Certain amounts expire during the period as a result of the change in year
end.
113
<Page>
Management has voluntarily undertaken to reimburse and/or waive operating
expenses (including fees payable to Management but excluding interest,
taxes, brokerage commissions, and extraordinary expenses) ("Operating
Expenses") which exceed the expense limitation as detailed in the following
table:
<Table>
<Caption>
VOLUNTARY
INVESTMENT MANAGEMENT REIMBURSEMENT FROM
VOLUNTARY AND ADMINISTRATION FEES MANAGEMENT FOR
EXPENSE WAIVED FOR THE SIX MONTHS THE SIX MONTHS ENDED
CLASS LIMITATION(1) ENDED APRIL 30, 2007 APRIL 30, 2007
NATIONAL MUNICIPAL MONEY RESERVE CLASS 0.17% $431,099 $--
TAX-FREE MONEY RESERVE CLASS 0.20%(2) 923,976 --
</Table>
(1) Expense limitation per annum of the respective class' average daily net
assets. Management may, at its sole discretion, terminate this agreement
without notice to each Fund.
(2) Management expects that, in the future, it may voluntarily reimburse or
waive certain expenses of National Municipal Money and Tax-Free Money, so
that the total annual Operating Expenses of each Fund are limited to 0.23%
of average net assets.
Management, Neuberger, a member firm of the New York Stock Exchange, and
LBAM, are wholly owned subsidiaries of Lehman Brothers Holdings Inc., a
publicly-owned holding company. LBAM, as the sub-adviser to High Income,
Municipal Money, Municipal Securities Trust, Short Duration, and Cash
Reserves, and Neuberger as sub-adviser to Strategic Income, are retained by
Management to furnish it with investment recommendations and research
information without added cost to each Fund it sub-advises. LBAM, as
sub-adviser to Core Bond, National Municipal Money, New York Municipal, and
Tax-Free Money, is retained by Management to provide day-to-day investment
management services. As investment manager, Management is responsible for
overseeing the investment activities of LBAM. Several individuals who are
officers and/or Trustees of the Trust are also employees of LBAM and
Neuberger and/or Management.
Each Fund also has a distribution agreement with Management with respect to
each class of shares. Management receives no compensation therefor and no
commissions for sales or redemptions of shares of beneficial interest of
each share class, but receives fees from the Core Bond Investor Class and
the Strategic Income Trust Class under their Plans, as described below.
For Core Bond's Investor Class and Strategic Income's Trust Class,
Management acts as agent in arranging for the sale of class shares without
commission and bears advertising and promotion expenses. The Board has
adopted distribution plans (each a "Plan", collectively, the "Plans") with
respect to these classes, pursuant to Rule 12b-1 under the 1940 Act. The
Plans provide that, as compensation for administrative and other services
provided to these classes, Management's activities and expenses related to
the sale and distribution of these classes of shares, and ongoing services
provided to investors in these classes, Management receives from each of
these classes a fee at the annual rate of 0.25% of Core Bond Investor
Class' average daily net assets and 0.10% of Strategic Income Trust Class'
average daily net assets. Management receives this amount to provide
distribution and shareholder servicing for these classes and pays a portion
of it to institutions that provide such services. Those institutions may
use the payments for, among other purposes, compensating employees engaged
in sales and/or shareholder servicing. The amount of fees paid by each
class during any year may be more or less than the cost of distribution and
other services provided to that class. NASD rules limit the amount of
annual distribution fees that may be paid by a mutual fund and impose a
ceiling on the cumulative distribution fees paid. The Trust's Plans comply
with those rules.
For the six months ended April 30, 2007, Short Duration recorded a capital
contribution from Management in the amount of $6,457. This amount was paid
in connection with losses outside the Fund's direct control incurred in the
disposition of foreign currency contracts. Management does not normally
make payments for losses incurred in the disposition of foreign currency
contracts.
114
<Page>
Strategic Income has entered into a commission recapture program, which
enables the Fund to pay some of its operational expenses by recouping a
portion of the commissions it pays to a broker that is not a related party
of the Funds. Pursuant to the agreement, brokers pay recaptured commissions
to the Fund's custodian and the custodian directs these amounts toward
payment of expenses such as custodial, transfer agency or accounting
services. For the six months ended April 30, 2007, the impact of this
arrangement on Strategic Income was a reduction of expenses of $209.
Each Fund has an expense offset arrangement in connection with its
custodian contract. For the six months ended April 30, 2007, the impact of
this arrangement was a reduction of expenses of $1,379, $6,633, $26,595,
$1,095, $4,353, $5,608, $1,419, $177, $143,541, and $3,060 for Core Bond,
High Income, Municipal Money, Municipal Securities Trust, National
Municipal Money, New York Municipal Money, Short Duration, Strategic
Income, Tax-Free Money, and Cash Reserves, respectively.
Note C--Securities Transactions:
Cost of purchases and proceeds of sales and maturities of long-term
securities (excluding short-term securities, financial futures contracts,
foreign currency contracts, and option contracts) for the six months ended
April 30, 2007 were as follows:
<Table>
<Caption>
PURCHASES OF SALES AND SALES AND
U.S. GOVERNMENT PURCHASES EXCLUDING MATURITIES OF U.S. MATURITIES EXCLUDING
AND AGENCY U.S. GOVERNMENT AND GOVERNMENT AND U.S. GOVERNMENT AND
OBLIGATIONS AGENCY OBLIGATIONS AGENCY OBLIGATIONS AGENCY OBLIGATIONS
CORE BOND $184,104,421 $ 19,186,456 $176,588,242 $ 28,507,947
HIGH INCOME -- 450,082,903 -- 546,005,838
MUNICIPAL SECURITIES TRUST -- 1,073,310 -- 4,790,480
SHORT DURATION 10,461,422 19,154,591 10,305,877 30,770,674
STRATEGIC INCOME 3,738,345 6,800,315 2,813,673 9,854,121
</Table>
All securities transactions for Municipal Money, National Municipal Money,
New York Municipal Money, Tax-Free Money, and Cash Reserves were
short-term.
