<PAGE>
LOGO
MANAGEMENT LETTER JUNE 30, 1998
- -------------------------------------------------------------------------------
PERFORMANCE
Since their peak during the 4th quarter of 1997, REITs and other real estate
operating companies have shown disappointing results, falling well short of
the broader market. During the first half of 1998, the Wilshire Real Estate
Securities Index/1/ (WRESI) was down 5.3%, while the S&P 500 Index/2/ (S&P)
was up 17.7%. To place these returns in longer-term context, the WRESI five-
year returns for the period ending June 30, 1998 were 12.65%, compared to the
S&P at 23.04%. The performance of the Heitman Real Estate Fund (the "Fund")
for the first six months of 1998 was (6.05)% for the Institutional Class and
(6.35)% at net asset value and (10.80)% at public offering price/3/ for the
Advisor Class. The following table compares the Fund's performance versus the
indices for the period ending June 30, 1998
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
ADVISOR CLASS ADVISOR CLASS WILSHIRE
HEITMAN/PRA NET ASSET PUBLIC OFFERING REAL ESTATE
INSTITUTIONAL CLASS VALUE PRICE (1) SECURITIES INDEX S&P 500
------------------- ------------- --------------- ---------------- -------
<S> <C> <C> <C> <C> <C>
3/13/89(2)-6/30/98...... 10.00% n/a n/a 6.61% 18.75%
5/15/95(3)-6/30/98...... n/a
5 Years Ending 6/30/98.. 13.10% n/a n/a 12.63% 23.06%
3 Years Ending 6/30/98.. 20.65% 18.99% 30.23%
1 Year Ending 6/30/98... 6.93% 6.34% 1.29% 6.51% 30.17%
Quarter Ending 6/30/98.. (7.04)% (7.31)% (11.71)% (4.59)% 3.32%
</TABLE>
- --------
(1) Reflects the deduction of the maximum 4.75% sales charges and assumes re-
investment of all dividends at net asset value.
(2) Inception date of Institutional Class.
(3) Inception date of Advisor Class.
For those who focus on property sector analysis, retail companies did the
best during the first six months of 1998, followed closely by apartment and
industrial companies. Office and hotel companies fared the poorest, generating
(8.8)% and (11.4)%, respectively. These two property types registered the
highest performance by property sector for calendar year 1997, generating a
32.4% return for office companies and a 24.5% return for hotels.
This significant decrease in the performance of REITs and real estate
operating companies from 1997 levels to the first six months of 1998, has
principally been the result of contraction in multiples as opposed to a
deterioration in earnings. Multiples grew to more than 13x forward earnings in
1997, and have recently dropped closer to 10x on 1999 expected earnings. We
expect multiples to stabilize in the 10x-11x range over the near term. This
contraction in multiples can be partially explained by comparing trends in
recent, current and estimated earnings growth. Average company growth in FFO
(Funds from Operations) in 1997 was 11.1%, and estimated growth for this year
is 15.2%. In 1999 we estimate growth will move back closer to 11%. We believe
the market is reacting to this respectable, but lower, growth rate by pricing
REITs at a lower multiple.
- --------
/1/The Wilshire Real Estate Securities Index is an unmanaged index of real
estate securities.
/2/The S&P 500 is an unmanaged index of common stock which cannot be directly
invested in.
/3/Reflects the reduction of the maximum 4.75% sales charge and assumes
reinvestment of all dividends at net asset value.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. INVESTMENT RETURNS AND
PRINCIPAL VALUES WILL FLUCTUATE, SO THAT, WHEN REDEEMED, SHARES MAY BE WORTH
LESS THAN THEIR ORIGINAL COST.
1
<PAGE>
LOGO
MANAGEMENT LETTER -- continued JUNE 30, 1998
- -------------------------------------------------------------------------------
REAL ESTATE MARKET
Our view is that the real estate markets remain quite healthy, stabilizing
after the substantial recovery of the post-1992 period. In the apartment
sector, for example, we see conditions generally healthy, with rent growth
exceeding inflation across local markets. For the office sector we expect net
absorption in the 50 largest markets to exceed 75 million square feet in 1998,
more than overshadowing the expected 60 million square feet of new
construction. For industrial properties the national vacancy rate is about 8%,
and new construction in 1998 is actually expected to be 13% less than in 1997.
