<PAGE>
RREEF
REAL ESTATE
SECURITIES
FUND
Annual Report
October 31, 1995
[LOGO OF RREEF SECURITIES FUND, INC.]
<PAGE>
President's Letter
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Dear Shareholder:
This is the first annual report for the recently formed RREEF Real Estate
Securities Fund. My associates and I welcome you to the fund and appreciate the
confidence you have exhibited in us and our investment strategy. Due to the
recent inception date and our October 31 fiscal year end, this is a short year
consisting of just 41 days of operations.
The Fund has been designed to pool funds to invest in real estate securities.
The Fund is very important to RREEF and RREEF Securities and will be run with
the same approach and strategy that has made us a successful REIT separate
account manager. Our goal is to selectively invest in REIT securities that will
be strong performers given their strategies, property portfolios, and valuation
characteristics.
Portfolio Diversification by Property Type and Geographic Region
Diversification based on REIT market values of $2,867,588/1/ as of October 31,
1995.
[PIE CHART APPEARS HERE] [PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
By Property Type By Geographic Region
<S> <C> <C> <C>
Apartment 35% Mideast 22%
Regional Malls 20% Pacific 17%
Industrial 17% Southeast 16%
Office 11% Southwest 14%
Storage 10% East N. Central 13%
Retail 7% Northeast 9%
Mountain 5%
West N. Central 4%
</TABLE>
/1/ Diversification is based on RREEF Securities' estimate of underlying
property values.
REIT Market Outlook
We maintain a very positive outlook for the return prospects of the REIT
universe. Property fundamentals generally remain solid and the continued
strength of the financial markets has increased the relative attractiveness of
REIT valuations. In addition, recent lower interest rate levels have allowed
several companies to restructure balance sheets with lengthened debt maturities
at favorable rates. After the rapid expansion of the number of REITs during the
1993 and 1994 IPO boom, 1995 has been a year where companies have been able to
not only prove their operating expertise, but also sharpen their balance sheet
management skills in a somewhat forgiving financial environment.
<PAGE>
President's Letter (continued)
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During the period, we maintained an overweight position in the apartment sector
in response to the good relative value in this area. Though we are monitoring
new construction levels in several markets, we expect continued good
supply/demand conditions to lead to rental rate increases as well as selective
development opportunities to drive the growth of apartment REIT cash flow
streams.
The industrial sector was also overweighted given that fundamentals remain very
healthy for industrial markets. However, company pricing substantially reflects
the positive outlook for many of the companies in the sector. Returns from this
sector should be solid but will likely not be the leader of the REIT universe.
Throughout the period we maintained overweight allocations to the office and
self storage sectors due to good growth prospects and attractive pricing.
Regional malls were also overweighted even though growth prospects are not as
strong, as we are able to select companies with attractive price/growth
relationships.
Finally, we were significantly underweight in the non-mall retail sector.
Selectivity can also work to an investor's advantage in this sector. For
example, our investments focus on REITs with generally low exposure to shop
space tenants and that favor the "big box" discount format over traditional
community and neighborhood centers. The competition in this area has been
highlighted by the recent Chapter XI filings of Caldor, Bradlees, and Jamesway,
the rumors surrounding Kmart, and the purchase of Marshalls by TJX. Our
continued underweighting is due to our belief that tenant weakness in these
centers may lead to increased vacancies and declining cash flows and that
investor perception will remain quite negative. Fundamentals are clearly
stronger in other REIT sectors.
We take a selective approach to investing in REIT securities, as we believe you
must to be successful over the long term. We typically hold 20 to 30 securities
in an investment portfolio and on October 31, 1995, we owned 25 issues in the
fund. Our investments continue to focus on companies with growing cash flow
streams, strong management, successful strategies, conservative financial
structures and, therefore, the ability to generate strong returns.