During the six months ended April 30, 2007, Strategic Income had entered
into various contracts to deliver currencies at specified future dates. At
April 30, 2007, open contracts were as follows:
<Table>
<Caption>
NET UNREALIZED
CONTRACTS IN EXCHANGE SETTLEMENT APPRECIATION/
BUY TO DELIVER FOR DATE VALUE (DEPRECIATION)
EURO 120,000 EUR $158,717 6/13/07 $164,211 $ 5,494
BRITISH POUND 24,000 GBP 48,120 6/13/07 47,989 (131)
JAPANESE YEN 13,000,000 JPY 111,263 6/13/07 109,478 (1,785)
</Table>
<Table>
<Caption>
NET UNREALIZED
CONTRACTS IN EXCHANGE SETTLEMENT APPRECIATION/
SELL TO DELIVER FOR DATE VALUE (DEPRECIATION)
AUSTRAILIAN DOLLAR 29,000 AUD $ 22,591 6/13/07 $ 24,114 $ (1,523)
CANADIAN DOLLAR 156,000 CAD 134,892 6/13/07 141,135 (6,243)
DANISH KRONE 268,000 DKK 47,331 6/13/07 49,199 (1,868)
EURO 1,447,000 EUR 1,917,261 6/13/07 1,980,108 (62,847)
BRITISH POUND 392,000 GBP 756,952 6/13/07 783,822 (26,870)
JAPANESE YEN 146,000,000 JPY 1,255,698 6/13/07 1,229,521 26,177
</Table>
115
<Page>
During the six months ended April 30, 2007, brokerage commissions on
securities transactions amounted to $5,893, of which Neuberger received
$258, Lehman Brothers received $902, and other brokers received $4,733 for
Strategic Income.
Note D--Fund Share Transactions:
Share activity for the six months ended April 30, 2007 and the year ended
October 31, 2006 was as follows:
<Table>
<Caption>
FOR THE SIX MONTHS ENDED APRIL 30, 2007 FOR THE YEAR ENDED OCTOBER 31, 2006
---------------------------------------------- ----------------------------------------------------------
SHARES SHARES
ISSUED ON ISSUED ON
REINVESTMENT REINVESTMENT
OF DIVIDENDS OF DIVIDENDS
SHARES AND SHARES AND SHARES
(000'S OMITTED) SOLD DISTRIBUTIONS REDEEMED TOTAL SHARES SOLD DISTRIBUTIONS REDEEMED TOTAL
CORE BOND:
Investor Class 950 68 (689) 329 1,293 210 (1,208) 295
Institutional Class 320 112 (362) 70 505 356 (1,046) (185)
HIGH INCOME:
Investor Class 7,723 1,921 (22,430) (12,786) 20,191 4,309 (45,459) (20,959)
MUNICIPAL MONEY:
Investor Class 3,494,514 8,796 (3,474,215) 29,095 5,104,293 10,110 (4,928,381) 186,022
MUNICIPAL SECURITIES
TRUST:
Investor Class 249 50 (533) (234) 365 98 (611) (148)
NATIONAL MUNICIPAL
MONEY:
Reserve Class 1,819,903 5,188 (1,712,661) 112,430 1,805,891(1)(2) 3,040(1) (1,638,403)(1) 170,528(1)
NEW YORK MUNICIPAL
MONEY:
Investor Class 853,845 2,119 (793,314) 62,650 851,383(1)(2) 1,866(1) (680,063)(1) 173,186(1)
SHORT DURATION:
Investor Class 430 255 (1,681) (996) 2,040 670 (7,473) (4,763)
Trust Class 194 40 (536) (302) 483 86 (971) (402)
STRATEGIC INCOME:
Institutional Class 73 65 (214) (76) 188 195 (870) (487)
Trust Class(3) 10 -- -- 10 -- -- -- --
TAX-FREE MONEY:
Reserve Class 6,452,005 17,976 (6,356,957) 113,024 7,375,109(1)(2) 14,793(1) (6,224,833)(1) 1,165,069(1)
CASH RESERVES:
Investor Class 400,472 7,988 (639,716) (231,256) 796,495 14,143 (684,710) 125,928
</Table>
(1) Period from December 19, 2005 (Commencement of operations) to October 31,
2006.
(2) Includes initial capitalization of $10 on December 19, 2005.
(3) Period from April 2, 2007 to April 30, 2007.
116
<Page>
Note E--Line of Credit:
At April 30, 2007, Core Bond, High Income, Short Duration and Strategic
Income were participants in a single committed, unsecured $150,000,000 line
of credit with a consortium of banks organized by State Street, to be used
only for temporary or emergency purposes. Other investment companies
managed by Management also participate in this line of credit on the same
terms. Interest is charged on borrowings under this agreement at the
overnight Federal Funds Rate plus 0.50% per annum. A facility fee of 0.07%
per annum of the available line of credit is charged, of which each Fund
has agreed to pay its pro rata share, based on the ratio of its individual
net assets to the net assets of all participants at the time the fee is due
and payable. The fee is paid quarterly in arrears. Because several
investment companies participate, there is no assurance that an individual
fund will have access to all or any part of the $150,000,000 at any
particular time. Core Bond, High Income, Short Duration and Strategic
Income had no loans outstanding pursuant to this line of credit at April
30, 2007. During the six months ended April 30, 2007, Core Bond, High
Income, Short Duration and Strategic Income did not utilize this line of
credit.
