As filed with the Securities and Exchange Commission on July 7, 2004
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
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. Ellen Metzger, Esq.
Kirkpatrick & Lockhart LLP Neuberger Berman, LLC
1800 Massachusetts Avenue, N.W. 2nd Floor 605 Third Avenue
Washington, DC 20036-1800 New York, New York 10158-3698
(Names addresses of agents for service)
Date of fiscal year end: October 31, 2004
Date of reporting period: April 30, 2004
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS
Semi-Annual Report [NEUBERGER BERMAN LOGO]
April 30, 2004 A LEHMAN BROTHERS COMPANY
Neuberger Berman
INCOME OPPORTUNITY
FUND INC.
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
CHAIRMAN'S LETTER
- -----------------
DEAR FELLOW SHAREHOLDER,
I am pleased to present to you this semi-annual report of the Neuberger Berman
Income Opportunity Fund Inc., for the period ending April 30, 2004. 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 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 out real estate securities that are attractively priced
relative to their historical growth rates and the valuation of other property
sectors.
Portfolio Co-Manager Wayne Plewniak manages the high-yield bond portion of the
Fund. His investment approach focuses on preserving capital, generating income,
and managing risk. He seeks to avoid the default and volatility risk associated
with high-yield bonds by applying rigorous credit analysis to higher-quality
issues, and by emphasizing the intermediate range of the yield curve.
We believe our conservative investing philosophy and disciplined investment
process will benefit you with superior current income over the long term.
Thank you for your confidence in Neuberger Berman. We will continue to do our
best to keep earning it.
Sincerely,
/s/ Peter Sundman
PETER SUNDMAN
CHAIRMAN OF THE BOARD
NEUBERGER BERMAN
INCOME OPPORTUNITY FUND INC.
"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)2004 Neuberger Berman Management Inc. All
rights reserved.
CONTENTS
- --------
<Table>
THE FUND
CHAIRMAN'S LETTER 1
PORTFOLIO COMMENTARY/
PERFORMANCE HIGHLIGHTS 2
SCHEDULE OF INVESTMENTS/
TOP TEN EQUITY HOLDINGS 5
FINANCIAL STATEMENTS 12
FINANCIAL HIGHLIGHTS/
PER SHARE DATA 23
DIVIDEND REINVESTMENT PLAN 25
DIRECTORY 27
DIRECTORS AND OFFICERS 28
PROXY VOTING POLICIES AND PROCEDURES 35
</Table>
1
<Page>
INCOME OPPORTUNITY FUND INC. Portfolio Commentary
- -------------------------------------------------
For the six-month period ending April 30, 2004, on a Net Asset Value
(NAV) basis, the Neuberger Berman Income Opportunity Fund Inc.
(AMEX:NOX) returned 6.10%.
Although the Fund's history is short, having just begun operations on
July 2, 2003, we are pleased with its performance thus far. 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 ten years or less at the time of initial investment
and real estate investment trust (REIT) securities, including REIT
common stocks and REIT preferred shares.
At the beginning of the period, the Fund was more heavily weighted
toward REIT securities, a result of the strong REIT market in 2003.
The Asset Allocation Committee, which consists of the firm's Chief
Investment Officer and the Fund's portfolio managers, capitalized on
this strength during the period, shifting the portfolio's allocation
to a more even mix of REIT securities and high-yield bonds. As of
April 30, 2004, the Fund held 32.7% of its investments in REIT common
stocks, 12.0% in REIT preferred stocks, 42.2% in bonds, and 13.1% in
cash.
REAL ESTATE INVESTMENT TRUST HOLDINGS
REITs posted modestly positive performance for the six months ended
April 30, 2004. The route to that performance, however, was uneven.
REITs performed strongly during the five-month period from October
31st to March 31st, but during the month of April experienced a
decline of nearly 15%. April's weak REIT performance was primarily due
to a strong jobs report released early in the month, which sparked
concern over potentially higher interest rates. The fear of higher
interest rates led to a sell-off in the bond market and subsequently
ignited a sell-off in the REIT market.
In our experience, interest rate changes have not significantly
affected the performance of REITs over long periods of time.
Correlation studies over the last five, ten, and twenty-five years
show a very low correlation between REIT performance and the direction
of interest rates. In addition, during periods when interest rates
rose for twelve consecutive months, REITs have historically generated
positive total returns.
We believe that REIT valuation levels are currently attractive.
Although we expect interest rates and inflation to move higher over
the next twelve months, we also expect GDP growth (Gross Domestic
Product) to remain robust, employment to accelerate and business
spending to pick up. In our view, these conditions have the potential
to enhance the REIT industry's earnings power. New supply growth also
remains in check and we are beginning to see acceleration in demand.
In this environment, we continue to have a positive view of the
potential for REIT stock price performance over the next twelve
months.
HIGH-YIELD SECURITIES HOLDINGS
Given the ongoing improvement in economic activity, a stronger
employment picture, and continued consumer confidence, we expected
rates to rise at some point this year. Consequently, we maintained a
relatively short duration and maturity stance, which we believe helped
cushion performance. We are also continuing to upgrade the quality of
the securities in which we invest.
We would describe the six-month period from October 31, 2003 to April
30, 2004, as relatively sedate. There were no specific shocks to the
market or negative surprises among the portfolio's high-yield
holdings. During the period, new issuance and refinancings remained at
high levels. Many companies took advantage of the market's window of
opportunity to restructure their debt. Although the aggregate level of
debt for these companies (many of which we own) has not declined, the
average cost of their debt has, providing them with greater financial
flexibility going forward.
We may not like the price fluctuations that we see caused by the
recent adjustment in short-term interest rates, but we are optimistic
about the expansionary economic period that we believe we are
entering. In our view, improving economic
2
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
conditions are providing the wind at our backs. The Federal Reserve
Board's actions are being taken to ensure that the economy is not
overheating, which we believe is a positive for companies in the
portfolio over the long term.
Although the backup in interest rates was rather abrupt, we are
confident that the portfolio is well positioned going forward. We took
smaller positions in most of the portfolio's longer dated bonds (those
with relatively lower coupons) and as companies continue to refinance
or call in their debt, we will look for opportunities to roll those
securities into higher coupon debt or buy lower-coupon bonds for
better prices.
Our investment orientation will remain toward keeping duration
relatively short. This part of the curve still provides compelling
income, yet in the past has minimized risks related to rising interest
rates. We also intend to maintain our focus on credit selection and to
remain well diversified across industries. Looking ahead, we are
excited about the opportunities in the high yield market.
Sincerely,
/s/ Steven R. Brown /s/ Wayne Plewniak
STEVEN R. BROWN
AND
WAYNE PLEWNIAK
PORTFOLIO CO-MANAGERS
----------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
NEUBERGER BERMAN NAV (1)
<Table>
<Caption>
SIX MONTH CUMULATIVE
PERIOD ENDED TOTAL RETURN
INCEPTION DATE 4/30/2004 SINCE INCEPTION
INCOME OPPORTUNITY FUND 06/24/2003 6.10% 11.51%
</Table>
----------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
NEUBERGER BERMAN MARKET PRICE (2)
<Table>
<Caption>
SIX MONTH CUMULATIVE
PERIOD ENDED TOTAL RETURN
INCEPTION DATE 4/30/2004 SINCE INCEPTION
INCOME OPPORTUNITY FUND 06/24/2003 (0.31%) (4.97%)
</Table>
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 no
guarantee of future results.
3
<Page>
ENDNOTES
- --------
(1) Returns based on Net Asset Value ("NAV") of the Fund.
(2) Returns based on price of Fund shares on the American Stock
Exchange.
4
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
SCHEDULE OF INVESTMENTS Income Opportunity Fund Inc.
