RREEF
REAL ESTATE
SECURITIES
FUND
Semi-Annual Report
April 30, 1996 (Unaudited)
[RREEF FUND LOGO]
PRESIDENT'S LETTER
Dear Shareholder:
The six month period ending April 30, 1996 was characterized by solid REIT
industry performance. The Wilshire REIT Index and NAREIT Equity REIT Index
less Health Care posted total returns of 10.0% and 9.8%, respectively. We are
pleased to report that the RREEF Real Estate Securities Fund generated a total
return of 11.26% during this period.
It is interesting to note that during this period the bond market was weak.
Ten-year Treasury bonds yielded 6.67% at April 30; up 65 basis points from
October 31, 1995. Some investors consider REITs to be high yield investments.
Clearly, during this period, REITs were appreciated for their growth prospects
as well as for their stable dividend stream.
PORTFOLIO DIVERSIFICATION
Diversification based on REIT market values of $4,661,315 (1) as of April 30,
1996.
[IN THIS LOCATION ARE TWO PIE CHARTS DEPICTING PORTFOLIO DIVERSIFICATION BY
PROPERTY TYPE AND REGION AND SHOWING THE FOLLOWING PLOT POINTS]
PROPERTY TYPE REGION
------------- ------
Apartment 40% West North Central 3%
Hotel 4% Southwest 17%
Office 18% Mountain 4%
Retail 7% Pacific 15%
Industrial 15% Mideast 14%
Self-Storage 9% Northeast 16%
Regional Malls 7% East North Central 11%
Southeast 20%
(1) Diversification is based on RREEF Securities estimate of underlying
property values.
REIT MARKET OUTLOOK
The REIT market continues to look attractive. Most REITs continue to post
solid earnings growth as property level supply/demand fundamentals have
remained healthy. Wall Street analysts expect REITs to deliver funds from
operations (earnings) growth of over 8 percent during calendar year 1996.
2
PRESIDENT'S LETTER (CONTINUED)
During the period, we maintained an overweighted position in the office in
order to participate in its recovery and investment opportunities. The sector
continues to grow in terms of breadth and depth as the existing companies
expand to cover additional metropolitan areas or geographic regions. Beacon
Properties, for example, has changed from having most of its assets in the
Boston area to focusing on several major markets including Atlanta. Carr
Realty is moving from having a Washington, DC focus to becoming a nationally
diversified suburban office REIT. Both of these companies are growing in a
thoughtful, well-researched manner and are helping to further diversify the
office sector.
We also remained overweighted in the apartment, self storage and industrial
sectors during the period. Although these areas are further along in their
respective recovery and growth cycles than office properties, they offer
strong property level fundamentals as well as solid external growth prospects
by way of acquisition and selective development opportunities.
We remain cautious of, and therefore underweighted in, the retail
sectors-regional malls, community centers and factory outlets. While prices
corrected somewhat during 1995, we expect additional negative news from retail
tenants which may result in lower levels of growth and earnings
disappointments for these companies.
We have been researching and following the hotel sector as it has developed.
Until recently, the sector had been very small. As of January 1, 1996,
Wilshire added the hotel sector to its REIT Index and hotel REITs contributed
significant positive performance to the Index during the first calendar
quarter of 1996. We have begun to include companies within this growing sector
in the portfolio on a selective basis. Pricing and fundamentals remain
attractive in the hotel sector.
RREEF's focus remains on companies that have the management expertise and
financial flexibility to capitalize on existing trends and investment
opportunities within their respective markets. We believe that having real
time market intelligence will serve us well, particularly in those sectors
entering more mature growth stages. Metro area exposure., or more specifically
the supply and demand conditions within the metro area, will likely become a
more important factor driving returns in the future.
