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: 811-21421
NEUBERGER BERMAN REAL ESTATE SECURITIES INCOME 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 Real Estate Securities Income Fund Inc.
605 Third Avenue, 2nd Floor
New York, New York 10158-0180
Arthur C. Delibert, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W. 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
[NEUBERGER BERMAN LOGO]
A LEHMAN BROTHERS COMPANY
ANNUAL REPORT
OCTOBER 31, 2004
NEUBERGER BERMAN
REAL ESTATE
SECURITIES INCOME
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 34
</Table>
CHAIRMAN'S LETTER
Dear Shareholder,
I am pleased to present to you this annual report for the Neuberger Berman Real
Estate Securities Income Fund Inc., for the period ending October 31, 2004. The
report includes portfolio commentary, a listing of the Fund's investments, and
its audited financial statements for the reporting period.
The Fund's investment objective is to provide high current income, and its
secondary objective is to provide capital appreciation. In seeking to accomplish
both, we have assembled a portfolio with a broad mix of equity securities of
real estate investment trusts (REITs) and other real estate companies.
Portfolio Manager Steven Brown's investment approach combines analysis of
security fundamentals and real estate with property sector diversification. His
disciplined valuation methodology seeks out real estate securities that are
attractively priced relative to their historical growth rates and the valuation
of other property sectors.
We believe our conservative investing philosophy and disciplined investment
process will benefit you with superior returns over the long term.
Thank you for your confidence in Neuberger Berman. We will continue to do our
best to keep earning it.
Sincerely,
/s/ Peter Sundman
PETER SUNDMAN
CHAIRMAN OF THE BOARD
NEUBERGER BERMAN REAL ESTATE
SECURITIES INCOME FUND INC.
"Neuberger Berman" and the Neuberger Berman logo are service marks of Neuberger
Berman, LLC. "Neuberger Berman Management Inc." and the individual fund names 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>
REAL ESTATE SECURITIES INCOME FUND INC. Portfolio Commentary
For the fiscal year ending October 31, 2004, on a Net Asset Value (NAV)
basis, the Neuberger Berman Real Estate Securities Income Fund Inc. (AMEX:
NRO) provided a 19.30% return, compared to a gain of 29.95% for the NAREIT
Equity REIT Index.
The Fund trailed its benchmark as a result of timing issues more than
property sector or stock selection. The Fund commenced investment
operations on October 31, 2003. During its initial investing period, which
covered November 1, 2003 to January 31, 2004, the NAREIT index surged
almost 13%. Because we were not fully invested until February, we could not
capitalize on this strong market performance. However, the Fund's portfolio
is well diversified across property sectors and geographic regions. It is,
we believe, well positioned to provide improved relative performance moving
forward.
Over the 12-month reporting period, the REIT market was very strong,
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
increased. In addition, investors continued to emphasize companies with
visible earnings, which benefited the REIT market.
Among REIT sectors, regional malls, shopping centers, and industrial
properties did particularly well. Retailers also performed well, as they
continued to expand over the past year, 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.
On the other hand, REITs that own office properties performed less well.
Office properties underperformed due to concerns about oversupply and
modest expansion plans. Apartment sector underperformance resulted from the
low-interest-rate environment, encouraging first time home buyers to become
more active.
As we look out to 2005, we see continued improvement in the U.S. economy
and improving fundamentals for most types of real estate, albeit with
expectations for higher interest rates. Our general outlook for REITs
remains favorable and we believe that demand for REITs has the potential to
remain robust.
Sincerely,
/s/ Steven R. Brown
STEVEN R. BROWN
PORTFOLIO MANAGER
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>
NEUBERGER BERMAN OCTOBER 31, 2004
<Table>
<Caption>
REAL ESTATE
SECURITIES INCOME FUND
AMEX TICKER SYMBOL NRO
1 YEAR TOTAL RETURN
NAV (1) 19.30%
MARKET PRICE (2) 3.79%
AVERAGE ANNUAL TOTAL RETURN (Life of
Fund as of October 31, 2004)
NAV (1) 18.73%
MARKET PRICE (2) 3.80%
INCEPTION DATE 10/28/2003
</Table>
INDUSTRY DIVERSIFICATION
(% OF INDUSTRY HOLDINGS)
<Table>
Apartments 19.7%
Commercial Services 1.4
Community Centers 9.3
Diversified 16.4
Freestanding 1.9
Health Care 18.1
Industrial 6.9
Lodging 10.3
Manufactured Homes 4.8
Office 36.9
Office-Industrial 6.5
Regional Malls 9.1
Self Storage 2.9
Specialty 1.1
Short-Term Investments 12.7
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. Returns based on Net Asset Value ("NAV") of the Fund.
2. Returns 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, 2011. Please see the
notes to the financial statements for specific information regarding
the rate of the management fees waived by Neuberger Berman Management
Inc. Absent such a waiver, the performance of the Fund would be lower.
4
<Page>
GLOSSARY OF INDICES
NAREIT EQUITY REIT INDEX: Tracks the performance of all Equity REITs
currently listed on the New York Stock Exchange,
the NASDAQ National Market System and the
American Stock Exchange. REITs are classified as
Equity if 75% or more of their gross invested
book assets are invested directly or indirectly
in equity of commercial properties.
Please note that the index does not take into account any fees and expenses or
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 Real Estate Securities Income Fund Inc.