- ----------------------------------------------------
TOP TEN EQUITY HOLDINGS
<Table>
<Caption>
HOLDING %
1 iStar Financial 4.7
2 Health Care REIT 3.9
3 Mid-America Apartment Communities 3.7
4 Apartment Investment & Management 3.2
5 Kilroy Realty 3.1
6 Glimcher Realty Trust 3.0
7 Bedford Property Investors 2.9
8 Brandywine Realty Trust 2.4
9 Prentiss Properties Trust 2.3
10 Pennsylvania REIT 2.3
</Table>
<Table>
<Caption>
NUMBER OF SHARES MARKET VALUE +
(000'S OMITTED)
COMMON STOCKS (53.4%)
APARTMENTS (5.3%)
73,000 Amli Residential Properties
Trust $ 1,847
185,300 Gables Residential Trust 5,892
66,500 Mid-America Apartment
Communities 2,145
74,300 Post Properties 1,998
94,500 Town & Country Trust 2,209
--------
14,091
COMMUNITY CENTERS (4.2%)
58,900 Cedar Shopping Centers 686
163,900 Heritage Property
Investment Trust 4,160
151,000 New Plan Excel Realty Trust 3,389
18,000 Ramco-Gershenson
Properties Trust 426
61,000 Tanger Factory Outlet Centers 2,330
--------
10,991
DIVERSIFIED (3.0%)
138,000 Colonial Properties Trust 4,869@@
89,200 iStar Financial 3,170
--------
8,039
HEALTH CARE (7.4%)
88,000 Health Care Property Investors 2,103
302,302 Health Care REIT 9,656@@
75,600 Healthcare Realty Trust 2,710
134,300 Nationwide Health Properties 2,435
400 Universal Health Realty
Income Trust 10
119,700 Ventas, Inc. 2,644
--------
19,558
INDUSTRIAL (2.3%)
70,000 EastGroup Properties 2,026
105,100 First Industrial Realty Trust 3,537
21,800 Keystone Property Trust 443
--------
6,006
LODGING (1.2%)
82,000 Hospitality Properties Trust 3,205
OFFICE (19.2%)
164,200 Arden Realty 4,634
254,900 Brandywine Realty Trust 6,459
125,300 CarrAmerica Realty 3,572
137,800 Equity Office Properties Trust 3,468
83,400 Glenborough Realty Trust 1,567
148,900 Highwoods Properties 3,358
270,000 HRPT Properties Trust 2,578
216,800 Kilroy Realty 6,797
115,000 Mack-Cali Realty $ 4,295
256,500 Maguire Properties 5,846
191,000 Prentiss Properties Trust 6,120
152,000 Trizec Properties 2,177
--------
50,871
OFFICE--INDUSTRIAL (5.1%)
192,500 Bedford Property Investors 5,215@@
120,000 Liberty Property Trust 4,386
169,000 Reckson Associates Realty 4,017
--------
13,618
REGIONAL MALLS (3.9%)
257,000 Glimcher Realty Trust 5,435@@
5,100 Kramont Realty Trust 81
151,000 Pennsylvania REIT 4,885
--------
10,401
SELF STORAGE (1.8%)
2,700 Public Storage,
Depositary Shares 76
138,500 Sovran Self Storage 4,677@@
--------
4,753
TOTAL COMMON STOCKS
(COST $135,096) 141,533
--------
PREFERRED STOCKS (19.5%)
APARTMENTS (6.0%)
300,000 Apartment Investment &
Management, Ser. R 7,845
12,400 Apartment Investment &
Management, Ser. T 304
10,000 Apartment Investment &
Management, Ser. U 235
302,200 Mid-America Apartment
Communities, Ser. H 7,640
--------
16,024
COMMERCIAL SERVICES (0.4%)
20,000 Anthracite Capital, Ser. C 509
20,000 Newcastle Investment, Ser. B 525
--------
1,034
COMMUNITY CENTERS (0.1%)
12,000 Developers Diversified Realty,
Ser. I 297
DIVERSIFIED (3.7%)
18,400 Crescent Real Estate Equities,
Ser. B 497
200,000 iStar Financial, Ser. E 5,142
160,000 iStar Financial, Ser. F 4,040
--------
9,679
</Table>
See Notes to Schedule of Investments
5
<Page>
SCHEDULE OF INVESTMENTS Income Opportunity Fund Inc. cont'd
- -----------------------------------------------------------
<Table>
<Caption>
NUMBER OF SHARES MARKET VALUE +
(000'S OMITTED)
HEALTH CARE (0.5%)
25,000 Health Care REIT, Ser. D $ 637
18,200 LTC Properties, Ser. E 585
--------
1,222
LODGING (2.5%)
182,000 Equity Inns, Ser. B 4,686
77,500 LaSalle Hotel Properties,
Ser. B 1,930
--------
6,616
OFFICE (1.5%)
43,071 Glenborough Realty Trust,
Ser. A 1,068
60,000 Kilroy Realty, Ser. E 1,512
60,000 Koger Equity, Ser. A 1,530
--------
4,110
OFFICE--INDUSTRIAL (0.9%)
50,000 Bedford Property Investors,
Ser. A 2,483**
REGIONAL MALLS (3.4%)
60,000 Glimcher Realty Trust, Ser. F 1,521
38,000 Glimcher Realty Trust, Ser. G 936
80,000 Mills Corp., Ser. B 2,083
131,400 Mills Corp., Ser. E 3,364
19,800 Pennsylvania REIT, Ser. A 1,188
--------
9,092
SPECIALTY (0.5%)
8,000 Capital Automotive REIT,
Ser. B 194
40,000 Entertainment Properties Trust,
Ser. A 1,039
--------
1,233
TOTAL PREFERRED STOCKS
(COST $51,624) $ 51,790
--------
</Table>
6
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
SCHEDULE OF INVESTMENTS Income Opportunity Fund Inc. cont'd
- -----------------------------------------------------------
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
CORPORATE DEBT SECURITIES (68.9%)
$ 1,000 Abitibi-Consolidated Finance, Guaranteed Notes, 7.88%,
due 8/1/09 Ba2 BB $ 1,055
1,000 Accuride Corp., Senior Subordinated Notes, Ser. B, 9.25%,
due 2/1/08 Caa1 CCC+ 1,031@@
1,000 Aearo Co. I, Senior Subordinated Notes, 8.25%, due 4/15/12 B3 B- 1,025**
3,000 AES Corp., Senior Secured Notes, 9.00%, due 5/15/15 B2 B+ 3,270**
2,000 Allied Waste North America, Inc., Guaranteed Notes,
Ser. B, 9.25%, due 9/1/12 Ba3 BB- 2,270
1,080 AMC Entertainment, Inc., Senior Subordinated Notes, 9.50%,
due 2/1/11 Caa1 CCC+ 1,129
1,500 AMC Entertainment, Inc., Senior Subordinated Notes, 8.00%,
due 3/1/14 Caa1 CCC+ 1,470**
1,500 American Achievement Corp., Senior Subordinated Notes,
8.25%, due 4/1/12 B3 B- 1,530**
2,000 American Tower Corp., Senior Notes, 7.50%, due 5/1/12 Caa1 CCC 1,930**@@
1,250 Armor Holdings, Inc., Senior Subordinated Notes, 8.25%,
due 8/15/13 B1 B+ 1,366
2,250 ArvinMeritor, Inc., Notes, 8.75%, due 3/1/12 Ba1 BB+ 2,452
1,500 Aviall, Inc., Senior Notes, 7.63%, due 7/1/11 B1 BB 1,575
2,500 Bombardier Recreational Products, Senior Subordinated Notes,
8.38%, due 12/15/13 B3 B- 2,475**@@
1,750 Buckeye Technologies, Inc., Senior Subordinated Notes, 8.00%,
due 10/15/10 Caa1 B 1,671
2,775 Cablevision Systems Corp., Senior Notes, 8.00%, due 4/15/12 B3 B+ 2,782**
3,125 Calpine Corp., Secured Notes, 8.50%, due 7/15/10 B 2,766**
1,000 Calpine Generating Co., Floating Rate Notes, 7.00%,
due 4/1/10 B 935**
500 Calpine Generating Co., Floating Rate Notes, 10.25%,
due 4/1/11 CCC+ 451**
1,233 Calpoint Receivables Structured Trust 2001, Notes, 7.44%,
due 12/10/06 Caa1 1,233**
2,125 Case New Holland, Inc., Senior Notes, 9.25%, due 8/1/11 Ba3 BB- 2,369**
2,000 Charter Communications Operating LLC, Senior Notes, 8.38%,
due 4/30/14 B2 B- 1,970**
2,250 CMS Energy Corp., Senior Notes, 7.75%, due 8/1/10 B3 B+ 2,272**
1,500 Crown, Cork & Seal Co., Guaranteed Notes, 7.00%,
due 12/15/06 B3 B 1,537
1,875 Dole Foods Co., Inc., Debentures, 8.75%, due 7/15/13 B2 BB- 2,006
2,650 Dresser, Inc., Guaranteed Notes, 9.38%, due 4/15/11 B2 B 2,862
1,000 Dunlop Standard Aerospace Holdings, Senior Notes, 11.88%,
due 5/15/09 B3 CCC+ 1,058
825 Edison Mission Energy, Senior Notes, 10.00%, due 8/15/08 B2 B 866
1,500 Edison Mission Energy, Senior Notes, 9.88%, due 4/15/11 B2 B 1,545
2,500 El Paso Natural Gas, Senior Notes, Ser. A, 7.63%, due 8/1/10 B1 B- 2,575
2,500 El Paso Production Holdings, Guaranteed Notes, 7.75%,
due 6/1/13 B3 B- 2,375~~
1,000 Entravision Communications Corp., Guaranteed Notes, 8.13%,
due 3/15/09 B3 B- 1,060
1,550 ERICO International Corp., Senior Subordinated Notes, 8.88%,
due 3/1/12 B3 B- 1,604**
1,000 Felcor Lodging L.P., Guaranteed Notes, 9.50%, due 9/15/08 B1 B- 1,068
1,000 Ferrellgas Partners L.P., Senior Notes, 8.75%, due 6/15/12 B2 B 1,095
</Table>
See Notes to Schedule of Investments
7
<Page>
SCHEDULE OF INVESTMENTS Income Opportunity Fund Inc. cont'd
- -----------------------------------------------------------
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 1,800 GCI, Inc., Senior Notes, 7.25%, due 2/15/14 B2 B+ $ 1,746**
1,500 Goodyear Tire and Rubber Co., Notes, 8.50%, due 3/15/07 B3 B 1,448@@
1,825 Grant Prideco, Inc., Senior Notes, 9.00%, due 12/15/09 Ba3 BB- 2,030
1,825 GulfMark Offshore, Inc., Guaranteed Senior Notes, 8.75%,
due 6/1/08 B1 BB- 1,875
1,500 Hanover Equipment Trust 2001 A, Senior Secured Notes, Ser. A,
8.50%, due 9/1/08 B2 B+ 1,590
3,000 Hines Nurseries, Inc., Guaranteed Notes, 10.25%, due 10/1/11 B3 B 3,285~~
1,469 HMH Properties, Inc., Guaranteed Notes, Ser. B, 7.88%,
due 8/1/08 Ba3 B+ 1,517
1,500 Houghton Mifflin Co., Senior Subordinated Notes, 9.88%,
due 2/1/13 B3 B 1,481
1,000 Interface, Inc., Senior Subordinated Notes, 9.50%,
due 2/1/14 Caa3 CCC 1,005**
1,875 Invista, Notes, 9.25%, due 5/1/12 B1 B+ 1,875**
2,000 Ispat Inland Ulc, Secured Notes, 9.75%, due 4/1/14 Caa1 B- 2,040**
1,500 Jafra Cosmetics, Senior Subordinated Notes, 10.75%,
due 5/15/11 B3 B- 1,699
1,000 Kappa Beheer BV, Guaranteed Notes, 10.63%, due 7/15/09 B2 B 1,050
1,000 Level 3 Communications, Senior Discount Notes, 10.50%,
due 12/1/08 Caa2 CC 705@@
1,000 Level 3 Communications, Senior Notes, 9.13%, due 5/1/08 Caa2 CC 715@@
1,000 Level 3 Financial, Inc., Senior Notes, 10.75%, due 10/15/11 Caa2 CCC- 885**
1,500 LNR Property Corp., Senior Subordinated Notes, 7.63%,
due 7/15/13 Ba3 B+ 1,545
2,125 Lyondell Chemical Co., Guaranteed Notes, 9.50%, due 12/15/08 B1 B+ 2,221
875 MCI Inc., Senior Notes, 5.91%, due 5/1/07 865@@ ^^
