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: 811-21200
NEUBERGER BERMAN REAL ESTATE INCOME FUND INC.
---------------------------------------------
(Exact Name of the Registrant as Specified in Charter)
605 Third Avenue
New York, New York 10158-0180
(Address of Principal Executive Offices - Zip Code)
Registrant's Telephone Number, including area code: (212) 476-8800
Peter E. Sundman, Chief Executive Officer
Neuberger Berman Real Estate Income Fund Inc.
605 Third Avenue, 2nd Floor
New York, New York 10158-0180
Arthur C. Delibert, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800
(Names and Addresses of agents for service)
Date of fiscal year end: October 31, 2002
Date of reporting period: April 30, 2003
ITEM 1. REPORTS TO SHAREHOLDERS
SEMI-ANNUAL REPORT [NEUBERGER BERMAN LOGO]
APRIL 30, 2003
NEUBERGER BERMAN
REAL ESTATE
INCOME FUND INC.
<Page>
CONTENTS
- --------
<Table>
THE FUND
CHAIRMAN'S LETTER 2
PORTFOLIO COMMENTARY/
PERFORMANCE HIGHLIGHTS 4
SCHEDULE OF INVESTMENTS/
TOP TEN EQUITY HOLDINGS 7
FINANCIAL STATEMENTS 10
FINANCIAL HIGHLIGHTS
PER SHARE DATA 18
DIVIDEND REINVESTMENT PLAN 20
DIRECTORY 23
DIRECTORS AND OFFICERS 24
</Table>
"Neuberger Berman" and the Neuberger Berman logo are service marks of Neuberger
Berman, LLC. "Neuberger Berman Management Inc." and the individual fund name in
this shareholder report are either service marks or registered service marks of
Neuberger Berman Management Inc. (C)2003 Neuberger Berman Management Inc. All
rights reserved.
1
<Page>
CHAIRMAN'S LETTER
- -----------------
[PHOTO OF PETER SUNDMAN]
Dear Fellow Shareholder,
Welcome to the Neuberger Berman Real Estate Income Fund, which opened on
November 25, 2002. We are pleased that you have entrusted us with your
hard-earned assets, and I can assure you that we will strive to achieve the best
results consistent with controlling risk. The Fund is off to a good start,
completing its first period of operation with a positive return on a net asset
value basis, and solid performance compared with its benchmark.
The Fund's investment objective is to provide high current income, and its
secondary objective is to provide capital appreciation. In seeking to accomplish
both, we have assembled a portfolio with a broad mix of equity and preferred
securities of real estate investment trusts (REITs).
We believe that REITs are an asset class that can offer distinct advantages to
investors. They must distribute 90% of their taxable income to shareholders to
avoid taxation at the corporate level. As a result, they tend to offer a higher
yield than stocks or bonds as an asset class. In addition, REITs have
historically fared better during periods of economic weakness than other
industry groups, meaning they may provide ballast to a balanced portfolio amid a
challenging investing environment.
Portfolio Manager Steven Brown's investment approach combines analysis of
security fundamentals and real estate with property sector diversification. His
disciplined valuation methodology seeks out real estate securities that are
attractively priced relative to their historical growth rates and the valuation
of other property sectors.
We hope that the Real Estate Income Fund will become a mainstay holding in your
portfolio. We believe our conservative investing philosophy and disciplined
investment process will benefit you with
2
<Page>
NEUBERGER BERMAN APRIL 30, 2003 (UNAUDITED)
superior current income and capital appreciation over the long term.
Thank you for your trust in Neuberger Berman. We will work diligently to keep
earning it.
Sincerely,
/s/ Peter Sundman
PETER SUNDMAN
CHAIRMAN OF THE BOARD
NEUBERGER BERMAN REAL ESTATE
INCOME FUND INC. CLOSED-END FUND
3
<Page>
REAL ESTATE INCOME FUND INC. PORTFOLIO COMMENTARY
- -------------------------------------------------
We are pleased to report that the Neuberger Berman Real Estate Income Fund Inc.
generated a positive rate of return and outperformed its benchmark, the NAREIT
Equity REIT Index for the period November 25, 2002 (the inception date of the
Fund) through April 30, 2003 based on net asset value (NAV). Generally, real
estate investment trusts (REITs) outpaced the return of broad equity market
indices for the reporting period.
Since the beginning of 2003, the Fund's performance was driven by its overweight
allocation in the Health Care sector and the Diversified sector. Superior stock
selection benefited in the Regional Mall, Lodging, Healthcare, and Apartment
sectors. The Fund's underweight position in the Industrial sector also benefited
performance. Strong performance in the Office sector was driven by the group's
very attractive valuation level at the beginning of the year. Investor concern
in late 2002 about soft fundamentals caused valuations to decline to a 20% to
25% discount to net real estate value. We believe that our stock selection
process, which is centered on relative valuation, should continue to benefit
performance.
At the close of the reporting period, we continue to expect economic conditions
to improve in the second half of the year. Our outlook for REITs remains
positive, as we see a renewal in economic activity to be generally supportive of
increased operating results and earnings for REITs. Over the next four to six
quarters, we believe that REITs' potential earnings improvements, combined with
current dividend yields and share price appreciation, should drive favorable
returns.
Although sustained economic improvement may result in higher interest rates, we
do not believe this would detract from the performance outlook for REITs. In
fact, stronger economic activity, often times a precursor to higher rates,
should enhance the operating fundamentals of REITs. In addition, we believe that
current REIT valuation levels remain attractive. Most REIT price-to-cash flow
multiples remain substantially below the average level exhibited over the last
15-year period, and current REIT share prices are only at a slight premium to
real estate value (the aggregate value of the underlying REIT properties).
In our opinion, real estate fundamentals should improve over the next twelve
months. The rate of supply growth -- as measured by permitting activity and
construction starts -- has been slowing across most property sectors and
geographic regions. We expect this trend to remain in place through 2004. The
other component of real estate fundamentals -- demand -- is currently weak but
should strengthen consistent with an improving economy. We believe that gross
domestic product (GDP) growth of 2.5% to 3.0% would be sufficient to generate
higher occupancy levels across most property sectors.
- --------------------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
NEUBERGER BERMAN
<Table>
<Caption>
NAV INCEPTION DATE CUMULATIVE TOTAL RETURN
SINCE INCEPTION
Real Estate Income Fund 11/25/2002 8.21%
<Caption>
MARKET PRICE INCEPTION DATE CUMULATIVE TOTAL RETURN
SINCE INCEPTION
Real Estate Income Fund 11/25/2002 6.71%
</Table>
4
<Page>
NEUBERGER BERMAN APRIL 30, 2003 (UNAUDITED)
Our investment focus remains geared toward owning a portfolio diversified across
all core property sectors and geographic regions. The Fund has important
holdings in the Residential, Retail and Office/Industrial sectors. We also have
an important weighting in the Lodging/Resorts sector, as we believe it will be
among the first beneficiaries of an economic turnaround. We continue to seek out
companies with improving fundamentals, strong financial positions and
opportunistic management teams.
