[GRAPHIC OMITTED]
EII
E.I.I. REALTY
SECURITIES FUND
INSTITUTIONAL SHARES
JUNE 30, 1999
ANNUAL REPORT
888-323-8912
<PAGE>
E.I.I. REALTY SECURITIES TRUST
E.I.I. REALTY SECURITIES FUND
PRESIDENTS LETTER
JUNE 30, 1999
To Our Shareholders:
We write to you today not simply as the Adviser to the E.I.I. Realty
Securities Fund, Inc., but also as significant, committed fellow shareholders.
In fact, in the first full year of the operations of the Fund, the employees and
officers of the Adviser have invested either directly or indirectly (through
Profit Sharing plans, etc.) more than $1 million in the Fund. Many financial
consultants would advise against having so much of our financial health being
tied to one asset class, but we prefer to think of it as "eating our own
cooking." We are pleased to advise you that Fund assets were $52.3 million at
June 30th, a very credible accomplishment for the one year period since
inception, in a very difficult market environment.
The investment world is unique of late in the degree to which some
participants yearn to purchase that which has recently gone up the most in
price, while eschewing that which is available at a discount. In this
environment, we have been fortunate in the past year to have attracted an
exclusive group of investors into the fund, encompassing Foundations,
Endowments, Defined Benefit Plans, Defined Contribution Plans, and high net
worth individuals, who share in our belief that an investment in an asset class
which pays current yields of more than 6%, and which is able to sustain growth
of those yields at a rate in excess of inflation, will provide attractive total
returns over the long run.
INVESTMENT PERFORMANCE
The investment environment for the Fund in its first full year of operations
was, quite frankly, a tale of two markets. During the first half of the fiscal
year, which spanned from July 1 to December 31, 1998, the fund was operating
during a period of severe divergences within the capital markets. Due to
investors' widespread concerns over a slowing of the domestic economy stemming
from overseas "deflation," investors generally sought the refuge of those
investments which would not be negatively impacted by an economic slowdown,
which typically meant U.S. Treasuries and technology stocks, and not hard
assets. The second half of the fiscal year, however, (ending June 30, 1999) has
been one in which the main concerns of investors have transitioned from
deflation to reflation. The recognition in April of this year of "the slowdown
which never was" caused a rapid, positive revaluation of economically sensitive
stocks, of which real estate securities are a significant part. Today, however,
despite a total return of 10.1% during the most recent quarter for the NAREIT
Equity Index, we believe that real estate securities are still attractively
valued, as the portfolio continues to trade at a 5-10% discount to its
underlying real estate value.
Operationally, despite fears of an economic slowdown and potential
overbuilding in a few select markets, the performance of the companies within
our universe has been quite stellar. In fact the weighted average earnings
growth over the past year has been higher than 10%, which is especially
attractive when considering that investors have also received healthy dividends
over the same period. Looking forward, we continue to believe that the
combination of sound real estate fundamentals, high dividend yields, and
sustainable earnings growth should enable real estate securities to deliver
total returns of 10-14%.
Despite this often difficult and bifurcated investment environment, the Fund
outperformed the NAREIT Equity Index by over 350 basis points (net of fees), in
keeping with the long-term track record of E.I.I. Realty Securities, Inc., the
Fund's investment adviser.
1
<PAGE>
E.I.I. REALTY SECURITIES TRUST
E.I.I. REALTY SECURITIES FUND
PRESIDENT'S LETTER
JUNE 30, 1999
As a final note, we would like to thank our independent Board Members for
their contributions in the past year; to Warren Greene, for his patience and
guidance in helping us to conceive and create the fund, as well as his valuable
ongoing contributions; to Dick Hutson, who brings 30+ years of experience as a
senior principal of Hewitt Associates, and for his defining the opposite of a
"rubber stamp Board member"; and lastly to Joseph Gyourko, Professor of Real
Estate and Finance at the Wharton School of the University of Pennsylvania, for
his recent affiliation with the Fund, as well as the promise which his presence
holds for the future.