830 MCI Inc., Senior Notes, 6.69%, due 5/1/09 789@@ ^^
711 MCI Inc., Senior Notes, 7.74%, due 5/1/14 659@@ ^^
2,000 Midwest Generation LLC, Secured Notes, 8.75%, due 5/1/34 B1 B- 1,990**
2,000 Millennium America, Inc., Guaranteed Notes, 7.00%,
due 11/15/06 B1 BB- 2,065
2,000 Mueller Group, Inc., Senior Subordinated Notes, 10.00%,
due 5/1/12 Caa1 B- 2,095**
2,500 Nalco Co., Senior Subordinated Notes, 8.88%, due 11/15/13 Caa1 B- 2,637**@@
2,000 Navistar International, Senior Subordinated Notes, Ser. B,
8.00%, due 2/1/08 B2 B 2,055@@
1,625 Nevada Power Co., Notes, Ser. E, 10.88%, due 10/15/09 Ba2 1,861
1,500 Norske Skog Canada, Ltd., Guaranteed Senior Notes, Ser. D,
8.63%, due 6/15/11 Ba3 BB 1,624
1,500 Nortek, Inc., Senior Subordinated Notes, Ser. B, 9.88%,
due 6/15/11 B3 B- 1,684
2,175 NRG Energy, Inc., Secured Notes, 8.00%, due 12/15/13 B2 B+ 2,191**
1,250 NTL Cable PLC, Senior Notes, 8.75%, due 4/15/14 B3 B- 1,291**@@
1,500 Owens-Brockway Glass Container, Inc., Senior Notes, 8.25%,
due 5/15/13 B3 B 1,549
2,000 Perry Ellis International, Inc., Senior Subordinated Notes,
Ser. B, 8.88%, due 9/15/13 B3 B- 2,110
2,530 Pilgrims Pride Corp., Senior Subordinated Notes, 9.25%,
due 11/15/13 B2 B+ 2,644
1,625 Ply Gem Industries, Inc., Senior Subordinated Notes, 9.00%,
due 2/15/12 B3 B- 1,666**
2,000 Portola Packaging, Inc., Senior Notes, 8.25%, due 2/1/12 B2 B- 1,690**@@
</Table>
8
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
SCHEDULE OF INVESTMENTS Income Opportunity Fund Inc. cont'd
- -----------------------------------------------------------
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$ 1,000 Premier Entertainment Biloxi, 1st Mortgage, 10.75%,
due 2/1/12 B3 B- $ 1,080**
2,000 PSE&G Energy Holdings, Notes, 7.75%, due 4/16/07 Ba3 BB- 2,090
2,500 Qwest Communications International, Inc., Senior Notes,
4.63%, due 2/15/09 B3 CCC+ 2,312**
1,600 Reddy Ice Group, Inc., Senior Subordinated Notes, 8.88%,
due 8/1/11 B3 B- 1,720
1,607 Reliant Resources, Inc., Term Loan, 5.33%, due 3/15/07 1,567^^
1,500 Resolution Performance, Senior Subordinated Notes, 13.50%,
due 11/15/10 Caa2 CCC+ 1,245@@
1,575 Salem Communications, Guaranteed Notes, 7.75%,
due 12/15/10 B3 B- 1,662
1,000 Sea Containers Ltd., Senior Notes, 10.50%, due 5/15/12 B3 B 990~
1,500 Sealy Mattress Co., Senior Subordinated Notes, 8.25%,
due 6/15/14 Caa1 B- 1,462**
1,500 Seminis Vegetable Seeds, Inc., Senior Subordinated Notes,
10.25%, due 10/1/13 B3 B- 1,665**
1,500 Sequa Corp., Senior Notes, Ser. B, 8.88%, due 4/1/08 B1 BB- 1,635
1,750 Ship Finance International Ltd., Senior Notes, 8.50%,
due 12/15/13 B2 B 1,689**
2,000 Six Flags, Inc., Senior Notes, 9.63%, due 6/1/14 B2 B- 2,095**
1,000 Southern Star Central Corp., Senior Secured Notes, 8.50%,
due 8/1/10 B1 B+ 1,100
2,000 Spanish Broadcasting System, Inc., Guaranteed Senior Notes,
9.63%, due 11/1/09 Caa1 CCC+ 2,115
2,000 Stena AB, Senior Notes, 9.63%, due 12/1/12 Ba3 BB- 2,250
1,500 Stone Container Corp., Senior Notes, 9.75%, due 2/1/11 B2 B 1,665
1,500 Tekni-Plex, Inc., Secured Notes, 8.75%, due 11/15/13 B2 B- 1,477**
3,050 Tembec Industries, Inc., Guaranteed Notes, 8.63%,
due 6/30/09 Ba3 BB- 3,111
2,875 Tenet Healthcare Corp., Senior Notes, 6.38%, due 12/1/11 B3 B- 2,508~~
3,500 TFM S.A. de C.V., Guaranteed Notes, 11.75%, due 6/15/09 B1 B 3,474
1,500 Thornburg Mortgage, Inc., Senior Notes, 8.00%, due 5/15/13 Ba2 BB- 1,541
3,750 Trac-X North America, Notes, 7.38%, due 3/25/09 B3 3,652**@@
2,375 Triad Hospitals, Inc., Senior Subordinated Notes, 7.00%,
due 11/15/13 B3 B 2,298
2,250 United Rentals, Inc., Senior Subordinated Notes, 7.75%,
due 11/15/13 B2 B+ 2,171
2,000 Valero Energy Corp., Notes, 7.80%, due 6/14/10 BBB-^ 1,890
1,250 Vitro S.A. de C.V., Notes, 11.75%, due 11/1/13 B2 B- 1,181**
2,125 Vought Aircraft Industries, Inc., Senior Notes, 8.00%,
due 7/15/11 B2 B 2,157**
1,250 Warnaco, Inc., Senior Notes, 8.88%, due 6/15/13 B2 B 1,344
2,000 Williams Cos., Inc., Notes, 7.63%, due 7/15/19 B3 B+ 1,950
1,500 Williams Cos., Inc., Senior Notes, 8.63%, due 6/1/10 B3 B+ 1,650
2,000 Williams Scotsman, Inc., Guaranteed Senior Notes, 9.88%,
due 6/1/07 B3 B- 1,990
1,000 Wise Metals Group LLC, Senior Secured Notes, 10.25%,
due 5/15/12 B2 B 1,000**
2,000 XM Satellite Radio, Inc., Floating Rate Secured Notes,
6.65%, due 5/1/09 Caa1 CCC+ 2,020**
---------
TOTAL CORPORATE DEBT SECURITIES (COST $182,293) 182,611
---------
</Table>
See Notes to Schedule of Investments
9
<Page>
SCHEDULE OF INVESTMENTS Income Opportunity Fund Inc. cont'd
- -----------------------------------------------------------
<Table>
<Caption>
PRINCIPAL AMOUNT VALUE +
(000'S OMITTED) (000'S OMITTED)
REPURCHASE AGREEMENTS (4.6%)
$12,260 State Street Bank and Trust Co. Repurchase Agreement, 0.87%,
due 5/3/04, dated 4/30/04, Maturity Value $12,260,889,
Collateralized by $9,905,000 U.S. Treasury Bonds, 7.50%,
due 11/15/16 (Collateral Value $12,629,212) (COST $12,260) $ 12,260#
---------
SHORT-TERM INVESTMENTS (16.7%)
42,619 N&B Securities Lending Quality Fund, LLC 42,619++
1,653 Neuberger Berman Institutional Cash Fund Trust Class 1,653@
---------
TOTAL SHORT-TERM INVESTMENTS (COST $44,272) 44,272#
---------
NUMBER OF SHARES
WARRANTS (0.0%)
4,558 Reliant Resources, Inc. (COST $0) --*
---------
TOTAL INVESTMENTS (163.1%) (COST $425,545) 432,466##
Liabilities, less cash, receivables and other assets [(15.8%)] (41,815)
Liquidation Value of Auction Preferred Shares [(47.3%)] (125,500)
---------
TOTAL NET ASSETS APPLICABLE TO COMMON
SHAREHOLDERS (100.0%) $ 265,151
---------
</Table>
10
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
NOTES TO SCHEDULE OF INVESTMENTS
- --------------------------------
+ Investments in equity securities by 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. Investments in debt securities
by the Fund are valued daily by obtaining bid price quotations
from independent pricing services on all securities available in
each service's data base. For all other securities requiring
daily quotations, bid prices are obtained from principal market
makers in those securities. The Fund values all other securities
by a method the Board of Directors of the Fund (the "Board")
believes accurately reflects fair value. Numerous factors may be
considered when determining the fair value of a security,
including available analyst, media or other reports, trading in
futures or ADRs and whether the issuer of the security being fair
valued has other securities outstanding. Foreign security prices
are furnished by independent quotation services expressed in
local currency values. Foreign security prices are translated
from the local currency into U.S. dollars using the exchange rate
as of 12:00 p.m., Eastern time. The Board has approved the use of
FT Interactive Data Corporation ("FT Interactive") to assist in
determining the fair value of the Fund's foreign equity
securities in the wake of certain significant events.
Specifically, when changes in the value of a certain index
suggest that the closing prices on the foreign exchanges no
longer represent the amount that the Fund could expect to receive
for those securities, FT Interactive will provide adjusted prices
for certain foreign equity securities based on an analysis
showing historical correlations between the prices of those
securities and changes in the index. In the absence of precise
information about the market values of these foreign securities
as of the close of the New York Stock Exchange, the Board has
determined on the basis of available data that prices adjusted in
this way are likely to be closer to the prices the Fund could
realize on a current sale than are the prices of those securities
established at the close of the foreign markets in which the
securities primarily trade. However, fair value prices are
necessarily estimates, and there is no assurance that such a
price will be at or close to the price at which the security next
trades. Short-term debt securities with less than 60 days until
maturity may be valued at cost which, when combined with interest
earned, approximates market value.
# At cost, which approximates market value.
## At April 30, 2004, the cost of investments for U.S. Federal
income tax purposes was $425,545,000. Gross unrealized
appreciation of investments was $11,847,000 and gross unrealized
depreciation of investments was $4,926,000, resulting in net
unrealized appreciation of $6,921,000, based on cost for U.S.
Federal income tax purposes.
@ Neuberger Berman Institutional Cash Fund is also managed by
Neuberger Berman Management Inc. (see Note A of Notes to
Financial Statements).
* Non-income producing security.
** Security exempt from registration under the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers under
Rule 144A. At April 30, 2004, these securities amounted to
$73,466,000 or 27.7% of net assets applicable to common
shareholders.
~ Security purchased on a when-issued basis. At April 30, 2004,
