As filed with the Securities and Exchange Commission on July 8, 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: 811-21200
NEUBERGER BERMAN REAL ESTATE 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 Income Fund Inc.
605 Third Avenue, 2nd Floor
New York, New York 10158-0180
Arthur C. Delibert, Esq.
Kirkpatrick & Lockhart Nicholson Graham LLP
1800 Massachusetts Avenue, N.W. 2nd Floor
Washington, DC 20036
(Names and addresses of agents for service)
Date of fiscal year end: October 31, 2005
Date of reporting period: April 30, 2005
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
SEMI-ANNUAL REPORT
APRIL 30, 2005
NEUBERGER BERMAN
REAL ESTATE
INCOME FUND INC.
NEUBERGER BERMAN APRIL 30, 2005 (UNAUDITED)
CHAIRMAN'S LETTER
Dear Shareholder,
I am pleased to present to you this semi-annual report for the Neuberger Berman
Real Estate Income Fund Inc. for the period ending April 30, 2005. The report
includes a portfolio commentary, a listing of the Fund's investments, and its
unaudited 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 company securities that
are attractively priced relative to their historical growth rates and the
valuation of other property sectors. We believe our conservative investment
philosophy and disciplined investment process will benefit you with superior
returns over the long term.
The Fund continues to defend against the hostile tender offer commenced last
fall by two trusts controlled by Stewart Horejsi. As further described in Note F
to the Financial Statements, the Fund recently received a court ruling that
requires the Horejsi trusts to turn over documents and other information that we
had previously requested. The Fund anticipates filing a motion for summary
judgment with the court seeking to have all the remaining claims in its
litigation with the Horejsi trusts adjudicated. The Fund's board of directors
continues to monitor the effect of the Fund's defensive measures on
shareholders. The board of directors and Neuberger Berman continue to take steps
to reduce or offset the cost of such measures.
Thank you for your confidence in Neuberger Berman. We will continue to do our
best to earn it.
Sincerely,
/s/ Peter Sundman
PETER SUNDMAN
CHAIRMAN OF THE BOARD
NEUBERGER BERMAN
REAL ESTATE 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 name in
this shareholder report are either service marks or registered service marks of
Neuberger Berman Management Inc. (C) 2005 Neuberger Berman Management Inc. All
rights reserved.
CONTENTS
THE FUND
CHAIRMAN'S LETTER 1
PORTFOLIO COMMENTARY/
PERFORMANCE HIGHLIGHTS 2
SCHEDULE OF INVESTMENTS/
TOP TEN EQUITY HOLDINGS 6
FINANCIAL STATEMENTS 9
FINANCIAL HIGHLIGHTS/
PER SHARE DATA 22
DIVIDEND REINVESTMENT PLAN 24
DIRECTORY 26
PROXY VOTING POLICIES AND PROCEDURES 27
QUARTERLY PORTFOLIO SCHEDULE 27
REPORT OF VOTES OF SHAREHOLDERS 28
1
REAL ESTATE INCOME FUND INC. Portfolio Commentary
For the six months ending April 30, 2005, on a Net Asset Value (NAV) basis,
the Neuberger Berman Real Estate Income Fund (NYSE: NRL) provided a 4.96%
return, compared to a gain of 7.06% for the NAREIT Equity REIT Index. In
our opinion, the positive returns for the Fund and the index reflect the
general strength of the REIT market during the reporting period and are an
indication of continued investor interest in and improving fundamentals for
REIT securities. The Fund's underperformance relative to the index can be
attributed to its holdings of preferred REIT securities, which did not
perform as well as REIT common stocks over the past six months, and to the
cost incurred by the Fund in defending against the hostile tender offer
commenced last fall by two trusts controlled by Stewart Horejsi.
We believe that the positive trends that lifted the broader REIT market
over the past six months will remain intact as investors continue to search
for higher yielding securities in a rising, but still low interest rate
environment. Commercial real estate fundamentals in particular continue to
improve, as evidenced by increasing rent and occupancy levels.
Our emphasis on diversification across property sectors and geographic
regions continues to enhance the Fund's ability to deliver consistent
returns. The Fund's position in the office sector provides a good example.
Performance in this area improved during the first four months of calendar
2005, reflecting the attractive valuation levels and dividend yields that
were prevalent in the sector at the start of the year. Since then,
continued evidence of an improving leasing environment has positively
affected valuations. We expect this trend to continue throughout the year.
During the six-month reporting period, the Fund also benefited from
holdings in regional malls, hotels and self storage, but was hurt by its
holdings in mixed asset REITs. We remain optimistic about the Fund's
performance and will continue to emphasize office and apartment REITs.
Along with our conviction that real estate fundamentals should improve over
the next 12 months, we also believe that merger and acquisition activity
may accelerate. Many investors, ourselves included, believe that REITs are
trading at a discount to their underlying real estate value. In our
opinion, this discount, combined with the current accommodative borrowing
environment, should lead to increased M&A activity. We believe that the
Fund could be a beneficiary of that development, thanks to our focus on
buying REITs that trade at a discount to net asset value.
The current economic environment is characterized by rising short-term
interest rates, benign long-term interest rates and expected GDP growth of
3%. We believe, absent a recession, that REITs are on track for 8-9%
earnings-per-share growth in calendar 2005 as demand for real estate
continues to outstrip supply. The first quarter earnings season confirmed
this trend. If there is continued evidence of earnings acceleration, it
should benefit REIT share prices as we move through the year. We continue
to seek companies with improving fundamentals, strong financial positions
and opportunistic management teams.
Sincerely,
/s/ Steven R. Brown
STEVEN R. BROWN
PORTFOLIO MANAGER
2
PERFORMANCE HIGHLIGHTS
SIX MONTH AVERAGE ANNUAL TOTAL
NEUBERGER BERMAN REAL ESTATE PERIOD ENDED RETURN ENDED 4/30/2005
INCOME FUND INCEPTION DATE 4/30/2005 1 YEAR SINCE INCEPTION
NAV (1),(3) 11/25/2002 4.96% 34.33% 30.79%
PERFORMANCE HIGHLIGHTS
SIX MONTH AVERAGE ANNUAL TOTAL
NEUBERGER BERMAN REAL ESTATE PERIOD ENDED RETURN ENDED 4/30/2005
INCOME FUND INCEPTION DATE 4/30/2005 1 YEAR SINCE INCEPTION
MARKET PRICE (2),(3) 11/25/2002 3.15% 29.72% 21.07%
INDUSTRY DIVERSIFICATION
(% OF TOTAL NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS)
Apartments 24.7%
Commercial Services 0.9
Community Centers 9.7
Diversified 19.3
Health Care 18.5
Industrial 2.6
Lodging 4.8
Office 35.4
Office-Industrial 8.2
Regional Malls 19.0
Self Storage 2.4
Short-Term Investments 10.2
Liabilities, less cash, receivables and
other assets (55.7)
Closed-end funds, unlike open-end funds, are not continually offered. There is
an initial public offering and once issued, common shares of closed-end funds
are sold in the open market through a stock exchange.
The composition, industries and holdings of the fund are subject to change.
Investment return will fluctuate. Past performance is no guarantee of future
results.
3
ENDNOTES
(1). Returns based on Net Asset Value ("NAV") of the Fund.
(2). Returns based on market price of Fund shares on the New York 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. Beginning
September 22, 2004, Neuberger Berman Management Inc. voluntarily
agreed to waive all management and administration fees from the Fund
indefinitely. This voluntary waiver may be terminated without prior
notice. 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
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
any tax consequences of investing in the individual securities that it tracks
and that investors cannot invest directly in any index. Data about the
performance of the index is prepared or obtained by Neuberger Berman Management
Inc. and includes reinvestment of all dividends and capital gain distributions.
The Fund may invest in securities not included in its index.
5
SCHEDULE OF INVESTMENTS Real Estate Income Fund Inc.
