PRA SECURITIES TRUST /, 497, 1997-05-13

PRA SECURITIES TRUST /
497, 1997-05-13

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Rule 497(c)
File No. 33-24611
File No. 811-5659

HEITMAN REAL ESTATE FUND

STATEMENT OF ADDITIONAL INFORMATION

HEITMAN SECURITIES TRUST
180 North LaSalle Street, Suite 3600
Chicago, Illinois 60601

Advisor Class Shares Institutional Class Shares
(800) 888-REIT (800) 435-1405

May 1, 1997

Amended and Revised May 12, 1997

This Statement of Additional Information expands upon and supplements the
information contained in the current Heitman/PRA Institutional Class
Prospectus of Heitman Securities Trust (the "Trust"), dated May 1, 1997,
pursuant to which the Trust offers Heitman/PRA Institutional Class shares of
its sole investment portfolio, the Heitman Real Estate Fund (the "Fund"), and
the Advisor Class Prospectus of the Trust dated May 1, 1997, pursuant to which
the Trust offers Advisor Class shares of the Fund. This Statement of
Additional Information should be read in connection with the prospectus for
the class of shares offered thereby (each such prospectus hereinafter referred
to as the "Prospectus"). This Statement of Additional Information, although
not in itself a Prospectus, is incorporated by reference into the Prospectus
in its entirety. A copy of the current Prospectus may be obtained, without
charge, upon request to the Trust at the address or telephone number set forth
above.

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TABLE OF CONTENTS

PAGE
----

ADDITIONAL INFORMATION REGARDING INVESTMENT POLICIES AND LIMITATIONS... 1

EXECUTION OF PORTFOLIO TRANSACTIONS.................................... 3

MANAGEMENT OF THE TRUST................................................ 4

INVESTMENT MANAGER..................................................... 8

PURCHASE OF SHARES..................................................... 9

ADMINISTRATIVE, ACCOUNTING, DISTRIBUTION AND SHAREHOLDER SERVICES...... 9

DESCRIPTION OF THE TRUST............................................... 13

REDEMPTION OF SHARES................................................... 17

VALUATION OF SHARES.................................................... 17

ADVERTISING AND CALCULATION OF PERFORMANCE DATA........................ 18

GENERAL INFORMATION.................................................... 19

FINANCIAL STATEMENTS................................................... 21

<PAGE>
HEITMAN REAL ESTATE FUND

ADDITIONAL INFORMATION REGARDING
INVESTMENT POLICIES AND LIMITATIONS

The following policies and limitations supplement those set forth in the
Prospectus. The Fund may not:

1. As to 75% of the total assets of the Fund, purchase securities for the
Fund of any issuer, if immediately thereafter (i) more than 5% of the
Fund's total assets (taken at market value) would be invested in the
securities of such issuer, or (ii) more than 10% of the outstanding
voting securities of any class of such issuer would be held by the Fund,
provided that this limitation does not apply to U.S. Government
securities.

2. Make investments in real estate (including real estate limited
partnership interests, but excluding readily marketable interest in real
estate investment trusts ("REITs") or readily marketable securities of
companies which invest in real estate) or commodities or commodity
contracts, although the Fund may purchase securities of issuers which
deal in real estate and may purchase securities which are secured by
interests in real estate, and the Fund may invest in futures contracts
and related options.

3. Act as a securities underwriter.

4. Make loans, except that the Fund may (i) purchase bonds, debentures and
other publicly-distributed securities of a like nature, (ii) make loans
in the form of call loans or loans maturing in not more than one year
which are secured by marketable collateral and are in amounts and on
terms similar to those currently in effect in the case of loans made by
national banks, (iii) enter into repurchase agreements with respect to
portfolio securities, and (iv) lend the portfolio securities of the Fund.

5. Borrow money, except that (i) the Fund may borrow money for temporary
administrative purposes provided that the aggregate of all such
borrowings does not exceed 33% of the value of the Fund's total assets
and is not for more than 60 days, and (ii) the Fund may enter into
interest-rate futures contracts. The Fund may not borrow for the purpose
of leveraging its investment portfolio. The Fund may not purchase
additional securities while outstanding borrowings exceed 5% of the value
of its assets.

6. Lend the portfolio securities of the Fund in an amount in excess of 33%
of the total assets of the Fund, taken at market value. Any loans of
portfolio securities will be made according to guidelines established by
the Securities and Exchange Commission and the Trustees, including the
borrower's maintaining collateral equal at all times to the value of the
securities loaned.

7. Purchase "illiquid" securities for the Fund, including repurchase
agreements maturing in more than seven days, options traded "over-the-
counter," securities lacking readily available market quotations and
securities which cannot be sold without registration or the filing of a
notification under federal or state securities laws, if, as a result,
more than 10% of the Fund's net assets would then be invested in such
securities.
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8. Purchase securities on margin, except short-term credits as are necessary
for the purchase and sale of securities. For purposes of this
restriction, the deposit or payment of initial or variation margin in
connection with futures contracts or related options will not be deemed
to be a purchase of securities on margin by the Fund.

9. Purchase securities of any other investment company, except in connection
with a merger, consolidation, acquisition or reorganization, and except
that the Fund may purchase securities of money market mutual funds to the
extent permitted by applicable law. This restriction shall not prohibit
the Fund from investing in securities issued by REITs.

10. Purchase securities for the Fund of companies which together with
predecessors have a record of less than three years' continuous
operation, and equity securities of issuers which are not readily
marketable, if, as a result, more than 5% of the Fund's net assets would
then be invested in such securities, except that this restriction shall
not apply to the purchase of securities of REITs.

11. Invest in puts, calls, straddles, spreads and any combination thereof,
except that (i) the Fund may write covered put and call options on
securities and write and purchase put and call options on stock indexes,
and (ii) the Fund may write covered put and call options on U.S.
Government securities.

12. Invest in oil, gas or other mineral exploration or development programs,
or leases, provided, however, this shall not prohibit the Fund from
purchasing publicly traded securities of companies engaging in whole or
in part in such activities.

13. Purchase securities from or sell securities to any of its officers or
Trustees, except with respect to its own shares and as is permissible
under applicable statutes, rules and regulations.

14. Purchase securities of companies for the purpose of exercising control.

15. Invest in warrants except that the Fund may invest in warrants valued at
the lower of cost or market, not exceeding 5% of the value of its net
assets; included within that amount, but not to exceed 2% of the value of
its net assets, warrants not listed on the New York or American Stock
Exchange, provided that this restriction does not apply to warrants
attached to or acquired as units to securities.

16. Make short sales whereby the dollar amount of short sales at any one time
shall exceed 25% of the net assets of the Fund, or the value of
securities of any one issuer in which the Fund is short exceeds the
lesser of 2% of the value of the Fund's net assets or 2% of the value of
securities of any class of any issuer, except that the Fund may make
short sales against the box.

If a percentage restriction is adhered to at the time of an investment, a
later increase or decrease in such percentage resulting from a change in the
values of assets will not constitute a violation of such restriction.

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The investment restrictions numbered 1 through 6 above have been adopted
by the Trust as fundamental policies of the Fund. Under the Investment
Company Act of 1940, as amended (the "1940 Act"), a fundamental policy may not
be changed without the vote of a majority of the outstanding voting securities
of the Fund, as defined in the 1940 Act. "Majority" means the lesser of (1)
67% or more of the shares present at a Trust meeting, if the holders of more
than 50% of the outstanding shares of the Fund are present or represented by
proxy, or (2) more than 50% of the outstanding shares of the Trust.
Investment restrictions 7 through 16 are non-fundamental policies and may be
changed by vote of a majority of the Trust's Board of Trustees at any time.

While the Trust has the power to pledge its assets to secure borrowings,
the Trust has no intention of pledging the assets of the Fund taken at market
value in any amount in excess of 33% of the Fund's total assets taken at
market value. The deposit of assets in escrow in connection with the writing
of covered put or call options and the purchase of securities on a when-issued
or delayed-delivery basis, and collateral arrangements with respect to the
purchase and sale of stock options and stock index options and initial and
variation margin for futures contracts, are not deemed to be pledges of assets
of the Fund. Also, although the Trust has the power to make call loans, it has
no intention to do so.

Government securities in which the Fund may invest include (a) direct
obligations of the U.S. Treasury, including bills, bonds and notes, and (b)
obligations issued or guaranteed as to principal and interest by U.S.
Government agencies or instrumentalities and supported by any of (i) the full
faith and credit of the U.S. Treasury (e.g., Government National Mortgage
Association participation certificates); (ii) the right of the issuer to
borrow a limited amount from the U.S. Treasury (e.g., securities of Federal
Farm Credit Banks); (iii) the discretionary authority of the U.S. Government
to purchase certain obligations of the agency or instrumentality (e.g.,
securities of the Federal National Mortgage Association); or (iv) the credit
of the agency or instrumentality (e.g., securities of the Student Loan
Marketing Association).

Although the Fund has the ability to invest in futures contracts and
options, the Fund has no current intention of doing so without first notifying
its shareholders and supplying further information in the Prospectus.

Although not an investment policy, it is anticipated that under normal
circumstances approximately 60% to 90% of the Fund's assets will be invested
in REITs which, according to the National Association of Real Estate
Investment Trusts, have grown over five-fold since 1991.

EXECUTION OF PORTFOLIO TRANSACTIONS

The Fund's portfolio securities transactions are placed by Heitman/PRA
Securities Advisors, Inc. ("Heitman/PRA Advisors" or the "Investment
Manager"), the Fund's investment adviser and manager. The objective of the
Fund is to obtain the best available prices in its portfolio transactions,
taking into account the costs, promptness of executions and other qualitative
considerations. There is no agreement or commitment to place orders with any
broker-dealer. Heitman/PRA Advisors evaluates a wide range of criteria in
seeking the most favorable price and market for the execution of transactions,
including the broker's commission rate, execution capability, positioning and
distribution capabilities, back-office efficiency, ability to handle difficult

3
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trades, financial stability, and prior performance in serving Heitman/PRA
Advisors and its clients. In transactions on equity securities and U.S.
Government securities executed in the over-the-counter market, purchases and
sales are transacted directly with principal market-makers except in those
circumstances where, in the opinion of Heitman/PRA Advisors, better prices and
executions are available elsewhere.