Note F--Investments In Affiliates*:
CORE BOND:
<Table>
<Caption>
INCOME FROM
INVESTMENTS
BALANCE OF GROSS GROSS BALANCE OF IN AFFILIATED
SHARES HELD PURCHASES SALES AND SHARES HELD VALUE ISSUERS INCLUDED
NAME OF ISSUER OCTOBER 31, 2006 AND ADDITIONS REDUCTIONS APRIL 30, 2007 APRIL 30, 2007 IN TOTAL INCOME
NEUBERGER BERMAN PRIME
MONEY FUND TRUST CLASS** 2,881,459 27,000,682 28,229,264 1,652,877 $1,652,877 $72,296
</Table>
HIGH INCOME:
<Table>
<Caption>
INCOME FROM
INVESTMENTS
BALANCE OF GROSS GROSS BALANCE OF IN AFFILIATED
SHARES HELD PURCHASES SALES AND SHARES HELD VALUE ISSUERS INCLUDED
NAME OF ISSUER OCTOBER 31, 2006 AND ADDITIONS REDUCTIONS APRIL 30, 2007 APRIL 30, 2007 IN TOTAL INCOME
NEUBERGER BERMAN PRIME
MONEY FUND TRUST CLASS** 19,447,504 317,873,673 327,781,102 9,540,075 $ 9,540,075 $ 405,394
NEUBERGER BERMAN
SECURITIES LENDING QUALITY
FUND, LLC*** 47,300,231 170,737,263 151,562,769 66,474,725 66,474,725 1,726,526
----------- ----------
TOTAL $76,014,800 $2,131,920
=========== ==========
</Table>
117
<Page>
STRATEGIC INCOME:
<Table>
<Caption>
INCOME FROM
INVESTMENTS
BALANCE OF GROSS GROSS BALANCE OF IN AFFILIATED
SHARES HELD PURCHASES SALES AND SHARES HELD VALUE ISSUERS INCLUDED
NAME OF ISSUER OCTOBER 31, 2006 AND ADDITIONS REDUCTIONS APRIL 30, 2007 APRIL 30, 2007 IN TOTAL INCOME
NEUBERGER BERMAN PRIME
MONEY FUND TRUST CLASS** 100,979 4,488,558 4,099,208 490,329 $490,329 $ 5,499
NEUBERGER BERMAN
SECURITIES LENDING QUALITY
FUND, LLC*** 60,751 717,236 574,688 203,299 203,299 5,269
-------- -------
TOTAL $693,628 $10,768
======== =======
</Table>
* Affiliated issuers, as defined in the 1940 Act.
** Prime Money is also managed by Management and may be considered an
affiliate since it has the same officers, Board Members, and investment
manager as the Fund and because, at times, the Fund may own 5% or more of
the outstanding voting securities of Prime Money.
*** Quality Fund, a fund managed by Lehman Brothers Asset Management LLC, an
affiliate of Management, is used to invest cash the Fund receives as
collateral for securities loans as approved by the Board. Because all
shares of Quality Fund are held by funds in the related investment
management complex, Quality Fund may be considered an affiliate of the
Fund.
Note G--Recent Accounting Pronouncements:
On July 13, 2006, the Financial Accounting Standards Board ("FASB")
released FASB Interpretation No. 48 "Accounting for Uncertainty in Income
Taxes" ("FIN 48"). FIN 48 provides guidance for how uncertain tax positions
should be recognized, measured, presented and disclosed in the financial
statements. FIN 48 clarifies the accounting for income taxes, by
prescribing a minimum recognition threshold a tax position is required to
meet before being recognized in the financial statements. FIN 48 requires
that a "more-likely-than-not" threshold be met before the benefit of a tax
position may be recognized in the financial statements and prescribes how
such benefit should be measured. Adoption of FIN 48 is required for fiscal
years beginning after December 15, 2006 and is to be applied to all open
tax years as of the effective date. The Securities and Exchange Commission
has permitted investment companies to delay implementation of FIN 48. Each
fund will have until April 30, 2008 to implement FIN 48. At this time,
Management is evaluating the implications of FIN 48 and its impact in the
financial statements has not yet been determined.
In September 2006, FASB issued FASB Statement No. 157, "Fair Value
Measurement" ("SFAS 157"), which defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair
value measurements. SFAS 157 is effective for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years.
Management believes the adoption of SFAS 157 will not have a material
impact on the Funds' financial position or results of operations.
Note H--Unaudited Financial Information:
The financial information included in this interim report is taken from the
records of each Fund without audit by an independent registered public
accounting firm. Annual reports contain audited financial statements.
118
<Page>
Financial Highlights
Lehman Brothers Core Bond Fund
The following tables include selected data for a share outstanding throughout
each period and other performance information derived from the Financial
Statements.
