<PAGE>
Van Kampen American Capital
REAL ESTATE
SECURITIES FUND
ANNUAL REPORT
DECEMBER 31, 1997
[PHOTO APPEARS HERE]
A Wealth of knowledge "A Knowledge of Wealth"
VAN KAMPEN AMERICAN CAPITAL
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Letter to Shareholders............................................ 1
Performance Results............................................... 3
Performance in Perspective........................................ 4
Glossary of Terms................................................. 5
Portfolio Management Review....................................... 6
Portfolio Highlights.............................................. 8
Portfolio of Investments.......................................... 9
Statement of Assets and Liabilities............................... 12
Statement of Operations........................................... 13
Statement of Changes in Net Assets................................ 14
Financial Highlights.............................................. 15
Notes to Financial Statements..................................... 18
Report of Independent Accountants................................. 23
</TABLE>
<PAGE>
LETTER TO SHAREHOLDERS
February 1, 1998
[PHOTO OF DENNIS J. MCDONNELL
AND DON G. POWELL APPEARS HERE]
Dear Shareholder,
The new year ushers in what promises to be an exciting and challenging time
for investors. The taxpayer Relief Act of 1997 signed into law by President
Clinton in August creates many new opportunities for you and your family to take
a more active role in achieving your long-term financial goals.
Most Americans will benefit from the bill's $95 billion in tax cuts over five
years. The so-called Kiddie Credit gives parents $400 in immediate tax relief
for every child under age 17, and families will find it easier to save for their
children's college expenses through the new Education IRA. The bill also cuts
capital gains tax rates for the first time in over a decade and loosens
restrictions on tax-deductible IRA contributions. Perhaps the most exciting
feature of all is the new Roth IRA, which allows investment earnings to grow tax
free, not just tax deferred.
This year more than ever, it could be important for you to talk with your
financial adviser about how to make the tax code work to your advantage. At Van
Kampen American Capital, we have prepared a variety of publications to help you
understand your choices under the new tax legislation. And with the help of your
adviser, we'll help you locate the many benefits hidden among the changing tax
landscape.
ECONOMIC OVERVIEW
These continue to be the best of times for the U.S. economy. Growth is strong,
consumers are optimistic, unemployment is low, the budget is headed for surplus,
and our nation's currency is rising around the world.
Despite the strength in the economy, there is no indication of troublesome
inflation. In fact, the producer price index fell by 1.2 percent during the
year, the largest annual decline in wholesale prices since 1986. Inflation at
the consumer level was also virtually nonexistent, with the consumer price index
rising by only 1.7 percent during 1997. A strong dollar and significant
productivity gains helped offset inflationary pressures caused by rising wages.
After increasing short-term interest rates by 0.25 percent in March, the
Federal Reserve Board left monetary policy unchanged for the remainder of the
year. In addition to signs that the economy was slowing modestly from its
breakneck pace of early 1997, Fed policy-makers were concerned about the impact
that higher U.S. interest rates might have on the struggling economies of
Southeast Asia. Generally, higher U.S. interest rates cause the dollar to rise
relative to other currencies. With nearly all Asian currencies already down
significantly, a hike in U.S. rates would force monetary authorities in Asia to
choose between letting their currencies decline further or matching the rate
increase, thereby slowing their already-sluggish economies.
1
<PAGE>
MARKET OVERVIEW
Bolstered by solid economic growth and low inflation, stock prices continued
their advance during the reporting period. Over the 12 months through December,
the Wilshire 5000 Index, which measures the performance of all publicly traded
U.S. companies, gained 29.17 percent. And with its 22.64 percent advance in
1997, the Dow Jones Industrial Average completed its third consecutive year of
20 percent-plus gains for the first time in the history of the index.
But while U.S. stocks kept rising, volatility also picked up. During the
spring, stronger-than-expected economic growth and a subsequent hike in short-
term interest rates caused stock prices to fall by 10 percent. Later in the
year, investors were unnerved by the spreading economic crisis in Asia. Between
early August and late October, the DJIA fell by 16 percent before rebounding
sharply to close the reporting period near record-high territory.
Within the equity market, large stocks continued to outperform their small-cap
cousins. For the year, the Russell 1000 Index of large-cap companies returned
30.49 percent, compared to 20.52 percent for the Russell 2000 Index of small
stocks. A wave of consolidations helped make Financial Services the top-
performing industry group. The Dow Jones Financial Index soared 48.44 percent
during 1997.
OUTLOOK
We expect that the recent upheavals in Southeast Asia will have a mixed impact
on the U.S. economy and financial markets. Sales of American goods overseas are
likely to decline in coming months, and competition from relatively inexpensive
imports could pinch profit margins. However, lower currency values in Asia will
likely result in less inflation in the U.S. and a greater likelihood of stable
or falling interest rates. Such a scenario usually benefits stock prices, and we
believe that a portfolio of high-quality domestic stocks should continue to
perform well. We also anticipate that stock selection will play a larger role in
generating investment performance due to the uneven impact of the Asian crisis
on individual companies.
As we noted earlier, the Taxpayer Relief Act of 1997 provides attractive new
vehicles through which investors can save for a variety of goals, including
higher education and retirement. We encourage you to work with your financial
adviser to consider how the tax changes can work to your benefit.
Additional details about your Fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to serve you and your family through our
diverse menu of quality investments.
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 DECEMBER 31, 1997
VAN KAMPEN AMERICAN CAPITAL REAL ESTATE SECURITIES FUND
<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
TOTAL RETURNS
One year total return based on NAV/1/........................ 20.66% 19.76% 19.78%
One-year total return/2/..................................... 14.91% 15.76% 18.78%
Life-of-Fund average annual total return/2*/................. 18.43% 18.71% 19.22%
Commencement Date............................................ 06/09/94 06/09/94 06/09/94
</TABLE>
/1/ Assumes reinvestment of all distributions for the period and does not
include 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 (A shares) or
contingent deferred sales charge for early withdrawal (B and C shares).
/*/ Total return is calculated from June 30, 1994 (the date the Fund's
investment strategy was implemented) through the end of the period.
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. This performance was
achieved during generally rising stock prices. Fund shares, when redeemed,
may be worth more or less than their original cost.
Investing in REITs involves unique risks in addition to those risks
associated with investing in the real estate industry in general. Equity
REITs may be affected by changes in the value of the underlying property
owned by the REITs, while mortgage REITs may be affected by the quality of
any credit extended. REITs are dependent upon management skills, are not
diversified and are subject to the risks of financing projects. REITs are
subject to heavy cash flow dependency, default by borrowers, self-
liquidation and the possibilities of failing to qualify for tax-exempt
status under the Internal Revenue Code of 1986, as amended. REITs,
especially mortgage REITs, are also subject to some interest rate risk
(e.g., as interest rates rise, the value of REITs may decline).
Market forecasts provided in this report may not necessarily come to pass.
3
<PAGE>
Putting Your Fund's Performance In Perspective
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment portfolio's performance at regular intervals.
