As filed with the Securities and Exchange Commission on January 9, 2006
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)
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 Nicholson Graham 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, 2005
Date of reporting period: October 31, 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 OCTOBER 31, 2005
CONTENTS
THE FUND
CHAIRMAN'S LETTER 1
PORTFOLIO COMMENTARY 2
SCHEDULE OF INVESTMENTS/
TOP TEN EQUITY HOLDINGS 6
FINANCIAL STATEMENTS 9
FINANCIAL HIGHLIGHTS/
PER SHARE DATA 20
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 22
DIVIDEND REINVESTMENT PLAN 23
DIRECTORY 25
DIRECTORS AND OFFICERS 26
PROXY VOTING POLICIES AND PROCEDURES 35
QUARTERLY PORTFOLIO SCHEDULE 35
CHANGE TO INVESTMENT POLICY 35
NOTICE TO SHAREHOLDERS 36
BOARD CONSIDERATION OF THE MANAGEMENT
AND SUB-ADVISORY AGREEMENTS 37
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 fiscal year ending October 31, 2005.
The report includes portfolio commentary, a listing of the Fund's investments,
and its audited financial statements for the reporting period.
The Fund seeks to provide high current income with capital appreciation as a
secondary objective. To pursue 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 real estate company securities that are
attractively priced relative to both 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.
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
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)2005 Neuberger Berman Management Inc. All
rights reserved.
1
<Page>
REAL ESTATE SECURITIES INCOME FUND INC. PORTFOLIO COMMENTARY
For the fiscal year ending October 31, 2005, on a Net Asset Value (NAV) basis,
the Neuberger Berman Real Estate Securities Income Fund Inc. (AMEX: NRO)
provided a 16.61% return, compared to a gain of 17.94% for the NAREIT Equity
REIT Index. The Fund's relative underperformance can be attributed to its
holdings of preferred real estate investment trust securities (REITs), which did
not perform as well as REIT common stocks. During the period, REITs generally
benefited from continued investor interest in this segment of the market and
ongoing improvement in REIT fundamentals. We expect REITs to continue to benefit
from improving fundamentals over the next couple of years.
REITs performed well across the board--office properties, regional malls,
apartments and industrial properties all provided strong returns. The office
sector benefited from improved economic growth and modest rent growth. Shares in
industrial properties rose as the demand for warehouse space increased, pension
funds became more interested in the sector and industrial property joint
ventures multiplied. Apartment properties fared well, reflecting the recent
improvement in fundamentals and rising occupancy rates. The apartment sector
also benefited from the perception that the market for housing sales has peaked.
Regional malls did well, in part due to healthy consumer spending and excellent
retail economics this year.
In this environment, the Fund benefited from the strength of--and an overweight
position in--the office sector. Health care REITs also performed well and the
Fund's holdings outperformed benchmark sector components. In the apartment
sector, the portfolio's market weight position in this strongly performing
segment helped overall returns. However, the hotel sector lagged, as did our
holdings in the group, as investors took gains made in 2004 and moved on to
other property areas. Community shopping centers also lagged behind other REIT
sectors, which we attribute to limited acquisition opportunities.
We believe that 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 2006.
From a broader perspective, we remain optimistic about REIT fundamentals. As a
result of rising construction costs (a 10%-15% rise over the last 12 months,
concentrated in labor and raw materials), we believe that supply growth will
remain modest over the coming year. Furthermore, we remain positive on demand
growth, particularly in light of expectations for 3% GDP growth in 2006. We also
expect the Federal Reserve to complete its series of rate increases in the first
half of 2006. If this supply/demand environment continues, we anticipate a rise
in occupancy rates and rent levels for 2006, a scenario that bodes well for the
commercial real estate market.
Looking out into 2006, we expect higher interest rates to slow the housing boom
of the last several years. We also believe that investors will be able to
differentiate between declining homebuilding fundamentals and improving
commercial real estate fundamentals, which as we mentioned, we expect to benefit
from limited supply growth as well as our expectations for modest consumer
activity in 2006.
The REIT industry's solid earnings growth through the first three quarters of
2005 suggests to us a favorable earnings outlook for 2006. Commercial real
estate fundamentals remain attractive, which is consistent with market
expectations. We expect REIT dividend growth also to be attractive, at around 3%
to 4% in the coming 12 months.
In our view, continued healthy capital markets would be expected to lead to an
increase in merger and acquisition activity in 2006. Many REITs continue to
trade at modest discounts to their real estate asset value levels. Strategic
buyers, such as real estate opportunity funds, are becoming more aggressive in
their bidding for REITs, and are also comfortable with assigning value to the
"operating platform" of REITs. This operating platform offers the buyer growth
through an ongoing development and leasing pipeline. We expect the Fund to be a
beneficiary of this trend.
Sincerely,
/s/ Steven R. Brown
STEVEN R. BROWN
PORTFOLIO MANAGER
2
<Page>
REAL ESTATE
SECURITIES INCOME FUND
AMEX TICKER SYMBOL NRO
1 YEAR TOTAL RETURN
<Table>
NAV (1),(3) 16.61%
MARKET PRICE (2),(3) 6.90%
</Table>
AVERAGE ANNUAL TOTAL RETURN (Life of Fund as of October 31, 2005)
<Table>
NAV (1),(3) 17.67%
MARKET PRICE (2),(3) 5.33%
INCEPTION DATE 10/28/2003
</Table>
INDUSTRY DIVERSIFICATION
(% OF TOTAL NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS)
<Table>
Apartments 18.0%
Commercial Services 3.3
Community Centers 6.3
Diversified 20.1
Freestanding 1.6
Health Care 16.8
Industrial 7.3
Lodging 11.9
Manufactured Homes 2.2
Office 36.9
Office-Industrial 4.0
Regional Malls 9.1
Self Storage 2.9
Specialty 1.0
Short-Term Investments 3.3
Liabilities, less cash, receivables and
other assets (44.7)
</Table>
Closed-end funds, unlike open-end funds, are not continually offered. There is
an initial public offering and once issued, common shares of closed-end funds
are sold in the open market through a stock exchange.
The composition, industries and holdings of the Fund are subject to change.
Investment return will fluctuate. Past performance is no guarantee of future
results.
3
<Page>
ENDNOTES
(1) Returns based on Net Asset Value ("NAV") of the Fund.
(2) Returns based on market 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>
SCHEDULE OF INVESTMENTS REAL ESTATE SECURITIES INCOME FUND INC.