TOP TEN EQUITY HOLDINGS
<Table>
<Caption>
HOLDING %
1 iStar Financial 8.6
2 Maguire
Properties 7.1
3 OMEGA
Healthcare
Investors 6.2
4 Glimcher
Realty Trust 5.9
5 HRPT
Properties Trust 5.3
6 Apartment
Investment &
Management 5.0
7 Affordable
Residential
Communities 4.8
8 Nationwide
Health Properties 4.4
9 Cresent Real
Estate Equities 4.3
10 Gables
Residential Trust 4.2
</Table>
<Table>
<Caption>
NUMBER OF SHARES MARKET VALUE +
(000's OMITTED)
COMMON STOCKS (111.3%)
APARTMENTS (18.8%)
646,800 Amli Residential
Properties Trust $ 20,355~
591,100 Apartment Investment &
Management 21,687~
320,000 Archstone-Smith Trust 10,736~
175,000 BNP Residential Properties 2,443
110,000 Camden Property Trust 4,994~
601,500 Gables Residential Trust 21,955
58,400 Home Properties 2,403
172,400 Mid-America Apartment
Communities 6,781
100,000 Post Properties 3,209
160,900 Town & Country Trust 4,444~
----------
99,007
COMMERCIAL SERVICES (1.4%)
250,000 Capital Trust 7,317
COMMUNITY CENTERS (6.9%)
42,000 Developers Diversified Realty 1,756~
709,000 Heritage Property
Investment Trust 21,688~
290,700 Kramont Realty Trust 5,483
174,400 New Plan Excel Realty Trust 4,562~
58,700 Tanger Factory
Outlet Centers 2,773+++
----------
36,262
DIVERSIFIED (10.8%)
371,500 Colonial Properties Trust 14,481~
840,000 Crescent Real Estate Equities 13,449
600,000 iStar Financial 24,852
176,300 Lexington Corporate
Properties Trust 3,956~
----------
56,738
FREESTANDING (1.9%)
520,000 Commercial Net Lease Realty 10,000
HEALTH CARE (13.1%)
497,800 Health Care Property Investors 13,854
231,700 Health Care REIT 8,341
118,600 Healthcare Realty Trust 4,786
66,700 LTC Properties 1,261
1,033,500 Nationwide Health Properties 23,326~
1,510,400 OMEGA Healthcare Investors 17,022
----------
68,590
INDUSTRIAL (6.9%)
430,529 EastGroup Properties 15,254
546,800 First Industrial Realty Trust 21,106~
----------
36,360
LODGING (2.9%)
355,000 Hospitality Properties Trust $ 15,212
MANUFACTURED HOMES (1.9%)
784,600 Affordable Residential
Communities 10,215
OFFICE (31.0%)
409,800 Arden Realty 13,966~
352,600 Brandywine Realty Trust 10,374
445,800 CarrAmerica Realty 14,368~
77,000 CRT Properties 1,706
740,000 Equity Office Properties Trust 20,809~
450,200 Glenborough Realty Trust 9,454
556,700 Highwoods Properties 13,812
2,485,500 HRPT Properties Trust 27,813
157,400 Kilroy Realty 6,257
70,800 Mack-Cali Realty 3,127
622,000 Maguire Properties 16,265
548,000 Prentiss Properties Trust 19,717
321,900 Trizec Properties 5,134
----------
162,802
OFFICE--INDUSTRIAL (6.4%)
450,800 Bedford Property Investors 12,960~
215,000 Liberty Property Trust 8,718
390,100 Reckson Associates Realty 11,840
----------
33,518
REGIONAL MALLS (6.8%)
738,300 Glimcher Realty Trust 19,063~
71,200 Macerich Co. 4,254
258,900 Pennsylvania REIT 10,499
35,000 Simon Property Group 2,041
----------
35,857
SELF STORAGE (2.5%)
127,000 Extra Space Storage 1,760~
267,700 Sovran Self Storage 10,459
54,000 U-Store-It Trust 903
----------
13,122
TOTAL COMMON STOCKS
(COST $527,722) 585,000
----------
PREFERRED STOCKS (34.0%)
APARTMENTS (0.9%)
190,000 Apartment Investment &
Management, Ser. U 4,685
COMMUNITY CENTERS (2.4%)
60,000 Cedar Shopping Centers, Ser. A 1,584
360,000 Kramont Realty Trust, Ser. E 9,342
70,000 Saul Centers, Ser. A 1,855~
----------
12,781
</Table>
See Notes to Schedule of Investments
7
<Page>
<Table>
<Caption>
NUMBER OF SHARES MARKET VALUE +
(000's OMITTED)
DIVERSIFIED (5.6%)
430,000 Crescent Real Estate
Equities, Ser. A $ 9,159~
200,000 iStar Financial, Ser. G 5,100
600,000 iStar Financial, Ser. I 15,192
----------
29,451
HEALTH CARE (5.0%)
417,000 LTC Properties, Ser. F 10,713
600,000 OMEGA Healthcare Investors,
Ser. D 15,600
----------
26,313
LODGING (7.4%)
165,000 Ashford Hospitality Trust,
Ser. A 4,237
54,600 Equity Inns, Ser. B 1,447
42,000 Host Marriott, Ser. E 1,152
780,000 Innkeepers USA Trust, Ser. C 19,944
480,000 Winston Hotels, Ser. B 12,000
----------
38,780
MANUFACTURED HOMES (2.9%)
600,000 Affordable Residential
Communities, Ser. A 15,150
OFFICE (5.9%)
100,000 Brandywine Realty Trust, Ser. C 2,565
80,000 Brandywine Realty Trust, Ser. D 2,032
90,000 Corporate Office Properties
Trust, Ser. H 2,282
840,000 Maguire Properties, Ser. A 20,874
100,000 SL Green Realty, Ser. C 2,565
20,000 SL Green Realty, Ser. D 515
----------
30,833
OFFICE--INDUSTRIAL (0.1%)
32,000 PS Business Parks, Ser. K 832
REGIONAL MALLS (2.3%)
50,000 Glimcher Realty Trust, Ser. F 1,321
425,000 Glimcher Realty Trust,
Ser. G 10,791
----------
12,112
SELF STORAGE (0.4%)
75,000 Shurgard Storage Centers,
Ser. D 1,985
SPECIALTY (1.1%)
240,000 Capital Automotive REIT 6,026
TOTAL PREFERRED STOCKS
(COST $176,454) 178,948
----------
SHORT-TERM INVESTMENTS (12.7%)
$ 62,833,300 N&B Securities Lending
Quality Fund, LLC $ 62,833++
3,654,888 Neuberger Berman
Institutional Cash Fund
Trust Class 3,655@
----------
TOTAL SHORT-TERM INVESTMENTS
(COST $66,488) 66,488#
----------
TOTAL INVESTMENTS (158.0%)
(COST $770,664) 830,436##
Liabilities, less cash, receivables
and other assets [(11.4%)] (59,720)
Liquidation Value of Auction
Market Preferred Shares [(46.6%)] (245,000)
----------
TOTAL NET ASSETS APPLICABLE TO
COMMON SHAREHOLDERS (100.0%) $ 525,716
----------
</Table>
8
<Page>
NEUBERGER BERMAN OCTOBER 31, 2004
NOTES TO SCHEDULE OF INVESTMENTS
+ Investments in equity securities by Neuberger Berman Real Estate
Securities Income 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. 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 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 $770,671,000. Gross unrealized appreciation of
investments was $67,213,000 and gross unrealized depreciation of
investments was $7,448,000, resulting in net unrealized appreciation
of $59,765,000, based on cost for U.S. Federal income tax purposes.
@ Neuberger Berman Institutional Cash Fund ("Institutional Cash") is
also managed by Neuberger Berman Management Inc. (see Notes A and 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).
+++ All or a portion of this security is segregated as collateral for
interest rate swap contracts.
See Notes to Financial Statements
9
<Page>
STATEMENT OF ASSETS AND LIABILITIES
<Table>
<Caption>
REAL ESTATE