A good starting point is a comparison of your investment holdings to an
applicable benchmark, such as a broad-based market index. Such a camparison can:
. Illustrate the general market environment in which your investments are
being managed
. Reflect the impact of favorable market trends or difficult market
conditions
. Help you evaluate the extent to which your Fund's management team has
responded to the opportunities and challenges presented to them over the
period measured
For these reasons, you may find it helpful to review the chart below, which
compares your Fund's performance to that of the Standard & Poor's 500-Stock
Index and the NAREIT Equity REIT Index over time. These indices are unmanaged
statistical composites, and do not reflect any commissions or fees which would
be incurred by an investor purchasing the securities they represent. Similarly,
their performance does not reflect any sales charges or other costs which would
be applicable to an actively managed portfolio, such as that of the Fund.
Growth of a Hypothetical $10,000 Investment
Van Kampen American Capital Real Estate Securities Fund vs. Standard & Poor's
500-Stock Index and the NAREIT Equity REIT Index (June 30,1994 through
December 31, 1997)
[LINE GRAPH APPEARS HERE]
<TABLE>
Standard & Poor Nareit Equity Reit VKAC Real Estate
- -----------------------------------------------------------------------
<S> <C> <C> <C>
6/30/94 10000 10000 9527
7/31/94 10315 9881 9446
8/31/94 10703 9849 9456
9/30/94 10489 9663 9340
10/31/94 10708 9229 8964
11/30/94 10285 9839 8648
Dec 1994 10487 9446 9549
1/31/95 10741 9150 9137
2/28/95 11129 9317 9281
3/31/95 11505 9245 9328
4/30/95 11826 9162 9213
5/31/95 12256 9481 9536
6/30/95 12559 9660 9760
7/31/95 13000 9735 9950
8/31/95 12996 9783 10997
9/30/95 13598 9917 10345
10/31/95 13530 9622 10026
11/30/94 14085 9640 10143
Dec 1995 14414 10128 10733
1/31/96 14884 10259 10904
2/29/96 14987 10323 11065
3/31/96 15186 10241 10985
4/30/96 15390 10200 11007
5/31/96 15742 10390 11364
6/30/96 15886 10494 11609
7/31/96 15140 10480 11653
8/31/96 15425 10014 12167
9/30/96 16353 10977 12501
10/31/96 16780 11223 12843
11/30/96 18011 11639 13504
Dec 1996 17714 12062 15007
1/31/97 18800 12059 15018
2/28/97 18912 12755 15215
3/31/97 18192 12692 15031
4/30/97 19255 12205 14519
5/31/97 20383 12549 15043
6/30/97 21361 13111 15936
7/31/97 23030 13435 16581
8/31/97 21707 13328 16463
9/30/97 22959 14478 17798
10/31/97 22168 13997 17361
11/30/97 23156 14221 17621
Dec 1997 23616 14496 18107
</TABLE>
<TABLE>
<S> <C>
Fund's total Return
1 Year Avg. Annual = 14.91%
3 Year Avg. Annual = 21.79%
Inception Avg. Annual = 18.43%
</TABLE>
_____ VKAC Real Estate Securities Fund
_ _ _ Standard & Poor's 500-Stock Index
..... NAREIT Equity REIT Index
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions and includes payment of the maximum
sales charge (4.75% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
<PAGE>
GLOSSARY OF TERMS
DOW JONES INDUSTRIAL AVERAGE:
The oldest and most widely recognized stock market average, which reflects
the performance of 30 actively traded stocks of well-established, blue chip
companies.
FEDERAL RESERVE BOARD (FED):
A seven-member group that oversees the operations of the Federal Reserve
System, the central bank system of the United States. Currently led by
Chairman Alan Greenspan, the Fed meets eight times a year to establish
monetary policy and monitor the country's economic pulse.
GROWTH INVESTING:
An investing strategy that seeks to identify stocks that tend to offer
greater-than-average earnings growth. Growth stocks typically trade at
higher prices than value stocks, due to their expected earnings growth.
NET ASSET VALUE (NAV):
The value of a mutual fund share, calculated by deducting a fund's
liabilities from its total assets and dividing this amount by the number of
shares outstanding. The NAV does not include any initial or contingent
deferred sales charge.
P/E RATIO:
The price-to-earnings ratio shows the "multiple" of earnings at which a
stock is selling. It is calculated by dividing a stock's current price by
its current earnings per share. A high multiple means that investors are
optimistic about future growth and have bid up the stock's price.
REAL ESTATE INVESTMENT TRUSTS (REITS):
Publicly traded companies that own, develop, and operate apartment
complexes, hotels, office buildings, and other commercial properties.
STANDARD AND POOR'S 500-STOCK INDEX:
An index of the 500 largest, most actively traded stocks on the New York
Stock Exchange. It provides a guide to the overall health of the U.S. stock
market. The S&P 500 is a much broader index than the Dow Jones Industrial
Average and reflects the stock market more accurately.
VALUATION:
The estimated or determined worth of a stock, based on its price relative
to its earnings.
VALUE INVESTING:
A strategy that seeks to identify stocks that are sound investments but are
temporarily out of favor in the marketplace, due to concerns about short-
term performance. As a result, they trade at prices below the value that
investors believe they are actually worth.
5
<PAGE>
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL REAL ESTATE SECURITIES FUND
We recently spoke with the management team of the Van Kampen American Capital
Real Estate Securities Fund about the key events and economic forces that shaped
the markets during the most recent fiscal year. The team is led by portfolio
managers Russell C. Platt and Theodore R. Bigman. The following excerpts reflect
their views on the Fund's performance during the 12-month period ended December
31, 1997.
Q WHAT WERE THE MARKET CONDITIONS IN WHICH THE FUND OPERATED DURING THE PAST
12 MONTHS?
A A strong U.S. economy and a cooperative bond market in the past year were
beneficial to the real estate industry, which continues on the path of recovery
that began in 1993. While the total return for the period was not as great as
the one generated a year earlier, it was solid and more in line with the type of
returns that we believe investors can expect at this point in the real estate
cycle. Real estate investments generally tracked the Standard & Poor's 500-Stock
Index, but displayed defensive characteristics during the more volatile periods
in the broader market, particularly in the latter part of the year.
The past 12 months were characterized by numerous mergers and acquisitions
in the real estate market. An impressive total of 15 public transactions
occurred, most notably Equity Office Properties' surprising merger with rival
Beacon Office Properties, and Starwood Lodging's successful bid for ITT Corp.
Public mergers in 1997 totaled $26.7 billion, representing a significant
increase from the year before, in which six public REIT mergers accounted for
only $5.0 billion. Companies were able to finance these transactions through an
active issuance market, with an estimated $39 billion in debt and equity capital
raised by the end of the year.
Q HOW DID YOU POSITION THE PORTFOLIO DURING THE REPORTING PERIOD?