these securities amounted to $990,000.
~~ Security is segregated as collateral for when-issued purchase
commitments and as collateral for interest rate swap contracts.
^^ Not rated by a nationally recognized statistical rating
organization.
++ Affiliated issuer (see Note A of Notes to Financial Statements).
@@ All or a portion of this security is on loan (see Note A of Notes
to Financial Statements).
^ Not rated by Moody's; the rating shown is from Fitch Investors
Services, Inc.
See Notes to Financial Statements
11
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
STATEMENT OF ASSETS AND LIABILITIES
- -----------------------------------
<Table>
<Caption>
NEUBERGER BERMAN INCOME OPPORTUNITY
(000'S OMITTED EXCEPT PER SHARE AMOUNTS) FUND
ASSETS
INVESTMENTS IN SECURITIES, AT MARKET VALUE*+ (NOTE A)--SEE
SCHEDULE OF INVESTMENTS:
Unaffiliated issuers $388,194
Non-controlled affiliated issuers 44,272
======================================================================================================================
432,466
Dividends and interest receivable 4,633
- ----------------------------------------------------------------------------------------------------------------------
Receivable for securities sold 2,466
Interest rate swaps, at market value (Note A) 582
- ----------------------------------------------------------------------------------------------------------------------
Prepaid expenses and other assets 25
======================================================================================================================
TOTAL ASSETS 440,172
======================================================================================================================
LIABILITIES
Payable for collateral on securities loaned (Note A) 42,619
Dividends payable--preferred shares 8
- ----------------------------------------------------------------------------------------------------------------------
Dividends payable--common shares 232
Payable for securities purchased 6,428
- ----------------------------------------------------------------------------------------------------------------------
Payable to investment manager--net (Note B) 111
- ----------------------------------------------------------------------------------------------------------------------
Payable to administrator (Note B) 79
Accrued expenses and other payables 44
======================================================================================================================
TOTAL LIABILITIES 49,521
======================================================================================================================
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 $265,151
======================================================================================================================
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS CONSIST OF:
Paid-in capital--common shares $251,709
Distributions in excess of net investment income (2,314)
- ----------------------------------------------------------------------------------------------------------------------
Accumulated net realized gains (losses) on investments 8,252
Net unrealized appreciation (depreciation) in value of investments 7,504
======================================================================================================================
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS AT VALUE $265,151
======================================================================================================================
COMMON SHARES OUTSTANDING ($.0001 par value; 999,994,000 shares authorized) 17,724
NET ASSET VALUE PER COMMON SHARE OUTSTANDING $ 14.96
======================================================================================================================
+SECURITIES ON LOAN, AT MARKET VALUE $ 40,795
======================================================================================================================
*COST OF INVESTMENTS:
Unaffiliated issuers $381,273
Non-controlled affiliated issuers 44,272
======================================================================================================================
TOTAL COST OF INVESTMENTS $425,545
======================================================================================================================
</Table>
See Notes to Financial Statements
12
<Page>
NEUBERGER BERMAN FOR THE SIX MONTHS ENDED APRIL 30, 2004 (UNAUDITED)
STATEMENT OF OPERATIONS
- -----------------------
<Table>
<Caption>
NEUBERGER BERMAN INCOME OPPORTUNITY
(000'S OMITTED) FUND
INVESTMENT INCOME
INCOME:
Dividend income $ 4,216
Interest income (Note A) 7,388
- ----------------------------------------------------------------------------------------------------------------------
Income from securities loaned--net (Note A) 4
Income from investments in affiliated issuers (Note A) 9
======================================================================================================================
Total income 11,617
======================================================================================================================
EXPENSES:
Investment management fee (Note B) 1,202
Administration fee (Note B) 501
- ----------------------------------------------------------------------------------------------------------------------
Auction agent fees (Note B) 159
Audit fees 21
- ----------------------------------------------------------------------------------------------------------------------
Basic maintenance expense (Note B) 12
Custodian fees (Note B) 73
- ----------------------------------------------------------------------------------------------------------------------
Directors' fees and expenses 13
Insurance expense 1
- ----------------------------------------------------------------------------------------------------------------------
Legal fees 23
Shareholder reports 30
- ----------------------------------------------------------------------------------------------------------------------
Stock transfer agent fees 25
Miscellaneous 12
======================================================================================================================
Total expenses 2,072
Investment management fee waived (Note B) (502)
======================================================================================================================
Expenses reduced by custodian fee expense offset and commission recapture arrangements (Note B) (15)
======================================================================================================================
Total net expenses 1,555
======================================================================================================================
Net investment income 10,062
======================================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE A)
Net realized gain (loss) on:
Investment securities sold in unaffiliated issuers 9,117
===============================================================================================================
Interest rate swap contracts (865)
---------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) in value of:
- ----------------------------------------------------------------------------------------------------------------------
Investment securities (2,636)
===============================================================================================================
Interest rate swap contracts 631
---------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments 6,247
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS FROM:
Net investment income (730)
===============================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS RESULTING FROM OPERATIONS $15,579
======================================================================================================================
</Table>
See Notes to Financial Statements
13
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
STATEMENT OF CHANGES IN NET ASSETS
- ----------------------------------
<Table>
<Caption>
INCOME OPPORTUNITY FUND
--------------------------------
PERIOD FROM
SIX MONTHS JULY 2, 2003
ENDED (COMMENCEMENT
APRIL 30, OF OPERATIONS) TO
NEUBERGER BERMAN 2004 OCTOBER 31,
(000'S OMITTED) (UNAUDITED) 2003
INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
FROM OPERATIONS:
Net investment income (loss) $ 10,062 $ 4,410
Net realized gain (loss) on investments 8,252 931
- ----------------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investments (2,005) 9,509
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS FROM:
Net investment income (730) (117)
Net realized gain on investments -- (23)
- ----------------------------------------------------------------------------------------------------------------------------------
Tax return of capital -- (2)
Total distributions to preferred shareholders (730) (142)
