As filed with the Securities and Exchange Commission on July 9, 2007
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-21334
NEUBERGER BERMAN INCOME OPPORTUNITY FUND INC.
---------------------------------------------
(Exact Name of the Registrant as Specified in Charter)
c/o Neuberger Berman Management Inc.
605 Third Avenue, 2nd Floor
New York, New York 10158-0180
(Address of Principal Executive Offices - Zip Code)
Registrant's telephone number, including area code: (212) 476-8800
Peter E. Sundman, Chief Executive Officer
c/o Neuberger Berman Management Inc.
Neuberger Berman Income Opportunity Fund Inc.
605 Third Avenue, 2nd Floor
New York, New York 10158-0180
Arthur C. Delibert, Esq.
Kirkpatrick & Lockhart Preston Gates Ellis LLP
1601 K Street, N.W.
Washington, D.C. 20006-1600
(Names and Addresses of agents for service)
Date of fiscal year end: October 31, 2007
Date of reporting period: April 30, 2007
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, 100 F Street, NE,
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
SEMI-ANNUAL REPORT
APRIL 30, 2007
NEUBERGER | BERMAN
A LEHMAN BROTHERS COMPANY
NEUBERGER BERMAN
INCOME OPPORTUNITY
FUND INC.
<Page>
NEUBERGER BERMAN APRIL 30, 2007 (UNAUDITED)
CHAIRMAN'S LETTER
DEAR SHAREHOLDER,
I am pleased to present to you this semi-annual report for Neuberger Berman
Income Opportunity Fund Inc. for the six months ended April 30, 2007. The report
includes portfolio commentary, a listing of the Fund's investments, and its
financial statements for the reporting period.
The Fund's investment objective is to provide high current income with capital
appreciation as a secondary objective through a diversified portfolio of both
real estate securities and high yield bonds. Portfolio Co-Manager Steven Brown
manages the real estate portion of the Fund. His investment approach combines
analysis of security fundamentals and real estate with property sector
diversification. His disciplined valuation methodology seeks real estate
securities that are attractively priced relative to their historical growth
rates and the valuation of other property sectors.
Portfolio Co-Managers Ann Benjamin and Tom O'Reilly manage the high yield bond
portion of the Fund. Their investment approach focuses on generating income and
managing risk. They seek to avoid the default and volatility risk associated
with many high yield bonds by applying rigorous credit analysis to higher
quality issues, and by emphasizing the intermediate range of the yield curve.
We believe that our conservative investing philosophy and disciplined investment
process will benefit shareholders by providing attractive current income 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
INCOME OPPORTUNITY FUND INC.
"Neuberger Berman" and the Neuberger Berman logo are service marks of Neuberger
Berman, LLC. "Neuberger Berman Management Inc." and the individual Fund name in
this shareholder report are either service marks or registered service marks of
Neuberger Berman Management Inc. (C)2007 Neuberger Berman Management Inc. All
rights reserved.
CONTENTS
CHAIRMAN'S LETTER 1
PORTFOLIO COMMENTARY 2
SCHEDULE OF INVESTMENTS/TOP TEN EQUITY HOLDINGS 7
FINANCIAL STATEMENTS 17
FINANCIAL HIGHLIGHTS/PER SHARE DATA 29
DISTRIBUTION REINVESTMENT PLAN 31
DIRECTORY 33
PROXY VOTING POLICIES AND PROCEDURES 34
QUARTERLY PORTFOLIO SCHEDULE 34
REPORT OF VOTES OF SHAREHOLDERS 35
1
<Page>
INCOME OPPORTUNITY FUND INC. PORTFOLIO COMMENTARY
For the six months ended April 30, 2007, on a net asset value (NAV) basis,
Neuberger Berman Income Opportunity Fund Inc. (AMEX: NOX) provided a strong
positive return.
The Fund pursues a primary objective of high current income by investing a
portion of its assets in intermediate term, high yield corporate bonds with
maturities of primarily 10 years or less at the time of initial investment and
another portion in real estate company securities, including real estate
investment trust (REIT) common stock and REIT preferred shares.
At the end of the reporting period, the Fund held 46.6% of its investments in
REIT common stocks, 11.9% in REIT preferred shares, 39.2% in bonds and 2.3% in
cash and cash equivalents.
REAL ESTATE INVESTMENT TRUST HOLDINGS
During the first part of the reporting period, real estate investment trusts
(REITs) performed quite well but in mid-February declined sharply along with the
broad stock market. REITs rebounded following this sell-off, but failed to keep
pace with the S&P 500 Index, which was bolstered by strength in large
multi-national companies benefiting from the falling U.S. dollar. Weakness in
the Apartments sector caused by the large influx of unsold condominiums and
homes coming into the rental market also restrained REIT returns.
The segment of the portfolio focused on REITs posted a respectable return but
trailed the FTSE NAREIT Equity REITs Index. This shortfall was due primarily to
an underweight in the strong Shopping Center and Regional Mall sectors, lagging
performance in the Office sector, and positions in REIT preferred securities.
With the exception of the Apartments sector, commercial real estate fundamentals
remain healthy. Increased demand coupled with restrained supply growth due to
higher development costs have translated into better occupancy rates, rising
rent levels, and above historical average REIT earnings growth in most property
sectors.
Rather anemic first quarter Gross Domestic Product growth has prompted some
concern that REIT fundamentals may weaken along with the economy in the year
ahead. We believe that as long as employment remains strong, REIT fundamentals
will remain sound. In addition, we expect the economy to re-accelerate in the
second half of calendar 2007 as the weak dollar boosts exports to faster growing
international markets, business spending increases to rebuild depleted
inventories, and a more stable housing market is less of a drag on the economy.
While REITs have become more fully valued relative to historical average
price/earnings ratios and yield, they remain undervalued relative to NAV, in our
opinion, which, in view of recent transaction prices, may be understated. We
expect institutional money to continue to flow into alternative investment pools
including real estate opportunity funds. Consequently, we maintain a strong bias
toward REITs trading at discounts to NAV and expect further consolidation in the
REIT market to continue to surface value in the portfolio.
In closing, while we have cautioned shareholders not to expect recent years'
outsized returns in the REIT market to continue indefinitely, we believe the
combination of sound fundamentals, strong earnings growth, a high level of
liquidity in the financial system, and ongoing merger and acquisition activity
will continue to support attractive REIT returns in the year ahead.
HIGH YIELD SECURITIES HOLDINGS
The high yield bond market performed well during the reporting period, as
investors continued to gravitate to higher yielding securities. Within the high
yield market itself, lower rated securities were the best performers.
2
<Page>
The portfolio's high yield component provided a positive return for the
reporting period, outpacing the Lehman Brothers U.S. Corporate High Yield 2%
Issuer Cap Index. The portfolio segment's overweighting in the Health Care,
Basic Industry and Communications sectors made the greatest contribution to
returns. The portfolio's under-weighting in lagging sectors such as Financials,
Utilities, and Energy also benefited relative performance. Over the last several
months, we have gradually reduced exposure to cyclical sectors and increased our
commitments in less economically sensitive sectors.
The portfolio's weighted average maturity and duration (a standard measure of
interest rate risk) fluctuated modestly over the period. This was a function of
security selection rather that an attempt to anticipate interest rate trends.
Our bias toward intermediate maturity securities, which we believe have more
attractive risk/reward characteristics than longer maturity bonds, will
generally result in below index average weighted average maturity and duration.
As of April 30, the Fund had a neutral credit quality profile versus the index.
Demand for high yield securities remains strong. While investors' hunger for
yield is the primary driver of demand, the introduction of a new risk factor in
the fixed income markets--the high volume of private equity deals, mergers, and
takeovers--may be enhancing demand in the high yield market. In many instances,
these transactions increase the acquired company's debt, causing the credit
rating agencies to downgrade existing bonds and leaving bondholders holding the
proverbial bag. Ironically, because a much greater percentage of high yield
bonds have protective covenants such as clearly defined bondholder rights and/or
total debt limits, this deal activity can present a greater risk for investment
grade corporate bondholders than for high yield bond investors.
Recently, demand for lower rated securities has been particularly strong.
Disciplined, valuation sensitive securities selection targeting issuers with
strong balance sheets and business plans designed to reduce debt is the key to
managing risk in this sector of the high yield market.
Some market observers have been expressing concern that, as the economy slows,
debt default rates will increase significantly, negatively affecting the high
yield bond market. We do not believe these concerns are justified. We expect the
economy to continue to expand at a rate that will support respectable cash flow
growth for most companies. High yield default rates could creep up somewhat but
are still below the historical average. In our opinion, our commitment to
in-house credit quality research should continue to help us avoid any potholes
in the market.
Looking ahead, with the economy slowing and today's relative tight credit
spreads, we expect high yield bond returns to moderate. Still, we anticipate
that the sector's returns are likely to be attractive relative to prospective
returns for investment grade corporate bonds and Treasury securities. Going
forward, we believe that our focus on sector allocation and individual security
selection will be critical to performance success.
Sincerely,
/s/ Steven R. Brown /s/ Ann H. Benjamin /s/ Thomas P. O'Reilly
- --------------------------------------------------------------------------------
STEVEN R. BROWN, ANN H. BENJAMIN AND THOMAS P. O'REILLY
PORTFOLIO CO-MANAGERS
3
<Page>
INCOME OPPORTUNITY FUND INC.