[SIDENOTE]
TOP TEN EQUITY HOLDINGS
HOLDING %
1 Ventas, Inc. 9.1
2 Mills Corp. 7.2
3 Glimcher Realty Trust 6.5
4 Vornado Realty Trust 6.4
5 iStar Financial 5.1
6 Tanger Factory Outlet Centers 4.7
7 Colonial Properties Trust 4.7
8 CarrAmerica Realty 4.5
9 Apartment Investment & Management 4.5
10 Gables Residential Trust 4.5
MARKET VALUE+
NUMBER OF SHARES (000'S OMITTED)
COMMON STOCKS (122.1%)
APARTMENTS (22.5%)
57,500 Apartment Investment &
Management $ 2,192
73,000 Archstone-Smith Trust 2,626
46,200 Avalonbay Communities 3,326~
61,700 Camden Property Trust 3,147
114,400 Gables Residential Trust 4,193
38,800 Home Properties 1,624
37,200 Mid-America Apartment
Communities 1,422
33,500 Town & Country Trust 899~
72,800 United Dominion Realty Trust 1,613
---------------
21,042
COMMERCIAL SERVICES (0.3%)
8,000 Capital Trust 269
COMMUNITY CENTERS (8.6%)
24,000 Developers Diversified Realty 1,018
18,400 Federal Realty Investment Trust 984
30,900 Heritage Property Investment Trust 952
27,000 New Plan Excel Realty Trust 697
191,400 Tanger Factory Outlet Centers 4,433
---------------
8,084
DIVERSIFIED (17.7%)
112,900 Colonial Properties Trust 4,363
119,800 iStar Financial 4,773
139,900 Spirit Finance 1,448
78,000 Vornado Realty Trust 5,963
---------------
16,547
HEALTH CARE (16.3%)
106,300 Health Care Property Investors 2,726
84,700 Health Care REIT 2,837~
57,000 Nationwide Health Properties 1,222
314,800 Ventas, Inc. 8,493^^
---------------
15,278
INDUSTRIAL (2.6%)
42,800 EastGroup Properties 1,605
22,100 First Industrial Realty Trust 844
---------------
2,449
LODGING (0.4%)
10,000 Hospitality Properties Trust 418
OFFICE (34.7%)
99,700 Arden Realty 3,558
79,800 Brandywine Realty Trust 2,258
128,400 CarrAmerica Realty 4,242
120,100 Equity Office Properties Trust 3,780~
77,400 Glenborough Realty Trust 1,590
69,800 Highwoods Properties 1,964
93,900 Kilroy Realty $ 4,097
89,900 Mack-Cali Realty 3,955
30,400 Maguire Properties 775
84,800 Prentiss Properties Trust 2,817
107,600 Reckson Associates Realty 3,470
---------------
32,506
OFFICE--INDUSTRIAL (5.1%)
43,600 Bedford Property Investors 928
25,700 Duke Realty 787
76,300 Liberty Property Trust 3,039
---------------
4,754
REGIONAL MALLS (11.5%)
15,000 CBL & Associates Properties 1,161
195,600 Glimcher Realty Trust 4,923~
67,400 Mills Corp. 3,851
21,100 Pennsylvania REIT 889
---------------
10,824
SELF STORAGE (2.4%)
30,600 Shurgard Storage Centers 1,280
23,100 Sovran Self Storage 988
---------------
2,268
TOTAL COMMON STOCKS
(COST $74,033) 114,439
---------------
PREFERRED STOCKS (23.4%)
APARTMENTS (2.2%)
18,800 Apartment Investment &
Management, Ser. Q 494
31,800 Apartment Investment &
Management, Ser. R 845
27,000 Apartment Investment &
Management, Ser. T 683
---------------
2,022
COMMERCIAL SERVICES (0.6%)
20,000 Newcastle Investment, Ser. B 544
COMMUNITY CENTERS (1.1%)
10,000 Developers Diversified Realty,
Ser. I 257
13,100 Ramco-Gershenson Properties
Trust, Ser. B 348
17,000 Saul Centers, Ser. A 438
---------------
1,043
DIVERSIFIED (1.6%)
45,200 Crescent Real Estate Equities,
Ser. A 954
19,500 Crescent Real Estate Equities,
Ser. B 515^^
---------------
1,469
6
MARKET VALUE+
NUMBER OF SHARES (000'S OMITTED)
HEALTH CARE (2.2%)
56,000 LTC Properties, Ser. E $ 2,058
LODGING (4.4%)
66,300 Boykin Lodging, Ser. A 1,847
18,000 Equity Inns, Ser. B 476
20,400 Felcor Lodging Trust, Ser. A 494
17,563 Felcor Lodging Trust, Ser. B 445
34,000 LaSalle Hotel Properties, Ser. A 915
---------------
4,177
OFFICE (0.7%)
25,000 HRPT Properties Trust, Ser. A 647
OFFICE--INDUSTRIAL (3.1%)
50,000 Bedford Property Investors, Ser. A 2,478**
15,000 Digital Realty Trust, Ser. A 395
---------------
2,873
REGIONAL MALLS (7.5%)
32,000 Glimcher Realty Trust, Ser. F 837
13,500 Glimcher Realty Trust, Ser. G 343
100,000 Mills Corp., Ser. B 2,634
11,400 Mills Corp., Ser. C 299
50,200 Pennsylvania REIT, Ser. A 2,963
---------------
7,076
TOTAL PREFERRED STOCKS
(COST $20,243) 21,909
---------------
PRINCIPAL AMOUNT
SHORT-TERM INVESTMENTS (10.2%)
$ 529,101 Neuberger Berman Prime
Money Fund Trust Class 529@
9,058,700 Neuberger Berman Securities
Lending Quality Fund, LLC 9,059++
---------------
TOTAL SHORT-TERM INVESTMENTS
(COST $9,588) 9,588#
---------------
TOTAL INVESTMENTS (155.7%)
(COST $103,864) 145,936##
Liabilities, less cash, receivables
and other assets [(10.9%)] (10,205)
Liquidation Value of Auction
Preferred Shares [(44.8%)] (42,000)
---------------
TOTAL NET ASSETS APPLICABLE TO COMMON
SHAREHOLDERS (100.0%) $ 93,731
---------------
See Notes to Schedule of Investments
7
NOTES TO SCHEDULE OF INVESTMENTS
+ Investments in equity securities by Neuberger Berman Real Estate
Income Fund Inc. (the "Fund") are valued at the latest sale 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 may no
longer represent the amount that the Fund could expect to receive
for those securities, FT Interactive will provide adjusted prices
for certain foreign equity securities using an analysis based on
historical correlations between the prices of those securities and
changes in the index. In the absence of precise information about
the market values of these foreign securities as of the close of
the New York Stock Exchange, the Board has determined on the basis
of available data that prices adjusted in this way are likely to
be closer to the prices the Fund could realize on a current sale
than are the prices of those securities established at the close
of the foreign markets in which the securities primarily trade.
However, fair value prices are necessarily estimates, and there is
no assurance that such a price will be at or close to the price at
which the security next trades. Short-term debt securities with
less than 60 days until maturity may be valued at cost which, when
combined with interest earned, approximates market value.
# At cost, which approximates market value.
## At April 30, 2005, the cost of investments for U.S. Federal income
tax purposes was $103,864,000. Gross unrealized appreciation of
investments was $42,265,000 and gross unrealized depreciation of
investments was $193,000, resulting in net unrealized appreciation
of $42,072,000, based on cost for U.S. Federal income tax
purposes.
** Security exempt from registration under the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers under
Rule 144A and are deemed liquid. At April 30, 2005, these
securities amounted to $2,478,000 or 2.6% of net assets applicable
to common shareholders.
^^ All or a portion of this security is segregated as collateral for
interest rate swap contracts.
@ Neuberger Berman Prime Money Fund ("Prime Money") is also managed
by Neuberger Berman Management Inc. (see Notes A & E of Notes to
Financial Statements) and may be considered an affiliate since it
has the same officers, Board members, and investment manager as
the Fund and because, at times, the Fund may own 5% or more of the
outstanding voting securities of Prime Money.
~ All or a portion of this security is on loan (see Note A of Notes
to Financial Statements).
++ Managed by an affiliate of Neuberger Berman Management Inc. and
could be deemed an affiliate of the Fund (see Notes A & E of Notes
to Financial Statements).