Subject to the requirement of seeking the best available prices and
execution, Heitman/PRA Advisors may, in circumstances in which two or more
broker-dealers are in a position to offer comparable prices and execution,
give preference to broker-dealers which have provided research, statistical,
and other related services to Heitman/PRA Advisors for the benefit of the Fund
and/or other clients served by Heitman/PRA Advisors if in the judgment of
Heitman/PRA Advisors the Fund will obtain prices and execution comparable with
those available from other qualified firms. This research information
received from such brokers and dealers covers a wide range of topics,
including U.S. economic data, prices of various government securities, company
specific information including EDGAR filings of securities issuers, economic
indices, economic outlook, political environment, demographic and social
trends and industry analysis. The Fund will not pay commissions to brokers in
recognition of their having provided research, statistical or other related
services in excess of commissions other qualified brokers would have charged
for handling comparable transactions.

Heitman/PRA Advisors may from time to time provide investment management
services to other institutional clients, including corporate pension plans,
profit-sharing and other employee benefit trusts, individuals and other
investment pools. There may be occasions on which other investment advisory
clients advised by Heitman/PRA Advisors may also invest in the same securities
as the Fund. When these clients buy or sell the same securities at
substantially the same time, Heitman/PRA Advisors may average the transactions
as to price and allocate the amount of available investments in a manner which
it believes to be equitable to each client, including the Fund. In some
instances, this investment procedure may adversely affect the price paid or
received by the Fund or the size of the position obtainable for the Fund. On
the other hand, to the extent permitted by law, Heitman/PRA Advisors may
aggregate the securities to be sold or purchased for the Fund with those to be
sold or purchased for other clients managed by it in order to obtain lower
brokerage commissions, if any.

During the fiscal years ended December 31, 1996 and December 31, 1995,
the three-month period ended December 31, 1994 and the fiscal year ended
September 30, 1994 the Fund paid $400,540, $334,132, $98,851, and $510,528,
respectively, in brokerage commissions. During the fiscal year ended December
31, 1996, transactions of the Fund aggregating $112,774,163 were allocated to
brokers providing research, statistical and other related services and
$232,200 in brokerage commissions were paid on these transactions.

MANAGEMENT OF THE TRUST

The Trustees and executive officers of the Trust, their principal
occupations during the last five years and their current addresses are set
forth below. Those Trustees who are "interested persons" of the Trust (as
defined in the 1940 Act) by virtue of their affiliations with the Fund or
Heitman/PRA Advisors are indicated by an asterisk (*).

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*WILLIAM L. RAMSEYER, (BORN 1941)
Chairman of the Board of Trustees and Chief Executive Officer. Mr.
Ramseyer serves as Chairman of the Board, Chief Executive Officer and Chairman
of Heitman/PRA Advisors and as a member of the Investment Committee and the
Executive Committee of Heitman Financial Ltd. Mr. Ramseyer served as a member
of the Executive Committee of Heitman/JMB Advisory Corporation and Executive
Vice President of JMB Institutional Realty Corp. from September, 1988 to
December, 1995.

From June 1982 to August 1988 he was President of Pension Realty
Advisors, Inc., managing Pension Realty Advisors' practice, which focused on
assisting tax-exempt clients with development of equity real estate investment
objectives and policies, selection of managers and advisors, and review of
portfolio performance. The firm's client base was comprised substantial
pension plans, endowments and other tax-exempt institutions. Mr. Ramseyer co-
founded the predecessor to Heitman/PRA Advisors in 1987.

Mr. Ramseyer is a member of the American Society of Real Estate
Counselors, where he serves on the Board of Governors, the National
Association of Real Estate Investment Trusts, and the National Association of
Real Estate Investment Managers. Mr. Ramseyer is past chairman of the Pension
Real Estate Association. Address: Heitman/PRA Securities Advisors, Inc., 180
North LaSalle Street, Suite 3600, Chicago, IL 60601.

ROBERT W. BEENEY, (BORN 1940)
Trustee of the Trust. Mr. Beeney is the Proprietor of Robert Beeney and
Company of San Francisco, Real Estate Consultants and Advisors. He has been
continuously engaged in real estate appraisal, consultancy and brokerage since
1959 and is a Fellow of the Royal Institution of Chartered Surveyors (Harriott
Prize 1963) and a member of the San Francisco Board of Realtors and the
International Real Estate Federation. Mr. Beeney has been a frequent speaker
to real estate industry groups and associations including the National
Association of Realtors, International Real Estate Federation, Royal
Institution of Chartered Surveyors, Building Owners and Managers Association,
Society of Industrial Realtors, and Building Industry Association.

Prior to re-forming Robert Beeney and Company in 1987, Mr. Beeney was a
founding partner of Jones Lang Wootton, USA (1978-1984) and Executive Director
of Marcus and Millichap Capital Markets group (1985-1987). Address: Robert
Beeney and Company, 433 California Street, San Francisco, CA 94104.

DONALD L. FOOTE, (BORN 1929)
Trustee of the Trust. Mr. Foote is the Chairman of the Board of First
National Acceptance Company. He is also the President of 1889 Bankshares,
Inc. Address: First National Acceptance Company, 241 East Saginaw, East
Lansing, MI 48826.

JOHN F. GOYDAS, (BORN 1934)
Trustee of the Trust. Mr. Goydas is a retired Managing Director of J. P.
Morgan Investment Management, Inc. having spent 33 years of employment with
the Morgan Bank. Mr. Goydas was responsible for all corporate and real estate-
related fixed-rate private placement investments; was a member of Morgan
Bank's Special Investments Committee (Convertible, Oil & Gas and Real Estate
investments) and the Credit Committee. Address: 217-55 Peck Avenue, Hollis
Hills, NY 11427.

5
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MAURICE WIENER, (BORN 1942)
Trustee of the Trust. Mr. Wiener is Chairman of the Board and Chief
Executive Officer of HMG/Courtland Properties, Inc., a real estate investment
trust, and Courtland Group, Inc., a real estate advisory company. He is also
Executive Trustee of Transco Realty Trust, a real estate investment company,
and Vice Chairman of the Board of T.G.I.F. Texas, Inc., a real estate
investment company. Address: HMG/Courtland Properties, Inc., 2701 South
Bayshore Drive, Coconut Grove, FL 33133.

DEAN A. SOTTER, (BORN 1960)
President, Chief Financial Officer, Chief Accounting Officer and
Treasurer of the Trust. Mr. Sotter is President of Heitman/PRA Advisors and a
member of its Investment Committee. Mr. Sotter has overall responsibility for
portfolio management and marketing.

Prior to joining Heitman/PRA Advisors, Mr. Sotter was a Partner of PRA
Securities Advisors, L.P. He was a Portfolio Manager and Vice President of JMB
Institutional Realty Corporation (1985-1992), where his responsibilities
included property level analysis, budgeting and valuation as well as financial
reporting and client communications. During the last several years, Mr. Sotter
was responsible for servicing approximately 70 institutional clients in 13
states and prospects for new business in those areas. In addition, in 1992,
Mr. Sotter worked extensively on the feasibility of the formation of a
publicly traded REIT.

For three years (1982-1985), Mr. Sotter was employed by Price Waterhouse
in the areas of audit and taxation. Mr. Sotter received a Bachelor of Science
degree from Indiana University, an MBA from the University of Chicago and is a
CPA. Address: Heitman/PRA Securities Advisors, Inc., 180 North LaSalle
Street, Suite 3600, Chicago, IL 60601.

TIMOTHY J. PIRE, CFA (BORN 1962)
Secretary to the Trust. Mr. Pire is Vice President of
Heitman/PRA Advisors. Mr. Pire's responsibilities include portfolio
management, investigation, and analysis of publicly traded real estate
securities and implementation of the investment strategy through portfolio
management.

Prior to joining Heitman/PRA Advisors, Mr. Pire served as Research
Analyst with PRA Securities Advisors, L.P., and he was an Associate Appraiser
with Lyon, Skelte & Speirs in Seattle, Washington (1990-1992). He was
involved in valuation of commercial real estate and writing full narrative
appraisals. For over three years, Mr. Pire was employed by First Wisconsin
National Bank where he was involved in underwriting commercial loans.

Mr. Pire received a Bachelor of Science and a Masters of Science degree
from the University of Wisconsin. Mr. Pire is also a Chartered Financial
Analyst. Address: Heitman/PRA Securities Advisors, Inc., 180 North LaSalle
Street, Suite 3600, Chicago, IL 60601.

RANDY NEWSOME (BORN 1959)
Assistant Secretary to the Trust. Mr. Newsome is Vice President of
Heitman/PRA Advisors. Mr. Newsome's responsibilities include portfolio
management, investigation, and analysis of publicly traded real estate
securities and implementation of the investment strategy through portfolio
management. Mr. Newsome also oversees Heitman/PRA Advisors' trading
positions.
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Prior to joining Heitman/PRA Advisors, Mr. Newsome served as Research
Analyst with PRA Securities Advisors, L.P., and he was Vice President with The
Stratus Corporation in Chicago, Illinois from 1989-1993 where he was
responsible for property management, leasing and construction management.

Mr. Newsome received a Bachelor of Science degree from Illinois Wesleyan
University. Address: Heitman/PRA Securities Advisors, Inc., 180 North
LaSalle Street, Suite 3600, Chicago, IL 60601.

JOHN J. KELLEY, (BORN 1959)
Assistant Treasurer to the Trust. Mr. Kelley is a Vice President of
Rodney Square Management Corporation where he oversees the accounting services
provided to the Trust.

Prior to joining Rodney Square Management Corporation, Mr. Kelley served
as an Officer/Group Supervisor in the Mutual Fund Accounting and
Administration Department of Provident Financial Processing Corporation (1984-
1989).

Mr. Kelley received his MBA and Bachelor of Science degree from St.
Joseph's University.

LAURIE V. BROOKS, (BORN 1962)
Assistant Secretary to the Trust. Ms. Brooks is a Senior Mutual Fund
Administrator for Rodney Square Management Corporation where she provides
administrative services to the Trust.

Prior to joining Rodney Square Management Corporation, Ms. Brooks worked
as a legal assistant for Skadden, Arps, Slate Meagher & Flom (1989-1994).

Ms. Brooks received her Bachelor of Arts degree from Dickinson College
and a Paralegal Certificate in Corporate Finance and Business Law from The
Institute for Paralegal Training.