==================================================================================================================================
Net increase (decrease) in net assets applicable to common shareholders resulting from operations 15,579 14,708
==================================================================================================================================
DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM:
Net investment income (11,299) (4,645)
Net realized gain on investments -- (903)
- ----------------------------------------------------------------------------------------------------------------------------------
Tax return of capital -- (101)
==================================================================================================================================
Total distributions to common shareholders (11,299) (5,649)
==================================================================================================================================
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from initial capitalization (Note D) -- 100
Net proceeds from issuance of common shares -- 238,249
- ----------------------------------------------------------------------------------------------------------------------------------
Net proceeds from underwriters' over-allotment option exercised -- 15,010
Preferred shares offering costs 53 (1,600)
==================================================================================================================================
Total net proceeds from capital share transactions 53 251,759
==================================================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS 4,333 260,818
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Beginning of period 260,818 --
==================================================================================================================================
End of period $265,151 $260,818
==================================================================================================================================
Distributions in excess of net investment income at end of period $ (2,314) $ (347)
==================================================================================================================================
</Table>
See Notes to Financial Statements
14
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
NOTES TO FINANCIAL STATEMENTS Income Opportunity Fund Inc.
- ----------------------------------------------------------
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 Fund
had no operations until July 2, 2003, other than matters relating
to its organization and the sale on June 18, 2003 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 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 discount (adjusted for original issue discount, where
applicable), and amortization of premium, where applicable, is
recorded on the accrual basis. Realized gains and losses from
securities transactions and foreign currency transactions are
recorded on the basis of identified cost and stated separately in
the Statement of Operations.
4 FEDERAL INCOME TAXES: It is the policy of the Fund to continue 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 quarterly and pay monthly
distributions to common shareholders. The Fund has adopted a
policy to pay common shareholders a stable distribution. In an
effort to maintain a stable distribution amount, distributions
may consist of net investment income, realized gains and paid-in
capital. 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. Income dividends and capital gain distributions to
common shareholders are recorded on the ex-dividend date. Net
realized capital gains, if any, will be offset by capital loss
carryforwards. Any such offset will not reduce the level of the
stable distribution paid by the Fund. Dividends and distributions
to preferred shareholders are accrued and determined as described
in Note A-7.
15
<Page>
NOTES TO FINANCIAL STATEMENTS Income Opportunity Fund Inc. cont'd
- -----------------------------------------------------------------
The Fund invests a significant portion of its assets in
securities issued by real estate companies, including real estate
investment trusts. After calendar year-end, real estate companies
often recharacterize the nature of the distributions paid during
that year, frequently with the result that distributions
previously identified as income are recharacterized as return of
capital and/or capital gain. As a result, the composition of the
Fund's distributions as reported herein may differ from the final
composition determined after calendar year-end and reported to
Fund shareholders on Form 1099.
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.
On March 30, 2004, the Fund declared two monthly dividends to
common shareholders from its net investment income in the amount
of $0.10625 per share per month, payable after this reporting
period, on May 28, 2004 and June 30, 2004, to shareholders of
record on May 14, 2004 and June 14, 2004, respectively, with
ex-dividend dates of May 12, 2004 and June 10, 2004,
respectively.
The tax character of distributions paid during the period ended
October 31, 2003 was as follows:
<Table>
<Caption>
DISTRIBUTIONS PAID FROM:
ORDINARY LONG-TERM TAX RETURN
INCOME GAIN OF CAPITAL TOTAL
$5,506,297 $182,404 $102,939 $5,791,640
</Table>
As of October 31, 2003, the components of distributable earnings
(accumulated losses) on a U.S. Federal income tax basis were as
follows:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED UNREALIZED LOSS
ORDINARY LONG-TERM APPRECIATION CARRYFORWARDS
INCOME GAIN (DEPRECIATION) AND DEFERRALS TOTAL
$ -- $ -- $ 9,461,070 $ -- $9,461,070
</Table>
The difference between book basis and tax basis is attributable
to the timing differences of dividend payments and the
amortization of bond premium.
6 EXPENSE ALLOCATION: Some bills 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.
16
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
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 Auction Preferred Shares and 2,510 Series B
Auction 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").
Except when the Fund has declared a special rate period,
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, except during
special rate periods. For the six months ended April 30, 2004,
dividend rates ranged from 1.07% to 1.46% for Series A and 1.05%
to 1.54% for Series B Auction Preferred Shares. The Fund declared
dividends to preferred shareholders for the period May 1, 2004 to
May 31, 2004 of $68,103 and $68,286 for Series A and Series B
Auction Preferred Shares, respectively.
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 fails to pay dividends
on Preferred Shares for two consecutive years.
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 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 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 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.
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, the Fund
has revised its methodology for accounting for interest rate swap
agreements. Previously, the Fund
17
<Page>
NOTES TO FINANCIAL STATEMENTS Income Opportunity Fund Inc. cont'd
- -----------------------------------------------------------------
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.
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. 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. Upon adoption of this methodology, the Fund recorded a
cumulative effect adjustment to reflect the reclassification of
such amounts. The cumulative effect resulted in an increase to
distributions in excess of net investment income of $40,911, and
a corresponding decrease to accumulated net realized gains/losses
as of November 1, 2003. The current year impact increased net
investment income by $895,262, increased net realized losses by
$865,445 and decreased unrealized appreciation (depreciation) in
value of investments by $29,817, and therefore did not impact the
Fund's total net assets or its total net increase (decrease) in
net assets applicable to common shareholders resulting from
operations. At April 30, 2004, the Fund had outstanding interest
rate swap contracts as follows:
<Table>
<Caption>
RATE TYPE
---------------------- ACCRUED
PAYMENTS PAYMENTS NET INTEREST UNREALIZED TOTAL
SWAP NOTIONAL MADE BY RECEIVED BY RECEIVABLE APPRECIATION FAIR
COUNTER PARTY AMOUNT TERMINATION DATE THE FUND THE FUND(1) (PAYABLE) (DEPRECIATION) VALUE
Citibank, N.A. $24,000,000 April 24, 2008 3.70% 1.10% (5,220) $ (30,124) (35,344)
Citibank, N.A. 70,000,000 October 24, 2008 3.63% 1.10% (24,597) 642,650 618,053
-------- --------- -------
(29,817) 612,526 582,709
</Table>
(1) 30 day LIBOR (London Interbank Offered Rate)
9 SECURITY LENDING: Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund entered into a
Securities Lending Agreement ("Agreement") with Neuberger.