TOP TEN EQUITY HOLDINGS
<Table>
<Caption>
HOLDING %
1 iStar Financial 7.9
2 Maguire
Properties 7.0
3 OMEGA
Healthcare
Investors 6.0
4 Crescent Real
Estate Equities 5.7
5 Glimcher Realty
Trust 5.1
6 Colonial
Properties Trust 5.0
7 Apartment
Investment &
Management 4.9
8 HRPT Properties
Trust 4.8
9 Amli Residential
Properties Trust 4.3
10 Nationwide
Health
Properties 4.2
</Table>
<Table>
<Caption>
MARKET VALUE +
NUMBER OF SHARES (000'S OMITTED)
COMMON STOCKS (104.4%)
APARTMENTS (16.3%)
640,200 Amli Residential
Properties Trust $ 24,232
591,100 Apartment Investment &
Management 22,698
270,800 Archstone-Smith Trust 10,986
175,000 BNP Residential Properties 2,550
110,000 Camden Property Trust 6,198
448,900 Education Realty Trust 6,958
49,400 Home Properties 1,919
172,400 Mid-America Apartment
Communities 8,042
93,200 Post Properties 3,803
160,900 Town & Country Trust 4,763
---------------
92,149
COMMERCIAL SERVICES (3.3%)
250,000 Capital Trust 7,655
202,900 Deerfield Triarc Capital 2,631^
348,700 Gramercy Capital 8,226
---------------
18,512
COMMUNITY CENTERS (5.7%)
146,200 Cedar Shopping Centers 2,050
709,000 Heritage Property
Investment Trust 23,113
174,400 New Plan Excel Realty Trust 4,010
117,400 Tanger Factory Outlet Centers 3,157@@
---------------
32,330
DIVERSIFIED (14.1%)
629,000 Colonial Properties Trust 27,493
1,152,000 Crescent Real Estate Equities 22,982
666,200 iStar Financial 24,563
143,300 Lexington Corporate
Properties Trust 3,121^
130,000 Spirit Finance 1,459
---------------
79,618
FREESTANDING (1.6%)
479,000 Commercial Net Lease Realty 9,283^
HEALTH CARE (12.3%)
497,800 Health Care Property
Investors 12,669
231,700 Health Care REIT 8,165^
118,600 Healthcare Realty Trust 4,488
66,700 LTC Properties 1,366
1,033,500 Nationwide Health Properties 23,967
1,510,400 OMEGA Healthcare Investors 18,563
--------------
69,218
INDUSTRIAL (7.3%)
430,529 EastGroup Properties $ 18,814
546,800 First Industrial Realty Trust 22,217
---------------
41,031
LODGING (2.5%)
355,000 Hospitality Properties Trust 14,094
OFFICE (30.3%)
409,800 Arden Realty 18,498
352,600 Brandywine Realty Trust 9,661
360,000 CarrAmerica Realty 11,855
695,000 Equity Office Properties Trust 21,406
450,200 Glenborough Realty Trust 8,612
556,700 Highwoods Properties 15,704
2,485,500 HRPT Properties Trust 27,117
139,400 Kilroy Realty 7,827
41,800 Mack-Cali Realty 1,783
622,000 Maguire Properties 18,660
408,000 Prentiss Properties Trust 16,100
390,100 Reckson Associates Realty 13,693
---------------
170,916
OFFICE--INDUSTRIAL (3.3%)
420,800 Bedford Property Investors 9,447
215,000 Liberty Property Trust 8,963
---------------
18,410
REGIONAL MALLS (5.2%)
738,300 Glimcher Realty Trust 16,959
36,100 Macerich Co. 2,320
258,900 Pennsylvania REIT 9,968
---------------
29,247
SELF STORAGE (2.5%)
127,000 Extra Space Storage 1,854
267,700 Sovran Self Storage 12,456
---------------
14,310
TOTAL COMMON STOCKS
(COST $489,813) 589,118
---------------
PREFERRED STOCKS (37.0%)
APARTMENTS (1.7%)
190,000 Apartment Investment &
Management, Ser. U 4,735
200,000 Associated Estates Realty,
Ser. B 5,024
---------------
9,759
COMMUNITY CENTERS (0.6%)
60,000 Cedar Shopping Centers,
Ser. A 1,599
70,000 Saul Centers, Ser. A 1,771
---------------
3,370
</Table>
6
<Page>
<Table>
<Caption>
MARKET VALUE +
NUMBER OF SHARES (000'S OMITTED)
DIVERSIFIED (6.0%)
32,400 Colonial Properties
Trust, Ser. E $ 804
160,000 Cousins Properties, Ser. B 4,008
430,000 Crescent Real Estate
Equities, Ser. A 9,116
200,000 iStar Financial, Ser. G 5,000
600,000 iStar Financial, Ser. I 15,000
---------------
33,928
HEALTH CARE (4.5%)
417,000 LTC Properties, Ser. F 10,446
600,000 OMEGA Healthcare
Investors, Ser. D 15,120
---------------
25,566
LODGING (9.4%)
165,000 Ashford Hospitality
Trust, Ser. A 4,173
54,600 Equity Inns, Ser. B 1,411
327,700 Felcor Lodging Trust, Ser. C 7,898
80,900 Hersha Hospitality
Trust, Ser. A 1,990
42,000 Host Marriott, Ser. E 1,142
780,000 Innkeepers USA Trust, Ser. C 19,773
140,000 LaSalle Hotel
Properties, Ser. D 3,359
50,000 Strategic Hotel
Capital, Ser. A 1,289**
480,000 Winston Hotels, Ser. B 11,904
---------------
52,939
MANUFACTURED HOMES (2.2%)
600,000 Affordable Residential
Communities, Ser. A 12,522
OFFICE (6.6%)
100,000 Brandywine Realty
Trust, Ser. C 2,492
80,000 Brandywine Realty
Trust, Ser. D 1,976
90,000 Corporate Office
Properties Trust, Ser. H 2,251^
6,000 Highwoods Properties, Ser. A 6,480
840,000 Maguire Properties, Ser. A 21,084
100,000 SL Green Realty, Ser. C 2,520
20,000 SL Green Realty, Ser. D 511
---------------
37,314
OFFICE--INDUSTRIAL (0.7%)
70,000 Digital Realty Trust, Ser. A 1,788
60,800 Digital Realty Trust, Ser. B 1,459
32,000 PS Business Parks, Ser. K 826
---------------
4,073
REGIONAL MALLS (3.9%)
132,800 Eagle Hospitality Properties
Trust, Ser. A $ 3,336
50,000 Glimcher Realty Trust, Ser. F 1,278
425,000 Glimcher Realty Trust, Ser. G 10,582
78,400 Taubman Centers, Ser. G 2,027
191,600 Taubman Centers, Ser. H 4,771
---------------
21,994
SELF STORAGE (0.4%)
75,000 Shurgard Storage
Centers, Ser. D 1,905
SPECIALTY (1.0%)
240,000 Capital Automotive REIT 5,616
---------------
TOTAL PREFERRED STOCKS
(COST $209,332) 208,986
---------------
SHORT-TERM INVESTMENTS (3.3%)
14,692,101 Neuberger Berman
Securities Lending
Quality Fund, LLC 14,692++
4,143,881 Neuberger Berman Prime
Money Fund Trust Class 4,144@
---------------
TOTAL SHORT-TERM INVESTMENTS
(COST $18,836) 18,836#
---------------
TOTAL INVESTMENTS (144.7%)
(COST $717,981) 816,940##
Liabilities, less cash,
receivables and other assets
[(1.3%)] (7,286)
Liquidation Value of
Auction Market Preferred Shares
[(43.4%)] (245,000)
---------------
TOTAL NET ASSETS APPLICABLE TO
COMMON SHAREHOLDERS (100.0%) $ 564,654
---------------
</Table>
7
<Page>
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 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, including securities for
which the necessary last sale, asked and/or bid prices are not readily
available, by methods the Board of Directors of the Fund (the "Board") has
approved on the belief that they reflect 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 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. In this event, FT Interactive will provide
adjusted prices for certain foreign equity securities using a statistical
analysis of historical correlations of multiple factors. 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, 2005 the cost of investments for U.S. Federal income tax
purposes was $717,981,000. Gross unrealized appreciation of investments was
$106,860,000 and gross unrealized depreciation of investments was
$7,901,000, resulting in net unrealized appreciation of $98,959,000, based
on cost for U.S. Federal income tax purposes.
@ 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).
** Restricted security subject to restrictions on resale under federal
securities laws. These securities may be resold, normally to qualified
institutional buyers under Rule 144A, and have been deemed by the adviser
to be liquid. At October 31, 2005, these securities amounted to $1,289,000
or 0.2% of net assets.