INVESTOR CLASS
<Table>
<Caption>
SIX PERIOD FROM
MONTHS YEAR OCTOBER 1,
ENDED ENDED 2005 TO
APRIL 30, OCTOBER 31, OCTOBER 31, YEAR ENDED SEPTEMBER 30,
2007 2006 2005 2005~~~ 2004(7) 2003(9)(9) 2002(9)(9)
(UNAUDITED)
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.85 $10.09 $10.21 $10.51 $10.80 $10.72 $10.45
------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME (LOSS) .23@ .41@ .03@ .31@ .23 .28 .39
NET GAINS OR LOSSES ON SECURITIES
(BOTH REALIZED AND UNREALIZED) .03 .09 (.12) (.04) .11 .24 .37
------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .26 .50 (.09) .27 .34 .52 .76
------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (.22) (.43) (.03) (.31) (.23) (.28) (.39)
NET CAPITAL GAINS -- (.31) -- (.26) (.40) (.16) (.10)
------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.22) (.74) (.03) (.57) (.63) (.44) (.49)
------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.89 $ 9.85 $10.09 $10.21 $10.51 $10.80 $10.72
------------------------------------------------------------------------------------
TOTAL RETURN++ +2.71%** +5.21% (.87)%** +2.64% +3.29% +5.01% +7.56%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 37.3 $ 33.9 $ 31.7 $ 31.2 $ 26.0 $ 26.1 $ 22.3
RATIO OF GROSS EXPENSES TO
AVERAGE NET ASSETS# .85%* .86% .85%* .86% .85% .85% .85%
RATIO OF NET EXPENSES TO
AVERAGE NET ASSETS .85%*~ .85%~ .85%*~ .85%~ .85% .85% .85%
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS 4.62%* 4.22% 3.51%* 3.03% 2.21% 2.63% 3.65%
PORTFOLIO TURNOVER RATE 204%** 399% 34%** 462% 390% 343% 333%
</Table>
See Notes to Financial Highlights
119
<Page>
Financial Highlights
Institutional Class
<Table>
<Caption>
SIX PERIOD FROM
MONTHS YEAR OCTOBER 1,
ENDED ENDED 2005 TO
APRIL 30, OCTOBER 31, OCTOBER 31, YEAR ENDED SEPTEMBER 30,
2007 2006 2005 2005~~~ 2004(7) 2003(9)(9) 2002(9)(9)
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.86 $10.11 $10.22 $10.52 $10.81 $10.73 $10.45
------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (LOSS) .25@ .45@ .03@ .33@ .28 .33 .43
NET GAINS OR LOSSES ON SECURITIES
(BOTH REALIZED AND UNREALIZED) .03 .08 (.11) (.02) .11 .24 .38
------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .28 .53 (.08) .31 .39 .57 .81
------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (.24) (.47) (.03) (.35) (.28) (.33) (.43)
NET CAPITAL GAINS -- (.31) -- (.26) (.40) (.16) (.10)
------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.24) (.78) (.03) (.61) (.68) (.49) (.53)
------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.90 $ 9.86 $10.11 $10.22 $10.52 $10.81 $10.73
------------------------------------------------------------------------------------
TOTAL RETURN++ +2.91%** +5.52% (.73)%** +3.05% +3.72% +5.43% +8.08%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 45.4 $ 44.5 $ 47.5 $ 48.5 $233.6 $215.5 $195.6
RATIO OF GROSS EXPENSES TO
AVERAGE NET ASSETS# .45%* .46% .45%* .45% .45% .45% .45%
RATIO OF NET EXPENSES TO
AVERAGE NET ASSETS .45%*~ .45%~ .45%*~ .45%~ .45% .45% .45%
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS 5.02%* 4.60% 3.91%* 3.17% 2.61% 3.04% 4.14%
PORTFOLIO TURNOVER RATE 204%** 399% 34%** 462% 390% 343% 333%
</Table>
See Notes to Financial Highlights
120
<Page>
Financial Highlights
Lehman Brothers 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 (6)
<Table>
<Caption>
SIX
MONTHS TEN
ENDED MONTHS YEAR
APRIL 30, ENDED ENDED
2007 YEAR ENDED OCTOBER 31, OCTOBER 31, DECEMBER 31,
(UNAUDITED) 2006 2005 2004 2003 2002(1) 2001
NET ASSET VALUE, BEGINNING OF PERIOD $9.08 $ 9.10 $ 9.54 $9.25 $8.81 $ 9.03 $ 8.90
------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME (LOSS) .34@ .59@ .55@ .58@ .60@ .52@(4) .69
NET GAINS OR LOSSES ON SECURITIES
(BOTH REALIZED AND UNREALIZED) .29 (.02) (.44) .29 .44 (.21)(4) .12
------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .63 .57 .11 .87 1.04 .31 .81
------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (.34) (.59) (.55) (.58) (.60) (.53) (.68)
------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.37 $ 9.08 $ 9.10 $9.54 $ 9.25 $ 8.81 $ 9.03
------------------------------------------------------------------------------
TOTAL RETURN++ +6.99%** +6.53% +1.17% +9.68% +12.14% +3.52%** +9.27%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $487.1 $588.3 $779.7 $813.2 $519.7 $148.6 $92.8
RATIO OF GROSS EXPENSES TO
AVERAGE NET ASSETS# .90%* .90% .91% .90% .90% 1.00%* 1.00%
RATIO OF NET EXPENSES TO
AVERAGE NET ASSETS .90%*~ .89%~ .91% .90% .90%(9) 1.00%*~ 1.00%~
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS 7.36%* 6.52% 5.88% 6.16% 6.54% 6.96%*(4) 7.54%
PORTFOLIO TURNOVER RATE 87%** 136% 63% 79% 148% 95%~~** 85%
</Table>
See Notes to Financial Highlights
121
<Page>
Financial Highlights
Lehman Brothers Municipal Money Fund
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the Financial
Statements.
INVESTOR CLASS
<Table>
<Caption>
SIX MONTHS ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
2007
(UNAUDITED) 2006 2005 2004 2003 2002
NET ASSET VALUE, BEGINNING OF PERIOD $.9998 $.9998 $.9998 $.9998 $.9998 $.9998
--------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME (LOSS) .0153 .0276 .0158 .0051 .0050 .0092
NET GAINS OR LOSSES ON SECURITIES .0000 .0000 -- -- -- --
--------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .0153 .0276 .0158 .0051 .0050 .0092
--------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (.0153) (.0276) (.0158) (.0051) (.0050) (.0092)
NET CAPITAL GAINS (.0000) -- -- -- -- --
--------------------------------------------------------------
TOTAL DISTRIBUTIONS (.0153) (.0276) (.0158) (.0051) (.0050) (.0092)
--------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $.9998 $.9998 $.9998 $.9998 $.9998 $.9998
--------------------------------------------------------------
TOTAL RETURN++ +1.54%** +2.80% +1.59% +.51% +.50% +.93%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $802.2 $773.2 $587.1 $426.1 $410.9 $533.3
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS# .60%* .59% .60% .61% .61% .62%
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS .59%*~ .59%~ .60% .61% .61% .62%
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS 3.09%* 2.81% 1.62% .51% .50% .92%
</Table>
See Notes to Financial Highlights
122
<Page>
Financial Highlights
Lehman Brothers Municipal Securities Trust
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the Financial
Statements.