NEUBERGER BERMAN SECURITIES
(000'S OMITTED EXCEPT PER SHARE AMOUNTS) INCOME FUND
ASSETS
INVESTMENTS IN SECURITIES, AT MARKET VALUE*+ (NOTES A & E)--SEE
SCHEDULE OF INVESTMENTS:
Unaffiliated issuers $ 763,948
Affiliated issuers 66,488
===================================================================================================================
830,436
Interest rate swaps, at market value (Note A) 1,165
Dividends and interest receivable 3,127
Prepaid expenses and other assets 14
===================================================================================================================
TOTAL ASSETS 834,742
===================================================================================================================
LIABILITIES
Payable for collateral on securities loaned (Note A) 62,833
Dividends payable--preferred shares 146
Dividends payable--common shares 574
Payable for offering costs (Note A) --
Payable to investment manager--net (Notes A & B) 220
Payable to administrator (Note B) 157
Accrued expenses and other payables 96
===================================================================================================================
TOTAL LIABILITIES 64,026
===================================================================================================================
AUCTION MARKET PREFERRED SHARES SERIES A, B, C & D AT LIQUIDATION VALUE
12,000 shares authorized; 9,800 shares issued and outstanding
$.0001 par value; $25,000 liquidation value per share (Note A) 245,000
===================================================================================================================
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS AT VALUE $ 525,716
===================================================================================================================
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS CONSIST OF:
Paid-in capital--common shares $ 465,461
Distributions in excess of net investment income (674)
Accumulated net realized gains (losses) on investments (8)
Net unrealized appreciation (depreciation) in value of investments 60,937
===================================================================================================================
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS AT VALUE $ 525,716
===================================================================================================================
COMMON SHARES OUTSTANDING ($.0001 PAR VALUE; 999,988,000 SHARES AUTHORIZED) 33,316
===================================================================================================================
NET ASSET VALUE PER COMMON SHARE OUTSTANDING $ 15.78
===================================================================================================================
+SECURITIES ON LOAN, AT MARKET VALUE $ 60,275
===================================================================================================================
*COST OF INVESTMENTS:
Unaffiliated issuers $ 704,176
Affiliated issuers 66,488
===================================================================================================================
TOTAL COST OF INVESTMENTS $ 770,664
===================================================================================================================
</Table>
See Notes to Financial Statements
10
<Page>
NEUBERGER BERMAN FOR THE YEAR ENDED OCTOBER 31, 2004
STATEMENT OF OPERATIONS
<Table>
<Caption>
REAL ESTATE
NEUBERGER BERMAN SECURITIES
(000'S OMITTED) INCOME FUND
INVESTMENT INCOME
INCOME:
Dividend income--unaffiliated issuers $ 30,578
Interest income--unaffiliated issuers (Note A) 343
Income from investments in affiliated issuers (Note A) 200
Income from securities loaned--affiliated issuer (Note A) 24
===================================================================================================================
Total income 31,145
===================================================================================================================
EXPENSES:
Investment management fee (Notes A & B) 4,023
Administration fee (Note B) 1,676
Auction agent fees (Note B) 451
Audit fees 47
Basic maintenance expense (Note B) 19
Custodian fees (Note B) 168
Directors' fees and expenses 26
Insurance expense 12
Legal fees 92
Shareholder reports 108
Stock exchange listing fees 9
Stock transfer agent fees 34
Miscellaneous 4
===================================================================================================================
Total expenses 6,669
Investment management fee waived (Notes A & B) (1,701)
Expenses reduced by custodian fee expense offset and commission recapture arrangements (Note B) (67)
===================================================================================================================
Total net expenses 4,901
===================================================================================================================
Net investment income 26,244
===================================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE A)
Net realized gain (loss) on:
Sales of investment securities of unaffiliated issuers 6,413
Interest rate swap contracts (2,359)
Change in net unrealized appreciation (depreciation) in value of:
Unaffiliated investment securities 59,772
Interest rate swap contracts 1,165
Net gain (loss) on investments 64,991
===================================================================================================================
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS FROM:
Net investment income (2,600)
===================================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS RESULTING FROM OPERATIONS $ 88,635
===================================================================================================================
</Table>
See Notes to Financial Statements
11
<Page>
NEUBERGER BERMAN OCTOBER 31, 2004
STATEMENT OF CHANGES IN NET ASSETS
REAL ESTATE SECURITIES INCOME FUND
<Table>
<Caption>
ONE DAY PERIOD
ENDED
YEAR OCTOBER 31,
ENDED 2003
NEUBERGER BERMAN OCTOBER 31, (COMMENCEMENT
(000'S OMITTED) 2004 OF OPERATIONS)
INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
FROM OPERATIONS:
Net investment income (loss) $ 26,244 $ (30)
