MAY 2009 SPECIAL COMMUNIQUE

You may have recently received notice of a tender offer and request for action from Schwab and Co. We recommend that you do not accept the tender offer to sell your shares of Neuberger Berman Real Estate Securities Income Fund (symbol: NRO). This means feel free to disregard and take no action.

Now for some background: The fund invests in high quality real estate investment trusts (REITs) across the US. We recommended and implemented the purchase of additional shares of NRO back in October 2008 when the share price dropped dramatically. We have used them for many years and our further due diligence gave us confidence in the investment recommendation. (Disclosure: NRO is a significant portion of my portfolio.)  REITs have a tax favored status because they are required to pay out 90% of their funds from operations (FFO). The fund’s board of directors set a dividend distribution rate based on the income received from the 100+ REITs owned by the fund. This distribution rate will vary as the required dividends from the REITs vary. This typically provides a steady stream of income and can provide growth if the dividends are not immediately spent.

Now comes the interesting part. In response to the severe economic downturn, the IRS has given the REITs permission to hold more of their income or FFO. Therefore, the dividends available for distribution have been lower than expected this year. To protect you, the shareholder of NRO, the board of directors voted to lower the distribution again recently. Otherwise, the dividend income we receive might be a return of capital and eventually the fund might just give back all the money and we would lose this source of income.

This payout reduction has caused a large (5 times normal) trade volume and depressed the price of the shares. The income yield is still two cents per share per month. The still equates to approximately a 10%  annualized cash rate of return. If the shares come back to their October 2008 value or higher that growth will be a bonus.

Your Advisors at Dominion Wealth