Very truly yours,
/S/RICHARD J. ADLER /S/DAVID P. O'CONNOR
Richard J. Adler David P. O'Connor
Chairman President
E.I.I. REALTY SECURITIES FUND
COMPARATIVE INVESTMENT RETURNS
An initial investment of $10,000 as of June 11, 1998 (inception) would be worth
$9,463 as of June 30, 1999.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
E.I.I. Realty NAREIT Wilshire Real Estate
Securities Fund Equity Index Securities Index
6/98 $10,000 $10,000 $10,000
7/98 9,405 9,350.8 9,275
8/98 8,713 8,468.4 8,275
9/98 9,152 8,947.8 8,672
10/98 8,978 8,782.1 8,515
11/98 9,174 8,911.4 8,643
12/98 9,066 8,686.9 8,416
1/99 8,877 8,505.3 8,217
2/99 8,768 8,305.4 8,118
3/99 8,678 8,268.1 7,993
4/99 9,533 9,052.7 8,834
5/99 9,765 9,251.9 8,950
6/99 9,463 9,102 8,708
The above illustration compares a $10,000 investment in the E.I.I. Realty
Securities Fund on June 11, 1998 to a $10,000 investment in the noted benchmarks
on that date. All dividends and capital gain distributions are reinvested.
The Fund's performance takes into account all applicable fees and expenses. The
benchmarks are widely accepted unmanaged indices of overall market performance
and do not take into account charges, fees and other expenses.
Past performance is not predictive of future performance. The Fund's share price
and return will vary so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
2
<PAGE>
E.I.I. REALTY SECURITIES TRUST
E.I.I. REALTY SECURITIES FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1999
<TABLE>
<CAPTION>
SHARES COST VALUE
------- ---------- -----------
<S> <C> <C> <C>
COMMON STOCK -- 94.3%
Apartment Investment & Management Company, Class A 31,400 $1,170,466 $ 1,342,350
Arden Realty Group, Inc. 71,800 1,732,539 1,768,075
Avalonbay Communities, Inc. 31,055 1,069,205 1,149,035
Boston Properties, Inc. 38,000 1,272,151 1,363,250
Bradley Real Estate Trust, Inc. 41,200 832,629 854,900
Brandywine Realty Trust 21,200 383,062 420,025
BRE Properties, Inc., Class A 31,900 805,123 827,406
Catellus Development Corp. 48,000 721,863 744,000
Charles E. Smith Residential Realty, Inc. 30,800 962,871 1,045,275
Chateau Communities, Inc. 52,424 1,532,619 1,569,443
Cornerstone Properties, Inc. 72,000 1,150,827 1,143,000
Developers Diversified Realty Corp. 32,000 524,339 532,000
Duke Realty Investments, Inc. 23,300 502,481 525,706
Equity Office Properties Trust 100,459 2,592,592 2,574,262
Equity Residential Properties Trust 41,037 1,772,602 1,849,230
Federal Realty Investment Trust 51,900 1,159,691 1,190,456
Franchise Finance Corporation of America 67,500 1,650,616 1,485,000
General Growth Properties, Inc. 49,300 1,797,041 1,750,150
Highwoods Properties, Inc. 16,000 403,667 439,000
Hilton Hotels Corp. 38,500 595,419 546,219
Host Marriott Corp. 109,500 1,379,388 1,300,312
Interstate Hotels Corp. 1 3 2
Kilroy Realty Corp. 63,900 1,465,347 1,553,569
Kimco Realty Corp. 53,500 2,070,283 2,093,187
Liberty Property Trust 60,600 1,441,713 1,507,425
Macerich Co. 29,900 781,714 784,875
Manufactured Home Communities, Inc. 35,000 865,633 910,000
Post Properties, Inc. 31,620 1,229,937 1,296,420
Prologis Trust 75,348 1,641,262 1,525,797
Public Storage, Inc. 49,398 1,336,655 1,383,144
Reckson Associates Realty Corp. Class B 14,196 378,181 338,930
Reckson Associates Realty Corp. 65,600 1,527,143 1,541,600
Simon Property Group, Inc. 93,400 2,742,480 2,370,025
SL Green Realty Corp. 52,300 1,095,213 1,068,881
Spieker Properties, Inc. 19,800 733,849 769,725
Starwood Hotels & Resorts Worldwide, Inc. 39,486 1,093,727 1,206,791
Sun Communities, Inc. 45,500 1,555,857 1,615,250
Taubman Centrers, Inc. 77,800 1,054,997 1,025,988
Urban Shopping Centers, Inc. 16,400 526,760 516,600
Vornado Realty Trust 49,100 1,771,219 1,733,844
Vornado Realty Trust Preferred Convertible, Series A 12,400 653,759 626,200
Wyndham International, Inc. 178,249 1,384,676 802,121
-----------
TOTAL COMMON STOCK (Cost $49,361,599) 49,089,468
-----------
</TABLE>
See accompanying Notes to Financial Statements
3
<PAGE>
E.I.I. REALTY SECURITIES TRUST
E.I.I. REALTY SECURITIES FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1999
<TABLE>
<CAPTION>
PAR (000) COST (000) VALUE
--------- ---------- -----------
<S> <C> <C> <C>
TEMPORARY INVESTMENTS -- 5.7%
Provident Institutional Funds, T-Fund $ 340 $ 340 $ 340,158
Provident Institutional Funds, Treasury Trust Fund 2,600 2,600 2,600,778
-----------
TOTAL TEMPORARY INVESTMENTS (Cost $2,940,936) 2,940,936
-----------
TOTAL INVESTMENTS-- 100.0% (Cost $52,302,535)(DAGGER) $52,030,404
===========
<FN>
(DAGGER) The cost for Federal Income tax purposes is $52,552,918.