Securities loans involve certain risks in the event a borrower
should fail financially, including delays or inability to recover
the lent securities or foreclose against the collateral. The
investment manager, under the general supervision of the Fund's
Board of Directors, monitors the creditworthiness of the parties
to whom the Fund makes security loans. The Fund will not lend
securities on which covered call options have been written, or
lend securities on terms which would prevent the Fund from
qualifying as a regulated investment company. The Fund receives
cash collateral equal to at least 102% of the current market
value of the loaned securities. The Fund invests the cash
collateral in the N&B Securities Lending Quality Fund, LLC, which
is managed by State Street Bank and Trust Company ("State
Street") pursuant to guidelines approved by the Fund's investment
manager. Neuberger guarantees a minimum revenue to the Fund under
the Agreement, and receives a portion of any revenue earned in
excess of the guaranteed amount as a lending agency fee. At April
30, 2004, the Fund had not paid Neuberger any fees under the
Agreement.
Income earned on the securities loaned, if any, is reflected in
the Statement of Operations under the caption Income from
securities loaned-net.
18
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
10 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 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 Order issued by the
Securities and Exchange Commission, the Fund may invest in the
Neuberger Berman Institutional Cash Fund (the "Cash Fund"), a
fund managed by Management and having the same Board members 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 liquidity. For any cash that the Fund
invests in the Cash Fund, Management waives a portion of its
management fee equal to the management fee it receives from the
Cash Fund on those assets. For the six months ended April 30,
2004, such waived fees amounted to $1,164. For the six months
ended April 30, 2004, income earned on this investment amounted
to $9,034 and is reflected in the Statement of Operations under
the caption Income from investments in affiliated issuers.
12 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. The costs incurred by Management were
$292,217. 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 offerings and amounted to $531,709.
Additionally, offering costs of $397,706 and a sales load of
$1,255,000 incurred through the issuance of Preferred Shares were
charged as a reduction of common stock paid-in-capital at the
completion of the Fund's Preferred Shares offering.
13 CONCENTRATION OF RISK: Under normal market conditions, the Fund's
equity investments will be primarily 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 or technological developments affecting the United
States real estate industry or a segment of the 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 primarily
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 Corp, 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
19
<Page>
NOTES TO FINANCIAL STATEMENTS Income Opportunity Fund Inc. cont'd
- -----------------------------------------------------------------
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.
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>
YEAR ENDED % OF AVERAGE
OCTOBER 31, DAILY MANAGED ASSETS
-------------------------------------------------------
2004 - 2008 0.25
2009 0.19
2010 0.13
2011 0.07
</Table>
Management has not agreed to waive any portion of its fees beyond
October 31, 2011.
For the six months ended April 30, 2004, such waived fees
amounted to $500,852.
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 as its sub-administrator under a
Sub-Administration Agreement. Management pays State Street a fee
for all services received under the agreement.
On October 31, 2003, Management and Neuberger, a member firm of
the New York Stock Exchange and sub-adviser to the Fund, became
indirect wholly owned subsidiaries of Lehman Brothers Holdings
Inc. ("Lehman"), a publicly-owned holding company ("the
Transaction"). Upon completion of the Transaction, the Fund's
management and sub-advisory agreements automatically terminated.
To provide for continuity of management, the shareholders of the
Fund voted on September 23, 2003, to approve new management and
sub-advisory agreements, which took effect upon closing of the
Transaction. 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 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.
20
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
Expenses paid through this program may include costs of
custodial, transfer agency or accounting services. For the six
months ended April 30, 2004, the impact of this arrangement was a
reduction of $13,571.
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 $1,524.
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 ratings agency 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 the conditions to maintain the 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 a rate depending on their rating. The Fund pays a
fee to State Street, as Fund sub-administrator, for the
preparation of this report.
NOTE C--SECURITIES TRANSACTIONS:
During the six months ended April 30, 2004, there were purchase
and sale transactions (excluding short-term securities and
interest rate swap contracts) of $197,709,000 and $204,756,000,
respectively.
During the six months ended April 30, 2004, brokerage commissions
on securities transactions amounted to $39,427, of which
Neuberger received $0, Lehman received $8,327, and other brokers
received $31,100.
NOTE D--CAPITAL:
At April 30, 2004, the common shares outstanding and the common
shares owned by Neuberger for the Fund were as follows:
<Table>
<Caption>
COMMON SHARES COMMON SHARES
OUTSTANDING OWNED BY NEUBERGER
17,723,648 6,981
</Table>
21
<Page>
NOTES TO FINANCIAL STATEMENTS Income Opportunity Fund Inc. cont'd
- -----------------------------------------------------------------
Transactions in common shares for the six months ended April 30,
2004 and the period ended October 31, 2003 were as follows:
<Table>
<Caption>
COMMON SHARES ISSUED IN CONNECTION WITH:
UNDERWRITERS' REINVESTMENT OF NET INCREASE IN
INITIAL INITIAL PUBLIC EXERCISE OF OVER- DIVIDENDS AND COMMON SHARES
CAPITALIZATION OFFERING ALLOTMENT OPTION DISTRIBUTIONS OUTSTANDING
2004 2003 2004 2003 2004 2003 2004 2003 2004 2003
-- 6,981 -- 16,666,667 -- 1,050,000 -- -- -- 17,723,648
</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.
22
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
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.
<Table>
<Caption>
SIX MONTHS PERIOD FROM
ENDED JULY 2, 2003^
APRIL 30, TO OCTOBER 31,
----------- --------------
2004 2003
(UNAUDITED)
COMMON SHARE NET ASSET VALUE, BEGINNING OF PERIOD $ 14.72 $ 14.33
------- -------
INCOME FROM INVESTMENT OPERATIONS APPLICABLE TO COMMON SHAREHOLDERS:
NET INVESTMENT INCOME (LOSS) .57Y .25
NET GAINS OR LOSSES ON SECURITIES
(BOTH REALIZED AND UNREALIZED) .35Y .59
COMMON SHARE EQUIVALENT OF DISTRIBUTIONS TO PREFERRED SHAREHOLDERS FROM:
NET INVESTMENT INCOME (.04) (.01)
NET CAPITAL GAINS -- (.00)
TAX RETURN OF CAPITAL -- (.00)
------- -------
TOTAL DISTRIBUTIONS TO PREFERRED SHAREHOLDERS (.04) (.01)
------- -------
TOTAL FROM INVESTMENT OPERATIONS APPLICABLE TO COMMON SHAREHOLDERS .88 .83
------- -------
LESS DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM:
NET INVESTMENT INCOME (.64) (.27)
NET CAPITAL GAINS -- (.05)
TAX RETURN OF CAPITAL -- (.00)
------- -------
TOTAL DISTRIBUTIONS TO COMMON SHAREHOLDERS (.64) (.32)
LESS CAPITAL CHARGES:
ISSUANCE OF COMMON SHARES -- (.03)
ISSUANCE OF PREFERRED SHARES .00 (.09)
------- -------
TOTAL CAPITAL CHARGES .00 (.12)
------- -------
COMMON SHARE NET ASSET VALUE, END OF PERIOD $ 14.96 $ 14.72
------- -------
COMMON SHARE MARKET VALUE, END OF PERIOD $ 13.35 $ 13.98
------- -------
TOTAL RETURN, COMMON SHARE NET ASSET VALUE+ +6.10%** +5.11%**
TOTAL RETURN, COMMON SHARE MARKET VALUE+ -0.31%** -4.67%**
RATIOS/SUPPLEMENTAL DATA++
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS, END OF PERIOD (IN MILLIONS) $ 265.2 $ 260.8
PREFERRED STOCK, AT LIQUIDATION VALUE ($25,000
PER SHARE LIQUIDATION PREFERENCE) (IN MILLIONS) $ 125.5 $ 125.5
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS APPLICABLE TO
COMMON SHAREHOLDERS# 1.14%*Y .88%*
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS APPLICABLE TO
COMMON SHAREHOLDERS*** 1.13%*Y .87%*
RATIO OF NET INVESTMENT INCOME (LOSS) EXCLUDING PREFERRED
STOCK DIVIDENDS TO AVERAGE NET ASSETS APPLICABLE TO
COMMON SHAREHOLDERS 7.30%*Y 5.24%*
RATIO OF PREFERRED STOCK DIVIDENDS TO AVERAGE NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS .53%* .17%*
RATIO OF NET INVESTMENT INCOME (LOSS) INCLUDING PREFERRED
STOCK DIVIDENDS TO AVERAGE NET ASSETS APPLICABLE TO
COMMON SHAREHOLDERS 6.77%*Y 5.07%*
PORTFOLIO TURNOVER RATE 50% 21%
ASSET COVERAGE PER SHARE OF PREFERRED STOCK, END OF PERIOD@ $77,821 $76,957
</Table>
See Notes to Financial Highlights
23
<Page>
NOTES TO FINANCIAL HIGHLIGHTS Income Opportunity Fund Inc.
