<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Performance in Perspective....................... 4
Glossary of Terms................................ 5
Portfolio Management Review...................... 7
Portfolio Highlights............................. 10
Portfolio of Investments......................... 11
Statement of Assets and Liabilities.............. 14
Statement of Operations.......................... 15
Statement of Changes in Net Assets............... 16
Financial Highlights............................. 17
Notes to Financial Statements.................... 20
Report of Independent Accountants................ 26
</TABLE>
REAL ANR 2/99
<PAGE> 2
LETTER TO SHAREHOLDERS
January 20, 1999
Dear Shareholder,
The past decade has been a remarkable time for investors. Together, we've
witnessed one of the greatest bull markets in investment history, unprecedented
growth in mutual fund investing, and a surge in personal retirement planning.
The coming millennium promises to hold even more opportunities.
To lead us into this new era of investing, Richard F. Powers III has joined
Van Kampen as Chairman and Chief Executive Officer. He comes to us from our
parent company, Morgan Stanley Dean Witter & Co., where he served as Executive
Vice President and Director of Marketing. He brings 27 years of experience in
the financial services industry, including an extensive background in product
management, strategic planning and brand development.
Although former Chairman Don G. Powell retired on January 1, he will remain
active in the industry and the community. Mr. Powell plans to continue his
service as a member of the board of directors of the Investment Company
Institute, the leading mutual fund industry association, and he will remain a
trustee of your fund.
ECONOMIC OVERVIEW
Despite a stormy year in the global economy, the United States ended 1998
with only a moderate slowdown in growth. The nation's gross domestic product, a
measure of economic health, grew 3.9 percent during the year, matching 1997's
growth rate and indicating that our nation's economy remains strong. A
continuation of low inflation--only a 1.6 percent increase in the consumer price
index over the last 12 months--also helped sustain the domestic economy and kept
inflation-adjusted interest rates attractive.
Although the year ended on a positive note, the economic environment was
quite unsettled in the third quarter, with the Asian financial crisis
contributing to slowing corporate profits in the United States. Given the
uncertainty surrounding emerging market nations and the near-collapse of a major
U.S. hedge fund, the stock and bond markets experienced significant volatility
during this period. With instability as a backdrop, American and foreign
investors alike pursued a flight to quality--seeking the relative safety of
large-company stocks and government bonds.
In the last few months of the year the global financial situation improved
in conjunction with the Federal Reserve's interest rate decreases. In response
to declining corporate profits and mounting international concerns, the Fed
lowered interest rates three times, with 0.25 percent cuts in September,
October, and November. These rate cuts, coupled with a wave of corporate mergers
and cost-cutting measures, lent the support needed to keep the economy growing.
Dozens of foreign central banks also reduced interest rates in an effort to
stimulate their economies. These actions gave a boost to investor confidence and
encouraged a return to a more diversified range of investments in the last few
months of the year.
Continued on page 2
1
<PAGE> 3
MARKET REVIEW
Despite bouts of volatility, the stock market experienced impressive returns
during 1998. Large-company stocks were responsible for much of this as investors
favored the perceived stability of established, high-quality companies. The Dow
Jones Industrial Average rose more than 16 percent during the year and hit a
record high of 9374 in November before falling back to more moderate levels.
Technology companies generally fared well during the year, with the
technology-heavy Nasdaq composite index up almost 40 percent for the year. On
the other hand, commodity-based stocks--especially those of oil
companies--suffered from declining commodity prices. Small-company stocks also
significantly underperformed the rest of the market, with the Russell 2000 index
actually losing 3.45 percent during the 12-month period.
OUTLOOK
Our outlook for the domestic economy is positive, and we anticipate
continued low inflation and healthy economic growth. However, the aftereffects
of the global economic slowdown may continue to put pressure on corporate
earnings in the first half of the year. Internationally, we anticipate that low
interest rates and declining inflation will lead to improvements in troubled
areas such as Asia and Latin America. With the successful launch of the euro,
the new European transnational currency, we believe that many foreign markets
will become increasingly attractive in 1999.
In the long term, we are optimistic that the stock market will continue its
record growth, although we could experience additional volatility in the months
ahead if concerns about high stock valuations and increasing earnings pressure
become more pronounced. Combined with growing questions about corporate and
government reactions to the Year 2000 computer problem, we could see an
increasingly cautious market by mid-year.