Kim G. Redding
President
<PAGE>
RREEF Real Estate Securities Fund
Portfolio of Investments
October 31, 1995
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<TABLE>
<CAPTION>
Share/Par Market Percent of
Description Amount Value Net Assets
- ----------- ------ ----- ----------
<S>
REAL ESTATE INVESTMENT TRUSTS <C> <C> <C>
Multi-Family Residential
Avalon Properties, Inc.......................... 4,500 $ 87,750
Bay Apartment Communities....................... 6,000 123,750
Equity Residential Properties Trust............. 4,800 134,400
Gables Residential Trust........................ 6,400 137,600
Mid-America Apartment Communities, Inc.......... 5,700 131,100
Oasis Residential, Inc.......................... 2,800 60,900
Security Capital Pacific Trust.................. 4,900 87,588
Summit Properties, Inc.......................... 6,400 118,400
United Dominion Realty Trust.................... 8,900 122,375
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1,003,863
----------- 33.7%
Retail
Regional Malls
CBL & Associates Properties..................... 7,200 153,000
Macerich Company................................ 10,300 207,289
Simon Property Group, Inc....................... 8,600 199,950
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560,239 18.8%
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Neighborhood and Community Shopping Centers
Developers Diversified Realty Corporation....... 4,700 133,950
Vornado Realty Trust............................ 1,900 68,163
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202,113 6.8%
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762,352 25.6%
----------- ----------
Industrial
Centerpoint Properties Corporation.............. 5,800 131,225
First Industrial Realty Trust................... 7,500 152,813
Spieker Properties, Inc......................... 8,100 196,425
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480,463 16.1%
-----------
Office
Beacon Properties Corporation................... 1,500 32,621
Cali Realty Corporation......................... 2,800 54,600
Highwood Properties, Inc........................ 6,300 167,738
Koger Equity, Inc.*............................. 6,900 66,413
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321,372 10.8%
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Storage
Sovran Self Storage, Inc........................ 2,400 59,400
Storage Equities, Inc........................... 4,700 86,363
Storage Trust Realty............................ 5,600 109,900
Storage USA, Inc................................ 1,500 43,875
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299,538 10.0%
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TOTAL REAL ESTATE INVESTMENT TRUSTS (Cost $2,950,178) 2,867,588 96.2%
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SHORT-TERM INVESTMENT
Bank of Boston Cash Sweep..... 5.20% 11/01/95 $ 150,128 150,128 5.0%
----------- ----------
TOTAL SHORT-TERM INVESTMENT (at Amortized Cost) 150,128 5.0%
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TOTAL INVESTMENTS (Cost $3,100,306**) 3,017,716 101.2%
Excess of Other Assets over Liabilities (34,753) (1.2)%
----------- ----------
NET ASSETS $ 2,982,963 100.0%
=========== ==========
</TABLE>
Notes to the Portfolio of Investments:
*Non-Income producing security.
**Aggregate cost for Federal tax purposes.
See accompanying notes to the financial statements.
<PAGE>
RREEF Real Estate Securities Fund
Statement of Assets and Liabilities
October 31, 1995
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<TABLE>
<S> <C>
Assets:
Investments, at value (cost $3,100,306) $ 3,017,716
Cash 90,683
Dividends and interest receivable 10,671
Unamortized organizational expenses (Note 1) 95,682
----------
Total assets 3,214,752
----------
Liabilities:
Net payable to Adviser 85,695
Payable for investments purchased 131,653
Accrued expenses 14,441
----------
Total liabilities 231,789
----------
Net Assets (equivalent to $9.82 per share based on 303,769
shares outstanding, unlimited shares authorized)* $ 2,982,963
==========
Net assets consist of:
Paid-in capital $ 3,045,764
Undistributed net investment income 19,789
Net unrealized depreciation of investments (82,590)
----------
Net assets $ 2,982,963
==========
</TABLE>
* Shares of the Fund are sold and redeemed at net asset value.
See accompanying notes to the financial statements.