- ----------------------------------------------------------
+ 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 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. Current returns may
be lower or higher than the performance data quoted. Total return would
have been lower if Management had not waived a portion of the investment
management fee. Performance data current to the most recent month-end are
available at www.nb.com.
# The Fund is required to calculate an expense ratio without taking into
consideration any expense reductions related to expense offset
arrangements.
*** After waiver of a portion of the investment management fee. Had Management
not undertaken such action, the annualized ratios of net expenses to
average daily net assets applicable to common shareholders would have been:
<Table>
<Caption>
SIX MONTHS ENDED PERIOD ENDED
APRIL 30, OCTOBER 31,
2004 2003(1)
1.49% 1.16%
</Table>
(1) Period from July 2, 2003 to October 31, 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 Preferred Shares 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.
Y 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, the Fund has revised its
methodology for accounting for interest rate swap agreements. Effective
November 1, 2003, the Fund reclassified periodic interim payments on swaps
from net investment income to net gains or losses on securities.
Accordingly, for the six months ended April 30, 2004, the per share amounts
and ratios shown decreased or increased as follows:
<Table>
Net Investment Income .05
Net Gains or Losses in Securities (both realized and unrealized) (.05)
Ratio of Gross Expenses to Average Net Assets Applicable to Common Shareholders (.65%)
Ratio of Net Expenses to Average Net Assets Applicable to Common Shareholders (.65%)
Ratio of Net Investment Income (Loss) Excluding Preferred Stock Dividends to
Average Net Assets Applicable to Common Shareholders .65%
Ratio of Net Investment Income (Loss) Including Preferred Stock Dividends to
Average Net Assets Applicable to Common Shareholders .65%
</Table>
24
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
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.
25
<Page>
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.
26
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
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-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 20036-1221
27
<Page>
DIRECTORS AND OFFICERS (Unaudited)
- ----------------------------------
The following tables set forth information concerning the directors and officers
of the Fund. 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 (68) Counsel, Carter Ledyard & Milburn LLP (law 38 Director, American Bar Retirement
Director firm) since October 2002; formerly, Attorney at Association (ABRA) since 1997
Law and President, Faith Colish, A Professional (not-for-profit membership
Corporation, 1980 to 2002. association).
C. Anne Harvey (66) Consultant, C. A. Harvey Associates, since June 38 Formerly, Member, Individual
Director 2001; formerly, Director, AARP, 1978 to Investors Advisory Committee to the
December 2001. 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 (72) Founding General Partner, Oxford Partners and 38 Director, Capital Cash Management
Director Oxford Bioscience Partners (venture capital Trust (money market fund),
partnerships) and President, Oxford Venture Naragansett Insured Tax-Free Income
Corporation. Fund, Rocky Mountain Equity Fund,
Prime Cash Fund, several private
companies and QuadraMed Corporation
(NASDAQ).
Peter P. Trapp (59) Regional Manager for Atlanta Region, Ford Motor 38 None.
Director Credit Company since August 1997; formerly,
President, Ford Life Insurance Company, April
1995 until August 1997.
</Table>
28
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (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 Inc. 38 Director, Neuberger Berman Inc.
Chief Executive Officer, (holding company) since 1999; Head of Neuberger (holding company) from October 1999
Director and Chairman of Berman Inc.'s Mutual Funds and Institutional through March 2003; President and
the Board Business since 1999; Executive Vice President, Director, NB Management since 1999;
Neuberger Berman since 1999; Principal, Director and Vice President,
Neuberger Berman from 1997 until 1999; Senior Neuberger & Berman Agency, Inc.
Vice President, NB Management from 1996 until since 2000.
1999.
CLASS II
INDEPENDENT FUND DIRECTORS*
John Cannon (74) Consultant. Formerly, Chairman and Chief 38 Independent Trustee or Director of
Director Investment Officer, CDC Investment Advisors three series of OppenheimerFunds:
(registered investment adviser), 1993-January Limited Term New York Municipal
1999; prior thereto, President and Chief Fund, Rochester Fund Municipals, and
Executive Officer, AMA Investment Advisors, an Oppenheimer Convertible Securities
affiliate of the American Medical Association. Fund, since 1992.
Barry Hirsch (71) Attorney at Law. Formerly, Senior Counsel, 38 None.
Director Loews Corporation (diversified financial
corporation) May 2002 until April 2003;
formerly, Senior Vice President, Secretary and
General Counsel, Loews Corporation.
</Table>
29
<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 (54) General Partner, Seip Investments LP (a private 38 Director, H&R Block, Inc. (financial
Director investment partnership); formerly, President services company) since May 2001;
and CEO, Westaff, Inc. (temporary staffing), Director, Forward Management, Inc.
May 2001 to January 2002; Senior Executive at (asset management) since 2001;
the Charles Schwab Corporation from 1983 to formerly, Director, General Magic
1999, including Chief Executive Officer, (voice recognition software)
Charles Schwab Investment Management, Inc. and November 2001 until 2002; Director,
Trustee, Schwab Family of Funds and Schwab E-Finance Corporation (credit
Investments from 1997 to 1998 and Executive decisioning services) 1999-2003;
Vice President-Retail Brokerage, Charles Schwab Director, Save-Daily.com (micro
Investment Management from 1994 to 1997. investing services) 1999-2003;
Director, Offroad Capital Inc.
(pre-public internet commerce
company).
DIRECTORS WHO IS AN "INTERESTED PERSON"
Jack L. Rivkin* (63) Executive Vice President and Chief Investment 38 Director, Dale Carnegie and
President and Director Officer, Neuberger Berman Inc. (holding Associates, Inc. (private company)
company) since 2002 and 2003, respectively; since 1998; Director, Emagin Corp.
Executive Vice President and Chief Investment (public company) since 1997;
Officer, Neuberger Berman since 2002 and 2003, Director, Solbright, Inc. (private
respectively; Director and Chairman, NB company) since 1998; Director,
Management since December 2002; formerly, Infogate, Inc. (private company)
Executive Vice President, Citigroup since 1997.
Investments, Inc. from September 1995 to
February 2002; Executive Vice President,
Citigroup Inc. from September 1995 to February
2002.
CLASS III
INDEPENDENT FUND DIRECTORS*
Walter G. Ehlers (71) Consultant; Retired President and Trustee, 38 None.
Director Teachers Insurance & Annuity (TIAA) and College
Retirement Equities Fund (CREF).
Robert A. Kavesh (76) Marcus Nadler Professor of Finance and 38 Director, DEL Laboratories, Inc.
Director Economics Emeritus, New York University Stern (cosmetics and pharmaceuticals)
School of Business. since 1978; Director, The Caring
Community (not-for-profit).
</Table>
30
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (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 (67) Retired. Formerly, Vice President and Special 38 Director, WHX Corporation (holding
Director Counsel, WHX Corporation (holding company) company) since August 2002;
1993-2001. 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 (71) Retired. Senior Vice President, Foodmaker, Inc. 38 Director, Pro-Kids Golf and Learning
Director (operator and franchiser of restaurants) until Academy (teach golf and computer
January 1997. usage to "at risk" children) since
1998; formerly, Director, Prandium,
Inc. (restaurants) from March 2001
until July 2002.
Candace L. Straight (56) Private investor and consultant specializing in 38 Director, The Proformance Insurance
Director the insurance industry; formerly, Advisory Company (personal lines property and
Director, Securitas Capital LLC (a global casualty insurance company) since
private equity investment firm dedicated to March 2004; Director, Providence
making investments in the insurance sector) Washington (property and casualty
1998 until December 2002. insurance company) since December
1998; Director, Summit Global
Partners (insurance brokerage firm)
since October 2000.