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 share with you the progress of your
investment.
Sincerely,
<TABLE>
<S> <C>
/s/ Richard F. Powers III /s/ Dennis J. McDonnell
Richard F. Powers III Dennis J. McDonnell
Chairman President
Van Kampen Asset Management Inc. Van Kampen Asset Management Inc.
</TABLE>
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1998
VAN KAMPEN 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).... (11.99%) (12.62%) (12.63%)
One-year total return(2)................. (16.18%) (15.98%) (13.47%)
Life-of-Fund average annual total
return(2)*............................... 10.90% 11.03% 11.29%
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 (4.00% for B and 1.00% 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. An investment
should be made with an understanding of the risks that an investment in equity
securities entails. These include the risk that the financial condition of the
issuers of the securities in the portfolio, or the condition of the stock market
in general, may worsen and therefore, the value of Fund shares may decline. Past
performance does not guarantee future results. Investment return and net asset
value will fluctuate with market conditions. Market volatility may have
adversely affected fund performance since December 31, 1998. 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> 5
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Fund's performance to an applicable benchmark can:
- Illustrate the market environment in which your Fund is being managed
- Reflect the impact of favorable market trends or difficult market
conditions
- Help you evaluate how your Fund's management team has responded to
opportunities and challenges
The following graph compares your Fund's performance to that of the Standard
& Poor's 500-Stock Index and the NAREIT (National Association of Real Estate
Investment Trusts) Equity Index over time. These indexes are broad-based,
statistical composites that do not include any commissions that would be paid by
an investor purchasing the securities they represent.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen Real Estate Securities Fund vs. the Standard & Poor's 500-Stock
Index and the NAREIT Equity Index (June 30, 1994 through December 31, 1998)
INVESTMENT PERFORMANCE CHART
<TABLE>
<CAPTION>
VAN KAMPEN REAL ESTATE STANDARD & POOR'S 500-
SECURITIES FUND STOCK INDEX NAREIT EQUITY REIT INDEX
---------------------- ---------------------- ------------------------
<S> <C> <C> <C>
Jun 1994 9527.00 10000.00 10000.00
9446.00 10315.00 9881.00
9456.00 10703.00 9849.00
9340.00 10489.00 9633.00
8964.00 10708.00 9229.00
8648.00 10285.00 8839.00
Dec 1994 9549.00 10487.00 9446.00
9137.00 10741.00 9150.00
9281.00 11129.00 9317.00
9328.00 11505.00 9245.00
9213.00 11826.00 9162.00
9536.00 12256.00 9481.00
Jun 1995 9760.00 12599.00 9660.00
9950.00 13000.00 9735.00
10097.00 12996.00 9783.00
10345.00 13598.00 9917.00
10026.00 13530.00 9622.00
10143.00 14085.00 9640.00
Dec 1995 10733.00 14414.00 10128.00
10904.00 14884.00 10259.00
11065.00 14987.00 10323.00
10985.00 15186.00 10241.00
11007.00 15390.00 10200.00
11364.00 15742.00 10390.00
Jun 1996 11609.00 15866.00 10494.00
11653.00 15140.00 10480.00
12167.00 15425.00 10814.00
12501.00 16353.00 10977.00
12843.00 16780.00 11223.00
13504.00 18011.00 11639.00
Dec 1996 15007.00 17714.00 13062.00
15018.00 18800.00 12859.00
15215.00 18912.00 12755.00
15031.00 18192.00 12692.00
14519.00 19255.00 12205.00
15043.00 20383.00 12549.00
Jun 1997 15936.00 21361.00 13111.00
16581.00 23030.00 13435.00
16463.00 21707.00 13328.00
17798.00 22959.00 14478.00
17361.00 22168.00 13997.00
17621.00 23156.00 14221.00
Dec 1997 18107.00 23616.00 14496.00
17570.00 23856.00 14340.00
17779.00 25536.00 14028.00
17902.00 26903.00 14242.00
17647.00 27147.00 13682.00
17432.00 26636.00 13513.00
Jun 1998 17214.00 27789.00 13395.00
16321.00 27466.00 12450.00
14778.00 23462.00 11207.00
15601.00 25030.00 11787.00
15464.00 27040.00 11502.00
15792.00 28638.00 11711.00
Dec 1998 15936.00 30351.00 11369.00
</TABLE>
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.