/s/ Kim G. Redding
- -------------------------
Kim G. Redding
President
3
RREEF REAL ESTATE SECURITIES FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET PERCENT OF
DESCRIPTION SHARES VALUE NET ASSETS
- ----------- ------ ----- ----------
REAL ESTATE INVESTMENT TRUSTS
<S> <C> <C> <C>
MULTI-FAMILY RESIDENTIAL
Avalon Properties, Inc. . . . . . . . . . . . . . . 4,000 $ 84,000
Bay Apartment Communities . . . . . . . . . . . . . 7,900 198,488
Equity Residential Properties Trust . . . . . . . . 10,000 322,500
Evans Withycombe Residential . . . . . . . . . . . . 4,900 105,963
Gables Residential Trust . . . . . . . . . . . . . . 14,100 333,113
Mid-America Apartment Communities, Inc. . . . . . . 8,000 211,000
Oasis Residential, Inc. . . . . . . . . . . . . . . 4,200 94,500
Security Capital Pacific Trust . . . . . . . . . . . 6,700 139,863
United Dominion Realty Trust . . . . . . . . . . . . 23,300 332,025
-------
1,821,452 37.3%
---------
INDUSTRIAL
Centerpoint Properties Corporation . . . . . . . . . 8,100 195,413
First Industrial Realty Trust . . . . . . . . . . . 7,200 171,900
Meridian Industrial Trust, Inc. . . . . . . . . . . 5,800 93,525
Weeks Corporation . . . . . . . . . . . . . . . . . 8,800 214,500
-------
675,338 13.8%
-------
RETAIL
REGIONAL MALLS
CBL & Associates Properties . . . . . . . . . . . . 6,400 132,000
Macerich Company . . . . . . . . . . . . . . . . . . 9,700 187,938
-------
319,938 6.6%
-------
NEIGHBORHOOD AND COMMUNITY SHOPPING CENTERS
Developers Diversified Realty Corporation . . . . . 8,100 235,913
Vornado Realty Trust . . . . . . . . . . . . . . . . 2,300 86,825
------
322,738 6.6%
------- ---
642,676 13.2%
------- ----
OFFICE
Beacon Properties Corporation . . . . . . . . . . . 5,100 130,688
Cali Realty Corporation . . . . . . . . . . . . . . 6,400 146,400
Highwood Properties, Inc. . . . . . . . . . . . . . 3,000 90,750
Spieker Properties, Inc. . . . . . . . . . . . . . . 8,900 231,400
Reckson Associates Realty Corporation . . . . . . . 7,900 235,020
-------
834,258 17.1%
-------
STORAGE
Public Storage, Inc. . . . . . . . . . . . . . . . . 11,500 235,750
Storage USA, Inc. . . . . . . . . . . . . . . . . . 5,500 182,188
-------
417,938 8.6%
-------
HOTELS
Felcor Suite Hotels, Inc. . . . . . . . . . . . . . 2,900 84,463
Patriot American Hospitality . . . . . . . . . . . . 1,700 47,388
Starwood Lodging Trust . . . . . . . . . . . . . . . 1,700 56,202
------
188,053 3.8%
-------
DIVERSIFIED
Colonial Properties Trust . . . . . . . . . . . . . 3,400 81,600 1.7%
------
TOTAL INVESTMENTS (Cost $4,464,783) * 4,661,315 95.5%
Excess of Other Assets over Liabilities 219,564 4.5%
------- ----
NET ASSETS $ 4,880,879 100.0%
=========== =====
* Aggregate Cost for Federal tax purposes.
</TABLE>
See accompanying notes to the financial statements.
5
RREEF REAL ESTATE SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at value (cost $4,464,783) $4,661,315
Cash 26,231
Receivable for investments sold 135,426
Dividends and interest receivable 12,190
Net receivable from Adviser 54,322
Unamortized organizational expenses (Note 1) 85,947
------
Total assets 4,975,431
---------
Liabilities:
Payable for investments purchased 56,202
Accrued expenses 38,350
------
Total liabilities 94,552
------
Net Assets (equivalent to $10.79 per share based on 452,422
shares outstanding, unlimited shares authorized)* $4,880,879
Net assets consist of:
Paid-in capital $4,562,988
Undistributed net investment income 90,993
Accumulated net realized gain 30,366
Net unrealized appreciation of investments 196,532
-------
Net assets $4,880,879
==========
* Shares of the Fund are sold and redeemed at net asset value.
</TABLE>
See accompanying notes to the financial statements.
7
RREEF REAL ESTATE SECURITIES FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Dividends $ 138,800
Interest 6,182
-----
Total income 144,982
-------
EXPENSES:
Management fees (Note 2) 15,630
Custodian, transfer agent and administration fees 82,208
Insurance 15,415
Audit and tax fees 12,432
Legal fees 12,432
Directors fees 10,592
Amortization of organizational expense 9,735
Miscellaneous 9,508
-----
Total expenses 167,952
Less: fees waived and expenses reimbursed by
Adviser (Note 2) (146,981)
Less: fees offset by Custodian (Note 2) (131)
----
Net expenses 20,840
------
Net investment income 124,142
-------
REALIZED AND UNREALIZED GAINS:
Net realized gain on investments 30,366
Net change in unrealized appreciation on investments 279,122
-------
Net realized and unrealized gain on investments 309,488
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 433,630
==========
</TABLE>
See accompanying notes to the financial statements.
