<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders...................... 1
Performance Results......................... 3
Portfolio Management Review................. 4
Portfolio of Investments.................... 6
Statement of Assets and Liabilities......... 8
Statement of Operations..................... 9
Statement of Changes in Net Assets.......... 10
Financial Highlights........................ 11
Notes to Financial Statements............... 13
</TABLE>
REAL SAR 8/95
<PAGE>
LETTER TO SHAREHOLDERS
[PHOTO OF DENNIS J. MCDONNELL AND DON G. POWELL]
August 3, 1995
Dear Shareholder:
The first half of 1995 has been a very positive one for most investors. Both
the fixed-income and stock markets have made considerable gains for the period
ended June 30, 1995. This year has been particularly rewarding for investors
after weathering the difficult markets of 1994.
The first six months of 1995 serve as a reminder of just how quickly markets
can move, and how difficult it can be to predict the timing of those movements.
Moreover, this year reinforces the importance of maintaining a long-term per-
spective, and reaffirms the principle that it is time--not timing--that leads
to investment success.
ECONOMIC OVERVIEW
Due in large part to the Federal Reserve Board's efforts to tighten monetary
supply in 1994, the economy has slowed significantly this year. Evidence of
this guided slowdown was reflected in gross domestic product for the second
quarter, which grew at an annual rate of 0.5 percent, substantially lower than
its first quarter rate of 2.7 percent and fourth quarter 1994 rate of 5.1 per-
cent. While other key economic data, including unemployment rates and housing
starts, have shown mixed signs during recent weeks, the general trend for the
first half of the year suggested a "soft landing" scenario. Subsequently, con-
cern over inflation has subsided, as its annualized rate has run at a modest
pace of 3.2 percent year-to-date.
Financial markets, perceiving the Fed's monetary initiatives had taken hold
without driving the economy into a recession, rallied through the first six
months of the year. With slowing growth, interest rates declined and the value
of fixed-income investments rose. For example, the yield on 30-year Treasury
securities fell from 7.88 percent at the end of December to 6.62 percent at the
end of June, while prices on the "long bond" rose 18 percent. Likewise, the
yield on the Bond Buyer's Municipal Bond Index fell from 7.28 percent to 6.37
percent during the same period.
Corporate earnings remained quite strong during the first half of the year,
helping push stocks to new highs. The Dow Jones Industrial Average and the S&P
500 Index gained nearly 19 percent during the period. The strongest performance
has been in the science & technology sector of the market--and in big "capital-
ization" stocks. As the U.S. dollar plunged against several international cur-
rencies, companies--typically large ones--which had diversified overseas were
able to capture additional earnings, while technology stocks benefited from
booming growth in computers and telecommunications throughout the world.
(Continued on page two)
1
<PAGE>
ECONOMIC OUTLOOK
Comfortable with the economy's rate of growth and level of inflation, the Fed
reversed course and lowered short-term interest rates on July 6. We believe the
Fed will move cautiously before easing again, waiting for further signs that
the economy has settled into a slow growth pattern. We anticipate that the
economy will grow at an annual rate between 2 and 3 percent in the second half
of the year and that inflation will run at an annualized rate between 3.3 and
3.5 percent. Based upon a generally slow growth and low inflation outlook, we
believe fixed-income markets will continue to make positive gains as interest
rates fall. We look for stocks to perform well, but perhaps not as strongly as
in the first half of the year, as some companies may find it difficult to main-
tain their strong earnings momentum.
During recent months, debate over tax reform has dominated the agenda in
Washington. There has been varied speculation about the impact of reform, which
may have caused you to wonder how it might affect your investment goals. At
this point, no one knows for sure what will happen or when it might actually
take place. As various proposals come to the forefront, there may be short-term
market fluctuations, just as we saw during the debate over the U.S. health care
system. We will continue to keep a close watch over any new developments and
evaluate the potential impact that they may have on your investments.
Once again, it is important to remember that financial markets will inevita-
bly experience highs and lows, but by maintaining a long-term investment per-
spective, it may allow you to ride the ups and downs of the markets more easily
as you pursue your investment goals.
On the following pages, you can read about your Fund's performance for the
period, as well as portfolio management's outlook for the Fund in the coming
months. We hope that you will find the information contained in the question-
and-answer section helpful.