4
<PAGE> 6
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 investment 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 higher expected earnings
growth.
MARKET CAPITALIZATION: The size of a company, as measured by the value of its
issued and outstanding stock. The definition used by Morningstar, an
independent mutual fund rating service, places companies in one of three
flexible categories that grow or shrink along with the market. According to
Morningstar, as of December 31, 1998,
- LARGE CAPS have market capitalizations greater than $8.4 billion
- MID CAPS have market capitalizations between $1.3 and $8.4 billion
- SMALL CAPS have market capitalizations less than $1.3 billion
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from the total assets in its portfolio 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. The P/E ratio 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 & POOR'S 500-STOCK INDEX: A broad-based measurement of changes in
stock-market conditions based on the average performance of 500 widely held
common stocks. The index, which tracks industrial, transportation,
financial, and utility stocks, 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.
5
<PAGE> 7
VALUATION: The estimated or determined worth of a stock, based on financial
measures such as the stock's current price relative to earnings, revenue,
book value, and cash flow.
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.
6
<PAGE> 8
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN REAL ESTATE SECURITIES FUND
We recently spoke with the portfolio manager, Theodore R. Bigman, Morgan Stanley
Dean Witter Investment Management Inc., of the Van Kampen Real Estate Securities
Fund about the key events and economic forces that shaped the markets during the
past 12 months. The following excerpts reflect his views on the Fund's
performance during the reporting period ended December 31, 1998.
Q
WHAT WERE THE MARKET CONDITIONS IN WHICH THE FUND OPERATED DURING THE
REPORTING PERIOD?
A
In your June report, we explained that the first six months of 1998
presented a series of challenges to REIT investors. A strong U.S. equity
market and continued price weakness in the REIT market siphoned attention
away from real estate investments, as was reflected in the declining NAREIT
(National Association of Real Estate Investment Trusts) Equity Index.
Unfortunately, there was little good news to be found in the third quarter of
the year, as real estate securities submitted their worst three-month return in
almost a decade. The fourth quarter was tame by comparison as the NAREIT Equity
Index posted a loss of 3.55 percent. However, real estate investors had
difficulty enjoying this relative calm, as the dramatic gains in the broad
equity markets during the quarter underscored the REIT market's
underperformance.
For the year, the NAREIT Equity Index declined 21.57 percent, marking the
worst year for real estate securities in recent history. By comparison, the
Russell 2000 Stock Index of small-capitalization stocks ended the year down
approximately 2 percent, while the Standard & Poor's 500-Stock Index reached new
highs and returned more than 20 percent for an unprecedented fourth consecutive
year. As a result of the REIT market's underperformance, we remain in a
valuation cycle in which it is cheaper for investors to buy real estate assets
on Wall Street (through the ownership of securities) than on Main Street
(through the direct ownership of assets).
Q
HOW DID YOU POSITION THE PORTFOLIO DURING THIS TIME?
A
We continued to shape the portfolio with companies that offer attractive
fundamental valuations relative to their underlying real estate value.
Given the expected deterioration in real estate property prices and the
potential slowdown in the demand for real estate, we shifted the portfolio to be
modestly more defensive in the third quarter. We increased our weighting in less
volatile sectors, such as residential housing (both apartments and manufactured
home communities), and maintained an underweighting to more volatile sectors,
such as hotels (which feature daily re-pricing of rents).
Following this relatively dramatic defensive shift in the third quarter, we
moved toward a more opportunistic approach in the fourth quarter. This was
evidenced in the purchase of a number of large-capitalization companies that had
fallen into disfavor with investors as a result of negative announcements. We
once again took advantage of a weak market and price declines to add a number of
what we believe are the most talented companies in
7
<PAGE> 9
the REIT universe to the portfolio, including Simon Property Group and Apartment
Investment and Management.
Q
YOU MENTIONED INVESTING IN SOME LARGE-CAP COMPANIES THAT WERE OUT OF FAVOR.
