As filed with the Securities and Exchange Commission on January 7, 2005
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: 811-21499
NEUBERGER BERMAN DIVIDEND ADVANTAGE 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 Dividend Advantage Fund Inc.
605 Third Avenue, 2nd Floor
New York, New York 10158-0180
Arthur C. Delibert, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W. 2nd Floor
Washington, DC 20036-1800
(Names and addresses of agents for service)
Date of fiscal year end: October 31, 2004
Date of reporting period: October 31, 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 SHAREHOLDERS
<Page>
[NEUBERGER BERMAN LOGO]
A LEHMAN BROTHERS COMPANY
ANNUAL REPORT
OCTOBER 31, 2004
NEUBERGER BERMAN
DIVIDEND ADVANTAGE
FUND INC.
<Page>
NEUBERGER BERMAN OCTOBER 31, 2004
CONTENTS
<Table>
THE FUND
CHAIRMAN'S LETTER 1
PORTFOLIO COMMENTARY/
PERFORMANCE HIGHLIGHTS 2
SCHEDULE OF INVESTMENTS/
TOP TEN EQUITY HOLDINGS 7
FINANCIAL STATEMENTS 10
FINANCIAL HIGHLIGHTS/
PER SHARE DATA 21
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 23
DIVIDEND REINVESTMENT PLAN 24
DIRECTORY 26
DIRECTORS AND OFFICERS 27
PROXY VOTING POLICIES AND PROCEDURES;
OTHER INFORMATION 34
</Table>
CHAIRMAN'S LETTER
Dear Shareholder,
I am pleased to present to you this annual report for the Neuberger Berman
Dividend Advantage Fund Inc., which commenced operations on March 30, 2004. The
report includes a portfolio commentary, a listing of the Fund's investments, and
its audited financial statements for the reporting period ending October 31,
2004.
The Fund seeks high total return, comprising high current income (a portion of
which may be qualified dividend income) and capital appreciation. Securities in
the portfolio that meet the requirements for qualified dividend income are taxed
at the same federal tax rates applicable to long-term capital gains, which can
create a favorable tax situation for shareholders.
The Fund is built on a foundation of fundamental research. An Asset Allocation
Committee takes responsibility for allocating assets between income-producing
securities recommended by the Neuberger Berman, LLC Research Department, and
real estate company securities--a structure that we believe provides
shareholders with an added level of confidence.
Thank you for entrusting your hard-earned assets to Neuberger Berman. Let me
assure you that we will work hard every day to preserve and grow your capital.
Sincerely,
/s/ Peter Sundman
PETER SUNDMAN
CHAIRMAN OF THE BOARD
NEUBERGER BERMAN
DIVIDEND ADVANTAGE 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.
1
<Page>
DIVIDEND ADVANTAGE FUND INC. PORTFOLIO COMMENTARY
From its inception on March 25, 2004 through the report period ending October
31, 2004, the Neuberger Berman Dividend Advantage Fund Inc. (AMEX: NDD) had a
total return based on Net Asset Value (NAV) of 11.83%, compared to gains of
4.72% and 10.23% for the S&P 500 Index and the NAREIT Equity REIT Index,
respectively, over the same time period. The Fund has only been open for a short
time, but we are pleased with its performance thus far.
Over recent periods, investor focus appears to have shifted toward lower risk,
higher quality companies and market sectors. This shift, in part, may be
attributable to expectations for an easing in the substantial rate of corporate
earnings increases and economic growth that has prevailed since 2002, and a
growing preference for exposure to less aggressive, more stable return
opportunities. Since early 2003, when the maximum federal tax rate on qualifying
dividends was lowered to 15%, investor interest in dividend-paying stocks has
substantially increased, as has the willingness of corporate managements to
increase, or initiate, dividend payouts.
As of October 31, 2004, dividend-paying equity securities comprised
approximately half of the portfolio's net assets. Within this portion of the
portfolio, Utilities, Energy and Industrials stocks were the largest
contributors to overall performance. Financials, Health Care and Consumer
Staples detracted the most from total return.
Since the Fund's inception at the end of March, REIT securities, which comprise
the other half of the portfolio, also performed well, primarily due to improving
economic conditions, a benign interest rate environment, and improving real
estate fundamentals. As the economy gained traction, demand and occupancy levels
for commercial real estate also improved. In addition, investors continued to
emphasize companies with visible earnings, which benefited the REIT market.
Within the REIT industry, regional malls, shopping centers, and industrial
properties did particularly well. Retailers performed well, as they continued to
expand, causing occupancy and rent levels to increase. Healthy consumer spending
levels also contributed to retailers' strong performance. Industrial REITs
generated good returns primarily due to core improvements in parts of the U.S.
economy. Within the REIT portion of the portfolio, industrial and retail
properties contributed positively to performance. As we look out to 2005, we
anticipate continued improvement in the U.S. economy and improving fundamentals
for most types of real estate, albeit with expectations for higher interest
rates.
We believe that the Fund's combination of general equity securities and real
estate company securities can provide attractive current income as well as the
potential for capital appreciation. Its distinctive structure capitalizes on
Neuberger Berman's strengths in bottom-up stock selection and asset allocation
among the different portfolio segments. We thank you for your confidence in us
and look forward to serving you in the future.
Sincerely,
NEUBERGER BERMAN DIVIDEND ADVANTAGE
FUND INC.
ASSET ALLOCATION COMMITTEE
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.
2
<Page>
CUMULATIVE TOTAL RETURN (Life of Fund as of October 31, 2004)
<Table>
<Caption>
DIVIDEND ADVANTAGE FUND
AMEX TICKER SYMBOL NDD
NAV(1) 11.83%
MARKET PRICE(2) (3.33%)
INCEPTION DATE 03/25/2004
</Table>
INDUSTRY DIVERSIFICATION
(% OF INDUSTRY HOLDINGS)
<Table>
Aerospace 3.3%
Apartments 11.2
Banking & Financial 14.8
Basic Materials 1.0
Building Materials 2.1
Commercial Services 1.2
Community Centers 5.8
Consumer Discretionary 4.3
Cosmetics 2.0
Diversified 9.4
Energy 7.6
Food & Beverage 3.3
Health Care 8.1
Industrial 3.9
Lodging 3.2
Office 18.7
Office-Industrial 5.5
Publishing & Broadcasting 3.1
Regional Malls 11.3
Retail 1.1
Self Storage 2.2
Software 0.9
Telecommunications 3.4
Transportation 2.2
Utilities 10.5
Short-Term Investments 17.9
Liabilities, less cash, receivables and
other assets (58.0)
</Table>
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. Return based on Net Asset Value ("NAV") of the Fund.
2. Return based on price of Fund shares on the American Stock Exchange.
3. Neuberger Berman Management Inc. has contractually agreed to waive a
portion of the management fees that it is entitled to receive from the
Fund. The undertaking lasts until October 31, 2010. Please see the notes to
the financial statement for specific information regarding the rate of the
management fees waived by Neuberger Berman Management Inc. Absent such a
waiver, the performance for the Fund would be lower.
4
<Page>
NEUBERGER BERMAN OCTOBER 31, 2004
GLOSSARY OF INDICES
S&P 500 INDEX: The S&P 500 Index is widely regarded as the
standard for measuring large-cap U.S. stock
markets' performance and includes a
representative sample of leading companies in
leading industries.
NAREIT EQUITY REIT INDEX: Tracks the performance of all Equity REITs
currently listed on the New York Stock Exchange,
the NASDAQ National Market System and the
American Stock Exchange. REITs are classified as
Equity if 75% or more of their gross invested
book assets are invested directly or indirectly
in equity of commercial properties.
Please note that the index does not take into account any fees and expenses or
any tax consequences of investing in the individual securities that it tracks
and that investors cannot invest directly in any index. Data about the
performance of the index is prepared or obtained by Neuberger Berman Management
Inc. and includes reinvestment of all dividends and capital gain distributions.
The Fund may invest in securities not included in its index.
5
<Page>
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6
<Page>
NEUBERGER BERMAN OCTOBER 31, 2004
SCHEDULE OF INVESTMENTS DIVIDEND ADVANTAGE FUND INC.