PERFORMANCE HIGHLIGHTS
<Table>
<Caption>
TOTAL RETURN
SIX MONTH
PERIOD ENDED AVERAGE ANNUAL TOTAL RETURN
NAV(1,3,4) INCEPTION DATE 4/30/2007 1 YEAR SINCE INCEPTION
06/24/2003 5.97% 20.79% 18.14%
</Table>
PERFORMANCE HIGHLIGHTS
<Table>
<Caption>
TOTAL RETURN
SIX MONTH
PERIOD ENDED AVERAGE ANNUAL TOTAL RETURN
MARKET PRICE(2,3,4) INCEPTION DATE 4/30/2007 1 YEAR SINCE INCEPTION
06/24/2003 12.51% 33.68% 15.87%
</Table>
RATING DIVERSIFICATION
(% OF HIGH YIELD BOND RATINGS)
<Table>
AAA/Government/Government Agency 0.0%
AA 0.0
A 0.0
BBB 0.2
BB 17.0
B 27.0
CCC 9.1
CC 0.0
C 0.0
D 0.0
Not Rated 0.0
Short Term 3.9
</Table>
INDUSTRY DIVERSIFICATION
(% OF EQUITY HOLDINGS)
<Table>
Apartments 4.4%
Commercial Services 11.9
Community Centers 1.7
Diversified 14.5
Finance 2.9
Health Care 7.9
Industrial 7.1
Lodging 4.9
Office 15.0
Office-Industrial 2.1
Regional Malls 5.2
Self Storage 2.0
Specialty 0.3
Short-Term Investments 10.3
Liabilities, less cash,
receivables and other assets,
and Liquidation Value of
Auction Preferred Shares (47.4)
</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.
4
<Page>
NEUBERGER BERMAN APRIL 30, 2007 (UNAUDITED)
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. Unaudited performance data current to the most recent month-end are
available at www.nb.com.
5
<Page>
GLOSSARY OF INDICES
S&P 500 INDEX: The S&P 500 Index is widely regarded as the
standard for measuring large-cap U.S. stock
markets' performance and includes a
representative sample of leading companies
in leading industries.
FTSE NAREIT EQUITY REITS INDEX: The FTSE NAREIT Equity REITs 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.
THE LEHMAN BROTHERS U.S. CORPORATE The Lehman Brothers U.S. Corporate High
HIGH YIELD 2% ISSUER CAP INDEX: Yield 2% Issuer Cap Index is an unmanaged
sub-index of the Lehman Brothers U.S.
Corporate High Yield Index (which includes
all U.S. dollar-denominated, taxable, fixed
rate, non-investment grade debt), capped
such that no single issuer accounts for
more than 2% of the index weight.
Please note that the indices do not take into account any fees and expenses or
any tax consequences of investing in the individual securities that they track
and that investors cannot invest directly in any index. Data about the
performance of each 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 indices.
6
<Page>
SCHEDULE OF INVESTMENTS INCOME OPPORTUNITY FUND INC.
TOP TEN EQUITY HOLDINGS
<Table>
<Caption>
HOLDING %
1 iStar Financial 6.6
2 NorthStar Realty Finance 5.5
3 Capital Trust 4.2
4 American Financial Realty Trust 3.4
5 Gramercy Capital 3.3
6 First Industrial Realty Trust 3.3
7 Mid-America Apartment Communities 3.1
8 Glimcher Realty Trust 3.1
9 DTC Industrial Trust 2.9
10 Brandywine Realty Trust 2.5
</Table>
<Table>
<Caption>
NUMBER OF SHARES MARKET VALUE+
(000'S OMITTED)
COMMON STOCKS (63.5%)
APARTMENTS (2.2%)
21,000 Apartment Investment & Management $ 1,161
69,500 Education Realty Trust 990
66,500 Mid-America Apartment Communities 3,588
26,400 Post Properties 1,237
--------
6,976
COMMERCIAL SERVICES (11.3%)
288,500 Capital Trust 13,666
325,600 Gramercy Capital 10,546
838,400 NorthStar Realty Finance 12,409
--------
36,621
COMMUNITY CENTERS (1.2%)
92,000 Tanger Factory Outlet Centers 3,730
DIVERSIFIED (9.8%)
152,100 Colonial Properties Trust 7,546(2)
277,800 Crescent Real Estate Equities 5,697
256,100 iStar Financial 12,272
300,760 Lexington Realty Trust 6,283(2)
--------
31,798
FINANCE (2.9%)
126,100 CBRE Realty Finance 1,633
296,600 Crystal River Capital 7,792
--------
9,425
HEALTH CARE (7.1%)
33,000 Health Care Property Investors 1,168
116,802 Health Care REIT 5,284
40,600 Healthcare Realty Trust 1,383
134,300 Nationwide Health Properties 4,306
338,300 OMEGA Healthcare Investors 5,683
119,700 Ventas, Inc. 5,046
--------
22,870
INDUSTRIAL (7.1%)
822,400 DCT Industrial Trust 9,235
61,400 EastGroup Properties 3,077
240,800 First Industrial Realty Trust 10,545(2)
--------
22,857
LODGING (1.1%)
74,500 Ashford Hospitality Trust 894
62,000 Hospitality Properties Trust 2,823
--------
3,717
OFFICE (14.0%)
1,047,800 American Financial Realty Trust 11,107
241,336 Brandywine Realty Trust 7,935
163,900 Highwoods Properties 6,684
330,000 HRPT Properties Trust 4,039
160,800 Mack-Cali Realty $ 7,874
214,500 Maguire Properties 7,728(2)
--------
45,367
OFFICE--INDUSTRIAL (1.0%)
67,100 Liberty Property Trust 3,247
REGIONAL MALLS (3.8%)
257,000 Glimcher Realty Trust 6,942(2)
113,700 Pennsylvania REIT 5,282
--------
12,224
SELF STORAGE (2.0%)
2,700 Public Storage, Depositary Shares 71
115,900 Sovran Self Storage 6,405(2)
--------
6,476
TOTAL COMMON STOCKS
(COST $155,900) 205,308
--------
PREFERRED STOCKS (16.4%)
APARTMENTS (2.2%)
12,400 Apartment Investment & Management, Ser. T 317
10,000 Apartment Investment & Management, Ser. U 257
252,200 Mid-America Apartment Communities, Ser. H 6,565
--------
7,139
COMMERCIAL SERVICES (2.3%)
20,000 Anthracite Capital, Ser. C 507
20,000 Newcastle Investment, Ser. B 504
39,500 Newcastle Investment, Ser. D 987*
200,000 NorthStar Realty Finance, Ser. A 5,263(2)
--------
7,261
COMMUNITY CENTERS (0.5%)
20,000 Cedar Shopping Centers, Ser. A 528
12,000 Developers Diversified Realty, Ser. I 308
34,000 Tanger Factory Outlet Centers, Ser. C 865
--------
1,701
DIVERSIFIED (3.0%)
9,000 Colonial Properties Trust, Ser. E 227
18,400 Crescent Real Estate Equities, Ser. B 462
200,000 iStar Financial, Ser. E 5,072
160,000 iStar Financial, Ser. F 4,055
--------
9,816
</Table>
See Notes to Schedule of Investments
7
<Page>
SCHEDULE OF INVESTMENTS Income Opportunity Fund Inc. cont'd
<Table>
<Caption>
NUMBER OF SHARES MARKET VALUE+
(000'S OMITTED)
HEALTH CARE (0.8%)
25,000 Health Care REIT, Ser. D $ 648
18,200 LTC Properties, Ser. E 921
34,000 LTC Properties, Ser. F 867
-------
2,436
LODGING (3.8%)
36,000 Eagle Hospitality Properties Trust, Ser. A 861
182,000 Equity Inns, Ser. B 4,772(2)
22,600 Hersha Hospitality Trust, Ser. A 588(2)
16,000 Host Hotels & Resorts, Ser. E 434
77,500 LaSalle Hotel Properties, Ser. B 2,001
28,000 LaSalle Hotel Properties, Ser. D 707
33,000 LaSalle Hotel Properties, Ser. E 873
31,000 Strategic Hotels & Resorts, Ser. B 791
51,300 Strategic Hotels & Resorts, Ser. C 1,326
-------
12,353
OFFICE (1.0%)
60,000 DRA CRT Acquisition, Ser. A 1,442
60,000 Kilroy Realty, Ser. E 1,520
6,800 SL Green Realty, Ser. D 176
-------
3,138
OFFICE--INDUSTRIAL (1.1%)
25,000 Digital Realty Trust, Ser. A 648
16,900 Digital Realty Trust, Ser. B 431
50,000 LBA Realty Fund LP 2,325
8,000 PS Business Parks, Ser. K 212
-------
3,616
REGIONAL MALLS (1.4%)
60,000 Glimcher Realty Trust, Ser. F 1,548
61,800 Glimcher Realty Trust, Ser. G 1,568
19,800 Pennsylvania REIT, Ser. A 1,055
11,300 Taubman Centers, Ser. G 291
-------
4,462
SPECIALTY (0.3%)
40,000 Entertainment Properties Trust, Ser. A 1,009
TOTAL PREFERRED STOCKS
(COST $51,054) 52,931
-------
</Table>
8
<Page>
NEUBERGER BERMAN APRIL 30, 2007 (UNAUDITED)
SCHEDULE OF INVESTMENTS Income Opportunity Fund Inc. cont'd
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
CORPORATE DEBT SECURITIES (53.3%)
AEROSPACE/DEFENSE (0.7%)
$ 415 L-3 Communications Corp., Guaranteed Senior Unsecured
Subordinated Notes, 7.63%, due 6/15/12 Ba3 BB+ $ 430
1,760 L-3 Communications Corp., Guaranteed Notes, Ser. B,
6.38%, due 10/15/15 Ba3 BB+ 1,751
