Rule 497(e)
Registration No. 33-45959
E.I.I. REALTY
SECURITIES FUND
Institutional Shares
INVESTMENT PROSPECTUS & APPLICATION
888-323-8912
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E.I.I. REALTY SECURITIES FUND
o WHY REAL ESTATE? Investments in real estate offer the following benefits
over investments in other asset classes:
o Relatively low historical correlation to the equity market
o Relatively high levels of potential current income from contractual
rental streams
o A potential hedge against inflation from rising asset values and the
possibility of passing through higher costs to tenants
o WHY REAL ESTATE SECURITIES? An investment in a portfolio of real estate
securities offers the following benefits in addition to those provided by
direct real estate investments:
o Diversification of risk of real estate investments
o Market pricing of publicly-traded shares (instead of appraisal-based
valuations)
o Enhanced liquidity, which aids in investment speed as well as
portfolio rebalancing
o WHY E.I.I.? E.I.I. and its parent company, European Investors Incorporated,
have been professionally managing real estate securities portfolios on
behalf of their clients for more than a decade and have consistently
outperformed their primary benchmark (the NAREIT Equity Index) by an
average margin of more than 300 basis points on an annualized basis, before
fees.
[Mountain chart & key]
Performance is shown net of a 1% management fee, as well as all brokerage and
trading expenses. The Composite includes all of the real estate securities
accounts of E.I.I. and European Investors Incorporated except for: (i) foreign
funds where the performance is stated net of fees and withholding taxes and is
therefore not comparable and (ii) new accounts where the cash position is not
yet comparable to other portfolios and certain accounts with unique objectives
and restrictions. As these accounts become fully invested they are added to the
Composite.
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E.I.I. REALTY SECURITIES FUND
Prospectus
June 8, 1998
General Information (888) 323-8912
Table of Contents
Fund Expenses.................................................................3
Introduction..................................................................4
Fund Description..............................................................6
Securities in Which the Fund Invests..........................................8
Risk Factors..................................................................9
Other Information About the Fund.............................................10
Investing with E.I.I.........................................................13
The Organization, Management, and Service Providers of the Fund..............16
Additional Information.......................................................16
Other Securities in Which the Fund May Invest and Investment Techniques......17
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY SUCH STATE AUTHORITY PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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FUND EXPENSES
The following information is provided to assist you in understanding the various
costs and expenses that an investor in the Fund will bear directly or
indirectly.
SHAREHOLDER TRANSACTION EXPENSES
(AS A PERCENTAGE OF THE OFFERING PRICE)
Sales Charge Imposed on Purchases None
Sales Charge Imposed on Reinvested None
Dividends
Deferred Sales Charge None
Redemption Fees None
Exchange Fees None
You may be charged additional fees if you purchase, exchange, or redeem shares
through a broker or agent.
The Annual Fund Operating Expenses table below illustrates the estimated
operating expenses that you will incur as a shareholder of the Fund. These
expenses are charged directly to the Fund. Expenses include management fees as
well as the costs of maintaining accounts, administering the Fund, providing
shareholder services, and other activities. The expenses shown are estimated
based on projected expenses of the Fund.
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
Institutional
Shares
Management Fees 0.75%
Administration Fees 0.15%*
Shareholder Servicing Fees 0.00%
Rule 12b-1 Distribution Fees 0.00%
Other Expenses 0.10%
Total Fund Operating Expenses 1.00%
* After fee waiver. Without the fee waiver, the Administration Fee would have
been 0.25%.
The following example, which is in the prospectus of every mutual fund, is
intended to provide investors with an opportunity to compare the expenses of the
Fund to the expenses of other mutual funds. The example is only an illustration
and does not depict the actual expenses or returns of the Fund. The expenses
used in the example are those listed in the Annual Fund Operating Expenses
Table. The example assumes a $1,000 investment, a 5% annual return, and
redemption at the end of each time period.
Institutional
Shares
1 Year $10
3 Years $32
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INTRODUCTION
This prospectus describes the E.I.I. Realty Securities Fund (the "Fund"), a
series of the E.I.I. Realty Securities Trust. The Fund is a non-diversified,
open-end investment management company. This prospectus explains the objectives,
policies, strategies, and risks of the Fund. You should read this prospectus
before investing in the Fund and keep it for future reference. A detailed
Statement of Additional Information (the "SAI") describing the Fund also is
available for your review. The SAI has been filed with the Securities and
Exchange Commission (the "SEC") and is incorporated by reference into, and is
legally a part of, this prospectus. If you would like a free copy of the SAI,
please request one by calling us at (888) 323-8912. Additional information,
including this Prospectus and the SAI, may be obtained by accessing the Internet
Web site maintained by the SEC (http://www.sec.gov).
Investment Objective and Policies
The investment objective of the Fund is to provide the diversification and total
return potential of investments in real estate. The Fund will seek to achieve
this objective by buying the shares of companies whose business it is to own,
operate, develop, and manage real estate. Typically, an investment in commercial
real estate provides a significant current return, with additional appreciation
potential. As such, a critical objective of the Fund is to achieve total returns
which include a significant component of current income, which may serve to
provide portfolio stability during periods of overall market fluctuations. (Over
the 10 year period ending 12/31/97, the National Association of Real Estate
Investment Trusts ("NAREIT") Equity Index achieved an annualized total return of
14.17%, which was comprised of 8.15% in current income and 5.57% of capital
appreciation.) Capital appreciation within the Fund also will be pursued by
targeting companies with the highest risk-adjusted total return potential. The
Fund intends to invest at least 80% of its assets in the securities of companies
in the real estate industry, with a primary emphasis on Real Estate Investment
Trusts ("REITs"). In addition, the Fund may invest in other securities as
described in "Other Investments."
The Fund may achieve its investment objective by investing all of its assets in
another investment company having substantially the same investment objective
and policies as the Fund instead of investing directly in the underlying
securities.