CORPORATE NEWS
Along with your Fund's shareholder report, we are pleased to introduce a new
shareholder publication called Your Portfolio. The purpose of this publication
is to provide you with additional information about your mutual fund invest-
ment, as well as offer helpful insights regarding long-term investment strate-
gies and trends in the marketplace. The publication will be mailed twice a year
with your June and December shareholder reports. This premier issue focuses on
our various shareholder services and privileges designed to make mutual fund
investing easier for you.
We appreciate your continued confidence in your investment with Van Kampen
American Capital, and we look forward to communicating with you again regarding
the performance of your Fund.
Sincerely,
/s/ Don G. Powell /s/ Dennis J. McDonnell
- --------------------------- ---------------------------
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Asset Management, Inc. Asset Management, Inc.
2
<PAGE>
PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1995
AMERICAN CAPITAL REAL ESTATE SECURITIES FUND, INC.
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
TOTAL RETURNS
<S> <C> <C> <C>
Six-month total return based on NAV/1/............... 2.21% 1.69% 1.69%
Six-month total return/2/............................ (2.62%) (2.31%) 0.69%
Life-of-Fund average annual total return/3/.......... (2.40%) (2.28%) 0.86%
Commencement Date.................................... 06/09/94 06/09/94 06/09/94
</TABLE>
/1/Assumes reinvestment of all distributions for the period and does not in-
clude payment of the maximum sales charge (4.75% for A shares) or contingent
deferred sales charge for early withdrawal (4% for B shares and 1% for C
shares).
/2/Standardized total return. Assumes reinvestment of all distributions for
the period and includes payment of the maximum sales charge (4.75% for A
shares) or contingent deferred sales charge for early withdrawal (4% for B
shares and 1% for C shares).
/3/Standardized total return. Assumes reinvestment of all distributions for
the period and includes payment of the maximum sales charge (4.75% for A
shares) or contingent deferred sales charge for early withdrawal (4% for B
shares and 1% for C shares). Total return calculated from June 30, 1994 (date
the Fund began meeting its investment objective) through the end of the peri-
od.
See the Prior Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth
more or less than their original cost.
3
<PAGE>
PORTFOLIO MANAGEMENT REVIEW
AMERICAN CAPITAL REAL ESTATE SECURITIES FUND, INC.
The following is an interview with the management team of American Capital
Real Estate Securities Fund. The team is led by Mary Jayne Maly, portfolio
manager, and Alan T. Sachtleben, executive vice president, equity investments.
Q. WHAT FACTORS HAD THE MOST IMPACT ON THE FUND'S PERFORMANCE DURING THE
FIRST HALF OF 1995?
A. During the first six months of this year interest rates fell after rising
during the previous six-month period. As rates declined, the trend gener-
ated renewed enthusiasm among traditional stock investors but not among those
people who typically invest in real estate investment trusts. Investors re-
mained concerned about the slowdown in economic growth, which could limit the
demand for new office space, apartments and other types of real estate. So,
while stocks and bonds rallied during the past six months, REITs did not.
However, the fundamentals for REITs remain strong and the recent lack of en-
thusiasm we believe has created good values. In recent months empty office,
retail, industrial and apartment space was absorbed at a fairly strong rate,
boosting occupancy and rental rates.
Q. DID YOU MAKE ANY SIGNIFICANT CHANGES IN THE PORTFOLIO'S STRUCTURE DURING
THE PAST SIX MONTHS?
A. Our investment strategy remains the same: to be diversified among the ma-
jor property sectors. We historically have invested a large portion of
the Fund's assets in the office/industrial sector and that continued to do
well. We added to our investments in retail, apartment, hotel and self-storage
REITs as we found good values. The diversification of the portfolio among the
REIT sectors is illustrated by the chart below.
Q. HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED JUNE 30, 1995?
A. Class A shares of the Fund achieved a total return at net asset value of
2.21 percent,/1/ including reinvestment of dividends totalling $0.20 per
share. Shareholders should note that 42 percent of the Fund's total distribu-
tions during the reporting period represented a return of capital, which is
not taxed. The Fund is passing on the return of capital it receives from the
REITs in which it invests. The REITs pay a return of capital when they dis-
tribute more
[PIE CHART OF PORTFOLIO HOLDINGS AS A PERCENTAGE OF NET ASSETS AS OF
JUNE 30, 1995 APPEARS HERE.]