</Table>
31
<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
- ----------------------------------------------------------------------------------------------------------------------------------
DIRECTOR WHO IS AN "INTERESTED PERSON"
Edward I. O'Brien* (75) Formerly, Member, Investment Policy Committee, 38 Director, Legg Mason, Inc.
Director Edward Jones 1993-2001; President, Securities (financial services holding company)
Industry Association ("SIA") (securities since 1993; formerly, Director,
industry's representative in government Boston Financial Group (real estate
relations and regulatory matters at the federal and tax shelters) 1993-1999.
and state levels) 1974-1992; Adviser to SIA,
November 1992-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.
32
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
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 (47) 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, eleven registered
investment companies for which NB Management acts as
investment manager and administrator (four since 2002,
three since 2003, and one since 2004).
Robert Conti (47) 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, eleven registered investment
companies for which NB Management acts as investment
manager and administrator (three since 2000, four since
2002, three since 2003, and one since 2004).
Brian P. Gaffney (50) 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,
eleven registered investment companies for which NB
Management acts as investment manager and administrator
(three since 2000, four since 2002, three since 2003, and
one since 2004).
Sheila R. James (38) Assistant Secretary since 2002 Employee, Neuberger Berman since 1999; Employee, NB
Management from 1991 to 1999; Assistant Secretary, eleven
registered investment companies for which NB Management
acts as investment manager and administrator (seven since
2002, three since 2003, and one since 2004).
Kevin Lyons (48) Assistant Secretary since 2003 Employee, Neuberger Berman since 1999; Employee, NB
Management from 1993 to 1999; Assistant Secretary, eleven
registered investment companies for which NB Management
acts as investment manager and administrator (ten since
2003 and one since 2004).
</Table>
33
<Page>
DIRECTORS AND OFFICERS (Unaudited) cont'd
- -----------------------------------------
<Table>
<Caption>
POSITION AND
NAME, AGE, AND ADDRESS (1) LENGTH OF TIME SERVED (2) PRINCIPAL OCCUPATION(S)
- -----------------------------------------------------------------------------------------------------------------------------
John M. McGovern (34) Assistant Treasurer since 2002 Vice President, Neuberger Berman since 2004; Employee, NB
Management since 1993; Assistant Treasurer, eleven
registered investment companies for which NB Management
acts as investment manager and administrator (seven since
2002, three since 2003, and one since 2004).
Barbara Muinos (45) Treasurer and Principal Vice President, Neuberger Berman since 1999; Assistant
Financial and Accounting Officer Vice President, NB Management from 1993 to 1999;
since 2002 Treasurer and Principal Financial and Accounting Officer,
eleven registered investment companies for which NB
Management acts as investment manager and administrator
(seven since 2002, three since 2003, and one since 2004);
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, eleven registered investment companies for
which NB Management acts as investment manager and
administrator (three since 2000, four since 2002, three
since 2003, and one since 2004).
Trani Jo Wyman (34) Assistant Treasurer since 2002 Employee, NB Management since 1991; Assistant Treasurer,
eleven registered investment companies for which NB
Management acts as investment manager and administrator
(seven since 2002, three since 2003, and one since 2004).
</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.
34
<Page>
NEUBERGER BERMAN APRIL 30, 2004 (UNAUDITED)
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. Beginning September 2004, information
regarding how the Fund voted proxies relating to portfolio securities during the
most recent 12-month period ended June 30 will also be available without charge,
by calling 1-800-877-9700 (toll-free), on the website of the Securities and
Exchange Commission, at www.sec.gov, and on the Fund's website at www.nb.com
[http://www.nb.com].
35
<Page>
This page has been left blank intentionally
<Page>
[NEUBERGER BERMAN LOGO]
A LEHMAN BROTHERS COMPANY
NEUBERGER BERMAN MANAGEMENT INC.
605 Third Avenue 2nd Floor
New York, NY 10158-0180
Statistics and projections in this INTERNAL SALES & SERVICES
report are derived from sources deemed 877.461.1899
to be reliable but cannot be regarded as
a representation of future results of www.nb.com
the Fund. This report is prepared for
the general information of shareholders
and is not an offer of shares of the [RECYCLED SYMBOL] E0035 06/04
Fund.
ITEM 2. CODE OF ETHICS
Not Applicable. Only required in an annual report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
Not Applicable. Only required in an annual report.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Not Applicable. Only required in an annual report.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not Applicable. Only required in an annual report.
ITEM 6. SCHEDULE OF INVESTMENTS
Not Yet Applicable. Item applies to periods ending on or after July 9, 2004.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable. Only required in an annual report.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not Yet Applicable. Item applies to periods ending on or after June 15, 2004.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 10. CONTROLS AND PROCEDURES.
(a) Based on an evaluation of the disclosure controls and procedures (as
defined in rule 30a-2(c) under the Act) as of a date within 90 days of the
filing date of this document, the Chief Executive Officer and Treasurer and
Principal Financial and Accounting Officer of the Registrant have concluded
that such disclosure controls and procedures are effectively designed to
ensure that information required to be disclosed by the Registrant is
accumulated and communicated to the Registrant's management to allow timely
decisions regarding required disclosure.
(b) There were no significant changes in the Registrant's internal controls
over financial reporting (as defined in rule 30a-3(d) under the Act) that
occurred during the Registrant's second fiscal half-year that have
materially affected, or are reasonably likely to materially affect, the
Registrant's internal control over financial reporting.
ITEM 10. EXHIBITS
(a)(1) Not Applicable. Only required in an annual report.
(a)(2) The certifications required by Rule 30a-2(a) of the Act and Section
302 of the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley Act") are
attached hereto
(b) The certification required by Rule 30a-2(b) of the Act and Section 906
of the Sarbanes-Oxley Act is attached hereto.
The certification provided pursuant to Section 906 of the Sarbanes-Oxley Act is
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 28, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By: /s/ Peter E. Sundman
--------------------
Peter E. Sundman
Chief Executive Officer
Date: June 28, 2004
By: /s/ Barbara Muinos
------------------
Barbara Muinos
Treasurer and Principal Financial
and Accounting Officer
Date: June 28, 2004
EXHIBIT 99-CERT
CERTIFICATIONS
I, Peter E. Sundman, certify that:
1. I have reviewed this report on Form N-CSR of Neuberger Berman Income
Opportunity Fund Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations, changes in net assets, and cash
flows (if the financial statements are required to include a statement of cash
flows) of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and
have:
a) designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) [omitted];
c) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures as of a date within 90 days prior to
the filing date of this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's second fiscal
half-year that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize, and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: June 28, 2004
/s/ Peter E. Sundman
--------------------
Peter E. Sundman
Chief Executive Officer
I, Barbara Muinos, certify that:
1. I have reviewed this report on Form N-CSR of Neuberger Berman Income
Opportunity Fund Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations, changes in net assets, and cash
flows (if the financial statements are required to include a statement of cash
flows) of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and
have:
a) designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) [omitted];
c) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures as of a date within 90 days prior to
the filing date of this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's second fiscal
half-year that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize, and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: June 28, 2004
/s/ Barbara Muinos
------------------
Barbara Muinos
Treasurer and Principal Financial
and Accounting Officer
EXHIBIT - 99.906CERT
SECTION 906 CERTIFICATIONS
We, Peter E. Sundman, Chief Executive Officer and Barbara Muinos, Treasurer and
Principal Financial and Accounting Officer of Neuberger Berman Income
Opportunity Fund Inc. (the "Fund"), certify, pursuant to 18 U.S.C. Section 1350
enacted under Section 906 of the Sarbanes-Oxley Act of 2002, that to my
knowledge:
1. The Fund's periodic report on Form N-CSR for the period ended April
30, 2004 fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (15 U.S.C. Section 78m(a)
or 78o(d); and
2. The information contained in such Form N-CSR fairly presents, in all
material respects, the financial condition and results of operations
of the Fund.
Dated: June 28, 2004
/s/ Peter E. Sundman
--------------------
Peter E. Sundman
Chief Executive Officer
/s/ Barbara Muinos
------------------
Barbara Muinos
Treasurer and Principal Financial
and Accounting Officer
A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by 906, has been provided to the Fund and will be retained by the Fund
and furnished to the Securities and Exchange Commission or its staff upon
request.
This certification is being furnished to the Commission solely pursuant to 18
U.S.C. ss. 1350 and is not being filed as part of the Form N-CSR with the
Commission.