</FN>
</TABLE>
See accompanying Notes to Financial Statements
4
<PAGE>
E.I.I. REALTY SECURITIES TRUST
E.I.I. REALTY SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999
ASSETS
Investments at value (Cost $52,302,535) .................. $52,030,404
Dividends receivable ..................................... 395,376
Interest receivable ...................................... 10,616
Receivable for investment securities sold ................ 25,248
Organization expenses .................................... 144,257
Prepaid expenses and other assets ........................ 21,753
-----------
TOTAL ASSETS ....................................... 52,627,654
-----------
LIABILITIES
Payable for investment securities purchased .............. 171,085
Accrued expenses ......................................... 108,116
-----------
TOTAL LIABILITIES .................................. 279,201
-----------
NET ASSETS (Applicable to 5,580,669
Institutional Class shares outstanding, $.01
par value, unlimited shares authorized) .................... $52,348,453
===========
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER INSTITUTIONAL
CLASS SHARE ................................................ $9.38
=====
See accompanying Notes to Financial Statements
5
<PAGE>
E.I.I. REALTY SECURITIES TRUST
E.I.I. REALTY SECURITIES FUND
STATEMENT OF OPERATIONS
Year Ended
June 30, 1999
-------------
INVESTMENT INCOME
Dividends ................................................ $1,853,398
Interest ................................................. 79,648
----------
Total Investment Income ............................ 1,933,046
----------
EXPENSES
Management Fee ........................................... 203,743
Administrative fee ....................................... 67,917
Custodian fee ............................................ 17,736
Transfer agency services fee ............................. 16,250
Organization expenses .................................... 36,540
Audit fee ................................................ 37,000
Legal fee ................................................ 50,000
Shareholders' reports .................................... 4,085
Filing Fees .............................................. 6,507
Directors' fees and expenses ............................. 43,500
Insurance expense ........................................ 11,519
Other expenses ........................................... 3,573
----------
TOTAL EXPENSES ..................................... 498,370
Less: Expenses Waived or Reimbursable .................... (227,218)
----------
Net Expenses ............................................. 271,152
----------
NET INVESTMENT INCOME .................................... 1,661,894
----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Loss on Investment Securities ................ (690,030)
Change in Unrealized Depreciation
of Investment Securities .............................. (286,028)
----------
NET LOSS ON INVESTMENT SECURITIES ........................ (976,058)
----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS .................................. $ 685,836
==========
See accompanying Notes to Financial Statements
6
<PAGE>
E.I.I. REALTY SECURITIES TRUST
E.I.I. REALTY SECURITIES FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year June 11, 1998 (a)
Ended through
June 30,1999 June 30, 1998
------------ -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income ........................................................ $ 1,661,894 $ 2,518
Net Realized Loss on Investment Securities ................................... (690,030) (2,559)
Change in Unrealized Appreciation (Depreciation)
of Investment Securities .................................................. (286,028) 13,897
----------- --------
Net Increase in Net Assets Resulting
from Operations ...................................................... 685,836 13,856
----------- --------
Distributions From:
Net Investment Income ........................................................ (1,022,314) --
Net Realized Gains ........................................................... -- --
----------- --------
Total Distributions .................................................... (1,022,314) --
----------- --------
Capital Share Transactions -- Institutional Class: (1)
Shares Issued ................................................................ 53,243,697 400,000
Shares Issued in Reinvestment of Distributions ............................... 944,623 --
Shares Redeemed .............................................................. (2,017,245) --
----------- --------
Net Increase From Capital Share
Transactions ........................................................... 52,171,075 400,000
----------- --------
Total Increase in Net Assets ...................................................... 51,834,597 413,856
----------- --------
NET ASSETS
Beginning of Period .......................................................... 513,856 100,000
----------- --------
End of Period ................................................................ $52,348,453 $513,856
=========== ========
(1) SHARES ISSUED AND REDEEMED -- INSTITUTIONAL CLASS:
Shares Issued ................................................................ 5,642,946 40,091
Shares Reinvested ............................................................ 108,533 --
Shares Redeemed .............................................................. (220,901) --
----------- --------
.................................................................................. 5,530,578 40,091
=========== ========
<FN>
(a) Commencement of Operations.