Net realized gain (loss) on investments 4,054 --
Change in net unrealized appreciation (depreciation) of investments 60,937 --
===================================================================================================================================
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS FROM:
Net investment income (1,627) --
Net realized gain on investments (426) --
Tax return of capital (547) --
===================================================================================================================================
Total distributions to preferred shareholders (2,600) --
===================================================================================================================================
Net increase (decrease) in net assets applicable to common shareholders resulting from operations 88,635 (30)
===================================================================================================================================
DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM:
Net investment income (22,932) --
Net realized gain on investments (5,996) --
Tax return of capital (7,715) --
===================================================================================================================================
Total distributions to common shareholders (36,643) --
===================================================================================================================================
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from initial capitalization (Note D) -- 100
Net proceeds from issuance of common shares -- 414,555
Net proceeds from underwriters' over-allotment option exercised 61,119 --
Proceeds from reinvestment of dividends 730 --
Payments for preferred shares offering costs (2,750) --
===================================================================================================================================
Total net proceeds from capital share transactions 59,099 414,655
===================================================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS 111,091 414,625
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Beginning of period 414,625 --
===================================================================================================================================
End of period $ 525,716 $ 414,625
===================================================================================================================================
Distributions in excess of net investment income at end of period $ (674) $ --
===================================================================================================================================
</Table>
See Notes to Financial Statements
12
<Page>
NEUBERGER BERMAN OCTOBER 31, 2004
NOTES TO FINANCIAL STATEMENTS Real Estate Securities Income Fund Inc.
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1 GENERAL: Neuberger Berman Real Estate Securities Income Fund Inc. (the
"Fund") was organized as a Maryland corporation on August 28, 2003 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 October 31, 2003, other than matters relating
to its organization and the sale on September 26, 2003 of 6,981 shares
of common stock for $100,003 ($14.325 per share) to Neuberger Berman,
LLC ("Neuberger"), the Fund's sub-adviser. The Board of Directors of
the Fund (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 are recorded
on the basis of identified cost and stated separately in the Statement
of Operations.
4 INCOME TAX INFORMATION: It is the policy of the Fund to continue to
qualify as a regulated investment company by complying with the
requirements of Subchapter M of the Internal Revenue Code applicable
to regulated investment companies and to distribute substantially all
of its earnings to its shareholders. Therefore, no Federal income or
excise tax provision is required.
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 year ended October
31, 2004 and the one day ended October 31, 2003 were as follows:
<Table>
<Caption>
DISTRIBUTIONS PAID FROM:
LONG-TERM TAX RETURN OF
ORDINARY INCOME CAPITAL GAIN CAPITAL TOTAL
2004 2003 2004 2003 2004 2003 2004 2003
$ 27,193,744 $ -- $ 3,786,925 $ -- $ 8,262,751 $ -- $ 39,243,420 $ --
</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
$ -- $ -- $ 60,975,449 $ -- $ 60,975,449
</Table>
The difference between book basis and tax basis distributable earnings
is attributable primarily to timing differences of dividend payments,
wash sales and income recognized on interest rate swaps.
5 DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: The Fund earns income,
net of expenses, daily on its investments. It is the policy of the
Fund to declare quarterly and pay monthly distributions to common
shareholders. The Fund has adopted a policy to pay common shareholders
a stable distribution. In an effort to maintain a stable distribution
amount, distributions may consist of net investment income, realized
gains and paid-in capital. The Fund may pay distributions in excess of
those required by its stable distribution policy to avoid excise tax
or to satisfy the requirements of Subchapter M of the Internal Revenue
Code. Income dividends and capital gain distributions to common
shareholders are recorded on the ex-dividend date. Net realized
capital gains, if any, will be offset 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
Forms 1099 received to date. 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
14
<Page>
differ from the final composition determined after calendar year-end
and reported to Fund shareholders on IRS Form 1099.
On September 29, 2004, the Fund declared two monthly dividends to
common shareholders from its net investment income in the amount of
$0.10 per share per month, payable after the close of the reporting
period, on November 30, 2004 and December 31, 2004, to shareholders of
record on November 12, 2004 and December 15, 2004, respectively, with
ex-dividend dates of November 10, 2004 and December 13, 2004,
respectively.
6 EXPENSE ALLOCATION: Certain expenses are applicable to multiple funds.
Expenses directly attributable to the Fund are charged to the Fund.