No officer or employee of Heitman/PRA Advisors, or of its affiliates,
receives any compensation from the Trust for serving as an officer or Trustee
of the Trust. The Trust pays each Trustee who is not an officer or employee
of Heitman/PRA Advisors, or of its affiliates, $10,000 per annum, $1,000 per
quarterly meeting attended, $500 for attendance by phone and reimburses each
such Trustee for travel and out-of-pocket expenses. During the calendar year
ended December 31, 1996, the Trustees of the Trust received compensation in
the amounts set forth in the table below:

COMPENSATION TABLE

AGGREGATE PENSION OR RETIREMENT
COMPENSATION BENEFITS ACCRUED AS PART OF
NAME POSITION FROM THE TRUST FUND EXPENSES1
- --------------- ------------ --------------------- --------------
Robert W. Beeney Trustee $14,500 $0
Donald L. Foote Trustee 12,500 0
John F. Goydas Trustee 14,500 0
William L. Ramseyer Trustee 0 0
Maurice Wiener Trustee 13,000 0
- ----------------------

1 The Trust does not provide retirement or pension benefits to any of its
Trustees.
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INVESTMENT MANAGER

The investment manager of the Fund is Heitman/PRA Advisors, a registered
investment adviser under the Investment Advisers Act of 1940. As of March 31,
1997, Heitman/PRA Advisors managed investment portfolios of publicly traded
REITs totaling approximately $480 million. The Fund has retained Heitman/PRA
Advisors as investment manager to provide day-to-day discretionary investment
management services to the Fund pursuant to an Investment Management Agreement
dated January 31, 1995.

Heitman/PRA Advisors is a wholly owned subsidiary of Heitman Financial
Ltd. ("Heitman") which is a wholly owned subsidiary of United Asset Management
Corporation. Established in 1913, Heitman is one of the nation's largest
institutional real estate advisers with over 870 real estate professionals in
92 offices throughout the United States, currently managing $10.2 billion in
real estate.

The Investment Management Agreement provides that Heitman/PRA Advisors
shall furnish advice to the Fund and, to the extent authorized by the
Trustees, determine what securities shall be purchased or sold. Heitman/PRA
Advisors uses its own personnel and facilities and securities analysis to
provide in depth research to formulate and implement investment strategy.
This research is supplemented by outside services provided by the brokerage
and investment banking community. Heitman/PRA Advisors, at its expense, pays
the compensation of all employees of Heitman/PRA Advisors (if any such person,
or other affiliated person of Heitman/PRA Advisors, is a Trustee of the Trust,
or serves as an employee thereof, such person serves as such without
additional compensation from the Trust). For its services, Heitman/PRA
Advisors is entitled to receive from the Trust an investment management fee as
described in the Prospectus under the caption "Management of the Fund." The
investment management fee is allocated to each class of shares of the Fund on
the basis of the net asset value of that class in relation to the net asset
value of the Fund.

The Investment Management Agreement for the Trust was approved by the
Board of Trustees of the Trust, including a majority of the Trustees who are
not parties to the Investment Management Agreement or "interested persons" (as
defined in the 1940 Act) of any such party on December 5, 1994 and by the
Fund's shareholders on January 23, 1995. The Investment Management Agreement
continues in effect from year to year, provided that its continuance is
approved annually both (i) by the holders of a majority of the outstanding
voting securities of the Trust or by the Board of Trustees, and (ii) by a
majority of the Trustees who are not parties to such Agreement or "interested
persons" of any such party. The Investment Management Agreement was last
approved by the Board of Trustees of the Trust and by a majority of Trustees
who are not parties to such Agreement or "interested persons" of any such
party on March 10, 1997 for the one-year period commencing April 1, 1997. The
Investment Management Agreement may be terminated on sixty (60) days' written
notice by any party and will terminate automatically if it is assigned.

The Trust bears expenses for its own legal and auditing services, taxes,
interest, brokerage fees, fees of Trustees other than Trustees affiliated with
the Investment Manager, governmental fees, certain insurance premiums, the
cost of stock certificates, fees and disbursements of the custodian and
transfer agent, if any, brokerage, interest and other expenses properly
payable by the Trust and not specifically borne by the Investment Manager.
The Trust pays all costs of shareholder notices, reports and Prospectuses used
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in complying with laws regulating the issue or sale of securities. The Trust
also pays the charges and expenses of any servicing agent appointed by the
Trust to provide bookkeeping, accounting and administrative services for the
Fund. During the fiscal years ended December 31, 1996 and December 31, 1995,
the three-month period ended December 31, 1994 and the fiscal year ended
September 30, 1994, the fees paid to the Investment Manager were $992,968,
$724,658, $201,070, and $881,646, respectively. The Investment Manager has
agreed that if in any fiscal year the aggregate expenses of the Fund
(including fees pursuant to the Investment Management Agreement, but excluding
interest, brokerage expenses, taxes and extraordinary items) exceed 1.75% of
the first $50 million of the Fund's average net assets and 1.5% of assets in
excess of $50 million, the Investment Manager will reduce its advisory fee by
the amount of such excess expense. Such a fee reduction, if any, will be
reconciled on a monthly basis.

PURCHASE OF SHARES

General information on how to buy shares of the Fund, as well as sales
charges, if any, involved, is set forth under "Purchase of Shares" in the
Prospectus. The following supplements that information.

For purposes of determining whether a purchase of the Advisor Class
shares of beneficial interest in the Fund (the "Advisor Class") qualifies for
reduced sales charges and for purposes of determining whether an investor can
join with another investor in a single purchase for inclusion toward
completion of a Letter of Intent with respect to Advisor Class shares, the
term "related person" includes: (i) an individual, or an individual combining
with his or her spouse and their children and purchasing for his, her or their
own account; (ii) a "company" as defined in Section 2(a)(8) of the 1940 Act;
(iii) a trustee or other fiduciary purchasing for a single trust estate or
single fiduciary account (including a pension, profit sharing or other
employee benefit trust created pursuant to a plan qualified under Section 401
of the Internal Revenue Code); (iv) a tax-exempt organization under
Section 501(c)(3) of (13) of the Internal Revenue Code; and (v) an employee
benefit plan of a single employer or of affiliated employers.

ADMINISTRATIVE, ACCOUNTING, DISTRIBUTION AND SHAREHOLDER SERVICES

Rodney Square Management Corporation ("Rodney Square"), Rodney Square
North, 1100 North Market Street, Wilmington DE 19890-0001, provides certain
administrative and accounting services to the Fund pursuant to an Amended and
Restated Administration Agreement (the "Administration Agreement") and an
Amended and Restated Accounting Services Agreement (the "Accounting Services
Agreement"), each dated as of November 14, 1996.

Under the Administration Agreement, Rodney Square (1) coordinates with
the Fund's Custodian and Transfer Agent and monitors the services they provide
to the Fund; (2) coordinates with and monitors any other third parties
furnishing services to the Fund; (3) provides the Fund with necessary office
space, telephones and other communications facilities and personnel competent
to perform administrative and clerical functions for the Fund; (4) supervises
the maintenance by third parties of such books and records of the Fund as may
be required by applicable Federal or state law; (5) prepares and, after
approval by the Fund, files and arranges for the distribution of proxy
materials and periodic reports to shareholders of the Fund as required by

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applicable law; (6) prepares and, after approval by the Fund, arranges for the
filing of such registration statements and other documents with the Securities
and Exchange Commission and other Federal and state regulatory authorities as
may be required by applicable law; (7) reviews and submits to the officers of
the Fund for their approval invoices or other requests for payment of Fund
expenses and instructs the Fund's custodian to issue checks in payment
thereof; and (8) takes such other action with respect to the Fund as may be
necessary in the opinion of Rodney Square to perform its duties under the
agreement.

As compensation for services performed under the Administration
Agreement, Rodney Square receives a fee payable monthly computed on the
average daily net assets of each class of the Fund at the end of each business
day at an annual rate of .10%, plus any out-of-pocket expenses. During the
fiscal years ended December 31, 1996 and 1995, the three-month period ended
December 31, 1994, and the fiscal period ended September 30, 1994, the fees
paid to Rodney Square by the Trust pursuant to the Administration Agreement
were $141,640, $107,310, $29,091, and $134,382, respectively.

Under the Accounting Services Agreement, Rodney Square (a) maintains and
keeps current the books, accounts, records, journals or other records of
original entry relating to the business of the Fund; (b) calculates daily net
asset value per share and determines dividends; and (c) performs other related
accounting services including the preparation of periodic financial statements
for the Fund.

As compensation for services performed under the Accounting Services
Agreement, Rodney Square receives a fee payable monthly at an annual rate of
$75,000, plus .02% of the average net assets in excess of $100 million,
computed on the average daily net assets of the Fund at the end of each
business day, plus any out-of-pocket expenses. During the fiscal years ended
December 31, 1996 and December 31, 1995, the three-month period ended December
31, 1994, and the fiscal period ended September 30, 1994, fees paid to Rodney
Square by the Fund pursuant to the Accounting Services Agreement were $73,582,
$56,863, $11,915, and $50,124, respectively.

Rodney Square Distributors, Inc. ("RSD"), Rodney Square North, 1100 North
Market Street, Wilmington DE 19890-0001, provides distribution services to the
Fund with respect to the Heitman/PRA Institutional class of shares of the Fund
(the "Institutional Class") pursuant to a Distribution Agreement, dated as of
December 4, 1993 (the "RSD Distribution Agreement").

Under the RSD Distribution Agreement, RSD is granted the right to sell
Institutional Class shares of the Fund as agent for the Trust. Institutional
Class shares of the Fund are offered continuously. RSD agrees to use all
reasonable efforts to secure purchasers for Institutional Class shares of the
Fund and to pay expenses of printing and distributing prospectuses, statements
of additional information and reports prepared for use in connection with the
sale of Institutional Class shares and any other literature and advertising
used in connection with the offering, subject to reimbursement from the Fund's
Investment Manager. RSD receives no compensation from the Fund.

The RSD Distribution Agreement was last approved by the Board of Trustees
of the Trust, including a majority of the Trustees who are not interested
persons of the Trust on November 14, 1996, and will remain in effect for one
year and then will continue in effect from year to year as long as its

10
<PAGE>
continuance is approved at least annually by a majority of the Trustees,
including a majority of the Independent Trustees. The RSD Distribution
Agreement terminates automatically in the event of its assignment. The
Agreement is also terminable without payment of any penalty with respect to
the Fund (i) by the Fund (by vote of a majority of the Trustees of the Trust
who are not interested persons of the Trust or by vote of a majority of the
outstanding voting securities of the Trust) on sixty (60) days' written notice
to RSD; or (ii) by RSD on sixty (60) days' written notice to the Trust.