A We continued to support the thesis that efficient markets will, over time,
drive values in the public and private markets into equilibrium; in that
environment, understanding asset value is critical. As a result, our security-
selection process is based on finding those stocks that we believe offer the
best value relative to their underlying net property assets. While real estate
cycles in the physical property market can last for long periods of time,
valuations in the public markets can fluctuate quite rapidly. This caused us to
over-and underweight property sectors throughout the year despite conditions in
the physical market. Our investment style led us to overweight positions in the
office and high-end hotel sectors, which contributed handsomely to the Fund's
returns for the year. In addition, our value style of investing allowed the Fund
to perform particularly well during times of greatest market volatility.
Q WHAT WAS THE FUND'S PERFORMANCE OVER THE REPORTING PERIOD?
A The Fund achieved a total return of 20.66 percent/1/ (Class A shares at net
asset value) for the 12-month period ended December 31, 1997. This performance
compares favorably to the total return of the NAREIT (National Association of
Real Estate Investment Trusts) Equity REIT Index of 10.98 percent over the same
period. The NAREIT Index is an unmanaged index that reflects the performance of
a broad range of equity REITs of all property types. By comparison, the Standard
6
<PAGE>
& Poor's 500-Stock Index registered a total return of 33.31 percent in the 12
months ended December 31, 1997. The S&P 500-Stock Index is a broad-based,
unmanaged index that reflects the general performance of the stock market. Keep
in mind that these indices are unmanaged statistical composites that do not
reflect any commissions, fees, or sales charges that would be incurred by an
investor purchasing the securities they represent. Please refer to the chart on
page three for additional Fund performance results.
Q WHAT FACTORS OR SECTORS CONTRIBUTED TO THE FUND'S SUCCESS OVER ITS FISCAL
YEAR?
A With respect to the overall portfolio, our value style of investing was
beneficial during the period. Recall that the NAREIT Equity REIT Index
registered a total return of 35.5 percent in 1996, of which 19.0 percent
occurred in the fourth quarter (with a 12.2 percent return in the final month
alone). Given that level of performance, many growth and "momentum" companies
sold at significant premiums to underlying real estate values, and thus
experienced a retracement of stock prices in the first six months of this year.
Our value focus allowed us to avoid a number of companies in which the
retrenchment was often significant.
Our sector weightings and stock selection within sectors also contributed to
the Fund's total return in the first half of the year. After last year's
outstanding performance, office and hotel property sectors continued to show
above-average performance during the past six months, and our overweighted
positions in these sectors positively contributed to the total return. Limited
new supply in both sectors has allowed for better returns. We were somewhat
surprised by the above-average performance in the retail sector in the first
half of the year, and our holdings in regional malls added significantly to
returns. Our stock selection in the manufactured-home sector and the industrial
sector also contributed to the Fund's success. For additional Fund portfolio
highlights, please refer to page eight.
Q WHAT IS YOUR OUTLOOK FOR THE REAL ESTATE MARKET AND FOR THE FUND?
A As we continue to advance in this current real estate recovery cycle, we see
more property sectors approaching equilibrium, or a balanced supply-and-demand
equation. We are also beginning to see greater amounts of development in many
property sectors due to the fact that rental rates have recovered greatly. In
many cases, the new development is justified. We do not yet feel that we are at
a level of development that will bring about the demise of this cycle;
nonetheless, it is incumbent upon us to be alert and increasingly careful in our
company analysis and stock selection. For example, in calculating the net asset
value for some of the Southeastern multi-family companies, we have computed a
greater vacancy rate, because certain markets in this region have excess supply.
In addition, we are attempting to focus our investments in companies that have a
Northeastern or West Coast focus when possible; these are markets in which is it
very difficult to develop, so we believe the supply-and-demand balance will
remain in check.
In conclusion, we believe that, as the real estate cycle ages, understanding
the underlying real estate value of these securities will become increasingly
important. In this environment, we feel strongly that our value style of
investing will prevail.
/s/ Russel C. Platt /s/ Theodore R. Bigman
Russell C. Platt Theodore R. Bigman
Portfolio Manager Portfolio Manager
7 Please see footnotes on page three
<PAGE>
PORTFOLIO HIGHLIGHTS
VAN KAMPEN AMERICAN CAPITAL REAL ESTATE SECURITIES FUND
TOP TEN HOLDINGS AS A PERCENTAGE OF LONG TERM INVESTMENTS
<TABLE>
<CAPTION>
As of As of
December 31, 1997 June 30, 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
Taubman Centers, Inc..................... 5.5% ....... 1.9%
Chateau Properties, Inc.................. 4.8% ....... 5.5%
Arden Realty Group, Inc.................. 4.7% ....... 2.3%
Nationwide Health Properties, Inc........ 4.7% ....... 4.8%
Bay Apartment Communities, Inc........... 4.3% ....... 3.5%
Host Marriott Corp....................... 4.2% ....... 2.1%
Essex Property Trust, Inc................ 4.0% ....... 4.0%
Pacific Gulf Properties, Inc............. 3.8% ....... 2.6%
Capstar Hotel Co......................... 3.7% ....... N/A
Brandywine Realty Trust.................. 3.6% ....... 3.7%
N/A = Not Applicable
</TABLE>
TOP FIVE PORTFOLIO SECTORS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
<S> <C>
Office/Industrial........... 28.9%
Apartments.................. 19.5%
Hotel &Lodging.............. 11.3%
Shopping Malls.............. 10.7%
Shopping Centers............ 7.4%
As of June 30, 1997
Office/Industrial........... 25.2%
Apartments.................. 19.6%
Hotel & Lodging............. 13.9%
Shopping Malls.............. 11.1%
Healthcare Facilities....... 10.4%
</TABLE>
8
<PAGE>
PORTFOLIO OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS 95.6%
APARTMENTS 18.7%
12,600 Amli Residential Properties Trust......................................... $ 280,350
112,800 Avalon Properties, Inc.................................................... 3,489,750
148,900 Bay Apartment Communities, Inc............................................ 5,807,100
155,900 Essex Property Trust, Inc................................................. 5,456,500
21,900 Irvine Apartment Communities, Inc......................................... 696,694
128,100 Oasis Residential, Inc.................................................... 2,858,231
41,100 Pennsylvania Real Estate Investment....................................... 1,009,519
182,458 Security Capital Atlantic, Inc............................................ 3,854,425
122,700 Walden Residential Properties, Inc........................................ 3,128,850
----------
26,581,419
----------
DEVELOPMENT 4.7%
192,680 Atlantic Gulf Communities Corp. (a)....................................... 867,060
24,741 Atlantic Gulf Communities Corp. - Convertible Preferred Ser B (a)......... 247,410
35,402 Atlantic Gulf Communities Corp. - Convertible Preferred Ser B,
144A - Private Placement (a) (b).......................................... 354,020
49,482 Atlantic Gulf Communities Corp. Warrants, 16,494 shares of each
Class A, B and C, expiring 06/23/04 (a)................................... 72,805
100,191 Atlantic Gulf Communities Corp. Warrants, 33,397 shares of each
Class A, B and C, expiring 06/24/01, 144A
- Private Placement (a) (b)............................................... 0
212,500 Brookfield Properties Corp................................................ 3,542,375
85,300 Brookfield Properties Corp. - Common Share Installment Receipts (a)....... 1,013,364
28,400 Catellus Development Corp. (a)............................................ 568,000
----------
6,665,034
----------
HEALTHCARE FACILITIES 6.2%
252,500 Nationwide Health Properties, Inc......................................... 6,438,750
62,690 Omega Healthcare Investors, Inc........................................... 2,421,401
----------
8,860,151
----------
HOTEL & LODGING 10.9%
68,000 American General Hospitality Corp......................................... 1,819,000
147,300 Capstar Hotel Co. (a)..................................................... 5,054,231
122,600 Extended Stay America, Inc. (a)........................................... 1,524,838
</TABLE>
9 See Notes to Financial statements
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
<S> <C> <C>
HOTEL & LODGING (CONTINUED)
292,600 Host Marriott Corp. (a).............................................. $ 5,742,275