INVESTOR CLASS
<Table>
<Caption>
SIX MONTHS ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
2007
(UNAUDITED) 2006 2005 2004 2003 2002
NET ASSET VALUE, BEGINNING OF PERIOD $11.36 $11.33 $11.81 $11.86 $11.80 $11.62
--------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME (LOSS)@ .20 .40 .40 .40 .40 .43
NET GAINS OR LOSSES ON SECURITIES
(BOTH REALIZED AND UNREALIZED) (.08) .08 (.41) (.00) .12 .18
--------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .12 .48 (.01) .40 .52 .61
--------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (.20) (.40) (.40) (.40) (.40) (.43)
NET CAPITAL GAINS (.04) (.05) (.07) (.05) (.06) --
--------------------------------------------------------------
TOTAL DISTRIBUTIONS (.24) (.45) (.47) (.45) (.46) (.43)
--------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.24 $11.36 $11.33 $11.81 $11.86 $11.80
--------------------------------------------------------------
TOTAL RETURN++ +1.11%** +4.38% (.09)% +3.43% +4.50% +5.35%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $29.1 $ 32.1 $ 33.7 $ 37.1 $ 42.3 $ 37.9
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS# .66%* .66% .66% .65% .65% .65%
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS~ .65%* .65% .66% .65% .65% .65%
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS 3.60%* 3.56% 3.44% 3.40% 3.37% 3.67%
PORTFOLIO TURNOVER RATE 4%** 28% 16% 8% 12% 17%
</Table>
See Notes to Financial Highlights
123
<Page>
Financial Highlights
Lehman Brothers National Municipal Money Fund
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the Financial
Statements.
RESERVE CLASS
<Table>
<Caption>
SIX MONTHS
ENDED PERIOD FROM
APRIL 30, DECEMBER 19, 2005^
2007 TO OCTOBER 31,
(UNAUDITED) 2006
NET ASSET VALUE, BEGINNING OF PERIOD $1.0001 $1.0000
--------------------------------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME (LOSS) .0177 .0287
NET GAINS OR LOSSES ON SECURITIES (.0000) .0001
--------------------------------
TOTAL FROM INVESTMENT OPERATIONS .0177 .0288
--------------------------------
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (.0177) (.0287)
NET CAPITAL GAINS (.0001) --
--------------------------------
TOTAL DISTRIBUTIONS (.0178) (.0287)
--------------------------------
NET ASSET VALUE, END OF PERIOD $1.0000 $1.0001
--------------------------------
TOTAL RETURN++ +1.79%** +2.90%**
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 283.0 $ 170.5
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS# .18%* .17%*
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS~ .18%* .16%*
RATIO OF NET INVESTMENT INCOME (LOSS) TO AVERAGE NET ASSETS 3.57%* 3.28%*
</Table>
See Notes to Financial Highlights
124
<Page>
Financial Highlights
Lehman Brothers New York Municipal Money Fund
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the Financial
Statements.
INVESTOR CLASS
<Table>
<Caption>
SIX MONTHS
ENDED PERIOD FROM
APRIL 30, DECEMBER 19, 2005^
2007 TO OCTOBER 31
(UNAUDITED) 2006
NET ASSET VALUE, BEGINNING OF PERIOD $1.0000 $1.0000
--------------------------------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME (LOSS) .0157 .0249
NET GAINS OR LOSSES ON SECURITIES .0000 .0000
--------------------------------
TOTAL FROM INVESTMENT OPERATIONS .0157 .0249
--------------------------------
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (.0157) (.0249)
NET CAPITAL GAINS (.0000) --
--------------------------------
TOTAL DISTRIBUTIONS (.0157) (.0249)
--------------------------------
NET ASSET VALUE, END OF PERIOD $1.0000 $1.0000
--------------------------------
TOTAL RETURN++ +1.58%** +2.51%**
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 235.8 $ 173.2
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS# .49%* .55%*
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS~ .48%* .54%*
RATIO OF NET INVESTMENT INCOME (LOSS) TO AVERAGE NET ASSETS 3.16%* 2.94%*
</Table>
See Notes to Financial Highlights
125
<Page>
Financial Highlights
Lehman Brothers Short Duration Bond Fund
The following tables include selected data for a share outstanding throughout
each period and other performance information derived from the Financial
Statements.
INVESTOR CLASS
<Table>
<Caption>
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
2007 2006 2005 2004 2003 2002
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.11 $ 9.13 $ 9.41 $ 9.61 $ 9.65 $ 9.78
--------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME (LOSS)@ .20 .35 .25 .24 .28 .43(4)
NET GAINS OR LOSSES ON SECURITIES
(BOTH REALIZED AND UNREALIZED) .03 .03 (.18) (.11) .03 (.11)##(4)
--------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .23 .38 .07 .13 .31 .32
--------------------------------------------------------
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (.22) (.40) (.35) (.33) (.35) (.45)
--------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.12 $ 9.11 $ 9.13 $ 9.41 $ 9.61 $ 9.65
--------------------------------------------------------
TOTAL RETURN++ +2.44%** +4.28% +.77% +1.43% +3.23% +3.42%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 99.1 $108.1 $151.8 $162.6 $199.4 $220.3
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS# .70%* .71% .71% .70% .70% .70%
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS~ .70%* .70% .70% .70% .70% .70%
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS 4.45%* 3.80% 2.75% 2.49% 2.88% 4.44%(4)
PORTFOLIO TURNOVER RATE 25%** 74% 166% 94% 129% 140%
</Table>
See Notes to Financial Highlights
126
<Page>
Financial Highlights
TRUST CLASS
<Table>
<Caption>
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
2007 2006 2005 2004 2003 2002
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.68 $ 8.70 $ 8.97 $ 9.15 $ 9.20 $ 9.32
--------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME (LOSS)@ .19 .32 .23 .22 .26 .40(4)
NET GAINS OR LOSSES ON SECURITIES
(BOTH REALIZED AND UNREALIZED) .03 .03 (.17) (.09) .01 (.10)##(4)
--------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .22 .35 .06 .13 .27 .30
--------------------------------------------------------
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (.21) (.37) (.33) (.31) (.32) (.42)
--------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 8.69 $ 8.68 $ 8.70 $ 8.97 $ 9.15 $ 9.20
--------------------------------------------------------
TOTAL RETURN++ +2.51%** +4.16% +.64% +1.44% +3.00% +3.35%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 14.0 $ 16.6 $ 20.1 $ 27.0 $ 36.5 $ 42.9
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS# .80%* .81% .81% .80% .80% .80%
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS~ .80%* .80% .81% .80% .80% .80%
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS 4.35%* 3.69% 2.64% 2.38% 2.80% 4.31%(4)
PORTFOLIO TURNOVER RATE 25%** 74% 166% 94% 129% 140%
</Table>
See Notes to Financial Highlights
127
<Page>
Financial Highlights
Lehman Brothers Strategic Income Fund
The following tables include selected data for a share outstanding throughout
each period and other performance information derived from the Financial
Statements.