ACG Capital Corporation ("ACG"), 1661 Tice Valley Boulevard, #200, Walnut
Creek, CA 94595, provides distribution services to the Fund with respect to
Advisor Class shares pursuant to a Distribution Agreement, dated as of May 15,
1995 (the "ACG Distribution Agreement").

Under the ACG Distribution Agreement, ACG is granted the right to sell
Advisor Class shares as agent for the Trust. ACG agrees to use all reasonable
efforts to secure purchasers for the Advisor Class shares and to pay expenses
of printing and distributing prospectuses, statements of additional
information and reports prepared for use in connection with the sale of
Advisor Class shares and any other literature and advertising used in
connection with the offering. In connection with the services to be provided
by ACG under the ACG Distribution Agreement, ACG receives from the Fund as
compensation for services provided thereunder, subject to the terms and
conditions of the Trust's Plan of Distribution Pursuant to Rule 12b-1, an
amount with respect to Advisor Class shares determined at an annual rate of
.25% of the average daily value of net assets represented by such shares, such
amount to be paid in arrears at the end of each calendar month. For the
fiscal years ended December 31, 1996 and December 31, 1995, the Fund paid
$89,289 and $2,985, respectively, in compensation to ACG pursuant to the ACG
Distribution Agreement.

The ACG Distribution Agreement dated May 15, 1995, was initially approved
by the Board of Trustees of the Trust, including a majority of the Trustees
who are not interested persons of the Trust, on April 28, 1995, and will
continue in effect from year to year as long as its continuance is approved at
least annually by a majority of the Trustees, including a majority of the
Independent Trustees. The ACG Distribution Agreement terminates automatically
in the event of its assignment. The Agreement is also terminable without
payment of any penalty with respect to the Fund (i) by the Fund (by vote of a
majority of the Trustees of the Trust who are not interested persons of the
Trust or by vote of a majority of the outstanding voting securities of the
Advisor Class shares of the Fund) on sixty (60) days' written notice to ACG;
or (ii) by ACG on sixty (60) days' written notice to the Trust.

The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 (the
"Distribution Plan") with respect to the distribution of Advisor Class shares
in accordance with the regulations under the 1940 Act. General information
about the Distribution Plan is set forth under "Purchase of Shares -
Distribution Plan" in the Advisor Class Prospectus. The following supplements
that information.

Under the Distribution Plan, the Fund may engage, directly or indirectly,
in financing any activities primarily intended to result in the sale of
Advisor Class shares, including, but not limited to, (1) making payments to
underwriters, securities dealers and others engaged in the sale of shares,
including payments to ACG to be used to compensate or reimburse ACG or

11
<PAGE>
securities dealers (which securities dealers may be affiliates of ACG) engaged
in the distribution and marketing of shares and furnishing ongoing assistance
to investors, and (2) reimbursement of direct out-of-pocket expenditures
incurred by ACG in connection with the distribution and marketing of shares
and the servicing of investor accounts, including expenses relating to the
formulation and implementation of marketing strategies and promotional
activities such as direct mail promotions and television, radio, newspaper,
magazine and other mass media advertising, the preparation, printing and
distribution of Prospectuses of the Fund and reports for recipients other than
existing shareholders of the Fund, and obtaining such information, analyses
and reports with respect to marketing and promotional activities and investor
accounts as the Fund may, from time to time, deem advisable.

The expenditures to be made pursuant to the Distribution Plan may not
exceed an annual rate of 0.25% of the average daily value of net assets
represented by Advisor Class shares. ACG may have also used additional
resources of its own for further expenses on behalf of the Fund.

The Investment Manager and ACG have entered into an amended Marketing
Services Agreement effective as of March 11, 1996 (the "Marketing Services
Agreement"), with respect to the sale of certain Advisor Class and
Institutional Class shares. Under the Marketing Services Agreement, the
Investment Manager will pay ACG, in addition to the compensation paid to ACG
under the ACG Distribution Agreement and the Distribution Plan, compensation
at an annual rate of (i) .15 of 1% of the net asset value of the Fund
represented by Advisor Class shares with the exception of Advisor Class shares
sold through The Nomura Securities Co., Ltd. and (ii) .25 of 1% of the net
asset value of the Fund represented by Institutional Class shares purchased by
investors introduced to the Investment Manager by ACG and acknowledged by the
Investment Manager as introduced by ACG. The Investment Manager has also
agreed to pay ACG .10 of 1% of the net asset value of Advisor Class shares
held in omnibus shareholder accounts maintained by Charles Schwab & Company,
Inc. or Resources Trust Company as well as certain expenses related to the
Advisor Class shares.

Pursuant to the Marketing Services Agreement, if the Distribution Plan is
terminated or modified, the Investment Manager will be required to pay to ACG
an amount equal to 50% of any reduction in fees paid to ACG under the
Distribution Agreement as a result of such termination or modification, up to
a maximum of .125 of 1% per annum of the net asset value of the Fund
represented by the Advisor Class shares. In addition, the Investment Manager
has agreed to make certain continuing payments to ACG in the event that the
Marketing Services Agreement is terminated. Depending on the reason for
termination, the continuing payments are either .25 of 1% or .15 of 1% per
annum of the net asset value of the Fund represented by Advisor Class shares
and qualified Institutional Class shares held by investors as of the date of
termination of the Marketing Services Agreement and are payable for a period
of 5 years if the applicable rate is .15 of 1% and for a period of 10 years if
the applicable rate is .25 of 1%. The continuing payments are contingent upon
ACG remaining registered as a broker/dealer. In addition, if the Investment
Manager terminates the Marketing Services Agreement for "cause" or if ACG
terminates the ACG Distribution Agreement, ACG will not be entitled to any
continuing payments.

12
<PAGE>
The Marketing Services Agreement also provides that ACG will not serve as
a distributor of shares of any other open-end registered investment company
that invests primarily in REITs (other than indirectly as a result of
marketing asset management programs of which REIT mutual funds are a
component) and that the Investment Manager and its affiliates will not offer,
sponsor, advise or otherwise promote any mutual fund or class of shares of a
mutual fund for which ACG is not the distributor, with certain exceptions,
including Institutional Class shares, certain offerings of shares of closed-
end investment companies, shares of investment companies offered outside the
United States, certain insurance products and investment products offered to
certain qualified retirement plans.

The Fund has also adopted a Shareholder Servicing Plan which is described
in the Advisor Class Prospectus under the captions "Purchase of Shares-
Shareholder Servicing Agreement." The Shareholder Servicing Plan provides
that the Advisor Class may spend annually, directly or indirectly, up to 0.25%
of the average daily value of the net assets attributable to Advisor Class
shares for shareholder servicing activities. During the fiscal years ended
December 31, 1996 and December 31, 1995, the Fund paid an aggregate of $89,289
and $2,985, respectively, to service organizations under contracts entered
into pursuant to the Shareholder Servicing Plan.

A quarterly report of the amounts expended under the Distribution Plan
and the Shareholder Servicing Plan, and the purposes for which such
expenditures were incurred, must be made to the Trustees for their review.
Neither the Distribution Plan nor the Shareholder Servicing Plan may be
amended without shareholder approval to increase materially the distribution
or shareholder servicing costs that the Fund may pay with respect to Advisor
Class shares. The Distribution Plan, the Shareholder Servicing Plan and
material amendments to either such Plan must be approved annually by all of
the Trustees and by the Trustees who are neither interested persons of the
Fund nor have any direct or indirect financial interest in the operation of
the respective Plan or any related agreements.

DESCRIPTION OF THE TRUST

The Trust is a diversified, open-end management investment company
organized as a Massachusetts business trust under the laws of the Commonwealth
of Massachusetts under a Master Trust Agreement dated September 15, 1988, as
amended and restated on February 28, 1995. In March 1995, the Trust's name
was changed from PRA Securities Trust to Heitman Securities Trust.

The Trustees have authority to issue an unlimited number of shares of
beneficial interest in one or more separate series, $.001 par value per share.
The shares of the Fund offered hereby constitute the sole series authorized to
date. In addition, the Trustees are authorized to issue an unlimited number
of classes of shares of beneficial interest in each series. To date, the
Trust has established one series, the Heitman Real Estate Fund, and two
classes of shares, designated as the Advisor Class and the Heitman/PRA
Institutional Class.

The assets received by the Trust for the issue or sale of shares of the
Fund and all income, earnings, profits and proceeds thereof, subject only to
the rights of creditors, are specially allocated to each class of the Fund,
and constitute the underlying assets of the Fund. The underlying assets of
the Fund are required to be segregated on the books of account, and are to be

13
<PAGE>
charged with the expenses in respect of each class of the Fund and with a
share of the general expenses of the Trust. Except for those differences
between the classes of shares described below and elsewhere in the
Prospectuses and this Statement of Additional Information, each share of the
Fund has equal dividend, redemption and liquidation rights with other shares
of the Fund. Upon any liquidation of the Fund, shareholders thereof are
entitled to share pro rata in the net assets of each class belonging to the
Fund available for distribution.

Each share of each class of shares represents an identical interest in
the same portfolio of investments of the Fund and has the same rights,
privileges and preferences, except with respect to: (a) the designation of
each class; (b) the sales charge applicable to the Advisor Class; (c) the
distribution and service fees borne by the Advisor Class; (d) the expenses
allocable exclusively to each class, if any; and (e) voting rights on matters
exclusively affecting a single class. The Trust has adopted an expense
allocation plan under which all expenses other than distribution and service
fees borne by the Advisor Class, are allocated pro rata based on the relative
net assets of each class.

Shares of the Fund entitle its holders to one vote per share (with
proportionate voting for fractional shares) irrespective of the relative net
asset value of the Fund's shares.