See Notes to Financial Statements
8
STATEMENT OF ASSETS AND LIABILITIES
NEUBERGER BERMAN REAL ESTATE
(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 $ 136,348
Affiliated issuers 9,588
- -------------------------------------------------------------------------------------------------
145,936
Cash 21
Dividends and interest receivable 332
Interest rate swaps, at market value (Note A) 337
Prepaid expenses and other assets 18
- -------------------------------------------------------------------------------------------------
TOTAL ASSETS 146,644
- -------------------------------------------------------------------------------------------------
LIABILITIES
Payable for collateral on securities loaned (Note A) 9,059
Dividends payable--preferred shares 11
Dividends payable--common shares 53
Payable for securities purchased 345
Accrued tender offer and related fees (Note F) 1,389
Accrued expenses and other payables 56
- -------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 10,913
- -------------------------------------------------------------------------------------------------
AUCTION PREFERRED SHARES SERIES A AT LIQUIDATION VALUE
2,000 shares authorized; 1,680 shares issued and outstanding
$.0001 par value; $25,000 liquidation value per share (Note A) 42,000
- -------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS AT VALUE $ 93,731
- -------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS CONSIST OF:
Paid-in capital-common shares $ 55,361
Distributions in excess of net investment income (6,575)
Accumulated net realized gains (losses) on investments 2,562
Net unrealized appreciation (depreciation) in value of investments 42,383
- -------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS AT VALUE $ 93,731
- -------------------------------------------------------------------------------------------------
COMMON SHARES OUTSTANDING ($.0001 PAR VALUE; 999,998,000 SHARES AUTHORIZED) 4,157
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE PER COMMON SHARE OUTSTANDING $ 22.55
- -------------------------------------------------------------------------------------------------
+SECURITIES ON LOAN, AT MARKET VALUE $ 8,897
- -------------------------------------------------------------------------------------------------
*COST OF INVESTMENTS:
Unaffiliated issuers $ 94,276
Affiliated issuers 9,588
- -------------------------------------------------------------------------------------------------
TOTAL COST OF INVESTMENTS $ 103,864
- -------------------------------------------------------------------------------------------------
See Notes to Financial Statements
9
NEUBERGER BERMAN FOR THE SIX MONTHS ENDED APRIL 30, 2005 (UNAUDITED)
STATEMENT OF OPERATIONS
NEUBERGER BERMAN REAL ESTATE
(000'S OMITTED) INCOME FUND
INVESTMENT INCOME
INCOME (NOTE A):
Dividend income--unaffiliated issuers $ 1,718
Income from investments in affiliated issuers (Note E) 9
Income from securities loaned-affiliated issuer (Note E) 2
- -------------------------------------------------------------------------------------------------
Total income 1,729
- -------------------------------------------------------------------------------------------------
EXPENSES:
Investment management fee (Notes A & B) 410
Administration fee (Note B) 171
Tender offer and related fees (Note F) 3,016
Auction agent fees (Note B) 62
Audit fees 21
Basic maintenance expense (Note B) 12
Custodian fees (Note B) 36
Directors' fees and expenses 12
Insurance expense 2
Legal fees 16
Shareholder reports 16
Stock exchange listing fees 16
Stock transfer agent fees 17
Miscellaneous 2
- -------------------------------------------------------------------------------------------------
Total expenses 3,809
Investment management & administration fees waived (Notes A & B) (581)
Expenses reduced by custodian fee expense offset and commission recapture
arrangements (Note B) (2)
- -------------------------------------------------------------------------------------------------
Total net expenses 3,226
- -------------------------------------------------------------------------------------------------
Net investment income (loss) (1,497)
- -------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE A)
Net realized gain (loss) on:
Sales of investment securities of unaffiliated issuers 2,708
Interest rate swap contracts (146)
Change in net unrealized appreciation (depreciation) in value of:
Unaffiliated investment securities 1,591
Interest rate swap contracts 517
Net gain (loss) on investments 4,670
- -------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS FROM:
Net investment income (530)
------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS
RESULTING FROM OPERATIONS $ 2,643
- -------------------------------------------------------------------------------------------------
See Notes to Financial Statements
10
NEUBERGER BERMAN APRIL 30, 2005 (UNAUDITED)
STATEMENT OF CHANGES IN NET ASSETS
REAL ESTATE INCOME FUND
------------------------------
SIX MONTHS
ENDED YEAR
APRIL 30, ENDED
NEUBERGER BERMAN 2005 OCTOBER 31,
(000'S OMITTED) (UNAUDITED) 2004
INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
FROM OPERATIONS:
Net investment income (loss) $ (1,497) $ 3,965
Net realized gain (loss) on investments 2,562 2,601
Change in net unrealized appreciation (depreciation) of investments 2,108 19,899
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS FROM (NOTE A):
Net investment income (530) (312)
Net realized gain on investments - (250)
Tax return of capital - (6)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions to preferred shareholders (530) (568)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to common shareholders resulting from operations 2,643 25,897
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM (NOTE A):
Net investment income (4,507) (3,474)
Net realized gain on investments - (2,790)
Tax return of capital - (71)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions to common shareholders (4,507) (6,335)
- -----------------------------------------------------------------------------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from issuance of common shares - 3,000
Self tender offer - (11,228)
Preferred shares offering costs - (13)
- -----------------------------------------------------------------------------------------------------------------------------------
Total net proceeds from capital share transactions - (8,241)
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS (1,864) 11,321
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Beginning of period 95,595 84,274
- -----------------------------------------------------------------------------------------------------------------------------------
End of period $ 93,731 $ 95,595
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income at end of period $ (6,575) $ (41)
- -----------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements
11
NOTES TO FINANCIAL STATEMENTS Real Estate Income Fund Inc.
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1 GENERAL: Neuberger Berman Real Estate Income Fund Inc. (the "Fund")
was organized as a Maryland corporation on September 11, 2002 as a
non-diversified, closed-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"). The 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, if
any, is recorded on the accrual basis. Realized gains and losses from
securities transactions and foreign currency transactions, if any, are
recorded on the basis of identified cost and stated separately in the
Statement of Operations.
4 INCOME TAX INFORMATION: It is the policy of the Fund to continue to
qualify as a regulated investment company by complying with the
requirements of Subchapter M of the Internal Revenue Code applicable
to regulated investment companies and to distribute substantially all
of its earnings to its shareholders. Therefore, no Federal income or
excise tax provision is required.
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.
The tax character of distributions paid during the year ended October
31, 2004 and the period ended October 31, 2003 was as follows:
DISTRIBUTIONS PAID FROM:
LONG-TERM TAX RETURN OF
ORDINARY INCOME CAPITAL GAIN CAPITAL TOTAL
2004 2003 2004 2003 2004 2003 2004 2003
$ 4,029,483 $ 4,199,011 $ 2,795,848 $ 579,456 $ 77,542 $ 767,955 $ 6,902,873 $ 5,546,422
12
NEUBERGER BERMAN APRIL 30, 3005 (UNAUDITED)
As of October 31, 2004, the components of distributable earnings
(accumulated losses) on a U.S. Federal income tax basis were as
follows:
UNDISTRIBUTED UNDISTRIBUTED UNREALIZED LOSS
ORDINARY LONG-TERM APPRECIATION CARRYFORWARDS
INCOME GAIN (DEPRECIATION) AND DEFERRALS TOTAL
$ - $ - $ 40,300,437 $ - $ 40,300,437
The difference between book and tax basis distributable earnings is
attributable primarily to timing differences of distribution payments
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. The Fund's ability to satisfy its policy will
depend on a number of factors, including the stability of income
received from its investments, the availability of capital gains,
distributions paid on preferred shares, and the level of expenses. In
an effort to maintain a stable distribution amount, the Fund may pay
distributions consisting of net investment income, realized gains and
paid-in capital. There is no assurance that the Fund will always be
able to pay distributions of a particular size, or that distributions
will consist solely of net investment income and realized capital
gains. The composition of the Fund's distributions for the calendar
year 2005 will be reported to Fund shareholders on IRS Form 1099. The
Fund may pay distributions in excess of those required by its stable
distribution policy to avoid excise tax or to satisfy the requirements
of Subchapter M of the Internal Revenue Code. Income dividends and
capital gain distributions to common shareholders are recorded on the
ex-dividend date. Net realized capital gains, if any, will be offset
to the extent of any available capital loss carryforwards. Any such
offset will not reduce the level of the stable distribution paid by
the Fund. Dividends and distributions to preferred shareholders are
accrued and determined as described in Note A-7.