-------
2,181
AIRLINES (0.4%)
1,253 Continental Airlines, Inc., Pass-Through Certificates,
9.80%, due 4/1/21 Ba1 BB+ 1,404
APPAREL/TEXTILES (0.2%)
715 Levi Strauss & Co., Senior Unsubordinated Notes,
9.75%, due 1/15/15 B2 B 785
AUTO LOANS (5.0%)
1,890 Ford Motor Credit Co., Unsecured Notes, 7.38%, due 10/28/09 B1 B 1,892
3,605 Ford Motor Credit Co., Senior Unsecured Notes,
9.75%, due 9/15/10 B1 B 3,815
5,655 Ford Motor Credit Co., Bonds, 7.38%, due 2/1/11 B1 B 5,593
3,325 General Motors Acceptance Corp., Notes, 6.88%, due 9/15/11 Ba1 BB+ 3,336(5)
1,400 General Motors Acceptance Corp., Unsecured Notes,
7.00%, due 2/1/12 Ba1 BB+ 1,410
-------
16,046
AUTO PARTS & EQUIPMENT (0.3%)
350 Goodyear Tire & Rubber Co., Senior Notes, 8.63%, due 12/1/11 B2 B- 378(1)
470 Goodyear Tire & Rubber Co., Senior Notes, 9.00%, due 7/1/15 B2 B- 518
-------
896
AUTOMOTIVE (1.5%)
3,450 General Motors Corp., Senior Unsecured Debentures,
8.25%, due 7/15/23 Caa1 B- 3,122(2)
1,980 General Motors Corp., Senior Unsubordinated Notes,
8.38%, due 7/15/33 Caa1 B- 1,790(2)
-------
4,912
BEVERAGES (0.3%)
930 Constellation Brands, Inc., Guaranteed Notes,
7.25%, due 9/1/16 Ba3 BB- 946
CHEMICALS (1.6%)
650 Chemtura Corp., Guaranteed Notes, 6.88%, due 6/1/16 Ba1 BB+ 640
1,240 Hexion US Finance Corp., Senior Notes, 9.75%, due 11/15/14 B3 B- 1,339(1)
500 Lyondell Chemical Co., Guaranteed Notes, 8.25%, due 9/15/16 B1 B+ 535
1,305 MacDermid, Inc., Senior Subordinated Notes,
9.50%, due 4/15/17 Caa1 CCC+ 1,354(1)
1,135 PQ Corp., Guaranteed Notes, 7.50%, due 2/15/13 B3 B- 1,195
-------
5,063
CONSUMER--PRODUCTS (0.7%)
690 Amscan Holdings, Inc., Senior Subordinated Notes,
8.75%, due 5/1/14 Caa1 CCC+ 695
1,530 Yankee Acquisition Corp., Senior Subordinated Notes,
9.75%, due 2/15/17 Caa1 CCC+ 1,576(1)(2)
-------
2,271
ELECTRIC--GENERATION (2.2%)
1,340 Dynegy-Roseton Danskamme, Pass-Through Certificates, Ser. B,
7.67%, due 11/8/16 Ba3 B 1,427
2,010 Midwest Generation LLC, Secured Notes, 8.75%, due 5/1/34 Ba2 B+ 2,221
</Table>
See Notes to Schedule of Investment
9
<Page>
SCHEDULE OF INVESTMENTS Income Opportunity Fund Inc. cont'd
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
$1,405 Mirant Americas Generation, Inc., Senior Unsecured Notes,
8.30%, due 5/1/11 Caa1 B- $ 1,486
870 NRG Energy, Inc., Guaranteed Notes, 7.38%, due 2/1/16 B1 B- 904
900 NRG Energy, Inc., Guaranteed Notes, 7.38%, due 1/15/17 B1 B- 932
-------
6,970
ELECTRONICS (1.7%)
1,990 Flextronics Int'l, Ltd., Senior Subordinated Notes,
6.50%, due 5/15/13 Ba2 BB- 1,972
2,060 Freescale Semiconductor, Inc., Senior Notes,
9.13%, due 12/15/14 B1 B 2,050(1)
430 NXP BV Funding LLC, Secured Notes, 7.88%, due 10/15/14 Ba2 BB+ 447(1)
1,075 NXP BV Funding LLC, Senior Notes, 9.50%, due 10/15/15 B2 B+ 1,129(1)
-------
5,598
ENERGY-EXPLORATION & PRODUCTION (1.8%)
225 Chesapeake Energy Corp., Guaranteed Senior Notes,
7.50%, due 9/15/13 Ba2 BB 235
1,105 Chesapeake Energy Corp., Guaranteed Notes,
6.38%, due 6/15/15 Ba2 BB 1,106
200 Energy Partners Ltd., Senior Notes, 9.75%, due 4/15/14 Caa1 B- 204(1)
875 Forest Oil Corp., Guaranteed Senior Unsecured Notes,
7.75%, due 5/1/14 B1 B+ 897
3,175 Sabine Pass L.P., Secured Notes, 7.50%, due 11/30/16 Ba3 BB 3,254(1)
-------
5,696
ENVIRONMENTAL (0.4%)
895 Allied Waste North America, Inc., Guaranteed Notes,
7.25%, due 3/15/15 B1 BB 920
470 Allied Waste North America, Inc., Guaranteed Notes,
6.88%, due 6/1/17 B1 BB 476
-------
1,396
FOOD & DRUG RETAILERS (0.6%)
1,950 Jean Coutu Group PJC, Inc., Guaranteed Notes,
8.50%, due 8/1/14 Caa2 B- 2,111
FOOD--WHOLESALE (0.1%)
320 Dean Foods Co., Guaranteed Notes, 7.00%, due 6/1/16 B1 B+ 324
FORESTRY/PAPER (0.7%)
430 Bowater, Inc., Senior Floating Rate Notes,
8.35%, due 6/15/07 B3 B+ 432(6)
865 Bowater, Inc., Debentures, 9.00%, due 8/1/09 B3 B+ 910
780 Graphic Packaging Int'l., Inc., Guaranteed Notes,
8.50%, due 8/15/11 B2 B- 809
-------
2,151
GAMING (2.2%)
680 Chukchansi Economic Development Authority, Senior Notes,
8.00%, due 11/15/13 B2 BB- 705(1)
1,990 Majestic Star LLC, Senior Unsecured Notes,
9.75%, due 1/15/11 Caa1 CCC+ 1,910
1,005 MGM Grand, Inc., Guaranteed Senior Notes,
6.00%, due 10/1/09 Ba2 BB 1,006
300 Park Place Entertainment, Senior Subordinated Notes,
7.88%, due 3/15/10 Ba1 B+ 314
1,250 Pokagon Gaming Authority, Senior Notes,
10.38%, due 6/15/14 B3 B 1,400(1)
680 San Pasqual Casino, Notes, 8.00%, due 9/15/13 B2 B+ 700(1)
1,225 Station Casinos, Inc., Senior Unsecured Subordinated Notes,
6.88%, due 3/1/16 Ba3 B 1,152
-------
7,187
</Table>
10
<Page>
NEUBERGER BERMAN APRIL 30, 2007 (UNAUDITED)
SCHEDULE OF INVESTMENTS Income Opportunity Fund Inc. cont'd
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000's OMITTED) MOODY'S S&P (000's OMITTED)
GAS DISTRIBUTION (2.7%)
$ 885 AmeriGas Partners, L.P., Senior Unsecured Notes,
7.25%, due 5/20/15 B1 $ 900
1,070 Ferrellgas Partners L.P., Senior Unsecured Notes,
8.75%, due 6/15/12 B2 B- 1,113
875 Kinder Morgan, Inc., Senior Notes, 6.50%, due 9/1/12 Baa2 BB- 901
980 Kinder Morgan, Inc., Guaranteed Notes, 5.70%, due 1/5/16 Baa2 BB- 938
2,290 Regency Energy Partners, Senior Unsecured Notes,
8.38%, due 12/15/13 B2 B 2,359(1)
925 Targa Resources, Inc., Guaranteed Notes,
8.50%, due 11/1/13 B3 B- 953(1)
1,335 Transcontinental Gas Pipe Line, Debentures,
7.25%, due 12/1/26 Ba1 BB+ 1,447
-------
8,611
HEALTH SERVICES (5.0%)
1,955 CDRV Investors, Inc., Senior Unsecured Notes, Step-Up,
0.00%/9.63%, due 1/1/15 Caa1 CCC+ 1,711(2)(2)
1,790 HCA, Inc., Senior Unsecured Notes, 6.50%, due 2/15/16 Caa1 B- 1,560
2,115 HCA, Inc., Secured Notes, 9.25%, due 11/15/16 B2 BB- 2,305(1)(5)
2,605 HCA, Inc., Senior Secured Notes, 9.63%, due 11/15/16 B2 BB- 2,843(1)
210 Omnicare, Inc., Senior Subordinated Notes, 6.13%, due 6/1/13 Ba3 BB+ 202
270 Omnicare, Inc., Guaranteed Notes, 6.88%, due 12/15/15 Ba3 BB+ 269
910 Service Corp. Int'l, Senior Unsecured Notes, 7.38%, due 10/1/14 B1 BB- 946
265 Service Corp. Int'l, Senior Notes, 7.00%, due 6/15/17 B1 BB- 264
1,735 Service Corp. Int'l, Senior Notes, 7.50%, due 4/1/27 B1 BB- 1,735(1)
680 Spheris, Inc., Senior Subordinated Notes, 11.00%, due 12/15/12 Caa1 CCC 685
1,190 United Surgical Partners Int'l, Inc., Senior Subordinated Notes,
9.25%, due 5/1/17 Caa1 CCC+ 1,224(1)
910 US Oncology, Inc., Senior Unsecured Floating Rate Notes,
9.80%, due 9/17/07 B3 B- 921(1)(6)
580 US Oncology, Inc., Guaranteed Notes, 9.00%, due 8/15/12 B1 B- 618
300 Ventas Realty L.P., Guaranteed Notes, 6.75%, due 6/1/10 Ba2 BB+ 307
565 Ventas Realty L.P., Guaranteed Senior Notes, 6.50%, due 6/1/16 Ba2 BB+ 571
-------
16,161
INVESTMENTS & MISC. FINANCIAL SERVICES (0.6%)
1,740 Cardtronics, Inc., Guaranteed Notes, 9.25%, due 8/15/13 B3 B- 1,840
LEISURE (0.5%)
795 AMF Bowling Worldwide, Inc., Guaranteed Senior Subordinated
Notes, 10.00%, due 3/1/10 B3 CCC+ 827
815 Royal Caribbean Cruises, Senior Unsubordinated Notes,
7.50%, due 10/15/27 Ba1 BBB- 807
-------
1,634
MEDIA--BROADCAST (3.2%)
1,875 CMP Susquehanna Corp., Senior Subordinated Notes,
9.88%, due 5/15/14 B3 CCC 1,913(1)
745 Entercom Radio/Capital, Guaranteed Senior Notes,
7.63%, due 3/1/14 B1 B 758
40 LIN Television Corp., Guaranteed Notes, Ser. B,
6.50%, due 5/15/13 B1 B- 39
1,720 LIN Television Corp., Senior Subordinated Notes,
6.50%, due 5/15/13 B1 B- 1,694
</Table>
See Notes to Schedule of Investments
