Neuberger Berman Income Opportunity Fund (NOX) N-CSRS Certified semi-annual shareholder report (management investment company)

As filed with the Securities and Exchange Commission on July 3, 2008

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF

REGISTERED MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-21334

NEUBERGER BERMAN INCOME OPPORTUNITY FUND INC.

(Exact Name of the Registrant as Specified in Charter)

c/o Neuberger Berman Management Inc.

605 Third Avenue, 2nd Floor

New York, New York 10158-0180

(Address of Principal Executive Offices – Zip Code)

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

Peter E. Sundman, Chief Executive Officer

c/o Neuberger Berman Management Inc.

Neuberger Berman Income Opportunity Fund Inc.

605 Third Avenue, 2nd Floor

New York, New York  10158-0180

Arthur C. Delibert, Esq.

K&L Gates 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, 2008

Date of reporting period: April 30, 2008

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

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

Item 1. Report to Shareholders

Neuberger Berman
Income Opportunity
Fund Inc.

(Ticker Symbol: NOX)

Semi-Annual Report

April 30, 2008

Contents

THE FUND

Chairman's Letter 1

PORTFOLIO COMMENTARY

Neuberger Berman Income Opportunity Fund	2
SCHEDULE OF INVESTMENTS/TOP TEN EQUITY HOLDINGS	7
FINANCIAL STATEMENTS	16
FINANCIAL HIGHLIGHTS/PER SHARE DATA	27
Distribution Reinvestment Plan	29
Directory	31
Proxy Voting Policies and Procedures	32
Quarterly Portfolio Schedule	32
Report of Votes of Shareholders	32

"Neuberger Berman" and the Neuberger Berman logo are service marks of Neuberger Berman, LLC. "Neuberger Management Inc." and the individual Fund name in this shareholder report are either service marks or registered service marks of Neuberger Berman Management Inc. ^_©2008 Neuberger Berman Management Inc. All rights reserved.

Chairman's Letter

Dear Shareholder,

I am pleased to present to you this semi-annual report for Neuberger Berman Income Opportunity Fund Inc. for the six months ended April 30, 2008. The report includes portfolio commentary, a listing of the Fund's investments, and its financial statements for the reporting period.

The Fund's investment objective is to provide high current income with capital appreciation as a secondary objective through a diversified portfolio of both real estate securities and high yield bonds. Portfolio Co-Manager Steven Brown manages the real estate portion of the Fund. His investment approach combines analysis of security fundamentals and real estate with property sector diversification. His disciplined valuation methodology seeks real estate securities that are attractively priced relative to their historical growth rates and the valuation of other property sectors.

Portfolio Co-Managers Ann Benjamin and Tom O'Reilly manage the high yield bond portion of the Fund. Their investment approach focuses on generating income and managing risk. They seek to avoid the default and volatility risk associated with many high yield bonds by applying rigorous credit analysis to higher quality issues, and by emphasizing the intermediate range of the yield curve.

We believe that our conservative investing philosophy and disciplined investment process will benefit shareholders by providing attractive current income over the long term.

Since February 2008, the market for auction rate preferred securities has experienced significant disruption that has resulted in failed auctions for many of these securities, including the auction preferred shares issued by the Fund. While at this time we cannot predict whether, how or when complete or partial liquidity will return, we continue to work toward finding a solution while keeping in mind the interests of both the common and preferred shareholders of the Fund.

Thank you for your confidence in Neuberger Berman. We will continue to do our best to earn it.

Sincerely,

Peter Sundman
Chairman of the Board
Neuberger Berman Income Opportunity Fund Inc.

1

Income Opportunity Fund Inc. Portfolio Commentary

For the six months ended April 30, 2008, on a net asset value (NAV) basis, Neuberger Berman Income Opportunity Fund Inc. posted a negative return, largely due to weakness in real estate securities holdings.

The Fund pursues a primary objective of high current income by investing a portion of its assets in intermediate term, high yield corporate bonds with maturities of primarily 10 years or less at the time of initial investment and another portion in real estate company securities, including real estate investment trust (REIT) common stock and REIT preferred shares.

At the end of the reporting period, the Fund held 40.5% of its investments in REIT common stocks, 10.6% in REIT preferred shares, 46.2% in bonds and 2.7% in cash and cash equivalents.

Real Estate Securities

The real estate securities portion of the Fund posted a negative return for the reporting period, modestly underperforming the FTSE NAREIT Equity REITs Index, which declined 7.30%.

During the earlier portion of the reporting period, REIT valuations declined considerably and exhibited much volatility as severely constrained credit markets increased REITs' financing costs and as investors became increasingly concerned that a weak economy would undermine commercial real estate fundamentals. However, a combination of reduced interest rates, increased credit liquidity, and indications that the economic downturn might not be as severe as feared helped REITs finish the period on an upswing. The gains were not enough, however, to move the NAREIT index into positive territory for the reporting period.

Fund holdings in the top performing and overweighted Health Care sector had the largest favorable impact on absolute returns while holdings outperformed index counterparts. Although Self Storage sector investments lagged the index sector, they delivered a modestly positive return. The Fund had negative returns in the poorly performing Lodging/Resorts sector, but declines were less than one-third that of the index sector component. Disappointing performance in the Regional Malls sector, an underweight, penalized absolute and relative returns, while Diversified sector holdings also posted poor relative performance. The Fund's exposure to Commercial and Home Financing REITs, two sectors not represented in the index, negatively impacted results.

We continue to like the less economically sensitive Health Care sector and, in our view, supply/demand fundamentals continue to make Apartment sector REITs appealing. We also believe that the sell-off in the Office sector has been too extreme and that Industrial REITs should bounce back, given that manufacturing and export activity remains strong.

We believe that REITs are offering reasonably good value, especially in today's low-interest-rate environment. Based on the ratio of price/funds-from-operations (real estate securities' equivalent to price/earnings), REITs are in the middle of their historical valuation range; in addition, their yields exceed those of 10-Year U.S. Treasury securities.

High Yield Securities

The high yield securities portion of the Fund posted a modestly negative total return for the six-month period, but outpaced the -0.73% return of the Lehman Brothers U.S. Corporate High Yield 2% Issuer Cap Index.

High yield bonds sold off sharply in late October and early November, when leading financial companies in the U.S. and abroad began announcing major write-downs resulting from exposure to lower quality mortgage-backed securities. Although the market conditions firmed in December, market conditions deteriorated further in January as we continued to see "blue chip" financial companies write down fixed income assets and as investors began anticipating a recession. The high yield

RATING SUMMARY

High Yield Bond Holdings as a % of Total Net Assets Applicable to Common Shareholders
AAA/Government/ Government Agency	0.0%
AA	0.0
A	0.0
BBB	6.2
BB	26.9
B	31.9
CCC	8.6
Not Rated	0.0
Short Term	0.0

2

market stabilized briefly in February, but was derailed again in March with the near collapse of Bear Stearns, the investment bank.

Several steps taken by the Federal Reserve — including aggressive rate cuts, support for JPMorgan Chase's proposed acquisition of Bear Stearns and new borrowing facilities for banks and primary fixed income dealers — helped stabilize market conditions. Attracted by yields approaching 11%, investors returned to the high yield market in April, triggering a strong rebound.

Over the course of the past six months, our security selection and weightings in the Utilities, Chemicals, Packaging and Cable Television sectors enhanced performance. The poor performance of Broadcaster, Airlines and Retail investments penalized our returns. Anticipating more moderate economic growth, we have been gravitating to less economically sensitive industry groups, which historically enjoy more stable cash flows.

The portfolio's weighted average maturity and duration fluctuated only modestly over this six-month reporting period. Increasing the credit quality of the portfolio helped Fund returns during this difficult period.

Looking forward, although the economy may slip into recession in the coming quarters, we don't believe it will experience a steep or prolonged downturn. In our view, the high yield default rate is likely to increase to the 3—4% range in 2009 — higher than in 2007 but in line with historical averages and well below the 8—10% that was priced into the market earlier this year. Although we expect to continue to see a bumpy high yield market over the next several quarters, we are currently seeing good value that could benefit our shareholders in the months to come.

Sincerely,

  

Steven R. Brown, Ann H. Benjamin
and Thomas P. O'Reilly
Portfolio Co-Managers

INDUSTRY DIVERSIFICATION

Equity Holdings as a % of Total Net Assets Applicable to Common Shareholders
Apartments	6.2	%
Commercial Services	2.2
Commercial Products & Services	13.5
Community Centers	2.8
Diversified	9.2
Health Care	14.3
Hotels, Restaurants & Leisure	1.0
Industrial	9.6
Lodging	3.7
Office	9.5
Office-Industrial	0.5
Real Estate/REIT	0.4
Regional Malls	4.8
Retail	0.5
Self Storage	3.0
Short-Term Investments	42.8
Liabilities, less cash, receivables and other assets, and Liquidation Value of Auction Preferred Shares	(97.6	)

3

PERFORMANCE HIGHLIGHTS

Neuberger Berman

	Inception Date	Total Return Six Month Period Ended 4/30/2008			Total Return 1 Year Ended 4/30/2008			Average Annual Total Return Since Inception
NAV
Income Opportunity Fund	06/24/2003		(8.84	%)		(20.28	%)		8.94	%
Market Price
Income Opportunity Fund	06/24/2003		(4.55	%)		(24.04	%)		6.21	%

Closed-end funds, unlike open-end funds, are not continually offered. There is an initial public offering and, once issued, common shares of closed-end funds are sold in the open market through a stock exchange.

The composition, industries and holdings of the Fund are subject to change. Investment return will fluctuate. Past performance is not guarantee of future results.

4

Endnotes

1  Returns based on net asset value (NAV) of the Fund.

2  Returns based on market price of Fund shares on the American Stock Exchange.

3  Neuberger Berman Management Inc. has contractually agreed to waive a portion of the management fees that it is entitled to receive from the Fund. The undertaking lasts until October 31, 2011. Please see the notes to the financial statements for specific information regarding the rate of the management fees waived by Neuberger Berman Management Inc. Absent such a waiver, the performance of the Fund would be lower.

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

5

Glossary of Indices

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.
Lehman Brothers U.S. Corporate High Yield 2% Issuer Cap Index:	The Lehman Brothers U.S. Corporate 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.