E.I.I. Realty Securities, Inc. ("E.I.I."), the Fund's investment adviser,
believes that investments in real estate offer a total return potential which
may serve as an effective portfolio diversifier for many investors. In addition,
E.I.I. believes that, for most investors, the most convenient and effective way
to invest in real estate is through the ownership of a diversified portfolio of
real estate securities. Real estate securities, and more specifically, REITs,
provide investors with many of the features particular to both real estate
investments and publicly-traded securities, providing investors with a practical
and efficient means to include professionally- managed real estate in an
investment portfolio.
WHY REAL ESTATE? Investments in real estate offer the following benefits over
investments in other asset classes:
o Relatively low historical correlation to the equity market
o Relatively high levels of potential current income from contractual
rental streams
o A potential hedge against inflation from rising asset values and the
possibility of passing through higher costs to tenants
WHY REAL ESTATE SECURITIES? An investment in a portfolio of real estate
securities offers the following benefits in addition to those provided by direct
real estate investments:
o Diversification of risk of real estate investments
o Market pricing of publicly-traded shares (instead of appraisal-based
valuations)
o Enhanced liquidity, which aids in investment speed as well as
portfolio rebalancing
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WHY E.I.I.? E.I.I. and its parent company, European Investors Incorporated, have
been professionally managing real estate securities portfolios on behalf of
their clients for more than a decade and have consistently outperformed their
primary benchmark (the NAREIT Equity Index) by an average margin of more than
300 basis points on an annualized basis, before fees. The collective client base
of E.I.I. and European Investors Incorporated includes an array of investors
ranging from foreign and domestic high net worth individuals to U.S.
foundations, endowments, and corporate pension plans. In addition, European
Investors Incorporated serves as the adviser or sub-adviser for several offshore
funds investing with substantially the same investment objective as the Fund.
The chart below shows the historical performance of all of the real estate
accounts managed by E.I.I. and European Investors Incorporated, which have
substantially the same investment objective as the Fund. E.I.I. manages domestic
accounts and European Investors Incorporated manages offshore accounts using the
same personnel and philosophy. The data, calculated on an average annual total
return basis, is provided to illustrate E.I.I.'s past performance in managing
accounts in accordance with the same investment objective, policies, and
strategies as those of the Fund. These accounts consist of separate and distinct
portfolios and their performance is not indicative of past or future performance
of the Fund. As of June 8, 1998, the Fund had not commenced investment
operations and therefore did not have a performance record of its own.
<TABLE>
<CAPTION>
PAST PERFORMANCE OF ALL REAL ESTATE SECURITIES ACCOUNTS OF E.I.I. REALTY SECURITIES (E.I.I.) & EUROPEAN INVESTORS INCORPORATED
REAL ESTATE SECURITIES COMPOSITE AS OF DECEMBER 31, 1997 ANNUAL RETURNS THROUGH DECEMBER 31,
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 Standard
Deviation
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
E.I.I. Composite* 13.06% 12.09% -11.69% 34.39% 19.34% 19.60% 6.53% 17.06% 35.80% 22.15% 13.61%
Wilshire Real Estate Securities 24.18% 2.37% -33.46% 20.03% 7.40% 15.23% 1.64% 13.65% 36.87% 19.80% 18.79%
NAREIT Equity Index 13.49% 8.84% -15.35% 35.70% 14.59% 19.65% 3.17% 15.27% 35.27% 20.26% 14.87%
CUMULATIVE RETURNS 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
E.I.I. Composite* 13.06% 26.73% 11.92% 50.41% 79.50% 114.68% 128.70% 167.71% 263.53% 344.04%
Wilshire Real Estate Securities 24.18% 27.12% -15.41% 1.54% 9.05% 25.66% 27.73% 45.16% 98.68% 138.01%
NAREIT Equity Index 13.49% 23.52% 4.56% 41.88% 62.58% 94.54% 100.70% 131.34% 212.93% 276.33%
CUMULATIVE SUMMARY
1 Year 3 Year 5 Year 10 Year
E.I.I. Composite* 22.15% 94.20% 147.40% 344.00%
Wilshire Real Estate Securities 19.80% 86.35% 137.17% 138.01%
NAREIT Equity Index 20.26% 87.51% 131.84% 276.33%
</TABLE>
*The above performance is calculated on a time weighted basis by geometrically
linking each quarter in the year and is shown net of fees. This method of
calculation differs from the SEC method. These accounts were not subject to the
restrictions and diversification requirements of the Investment Company Act of
1940, as amended, or the restrictions and diversification requirements of
Subchapter M of the Internal Revenue Code of 1986, as amended. However, these
accounts historically have been run in a manner that would have been in
compliance with these restrictions and requirements but for the fact that income
was predominantly reinvested rather than distributed as required by Subchapter
M. If the accounts had been subject to these restrictions and requirements, the
returns might have been adversely affected.
[Mountain chart and key]
Performance is shown net of a 1% management fee, as well as all brokerage and
trading expenses. The Composite includes all of the real estate securities
accounts of E.I.I. and European Investors Incorporated except for: (i) foreign
funds where the performance is stated net of fees and withholding taxes and is
therefore not comparable and (ii) new accounts where the cash position is not
yet comparable to other portfolios and certain accounts with unique objectives
and restrictions. As these accounts become fully invested they are added to the
Composite.
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FUND DESCRIPTION
Investment Philosophy
E.I.I.'s investment philosophy is to achieve attractive risk-adjusted total
returns by investing primarily in a diversified portfolio of real estate
securities of companies which it deems to be of the highest quality available in
the marketplace. In this regard, E.I.I. deems high-quality companies to be
candidates for the portfolio when a number of the following conditions are met:
o Experienced, dedicated management teams are in place which have
significant inside ownership of shares, have capital markets
expertise, and have a pro-shareholder orientation
o The companies have long-term strategies which position them for
sustainable cash flow growth
o The balance sheets of the individual companies are positioned to
enable significant growth
Investment Policies
The Fund will pursue its investment objective by investing at least 80% of its
total assets in the equity or convertible securities of U.S. companies (with a
primary emphasis on REITs) which are principally engaged in the ownership,
construction, management, financing, or sale of residential, commercial, or
industrial real estate. Principally engaged means at least 50% of a company's
revenues are derived from such real estate activities or at least 50% of the
fair market value of a company's assets are invested in real estate.