[SIDENOTE]
TOP TEN EQUITY HOLDINGS
<Table>
<Caption>
HOLDING %
1 Bedford Property Investors 4.8
2 Glimcher Realty Trust 3.0
3 Felcor Lodging Trust 3.0
4 Mack-Cali Realty 2.8
5 Apartment Investment & Management 2.7
6 Tanger Factory Outlet Centers 2.5
7 Duke Energy 2.5
8 ChevronTexaco Corp. 2.3
9 Pennsylvania REIT 2.3
10 V. F. Corp. 2.3
</Table>
<Table>
<Caption>
MARKET VALUE +
NUMBER OF SHARES (000'S OMITTED)
COMMON STOCKS (129.7%)
AEROSPACE (3.3%)
12,500 General Dynamics $ 1,277
47,400 Lockheed Martin 2,611
----------
3,888
APARTMENTS (10.1%)
52,100 Apartment Investment &
Management 1,911
24,000 BRE Properties 958
18,000 Camden Property Trust 817
32,500 Equity Residential 1,084
64,300 Home Properties 2,646
62,200 Post Properties 1,996
125,600 United Dominion Realty Trust 2,648
----------
12,060
BANKING & FINANCIAL (14.8%)
29,000 Bank of America 1,299
26,700 Citigroup Inc. 1,185
50,600 Fifth Third Bancorp 2,489
12,000 Freddie Mac 799
35,900 Hartford Financial
Services Group 2,099^^
26,400 Lincoln National 1,156
113,000 Luminent Mortgage Capital 1,300
70,200 Nationwide Financial Services 2,429
58,200 Northern Trust 2,476
51,600 Wachovia Corp. 2,539
----------
17,771
BASIC MATERIALS (1.0%)
11,700 Rio Tinto 1,244
BUILDING MATERIALS (2.1%)
80,500 York International 2,563
COMMERCIAL SERVICES (1.2%)
50,000 Capital Trust 1,463
COMMUNITY CENTERS (5.6%)
38,000 Developers Diversified Realty 1,588^^
51,800 Heritage Property
Investment Trust 1,584
9,000 Regency Centers 440
64,100 Tanger Factory Outlet Centers 3,029
----------
6,641
CONSUMER DISCRETIONARY (4.3%)
140,600 Mattel Inc. 2,462^^
50,500 V. F. Corp. 2,718
----------
5,180
COSMETICS (2.0%)
47,000 Procter & Gamble 2,405
DIVERSIFIED (9.4%)
48,700 Colonial Properties Trust $ 1,898^^
42,500 Cooper Industries Class A 2,716
52,300 Crescent Real Estate Equities 837
77,200 General Electric 2,634@@
29,000 iStar Financial 1,201
29,500 Vornado Realty Trust 1,983^^
----------
11,269
ENERGY (7.6%)
52,400 ChevronTexaco Corp. 2,780
29,700 ConocoPhillips 2,504
108,000 Enterprise Products Partners 2,490^^
20,300 Kinder Morgan 1,307
----------
9,081
FOOD & BEVERAGE (3.3%)
75,000 Archer-Daniels-Midland 1,453
47,400 Diageo PLC ADR 2,549
----------
4,002
HEALTH CARE (5.9%)
61,500 Abbott Laboratories 2,622
35,000 Health Care Property Investors 974
29,800 Health Care REIT 1,073
90,000 Ventas, Inc. 2,421
----------
7,090
INDUSTRIAL (3.9%)
29,900 Dover Corp. 1,174
66,000 EastGroup Properties 2,338
31,000 First Industrial Realty Trust 1,197
----------
4,709
OFFICE (18.7%)
74,900 Arden Realty 2,553
53,000 Brandywine Realty Trust 1,559
72,800 CarrAmerica Realty 2,346
81,100 CRT Properties 1,797
80,400 Equity Office Properties Trust 2,261
72,300 Glenborough Realty Trust 1,518
60,600 Highwoods Properties 1,504
141,000 HRPT Properties Trust 1,578
64,300 Kilroy Realty 2,556
75,400 Mack-Cali Realty 3,330
38,600 Prentiss Properties Trust 1,389
----------
22,391
OFFICE--INDUSTRIAL (2.9%)
91,600 Bedford Property Investors 2,634^^
20,200 Liberty Property Trust 819
----------
3,453
</Table>
See Notes to Schedule of Investments
7
<Page>
<Table>
<Caption>
MARKET VALUE +
NUMBER OF SHARES (000'S OMITTED)
PUBLISHING & BROADCASTING (3.1%)
16,200 McGraw-Hill Cos. $ 1,397
75,000 R.R. Donnelley 2,359
----------
3,756
REGIONAL MALLS (10.2%)
30,200 CBL & Associates Properties 1,980
90,500 Glimcher Realty Trust 2,337
39,600 Macerich Co. 2,366
68,300 Pennsylvania REIT 2,769^^
46,500 Simon Property Group 2,712^^
----------
12,164
RETAIL (1.1%)
71,800 Pier 1 Imports 1,289
SELF STORAGE (2.2%)
19,500 Extra Space Storage 270
23,100 Shurgard Storage Centers 917
30,000 Sovran Self Storage 1,172
18,000 U-Store-It Trust 301
----------
2,660
SOFTWARE (0.9%)
40,000 Microsoft Corp. 1,120
TELECOMMUNICATIONS (3.4%)
124,400 Sprint Corp. 2,606
55,800 Vodafone Group ADR 1,439
----------
4,045
TRANSPORTATION (2.2%)
41,000 Union Pacific 2,582
UTILITIES (10.5%)
64,400 Cinergy Corp. 2,545^^
38,600 Dominion Resources 2,483
121,100 Duke Energy 2,971^^
33,000 Exelon Corp. 1,307
55,550 ONEOK, Inc. 1,490
29,600 TXU Corp. 1,812
----------
12,608
TOTAL COMMON STOCKS
(COST $143,863) 155,434
----------
PREFERRED STOCKS (10.4%)
APARTMENTS (1.1%)
51,500 Apartment Investment &
Management, Ser. U 1,270
COMMUNITY CENTERS (0.2%)
12,000 Developers Diversified Realty,
Ser. I 310
DIVERSIFIED (0.0%)
2,000 Capital Automotive REIT,
Ser. B $ 52
HEALTH CARE (2.2%)
102,000 LTC Properties, Ser. F 2,620
LODGING (3.2%)
147,500 Felcor Lodging Trust, Ser. A 3,585
10,000 Host Marriott, Ser. E 274
----------
3,859
OFFICE--INDUSTRIAL (2.6%)
125,000 Bedford Property Investors,
Ser. B 3,125
REGIONAL MALLS (1.1%)
50,000 Glimcher Realty Trust, Ser. G 1,270
TOTAL PREFERRED STOCKS
(COST $12,190) 12,506
----------
PRINCIPAL AMOUNT
SHORT-TERM INVESTMENTS (17.9%)
$ 19,215,500 N&B Securities Lending
Quality Fund, LLC 19,216++
2,171,204 Neuberger Berman Institutional Cash
Fund Trust Class 2,171@
----------
TOTAL SHORT-TERM INVESTMENTS
(COST $21,387) 21,387#
----------
TOTAL INVESTMENTS (158.0%)
(COST $177,440) 189,327##
Liabilities, less cash,
receivables and other assets
[(14.2%)] (16,966)
Liquidation Value of Auction
Market Preferred Shares
[(43.8%)] (52,500)
----------
TOTAL NET ASSETS APPLICABLE TO
COMMON SHAREHOLDERS (100.0%) $ 119,861
----------
</Table>
8
<Page>
NEUBERGER BERMAN OCTOBER 31, 2004
NOTES TO SCHEDULE OF INVESTMENTS
+ Investments in equity securities by Neuberger Berman Dividend Advantage
Fund Inc. ("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.
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. 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 and expressed in local currency values. Foreign security prices
are translated from the local currency into U.S. dollars using the exchange
rate as of 12:00 noon, Eastern time. The Board has approved the use of FT
Interactive Data Corporation ("FT Interactive") to assist in determining
the fair value of the Fund's foreign equity securities in the wake of
certain significant events. When changes in the value of a certain index
suggest that the closing prices on the foreign exchanges may no longer
represent the amount that the Fund could expect to receive for those
securities, 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 October 31, 2004, the cost of investments for U.S. Federal income tax
purposes was $177,450,000. Gross unrealized appreciation of investments was
$13,205,000 and gross unrealized depreciation of investments was
$1,328,000, resulting in net unrealized appreciation of $11,877,000, based
on cost for U.S. Federal income tax purposes.
@@ All or a portion of this security is segregated as collateral for interest
rate swap contracts.