Please note that the 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. Data about the performance of each index are prepared or obtained by Neuberger Berman Management Inc. and include reinvestment of all dividends and capital gain distributions. The Fund may invest in securities not included in the indices.

6

Schedule of Investments Income Opportunity Fund Inc. (Unaudited)

TOP TEN EQUITY HOLDINGS

	Holding	%
1	NorthStar Realty Finance		5.7
2	iStar Financial		5.2
3	DCT Industrial Trust		4.8
4	Mid-America Apartment Communities		4.6
5	Ventas, Inc.		3.8
	Holding	%
6	Capital Trust		3.6
7	First Industrial Realty Trust		3.4
8	Health Care REIT		3.1
9	Gramercy Capital		2.9
10	OMEGA Healthcare Investors		2.8

NUMBER OF SHARES			MARKET VALUE† (000's omitted)
Common Stocks (64.5%)
Apartments (3.0%)
	330	Apartment Investment & Management	$	12
	22,500	Camden Property Trust		1,191
	24,200	Education Realty Trust		323	È
	6,300	Home Properties		331	È
	66,500	Mid-America Apartment Communities		3,491
	26,400	Post Properties		969
				6,317
Commercial Products & Services (13.5%)
	167,100	Annaly Capital Management		2,801
	288,500	Capital Trust		7,717	È
	390,600	Crystal River Capital		3,223	È
	325,600	Gramercy Capital		6,186
	838,400	NorthStar Realty Finance		8,694	È
				28,621
Community Centers (2.1%)
	109,500	Tanger Factory Outlet Centers		4,417	È
Diversified (6.3%)
	60,300	Colonial Properties Trust		1,461
	256,100	iStar Financial		4,930	È
	239,060	Lexington Realty Trust		3,442	È
	118,000	Macquarie Infrastructure		3,493
				13,326
Health Care (13.6%)
	33,000	HCP, Inc.		1,178
	121,202	Health Care REIT		5,872	È
	40,600	Healthcare Realty Trust		1,150	È
	36,400	LTC Properties		991	È
	160,200	Nationwide Health Properties		5,771	È
	338,300	OMEGA Healthcare Investors		5,920
	165,400	Ventas, Inc.		8,032	È
				28,914

NUMBER OF SHARES			MARKET VALUE† (000's omitted)
Industrial (9.6%)
	1,015,200	DCT Industrial Trust	$	10,152	È
	61,400	EastGroup Properties		2,929	È
	240,800	First Industrial Realty Trust		7,275	È
				20,356
Lodging (1.1%)
	36,000	Eagle Hospitality Properties Trust		294	È
	62,000	Hospitality Properties Trust		1,992	È
				2,286
Office (8.2%)
	17,000	BioMed Realty Trust		442	ØØ
	192,736	Brandywine Realty Trust		3,363
	113,300	Highwoods Properties		3,970	È
	330,000	HRPT Properties Trust		2,287	È
	124,800	Mack-Cali Realty		4,870
	149,600	Maguire Properties		2,408
				17,340
Regional Malls (3.6%)
	72,666	CBL & Associates Properties		1,780	È
	257,000	Glimcher Realty Trust		3,084	È
	113,700	Pennsylvania REIT		2,863	È
				7,727
Retail (0.5%)
	46,500	Equity One		1,148
Self Storage (3.0%)
	73,400	Extra Space Storage		1,235	È
	2,700	Public Storage, Depositary Shares		69
	115,900	Sovran Self Storage		5,181	È
				6,485
	Total Common Stocks	(Cost $144,797)		136,937

See Notes to Schedule of Investments

7

NUMBER OF SHARES			MARKET VALUE† (000's omitted)
Preferred Stocks (16.7%)
Apartments (3.2%)
	12,400	Apartment Investment & Management, Ser. T	$	293
	10,000	Apartment Investment & Management, Ser. U		236
	252,200	Mid-America Apartment Communities, Ser. H		6,305
				6,834
Commercial Services (2.2%)
	20,000	Anthracite Capital, Ser. C		375	È
	20,000	Newcastle Investment, Ser. B		313	È
	39,500	Newcastle Investment, Ser. D		513
	200,000	NorthStar Realty Finance, Ser. A		3,400
				4,601
Community Centers (0.7%)
	20,000	Cedar Shopping Centers, Ser. A		481	È
	12,000	Developers Diversified Realty, Ser. I		274	È
	34,000	Tanger Factory Outlet Centers, Ser. C		804
				1,559
Diversified (2.9%)
	200,000	iStar Financial, Ser. E		3,510
	160,000	iStar Financial, Ser. F		2,640
				6,150
Health Care (0.7%)
	25,000	Health Care REIT, Ser. D		612
	34,000	LTC Properties, Ser. F		829	È
				1,441
Hotels, Restaurants & Leisure (1.0%)
	154,600	W2007 Grace Acquisition I, Ser. B		2,111	*È
Lodging (2.6%)
	22,600	Hersha Hospitality Trust, Ser. A		494
	16,000	Host Hotels & Resorts, Ser. E		405
	77,500	LaSalle Hotel Properties, Ser. B		1,868	È
	28,000	LaSalle Hotel Properties, Ser. D		589
	33,000	LaSalle Hotel Properties, Ser. E		697
	31,000	Strategic Hotels & Resorts, Ser. B		588
	51,300	Strategic Hotels & Resorts, Ser. C		975
				5,616
Office (1.3%)
	60,000	DRA CRT Acquisition, Ser. A		1,097
	60,000	Kilroy Realty, Ser. E		1,401
	6,800	SL Green Realty, Ser. D		163
				2,661

NUMBER OF SHARES			MARKET VALUE† (000's omitted)
Office—Industrial (0.5%)
	25,000	Digital Realty Trust, Ser. A	$	594
	16,900	Digital Realty Trust, Ser. B		356
	8,000	PS Business Parks, Ser. K		193
				1,143
Real Estate/REIT (0.4%)
	50,000	Ashford Hospitality Trust, Ser. D		909
Regional Malls (1.2%)
	60,000	Glimcher Realty Trust, Ser. F		1,160
	61,800	Glimcher Realty Trust, Ser. G		1,089
	11,300	Taubman Centers, Ser. G		271	ØØ
				2,520
		Total Preferred Stocks (Cost $44,913)		35,545

See Notes to Schedule of Investments

8

PRINCIPAL AMOUNT			VALUE†
(000's omitted)			(000's omitted)
Corporate Debt Securities (73.6%)
Aerospace/Defense (1.3%)
$	1,225	L-3 Communications Corp., Guaranteed Senior Unsecured Subordinated Notes, 7.63%, due 6/15/12	$	1,259
	105	L-3 Communications Corp., Guaranteed Senior Unsecured Subordinated Notes, 6.13%, due 7/15/13		104
	1,440	L-3 Communications Corp., Guaranteed Notes, Ser. B, 6.38%, due 10/15/15		1,424
				2,787
Airlines (0.3%)
	787	Continental Airlines, Inc., Pass-Through Certificates, 9.80%, due 4/1/21		685
Apparel/Textiles (0.6%)
	1,165	Levi Strauss & Co., Senior Unsubordinated Notes, 9.75%, due 1/15/15		1,218
Auto Loans (4.3%)
	2,845	Ford Motor Credit Co., Senior Unsecured Notes, 7.38%, due 2/1/11		2,616
	2,135	Ford Motor Credit Co., Senior Unsecured Notes, 7.25%, due 10/25/11		1,923
	415	Ford Motor Credit Co., Senior Unsecured Notes, 8.00%, due 12/15/16		363
	5,140	General Motors Acceptance Corp., Senior Unsecured Notes, 6.88%, due 9/15/11		4,283
				9,185
Beverage (0.9%)
	1,265	Constellation Brands, Inc., Guaranteed Notes, 8.38%, due 12/15/14		1,341
	465	Constellation Brands, Inc., Guaranteed Notes, 7.25%, due 9/1/16		468
				1,809
Chemicals (2.4%)
	1,085	Hexion US Finance Corp., Senior Secured Notes, 9.75%, due 11/15/14		1,178
	1,400	MacDermid, Inc., Senior Subordinated Notes, 9.50%, due 4/15/17		1,337	ñ
	2,290	Momentive Performance Materials, Inc., Guaranteed Notes, 10.13%, due 12/1/14		2,181
	395	Momentive Performance Materials, Inc., Guaranteed Notes, 11.50%, due 12/1/16		347
				5,043
Electric—Generation (6.9%)
	1,110	AES Corp., Senior Secured Notes, 8.75%, due 5/15/13		1,158	ñ
	760	AES Corp., Senior Unsecured Notes, 8.00%, due 10/15/17		792
	3,500	Dynegy-Roseton Danskamme, Pass-Through Certificates, Ser. B, 7.67%, due 11/8/16		3,506
	3,365	Edison Mission Energy, Senior Unsecured Notes, 7.63%, due 5/15/27		3,277
	1,355	Mirant Americas Generation, Inc., Senior Unsecured Notes, 8.30%, due 5/1/11		1,406
	2,070	Mirant Americas Generation, Inc., Senior Unsecured Notes, 8.50%, due 10/1/21		2,029
	2,380	NRG Energy, Inc., Guaranteed Notes, 7.38%, due 2/1/16		2,451
				14,619
Electric—Integrated (5.6%)
	1,730	Energy Future Holdings Corp., Guaranteed Notes, 10.88%, due 11/1/17		1,843	ñ
	2,280	Energy Future Holdings Corp., Guaranteed Notes, 11.25%, due 11/1/17		2,388	ñ
	640	IPALCO Enterprises, Inc., Senior Secured Notes, 7.25%, due 4/1/16		659	ñ
	5,510	Texas Competitive Electric Holdings Co. LLC, Guaranteed Notes, 10.50%, due 11/1/16		5,641	ñ
	1,335	Transcontinental Gas Pipe Line, Senior Unsecured Notes, 7.25%, due 12/1/26		1,383
				11,914