52,500 Suburban Lodges of America, Inc. (a)................................. 698,906
24,900 Vail Resorts, Inc. (a)............................................... 645,844
-----------
15,485,094
-----------
MANUFACTURED HOME COMMUNITIES 6.6%
208,094 Chateau Properties, Inc.............................................. 6,554,961
104,000 Manufactured Home Communities, Inc................................... 2,808,000
-----------
9,362,961
-----------
OFFICE/INDUSTRIAL 27.7%
210,600 Arden Realty Group, Inc.............................................. 6,475,950
156,000 Bedford Property Investors, Inc...................................... 3,412,500
193,600 Brandywine Realty Trust.............................................. 4,864,200
141,000 CarrAmerica Realty Corp.............................................. 4,467,939
63,986 Equity Office Properties Trust....................................... 2,019,558
143,900 Great Lakes REIT, Inc................................................ 2,797,056
219,900 Pacific Gulf Properties, Inc......................................... 5,222,625
174,200 Prime Group Realty Trust............................................. 3,527,550
46,800 Reckson Associates Realty Corp....................................... 1,187,550
97,900 Trizec Hahn Corp..................................................... 2,270,056
199,020 Wellsford Real Properties, Inc., 144A - Private Placement (a) (b).... 3,109,688
-----------
39,354,672
-----------
PRODUCER MANUFACTURING 0.1%
1,300 ITT Corp. (a)........................................................ 107,738
-----------
SELF-STORAGE 3.2%
33,500 Public Storage, Inc.................................................. 984,062
120,900 Shurgard Storage Centers, Inc., Class A.............................. 3,506,100
-----------
4,490,162
-----------
SHOPPING CENTERS 7.2%
160,400 Burnham Pacific Properties, Inc...................................... 2,456,125
179,500 Federal Realty Investment Trust...................................... 4,622,125
22,300 First Washington Realty Trust, Inc. - Preferred Ser A
(Convertible into 28,589 common shares).............................. 747,050
</TABLE>
10
<PAGE>
Portfolio of Investments (Continued)
December 31, 1997
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
<S> <C>................................................................... <C>
SHOPPING CENTERS (CONTINUED)
70,500 Pan Pacific Retail Properties, Inc.................................... $ 1,506,937
800 Ramco-Gershenson Properties Trust..................................... 15,750
59,900 Western Investment Real Estate Trust.................................. 823,625
------------
10,171,612
------------
SHOPPING MALLS 10.3%
137,400 CBL & Associates Properties, Inc...................................... 3,392,062
90,400 First Union Real Estate Investments................................... 1,469,000
572,800 Taubman Centers, Inc.................................................. 7,446,400
65,800 Urban Shopping Centers, Inc........................................... 2,294,775
------------
14,602,237
------------
TOTAL COMMON AND PREFERRED STOCKS 95.6%........................................... 135,681,080
------------
CONVERTIBLE CORPORATE OBLIGATIONS 0.5%
Brookfield Properties Corp. - Installment Receipts
Representing Subordinated Debenture
($868,400 par, 6.00% coupon, 02/14/07 maturity).................................... 698,107
------------
TOTAL LONG-TERM INVESTMENTS 96.1%
(Cost $121,582,426).............................................................. 136,379,187
Repurchase Agreement 5.4%
Swiss Bank Corp. ($7,660,000 par collateralized by U.S.
Government obligations
in a pooled cash account, dated 12/31/97, to be sold on 01/02/98 at $7,662,596)
(Cost $7,660,000)................................................................ 7,660,000
------------
TOTAL INVESTMENTS 101.5%
(Cost $129,242,426).............................................................. 144,039,187
LIABILITIES IN EXCESS OF OTHER ASSETS (1.5%)....................................... (2,091,581)
------------
NET ASSETS 100.0%................................................................. $141,947,606
============
</TABLE>
(a) Non-income producing security as this stock does not declare dividends.
(b) 144A securities are those which are exempt from registration under Rule
144A of the Securities Act of 1933. These securities may only be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
11 See Notes to Financial Statements
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $129,242,426).............................................. $144,039,187
Receivables:
Fund Shares Sold.................................................................. 1,060,434
Dividends......................................................................... 887,143
Investments Sold.................................................................. 320,287
Interest.......................................................................... 17,416
Unamortized Organizational Costs................................................... 4,403
Other.............................................................................. 977
------------
Total Assets...................................................................... 146,329,847
------------
LIABILITIES:
Payables:
Investments Purchased............................................................. 3,881,015
Distributor and Affiliates........................................................ 126,860
Investment Advisory Fee........................................................... 114,763
Income Distributions.............................................................. 91,318
Fund Shares Repurchased........................................................... 69,474
Custodian Bank.................................................................... 10,660
Trustees' Deferred Compensation and Retirement Plans............................... 22,858
Accrued Expenses................................................................... 65,293
------------
Total Liabilities................................................................. 4,382,241
------------
NET ASSETS......................................................................... $141,947,606
============
NET ASSETS CONSIST OF:
Capital............................................................................ $124,906,541
Net Unrealized Appreciation........................................................ 14,796,761
Accumulated Net Realized Gain...................................................... 2,266,205
Accumulated Distributions in Excess of Net Investment Income....................... (21,901)
------------
NET ASSETS......................................................................... $141,947,606
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of
$51,313,568 and 3,715,666 shares of beneficial interest issued and
outstanding)....................................................................... $13.81
Maximum sales charge (4.75%* of offering price).................................. .69
------------
Maximum offering price to public................................................. $14.50
============
Class B Shares:
Net asset value and offering price per share (Based on net assets of
$73,198,558 and 5,304,248 shares of beneficial interest issued and
outstanding)....................................................................... $13.80
============
Class C Shares:
Net asset value and offering price per share (Based on net assets of
$17,435,480 and 1,264,396 shares of beneficial interest issued and
outstanding)....................................................................... $13.79
============
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
12
<PAGE>
STATEMENT OF OPERATIONS
For the Year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends............................................................................ $ 4,183,631
Interest............................................................................. 406,183
------------
Total Income........................................................................ 4,589,814
------------
EXPENSES:
Investment Advisory Fee.............................................................. 1,010,205
Distribution (12b-1) and Service Fees (Attributed to Classes A, B and C of $93,668,
$506,509 and $130,234, respectively)................................................. 730,411
Shareholder Services................................................................. 268,613
Registration and Filing Fees......................................................... 80,023
Trustees' Fees and Expenses.......................................................... 13,143
Legal................................................................................ 4,517
Amortization of Organizational Costs................................................. 3,397
Other................................................................................ 155,948
------------