The Fund invests a significant portion of its assets in securities
issued by real estate companies, including real estate investment
trusts ("REITs"). The distributions received from REITs held by the
Fund are generally comprised of income, 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 financial statements since the
information was not available from the REITs until after the Fund's
fiscal year-end. At April 30, 2005, the Fund estimated these amounts
for the period January 1, 2005 through April 30, 2005 within the
financial statements since the 2005 information is not available from
the REITs until after the Fund's fiscal period. For the year ended
October 31, 2004, the character of distributions paid to shareholders
is disclosed within the Statement of Changes and is also 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. Based on past experience it is probable that a portion of the
Fund's distributions during the current fiscal year will be considered
tax return of capital but the actual amount of tax return capital, if
any, is not determinable until after the Fund's fiscal year. After
calendar year-end, when the Fund learns the nature of the
distributions paid by REITs during that year, distributions previously
identified as income are often recharacterized as return of capital
and/or capital gain. After all applicable REITs have informed the Fund
of the actual breakdown of distributions paid to the Fund during its
fiscal year, estimates previously recorded are adjusted to reflect
actual results. As a result, the
13
composition of the Fund's distributions as reported herein may differ
from the final composition determined after calendar year-end and
reported to Fund shareholders on IRS Form 1099.
On March 30, 2005, the Fund declared two monthly distributions to
common shareholders in the amount of $0.115 per share per month,
payable after the close of the reporting period, on May 31, 2005 and
June 30, 2005, to shareholders of record on May 13, 2005 and June 13,
2005, respectively, with ex-dividend dates of May 11, 2005 and June 9,
2005, 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 12, 2002, the Fund
re-classified 1,500 unissued shares of capital stock as Series A
Auction Preferred Shares ("Preferred Shares"). On February 7, 2003,
the Fund issued 1,260 Preferred Shares. On September 10, 2003, the
Fund re-classified an additional 500 unissued shares of capital stock
as Preferred Shares. On October 24, 2003, the Fund issued an
additional 420 Preferred Shares. All Preferred Shares have a
liquidation preference of $25,000 per share plus any accumulated
unpaid distributions, whether or not earned or declared by the Fund,
but excluding interest thereon ("Liquidation Value").
Except when the Fund has declared a special rate period, distributions
to preferred shareholders, which are cumulative, are accrued daily and
paid every 7 days. Distribution rates are reset every 7 days based on
the results of an auction, except during special rate periods. For the
six months ended April 30, 2005, distribution rates ranged from 1.74%
to 3.40%. The Fund declared distributions to preferred shareholders
for the period May 1, 2005 to May 31, 2005 of $110,681.
The Fund may redeem Preferred Shares, in whole or in part, on the
second business day preceding any distribution payment date at
Liquidation Value. The Fund is also subject to certain restrictions
relating to the Preferred Shares. Failure to comply with these
restrictions could preclude the Fund from declaring any distributions
to common shareholders or repurchasing common shares and/or could
trigger the mandatory redemption of Preferred Shares at Liquidation
Value. The holders of Preferred Shares are entitled to one vote per
share and will vote with holders of common stock as a single class,
except that the Preferred Shares will vote separately as a class on
certain matters, as required by law or the Fund's charter. The holders
of the Preferred Shares, voting as a separate class, are entitled at
all times to elect two Directors of the Fund, and to elect a majority
of the Directors of the Fund if the Fund fails to pay distributions on
Preferred Shares for two consecutive years.
8 INTEREST RATE SWAPS: The Fund may enter into interest rate swap
transactions, with institutions that Management has determined are
creditworthy, to reduce the risk that an increase in short-term
interest rates could reduce common share net earnings as a result of
leverage. Under the terms of the interest rate swap
14
contracts, the Fund agrees to pay the swap counter party a fixed-rate
payment in exchange for the counter party's paying the Fund a
variable-rate payment that is intended to approximate all or a portion
of the Fund's variable-rate payment obligation on the Fund's Preferred
Shares. The fixed-rate and variable-rate payment flows are netted
against each other, with the difference being paid by one party to the
other on a monthly basis. The Fund segregates cash or liquid
securities having a value at least equal to the Fund's net payment
obligations under any swap transaction, marked to market daily.
Risks may arise if the counter party to a swap contract fails to
comply with the terms of its contract. The loss incurred by the
failure of a counter party is generally limited to the net interest
payment to be received by the Fund, and/or the termination value at
the end of the contract. Additionally, risks may arise from movements
in interest rates unanticipated by Management.
Periodic expected interim net interest payments or receipts on the
swaps are recorded as an adjustment to unrealized gains/losses, along
with the fair value of the future periodic payment streams on the
swaps. The unrealized gains/losses associated with the periodic
interim net interest payments are reclassified to realized
gains/losses in conjunction with the actual net receipt or payment of
such amounts. The reclassifications do not impact the Fund's total net
assets or its total net increase (decrease) in net assets applicable
to common shareholders resulting from operations. At April 30, 2005,
the Fund had outstanding interest rate swap contracts as follows:
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
Citibank, N.A. $ 13,000,000 February 12, 2008 3.396% 2.920% $ (3,266) $ 204,958 $ 201,692
Citibank, N.A. $ 13,000,000 February 12, 2010 3.923% 2.920% (6,881) 142,682 135,801
------------ -------------- ----------
$ (10,147) $ 347,640 $ 337,493
(1) 30 day LIBOR (London Interbank Offered Rate)
9 REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements
with institutions that Management has determined are creditworthy.
Each repurchase agreement is recorded at cost. The Fund requires that
the securities purchased in a repurchase agreement be transferred to
the custodian in a manner sufficient to enable the Fund to assert a
perfected security interest in those securities in the event of a
default under the repurchase agreement. The Fund monitors, on a daily
basis, the value of the securities transferred to ensure that their
value, including accrued interest, is greater than amounts owed to the
Fund under each such repurchase agreement.
10 SECURITY LENDING: Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund entered into a Securities
Lending Agreement ("Agreement") with Neuberger Berman, LLC
("Neuberger"), an affiliate of the Fund, pursuant to which Neuberger
acts as the Fund's lending agent. Securities loans involve certain
risks including delays or inability to recover the loaned securities
or, in the event a borrower should fail financially, foreclose against
the collateral. Neuberger, 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
15
on terms which would prevent the Fund from qualifying as regulated
investment company. The Fund receives cash collateral equal to at
least 102% of the current market value of the loaned securities. Prior
to February 7, 2005, the Fund invested the cash collateral in the N&B
Securities Lending Quality Fund, LLC ("Old Fund"), which was managed
by State Street Bank and Trust Company ("State Street") pursuant to
guidelines approved by Management. Effective February 7, 2005, the
Fund changed the collateral investment vehicle from the Old Fund to
the Neuberger Berman Securities Lending Quality Fund, LLC ("Quality
Fund"), a fund managed by Lehman Brothers Asset Management LLC
(formerly Lincoln Capital Fixed Income Management Company, LLC), an
affiliate of Management, as approved by the Board.
Under the 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. For the six months ended
April 30, 2005, revenue received under the Agreement was $8,372.
Income earned on the securities loaned, if any, is reflected in the
Statement of Operations under the caption "Income from securities
loaned-affiliated issuer."
11 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 a money market fund
managed by Management or an affiliate. Prior to December 2004, the
Fund invested in the Neuberger Berman Institutional Cash Fund (the
"Cash Fund"), as approved by the Board. As of December 2004, the Fund
changed its investment from the Cash Fund to the newly created
Neuberger Berman Prime Money Fund ("Prime Money"), as approved by the
Board. The Cash Fund and Prime Money each seek to provide the highest
available current income consistent with safety and liquidity. For any
cash that the Fund invests in the Cash Fund or Prime Money, Management
waives a portion of its management fee equal to the management fee it
receives from the Cash Fund and Prime Money on those assets (the
"Arrangement"). For the six months ended April 30, 2005, management
fees waived under this Arrangement with respect to the Cash Fund and
Prime Money amounted to $183 and $195, respectively. For the six
months ended April 30, 2005, income earned under this Arrangement with
respect to the Cash Fund and Prime Money amounted to $2,826 and
$5,874, respectively, and is reflected in the Statements of Operations
under the caption "Income from investments in affiliated issuers."
12 CONCENTRATION OF RISK: Under normal market conditions, the Fund's
investments will be concentrated in income-producing common equity
securities, preferred securities, convertible securities and
non-convertible debt securities issued by companies deriving the
majority of their revenue from the ownership, construction, financing,
management and/or sale of commercial, industrial, and/or residential
real estate. Values of the securities of such companies may fluctuate
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.
13 INDEMNIFICATIONS: Like many other companies, the Fund's organizational
documents provide that its officers and directors are indemnified
against certain liabilities arising out of the performance of their
duties to the Fund. The Fund has also entered into Indemnification
Agreements with its officers and
16
directors to indemnify them 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 Preferred Shares outstanding is
not considered a liability.