See Notes to Schedule of Investments

9

PRINCIPAL AMOUNT			VALUE†
(000's omitted)			(000's omitted)
Electronics (2.1%)
$	1,060	Flextronics Int'l, Ltd., Senior Subordinated Notes, 6.25%, due 11/15/14	$	1,004
	1,875	Freescale Semiconductor, Inc., Guaranteed Notes, 9.13%, due 12/15/14		1,542
	600	NXP BV Funding LLC, Senior Secured Floating Rate Notes, 5.46%, due 7/15/08		552	µ
	1,400	NXP BV Funding LLC, Senior Secured Notes, 7.88%, due 10/15/14		1,383
				4,481
Energy—Exploration & Production (3.0%)
	1,545	Chesapeake Energy Corp., Guaranteed Notes, 7.50%, due 9/15/13		1,599
	1,180	Chesapeake Energy Corp., Guaranteed Notes, 6.88%, due 1/15/16		1,192
	2,320	Nextel Communications, Inc., Guaranteed Notes, Ser. E, 6.88%, due 10/31/13		1,914
	870	Pioneer Natural Resources Co., Senior Unsecured Notes, 6.65%, due 3/15/17		855
	845	Southwestern Energy Co., Senior Unsecured Notes, 7.50%, due 2/1/18		896	ñ
				6,456
Environmental (0.4%)
	895	Allied Waste North America, Inc., Senior Secured Notes, Ser. B, 7.25%, due 3/15/15		903
Food & Drug Retailers (1.1%)
	780	Rite Aid Corp., Guaranteed Notes, 8.63%, due 3/1/15		634
	2,015	Rite Aid Corp., Guaranteed Notes, 9.50%, due 6/15/17		1,647
				2,281
Gaming (3.8%)
	495	Chukchansi Economic Development Authority, Senior Unsecured Notes, 8.00%, due 11/15/13		440	ñ
	1,725	FireKeepers Development Authority, Senior Secured Notes, 13.88%, due 5/1/15		1,751	ñØ
	365	Fontainebleau Las Vegas Holdings LLC, Second Mortgage, 10.25%, due 6/15/15		262	ñ
	435	Harrah's Operating Co., Inc., Guaranteed Notes, 5.50%, due 7/1/10		386
	585	Harrah's Operating Co., Inc., Guaranteed Notes, 10.75%, due 2/1/16		503	ñ
	710	Isle of Capri Casinos, Inc., Guaranteed Notes, 7.00%, due 3/1/14		547
	1,165	Pokagon Gaming Authority, Senior Notes, 10.38%, due 6/15/14		1,244	ñ
	1,095	San Pasqual Casino, Notes, 8.00%, due 9/15/13		1,021	ñ
	2,200	Shingle Springs Tribal Gaming Authority, Senior Notes, 9.38%, due 6/15/15		1,947	ñ
				8,101
Gas Distribution (5.7%)
	585	AmeriGas Partners L.P., Senior Notes, 7.13%, due 5/20/16		589	ØØ
	1,495	El Paso Natural Gas Co., Senior Unsecured Notes, 8.38%, due 6/15/32		1,727
	1,070	Ferrellgas Partners L.P., Senior Unsecured Notes, 8.75%, due 6/15/12		1,099
	2,597	Kinder Morgan, Inc., Senior Unsecured Notes, 6.50%, due 9/1/12		2,623
	980	MarkWest Energy Partners L.P., Senior Notes, 8.75%, due 4/15/18		1,017	ñ
	1,483	Regency Energy Partners L.P., Guaranteed Notes, 8.38%, due 12/15/13		1,546
	465	Sabine Pass L.P., Senior Secured Notes, 7.25%, due 11/30/13		430
	3,375	Sabine Pass L.P., Senior Secured Notes, 7.50%, due 11/30/16		3,088
				12,119

See Notes to Schedule of Investments

10

PRINCIPAL AMOUNT			VALUE†
(000's omitted)			(000's omitted)
Health Services (9.3%)
$	2,115	HCA, Inc., Senior Secured Notes, 9.25%, due 11/15/16	$	2,274
	4,440	HCA, Inc., Senior Secured Notes, 9.63%, due 11/15/16		4,767
	2,070	LVB Acquisition Merger, Inc., Guaranteed Notes, 10.38%, due 10/15/17		2,194	ñ
	2,190	LVB Acquisition Merger, Inc., Guaranteed Notes, 11.63%, due 10/15/17		2,327	ñ
	1,544	NMH Holdings, Inc., Senior Unsecured Floating Rate Notes, 9.93%, due 6/15/08		1,343	ñµ
	830	Select Medical Corp., Guaranteed Notes, 7.63%, due 2/1/15		705
	2,660	Service Corp. Int'l, Senior Unsecured Notes, 7.50%, due 4/1/27		2,327
	1,405	US Oncology, Inc., Guaranteed Notes, 9.00%, due 8/15/12		1,426
	300	Ventas Realty L.P., Guaranteed Notes, 6.75%, due 6/1/10		302
	330	Ventas Realty L.P., Senior Notes, 6.63%, due 10/15/14		327
	1,020	Ventas Realty L.P., Guaranteed Notes, 6.50%, due 6/1/16		987
	850	Ventas Realty L.P., Guaranteed Notes, 6.75%, due 4/1/17		835
				19,814
Hotels (0.4%)
	785	Host Hotels & Resorts L.P., Senior Secured Notes, 7.13%, due 11/1/13		782
Investments & Misc. Financial Services (0.9%)
	1,560	Cardtronics, Inc., Guaranteed Notes, 9.25%, due 8/15/13		1,484
	505	Cardtronics, Inc., Senior Subordinated Notes, Ser. B, 9.25%, due 8/15/13		480	ñØØ
				1,964
Leisure (0.5%)
	1,290	Royal Caribbean Cruises, Senior Unsecured Notes, 7.50%, due 10/15/27		1,114
Media—Broadcast (2.3%)
	2,815	CMP Susquehanna Corp., Guaranteed Notes, 9.88%, due 5/15/14		2,013
	2,170	LIN Television Corp., Guaranteed Notes, 6.50%, due 5/15/13		2,089
	485	LIN Television Corp., Guaranteed Notes, Ser. B, 6.50%, due 5/15/13		467
	330	Univision Communications, Inc., Guaranteed Notes, 9.75%, due 3/15/15		237	ñ
				4,806
Media—Cable (3.7%)
	650	Charter Communications, Inc., Senior Secured Notes, 10.88%, due 9/15/14		687	ñÈ
	2,855	DirecTV Holdings LLC, Guaranteed Notes, 8.38%, due 3/15/13		2,934
	1,500	EchoStar DBS Corp., Guaranteed Notes, 6.38%, due 10/1/11		1,493
	1,885	Mediacom Broadband LLC, Senior Unsecured Notes, 8.50%, due 10/15/15		1,734
	280	Mediacom LLC, Senior Unsecured Notes, 9.50%, due 1/15/13		272
	765	Videotron Ltd., Senior Notes, 9.13%, due 4/15/18		815	ñ
				7,935
Media—Services (0.6%)
	1,600	WMG Acquisition Corp., Senior Subordinated Notes, 7.38%, due 4/15/14		1,328
Metals/Mining Excluding Steel (2.0%)
	570	Aleris Int'l, Inc., Guaranteed Notes, 9.00%, due 12/15/14		419
	595	Aleris Int'l, Inc., Guaranteed Notes, 10.00%, due 12/15/16		369
	1,250	Arch Western Finance Corp., Senior Secured Notes, 6.75%, due 7/1/13		1,272
	2,240	Massey Energy Co., Guaranteed Notes, 6.88%, due 12/15/13		2,240
				4,300
Non-Food & Drug Retailers (0.3%)
	645	Blockbuster, Inc., Guaranteed Notes, 9.00%, due 9/1/12		524

See Notes to Schedule of Investments

11

PRINCIPAL AMOUNT			VALUE†
(000's omitted)			(000's omitted)
Oil Field Equipment & Services (0.9%)
$	700	ERAC USA Finance Co., Guaranteed Notes, 6.38%, due 10/15/17	$	632	ñ
	1,565	ERAC USA Finance Co., Guaranteed Notes, 7.00%, due 10/15/37		1,300	ñ
				1,932
Oil Refining & Marketing (0.7%)
	275	Freeport-McMoRan Copper & Gold, Senior Unsecured Notes, 8.25%, due 4/1/15		299
	980	Freeport-McMoRan Copper & Gold, Senior Unsecured Notes, 8.38%, due 4/1/17		1,083
				1,382
Packaging (3.0%)
	3,295	Ball Corp., Guaranteed Unsecured Notes, 6.88%, due 12/15/12		3,353
	550	Berry Plastics Corp., Senior Secured Floating Rate Notes, 7.57%, due 7/15/08		531	ñµ
	820	Crown Americas LLC, Guaranteed Notes, 7.75%, due 11/15/15		865
	1,800	Graham Packaging Co., Inc., Guaranteed Notes, 9.88%, due 10/15/14		1,692
				6,441
Printing & Publishing (1.7%)
	1,330	Dex Media West LLC, Senior Subordinated Notes, Ser. B, 9.88%, due 8/15/13		1,253
	575	Dex Media, Inc., Senior Disc. Notes, Step-Up, 0.00%/9.00%, due 11/15/13		433	^^
	595	Idearc, Inc., Guaranteed Notes, 8.00%, due 11/15/16		387
	555	R.H. Donnelley Corp., Senior Unsecured Notes, 6.88%, due 1/15/13		355
	1,545	Reader's Digest Association, Inc., Senior Subordinated Notes, 9.00%, due 2/15/17		1,105	ñ
				3,533
Railroads (0.5%)
	1,065	TFM SA de C.V., Senior Unsubordinated Notes, 9.38%, due 5/1/12		1,110
Real Estate Dev. & Mgt. (0.6%)
	1,040	American Real Estate Partners L.P., Senior Unsecured Notes, 8.13%, due 6/1/12		1,017
	305	American Real Estate Partners L.P., Guaranteed Notes, 7.13%, due 2/15/13		284
				1,301
Restaurants (0.3%)
	670	NPC Int'l, Inc., Guaranteed Notes, 9.50%, due 5/1/14		616
Software/Services (1.4%)
	1,070	First Data Corp., Guaranteed Notes, 9.88%, due 9/24/15		974	ñ
	1,890	Sungard Data Systems, Inc., Guaranteed Notes, 10.25%, due 8/15/15		2,008
				2,982
Steel Producers/Products (1.2%)
	1,045	Metals U.S.A. Holdings Corp., Senior Unsecured Floating Rate Notes, 8.70%, due 7/1/08		857	µ
	335	Steel Dynamics, Inc., Senior Notes, 7.38%, due 11/1/12		341	ñ
	1,375	Tube City IMS Corp., Guaranteed Notes, 9.75%, due 2/1/15		1,313
				2,511
Support—Services (0.8%)
	1,680	Knowledge Learning Corp., Inc., Guaranteed Notes, 7.75%, due 2/1/15		1,613	ñ