@ Neuberger Berman Institutional Cash Fund ("Institutional Cash") is also
managed by Neuberger Berman Management Inc. (see Notes A & E of Notes to
Financial Statements) and may be considered an affiliate since it has the
same officers, Board members, and investment manager as the Fund and
because, at times, the Fund may own 5% or more of the outstanding voting
securities of Institutional Cash.
^^ All or a portion of this security is on loan (see Note A of Notes to
Financial Statements).
++ The N&B Securities Lending Quality Fund, LLC ("Quality Fund") is an
investment vehicle established by the Fund's custodian to invest cash the
Fund receives as collateral for securities loans. The Fund's shares in the
Quality Fund are non-voting. However, because all shares of the Quality
Fund are held by funds in the related investment company complex, the
Quality Fund may be considered an affiliate of the Fund. (see Notes A and E
of Notes to Financial Statements)
See Notes to Financial Statements
9
<Page>
NEUBERGER BERMAN OCTOBER 31, 2004
STATEMENT OF ASSETS AND LIABILITIES
<Table>
<Caption>
DIVIDEND
NEUBERGER BERMAN ADVANTAGE
(000'S OMITTED EXCEPT PER SHARE AMOUNTS) FUND
ASSETS
INVESTMENTS IN SECURITIES, AT MARKET VALUE*+ (NOTES A & E)--SEE
SCHEDULE OF INVESTMENTS:
Unaffiliated issuers $ 167,940
Affiliated issuers 21,387
===================================================================================================================
189,327
Dividends and interest receivable 424
- -------------------------------------------------------------------------------------------------------------------
Receivable for securities sold 4,269
===================================================================================================================
Total Assets 194,020
===================================================================================================================
LIABILITIES
Payable for collateral on securities loaned (Note A) 19,216
Due to custodian 1,582
- -------------------------------------------------------------------------------------------------------------------
Dividends payable--preferred shares 19
Interest rate swaps, at market value (Note A) 665
- -------------------------------------------------------------------------------------------------------------------
Payable for offering costs (Note A) 19
Payable to investment manager--net (Notes A & B) 55
- -------------------------------------------------------------------------------------------------------------------
Payable to administrator (Note B) 35
Accrued expenses and other payables 68
===================================================================================================================
TOTAL LIABILITIES 21,659
===================================================================================================================
AUCTION MARKET PREFERRED SHARES SERIES A & B AT LIQUIDATION VALUE
4,800 shares authorized; 2,100 shares issued and outstanding
$.0001 par value; $25,000 liquidation value per share (Note A) 52,500
===================================================================================================================
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS AT VALUE $ 119,861
===================================================================================================================
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS CONSIST OF:
Paid-in capital--common shares $ 108,639
Undistributed net investment income (loss) 11
- -------------------------------------------------------------------------------------------------------------------
Accumulated net realized gains (losses) on investments (11)
Net unrealized appreciation (depreciation) in value of investments 11,222
===================================================================================================================
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS AT VALUE $ 119,861
===================================================================================================================
COMMON SHARES OUTSTANDING ($.0001 PAR VALUE; 999,995,200 SHARES AUTHORIZED) 5,805
===================================================================================================================
NET ASSET VALUE PER COMMON SHARE OUTSTANDING $ 20.65
===================================================================================================================
+SECURITIES ON LOAN, AT MARKET VALUE $ 18,578
===================================================================================================================
*COST OF INVESTMENTS:
Unaffiliated issuers $ 156,053
Affiliated issuers 21,387
===================================================================================================================
TOTAL COST OF INVESTMENTS $ 177,440
===================================================================================================================
</Table>
See Notes to Financial Statements
10
<Page>
NEUBERGER BERMAN FOR THE PERIOD FROM MARCH 30, 2004
(COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 2004
STATEMENT OF OPERATIONS
<Table>
<Caption>
DIVIDEND
NEUBERGER BERMAN ADVANTAGE
(000'S OMITTED) FUND
INVESTMENT INCOME
INCOME:
Dividend income--unaffiliated issuers $ 2,947
Interest income (Note A) 26
- -------------------------------------------------------------------------------------------------------------------
Income from investments in affiliated issuers (Note A) 36
Income from securities loaned-affiliated issuer (Note A) 3
- -------------------------------------------------------------------------------------------------------------------
Foreign taxes withheld (Note A) (13)
===================================================================================================================
Total income 2,999
===================================================================================================================
EXPENSES:
Investment management fee (Notes A & B) 499
Administration fee (Note B) 208
- -------------------------------------------------------------------------------------------------------------------
Auction agent fees (Note B) 45
Audit fees 23
- -------------------------------------------------------------------------------------------------------------------
Basic maintenance expense (Note B) 10
Custodian fees (Note B) 53
- -------------------------------------------------------------------------------------------------------------------
Directors' fees and expenses 14
Insurance expense 1
- -------------------------------------------------------------------------------------------------------------------
Legal fees 15
Shareholder reports 20
- -------------------------------------------------------------------------------------------------------------------
Stock transfer agent fees 22
Miscellaneous 5
===================================================================================================================
Total expenses 915
Investment management fee waived (Notes A & B) (170)
Expenses reduced by custodian fee expense offset and commission recapture arrangements (Note B) (14)
===================================================================================================================
Total net expenses 731
===================================================================================================================
Net investment income 2,268
===================================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE A)
Net realized gain (loss) on:
Sales of investment securities of unaffiliated issuers 544
--------------------------------------------------------------------------------------------------------------
Interest rate swap contracts (233)
Change in net unrealized appreciation (depreciation) in value of:
Unaffiliated investment securities 11,887
Interest rate swap contracts (665)
--------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments 11,533
===================================================================================================================
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS FROM:
Net investment income (305)
==============================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS RESULTING FROM OPERATIONS $ 13,496
===================================================================================================================
</Table>
See Notes to Financial Statements
11
<Page>
NEUBERGER BERMAN OCTOBER 31, 2004
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
DIVIDEND ADVANTAGE FUND
-----------------------------
PERIOD FROM
MARCH 30, 2004
(COMMENCEMENT
OF OPERATIONS) TO
NEUBERGER BERMAN OCTOBER 31,
(000'S OMITTED) 2004
INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
FROM OPERATIONS:
Net investment income (loss) $ 2,268
Net realized gain (loss) on investments 311
- -------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investments 11,222
===================================================================================================================
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS FROM:
Net investment income (163)
===================================================================================================================
Net realized gain on investments (45)
- -------------------------------------------------------------------------------------------------------------------
Tax return of capital (97)
===================================================================================================================
Total distributions to preferred shareholders (305)
===================================================================================================================
Net increase (decrease) in net assets applicable to common shareholders resulting
from operations 13,496
===================================================================================================================
DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM:
Net investment income 1,861
===================================================================================================================
Net realized gain on investments (510)
- -------------------------------------------------------------------------------------------------------------------
Tax return of capital (1,112)
===================================================================================================================
Total distributions to common shareholders (3,483)
===================================================================================================================
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from initial capitalization (Note D) 100
Net proceeds from issuance of common shares 110,548
- -------------------------------------------------------------------------------------------------------------------
Payments for preferred shares offering costs (800)
Total net proceeds from capital share transactions 109,848
===================================================================================================================
Net Increase (Decrease) in Net Assets Applicable to Common Shareholders 119,861
===================================================================================================================
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Beginning of period --
===================================================================================================================
End of period $ 119,861
===================================================================================================================
Undistributed net investment income (loss) at end of period $ 11
===================================================================================================================
</Table>
See Notes to Financial Statements
12
<Page>
NEUBERGER BERMAN OCTOBER 31, 2004
NOTES TO FINANCIAL STATEMENTS DIVIDEND ADVANTAGE FUND INC.
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1 GENERAL: Neuberger Berman Dividend Advantage Fund Inc. (the "Fund") was
organized as a Maryland corporation on January 29, 2004 as a
non-diversified, closed-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Fund had
no operations until March 30, 2004, other than matters relating to its
organization and the sale on March 8, 2004 of 5,236 shares of common
stock for $100,008 ($19.10 per share) to Neuberger Berman, LLC
("Neuberger"), the Fund's sub-adviser. The Board of Directors of the Fund
(the "Board") may classify or re-classify any unissued shares of capital
stock into one or more classes of preferred stock without the approval of
shareholders.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires Neuberger Berman Management Inc.
("Management") to make estimates and assumptions at the date of the
financial statements. Actual results could differ from those estimates.
2 PORTFOLIO VALUATION: Investment securities are valued as indicated in the
notes following the Schedule of Investments.