Management has contractually agreed to waive a portion of the
management fees it is entitled to receive from the Fund at the
following annual rates:
YEAR ENDED % OF AVERAGE
OCTOBER 31, DAILY MANAGED ASSETS
--------------------------------------------------------------------
2005 - 2007 0.40
2008 0.32
2009 0.24
2010 0.16
2011 0.08
Management has not contractually agreed to waive any portion of its
fees beyond October 31, 2011.
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.
In connection with the unsolicited tender offer described in Note F
below, Management has voluntarily agreed to waive all fees under the
Management and Administration Agreements described above for an
indefinite period.
For the six months ended April 30, 2005, such waived fees amounted to
$581,100.
Management and Neuberger, a member firm of the New York Stock Exchange
and sub-adviser to the Fund, are 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.
On July 1, 2003, 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
17
accounting services. For the six months ended April 30, 2005, the
impact of this arrangement was a reduction of expenses of $1,511.
The Fund has an expense offset arrangement in connection with its
custodian contract. For the six months ended April 30, 2005, the
impact of this arrangement was a reduction of expenses of $177.
In connection with the settlement of each Preferred Share auction, the
Fund pays, through the auction agent, a service fee to each
participating broker-dealer based upon the aggregate liquidation
preference of the Preferred Shares held by the broker-dealer's
customers. For any auction preceding a rate period of less than one
year, the service fee is paid at the annual rate of 1/4 of 1%; for any
auction preceding a rate period of one year or more, the service fee
is paid at a rate agreed to by the Fund and the broker-dealer.
In order to satisfy rating agencies' requirements, the Fund is
required to provide each rating agency a report on a monthly basis
verifying that the Fund is maintaining eligible assets having a
discounted value equal to or greater than the Preferred Shares Basic
Maintenance Amount, which is a minimum level set by each rating agency
as one of the conditions to maintain the AAA/Aaa rating on the
Preferred Shares. "Discounted value" refers to the fact that the
rating agencies require the Fund, in performing this calculation, to
discount portfolio securities below their face value, at rates
determined by the rating agencies. The Fund pays a fee to State Street
for the preparation of this report.
NOTE C--SECURITIES TRANSACTIONS:
During the six months ended April 30, 2005, there were purchase and
sale transactions (excluding short-term securities and interest rate
swap contracts) of $2,283,311 and $5,271,669, respectively.
During the six months ended April 30, 2005, brokerage commissions on
securities transactions amounted to $10,231, of which Neuberger
received $0, Lehman received $2,382, and other brokers received
$7,849.
NOTE D--CAPITAL:
At April 30, 2005, the common shares outstanding and the common shares
of the Fund owned by Neuberger were as follows:
COMMON SHARES COMMON SHARES
OUTSTANDING OWNED BY NEUBERGER
4,157,117 146,516
Transactions in common shares for the six months ended April 30, 2005
and for the year ended October 31, 2004 were as follows:
COMMON SHARES ISSUED (REDEEMED) IN CONNECTION WITH:
NET TRANSACTIONS
IN CONNECTION NET INCREASE
REINVESTMENT OF WITH PRIVATE (DECREASE)
DIVIDENDS AND PLACEMENT AND IN COMMON
DISTRIBUTIONS SELF-TENDER OFFER SHARES OUTSTANDING
2005 2004 2005 2004 2005 2004
-- -- -- (421,866) -- (421,866)
18
NOTE E--INVESTMENTS IN AFFILIATES*:
BALANCE OF BALANCE OF INCOME FROM
SHARES GROSS SHARES INVESTMENTS IN
HELD GROSS SALES HELD VALUE AFFILIATED ISSUERS
OCTOBER 31, PURCHASES AND AND APRIL 30, APRIL 30, INCLUDED IN
NAME OF ISSUER 2004 ADDITIONS REDUCTIONS 2005 2005 TOTAL INCOME
Neuberger Berman
Securities Lending
Quality Fund, LLC** 19,782,800 916,761,800 927,485,900 9,058,700 $ 9,058,700 $ 2,480
Neuberger Berman
Institutional Cash Fund
Trust Class*** 3,736,390 8,698,919 12,435,309 -- -- 2,826
Neuberger Berman
Prime Money
Fund Trust Class*** -- 6,139,224 5,610,123 529,101 529,101 5,874
----------- ------------------
Total $ 9,587,801 $ 11,180
=========== ==================
* Affiliated issuers, as defined in the 1940 Act, include issuers
in which the Fund held 5% or more of the outstanding voting
securities.
** Prior to February 7, 2005, the Old Fund, an investment vehicle
established by the Fund's custodian, was used to invest cash the
Fund receives as collateral for securities loans. Effective
February 7, 2005, the Fund changed the collateral investment
vehicle from the Old Fund to the Quality Fund, a fund managed by
Lehman Brothers Asset Management LLC, an affiliate of Management,
as approved by the Board. The Fund's shares in the Old Fund and
Quality Fund were and are non-voting. However, because all shares
of the Old Fund and Quality Fund were and are held by funds in
the related investment company complex, the Old Fund and Quality
Fund may have been and may be considered affiliates of the Fund.
*** The Cash Fund and Prime Money are also managed by Management and
may be considered affiliates since they have 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 the Cash Fund or Prime Money, respectively.
NOTE F--LITIGATION:
In September 2004, two trusts advised by Stewart R. Horejsi (the
"Trusts") commenced an unsolicited tender offer to purchase up to 50%
of the issued and outstanding shares of the Fund's common stock at a
price of $19.89 net per share. In response to this unsolicited tender
offer, the Board appointed a Special Committee comprised of
independent directors of the Fund to consider the tender offer and the
Fund's response. The Special Committee determined that the offer was
coercive and, if successful, would be harmful to the Fund's
shareholders. Accordingly, the Special Committee recommended, and the
Board approved, certain defensive measures, including a self-tender
offer, a rights agreement and certain other legal actions.
On October 1, 2004, the Fund commenced a self-tender offer for up to
20% of its outstanding common stock, at a price of $20.00 net per
share, in order to provide liquidity to those common shareholders who
were determined to sell their shares so they would not need to tender
into the Trusts' hostile tender offer. The Board recommended, however,
that common shareholders not tender their shares into either the
self-tender offer or the
19
Trusts' offer. In order to partially fund the Fund's repurchase of
shares, on September 23, 2004, the Fund issued 139,535 new shares of
common stock to Neuberger in a private placement at the Fund's then
current net asset value of $21.50 per share. The aggregate investment
of approximately $3,000,000 represented a premium of approximately 12%
over the per share market price of the Fund at that date. The Fund's
self tender offer expired at 12:00 midnight on October 29, 2004. Under
the terms of the self-tender offer, on November 4, 2004, the Fund
accepted 561,401.374 shares of its common stock, representing
approximately 11.9% of its total outstanding common stock at an
aggregate redemption amount of $11,228,020. Because the Fund
repurchased these shares at below NAV, the self-tender offer had a
positive impact on the NAV in the amount of $1,493,328.
On September 23, 2004, the Board also adopted a rights agreement under
which all common shareholders of record as of October 7, 2004 received
rights to purchase shares of the Fund's common stock. These rights
expired on January 21, 2005. Each right entitled the registered holder
to purchase from the Fund three shares of common stock at a price
equal to the par value of such shares. The rights would have become
exercisable 10 days following a public announcement that a person or
group of affiliated or associated persons had acquired beneficial
ownership of 11% or more of the outstanding shares of common stock;
however, the acquiring person or persons would not have been permitted
to exercise the rights with respect to shares held in excess of 11%.
(The 11% trigger automatically adjusted to accommodate the change in
shares outstanding as a result of the Fund's self-tender offer.) The
description and terms of these rights are set forth in a rights
agreement which has been filed with the Securities and Exchange
Commission. On January 18, 2005, the Board adopted another rights
agreement under which all shareholders of record as of January 21,
2005 received rights to purchase shares of its common stock. These
rights expired on May 18, 2005. Each right entitled the registered
holder to purchase from the Fund three shares of common stock at a
price equal to the par value of such shares. The rights would have
become exercisable 10 days following a public announcement that a
person or group of affiliated or associated persons had acquired
beneficial ownership of 11.5% or more of the outstanding shares of
common stock; however, the acquiring person or persons would not have
been permitted to exercise the rights with respect to shares held in
excess of 11.5%. (The 11.5% trigger would have automatically adjusted
to accommodate any change in the number of shares outstanding.) The
description and terms of these rights are set forth in a rights
agreement which has been filed with the Securities and Exchange
Commission. On May 13, 2005, the Board adopted a rights agreement
under which all shareholders of record as of May 18, 2005 received
rights to purchase shares of the Fund's common stock. These rights
will expire on September 11, 2005. Each right entitles the registered
holder to purchase from the Fund five shares of common stock at a
price equal to the par value of such shares. The rights will become
exercisable 10 days following a public announcement that a person or
group of affiliated or associated persons has acquired beneficial
ownership of 11.5% or more of the outstanding shares of common stock;
however, the acquiring person or persons are not permitted to exercise
the rights with respect to shares held in excess of 11.5%. (The 11.5%
trigger automatically adjusts to accommodate any change in the number
of shares outstanding.) The description and terms of these rights are
set forth in a rights agreement which has been filed with the
Securities and Exchange Commission.