@@ All or a portion of this security is segregated as collateral for interest
rate swap contracts.
See Notes to Financial Statements
8
<Page>
STATEMENT OF ASSETS AND LIABILITIES
<Table>
<Caption>
NEUBERGER BERMAN REAL ESTATE
(000'S OMITTED EXCEPT PER SHARE AMOUNTS) SECURITIES
INCOME FUND
ASSETS
INVESTMENTS IN SECURITIES, AT MARKET VALUE*+ (NOTES A & E)--SEE SCHEDULE OF INVESTMENTS:
Unaffiliated issuers $ 798,104
Affiliated issuers 18,836
816,940
- -----------------------------------------------------------------------------------------------------------------
Interest rate swaps, at market value (Note A) 7,369
Dividends and interest receivable 2,807
Prepaid expenses and other assets 20
- -----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 827,136
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable for collateral on securities loaned (Note A) 14,692
Dividends payable--preferred shares 317
Dividends payable--common shares 422
Payable for securities purchased 1,542
Payable to investment manager--net (Notes A & B) 237
Payable to administrator (Note B) 170
Accrued expenses and other payables 102
- -----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 17,482
- -----------------------------------------------------------------------------------------------------------------
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 $ 564,654
- -----------------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS CONSIST OF:
Paid-in capital--common shares $ 459,146
Distributions in excess of net investment income (774)
Net unrealized appreciation (depreciation) in value of investments 106,282
------------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS AT VALUE $ 564,654
- -----------------------------------------------------------------------------------------------------------------
COMMON SHARES OUTSTANDING ($.0001 PAR VALUE; 999,988,000 SHARES AUTHORIZED) 33,316
- -----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER COMMON SHARE OUTSTANDING $ 16.95
- -----------------------------------------------------------------------------------------------------------------
+SECURITIES ON LOAN, AT MARKET VALUE $ 14,375
- -----------------------------------------------------------------------------------------------------------------
*COST OF INVESTMENTS:
Unaffiliated issuers $ 699,145
Affiliated issuers 18,836
------------------------------------------------------------------------------------------------------------
TOTAL COST OF INVESTMENTS $ 717,981
- -----------------------------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements
9
<Page>
STATEMENT OF OPERATIONS
<Table>
<Caption>
REAL ESTATE
NEUBERGER BERMAN SECURITIES
(000'S OMITTED) INCOME FUND
INVESTMENT INCOME
INCOME (NOTE A):
Dividend income--unaffiliated issuers $ 25,623
Income from investments in affiliated issuers (Note E) 99
Income from securities loaned--affiliated issuer (Note E) 30
- -----------------------------------------------------------------------------------------------------------------
Total income 25,752
- -----------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment management fee (Notes A & B) 4,798
Administration fee (Note B) 1,999
Auction agent fees (Note B) 622
Audit fees 45
Basic maintenance expense (Note B) 25
Custodian fees (Note B) 176
Directors' fees and expenses 27
Insurance expense 34
Legal fees 75
Shareholder reports 104
Stock exchange listing fees 11
Stock transfer agent fees 35
Miscellaneous 39
- -----------------------------------------------------------------------------------------------------------------
Total expenses 7,990
Investment management fee waived (Notes A & B) (2,002)
Expenses reduced by custodian fee expense offset and commission recapture arrangements (Note B) (15)
- -----------------------------------------------------------------------------------------------------------------
Total net expenses 5,973
- -----------------------------------------------------------------------------------------------------------------
Net investment income 19,779
- -----------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE A)
Net realized gain (loss) on:
Sales of investment securities of unaffiliated issuers 21,517
Interest rate swap contracts (499)
Change in net unrealized appreciation (depreciation) in value of:
Unaffiliated investment securities 39,187
Interest rate swap contracts 6,159
----------------------------------------------------------------------------------------------------------
Net gain (loss) on investments 66,364
- -----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS FROM:
Net investment income (7,225)
----------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS RESULTING FROM OPERATIONS $ 78,918
- -----------------------------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements
10
<Page>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
REAL ESTATE SECURITIES INCOME FUND
----------------------------------
NEUBERGER BERMAN YEAR ENDED OCTOBER 31,
(000'S OMITTED) 2005 2004
INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
FROM OPERATIONS:
Net investment income (loss) $ 19,779 $ 26,244
Net realized gain (loss) on investments 21,018 4,054
Change in net unrealized appreciation (depreciation) of investments 45,346 60,937
- -------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS FROM (NOTE A):
Net investment income (3,968) (1,627)
Net realized gain on investments (2,732) (426)
Tax return of capital (525) (547)
Total distributions to preferred shareholders (7,225) (2,600)
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to common
shareholders resulting from operations 78,918 88,635
- -------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM (NOTE A):
Net investment income (21,958) (22,932)
Net realized gain on investments (15,116) (5,996)
Tax return of capital (2,906) (7,715)
- -------------------------------------------------------------------------------------------------------------
Total distributions to common shareholders (39,980) (36,643)
- -------------------------------------------------------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE D):
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
- -------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS 38,938 111,091
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Beginning of year 525,716 414,625
- -------------------------------------------------------------------------------------------------------------
End of year $ 564,654 $ 525,716
- -------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income at end of year $ (774) $ (674)
- -------------------------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements
11
<Page>
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 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 distributions and capital gain distributions are determined in
accordance with income tax regulations, which may differ from U.S.
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, 2005, 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 applicable to common shareholders or net asset value per
common share of the Fund.
12
<Page>
The tax character of distributions paid during the years ended October 31,
2005 and October 31, 2004 was as follows:
DISTRIBUTIONS PAID FROM:
<Table>
<Caption>
LONG-TERM TAX RETURN OF
ORDINARY INCOME CAPITAL GAIN CAPITAL TOTAL
2005 2004 2005 2004 2005 2004 2005 2004
$ 25,926,597 $ 27,193,744 $ 17,847,875 $ 3,786,925 $ 3,430,524 $ 8,262,751 $ 47,204,996 $ 39,243,420
</Table>
As of October 31, 2005, 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
$ -- $ -- $ 106,247,486 $ -- $ 106,247,486
</Table>
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 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 monthly 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 distributions and capital
gain distributions to common shareholders are recorded on the ex-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. 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, 2005, the Fund estimated these
amounts within the financial statements since the information is not
available from the REITs until after the Fund's fiscal year-end. For the
year ended October 31, 2005, 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
13
<Page>
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 of
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 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 September 29, 2005, the Fund declared two monthly distributions to
common shareholders in the amount of $0.10 per share per month, payable
after the close of the reporting period, on November 30, 2005 and December
30, 2005, to shareholders of record on November 14, 2005 and December 15,
2005, respectively, with ex-dates of November 10, 2005 and December 13,
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 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 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 for Series A and Series B AMPS and every 28 days for Series C
and Series D AMPS. Distribution 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, 2005, distribution rates ranged from 1.68% to 3.84% for
Series A, 1.90% to 3.85% for Series B, 1.95% to 3.90% for Series C and
1.87% to 3.75% for Series D AMPS. The Fund declared distributions to
preferred shareholders for the period November 1, 2005 to November 30, 2005
of ($196,518, $196,172, $200,104 and $197,838) 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 distribution payment date at Liquidation Value. The Fund is
also subject to certain restrictions relating to the AMPS.