Expenses borne by the complex of related investment companies, which
includes open-end and closed-end investment companies for which
Management serves as investment manager, that are not directly
attributed to the Fund, are allocated among the Fund and the other
investment companies in the complex or series thereof, on the basis of
relative net assets, except where a more appropriate allocation of
expenses to each investment company in the complex or series thereof
can otherwise be made fairly.
7 REDEEMABLE PREFERRED SHARES: On December 10, 2003, the Fund
re-classified 12,000 unissued shares of capital stock as Series A
Auction Market Preferred Shares, Series B Auction Market Preferred
Shares, Series C Auction Market Preferred Shares and Series D Auction
Market Preferred Shares ("AMPS"). On January 27, 2004, the Fund issued
2,450 Series A AMPS, 2,450 Series B AMPS, 2,450 Series C AMPS and
2,450 Series D 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 and Series B AMPS and every 28 days for
Series C and Series D AMPS. Dividend rates are reset every 7 days for
Series A and Series B AMPS and every 28 days for Series C and Series D
AMPS based on the results of an auction, except during special rate
periods. For the year ended October 31, 2004, dividend rates ranged
from 1.06% to 1.95% for Series A, 1.05% to 1.95% for Series B, 1.07%
to 1.95% for Series C and 1.09% to 1.87% for Series D AMPS. The Fund
declared dividends to preferred shareholders for the period November
1, 2004 to November 30, 2004 of ($98,147, $100,514, $103,100 and
$104,165) for Series A, Series B, Series C and Series D 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
15
<Page>
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.
8 INTEREST RATE SWAPS: The Fund may enter into interest rate swap
transactions, with institutions that the Fund's investment manager has
determined are creditworthy, to reduce the risk that an increase in
short-term interest rates could reduce common share net earnings as a
result of leverage. 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 counter party to a swap contract fails to
comply with the terms of its contract. The loss incurred by the
failure of a counter party is generally limited to the net interest
payment to be received by the Fund, and/or the termination value at
the end of the contract. Additionally, risks may arise from movements
in interest rates unanticipated by Management.
Periodic expected interim net interest payments or receipts on the
swaps are recorded as an adjustment to unrealized gains/losses, along
with the fair value of the future periodic payment streams on the
swaps. The unrealized gains/losses associated with the periodic
interim net interest payments are reclassified to realized
gains/losses in conjunction with the actual net receipt or payment of
such amounts. At October 31, 2004, the fund had outstanding interest
rate swap contracts as follows:
<Table>
<Caption>
RATE TYPE
-------------------------
FIXED-RATE VARIABLE-RATE ACCRUED
SWAP PAYMENTS PAYMENTS NET INTEREST UNREALIZED
COUNTER NOTIONAL TERMINATION MADE BY RECEIVED BY RECEIVABLE APPRECIATION TOTAL
PARTY AMOUNT DATE THE FUND THE FUND(1) (PAYABLE) (DEPRECIATION) FAIR VALUE
Merrill Lynch $ 100,000,000 February 23, 2008 3.035% 1.9325% $ (21,438) $ 761,010 $ 739,572
Merrill Lynch 85,000,000 February 23, 2009 3.387% 1.9325% (24,040) 449,218 425,178
--------- ----------- -----------
$ (45,478) $ 1,210,228 $ 1,164,750
</Table>
(1) 30 day LIBOR (London Interbank Offered Rate)
9 SECURITY LENDING: Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund entered into a Securities
Lending Agreement ("Agreement") with Neuberger. Securities loans
involve certain risks in the event a borrower should fail financially,
including delays or inability to recover the lent securities or
foreclose against the collateral. The investment manager, under the
general supervision of the 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
16
<Page>
under the 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 $3,580 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.
10 REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements
with institutions that the Fund's investment manager has determined
are creditworthy. Each repurchase agreement is recorded at cost. The
Fund requires that the securities purchased in a repurchase agreement
be transferred to the custodian in a manner sufficient to enable the
Fund to assert a perfected security interest in those securities in
the event of a default under the repurchase agreement. The Fund
monitors, on a daily basis, the value of the securities transferred to
ensure that their value, including accrued interest, is greater than
amounts owed to the Fund under each such repurchase agreement.
11 TRANSACTIONS WITH OTHER FUNDS MANAGED BY NEUBERGER BERMAN MANAGEMENT
INC.: Pursuant to an Exemptive Order issued by the Securities and
Exchange Commission, the Fund may invest in the Neuberger Berman
Institutional Cash Fund (the "Cash Fund"), a fund managed by
Management and having the same Board members as the Fund. The Cash
Fund seeks to provide as high a level of current income as is
consistent with the preservation of capital and the maintenance of
liquidity. For any cash that the Fund invests in the Cash Fund,
Management waives a portion of its management fee equal to the
management fee it receives from the Cash Fund on those assets. For the
year ended October 31, 2004, management fees waived on the Cash Fund
amounted to $24,476. For the year ended October 31, 2004, income
earned on this investment amounted to $199,718 and is reflected in the
Statement of Operations under the caption Income from investments in
affiliated issuers.
12 ORGANIZATION EXPENSES AND OFFERING COSTS: Management has agreed to pay
all organizational expenses and the amount by which the Fund's
offering costs for common stock (other than sales load) exceed $0.03
per share. There were no costs incurred by Management. Offering costs
for common stock paid by the Fund were charged as a reduction of
common stock paid-in-capital at the completion of the Fund's offerings
and amounted to $775,349.
Additionally, offering costs of $299,820 and a sales load of
$2,450,000 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 offering.
As of October 31, 2004, total offering costs of $120 remain payable by
the Fund.