Sincerely,
/s/ Steven Brown
STEVEN BROWN
PORTFOLIO MANAGER
5
<Page>
GLOSSARY OF INDICES
- -------------------
NAREIT EQUITY REIT 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.
6
<Page>
NEUBERGER BERMAN APRIL 30, 2003 (UNAUDITED)
SCHEDULE OF INVESTMENTS NEUBERGER BERMAN REAL ESTATE INCOME FUND INC.
- ---------------------------------------------------------------------
- ---------------------------------------------
TOP TEN EQUITY HOLDINGS
<Table>
<Caption>
HOLDING %
1 Mills Corp. 5.7
2 Apartment Investment & Management 5.3
3 Ventas, Inc. 4.3
4 iStar Financial 4.0
5 Glimcher Realty Trust 3.7
6 Host Marriott 3.6
7 CarrAmerica Realty 3.4
8 Vornado Realty Trust 3.3
9 Mack-Cali Realty 3.1
10 Equity Office Properties Trust 3.0
</Table>
- ---------------------------------------------
<Table>
<Caption>
NUMBER OF SHARES MARKET VALUE +
(000'S OMITTED)
COMMON STOCKS (119.8%)
APARTMENTS (23.0%)
21,600 Amli Residential Properties Trust $ 489
90,000 Apartment Investment & Management 3,398
70,000 Archstone-Smith Trust 1,596
43,000 Avalonbay Communities 1,715
83,700 Camden Property Trust 2,925
80,400 Gables Residential Trust 2,282
45,000 Home Properties of New York 1,563
24,300 Mid-America Apartment Communities 625
22,900 Town & Country Trust 510
43,000 United Dominion Realty Trust 718
--------
15,821
COMMUNITY CENTERS (10.4%)
54,000 Developers Diversified Realty 1,361
32,400 Federal Realty Investment Trust 999
30,900 Heritage Property Investment Trust 785
62,000 New Plan Excel Realty Trust 1,239
85,700 Tanger Factory Outlet Centers 2,759
--------
7,143
DIVERSIFIED (15.6%)
82,600 Colonial Properties Trust 2,809
134,800 iStar Financial 4,035
17,400 Pennsylvania REIT 497
88,000 Vornado Realty Trust 3,344
--------
10,685
HEALTH CARE (12.2%)
40,000 Health Care Property Investors 1,489
74,700 Health Care REIT 2,127
33,600 Nationwide Health Properties 470
329,800 Ventas, Inc. 4,287*
--------
8,373
INDUSTRIAL (2.7%)
37,700 EastGroup Properties 979
22,100 First Industrial Realty Trust 618
13,000 Keystone Property Trust 224
--------
1,821
LODGING (2.4%)
57,600 Hospitality Properties Trust 1,659
MANUFACTURED HOMES (0.7%)
23,400 Chateau Communities 506
OFFICE (26.1%)
87,700 Arden Realty $ 2,090
59,700 Brandywine Realty Trust 1,332
130,800 CarrAmerica Realty 3,411
115,100 Equity Office Properties Trust 2,989
77,400 Glenborough Realty Trust 1,283
62,800 Highwoods Properties 1,272
97,600 Mack-Cali Realty 3,080
88,800 Prentiss Properties Trust 2,442
--------
17,899
OFFICE--INDUSTRIAL (13.3%)
39,400 Bedford Property Investors 1,050
45,700 Duke Realty 1,252
102,500 Kilroy Realty 2,544
71,000 Liberty Property Trust 2,222
107,600 Reckson Associates Realty 2,028
--------
9,096
REGIONAL MALLS (11.8%)
15,000 CBL & Associates Properties 637
180,600 Glimcher Realty Trust 3,731
28,000 Macerich Co. 924
87,400 Mills Corp. 2,793
--------
8,085
SELF STORAGE (1.6%)
30,600 Shurgard Storage Centers 1,000
4,500 Sovran Self Storage 132
--------
1,132
TOTAL COMMON STOCKS
(COST $77,816) 82,220
--------
PREFERRED STOCKS (25.7%)
APARTMENTS (2.7%)
2,000 Apartment Investment & Management, Ser. G 53
17,800 Apartment Investment & Management, Ser. H 452
18,800 Apartment Investment & Management, Ser. Q 508
31,800 Apartment Investment & Management, Ser. R 852
--------
1,865
COMMERCIAL SERVICES (0.7%)
20,000 Newcastle Investment, Ser. B 503
COMMUNITY CENTERS (0.6%)
1,000 Kramont Realty Trust, Ser. D 26
13,100 Ramco-Gershenson Properties Trust, Ser. B 348
--------
374
</Table>
7
<Page>
SCHEDULE OF INVESTMENTS NEUBERGER BERMAN REAL ESTATE INCOME FUND INC. CONT'D
- ----------------------------------------------------------------------------
<Table>
<Caption>
NUMBER OF SHARES MARKET VALUE +
(000'S OMITTED)
DIVERSIFIED (2.1%)
45,200 Crescent Real Estate Equities, Ser. A $ 917
19,500 Crescent Real Estate Equities, Ser. B 507
--------
1,424
HEALTH CARE (0.3%)
7,800 SNH Capital Trust, Ser. Z 211
LODGING (12.3%)
66,300 Boykin Lodging, Ser. A 1,684
20,400 Felcor Lodging Trust, Ser. A 393
86,500 Felcor Lodging Trust, Ser. B 1,816
46,100 Host Marriott, Ser. A 1,141
11,000 Host Marriott, Ser. B 271
90,600 Host Marriott, Ser. C 2,224
1,300 Innkeepers USA Trust, Ser. A 31
34,000 LaSalle Hotel Properties, Ser. A 908
--------
8,468
OFFICE (1.3%)
5,100 Corporate Office Properties Trust, Ser. F 140
4,000 Glenborough Realty Trust, Ser. A 91
25,000 HRPT Properties Trust, Ser. A 674
--------
905
REGIONAL MALLS (5.3%)
28,600 Glimcher Realty Trust, Ser. B 724
100,000 Mills Corp., Ser. B 2,600
11,400 Mills Corp., Ser. C 295
--------
3,619
SELF STORAGE (0.4%)
9,700 Public Storage, Depositary Shares 265
900 Sovran Self Storage, Ser. B 24
--------
289
TOTAL PREFERRED STOCKS
(COST $17,854) 17,658
--------
<Caption>
PRINCIPAL AMOUNT MARKET VALUE +
(000'S OMITTED)
SHORT-TERM INVESTMENTS (1.2%)
$790,000 U.S. Treasury Bills, 1.15%,
due 5/1/03
(COST $790) $ 790#
--------
TOTAL INVESTMENTS (146.7%)
(COST $96,460) 100,668##
Liabilities, less cash, receivables and other assets [(0.8%)] (531)
Auction Preferred Shares at redemption value [(45.9%)] (31,500)
--------
TOTAL NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS (100.0%) $ 68,637
--------
</Table>
See Notes to Schedule of Investments 8
<Page>
NEUBERGER BERMAN APRIL 30, 2003 (UNAUDITED)
NOTES TO SCHEDULE OF INVESTMENTS
- --------------------------------
+ Investment securities of the Fund are valued at the latest sales price
where that price is readily available; securities for which no sales were
reported, unless otherwise noted, are valued at the last available bid
price on that day. 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. The Fund values all other securities by
a method the directors of Neuberger Berman Real Estate Income Fund Inc.