In addition to the defensive actions described above, the Fund filed
suit in federal district court in Maryland against the Trusts, their
trustees (Badlands Trust Company, Larry Dunlap and Susan Ciciora), and
Stewart R. Horejsi alleging that the Trusts' tender offer materials
were false and misleading and that Stewart R. Horejsi and the trustees
are "control persons" of the Trusts under the federal securities laws,
20
and therefore liable for the Trusts' violation of those laws. The
Trusts and Badlands Trust Company, as trustee, have filed
counterclaims against the Fund alleging that the Fund's defensive
measures violate federal securities laws and Maryland state law and
seeking unspecified damages for tortious interference with their
prospective business. While the court ruled in favor of the Fund on
certain aspects of the counterclaim in October 2004, litigation
continues on other aspects of the case. On March 30, 2005, the Trusts
and Badlands Trust Company, as trustee, supplemented their
counterclaims with a counterclaim that the rights agreement adopted by
the Board on January 18, 2005 violated federal securities laws. On May
24, 2005, one of the Trusts dropped out of the tender offer, while the
other extended its offer to September 14, 2005 and slightly increased
the number of shares it is offering to buy to account for the absence
of the other Trust; the offering price remains $19.89 per share. On
June 24, 2005, the court ruled on the Fund's motions to compel and
required the defendants to produce documents and other information
that we had requested last year, but that the defendants had refused
to produce. The court stated that the defendants' actions had delayed
the Fund's discovery process, unnecessarily slowed and complicated the
resolution of the case and resulted in unnecessary costs. The court
also stated that, subject to defendants' right to a hearing, it
intends to impose on defendants and their counsel reasonable expenses
incurred by the Fund in connection with the filing and litigation of
the motions to compel. The Fund anticipates filing a motion for
summary judgment with the court seeking to have all the remaining
claims in this litigation adjudicated.
In October 2004, the Fund and its Directors were named in a lawsuit
filed by a third party that repeated certain factual allegations made
by the Trusts and Badlands Trust Company, as trustee, and alleged that
a) certain of the Fund's defensive measures violated the federal
securities laws and the Board's adoption of those measures violated
the Board's fiduciary duties and b) the Board's failure to take other
defensive actions also violated its fiduciary duties. The court
dismissed the third party's claims and gave the third party until May
6, 2005 to amend its complaint. On May 6, 2005, the third party
amended its complaint, adding a claim that the rights agreement
adopted on January 18, 2005 violated the federal securities laws. The
Fund and the Board believe that the defensive actions taken were
lawful and proper, and they are defending the respective cases
vigorously. Several of the issues in each case are matters of first
impression. Accordingly, it is unclear how the court may rule.
For the period ended April 30, 2005, the tender offer and related fees
recorded in the Statement of Operations were $3,016,421. In an effort
to offset these costs, Management has agreed to voluntarily waive all
fees under the Management and Administration Agreements described in
Note B for an indefinite period. The Fund's directors have also agreed
to waive their directors' fees for an indefinite period. These
voluntary waivers are not subject to recoupment. In addition, the Fund
has filed a claim under its insurance policy for certain litigation
expenses. Although there is no assurance of when or to what extent its
insurance carrier will pay on this claim, the Fund is hopeful that the
insurance proceeds may offset a portion of its defensive litigation
expenses. In light of a recent court ruling finding that the Trusts
have improperly delayed the discovery phase of the case, the Fund also
intends to file a motion to recover some of its associated costs.
NOTE G--UNAUDITED FINANCIAL INFORMATION:
The financial information included in this interim report is taken
from the records of the Fund without audit by an independent
registered public accounting firm. Annual reports contain audited
financial statements.
21
FINANCIAL HIGHLIGHTS Real Estate 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.
PERIOD FROM
NOVEMBER 29,
SIX MONTHS ENDED YEAR ENDED 2002^
APRIL 30, OCTOBER 31, TO OCTOBER 31,
---------------- ------------- --------------
2005 2004 2003
(UNAUDITED)
COMMON SHARE NET ASSET VALUE, BEGINNING OF PERIOD $ 23.00 $ 18.40 $ 14.33
---------------- ------------- --------------
INCOME FROM INVESTMENT OPERATIONS APPLICABLE TO COMMON SHAREHOLDERS:
NET INVESTMENT INCOME (LOSS) (.36) .87~ .87
NET GAINS OR LOSSES ON SECURITIES (BOTH REALIZED AND UNREALIZED) 1.12 4.90~ 4.60
COMMON SHARE EQUIVALENT OF DISTRIBUTIONS TO PREFERRED SHAREHOLDERS FROM:
NET INVESTMENT INCOME (.13) (.07) (.05)
NET CAPITAL GAINS -- (.05) (.00)
TAX RETURN OF CAPITAL -- (.00) (.01)
---------------- ------------- --------------
TOTAL DISTRIBUTIONS TO PREFERRED SHAREHOLDERS (.13) (.12) (.06)
---------------- ------------- --------------
TOTAL FROM INVESTMENT OPERATIONS APPLICABLE TO COMMON SHAREHOLDERS .63 5.65 5.41
---------------- ------------- --------------
LESS DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM:
NET INVESTMENT INCOME (1.08) (.76) (.84)
NET CAPITAL GAINS -- (.61) (.15)
TAX RETURN OF CAPITAL -- (.01) (.16)
---------------- ------------- --------------
TOTAL DISTRIBUTIONS TO COMMON SHAREHOLDERS (1.08) (1.38) (1.15)
---------------- ------------- --------------
LESS CAPITAL CHARGES:
ISSUANCE OF COMMON SHARES -- (.00) (.03)
ISSUANCE OF PREFERRED SHARES -- (.00) (.16)
---------------- ------------- --------------
TOTAL CAPITAL CHARGES -- (.00) (.19)
---------------- ------------- --------------
ANTI-DILUTIVE EFFECT OF ACQUIRING TREASURY SHARES -- .33 --
---------------- ------------- --------------
COMMON SHARE NET ASSET VALUE, END OF PERIOD $ 22.55 $ 23.00 $ 18.40
---------------- ------------- --------------
COMMON SHARE MARKET VALUE, END OF PERIOD $ 19.57 $ 20.01 $ 17.29
---------------- ------------- --------------
TOTAL RETURN, COMMON SHARE NET ASSET VALUE+ +4.96%** +34.44% +38.13%**
TOTAL RETURN, COMMON SHARE MARKET VALUE+ +3.15%** +24.54% +23.96%**
RATIOS/SUPPLEMENTAL DATA++
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS, END OF PERIOD (IN MILLIONS) $ 93.7 $ 95.6 $ 84.3
PREFERRED STOCK, AT LIQUIDATION VALUE ($25,000 PER SHARE
LIQUIDATION PREFERENCE) (IN MILLIONS) $ 42.0 $ 42.0 $ 42.0
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS APPLICABLE TO
COMMON SHAREHOLDERS# 6.79%* 1.85%~ 1.82%*
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS APPLICABLE TO
COMMON SHAREHOLDERS++ 6.79%* 1.85%~ 1.82%*
RATIO OF NET INVESTMENT INCOME (LOSS) EXCLUDING PREFERRED STOCK DIVIDENDS
TO AVERAGE NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS (3.15%)* 4.23%~ 6.00%*
RATIO OF PREFERRED STOCK DIVIDENDS TO AVERAGE NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS 1.11% .61% .44%*
RATIO OF NET INVESTMENT INCOME (LOSS) INCLUDING PREFERRED
STOCK DIVIDENDS TO AVERAGE NET ASSETS APPLICABLE TO
COMMON SHAREHOLDERS (4.26%)* 3.62%~ 5.56%*
PORTFOLIO TURNOVER RATE 2% 5% 14%
ASSET COVERAGE PER SHARE OF PREFERRED STOCK, END OF PERIOD@ $ 80,799 $ 81,907 $ 75,165
See Notes to Financial Highlights
22
NOTES TO FINANCIAL HIGHLIGHTS Real Estate Income Fund Inc.