Self Storage - 5%
Apartments - 24%
Shopping Malls - 13%
Shopping Centers - 15%
Health Care Facilities - 7%
Office/Industrial - 19%
Manufactured Home Parks - 5%
Diversified - 8%
Other - 4%
4
<PAGE>
money than they earn from taxable net investment income. The REITs pay divi-
dends based on cash flow, without regard to depreciation and amortization. As a
result, some of the income paid to the Fund--and subsequently distributed to
shareholders--is a return of capital.
During the same period, the NAREIT Equity REIT Index achieved a total return
of 5.32 percent. The NAREIT Index is an unmanaged index that reflects the gen-
eral performance of a broad range of equity REITs, including some specialized
REITs in which your Fund typically does not invest but which performed well
during the reporting period. The Standard & Poor's 500-Stock Index, a broad-
based, unmanaged index that reflects general stock market performance, achieved
a total return of 20.15 percent. Neither the NAREIT nor the S&P 500 reflect any
commissions or fees that would be paid by an investor purchasing the securities
they represent. (Please refer to the chart on page three for additional fund
performance.)
Q. WHAT'S THE OUTLOOK FOR THE FUND IN THE NEXT SIX MONTHS?
A. The performance of REITs during the remainder of the year will depend, in
large part, on what action the Fed takes with regard to short-term inter-
est rates. The recent cut in rates should increase economic growth and cause
the stock market to continue to perform well. It also will reduce borrowing
costs for REITs. If economic growth continues at a moderate pace and interest
rates remain fairly stable, REITs should perform well. However, if lower rates
cause the economy to grow too fast and boost the inflation rate, REITs should
do even better since real estate is viewed as a good hedge against inflation.
Since our investment style is to normally remain fully invested and diversi-
fied among the various types of REITs, we will continue to focus on stock se-
lection and buy stock in REITs that have solid fundamentals. These types of
REITs should do well regardless of changes in interest and economic growth
rates.
/s/ Alan T. Sachtleben /s/ Mary Jayne Maly
- ------------------------ ------------------------
Alan T. Sachtleben Mary Jayne Maly
Executive Vice President Portfolio Manager
Equity Investments
(Please see footnotes on page three.)
5
<PAGE>
PORTFOLIO OF INVESTMENTS
June 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares
(000) Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK 95.9%
APARTMENTS 23.5%
27 Avalon Properties, Inc.............................. $ 536,625
30 Bay Apartment Communities, Inc...................... 585,000
18 Equity Residential Properties Trust................. 501,750
23 Evans Withycombe Residential........................ 468,625
22 Merry Land & Investment, Inc........................ 448,250
17 Mid America Apartment Communities, Inc.............. 425,000
26 Paragon Group, Inc.................................. 484,250
17 Post Properties, Inc................................ 514,250
23 Security Capital Pacific Trust...................... 399,625
26 United Dominion Realty Trust, Inc................... 383,500
--------------
TOTAL APARTMENTS.................................. 4,746,875
--------------
DIVERSIFIED 7.7%
22 Colonial Properties Trust........................... 506,000
42 CWM Mortgage Holdings, Inc.......................... 535,500
20 Felcor Suite Hotels, Inc............................ 510,000
--------------
TOTAL DIVERSIFIED................................. 1,551,500
--------------
HEALTH CARE FACILITIES 7.4%
17 Health Care Property Investors, Inc................. 544,000
34 LTC Properties, Inc................................. 446,250
13 Nationwide Health Properties, Inc................... 507,000
--------------
TOTAL HEALTH CARE FACILITIES...................... 1,497,250
--------------
MANUFACTURED HOME PARKS 4.9%
22 Chateau Properties, Inc............................. 459,250
24 ROC Communities, Inc................................ 531,000
--------------
TOTAL MANUFACTURED HOME PARKS..................... 990,250
--------------
OFFICE/INDUSTRIAL 19.4%
24 Beacon Properties Corp.............................. 477,000
31 Cali Realty Corp.................................... 600,625
16 Carr Realty Corp.................................... 276,000
20 Crescent Real Estate................................ 637,500
22 Highwoods Properties, Inc........................... 561,000
14 Liberty Property Trust.............................. 274,750
20 Reckson Associates Realty Co........................ 485,000
27 Spieker Properties, Inc............................. 604,125
--------------
TOTAL OFFICE/INDUSTRIAL........................... 3,916,000
--------------
SELF-STORAGE 5.0%
30 Storage Equities, Inc............................... 491,250
18 Storage USA, Inc.................................... 510,750
--------------
TOTAL SELF-STORAGE................................ 1,002,000
--------------
</TABLE>
See Notes to Financial Statements
6
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares
(000) Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
SHOPPING CENTERS 14.6%
32 Bradley Real Estate, Inc...................... $ 516,000
20 Developers Diversified Realty, Inc............ 575,000
6 Federal Realty Investment Trust............... 129,750
27 Glimcher Realty Trust......................... 560,250
15 Kimco Realty Corp............................. 570,000
17 Vornado Realty Trust.......................... 592,875
--------------
TOTAL SHOPPING CENTERS...................... 2,943,875
--------------
SHOPPING MALLS 13.4%
27 CBL & Associates, Properties, Inc............. 536,625
37 Debartolo Realty Corp......................... 541,125
25 General Growth Properties, Inc................ 509,375
27 Rouse Co...................................... 529,875
23 Simon Property Group, Inc..................... 577,875
--------------
TOTAL SHOPPING MALLS........................ 2,694,875
--------------
TOTAL COMMON STOCK (Cost $18,703,898)....... 19,342,625
--------------
<CAPTION>
Principal
Amount
(000)
---------
<C> <S> <C>
REPURCHASE AGREEMENT 3.5%
$695 SBC Capital Markets, Inc., dated 6/30/95,
6.125%, due 7/3/95 (Collateralized by U.S.