Total Expenses...................................................................... 2,266,257
------------
NET INVESTMENT INCOME................................................................ $ 2,323,557
============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain.................................................................... $ 15,177,147
------------
Unrealized Appreciation/Depreciation
Beginning of the Period............................................................. 11,896,592
End of the Period................................................................... 14,796,761
------------
Net Unrealized Appreciation During the Period........................................ 2,900,169
------------
NET REALIZED AND UNREALIZED GAIN..................................................... $ 18,077,316
============
NET INCREASE IN NET ASSETS FROM OPERATIONS........................................... $ 20,400,873
============
</TABLE>
13 See Notes to Financial Statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1996
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................................ $ 2,323,557 $ 842,531
Net Realized Gain................................................ 15,177,147 2,148,797
Net Unrealized Appreciation During the Period.................... 2,900,169 9,735,736
------------ -----------
Change in Net Assets from Operations............................. 20,400,873 12,727,064
------------ -----------
Distributions from Net Investment Income......................... (2,323,557) (842,531)
Distributions in Excess of Net Investment Income................. (152,383) (144,086)
------------ -----------
Distributions from and in Excess of Net Investment Income*....... (2,475,940) (986,617)
Distributions from Net Realized Gain*............................ (12,883,431) (1,848,388)
------------ -----------
Total Distributions.............................................. (15,359,371) (2,835,005)
------------ -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES.............. 5,041,502 9,892,059
------------ -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold........................................ 130,239,448 28,516,882
Net Asset Value of Shares Issued Through
Dividend Reinvestment............................................ 12,862,961 2,353,502
Cost of Shares Repurchased....................................... (63,666,603) (6,887,785)
------------ -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS............... 79,435,806 23,982,599
------------ -----------
TOTAL INCREASE IN NET ASSETS..................................... 84,477,308 33,874,658
NET ASSETS:
Beginning of the Period.......................................... 57,470,298 23,595,640
------------ -----------
End of the Period
(Including accumulated distributions in excess of net
investment income of $21,901 and $7,420 respectively)........... $141,947,606 $57,470,298
============ ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
*Distributions by Class December 31, 1997 December 31, 1996
<S> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares.......................................... $ (1,094,042) $ (433,206)
Class B Shares.......................................... (1,102,759) (431,231)
Class C Shares.......................................... (279,139) (122,180)
------------ -----------
$ (2,475,940) $ (986,617)
============ ===========
Distributions from Net Realized Gain:
Class A Shares.......................................... $ (4,664,049) $ (717,981)
Class B Shares.......................................... (6,626,846) (877,571)
Class C Shares.......................................... (1,592,536) (252,836)
------------ -----------
$(12,883,431) $(1,848,388)
============ ===========
</TABLE>
14 See Notes to Financial Statements
<PAGE>
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
June 9, 1994
(Commencement of
Investment
Operations) to
Year Ended December 31, December 31,
Class A Shares 1997 1996 1995 (a) 1994 (a)
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.......................................... $13.008 $ 10.00 $ 9.27 $9.43
------- ------- ------ -----
Net Investment Income.......................................................... .364 .351 .27 .23
Net Realized and Unrealized Gain/Loss.......................................... 2.220 3.514 .85 (.18)
------- ------- ------ -----
Total from Investment Operations.................................................. 2.584 3.865 1.12 .05
------- ------- ------ -----
Less:
Distributions from and in Excess of
Net Investment Income......................................................... .380 .380 .2456 .153
Return of Capital Distribution................................................. -0- -0- .1444 .057
Distributions from Net Realized Gain........................................... 1.402 .477 -0- -0-
------- ------- ------ -----
Total Distributions............................................................... 1.782 .857 .39 .21
------- ------- ------ -----
Net Asset Value, End of the Period................................................ $13.810 $13.008 $10.00 $9.27
======= ======= ====== =====
Total Return (b).................................................................. 20.66% 39.82% 12.39% .24%(c)
Net Assets at End of the Period (In millions)..................................... $ 51.3 $ 23.3 $ 8.5 $ 4.6
Ratio of Expenses to Average Net Assets**......................................... 1.77% 2.60% 2.67% 1.26%
Ratio of Net Investment Income to
Average Net Assets**............................................................. 2.77% 3.21% 2.92% 4.28%
Portfolio Turnover................................................................ 159% 97% 94% 28%*
Average Commission Paid Per
Equity Share Traded (d).......................................................... $ .0594 $ .0486 - -
*Non-Annualized
**If certain expenses had not been assumed by VKAC, total return would
have been lower and the ratios would have been
as follows:
Ratio of Expenses to Average Net Assets........................................... N/A 2.61% 3.16% 3.03%
Ratio of Net Investment Income to
Average Net Assets............................................................... N/A 3.19% 2.44% 2.52%
</TABLE>
N/A = Not Applicable
(a) Based on average shares outstanding.
(b) Total Return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(c) Total return calculated from June 30, 1994 (date the Fund's investment
strategy was implemented) through December 31, 1994, non-annualized.
(d) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal periods prior to 1996.
15 See Notes to Financial Statements
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
June 9, 1994
(Commencement of
Investment
Operations) to
Year Ended December 31, December 31,
Class B Shares 1997 1996 1995 (a) 1994 (a)
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period........................................ $13.008 $ 10.00 $ 9.28 $ 9.43
------- ------- ------ ------
Net Investment Income........................................................ .272 .266 .19 .20
Net Realized and Unrealized Gain/Loss........................................ 2.206 3.519 .843 (.176)
------- ------- ------ ------
Total from Investment Operations................................................ 2.478 3.785 1.033 .024
Less: ------- ------- ------ ------
Distributions from and in Excess of
Net Investment Income....................................................... .284 .300 .197 .1268
Return of Capital Distribution............................................... -0- -0- .116 .0472
Distributions from Net Realized Gain......................................... 1.402 .477 -0- -0-
------- ------- ------ ------
Total Distributions............................................................. 1.686 .777 .313 .174
------- ------- ------ ------
Net Asset Value, End of the Period.............................................. $13.800 $13.008 $10.00 $ 9.28
======= ======= ====== ======
Total Return (b)................................................................ 19.76% 38.82% 11.37% (.04%)(c)
Net Assets at End of the Period (In millions)................................... $ 73.2 $ 26.5 $ 12.0 $ 9.1
Ratio of Expenses to Average Net Assets**....................................... 2.52% 3.37% 3.50% 1.84%
Ratio of Net Investment Income to
Average Net Assets**........................................................... 2.03% 2.39% 2.07% 3.81%
Portfolio Turnover.............................................................. 159% 97% 94% 28%*
Average Commission Paid Per
Equity Share Traded (d)........................................................ $ .0594 $ .0486 - -
*Non-Annualized
**If certain expenses had not been assumed by VKAC, total return would
have been lower and the ratios would have been
as follows:
Ratio of Expenses to Average Net Assets......................................... N/A 3.39% 3.99% 3.60%
Ratio of Net Investment Income to
Average Net Assets.............................................................. N/A 2.37% 1.58% 2.05%
</TABLE>
N/A = Not Applicable
(a) Based on average shares outstanding.