</FN>
</TABLE>
See accompanying Notes to Financial Statements
7
<PAGE>
E.I.I. REALTY SECURITIES TRUST
E.I.I. REALTY SECURITIES FUND
FINANCIAL HIGHLIGHTS
FOR AN INSTITUTIONAL CLASS SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
Year June 11, 1998 (a)
Ended through
June 30, 1999 June 30, 1998
------------ -----------------
<S> <C> <C>
Net Asset Value, Beginning of Period ........................................... $10.26 $10.00
------ ------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
Net Investment Income ..................................................... 0.39 0.05
Net Gain (Loss) on Securities (Realized and Unrealized) ................... (0.95) 0.21
------ ------
Total from Investment Operations .................................... (0.56) 0.26
------ ------
LESS DISTRIBUTIONS
Net Investment Income ..................................................... (0.32) --
Net Realized Gains ........................................................ -- --
------ ------
Total Distributions ................................................. (0.32) --
------ ------
Net Asset Value, End of Period ................................................. $ 9.38 $10.26
====== ======
Total Return ................................................................... (5.18%) 2.60%#
Net Assets, End of Period ...................................................... $52,348,453 $513,856
Ratio of Expenses to Average Net Assets ........................................ 1.00% 1.00%*
Ratio of Expenses to Average Net Assets (Excluding
Waivers and Assumptions of Expenses) ........................................ 1.83% 37.75%*
Ratio of Net Investment Income to Average
Net Assets .................................................................. 6.11% 10.50%*
Ratio of Net Investment Income to Average
Net Assets (Excluding Waivers and Assumptions
of Expenses) ................................................................ 5.28% (26.25%)*
Portfolio Turnover Rate ........................................................ 17.27% 22.23%
<FN>
* Annualized.
# Non-Annualized.
(a) Commencement of Operations.
</FN>
</TABLE>
See accompanying Notes to Financial Statements
8
<PAGE>
E.I.I. REALTY SECURITIES TRUST
E.I.I. REALTY SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
A. ORGANIZATION:
E.I.I. Realty Securities Trust was incorporated in the State of Delaware on
December 22, 1997 and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. E.I.I. Realty Securities
Trust may offer one or more portfolios of its shares; at present only shares of
E.I.I. Realty Securities Fund (the "Fund") are being offered. The Fund may offer
three classes of shares; Institutional, Adviser and Investor. As of June 30,
1999, no shares of the Adviser and Investor Classes had been sold. Shares of all
classes represent equal pro-rata interests in the Fund, except that each class
will bear different expenses which will reflect the difference in the range of
services to be provided to them.
B. SIGNIFICANT ACCOUNTING POLICIES:
The following significant accounting policies are in conformity with generally
accepted accounting principles. Such policies are consistently followed by the
Fund in preparation of its financial statements.
The preparation of financial statements in accordance with generally accepted
accounting principles may require management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates. Estimates include the
classification of distributions received by the Fund from the issuers of the
Fund's portfolio securities. These distributions may be classified as either
dividend income, capital gains or as non-taxable distributions. The final
classifications of these distributions can not be determined until reported to
the Fund by the issuers of the Fund's portfolio securities, which normally
occurs in January after the end of the calendar year. Reclassification of
distributions made to the Fund will not affect the net assets of the Fund. The
reclassification of distributions received by the Fund may require the Fund to
reclassify a portion of its distributions already made to Fund shareholders.
SECURITY VALUATION: Securities traded on a nationally recognized securities
exchange will be valued at the last sale price, or if no sale, at the mean
between the latest bid and asked price. Securities traded in any other U.S. or
foreign market shall be valued in a manner as similar as possible to the above,
or if not so traded, on the basis of the latest available price. Where there are
no readily available quotations for securities they will be valued at a fair
value as determined by the Board of Trustees acting in good faith.
FEDERAL INCOME TAXES: The Fund's policy is to comply with the requirements of
the Internal Revenue Code that are applicable to regulated investment companies
and to distribute all its taxable income to its shareholders. Therefore, no
federal income tax provision is required.
ORGANIZATIONAL COSTS: Organizational costs have been capitalized and are being
amortized on a straight line basis over a period of 60 months.