Higher quality regional malls and neighborhood/community shopping centers also
are enjoying increased rents, however lower quality malls and power centers
are showing pockets of weakness.
MARKET CAPITALIZATION
Market capitalization of the WRESI increased to $141.4 billion as of June
30, 1998, up from $129.1 billion as of year end 1997. The principal component
of this growth was issuance of secondary equity by existing companies, which
totaled nearly $14 billion during the first six months of this year. This
growth, which is expected to modestly subside for the balance of 1998, is
reflective of the larger trend of commercial property ownership in the United
States gradually changing from private entities to public companies. We expect
this transition to accelerate again when REIT prices rise, resulting in more
competitive cost of capital for REITs and other real estate operating
companies.
LEGISLATIVE UPDATE
As part of H.R. 2676 Congress passed and the President signed into law in
July, 1998 a provision that would generally limit the tax benefits of so-
called "paired-share" REITs. Although the new rules will not affect the tax
treatment of assets held by the paired-share REITs as of March 26, 1998, any
new acquisitions or substantial improvements will not be able to utilize the
"paired-share" structure. This change in tax law will have diminimus effect on
the industry as only six companies are organized as paired-share REITs, mostly
in the hotel sector in which the Fund has always had less than market
weighting.
OUTLOOK
We believe the fundamentals of the companies in our universe will continue
to remain strong, although the rate of earnings growth will not be as strong
going forward as we are experiencing in 1998. Disclosure of public real estate
companies, coupled with an abundance of data available to the investor will
have the effect of dampening real estate cycles going forward. As Advisor to
the Fund we will continue to maintain a cautious eye for companies which no
longer meet our expectations for stable growth in cash flow per share. At the
same time, we will continue to remain loyal to our value style which we
interpret as growth at a reasonable price (GARP).
Sincerely,
/s/ Dean A. Sotter /s/ Timothy J. Pire /s/ Randy Newsome
Dean A. Sotter Timothy J. Pire, CFA Randy Newsome
Portfolio Manager Portfolio Manager Portfolio Manager
August 18, 1998
8/97. ACG Capital Corporation is the distributor for the Heitman/PRA
Institutional Class and Advisor Class.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. INVESTMENT RETURNS AND
PRINCIPAL VALUES WILL FLUCTUATE, SO THAT, WHEN REDEEMED, SHARES MAY BE WORTH
LESS THAN THEIR ORIGINAL COST.
2
<PAGE>
LOGO
SCHEDULE OF INVESTMENTS (UNAUDITED) JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAREIT Market Value
Shares Classification (Note 2)
------- -------------- ------------
<S> <C> <C> <C>
COMMON STOCK -- 83.19%
Alexander Haagen Properties, Inc. ......... 390,800 Equity $5,886,425
Bedford Property Investors, Inc. .......... 196,100 Equity 3,578,825
Boston Properties, Inc. ................... 35,900 Equity 1,238,550
Brandywine Realty Trust.................... 84,980 Equity 1,901,427
BRE Properties, Inc., Class A.............. 73,700 Equity 1,920,806
Cabot Industrial Trust..................... 40,700 Equity 869,963
Cadillac Fairview Corp.*................... 145,600 Equity 3,348,800
Capital Automotive REIT.................... 295,410 Equity 4,191,129
CCA Prison Realty Trust.................... 23,100 Equity 707,437
CenterPoint Properties Corp. .............. 59,100 Equity 1,953,994
Chelsea GCA Realty, Inc. .................. 57,593 Equity 2,303,720
Crescent Real Estate Equities Co. ......... 137,900 Equity 4,636,887
CRIIMI MAE Inc. ........................... 146,700 Mortgage 2,035,462
Developers Diversified Realty Corp. ....... 92,830 Equity 3,637,776
Eastgroup Properties....................... 128,118 Equity 2,570,367
Equity Office Properties Trust............. 152,204 Equity 4,318,788
Essex Property Trust, Inc. ................ 194,952 Equity 6,043,512
Excel Legacy Corp.*........................ 385,145 Equity 1,685,009
Excel Realty Trust, Inc. .................. 165,700 Equity 4,774,231
First Washington Realty Trust.............. 145,200 Equity 3,375,900
Florida Panthers Holdings, Inc.*........... 72,200 Equity 1,421,437
Great Lakes REIT, Inc. .................... 900 Equity 15,694
