*The Adviser has contractually agreed that, for so long as it is the investment adviser to the Fund, direct Total Annual Fund Operating Expenses (excluding interest and taxes) will not exceed 1.32%.

Why invest in international real estate?
• Excellent diversification tool
• Ability to invest in real estate and maintain liquidity
• Professional management with industry expertise
• Dividend yield typically higher than non-REIT equity
• Low correlation with other indices and asset classes
• High returns in real estate have fueled demand and driven up stock and property value

Investment strategy
The fund offers the investor international real estate exposure, across a variety of countries and regions. With a well-developed understanding of real estate dynamics in key markets across the globe, we focus on area-specific macroeconomic factors to seek high-growth areas with stable political and legal climates. We concentrate on supply constrained areas with solid economic activity, growing demand and increasing consumer spending trends. Further, we look for low vacancy rates as well as rising rents. This high quality portfolio is extremely well-diversified across countries, sectors, assets and tenant types.

Meet the manager
James L. Neal is CEO and President of Metzler North America Corp. and is responsible for the oversight of the real estate portfolio design and implementation process for Metzler’s institutional and private clients. Prior to Metzler N.A. Mr. Neal was Vice President Portfolio Management with SAFECO Properties, Inc.

Chris Orndorff is a managing principal at Payden & Rygel who oversees the equity strategy group and is co-portfolio manager of the large-cap growth, international real estate, and global equity strategies. Prior to joining Payden & Rygel, Chris Orndorff was a vice president at the Northern Trust Company in Chicago, managing domestic and global institutional fixed-income portfolios.

Gary Greenberg, CFA, is a senior vice president at Payden & Rygel. Greenberg analyzes and implements relative value opportunities in the US mortgage market and international real estate market. Previously, Greenberg worked at Banker’s Trust.

Quarter-End Commentary
It has been a very difficult market for equities, in general, and international real estate stocks, specifically. The benchmark Dow Jones Wilshire Global ex-US Real Estate Securities Index declined -9.1% during the second quarter and is off -15.4% year-to-date. All markets had negative returns for the quarter. Japan, Turkey, and Singapore declined the least. The Fund has significant holdings in Japan and Singapore. Spain, Sweden, and Italy declined the most during the quarter. The Fund has no holdings in any of those three markets. The Fund has substantial allocations to Asia, where we believe real estate fundamentals are the strongest.

In a bear market, the question investors always ask is “when will it end”? It is difficult to say, but the benchmark index has already declined -33% from peak levels, so the valuations of many stocks owned by the Fund are at or near historically low levels. Once fundamentals improve, real estate securities are likely to come out of the bear market.