Under normal market conditions, the Fund will invest substantially all of its
assets in:
o Income producing real estate securities (including equity, mortgage,
and hybrid REITs)
o Real Estate Operating Companies ("REOCs")
o Securities convertible into common stocks (including convertible
preferred stocks, rights, warrants, etc.) of real estate companies
o Real estate related fixed-income securities (such as convertible
debentures, unsecured debentures, mortgage backed securities, etc.)
The Fund also may invest:
o up to 20% of its total assets in securities of foreign real estate
companies, many of which have substantial holdings of U.S. real estate
securities
Investment Strategies
E.I.I.'s investment process employs a combination of a "top-down," macro level
analysis by its Investment Committee, together with rigorous "bottom-up,"
fundamental securities and real estate research and analysis on individual
companies by its analyst team.
Investment Committee Decision Process:
E.I.I.'s Investment Committee analyzes national and regional economic trends and
the market for different types of real estate including residential, retail,
hotel, industrial, and office properties. In addition, the Investment Committee
makes assessments of the economic environment, securitization trends, etc., and
then derives an investment strategy formulated to take advantage of perceived
opportunities.
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Analyst Team Decision Process:
E.I.I.'s analyst team tracks a universe of more than 125 individual companies
which are analyzed for potential investment. Companies are evaluated on both a
quantitative and a qualitative basis in order to determine which companies may
provide attractive risk-adjusted returns. E.I.I.'s analyst team evaluates and
analyzes companies based upon the following criteria:
Qualitative Analysis:
o Management strength
o Business strategy
o Financial strength
o Competitive advantages within the marketplace
Quantitative Analysis:
o Cash flow and dividend growth prospects
o Risk-adjusted total return expectations using numerous
methodologies
o Real estate analysis using capitalization rates, values on a
square footage basis, etc.
o Balance sheet strength and relative cost of capital
Integral parts of E.I.I.'s investment process include:
o performing individual property and market evaluations which are
important to understanding the company's portfolio
o verifying that the company's assets are consistent with
management's stated strategy
o finding and reviewing any problems relating to the company's
properties
o evaluating the company's properties and their position in the
markets
o assessing the quality of property management.
About the Investment Adviser
The Fund has entered into an investment advisory agreement with E.I.I. E.I.I.
was formed in 1993 and is a registered investment adviser providing real estate
securities portfolio management services to U.S. tax-exempt institutions and
other investors. E.I.I. is a wholly-owned subsidiary of European Investors
Incorporated, which is a registered investment adviser providing both general
securities and real estate securities portfolio management services. E.I.I. and
European Investors Incorporated are owned by management.
European Investors Incorporated was founded in 1983 to provide investment
services primarily to foreign investors (with a focus in Europe) in the United
States by managing securities portfolios as well as providing direct real estate
advisory services and corporate advisory services. From these combined efforts,
European Investors Incorporated determined that securitized real estate could
serve as an alternative means of acquiring real estate assets and developed a
portfolio management service specifically in this area, which now caters to both
foreign and domestic investors. European Investors Incorporated commenced
research into real estate securities as a separate portfolio product in 1986,
began managing real estate securities portfolios in 1987, and is a recognized
leader in real estate securities investment management.
E.I.I. and European Investors Incorporated collectively have a diversified
client base that includes investors in twelve countries, encompassing taxable
and tax-exempt investors, individuals, and institutions, including over 60
domestic institutional investors. As of December 31, 1997, the combined
companies have approximately $1.6 billion invested in real estate securities on
behalf of clients. They also manage several offshore real estate investment
funds with assets of approximately $300 million.
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Portfolio Management Personnel
RICHARD J. ADLER is a Managing Director of E.I.I. Mr. Adler serves as investment
strategist for E.I.I. and co-portfolio manager of the Fund, to which he provides
investment strategy as well as expertise in convertible and other securities.
Mr. Adler is a 1968 graduate of Yale University with a B.A. degree in Economics
and earned an M.B.A. from Harvard Business School with Honors in 1973. He has
served as an officer in the U.S. Navy and was a Vice President of Goldman, Sachs
& Co. in New York from 1973 to 1983, where he worked with foreign investors.
CYDNEY C. DONNELL is a Managing Director of E.I.I. Ms. Donnell serves as
co-portfolio manager of the Fund, jointly responsible for its day-to-day
operations. Ms. Donnell has served as a REIT analyst or portfolio manager for
E.I.I. since the inception of its real estate securities investment management
business in 1987. Prior to joining E.I.I., Ms. Donnell was a real estate lending
officer at Republic Bank Corporation from 1983 to 1986. Ms. Donnell graduated
magna cum laude from Texas A&M in 1981 with a degree in Finance and received an
M.B.A. from Southern Methodist University in 1982. She has served as a member of
the NAREIT Board of Governors.
DAVID P. O'CONNOR is a Managing Director of E.I.I. Mr. O'Connor serves as
co-portfolio manager of the Fund, jointly responsible for its day-to-day
operations. Mr. O'Connor has served as a REIT analyst or co- portfolio manager
for E.I.I. since February, 1994. Prior to joining E.I.I., Mr. O'Connor served as
an investment executive at Kidder, Peabody, and Co., Inc., where he specialized
in real estate securities. From 1987 to 1992, Mr. O'Connor was employed by a
management affiliate of Presidential Realty Corp. (an AMEX Listed REIT) and
subsequently served as a real estate analyst at Lane Webber Properties, a
private real estate development and investment firm. Mr. O'Connor is a 1986
graduate of the Boston College School of Management and received an M.S. in Real
Estate Development and Investment from New York University.
SECURITIES IN WHICH THE FUND INVESTS
A REIT is a corporation or a business trust that combines the capital of many
investors for investment primarily in income-producing real estate or real
estate-related loans or interests. The shares of a REIT are often freely traded
on a major stock exchange. A REIT must meet certain requirements contained in
the Internal Revenue Code of 1986, as amended (the "Code"), in which case it
generally does not pay federal corporate income tax. Generally, a REIT is
required to invest a substantial portion of its assets in interests in real
estate (including mortgages and other REITs) or cash and government securities,
derive most of its income from rents from real property or interest on loans
secured by mortgages on real property, and distribute to shareholders annually
substantially all of its otherwise taxable income. Most states honor this
federal income tax treatment and do not require REITs to pay state income tax.