17
<Page>
13 CONCENTRATION OF RISK: Under normal market conditions, the Fund's
investments will be concentrated in income-producing common equity
securities, preferred securities, convertible securities and
non-convertible debt securities issued by companies deriving the
majority of their revenue from the ownership, construction, financing,
management and/or sale of commercial, industrial, and/or residential
real estate. Values of the securities of such companies may fluctuate
more due to economic, legal, cultural, geopolitical or technological
developments affecting the United States real estate industry, or a
segment of the United States real estate industry in which the Fund
owns a substantial position, than would the shares of a fund not
concentrated in the real estate industry.
14 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>
YEAR ENDED % OF AVERAGE
OCTOBER 31, DAILY MANAGED ASSETS
------------------------------------------------------------------
2004 - 2008 0.25%
2009 0.19
2010 0.13
2011 0.07
</Table>
Management has not agreed to waive any portion of its fees beyond
October 31, 2011.
For the year ended October 31, 2004, such waived fees amounted to
$1,676,132.
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.
18
<Page>
On October 31, 2003, Management and Neuberger, a member firm of the
New York Stock Exchange and sub-adviser to the Fund, became indirect
wholly-owned subsidiaries of Lehman Brothers Holdings Inc. ("Lehman"),
a publicly-owned holding company. Neuberger is retained by Management
to furnish it with investment recommendations and research information
without added cost to the Fund. Several individuals who are officers
and/or Directors of the Fund are also employees of Neuberger and/or
Management.
The Fund entered into a commission recapture program, which enables it
to pay some of its operational expenses by recouping a portion of the
commissions it pays to a broker that is not a related party of the
Fund. Expenses paid through this program may include costs of
custodial, transfer agency or accounting services. For the year ended
October 31, 2004, the impact of this arrangement was a reduction of
$65,482.
The Fund has an expense offset arrangement in connection with its
custodian contract. The impact of this arrangement, reflected in the
Statement of Operations under the caption Custodian fees, was a
reduction of $1,952.
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 year ended October 31, 2004, there were purchase and sale
transactions (excluding short-term securities and interest rate swap
contracts) of $1,008,166,000 and $300,482,000, respectively.
During the year ended October 31, 2004, brokerage commissions on
securities transactions amounted to $945,610, of which Neuberger
received $38,175, Lehman received $125,728, and other brokers received
$781,707.
19
<Page>
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
33,316,439 6,981
</Table>
Transactions in common shares for year ended October 31, 2004 and one
day period ended October 31, 2003 were as follows:
COMMON SHARES ISSUED IN CONNECTION WITH:
<Table>
<Caption>
UNDERWRITERS' EXERCISE REINVESTMENT OF
INITIAL OF OVER-ALLOTMENT DIVIDENDS AND NET INCREASE IN COMMON
CAPITALIZATION INITIAL PUBLIC OFFERING OPTION DISTRIBUTIONS SHARES OUTSTANDING
2004 2003 2004 2003 2004 2003 2004 2003 2004 2003
-- 6,981 -- 29,000,000 4,260,000 -- 49,458 -- 4,309,458 29,006,981
</Table>
NOTE E--INVESTMENTS IN AFFILIATES*:
<Table>
<Caption>
BALANCE OF BALANCE OF INCOME FROM
SHARES GROSS SHARES INVESTMENTS IN
HELD GROSS SALES HELD VALUE AFFILIATED ISSUERS
OCTOBER 31, PURCHASES AND AND OCTOBER 31, OCTOBER 31, INCLUDED IN
NAME OF ISSUER 2003 ADDITIONS REDUCTIONS 2004 2004 TOTAL INCOME
N&B Securities Lending
Quality Fund, LLC** -- 5,578,833,600 5,516,000,300 62,833,300 $ 62,833,300 $ 24,296
Neuberger Berman
Institutional Cash Fund
Trust Class*** -- 531,770,714 528,115,826 3,654,888 3,654,888 199,718
------------ ------------------
Total $ 66,488,188 224,014
</Table>
* 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 Real Estate Securities Income 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>
ONE DAY
YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31,
----------- ------------
2004 2003^
COMMON SHARE NET ASSET VALUE, BEGINNING OF PERIOD $ 14.29 $ 14.32
---------- --------
INCOME FROM INVESTMENT OPERATIONS APPLICABLE TO COMMON SHAREHOLDERS:
NET INVESTMENT INCOME (LOSS) 0.79 (.00)
NET GAINS OR LOSSES ON SECURITIES (BOTH REALIZED AND UNREALIZED) 1.96 --
COMMON SHARE EQUIVALENT OF DISTRIBUTIONS TO PREFERRED SHAREHOLDERS FROM:
NET INVESTMENT INCOME (0.05) --
NET CAPITAL GAINS (0.01) --
TAX RETURN OF CAPITAL (0.02) --
---------- --------
TOTAL DISTRIBUTIONS TO PREFERRED SHAREHOLDERS (0.08) --
---------- --------
TOTAL FROM INVESTMENT OPERATIONS APPLICABLE TO COMMON SHAREHOLDERS 2.67 (.00)
---------- --------
LESS DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM:
NET INVESTMENT INCOME (0.69) --
NET CAPITAL GAINS (0.18) --
TAX RETURN OF CAPITAL (0.23) --
---------- --------
TOTAL DISTRIBUTIONS TO COMMON SHAREHOLDERS (1.10) --
---------- --------
LESS CAPITAL CHARGES:
ISSUANCE OF COMMON SHARES (.00) (.03)
ISSUANCE OF PREFERRED SHARES (.08) --
---------- --------
TOTAL CAPITAL CHARGES (.08) (.03)
---------- --------
COMMON SHARE NET ASSET VALUE, END OF PERIOD $ 15.78 $ 14.29
---------- --------
COMMON SHARE MARKET VALUE, END OF PERIOD $ 14.42 $ 15.01
---------- --------
TOTAL RETURN, COMMON SHARE NET ASSET VALUE+ +19.30% -0.24%**
TOTAL RETURN, COMMON SHARE MARKET VALUE+ +3.79% +0.07%**
RATIOS/SUPPLEMENTAL DATA++
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS, END OF PERIOD (IN MILLIONS) $ 525.7 $ 414.6
PREFERRED STOCK, AT LIQUIDATION VALUE ($25,000 PER SHARE LIQUIDATION PREFERENCE) (IN MILLIONS) $ 245.0 $ --
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS# 1.02% 3.57%*
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS+++ 1.01% 3.57%*
RATIO OF NET INVESTMENT INCOME (LOSS) EXCLUDING PREFERRED STOCK DIVIDENDS TO AVERAGE
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS 5.41% (2.65)%*
RATIO OF PREFERRED STOCK DIVIDENDS TO AVERAGE NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS .54% --%*
RATIO OF NET INVESTMENT INCOME (LOSS) INCLUDING PREFERRED STOCK DIVIDENDS TO AVERAGE NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS 4.87% --%*
PORTFOLIO TURNOVER RATE 50% 0%
ASSET COVERAGE PER SHARE OF PREFERRED STOCK, END OF PERIOD@ $ 78,659 $ --
</Table>
See Notes to Financial Highlights
21
<Page>
~ The per share amounts which are shown have been computed based on the
average number of shares outstanding during the year ended October 31, 2004
and the one day ended October 31, 2003.