14
<Page>
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 shares as a single class, except that the AMPS will
vote separately as a class on certain matters, as required by law or the
Fund's charter. The holders of the AMPS, voting as a separate class, are
entitled at all times to elect two Directors of the Fund, and to elect a
majority of the Directors of the Fund if the Fund fails to pay
distributions on AMPS 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 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
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. The reclassifications do not
impact the Fund's total net assets applicable to common shareholders. At
October 31, 2005, the Fund had outstanding interest rate swap contracts as
follows:
<Table>
<Caption>
RATE TYPE
---------------------------
FIXED-RATE VARIABLE-RATE ACCRUED
PAYMENTS PAYMENTS NET INTEREST UNREALIZED
SWAP NOTIONAL MADE BY RECEIVED BY RECEIVABLE APPRECIATION TOTAL
COUNTER PARTY AMOUNT TERMINATION DATE THE FUND THE FUND(1) (PAYABLE) (DEPRECIATION) FAIR VALUE
Merrill Lynch $ 100,000,000 February 23, 2008 3.035% 4.0312% $ 22,138 $ 3,729,764 $ 3,751,902
Merrill Lynch 85,000,000 February 23, 2009 3.387% 4.0312% 12,169 3,604,244 3,616,413
------------- --------------- ------------
$ 34,307 $ 7,334,008 $ 7,368,315
</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 ("Neuberger Agreement") on July 1, 2004 with Neuberger Berman,
LLC ("Neuberger"), an affiliate of the Fund, pursuant to which Neuberger
acted as the Fund's lending agent. Under the Neuberger Agreement, Neuberger
guaranteed a certain amount of revenue to the Fund and received any revenue
earned in excess of the guaranteed amount as a lending agency fee. For the
year ended October 31, 2005, Neuberger received revenue under the Agreement
of $115,558.
15
<Page>
On October 4, 2005, the Fund entered into new securities lending
arrangements using a third party, eSecLending, to secure bids. Pursuant to
such arrangements, eSecLending currently acts as agent for the Fund.
Under the Neuberger Agreement and the new securities lending arrangements,
the Fund receives cash collateral at the beginning of each transaction
equal to at least 102% of the prior day's market value of the loaned
securities (105% in the case of international 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, an affiliate of Management, as
approved by the Board.
Income earned on the securities loaned, if any, is reflected in the
Statement of Operations under the caption "Income from securities
loaned-affiliated issuers."
10 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.
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 year ended October 31, 2005, management
fees waived under this Arrangement with respect to the Cash Fund and Prime
Money amounted to $591 and $2,471, respectively. For the year ended October
31, 2005, income earned under this Arrangement with respect to the Cash
Fund and Prime Money amounted to $10,010 and $88,781, respectively, and is
reflected in the Statement 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
16
<Page>
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. 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.
14 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 sales loads 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, 2005, there was no remaining payable for offering costs.
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
------------------------------------------------------------
2005 - 2008 0.25
2009 0.19
2010 0.13
2011 0.07
</Table>
Management has not contractually agreed to waive any portion of its fees
beyond October 31, 2011.
For the year ended October 31, 2005, such waived fees amounted to
$1,999,303.
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.
17
<Page>
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.
The Fund has 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, 2005, the
impact of this arrangement was a reduction of expenses of $11,268.
The Fund has an expense offset arrangement in connection with its custodian
contract. For the year ended October 31, 2005, the impact of this
arrangement was a reduction of expenses of $3,573.
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/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 rates determined by the
rating agencies. The Fund pays a fee to State Street for the preparation of
this report, which is reflected in the Statement of Operations under the
caption "Basic maintenance expense."
NOTE C--SECURITIES TRANSACTIONS:
During the year ended October 31, 2005, there were purchase and sale
transactions (excluding short-term securities and interest rate swap
contracts) of $85,485,684 and $66,935,153, respectively.
During the year ended October 31, 2005, brokerage commissions on securities
transactions amounted to $171,739, of which Neuberger received $0, Lehman
received $38,297, and other brokers received $133,442.
NOTE D--CAPITAL:
At October 31, 2005, 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>
18
<Page>
Transactions in common shares for the years ended October 31, 2005 and
October 31, 2004 were as follows:
<Table>
<Caption>
COMMON SHARES ISSUED IN CONNECTION WITH:
UNDERWRITERS' EXERCISE REINVESTMENT OF
OF OVER-ALLOTMENT DIVIDENDS AND NET INCREASE IN COMMON
OPTION DISTRIBUTIONS SHARES OUTSTANDING
2005 2004 2005 2004 2005 2004
-- 4,260,000 -- 49,458 -- 4,309,458
</Table>
NOTE E--INVESTMENTS IN AFFILIATES*:
<Table>
<Caption>
INCOME FROM
INVESTMENTS
BALANCE OF BALANCE OF IN AFFILIATED
SHARES HELD GROSS GROSS SHARES HELD VALUE ISSUERS
OCTOBER 31, PURCHASES SALES AND OCTOBER 31, OCTOBER 31, INCLUDED IN
NAME OF ISSUER 2004 AND ADDITIONS REDUCTIONS 2005 2005 TOTAL INCOME
Neuberger Berman
Securities Lending
Quality Fund, LLC** 62,833,300 5,400,250,724 5,448,391,923 14,692,101 $ 14,692,101 $ 30,496
Neuberger Berman
Institutional Cash Fund
Trust Class*** 3,654,888 15,966,105 19,620,993 0 0 10,010
Neuberger Berman
Prime Money Fund
Trust Class*** 0 76,834,956 72,691,075 4,143,881 4,143,881 88,781
------------ -------------
TOTAL $ 18,835,982 $ 129,287
------------ -------------
</Table>
* Affiliated issuers, as defined in the 1940 Act.
** Prior to February 7, 2005, the Old Fund, an investment vehicle
established by the Fund's custodian, was used to invest cash the Fund
received 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.
19
<Page>
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 YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31,
2005 2004 2003^
----------- ----------- ------------
COMMON SHARE NET ASSET VALUE, BEGINNING OF PERIOD $ 15.78 $ 14.29 $ 14.32
----------- ----------- ------------
INCOME FROM INVESTMENT OPERATIONS APPLICABLE TO COMMON SHAREHOLDERS:
NET INVESTMENT INCOME (LOSS)*** .59 .79 (.00)
NET GAINS OR LOSSES ON SECURITIES (BOTH REALIZED AND UNREALIZED) 2.00 1.96 --
COMMON SHARE EQUIVALENT OF DISTRIBUTIONS TO PREFERRED SHAREHOLDERS FROM:
NET INVESTMENT INCOME*** (.12) (.05) --
NET CAPITAL GAINS*** (.08) (.01) --
TAX RETURN OF CAPITAL*** (.02) (.02) --
----------- ----------- ------------
TOTAL DISTRIBUTIONS TO PREFERRED SHAREHOLDERS (.22) (.08) --
----------- ----------- ------------
TOTAL FROM INVESTMENT OPERATIONS APPLICABLE TO COMMON SHAREHOLDERS 2.37 2.67 (.00)
----------- ----------- ------------
LESS DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM:
NET INVESTMENT INCOME (.66) (.69) --
NET CAPITAL GAINS (.45) (.18) --
TAX RETURN OF CAPITAL (.09) (.23) --
----------- ----------- ------------
TOTAL DISTRIBUTIONS TO COMMON SHAREHOLDERS (1.20) (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 $ 16.95 $ 15.78 $ 14.29
----------- ----------- ------------
COMMON SHARE MARKET VALUE, END OF PERIOD $ 14.20 $ 14.42 $ 15.01
----------- ----------- ------------
TOTAL RETURN, COMMON SHARE NET ASSET VALUE+ +16.61% +19.30% -0.24%**
TOTAL RETURN, COMMON SHARE MARKET VALUE+ +6.90% +3.79% +0.07%**
RATIOS/SUPPLEMENTAL DATA^^
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS, END OF PERIOD (IN MILLIONS) $ 564.7 $ 525.7 $ 414.6
PREFERRED STOCK, AT LIQUIDATION VALUE ($25,000 PER SHARE
LIQUIDATION PREFERENCE) (IN MILLIONS) $ 245.0 $ 245.0 $ --
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS APPLICABLE TO
COMMON SHAREHOLDERS# 1.08% 1.02% 3.57%*
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS APPLICABLE TO
COMMON SHAREHOLDERS^^ 1.08% 1.01% 3.57%*
RATIO OF NET INVESTMENT INCOME (LOSS) EXCLUDING PREFERRED SHARE DIVIDENDS
TO AVERAGE NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS 3.56% 5.41% (2.65%)*
RATIO OF PREFERRED SHARE DIVIDENDS TO AVERAGE NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS 1.30% .54% --%*
RATIO OF NET INVESTMENT INCOME (LOSS) INCLUDING PREFERRED
SHARE DIVIDENDS TO AVERAGE NET ASSETS APPLICABLE TO
COMMON SHAREHOLDERS 2.26% 4.87% --%*
PORTFOLIO TURNOVER RATE 8% 50% 0%**
ASSET COVERAGE PER PREFERRED SHARE, END OF PERIOD@ $ 82,650 $ 78,659 $ --
</Table>
See Notes to Financial Highlights
20
<Page>
NOTES TO FINANCIAL HIGHLIGHTS REAL ESTATE SECURITIES 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 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
PERIOD ENDED
YEAR ENDED OCTOBER 31, OCTOBER 31,
2005 2004 2003
1.44% 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.