11
<Page>
SCHEDULE OF INVESTMENTS Income Opportunity Fund Inc. cont'd
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000's OMITTED) MOODY'S S&P (000's OMITTED)
$2,240 Paxson Communications, Secured Floating Rate Notes,
11.61%, due 7/16/07 Caa2 CCC- $ 2,330(1)(6)
1,650 Umbrella Acquisition, Inc., Senior Notes,
9.75%, due 3/15/15 B3 CCC+ 1,656(1)(2)
1,280 Young Broadcasting, Inc., Guaranteed Notes,
10.00%, due 3/1/11 Caa1 CCC- 1,303
585 Young Broadcasting, Inc., Senior Subordinated Notes,
8.75%, due 1/15/14 Caa1 CCC- 570
-------
10,263
MEDIA--CABLE (2.5%)
465 CCH I Holdings LLC, Guaranteed Notes, 10.00%, due 5/15/14 Caa3 CCC 434
2,670 CCH I Holdings LLC, Secured Notes, 11.00%, due 10/1/15 Caa2 CCC 2,837
1,545 Charter Communications Operating LLC, Senior Notes,
8.38%, due 4/30/14 B3 B 1,620(1)
595 DirecTV Holdings LLC, Senior Notes, 8.38%, due 3/15/13 Ba3 BB- 628
775 EchoStar DBS Corp., Guaranteed Notes, 6.38%, due 10/1/11 Ba3 BB- 783
925 EchoStar DBS Corp., Guaranteed Notes, 7.00%, due 10/1/13 Ba3 BB- 961
885 EchoStar DBS Corp., Guaranteed Notes, 7.13%, due 2/1/16 Ba3 BB- 921
-------
8,184
MEDIA--SERVICES (1.1%)
870 Lamar Media Corp., Guaranteed Notes, 7.25%, due 1/1/13 Ba3 B 890
2,770 WMG Acquisition Corp., Senior Subordinated Notes,
7.38%, due 4/15/14 B2 B 2,659
-------
3,549
METALS/MINING EXCLUDING STEEL (2.7%)
625 Aleris Int'l, Inc., Senior Notes, 9.00%, due 12/15/14 B3 B- 663(1)
755 Aleris Int'l, Inc., Senior Subordinated Notes,
10.00%, due 12/15/16 Caa1 B- 788(1)
1,250 Arch Western Finance Corp., Guaranteed Notes,
6.75%, due 7/1/13 B1 BB- 1,241
275 Freeport-McMoRan Copper & Gold, Senior Unsecured Notes,
8.25%, due 4/1/15 Ba3 BB 297
1,665 Freeport-McMoRan Copper & Gold, Senior Unsecured Notes,
8.38%, due 4/1/17 Ba3 BB 1,821
3,170 Massey Energy Co., Guaranteed Notes, 6.88%, due 12/15/13 B2 B+ 3,059
830 Peabody Energy Corp., Guaranteed Senior Notes, Ser. B,
6.88%, due 3/15/13 Ba1 BB 841
-------
8,710
NON-FOOD & DRUG RETAILERS (0.7%)
270 Blockbuster, Inc., Senior Subordinated Notes,
9.00%, due 9/1/12 Caa2 CCC+ 275
565 Bon-Ton Department Stores, Inc., Guaranteed Notes,
10.25%, due 3/15/14 B3 B- 612
550 GSC Holdings Corp., Guaranteed Notes,
8.00%, due 10/1/12 Ba3 B+ 586
980 Michaels Stores, Inc., Subordinated Notes, Step-Up,
0.00%/13.00%, due 11/1/16 Caa1 CCC 642(1)(2)(2)
-------
2,115
PACKAGING (2.1%)
3,955 Ball Corp., Guaranteed Notes, 6.88%, due 12/15/12 Ba1 BB 4,044
820 Crown Americas LLC, Guaranteed Senior Notes,
7.75%, due 11/15/15 B1 B 867
560 Graham Packaging Co., Inc., Guaranteed Notes,
9.88%, due 10/15/14 Caa1 CCC+ 579
1,130 Owens-Brockway Glass Container, Inc., Guaranteed Notes,
8.75%, due 11/15/12 Ba2 BB- 1,191
-------
6,681
</Table>
12
<Page>
NEUBERGER BERMAN APRIL 30, 2007 (UNAUDITED)
SCHEDULE OF INVESTMENTS Income Opportunity Fund Inc. cont'd
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000's OMITTED) MOODY'S S&P (000's OMITTED)
PRINTING & PUBLISHING (3.1%)
$ 350 Dex Media West LLC, Senior Unsecured Notes, Ser. B,
8.50%, due 8/15/10 B1 B $ 367
1,125 Dex Media West LLC, Guaranteed Senior Notes, Ser. B,
9.88%, due 8/15/13 B2 B 1,225
2,330 Idearc, Inc., Senior Notes, 8.00%, due 11/15/16 B2 B+ 2,429(1)
195 Primedia, Inc., Senior Floating Rate Notes,
10.74%, due 5/15/07 B2 B 201(6)
1,685 Primedia, Inc., Guaranteed Senior Unsecured Notes,
8.88%, due 5/15/11 B2 B 1,735
2,420 R.H. Donnelley Corp., Senior Notes, Ser A-3,
8.88%, due 1/15/16 B3 B 2,626
1,415 Reader's Digest Association, Inc., Senior Subordinated Notes,
9.00%, due 2/15/17 Caa1 CCC+ 1,387(1)
-------
9,970
RAILROADS (0.6%)
1,715 TFM SA de C.V., Senior Notes, 9.38%, due 5/1/12 B3 B- 1,852
REAL ESTATE DEV. & MGT. (0.5%)
1,000 American Real Estate Partners L.P., Senior Notes,
7.13%, due 2/15/13 Ba3 BB+ 985
785 American Real Estate Partners, L.P., Senior Notes,
8.13%, due 6/1/12 Ba3 BB+ 801
-------
1,786
RESTAURANTS (0.3%)
565 NPC Int'l, Inc., Guaranteed Notes, 9.50%, due 5/1/14 Caa1 B- 593
410 OSI Restaurant Partners, Inc., Senior Notes,
9.63%, due 5/15/15 Caa1 B- 423(1)(4)
-------
1,016
SOFTWARE/SERVICES (0.1%)
415 SunGard Data Systems, Inc., Guaranteed Notes,
9.13%, due 8/15/13 Caa1 B- 445
STEEL PRODUCERS/PRODUCTS (0.4%)
1,300 Tube City IMS Corp., Senior Subordinated Notes,
9.75%, due 2/1/15 B3 B- 1,371(1)
SUPPORT--SERVICES (3.1%)
1,435 Aramark Corp., Senior Notes, 8.50%, due 2/1/15 B3 B- 1,501(1)
705 KAR Holdings, Inc., Senior Subordinated Notes,
10.00%, due 5/1/15 Caa1 CCC 731(1)
2,300 Knowledge Learning Corp., Inc., Guaranteed Notes,
7.75%, due 2/1/15 B2 B- 2,300(1)
1,650 Language Line, Inc., Guaranteed Senior Subordinated Notes,
11.13%, due 6/15/12 B3 CCC+ 1,774
2,215 Monitronics Int'l, Inc., Guaranteed Notes, 11.75%, due 9/1/10 B3 B- 2,315
1,465 Rural/Metro Corp., Guaranteed Notes, 9.88%, due 3/15/15 B3 CCC+ 1,560
-------
10,181
TELECOM--FIXED LINE (0.2%)
550 Level 3 Financing, Inc., Senior Notes, 9.25%, due 11/1/14 B3 CCC+ 571(1)
TELECOM--INTEGRATED/SERVICES (2.8%)
2,750 Citizens Utilities Co., Bonds, 7.13%, due 3/15/19 Ba2 BB+ 2,771(1)
1,430 Intelsat Bermuda Ltd., Senior Notes, 9.25%, due 6/15/16 B2 B+ 1,573
665 Nordic Telephone Co. Holdings, Secured Notes,
8.88%, due 5/1/16 B2 B 715(1)
730 Qwest Corp., Senior Notes, 7.88%, due 9/1/11 Ba1 BB+ 777
965 Qwest Corp., Notes, 8.88%, due 3/15/12 Ba1 BB+ 1,066
870 Windstream Corp., Guaranteed Notes, 8.13%, due 8/1/13 Ba3 BB- 944
1,240 Windstream Corp., Guaranteed Notes, 8.63%, due 8/1/16 Ba3 BB- 1,361
-------
9,207
</Table>
See Notes to Schedule of Investments
13
<Page>
SCHEDULE OF INVESTMENTS Income Opportunity Fund Inc. cont'd
<Table>
<Caption>
PRINCIPAL AMOUNT RATING VALUE +
(000'S OMITTED) MOODY'S S&P (000'S OMITTED)
THEATERS & ENTERTAINMENT (0.5%)
$800 AMC Entertainment, Inc., Guaranteed Notes, Ser. B, 8.63%,
due 8/15/12 Ba3 B- $ 852
630 AMC Entertainment, Inc., Guaranteed Notes, 11.00%,
due 2/1/16 B3 CCC+ 723
---------
1,575
TRANSPORTATION EXCLUDING AIR/RAIL (0.2%)
740 Stena AB, Senior Unsecured Notes, 7.00%, due 12/1/16 Ba3 BB- 729
---------
TOTAL CORPORATE DEBT SECURITIES (COST $166,325) 172,388
---------
NUMBER OF SHARES
SHORT-TERM INVESTMENTS (14.2%)
11,052,528 Neuberger Berman Prime Money Fund Trust Class 11,053@
34,795,751 Neuberger Berman Securities Lending Quality Fund, LLC 34,796~
---------
TOTAL SHORT-TERM INVESTMENTS (COST $45,849) 45,849#
---------
TOTAL INVESTMENTS (147.4%) (COST $419,128) 476,476##
Liabilities, less cash, receivables and other assets [(8.6%)] (27,817)
Liquidation Value of Auction Preferred Shares [(38.8%)] (125,500)
---------
TOTAL NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS (100.0%) $ 323,159
---------
</Table>
14
<Page>
NEUBERGER BERMAN APRIL 30, 2007 (UNAUDITED)
NOTES TO SCHEDULE OF INVESTMENTS
+ Investments in equity securities by Neuberger Berman Income Opportunity
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. Investments in debt securities
by the Fund are valued daily by obtaining bid price quotations from
independent pricing services on all securities available in each
service's data base. For all other debt securities, bid price quotations
are obtained from principal market makers in those securities. 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 currently translated from the local currency
into U.S. dollars using the exchange rate as of 4:00 p.m., Eastern time.