See Notes to Schedule of Investments

12

PRINCIPAL AMOUNT			VALUE†
(000's omitted)			(000's omitted)
Telecom—Integrated/Services (3.5%)
$	950	Dycom Industries, Inc., Guaranteed Notes, 8.13%, due 10/15/15	$	912
	1,430	Intelsat Bermuda Ltd., Guaranteed Notes, 9.25%, due 6/15/16		1,442
	1,465	Intelsat Subsidiary Holdings Co. Ltd., Guaranteed Notes, 8.25%, due 1/15/13		1,478
	260	Intelsat Subsidiary Holdings Co. Ltd., Guaranteed Notes, 8.63%, due 1/15/15		262
	1,375	Qwest Corp., Senior Unsecured Notes, 8.88%, due 3/15/12		1,450
	1,235	Qwest Corp., Senior Unsecured Notes, 7.50%, due 10/1/14		1,241
	495	Windstream Corp., Guaranteed Notes, 8.63%, due 8/1/16		519
				7,304
Theaters & Entertainment (0.6%)
	1,270	AMC Entertainment, Inc., Guaranteed Notes, Ser. B, 8.63%, due 8/15/12		1,308
		Total Corporate Debt Securities (Cost $157,007)		156,201
NUMBER OF SHARES
Short-Term Investments (42.8%)
	8,195,227	Neuberger Berman Prime Money Fund Trust Class		8,195	#@ØØ
	83,476,491	Neuberger Berman Securities Lending Quality Fund, LLC		82,642	‡
		Total Short-Term Investments (Cost $91,391)		90,837
		Total Investments (197.6%) (Cost $438,108)		419,520	##
		Liabilities, less cash, receivables and other assets [(38.5%)]		(81,736	)
		Liquidation Value of Auction Preferred Shares [(59.1%)]		(125,500	)
		Total Net Assets Applicable to Common Shareholders (100.0%)	$	212,284

See Notes to Schedule of Investments

13

Notes to Schedule of Investments (Unaudited)

†  Investments in equity securities by Neuberger Berman Income Opportunity Fund Inc. (the "Fund") are valued by obtaining valuations from an independent pricing service. The independent pricing service values equity securities at the latest sale price when that price is readily available. Securities traded primarily on the NASDAQ Stock Market are normally valued by the Fund at the NASDAQ Official Closing Price ("NOCP") provided by NASDAQ each business day. The NOCP is the most recently reported price as of 4:00:02 p.m., Eastern time, unless that price is outside the range of the "inside" bid and asked prices (i.e., the bid and asked prices that dealers quote to each other when trading for their own accounts); in that case, NASDAQ will adjust the price to equal the inside bid or asked price, whichever is closer. Because of delays in reporting trades, the NOCP may not be based on the price of the last trade to occur before the market closes. If there is no reported sale of a security on a particular day, the independent pricing service may value the security based on reported market quotations. If a valuation is not available from an independent pricing service, the Fund seeks to obtain quotations from principal market makers. Investments in debt securities are valued daily by obtaining valuations from independent pricing services based on readily available bid quotations, or if quotations are not available, by methods which include considerations such as: yields or prices of securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions. If a valuation is not available from an independent pricing service, the Fund seeks to obtain quotations from principal market makers. For both debt and equity securities, if market quotations are not readily available, securities are valued by methods the Board of Directors of the Fund (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 Interactive Data Pricing and Reference Data, Inc. ("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 the Fund could expect to receive for those securities. In this event, Interactive will provide adjusted prices for certain foreign equity securities using a statistical analysis of historical correlations of multiple factors. In the absence of precise information about the market values of these foreign securities as of the close of the New York Stock Exchange, the Board has determined on the basis of available data that prices adjusted in this way are likely to be closer to the prices the Fund could realize on a current sale than are the prices of those securities established at the close of the foreign markets in which the securities primarily trade. Fair value prices are necessarily estimates, and there is no assurance that such a price will be at or close to the price at which the security is next quoted or next trades. Short-term debt securities with less than 60 days until maturity may be valued at cost which, when combined with interest earned, approximates market value.

#  At cost, which approximates market value.

##  At April 30, 2008, the cost of investments for U.S. federal income tax purposes was $439,011,000. Gross unrealized appreciation of investments was $25,501,000 and gross unrealized depreciation of investments was $44,992,000, resulting in net unrealized depreciation of $19,491,000 based on cost for U.S. federal income tax purposes.

‡  Managed by an affiliate of Neuberger Berman Management Inc. and could be deemed an affiliate of the Fund (see Notes A & E of Notes to Financial Statements).

@  Neuberger Berman Prime Money Fund ("Prime Money") is also managed by Neuberger Berman Management Inc. 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 & E of Notes to Financial Statements).

See Notes to Financial Statements

14

Notes to Schedule of Investments (Unaudited) (cont'd)

ñ  Restricted security subject to restrictions on resale under federal securities laws. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers under Rule 144A under the Securities Act of 1933, as amended, and have been deemed by the investment manager to be liquid. At April 30, 2008, these securities amounted to approximately $36,686,000 or 17.3% of net assets applicable to common shareholders.

ØØ  All or a portion of this security is segregated in connection with obligations for interest rate swap contracts, when-issued purchase commitments and/or security lending.

*  Security did not produce income during the last twelve months.

È  All or a portion of this security is on loan (see Note A of Notes to Financial Statements).

µ  Floating rate securities are securities whose yields vary with a designated market index or market rate. These securities are shown at their current rates as of April 30, 2008.

^^  Denotes a step-up bond: a zero coupon bond that converts to a fixed rate of interest at a designated future date.

Ø  All or a portion of this security was purchased on a when-issued basis. At April 30, 2008, these securities amounted to $1,751,000 or 0.8% of net assets.

See Notes to Financial Statements

15

Statement of Assets and Liabilities (Unaudited)

Neuberger Berman
(000's omitted except per share amounts)

	INCOME OPPORTUNITY FUND
	April 30, 2008
Assets
Investments in securities, at market value *† (Notes A & E)—see Schedule of Investments:
Unaffiliated issuers	$	328,683
Affiliated issuers		90,837
		419,520
Dividends and interest receivable		4,130
Receivable for securities sold		1,064
Receivable for securities lending income (Note A)		142
Total Assets		424,856
Liabilities
Payable for collateral on securities loaned (Note A)		83,394
Distributions payable-preferred shares		40
Distributions payable-common shares		178
Payable for securities purchased		2,790
Interest rate swaps, at market value (Note A)		270
Payable to investment manager—net (Notes A & B)		96
Payable to administrator (Note B)		69
Payable for securities lending fees (Note A)		118
Accrued expenses and other payables		117
Total Liabilities		87,072
Auction Preferred Shares Series A & B at liquidation value 6,000 shares authorized; 5,020 shares issued and outstanding $.0001 par value; $25,000 liquidation value per share (Note A)		125,500
Net Assets applicable to Common Shareholders at value	$	212,284
Net Assets applicable to Common Shareholders consist of:
Paid-in capital-common shares	$	250,240
Distributions in excess of net investment income		(20,473	)
Accumulated net realized gains (losses) on investments		1,330
Net unrealized appreciation (depreciation) in value of investments		(18,813	)
Net Assets applicable to Common Shareholders at value	$	212,284
Common Shares Outstanding ($.0001 par value, 999,994,000 shares authorized)		17,734
Net Asset Value Per Common Share Outstanding	$	11.97
†Securities on loan, at market value	$	78,251
*Cost of Investments:
Unaffiliated issuers	$	346,717
Affiliated issuers		91,391
Total cost of investments	$	438,108

See Notes to Financial Statements

16

Statement of Operations (Unaudited)

Neuberger Berman
(000's omitted)

	INCOME OPPORTUNITY FUND
	For the Six Months Ended April 30, 2008
Investment Income:
Income (Note A):
Dividend income—unaffiliated issuers	$	7,596
Interest income—unaffiliated issuers		7,038
Income from investments in affiliated issuers (Note E)		162
Income from securities loaned—net (Note E)		(5	)
Total income	$	14,791
Expenses:
Investment management fees (Note B)		1,030
Administration fees (Note B)		429
Stock transfer agent fees		10
Auction agent fees (Note B)		159
Audit fees		24
Basic maintenance expense (Note B)		12
Custodian fees (Note B)		70
Insurance expense		7
Legal fees		45
Shareholder reports		37
Stock exchange listing fees		8
Directors' fees and expenses		15
Miscellaneous		19
Total expenses		1,865
Investment management fees waived (Notes A & B)		(433	)
Expenses reduced by custodian fee expense offset and commission recapture arrangements (Note B)		(8	)
Total net expenses		1,424
Net investment income (loss)	$	13,367
Realized and Unrealized Gain (Loss) on Investments (Note A)
Net realized gain (loss) on:
Sales of investment securities of unaffiliated issuers		(14,396	)
Sales of investment securities of affiliated issuers		(198	)
Interest rate swap contracts		155
Net increase from payments by affiliates—securities loaned (Note A)		10
Change in net unrealized appreciation (depreciation) in value of:
Unaffiliated investment securities		(22,246	)
Affiliated investment securities		(554	)
Interest rate swap contracts		(951	)
Net gain (loss) on investments		(38,180	)
Distributions to Preferred Shareholders		(2,870	)
Net increase (decrease) in net assets applicable to Common Shareholders resulting from operations	$	(27,683	)

See Notes to Financial Statements

17

Statements of Changes in Net Assets

Neuberger Berman
(000's omitted)

	INCOME OPPORTUNITY FUND
	Six Months Ended April 30, 2008 (Unaudited)			Year Ended October 31, 2007
Increase (Decrease) in Net Assets Applicable to Common Shareholders:
From Operations:
Net investment income (loss)	$	13,367		$	24,449
Net realized gain (loss) on investments		(14,439	)		23,321
Net increase from payments by affiliates—securities loaned		10			—
Change in net unrealized appreciation (depreciation) of investments		(23,751	)		(63,815	)
Distributions to Preferred Shareholders From (Note A):
Net investment income		(2,870	)		(3,719	)
Net realized gain on investments		—			(2,819	)
Total distributions to preferred shareholders		(2,870	)		(6,538	)
Net increase (decrease) in net assets applicable to common shareholders resulting from operations		(27,683	)		(22,583	)
Distributions to Common Shareholders From (Note A):
Net investment income:		(30,709	)		(23,027	)
Net realized gain on investments		—			(17,453	)
Total distributions to common shareholders		(30,709	)		(40,480	)
From Capital Share Transactions (Note D):
Proceeds from reinvestment of dividends		—			195
Total net proceeds from capital share transactions		—			195
Net Increase (Decrease) in Net Assets Applicable to Common Shareholders		(58,392	)		(62,868	)
Net Assets Applicable to Common Shareholders:
Beginning of period		270,676			333,544
End of period	$	212,284		$	270,676
Distributions in excess of net investment income at end of period	$	(20,473	)	$	(261	)

See Notes to Financial Statements

18

Notes to Financial Statements Income Opportunity
Fund Inc. (Unaudited)

Note A—Summary of Significant Accounting Policies:

1  General: Neuberger Berman Income Opportunity Fund Inc. (the "Fund") was organized as a Maryland corporation on April 17, 2003 as a non-diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"). The Board of Directors of the Fund (the "Board") may classify or re-classify any unissued shares of capital stock into one or more classes of preferred stock without the approval of shareholders.