<PAGE>
RREEF Real Estate Securities Fund
Statement of Operations
For the period September 21, 1995 (Commencement of Operations) to October 31,
1995
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<TABLE>
<S> <C>
Investment Income:
Dividends $ 23,809
Interest 435
---------
Total income 24,244
---------
Expenses:
Management fees (Note 2) 2,227
Custodian, transfer agent and administration fees 19,296
Audit and tax fees 14,159
Amortization of organizational expense 2,199
Directors fees 1,011
Miscellaneous 5,136
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Total expenses 44,028
Less: fees waived and expenses reimbursed by Adviser (Note 2) (37,700)
Less: fees offset by Custodian (Note 2) (1,873)
---------
Net expenses 4,455
---------
Net investment income 19,789
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Change in net unrealized depreciation on investments (82,590)
---------
Net decrease in net assets resulting from operations $ (62,801)
=========
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
RREEF Real Estate Securities Fund
Statement of Changes in Net Assets
For the period September 21, 1995 (Commencement of Operations) to October 31,
1995
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<TABLE>
<S> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 19,789
Change in net unrealized depreciation on investments (82,590)
----------
Net decrease in net assets resulting from operations (62,801)
Net increase in net assets resulting
from Fund share transactions (Note 4) 2,945,754
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Total increase in net assets 2,882,953
Net assets:
Beginning of period 100,010
----------
End of period (including undistributed net investment income of $19,789) $ 2,982,963
==========
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
RREEF Real Estate Securities Fund
Financial Highlights
(For a Fund share outstanding throughout the period)
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<TABLE>
<CAPTION>
Period from
September 21, 1995*
to October 31, 1995
---------------------
<S> <C>
Net asset value, beginning of period $ 10.00
------
Income from investment operations:
Net investment income 0.07
Net unrealized loss on investments (0.25)
------
Total from investment operations (0.18)
------
Net asset value, end of period $ 9.82
======
Aggregate Total Return (1.80%)
Ratios/Supplemental Data:
Net expenses as a percentage of
average net assets 1.50%**
Net investment income as a percentage of
average net assets 6.66%**
Portfolio turnover rate 0%
Net assets, end of period (000's) $ 2,983
The Adviser has voluntarily agreed to waive its management fee
and reimburse certain expenses incurred by the Fund. The
Custodian has offset part of its fees for balance credits
given to the Fund. Without the waiver and offset 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 14.83%**
Net investment income as a percentage of
average net assets (6.67%)**
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</TABLE>
* Commencement of Operations
** Annualized
See accompanying notes to the financial statements.
<PAGE>
RREEF Real Estate Securities Fund
Notes to Financial Statements
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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 may 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.
<PAGE>
RREEF Real Estate Securities Fund
Notes to Financial Statements
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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 and are being amortized on a straight-line basis over a five year
period beginning on the commencement of operations. 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.
<PAGE>
RREEF Real Estate Securities Fund
Notes to Financial Statements
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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 currently agreed 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 1.50% of average daily net assets.
Certain Officers and Directors of the Fund are also Officers or Directors of
the Adviser. Officers and Directors of the Adviser 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 & Trust Company ("Investors Bank").
Under this arrangement, the Fund's custody fees are reduced when the Fund
maintains cash on deposit at the Custodian.
3. Purchases and sales of securities
Cost of purchases of securities, excluding short-term investments, for the
period from September 21, 1995 (commencement of operations) to October 31,
1995 was $2,950,178. There were no sales of securities during the period.
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:
<TABLE>
<S> <C>
Aggregate cost $3,100,306
----------
Gross unrealized depreciation (94,420)
Gross unrealized appreciation 11,830
----------
Net unrealized depreciation $ (82,590)
----------
</TABLE>
<PAGE>
RREEF Real Estate Securities Fund
Notes to Financial Statements
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4. Share transactions
The Articles of Incorporation of the Company permits the Directors to issue
an unlimited number of full and fractional shares of beneficial interest
(without par value). Transactions in Fund shares during the period from
September 21, 1995 (commencement of operations) to October 31, 1995 were as
follows:
<TABLE>
<CAPTION>
Dollars Shares
---------- -------
<S> <C> <C>
Shares sold $2,945,754 293,768
Shares issued to shareholders in
reinvestment of distributions --- ---
Shares repurchased --- ---
---------- -------
Net increase $2,945,754 293,768
========== =======
</TABLE>
5. Principal shareholders
Three shareholders, each owning greater than 10% of the outstanding shares
of the Fund, cumulatively own 90% of the outstanding shares.
<PAGE>
Independent Auditors' Report
To the Directors and Shareholders of RREEF Real Estate
Securities Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of RREEF Real Estate Securities Fund (a series of
RREEF Securities Fund, Inc.) as of October 31, 1995, the related statements of
operations and changes in net assets, and the financial highlights, for the
period September 21, 1995 (commencement of operations) through October 31, 1995.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned at October 31, 1995 by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of RREEF Real Estate
Securities Fund at October 31, 1995, the results of its operations, the changes
in its net assets, and its financial highlights for the period September 21,
1995 through October 31, 1995 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 8, 1995
<PAGE>
[LOGO OF RREEF SECURITIES FUND, INC]
RREEF Funds, Inc.
650 California Street
San Francisco, CA 95108
415-781-3300