*** Calculated based on the average number of shares outstanding during each
fiscal period.
21
<Page>
REPORT OF 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 of
Neuberger Berman Real Estate Securities Income Fund Inc. (the "Fund"), including
the schedule of investments, as of October 31, 2005, and the related statement
of operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial highlights
for each of the periods indicated therein. 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. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of October 31, 2005, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. 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, 2005,
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, 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 9, 2005
22
<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.
23
<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.
24
<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
The Bank of New York
101 Barclay Street, 11-E
New York, NY 10286
LEGAL COUNSEL
Kirkpatrick & Lockhart Nicholson Graham LLP
1800 Massachusetts Avenue, NW
2nd Floor
Washington, DC 20036
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
25
<Page>
DIRECTORS AND OFFICERS
The following tables set forth information concerning the directors and officers
of the Fund. All persons named as directors and officers also serve in similar
capacities for other funds administered or managed by Management and Neuberger.
The Statement of Additional Information for the Fund includes additional
information about Fund directors and is available upon request, without charge,
by calling (877) 461-1899.
INFORMATION ABOUT THE BOARD OF DIRECTORS
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
FUND COMPLEX
NAME, AGE, ADDRESS(1) AND LENGTH OF TIME OVERSEEN BY OTHER DIRECTORSHIPS HELD OUTSIDE
POSITION(2) WITH FUND SERVED PRINCIPAL OCCUPATION(S)(4) DIRECTOR(5) FUND COMPLEX BY DIRECTOR
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS I
INDEPENDENT FUND DIRECTORS
Faith Colish (70) Since the Counsel, Carter Ledyard & 45 Director, American Bar Retirement
Director inception of Milburn LLP (law firm) since Association (ABRA) since 1997
the Fund(3) October 2002; formerly, (not-for-profit membership
Attorney-at-Law and President, association).
Faith Colish, A Professional
Corporation, 1980 to 2002.
C. Anne Harvey (68) Since the Consultant, C.A. Harvey 45 President, Board of Associates to The
Director inception of Associates since June 2001; National Rehabilitation Hospital's
the Fund(3) formerly, Director, AARP, 1978 Board of Directors since 2002;
to December 2001. 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 to 2000;
formerly, Member, Executive Committee,
Crime Prevention Coalition of America,
1997 to 2000.
Cornelius T. Ryan (74) Since the Founding General Partner, Oxford 45 Director, Capital Cash Management
Director inception of Partners and Oxford Bioscience Trust (money market fund), Naragansett
the Fund(3) Partners (venture capital Insured Tax-Free Income Fund, Rocky
partnerships) and President, Mountain Equity Fund, Prime Cash Fund,
Oxford Venture Corporation. several private companies and
QuadraMed Corporation (NASDAQ).
</Table>
26
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
FUND COMPLEX
NAME, AGE, ADDRESS(1) AND LENGTH OF TIME OVERSEEN BY OTHER DIRECTORSHIPS HELD OUTSIDE
POSITION(2) WITH FUND SERVED PRINCIPAL OCCUPATION(S)(4) DIRECTOR(5) FUND COMPLEX BY DIRECTOR
- ----------------------------------------------------------------------------------------------------------------------------------
Peter P. Trapp (61) Since the Regional Manager for Atlanta 45 None.
Director inception of Region, Ford Motor Credit
the Fund(3) Company since August 1997;
formerly, President, Ford Life
Insurance Company, April 1995
to August 1997.
DIRECTOR WHO IS AN "INTERESTED PERSON"
Peter E. Sundman* (46) Since the Executive Vice President, 45 Director and Vice President,
Chief Executive Officer, inception of Neuberger Berman Inc. (holding Neuberger & Berman Agency, Inc.
Director and Chairman the Fund(3) company) since 1999; Head of since 2000; formerly, Director,
of the Board Neuberger Berman Inc.'s Mutual Neuberger Berman Inc.
Funds Business (since 1999) and (holding company) from October 1999 to
Institutional Business (from March 2003; Trustee, Frost Valley
1999 to October 2005); YMCA.
responsible for Managed
Accounts Business and
intermediary distribution since
October 2005; President and
Director, Management since
1999; Executive Vice President,
Neuberger since 1999; formerly,
Principal, Neuberger from 1997
to 1999; formerly, Senior Vice
President, Management from
1996 to 1999.
CLASS II
INDEPENDENT FUND DIRECTORS
John Cannon (75) Since the Consultant. Formerly, Chairman, 45 Independent Trustee or Director of
Director inception of CDC Investment Advisers three series of Oppenheimer Funds:
the Fund(3) (registered investment Limited Term New York Municipal Fund,
adviser), 1993 to January 1999; Rochester Fund Municipals, and
formerly, President and Chief Oppenheimer Convertible Securities
Executive Officer, AMA Fund, since 1992.
Investment Advisors, an
affiliate of the American
Medical Association.
</Table>
27
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
FUND COMPLEX
NAME, AGE, ADDRESS(1) AND LENGTH OF TIME OVERSEEN BY OTHER DIRECTORSHIPS HELD OUTSIDE
POSITION(2) WITH FUND SERVED PRINCIPAL OCCUPATION(S)(4) DIRECTOR(5) FUND COMPLEX BY DIRECTOR
- ----------------------------------------------------------------------------------------------------------------------------------
Barry Hirsch (72) Since the Attorney-at-Law. Formerly, 45 None.
Director inception of Senior Counsel, Loews
the Fund(3) Corporation (diversified
financial corporation) May 2002
to April 2003; formerly, Senior
Vice President, Secretary and
General Counsel, Loews
Corporation.