8
RREEF REAL ESTATE SECURITIES FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30, 1996 PERIOD ENDED
(UNAUDITED) OCTOBER 31, 1995*
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C>
Operations:
Net investment income $ 124,142 $ 19,789
Net realized gain 30,366 --
Change in net unrealized depreciation on investments 279,122 (82,590)
------- -------
Net increase/(decrease) in net assets resulting
from operations 433,630 (62,801)
Distributions to shareholders from:
Net investment income (52,938) --
Net increase in net assets resulting
from Fund share transactions (Note 4) 1,517,224 2,945,754
--------- ---------
Total increase in net assets 1,897,916 2,882,953
Net assets:
Beginning of period 2,982,963 100,010
--------- -------
End of period (including undistributed net investment
income of $90,993 and $19,789 respectively) $ 4,880,879 $ 2,982,963
============ ============
* The Fund commenced operations on September 21, 1995.
</TABLE>
See accompanying notes to the financial statements.
9
RREEF REAL ESTATE SECURITIES FUND
FINANCIAL HIGHLIGHTS
(FOR A FUND SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30, 1996 PERIOD ENDED
(UNAUDITED) OCTOBER 31, 1995*
----------- ----------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.82 $ 10.00
------- --------
Income from investment operations:
Net investment income 0.27 0.07
Net realized and unrealized gain (loss) on investments 0.83 (0.25)
---- -----
Total from investment operations 1.10 (0.18)
---- -----
Less distributions to shareholders from:
Net investment income (0.13) -
----- -----
Net realized gains - -
----- -----
Total distributions to shareholders (0.13) -
----- -----
Net asset value, end of period $ 10.79 $ 9.82
========= ========
Aggregate Total Return 11.26% (1.80%)
Ratios/Supplemental Data:
Net expenses as a percentage of
average net assets 1.00%** 1.50%**
Net investment income as a percentage of
average net assets 5.96%** 6.66%**
Portfolio turnover rate 36% 0%
Average broker commission rate $ 0.0560 N/A
Net assets, end of period (000's) $ 4,881 $ 2,983
The Adviser has voluntarily agreed to waive its management fee and reimburse
certain expenses incurred by the Fund. The Custodian has waived part of
its fees for balance credits given to the Fund. Without these waivers of
fees and reimbursement of expenses, the ratios of expenses and net income
as a percentage of average net assets would have been:
Net expenses as a percentage of
average net assets 8.06%** 14.83%**
Net investment income as a percentage of
average net assets (1.10%)** (6.67%)**
- -------------------------------------------------------------
* The Fund commenced operations on September 21, 1995.
** Annualized
</TABLE>
See accompanying notes to the financial statements.
10
RREEF REAL ESTATE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SIGNIFICANT Accounting policies
RREEF Real Estate Securities Fund (the "Fund") is a series of RREEF
Securities Fund, Inc. (the "Company"). The Fund is registered under the
Investment Company Act of 1940, as amended, as an open end, non-diversified
management investment company. The Company was organized in Maryland on
March 15, 1995 and commenced operations on September 21, 1995. The
following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.
PORTFOLIO VALUATION
Equity securities listed or regularly traded on a securities exchange
(including NASDAQ) are valued at the last quoted sales price on the day the
valuations are made. A security which is listed or traded on more than one
exchange is valued according to the broadest and most representative market
as determined by RREEF Real Estate Securities Advisers L.P. (the
"Adviser"). Other equity securities and those listed securities that are
not traded on a particular day are valued at the mean between the latest
bid and asked prices. Debt securities are generally traded in the
over-the-counter market and are valued at a price deemed best to reflect
fair value as quoted by dealers who make markets in these securities or by
an independent pricing service. Short-term debt obligations and money
market securities maturing in sixty days or less are valued at amortized
cost which approximates value. Securities for which the above valuation
procedures are inappropriate or are deemed not to reflect fair value are
stated at fair value as determined in good faith by or under the
supervision of the officers of the Fund as authorized by the Board of
Directors.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The collateral is marked to
market daily to ensure that the market value including accrued interest of
the underlying assets remains sufficient to protect the Fund in the event
of default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited. The Fund will enter into repurchase
agreements only with dealers or banks determined by the Adviser to present
minimal credit risks pursuant to procedures established by the Board of
Directors to evaluate creditworthiness.