As a result, nearly all of a REIT's income can be distributed to shareholders
without the imposition of a corporate level income tax. However, unlike a
partnership, a REIT cannot pass its tax losses through to its investors.
REITs are characterized as equity REITs, mortgage REITs, and hybrid REITs
The Fund will invest predominantly in equity REITs. Equity REITs, which may
include operating or finance companies, own real estate directly and the value
of, and income earned by, these REITs depends upon the income of the underlying
properties and the rental income they earn. Equity REITs also can realize
capital gains (or losses) by selling properties that have appreciated (or
depreciated) in value. Mortgage REITs can make construction, development, or
long-term mortgage loans and are sensitive to the credit quality of the
borrower. Mortgage REITs derive their income from interest payments on such
loans. Hybrid REITs combine the characteristics of both equity and mortgage
REITs, generally by holding both ownership interests and mortgage interests in
real estate. The value of securities issued by REITs are affected by tax and
regulatory requirements and by perceptions of management skill. REITs also are
subject to heavy cash flow dependency, defaults by borrowers or tenants,
self-liquidation, and the possibility of failing to qualify for tax-free status
under the Code
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or to maintain exemption from the Investment Company Act of 1940, as amended
(the "Investment Company Act").
For more information about other securities in which the Fund can invest, see
"Other Securities in Which the Fund May Invest and Investment Techniques" and
the SAI.
PORTFOLIO TURNOVER
It is anticipated that the portfolio turnover rate for the Fund in any one year
will not exceed 60%, which is lower than the turnover rate for many comparable
real estate securities funds. A lower portfolio turnover rate will result in a
lower rate of net realized capital gains to the Fund and will decrease the
portion of the Fund's distributions constituting taxable capital gains.
RISK FACTORS
The Fund is designed for long-term investors. The Fund is subject to the risks
common to all mutual funds and the risks common to mutual funds that invest in
equity securities, real estate securities, foreign securities, and fixed-income
securities. In addition, the Fund is subject to the risks related to direct
investment in real estate. By itself, the Fund does not constitute a complete
investment plan and should be considered a long-term investment for investors
who can afford to weather changes in the value of their investment.
This prospectus describes some of the risks that you may assume as an investor
in the Fund. Some limitations on the Fund's investments are described in the
section that follows. "Other Securities in Which the Fund May Invest and
Investment Techniques" at the end of this prospectus provides additional
information on the securities in which the Fund can invest. As with any mutual
fund, there is no guarantee that the Fund will earn income or show a positive
total return over time. The Fund's price, yield, and total return will
fluctuate.
THE FOLLOWING RISKS ARE COMMON TO ALL MUTUAL FUNDS:
MARKET RISK is the risk that the market value of a security
will fluctuate, depending on the supply and demand
for that type of security. As a result of this
fluctuation, a security may be worth less than the
price the Fund originally paid for it, or less than
the security was worth at an earlier time. Market
risk may affect a single security, an industry, a
sector of the economy, or the entire market, and is
common to all investments.
MANAGER RISK is the risk that the Fund's investment adviser
may use a strategy that does not produce the intended
result. Manager risk also refers to the possibility
that the Fund's investment adviser may fail to
execute an investment strategy effectively and thus
fail to achieve its objective.
THE FOLLOWING RISK IS COMMON TO MUTUAL FUNDS THAT INVEST IN EQUITY SECURITIES:
EQUITY RISK is the risk that the value of a security will
fluctuate in response to changes in earnings or other
conditions affecting the issuer's profitability.
Unlike debt securities, which have preference to a
company's earnings and cash flow, equity securities
are entitled to the residual value after the company
meets its other obligations. For example, holders of
debt securities have priority over holders of equity
securities to a company's assets in the event of
bankruptcy.
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THE FOLLOWING RISKS ARE COMMON TO MUTUAL FUNDS THAT INVEST IN REAL ESTATE
SECURITIES:
REAL ESTATE RISK is the risk that the value of a security
will fluctuate because of changes in property values,
vacancies of rental properties, overbuilding, changes
in local laws, increased property taxes and operating
expenses, and other risks associated with real
estate. While the Fund will not invest directly in
real estate, it may be subject to the risks
associated with direct ownership. Equity REITs may be
affected by changes in property value, while mortgage
REITs may be affected by credit quality.
REGULATORY RISK is the risk that certain REITs may fail to
qualify for pass-through of income under federal tax
law or to maintain their exemption from the
registration requirements under federal securities
laws.
THE FOLLOWING RISKS ARE COMMON TO MUTUAL FUNDS THAT INVEST IN FOREIGN
SECURITIES:
FOREIGN ISSUER RISK is the risk that foreign issuers may not
be subject to uniform accounting, auditing and
financial reporting standards and practices used by
domestic issuers. In addition, foreign securities
markets may be less liquid, more volatile, and less
subject to governmental supervision than in the U.S.
Investments in foreign countries could be affected by
factors not present in the U.S., including
expropriation, confiscation of property, and
difficulties in enforcing contracts.
CURRENCY RISK is the risk that fluctuations in the exchange
rates between the U.S. dollar and foreign currencies
may negatively affect an investment. Adverse changes
in rates may erode or reverse gains produced by
investments denominated in foreign currencies.
THE FOLLOWING RISKS ARE COMMON TO MUTUAL FUNDS THAT INVEST IN FIXED INCOME
SECURITIES:
INTEREST RATE RISK. The value of a fixed income security
typically changes in the opposite direction from a
change in interest rates. When interest rates go up,
the value of a fixed-rate security typically goes
down. When interest rates go down, the value of these
securities typically goes up. Generally, the market
values of securities with longer maturities are more
sensitive to changes in interest rates.