Kilroy Realty Corp. ....................... 237,800 Equity 5,945,000
LaSalle Hotel Properties*.................. 89,558 Equity 1,516,889
Mack-Cali Realty Corp. .................... 172,300 Equity 5,922,813
Meridian Industrial Trust, Inc. ........... 190,800 Equity 4,388,400
Merry Land & Investment Co., Inc. ......... 22,200 Equity 467,588
Pan Pacific Retail Properties, Inc. ....... 148,200 Equity 3,019,575
Parkway Properties, Inc. .................. 143,100 Equity 4,221,450
Philips International Realty Corp. ........ 99,000 Equity 1,633,500
Prentiss Properties Trust.................. 108,300 Equity 2,633,044
PS Business Parks, Inc. ................... 43,900 Equity 1,031,650
Public Storage, Inc. ...................... 127,400 Equity 3,567,200
Regency Realty Corp. ...................... 76,700 Equity 1,927,088
Rouse Co. ................................. 106,300 Equity 3,341,806
Security Capital Atlantic, Inc. ........... 144,500 Equity 3,224,156
Security Capital Group, Class B*........... 99,800 Equity 2,657,175
Security Capital Pacific Trust............. 180,820 Equity 4,068,450
Servico, Inc.*............................. 448,300 Equity 6,724,500
Sovran Self Storage, Inc. ................. 103,000 Equity 2,909,750
St. Joe Co. ............................... 93,800 Equity 2,567,775
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
LOGO
SCHEDULE OF INVESTMENTS (UNAUDITED) -- continued JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAREIT Market Value
Shares Classification (Note 2)
------ -------------- ------------
<S> <C> <C> <C>
Starwood Hotels & Resorts.............. 107,100 Equity $ 5,174,269
Storage Trust Realty................... 121,200 Equity 2,833,050
Summit Properties, Inc. ............... 93,400 Equity 1,768,763
Trizec Hahn Corp. ..................... 289,700 Equity 6,210,444
Vornado Realty Trust................... 115,700 Equity 4,591,844
Weeks Corp. ........................... 76,800 Equity 2,428,800
------------
TOTAL COMMON STOCK (COST $138,628,105)........................ 147,191,118
------------
PREFERRED STOCK -- 8.18%
Equity Office Properties Trust, 8.98%,
Series A.............................. 103,100 Equity 2,706,375
Health Care Property Investors, Inc.,
7.875%, Series A...................... 143,400 Equity 3,567,075
Highwoods Properties, Inc., 8.00%,
Series B.............................. 122,700 Equity 3,044,494
Security Capital Industrial Trust,
8.54%, Series C....................... 24,670 Equity 1,352,224
Taubman Center, Inc., 8.30%, Series A.. 153,900 Equity 3,799,406
------------
TOTAL PREFERRED STOCK (COST $14,361,198)...................... 14,469,574
------------
INVESTMENT COMPANIES -- 8.65%
Chase Vista Cash Money Market Fund
--Institutional Shares................ 7,466,422 7,466,422
Chase Vista Prime Money Market Fund
--Institutional Shares................ 7,845,296 7,845,296
------------
TOTAL CORPORATE OBLIGATIONS (COST $15,311,717)................ 15,311,718
------------
TOTAL INVESTMENTS (COST $168,301,020) -- 100.02%.............. 176,972,410
OTHER ASSETS AND LIABILITIES, NET -- (0.02%).................. (36,080)
------------
NET ASSETS -- 100.0%.......................................... $176,936,330
============
</TABLE>
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
LOGO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (identified cost $168,301,020)
(Note 3)........................................................... $176,972,410
Receivables:
Dividends......................................................... 790,787
Investment securities sold........................................ 477,771
------------
TOTAL ASSETS..................................................... 178,240,968
------------
LIABILITIES:
Payables:
Capital shares redeemed........................................... 297,011
Investment management fees (Note 4)............................... 102,023
Investment securities purchased................................... 591,044
Payable to custodian bank......................................... 91,208
Accrued expenses................................................... 223,352
------------
TOTAL LIABILITIES................................................ 1,304,638
------------
NET ASSETS:
(Applicable to 18,116,357 shares of $0.001 par value beneficial
interest issued and outstanding; unlimited number of shares
authorized)....................................................... $176,936,330
============