believe accurately reflects fair value. 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, 2003, the cost of investments for U.S. Federal income tax
purposes was $96,460,000. Gross unrealized appreciation of investments was
$5,496,000 and gross unrealized depreciation of investments was $1,288,000
resulting in net unrealized appreciation of $4,208,000 based on cost for
U.S. Federal income tax purposes.
* Security is segregated as collateral for interest rate swap contracts.
See Notes to Financial Statements 9
<Page>
STATEMENT OF ASSETS AND LIABILITIES
<Table>
<Caption>
NEUBERGER BERMAN REAL ESTATE
(000'S OMITTED EXCEPT PER SHARE AMOUNTS) INCOME FUND
ASSETS
INVESTMENTS IN SECURITIES, AT MARKET VALUE* (NOTE A)--SEE
SCHEDULE OF INVESTMENTS $100,668
- ---------------------------------------------------------------------------------------------
Cash 4
- ---------------------------------------------------------------------------------------------
Dividends and interest receivable 296
- ---------------------------------------------------------------------------------------------
Prepaid expenses and other assets 30
=============================================================================================
TOTAL ASSETS 100,998
=============================================================================================
LIABILITIES
Dividends payable--preferred shares 8
- ---------------------------------------------------------------------------------------------
Dividends payable--common shares 63
- ---------------------------------------------------------------------------------------------
Payable for securities purchased 133
- ---------------------------------------------------------------------------------------------
Interest rate swaps, at market value (Note A) 374
- ---------------------------------------------------------------------------------------------
Net payable for swap contracts (Note A) 29
- ---------------------------------------------------------------------------------------------
Payable for offering costs (Note A) 156
- ---------------------------------------------------------------------------------------------
Payable to investment manager--net (Note B) 16
- ---------------------------------------------------------------------------------------------
Payable to administrator (Note B) 20
- ---------------------------------------------------------------------------------------------
Accrued expenses and other payables 62
=============================================================================================
TOTAL LIABILITIES 861
=============================================================================================
AUCTION PREFERRED SHARES SERIES A AT REDEMPTION VALUE
1,500 shares authorized; 1,260 shares issued and outstanding;
$.0001 par value; $25,000
liquidation value per share (Note A) 31,500
=============================================================================================
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS AT VALUE $ 68,637
=============================================================================================
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS CONSIST OF:
Common stock paid-in capital $ 64,682
- ---------------------------------------------------------------------------------------------
Undistributed (dividends in excess of) net investment income 140
- ---------------------------------------------------------------------------------------------
Accumulated net realized gains (losses) on investments (19)
- ---------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) in value of investments 3,834
=============================================================================================
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS AT VALUE $ 68,637
=============================================================================================
COMMON SHARES OUTSTANDING ($.0001 PAR VALUE; 999,998,500 SHARES AUTHORIZED) 4,571
- ---------------------------------------------------------------------------------------------
NET ASSET VALUE PER COMMON SHARE OUTSTANDING $ 15.02
=============================================================================================
*COST OF INVESTMENTS $ 96,460
=============================================================================================
</Table>
See Notes to Financial Statements 10
<Page>
NEUBERGER BERMAN FOR THE PERIOD FROM NOVEMBER 29, 2002 (COMMENCEMENT OF
OPERATIONS) TO APRIL 30, 2003 (UNAUDITED)
STATEMENT OF OPERATIONS
- -----------------------
<Table>
<Caption>
NEUBERGER BERMAN REAL ESTATE
(000'S OMITTED) INCOME FUND
INVESTMENT INCOME
Dividend income $2,711
- -----------------------------------------------------------------------------------------------------------
Interest income 51
===========================================================================================================
Total income 2,762
===========================================================================================================
EXPENSES:
Investment management fee (Note B) 202
- -----------------------------------------------------------------------------------------------------------
Administration fee (Note B) 85
- -----------------------------------------------------------------------------------------------------------
Auction agent fees 17
- -----------------------------------------------------------------------------------------------------------
Auditing fees 18
- -----------------------------------------------------------------------------------------------------------
Basic maintenance expense 6
- -----------------------------------------------------------------------------------------------------------
Custodian fees (Note B) 25
- -----------------------------------------------------------------------------------------------------------
Directors' fees and expenses 10
- -----------------------------------------------------------------------------------------------------------
Legal fees 23
- -----------------------------------------------------------------------------------------------------------
Net interest expense on interest rate swap contracts (Note A) 132
- -----------------------------------------------------------------------------------------------------------
Shareholder reports 11
- -----------------------------------------------------------------------------------------------------------
Stock exchange listing fees 13
- -----------------------------------------------------------------------------------------------------------
Stock transfer agent fees 15
- -----------------------------------------------------------------------------------------------------------
Miscellaneous 8
===========================================================================================================
Total expenses 565
Investment management fee waived and expenses reduced by
custodian fee expense offset arrangement (Note B) (136)
===========================================================================================================
Total net expenses 429
===========================================================================================================
Net investment income 2,333
===========================================================================================================
REALIZED AND UNREALIZED GAIN (Loss) ON INVESTMENTS
Net realized gain (loss) on investment securities sold (19)
- -----------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) in value of:
- -----------------------------------------------------------------------------------------------------------
Investment securities (Note A) 4,208
----------------------------------------------------------------------------------------------------
Interest rate swap contracts (Note A) (374)
====================================================================================================
Net gain (loss) on investments 3,815
- -----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS FROM:
- -----------------------------------------------------------------------------------------------------------
Net investment income (94)
====================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS RESULTING FROM OPERATIONS $6,054
===========================================================================================================
</Table>
See Notes to Financial Statements 11
<Page>
STATEMENT OF CHANGES IN NET ASSETS
- ----------------------------------
<Table>
<Caption>
REAL ESTATE INCOME FUND
NEUBERGER BERMAN PERIOD FROM
NOVEMBER 29, 2002
(COMMENCEMENT
OF OPERATIONS) TO
APRIL 30,
2003
(000'S OMITTED) (UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
FROM OPERATIONS:
Net investment income (loss) $ 2,333
- ------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (19)
- ------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investments 3,834
- ------------------------------------------------------------------------------------------------------------
Distributions to preferred shareholders from:
Net investment income (94)
============================================================================================================
Net increase (decrease) in net assets applicable to common shareholders resulting from operations 6,054
============================================================================================================
DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM:
Net investment income (2,099)
============================================================================================================
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from issuance of common shares 60,139
- ------------------------------------------------------------------------------------------------------------
Net proceeds from underwriters' over-allotment option exercised 5,003
- ------------------------------------------------------------------------------------------------------------
Proceeds from reinvestment of dividends 200
- ------------------------------------------------------------------------------------------------------------
Payments for preferred shares offering costs (660)
============================================================================================================
Total net proceeds from capital share transactions 64,682
============================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS 68,637
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Beginning of period --
============================================================================================================
End of period $68,637
============================================================================================================
Accumulated undistributed net investment income at end of period $ 140
============================================================================================================
</Table>
See Notes to Financial Statements 12
<Page>
NEUBERGER BERMAN APRIL 30, 2003 (UNAUDITED)
NOTES TO FINANCIAL STATEMENTS REAL ESTATE INCOME FUND
- -----------------------------------------------------
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1 GENERAL: Neuberger Berman Real Estate Income Fund Inc. (the "Fund") was
organized as a Maryland corporation on September 11, 2002 as a
non-diversified, closed-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Fund had
no operations until November 29, 2002, other than matters relating to its
organization and the sale on November 20, 2002 of 6,981 shares of common
stock for $100,003 ($14.325 per share) to Neuberger Berman, LLC
("Neuberger"), the Fund's sub-adviser. The Board of Directors of the Fund
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 assets of the Fund belong only to the Fund, and the liabilities of the
Fund are borne solely by the Fund and no other.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires Neuberger
Berman Management Inc. ("Management") to make estimates and assumptions at
the date of the financial statements. Actual results could differ from
those estimates.