Government obligations in a pooled cash
account) repurchase proceeds $695,355 (Cost
$695,000)..................................... 695,000
--------------
TOTAL INVESTMENTS (Cost $19,398,898) 99.4%............... 20,037,625
OTHER ASSETS AND LIABILITIES, NET 0.6%................... 128,407
--------------
NET ASSETS 100%.......................................... $ 20,166,032
--------------
</TABLE>
See Notes to Financial Statements
7
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $19,398,898).................. $20,037,625
Receivable for investments sold.................................. 516,403
Dividends receivable............................................. 148,423
Receivable for Fund shares sold.................................. 135,989
Other assets..................................................... 62,066
-----------
Total Assets.................................................... 20,900,506
-----------
LIABILITIES
Payable for investments purchased................................ 617,168
Dividends payable................................................ 41,107
Due to Distributor............................................... 19,565
Payable for Fund shares redeemed................................. 9,598
Due to Adviser................................................... 8,429
Deferred Directors' compensation................................. 1,883
Accrued expenses................................................. 36,724
-----------
Total Liabilities............................................... 734,474
-----------
NET ASSETS, equivalent to $9.27 per share for Class A, Class B,
and Class C shares.............................................. $20,166,032
-----------
NET ASSETS WERE COMPRISED OF:
Capital stock, at par; 742,156 Class A, 1,227,467 Class B and
206,265 Class C shares outstanding.............................. $ 21,759
Capital surplus.................................................. 19,800,819
Accumulated net realized loss on securities...................... (294,493)
Net unrealized appreciation of securities........................ 638,727
Accumulated net investment loss.................................. (780)
-----------
NET ASSETS....................................................... $20,166,032
-----------
</TABLE>
See Notes to Financial Statements
8
<PAGE>
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends.......................................................... $ 455,366
Interest........................................................... 25,998
----------
Investment income................................................. 481,364
----------
EXPENSES
Management fees.................................................... 85,914
Shareholder service agent's expenses............................... 74,538
Accounting services................................................ 20,767
Service fees--Class A.............................................. 4,400
Distribution and service fees--Class B............................. 50,337
Distribution and service fees--Class C............................. 7,478
Directors' fees and expenses....................................... 4,723
Audit fees......................................................... 15,350
Custodian fees..................................................... 2,300
Legal fees......................................................... 7,385
Reports to shareholders............................................ 10,140
Registration and filing fees....................................... 61,741
Organization expenses.............................................. 1,622
Miscellaneous...................................................... 2,466
Expense Reimbursement.............................................. (72,163)
----------
Total expenses.................................................... 276,998
----------
NET INVESTMENT INCOME............................................. 204,366
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES
Net realized loss on securities.................................... (131,550)
Net unrealized appreciation of securities.......................... 384,164
----------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES.................... 252,614
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. $ 456,980
----------
</TABLE>
See Notes to Financial Statements
9
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 9,
Six Months 1994*
Ended through
June 30, December 31,
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS, beginning of period..................... $15,002,284 $ 101,000
----------- -----------
Operations
Net investment income.............................. 204,366 186,847
Net realized loss on securities.................... (131,550) (156,311)
Net unrealized appreciation of securities during
the period........................................ 384,164 254,563
----------- -----------
Increase in net assets resulting from operations... 456,980 285,099
----------- -----------
Distributions to shareholders from
Net investment income
Class A............................................ (84,376) (65,583)
Class B............................................ (104,684) (104,448)
Class C............................................ (15,306) (16,816)
----------- -----------
(204,366) (186,847)
----------- -----------
Return of capital (see Note 2E)
Class A............................................ (50,420) (26,158)
Class B............................................ (85,193) (46,682)