Tom D. Seip (55) Since the General Partner, Seip 45 Director, H&R Block, Inc. (financial
Director inception of Investments LP (a private services company) since May 2001;
the Fund(3) investment partnership); Director, Forward Management, Inc.
formerly, President and CEO, (asset management) since 2001;
Westaff, Inc. (temporary formerly, Director, General Magic
staffing), May 2001 to January (voice recognition software) 2001 to
2002; Senior Executive at the 2002; formerly, Director, E-Finance
Charles Schwab Corporation from Corporation (credit decisioning
1983 to 1999, including Chief services) 1999 to 2003; formerly,
Executive Officer, Charles Director, Save-Daily.com (micro
Schwab Investment Management, investing services) 1999 to 2003;
Inc. and Trustee, Schwab Family Director, Offroad Capital Inc. (pre-
of Funds and Schwab Investments public internet commerce company).
from 1997 to 1998; and
Executive Vice President-Retail
Brokerage, Charles Schwab
Investment Management from 1994
to 1997.
</Table>
28
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
FUND COMPLEX
NAME, AGE, ADDRESS(1) AND LENGTH OF TIME OVERSEEN BY OTHER DIRECTORSHIPS HELD OUTSIDE
POSITION(2) WITH FUND SERVED PRINCIPAL OCCUPATION(S)(4) DIRECTOR(5) FUND COMPLEX BY DIRECTOR
- ----------------------------------------------------------------------------------------------------------------------------------
DIRECTOR WHO IS AN "INTERESTED PERSON"
Jack L. Rivkin* (65) Since 2002(3) Executive Vice President and 45 Director, Dale Carnegie and
President and Director Chief Investment Officer, Associates, Inc. (private company)
Neuberger Berman Inc. (holding since 1998; Director, Emagin Corp.
company) since 2002 and 2003, (public company) since 1997; Director,
respectively; Executive Vice Solbright, Inc. (private company)
President and Chief Investment since 1998; Director, Infogate, Inc.
Officer, Neuberger since (private company) since 1997;
December 2002 and 2003, Director, Broadway Television Network
respectively; Director and (private company) since 2000.
Chairman, Management since
December 2002; formerly,
Executive Vice President,
Citigroup Investments, Inc.
from September 1995 to February
2002; formerly, Executive Vice
President, Citigroup Inc. from
September 1995 to February
2002.
CLASS III
INDEPENDENT FUND DIRECTORS
Robert A. Kavesh (78) Since the Marcus Nadler Professor 45 Director, The Caring Community
Director inception of Emeritus of Finance and (not-for-profit); formerly, Director,
the Fund(3) Economics, New York University DEL Laboratories, Inc. (cosmetics and
Stern School of Business; pharmaceuticals), 1978 to 2004;
formerly, Executive formerly, Director, Apple Bank for
Secretary-Treasurer, American Savings, 1979 to 1990; formerly,
Finance Association, 1961 to Director, Western Pacific Industries,
1979. Inc., 1972 to 1986 (public company).
</Table>
29
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
FUND COMPLEX
NAME, AGE, ADDRESS(1) AND LENGTH OF TIME OVERSEEN BY OTHER DIRECTORSHIPS HELD OUTSIDE
POSITION(2) WITH FUND SERVED PRINCIPAL OCCUPATION(S)(4) DIRECTOR(5) FUND COMPLEX BY DIRECTOR
- ----------------------------------------------------------------------------------------------------------------------------------
Howard A. Mileaf (68) Since the Retired. Formerly, Vice 45 Director, WHX Corporation (holding
Director inception of President and Special Counsel, company) since August 2002; Director,
the Fund(3) WHX Corporation (holding Webfinancial Corporation (holding
company) 1993 to 2001. 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).
Edward I. O'Brien (77) Since the Formerly, Member, Investment 45 Director, Legg Mason, Inc. (financial
Director inception of Policy Committee, Edward Jones, services holding company) since 1993;
the Fund(3) 1993 to 2001; President, formerly, Director, Boston Financial
Securities Industry Association Group (real estate and tax shelters)
("SIA") (securities industry's 1993 to 1999.
representative in government
relations and regulatory
matters at the federal and
state levels) 1974 to 1992;
Adviser to SIA, November 1992
to November 1993.
William E. Rulon (73) Since the Retired. Formerly, Senior Vice 45 Director, Pro-Kids Golf and Learning
Director inception of President, Foodmaker, Inc. Academy (teach golf and computer usage
the Fund(3) (operator and franchiser of to "at risk" children) since 1998;
restaurants) until January formerly, Director, Prandium, Inc.
1997. (restaurants) from March 2001 to July
2002.
Candace L. Straight (58) Since the Private investor and consultant 45 Director, The Proformance Insurance
Director inception of specializing in the insurance Company (personal lines property and
the Fund(3) industry; formerly, Advisory casualty insurance company) since
Director, Securitas Capital LLC March 2004; Director, Providence
(a global private equity Washington (property and casualty
investment firm dedicated to insurance company) since December
making investments in the 1998; Director, Summit Global Partners
insurance sector) 1998 to (insurance brokerage firm) since
December 2002. October 2000.
</Table>
30
<Page>
(1) The business address of each listed person is 605 Third Avenue, New York,
New York 10158.
(2) The Board of Directors shall at 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 meeting of shareholders held in 2006, 2007, and
2008, respectively, and at each third annual meeting of stockholders
thereafter.
(3) The Director has served since the Fund's inception except for Mr. Rivkin
who has served as a Director since December 2002 for the Funds with an
inception date of 2002. The inception date of Neuberger Berman Intermediate
Municipal Fund Inc., Neuberger Berman California Intermediate Municipal
Fund Inc., Neuberger Berman New York Intermediate Municipal Fund Inc., and
Neuberger Berman Real Estate Income Fund Inc. is 2002. The inception date
of Neuberger Berman Realty Income Fund Inc., Neuberger Berman Real Estate
Securities Income Fund Inc. and Neuberger Berman Income Opportunity Fund
Inc. is 2003. The inception date of Neuberger Berman Dividend Advantage
Fund Inc. is 2004.
(4) Except as otherwise indicated, each individual has held the positions shown
for at least the last five years.
(5) For funds organized in a master-feeder structure, we count the master fund
and its associated feeder funds as a single portfolio.
* 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 they are officers and/or directors of Management
and Executive Vice Presidents of Neuberger Berman.
31
<Page>
INFORMATION ABOUT THE OFFICERS OF THE FUND
<Table>
<Caption>
POSITION AND
NAME, AGE, AND ADDRESS (1) LENGTH OF TIME SERVED PRINCIPAL OCCUPATION(S) (2)
- ------------------------------------------------------------------------------------------------------------------------
Michael J. Bradler (35) Assistant Treasurer since 2005 Employee, Management since 1997; Assistant Treasurer,
fifteen registered investment companies for which
Management acts as investment manager and administrator
since 2005.
Claudia A. Brandon (49) Secretary since the Fund's Vice President-Mutual Fund Board Relations, Management
inception (3) since 2000 and Assistant Secretary since 2004; Vice
President, Neuberger since 2002 and employee since
1999; Assistant Secretary, Management since 2004;
formerly, Vice President, Management from 1986 to 1999;
Secretary, fifteen registered investment companies for
which Management acts as investment manager and
administrator (three since 2000, four since 2002, three
since 2003, four since 2004 and one since 2005).
Robert Conti (49) Vice President since the Fund's Senior Vice President, Neuberger since 2003; formerly,
inception (3) Vice President, Neuberger from 1999 to 2003; Senior
Vice President, Management since 2000; formerly,
Controller, Management until 1996; formerly, Treasurer,
Management from 1996 to 1999; Vice President, fifteen
registered investment companies for which Management
acts as investment manager and administrator (three
since 2000, four since 2002, three since 2003, four
since 2004 and one since 2005).