2 PORTFOLIO VALUATION: Investment securities are valued as indicated in the
notes following the Schedule of Investments.
3 SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on a trade date basis. 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 original issue discount, where applicable,
and accretion of discount on short-term investments, is recorded on the
accrual basis. Realized gains and losses from securities transactions are
recorded on the basis of identified cost.
4 FEDERAL INCOME TAXES: It is the intention of the Fund to qualify as a
regulated investment company by complying with the provisions available to
certain investment companies, as defined in applicable sections of the
Internal Revenue Code, and to make distributions of investment company
taxable income and net capital gains (after reduction for any amounts
available for U.S. Federal income tax purposes as capital loss
carryforwards) sufficient to relieve it from all, or substantially all,
U.S. Federal income taxes. Accordingly, the Fund paid no U.S. Federal
income taxes and no provision for U.S. Federal income taxes was required.
5 DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: The Fund earns income, net of
expenses, daily on its investments. It is the policy of the Fund to declare
and pay dividends to common shareholders from net investment income on a
monthly basis. Distributions from net realized capital gains, if any, are
normally distributed in December. Income dividends and capital gain
distributions to common shareholders are recorded on the ex-dividend date.
To the extent the Fund's net realized capital gains, if any, can be offset
13
<Page>
NOTES TO FINANCIAL STATEMENTS REAL ESTATE INCOME FUND CONT'D
- ------------------------------------------------------------
by capital loss carryforwards, it is the policy of the Fund not to
distribute such gains. Dividends and distributions to preferred
shareholders are accrued and determined as described in Note A-7.
The Fund distinguishes between dividends on a tax basis and a financial
reporting basis and only distributions in excess of tax basis earnings and
profits are reported in the financial statements as a tax return of
capital. Differences in the recognition or classification of income between
the financial statements and tax earnings and profits which result in
temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains in the components of net assets on the
Statement of Assets and Liabilities.
The Fund declared two monthly dividends to common shareholders from its net
investment income in the amount of $0.115 per share per month, payable May
30, 2003 and June 30, 2003, to shareholders of record on May 14, 2003 and
June 13, 2003, respectively, with ex-dividend dates of May 12, 2003 and
June 11, 2003, respectively.
6 EXPENSE ALLOCATION: Expenses directly attributable to a Fund are charged to
that Fund. Expenses not directly attributed to a Fund are allocated, on the
basis of relative net assets, except where a more appropriate allocation of
expenses can otherwise be made fairly.
7 REDEEMABLE PREFERRED SHARES: On December 12, 2002, the Fund re-classified
1,500 unissued shares of capital stock as Auction Preferred Shares Series A
("Preferred Shares"). On February 7, 2003, the Fund issued 1,260 Preferred
Shares. All Preferred Shares have a liquidation preference of $25,000 per
share plus any accumulated unpaid dividends, whether or not earned or
declared by the Fund, but excluding interest thereon ("Liquidation Value").
Dividends to preferred shareholders, which are cumulative, are accrued
daily and paid every 7 days. Dividend rates are reset every 7 days based on
the results of an auction. For the period from February 7, 2003 to April
30, 2003, dividend rates ranged from 1.25% to 1.35%. The Fund declared
dividends to preferred shareholders for the period May 1, 2003 to May 31,
2003 of $35,761.
The Fund may redeem Preferred Shares, in whole or in part, on the second
business day preceding any dividend 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 at Liquidation Value. The holders of Preferred Shares are entitled
to one vote per share and, unless otherwise required by law, will vote with
holders of common stock as a single class, except that the Preferred Shares
will vote separately as a class on certain matters, as required by law. 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 failed to pay dividends on Preferred
Shares for two consecutive years.
14
<Page>
NEUBERGER BERMAN APRIL 30, 2003 (UNAUDITED)
8 INTEREST RATE SWAPS: The Fund may enter into interest rate swap
transactions, with institutions that the Fund's investment manager 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. The Fund agrees to pay the swap counterparty a
fixed-rate payment in exchange for the counterparty'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 payment flows are netted against each other, with the difference being
paid by one party to the other. The Fund will segregate 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 counterparty to a swap contract fails to comply with
the terms of its contract. The loss incurred by the failure of a
counterparty 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.
The Fund records a net receivable or payable on a daily basis for the net
interest income or expense expected to be received or paid in the interest
period. Interest received or paid on these contracts is recorded as
interest income (or as an offset to interest income). Realized gains and
losses from terminated swaps are included in net realized gains or losses
in the Statement of Operations. At April 30, 2003, the Fund had outstanding
interest rate swap contracts as follows:
<Table>
<Caption>
RATE TYPE
----------------------------------
PAYMENTS MADE PAYMENTS RECEIVED UNREALIZED
SWAP COUNTERPARTY NOTIONAL AMOUNT TERMINATION DATE BY THE FUND BY THE FUND(1) DEPRECIATION
Citibank, N.A. $13,000,000 February 12,2008 3.396% 1.30375% $166,299
Citibank, N.A. $13,000,000 February 12,2010 3.923% 1.30375% 207,850
---------
374,149
</Table>
(1) 30 day LIBOR (London Interbank Offered Rate)
9 REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements with
institutions that the Fund's investment manager has determined are
creditworthy. Each repurchase agreement is recorded at cost. The Fund
requires that the securities purchased in a repurchase transaction be
transferred to the custodian in a manner sufficient to enable the Fund to
obtain 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.