3 SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions
are recorded on a trade date basis. Dividend income is recorded on the
ex-dividend date. Non-cash dividends included in dividend income, if any,
are recorded at the fair market value of the securities received.
Interest income, including accretion of original issue discount, where
applicable, and accretion of discount on short-term investments, is
recorded on the accrual basis. Realized gains and losses from securities
transactions and foreign currency transactions, if any, are recorded on
the basis of identified cost and stated separately in the Statement of
Operations.
4 INCOME TAX INFORMATION: It is the policy of the Fund to qualify as a
regulated investment company by complying with the requirements of
Subchapter M of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its earnings
to its shareholders. Therefore, no Federal income or excise tax provision
is required.
Income dividends and capital gain distributions are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments of income and gains on various investment securities
held by the Fund, timing differences and differing characterization of
distributions made by the Fund as a whole.
As determined on October 31, 2004, permanent differences resulting
primarily from different book and tax accounting for distributions in
excess of earnings and income recognized on interest rate swaps were
reclassified at year end. These reclassifications had no effect on net
income, net assets or net assets per share of the Fund.
13
<Page>
The tax character of distributions paid during the period ended October
31, 2004 were as follows:
<Table>
<Caption>
DISTRIBUTIONS PAID FROM:
---------------------------------------------------------------------
LONG-TERM TAX RETURN
ORDINARY INCOME CAPITAL GAIN OF CAPITAL TOTAL
$ 2,386,586 $ 193,309 1,208,557 $ 3,788,452
</Table>
As of October 31, 2004, 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
$ - $ - $ 11,240,925 $ - $ 11,240,925
</Table>
The difference between book basis and tax basis distributable earnings
are primarily due to timing differences on dividend payments, wash sales
and income recognized on interest rate swaps.
5 FOREIGN TAXES: Foreign taxes withheld represent amounts withheld by
foreign tax authorities, net of refunds recoverable.
6 DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: The Fund earns income, net
of expenses, daily on its investments. It is the policy of the Fund to
declare and pay quarterly distributions to common shareholders. The Fund
has adopted a policy to pay common shareholders a stable distribution.
The Fund's ability to satisfy its policy will depend on a number of
factors, including the stability of income received from its investments,
the availability of capital gains, and distributions paid on preferred
shares. In an effort to maintain a stable distribution amount, the Fund
may pay distributions consisting of net investment income, realized
capital gains and paid-in-capital. There is no assurance that the Fund
will always be able to pay distributions of a particular size, or that a
distribution will consist solely of net investment income and realized
capital gains. During the fiscal year ended October 31, 2004, the Fund's
distributions included a return of capital. The actual return of capital
for the calendar year 2004 will be reported to Fund shareholders on IRS
Form 1099. 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 to the extent of any available capital loss carryforwards.
Any such offset will not reduce the level of the stable distribution paid
by the Fund. Dividends and distributions to preferred shareholders are
accrued and determined as described in Note A-7.
The Fund invests a significant portion of its assets in securities issued
by real estate companies, including real estate investment trusts
("REITs"). The distributions received from REITs held by the Fund are
generally comprised of investment income, long-term capital gains, and
return of REIT capital but the REITs do not report this information to
the Fund until the following calendar year. At October 31, 2004, the Fund
estimated these amounts within the Statement of Operations since the
information is not available from the REITs until after the Fund's fiscal
year-end. The character of distributions paid to shareholders, as
disclosed within the Statement of Changes, is based on these estimates.
All estimates are based upon REIT information sources available to the
Fund together with actual IRS Form 1099s received to date.
14
<Page>
After calendar year-end, REITs 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. After all applicable REITs have
informed the Fund of the actual breakdown of distributions paid to the
Fund during its fiscal year, the Fund adjusts to actual, estimates
previously recorded. As a result, the composition of the Fund's
distributions as reported herein may differ from the final composition
determined after calendar year-end and reported to Fund shareholders on
IRS Form 1099.
Subsequent to October 31, 2004, the Fund on November 15, 2004 declared a
distribution to common shareholders in the amount of $0.30 per share
payable December 15, 2004, to shareholders of record on November 26,
2004, with an ex-dividend date of November 23, 2004.
7 EXPENSE ALLOCATION: Certain expenses are applicable to multiple funds.
Expenses directly attributable to the Fund are charged to the Fund.
Expenses borne by the complex of related investment companies, which
includes open-end and closed-end investment companies for which
Management serves as investment manager, that are not directly attributed
to the Fund, are allocated among the Fund and the other investment
companies in the complex or series thereof, on the basis of relative net
assets, except where a more appropriate allocation of expenses to each
investment company in the complex or series thereof can otherwise be made
fairly.
8 REDEEMABLE PREFERRED SHARES: On March 4, 2004, the Fund re-classified
4,800 unissued shares of capital stock as Series A Auction Market
Preferred Shares and Series B Auction Market Preferred Shares ("AMPS").
On June 28, 2004, the Fund issued 1,050 Series A AMPS and 1,050 Series B
AMPS. All AMPS 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 for Series A AMPS and every 28 days for Series B AMPS.
Dividend rates are reset every 7 days for Series A AMPS and every 28 days
for Series B AMPS based on the results of an auction, except during
special rate periods. For the period ended October 31, 2004, dividend
rates ranged from 1.53% to 1.90% for Series A and 1.55% to 1.94% for
Series B AMPS. The Fund declared dividends to preferred shareholders for
the period November 1, 2004 to November 30, 2004 of $43,016 and $43,821
for Series A and Series B AMPS, respectively.
The Fund may redeem AMPS, 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 AMPS. 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 AMPS at Liquidation Value. The
holders of AMPS are entitled to one vote per share and will vote with
holders of common stock as a single class, except that the AMPS will vote
separately as a class on certain matters, as required by law or the
Fund's charter. The holders of the AMPS, 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 AMPS for two consecutive years.
15
<Page>
9 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. Under the terms of the interest rate swap agreements,
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 AMPS. The fixed-rate and
variable-rate payment flows are netted against each other, with the
difference being paid by one party to the other on a monthly basis. The
Fund segregates cash or liquid securities having a value at least equal
to the Fund's net payment obligations under any swap transaction, marked
to market daily.
Risks may arise if the counterparty to a swap contract fails to comply
with the terms of its contract. The loss incurred by the failure of a
counter party is generally limited to the net interest payment to be
received by the Fund, and/or the termination value at the end of the
contract. Additionally, risks may arise from movements in interest rates
unanticipated by Management.
Periodic expected interim net interest payments or receipts on the swaps
are recorded as an adjustment to unrealized gains/losses, along with the
fair value of the future periodic payment streams on the swaps. The
unrealized gains/losses associated with the periodic interim net interest
payments are reclassified to realized gains/losses in conjunction with
the actual net receipt or payment of such amounts. At October 31, 2004,
the Fund had outstanding interest rate swap contracts as follows:
<Table>
<Caption>
RATE TYPE
---------------------------
FIXED-RATE VARIABLE-
PAYMENTS RATE ACCRUED
MADE PAYMENTS NET INTEREST UNREALIZED TOTAL
SWAP NOTIONAL TERMINATION BY THE RECEIVED BY RECEIVABLE APPRECIATION FAIR
COUNTER PARTY AMOUNT DATE FUND THE FUND(1) (PAYABLE) (DEPRECIATION) VALUE
Merrill Lynch $ 40,000,000 July 16, 2008 3.818% 1.88875% $ (30,011) $ (635,300) $ (665,311)
</Table>
(1) 30 day LIBOR (London Interbank Offered Rate)
10 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
Board, 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
guaranteed a certain amount of revenue to the Fund under the
16
<Page>
Agreement, and received a portion of any revenue earned in excess of the
guaranteed amount as a lending agency fee. For the year ended October 31,
2004, the Fund paid Neuberger $878 under the Agreement.
The Agreement has been renewed and approved by the Board as of July 1,
2004 with substantially the same terms. Under this current Agreement,
Neuberger guarantees a certain amount of revenue to the Fund and receives
any revenue earned in excess of the guaranteed amount as a lending agency
fee. Income earned on the securities loaned, if any, is reflected in the
Statement of Operations under the caption Income from securities
loaned-affiliated issuer.
11 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.
12 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 period from March 30, 2004 to October 31,
2004, management fees waived on the Cash Fund amounted to $3,651. For the
period from March 30, 2004 to October 31, 2004, income earned on this
investment amounted to $35,952 and is reflected in the Statement of
Operations under the caption Income from investments in affiliated
issuers.