The Trust does not hold annual meetings of shareholders. There will
normally be no meetings of shareholders for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by shareholders, at which time the Trustees then in
office will call a shareholders' meeting for the election of Trustees.
Shareholders of record of not less than two-thirds of the outstanding shares
of the Trust may remove a Trustee through a declaration in writing or by vote
cast in person or by proxy at a meeting called for that purpose. The Trustees
are required to call a meeting of shareholders for the purposes of voting upon
the question of removal of any Trustee when requested in writing to do so by
the shareholders of record of not less than 10% of the Trust's outstanding
shares. Generally, shares of the Fund will be voted on a Fund-wide basis on
all matters except matters affecting only the interests of one class. The
Advisor Class will have exclusive voting rights with respect to any amendments
to the Fund's Rule 12b-1 Plan of Distribution or Shareholder Servicing Plan
that would materially increase any amounts paid thereunder.

Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Trust. However, the
Master Trust Agreement disclaims shareholder liability for acts or obligations
of the Trust and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Trust or a
Trustee. The Master Trust Agreement provides for indemnification from Trust
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Trust. Thus, the risk of a shareholder's incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations, a
possibility which Heitman/PRA Advisors believes is remote. Upon payment of
any liability incurred by the Fund, the shareholder of the Fund paying such
liability will be entitled to reimbursement from the general assets of the
Fund. The Trustees intend to conduct the operations of the Fund in such a way
so as to avoid, to the greatest extent possible, ultimate liability of the
shareholders for liabilities of the Fund.
14
<PAGE>

As of April 1, 1997, the following shareholders were known to own of
record more than 5% of the total outstanding shares of either the
Institutional Class or Advisor Class of the Fund, as the case may be:

PERCENTAGE PERCENTAGE PERCENTAGE
OWNERSHIP OWNERSHIP OWNERSHIP
OF INSTITUTIONAL OF ADVISOR OF ALL
NAME AND ADDRESS CLASS SHARES CLASS SHARES FUND SHARES
- ---------------- ---------------- ------------ -----------
United Nations, for the
United Nations Joint 26.01% - 16.49%
Staff Pension Fund, a United
Nations Organization
c/o Fiduciary Trust International
Two World Trade Center
New York, NY 10048

Charles Schwab & Company, Inc. 20.28% 49.67% 31.03%
101 Montgomery Street
San Francisco, CA 94104

HAWCO 8.49% - 5.30%
Hawaiian Trust Company, Ltd.
as Trustee
P.O. Box 1930
Honolulu, HI 96805

FTC & Co. _ 8.07% 2.95%
Attn. Datalynx
P.O. Box 173736
Denver, CO 80217

Donoldson, Lufkin & Jenrette 8.49% _ 4.12 %
1 Pershing Plaza
Jersey City, NJ 07399

Singhin & Co. 5.04% _ 3.19%
c/o Bankers Trust Company
Two Pacific Place, 26th Floor
88 Queensway
Hong Kong

As of April 1, 1997, the officers and Trustees of the Trust as a group
owned less than 1% of the outstanding shares of the Fund.

The following is a summary of selected federal income tax considerations
that may affect the Fund and its shareholders. The summary is not intended as
a substitute for individual tax advice, and investors are urged to consult
their own tax advisers with specific reference to their own federal, state or
local tax situations.

15
<PAGE>
TAXATION OF THE FUND

The Fund intends to continue to qualify and elect to be treated each
taxable year as a "regulated investment company" under subchapter M of the
Internal Revenue Code of 1986, as amended. Accordingly, the Fund will not be
liable for federal income taxes on its net investment income and net capital
gain that are distributed to shareholders, provided that the Fund distributes
at least 90% of its net investment income and net short-term capital gains for
that year.

To qualify as a regulated investment company, the Fund must, among other
things, (i) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to loans of securities and gains
from the sale or other disposition of stock, securities or foreign currencies,
or other income derived with respect to its business of investing in such
stock, securities or currencies; (ii) derive in each taxable year less than
30% of its gross income from the sale or other disposition of stock or
securities held less than three months; and (iii) satisfy certain
diversification requirements.

The Internal Revenue Code of 1986, as amended, imposes a nondeductible 4%
excise tax on a regulated investment company that fails to distribute during
each calendar year an amount equal to the sum of (i) at least 98% of its
ordinary income for the calendar year, (ii) at least 98% of its capital gain
net income for the twelve-month period ending on October 31 of the calendar
year; and (iii) any portion (not taxed to the Fund) of the respective balances
from the prior year. The Fund intends to make such distributions as are
necessary to avoid imposition of the excise tax.

TAXATION OF INVESTMENTS BY THE FUND

Gains or losses on sales of securities by the Fund will generally be long-
term capital gains or losses if the Fund has held the securities for more than
one year. Gains or losses on sales of securities held for less than one year
will generally be short-term.

TAXATION OF THE FUND'S SHAREHOLDERS-SPECIAL CONSIDERATIONS

The portion of the dividends received from the Fund by its corporate
shareholders which qualifies for the 70% dividends-received deduction will be
reduced to the extent that the Fund holds dividend-paying stock for less than
46 days (91 days for certain preferred stocks). In addition, distributions
that the Fund receives from a REIT will not constitute "dividends" for
purposes of the dividends-received deduction and, thus, Fund dividends
attributable to such distributions will not qualify for the dividends-received
deduction. Accordingly, only a small percentage of dividends from the Fund
are expected to qualify for the dividends-received deduction. Dividends-
received deductions will be allowed only with respect to shares that a
corporate shareholder has held for at least 46 days within the meaning of the
same holding period rules applicable to the Fund.

Dividends paid by the Fund from net investment income and net short-term
capital gains will be taxable to shareholders as ordinary income for federal
income tax purposes, whether received in cash or reinvested in additional
shares. Distributions of net capital gain will be taxable to shareholders as
long-term capital gain, whether paid in cash or reinvested in additional
shares, and regardless of the length of time the shareholder has held his or
her shares of the Fund.
16
<PAGE>
If a shareholder receives a distribution taxable as long-term capital
gain with respect to shares of the Fund, and redeems or exchanges the shares
before he or she has held them for more than six months, any loss on the
redemption or exchange will be treated as a long-term capital loss to the
extent of such capital gain distribution.

If a shareholder fails to furnish a correct taxpayer identification
number, fails to fully report dividend or interest income, or fails to certify
that he or she has provided a correct taxpayer identification number or that
he or she is not subject to "backup withholding," then the shareholder may be
subject to a 31% federal backup withholding tax with respect to (i) taxable
dividends and distributions and (ii) the proceeds of redemptions or exchanges.
The 31% backup withholding tax is not an additional tax and may be credited
against a shareholder's regular federal income tax liability. An individual's
taxpayer identification number is his or her social security number.

REDEMPTION OF SHARES

Detailed information on methods for redemption of shares is included in
the Prospectus. The right to redeem shares of the Fund may be suspended or
the date of payment postponed (i) for any period during which the New York
Stock Exchange ("NYSE") is closed (other than for customary weekend or holiday
closings), (ii) when trading in the markets the Fund normally uses is
restricted or when an emergency exists as determined by the Securities and
Exchange Commission ("SEC") so that disposal of the Fund's investments or
determination of its net asset value is not reasonably practicable, or (iii)
for such other periods as the SEC, by order, may permit for protection of the
Fund's shareholders.

VALUATION OF SHARES

The Prospectus describes the time at which the net asset value of the
Fund is determined for purposes of sales and redemptions. The following is a
description of the procedures used by the Fund in valuing its assets.

Readily marketable portfolio securities dually listed on the NYSE and
other national securities exchanges are valued at the last sale price as
reported on the NYSE on the business day as of which such value is being
determined. Readily marketable securities not reported on the NYSE tape, but
listed on national securities exchanges, shall be valued at the last sale
price, on the business day as of which such value is being determined, on the
exchange considered by the Trustees to be the primary trading market for such
securities. If there has been no sale on such day, the security shall be
valued at the average between closing bid and closing offer quoted on such
day. If no bid or offer price is quoted on such day, then the security is
valued by such method as the Trustees shall determine in good faith to reflect
its fair market value. Readily marketable securities traded only in the over-
the-counter market are valued at the last price as reported on the National
Market System, or, if the security is not reported on the National Market
System, at the last reported bid on such day. If market quotations for over-
the-counter traded securities are not readily available, a fair value, as
determined in good faith by the Trustees, will be used. The value of the
securities in the Fund's portfolio may be more or less than cost.

17
<PAGE>
Short-term securities with 60 days or less to maturity will be amortized
to maturity based on their cost to the Fund if acquired within 60 days of
maturity or, if already held by the Fund, on the 60th day, based on the value
determined on the 61st day.

Options are generally valued at the last sale price; in the absence of
last sale price, the average between the highest bid and the lowest offer
quoted on such day is used. When the Fund writes an option, an amount equal
to the premium received by it is included in the Fund's statement of assets
and liabilities as an asset and as an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the current market value
of the option written. When the Fund purchases a stock index option, the
premium paid by the Fund is recorded as an asset and is subsequently adjusted
to the current market value of the option. Investments in U.S. Government
securities (other than short-term securities) are valued at the average of the
quoted bid and asked prices in the over-the-counter market.

Notwithstanding the aforementioned methods of valuation, the Trustees may
in their discretion permit or require some other method or methods of
valuation to be used if they consider that such other methods better reflect
the fair market value of all or a portion of the assets of the Fund.

ADVERTISING AND CALCULATION OF PERFORMANCE DATA

From time to time, the Fund may advertise the performance of the Fund in
terms of its total return or its yield and total return. The yield and total
return calculations give effect to all recurring expenses of the Fund and are
computed separately for each class of shares of the Fund.

Average Annual Total Return. Average annual total return is computed by
determining the average annual compounded rate of return over the designated
periods that, if applied to the initial amount invested would produce the
ending redeemable value, according to the following formula:

P(1 + T)n = ERV
WHERE: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the
designated period assuming a hypothetical $1,000
payment made at the beginning of the designated
period

The calculation is based on the further assumptions that the maximum
initial sales charge is deducted, and that all dividends and distributions by
the Fund are reinvested at net asset value on the reinvestment dates during
the designated periods. Based upon the foregoing calculations, the average
annual total returns of the Institutional Class for the one-year and five-year
periods ended December 31, 1996 and for the life of the Fund were 38.06%,
17.38% and 10.18%, respectively, and the average annual total returns of the
Advisor Class for the one-year period ended December 31, 1996 and for the life
of the Fund were 30.91%, and 27.18 %, respectively.