11
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code, as amended (the "Code").
The Fund intends to distribute to shareholders all of its taxable income,
including any net realized gain on investments not offset by loss
carryovers, to shareholders within the prescribed time periods.
Accordingly, no provision for federal income or excise tax is provided.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund intends to declare distributions from net investment income, if
any, semi-annually. The Fund intends to distribute capital gains, if any,
annually. Income and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for losses deferred due to wash sales, excise tax
regulations and utilization of capital loss carryovers. Permanent
differences relating to shareholder distributions will result in
reclassifications to paid-in capital.
INVESTMENT TRANSACTIONS AND INCOME
Security transactions are accounted for on the trade date. Dividend income
and distributions to shareholders are recorded on the ex-dividend date.
Interest income is recorded on the accrual basis. In determining the net
realized gain or loss on securities sold, the cost of securities is
determined on the identified cost basis.
DEFERRED ORGANIZATION EXPENSES
Costs incurred by the Fund in connection with its organization have been
deferred In the event that any of the initial shares of the Fund are
redeemed during such amortization period, the Fund will be reimbursed for
any unamortized costs in the same proportion as the number of shares
redeemed bears to the number of initial shares outstanding at the time of
redemption.
INVESTMENT RISK
There are certain additional risks involved in investing in Real Estate
Investment Trusts ("REITs") than a more diversified portfolio of
investments. The Fund may be subject to certain risks similar to those
associated with direct ownership of real estate including: local or
regional economic conditions, changes in zoning laws, credit risk, and
interest rate risk.
12
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund pays the Adviser, for management and investment advisory services,
a fee at an annual rate of 0.75% of daily net assets of the Fund up to $100
million and 0.65% on daily net assets in excess of $100 million. The
Adviser has agreed, at least until October 31, 1996, to waive its fee and
additionally reimburse the Fund to the extent the Fund's annual expenses
(including management fee but excluding taxes, interest, extraordinary
expenses and brokerage commissions or transaction costs) exceed 1.00% of
average daily net assets.
Certain Officers and Directors of the Fund are also Officers or Directors
of the Adviser, or Investors Bank and Trust Company ("Investors Bank").
Officers and Directors of the Adviser and Investors Bank do not receive any
compensation from the Fund for serving as Director or Officer of the Fund.
The Fund has entered into an expense offset arrangement as part of its
Custody agreement with Investors Bank. Under this arrangement, the Fund's
custody fees are reduced when the Fund maintains cash on deposit at
Investors Bank.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from the sale of securities, excluding
short-term investments, for the six months ended April 30, 1996 were
$2,883,775 and $1,399,537 respectively.
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax basis,
are as follows:
Aggregate cost $ 4,464,783
-----------
Gross unrealized depreciation (21,059)
Gross unrealized appreciation 217,591
Net unrealized depreciation $ 196,532
===========
13
4. SHARE TRANSACTIONS
The Articles of Incorporation of the Company permits the Directors to issue
2,000,000,000 shares of capital stock (par value $.001 per share),
500,000,000 shares of which are classified as shares of the Fund.
Transactions in Fund shares during the periods indicated were as follows:
<TABLE>
<CAPTION>
Six Months Ended Period Ended
April 30, 1996 October 31, 1995
------------------------------- -------------------------------
Dollars Shares Dollars Shares
<S> <C> <C> <C> <C>
Shares sold $ 1,482,031 145,260 $ 2,945,754 293,768
Shares issued to shareholders in 38,502 3,702 -- --
reinvestment of distributions
Shares repurchased (3,309) (309) -- --
------ ------ ------ ------
Net increase $ 1,517,224 148,653 $ 2,945,754 293,768
============= ======= ============= =======
</TABLE>
5. PRINCIPAL SHAREHOLDERS
Four shareholders, each owning greater than 10% of the outstanding shares
of the Fund, cumulatively own 83% of the outstanding shares.
14
[RREEF LOGO]
RREEF Funds
875 North Michigan Avenue
Chicago, IL 60611
312-266-9300