  The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires Neuberger Berman Management Inc. ("Management") to make estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates.

2  Portfolio valuation: Investment securities are valued as indicated in the notes following the Schedule of Investments.

3  Securities transactions and investment income: Securities transactions are recorded on trade date for financial reporting purposes. Dividend income is recorded on the ex-dividend date. Non-cash dividends included in dividend income, if any, are recorded at the fair market value of the securities received. Interest income, including accretion of discount (adjusted for original issue discount, where applicable), and amortization of premium, where applicable, is recorded on the accrual basis. Realized gains and losses from securities transactions and foreign currency transactions, if any, are recorded on the basis of identified cost and stated separately in the Statement of Operations.

4  Income tax information: It is the policy of the Fund to continue to qualify as a regulated investment company by complying with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its earnings to its shareholders. Therefore, no federal income or excise tax provision is required.

  In accordance with Securities and Exchange Commission guidance, the Fund implemented the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes. The Fund has reviewed the tax positions for the open tax period as of April 30, 2008 and the open tax years as of October 31, 2007, and has determined that the implementation of FIN 48 did not have a material impact on the Fund's financial statements.

  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 the Fund, timing differences and differing characterization of distributions made by the Fund as a whole.

  As determined on October 31, 2007, permanent differences resulting primarily from different book and tax accounting for amortization of bond premium, income recognized on interest rate swaps and character of distributions paid were reclassified at fiscal year-end. These reclassifications had no effect on net income, net asset value applicable to common shareholders or net asset value per common share of the Fund.

19

  The tax character of distributions paid during the years ended October 31, 2007 and October 31, 2006 was as follows:

				Distributions Paid From:
Ordinary Income				Long-Term Capital Gain				Tax Return of Capital				Total
2007		2006		2007		2006		2007		2006		2007		2006
$	29,428,713	$	24,535,326	$	17,588,999	$	4,558,553	$	—	$	—	$	47,017,712	$	29,093,879

  As of October 31, 2007, the components of distributable earnings (accumulated losses) on a U.S. federal income tax basis were as follows:

Undistributed Ordinary Income		Undistributed Long-Term Gain		Unrealized Appreciation (Depreciation)		Loss Carryforwards and Deferrals		Total
$	—	$	16,268,687	$	4,402,070	$	—	$	20,670,757

  The difference between book basis and tax basis distributable earnings is attributable primarily to timing differences of distribution payments, wash sales, amortization of bond premium, and income recognized on interest rate swaps.

5  Distributions to shareholders: The Fund earns income, net of expenses, daily on its investments. It is the policy of the Fund to declare quarterly and pay monthly distributions to common shareholders. The Fund has adopted a policy to pay common shareholders a stable monthly distribution. The Fund's ability to satisfy its policy will depend on a number of factors, including the stability of income received from its investments, the availability of capital gains, distributions paid on preferred shares and the level of Fund expenses. In an effort to maintain a stable distribution amount, the Fund may pay distributions consisting of net investment income, realized gains and paid-in capital. There is no assurance that the Fund will always be able to pay distributions of a particular size, or that distributions will consist solely of net investment income and realized capital gains. The composition of the Fund's distributions for the calendar year 2008 will be reported to Fund shareholders on IRS Form 1099DIV. The Fund may pay distributions in excess of those required by its stable distribution policy to avoid excise tax or to satisfy the requirements of Subchapter M of the Internal Revenue Code. Distributions to common shareholders are recorded on the ex-date. Net realized capital gains, if any, will be offset to the extent of any available capital loss carryforwards. Any such offset will not reduce the level of the stable distribution paid by the Fund. Distributions to preferred shareholders are accrued and determined as described in Note A-7.

  The Fund invests a significant portion of its assets in securities issued by real estate companies, including real estate investment trusts ("REITs"). The distributions the Fund receives from REITs are generally comprised of income, capital gains, and return of capital, but the REITs do not report this information to the Fund until the following calendar year. At October 31, 2007, the Fund estimated these amounts within the financial statements since the information is not available from the REITs until after the Fund's fiscal year-end. At April 30, 2008, the Fund estimated these amounts for the period January 1, 2008 to April 30, 2008 within the financial statements since 2008 information is not available from the REITs until after the Fund's fiscal period. For the year ended October 31, 2007, the character of distributions paid to shareholders disclosed within the Statements of Changes in Net Assets is based on estimates made at that time. 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 possible that a portion of the Fund's distributions during the most recently completed fiscal year will be considered tax return of capital but the actual amount of tax return of capital, if any, is not determinable until after the Fund's fiscal year-end. After calendar year-end, when the Fund learns the nature of the distributions paid by REITs during that year, distributions previously identified as income are often recharacterized as return of capital and/or capital gain. After all applicable REITs have informed the Fund of the actual breakdown of distributions paid to the Fund during its fiscal year, estimates previously recorded are adjusted on the books of the Fund to reflect actual results. As a result,

20

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.

  The Fund declared two monthly distributions to common shareholders in the amount of $0.10625 per share per month, payable after the close of the reporting period, on May 30, 2008 and June 30, 2008, to shareholders of record on May 15, 2008 and June 16, 2008, respectively, with ex-dates of May 13, 2008 and June 12, 2008, respectively.

6  Expense allocation: Certain expenses are applicable to multiple funds. Expenses directly attributable to the Fund are charged to the Fund. Expenses borne by the complex of related investment companies, which includes open-end and closed-end investment companies for which Management serves as investment manager, that are not directly attributed to the Fund are allocated among the Fund and the other investment companies in the complex or series thereof on the basis of relative net assets, except where a more appropriate allocation of expenses to each investment company in the complex or series thereof can otherwise be made fairly.

7  Redeemable preferred shares: On June 5, 2003, the Fund re-classified 6,000 unissued shares of capital stock as Series A Auction Preferred Shares and Series B Auction Preferred Shares ("Preferred Shares"). On September 26, 2003, the Fund issued 2,510 Series A Preferred Shares and 2,510 Series B Preferred Shares. All Preferred Shares have a liquidation preference of $25,000 per share plus any accumulated unpaid distributions, whether or not earned or declared by the Fund, but excluding interest thereon ("Liquidation Value").

  Since February 2008, the market for auction rate preferred securities has experienced an unprecedented number of failed auctions. A failed auction occurs when sellers outnumber bidders and, as a result, sellers cannot sell all, and in many cases any, of their auction rate preferred securities. When a failed auction occurs, the distribution rate for auction rate preferred securities resets to a maximum rate, which is typically determined according to a formula applied to a "base" rate. Historically, if there were not a sufficient number of bids to purchase all the auction rate preferred securities submitted to be sold in an auction, one or more broker-dealers would voluntarily allocate their own capital to purchase the remaining auction rate preferred securities. In doing so, the broker-dealer(s) would prevent a failed auction and, therefore, payment of distributions at the maximum rate. Earlier this year, most broker-dealers ceased allocating their capital to auctions for auction rate preferred securities, resulting in the unprecedented number of failed auctions.

  Beginning in February 2008, the auctions for the Fund's Preferred Shares have consistently failed. Although the failed auctions have resulted in a current lack of liquidity for preferred shareholders, they are not an event of default for the Fund nor have they affected the credit quality of the Preferred Shares, which all continue to be rated AAA/Aaa. The Fund has paid, and continues to pay, distributions on its Preferred Shares that are set at the maximum rate, which is 150% of the base rate (the base rate is "AA" rated composite commercial paper rate) as a result of the failed auctions.

  If auctions continue to fail and the maximum rate increases due to changes in short term interest rates, the Fund's returns for common shareholders could be adversely affected. The Fund continues to monitor the developments in the Preferred Shares market and consider the interests of the common and preferred shareholders when evaluating any potential solutions.

  Except when the Fund has declared a special rate period, distributions to preferred shareholders, which are cumulative, are accrued daily and paid every 7 days. Distribution rates are reset every 7 days based on the results of an auction, except during special rate periods. For the six months ended April 30, 2008, distribution rates ranged from 3.24% to 5.91% for Series A and 3.17% to 5.91% for Series B Preferred Shares. The Fund declared distributions to preferred shareholders for the period May 1, 2008 to May 31, 2008 of $162,680 and $165,574 for Series A Preferred Shares and Series B Preferred Shares, respectively.

  The Fund may redeem Preferred Shares, in whole or in part, on the second business day preceding any distribution payment date at Liquidation Value. The Fund is also subject to certain restrictions relating to the Preferred Shares. Failure to comply with these restrictions could preclude the Fund from declaring any distributions to common shareholders or repurchasing common shares and/or could trigger the mandatory redemption of Preferred Shares

21

at Liquidation Value. The holders of Preferred Shares are entitled to one vote per share and will vote with holders of common shares as a single class, except that the Preferred Shares will vote separately as a class on certain matters, as required by law or the Fund's charter. The holders of the Preferred Shares, voting as a separate class, are entitled at all times to elect two Directors of the Fund, and to elect a majority of the Directors of the Fund if the Fund fails to pay distributions on Preferred Shares for two consecutive years.