Net asset value, offering price and redemption price per
Institutional class share ($102,410,234/10,484,580)............... $ 9.77
============
Net asset value, offering price and redemption price per Advisor
class share ($74,526,096/7,631,777)............................... $ 9.77
============
Offering price per Advisor class share ($9.77/.9525)............... $ 10.26
============
COMPONENTS OF NET ASSETS:
Paid-in capital.................................................... $154,070,257
Undistributed net investment income................................ 514,082
Accumulated net realized gain on investments....................... 13,680,601
Net unrealized appreciation on investments......................... 8,671,390
------------
NET ASSETS.......................................................... $176,936,330
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
LOGO
STATEMENT OF OPERATIONS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1998
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (Note 2)..................................... $ 3,152,895
Interest............................................... 298,949
------------
Total investment income............................... 3,451,844
------------
EXPENSES:
Advisory fees (Note 4)................................. $680,066
Administration fees (Note 4)........................... 100,779
Trustees' fees and expenses (Note 5)................... 38,359
Accounting fees (Note 4)............................... 47,423
Professional fees...................................... 63,012
Custodian fees......................................... 30,211
Insurance.............................................. 111,271
State registration fees................................ 34,296
Shareholder report fees................................ 11,946
Distribution fees -- Advisor Shares (Note 4)........... 100,285
Shareholder servicing fees -- Advisor Shares (Note 4).. 100,285
Transfer agent fees.................................... 49,644
Other.................................................. 5,922
--------
Total expenses........................................ 1,373,499
------------
Net investment income................................ 2,078,345
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from security transactions........... 13,871,280
Net change in unrealized depreciation of investments... (28,233,047)
------------
Net realized and unrealized loss on investments....... (14,361,767)
------------
Net decrease in net assets resulting from operations.... $(12,283,422)
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
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STATEMENT OF CHANGES IN NET ASSETS JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six Month
Period Ended For the Fiscal
June 30,1998 Year Ended
(Unaudited) December 31,1997
----------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income (Note 2).............. $ 2,078,345 $ 7,297,226
Net realized gain from security
transactions............................... 13,871,280 41,132,067
Net change in unrealized
appreciation/depreciation of investments... (28,233,047) (7,817,181)
------------ ------------
Net increase (decrease) in net assets
resulting from operations................. (12,283,422) 40,612,112
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS --
INSTITUTIONAL SHARES (NOTE 2):
From net investment income ($0.09 and $ 0.40
per share respectively).................... (954,071) (4,846,923)
In excess of net investment income ($0.00
and $0.05 per share respectively).......... -- (579,274)
From net capital gains ($0.00 and $2.24 per
share respectively)........................ -- (26,273,187)
DISTRIBUTIONS TO SHAREHOLDERS -- ADVISOR
SHARES (NOTE 2):
From net investment income ($0.08 and $ 0.35
per share respectively).................... (610,192) (2,450,303)
In excess of net investment income ($0.00
and $0.04 per share respectively).......... -- (292,845)
From net capital gains ($0.00 and $2.24 per
share respectively)........................ -- (15,427,731)
------------ ------------
Total distributions paid to shareholders... (1,564,263) (49,870,263)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Receipt from Institutional Shares sold...... 7,976,177 37,287,687
Receipt from Institutional Shares issued on
reinvestment of distributions.............. 372,629 12,987,988
Institutional Shares redeemed............... (32,687,768) (39,743,768)