INFLATION RISK is the risk that inflation will erode the
purchasing power of the cash flows generated by fixed
income securities held by the Fund. Fixed-rate debt
securities are more susceptible to this risk than
floating-rate debt securities.
REINVESTMENT RISK is the risk that when interest income is
reinvested, interest rates will have declined so that
income must be reinvested at a lower interest rate.
Generally, interest rate risk and reinvestment risk
have offsetting effects.
CREDIT (OR DEFAULT) RISK is the risk that the issuer of a
fixed income security will be unable to make timely
payments of interest or principal.
OTHER INFORMATION ABOUT THE FUND
DIVERSIFICATION REQUIREMENTS
The SEC and IRS have certain requirements with which all mutual funds must
comply. The Fund monitors these limitations on an ongoing basis. These
diversification provisions and requirements are discussed further in the SAI.
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o SEC Requirement: The Fund is not "diversified" according to certain federal
securities provisions regarding diversification of its assets. As a
non-diversified investment company, the Fund may devote a larger portion of
its assets to the securities of a single issuer than if it were
diversified.
o IRS Requirement: The Fund intends to comply with certain federal tax
requirements regarding the diversification of its assets. Generally, under
those requirements, the Fund must invest at least 50% of its total assets
so that no more than 5% of its total assets are invested in the securities
of any one issuer (excluding U.S. Government securities).
Investment Performance
The performance of the Fund may be advertised by comparing it to other mutual
funds with similar objectives and policies. Performance information also may
appear in various publications. Performance information is contained in the
annual and semi-annual reports. You may obtain a copy of the annual and
semi-annual reports free of charge by calling (888) 323-8912.
The "30-day yield" is an "annualized" figure--the amount you would earn if you
stayed in the Fund for a year and the Fund continued to earn the same net
interest income throughout that year. To calculate 30-day yield, the Fund's net
investment income per share for the most recent 30 days is divided by the
maximum offering price per share. To calculate "total return," the Fund starts
with the total number of shares that you can buy for $1,000 at the beginning of
the period. Then the Fund adds all dividends and distributions paid as if they
were reinvested in additional shares. This takes into account the Fund's
dividend distributions, if any. The total number of shares is multiplied by the
net asset value on the last day of the period and the result is divided by the
initial $1,000 investment to determine the percentage gain or loss. For periods
of more than one year, the cumulative total return is adjusted to get an average
annual total return. Yield is a measure of net dividend income. Average annual
total return is a hypothetical measure of past dividend income plus capital
appreciation. It is the sum of all parts of the Fund's investment return for
periods greater than one year. Total return is the sum of all parts of the
Fund's investment return. Whenever you see information on a Fund's performance,
do not consider the past performance to be an indication of the performance you
could expect by making an investment in the Fund today.
Past performance does not guarantee future results. You may obtain the current
30-day yield by calling (888) 323-8912. Shareholder Servicing representatives
are available from 8:00 a.m. to 6:00 p.m. Eastern time Monday through Friday.
Share Price
The Fund's daily share price, called its net asset value (the "NAV") is useful
to you as a shareholder because the NAV, multiplied by the number of Fund shares
you own, gives you the dollar amount and value of your investment. The Fund's
NAV is calculated each business day as of the close of the New York Stock
Exchange (normally at 4:00 p.m. Eastern time). Shares are purchased at the next
share price calculated after your investment instructions are received and
accepted. A business day is a day on which the New York Stock Exchange is open
for trading or any day in which enough trading has occurred in the securities
held by the Fund to affect the NAV materially.
The NAV is calculated by adding up the total value of the Fund's investments and
other assets, subtracting its liabilities, and then dividing that figure by the
number of outstanding shares of the Fund:
NAV = Total Assets Liabilities
-------------------------------------
Number of Shares
Outstanding
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Dividends, Distributions, and Taxes
As a shareholder, you are entitled to your share of net income and capital gains
on the Fund's investments. The Fund passes its earnings along to investors in
the form of dividends. Dividend distributions are the net dividends or interest
earned on investments after expenses. As with any investment, you should
consider the tax consequences of an investment in the Fund.
Ordinarily, the Fund declares and pays dividends from its net investment income
quarterly. The Fund pays any net capital gains realized as dividends at least
annually. Distributions can be received in one of the following ways:
REINVESTMENT OPTION: You can have distributions automatically reinvested in
additional shares of the Fund. If you do not indicate another choice on your
Account Application, this option will be assigned to you automatically.
CASH OPTION: A check will be mailed to you no later than 7 days after the pay
date.
INCOME EARNED OPTION: Dividends can be reinvested automatically in the Fund and
your capital gains can be paid in cash, or capital gains can be reinvested and
dividends paid in cash.
DIRECTED BANK ACCOUNT OPTION: In most cases, you can have distributions
automatically transferred to your bank checking or savings account. Under normal
circumstances, a dividend will be transferred within 7 days of the dividend
payment date. The bank account must have a registration identical to that of
your Fund account.
Your choice of distribution should be set up on the original Account
Application. If you would like to change the option you selected, please call
the Transfer Agent at (888) 323-8912.
You should check the Fund's distribution schedule before you invest. If you buy
shares of the Fund shortly before it makes a distribution, some of your
investment may come back to you as a taxable distribution.
Important Information about Taxes
o The Fund intends to qualify as a regulated investment company, in which
case it will pay no federal income tax on the earnings or capital gains it
distributes to its shareholders.
o Ordinary dividends from the Fund are taxable as ordinary income; dividends
from the Fund's long-term capital gains are taxable as capital gain.
o Dividends are treated in the same manner for federal income tax purposes
whether you receive them in cash or in additional shares. It is likely that
they will also be subject to state and local taxes.
o Dividends from interest on certain U.S. Government obligations held by the
Fund may be exempt from some state and local taxes. You will receive a
statement at the end of each year showing which dividends are exempt. The
Fund, however, expects dividends of this kind to be minimal.
o Certain dividends paid to you in January will be taxable as if they had
been paid to you the previous December.
o Generally, any gain or loss from a sale (redemption) of shares of the Fund
must be recognized for tax purposes. This gain or loss generally will be
long-term capital gain or loss if you held your shares of the Fund for more
than one year. If you are an individual, your long-term capital gain will
be taxed at
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<PAGE>
the lowest rate applicable to capital gains if you held your shares for
more than 18 months at the time of the sale or redemption.
o Tax statements will be mailed from the Fund every January showing the
amounts and tax status of distributions made to you.
o Because your tax treatment depends on your purchase price and tax position,
you should keep your regular account statements for use in determining your
tax.
o You should review the more detailed discussion of federal income tax
considerations in the SAI.