Class C............................................ (14,100) (6,491)
----------- -----------
(149,713) (79,331)
----------- -----------
Total distributions................................ (354,079) (266,178)
----------- -----------
Capital transactions
Proceeds from shares sold
Class A............................................ 2,630,479 4,655,266
Class B............................................ 3,116,844 9,466,094
Class C............................................ 752,179 1,273,661
----------- -----------
6,499,502 15,395,021
----------- -----------
Proceeds from shares issued for distributions
reinvested
Class A............................................ 108,169 66,253
Class B............................................ 136,810 99,061
Class C............................................ 27,794 21,499
----------- -----------
272,773 186,813
----------- -----------
Cost of shares redeemed
Class A............................................ (536,264) (191,319)
Class B............................................ (1,006,971) (500,197)
Class C............................................ (168,193) (7,955)
----------- -----------
(1,711,428) (699,471)
----------- -----------
Increase in net assets from capital transactions... 5,060,847 14,882,363
----------- -----------
INCREASE IN NET ASSETS.............................. 5,163,748 14,901,284
----------- -----------
NET ASSETS, end of period........................... $20,166,032 $15,002,284
----------- -----------
</TABLE>
*Commencement of operations.
See Notes to Financial Statements
10
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the period
indicated (Unaudited).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
----------------------------
Six Months June 9, 1994(/1/)
Ended through
June 30, December 31,
1995 1994(/2/)
- -------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.............. $9.27 $9.43
----- -----
Income from operations
Investment income................................ .25 .30
Expenses......................................... (.12) (.07)
----- -----
Net investment income............................. .13 .23
Net realized and unrealized losses on securities.. .07 (.18)
----- -----
Total from investment operations.................. .20 .05
----- -----
Distributions to shareholders from
Net investment income............................ (.13) (.153)
Return of capital (see Note 2E).................. (.07) (.057)
----- -----
Total distributions............................... (.20) (.21)
----- -----
Net asset value, end of period.................... $9.27 $9.27
----- -----
TOTAL RETURN(/5/)................................. 2.21% .24%(/4/)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions).............. $6.9 $4.6
Average net assets (millions)..................... $5.6 $2.6
Ratios to average net assets (annualized)(/3/)
Expenses......................................... 2.64% 1.26%
Expenses, without expense reimbursement.......... 3.48% 3.03%
Net investment income............................ 3.00% 4.28%
Net investment income, without expense
reimbursement.................................... 2.16% 2.52%
Portfolio turnover rate........................... 55% 28%
</TABLE>
(1) Commencement of operations.
(2) Based on average month-end shares outstanding.
(3) See Note 3.
(4) Total return calculated from June 30, 1994 (date the Fund began meeting its
investment objective) through December 31, 1994.
(5) Total return for periods of less than one full year are not annualized.
Total return does not consider the effect of sales charges.
See Notes to Financial Statements
11
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share of capital stock outstanding throughout the period
indicated (Unaudited).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Class C
---------------------------- ----------------------------
Six Months June 9, 1994(/1/) Six Months June 9, 1994(/1/)
Ended through Ended through
June 30, December 31, June 30, December 31,
1995 1994(/2/) 1995 1994(/2/)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value,
beginning of period..... $9.28 $ 9.43 $ 9.28 $ 9.43
----- ------ ------ -------
Income from operations
Investment income...... .25 .30 .25 .31
Expenses............... (.16) (.10) (.16) (.09)
----- ------ ------ -------
Net investment income... .09 .20 .09 .22
Net realized and
unrealized losses on
securities.............. .063 (.176) .063 (.178)
----- ------ ------ -------
Total from investment
operations.............. .153 .024 .153 .042
----- ------ ------ -------
Distributions to
shareholders from
Net investment income.. (.09) (.1268) (.09) (.1399)
Return of capital (see
Note 2E)............... (.073) (.0472) (.073) (.0521)
----- ------ ------ -------
Total distributions..... (.163) (.174) (.163) (.192)
----- ------ ------ -------
Net asset value, end of
period.................. $9.27 $ 9.28 $ 9.27 $ 9.28
----- ------ ------ -------
TOTAL RETURN(/5/)....... 1.69% (.04%)(/4/) 1.69% .15%(/4/)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (millions)....... $11.4 $9.1 $1.9 $1.3
Average net assets
(millions).............. $10.1 $4.7 $1.5 $0.7
Ratios to average net
assets (annualized)(/3/)
Expenses............... 3.50% 1.84% 3.55% 1.62%
Expenses, without
expense reimbursement.. 4.34% 3.60% 4.39% 3.38%
Net investment income.. 2.08% 3.81% 2.05% 3.92%
Net investment income,
without expense
reimbursement......... 1.24% 2.05% 1.21% 2.15%
Portfolio turnover rate. 55% 28% 55% 28%
</TABLE>
(1) Commencement of operations.