+ Total return based on per share net asset value reflects the effects of
changes in net asset value on the performance of the Fund during each
fiscal period. Total return based on per share market value assumes the
purchase of common shares at the market price on the first day and sales of
common shares at the market price on the last day of the period indicated.
Dividends and distributions, if any, are assumed to be reinvested at prices
obtained under the Fund's dividend reinvestment plan. Results represent
past performance and do not guarantee future results. Current returns may
be lower or higher than the performance data quoted. Total return would
have been lower if Management had not waived a portion of the investment
management fee. Performance data current to the most recent month-end are
available at www.nb.com.
# The Fund is required to calculate an expense ratio without taking into
consideration any expense reductions related to expense offset
arrangements.
+++ After waiver of a portion of the investment management fee. Had Management
not undertaken such action, the annualized ratios of net expenses to
average daily net assets applicable to common shareholders would have been:
<Table>
<Caption>
ONE DAY
YEAR PERIOD ENDED
OCTOBER 31, OCTOBER 31,
2004 2003
1.36% 3.82%
</Table>
^ 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 holders of
AMPS. Income ratios include income earned on assets attributable to AMPS
outstanding.
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 REAL ESTATE SECURITIES INCOME FUND INC.
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Neuberger Berman Real Estate Securities Income
Fund Inc., (the "Fund") as of October 31, 2004, and the related statement of
operations for the year ended October 31, 2004, statement of changes in net
assets for the year ended October 31, 2004 and the one day period ended October
31, 2003 (commencement of operations) and financial highlights for the periods
indicated herein. 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
audits.
We conducted our audits 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 audits provide 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 Real Estate Securities Income Fund Inc. at October 31, 2004,
the results of its operations for the year ended October 31, 2004, changes in
its net assets for the year ended October 31, 2004 and for the one day period
ended October 31, 2003 (commencement of operations), and its financial
highlights for each of the periods indicated therein, in conformity with U.S.
generally accepted accounting principles.
/s/ 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 41 Director, American Bar
Director firm) since October 2002; formerly, Retirement Association (ABRA)
Attorney-at-Law and President, Faith Colish, since 1997 (not-for-profit
A Professional Corporation, 1980 to 2002. membership association).
C. Anne Harvey (67) Consultant, C. A. Harvey Associates, since 41 President, Board of Associates
Director June 2001; formerly, Director, AARP, 1978 to to The National Rehabilitation
December 2001. 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 market
partnerships) and President, Oxford Venture fund), Naragansett Insured
Corporation. 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, 41 None.
Director Ford Motor 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 41 Director and Vice President,
Chief Executive Officer, Inc. (holding company) since 1999; Head of Neuberger & Berman Agency, Inc.
Director and Chairman of Neuberger Berman Inc.'s Mutual Funds and since 2000; formerly, Director,
the Board Institutional Business since 1999; President Neuberger Berman Inc. (holding
and Director, NB Management since 1999; company) from October 1999
Executive Vice President, Inc. (holding through March 2003.
company) from Neuberger Berman since 1999;
formerly, Principal, October 1999 through
Neuberger Berman from 1997 until 1999;
formerly, March 2003. Senior Vice President,
NB Management from 1996 until 1999.
CLASS II
INDEPENDENT FUND DIRECTORS*
John Cannon (74) Consultant. Formerly, Chairman, CDC 41 Independent Trustee or Director
Director Investment Advisers (registered investment of three series of
adviser), 1993-January 1999; formerly, OppenheimerFunds: Limited Term
President and Chief Executive Officer, AMA New York Municipal Fund,
Investment Advisors, an affiliate of the Rochester Fund Municipals, and
American Medical Association. Oppenheimer Convertible
Securities Fund, since 1992.
Barry Hirsch (71) Attorney-at-Law. Formerly, Senior Counsel, 41 None.
Director Loews 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 41 Director, H&R Block, Inc.