Aggregate Total Return. Aggregate total return is computed by
determining the rate of return over the designated period that, if applied to
the initial amount invested would produce the ending redeemable value,
according to the following formula:
18
<PAGE>
P(1 + T) = ERV

WHERE: P = a hypothetical initial payment of one share
of the Fund, at the net asset value reported on
the first day of the designated period
T = the total return for the period
ERV = ending redeemable value at the end of the
designated period for one share of the Fund

Based upon the foregoing assumptions, the aggregate total return of the
Institutional Class for the one-year and five-year periods ended December 31,
1996 and from inception to December 31, 1996 was 38.06%, 122.82% and 113.26%,
respectively and the aggregate total return for the Advisor Class for the one-
year period ended December 31, 1996 and from inception to December 31, 1996
was 30.91% and 48.17% respectively.

Monthly Yield. Yield is computed by dividing the net investment income
per share earned during a specified one month period by the maximum offering
price per share on the last day of the month and analyzing the result,
according to the following formula:

YIELD = 2 { ( (A-B) + 1)6 -1}
----
cd

WHERE: a = dividends and interest earned during the month
b = expenses accrued for the month (net of reimbursements)
c = the average daily number of shares outstanding
during the month that were entitled to receive dividends
d = the maximum offering price per share on the
last day of the month

The Fund may also advertise its performance for other time periods than
those discussed above.

From time to time the Fund may include information in advertising
concerning its portfolio holdings. For example, the Fund may advertise its
current holding of REITs, their location and category of real estate held by
such REITs, and a sector analysis of the Fund's portfolio composition.

GENERAL INFORMATION

DISTRIBUTIONS TO SHAREHOLDERS

It is the policy of the Fund to declare and distribute dividends
consisting of substantially all of the Fund's net investment income quarterly
and to declare and distribute dividends from the Fund's net short-term capital
gains, if any, annually. The Fund will make distributions of long-term
capital gains at least annually. All such distributions will be made pro rata
to the shareholders based on the number of shares held by each shareholder as
of the record date for each such distribution. The Fund intends to make such

19
<PAGE>
additional distributions of net investment income and capital gain (net of
capital losses) as may be necessary to avoid the imposition of any federal
excise tax. The Trustees may change the Fund's distribution policy in their
sole discretion.

Quarterly distributions will automatically be reinvested in additional
shares unless a shareholder elects to receive distributions in cash as
described in the Prospectus.

REPORTS TO SHAREHOLDERS

The Trustees will issue to the shareholders semi-annual and annual
financial statements of the Trust. Quarterly financial statements of the
Trust are available upon request. At the end of the year the shareholders
will also receive audited financial statements audited by the Fund's
independent public accountants. In addition, shareholders will receive annual
statements of the status of their accounts reflecting current net asset value
per share, and the total value of the Fund's net assets. Daily pricing will
be made available to shareholders upon request.

INDEPENDENT ACCOUNTANTS

Price Waterhouse LLP currently serves as independent accountants for the
Fund. Arthur Andersen LLP served as independent public accountants for the
Fund for all periods prior to January 1, 1996. The financial statements in
this Statement of Additional Information and the Financial Highlights included
in the Prospectuses, each for the fiscal year ended December 31, 1996, have
been audited by Price Waterhouse LLP, independent accountants, given the
authority of said firm as experts in auditing and accounting. The Financial
Statements and Financial Highlights for each of the fiscal periods prior to
January 1, 1996 have been audited by Arthur Andersen LLP,independent public
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance of said Firm as experts in giving said report.

COUNSEL

Legal matters in connection with the offering of shares hereby and the
formation of the Trust are being passed upon for the Trust by Goodwin, Procter
& Hoar LLP, Boston, Massachusetts.

CUSTODIAN

Wilmington Trust Company, Wilmington, Delaware serves as custodian for
the cash and securities of the Fund.

20
<PAGE>
FINANCIAL STATEMENTS

CONTENTS

FINANCIAL STATEMENTS

Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements

REPORT OF INDEPENDENT ACCOUNTANTS

21
<PAGE>
HEITMAN REAL ESTATE FUND
SCHEDULE OF INVESTMENTS DECEMBER 31, 1996
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
NAREIT
CLASSIFICATION MARKET VALUE
SHARES (UNAUDITED) (NOTE 2)
------ ----------- --------
<S> <C> <C> <C>
COMMON STOCK - 91.6%
Alexander Haagen Properties, Inc. .............................. 201,400 Equity $ 2,970,650
Arden Realty Group, Inc. ....................................... 376,700 Equity 10,453,425
Associated Estates Realty Corp. ................................ 170,600 Equity 4,051,750
Avalon Properties, Inc. ........................................ 243,672 Equity 7,005,570
Bay Apartment Communities, Inc. ................................ 99,600 Equity 3,585,600
Brandywine Realty Trust ........................................ 27,900 Equity 544,050
Cali Realty Corporation ........................................ 329,900 Equity 10,185,663
Carramerica Realty Corp. ....................................... 175,600 Equity 5,136,300
Catellus Development Corp.* .................................... 2,300 Equity 26,162
Centerpoint Properties Corp. ................................... 212,900 Equity 6,972,475
Chateau Properties, Inc. ....................................... 134,758 Equity 3,571,087
Chelsea GCA Realty, Inc. ....................................... 165,893 Equity 5,744,045
Colonial Properties Trust ..... ................................ 134,638 Equity 4,089,629
Developers Diversified Realty Corp. ............................ 115,330 Equity 4,281,626
Essex Property Trust, Inc. ..................................... 361,400 Equity 10,616,125
Excel Realty Trust, Inc. ....................................... 287,000 Equity 7,282,625
Felcor Suite Hotels, Inc. ...................................... 198,900 Equity 7,036,088
Grubb & Ellis Realty Income Trust* ............................. 189,700 Mortgage 83,468
Homestead Village, Inc. (Warrants)* ............................ 16,387 Equity 133,144
Homestead Village, Inc. ........................................ 24,426 Equity 439,668
Kimco Realty Corp. ............................................. 219,500 Equity 7,655,063
Liberty Property Trust ......................................... 188,700 Equity 4,859,025
Meridian Industrial Trust ...................................... 335,200 Equity 7,039,200
Post Properties, Inc. ......................................... 45,177 Equity 1,818,374
Regency Realty Corp. .......................................... 189,000 Equity 4,961,250
Rouse Company ................................................. 174,900 Equity 5,553,075
Security Capital Industrial Trust ............................. 139,491 Equity 2,981,620
Security Capital Pacific Trust ................................. 201,230 Equity 4,603,136
Simon Debartolo Group Inc. ..................................... 92,536 Equity 2,868,616
South West Property Trust ...................................... 282,266 Equity 4,763,239
Sovran Self Storage, Inc. ...................................... 231,200 Equity 7,225,000
Spieker Properties, Inc. ....................................... 179,500 Equity 6,462,000
Starwood Lodging Trust ......................................... 74,200 Equity 4,090,275
Storage Trust Realty ........................................... 280,000 Equity 7,560,000
Storage USA Inc. ............................................... 46,000 Equity 1,730,750
Tanger Factory Outlet Center, Inc. ............................. 98,800 Equity 2,679,950
Trizec Hahn Corp. .............................................. 702,600 Equity 15,457,200
Vornado Realty Trust ........................................... 93,900 Equity 4,929,750
-----------

TOTAL COMMON STOCK (COST $146,843,055) ............................................... 191,446,673
-----------

PAR ($000) OR MARKET VALUE
NUMBER OF SHARES (NOTE 2)
---------------- --------
PREFERRED STOCK - 0.4%
Security Capital Industrial Trust, 7.00%,
Convertible (COST $797,600).................................... 33,600 $ 915,600
-----------

U.S. GOVERNMENT AGENCY OBLIGATION - 9.0%
Federal Home Loan Banks Discount Notes, 5.00%,
due 01/02/97 (COST $18,777,392)................................ $18,780 18,777,392
-----------

TOTAL INVESTMENTS (COST $166,418,047) - 101.0%................................................ 211,139,665
-----------

OTHER ASSETS AND LIABILITIES, NET -(1.0)%..................................................... (2,059,999)
-----------

NET ASSETS -100.0%............................................................................ $209,079,666
------------

* Non-income priducing security.

</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

HEITMEN REAL ESTATE FUND
STATEMENT OF ASSETS AND LIABILITIES - DECEMBER 31, 1996
- -------------------------------------------------------------------------------
<TABLE>

<S> <C> <C>
ASSETS:
Investments, at market value
(identified cost $166,418,047) (Note 3)................................. $ 211,139,665
Cash...................................................................... 4,800
Receivables:
Capital shares sold...................................................... 1,212,839
Dividends................................................................ 1,271,793
Other assets.............................................................. 17,624
-------------
TOTAL ASSETS........................................................... 213,646,721
-------------

LIABILITIES:
Payables:
Capital shares redeemed.................................................. 108,851
Investment management fees (Note 4)...................................... 114,760
Investment securities purchased.......................................... 4,113,815
Accrued expenses......................................................... 229,629
-------------
TOTAL LIABILITIES...................................................... 4,567,055
-------------

NET ASSETS:
(Applicable to 19,058,912 shares of $0.001 par value
beneficial interest issued and outstanding; unlimited
number of shares authorized)............................................. $ 209,079,666
=============

Net asset value, offering price and redemption price per
Institutional class share ($129,275,157 / 11,790,030).................. $10.96
======

Net asset value and redemption price per
Advisor class share ($79,804,509 / 7,268,882).......................... $10.98
======

Offering price per Advisor class share ($10.98 / 0.9525).................. $11.53
======

COMPONENTS OF NET ASSETS:
Paid-in capital........................................................... $ 164,539,659
Distributions in excess of net realized gain on investments............... (181,611)
Net unrealized appreciation of investments................................ 44,721,618
-------------

NET ASSETS................................................................. $ 209,079,666
=============
</TABLE>
<PAGE>

HEITMAN REAL ESTATE FUND
STATEMENT OF OPERATIONS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
- -------------------------------------------------------------------------------
<TABLE>

<S> <C> <C>
INVESTMENT INCOME:
Dividends (Note 2)........................................................ $ 6,796,180
Interest.................................................................. 622,678
-------------
Total investment income.................................................. 7,418,858
-------------