THE TAX INFORMATION IN THIS PROSPECTUS IS PROVIDED AS GENERAL INFORMATION. YOU
SHOULD CONSULT YOUR OWN TAX ADVISER ABOUT THE TAX CONSEQUENCES OF AN
INVESTMENT IN THE FUND.
Statements and Reports
You will receive a periodic statement reflecting any transactions that affect
the balance or registration of your account. You will receive a confirmation
after any purchase, exchange, or redemption. Share certificates are not issued.
Twice a year, you will receive the financial reports of the Fund. By January 31
of each year, you will be mailed an IRS form reporting distributions for the
previous year, which also will be filed with the IRS.
INVESTING WITH E.I.I.
The following sections describe how to open an account, how to access
information on your account, and how to purchase, exchange, and redeem shares of
the Fund.
INSTITUTIONAL SHARES. The minimum investment for Institutional Shares is
$1,000,000. This minimum may be reduced to certain institutional clients of
E.I.I. in E.I.I.'s sole discretion. Employees and officers of E.I.I. and its
affiliates and immediate family members can purchase Institutional Shares
without being subject to the minimum investment.
How to Purchase Shares
Shares can be purchased in a number of different ways. You can send in your
investment by check or wire transfer. All you need to do to get started is to
fill out an application.
All purchases must be made in U.S. Dollars and drawn on U.S. banks. The Transfer
Agent may reject any purchase order in its sole discretion. If your check is
returned for any reason, you may be charged for any resulting fees and/or
losses. Third party checks will not be accepted. You may only invest or exchange
into fund shares legally available in your state. If your account falls below
the minimum initial investment as a result of redemptions by you, we may ask you
to re-establish the minimum investment. If you do not do so within 60 days, we
may close your account and send you the value of your account. If you would like
to make additional investments after your account is already established, use
the Investment Stub attached to your statement and send it with your check to
the address indicated.
SYSTEMATIC INVESTMENT PLAN
To enroll in the Systematic Investment Plan, you should check this box on the
Account Application. We will need your bank account information and the amount
and frequency of your investment. You can select monthly, quarterly,
semi-annual, or annual investments. You should attach a voided personal check so
the proper information can be obtained. You must first meet the minimum
investment requirement, then we will make
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<PAGE>
automatic withdrawals of the amount you indicate ($25 or more) from your bank
account and invest it into shares of the Fund.
SYSTEMATIC WITHDRAWAL PLAN
To enroll in the Systematic Withdrawal Plan, you should check this box on the
Account Application. This option permits investors to request withdrawal of a
specified dollar amount (minimum of $500) on either a monthly, quarterly, or
annual basis. We will need your bank account information and the amount and
frequency of your withdrawal. You should attach a voided personal check or
savings account deposit slip so the proper information can be obtained.
RETIREMENT PLANS
You can use the Fund as part of your retirement portfolio. Please contact the
Fund for details regarding an IRA or other retirement plan that works best for
your financial situation.
How to Redeem Shares
If we receive your request by 4:00 p.m. Eastern time, your redemption will be
processed the same day. Shares can be redeemed in one of the following ways:
o By Telephone The easiest way to redeem shares is by calling (888) 323-8912.
When you fill out your original application, be sure to check the box
marked "Telephone Authorization." Then when you are ready to redeem, call
us and tell us which one of the following options you would like to use:
o Mail a check to the address of record;
o Wire funds to a domestic financial institution;
o Mail to a previously designated alternate address; or
o Electronically transfer the funds via Automatic Clearing House
("ACH").
All telephone calls are recorded for your protection and measures are taken to
verify the identity of the caller. If we properly act on telephone instructions
and follow reasonable procedures to ensure against unauthorized transactions,
neither E.I.I., nor its servicing agents nor the Transfer Agent will be
responsible for any losses. If these procedures are not followed, the Transfer
Agent may be liable to you for losses resulting from unauthorized instructions.
If there is an unusual amount of market activity and you cannot reach the
Transfer Agent by telephone, consider placing your order by mail.
o BY MAIL Use the Regular U.S. Mail or Overnight Mail Address to redeem
shares. Send us a letter of instruction indicating your Fund account
number, amount of redemption, and where to send the proceeds. All account
owners must sign. A signature guarantee is required for the following
redemption requests:
o Redemptions over $10,000;
o Your account registration has changed within the last 15 days;
o The check is not being mailed to the address on your account; or
o The check is not being made payable to the owner of the account.
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<PAGE>
A signature guarantee can be obtained from a financial institution such as a
bank, broker-dealer, credit union, clearing agency, or savings association.
There are a number of convenient ways to redeem shares of the Fund. You can use
the same mailing addresses listed for purchases. You will earn dividends up to
the date your redemption request is processed.
o BY WIRE If you want to redeem funds by wire, you must establish a Fund
account which will accommodate wire transactions. If you call by 4:00 p.m.
Eastern time, your funds will be wired on the next business day.
BY ACH A redemption will be transferred by ACH as long as the transfer is to a
domestic bank.
Under certain emergency circumstances, the right of redemption may be suspended.
Redemption proceeds from the sale of shares purchased by a check may be held
until the purchase check has cleared. If you request a complete redemption, any
dividends declared will be included with the redemption proceeds.
Keep the following addresses handy for purchases, exchanges, or redemptions.
o Regular U.S. Mail Address
Send completed Account Application with your check, bank draft, or money order
to:
E.I.I. Realty Securities Fund
c/o PFPC
P.O. Box 8910
Wilmington, DE 19899-8910
o Overnight Mail Address
Use the following address ONLY for overnight packages:
E.I.I. Realty Securities Fund
c/o PFPC
400 Bellevue Parkway, Suite 108
Wilmington, DE 19809-3710
Wiring Instructions The Transfer Agent does not charge a wire fee, but your
originating bank may charge a fee.