8  Interest rate swaps: The Fund may enter into interest rate swap transactions, with institutions that Management has determined are creditworthy, to reduce the risk that an increase in short-term interest rates could reduce common share net earnings as a result of leverage. Under the terms of the interest rate swap contracts, the Fund agrees to pay the swap counter party a fixed-rate payment in exchange for the counter party's paying the Fund a variable-rate payment that is intended to approximate all or a portion of the Fund's variable-rate payment obligation on the Fund's Preferred Shares. The fixed-rate and variable-rate payment flows are netted against each other, with the difference being paid by one party to the other on a monthly basis. The Fund segregates cash or liquid securities having a value at least equal to the Fund's net payment obligations under any swap transaction, marked to market daily.

  Risks may arise if the counter party to a swap contract fails to comply with the terms of its contract. The loss incurred by the failure of a counter party is generally limited to the net interest payment to be received by the Fund and/or the termination value at the end of the contract. Additionally, risks may arise from movements in interest rates unanticipated by Management.

  Periodic expected interim net interest payments or receipts on the swaps are recorded as an adjustment to unrealized gains/losses, along with the fair value of the future periodic payment streams on the swaps. The unrealized gains/losses associated with the periodic interim net interest payments are reclassified to realized gains/losses in conjunction with the actual net receipt or payment of such amounts. The reclassifications do not impact the Fund's total net assets applicable to common shareholders or its total net increase (decrease) in net assets applicable to common shareholders resulting from operations. At April 30, 2008, the Fund had an outstanding interest rate swap contract as follows:

				Rate Type
Swap Counter Party	Notional Amount		Termination Date	Fixed-rate Payments Made by the Fund			Variable-rate Payments Received by the Fund(1)			Accrued Net Interest Receivable (Payable)			Unrealized Appreciation (Depreciation)			Total Fair Value
Citibank, N.A.	$	70,000,000	October 24, 2008		3.63	%		2.895	%	$	(10,004	)	$	(260,339	)	$	(270,343	)

(1)  30 day LIBOR (London Interbank Offered Rate) as of April 22, 2008.

9  Security lending: A third party, eSecLending, assists the Fund in conducting a bidding process to identify agents/principals that would pay a guaranteed amount to the Fund in consideration of the Fund entering into an exclusive securities lending arrangement.

  Neuberger Berman, LLC ("Neuberger"), an affiliate of the Fund, currently serves as exclusive lending agent for the Fund. The Fund selected Neuberger through a bidding process in accordance with an Exemptive Order issued by the Securities and Exchange Commission.

  Under the securities lending arrangement, the Fund receives cash collateral at the beginning of each transaction equal to at least 102% of the prior day's market value of the loaned securities (105% in the case of international securities). The Fund 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, an affiliate of Management.

  Net income from the lending program represents a guaranteed amount received from Neuberger plus income earned on the cash collateral invested in Quality Fund or in other investments, less cash collateral fees and other expenses associated with the loans. For the six months ended April 30, 2008, the Fund received net income under the securities lending arrangement of approximately $5,327, which consists of the amount stated in the Statement

22

of Operations under the caption "Income from securities loaned-net" and an estimated capital contribution from Management of $10,000 made to the Fund in connection with the securities lending program which is reflected in the Statement of Operations under the caption "Net increase from payments by affiliates — securities loaned." The capital contribution reflects an agreement by Management to reimburse the Fund for certain losses related to the securities lending program, determined over the course of the entire fiscal year. The exact amount will not be known until the Fund's fiscal year is completed. If the capital contribution was made as of April 30, 2008, it would amount to $10,000. The capital contribution may be reduced or eliminated by offsetting gains incurred during the remainder of the fiscal year. For the six months ended April 30, 2008, "Income from securities loaned-net" consisted of approximately $1,477,855 in income earned on cash collateral and guaranteed amounts (including approximately $1,430,777 of interest income earned from the Quality Fund and $47,078 in guaranteed amounts received from Neuberger), less fees and expenses paid of approximately $1,482,528 (including approximately $449,049 retained by Neuberger).

10  Repurchase agreements: The Fund may enter into repurchase agreements with institutions that Management has determined are creditworthy. Each repurchase agreement is recorded at cost. The Fund requires that the securities purchased in a repurchase agreement be transferred to the custodian in a manner sufficient to enable the Fund to assert a perfected security interest in those securities in the event of a default under the repurchase agreement. The Fund monitors, on a daily basis, the value of the securities transferred to ensure that their value, including accrued interest, is greater than amounts owed to the Fund under each such repurchase agreement.

11  Transactions with other funds managed by Neuberger Berman Management Inc.: Pursuant to an exemptive rule, the Fund may invest in a money market fund managed by Management or an affiliate. The Fund invests 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 Fund invests 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, 2008, management fees waived under this Arrangement amounted to $3,475 and are reflected in the Statement of Operations under the caption "Investment management fees waived." For the six months ended April 30, 2008, income earned under this Arrangement amounted to $161,562, and is reflected in the Statement of Operations under the caption "Income from investments in affiliated issuers."

12  Concentration of risk: Under normal market conditions, the Fund's equity investments will be concentrated in income-producing common equity securities, preferred securities, convertible securities and non-convertible debt securities issued by companies deriving the majority of their revenue from the ownership, construction, financing, management and/or sale of commercial, industrial, and/or residential real estate. The value of the Fund's shares may fluctuate more due to economic, legal, cultural, geopolitical or technological developments affecting the United States real estate industry, or a segment of the United States real estate industry in which the Fund owns a substantial position, than would the shares of a fund not concentrated in the real estate industry. The Fund's debt investments will be concentrated in high-yield corporate debt securities rated, at the time of investment, Ba or lower by Moody's Investors Service, Inc. or BB or lower by Standard & Poor's, or if unrated by either of those entities, determined by Management to be of comparable quality. Due to the inherent volatility and illiquidity of the high yield securities in which the Fund invests and the real or perceived difficulty of issuers of those high yield securities to meet their payment obligations during economic downturns or because of negative business developments relating to the issuer or its industry in general, the value of the Fund's shares may fluctuate more than would be the case if the Fund did not concentrate in high yield securities.

13  Indemnifications: Like many other companies, the Fund's organizational documents provide that its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, both in some of its principal service contracts and in the normal course of its business, the Fund enters into contracts that provide indemnifications to other parties for certain types of losses or liabilities. The Fund's maximum exposure under these arrangements is unknown as this could involve future claims against the Fund.

23

Note B—Management Fees, Administration Fees, and Other Transactions with Affiliates:

  The Fund retains Management as its investment manager under a Management Agreement. For such investment management services, the Fund pays Management a fee at the annual rate of 0.60% of its average daily Managed Assets. Managed Assets equal the total assets of the Fund, less liabilities other than the aggregate indebtedness entered into for purposes of leverage. For purposes of calculating Managed Assets, the Liquidation Value of any Preferred Shares outstanding is not considered a liability.

  Management has contractually agreed to waive a portion of the management fees it is entitled to receive from the Fund at the following annual rates:

Year Ended October 31,		% of Average Daily Managed Assets
	2008		0.25	%
	2009		0.19
	2010		0.13
	2011		0.07

  Management has not contractually agreed to waive any portion of its fees beyond October 31, 2011.

  For the six months ended April 30, 2008, such waived fees amounted to $429,278.

  The Fund retains Management as its administrator under an Administration Agreement. The Fund pays Management an administration fee at the annual rate of 0.25% of its average daily Managed Assets under this agreement. Additionally, Management retains State Street Bank and Trust Company ("State Street") as its sub-administrator under a Sub-Administration Agreement. Management pays State Street a fee for all services received under the agreement.

  Management, Neuberger, a member firm of the New York Stock Exchange and sub-adviser to the Fund, and Lehman Brothers Asset Management LLC ("LBAM"), also sub-adviser to the Fund, are wholly-owned subsidiaries of Lehman Brothers Holdings Inc. ("Lehman"), a publicly-owned holding company. Effective April 1, 2008, LBAM became the Fund's sub-adviser for the fixed income portion of the Fund's portfolio. Neuberger and LBAM are retained by Management to furnish it with investment recommendations and research information without added cost to the Fund. Several individuals who are officers and/or Directors of the Fund are also employees of LBAM, Neuberger and/or Management.

  The Fund has entered into a commission recapture program, which enables it to pay some of its operational expenses by recouping a portion of the commissions it pays to a broker that is not a related party of the Fund. 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. Effective April 1, 2008, this commission recapture program was terminated. For the period ended March 31, 2008, the impact of this arrangement was a reduction of expenses of $6,217.

  The Fund has an expense offset arrangement in connection with its custodian contract. For the six months ended April 30, 2008, the impact of this arrangement was a reduction of expenses of $1,844.

  In connection with the settlement of each Preferred Share auction, the Fund pays, through the auction agent, a service fee to each participating broker-dealer based upon the aggregate liquidation preference of the Preferred Shares held by the broker-dealer's customers. For any auction preceding a rate period of less than one year, the service fee is paid at the annual rate of 1/4 of 1%; for any auction preceding a rate period of one year or more, the service fee is paid at a rate agreed to by the Fund and the broker-dealer.

  In order to satisfy rating agencies' requirements, the Fund is required to provide each rating agency a report on a monthly basis verifying that the Fund is maintaining eligible assets having a discounted value equal to or greater than the Preferred Shares Basic Maintenance Amount, which is a minimum level set by each rating agency as one of

24

the conditions to maintain the AAA/Aaa rating on the Preferred Shares. "Discounted value" refers to the fact that the rating agencies require the Fund, in performing this calculation, to discount portfolio securities below their face value, at rates determined by the rating agencies. The Fund pays a fee to State Street for the preparation of this report, which is reflected in the Statement of Operations under the caption "Basic maintenance expense."

Note C—Securities Transactions:

  During the six months ended April 30, 2008, there were purchase and sale transactions (excluding short-term securities and interest rate swap contracts) of $105,952,217 and $118,349,840, respectively.

  During the six months ended April 30, 2008, brokerage commissions on securities transactions amounted to $101,641, of which Neuberger received $0, Lehman Brothers Inc. received $10,543, and other brokers received $91,098.