10 TRANSACTIONS WITH OTHER FUNDS MANAGED BY NEUBERGER BERMAN MANAGEMENT INC.:
The Fund may invest in the Neuberger Berman Institutional Cash Fund (the
"Cash Fund"), a fund managed by Management and having the same directors
and trustees as the Fund. The Cash Fund seeks to provide as high a level of
current income as is consistent with the preservation of capital and the
maintenance of
15
<Page>
NOTES TO FINANCIAL STATEMENTS REAL ESTATE INCOME FUND CONT'D
- ------------------------------------------------------------
liquidity. The Fund does not pay Management an investment management fee
associated with its investment in the Cash Fund. For the period ended April
30, 2003, income earned on this investment amounted to $12,238 and is
reflected in the Statement of Operations under the caption Interest income.
11 ORGANIZATION EXPENSES AND OFFERING COSTS: Management has agreed to pay all
organizational expenses and the amount by which the Fund's offering costs
for common stock (other than sales load) exceed $0.03 per share. Offering
costs for common stock paid by the Fund were charged as a reduction of
common stock paid-in-capital at the completion of the Fund's offering and
amounted to $136,500.
Additionally, estimated offering costs of $345,000 and a sales load of
$315,000 incurred through the issuance of Preferred Shares and paid by the
Fund were charged as a reduction of common stock paid-in-capital at the
completion of the Fund's preferred shares offering.
12 CONCENTRATION OF RISK: Under normal market conditions, the Fund's
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.
Values of the securities of such companies may fluctuate due to economic,
legal, cultural, geopolitical or technological developments affecting the
United States real estate industry.
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:
<Table>
<Caption>
FISCAL PERIOD OR YEAR ENDED % OF AVERAGE
OCTOBER 31, DAILY MANAGED ASSETS
-------------------------------------------------------------
2003 - 2007 0.40%
2008 0.32
2009 0.24
2010 0.16
2011 0.08
</Table>
Management has not agreed to waive any portion of its fees beyond October
31, 2011.
For the period ended April 30, 2003, such waived fees amounted to $135,633.
16
<Page>
NEUBERGER BERMAN APRIL 30, 2003 (UNAUDITED)
The Fund retains Management as its administrator under an Administration
Agreement ("Agreement"). Pursuant to this Agreement the Fund pays
Management an administration fee at the annual rate of 0.25% of its average
daily Managed Assets.
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 and Neuberger, a member firm of The New York Stock Exchange and
sub-adviser to the Fund, are wholly owned subsidiaries of Neuberger Berman
Inc., a publicly held company. Neuberger is retained by Management to
furnish it with investment recommendations and research information without
added cost to the Fund. Several individuals who are officers and/or
Directors of the Fund are also employees of Neuberger and/or Management.
The Fund has an expense offset arrangement in connection with its custodian
contract. The impact of this arrangement, reflected in the Statement of
Operations under the caption Custodian fees, was a reduction of $12.
NOTE C--SECURITIES TRANSACTIONS:
During the period ended April 30, 2003, there were purchase and sale
transactions (excluding short-term securities and interest rate swap
contracts) of $97,033,000 and $1,344,000, respectively.
During the period ended April 30, 2003, brokerage commissions on securities
transactions amounted to $168,424, of which Neuberger received $214, and
other brokers received $168,210.
NOTE D--CAPITAL:
At April 30, 2003, the common shares outstanding and the common shares
owned by Neuberger for the Fund were as follows:
<Table>
<Caption>
COMMON SHARES COMMON SHARES OWNED
OUTSTANDING BY NEUBERGER
4,570,760 6,981
</Table>
Transactions in common shares of capital stock for the period ended April
30, 2003 were as follows:
COMMON SHARES ISSUED IN CONNECTION WITH:
<Table>
<Caption>
NET INCREASE
UNDERWRITERS' REINVESTMENT OF IN COMMON
INITIAL PUBLIC EXERCISE OF OVER- DIVIDENDS AND SHARES
OFFERING ALLOTMENT OPTION DISTRIBUTIONS OUTSTANDING
4,206,981 350,000 13,779 4,570,760
</Table>
NOTE E--UNAUDITED FINANCIAL INFORMATION:
The financial information included in this interim report is taken from the
records of the Fund without audit by independent auditors. Annual reports
contain audited financial statements.
17
<Page>
FINANCIAL HIGHLIGHTS Real Estate Income Fund
- --------------------------------------------
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the Financial
Statements.
<Table>
<Caption>
PERIOD FROM
NOVEMBER 29, 2002^
TO APRIL 30,
2003
------------------
COMMON SHARE NET ASSET VALUE, BEGINNING OF PERIOD $ 14.33
-------
INCOME FROM INVESTMENT OPERATIONS APPLICABLE TO COMMON SHAREHOLDERS:
NET INVESTMENT INCOME (LOSS) .51
NET GAINS OR LOSSES ON SECURITIES (BOTH REALIZED AND UNREALIZED) .83
COMMON SHARE EQUIVALENT OF DISTRIBUTIONS TO PREFERRED SHAREHOLDERS
FROM NET INVESTMENT INCOME (.02)
-------
TOTAL FROM INVESTMENT OPERATIONS APPLICABLE TO COMMON SHAREHOLDERS 1.32
-------
LESS DISTRIBUTIONS TO COMMON SHAREHOLDERS:
FROM NET INVESTMENT INCOME (.46)
-------
LESS CAPITAL CHARGES:
ISSUANCE OF COMMON SHARES (.03)
ISSUANCE OF PREFERRED SHARES (.14)
-------
TOTAL CAPITAL CHARGES (.17)
-------
COMMON SHARE NET ASSET VALUE, END OF PERIOD $ 15.02
-------
COMMON SHARE MARKET VALUE, END OF PERIOD $ 15.51
-------
TOTAL RETURN, COMMON SHARE NET ASSET VALUE+ +8.19%**
TOTAL RETURN, COMMON SHARE MARKET VALUE+ +6.69%**
RATIOS/SUPPLEMENTAL DATA++
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS, END OF PERIOD (IN MILLIONS) $ 68.6
PREFERRED STOCK, AT REDEMPTION VALUE ($25,000 PER SHARE LIQUIDATION PREFERENCE) (IN MILLIONS) $ 31.5
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS# 1.60%*
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS++ 1.60%*
RATIO OF NET INVESTMENT INCOME (LOSS) EXCLUDING PREFERRED STOCK DIVIDENDS TO AVERAGE
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS 8.72%*
RATIO OF PREFERRED STOCK DIVIDENDS TO AVERAGE NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS .35%*
RATIO OF NET INVESTMENT INCOME (LOSS) INCLUDING PREFERRED STOCK DIVIDENDS TO AVERAGE NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS 8.37%*
PORTFOLIO TURNOVER RATE 2%
ASSET COVERAGE PER SHARE OF PREFERRED STOCK, END OF PERIOD@ $79,480
</Table>
See Notes to Financial Highlights 18
<Page>
NEUBERGER BERMAN APRIL 30, 2003 (UNAUDITED)
NOTES TO FINANCIAL HIGHLIGHTS REAL ESTATE INCOME FUND
- -----------------------------------------------------
+ Total return based on per share net asset value reflects the effects of
changes in net asset value on the performance of the Fund during the 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 sales of common
shares at the market price on the last day of the period indicated.