+ Total return based on per share net asset value reflects the effects of
changes in net asset value on the performance of the Fund during each
fiscal period. Total return based on per share market value assumes the
purchase of common shares at the market price on the first day and sales
of common shares at the market price on the last day of the period
indicated. Dividends and distributions, if any, are assumed to be
reinvested at prices obtained under the Fund's dividend reinvestment plan.
Results represent past performance and do not guarantee future results.
Current returns may be lower or higher than the performance data quoted.
Total return would have been lower if Management had not waived a portion
of the investment management and administration fees. 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 and administration
fees. Had Management not undertaken such actions, the annualized ratios of
net expenses to average daily net assets applicable to common shareholders
would have been:
SIX MONTHS ENDED YEAR ENDED YEAR ENDED
APRIL 30, OCTOBER 31, OCTOBER 31,
2005 2004 2003(1)
8.01% 2.50% 2.36%
(1) Period from November 29, 2002 to October 31, 2003.
^ The date investment operations commenced.
* Annualized.
** Not annualized.
@ Calculated by subtracting the Fund's total liabilities (excluding
accumulated unpaid dividends on Preferred Shares) from the Fund's total
assets and dividing by the number of Preferred Shares outstanding.
++ Expense ratios do not include the effect of dividend payments to preferred
shareholders. Income ratios include income earned on assets attributable
to Preferred Shares.
~ Prior to November 1, 2003, the Fund recorded the accrual of the net
interest income or expense expected to be received or paid at interim
settlement dates as a net payable or receivable for swap contracts and
actual amounts paid as net interest income or expense on swap contracts.
As a result of SEC staff guidance relating to the application of FASB
Statement No 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES, to registered investment companies, effective November 1,
2003, periodic expected interim net interest payments or receipts on the
swaps are recorded as an adjustment to unrealized gains/losses, along with
the fair value of the future periodic payment streams on the swaps.
Accordingly, for the year ended October 31, 2004, the per share amounts
and ratios shown decreased or increased as follows:
YEAR ENDED
OCTOBER 31,
2004
Net Investment Income .14
Net Gains or Losses in Securities (both realized and unrealized) (.14)
Ratio of Gross Expenses to Average Net Assets Applicable to Common Shareholders (.67)
Ratio of Net Expenses to Average Net Assets Applicable to Common Shareholders (.67)
Ratio of Net Investment Income (Loss) Excluding Preferred Stock Dividends to Average
Net Assets Applicable to Common Shareholders .67%
Ratio of Net Investment Income (Loss) Including Preferred Stock Dividends to Average
Net Assets Applicable to Common Shareholders .67%
CENTS The per share amounts which are shown have been computed based on the
average number of shares outstanding during each fiscal period.
23
DIVIDEND REINVESTMENT PLAN
The Bank of New York ("Plan Agent") will act as Plan Agent for shareholders who
have not elected in writing to receive dividends and distributions in cash (each
a "Participant"), will open an account for each Participant under the Dividend
Reinvestment Plan ("Plan") in the same name as their then current Shares are
registered, and will put the Plan into effect for each Participant as of the
first record date for a dividend or capital gains distribution.
Whenever the Fund declares a dividend or distribution with respect to the common
stock of the Fund ("Shares"), each Participant will receive such dividends and
distributions in additional Shares, including fractional Shares acquired by the
Plan Agent and credited to each Participant's account. If on the payment date
for a cash dividend or distribution, the net asset value is equal to or less
than the market price per Share plus estimated brokerage commissions, the Plan
Agent shall automatically receive such Shares, including fractions, for each
Participant's account. Except in the circumstances described in the next
paragraph, the number of additional Shares to be credited to each Participant's
account shall be determined by dividing the dollar amount of the dividend or
distribution payable on their Shares by the greater of the net asset value per
Share determined as of the date of purchase or 95% of the then current market
price per Share on the payment date.
Should the net asset value per Share exceed the market price per Share plus
estimated brokerage commissions on the payment date for a cash dividend or
distribution, the Plan Agent or a broker-dealer selected by the Plan Agent shall
endeavor, for a purchase period lasting until the last business day before the
next date on which the Shares trade on an "ex-dividend" basis, but in no event,
except as provided below, more than 30 days after the dividend payment date, to
apply the amount of such dividend or distribution on each Participant's Shares
(less their PRO RATA share of brokerage commissions incurred with respect to the
Plan Agent's open-market purchases in connection with the reinvestment of such
dividend or distribution) to purchase Shares on the open market for each
Participant's account. No such purchases may be made more than 30 days after the
payment date for such dividend except where temporary curtailment or suspension
of purchase is necessary to comply with applicable provisions of federal
securities laws. If, at the close of business on any day during the purchase
period the net asset value per Share equals or is less than the market price per
Share plus estimated brokerage commissions, the Plan Agent will not make any
further open-market purchases in connection with the reinvestment of such
dividend or distribution. If the Plan Agent is unable to invest the full
dividend or distribution amount through open-market purchases during the
purchase period, the Plan Agent shall request that, with respect to the
uninvested portion of such dividend or distribution amount, the Fund issue new
Shares at the close of business on the earlier of the last day of the purchase
period or the first day during the purchase period on which the net asset value
per Share equals or is less than the market price per Share, plus estimated
brokerage commissions, such Shares to be issued in accordance with the terms
specified in the third paragraph hereof. These newly issued Shares will be
valued at the then-current market price per Share at the time such Shares are to
be issued.
For purposes of making the dividend reinvestment purchase comparison under the
Plan, (a) the market price of the Shares on a particular date shall be the last
sales price on the New York Stock Exchange (or if the Shares are not listed on
the New York Stock Exchange, such other exchange on which the Shares are
principally traded) on that date, or, if there is no sale on such Exchange (or
if not so listed, in the over-the-counter market) on that date, then the mean
between the closing bid and asked quotations for such Shares on such Exchange on
such date and (b) the net asset value per Share on a particular date shall be
the net asset value per Share most recently calculated by or on behalf of the
Fund. All dividends, distributions and other payments (whether made in cash or
Shares) shall be made net of any applicable withholding tax.
Open-market purchases provided for above may be made on any securities exchange
where the Fund's Shares are traded, in the over-the-counter market or in
negotiated transactions and may be on such terms as to price, delivery and
otherwise as the Plan Agent shall determine. Each Participant's uninvested funds
held by the Plan Agent will not bear interest, and it is understood that, in any
event, the Plan Agent shall have no liability in connection with any inability
to purchase Shares within 30 days after the initial date of such purchase as
herein provided, or with the timing of any purchases effected. The Plan Agent
shall have no responsibility as to the value of the Shares acquired for each
Participant's account. For the purpose of cash investments, the Plan Agent may
commingle each Participant's funds with those of other shareholders of the Fund
for whom the Plan Agent similarly acts as agent, and the average price
(including brokerage commissions) of all Shares purchased by the Plan Agent as
Plan Agent shall be the price per Share allocable to each Participant in
connection therewith.
24
The Plan Agent may hold each Participant's Shares acquired pursuant to the Plan
together with the Shares of other shareholders of the Fund acquired pursuant to
the Plan in noncertificated form in the Plan Agent's name or that of the Plan
Agent's nominee. The Plan Agent will forward to each Participant any proxy
solicitation material and will vote any Shares so held for each Participant only
in accordance with the instructions set forth on proxies returned by the
participant to the Fund.
The Plan Agent will confirm to each Participant each acquisition made for their
account as soon as practicable but not later than 60 days after the date
thereof. Although each Participant may from time to time have an undivided
fractional interest (computed to three decimal places) in a Share, no
certificates for a fractional Share will be issued. However, dividends and
distributions on fractional Shares will be credited to each Participant's
account. In the event of termination of a Participant's account under the Plan,
the Plan Agent will adjust for any such undivided fractional interest in cash at
the market value of the Shares at the time of termination, less the PRO RATA
expense of any sale required to make such an adjustment.