Note D—Capital:

  At April 30, 2008, the common shares outstanding and the common shares of the Fund owned by Neuberger were as follows:

Common Shares Outstanding		Common Shares Owned by Neuberger
	17,734,383		6,981

  Transactions in common shares for the six months ended April 30, 2008 and the year ended October 31, 2007 were as follows:

Reinvestment of Dividends and Distributions				Net Increase in Common Shares Outstanding
2008		2007		2008		2007
	—		10,735		—		10,735

Note E—Investments In Affiliates:

Name of Issuer	Balance of Shares Held October 31, 2007		Gross Purchases and Additions		Gross Sales and Reductions		Balance of Shares Held April 30, 2008		Value April 30, 2008		Income From Investments in Affiliated Issuers Included in Total Income
Neuberger Berman Prime Money Fund Trust Class*		5,900,182		92,454,605		90,159,560		8,195,227	$	8,195,227	$	161,562
Neuberger Berman Securities Lending Quality Fund, LLC**		78,902,101		252,115,971		247,541,581		83,476,491		82,641,726		1,430,777
Total									$	90,836,953	$	1,592,339

*  Prime Money is also managed by Management and may be considered an affiliate since it has the same officers, Board members, and investment manager as the Fund and because, at times, the Fund may own 5% or more of the outstanding voting securities of Prime Money.

**  Quality Fund, a fund managed by LBAM, an affiliate of Management, is used to invest cash the Fund receives as collateral for securities loans as approved by the Board. Because all shares of Quality Fund are held by funds in the related investment management complex, Quality Fund may be considered an affiliate of the Fund.

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Note F—Recent Accounting Pronouncements:

  In September 2006, Financial Accounting Standards Board ("FASB") issued FASB Statement No.157, "Fair Value Measurement" ("SFAS 157"), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Management believes the adoption of SFAS 157 will not have a material impact on the Fund's financial position or results of operations.

  In March 2008, FASB issued Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. Management is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

Note G—Unaudited Financial Information:

  The financial information included in this interim report is taken from the records of the Fund without audit by an independent registered public accounting firm. Annual reports contain audited financial statements.

26

Financial Highlights

Income Opportunity Fund Inc.

The following table includes selected data for a share outstanding throughout each period and other performance information derived from the Financial Statements.

	Six Months Ended April 30,			Year Ended October 31,												Period from July 2, 2003^ to October 31,
	2008			2007			2006			2005			2004			2003
	(Unaudited)
Common Share Net Asset Value, Beginning of Period	$	15.26		$	18.82		$	16.37		$	16.69		$	14.72		$	14.33
Income From Investment Operations Applicable to Common Shareholders:
Net Investment Income (Loss)¢		.75			1.38			1.24			1.07			1.27	ß		.25
Net Gains or Losses on Securities (both realized and unrealized)		(2.15	)		(2.29	)		2.86			.57			2.08	ß		.59
Common Share Equivalent of Distributions to Preferred Shareholders From:
Net Investment Income¢		(.16	)		(.21	)		(.28	)		(.13	)		(.09	)		(.01	)
Net Capital Gains¢		—			(.16	)		(.05	)		(.07	)		(.01	)		(.00	)
Tax Return of Capital¢		—			—			—			(.01	)		—			(.00	)
Total Distributions to Preferred Shareholders		(.16	)		(.37	)		(.33	)		(.21	)		(.10	)		(.01	)
Total From Investment Operations Applicable to Common Shareholders		(1.56	)		(1.28	)		3.77			1.43			3.25			.83
Less Distributions to Common Shareholders From:
Net Investment Income		(1.73	)		(1.30	)		(1.11	)		(1.03	)		(1.11	)		(.27	)
Net Capital Gains		—			(.98	)		(.21	)		(.61	)		(.17	)		(.05	)
Tax Return of Capital		—			—			—			(.11	)		—			(.00	)
Total Distributions to Common Shareholders		(1.73	)		(2.28	)		(1.32	)		(1.75	)		(1.28	)		(.32	)
Less Capital Charges From:
Issuance of Common Shares		—			—			—			—			—			(.03	)
Issuance of Preferred Shares		—			—			—			—			(.00	)		(.09	)
Total Capital Charges		—			—			—			—			(.00	)		(.12	)
Common Share Net Asset Value, End of Period	$	11.97		$	15.26		$	18.82		$	16.37		$	16.69		$	14.72
Common Share Market Value, End of Period	$	11.08		$	13.49		$	17.22		$	14.23		$	15.07		$	13.98
Total Return, Common Share Net Asset Value†		-8.84	%**		-7.32	%		+25.13	%		+10.33	%		+23.67	%		+5.11	%**
Total Return, Common Share Market Value†		-4.55	%**		-10.46	%		+31.71	%		+6.22	%		+17.57	%		-4.67	%**
Ratios/Supplemental Data††
Net Assets Applicable to Common Shareholders, End of Period (in millions)	$	212.3		$	270.7		$	333.5		$	290.0		$	295.8		$	260.8
Preferred Shares, at Liquidation Value ($25,000 per share liquidation preference) (in millions)	$	125.5		$	125.5		$	125.5		$	125.5		$	125.5		$	125.5
Ratio of Gross Expenses to Average Net Assets Applicable to Common Shareholders#		1.31	%*		1.11	%		1.11	%		1.13	%		1.16	%ß		.88	%*
Ratio of Net Expenses to Average Net Assets Applicable to Common Shareholders‡		1.30	%*		1.10	%		1.10	%		1.13	%		1.16	%ß		.87	%*
Ratio of Net Investment Income (Loss) Excluding Preferred Share Distributions to Average Net Assets Applicable to Common Shareholders		12.23	%*		7.94	%		7.18	%		6.49	%		8.08	%—		5.24	%*
Ratio of Preferred Share Distributions to Average Net Assets Applicable to Common Shareholders		2.63	%*		2.13	%		1.89	%		1.26	%		.62	%		.17	%*
Ratio of Net Investment Income (Loss) Including Preferred Share Distributions to Average
Net Assets Applicable to Common Shareholders		9.60	%*		5.81	%		5.29	%		5.23	%		7.46	%ß		5.07	%*
Portfolio Turnover Rate		31	%**		76	%		61	%		49	%		74	%		21	%**
Asset Coverage Per Preferred Share, End of Period@	$	67,296		$	78,931		$	91,462		$	82,794		$	83,933		$	76,957

See Notes to Financial Highlights

27

Notes to Financial Highlights Income Opportunity
Fund Inc. (Unaudited)

†  Total return based on per share net asset value reflects the effects of changes in net asset value on the performance of the Fund during each fiscal period. Total return based on per share market value assumes the purchase of common shares at the market price on the first day and sale of common shares at the market price on the last day of the period indicated. Distributions, if any, are assumed to be reinvested at prices obtained under the Fund's distribution reinvestment plan. Results represent past performance and do not guarantee future results. Current returns may be lower or higher than the performance data quoted. Investment returns may fluctuate and shares when sold may be worth more or less than original cost. Total return would have been lower if Management had not waived a portion of the investment management fee. For the six months ended April 30, 2008, Management reimbursed the Fund for losses incurred in connection with the securities lending program, which had no impact on total return.

#  The Fund is required to calculate an expense ratio without taking into consideration any expense reductions related to expense offset arrangements.

‡  After waiver of a portion of the investment management fee by Management. Had Management not undertaken such action, the annualized ratios of net expenses to average daily net assets applicable to common shareholders would have been:

Six Months Ended April 30,			Year Ended October 31,												Period From July 2, 2003 to October 31,
2008			2007			2006			2005			2004			2003
	1.70	%		1.45	%		1.45	%		1.48	%		1.52	%		1.16	%

^  The date investment operations commenced.

*  Annualized.

**  Not annualized.

@  Calculated by subtracting the Fund's total liabilities (excluding accumulated unpaid distributions on Preferred Shares) from the Fund's total assets and dividing by the number of Preferred Shares outstanding.

††  Expense ratios do not include the effect of distribution payments to preferred shareholders. Income ratios include income earned on assets attributable to Preferred Shares outstanding.

ß  Prior to November 1, 2003, the Fund recorded the accrual of the net interest income or expense expected to be received or paid at interim settlement dates as a net payable or receivable for swap contracts and actual amounts paid as net interest income or expense on swap contracts. As a result of SEC staff guidance relating to the application of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities to registered investment companies, effective November 1, 2003, periodic expected interim net interest payments or receipts on the swaps are recorded as an adjustment to unrealized gains/losses, along with the fair value of the future periodic payment streams on the swaps. Accordingly, for the year ended October 31, 2004, the per share amounts and ratios shown decreased or increased as follows:

Net Investment Income	$	.11
Net Gains or Losses on Securities (both realized and unrealized)	$	(.11	)
Ratio of Gross Expenses to Average Net Assets Applicable to Common Shareholders		(.71	%)
Ratio of Net Expenses to Average Net Assets Applicable to Common Shareholders		(.71	%)
Ratio of Net Investment Income (Loss) Excluding Preferred Share Distributions to Average Net Assets Applicable to Common Shareholders		.71	%
Ratio of Net Investment Income (Loss) Including Preferred Share Distributions to Average Net Assets Applicable to Common Shareholders		.71	%

¢  Calculated based on the average number of shares outstanding during each fiscal period.

28

Distribution Reinvestment Plan

The Bank of New York ("Plan Agent") will act as Plan Agent for shareholders who have not elected in writing to receive dividends and distributions in cash (each a "Participant"), will open an account for each Participant under the Distribution Reinvestment Plan ("Plan") in the same name as their then current Shares are registered, and will put the Plan into effect for each Participant as of the first record date for a dividend or capital gains distribution.

Whenever the Fund declares a dividend or distribution with respect to the common stock of the Fund ("Shares"), each Participant will receive such dividends and distributions in additional Shares, including fractional Shares acquired by the Plan Agent and credited to each Participant's account. If on the payment date for a cash dividend or distribution, the net asset value is equal to or less than the market price per Share plus estimated brokerage commissions, the Plan Agent shall automatically receive such Shares, including fractions, for each Participant's account. Except in the circumstances described in the next paragraph, the number of additional Shares to be credited to each Participant's account shall be determined by dividing the dollar amount of the dividend or distribution payable on their Shares by the greater of the net asset value per Share determined as of the date of purchase or 95% of the then current market price per Share on the payment date.