OTHER: Security transactions are accounted for on the date the securities are
purchased or sold. Costs used in determining realized gains and losses on the
sale of investment securities are those of specific securities sold. Dividend
income and distributions to shareholders are recorded on the ex-dividend date.
Interest income is recorded on an accrual basis.
9
<PAGE>
E.I.I. REALTY SECURITIES TRUST
E.I.I. REALTY SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
C. INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES:
The Fund has entered into an Investment Advisory Agreement with E.I.I. Realty
Securities, Inc. (the "Adviser" or "E.I.I.") for day-to-day portfolio management
services to be provided by the Adviser. The Investment Advisory Agreement
provides for the Adviser to receive a fee calculated daily and payable monthly
at an annual rate of 0.75% of the Fund's average daily net assets.
E.I.I. will also provide administrative services to the Fund. Under the
Administrative Services Agreement, E.I.I. will receive a fee payable monthly at
an annual rate of 0.25% of the Fund's average daily net assets. For the
Institutional Share Class, E.I.I. has agreed to waive 0.10% of its
administrative fee resulting in a net annual rate of 0.15% of average daily net
assets. 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.
E.I.I. has agreed to waive a portion of its Investment Advisory Fee and/or
assume the expenses of the Fund to the extent necessary to keep the annual
expenses of the Fund from exceeding 1.00% of the average daily net assets of the
Institutional Share Class of the Fund.
D. DISTRIBUTION AND SHAREHOLDER SERVICING PLANS:
The Fund has adopted a Distribution and Service Plan for the Investor Share
Class under which the Fund may pay up to 0.75% of the average daily net assets
of the Investor Share Class for distribution assistance. No amounts have been
expensed under such plan.
The Fund has adopted a Shareholder Servicing Plan for the Adviser and Investor
Share Classes. Under the Shareholder Servicing Plan, the Adviser will provide
shareholder services to its clients that invest in the Fund. The Fund may also
enter into shareholder service agreements pursuant to which a shareholder
servicing agent other than the Adviser performs shareholder services for its
customers who are shareholders of the Fund. In exchange for these services, the
Fund pays up to 0.25% of the average daily net assets of the Adviser or Investor
Shares serviced by the Adviser or the agent (collectively, the "Shareholder
Servicing Agents"). Shareholder Servicing Agents may waive all or a portion of
their fee periodically. No amounts have been expensed under the Shareholder
Servicing Plan.
E. INVESTMENT TRANSACTIONS:
For the year ended June 30, 1999, the Fund made the following purchases and
sales of investment securities other than U.S. Government Securities:
Purchases ........................ $53,604,529
Sales ............................ 4,472,519
10
<PAGE>
E.I.I. REALTY SECURITIES TRUST
E.I.I. REALTY SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
At June 30, 1999, gross unrealized appreciation and depreciation
for federal income tax purposes on investment securities for the Fund was as
follows:
Gross Unrealized Appreciation .... $ 1,334,971
Gross Unrealized Depreciation .... (1,857,485)
------------
Net .............................. $ (522,514)
============
At June 30, 1999, the Fund had a capital loss carryover for federal income tax
purposes of $11,624 of which $2,559 and $9,065 expires on June 30, 2006 and
2007, respectively. The Fund incurred losses in the amount of $430,581 from
November 1, 1998 to June 30, 1999. As permitted by tax regulations, the Fund
intends to elect to defer and treat these losses as arising in the fiscal year
ending June 30, 2000.
F. COMPONENTS OF NET ASSETS:
At June 30, 1999, net assets consisted of:
Paid-In Capital ..................... $52,671,075
Undistributed Net Investment Income . 642,098
Accumulated Net Realized Loss ....... (692,589)
Net Unrealized Depreciation of
Investment Securities ............ (272,131)
-----------
$52,348,453
===========
11
<PAGE>
E.I.I. REALTY SECURITIES TRUST
E.I.I. REALTY SECURITIES FUND
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholder and Board of Trustees
E.I.I. Realty Securities Fund
We have audited the accompanying statement of assets and liabilities of
E.I.I. Realty Securities Fund (the "Fund"), a series of the E.I.I. Realty
Securities Trust, including the portfolio of investments, as of June 30, 1999,
and the related statement of operations for the year then ended, and the
statement of changes in net assets and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of June 30, 1999, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of E.I.I.
Realty Securities Fund at June 30, 1999, the results of its operations for the
year then ended, the changes in its net assets and financial highlights for each
of indicated periods, in conformity with generally accepted accounting
principles.
/S/ERNST & YOUNG L.L.P.
New York, New York
August 2, 1999
12