Receipt from Advisor Shares sold............ 9,257,113 66,177,339
Receipt from Advisor Shares issued on
reinvestment of distributions.............. 554,066 16,880,394
Advisor Shares redeemed..................... (14,656,040) (73,443,317)
------------ ------------
Increase (decrease) in net assets resulting
from capital share transactions (a)....... (29,183,823) 20,146,323
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS.... (43,031,508) 10,888,172
NET ASSETS:
Beginning of period......................... 219,967,838 209,079,666
------------ ------------
End of period (including undistributed net
investment income of $514,082 and $0,
respectively).............................. $176,936,330 $219,967,838
------------ ------------
(a)TRANSACTIONS IN SHARES OF BENEFICIAL
INTEREST WERE:
Institutional Shares sold................... 780,283 3,286,040
Institutional Shares issued on reinvestment
of distributions........................... 35,934 1,240,228
Institutional Shares redeemed............... (3,174,880) (3,473,055)
Advisor Shares sold......................... 909,095 5,824,983
Advisor Shares issued on reinvestment of
distributions.............................. 53,377 1,613,411
Advisor Shares redeemed..................... (1,445,231) (6,592,740)
------------ ------------
Net increase (decrease) in shares........... (2,841,422) 1,898,867
Shares outstanding -- Beginning balance..... 20,957,779 19,058,912
------------ ------------
Shares outstanding -- Ending balance........ 18,116,357 20,957,779
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
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FINANCIAL HIGHLIGHTS JUNE 30, 1998
- -------------------------------------------------------------------------------
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 For the
Six-Month Fiscal Year Three-Month For the Fiscal Year
Period Ended Ended December 31, Period Ended Ended September 30,
June 30, 1998 --------------------------- December 31, --------------------
(Unaudited) 1997 1996 1995 1994 1994 1993
------------- -------- -------- ------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $ 10.49 $ 10.96 $ 8.65 $ 8.30 $ 9.23 $ 10.95 $ 8.29
-------- -------- -------- ------- -------- --------- ---------
INCOME FROM
INVESTMENT OPERATIONS
Net investment
income(a)............. 0.13 0.40 0.37 0.33 0.10 0.32 0.40
Net realized and
unrealized gain (loss)
on investments........ (0.76) 1.82 2.82 0.53 (0.05) (0.92) 2.67
-------- -------- -------- ------- -------- --------- ---------
Total from investment
operations........... (0.63) 2.22 3.19 0.86 0.05 (0.60) 3.07
-------- -------- -------- ------- -------- --------- ---------
DISTRIBUTIONS:
From net investment
income(a)............. (0.09) (0.40) (0.37) (0.33) (0.10) (0.31) (0.41)
In excess of net
investment income..... 0.00 (0.05) (0.10) 0.00 0.00 0.00 0.00
From net realized gain
on investments........ 0.00 (2.24) (0.41) 0.00 (0.77) (0.67) 0.00
From tax return of
capital(b)............ 0.00 0.00 0.00 (0.18) (0.11) (0.14) 0.00
-------- -------- -------- ------- -------- --------- ---------
Total distributions... (0.09) (2.69) (0.88) (0.51) (0.98) (1.12) (0.41)
-------- -------- -------- ------- -------- --------- ---------
NET ASSET VALUE,
END OF PERIOD.......... $ 9.77 $ 10.49 $ 10.96 $ 8.65 $ 8.30 $ 9.23 $ 10.95
======== ======== ======== ======= ======== ========= =========
Total Return.......... (6.05)% 21.12% 38.06% 10.87% 0.65% (5.22)% 37.76%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (in 000's)..... $102,410 $134,746 $129,275 $95,692 $105,569 $116,268 $141,672
Ratio of expenses to
average net assets.... 1.22%* 1.09% 1.23% 1.29% 1.28%* 1.22% 1.24%
Ratio of net investment
income to average net
assets(a)............. 2.32%* 3.57% 4.09% 3.97% 4.35%* 2.87% 4.37%
Portfolio turnover..... 30.46% 89.51% 59.88% 65.33% 37.55%* 90.11% 61.47%
Average commission rate
paid(c)............... $ 0.0436 $ 0.0425 $ 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 year ended September 30,
1993 has not been restated.
(c) Required disclosure for fiscal years beginning after September 1, 1995
pursuant to SEC regulations.
8
<PAGE>
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FINANCIAL HIGHLIGHTS -- continued JUNE 30, 1998
- -------------------------------------------------------------------------------
The table below sets forth financial data for a share of beneficial interest
outstanding throughout each fiscal period presented.