EXPENSES:
Advisory fees (Note 4).................................................... $ 992,968
Administration fees (Note 4).............................................. 141,640
Trustees' fees and expenses (Note 5)...................................... 71,359
Accounting fees (Note 4).................................................. 73,582
Professional fees......................................................... 134,268
Custodian fees............................................................ 42,889
Insurance................................................................. 41,875
Federal Registration fees................................................. 16,407
State Registration fees................................................... 24,520
Shareholder report fees................................................... 31,966
Distribution fees - Advisor Shares (Note 4)............................... 89,289
Shareholder Servicing fees - Advisor Shares (Note 4)...................... 89,289
Transfer agent fees....................................................... 87,449
Other..................................................................... 30,583
-------------

Total expenses......................................................... 1,868,084
-------------

Net investment income................................................ 5,550,774
-------------

REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from security transactions.............................. 11,165,013
Net change in unrealized appreciation of investments...................... 34,985,157
-------------

Net realized and unrealized gain on investments........................ 46,150,170
-------------

Net increase in net assets resulting from operations...................... $ 51,700,944
=============
</TABLE>
<PAGE>
HEITMAN REAL ESTATE FUND
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>

For the Fiscal For the Fiscal
Year Ended Year Ended
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
OPERATIONS:
Net investment income (Note 2)............................................ $ 5,550,774 $ 3,839,479
Net realized gain (loss) from security transactions....................... 11,165,013 (1,952,399)
Net change in unrealized appreciation of investments...................... 34,985,157 7,936,118
-------------- -------------
Net increase in net assets resulting from operations..................... 51,700,944 9,823,198
-------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS - INSTITUTIONAL SHARES (NOTE 2):
From net investment income ($0.37 and $0.33 per share, respectively)...... (4,155,578) (3,778,062)
In excess of net investment income ($0.10 and $0.00 per share,
respectively)............................................................ (1,094,050) -
From net capital gains ($0.41 and $0.00 per share, respectively).......... (4,677,017) (37,013)
From tax return of capital ($0.00 and $0.18 per share, respectively)...... - (2,081,064)

DISTRIBUTIONS TO SHAREHOLDERS - ADVISOR SHARES (NOTE 2):
From net investment income ($0.31 and $0.23 per share, respectively)...... (1,395,196) (69,725)
In excess of net investment income ($0.12 and $0.00 per share,
respectively)............................................................ (529,580) -
From net capital gains ($0.41 and $0.00 per share, respectively).......... (2,751,674) (683)
From tax return of capital ($0.00 and 0.13 per share, respectively)....... - (38,406)
-------------- -------------
Total distributions paid to shareholders................................. (14,603,095) (6,004,953)
-------------- -------------
CAPITAL SHARE TRANSACTIONS:
Receipt from Institutional Shares sold.................................... 45,944,221 16,694,861
Receipt from Institutional Shares issued on reinvestment of distributions. 3,754,881 3,002,158
Institutional Shares redeemed............................................. (41,272,537) (33,136,352)
Receipt from Advisor Shares sold.......................................... 67,072,455 10,634,266
Receipt from Advisor Shares issued on reinvestment of distributions....... 4,469,947 72,560
Advisor Shares redeemed................................................... (9,199,099) (5,442,423)
-------------- -------------
Increase (decrease) in net assets resulting from capital share
transactions (a)......................................................... 70,769,868 (8,174,930)
-------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS................................ 107,867,717 (4,356,685)

NET ASSETS:
Beginning of year......................................................... 101,211,949 105,568,634
-------------- -------------
End of year............................................................... $ 209,079,666 $ 101,211,949
============== =============
(a)TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST WERE:
Institutional Shares sold................................................. 4,898,411 2,056,156
Institutional Shares issued on reinvestment of distributions.............. 376,263 368,561
Institutional Shares redeemed............................................. (4,542,560) (4,093,559)
Advisor Shares sold....................................................... 7,164,380 1,276,166
Advisor Shares issued on reinvestment of distributions.................... 429,486 8,519
Advisor Shares redeemed................................................... (961,503) (648,167)
-------------- -------------
Net increase (decrease) in shares......................................... 7,364,477 (1,032,324)
Shares outstanding - Beginning balance.................................... 11,694,435 12,726,759
-------------- -------------
Shares outstanding - Ending balance....................................... 19,058,912 11,694,435
============== =============

</TABLE>
<PAGE>
HEITMAN REAL ESTATE FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------

The table below sets forth financial data for a share of beneficial interest
outstanding throughout each fiscal period presented.

INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
For the For the
Fiscal Years Three-Month
Ended Period Ended For the Fiscal Years
December 31, Dec. 31, Ended September 30,
-------------- ------------ ------------------------
1996 1995 1994 1994 1993 1992
----- ----- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............. $8.65 $8.30 $9.23 $10.95 $8.29 $7.66
------ ------ ------ ------ ------ ------

INCOME FROM INVESTMENT OPERATIONS
Net investment income (a)....................... 0.37 0.33 0.10 0.32 0.40 0.45
Net realized and unrealized gain (loss)
on investments................................. 2.82 0.53 (0.05) (0.92) 2.67 0.63
------ ------ ------ ------ ------ ------
Total from investment operations............. 3.19 0.86 0.05 (0.60) 3.07 1.08
------ ------ ------ ------ ------ ------
DISTRIBUTIONS
From net investment income (a).................. (0.37) (0.33) (0.10) (0.31) (0.41) (0.45)
In excess of net investment income.............. (0.10) 0.00 0.00 0.00 0.00 0.00
From net realized gain on investments........... (0.41) 0.00 (0.77) (0.67) 0.00 0.00
From tax return of capital (b).................. 0.00 (0.18) (0.11) (0.14) 0.00 0.00
------ ------ ------ ------ ------ ------
Total distributions.......................... (0.88) (0.51) (0.98) (1.12) (0.41) (0.45)
------ ------ ------ ------ ------ ------

NET ASSET VALUE, END OF PERIOD................... $10.96 $8.65 $8.30 $9.23 $10.95 $8.29
====== ====== ====== ====== ====== ======

Total Return..................................... 38.06% 10.87% 0.65%c (5.22)% 37.76% 14.49%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)............ $129,275 $95,692 $105,569 $116,268 $141,672 $66,521
Ratio of expenses to average net assets......... 1.23% 1.29% 1.28%* 1.22% 1.24% 1.37%
Ratio of net investment income to
average net assets (a)......................... 4.09% 3.97% 4.35%* 2.87% 4.37% 5.75%
Portfolio Turnover.............................. 59.88% 65.33% 37.55%* 90.11% 61.47% 28.05%
Average commission rate paid (d)................ $0.0504 - - - - -

</TABLE>
- ---------------------
* Annualized.
a Distributions from REIT investments generally include a return of
capital. For financial reporting purposes, through September 30, 1993,
the Fund recorded all distributions received, including the returns of
capital, as net investment income.
b Historically, the Fund has distributed to its shareholders amounts
approximating dividends received from the REITs. As more fully explained
in Note 2, the Fund, for the fiscal year ended September 30, 1994,
adopted an accounting pronouncement affecting the presentation of
distributions to shareholders. The financial highlights for the years
ended September 30, 1992 and 1993 have not been restated.
c Not annualized.
d Required disclosure for fiscal years beginning after September 1, 1995
pursuant to SEC regulations.

<PAGE>
HEITMAN REAL ESTATE FUND
FINANCIAL HIGHLIGHTS - CONTINUED
- -------------------------------------------------------------------------------

The table below sets forth financial data for a share of beneficial interest
outstanding throughout the fiscal periods presented.

ADVISOR SHARES
<TABLE>
<CAPTION>
For the Period
May 15, 1995
(Commencement
For the Fiscal of Operations)
Year Ended through
December 31, 1996 December 31, 1995
----------------- -----------------

<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....... $8.67 $8.00
------ ------

INCOME FROM INVESTMENT OPERATIONS
Net investment income (a)................. 0.31 0.23
Net realized and unrealized gain
on investments........................... 2.84 0.80
------ ------
Total from investment operations....... 3.15 1.03
------ ------
DISTRIBUTIONS
From net investment income (a)............ (0.31) (0.23)
In excess of net investment income........ (0.12) 0.00
From net realized gain on investments..... (0.41) 0.00
From tax return of capital (b)............ 0.00 (0.13)
------ ------
Total distributions.................... (0.84) (0.36)
------ ------

NET ASSET VALUE, END OF PERIOD............. $10.98 $8.67
====== ======

Total Return (c)........................... 37.44% 13.19%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)...... $79,805 $5,520
Ratio of expenses to average net assets... 1.73% 1.99%* d
Ratio of net investment income to
average net assets (a)................... 3.91% 4.27%* d
Portfolio Turnover........................ 59.88% 65.33%*
Average commission rate paid (e).......... $0.0504 -
</TABLE>
- ------------------------
* Annualized.
a Distributions from REIT investments generally include a return of
capital, which the Fund records as a reduction in the cost basis of its
investments.
b Historically, the Fund has distributed to its shareholders amounts
approximating distributions received from the REITs. Such distributions
may include a portion which may be a return of capital.
c These results do not include the sales charge. If the charge had been
included, the returns would have been lower. The total return figure for
the fiscal period ended December 31, 1995 has not been annualized.
d During 1995, the Advisor agreed to reimburse a portion of the Advisor
Shares' expenses. Without reimbursement, the expense ratio would have
been 5.34% and the ratio of net investment income to average net assets
would have been 0.92%.
e Required disclosure for fiscal years beginning after September 1, 1995
pursuant to SEC regulations.

<PAGE>

HEITMAN REAL ESTATE FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996
- ------------------------------------------------------------------------

NOTE 1 - ORGANIZATION
Heitman Securities Trust (the "Trust") is registered as a diversified
open-end management investment company under the Investment Company Act
of 1940, as amended (the "1940 Act"). The Trust was organized on
September 15, 1988, as a Massachusetts business trust under a Master
Trust Agreement which was amended and restated on February 28, 1995 (the
"Master Trust Agreement"). The Master Trust Agreement permits the
issuance of an unlimited number of shares of beneficial interest in
separate series, with shares of each series representing interests in a
separate portfolio of assets. Heitman Real Estate Fund (the "Fund") was
organized as a series of the Trust on September 15, 1988 and shares of
the Trust representing interests in the Fund were registered with the
Securities and Exchange Commission on January 4, 1989. The Fund's
investment objective is to obtain high total return consistent with
reasonable risk by investing primarily in equity securities of public
companies principally engaged in the real estate business.