(2) Based on average month-end shares outstanding.
(3) See Note 3.
(4) Total return calculated from June 30, 1994 (date the Fund began meeting its
investment objective) through December 31, 1994.
(5) Total return for periods of less than one full year are not annualized.
Total return does not consider the effect of sales charges.
See Notes to Financial Statements
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
- -------------------------------------------------------------------------------
NOTE 1--ORGANIZATION
American Capital Real Estate Securities Fund, Inc. (the "Fund") was organized
under the Investment Company Act of 1940, as amended, as an open-end, diversi-
fied management investment company in Maryland on April 14, 1994. The Fund's
investment manager, Van Kampen American Capital Asset Management, Inc. (the
"Adviser") contributed the initial capital of $101,000 on June 2, 1994 and an
additional $2,000,000 on June 30, 1994. The Fund began offering shares on June
9, 1994.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.
A. INVESTMENT VALUATIONS-Investments listed or traded on a national securities
exchange are valued at the last sale price. Unlisted securities and listed se-
curities for which the last sale price is not available are valued at the last
reported bid price. Securities for which market quotations are not readily
available are valued at a fair value as determined in good faith by the Board
of Directors of the Fund.
Short-term investments with a maturity of 60 days or less when purchased are
valued at amortized cost, which approximates market value. Short-term invest-
ments with a maturity of more than 60 days when purchased are valued based on
market quotations until the remaining days to maturity becomes less than 61
days. From such time, until maturity, the investments are valued at amortized
cost.
B. REPURCHASE AGREEMENTS-A repurchase agreement is a short-term investment in
which a Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. The Fund may in-
vest independently in repurchase agreements, or transfer uninvested cash bal-
ances into a pooled cash account along with other investment companies advised
by the Adviser, the daily aggregate of which is invested in repurchase agree-
ments. Repurchase agreements are collateralized by the underlying debt securi-
ties. The Fund will make payment for such securities only upon physical
delivery or evidence of book entry transfer to the account of the custodian
bank. The seller is required to maintain the value of the underlying security
at not less than the repurchase proceeds due the Fund.
C. FEDERAL INCOME TAXES-No provision for federal income taxes is required be-
cause the Fund intends to elect to be taxed as a "regulated investment compa-
ny" under the Internal Revenue Code and intends to maintain this qualification
by annually distributing all of its
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- -------------------------------------------------------------------------------
taxable net investment income and taxable net realized gains to its sharehold-
ers. It is anticipated that no distributions of capital gains will be made un-
til tax basis capital loss carryforwards, if any, expire or are offset by net
realized capital gains.
Approximately $163,000 in post October losses are being deferred for tax
purposes to the 1995 fiscal year.
D. INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME-Investment transac-
tions are accounted for on the trade date. Realized gains and losses on in-
vestments are determined on the basis of identified cost. Dividend income is
recorded on the ex-dividend date. Interest income is accrued daily.
E. DIVIDENDS AND DISTRIBUTIONS-Dividends and distributions to shareholders are
recorded on the record date. The Fund distributes tax basis earnings in accor-
dance with the minimum distribution requirements of the Internal Revenue Code,
which may differ from generally accepted accounting principles. Such dividends
or distributions may exceed financial statement earnings.
The Fund is passing through the return of capital it receives from the Real
Estate Investment Trusts (the "REITs") in which the Fund invests. The REITs
pay dividends based on cash flow, without regard to depreciation and amortiza-
tion. As a result, a portion of the dividends paid to the Fund and subse-
quently distributed to the shareholders, is a return of capital. The final
determination of the amount of the Fund's return of capital distributions for
the period will be made after December 31, 1995.