ADVISOR SHARES
<TABLE>
<CAPTION>
For the For the Fiscal
Six-month Year Ended For the Period
Period Ended December 31, May 15,1995+
June 30,1998 ---------------- through
(Unaudited) 1997 1996 December 31,1995
------------ ------- ------- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................ $10.50 $10.98 $8.67 $8.00
------- ------- ------- ---------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income(a)...... 0.10 0.35 0.31 0.23
Net realized and unrealized
gain (loss) on investments... (0.75) 1.80 2.84 0.80
------- ------- ------- ---------
Total from investment
operations.................. (0.65) 2.15 3.15 1.03
------- ------- ------- ---------
DISTRIBUTIONS:
From net investment
income(a).................... (0.08) (0.35) (0.31) (0.23)
In excess of net investment
income....................... 0.00 (0.04) (0.12) 0.00
From net realized gain on
investments.................. 0.00 (2.24) (0.41) 0.00
From tax return of
capital(b)................... 0.00 0.00 0.00 (0.13)
------- ------- ------- ---------
Total distributions.......... (0.08) (2.63) (0.84) (0.36)
------- ------- ------- ---------
NET ASSET VALUE, END OF
PERIOD........................ $9.77 $10.50 $10.98 $8.67
======= ======= ======= =========
Total Return(c)............... (6.35)% 20.44% 37.44% 13.19%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
000's)....................... $74,526 $85,222 $79,805 $5,520
Ratio of expenses to average
net assets................... 1.72%* 1.59% 1.73% 1.99%*(d)
Ratio of net investment income
to average net assets(a)..... 1.92%* 3.14% 3.91% 4.27%*(d)
Portfolio turnover............ 30.46%* 89.51% 59.88% 65.33%*
Average commission rate
paid(e)...................... $0.0436 $0.0425 $0.0504 --
</TABLE>
- --------
* Annualized
+ Commencement of operations.
(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 dividends received from the REITs. Such distributions may
include a portion which may be a return of capital.
(c) This result does not include the sales charge. If the charge had been
included, the return would have been lower. The total return figure for
the fiscal periods ended June 30, 1998 and December 31, 1995 have 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.
9
<PAGE>
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1998
- -------------------------------------------------------------------------------
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 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 and November 5, 1996, the Fund
10
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NOTES TO FINANCIAL STATEMENTS -- continued JUNE 30, 1998
- -------------------------------------------------------------------------------
received distributions from GRIT in the amount of $369,915 and $110,026,
respectively, representing $1.95 and $0.67, respectively, 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 $0.018 per share. At June 30, 1998, the Fund no longer owned shares
of the GRIT liquidating trust.
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.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
- -------------------------------------------
The Fund records dividends and distributions to its shareholders on the ex-
dividend date.
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. The
amounts of dividends from net investment income and of distributions from net
realized gains are determined in accordance with Federal income tax
regulations, which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the composition of net assets based on their Federal
tax-basis treatment; temporary differences do not require reclassification. At
December 31, 1997, $872,119 of distributions in excess of net investment
income and $559,783 of distributions in excess of net realized gain were
reclassified to paid-in capital. Distributions to shareholders which exceed
net investment income and net realized gain for financial reporting purposes
but not for tax purposes are reported as distributions in excess of net
investment income and net realized gain. To the extent they exceed net
investment income and net realized gain for tax purposes, they are reported as
distributions of capital.
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.
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- -------------------------------------------------------------------------------
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.
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 AND INCOME ALLOCATIONS
- -------------------------------
All expenses of the Fund (other than expenses incurred under the Distribution
Plan and the Shareholder Servicing Plan), income and realized and unrealized
gain and losses 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 six months ended June 30, 1998, the cost of purchases and the proceeds
from sales of investment securities (excluding short-term investments)
aggregated $56,148,646 and $82,870,029, respectively. Cost for federal income
tax purposes is $168,301,020 and unrealized appreciation consists of:
<TABLE>
<S> <C>
Gross unrealized appreciation.. $12,101,561
Gross unrealized depreciation.. (3,430,171)
-----------
Net unrealized
appreciation................ $ 8,671,390
===========
</TABLE>
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. 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.