13 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 $0.04 per share.
The costs incurred by Management were approximately $531,958. Offering
costs for common stock paid by the Fund were charged as a reduction of
common stock paid-in-capital at the completion of the Fund's offering and
amounted to $232,209.
Additionally, estimated offering costs of $275,000 and a sales load of
$525,000 incurred through the issuance of AMPS were charged as a
reduction of common stock paid-in-capital at the completion of the Fund's
AMPS offerings.
As of October 31, 2004, total offering costs of $18,841 remain payable by
the Fund.
14 CONCENTRATION OF RISK: Under normal market conditions, the Fund's
investments will be primarily concentrated in 1) income-producing
securities recommended by the Neuberger Research Department that, at the
time of investment, have a dividend yield greater than the average
dividend yield of the S&P 500
17
<Page>
Composite Stock Index and 2) income-producing common equity securities,
preferred equity securities, securities convertible into equity
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 Fund 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.
15 INDEMNIFICATIONS: Like many other companies, the Fund's organizational
documents provide that its officers and directors are indemnified against
certain liabilities arising out of the performance of their duties to the
Fund. In addition, both in some of its principal service contracts and in
the normal course of its business, the Fund enters into contracts that
provide indemnifications to other parties for certain types of losses or
liabilities. The Fund's maximum exposure under these arrangements is
unknown as this could involve future claims against the Fund.
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 AMPS outstanding is not considered a liability.
Management has contractually agreed to waive a portion of the management
fees it is entitled to receive from the Fund at the following annual
rates:
<Table>
<Caption>
FISCAL PERIOD OR YEAR ENDED % OF AVERAGE
OCTOBER 31, DAILY MANAGED ASSETS
-------------------------------------------------------------------------
2004 - 2008 0.20
2009 0.14
2010 0.07
</Table>
Management has not agreed to waive any portion of its fees beyond October
31, 2010.
For the period ended October 31, 2004, such waived fees amounted to
$166,187.
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.
Management and Neuberger, a member firm of the New York Stock Exchange
and sub-adviser to the Fund, are indirect wholly-owned subsidiaries of
Lehman Brothers Holdings Inc. ("Lehman"), a publicly-owned holding
company. Neuberger is retained by Management to furnish it with
investment recommendations and
18
<Page>
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.
Expenses paid through this program may include costs of custodial,
transfer agency or accounting services. For the period ended October 31,
2004, the impact of this arrangement was a reduction of $13,789.
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 $64.
In connection with the settlement of each AMPS auction, the Fund pays,
through the auction agent, a service fee to each participating
broker-dealer based upon the aggregate liquidation preference of the AMPS
held by the broker-dealer's customers. For any auction preceding a rate
period of less than one year, the service fee is paid at the annual rate
of 1/4 of 1%; for any auction preceding a rate period of one year or
more, the service fee is paid at a rate agreed to by the Fund and the
broker-dealer.
In order to satisfy rating agencies' requirements, the Fund is required
to provide each rating agency a report on a monthly basis verifying that
the Fund is maintaining eligible assets having a discounted value equal
to or greater than the AMPS 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 AMPS. `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 period ended October 31, 2004, there were purchase and sale
transactions (excluding short-term securities and interest rate swap
contracts) of $187,982,428 and $31,727,915, respectively.
During the period ended October 31, 2004, brokerage commissions on
securities transactions amounted to $299,040, of which Neuberger received
$730, Lehman received $58,926, and other brokers received $239,384.
NOTE D--CAPITAL:
At October 31, 2004, the common shares outstanding and the common shares
of the Fund owned by Neuberger were as follows:
<Table>
<Caption>
COMMON SHARES COMMON SHARES
OUTSTANDING OWNED BY NEUBERGER
5,805,236 5,236
</Table>
19
<Page>
Transactions in common shares for the period from March 30, 2004 to
October 31, 2004 were as follows:
<Table>
<Caption>
COMMON SHARES ISSUED IN CONNECTION WITH:
UNDERWRITERS' EXERCISE REINVESTMENT OF
INITIAL INITIAL OF OVER-ALLOTMENT DIVIDENDS AND NET INCREASE IN COMMON
CAPITALIZATION PUBLIC OFFERING OPTION DISTRIBUTIONS SHARES OUTSTANDING
5,236 5,800,000 - - 5,805,236
</Table>
NOTE E--INVESTMENTS IN AFFILIATES*:
<Table>
<Caption>
INCOME FROM
INVESTMENTS
GROSS BALANCE OF IN AFFILIATED
BALANCE OF PURCHASES GROSS SHARES HELD VALUE ISSUERS
SHARES HELD AND SALES AND OCTOBER 31, OCTOBER 31, INCLUDED IN
NAME OF ISSUER MARCH 30, 2004(1) ADDITIONS REDUCTIONS 2004 2004 TOTAL INCOME
N&B Securities
Lending Quality
Fund, LLC** 0 1,792,036,800 1,772,821,300 19,215,500 $ 19,215,500 $ 2,891
Neuberger Berman
Institutional Cash
Fund Trust Class*** 0 96,066,854 93,895,650 2,171,204 2,171,204 35,952
------------- --------------
Total $ 21,386,704 $ 38,843
</Table>
(1) The date investment operations commenced.
* Affiliated issuers, as defined in the 1940 Act, include issuers in
which the Fund held 5% or more of the outstanding voting securities.
** The N&B Securities Lending Quality Fund, LLC ("Quality Fund") is an
investment vehicle established by the Fund's custodian to invest
cash the Fund receives as collateral for securities loans. The
Fund's shares in the Quality Fund are non-voting. However, because
all shares of the Quality Fund are held by funds in the related
investment management complex, the Quality Fund may be considered an
affiliate of the Fund.
*** Neuberger Berman Institutional Cash Fund ("Institutional Cash") is
also managed by Neuberger Berman Management Inc. and may be
considered an affiliate since it has the same officers, board
members, and investment manager as the Fund and because, at times,
the Fund may own 5% or more of the outstanding voting securities of
Institutional Cash.
20
<Page>
NEUBERGER BERMAN OCTOBER 31, 2004
FINANCIAL HIGHLIGHTS DIVIDEND ADVANTAGE 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>
PERIOD FROM
MARCH 30, 2004^
TO OCTOBER 31,
2004
---------------
COMMON SHARE NET ASSET VALUE, BEGINNING OF PERIOD $ 19.10
----------
INCOME FROM INVESTMENT OPERATIONS APPLICABLE TO COMMON SHAREHOLDERS:
NET INVESTMENT INCOME (LOSS) .39
NET GAINS OR LOSSES ON SECURITIES (BOTH REALIZED AND UNREALIZED) 1.99
COMMON SHARE EQUIVALENT OF DISTRIBUTIONS TO PREFERRED SHAREHOLDERS FROM:
NET INVESTMENT INCOME (.03)
NET CAPITAL GAINS (.00)
TAX RETURN OF CAPITAL (.02)
----------
TOTAL DISTRIBUTIONS TO PREFERRED SHAREHOLDERS (.05)
----------
TOTAL FROM INVESTMENT OPERATIONS APPLICABLE TO COMMON SHAREHOLDERS 2.33
----------
LESS DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM:
NET INVESTMENT INCOME (.32)
NET CAPITAL GAINS (.09)
TAX RETURN OF CAPITAL (.19)
----------
TOTAL DISTRIBUTIONS TO COMMON SHAREHOLDERS (.60)
----------
LESS CAPITAL CHARGES:
ISSUANCE OF COMMON SHARES (.04)
ISSUANCE OF PREFERRED SHARES (.14)
----------
TOTAL CAPITAL CHARGES (.18)
----------
COMMON SHARE NET ASSET VALUE, END OF PERIOD $ 20.65
----------
COMMON SHARE MARKET VALUE, END OF PERIOD $ 18.69
----------
TOTAL RETURN, COMMON SHARE NET ASSET VALUE+ +11.83%**
TOTAL RETURN, COMMON SHARE MARKET VALUE+ -3.33%**
RATIOS/SUPPLEMENTAL DATA++
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS, END OF PERIOD (IN MILLIONS) $ 119.9
PREFERRED STOCK, AT LIQUIDATION VALUE ($25,000 PER SHARE LIQUIDATION PREFERENCE) (IN MILLIONS) $ 52.5
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS# 1.14%*
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS+++ 1.12%*
RATIO OF NET INVESTMENT INCOME (LOSS) EXCLUDING PREFERRED STOCK DIVIDENDS TO AVERAGE
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS 3.47%*
RATIO OF PREFERRED STOCK DIVIDENDS TO AVERAGE NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS .47%*
RATIO OF NET INVESTMENT INCOME (LOSS) INCLUDING PREFERRED STOCK DIVIDENDS TO AVERAGE NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS 3.00%*
PORTFOLIO TURNOVER RATE 28%
ASSET COVERAGE PER SHARE OF PREFERRED STOCK, END OF PERIOD@ $ 82,086
</Table>
See Notes to Financial Highlights
21
<Page>
NOTES TO FINANCIAL HIGHLIGHTS DIVIDEND ADVANTAGE 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 the fiscal
period. Total return based on per share market value assumes the purchase
of common shares at the market price on the first day and sales of common
shares at the market price on the last day of the period indicated.