The Board has approved the use of FT Interactive Data Corporation ("FT
Interactive") to assist in determining the fair value of the Fund's
foreign equity securities 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 April 30, 2007, the cost of investments for U.S. federal income tax
purposes was $419,400,000. Gross unrealized appreciation of investments
was $59,771,000 and gross unrealized depreciation of investments was
$2,695,000, resulting in net unrealized appreciation of $57,076,000
based on cost for U.S. federal income tax purposes.
~ Managed by an affiliate of Neuberger Berman Management Inc. and could be
deemed an affiliate of the Fund (see Notes A & E of Notes to Financial
Statements).
See Notes to Financial Statements
15
<Page>
NOTES TO SCHEDULE OF INVESTMENTS cont'd
@ Neuberger Berman Prime Money Fund ("Prime Money") is also managed by
Neuberger Berman Management Inc. and may be considered an affiliate
since it has the same officers, Board members, and investment manager as
the Fund and because, at times, the Fund may own 5% or more of the
outstanding voting securities of Prime Money (see Notes A & E of Notes
to Financial Statements).
(1) Restricted security subject to restrictions on resale under federal
securities laws. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers under Rule
144A and have been deemed by the investment manager to be liquid. At
April 30, 2007, these securities amounted to $50,687,000 or 15.7% of net
assets applicable to common shareholders.
* Security did not produce income during the last twelve months.
(5) All or a portion of this security is segregated as collateral for
interest rate swap contracts and/or when-issued securities.
(2) All or a portion of this security is on loan (see Note A of Notes to
Financial Statements).
(6) Floating rate securities are securities whose yields vary with a
designated market index or market rate. These securities are shown at
their current rates as of April 30, 2007.
(2)(2) Denotes a step-up bond: a zero coupon bond that converts to a fixed rate
of interest at a designated future date.
(4) All or a portion of this security was purchased on a when-issued basis.
At April 30, 2007, these securities amounted to $423,000 or 0.1% of net
assets.
See Notes to Financial Statements
16
<Page>
NEUBERGER BERMAN APRIL 30, 2007 (UNAUDITED)
STATEMENT OF ASSETS AND LIABILITIES
<Table>
<Caption>
NEUBERGER BERMAN INCOME OPPORTUNITY
(000'S OMITTED EXCEPT PER SHARE AMOUNTS) FUND
ASSETS
INVESTMENTS IN SECURITIES, AT MARKET VALUE*+ (NOTES A & E)--SEE SCHEDULE OF INVESTMENTS:
Unaffiliated issuers $430,627
- ------------------------------------------------------------------------------------------------------------
Affiliated issuers 45,849
============================================================================================================
476,476
Dividends and interest receivable 4,298
- ------------------------------------------------------------------------------------------------------------
Receivable for securities sold 2,807
Interest rate swaps, at market value (Note A) 1,818
- ------------------------------------------------------------------------------------------------------------
Receivable for securities lending income (Note A) 143
Prepaid expenses and other assets 17
============================================================================================================
TOTAL ASSETS 485,559
============================================================================================================
LIABILITIES
Payable for collateral on securities loaned (Note A) 34,796
Distributions payable--preferred shares 85
- ------------------------------------------------------------------------------------------------------------
Distributions payable--common shares 188
Payable for securities purchased 1,399
- ------------------------------------------------------------------------------------------------------------
Payable to investment manager-net (Notes A & B) 129
Payable to administrator (Note B) 92
- ------------------------------------------------------------------------------------------------------------
Payable for securities lending fees (Note A) 135
Accrued expenses and other payables 76
============================================================================================================
TOTAL LIABILITIES 36,900
============================================================================================================
AUCTION PREFERRED SHARES SERIES A & B AT LIQUIDATION VALUE
6,000 shares authorized; 5,020 shares issued and outstanding;
$.0001 par value; $25,000 liquidation value per share (Note A) 125,500
============================================================================================================
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS AT VALUE $323,159
============================================================================================================
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS CONSIST OF:
Paid-in capital--common shares $250,240
Distributions in excess of net investment income (20,845)
- ------------------------------------------------------------------------------------------------------------
Accumulated net realized gains (losses) on investments 34,617
Net unrealized appreciation (depreciation) in value of investments 59,147
============================================================================================================
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS AT VALUE $323,159
============================================================================================================
COMMON SHARES OUTSTANDING ($.0001 PAR VALUE; 999,994,000 SHARES AUTHORIZED) 17,734
============================================================================================================
NET ASSET VALUE PER COMMON SHARE OUTSTANDING $ 18.22
============================================================================================================
+SECURITIES ON LOAN, AT MARKET VALUE $ 33,034
============================================================================================================
*COST OF INVESTMENTS:
Unaffiliated issuers $373,279
Affiliated issuers 45,849
============================================================================================================
TOTAL COST OF INVESTMENTS $419,128
============================================================================================================
</Table>
See Notes to Financial Statements
17
<Page>
NEUBERGER BERMAN FOR THE SIX MONTHS ENDED APRIL 30, 2007 (UNAUDITED)
STATEMENT OF OPERATIONS
<Table>
<Caption>
NEUBERGER BERMAN INCOME OPPORTUNITY
(000'S OMITTED) FUND
INVESTMENT INCOME
INCOME (NOTE A):
Dividend income--unaffiliated issuers $ 5,962
Interest income--unaffilated issuers 7,283
- -----------------------------------------------------------------------------------------------
Income from securities loaned--net (Note E) 55
Income from investments in affiliated issuers (Note E) 235
- -----------------------------------------------------------------------------------------------
Foreign taxes withheld (2)
===============================================================================================
Total income 13,533
===============================================================================================
EXPENSES:
Investment management fees (Notes A & B) 1,347
Administration fees (Note B) 561
- -----------------------------------------------------------------------------------------------
Auction agent fees (Note B) 158
Audit fees 23
- -----------------------------------------------------------------------------------------------
Basic maintenance expense (Note B) 12
Custodian fees (Note B) 83
- -----------------------------------------------------------------------------------------------
Directors' fees and expenses 10
Insurance expense 9
- -----------------------------------------------------------------------------------------------
Legal fees 27
Shareholder reports 32
- -----------------------------------------------------------------------------------------------
Stock exchange listing fees 3
Stock transfer agent fees 17
- -----------------------------------------------------------------------------------------------
Miscellaneous 14
===============================================================================================
Total expenses 2,296
Investment management fees waived (Notes A & B) (565)
Expenses reduced by custodian fee expense offset and
commission recapture arrangements (Note B) (20)
===============================================================================================
Total net expenses 1,711
===============================================================================================
Net investment income 11,822
===============================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE A)
Net realized gain (loss) on:
Sales of investment securities of unaffiliated issuers 18,742
Interest rate swap contracts 792
- -----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) in value of:
- -----------------------------------------------------------------------------------------------
Unaffiliated investment securities (9,055)
Interest rate swap contracts (551)
===============================================================================================
Net gain (loss) on investments 9,928
===============================================================================================
Distributions to Preferred Shareholders (3,156)
===============================================================================================
NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS
RESULTING FROM OPERATIONS $ 18,594
===============================================================================================
</Table>
See Notes to Financial Statements
18
<Page>
NEUBERGER BERMAN APRIL 30, 2007 (UNAUDITED)
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
INCOME OPPORTUNITY FUND
----------------------------
SIX MONTHS YEAR
ENDED ENDED
NEUBERGER BERMAN APRIL 30, 2007 OCTOBER 31,
(000'S OMITTED) (UNAUDITED) 2006
INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
FROM OPERATIONS:
Net investment income (loss) $ 11,822 $ 21,943
Net realized gain (loss) on investments 19,534 23,372
- ----------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investments (9,606) 27,260
====================================================================================================
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS FROM (NOTE A):
Net investment income (3,156) (4,875)
Net realized gain on investments -- (905)
- ----------------------------------------------------------------------------------------------------
Total distributions to preferred shareholders (3,156) (5,780)
====================================================================================================
Net increase (decrease) in net assets applicable to
common shareholders resulting from operations 18,594 66,795
====================================================================================================
DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM (NOTE A):
Net investment income (29,174) (19,661)
Net realized gain on investments -- (3,653)
- ----------------------------------------------------------------------------------------------------
Total distributions to common shareholders (29,174) (23,314)
====================================================================================================
FROM CAPITAL SHARE TRANSACTIONS (NOTE D):
Proceeds from reinvestment of dividends 195 --
====================================================================================================
Total net proceeds from capital share transactions 195 --
====================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS (10,385) 43,481
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Beginning of period 333,544 290,063
====================================================================================================
End of period $323,159 $333,544
====================================================================================================
Distributions in excess of net investment income at end of period $(20,845) $ (337)
====================================================================================================
</Table>
See Notes to Financial Statements
19
<Page>
NOTES TO FINANCIAL STATEMENTS INCOME OPPORTUNITY FUND INC.