INSTITUTIONAL CLASS
<Table>
<Caption>
SIX MONTHS PERIOD FROM
ENDED JULY 11, 2003^
APRIL 30, YEAR ENDED OCTOBER 31, TO OCTOBER 31,
2007 2006 2005 2004 2003
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF PERIOD $10.65 $ 10.90 $10.72 $ 10.11 $10.00
-----------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME (LOSS)@ .21 .38 .37 .36 .10
NET GAINS OR LOSSES ON SECURITIES
(BOTH REALIZED AND UNREALIZED) .25 .65 .34 .69 .09
-----------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .46 1.03 .71 1.05 .19
-----------------------------------------------------------
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (.23) (.46) (.45) (.44) (.08)
NET CAPITAL GAINS (.38) (.82) (.08) -- --
-----------------------------------------------------------
TOTAL DISTRIBUTIONS (.61) (1.28) (.53) (.44) (.08)
-----------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.50 $ 10.65 $10.90 $ 10.72 $10.11
-----------------------------------------------------------
TOTAL RETURN++ +4.40%** +10.34% +6.68% +10.65% +1.95%**
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 19.3 $ 20.4 $ 26.2 $ 29.4 $ 23.6
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS# .85%* .86% .86% .85% .85%*
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS~ .85%* .85% .85% .84% .84%*
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS 4.04%* 3.66% 3.43% 3.44% 3.51%*
PORTFOLIO TURNOVER RATE 55%** 111% 89% 85% 34%**
</Table>
See Notes to Financial Highlights
128
<Page>
Financial Highlights
TRUST CLASS
<Table>
<Caption>
PERIOD FROM
APRIL 2, 2007^
TO APRIL 30,
2007
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF PERIOD $10.39
--------------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME (LOSS)@ .03
NET GAINS OR LOSSES ON SECURITIES
(BOTH REALIZED AND UNREALIZED) .08
--------------
TOTAL FROM INVESTMENT OPERATIONS .11
--------------
NET ASSET VALUE, END OF PERIOD $10.50
--------------
TOTAL RETURN++ +1.06%**
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ .1
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS# 1.11%*
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS~ 1.09%*
RATIO OF NET INVESTMENT INCOME (LOSS) TO AVERAGE NET ASSETS 3.49%*
PORTFOLIO TURNOVER RATE 55%**^^
See Notes to Financial Highlights 130
</Table>
129
<Page>
Financial Highlights
Lehman Brothers Tax-Free Money Fund
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the Financial
Statements.
RESERVE CLASS
<Table>
<Caption>
SIX MONTHS PERIOD FROM
ENDED DECEMBER 19, 2005^
APRIL 30, TO OCTOBER 31,
2007 2006
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.0000 $ 1.0000
-------------------------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME (LOSS) .0171 .0282
NET GAINS OR LOSSES ON SECURITIES .0000 .0000
-------------------------
TOTAL FROM INVESTMENT OPERATIONS .0171 .0282
-------------------------
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (.0171) (.0282)
NET CAPITAL GAINS .0000 --
-------------------------
TOTAL DISTRIBUTIONS (.0171) (.0282)
-------------------------
NET ASSET VALUE, END OF PERIOD $ 1.0000 $ 1.0000
-------------------------
TOTAL RETURN++ +1.73%** +2.86%**
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $1,278.1 $1,165.1
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS# .20%* .19%*
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS~ .17%* .17%*
RATIO OF NET INVESTMENT INCOME (LOSS) TO AVERAGE NET ASSETS 3.46%* 3.30%*
</Table>
See Notes to Financial Highlights
130
<Page>
Financial Highlights
Neuberger Berman Cash Reserves
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>
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
2007 2006 2005 2004 2003 2002
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF PERIOD $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0001
--------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME (LOSS) .0244 .0441 .0239 .0056 .0066 .0154
NET GAINS OR LOSSES ON SECURITIES (.0000) (.0000) (.0000) .0000 .0000 (.0000)
--------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .0244 .0441 .0239 .0056 .0066 .0154
--------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (.0244) (.0441) (.0239) (.0056) (.0066) (.0154)
NET CAPITAL GAINS -- -- -- (.0000) -- (.0001)
--------------------------------------------------------------
TOTAL DISTRIBUTIONS (.0244) (.0441) (.0239) (.0056) (.0066) (.0155)
--------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
--------------------------------------------------------------
TOTAL RETURN++ +2.46%** +4.50% +2.42% +.57% +.66% +1.56%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 374.6 $ 605.9 $ 480.0 $ 481.2 $ 617.7 $ 842.0
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS# .46%* .45% .49% .63% .59% .60%
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS .46%*~ .45%~ .49%~ .63% .59% .60%
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS 4.92%* 4.45% 2.40% .55% .68% 1.54%
</Table>
See Notes to Financial Highlights
131
<Page>
Notes to Financial Highlights Income Funds (Unaudited)
++ Total return based on per share net asset value reflects the effects of
changes in net asset value on the performance of each Fund during each
fiscal period and assumes dividends and other distributions, if any, were
reinvested. Results represent past performance and do not guarantee future
results. Current returns may be lower or higher than the performance data
quoted. Investment returns and principal may fluctuate and shares when
redeemed may be worth more or less than original cost. For each Fund, total
return would have been lower if Management had not reimbursed and/or waived
certain expenses. For the six months ended April 30, 2007, Management
reimbursed Short Duration for losses incurred in connection with the
disposition of foreign currency contracts, which had no impact on total
return.