Dividends and distributions, if any, are assumed to be reinvested at prices
obtained under the Fund's dividend reinvestment plan. Results represent
past performance and do not guarantee future results. Total return would
have been lower if Management had not waived a portion of the investment
management fee.
# 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. Had Management
not undertaken such action the annualized ratio of net expenses to average
daily net assets applicable to common shareholders would have been:
<Table>
<Caption>
PERIOD ENDED
APRIL 30,
2003
2.11%(1)
</Table>
(1) Period from November 29, 2002 to April 30, 2003.
^ The date investment operations commenced.
* Annualized.
** Not annualized.
@ Calculated by subtracting the Fund's total liabilities (excluding
accumulated unpaid dividends on preferred shares) from the Fund's total
assets and dividing by the number of AMPS outstanding.
++ Expense ratios do not include the effect of dividend payments to preferred
shareholders. Income ratios include income earned on assets attributable to
preferred shares. Each ratio of expenses to average net assets applicable
to common shareholders and each ratio of net investment income (loss) to
average net assets applicable to common shareholders includes the effect of
the net interest expense paid on interest rate swap contracts of 0.49%.
19
<Page>
DIVIDEND 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 Dividend
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 dividend 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 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 dividend 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 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.
20
<Page>
NEUBERGER BERMAN APRIL 30, 2003 (UNAUDITED)
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. Upon any termination, the Plan Agent
will cause a certificate or certificates for the number of Shares held for each
Participant under the Plan to be delivered to the Participant (or if the Shares
are not then in certificated form, will cause the Shares to be transferred to
the Participant) without charge.
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.
21
<Page>
DIVIDEND REINVESTMENT PLAN CONT'D
- ---------------------------------
If you would like to change your option, please contact the Plan Agent in
writing at The Bank of New York, ATTN: Stock Transfer Administration, 101
Barclay Street, 11-E, New York, New York 10286. If you have any questions
concerning the Plan please call The Bank of New York at 1-800-524-4458.
22
<Page>
NEUBERGER BERMAN APRIL 30, 2003 (UNAUDITED)
DIRECTORY
- ---------
INVESTMENT MANAGER AND ADMINISTRATOR
Neuberger Berman Management Inc.
605 Third Avenue 2nd Floor
New York, NY 10158-0180
800.877.9700 or 212.476.8800
SUB-ADVISER
Neuberger Berman, LLC
605 Third Avenue
New York, NY 10158-3698
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
STOCK TRANSFER AGENT
Bank of New York
101 Barclay Street, 11-E
New York, NY 10286
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, NW
2nd Floor
Washington, DC 20036-1800
23
<Page>
DIRECTORS AND OFFICERS (UNAUDITED)
- ----------------------------------
The following tables set forth information concerning the directors and officers
of the Funds. All persons named as directors and officers also serve in similar
capacities for other funds administered or managed by NB Management and
Neuberger Berman, LLC. The Statement of Additional Information for each Fund
includes additional information about fund directors and is available upon
request, without charge, by calling (877) 461-1899.
THE BOARD OF DIRECTORS
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
FUND COMPLEX
NAME, AGE, ADDRESS (1) OVERSEEN BY OTHER DIRECTORSHIPS HELD OUTSIDE
AND POSITION WITH FUND PRINCIPAL OCCUPATION(S) (2) DIRECTOR FUND COMPLEX BY DIRECTOR
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS I
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT FUND DIRECTORS*
- -----------------------------------------------------------------------------------------------------------------------------------
Faith Colish (67) Counsel, Carter Ledyard & Milburn LLP (law firm) 35 Director, American
Director since October 2002; Formerly, Attorney at Law and Bar Retirement
President, Faith Colish, A Professional Association (ABRA)
Corporation, 1980 to 2002. since 1997 (not-for-
profit membership
association).
- -----------------------------------------------------------------------------------------------------------------------------------
C. Anne Harvey (65) Consultant, C.A. Harvey Associates, since June 35 Member, Individual Investors
Director 2001; Director, AARP, 1978 to December 2000. Advisory Committee to the
New York Stock Exchange
Board of Directors, 1998 to
June 2002; President,
Board of Associates to
The National Rehabilitation
Hospital's Board of Directors,
since 2002; Member, American
Savings Education Council's
Policy Board (ASEC),
1998-2000; Member,
Executive Committee, Crime
Prevention Coalition of
America, 1997-2000.
- -----------------------------------------------------------------------------------------------------------------------------------
Cornelius T. Ryan (71) Founding General Partner, Oxford Partners and 35 Director, Capital Cash
Director Oxford Bioscience Partners (venture capital Management Trust (money
partnerships) and President, Oxford market fund), Naragansett
Venture Corporation. Insured Tax-Free Income
Fund, Rocky Mountain
Equity Fund, Prime Cash
Fund, several private
companies and QuadraMed
Corporation (NASDAQ).
- -----------------------------------------------------------------------------------------------------------------------------------
Peter P. Trapp (58) Regional Manager for Atlanta Region, Ford 35
Director Motor Credit Company since August 1997; prior
thereto, President, Ford Life Insurance Company,
April 1995 until August 1997.
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
24
<Page>
NEUBERGER BERMAN APRIL 30, 2003 (UNAUDITED)
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
FUND COMPLEX
NAME, AGE, ADDRESS (1) OVERSEEN BY OTHER DIRECTORSHIPS HELD OUTSIDE
AND POSITION WITH FUND PRINCIPAL OCCUPATION(S) (2) DIRECTOR FUND COMPLEX BY DIRECTOR
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
DIRECTOR WHO IS AN "INTERESTED
PERSON"
- -----------------------------------------------------------------------------------------------------------------------------------
Peter E. Sundman* (44) Executive Vice President, Neuberger Berman since 35 Executive Vice President,
Chief Executive Officer, 1999; Principal, Neuberger Berman from 1997 until Neuberger Berman Inc.