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1 GENERAL: Neuberger Berman Income Opportunity Fund Inc. (the "Fund") was
organized as a Maryland corporation on April 17, 2003 as a non-diversified,
closed-end management investment company under the Investment Company Act
of 1940, as amended (the "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 trade date for financial reporting purposes. Dividend income is
recorded on the ex-dividend date. Non-cash dividends included in dividend
income, if any, are recorded at the fair market value of the securities
received. Interest income, including accretion of discount (adjusted for
original issue discount, where applicable), and amortization of premium,
where applicable, is recorded on the accrual basis. Realized gains and
losses from securities transactions and foreign currency transactions, 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, 2006, permanent differences resulting
primarily from different book and tax accounting for distributions in
excess of earnings, amortization of bond premium, income recognized on
interest rate swaps and character of distributions paid were reclassified
at fiscal year-end. These reclassifications had no effect on net income,
net asset value applicable to common shareholders or net asset value per
common share of the Fund.
The tax character of distributions paid during the years ended October 31,
2006 and October 31, 2005 was as follows:
<Table>
<Caption>
DISTRIBUTIONS PAID FROM:
LONG-TERM TAX RETURN
ORDINARY INCOME CAPITAL GAIN OF CAPITAL TOTAL
2006 2005 2006 2005 2006 2005 2006 2005
$24,535,326 $23,827,885 $4,558,553 $8,900,047 $-- $2,108,248 $29,093,879 $34,836,180
</Table>
20
<Page>
NEUBERGER BERMAN APRIL 30, 2007 (UNAUDITED)
As of October 31, 2006, 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
$-- $15,601,949 $68,199,397 $-- $83,801,346
</Table>
The difference between book and tax basis distributable earnings is
attributable primarily to timing differences of distribution payments, wash
sales, amortization of bond premium, 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 distribution for the calendar
year 2007 will be reported to Fund shareholders on IRS Form 1099DIV. 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. 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 the Fund receives from REITs are generally
comprised of income, capital gains, and return of capital, but the REITs do
not report this information to the Fund until the following calendar year.
At October 31, 2006, 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. At April 30, 2007, the Fund estimated
these amounts for the period January 1, 2007 to April 30, 2007 within the
financial statements since the 2007 information is not available from the
REITs until after the Fund's fiscal period. For the year ended October 31,
2006, the character of distributions paid to shareholders is disclosed
within the Statement of Changes and is also based on these estimates. All
estimates are based upon REIT information sources available to the Fund
together with actual IRS Forms 1099DIV 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-end. 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
21
<Page>
NOTES TO FINANCIAL STATEMENTS Income Opportunity Fund Inc. con't
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 on the books of the Fund 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 1099DIV.
The Fund declared two monthly distributions to common shareholders in the
amount of $0.10625 per share per month, payable after the close of the
reporting period, on May 31, 2007 and June 29, 2007, to shareholders of
record on May 15, 2007 and June 15, 2007, respectively, with ex-dates May
11, 2007 and June 13, 2007, 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 June 5, 2003, the Fund re-classified 6,000
unissued shares of capital stock as Series A Auction Preferred Shares and
Series B Auction Preferred Shares ("Preferred Shares"). On September 26,
2003, the Fund issued 2,510 Series A Preferred Shares and 2,510 Series B
Preferred Shares. All Preferred Shares have a liquidation preference of
$25,000 per share plus any accumulated unpaid distributions, whether or not
earned or declared by the Fund, but excluding interest thereon
("Liquidation Value").
Except when the Fund has declared a special rate period, distributions to
preferred shareholders, which are cumulative, are accrued daily and paid
every 7 days. Distribution rates are reset every 7 days based on the
results of an auction, except during special rate periods. For the six
months ended April 30, 2007, distribution rates ranged from 4.94% to 5.26%
for Series A and 4.95% to 5.30% for Series B Auction Preferred Shares. The
Fund declared distributions to preferred shareholders for the period May 1,
2007 to May 31, 2007 of $270,833 and $271,865 for Series A and Series B
Preferred Shares, respectively.
The Fund may redeem Preferred Shares, in whole or in part, on the second
business day preceding any distribution payment date at Liquidation Value.
The Fund is also subject to certain restrictions relating to the Preferred
Shares. Failure to comply with these restrictions could preclude the Fund
from declaring any distributions to common shareholders or repurchasing
common shares and/or could trigger the mandatory redemption of Preferred
Shares at Liquidation Value. The holders of Preferred Shares are entitled
to one vote per share and will vote with holders of common shares as a
single class, except that the Preferred Shares will vote separately as a
class on certain matters, as required by law or the Fund's charter. The
holders of the Preferred Shares, voting as a separate class, are entitled
at all times to elect two Directors of the Fund, and to elect a majority of
the Directors of the Fund if the Fund fails to pay distributions on
Preferred Shares for two consecutive years.
22
<Page>
NEUBERGER BERMAN APRIL 30, 2007 (UNAUDITED)
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
Preferred Shares. The fixed-rate and variable-rate payment flows are netted
against each other, with the difference being paid by one party to the
other on a monthly basis. The Fund segregates cash or liquid securities
having a value at least equal to the Fund's net payment obligations under
any swap transaction, marked to market daily.
Risks may arise if the counter party to a swap contract fails to comply
with the terms of its contract. The loss incurred by the failure of a
counter party is generally limited to the net interest payment to be
received by the Fund and/or the termination value at the end of the
contract. Additionally, risks may arise from movements in interest rates
unanticipated by Management.
Periodic expected interim net interest payments or receipts on the swaps
are recorded as an adjustment to unrealized gains/losses, along with the
fair value of the future periodic payment streams on the swaps. The
unrealized gains/losses associated with the periodic interim net interest
payments are reclassified to realized gains/losses in conjunction with the
actual net receipt or payment of such amounts. The reclassifications do not
impact the Fund's total net assets applicable to common shareholders or its
total net increase (decrease) in net assets applicable to common
shareholders resulting from operations. At April 30, 2007, 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
Citibank, N.A. $24,000,000 April 24, 2008 3.70% 5.32% $ 7,560 $ 347,708 $ 355,268
Citibank, N.A. 70,000,000 October 24, 2008 3.63% 5.32% 23,003 1,439,717 1,462,720
------- ---------- ----------
$30,563 $1,787,425 $1,817,988
</Table>
(1) 30 day LIBOR (London Interbank Offered Rate) as of April 22, 2007.
9 SECURITY LENDING: Since 2005, a third party, eSecLending, has assisted the
Fund in conducting a bidding process to identify agents/principals that
would pay a guaranteed amount to the Fund in consideration of the Fund
entering into an exclusive securities lending arrangement.
Through a bidding process in August 2006, and in accordance with an
Exemptive Order issued by the Securities and Exchange Commission, the Fund
selected Neuberger Berman, LLC ("Neuberger"), an affiliate of the Fund, to
be its exclusive lending agent for a specified period. Under the agreement
entered into between the Fund and Neuberger, Neuberger pays a guaranteed
amount to the Fund.
23
<Page>
NOTES TO FINANCIAL STATEMENTS Income Opportunity Fund Inc. cont'd
Under the 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). The Fund may invest all the cash collateral in
Neuberger Berman Securities Lending Quality Fund, LLC ("Quality Fund"), a
fund managed by Lehman Brothers Asset Management LLC, an affiliate of
Management.
Net income from the applicable lending program represents the guaranteed
amount plus income earned on the cash collateral invested in Quality Fund
or in other investments, less cash collateral fees and other expenses
associated with the loans. For the six months ended April 30, 2007, the
Fund received net income under the securities lending arrangements of
approximately $54,881, which is reflected in the Statement of Operations
under the caption "Income from securities loaned-net." For the six months
ended April 30, 2007, "Income from securities loaned-net" consisted of
approximately $732,977 in income earned on cash collateral and guaranteed
amounts (including approximately $674,412 of interest income earned from
the Quality Fund and $58,565 in guaranteed amounts received from
Neuberger), less fees and expenses paid of approximately $678,096
(including approximately $0 retained by Neuberger).
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. The Fund invests in Neuberger Berman Prime
Money Fund ("Prime Money"), as approved by the Board. Prime Money seeks to
provide the highest available current income consistent with safety and
liquidity. For any cash that the Fund invests in Prime Money, Management
waives a portion of its management fee equal to the management fee it
receives from Prime Money on those assets (the "Arrangement"). For the six
months ended April 30, 2007, management fees waived under this Arrangement
amounted to $3,676 and are reflected in the Statement of Operations under
the caption "Investment management fees waived." For the six months ended
April 30, 2007, income earned under this Arrangement amounted to $234,906,
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 equity
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. The
value of the Fund's shares may fluctuate more due to economic, legal,
cultural, geopolitical or technological developments affecting the United
States real estate industry, or a segment of the
24
<Page>
NEUBERGER BERMAN APRIL 30, 2007 (UNAUDITED)
United States real estate industry in which the Fund owns a substantial
position, than would the shares of a fund not concentrated in the real
estate industry. The Fund's debt investments will be concentrated in
high-yield corporate debt securities rated, at the time of investment, Ba
or lower by Moody's Investors Service, Inc. or BB or lower by Standard &
Poor's, or if unrated by either of those entities, determined by Management
to be of comparable quality. Due to the inherent volatility and illiquidity
of the high yield securities in which the Fund invests and the real or
perceived difficulty of issuers of those high yield securities to meet
their payment obligations during economic downturns or because of negative
business developments relating to the issuer or its industry in general,
the value of the Fund's shares may fluctuate more than would be the case if
the Fund did not concentrate in high yield securities.