# The Fund is required to calculate an expense ratio without taking into
consideration any expense reductions related to expense offset
arrangements.
## 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>
SIX MONTHS YEAR PERIOD FROM YEAR
ENDED ENDED OCTOBER 1, 2005 ENDED
APRIL 30, OCTOBER 31, TO OCTOBER 31, SEPTEMBER 30,
2007 2006 2005 2005
CORE BOND FUND INVESTOR CLASS 1.33% 1.46% 1.58% 1.05%
CORE BOND FUND INSTITUTIONAL CLASS .91% .91% 1.05% .55%
</Table>
<Table>
<Caption>
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
2007 2006 2005 2004 2003 2002
MUNICIPAL MONEY FUND INVESTOR CLASS .62% .61% -- -- -- --
MUNICIPAL SECURITIES TRUST INVESTOR CLASS 1.13% 1.19% 1.10% 1.06% .98% 1.10%
SHORT DURATION BOND FUND INVESTOR CLASS .90% .80% .80% .77% .74% .73%
SHORT DURATION BOND FUND TRUST CLASS 1.17% 1.06% 1.02% .95% .93% .92%
CASH RESERVES INVESTOR CLASS .48% .47% .51% -- -- --
</Table>
<Table>
<Caption>
SIX MONTHS TEN MONTHS YEAR
ENDED ENDED ENDED
APRIL 30, YEAR ENDED OCTOBER 31, OCTOBER 31, DECEMBER 31,
2007 2006 2005 2004 2003 2002 2001
HIGH INCOME BOND FUND INVESTOR CLASS .90% .90% -- -- -- 1.31% 1.15%
</Table>
132
<Page>
Notes to Financial Highlights Income Funds (cont'd)
<Table>
<Caption>
PERIOD FROM
SIX MONTHS DECEMBER 19,
ENDED 2005 TO
APRIL 30, OCTOBER 31,
2007 2006
NATIONAL MUNICIPAL MONEY FUND RESERVE CLASS .47% .53%
NEW YORK MUNICIPAL MONEY FUND INVESTOR CLASS .61% .69%
TAX-FREE MONEY FUND RESERVE CLASS .35% .36%
</Table>
<Table>
<Caption>
PERIOD FROM
JULY 11,
SIX MONTHS 2003
ENDED TO
APRIL 30, YEAR ENDED OCTOBER 31, OCTOBER 31,
2007 2006 2005 2004 2003
STRATEGIC INCOME FUND INSTITUTIONAL CLASS 2.54% 2.29% 1.82% 1.72% 3.77%
STRATEGIC INCOME FUND TRUST CLASS 5.77%(1) -- -- -- --
</Table>
(1) Period from April 2, 2007 to April 30, 2007
(9) 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>
SIX MONTHS
ENDED YEAR ENDED
APRIL 30, OCTOBER 31,
2007 2003
HIGH INCOME BOND FUND INVESTOR CLASS -- .90%
</Table>
^ The date investment operations commenced.
~~ Portfolio turnover excludes purchases and sales of securities by Lehman
Brothers High Yield Bond Fund prior to the date of its merger with High
Income.
* Annualized.
** Not annualized.
@ The per share amounts which are shown for the periods ended October 31,
2002 and thereafter (September 30, 2005 and thereafter for Core Bond Fund)
have been calculated based on the average number of shares outstanding
during each fiscal period.
(1) Effective after the close of business on September 6, 2002, Management
succeeded Lipper & Company, L.L.C., as the Fund's investment manager.
~~~ Effective after the close of business on June 10, 2005, Management
succeeded Ariel Capital Management, LLC, as the Fund's investment manager.
The financial highlights for the year ended September 30, 2005 include the
income and expenses attributable to the Ariel Premier Bond Fund for the
period from October 1, 2004 through June 10, 2005 and the income and
expenses of the Fund, thereafter.
(7) Audited by other auditors whose report dated November 15, 2004 expressed an
unqualified opinion.
(9)(9) Audited by other auditors whose report dated October 17, 2003 expressed
an unqualified opinion.
133
<Page>
Notes to Financial Highlights Income Funds (cont'd)
^^ Portfolio turnover is calculated at the Fund level. Percentage indicated
was calculated for the six months ended April 30, 2007 for Strategic Income
Fund.
(4) As required, effective November 1, 2001, in accordance with GAAP, the Fund
began amortizing premium and discount on debt securities. Accordingly, for
the year ended October 31, 2002, the per share amounts and ratios shown
decreased or increased as follows:
HIGH INCOME BOND FUND INVESTOR CLASS
<Table>
<Caption>
TEN MONTHS ENDED
OCTOBER 31,
2002
Net Investment Income (.01)
Net Gains or Losses on Securities .01
Ratio of Net Investment Income to Average Net Assets (.19%)
</Table>
SHORT DURATION BOND FUND INVESTOR CLASS
<Table>
<Caption>
YEAR ENDED
OCTOBER 31,
2002
Net Investment Income (.02)
Net Gains or Losses on Securities .02
Ratio of Net Investment Income to Average Net Assets (.26%)
</Table>
SHORT DURATION BOND FUND TRUST CLASS
<Table>
<Caption>
YEAR ENDED
OCTOBER 31,
2002
Net Investment Income (.02)
Net Gains or Losses on Securities .02
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS (.26%)
</Table>
(6) The financial highlights for the year ended December 31, 2001 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.