(b) Total Return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(c) Total return calculated from June 30, 1994 (date the Fund's investment
strategy was implemented) through December 31, 1994, non-annualized.
(d) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal periods prior to 1996.
16 See Notes to Financial Statements
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
June 9, 1994
(Commencement of
Investment
Operations) to
Year Ended December 31, December 31,
Class C Shares 1997 1996 1995 (a) 1994 (a)
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period........................................... $12.999 $ 9.99 $ 9.28 $ 9.43
------- ------- ------ ------
Net Investment Income............................................................ .271 .266 .20 .22
Net Realized and Unrealized Gain/Loss............................................ 2.206 3.520 .823 (.178)
------- ------- ------ ------
Total from Investment Operations................................................... 2.477 3.786 1.023 .042
------- ------- ------ ------
Less:
Distributions from and in Excess of
Net Investment Income........................................................... .284 .300 .197 .1399
Return of Capital Distribution.................................................. -0- -0- .116 .0521
Distributions from Net Realized Gain............................................ 1.402 .477 -0- -0-
------- ------- ------ ------
Total Distribution................................................................. 1.686 .777 .313 .192
------- ------- ------ ------
Net Asset Value, End of the Period................................................. $13.790 $12.999 $ 9.99 $ 9.28
======= ======= ====== ======
Total Return (b)................................................................... 19.78% 38.86% 11.26% .15%(c)
Net Assets at End of the Period (In millions)...................................... $ 17.4 $ 7.7 $ 3.1 $ 1.3
Ratio of Expenses to Average Net Assets**.......................................... 2.52% 3.38% 3.54% 1.62%
Ratio of Net Investment Income to
Average Net Assets**............................................................. 2.00% 2.39% 2.11% 3.92%
Portfolio Turnover................................................................. 159% 97% 94% 28%*
Average Commission Paid Per
Equity Share Traded (d).......................................................... $ .0594 $ .0486 - -
*Non-Annualized.
**If certain expenses had not been assumed by VKAC, total return would
have been lower and the ratios would have been
as follows:
Ratio of Expenses to Average Net Assets............................................ N/A 3.40% 4.03% 3.38%
Ratio of Net Investment Income to
Average Net Assets................................................................. N/A 2.38% 1.62% 2.15%
</TABLE>
N/A = Not Applicable
(a) Based on average shares outstanding
(b) Total Return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(c) Total return calculated from June 30, 1994 (date the Fund's investment
strategy was implemented) through December 31, 1994, non-annualized.
(d) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal periods prior to 1996.
17 See Notes to Financial Statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Real Estate Securities Fund (the "Fund") is
organized as a Delaware business trust, and is registered as a diversified open-
end management investment company under the Investment Company Act of 1940, as
amended. The Fund's primary investment objective is to seek long-term growth of
capital by investing principally in securities of companies operating in the
real estate industry. The Fund commenced investment operations on June 9, 1994.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its 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 amounts 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.
A. SECURITY VALUATION-Investments in securities listed on a securities exchange
are valued at their sale price as of the close of such securities exchange.
Unlisted securities and listed securities for which the last sales price is not
available are valued at the last bid price. For those securities where
quotations or prices are not available, valuations are determined in accordance
with procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of 60 days or less are valued at amortized
cost.
B. SECURITY TRANSACTIONS-Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term investments
in which the 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
invest independently in repurchase agreements, or transfer uninvested cash
balances into a pooled cash account along with other investment companies
advised by Van Kampen American Capital Asset Management, Inc. (the "Adviser") or
its affiliates, the daily aggregate of which is invested in repurchase
agreements. Repurchase agreements are fully collateralized by the underlying
debt security. 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. INCOME AND EXPENSES-Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Expenses of the Fund are
allocated on a pro rata basis to each class of shares, except for distribution
and service fees and transfer agency costs which are unique to each class of
shares.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1997
D. ORGANIZATIONAL COSTS-The Fund has reimbursed Van Kampen American Capital
Distributors, Inc. or its affiliates (collectively "VKAC") for costs incurred in
connection with the Fund's organization in the amount of $16,000. These costs
are being amortized on a straight line basis over the 60 month period ending May
31, 1999. The Adviser has agreed that in the event any of the initial shares of
the Fund originally purchased by VKAC are redeemed by the Fund during the
amortization period, the Fund will be reimbursed for any unamortized
organizational costs in the same proportion as the number of shares redeemed
bears to the number of initial shares held at the time of redemption.
E. FEDERAL INCOME TAXES-It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
Net realized gains or losses may differ for financial reporting and tax
purposes primarily as a result of the deferral of losses for tax purposes
resulting from wash sales.
At December 31, 1997, for federal income tax purposes cost of long- and short-
term investments is $129,401,768; the aggregate gross unrealized appreciation is
$15,544,158 and the aggregate gross unrealized depreciation is $906,739,
resulting in net unrealized appreciation of $14,637,419.
F. DISTRIBUTION OF INCOME AND GAINS-The Fund declares and pays dividends
quarterly from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains. All short-term capital gains are included
in ordinary income for tax purposes.
For Federal income tax purposes, the following information is furnished with
respect to the distributions paid by the Fund during its taxable year ended
December 31, 1997. The Fund designated $3,828,135 as a 28% rate capital gain
distribution and $545,346 as a 20% rate capital gain distribution. Shareholders
were sent a 1997 Form 1099-DIV in January 1998 representing their proportionate
share of the capital gain distribution to be reported on their income tax
returns.
The Fund distributes the return of capital it receives from the Real Estate
Investment Trusts (the "REITs") in which the Fund invests. The REITs pay
distributions based on cash flow, without regard to depreciation and
amortization. As a result, a portion of the distributions paid to the Fund and
subsequently distributed to shareholders may be a return of capital.
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between book and tax basis reporting
for the 1997 fiscal year have been identified and appropriately reclassified. As
a result, permanent differences relating to the characterization of
distributions for tax purposes totaling $134,781 were reclassified from
accumulated undistributed net investment income to accumulated net realized
gain/loss. Additionally, permanent book and tax differences relating to the
recognition of certain expenses which are not deductible for tax purposes
totaling $3,121 were reclassified from accumulated undistributed net investment
income to capital.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee equal to
1.00% of the average net assets of the Fund. This fee is payable monthly.