CAN YOU EXPLAIN WHAT WAS HAPPENING IN THE INDUSTRY AND WHAT THIS MEANT TO
THE FUND?
A
In the REIT market, perhaps the most troubling aspect of 1998's second
half was the constant stream of highly publicized, negative news from some
of the most prominent REITs. The media spotlighted two large REITs that
announced restructurings following unsuccessful growth plans. First, Patriot
American announced the sale of non-strategic hotel assets, the hiring of
financial advisors to explore all strategic alternatives, and, by year-end, the
issuance of convertible preferred stock. The stock fell from a 52-week high of
$32 to $7 per share at the end of the reporting period. In addition, Patriot
decided to suspend their dividend payment for the quarter. Then, Meditrust
announced a restructuring that included selling non-core assets and splitting
the company into two separate units. The firm subsequently elected to reduce its
dividend payment.
Another high-flying real estate stock badly damaged in the fourth quarter
was Security Capital Group, which declined from a high of $32 to $13 per share.
Although this company is not structured as a REIT, it is a large real estate
company that was heavily marketed to pension funds and non-dedicated or general
real estate investors. We believe these announcements served to deter
non-dedicated investors from real estate securities.
As we have discussed in the past, our portfolio management style is
value-oriented and opportunistic. As a result, we took the opportunity of price
declines in each of these stocks to add them to the portfolio. For additional
Fund portfolio highlights, please refer to page 10.
Q
WHAT WAS THE FUND'S PERFORMANCE FOR THE 12-MONTH PERIOD?
A
The Fund achieved a total return of -11.99 percent(1) (Class A shares at
net asset value) for the 12-month period ended December 31, 1998. This
performance compares favorably to the total return of the NAREIT Equity
Index of -21.57 percent over the same period. The NAREIT Equity Index is an
unmanaged index that reflects the performance of a broad range of equity REITs
of all property types. By comparison, the Standard & Poor's 500-Stock Index
registered a total return of 28.52 percent in the 12 months ended December 31,
1998. 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 or sales
charges that would be incurred by an investor purchasing the securities they
represent. Please refer to the chart on page 3 for additional Fund performance
results.
8
<PAGE> 10
Q
WHAT IS YOUR OUTLOOK FOR THE REAL ESTATE MARKET AND
FOR THE FUND?
A
After monitoring third-quarter earnings reported for the REITs, it is our
observation that the property market continues to perform well and that
internal growth is coming in better than expected, offsetting the slower
pace of external earnings growth. As a result, most companies are meeting
analysts' expectations. However, analysts may have to reduce earnings estimates
for 1999 due to the potential slowing of internal growth and the continued
decline in external acquisition-oriented sources. Even with reduced estimates,
earnings growth for 1999 is estimated at 10 percent.
The demand side of the equation, which takes its cue from the direction of
the economy, has become the most debated topic in the real estate market.
Although there is no current evidence of a slowdown in absorption, demand for
real estate space will obviously be affected by GDP growth and business and
consumer confidence. The difficulties in the capital markets, by comparison,
create quite favorable news from the supply side of the equation. Developers
should complete existing developments but may not be able to arrange financing
for new developments. If the current market environment persists, when the
supply pipeline is complete and as long as demand is positive, we should
continue to have favorable real estate fundamentals.