134
<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-ADVISERS
Lehman Brothers Asset Management LLC
200 South Wacker Drive
Suite 2100
Chicago, IL 60601
Neuberger Berman LLC
605 Third Avenue
New York, NY 10158-3698
CUSTODIAN AND SHAREHOLDER SERVICING AGENT
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
FOR INVESTOR CLASS SHAREHOLDERS ADDRESS CORRESPONDENCE TO:
Neuberger Berman Funds
Boston Service Center
P.O. Box 8403
Boston, MA 02266-8403
800.877.9700 or 212.476.8800
FOR RESERVE CLASS, INSTITUTIONAL CLASS, AND TRUST CLASS SHAREHOLDERS ADDRESS
CORRESPONDENCE TO:
Neuberger Berman Management Inc.
605 Third Avenue, 2nd Floor
New York, NY 10158-0180
Attn: Institutional Services 800.366.6264
For Reserve Class inquiries: 888.556.9030
LEGAL COUNSEL
Kirkpatrick & Lockhart Preston Gates Ellis LLP
1601 K Street, NW
Washington, DC 20006
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
Tait, Weller & Baker LLP
1818 Market Street
Suite 2400
Philadelphia, PA 19103
135
<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 Management's website at www.nb.com.
Quarterly Portfolio Schedule
The Trust files a complete schedule of portfolio holdings for each Fund with the
Securities and Exchange Commission for the first and third quarters of each
fiscal year on Form N-Q. The Trust's Forms N-Q are available on the Securities
and Exchange Commission's website at www.sec.gov and may be reviewed and copied
at the Securities and Exchange Commission's Public Reference Room in Washington,
DC. Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330. The information on Form N-Q is available upon request,
without charge, by calling 1-800-877-9700 (toll-free).
136
<Page>
This page has been left blank intentionally
<Page>
This page has been left blank intentionally
<Page>
Investment manager: NEUBERGER BERMAN MANAGEMENT INC.
Sub-advisers: LEHMAN BROTHERS ASSET MANAGEMENT LLC
NEUBERGER BERMAN LLC
NEUBERGER BERMAN MANAGEMENT INC.
605 Third Avenue 2nd Floor
New York, NY 10158-0180
Retail Services: 800.877.9700
Broker/Dealer and Institutional Services: 800.366.6264 Web site: www.nb.com
Reserve Class Inquiries and Lehman Brothers New York Municipal Money Fund
Inquiries: 888.556.9030 Web site: www.lehmanam.com
STATISTICS AND PROJECTIONS IN THIS REPORT ARE DERIVED FROM SOURCES DEEMED TO BE
RELIABLE BUT CANNOT BE REGARDED AS A REPRESENTATION OF FUTURE RESULTS OF THE
FUNDS. THIS REPORT IS PREPARED FOR THE GENERAL INFORMATION OF SHAREHOLDERS AND
IS NOT AN OFFER OF SHARES OF THE FUNDS. SHARES ARE SOLD ONLY THROUGH THE
CURRENTLY EFFECTIVE PROSPECTUS, WHICH MUST PRECEDE OR ACCOMPANY THIS REPORT.
H0314 06/07
ITEM 2. CODE OF ETHICS
The Board of Trustees ("Board") of Lehman Brothers Income Funds ("Registrant")
adopted a code of ethics that applies to the Registrant's principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions ("Code of Ethics"). For the
period covered by this Form N-CSR, there were no amendments to the Code of
Ethics and there were no waivers from the Code of Ethics granted to the
Registrant's principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions.
A copy of the Code of Ethics was included as an exhibit to Registrant's Form
N-CSR filed on July 10, 2006. 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 three audit committee financial
experts serving on its audit committee. The Registrant's audit committee
financial experts are Martha Goss, Howard Mileaf and George Morriss. Ms. Goss,
Mr. Mileaf and Mr. Morriss are independent trustees as defined by Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Only required in the annual report.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable to the Registrant.
ITEM 6. SCHEDULE OF INVESTMENTS
The complete schedule of investments for each series is disclosed in the
Registrant's Semi-annual Report, which is included as Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
Not applicable to the Registrant.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS
Not applicable to the Registrant.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no changes to the procedures by which shareholders may recommend
nominees to the Board.
ITEM 11. CONTROLS AND PROCEDURES
(a) Based on an evaluation of the disclosure controls and procedures (as
defined in rule 30a-3(c) under the Investment Company Act of 1940, as
amended (the "Act")) as of a date within 90 days of the filing date of this
document, the Chief Executive Officer and Treasurer and Principal Financial
and Accounting Officer of the Registrant have concluded that such
disclosure controls and procedures are effectively designed to ensure that
information required to be disclosed by the Registrant on Form N-CSR and
Form N-Q 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 second fiscal quarter of the period
covered by this report that have materially affected, or are reasonably
likely to materially affect, the Registrant's internal control over
financial reporting.
ITEM 12. EXHIBITS
(a)(1) A copy of the Code of Ethics is incorporated by reference to Registrant's
Form N-CSR, Investment Company Act file number 811-3802 (filed July 10,
2006).
(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 filed
herewith.
(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 filed herewith.
The certifications provided pursuant to Rule 30a-2(b) of the Act and 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.
Lehman Brothers Income Funds
By: /s/ Peter E. Sundman
--------------------
Peter E. Sundman
Chief Executive Officer
Date: July 6, 2007
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: July 6, 2007
By: /s/ John M. McGovern
--------------------
John M. McGovern
Treasurer and Principal Financial
and Accounting Officer
Date: July 6, 2007