Effective March 1, 1998 UAM Fund Services, Inc. (the "Administrator"), a
wholly-owned subsidiary of United Asset Management Corporation, provides and
oversees administrative, fund accounting, dividend disbursing and transfer
agent services to the Fund under a Fund Administration Agreement ("the
Administration Agreement"). Pursuant to the Agreement, the Administrator is
entitled to receive annual fees, payable monthly, of 0.19% of the first $200
million of the combined aggregate net assets; plus 0.11% of the next $800
million of the combined aggregate net assets;
12
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NOTES TO FINANCIAL STATEMENTS -- continued JUNE 30, 1998
- -------------------------------------------------------------------------------
plus 0.07% of the next $2 billion of the combined aggregate net assets; plus
0.05% of the combined aggregate net assets in excess of $3 billion. The fees
are allocated among the portfolios of other funds administered by UAM Fund
Services, Inc. and the Heitman Real Estate Fund on the basis of their relative
net assets and are subject to a graduated minimum fee schedule per portfolio
which rises from $2,000 per month, upon inception of a portfolio, to $70,000
annually after two years. For portfolios with more than one class of shares,
the minimum annual fee increases to $90,000. In addition, the Administrator
receives a Portfolio-specific annual fee, payable monthly of 0.06% of average
daily net assets for the Portfolio. The Administrator has entered into a
Mutual Funds Service Agreement with Chase Global Funds Services Company
("CGFSC"), a corporate affiliate of The Chase Manhattan Bank, under which
CGFSC agrees to provide certain services, including but not limited to,
administration, fund accounting, dividend disbursing and transfer agent
services. Pursuant to the Mutual Funds Service Agreement, the Administrator
pays CGFSC a monthly fee. For the six months ended June 30, 1998, UAM Fund
Services, Inc. earned $85,355 from the Portfolio as Administrator and paid
$36,177 to CGFSC.
Prior to March 1, 1998, 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, provided accounting, administration and transfer agent services. For
accounting services provided, 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.
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.
13
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NOTES TO FINANCIAL STATEMENTS -- continued JUNE 30, 1998
- -------------------------------------------------------------------------------
NOTE 6 -- SUBSEQUENT EVENTS
On January 6, 1998, the Trust, on behalf of the Fund, entered into an
Agreement and Plan of Reorganization (the "Agreement") with UAM Funds Trust,
on behalf of the Heitman/PRA Real Estate Portfolio (the "UAM Portfolio"). The
Agreement provides for (i) the transfer of all the assets of the Fund to the
UAM Portfolio in exchange for shares of the UAM Portfolio and the assumption
by the UAM Portfolio of the liabilities of the Fund and (ii) the distribution
of shares of the UAM Portfolio to the then-existing shareholders of the Fund
in liquidation of the Fund (the "Reorganization"). Effective July 1, 1998 the
reorganization has been approved by the stockholders in a vote dated February
27, 1998 with the following results:
<TABLE>
<CAPTION>
Votes in Votes Votes
Proposal Favor of Against Abstained
- -------- ---------- ------- ---------
<S> <C> <C> <C>
1.To reorganize with UAM Funds Trust............... 11,634,627 93,657 282,352
</TABLE>
14
<PAGE>
Heitman Real Estate Fund
SEMI-ANNUAL REPORT
June 30, 1998
Investment Advisor
Heitman/PRA Securities Advisors, Inc.
180 North LaSalle Street, Suite 3600
Chicago, IL 60601
Officers
William L. Ramseyer, Chairman
Dean A. Sotter, President and Treasurer
Timothy Pire, Secretary
Randy Newsome, Assistant Secretary
Board of Trustees
Robert W. Beeney
Donald L. Foote
John F. Goydas
William L. Ramseyer
Maurice Wiener
Distributor - Heitman/PRA Institutional Class
UAM Fund Distributors, Inc.
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208
Distributor - Advisor Class
ACG Capital Corporation
1661 Tice Valley Boulevard #200
Walnut Creek, CA 94595
(800) 888-REIT
Custodian
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, NY 11245
Transfer Agent & Administrator
UAM Fund Services, Inc.
Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208
Trust Headquarters
180 North LaSalle Street, Suite 3600
Chicago, IL 60601
(800) 435-1405
[Heitman logo appears here.]
hf01 2/98