/s/ Theodore R. Bigman
Theodore R. Bigman
Portfolio Manager
Please see footnotes on page 3
9
<PAGE> 11
PORTFOLIO HIGHLIGHTS
VAN KAMPEN REAL ESTATE SECURITIES FUND
PORTFOLIO HOLDINGS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
PERCENTAGE OF
TOP TEN HOLDINGS THESE INVESTMENTS
AS OF DECEMBER 31, 1998 12 MONTHS AGO
<S> <C> <C>
Chateau Communities, Inc. .............. 5.8% ................. 4.8%
Arden Realty, Inc. ..................... 5.0% ................. 4.7%
Taubman Centers, Inc. .................. 4.9% ................. 5.5%
Avalonbay Communities, Inc. ............ 4.6% ................. 2.6%
Federal Realty Investment
Trust................................. 4.1% ................. 3.4%
Burnham Pacific Properties,
Inc. ................................. 3.7% ................. 1.8%
Brookfield Properties Corp. ............ 3.6% ................. 2.6%
Essex Property Trust, Inc. ............. 3.5% ................. 4.0%
Equity Office Properties
Trust................................. 3.3% ................. 1.5%
Pacific Gulf Properties,
Inc. ................................. 3.2% ................. 3.8%
</TABLE>
TOP FIVE PORTFOLIO SECTORS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<S> <C>
AS OF DECEMBER 31, 1998
Office/Industrial.............................. 30.9%
Apartments..................................... 24.2%
Shopping Centers............................... 11.7%
Manufactured Home Communities.................. 8.3%
Shopping Malls................................. 7.8%
AS OF DECEMBER 31, 1997
Office/Industrial.............................. 28.9%
Apartments..................................... 19.5%
Hotel & Lodging................................ 11.3%
Shopping Malls................................. 10.7%
Shopping Centers............................... 7.4%
</TABLE>
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS
December 31, 1998
<TABLE>
=====================================================================================
<CAPTION>
Description Shares Market Value
- -------------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS 97.7%
APARTMENTS 23.8%
Amli Residential Properties Trust........................... 42,200 $ 938,950
Apartment Investment & Management Company, Class A.......... 40,000 1,487,500
Archstone Communities Trust................................. 182,958 3,704,900
Avalonbay Communities, Inc.................................. 161,600 5,534,800
Equity Residential Properties Trust......................... 89,391 3,614,748
Essex Property Trust, Inc................................... 142,400 4,236,400
Irvine Apartment Communities, Inc........................... 116,200 3,703,875
Pennsylvania Real Estate Investment......................... 106,300 2,066,206
Smith (Charles E.) Residential Realty, Inc. ................ 91,800 2,949,075
Summit Properties, Inc...................................... 61,600 1,062,600
------------
29,299,054
------------
DEVELOPMENT 4.0%
Atlantic Gulf Communities Corp. (a)......................... 188,680 141,510
Atlantic Gulf Communities Corp. -- Convertible Preferred Ser
B (a)..................................................... 24,741 123,705
Atlantic Gulf Communities Corp. -- Convertible Preferred Ser
B, 144A -- Private Placement (a) (b)........................ 35,402 177,010
Atlantic Gulf Communities Corp. Warrants, 16,494 shares of
each Class A, B and C, expiring 06/23/04 (a)................ 49,482 18,556
Atlantic Gulf Communities Corp. Warrants, 33,397 shares of
each Class A, B and C, expiring 06/24/01, 144A -- Private
Placement (a) (b)........................................... 100,191 37,572
Brookfield Properties Corp. (a)............................. 354,100 4,348,348
Merry Land Properties, Inc. (a)............................. 9,735 35,289
------------
4,881,990
------------
HEALTHCARE FACILITIES 1.1%
Meditrust Companies......................................... 79,300 1,199,413
Omega Healthcare Investors, Inc............................. 3,600 108,675
------------
1,308,088
------------
HOTEL & LODGING 4.2%
Candlewood Hotel Company, Inc. (a).......................... 52,300 274,575
Crestline Capital Corp. (a)................................. 8,460 123,728
Host Marriott Corp. ........................................ 84,600 1,168,538
Patriot American Hospitality, Inc........................... 220,300 1,321,800
Starwood Hotels and Resorts................................. 99,430 2,255,818
------------
5,144,459
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
<TABLE>
=====================================================================================
<CAPTION>
Description Shares Market Value
- -------------------------------------------------------------------------------------
<S> <C> <C>
MANUFACTURED HOME COMMUNITIES 8.1%
Chateau Communities, Inc.................................... 240,794 $ 7,058,274