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.
NOTE B--MANAGEMENT FEES, ADMINISTRATION FEES, AND OTHER TRANSACTIONS WITH
AFFILIATES:
The Fund retains Management as its investment manager under a Management
Agreement. For such investment management services, the Fund pays
Management a fee at the annual rate of 0.60% of its average daily Managed
Assets. Managed Assets equal the total assets of the Fund, less liabilities
other than the aggregate indebtedness entered into for purposes of
leverage. For purposes of calculating Managed Assets, the Liquidation Value
of any Preferred Shares outstanding is not considered a liability.
Management has contractually agreed to waive a portion of the management
fees it is entitled to receive from the Fund at the following annual rates:
<Table>
<Caption>
YEAR ENDED % OF AVERAGE
OCTOBER 31, DAILY MANAGED ASSETS
-----------------------------------
2007 - 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 six months ended April 30, 2007, such waived fees amounted to
$561,140.
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 Bank and Trust Company
("State Street") as its sub-administrator under a Sub-Administration
Agreement. Management pays State Street a fee for all services received
under the agreement.
25
<Page>
NOTES TO FINANCIAL STATEMENTS Income Opportunity Fund Inc. cont'd
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.
Pursuant to the agreement, brokers pay recaptured commissions to the Fund's
custodian and the custodian directs these amounts toward payment of
expenses such as custodial, transfer agency or accounting services. For the
six months ended April 30, 2007, the impact of this arrangement was a
reduction of expenses of $15,221.
The Fund has an expense offset arrangement in connection with its custodian
contract. For the six months ended April 30, 2007, the impact of this
arrangement was a reduction of expenses of $4,987.
In connection with the settlement of each Preferred Share auction, the Fund
pays, through the auction agent, a service fee to each participating
broker-dealer based upon the aggregate liquidation preference of the
Preferred Shares held by the broker-dealer's customers. For any auction
preceding a rate period of less than one year, the service fee is paid at
the annual rate of 1/4 of 1%; for any auction preceding a rate period of
one year or more, the service fee is paid at a rate agreed to by the Fund
and the broker-dealer.
In order to satisfy rating agencies' requirements, the Fund is required to
provide each rating agency a report on a monthly basis verifying that the
Fund is maintaining eligible assets having a discounted value equal to or
greater than the Preferred Shares Basic Maintenance Amount, which is a
minimum level set by each rating agency as one of the conditions to
maintain the AAA/Aaa rating on the Preferred Shares. "Discounted value"
refers to the fact that the rating agencies require the Fund, in performing
this calculation, to discount portfolio securities below their face value,
at rates determined by the rating agencies. The Fund pays a fee to State
Street for the preparation of this report, which is reflected in the
Statement of Operations under the caption "Basic maintenance expense."
NOTE C--SECURITIES TRANSACTIONS:
During the six months ended April 30, 2007, there were purchase and sale
transactions (excluding short-term securities and interest rate swap
contracts) of $186,299,906 and $203,157,723, respectively.
During the six months ended April 30, 2007, brokerage commissions on
securities transactions amounted to $174,492, of which Neuberger received
$0, Lehman Brothers Inc. received $23,734, and other brokers received
$150,758.
26
<Page>
NEUBERGER BERMAN APRIL 30, 2007 (UNAUDITED)
NOTE D--CAPITAL:
At April 30, 2007, 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
17,734,383 6,981
</Table>
Transactions in common shares for the six months ended April 30, 2007 and
the year ended October 31, 2006 were as follows:
<Table>
<Caption>
REINVESTMENT OF
DIVIDENDS AND NET INCREASE IN COMMON
DISTRIBUTIONS SHARES OUTSTANDING
2007 2006 2007 2006
10,735 -- 10,735 --
</Table>
NOTE E--INVESTMENTS IN AFFILIATES*:
<Table>
<Caption>
INCOME FROM
INVESTMENTS IN
BALANCE OF GROSS BALANCE OF AFFILIATED
SHARES HELD PURCHASES GROSS SHARES HELD VALUE ISSUERS
OCTOBER 31, AND SALES AND APRIL 30, APRIL 30, INCLUDED IN
NAME OF ISSUER 2006 ADDITIONS REDUCTIONS 2007 2007 TOTAL INCOME
Neuberger Berman
Prime Money Fund
Trust Class** 7,183,677 122,617,473 118,748,622 11,052,528 $11,052,528 $234,906
Neuberger Berman
Securities Lending
Quality Fund, LLC*** 16,668,150 136,382,951 118,255,350 34,795,751 34,795,751 674,412
----------- --------
TOTAL $45,848,279 $909,318
----------- --------
</Table>
* Affiliated issuers, as defined in the 1940 Act.
** Prime Money is also managed by Management 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.
*** Quality Fund, a fund managed by Lehman Brothers Asset Management LLC,
an affiliate of Management, is used to invest cash the Fund receives
as collateral for securities loans as approved by the Board. Because
all shares of Quality Fund are held by funds in the related investment
management complex, Quality Fund may be considered an affiliate of the
Fund.
NOTE F--RECENT ACCOUNTING PRONOUNCEMENTS:
On July 13, 2006, the Financial Accounting Standards Board ("FASB")
released FASB Interpretation No. 48 "Accounting for Uncertainty in Income
Taxes" ("FIN 48"). FIN 48 provides guidance for how uncertain tax positions
should be recognized, measured, presented and disclosed in the financial
statements. FIN 48 clarifies the accounting for income taxes, by
prescribing a minimum recognition threshold a tax
27
<Page>
NOTES TO FINANCIAL STATEMENTS Income Opportunity Fund Inc. cont'd
position is required to meet before being recognized in the financial
statements. FIN 48 requires that a "more-likely-than-not" threshold be met
before the benefit of a tax position may be recognized in the financial
statements and prescribes how such benefit should be measured. Adoption of
FIN 48 is required for fiscal years beginning after December 15, 2006 and
is to be applied to all open tax years as of the effective date. The
Securities and Exchange Commission has permitted investment companies to
delay implementation of FIN 48. The Fund will have until April 30, 2008 to
implement FIN 48. At this time, Management is evaluating the implications
of FIN 48 and its impact in the financial statements has not yet been
determined.
In September 2006, FASB issued FASB Statement No. 157, "Fair Value
Measurement" ("SFAS 157"), which defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair
value measurements. SFAS 157 is effective for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years.
Management believes the adoption of SFAS 157 will not have a material
impact on the Fund's financial positions or results of operations.
NOTE G--UNAUDITED FINANCIAL INFORMATION:
The financial information included in this interim report is taken from the
records of the Fund without audit by an independent registered public
accounting firm. Annual reports contain audited financial statements.
28
<Page>
NEUBERGER BERMAN APRIL 30, 2007 (UNAUDITED)
FINANCIAL HIGHLIGHTS INCOME OPPORTUNITY FUND INC.
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the Financial
Statements.
<Table>
<Caption>
SIX MONTHS PERIOD FROM
ENDED JULY 2, 2003^
APRIL 30, YEAR ENDED OCTOBER 31, TO OCTOBER 31,
----------- --------------------------- --------------
2007 2006 2005 2004 2003
(UNAUDITED)
COMMON SHARE NET ASSET VALUE, BEGINNING OF PERIOD $ 18.82 $ 16.37 $ 16.69 $ 14.72 $ 14.33
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS APPLICABLE TO
COMMON SHAREHOLDERS:
NET INVESTMENT INCOME (LOSS) ! .67 1.24 1.07 1.27(3) .25
NET GAINS OR LOSSES ON SECURITIES (BOTH REALIZED
AND UNREALIZED) .56 2.86 .57 2.08(3) .59
COMMON SHARE EQUIVALENT OF DISTRIBUTIONS TO
PREFERRED SHAREHOLDERS FROM:
NET INVESTMENT INCOME ! (.18) (.28) (.13) (.09) (.01)
NET CAPITAL GAINS ! -- (.05) (.07) (.01) (.00)
TAX RETURN OF CAPITAL ! -- -- (.01) -- (.00)
------- ------- ------- ------- -------
TOTAL DISTRIBUTIONS TO PREFERRED SHAREHOLDERS (.18) (.33) (.21) (.10) (.01)
------- ------- ------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS APPLICABLE TO
COMMON SHAREHOLDERS 1.05 3.77 1.43 3.25 .83
------- ------- ------- ------- -------
LESS DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM:
NET INVESTMENT INCOME (1.65) (1.11) (1.03) (1.11) (.27)
NET CAPITAL GAINS -- (.21) (.61) (.17) (.05)
TAX RETURN OF CAPITAL -- -- (.11) -- (.00)
------- ------- ------- ------- -------
TOTAL DISTRIBUTIONS TO COMMON SHAREHOLDERS (1.65) (1.32) (1.75) (1.28) (.32)
LESS CAPITAL CHARGES FROM:
ISSUANCE OF COMMON SHARES -- -- -- -- (.03)
ISSUANCE OF PREFERRED SHARES -- -- -- (.00) (.09)
------- ------- ------- ------- -------
TOTAL CAPITAL CHARGES -- -- -- (.00) (.12)
------- ------- ------- ------- -------
COMMON SHARE NET ASSET VALUE, END OF PERIOD $ 18.22 $ 18.82 $ 16.37 $ 16.69 $ 14.72
------- ------- ------- ------- -------
COMMON SHARE MARKET VALUE, END OF PERIOD $ 17.70 $ 17.22 $ 14.23 $ 15.07 $ 13.98
------- ------- ------- ------- -------
TOTAL RETURN, COMMON SHARE NET ASSET VALUE+ +5.97%** +25.13% +10.33% +23.67% +5.11%**
TOTAL RETURN, COMMON SHARE MARKET VALUE+ +12.51%** +31.71% +6.22% +17.57% -4.67%**
RATIOS/SUPPLEMENTAL DATA++
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS,
END OF PERIOD (IN MILLIONS) $ 323.2 $ 333.5 $ 290.0 $ 295.8 $ 260.8
PREFERRED SHARES, AT LIQUIDATION
VALUE ($25,000 PER SHARE LIQUIDATION
PREFERENCE) (IN MILLIONS) $ 125.5 $ 125.5 $ 125.5 $ 125.5 $ 125.5
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS# 1.07%* 1.11% 1.13% 1.16%(3) .88%*
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS~ 1.06%* 1.10% 1.13% 1.16%(3) .87%*
RATIO OF NET INVESTMENT INCOME (LOSS) EXCLUDING
PREFERRED SHARE DISTRIBUTIONS TO AVERAGE
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS 7.29%* 7.18% 6.49% 8.08%(3) 5.24%*
RATIO OF PREFERRED SHARE DISTRIBUTIONS TO AVERAGE
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS 1.95%* 1.89% 1.26% .62% .17%*
RATIO OF NET INVESTMENT INCOME (LOSS) INCLUDING
PREFERRED SHARE DISTRIBUTIONS TO AVERAGE
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS 5.34%* 5.29% 5.23% 7.46%(3) 5.07%*
PORTFOLIO TURNOVER RATE 42%** 61% 49% 74% 21%**
ASSET COVERAGE PER PREFERRED SHARE, END OF PERIOD@ $89,391 $91,462 $82,794 $83,933 $76,957
</Table>
See Notes to Financial Highlights
29
<Page>
NOTES TO FINANCIAL HIGHLIGHTS INCOME OPPORTUNITY FUND INC.