For the year ended December 31, 1997, the Fund recognized expenses of
approximately $3,700 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the year ended December 31, 1997, the Fund recognized expenses of
approximately $31,800 representing VKAC's cost of providing accounting services
to the Fund. These services are provided by VKAC at cost.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser, serves
as the shareholder servicing agent for the Fund. For the year ended December 31,
1997, the Fund recognized expenses of approximately $199,900, representing
ACCESS' cost of providing transfer agency and shareholder services plus a
profit.
For the year ended December 31, 1997, the Fund reimbursed VKAC approximately
$2,000 related to the direct cost of consolidating the VKAC open-end fund
complex. Payment was contingent upon the realization by the Fund of cost
efficiencies in shareholder services resulting from the consolidation.
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.
The Fund provides deferred compensation and retirement plans for its trustees
who are not officers of VKAC. Under the deferred compensation plan, trustees may
elect to defer all or a portion of their compensation to a later date. Benefits
under the retirement plan are payable for a ten-year period and are based upon
each trustee's years of service to the Fund. The maximum annual benefit per
trustee under the plan is equal to $2,500.
For the year ended December 31, 1997, the Fund paid brokerage commissions to
Dean Witter, an affiliate of VKAC, totaling $7,608.
At December 31,1997, VKAC owned 10,605 and 53 shares of Classes A and B,
respectively.
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest,
Classes A, B and C, each with a par value of $.01 per share. There are an
unlimited number of shares of each class authorized.
At December 31, 1997, capital aggregated $44,679,411, $65,025,381 and
$15,201,749 for Classes A, B, and C, respectively. For the year ended December
31, 1997, transactions were as follows:
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A....................................... 5,170,889 $ 72,826,990
Class B....................................... 3,529,184 48,022,266
Class C....................................... 692,679 9,390,192
---------- ------------
Total Sales..................................... 9,392,752 $130,239,448
========== ============
Dividend Reinvestment:
Class A....................................... 393,875 $ 5,266,583
Class B....................................... 458,508 6,117,855
Class C....................................... 110,872 1,478,523
---------- ------------
Total Dividend Reinvestment..................... 963,255 $ 12,862,961
========== ============
Repurchases:
Class A....................................... (3,640,808) $(52,082,516)
Class B....................................... (721,539) (9,824,495)
Class C....................................... (127,832) (1,759,592)
---------- ------------
Total Repurchases............................... (4,490,179) $(63,666,603)
========== ============
</TABLE>
At December 31, 1996, capital aggregated $18,669,483, $20,711,364 and
$6,093,009 for Classes A, B, and C, respectively. For the year ended December
31, 1996, transactions were as follow:
<TABLE>
<CAPTION>
SHARES VALUE
- -----------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.......................................... 1,142,133 $13,064,447
Class B.......................................... 1,012,720 11,615,644
Class C.......................................... 336,995 3,836,791
--------- -----------
Total Sales........................................ 2,491,848 $28,516,882
========= ===========
Dividend Reinvestment:
Class A.......................................... 89,245 $ 1,046,880
Class B.......................................... 86,852 1,022,967
Class C.......................................... 24,037 283,655
--------- -----------
Total Dividend Reinvestment........................ 200,134 $ 2,353,502
========= ===========
Repurchases:
Class A.......................................... (289,138) $(3,174,901)
Class B.......................................... (265,477) (2,844,469)
Class C.......................................... (78,881) (868,415)
--------- -----------
Total Repurchases.................................. (633,496) $(6,887,785)
========= ===========
</TABLE>
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC for Class B and C
shares will be imposed on most redemptions made within five years of the
purchase for Class B and one year of the purchase for Class C as detailed in the
following schedule.
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
First 4.00% 1.00%
Second 4.00% None
Third 3.00% None
Fourth 2.50% None
Fifth 1.50% None
Sixth and Thereafter None None
For the year ended December 31, 1997, VKAC, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A shares of approximately
$67,200 and CDSC on the redeemed shares of approximately $116,400. Sales charges
do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $214,589,921 and $149,389,626,
respectively.
5. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00% each
of Class B and Class C net assets are accrued daily. Included in these fees for
the year ended December 31, 1997, are payments retained by VKAC of approximately
$509,300.
22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
VAN KAMPEN AMERICAN CAPITAL REAL ESTATE SECURITIES FUND
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen American Capital Real
Estate Securities Fund (the "Fund") at December 31, 1997, and the results of its
operations, the changes in its net assets and the financial highlights for each
of the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1997 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
Chicago, Illinois
February 6, 1998
23
<PAGE>
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
EQUITY FUNDS
Domestic
MS Aggressive Equity
VKAC Aggressive Growth
MS American Value
VKAC Comstock
VKAC Emerging Growth
VKAC Enterprise
VKAC Equity Income
VKAC Growth
VKAC Growth And Income
VKAC Harbor
VKAC Pace
VKAC Real Estate Securities
MS U.S. Real Estate
VKAC Utility
MS Value
International/Global
MS Asian Growth
MS Emerging Markets
MS Global Equity Fund.
VKAC Global Equity
MS Global Equity Allocation
VKAC Global Managed Assets
MS International Magnum
MS Latin American
FIXED-INCOME FUNDS
Income
VKAC Corporate Bond
MS Global Fixed Income
VKAC Global Government Securities
VKAC Government Securities
VKAC High Income Corporate Bond
MS High Yield
VKAC High Yield
VKAC Short-term Global Income
VKAC Strategic Income
VKAC U.S. Government
VKAC U.S. Government Trust For Income
MS Worldwide High Income
Tax Exempt Income
VKAC California Insured Tax Free
VKAC Florida Insured Tax Free Income
VKAC High Yield Municipal
VKAC Insured Tax Free Income
VKAC Intermediate Term
Municipal Income
VKAC Municipal Income
VKAC New York Tax Free Income
VKAC Pennsylvania Tax Free Income
VKAC Tax Free High Income
Capital Preservation
VKAC Limited Maturity Government
VKAC Prime Rate Income Trust
VKAC Reserve
VKAC Senior Floating Rate
VKAC Tax Free Money
To find out more about any of these funds, ask your financial adviser for
a prospectus, which contains more complete information, including sales charges
risks, and expenses. Please read it carefully before you invest or send
money.
To view a current Van Kampen American Capital or Morgan Stanley fund prospectus
or to receive additional fund information, choose from one of the following:
. visit our web site at WWW.VKAC.COM -- to view prospectuses, select
investors' place, then download a prospectus
. call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time
(Telecommunications Device for the Deaf users, call 1-800-421-2833)
. e-mail us by visiting WWW.VKAC.COM and selecting Investors' Place
24
<PAGE>
VAN KAMPEN AMERICAN CAPITAL REAL ESTATE SECURITIES FUND
BOARD OF TRUSTEES
J. Miles Branagan
Richard M. Demartini*
Linda Hutton Heagy
R. Craig Kennedy
Jack E. Nelson
Phillip B. Rooney
Fernando Sisto
Wayne W. Whalen* - Chairman
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
ALAN T. SACHTLEBEN*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181
DISTRIBUTOR
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICING AGENT
ACCESS INVESTOR
SERVICES, INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street,
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
200 East Randolph
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in the Investment Company Act
of 1940.