Always call the Transfer Agent at (888) 323-8912 BEFORE wiring funds to obtain a
control number.
PNC Bank, N.A.
Philadelphia, PA
ABA # 0310-0005-3
Credit DDA # 86-0195-6004
For credit to E.I.I. Realty Securities Fund
Shareholder Name ___________________
Account No. _______________________
o ACH After your account is set up, your purchase amount can be transferred
by ACH. Only domestic members banks may be used. It takes about 15 days to
set up the ACH feature. Currently, there is no fee for ACH transfers.
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<PAGE>
THE ORGANIZATION, MANAGEMENT, AND SERVICE PROVIDERS OF THE FUND
Organization of the Fund
The Fund is a series of the E.I.I. Realty Securities Trust, a Delaware Business
Trust that was formed on December 22, 1997. The Fund's business affairs are
managed under the general supervision of the Board of Trustees. The Statement of
Additional Information contains the name and general business experience of each
Trustee. The Board of Trustees has the ability to establish new portfolios of
shares without shareholder approval.
Trustees
The Board of Trustees consists of Richard J. Adler, David P. O'Connor, Warren K.
Greene, Richard W. Hutson, and Samuel R. Karetsky. Mr. Adler is the Chairman of
the Board of Trustees and Mr. O'Connor is the President and Treasurer of the
Fund. Mr. Adler and Mr. O'Connor are Managing Directors of E.I.I. Mr. Greene is
a Senior Vice President of TrendLogic Associates, Inc., a registered investment
adviser and commodity trading advisor, and was formerly the president of the
American Investors family of no-load mutual funds. Mr. Hutson is retired from
Hewitt Associates, an international human resources consulting firm, where he
was a senior principal. Mr. Karetsky is a consultant and was formerly Global
Head of Private Client Services at Morgan Stanley & Co.
Investment Adviser and Administrator
E.I.I. is the Fund's investment adviser. The investment adviser manages the
Fund's business and investment activities. E.I.I. also serves as the Fund's
administrator, for which it is paid a fee at an annual rate of 0.25% (reduced to
0.15% for the Institutional Shares) of the Fund's average daily net assets.
E.I.I. may subcontract some of its administrative duties to other service
providers. E.I.I. has entered into a sub-administration contract with PFPC Inc.
under which E.I.I. pays PFPC Inc. to provide certain administrative services to
E.I.I.
The Sub-Administrator, Transfer Agent, and Custodian
PFPC Inc., a subsidiary of PNC Bank, N.A., is the Fund's sub-administrator and
transfer agent. PNC Bank, N.A. is the Fund's custodian.
Independent Auditors
Ernst & Young LLP serves as independent auditors to the Fund.
Legal Counsel
Kramer, Levin, Naftalis & Frankel serves as legal counsel to the Fund.
ADDITIONAL INFORMATION
Some additional information you should know about the Fund appears in the SAI.
If you would like to receive additional copies of any materials, please call the
Fund at (888) 323-8912.
Code of Ethics
E.I.I. and the Fund have each adopted a Code of Ethics to which all investment
personnel and all other access persons to the Fund must conform. Investment
personnel must refrain from certain trading practices and are required to report
certain personal investment activities. Violations of the Code of Ethics can
result in penalties, suspension, or termination of employment.
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<PAGE>
Shareholder Communications
You will receive unaudited Semi-Annual Reports and audited Annual Reports on a
regular basis from the Fund. In addition, you also will receive updated
prospectuses or supplements to this prospectus. The securities described in this
prospectus and the SAI are not offered in any state in which they may not be
sold lawfully. No sales representative, dealer, or other person is authorized to
give any information or make any representation other than those contained in
this prospectus and the SAI.
OTHER SECURITIES IN WHICH THE FUND MAY INVEST AND INVESTMENT TECHNIQUES
The majority of the Fund's portfolio is made up of equity securities; however,
the Fund also is permitted to invest in the securities discussed below and in
the SAI.
The Fund may, for temporary defensive purposes, invest up to 100% of its assets
in cash, cash equivalents, and money market instruments.
Other Securities in which the fund may invest
ASSET-BACKED SECURITIES--Asset-backed securities are a form of complex security.
The securitization techniques used for asset-backed securities are similar to
those used for mortgage-related securities. Asset- backed securities present
certain risks that are not presented by mortgage-backed securities. Primarily,
these securities may provide the Fund with a less effective security interest in
the related collateral than do mortgage-backed securities. Therefore, there is
the possibility that recoveries on the underlying collateral may not, in some
cases, be available to support payments on these securities.
CONVERTIBLE SECURITIES--Convertible securities have characteristics similar to
both fixed-income and equity securities. Convertible securities include bonds,
debentures, notes, preferred stocks, or other securities that may be converted
into or exchanged for a prescribed amount of common stock of the same or a
different issuer within a particular period of time at a specified price or
formula. A convertible security entitles the holder to receive interest
generally paid or accrued on debt or the dividend paid on preferred stock until
the convertible security matures or is redeemed, converted, or exchanged.
CORPORATE DEBT SECURITIES--Corporate debt securities include corporate bonds,
debentures, notes, and other similar instruments, including convertible
securities. Debt securities may be acquired with warrants attached. Corporate
income-producing securities also may include forms of preferred or preference
stock.
ILLIQUID SECURITIES--The Fund will not invest more than 10% of its net assets in
illiquid securities, not including restricted securities sold pursuant to Rule
144A, as described below.
INVESTMENT COMPANIES--The Fund may invest in securities issued by other
investment companies. Under the Investment Company Act, the Fund's investment in
such securities, subject to certain exceptions, currently is limited to (i) 3%
of the total voting stock of any one investment company, (ii) 5% of the Fund's
total assets with respect to any one investment company, (iii) 10% of the Fund's
total assets in the aggregate, and (iv) 100% of the Fund's total assets in
another investment company with a similar investment objective. Investments in
the securities of other investment companies may involve duplication of advisory
fees and certain other expenses.