Brian J. Gaffney (52) Vice President since the Fund's Managing Director, Neuberger since 1999; Senior Vice
inception (3) President, Management since 2000; formerly, Vice
President, Management from 1997 to 1999; Vice
President, fifteen registered investment companies for
which Management acts as investment manager and
administrator (three since 2000, four since 2002, three
since 2003, four since 2004 and one since 2005).
Sheila R. James (40) Assistant Secretary since the Employee, Neuberger since 1999; formerly, Employee,
Fund's inception (3) Management from 1991 to 1999; Assistant Secretary,
fifteen registered investment companies for which
Management acts as investment manager and administrator
(seven since 2002, three since 2003, four since 2004
and one since 2005).
</Table>
32
<Page>
<Table>
<Caption>
POSITION AND
NAME, AGE, AND ADDRESS (1) LENGTH OF TIME SERVED PRINCIPAL OCCUPATION(S) (2)
- ------------------------------------------------------------------------------------------------------------------------
Kevin Lyons (50) Assistant Secretary Employee, Neuberger since 1999; formerly, Employee,
since 2003 (4) Management from 1993 to 1999; Assistant Secretary,
fifteen registered investment companies for which
Management acts as investment manager and administrator
(ten since 2003, four since 2004 and one since 2005).
John M. McGovern (35) Treasurer and Principal Financial Vice President, Neuberger since January 2004; Employee,
and Accounting Officer since Management since 1993; Treasurer and Principal
2005; prior thereto, Assistant Financial and Accounting Officer, fifteen registered
Treasurer since the Fund's investment companies for which Management acts as
inception (3) investment manager and administrator (fifteen since
2005); formerly, Assistant Treasurer, fifteen
registered investment companies for which Management
acts as investment manager and administrator from 2002
to 2005.
Frank Rosato (34) Assistant Treasurer since 2005 Employee, Management since 1995; Assistant Treasurer,
fifteen registered investment companies for which
Management acts as investment manager and administrator
since 2005.
Frederic B. Soule (59) Vice President since the Fund's Senior Vice President, Neuberger since 2003; formerly,
inception (3) Vice President, Neuberger from 1999 to 2003; formerly,
Vice President, Management from 1995 to 1999; Vice
President, fifteen registered investment companies for
which Management acts as investment manager and
administrator (three since 2000, four since 2002, three
since 2003, four since 2004 and one since 2005).
Chamaine Williams (34) Chief Compliance Officer Vice President, Lehman Brothers Inc. since 2003; Chief
since 2005 Compliance Officer, fifteen registered investment
companies for which Management acts as investment
manager and administrator (fifteen since 2005); Chief
Compliance Officer, Lehman Brothers Asset Management
Inc. since 2003; Chief Compliance Officer, Lehman
Brothers Alternative Investment Management LLC since
2003; formerly, Vice President, UBS Global Asset
Management (US) Inc. (formerly, Mitchell Hutchins Asset
Management, a wholly-owned subsidiary of PaineWebber
Inc.) from 1997-2003.
</Table>
33
<Page>
- ---------------
(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.
(3) The officer has served since the Fund's inception. The inception date of
Neuberger Berman Intermediate Municipal Fund Inc., Neuberger Berman
California Intermediate Municipal Fund Inc., Neuberger Berman New York
Intermediate Municipal Fund Inc., and Neuberger Berman Real Estate Income
Fund Inc. is 2002. The inception date of Neuberger Berman Realty Income
Fund Inc., Neuberger Berman Real Estate Securities Income Fund Inc. and
Neuberger Berman Income Opportunity Fund Inc. is 2003. The inception date
of the Neuberger Berman Dividend Advantage Fund Inc. is 2004.
(4) For Neuberger Berman Dividend Advantage Fund Inc., the officer has served
since the Fund's inception in March 2004.
34
<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 is also 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).
CHANGE TO INVESTMENT POLICY
On August 17, 2005, the Board approved a change to the Fund's investment policy
stating that securities lending and the investment of collateral in the
Neuberger Berman Securities Lending Quality Fund are permitted exceptions to the
policies of the Fund requiring that it invest specific percentages of its assets
in accordance with its principal investment program.
35
<Page>
NOTICE TO SHAREHOLDERS (UNAUDITED)
The Fund hereby designates $17,847,875, as a capital gain distribution.
36
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BOARD CONSIDERATION OF THE MANAGEMENT AND SUB-ADVISORY AGREEMENTS
At a meeting held on September 21, 2005, the Board of Directors ("Board") of
Neuberger Berman Real Estate Securities Income Fund Inc. ("Fund"), including the
Directors who are not "interested persons" of the Fund ("Independent Fund
Directors"), approved continuance of the Management and Sub-Advisory Agreements
("Agreements") for the Fund.
In evaluating the Agreements, the Board, including the Independent Fund
Directors, reviewed materials furnished by Management and Neuberger Berman, LLC
("Neuberger") in response to questions submitted by counsel to the Independent
Fund Directors, and met with senior representatives of Management and Neuberger
regarding their personnel and operations. The Independent Fund Directors were
advised by counsel that is experienced in Investment Company Act of 1940 matters
and that is independent of Management and Neuberger. The Independent Fund
Directors received a memorandum from independent counsel discussing the legal
standards for their consideration of the proposed continuance of the Agreements.
They met with such counsel separately from representatives of Management to
discuss the annual contract review. The annual contract review extends over two
regular meetings of the Board to ensure that Management and Neuberger have time
to respond to any questions the Independent Fund Directors may have on their
initial review of the report and that the Independent Fund Directors have time
to consider those responses. In addition, during this process, the Board held a
separate meeting devoted to reviewing and discussing Fund performance.
The Board considered the following factors, among others, in connection with its
approval of the continuance of the Agreements: (1) the nature, extent, and
quality of the services to be provided by Management and Neuberger; (2) the
performance of the Fund compared to relevant market indices and a peer group of
investment companies; (3) the costs of the services to be provided and profits
historically realized by Management and its affiliates from the relationship
with the Fund; (4) the extent to which economies of scale might be realized as
the Fund grows; and (5) whether fee levels reflect those potential economies of
scale for the benefit of investors in the Fund. In their deliberations, the
Board members did not identify any particular information that was all-important
or controlling, and each Director may have attributed different weights to the
various factors.
The Board evaluated the terms of the Agreements and whether the Agreements were
in the best interests of the Fund and its shareholders. The Board considered,
with respect to the Fund, the nature, extent and quality of the services
provided under the Agreements and the overall fairness of the Agreements to the
Fund. The Board requested and evaluated a report from Management and Neuberger
that addressed specific factors designed to inform the Board's consideration of
these and other issues. The Board also retained an independent consultant to
provide additional data.
With respect to the nature, extent and quality of the services provided, the
Board considered the performance of the Fund and the degree of risk undertaken
by the portfolio manager. The Board considered the experience and staffing of
portfolio management and the investment research personnel of Management and
Neuberger dedicated to performing services for the Fund. The Board noted that
Management also provides certain administrative services, including fund
accounting and compliance oversight. The Board also considered Management's and
Neuberger's policies and practices regarding brokerage and allocation of
portfolio transactions for the Fund. The Board considered the quality of
brokerage execution provided by Management and its affiliates. The Board's
Portfolio Transactions and Pricing Committee from time to time reviews the
quality of the brokerage services that Neuberger and Lehman provide, and has
reviewed studies by independent firms engaged to review and evaluate the quality
of brokerage execution received by the Fund. In addition, the Board noted the
positive compliance history of Management and Neuberger, as each firm has been
free of significant compliance problems.