F. ORGANIZATION COSTS-Organization expenses of approximately $16,000 were de-
ferred and are being amortized over a five year period ending May, 1999.
NOTE 3--MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Adviser serves as investment manager of the Fund. The Adviser has entered
into a subadvisory agreement with Hines Interest Realty Advisers Limited Part-
nership (the "Subadviser"), who provides advisory services to the Fund and the
Adviser with respect to the Fund's investments in real estate. Management fees
are calculated monthly, based on the average daily net assets of the Fund at
the annual rate of 1.00%. The Adviser pays 50% of its management fee to the
Subadviser.
The Adviser has agreed that it will reimburse the Fund for any expenses (in-
cluding the management fee, but excluding interest, brokerage commissions,
distribution and service fees, and other extraordinary expenses) in excess of
the most restrictive limitation imposed by state
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- -------------------------------------------------------------------------------
securities commissions. The most restrictive expense limitation is presently
2.50% of the Fund's average daily net assets up to $30 million, 2.00% of the
next $70 million of such net assets and 1.50% of the Fund's net assets in ex-
cess of $100 million. For the period, the Adviser reimbursed $72,163 to the
Fund due to such expense limitation.
Accounting services include the salaries and overhead expenses of the Fund's
Treasurer and the personnel operating under his direction. Charges are allo-
cated among investment companies advised by the Adviser. For the period, these
charges included $4,152 as the Fund's share of the employee costs attributable
to the Fund's accounting officers. A portion of the accounting services ex-
pense was paid to the Adviser in reimbursement of personnel, facilities and
equipment costs attributable to the provision of accounting services to the
Fund. The services provided by the Adviser are at cost.
ACCESS Investor Services, Inc., an affiliate of the Adviser, serves as the
Fund's shareholder service agent. These services are provided at cost plus a
profit. For the period, the fees for these services aggregated $63,981.
The Adviser prepaid the Fund's initial registration and filing expenses of
$84,000. The Fund is amortizing such expenses over a ten month period ending
May 1995.
The Fund was advised that Van Kampen American Capital Distributors, Inc.
(the "Distributor") and Advantage Capital Corporation (the "Retail Dealer"),
both affiliates of the Adviser, received $3,784 and $2,369, respectively, as
their portion of the commissions charged on sales of Fund shares during the
period.
Under the Distribution Plans, the Fund pays up to .25% per annum of its av-
erage daily net assets to reimburse the Distributor for expenses and service
fees incurred. Class B and Class C shares pay an additional fee of up to .75%
per annum of their average net assets to reimburse the Distributor for its
distribution expenses. Actual distribution expenses incurred by the Distribu-
tor for Class B and Class C shares may exceed the amounts reimbursed to the
Distributor by the Fund. At the end of the period, the unreimbursed expenses
incurred by the Distributor under the Class B and Class C plan aggregated ap-
proximately $477,000 and $25,000, respectively, and may be carried forward and
reimbursed through either the collection of the contingent deferred sales
charges from share redemptions or, subject to the annual renewal of the plans,
future Fund reimbursements of distribution fees.
Legal fees of $7,359 were for services rendered by O'Melveny & Myers, coun-
sel for the Fund. Lawrence J. Sheehan, of counsel to that firm, is a director
of the Fund.
Certain officers and directors of the Fund are officers and directors of the
Adviser, the Distributor, and the Retail Dealer.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- -------------------------------------------------------------------------------
NOTE 4--INVESTMENT ACTIVITY
During the period, the cost of purchases and proceeds from sales of invest-
ments, excluding short-term investments, were $13,833,113 and $9,035,015, re-
spectively.
For federal income tax purposes, the identified cost of investments owned at
the end of the period was the same for financial reporting purposes. Gross
unrealized appreciation of investments aggregated $807,542, and gross
unrealized depreciation of investments aggregated $168,815.
NOTE 5--DIRECTOR COMPENSATION
Fund directors who are not affiliated with the Adviser are compensated by the
Fund at the annual rate of $710 plus a fee of $20 per day for Board and Com-
mittee meetings attended. The Chairman receives additional fees from the Fund
at an annual rate of $270. During the period, such fees aggregated $4,103.
The Directors may participate in a voluntary deferred compensation plan (the
"Plan"). The Plan is not funded, and obligations under the Plan will be paid
solely out of the Fund's general accounts. The Fund will not reserve or set
aside funds for the payment of its obligations under the Plan by any form of
trust or escrow. Each director covered under the Plan elects to be credited
with an earnings component on amounts deferred equal to the income earned by
the Fund on its short-term investments or equal to the total return of the
Fund.