Should the net asset value per Share exceed the market price per Share plus estimated brokerage commissions on the payment date for a cash dividend or distribution, the Plan Agent or a broker-dealer selected by the Plan Agent shall endeavor, for a purchase period lasting until the last business day before the next date on which the Shares trade on an "ex-dividend" basis, but in no event, except as provided below, more than 30 days after the payment date, to apply the amount of such dividend or distribution on each Participant's Shares (less their pro rata share of brokerage commissions incurred with respect to the Plan Agent's open-market purchases in connection with the reinvestment of such dividend or distribution) to purchase Shares on the open market for each Participant's account. No such purchases may be made more than 30 days after the payment date for such dividend or distribution except where temporary curtailment or suspension of purchase is necessary to comply with applicable provisions of federal securities laws. If, at the close of business on any day during the purchase period the net asset value per Share equals or is less than the market price per Share plus estimated brokerage commissions, the Plan Agent will not make any further open-market purchases in connection with the reinvestment of such dividend or distribution. If the Plan Agent is unable to invest the full dividend or distribution amount through open-market purchases during the purchase period, the Plan Agent shall request that, with respect to the uninvested portion of such dividend or distribution amount, the Fund issue new Shares at the close of business on the earlier of the last day of the purchase period or the first day during the purchase period on which the net asset value per Share equals or is less than the market price per Share, plus estimated brokerage commissions, such Shares to be issued in accordance with the terms specified in the third paragraph hereof. These newly issued Shares will be valued at the then-current market price per Share at the time such Shares are to be issued.

For purposes of making the reinvestment purchase comparison under the Plan, (a) the market price of the Shares on a particular date shall be the last sales price on the New York Stock Exchange (or if the Shares are not listed on the New York Stock Exchange, such other exchange on which the Shares are principally traded) on that date, or, if there is no sale on such Exchange (or if not so listed, in the over-the-counter market) on that date, then the mean between the closing bid and asked quotations for such Shares on such Exchange on such date and (b) the net asset value per Share on a particular date shall be the net asset value per Share most recently calculated by or on behalf of the Fund. All dividends, distributions and other payments (whether made in cash or Shares) shall be made net of any applicable withholding tax.

Open-market purchases provided for above may be made on any securities exchange where the Fund's Shares are traded, in the over-the-counter market or in negotiated transactions and may be on such terms as to price, delivery and otherwise as the Plan Agent shall determine. Each Participant's uninvested funds held by the Plan Agent will not bear interest, and it is understood that, in any event, the Plan Agent shall have no liability in connection with any inability to purchase Shares within 30 days after the initial date of such purchase as herein provided, or with the timing of any purchases effected. The Plan Agent shall have no responsibility as to the value of the Shares acquired for each Participant's account. For the purpose of cash investments, the Plan Agent may commingle each Participant's funds with those of other shareholders of

29

the Fund for whom the Plan Agent similarly acts as agent, and the average price (including brokerage commissions) of all Shares purchased by the Plan Agent as Plan Agent shall be the price per Share allocable to each Participant in connection therewith.

The Plan Agent may hold each Participant's Shares acquired pursuant to the Plan together with the Shares of other shareholders of the Fund acquired pursuant to the Plan in noncertificated form in the Plan Agent's name or that of the Plan Agent's nominee. The Plan Agent will forward to each Participant any proxy solicitation material and will vote any Shares so held for each Participant only in accordance with the instructions set forth on proxies returned by the Participant to the Fund.

The Plan Agent will confirm to each Participant each acquisition made for their account as soon as practicable but not later than 60 days after the date thereof. Although each Participant may from time to time have an undivided fractional interest (computed to three decimal places) in a Share, no certificates for a fractional Share will be issued. However, dividends and distributions on fractional Shares will be credited to each Participant's account. In the event of termination of a Participant's account under the Plan, the Plan Agent will adjust for any such undivided fractional interest in cash at the market value of the Shares at the time of termination, less the pro rata expense of any sale required to make such an adjustment.

Any Share dividends or split Shares distributed by the Fund on Shares held by the Plan Agent for Participants will be credited to their accounts. In the event that the Fund makes available to its shareholders rights to purchase additional Shares or other securities, the Shares held for each Participant under the Plan will be added to other Shares held by the Participant in calculating the number of rights to be issued to each Participant.

The Plan Agent's service fee for handling capital gains distributions or income dividends will be paid by the Fund. Participants will be charged their pro rata share of brokerage commissions on all open-market purchases.

Each Participant may terminate their account under the Plan by notifying the Plan Agent in writing. Such termination will be effective immediately if the Participant's notice is received by the Plan Agent not less than ten days prior to any dividend or distribution record date, otherwise such termination will be effective the first trading day after the payment date for such dividend or distribution with respect to any subsequent dividend or distribution. The Plan may be terminated by the Plan Agent or the Fund upon notice in writing mailed to each Participant at least 30 days prior to any record date for the payment of any dividend or distribution by the Fund.

These terms and conditions may be amended or supplemented by the Plan Agent or the Fund at any time or times but, except when necessary or appropriate to comply with applicable law or the rules or policies of the Securities and Exchange Commission or any other regulatory authority, only by mailing to each Participant appropriate written notice at least 30 days prior to the effective date thereof. The amendment or supplement shall be deemed to be accepted by each Participant unless, prior to the effective date thereof, the Plan Agent receives written notice of the termination of their account under the Plan. Any such amendment may include an appointment by the Plan Agent in its place and stead of a successor Plan Agent under these terms and conditions, with full power and authority to perform all or any of the acts to be performed by the Plan Agent under these terms and conditions. Upon any such appointment of any Plan Agent for the purpose of receiving dividends and distributions, the Fund will be authorized to pay to such successor Plan Agent, for each Participant's account, all dividends and distributions payable on Shares held in their name or under the Plan for retention or application by such successor Plan Agent as provided in these terms and conditions.

The Plan Agent shall at all times act in good faith and agrees to use its best efforts within reasonable limits to ensure the accuracy of all services performed under this Agreement and to comply with applicable law, but assumes no responsibility and shall not be liable for loss or damage due to errors unless such error is caused by the Plan Agent's negligence, bad faith, or willful misconduct or that of its employees.

These terms and conditions shall be governed by the laws of the State of Maryland.

30

Directory

Investment Manager and Administrator

Neuberger Berman Management Inc.
605 Third Avenue, 2nd Floor
New York, NY 10158-0180
877.461.1899 or 212.476.8800

Sub-Advisers

Neuberger Berman, LLC
605 Third Avenue
New York, NY 10158-3698

Lehman Brothers Asset Management LLC
200 South Wacker Drive
Suite 2100
Chicago, IL 60601

Custodian

State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110

Stock Transfer Agent

The Bank of New York
101 Barclay Street, 11-E
New York, NY 10286

Legal Counsel

Kirkpatrick & Lockhart Preston Gates Ellis LLP
1601 K Street, NW
Washington, DC 20006

Independent Registered Public Accounting Firm

Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116

31

Proxy Voting Policies and Procedures

A description of the policies and procedures that the Fund 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 Fund 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 Fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund'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).

Report of Votes of Shareholders

An annual meeting of shareholders of Neuberger Berman Income Opportunity Fund Inc. was held on April 14, 2008. Shareholders voted on the following matter: (1) To elect six Class III Directors (one of which is to be elected only by holders of the Fund's preferred shares) to serve until the annual meeting of shareholders in 2011, or until their successors are elected and qualified. Class I Directors (which include Faith Colish, Michael M. Knetter, Cornelius T. Ryan, Peter P. Trapp and Peter E. Sundman) and Class II Directors (which include John Cannon, C. Anne Harvey, George W. Morriss, Tom D. Seip and Jack L. Rivkin) continue to hold office until the annual meeting in 2009 and 2010, respectively.

Proposal 1 — To elect six Class III Directors (one of which is to be elected only by holders of the Fund's preferred shares) to serve until the annual meeting of shareholders in 2011.

Common and Preferred Shares

	Votes For		Votes Withheld		Abstentions		Broker Non-Votes
Martha C. Goss		15,683,513.581		341,532.401		—		—
Robert A. Kavesh		15,667,272.581		357,773.401		—		—
Edward I. O'Brien		15,678,541.581		346,504.401		—		—
William E. Rulon		15,669,994.581		355,051.401		—		—
Candace L. Straight		15,690,077.581		334,968.401		—		—

Preferred Shares

	Votes For		Votes Withheld		Abstentions		Broker Non-Votes
Howard A. Mileaf		4,353		80		—		—

32

Neuberger Berman Management Inc.
605 Third Avenue 2nd Floor
New York, NY 10158—0180
Internal Sales & Services
877.461.1899
www.nb.com

Statistics and projections in this report are derived from sources deemed to be reliable but cannot be regarded as a representation of future results of the Fund. This report is prepared for the general information of shareholders and is not an offer of shares of the Fund.

I0212 06/08

Item 2. Code of Ethics

The Board of Directors (“Board”) of Neuberger Berman Income Opportunity Fund Inc. (“Registrant”) adopted a code of ethics that applies to the Registrant’s principal executive officer, principal financial officer and principal accounting officer (“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 or principal accounting officer.

A copy of the Code of Ethics is incorporated by reference to the Registrant’s Form N-CSR, Investment Company Act file number 811-21334 (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 directors 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

Only required in the annual report.

Item 6. Schedule of Investments

The complete schedule of investments for the Registrant 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

Only required in the annual report.

Item 8. Portfolio Managers of Closed-End Management Investment Companies

Only required in the annual report.  There have been no changes in any of the Portfolio Managers since the Registrant’s most recent annual report on Form N-CSR.

Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers

No reportable purchases for the period covered by this report.

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 the Registrant’s Form N-CSR, Investment Company Act file number 811-21334 (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.

Neuberger Berman Income Opportunity Fund Inc.

By: /s/ Peter E. Sundman    

Peter E. Sundman

Chief Executive Officer

Date: June 24, 2008

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

By: /s/ Peter E. Sundman    

Peter E. Sundman

Chief Executive Officer

Date:  June 24, 2008

By: /s/ John M. McGovern                

John M. McGovern

Treasurer and Principal Financial

and Accounting Officer

Date: June 24, 2008