Dividends and distributions, if any, are assumed to be reinvested at prices
obtained under the Fund's dividend reinvestment plan. Results represent
past performance and do not guarantee future results. 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 ratio of net expenses to average
daily net assets would have been:
<Table>
<Caption>
PERIOD ENDED
OCTOBER 31,
2004(1)
1.38%
</Table>
(1) Period from March 30, 2004 to October 31, 2004.
^ The date investment operations commenced.
* Annualized.
** Not annualized.
@ Calculated by subtracting the Fund's total liabilities (excluding
accumulated unpaid dividends on AMPS) from the Fund's total assets and
dividing by the number of AMPS outstanding.
++ Expense ratios do not include the effect of dividend payments to preferred
shareholders. Income ratios include income earned on assets attributable to
AMPS outstanding.
~ Computed using an average number of shares outstanding during the period.
22
<Page>
NEUBERGER BERMAN OCTOBER 31, 2004
REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Neuberger Berman Dividend Advantage Fund Inc.
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Neuberger Berman Dividend Advantage Fund Inc.,
(the "Fund") as of October 31, 2004, and the related statement of operations,
statement of changes in net assets and financial highlights for the period from
March 30, 2004 (commencement of operations) to October 31, 2004. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights. Our procedures
included confirmation of securities owned as of October 31, 2004, by
correspondence with the custodian and brokers or other appropriate auditing
procedures where replies from brokers were not received. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Neuberger Berman Dividend Advantage Fund Inc. at October 31, 2004, the results
of its operations, changes in its net assets, and its financial highlights for
the period from March 30, 2004 (commencement of operations) to October 31, 2004,
in conformity with U.S. generally accepted accounting principles.
Ernst & Young LLP
Boston, Massachusetts
December 3, 2004
23
<Page>
DIVIDEND REINVESTMENT PLAN (UNAUDITED)
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.
24
<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.
25
<Page>
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
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
26
<Page>
NEUBERGER BERMAN OCTOBER 31, 2004
DIRECTORS AND OFFICERS (UNAUDITED)
The following tables set forth information concerning the directors and officers
of the Funds. All persons named as directors and officers also serve in similar
capacities for other funds administered or managed by NB Management and
Neuberger Berman, LLC. The Statement of Additional Information for each Fund
includes additional information about fund directors and is available upon
request, without charge, by calling (877) 461-1899.
THE BOARD OF DIRECTORS
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
FUND COMPLEX
NAME, AGE, ADDRESS (1) OVERSEEN BY OTHER DIRECTORSHIPS HELD OUTSIDE
AND POSITION WITH FUND PRINCIPAL OCCUPATION(S) (2) DIRECTOR FUND COMPLEX BY DIRECTOR
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS I
INDEPENDENT FUND DIRECTORS*
Faith Colish (69) Counsel, Carter Ledyard & Milburn LLP (law firm) 41 Director, American Bar
Director since October 2002; formerly, Attorney-at-Law and Retirement Association (ABRA)
President, Faith Colish, A Professional since 1997 (not-for-profit
Corporation, 1980 to 2002. membership association).
C. Anne Harvey (67) Consultant, C. A. Harvey Associates, since June 41 President, Board of
Director 2001; formerly, Director, AARP, 1978 to December Associates to The National
2001. Rehabilitation Hospital's
Board of Directors since
2002; formerly, Member,
Individual Investors Advisory
Committee to the New York
Stock Exchange Board of
Directors, 1998 to June 2002;
formerly, Member, American
Savings Education Council's
Policy Board (ASEC),
1998-2000; formerly, Member,
Executive Committee, Crime
Prevention Coalition of
America, 1997-2000.
Cornelius T. Ryan (72) Founding General Partner, Oxford Partners and 41 Director, Capital Cash
Director Oxford Bioscience Partners (venture capital Management Trust (money
partnerships) and President, Oxford Venture market fund), Naragansett
Corporation. Insured Tax-Free Income 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 41 None.
Director Credit Company since August 1997; formerly,
President, Ford Life Insurance Company, April 1995
until August 1997.
</Table>
27
<Page>
<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* (45) Executive Vice President, Neuberger Berman Inc. 41 Director and Vice President,
Chief Executive Officer, (holding company) since 1999; Head of Neuberger Neuberger & Berman Agency,
Director and Chairman of Berman Inc.'s Mutual Funds and Institutional Inc. since 2000; formerly,
the Board Business since 1999; President and Director, NB Director, Neuberger Berman
Management since 1999; Executive Vice President, Inc. (holding company) from
Neuberger Berman since 1999; formerly, Principal, October 1999 through March
Neuberger Berman from 1997 until 1999; formerly, 2003.
Senior Vice President, NB Management from 1996
until 1999.
CLASS II
INDEPENDENT FUND DIRECTORS*
John Cannon (74) Consultant. Formerly, Chairman, CDC Investment 41 Independent Trustee or
Director Advisers (registered investment adviser), Director of three series of
1993-January 1999; formerly, President and Chief OppenheimerFunds: Limited
Executive Officer, AMA Investment Advisors, an Term New York Municipal Fund,
affiliate of the American Medical Association. Rochester Fund Municipals,
and Oppenheimer Convertible
Securities Fund, since 1992.
Barry Hirsch (71) Attorney-at-Law. Formerly, Senior Counsel, Loews 41 None.
Director Corporation (diversified financial corporation) May
2002 until April 2003; formerly, Senior Vice
President, Secretary and General Counsel, Loews
Corporation.
</Table>
28
<Page>
<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 41 Director, H&R Block, Inc.
Director investment partnership); formerly, President and (financial services company)
CEO, Westaff, Inc. (temporary staffing), May 2001 since May 2001; Director,
to January 2002; Senior Executive at the Charles Forward Management, Inc.
Schwab Corporation from 1983 to 1999, including (asset management) since
Chief Executive Officer, Charles Schwab Investment 2001; formerly, Director,
Management, Inc. and Trustee, Schwab Family of General Magic (voice
Funds and Schwab Investments from 1997 to 1998 and recognition software) 2001
Executive Vice President-Retail Brokerage, Charles until 2002; formerly,
Schwab Investment Management from 1994 to 1997. Director, E-Finance
Corporation (credit
decisioning services)
1999-2003; formerly,
Director, Save-Daily.com
(micro investing services)
1999-2003; Director, Offroad
Capital Inc. (pre-public
internet commerce company).
DIRECTOR WHO IS AN "INTERESTED PERSON"
Jack L. Rivkin* (64) Executive Vice President and Chief Investment 41 Director, Dale Carnegie and
President and Director Officer, Neuberger Berman Inc. (holding company) Associates, Inc. (private
since 2002 and 2003, respectively; Executive Vice company) since 1998;
President and Chief Investment Officer, Neuberger Director, Emagin Corp.
Berman since 2002 and 2003, respectively; Director (public company) since 1997;
and Chairman, NB Management since December 2002; Director, Solbright, Inc.
formerly, Executive Vice President, Citigroup (private company) since 1998;
Investments, Inc. from September 1995 to February Director, Infogate, Inc.
2002; formerly, Executive Vice President, Citigroup (private company) since 1997;
Inc. from September 1995 to February 2002. Director, Broadway Television
Network (private company)
since 2000.
CLASS III
INDEPENDENT FUND DIRECTORS*
Walter G. Ehlers (71) Consultant; Retired President and Trustee, Teachers 41 None.
Director Insurance & Annuity (TIAA) and College Retirement
Equities Fund (CREF).