NOTE 6--CAPITAL
The Fund offers three classes of shares at their respective net asset values
per share, plus a sales charge which is imposed either at the time of purchase
(the Class A shares) or at the time of redemption on a contingent deferred ba-
sis (the Class B and Class C shares). All classes of shares have the same
rights, except that Class B and Class C shares bear the cost of distribution
fees and certain other class specific expenses. Realized and unrealized gains
or losses, investment income and expenses (other than class specific expenses)
are allocated daily to each class of shares based upon the relative proportion
of net assets of each class. Class B and Class C shares automatically convert
to Class A shares six years and ten years after purchase, respectively, sub-
ject to certain conditions.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- -------------------------------------------------------------------------------
The Fund has an unlimited number of shares of each class of $.01 par value
of capital stock authorized. Transactions in shares of capital stock for the
period were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Shares sold
Class A........................................ 290,650 513,570
Class B........................................ 344,028 1,025,079
Class C........................................ 83,098 137,463
-------- ---------
717,776 1,676,112
-------- ---------
Shares issued for distributions reinvested
Class A........................................ 11,862 7,181
Class B........................................ 15,018 10,726
Class C........................................ 3,049 2,326
-------- ---------
29,929 20,233
-------- ---------
Shares redeemed
Class A........................................ (59,172) (21,935)
Class B........................................ (111,371) (56,013)
Class C........................................ (18,749) (922)
-------- ---------
(189,292) (78,870)
-------- ---------
Increase in shares outstanding................. 558,413 1,617,475
-------- ---------
</TABLE>
NOTE 7--FUND REORGANIZATION
On July 21, 1995, the shareholders approved the reorganization of the Fund to
a Delaware Business Trust and the election of fourteen trustees.
17
<PAGE>
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
GLOBAL AND INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Emerging Growth Fund
Enterprise Fund
Pace Fund
Growth & Income
Balanced Fund
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Limited Term Municipal Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
Texas Tax Free Income Fund
THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America Fund
Pacific Strategy Fund
Smaller Companies Fund
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us direct at 1-800-421-5666 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.
18
<PAGE>
AMERICAN CAPITAL REAL ESTATE SECURITIES FUND, INC.
BOARD OF DIRECTORS
J. MILES BRANAGAN
RICHARD E. CARUSO
ROGER HILSMAN
DON G. POWELL
DAVID REES
LAWRENCE J. SHEEHAN
FERNANDO SISTO*
WILLIAM S. WOODSIDE
*Chairman of the Board
OFFICERS
DON G. POWELL
President
CURTIS W. MORELL
Vice President and Treasurer
MARY J. MALY
DENNIS J. MCDONNELL
RONALD A. NYBERG
ALAN T. SACHTLEBEN
PAUL R. WOLKENBERG
Vice Presidents
TANYA M. LODEN
Vice President and Controller
NORI L. GABERT
Vice President and Secretary
J. DAVID WISE
Vice President and Assistant Secretary
PERRY F. FARRELL
M. ROBERT SULLIVAN
Assistant Treasurers
HUEY P. FALGOUT, JR.
Assistant Secretary
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
2800 Post Oak Blvd. Houston, Texas 77056
INVESTMENT SUBADVISER
HINES INTEREST REALTY ADVISERS LIMITED PARTNERSHIP
2800 Post Oak Blvd. Houston, Texas 77056
DISTRIBUTOR
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
One Parkview Plaza Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICE AGENT
ACCESS INVESTOR SERVICES, INC.
P.O. Box 418256 Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street Boston, Massachusetts 02110
COUNSEL
O'MELVENY & MYERS
400 South Hope Street Los Angeles, California 90071
(C)Van Kampen American Capital Distributors, Inc., 1995 All rights reserved.
SM denotes a service mark of Van Kampen American Capital Distributors, Inc.
This report is submitted for the general information of the shareholders of
the Fund. It is not authorized for distribution to prospective investors un-
less it has been preceded or is accompanied by an effective prospectus of the
Fund which contains additional information on how to purchase shares, the
sales charge, and other pertinent data.
19
<PAGE>
AMERICAN CAPITAL REAL ESTATE SECURITIES FUND, INC.
THIS PAGE INTENTIONALLY LEFT BLANK
20