Manufactured Home Communities, Inc.......................... 26,600 666,663
Sun Communities, Inc........................................ 65,400 2,276,737
------------
10,001,674
------------
OFFICE/INDUSTRIAL 30.3%
Arden Realty, Inc........................................... 258,400 5,991,650
Beacon Capital Partners, Inc. 144A -- Private Placement
(a) (b)................................................... 140,800 2,816,000
Bedford Property Investors, Inc............................. 34,700 585,562
Boston Properties, Inc...................................... 10,400 317,200
Brandywine Realty Trust..................................... 182,700 3,265,762
CarrAmerica Realty Corp..................................... 114,000 2,736,000
Cornerstone Properties, Inc................................. 2,500 39,063
Crescent Real Estate Equities Trust......................... 125,800 2,893,400
Equity Office Properties Trust.............................. 167,886 4,029,264
Great Lakes REIT, Inc....................................... 223,000 3,498,312
Mack California Realty Corp................................. 15,500 478,563
Meridian Industrial Trust, Inc.............................. 7,500 176,250
Pacific Gulf Properties, Inc................................ 192,300 3,858,019
Prime Group Realty Trust.................................... 183,100 2,769,387
ProLogis Trust.............................................. 6,000 124,500
SL Green Realty Corp........................................ 21,200 458,450
Spieker Properties, Inc..................................... 22,800 789,450
Wellsford Real Properties, Inc., 144A -- Private Placement
(a) (b)................................................... 246,850 2,545,641
------------
37,372,473
------------
SELF-STORAGE 6.4%
PS Business Parks Inc. California........................... 89,074 2,126,642
Public Storage, Inc......................................... 99,200 2,684,600
Shurgard Storage Centers, Inc., Class A..................... 63,500 1,639,094
Storage Trust Realty........................................ 59,700 1,395,487
------------
7,845,823
------------
SHOPPING CENTERS 11.4%
Acadia Realty Trust (a)..................................... 13,600 71,400
Burnham Pacific Properties, Inc............................. 367,200 4,429,350
Federal Realty Investment Trust............................. 208,800 4,932,900
First Washington Realty Trust, Inc.......................... 19,600 464,275
First Washington Realty Trust, Inc. -- Preferred Ser A
(Convertible into 33,717 common shares)..................... 26,300 780,781
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
<TABLE>
=====================================================================================
<CAPTION>
Description Shares Market Value
- -------------------------------------------------------------------------------------
<S> <C> <C>
SHOPPING CENTERS (CONTINUED)
Pan Pacific Retail Properties, Inc.......................... 79,900 $ 1,593,006
Philips International Realty Corp........................... 4,000 61,500
Ramco-Gershenson Properties Trust........................... 800 11,600
Regency Realty Corp......................................... 34,500 767,625
Vornado Realty Trust........................................ 29,100 982,125
------------
14,094,562
------------
SHOPPING MALLS 7.7%
Simon Property Group, Inc................................... 43,300 1,234,050
Taubman Centers, Inc........................................ 428,500 5,891,875
Urban Shopping Centers, Inc................................. 71,200 2,331,800
------------
9,457,725
------------
RESEARCH & MANAGEMENT 0.7%
Security Capital Group, Inc., Class B (a)................... 62,500 847,656
------------
TOTAL COMMON AND PREFERRED STOCKS 97.7%............................. 120,253,504
------------
CONVERTIBLE CORPORATE OBLIGATIONS 0.6%
Brookfield Properties Corp. -- Installment Receipts Representing
Subordinated Debenture ($868,400 par, 6.00% coupon, 02/14/07
maturity) Convertible to 57,893 common shares........................ 768,317
------------
TOTAL LONG-TERM INVESTMENTS 98.3%
(Cost $126,289,948)................................................ 121,021,821
REPURCHASE AGREEMENT 0.6%
BA Securities ($700,000 par, collateralized by U.S. Government
obligations in a pooled cash account, dated 12/31/98, to be sold on
01/04/99 at $700,381)
(Cost $700,000).................................................... 700,000
------------
TOTAL INVESTMENTS 98.9%
(Cost $126,989,948)................................................ 121,721,821
OTHER ASSETS IN EXCESS OF LIABILITIES 1.1%.......................... 1,407,708
------------
NET ASSETS 100.0%................................................... $123,129,529
============
</TABLE>
(a) Non-income producing security as this stock currently does not declare
dividends.