(C) Van Kampen American Capital Distributors, Inc., 1998 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 unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares and other pertinent
data. After June 30, 1998 the report must, if used with report must, if used
with prospective investors, be accompanied by a quarterly performance update.
25
<PAGE>
Bulk Rate
U.S. Postage
PAID
VAN KAMPEN
AMERICAN CAPITAL
Van Kampen American Capital Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> REAL ESTATE A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 129,242,426<F1>
<INVESTMENTS-AT-VALUE> 144,039,187<F1>
<RECEIVABLES> 2,285,280<F1>
<ASSETS-OTHER> 4,403<F1>
<OTHER-ITEMS-ASSETS> 977<F1>
<TOTAL-ASSETS> 146,329,847<F1>
<PAYABLE-FOR-SECURITIES> 3,881,015<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 501,226<F1>
<TOTAL-LIABILITIES> 4,382,241<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 44,679,411
<SHARES-COMMON-STOCK> 3,715,666
<SHARES-COMMON-PRIOR> 1,791,710
<ACCUMULATED-NII-CURRENT> (21,901)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 2,266,205<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 14,796,761<F1>
<NET-ASSETS> 51,313,568
<DIVIDEND-INCOME> 4,183,631<F1>
<INTEREST-INCOME> 406,183<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (2,266,257)<F1>
<NET-INVESTMENT-INCOME> 2,323,557<F1>
<REALIZED-GAINS-CURRENT> 15,177,147<F1>
<APPREC-INCREASE-CURRENT> 2,900,169<F1>
<NET-CHANGE-FROM-OPS> 20,400,873<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (1,094,042)
<DISTRIBUTIONS-OF-GAINS> (4,664,049)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,170,889
<NUMBER-OF-SHARES-REDEEMED> (3,640,808)
<SHARES-REINVESTED> 393,875
<NET-CHANGE-IN-ASSETS> 28,006,815
<ACCUMULATED-NII-PRIOR> (7,420)<F1>
<ACCUMULATED-GAINS-PRIOR> 107,270<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 1,010,205<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 2,266,257<F1>
<AVERAGE-NET-ASSETS> 37,527,037
<PER-SHARE-NAV-BEGIN> 13.008
<PER-SHARE-NII> 0.364
<PER-SHARE-GAIN-APPREC> 2.220
<PER-SHARE-DIVIDEND> (0.380)
<PER-SHARE-DISTRIBUTIONS> (1.402)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 13.810
<EXPENSE-RATIO> 1.77
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> REAL ESTATE B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 129,242,426<F1>
<INVESTMENTS-AT-VALUE> 144,039,187<F1>
<RECEIVABLES> 2,285,280<F1>
<ASSETS-OTHER> 4,403<F1>
<OTHER-ITEMS-ASSETS> 977<F1>
<TOTAL-ASSETS> 146,329,847<F1>
<PAYABLE-FOR-SECURITIES> 3,881,015<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 501,226<F1>
<TOTAL-LIABILITIES> 4,382,241<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 65,025,381
<SHARES-COMMON-STOCK> 5,304,248
<SHARES-COMMON-PRIOR> 2,038,095
<ACCUMULATED-NII-CURRENT> (21,901)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 2,266,205<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 14,796,761<F1>
<NET-ASSETS> 73,198,558
<DIVIDEND-INCOME> 4,183,631<F1>
<INTEREST-INCOME> 406,183<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (2,266,257)<F1>
<NET-INVESTMENT-INCOME> 2,323,557<F1>
<REALIZED-GAINS-CURRENT> 15,177,147<F1>
<APPREC-INCREASE-CURRENT> 2,900,169<F1>
<NET-CHANGE-FROM-OPS> 20,400,873<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (1,102,759)
<DISTRIBUTIONS-OF-GAINS> (6,626,846)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,529,184
<NUMBER-OF-SHARES-REDEEMED> (721,539)
<SHARES-REINVESTED> 458,508
<NET-CHANGE-IN-ASSETS> 46,687,138
<ACCUMULATED-NII-PRIOR> (7,420)<F1>
<ACCUMULATED-GAINS-PRIOR> 107,270<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 1,010,205<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 2,266,257<F1>
<AVERAGE-NET-ASSETS> 50,584,864
<PER-SHARE-NAV-BEGIN> 13.008
<PER-SHARE-NII> 0.272
<PER-SHARE-GAIN-APPREC> 2.206
<PER-SHARE-DIVIDEND> (0.284)
<PER-SHARE-DISTRIBUTIONS> (1.402)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 13.800
<EXPENSE-RATIO> 2.52
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> REAL ESTATE C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 129,242,426<F1>
<INVESTMENTS-AT-VALUE> 144,039,187<F1>
<RECEIVABLES> 2,285,280<F1>
<ASSETS-OTHER> 4,403<F1>
<OTHER-ITEMS-ASSETS> 977<F1>
<TOTAL-ASSETS> 146,329,847<F1>
<PAYABLE-FOR-SECURITIES> 3,881,015<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 501,226<F1>
<TOTAL-LIABILITIES> 4,382,241<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15,201,749
<SHARES-COMMON-STOCK> 1,264,396
<SHARES-COMMON-PRIOR> 588,677
<ACCUMULATED-NII-CURRENT> (21,901)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 2,266,205<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 14,796,761<F1>
<NET-ASSETS> 17,435,480
<DIVIDEND-INCOME> 4,183,631<F1>
<INTEREST-INCOME> 406,183<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (2,266,257)<F1>
<NET-INVESTMENT-INCOME> 2,323,557<F1>
<REALIZED-GAINS-CURRENT> 15,177,147<F1>
<APPREC-INCREASE-CURRENT> 2,900,169<F1>
<NET-CHANGE-FROM-OPS> 20,400,873<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (279,139)
<DISTRIBUTIONS-OF-GAINS> (1,592,536)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 692,679
<NUMBER-OF-SHARES-REDEEMED> (127,832)
<SHARES-REINVESTED> 110,872
<NET-CHANGE-IN-ASSETS> 9,783,355
<ACCUMULATED-NII-PRIOR> (7,420)<F1>
<ACCUMULATED-GAINS-PRIOR> 107,270<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 1,010,205<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 2,266,257<F1>
<AVERAGE-NET-ASSETS> 13,009,155
<PER-SHARE-NAV-BEGIN> 12.999
<PER-SHARE-NII> 0.271
<PER-SHARE-GAIN-APPREC> 2.206
<PER-SHARE-DIVIDEND> (0.284)
<PER-SHARE-DISTRIBUTIONS> (1.402)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 13.790
<EXPENSE-RATIO> 2.52
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