Director and Chairman 1999; Senior Vice President, NB Management (holding company) since
of the Board from 1996 until 1999. 1999; Director, Neuberger
Berman Inc. from 1999
through March 2003;
President and Director, NB
Management since 1999;
Director and Vice President,
Neuberger & Berman Agency,
Inc. since 2000.
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS II
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT FUND DIRECTORS*
- -----------------------------------------------------------------------------------------------------------------------------------
John Cannon (73) Consultant. Formerly, Chairman and Chief 35 Independent Trustee or
Director Investment Officer, CDC Capital Management Director of three series of
(registered investment adviser), 1993-January OppenheimerFunds:
1999; prior thereto, President and Chief Executive Limited Term New York
Officer, AMA Investment Advisors, an affiliate of Municipal Fund, Rochester
the American Medical Association. Fund Municipals, and
Oppenheimer Convertible
Securities Fund, since 1992.
- -----------------------------------------------------------------------------------------------------------------------------------
Barry Hirsch (70) Attorney at Law. Senior Counsel, Loews 35
Director Corporation (diversified financial corporation)
May 2002 until April 2003; prior thereto, Senior
Vice President, Secretary and General Counsel,
Loews Corporation.
- -----------------------------------------------------------------------------------------------------------------------------------
John P. Rosenthal (70) Senior Vice President, Burnham Securities Inc. 35 Director, 92nd Street Y
Director (a registered broker-dealer) since 1991. (non-profit) since 1967;
Formerly, Director, Cancer
Treatment Holdings, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
25
<Page>
DIRECTORS AND OFFICERS (UNAUDITED) CONT'D
- -----------------------------------------
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
FUND COMPLEX
NAME, AGE, ADDRESS (1) OVERSEEN BY OTHER DIRECTORSHIPS HELD OUTSIDE
AND POSITION WITH FUND PRINCIPAL OCCUPATION(S) (2) DIRECTOR FUND COMPLEX BY DIRECTOR
- -----------------------------------------------------------------------------------------------------------------------------------
Tom Decker Seip (53) General Partner, Seip Investments LP (a private 35 Director, H&R Block, Inc.
Director investment partnership); President and (financial services company)
CEO, Westaff, Inc. (temporary staffing), May 2001 since May 2001; Director,
to January 2002; Senior Executive at the Charles General Magic (voice recognition
Schwab Corporation from 1983 to 1999, including software) since November
Chief Executive Officer, Charles Schwab 2001; Director, Forward
Investment Management, Inc. and Trustee, Schwab Management, Inc. (asset
Family of Funds and Schwab Investments from management) since 2001;
1997 to 1998 and Executive Vice President-Retail Director, E-Finance
Brokerage, Charles Schwab Investment Corporation (credit decisioning
Management from 1994 to 1997. services) since 1999; Director,
Save-Daily.com (micro investing
services) since 1999; Formerly,
Director, Offroad Capital Inc.
(pre-public internet
commerce company).
- -----------------------------------------------------------------------------------------------------------------------------------
DIRECTOR WHO IS AN "INTERESTED
PERSON"
- -----------------------------------------------------------------------------------------------------------------------------------
Jack L. Rivkin* (62) Executive Vice President and Chief Investment 35 Director, Dale Carnegie and
President and Director Officer, Neuberger Berman since 2002 and 2003, Associates, Inc. (private
respectively; Director and Chairman, NB company) since 1998;
Management since December 2002; Executive Director, Emagin Corp.
Vice President, Citigroup Investments, Inc. from (public company) since
September 1995 to February 2002; Executive Vice 1997; Director, Solbright,
President, Citigroup Inc. from September 1995 to Inc. (private company) since
February 2002. 1998; Director, Infogate,
Inc. (private company)
since 1997.
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS III
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT FUND DIRECTORS*
- -----------------------------------------------------------------------------------------------------------------------------------
Walter G. Ehlers (70) Consultant; Retired President and Director, 35
Director Teachers Insurance & Annuity (TIAA) and College
Retirement Equities Fund (CREF).
- -----------------------------------------------------------------------------------------------------------------------------------
Robert A. Kavesh (75) Professor of Finance and Economics, Stern 35 Director, Delaware Labs
Director School of Business, New York University. (cosmetics) since 1978.
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
26
<Page>
NEUBERGER BERMAN APRIL 30, 2003 (UNAUDITED)
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
FUND COMPLEX
NAME, AGE, ADDRESS (1) OVERSEEN BY OTHER DIRECTORSHIPS HELD OUTSIDE
AND POSITION WITH FUND PRINCIPAL OCCUPATION(S) (2) DIRECTOR FUND COMPLEX BY DIRECTOR
- -----------------------------------------------------------------------------------------------------------------------------------
Howard A. Mileaf (66) Retired. Formerly, Vice President and Special 35 Director, WHX Corporation
Director Counsel, WHX Corporation (holding company) (holding company) since
1993-2001. August 2002; Director,
Webfinancial Corporation
(holding company)
since December 2002;
Director, State Theatre of New
Jersey (not-for-profit theater)
since 2000; Formerly, Director,
Kevlin Corporation
(manufacturer of microwave
and other products).
- -----------------------------------------------------------------------------------------------------------------------------------
William E. Rulon (70) Retired. Senior Vice President, Foodmaker, Inc. 35 Director, Pro-Kids Golf and
Director (operator and franchiser of restaurants) Learning Academy (teach
until January 1997. golf and computer usage to
"at risk" children) since 1998;
Director, Prandium, Inc.
(restaurants) from March 2001
until July 2002.
- -----------------------------------------------------------------------------------------------------------------------------------
Candace L. Straight (55) Private investor and consultant specializing in the 35 Director, Providence
Director insurance industry; Advisory Director, Securitas Washington (property and
Capital LLC (a global private equity investment casualty insurance company)
firm dedicated to making investments in the since December 1998;
insurance sector). Director, Summit Global
Partners (insurance brokerage
firm) since October 2000.
- -----------------------------------------------------------------------------------------------------------------------------------
DIRECTOR WHO IS AN "INTERESTED
PERSON"
- -----------------------------------------------------------------------------------------------------------------------------------
Edward I.O'Brien* (74) Member, Investment Policy Committee, Edward 35 Director, Legg Mason, Inc.
Director Jones 1993-2001; President, Securities Industry (financial services holding
Association ("SIA") (securities industry's company) since 1993;
representative in government relations and Director, Boston Financial
regulatory matters at the federal and state levels) Group (real estate and tax
1974-1992; Adviser to SIA, November 1992- shelters) 1993-1999.
November 1993.
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
* Indicates a director who is an "interested person" within the meaning of
the 1940 Act. Mr. Sundman and Mr. Rivkin are interested persons of the Fund
by virtue of the fact that each is an officer and/or director of NB
Management and Executive Vice President of Neuberger Berman. Mr. O'Brien is
an interested person of the Fund by virtue of the fact that he is a
director of Legg Mason, Inc., a wholly owned subsidiary of which, from time
to time, serves as a broker or dealer to the Fund and other funds or
accounts for which NB Management serves as investment manager.