The Fund offers two classes of shares (Institutional Shares and Advisor
Shares). Institutional Shares and Advisor Shares are substantially
identical, except that Advisor Shares bear the fees that are payable
under a Distribution Plan adopted by the Board of Trustees ( the
"Distribution Plan") at an annual rate of 0.25% of the average daily net
assets of Advisor Shares. The Advisor Shares bear the fees payable to
service organizations pursuant to a Shareholder Servicing Plan at an
annual rate of 0.25% of the average daily net assets of Advisor Shares
owned by shareholders with whom the service organizations have a
servicing relationship. In addition to the fees paid pursuant to the
Distribution Plan and the Shareholder Servicing Plan, each class bears
the expenses associated with transfer agent fees and expenses, printing
of shareholder reports, registration fees, administrative, and
accounting fees. Institutional Shares were offered for sale on March 13,
1989 and Advisor Shares were offered for sale on May 15, 1995.

Because the Fund may invest a substantial portion of its assets in
REITs, the Fund may also be subject to certain risks associated with
direct investments in REITs. REITs may be affected by changes in the
value of their underlying properties and by defaults by borrowers or
tenants. Furthermore, REITs are dependent upon specialized management
skills, have limited diversification and are, therefore, subject to
risks inherent in financing a limited number of projects. REITs depend
generally on their ability to generate cash flow to make distributions
to shareholders, and certain REITs have self-liquidation provisions by
which mortgages held may be paid in full and distributions of capital
returns may be made at any time. In addition, the performance of a REIT
may be affected by its failure to qualify for tax-free pass-through of
income under the Internal Revenue Code or its failure to maintain
exemption from registration under the 1940 Act.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT SECURITIES TRANSACTIONS AND INVESTMENT INCOME
- --------------------------------------------------------
The Fund's investment securities portfolio consists primarily of
investments in public companies engaged in the real estate business.
Investment securities transactions are recorded on a trade date basis.
Dividend income and distributions to shareholders are recorded on the ex-
dividend date. Interest income is recorded on the accrual basis.
Realized gains or losses on sales of investment securities are
determined on the first-in, first-out ("FIFO") basis.

The majority of the dividend income recorded by the Fund is from Real
Estate Investment Trusts ("REITs"). For tax purposes, a portion of these
dividends consists of capital gains and returns of capital. For
financial reporting purposes through September 30, 1993, these dividends
were recorded as dividend income, and the investment in the REIT
reported at market value. During the fiscal year ended September 30,
1994, effective October 1, 1993, the Fund changed its accounting policy
to record the return of capital portion of dividends received, as
provided by the REITs, as a reduction in the cost basis of its
investments in the REITs. This change has no effect on the calculation
of net asset value per share.

Generally, the Fund has distributed to its shareholders amounts
approximating distributions received from the REITs. Accordingly, the
Fund's distributions to shareholders have included the return of capital
received from the REITs as well as returns of capital attributed to
distributions of other income for financial reporting purposes which was
not subject to current taxation. In accordance with Statement of
Position 93-2, Determination, Disclosure and Financial Statement
Presentation of Income, Capital Gain and Return of Capital Distributions
by Investment Companies ("SOP"), distributions representing a return of
capital for tax purposes are charged to paid-in capital.

INVESTMENT SECURITIES VALUATION
- -------------------------------
Investment securities traded on a national securities exchange are
valued at the last reported sales price on the day of valuation. If
there has been no sale, the investment security is valued at the average
between the closing bid and closing offer quoted on such day. Investment
securities traded only in the over-the-counter market are valued at the
last price reported on the NASDAQ National Market System, or, if the
security is not reported on the NASDAQ National Market System, at the
last reported bid on such day. Otherwise, the investment security is
valued by such method as the Trustees shall determine in good faith to
reflect its fair value.

Effective May 14, 1992, Grubb & Ellis Realty Trust ("GRIT") completed
its dissolution by transferring all its remaining assets to a
liquidating trust. On the date of the dissolution, GRIT's shares were
canceled and replaced by beneficial interests in a liquidating trust,
which are not transferable. On March 25, 1994, the Fund received a
distribution from GRIT in the amount of $369,915, representing $1.95 for
each share of the GRIT liquidating trust held by the Fund. The Trustees
have determined that the Fund's ownership in the remainder of the
liquidating trust should be valued at $0.44 per share. At December 31,
1996, the Fund owned 189,700 shares of the GRIT liquidating trust for a
value of $83,468.

INCOME TAXES
- ------------
The Fund intends to continue to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986, as
amended. As a regulated investment company, the Fund will be entitled to
claim a dividends paid deduction for distributions of income and capital
gains to shareholders. Accordingly, the Fund will not be liable for
federal income taxes to the extent its taxable investment income and net
realized capital gains are fully distributed to shareholders.

The Fund is also subject to a nondeductible 4% excise tax calculated as
a percentage of certain undistributed amounts of net investment income
and net capital gains. The Fund intends to distribute its net investment
income and capital gains as necessary to avoid this excise tax. The
amount of capital loss carryforward utilized during the fiscal year
ended December 31, 1996 was approximately $3,735,000.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.

EXPENSES
- --------
All expenses of the Fund (other than expenses incurred under the
Distribution Plan and the Shareholder Servicing Plan) are allocated to
each class on the basis of the net asset value of that class in relation
to the net asset value of the Fund.

NOTE 3 - INVESTMENT SECURITIES
For the fiscal year ended December 31, 1996, the cost of purchases and
the proceeds from sales of investment securities (excluding short-term
investments) aggregated $131,165,704 and $77,468,388, respectively.
Cost for federal income tax purposes is $166,599,658 and unrealized
appreciation consists of:

Gross unrealized appreciation $45,002,458
Gross unrealized depreciation (462,451)
-----------
Net unrealized appreciation $44,540,007
===========

NOTE 4 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund entered into an Investment Management Agreement (the
"Agreement") with Heitman/PRA Securities Advisors, Inc. (the "Advisor")
on January 31, 1995. The Advisor is a wholly owned subsidiary of Heitman
Financial Ltd. ("Heitman"), a wholly owned subsidiary of United Asset
Management Corporation. The Fund pays the Advisor a fee for its
services, calculated daily and paid monthly, at the annual rate of 0.75%
of the Fund's first $100 million of average daily net assets and 0.65%
of the average daily net assets of the Fund in excess of $100 million,
excluding assets invested in any money market mutual fund. The
Agreement provides that in the event total expenses of the Fund
(exclusive of interest, taxes, brokerage expenses, distribution expenses
and extraordinary items) for any fiscal year of the Fund exceed (i)
1.75% of the Fund's average net assets up to $50 million plus (ii) 1.50%
of the Fund's average net assets in excess of $50 million, the Advisor
will pay or reimburse the Fund for that excess up to the amount of its
advisory fee during that fiscal year.

Prior to January 31, 1995, PRA Securities Advisors, L.P. (the "Prior
Advisor") served as the Fund's advisor pursuant to an Investment
Management Agreement whose terms were substantially the same as the
Fund's current Agreement with the Advisor.

Rodney Square Management Corporation ("Rodney Square"), a wholly owned
subsidiary of Wilmington Trust Company ("WTC"), which is wholly owned by
Wilmington Trust Corporation, a publicly held bank holding company,
provides accounting, administration and transfer agent services. For
accounting services provided through November 13, 1996, Rodney Square
received an annual fee of $45,000 plus an amount equal to 0.02% of that
portion of the Institutional Shares' average daily net assets for the
year in excess of $100 million, plus any out-of-pocket expenses. In
addition, for accounting services provided through November 13, 1996,
Rodney Square also received an amount equal to 0.02% of the Fund's
average daily net assets with respect to the Advisor Shares, subject to
a minimum annual fee of $25,000, plus any out-of-pocket expenses.
Effective November 14, 1996 the Board of Trustees agreed to a change in
the accounting services fee. Under the new agreement the Fund pays an
annual fee of $75,000, plus an amount equal to 0.02% of the Fund's
average daily net assets in excess of $100 million, plus any out-of-
pocket expenses. For administrative services provided, Rodney Square
receives a monthly administration fee from the Fund at an annual rate of
0.10% of the Fund's average daily net assets, plus any out-of-pocket
expenses. Additionally, for administrative services provided, the
Advisor Shares are subject to a minimum annual fee of $25,000.

The Fund has adopted a Distribution Plan for the Advisor Shares in
accordance with Rule 12b-1 under the 1940 Act. Under the provisions of
the Distribution Plan, the Fund makes payments to ACG Capital
Corporation, the distributor for the Advisor Shares ( "ACG" or the
"Distributor") at an annual rate of 0.25% of the daily net assets of
Advisor Shares of the Fund as a distribution fee. The distribution fees
are used by the Distributor to finance activities primarily intended to
result in the sale of Advisor Shares of the Fund.

The Fund has also adopted a Shareholder Servicing Plan for the Advisor
Shares. Pursuant to the Shareholder Servicing Plan, the Trust contracts
with service organizations to provide a variety of shareholder services,
such as maintaining shareholder accounts and records, answering
inquiries regarding the Fund, and processing purchase and redemption
orders. The Fund pays fees to service organizations in amounts up to an
annual rate of 0.25% of the daily net asset value of Advisor Shares
owned by shareholders with whom the service organization has a servicing
relationship.

NOTE 5 - REMUNERATION OF TRUSTEES
Certain officers and trustees of the Fund are also officers and/or
affiliates of the Advisor or certain shareholders.

<PAGE>

HEITMAN REAL ESTATE FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- ------------------------------------------------------------------------

To the Trustees and Shareholders of Heitman Real Estate Fund, Inc.:

In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Heitman Real Estate Fund, Inc. (the "Fund") at December 31, 1996, and
the results of its operations, the changes in its net assets and the
financial highlights for the year then ended, in conformity with
generally accepted accounting principles. These financial statements
and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements
based on our audit. We conducted our audit of these financial
statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement
presentation. We believe that our audit, which included confirmation of
securities at December 31, 1996 by correspondence with the custodian
and, where appropriate, the application of alternative auditing
procedures for unsettled security transactions, provides a reasonable
basis for the opinion expressed above. The financial statements of the
Fund for the fiscal periods presented prior to the year ended December
31, 1996 were audited by other independent accountants whose report
dated February 26, 1996 expressed an unqualified opinion on those
statements.

PRICE WATERHOUSE LLP
Philadelphia, PA
February 14, 1997