</Table>
29
<Page>
<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
- -----------------------------------------------------------------------------------------------------------------------------------
Robert A. Kavesh (77) Marcus Nadler Professor Emeritus of Finance and 41 Director, DEL Laboratories,
Director Economics, New York University Stern School of Inc. (cosmetics and
Business. pharmaceuticals) since 1978;
Director, The Caring
Community (not-for-profit).
Howard A. Mileaf (67) Retired. Formerly, Vice President and Special 41 Director, WHX Corporation
Director Counsel, WHX Corporation (holding company) (holding company) since
1993-2001. August 2002; Director,
Webfinancial Corporation
(holding company) since
December 2002; Director,
State Theatre of New Jersey
(not-for-profit theater)
since 2000; formerly,
Director, Kevlin Corporation
(manufacturer of microwave
and other products).
William E. Rulon (72) Retired. Formerly, Senior Vice President, 41 Director, Pro-Kids Golf and
Director Foodmaker, Inc. (operator and franchiser of Learning Academy (teach golf
restaurants) until January 1997. and computer usage to "at
risk" children) since 1998;
formerly, Director, Prandium,
Inc. (restaurants) from March
2001 until July 2002.
Candace L. Straight (57) Private investor and consultant specializing in the 41 Director, The Proformance
Director insurance industry; formerly, Advisory Director, Insurance Company (personal
Securitas Capital LLC (a global private equity lines property and casualty
investment firm dedicated to making investments in insurance company) since
the insurance sector) 1998 until December 2002. March 2004; Director,
Providence Washington
(property and casualty
insurance company) since
December 1998; Director,
Summit Global Partners
(insurance brokerage firm)
since October 2000.
</Table>
30
<Page>
<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* (76) Formerly, Member, Investment Policy Committee, 41 Director, Legg Mason, Inc.
Director Edward Jones 1993-2001; President, Securities (financial services holding
Industry Association ("SIA") (securities industry's company) since 1993;
representative in government relations and formerly, Director, Boston
regulatory matters at the federal and state levels) Financial Group (real estate
1974-1992; Adviser to SIA, November 1992-November and tax shelters) 1993-1999.
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.
31
<Page>
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 (48) Secretary since 2002 Vice President-Mutual Fund Board Relations, NB
Management since 2000; Vice President,
Neuberger Berman since 2002 and employee since
1999; formerly, Vice President, NB Management
from 1986 to 1999; Secretary, fourteen
registered investment companies for which NB
Management acts as investment manager and
administrator (four since 2002, three since
2003, and four since 2004).
Robert Conti (48) Vice President since 2002 Senior Vice President, Neuberger Berman since
2003; formerly, Vice President, Neuberger
Berman from 1999 until 2003; Senior Vice
President, NB Management since 2000; formerly,
Controller, NB Management until 1996; formerly,
Treasurer, NB Management from 1996 until 1999;
Vice President, fourteen registered investment
companies for which NB Management acts as
investment manager and administrator (three since
2000, four since 2002, three since 2003, and four
since 2004).
Brian J. Gaffney (51) Vice President since 2002 Managing Director, Neuberger Berman since 1999;
Senior Vice President, NB Management since
2000; formerly, Vice President, NB Management
from 1997 until 1999; Vice President, fourteen
registered investment companies for which NB
Management acts as investment manager and
administrator (three since 2000, four since
2002, three since 2003, and four since 2004).
Sheila R. James (39) Assistant Secretary since 2002 Employee, Neuberger Berman since 1999;
Employee, NB Management from 1991 to 1999;
Assistant Secretary, fourteen registered
investment companies for which NB Management
acts as investment manager and administrator
(seven since 2002, three since 2003, and four
since 2004).
</Table>
32
<Page>
NEUBERGER BERMAN OCTOBER 31, 2004
<Table>
<Caption>
POSITION AND
NAME, AGE, AND ADDRESS (1) LENGTH OF TIME SERVED (2) PRINCIPAL OCCUPATION(S)
- ----------------------------------------------------------------------------------------------------------------------------------
Kevin Lyons (49) Assistant Secretary since 2003 Employee, Neuberger Berman since 1999;
Employee, NB Management from 1993 to 1999;
Assistant Secretary, fourteen registered
investment companies for which NB Management
acts as investment manager and administrator
(ten since 2003 and four since 2004).
John M. McGovern (34) Assistant Treasurer since 2002 Vice President, Neuberger Berman since January
2004; Employee, NB Management since 1993;
Assistant Treasurer, fourteen registered
investment companies for which NB Management
acts as investment manager and administrator
(seven since 2002, three since 2003, and four
since 2004).
Barbara Muinos (45) Treasurer and Principal Financial Vice President, Neuberger Berman since 1999;
and Accounting Officer since formerly, Assistant Vice President, NB
2002 Management from 1993 to 1999; Treasurer and
Principal Financial and Accounting Officer,
fourteen registered investment companies for
which NB Management acts as investment manager
and administrator (seven since 2002, three
since 2003, and four since 2004); formerly,
Assistant Treasurer, three registered investment
companies for which NB Management acts as
investment manager and administrator from 1996
until 2002.
Frederic B. Soule (58) Vice President since 2002 Senior Vice President, Neuberger Berman since
2003; formerly, Vice President, Neuberger
Berman from 1999 until 2003; formerly, Vice
President, NB Management from 1995 until 1999;
Vice President, fourteen registered investment
companies for which NB Management acts as
investment manager and administrator (three
since 2000, four since 2002, three since 2003,
and four 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.
33
<Page>
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available, without charge,
by calling 1-800-877-9700 (toll-free) and on the website of the Securities and
Exchange Commission, at www.sec.gov. Information regarding how the Fund voted
proxies relating to portfolio securities during the most recent 12-month period
ended June 30 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.
QUARTERLY PORTFOLIO SCHEDULE
The Fund files a complete schedule of portfolio holdings with the Securities and
Exchange Commission for the first and third quarters of each fiscal year on Form
N-Q. The Fund's Forms N-Q are available on the Securities and Exchange
Commission's website at www.sec.gov and may be reviewed and copied at the
Securities and Exchange Commission's Public Reference Room in Washington, DC.
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330. The information on Form N-Q is available upon request,
without charge, by calling 1-800-877-9700 (toll-free).
CHANGES TO THE BYLAWS
On September 21, 2004, the Board adopted an amendment to the Bylaws of the Fund
stating that directors are elected by the vote of a majority of the outstanding
shares entitled to vote on the matter.
34
<Page>
NEUBERGER BERMAN OCTOBER 31, 2004
NOTICE TO SHAREHOLDERS (UNAUDITED)
For Neuberger Berman Dividend Advantage Fund, 43.70% of dividends distributed
during the fiscal year ended October 31, 2004 qualifies for the dividends
received deduction for corporate shareholders.
For the fiscal year ended October 31, 2004, Neuberger Berman Dividend Advantage
Fund Inc. designates $1,034,873 or up to the maximum amount of such dividends
allowable pursuant to the Internal Revenue Code, as qualified dividend income
eligible for reduced tax rates. These lower rates range from 5% to 15% depending
upon an individual's tax bracket. Complete information regarding the fund's
distributions during the calendar year 2004 will be reported in conjunction with
Form 1099-DIV.
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
INTERNAL SALES & SERVICES
877.461.1899
www.nb.com
Statistics and projections in this report are derived from sources deemed to be
reliable but cannot be regarded as a representation of future results of the
Fund. This report is prepared for the general information of shareholders and is
not an offer of shares of the Fund.
[GRAPHIC] EO100 12/04
ITEM 2. CODE OF ETHICS
The Board of Directors ("Board") of Neuberger Berman Dividend Advantage Fund
Inc. ("Registrant") adopted a code of ethics that applies to the Registrant's
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions ("Code of
Ethics"). A copy of the Code of Ethics is filed as Exhibit 11(a)(1) to this Form
N-CSR. The Code of Ethics is also available, without charge, by calling
1-800-877-9700 (toll-free).
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
The Board has determined that the Registrant has one audit committee financial
expert serving on its audit committee. The Registrant's audit committee
financial expert is John Cannon. Mr. Cannon is an independent director as
defined by Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Ernst & Young, LLP ("E&Y") serves as independent registered public accounting
firm to the Registrant. Since the Registrant commenced operations within the
past year, it only has fees for the last fiscal year.
(a) Audit Fees
----------
The aggregate fees billed for the last fiscal year for professional services
rendered by E&Y for the audit of the annual financial statements or services
that are normally provided by E&Y in connection with statutory and regulatory
filings or engagements for the last fiscal year were $49,750 for 2004.