(1) The business address of each listed person is 605 Third Avenue, New York,
New York 10158.
(2) Except as otherwise indicated, each person has held the positions shown for
at least the last five years. The Board of Directors shall at all times be
divided as equally as possible into three classes of Directors designated
Class I, Class II, and Class III. The terms of office of Class I, Class II,
and Class III Directors shall expire at the annual meetings of stockholders
held in 2006, 2004, and 2005 respectively, and at each third annual meeting
of stockholders thereafter.
27
<Page>
DIRECTORS AND OFFICERS (UNAUDITED) CONT'D
- -----------------------------------------
INFORMATION ABOUT THE OFFICERS OF THE FUND (OTHER THAN THOSE LISTED ABOVE)
<Table>
<Caption>
POSITION AND
NAME, AGE, AND ADDRESS (1) LENGTH OF TIME SERVED (2) PRINCIPAL OCCUPATION(S)
- -----------------------------------------------------------------------------------------------------------------------------
Claudia A. Brandon (46) Secretary since 2002 Vice President-Mutual Fund Board Relations,
NB Management since 2000; Vice President,
Neuberger Berman since 2002 and employee
since 1999; Vice President, NB Management
from 1986 to 1999; Secretary, nine registered
investment companies for which NB
Management acts as investment manager and
administrator (four since 2002 and two
since 2003).
Robert Conti (46) Vice President since 2002 Senior Vice President, Neuberger Berman
since 2003; Vice President, Neuberger Berman
from 1999 until 2003; Senior Vice President,
NB Management since 2000; Controller, NB
Management until 1996; Treasurer, NB
Management from 1996 until 1999; Vice
President, nine registered investment companies
for which NB Management acts as investment
manager and administrator (three since 2000,
four since 2002 and two since 2003).
Brian J. Gaffney (49) Vice President since 2002 Managing Director, Neuberger Berman since
1999; Senior Vice President, NB Management
since 2000; Vice President, NB Management
from 1997 until 1999; Vice President, nine
registered investment companies for which NB
Management acts as investment manager and
administrator (three since 2000, four
since 2002 and two since 2003).
Sheila R. James (37) Assistant Secretary since 2002 Employee, Neuberger Berman since 1999;
Employee, NB Management from 1991 to
1999; Assistant Secretary, nine registered
investment companies for which NB
Management acts as investment manager and
administrator (seven since 2002 and two
since 2003).
Kevin Lyons (47) Assistant Secretary since 2003 Employee, Neuberger Berman since 1999;
Employee, NB Management from 1993 to
1999; Assistant Secretary, nine registered
investment companies for which NB
Management acts as investment manager and
administrator (since 2003).
</Table>
28
<Page>
NEUBERGER BERMAN APRIL 30, 2003 (UNAUDITED)
<Table>
<Caption>
POSITION AND
NAME, AGE, AND ADDRESS (1) LENGTH OF TIME SERVED (2) PRINCIPAL OCCUPATION(S)
- -----------------------------------------------------------------------------------------------------------------------------
John M. McGovern (33) Assistant Treasurer since 2002 Employee, NB Management since 1993;
Assistant Treasurer, nine registered investment
companies for which NB Management acts as
investment manager and administrator (seven
since 2002 and two since 2003).
Barbara Muinos (44) Treasurer and Principal Financial and Vice President, Neuberger Berman since
Accounting Officer since 2002 1999; Assistant Vice President, NB
Management from 1993 to 1999; Treasurer
and Principal Financial and Accounting
Officer, nine registered investment companies
for which NB Management acts as investment
manager and administrator (seven since 2002
and two since 2003); Assistant Treasurer, three
registered investment companies for which NB
Management acts as investment manager and
administrator from 1996 until 2002.
Frederic B. Soule (57) Vice President since 2002 Senior Vice President, Neuberger Berman
since 2003; Vice President, Neuberger Berman
from 1999 until 2003; Vice President, NB
Management from 1995 until 1999; Vice
President, nine registered investment
companies for which NB Management acts as
investment manager and administrator (three
since 2000, four since 2002 and two
since 2003).
Trani Jo Wyman (33) Assistant Treasurer since 2002 Employee, NB Management since 1991;
Assistant Treasurer, nine registered investment
companies for which NB Management acts as
investment manager and administrator (seven
since 2002 and two since 2003).
</Table>
(1) The business address of each listed person is 605 Third Avenue, New York,
New York 10158.
(2) Except as otherwise indicated, each individual has held the positions shown
for at least the last five years.
29
<Page>
[NEUBERGER BERMAN LOGO]
NEUBERGER BERMAN MANAGEMENT INC.
605 Third Avenue 2nd Floor
New York, NY 10158-0180
INSTITUTIONAL SERVICES
800.366.6264
www.nb.com
Statistics and projections in this report are derived from sources deemed to be
reliable but cannot be regarded as a representation of future results of the
Fund. This report is prepared for the general information of shareholders and is
not an offer of shares of the Fund.
[RECYCLED SYMBOL] DO122 06/03
ITEM 2. CODE OF ETHICS
Form N-CSR disclosure requirement not yet effective with respect to registrant.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
Form N-CSR disclosure requirement not yet effective with respect to registrant.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Form N-CSR disclosure requirement not yet effective with respect to registrant.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable to the registrant.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the registrant.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES
(a) Based on an evaluation of the disclosure controls and procedures (as
defined in rule 30a-2(c) under the Act), the Principal Executive Officer
and Treasurer of the Company have concluded that such disclosure controls
and procedures are effectively designed to ensure that information required
to be disclosed by the Company is accumulated and communicated to the
Company's management to allow timely decisions regarding required
disclosure.
(b) There were no significant changes in the registrant's internal controls or
in other factors that could significantly affect these controls subsequent
to the date of their evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
ITEM 10. EXHIBITS
(a) Form N-CSR disclosure requirement not yet effective with respect to
registrant.
(b) The certifications required by Rule 30a-2 of the Investment Company Act of
1940, as amended, and Sections 302 and 906 of the Sarbanes-Oxley Act of
2002 are attached hereto. The certification provided pursuant to Section
906 of the Sarbanes-Oxley Act are not deemed "filed" for purposes of
Section 18 of the Securities Exchange Act of 1934 ("Exchange Act"), or
otherwise subject to the liability of that section. Such certifications
will not be deemed to be incorporated by reference into any filing under
the Securities Act of 1933 or the Exchange Act, except to the extent that
the registrant specifically incorporates them by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Neuberger Berman Real Estate Income Fund Inc.
By: /s/ Peter E. Sundman
----------------------------
Peter E. Sundman
Chief Executive Officer
Date: July 7, 2003
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/ Barbara Muinos
----------------------------
Barbara Muinos
Treasurer
Date: July 7, 2003