Any Share dividends or split Shares distributed by the Fund on Shares held by
the Plan Agent for Participants will be credited to their accounts. In the event
that the Fund makes available to its shareholders rights to purchase additional
Shares or other securities, the Shares held for each Participant under the Plan
will be added to other Shares held by the Participant in calculating the number
of rights to be issued to each Participant.
The Plan Agent's service fee for handling capital gains distributions or income
dividends will be paid by the Fund. Participants will be charged their PRO RATA
share of brokerage commissions on all open-market purchases.
Each Participant may terminate their account under the Plan by notifying the
Plan Agent in writing. Such termination will be effective immediately if the
Participant's notice is received by the Plan Agent not less than ten days prior
to any dividend or distribution record date, otherwise such termination will be
effective the first trading day after the payment date for such dividend or
distribution with respect to any subsequent dividend or distribution. The Plan
may be terminated by the Plan Agent or the Fund upon notice in writing mailed to
each Participant at least 30 days prior to any record date for the payment of
any dividend or distribution by the Fund. Upon any termination, the Plan Agent
will cause a certificate or certificates for the number of Shares held for each
Participant under the Plan to be delivered to the Participant (or if the Shares
are not then in certificated form, will cause the Shares to be transferred to
the Participant) without charge.
These terms and conditions may be amended or supplemented by the Plan Agent or
the Fund at any time or times but, except when necessary or appropriate to
comply with applicable law or the rules or policies of the Securities and
Exchange Commission or any other regulatory authority, only by mailing to each
Participant appropriate written notice at least 30 days prior to the effective
date thereof. The amendment or supplement shall be deemed to be accepted by each
Participant unless, prior to the effective date thereof, the Plan Agent receives
written notice of the termination of their account under the Plan. Any such
amendment may include an appointment by the Plan Agent in its place and stead of
a successor Plan Agent under these terms and conditions, with full power and
authority to perform all or any of the acts to be performed by the Plan Agent
under these terms and conditions. Upon any such appointment of any Plan Agent
for the purpose of receiving dividends and distributions, the Fund will be
authorized to pay to such successor Plan Agent, for each Participant's account,
all dividends and distributions payable on Shares held in their name or under
the Plan for retention or application by such successor Plan Agent as provided
in these terms and conditions.
The Plan Agent shall at all times act in good faith and agrees to use its best
efforts within reasonable limits to ensure the accuracy of all services
performed under this Agreement and to comply with applicable law, but assumes no
responsibility and shall not be liable for loss or damage due to errors unless
such error is caused by the Plan Agent's negligence, bad faith, or willful
misconduct or that of its employees.
These terms and conditions shall be governed by the laws of the State of
Maryland.
25
DIRECTORY
INVESTMENT MANAGER AND ADMINISTRATOR STOCK TRANSFER AGENT
Neuberger Berman Management Inc. Bank of New York
605 Third Avenue 2nd Floor 101 Barclay Street, 11-E
New York, NY 10158-0180 New York, NY 10286
877.461.1899 or 212.476.8800
LEGAL COUNSEL
SUB-ADVISER Kirkpatrick & Lockhart Nicholson Graham LLP
Neuberger Berman, LLC 1800 Massachusetts Avenue, NW
605 Third Avenue 2nd Floor
New York, NY 10158-3698 Washington, DC 20036-1221
CUSTODIAN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
State Street Bank and Trust Company Ernst & Young LLP
225 Franklin Street 200 Clarendon Street
Boston, MA 02110 Boston, MA 02116
26
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available, without charge,
by calling 1-800-877-9700 (toll-free) and on the website of the Securities and
Exchange Commission at www.sec.gov. Information regarding how the Fund voted
proxies relating to portfolio securities during the most recent 12-month period
ended June 30 will also be available without charge, by calling 1-800-877-9700
(toll-free), on the website of the Securities and Exchange Commission at
www.sec.gov and on the Fund's website at www.nb.com.
QUARTERLY PORTFOLIO SCHEDULE
The Fund files a complete schedule of portfolio holdings with the Securities and
Exchange Commission for the first and third quarters of each fiscal year on Form
N-Q. The Fund's Forms N-Q are available on the Securities and Exchange
Commission's website at www.sec.gov and may be reviewed and copied at the
Securities and Exchange Commission's Public Reference Room in Washington, DC.
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330. The information on Form N-Q is available upon request,
without charge, by calling 1-800-877-9700 (toll-free).
27
REPORT OF VOTES OF SHAREHOLDERS
An annual meeting of shareholders of Neuberger Berman Real Estate Income Fund
Inc. was held on March 8, 2005. Shareholders voted on the following matter: (1)
To elect five Class III Directors (one of which is to be elected only by holders
of the Fund's preferred stock) to serve until the annual meeting of stockholders
in 2008, or until their successors are elected and qualified. Class I and II
Directors continue to hold office until the annual meeting in 2006 and 2007,
respectively.
Proposal 1 - To elect five Class III Directors (one of which is to be elected
only by holders of the Fund's preferred stock) to serve until the annual meeting
of stockholders in 2008.
Common and Preferred Shares
VOTES VOTES BROKER
VOTES FOR AGAINST WITHHELD ABSTENTIONS NON-VOTES
Robert A. Kavesh 3,204,178.000 - 729,166.000 - -
Edward I. O'Brien 3,208,066.000 - 725,278.000 - -
William E. Rulon 3,210,199.000 - 723,145.000 - -
Candace L. Straight 3,210,531.000 - 722,813.000 - -
Preferred Shares
VOTES VOTES BROKER
VOTES FOR AGAINST WITHHELD ABSTENTIONS NON-VOTES
Howard A. Mileaf 1,041.000 - 21.000 - -
28
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 & SHAREHOLDER SERVICES
877.461.1899
www.nb.com
[RECYCLED SYMBOL]
D0122 06/05
ITEM 2. CODE OF ETHICS
The Board of Directors ("Board") of Neuberger Berman Real Estate 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
Only required in the annual report.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Only required in the annual report.
ITEM 6. SCHEDULE OF INVESTMENTS
The complete schedule of investments for 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
Only required in the annual report.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Only required in the annual report.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS
This table shows the purchases by or on behalf of the Registrant or affiliated
purchasers of the Registrant of any class of the Registrant's equity securities
that is registered by the Registrant pursuant to Section 12 of the Securities
Exchange Act of 1934.
REGISTRANT PURCHASES OF EQUITY SECURITIES
- --------------------------------------------------------------------------------
Period (a) (b) (c) (d)
Total Number Average Price Total Number Maximum
of Shares (or Paid Per of Shares (or Number (or
Units) Share (or Units) Approximate
Purchased Unit) Purchased as Dollar Value)
Part of of Shares (or
Publicly Units) that
Announced May Yet Be
Plans or Purchased
Programs Under the
Plans or
Programs
- --------------------------------------------------------------------------------
Month #1 561,401.374* $20.00
(November 1, 2004 to
November 30, 2004)
- --------------------------------------------------------------------------------
Month #2
(December 1, 2004 to
December 31, 2004)
- --------------------------------------------------------------------------------
Month #3
(January 1, 2005 to
January 31, 2005)
- --------------------------------------------------------------------------------
Month #4
(February 1, 2005 to
February 28, 2005)
- --------------------------------------------------------------------------------
Month #5
(March 1, 2005 to
March 31, 2005)
- --------------------------------------------------------------------------------
Month #6
(April 1, 2005 to
April 30, 2005)
- --------------------------------------------------------------------------------
Total 561,401.374 $20.00
- --------------------------------------------------------------------------------
* The shares were purchased not as part of a publicly announced plan or program
but pursuant to a tender offer.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no changes to the procedures by which shareholders may recommend
nominees to the Board.
ITEM 11. CONTROLS AND PROCEDURES
(a) Based on an evaluation of the disclosure controls and procedures (as
defined in rule 30a-3(c) under the Investment Company Act of 1940, as
amended (the "Act")) as of a date within 90 days of the filing date of
this document, the Chief Executive Officer and Treasurer and Principal
Financial and Accounting Officer of the Registrant have concluded that
such disclosure controls and procedures are effectively designed to ensure
that information required to be disclosed by the Registrant 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 12. 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 Income Fund Inc.
By: /s/ Peter E. Sundman
--------------------
Peter E. Sundman
Chief Executive Officer
Date: June 28, 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: June 28, 2005
By: /s/ John McGovern
-----------------
John McGovern
Treasurer and Principal Financial
and Accounting Officer
Date: June 28, 2005