+ Total return based on per share net asset value reflects the effects of
changes in net asset value on the performance of the Fund during each
fiscal period. Total return based on per share market value assumes the
purchase of common shares at the market price on the first day and sales of
common shares at the market price on the last day of the period indicated.
Distributions, if any, are assumed to be reinvested at prices obtained
under the Fund's distribution reinvestment plan. Results represent past
performance and do not guarantee future results. Current returns may be
lower or higher than the performance data quoted. Investment returns may
fluctuate and shares when sold may be worth more or less than original
cost. Total return would have been lower if Management had not waived a
portion of the investment management fee.
# 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 by Management.
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>
PERIOD FROM
SIX MONTHS ENDED JULY 2, 2003 TO
APRIL 30, YEAR ENDED OCTOBER 31, OCTOBER 31,
2007 2006 2005 2004 2003
1.40% 1.45% 1.48% 1.52% 1.16%
</Table>
^ The date investment operations commenced.
* Annualized.
** Not annualized.
@ Calculated by subtracting the Fund's total liabilities (excluding
accumulated unpaid distributions on Preferred Shares) from the Fund's total
assets and dividing by the number of Preferred Shares outstanding.
++ Expense ratios do not include the effect of distribution payments to
preferred shareholders. Income ratios include income earned on assets
attributable to Preferred Shares outstanding.
(3) Prior to November 1, 2003, the Fund recorded the accrual of the net
interest income or expense expected to be received or paid at interim
settlement dates as a net payable or receivable for swap contracts and
actual amounts paid as net interest income or expense on swap contracts. As
a result of SEC staff guidance relating to the application of FASB
Statement No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES to registered investment companies, effective November 1, 2003,
periodic expected interim net interest payments or receipts on the swaps
are recorded as an adjustment to unrealized gains/losses, along with the
fair value of the future periodic payment streams on the swaps.
Accordingly, for the year ended October 31, 2004, the per share amounts and
ratios shown decreased or increased as follows:
<Table>
Net Investment Income $ .11
Net Gains or Losses on Securities (both realized and unrealized) $(.11)
Ratio of Gross Expenses to Average Net Assets Applicable to Common Shareholders (.71%)
Ratio of Net Expenses to Average Net Assets Applicable to Common Shareholders (.71%)
Ratio of Net Investment Income (Loss) Excluding Preferred Share Distributions to
Average Net Assets Applicable to Common Shareholders .71%
Ratio of Net Investment Income (Loss) Including Preferred Share Distributions to
Average Net Assets Applicable to Common Shareholders .71%
</Table>
(!) Calculated based on the average number of shares outstanding during each
fiscal period.
30
<Page>
NEUBERGER BERMAN APRIL 30, 2007 (UNAUDITED)
DISTRIBUTION REINVESTMENT PLAN
The Bank of New York ("Plan Agent") will act as Plan Agent for shareholders who
have not elected in writing to receive dividends and distributions in cash (each
a "Participant"), will open an account for each Participant under the
Distribution 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 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 or distribution 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 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.
31
<Page>
DISTRIBUTION REINVESTMENT PLAN cont'd
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.
32
<Page>
NEUBERGER BERMAN APRIL 30, 2007 (UNAUDITED)
DIRECTORY
INVESTMENT MANAGER AND ADMINISTRATOR
Neuberger Berman Management Inc.
605 Third Avenue, 2nd Floor
New York, NY 10158-0180
877.461.1899 or 212.476.8800
SUB-ADVISER
Neuberger Berman, LLC
605 Third Avenue
New York, NY 10158-3698
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
STOCK TRANSFER AGENT
The Bank of New York
101 Barclay Street, 11-E
New York, NY 10286
LEGAL COUNSEL
Kirkpatrick & Lockhart Preston Gates Ellis LLP
1601 K Street, NW
Washington, DC 20006
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
33
<Page>
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available, without charge,
by calling 1-800-877-9700 (toll-free) and on the website of the Securities and
Exchange Commission, at www.sec.gov. Information regarding how the Fund voted
proxies relating to portfolio securities during the most recent 12-month period
ended June 30 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 Management'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).
34
<Page>
NEUBERGER BERMAN APRIL 30, 2007 (UNAUDITED)
REPORT OF VOTES OF SHAREHOLDERS
An annual meeting of shareholders of Neuberger Berman Income Opportunity Fund
Inc. was held on April 16, 2007. Shareholders voted on the following matter: (1)
To elect five Class II Directors (one of which is to be elected only by holders
of the Fund's preferred shares) to serve until the annual meeting of
shareholders in 2010, or until their successors are elected and qualified. Class
I and III Directors continue to hold office until the annual meeting in 2009 and
2008, respectively.
Proposal 1 - To elect five Class II Directors (one of which is to be elected
only by holders of the Fund's preferred shares) to serve until the annual
meeting of shareholders in 2010.
COMMON AND PREFERRED SHARES
<Table>
<Caption>
VOTES BROKER
VOTES FOR WITHHELD ABSTENTIONS NON-VOTES
C. Anne Harvey 15,180,575.000 199,723.000 -- --
George Morriss 15,193,660.000 186,638.000 -- --
Jack Rivkin 15,180,940.000 199,358.000 -- --
Tom D. Seip 15,187,218.000 193,080.000 -- --
</Table>
PREFERRED SHARES
<Table>
<Caption>
VOTES BROKER
VOTES FOR WITHHELD ABSTENTIONS NON-VOTES
John Cannon 4,539.000 50.000 -- --
</Table>
35
<Page>
This page has been left blank intentionally
<Page>
Statistics and projections in this report are derived from sources deemed to be
reliable but cannot be regarded as a representation of future results of the
Fund. This report is prepared for the general information of shareholders and is
not an offer of shares of the Fund.
NEUBERGER | BERMAN
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
[GRAPHIC] E0035 06/07
ITEM 2. CODE OF ETHICS
The Board of Directors ("Board") of Neuberger Berman Income Opportunity Fund
Inc. ("Registrant") adopted a code of ethics that applies to the Registrant's
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions ("Code of
Ethics"). For the period covered by this Form N-CSR, there were no amendments to
the Code of Ethics and there were no waivers from the Code of Ethics granted to
the Registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions.
A copy of the Code of Ethics was included as an exhibit to Registrant's Form
N-CSR filed on July 10, 2006. 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 three audit committee financial
experts serving on its audit committee. The Registrant's audit committee
financial experts are Martha Goss, Howard Mileaf and George Morriss. Ms. Goss,
Mr. Mileaf and Mr. Morriss are independent directors as defined by Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Only required in the annual report.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Only required in the annual report.
ITEM 6. SCHEDULE OF INVESTMENTS
The complete schedule of investments for the Fund is disclosed in the
Registrant's Semi-annual Report, which is included as Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
Only required in the annual report.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Only required in the annual report.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS
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 on Form N-CSR and
Form N-Q is accumulated and communicated to the Registrant's management to
allow timely decisions regarding required disclosure.
(b) There were no significant changes in the Registrant's internal controls
over financial reporting (as defined in rule 30a-3(d) under the Act) that
occurred during the Registrant's second fiscal quarter of the period
covered by this report that have materially affected, or are reasonably
likely to materially affect, the Registrant's internal control over
financial reporting.
Item 12. Exhibits
(a)(1) A copy of the Code of Ethics is incorporated by reference to Registrant's
Form N-CSR, Investment Company Act file number 811-21334 (filed July
10, 2006).
(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 filed
herewith.
(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 filed herewith.
The certifications provided pursuant to Rule 30a-2(b) of the Act and 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 Income Opportunity Fund Inc.
By: /s/ Peter E. Sundman
--------------------
Peter E. Sundman
Chief Executive Officer
Date: July 6, 2007
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: July 6, 2007
By: /s/ John M. McGovern
--------------------
John M. McGovern
Treasurer and Principal Financial
and Accounting Officer
Date: July 6, 2007