The Fund's primary investment objective is high current income. Capital appreciation is a secondary investment objective. Under normal market conditions, the Fund invests at least 90% of its total assets in income-producing common equity securities, preferred securities, securities convertible into equity securities and non-convertible debt securities issued by REITs and at least 75% of its total assets in income-producing equity securities of REITs. The Fund intends initially to invest approximately 70% to 80% of its total assets in common equity securities, and 20% to 30% of its total assets in preferred securities issued by REITs and other Real Estate Companies. The Fund may invest up to 25% of its total assets in below-investment grade debt securities as well as below-investment grade convertible and non-convertible preferred securities.

At the time of their issuance, the preferred shares constitute approximately 33% of the capital of the Fund. Moody's notes that under current market conditions the Fund, by issuing preferred shares and investing the net proceeds of such issuance in accordance with Fund's investment policies, could increase its earnings per common share. The Aaa rated preferred shares pay dividends normally set weekly via a Dutch auction process, with rates that are generally consistent with prevailing short-term credit markets.

The Aaa rating is based on Moody's assessment of the capacity and willingness of the issuer to pay its preferred share obligations. This is a function of the Fund's capital structure as well as the quality and adequacy of its assets. These assets serve to collateralize the issued preferred shares, as do dividends derived from the income produced by Fund assets. Given the Fund's investment policies and relative price variability of the asset class, Moody's believes that the market value of the underlying assets is sufficient to provide good asset protection to investors in the preferred shares. In addition, Moody's notes that REITs are an established asset class with market based liquidity derived from stock exchange trading and a degree of earnings predictability driven by long-term leases which contribute to sustainability of dividends and tax laws which require REITS REITs to pass through the lion's share of their income.

In addition to satisfying regulatory guidelines, Moody's rating process requires that the Fund support preferred share issues with eligible assets in amounts that are sufficient to withstand a severe loss in value. Moody's Aaa rating guidelines provide a framework for stricter diversification standards by seeking to reduce underlying obligor and sector concentrations. These rating agency guidelines supplement regulatory requirements, which mandate an asset coverage ratio of 200% to cover the Fund's liabilities pursuant to the Investment Company Act of 1940.

Neuberger Berman Management Inc. serves as the investment manager of the Fund and retains Neuberger Berman, LLC to serve as its sub-adviser. Neuberger Berman Management Inc. provides investment management and advisory services to several open-end and closed-end investment company clients and to individuals investing in mutual funds. As of December 31, 2002, NB Management and its affiliates had approximately $56.1 billion in assets under management.

Instant Insights /

MOODY'S ASSIGNS Aaa RATING TO AUCTION RATE PREFERRED SHARES ISSUED BY NEUBERGER BERMAN REAL ESTATE INCOME FUND

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