Director private investment partnership); formerly, (financial services company)
President and CEO, Westaff, Inc. (temporary since May 2001; Director,
staffing), May 2001 to January 2002; Senior Forward Management, Inc. (asset
Executive at the Charles Schwab Corporation management) since 2001;
from 1983 to 1999, including Chief Executive formerly, Director, General
Officer, Charles Schwab Investment Magic (voice recognition
Management, Inc. and Trustee, Schwab Family software) 2001 until 2002;
of Funds and Schwab Investments from 1997 to formerly, Director, E-Finance
1998 and Executive Vice President-Retail Corporation (credit decisioning
Brokerage, Charles Schwab Investment services) 1999-2003; formerly,
Management from 1994 to 1997. 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 Associates, Inc. (private
company) since 2002 and 2003, respectively; company) since 1998; Director,
Executive Vice President and Chief Investment Emagin Corp. (public company)
Officer, Neuberger Berman since 2002 and since 1997; Director,
2003, respectively; Director and Chairman, NB Solbright, Inc. (private
Management since December 2002; formerly, company) since 1998; Director,
Executive Vice President, Citigroup Infogate, Inc. (private
Investments, Inc. from September 1995 to company) since 1997; Director,
February 2002; formerly, Executive Vice Broadway Television Network
President, Citigroup Inc. from September 1995 (private company) since 2000.
to February 2002.
CLASS III
INDEPENDENT FUND DIRECTORS*
Walter G. Ehlers (71) Consultant; Retired President and Trustee, 41 None.
Director Teachers 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 41 Director, DEL Laboratories,
Director and Economics, New York University Stern Inc. (cosmetics and
School of 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 August
1993-2001. 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 41 Director, The Proformance
Director in the insurance industry; formerly, Advisory Insurance Company (personal
Director, Securitas Capital LLC (a global lines property and casualty
private equity investment firm dedicated to insurance company) since March
making investments in the insurance sector) 2004; Director, Providence
1998 until December 2002. 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 41 Director, Legg Mason, Inc.
Director Committee, Edward Jones 1993-2001; President, (financial services holding
Securities Industry Association ("SIA") company) since 1993; formerly,
(securities industry's representative in Director, Boston Financial Group
government relations and regulatory (real estate and tax shelters)
matters at the federal and state levels) 1993-1999.
1974-1992; Adviser to SIA, November
1992-November 1993.
</Table>
* Indicates a director who is an "interested person" within the meaning of
the 1940 Act. Mr. Sundman and Mr. Rivkin are interested persons of the Fund
by virtue of the fact that each is an officer and/or director of NB
Management and Executive Vice President of Neuberger Berman. Mr. O'Brien is
an interested person of the Fund by virtue of the fact that he is a
director of Legg Mason, Inc., a wholly owned subsidiary of which, from time
to time, serves as a broker or dealer to the Fund and other funds or
accounts for which NB Management serves as investment manager.
(1) The business address of each listed person is 605 Third Avenue, New York,
New York 10158.
(2) Except as otherwise indicated, each person has held the positions shown for
at least the last five years. The Board of Directors shall at all times be
divided as equally as possible into three classes of Directors designated
Class I, Class II, and Class III. The terms of office of Class I, Class II,
and Class III Directors shall expire at the annual meetings of stockholders
held in 2006, 2004, and 2005 respectively, and at each third annual meeting
of stockholders thereafter.
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>
<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 and Vice President, Neuberger Berman since 1999;
Accounting Officer since 2002 formerly, Assistant Vice President, NB
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 for the Fund 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 BY-LAWS
On September 21, 2004, the Board adopted an amendment to the By-Laws 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>
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<Page>
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<Page>
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.
[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
ITEM 2. CODE OF ETHICS
The Board of Directors ("Board") of Neuberger Berman Real Estate Securities
Income 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"). For the period covered by this Form N-CSR, there were no amendments
to the Code of Ethics and there were no waivers from the Code of Ethics granted
to the Registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions.
A copy of the Code of Ethics was included as an exhibit to the Registrant's Form
N-CSR filed on January 9, 2004. 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.
(a) AUDIT FEES
The aggregate fees billed for each of the last two fiscal years 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 those fiscal years were $31,250 and
$34,000 for 2004 and 2003, respectively.
(b) AUDIT-RELATED FEES
The aggregate fees billed to the Registrant in each of the last two fiscal years
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 $5,000 and $0 for 2004 and 2003, respectively.
The nature of the services provided involved agreed upon procedures relating to
the Preferred Shares. 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
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 and $0 for 2004 and 2003, respectively.
(c) TAX FEES
The aggregate fees billed to the Registrant in each of the last two fiscal years
for professional services rendered by E&Y for tax compliance, tax advice, and
tax planning were $8,700 and $8,000 for 2004 and 2003, respectively. The nature
of the services provided was tax compliance, tax advice, and tax planning. The
Audit Committee approved 0% and 0% of these services provided by E&Y for 2004
and 2003, respectively, 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 and $0 for 2004 and 2003,
respectively.
(d) ALL OTHER FEES
The aggregate fees billed to the Registrant in each of the last two fiscal years
for products and services provided by E&Y, other than services reported in AUDIT
FEES, AUDIT-RELATED FEES, and TAX FEES were $0 and $0 for 2004 and 2003,
respectively.
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 and $0 for 2004 and 2003, respectively.
(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 each of
the last two fiscal years of the Registrant were $13,700 and $8,000 for 2004 and
2003, respectively.
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
each of the last two fiscal years of the Registrant were $256,050 and $233,037
for 2004 and 2003, respectively.
(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 incorporated by reference to
Registrant's Form N-CSR, Investment Company Act file number 811-21334
(filed January 9, 2004).
(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 Real Estate Securities Income 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