With respect to the performance of the Fund, the Board considered the
performance of the Fund on both a market return and net asset value basis
relative to its benchmark and a peer group of investment companies pursuing
broadly similar strategies. The Board also considered the performance in
relation to the degree of risk undertaken by the portfolio manager. The Board
noted the difficulty of constructing an appropriate peer group. The Board
discussed the Fund's performance with Management and discussed steps that
Management had taken, or intended to take, to improve the Fund's performance.
The Board also considered Management's resources and responsiveness with respect
to the Fund.
37
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With respect to the overall fairness of the Agreements, the Board considered the
fee structure of the Agreements as compared to a peer group of comparable funds
and any fall-out benefits likely to accrue to Management or Neuberger or their
affiliates. The Board also considered the profitability of Management and its
affiliates from their association with the Fund.
The Board received a detailed report from an independent consultant that
compares the Fund's management fee and overall expense ratio to a peer group of
comparable funds. The Board considered the range and average of the management
fees and expense ratios of the peer group. The Board noted that the Fund's
actual management fee was higher than the peer group median. The Board
considered whether specific portfolio management or administration needs
contributed to the higher fee. With regard to the sub-advisory fee paid to
Neuberger, the Board noted that this fee is reflective of an "at cost" basis and
there is no profit to Neuberger with regard to these fees. The Board considered
the Fund's overall expenses in relation to the overall expenses of the peer
group median. In addition, the Board considered the contractual waiver of a
portion of the management fee undertaken by Management.
The Board considered whether there were other funds that were sub-advised by
Management or its affiliates or separate accounts managed by Management with
similar investment objectives, policies and strategies as the Fund. The Board
compared the fees charged to a comparable sub-advised fund and comparable
separate accounts to the fees charged to the Fund. The Board considered the
appropriateness and reasonableness of the differences between the fees charged
between the Fund and the comparable sub-advised fund and comparable separate
accounts and determined that the differences in fees were consistent with the
management and other services provided.
The Board also evaluated any actual or anticipated economies of scale in
relation to the services Management provides to the Fund. The Board considered
that the Fund was a closed-end fund that is not continuously offering shares and
that, without daily inflows and outflows of capital, there were not at this time
significant economies of scale to be realized by Management in managing the
Fund's assets.
In concluding that the benefits accruing to Management and its affiliates by
virtue of their relationship to the Fund were reasonable in comparison with the
costs of providing the investment advisory services and the benefits accruing to
the Fund, the Board reviewed specific data as to Management's profit or loss on
the Fund for a recent period and the trend in profit or loss since the Fund's
inception. The Board also carefully examined Management's cost allocation
methodology and had an independent expert review the methodology. It also
reviewed an analysis from an independent data service on investment management
profitability margins. The Board also reviewed whether Management and Neuberger
used brokers to execute Fund transactions that provide research and other
services to Management and Neuberger, and the types of benefits potentially
derived by the Fund and by other clients of Management and Neuberger from such
services. The Board recognized that Management should be entitled to earn a
reasonable level of profits for services it provides to the Fund and, based on
its review, concluded it was satisfied that Management's level of profitability
from its relationship with the Fund was not excessive.
CONCLUSIONS
In approving the Agreements, the Board concluded that the terms of each
Agreement are fair and reasonable and that approval of the Agreements is in the
best interest of the Fund and its shareholders. In reaching this determination,
the Board considered that Management and Neuberger could be expected to provide
a high level of service to the Fund; that it retained confidence in Management's
and Neuberger's capabilities to manage the Fund; that the Fund's fee structure
appeared to the Board to be reasonable given the quality of services expected to
be provided; and that the benefits accruing to Management and its affiliates by
virtue of their relationship to the Fund were reasonable in comparison with the
costs of providing the investment advisory services and the benefits accruing to
the Fund.
38
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[NEUBERGER BERMAN LOGO]
A LEHMAN BROTHERS COMPANY
NEUBERGER BERMAN MANAGEMENT INC.
605 Third Avenue, 2nd Floor
New York, NY 10158-0180
INTERNAL SALES & SERVICES
877.461.1899
www.nb.com
Statistics and projections in this report are derived from sources deemed to be
reliable but cannot be regarded as a representation of future results of the
Fund. This report is prepared for the general information of shareholders and is
not an offer of shares of the Fund.
[RECYCLED SYMBOL] D0501 12/05
ITEM 2. CODE OF ETHICS
The 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"). A copy of the Code of Ethics is filed as Exhibit 12(a)(1) to this Form
N-CSR. The Code of Ethics is also available, without charge, by calling
1-800-877-9700 (toll-free).
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
The Board has determined that the Registrant has two audit committee financial
experts serving on its audit committee. The Registrant's audit committee
financial experts are John Cannon and Howard Mileaf. Mr. Cannon and Mr. Mileaf
are independent directors 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 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 were
$46,250 and $31,250 for the fiscal years ended 2004 and 2005, respectively.
(b) Audit-Related Fees
------------------
The aggregate fees billed to the Registrant 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 $6,000 for the fiscal years ended 2004 and 2005, respectively. The
nature of the services provided involved agreed upon procedures relating to the
Preferred Shares. The Audit Committee approved 0% and 0% of these services
provided by E&Y for the fiscal years ended 2004 and 2005, 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
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 the fiscal years ended 2004 and
2005, respectively.
(c) Tax Fees
--------
The aggregate fees billed to the Registrant for professional services rendered
by E&Y for tax compliance, tax advice, and tax planning were $8,700 and $8,700
for the fiscal years ended 2004 and 2005, respectively. The nature of the
services provided were tax compliance, tax advice, and tax planning. The Audit
Committee approved 0% and 0% of these services provided by E&Y for the fiscal
years ended 2004 and 2005, 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 the fiscal years ended
2004 and 2005, respectively.
(d) All Other Fees
--------------
The aggregate fees billed to the Registrant 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 the fiscal years ended 2004 and 2005, 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 the fiscal years ended 2004
and 2005, 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 were
$13,700 and $14,700 for the fiscal years ended 2004 and 2005, 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 were
$256,050 and $160,650 for the fiscal years ended 2004 and 2005, 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 Funds' accounting and financial reporting processes, their internal control
over financial reporting and, as the Committee deems appropriate, to inquire
into the internal control over financial reporting of certain third-party
service providers; (b) to oversee the quality and integrity of the Funds'
financial statements and the independent audit thereof; (c) to oversee, or, as
appropriate, assist Board oversight of, the Funds' compliance with legal and
regulatory requirements that relate to the Funds' accounting and financial
reporting, internal control over financial reporting and independent audits; (d)
to approve prior to appointment the engagement of the Funds' independent
registered public accounting firms and, in connection therewith, to review and
evaluate the qualifications, independence and performance of the Funds'
independent registered public accounting firms; (e) to act as a liaison between
the Funds' independent registered public accounting firms and the full Board;
and (f) to prepare an audit committee report as required by Item 306 of
Regulations S-K to be included in proxy statements relating to the election of
directors. Its members are John Cannon, Howard A. Mileaf, Cornelius T. Ryan
(Chairman), Tom D. Seip, and Peter P. Trapp. All members are Independent Fund
Trustees.
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. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not applicable to the Registrant.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS
No reportable purchases for the period covered by this report.
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 filed herewith.
(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.
(a)(3) Not applicable to the Registrant.
(b) The certifications required by Rule 30a-2(b) of the Act and Section 906
of the Sarbanes-Oxley Act are 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 9, 2006
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 9, 2006
By: /s/ John M. McGovern
------------------------
John M. McGovern
Treasurer and Principal Financial
and Accounting Officer
Date: January 9, 2006