MONEY MARKET INSTRUMENTS--The Fund may invest in the following types of money
market instruments:
U.S. Government Securities. Securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities include U.S. Treasury securities
that differ in their interest rates, maturities and times of issuance. Some
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities are
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<PAGE>
supported by the full faith and credit of the U.S. Treasury; others by the right
of the issuer to borrow from the Treasury; others by discretionary authority of
the U.S. Government to purchase certain obligations of the agency or
instrumentality; and others only by the credit of the agency or instrumentality.
Bank Obligations. The Fund may purchase certificates of deposit, time deposits,
bankers' acceptances and other short-term obligations issued by domestic banks,
foreign subsidiaries or foreign branches of domestic banks, domestic and foreign
branches of foreign banks, domestic savings and loan associations, and other
banking institutions.
Commercial Paper. Commercial paper consists of short-term, unsecured promissory
notes issued to finance short-term credit needs.
MORTGAGE-RELATED SECURITIES--Mortgage-related securities are secured, directly
or indirectly, by pools of mortgage loans, including mortgage loans made by
savings and loan institutions, mortgage bankers, commercial banks and others,
assembled as securities for sale to investors by various governmental,
government-related and private organizations. The mortgage-related securities in
which the Fund may invest include the following:
o Commercial Mortgage-Related Securities. The Fund may invest in commercial
mortgage-related securities, which generally are multi-class debt or
pass-through certificates secured by mortgage loans on commercial
properties.
o Residential Mortgage-Related Securities. The Fund may invest in
mortgage-related securities representing participation interests in pools
of one- to four-family residential mortgage loans issued or guaranteed by
governmental agencies or instrumentalities, such as the Government National
Mortgage Association ("GNMA"), the Federal National Mortgage Association
("FNMA"), and the Federal Home Loan Mortgage Corporation ("FHLMC"), or
issued by private entities.
o Collateral Mortgage Obligations and Multi-Class Pass-Through Securities.
Collateralized mortgage obligations or "CMOs" are multiclass bonds backed
by pools of mortgage pass-through certificates or mortgage loans.
RESTRICTED SECURITIES--The Fund may invest in securities that are subject to
restrictions on resale because they have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"). These securities are
sometimes referred to as private placements. Although securities which may be
resold only to "qualified institutional buyers" in accordance with the
provisions of Rule 144A under the 1933 Act are technically considered
"restricted securities," the Fund may purchase Rule 144A securities without
regard to the limitation on investments in illiquid securities described above,
provided that a determination is made that such securities have a readily
available trading market. E.I.I. will determine the liquidity of Rule 144A
securities under the supervision of the Fund's Board of Trustees. The liquidity
of Rule 144A securities will be monitored by E.I.I., and if as a result of
changed conditions, it is determined that a Rule 144A security is no longer
liquid, the Fund's holdings of illiquid securities will be reviewed to determine
what, if any, action is required to assure that the Fund does not exceed the
applicable percentage limitation for investments in illiquid securities.
ZERO COUPON SECURITIES--The market prices of zero coupon securities generally
are more volatile than the market prices of securities that pay interest
periodically and are likely to respond to a greater degree to changes in
interest rates than non-zero coupon securities having similar maturities and
credit qualities.
INVESTMENT TECHNIQUES
FORWARD COMMITMENTS--The Fund may purchase or sell securities on a forward
commitment, when- issued, or delayed delivery basis, which means delivery and
payment take place a number of days after the date of the commitment to purchase
or sell the securities at a predetermined price and/or yield. The Fund intends
to
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<PAGE>
engage in forward commitments to increase its portfolio's financial exposure to
the types of securities in which it invests. Leveraging the portfolio in this
manner will increase the Fund's exposure to changes in interest rates and will
increase the volatility of its returns. At no time will the Fund have more than
15% of its assets committed to purchase securities on a forward commitment
basis.
LENDING PORTFOLIO SECURITIES--The Fund may lend securities from its portfolio to
brokers, dealers, and other financial institutions needing to borrow securities
to complete certain transactions. Loans of portfolio securities may not exceed
33?% of the value of the Fund's total assets.
LEVERAGE--Leveraging exaggerates the effect on net asset value of any increase
or decrease in the market value of the Fund's portfolio. The Fund may borrow on
a short term basis in order to meet redemptions. Money borrowed for such
purposes is limited to 33?% of the value of the Fund's total assets. Typically,
the Fund borrows by entering into reverse repurchase agreements with banks,
brokers, or dealers.
USE OF COMPLEX SECURITIES--The Fund may invest for hedging purposes in
derivative securities, such as futures and options. These instruments and
certain related risks are described more specifically under "Investment
Objective and Management Policies--Management Policies--Complex Securities" in
the Statement of Additional Information. Complex Securities can be volatile and
involve various types and degrees of risk, depending upon the characteristics of
the particular security and the portfolio as a whole. Such investments permit
the Fund to increase or decrease the level of risk, or change the character of
the risk, to which its portfolio is exposed in much the same way as the Fund can
increase or decrease the level of risk, or change the character of the risk, of
its portfolio by making investments in specific securities.
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<PAGE>
INVESTMENT ADVISER
E.I.I. Realty Securities, Inc.
667 Madison Avenue
16th Floor
New York, NY 10021
TRANSFER AGENT
PFPC, Inc.
Bellevue Corporate Center
400 Bellevue Parkway
Wilmington, DE 19809-3710
CUSTODIAN
PNC Bank, N.A.
Airport Business Center
200 Stevens Drive
Lester, PA 19113
OFFICERS & DIRECTORS
Richard J. Adler, Chairman, Chief Executive Officer &
Trustee
David P. O'Connor, President, Treasurer & Trustee
Cydney C. Donnell, Vice President
Peter J. Gavey, Secretary
Warren K. Greene, Independent Trustee
Richard W. Hutson, Independent Trustee
Samuel R. Karetsky, Independent Trustee
E.I.I. REALTY
SECURITIES FUND
888-323-8912
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