(b) Audit-Related Fees
------------------
The aggregate fees billed to the Registrant in the last fiscal year for
assurance and related services by E&Y that are reasonably related to the
performance of the audit of the Registrant's financial statements and are not
reported above in AUDIT FEES were $0 for 2004.
The fees billed to other entities in the investment company complex for
assurance and related services by E&Y that are reasonably related to the
performance of the audit that the Audit Committee was required to approve
because the engagement related directly to the operations and financial
reporting of the Registrant were $0 for 2004.
(c) Tax Fees
--------
The aggregate fees billed to the Registrant in the last fiscal year for
professional services rendered by E&Y for tax compliance, tax advice, and tax
planning were $8,700 for 2004. The nature of the services provided was tax
compliance, tax advice, and tax planning. The Audit Committee approved 0% of
these services provided by E&Y for 2004, pursuant to the waiver provisions of
Rule 2-01(c)(7)(i)(C) of Regulation S-X.
The fees billed to other entities in the investment company complex for tax
compliance, tax advice, and tax planning that the Audit Committee was required
to approve because the engagement related directly to the operations and
financial reporting of the Registrant were $0 for 2004.
(d) All Other Fees
--------------
The aggregate fees billed to the Registrant in the last fiscal year for products
and services provided by E&Y, other than services reported in Audit Fees,
Audit-Related Fees, and Tax Fees were $0 for 2004.
The fees billed to other entities in the investment company complex for products
and services provided by E&Y, other than services reported in Audit Fees,
Audit-Related Fees, and Tax Fees that the Audit Committee was required to
approve because the engagement related directly to the operations and financial
reporting of the Registrant were $0 for 2004.
(e) Audit Committee's Pre-Approval Policies and Procedures
------------------------------------------------------
(1) The Audit Committee's pre-approval policies and procedures for the
Registrant to engage an accountant to render audit and non-audit services
delegate to the Chair of the Committee the power to pre-approve services between
meetings of the Committee.
(2) None of the services described in paragraphs (b) through (d) above were
approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01
of Regulation S-X.
(f) Hours Attributed to Other Persons
---------------------------------
Not applicable.
(g) Non-Audit Fees
--------------
Non-audit fees billed by E&Y for services rendered to the Registrant for the
last fiscal year of the Registrant were $8,700 for 2004.
Non-audit fees billed by E&Y for services rendered to the Registrant's
investment adviser and any entity controlling, controlled by, or under common
control with the adviser that provides ongoing services to the Registrant for
the last fiscal year of the Registrant were $256,050 for 2004.
(h) The Audit Committee of the Board of Directors considered whether the
provision of non-audit services rendered to the Registrant's investment adviser
and any entity controlling, controlled by, or under common control with the
adviser that provides ongoing services to the Registrant that were not
pre-approved by the Audit Committee because the engagement did not relate
directly to the operations and financial reporting of the Registrant is
compatible with maintaining E&Y's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
The Board has established an Audit Committee to oversee particular aspects of
the Registrant's management. The Audit Committee's purposes are (a) to oversee
the accounting and financial reporting processes of the Registrant and their
internal controls and, as the Committee deems appropriate, to inquire into the
internal controls of certain service providers; (b) to oversee the quality and
objectivity of the Registrant's financial statements and the independent audit
thereof; (c) to oversee, or, as appropriate, assist Board oversight of, the
Registrant's compliance with legal and regulatory requirements that relate to
the Portfolios' accounting and financial reporting, internal controls and
independent audits; (d) to approve prior to appointment the engagement of the
Registrant's independent auditors and, in connection therewith, to review and
evaluate the qualifications, independence and performance of the Registrant's
independent auditors; and (e) to act as a liaison between the Registrant's
independent auditors and the full Board. The Audit Committee is composed
entirely of Independent Fund Directors; its members are John Cannon, Cornelius
T. Ryan (Chairman), Tom D. Seip, and Peter P. Trapp.
ITEM 6. SCHEDULE OF INVESTMENTS
The complete schedule of investments for each series is disclosed in the
Registrant's Annual Report, which is included as Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
The Board has delegated to Neuberger Berman, LLC ("Neuberger Berman") the
responsibility to vote proxies related to the securities held in the Fund's
portfolios. Under this authority, Neuberger Berman is required by the Board to
vote proxies related to portfolio securities in the best interests of the Fund
and its stockholders. The Board permits Neuberger Berman to contract with a
third party to obtain proxy voting and related services, including research of
current issues.
Neuberger Berman has implemented written Proxy Voting Policies and Procedures
("Proxy Voting Policy") that are designed to reasonably ensure that Neuberger
Berman votes proxies prudently and in the best interest of its advisory clients
for whom Neuberger Berman has voting authority, including the Fund. The Proxy
Voting Policy also describes how Neuberger Berman addresses any conflicts that
may arise between its interests and those of its clients with respect to proxy
voting.
Neuberger Berman's Proxy Committee is responsible for developing, authorizing,
implementing and updating the Proxy Voting Policy, overseeing the proxy voting
process and engaging and overseeing any independent third-party vendors as
voting delegate to review, monitor and/or vote proxies. In order to apply the
Proxy Voting Policy noted above in a timely and consistent manner, Neuberger
Berman utilizes Institutional Shareholder Services Inc. ("ISS") to vote proxies
in accordance with Neuberger Berman's voting guidelines.
Neuberger Berman's guidelines adopt the voting recommendations of ISS. Neuberger
Berman retains final authority and fiduciary responsibility for proxy voting.
Neuberger Berman believes that this process is reasonably designed to address
material conflicts of interest that may arise between Neuberger Berman and a
client as to how proxies are voted.
In the event that an investment professional at Neuberger Berman believes that
it is in the best interests of a client or clients to vote proxies in a manner
inconsistent with Neuberger Berman's proxy voting guidelines or in a manner
inconsistent with ISS recommendations, the Proxy Committee will review
information submitted by the investment professional to determine that there is
no material conflict of interest between Neuberger Berman and the client with
respect to the voting of the proxy in that manner.
If the Proxy Committee determines that the voting of a proxy as recommended by
the investment professional presents a material conflict of interest between
Neuberger Berman and the client or clients with respect to the voting of the
proxy, the Proxy Committee shall: (i) take no further action, in which case ISS
shall vote such proxy in accordance with the proxy voting guidelines or as ISS
recommends; (ii) disclose such conflict to the client or clients and obtain
written direction from the client as to how to vote the proxy; (iii) suggest
that the client or clients engage another party to determine how to vote the
proxy; or (iv) engage another independent third party to determine how to vote
the proxy.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS
No reportable purchases for the period covered by this report.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no changes to the procedures by which shareholders may recommend
nominees to the Board.
ITEM 10. CONTROLS AND PROCEDURES
(a) Based on an evaluation of the disclosure controls and procedures (as
defined in rule 30a-3(c) under the Investment Company Act of 1940, as
amended (the "Act")) as of a date within 90 days of the filing date of
this document, the Chief Executive Officer and Treasurer and Principal
Financial and Accounting Officer of the Registrant have concluded that
such disclosure controls and procedures are effectively designed to
ensure that information required to be disclosed by the Registrant is
accumulated and communicated to the Registrant's management to allow
timely decisions regarding required disclosure.
(b) There were no significant changes in the Registrant's internal controls
over financial reporting (as defined in rule 30a-3(d) under the Act)
that occurred during the Registrant's last fiscal half-year that have
materially affected, or are reasonably likely to materially affect, the
Registrant's internal control over financial reporting.
ITEM 11. EXHIBITS
(a)(1) A copy of the Code of Ethics is filed as Exhibit 11(a)(1).
(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 certifications provided pursuant to Section 906 of the Sarbanes-Oxley Act
are not deemed "filed" for purposes of Section 18 of the Securities Exchange Act
of 1934 ("Exchange Act"), or otherwise subject to the liability of that section.
Such certifications will not be deemed to be incorporated by reference into any
filing under the Securities Act of 1933 or the Exchange Act, except to the
extent that the Registrant specifically incorporates them by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Neuberger Berman Dividend Advantage Fund Inc.
By: /s/ Peter E. Sundman
----------------------
Peter E. Sundman
Chief Executive Officer
Date: January 7, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By: /s/ Peter E. Sundman
----------------------
Peter E. Sundman
Chief Executive Officer
Date: January 7, 2005
By: /s/ Barbara Muinos
--------------------
Barbara Muinos
Treasurer and Principal Financial
and Accounting Officer
Date: January 7, 2005