(b) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1939. These securities may only be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
See Notes to Financial Statements
13
<PAGE> 15
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
===============================================================================
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $126,989,948)....................... $121,721,821
Cash........................................................ 11,576
Receivables:
Dividends................................................. 1,141,301
Investments Sold.......................................... 902,123
Fund Shares Sold.......................................... 811,060
Interest.................................................. 17,559
Unamortized Organizational Costs............................ 1,293
Other....................................................... 314
------------
Total Assets.......................................... 124,607,047
------------
LIABILITIES:
Payables:
Fund Shares Repurchased................................... 1,093,335
Distributor and Affiliates................................ 190,865
Investment Advisory Fee................................... 104,301
Income Distributions...................................... 2,361
Accrued Expenses............................................ 53,190
Trustees' Deferred Compensation and Retirement Plans........ 33,466
------------
Total Liabilities..................................... 1,477,518
------------
NET ASSETS.................................................. $123,129,529
============
NET ASSETS CONSIST OF:
Capital..................................................... $131,216,353
Accumulated Undistributed Net Investment Income............. 1,307,574
Accumulated Net Realized Loss............................... (4,126,271)
Net Unrealized Depreciation................................. (5,268,127)
------------
NET ASSETS.................................................. $123,129,529
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $41,696,017 and 3,601,174 shares of
beneficial interest issued and outstanding)........... $ 11.58
Maximum sales charge (4.75%* of offering price)......... .58
------------
Maximum offering price to public........................ $ 12.16
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $64,372,976 and 5,561,643 shares of
beneficial interest issued and outstanding)........... $ 11.57
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $17,060,536 and 1,474,850 shares of
beneficial interest issued and outstanding)........... $ 11.57
============
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
14
<PAGE> 16
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
===============================================================================
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends................................................... $ 7,647,105
Interest.................................................... 288,031
------------
Total Income............................................ 7,935,136
------------
EXPENSES:
Investment Advisory Fee..................................... 1,374,881
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $120,847, $717,429 and $172,451,
respectively)............................................. 1,010,727
Shareholder Services........................................ 434,699
Custody..................................................... 13,931
Trustees' Fees and Expenses................................. 12,649
Legal....................................................... 8,345
Amortization of Organizational Costs........................ 3,110
Other....................................................... 246,271
------------
Total Expenses.......................................... 3,104,613
------------
NET INVESTMENT INCOME....................................... $ 4,830,523
============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $ (3,966,930)
------------
Unrealized Appreciation/Depreciation
Beginning of the Period................................... 14,796,761
End of the Period......................................... (5,268,127)
------------
Net Unrealized Depreciation During the Period............... (20,064,888)
------------
NET REALIZED AND UNREALIZED LOSS............................ $(24,031,818)
============
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $(19,201,295)
============
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1998 and 1997
================================================================================
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................. $ 4,830,523 $ 2,323,557
Net Realized Gain/Loss................................ (3,966,930) 15,177,147
Net Unrealized Appreciation/Depreciation During the
Period.............................................. (20,064,888) 2,900,169
----------- -----------
Change in Net Assets from Operations.................. (19,201,295) 20,400,873
----------- -----------
Distributions from Net Investment Income.............. (3,501,048) (2,323,557)
Distributions in Excess of Net Investment Income...... -0- (152,383)
----------- -----------
Distributions from and in Excess of Net Investment
Income*............................................. (3,501,048) (2,475,940)
Distributions from Net Realized Gain*................. (2,425,546) (12,883,431)
----------- -----------
Total Distributions................................... (5,926,594) (15,359,371)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES... (25,127,889) 5,041,502
----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............................. 121,798,900 130,239,448
Net Asset Value of Shares Issued Through Dividend
Reinvestment........................................ 4,935,762 12,862,961
Cost of Shares Repurchased............................ (120,424,850) (63,666,603)
----------- -----------
Net Change in Net Assets from Capital Transactions.... 6,309,812 79,435,806
----------- -----------
TOTAL INCREASE/DECREASE IN NET ASSETS................. (18,818,077) 84,477,308
NET ASSETS:
Beginning of the Period............................... 141,947,606 57,470,298
----------- -----------
End of the Period (Including accumulated undistributed
net investment income of $1,307,574 and ($21,901)
respectively)....................................... $123,129,529 $141,947,606
============ ============
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
*Distributions by Class December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of Net
Investment Income:
Class A Shares.......................... $(1,462,168) $ (1,094,042)
Class B Shares.......................... (1,638,689) (1,102,759)
Class C Shares.......................... (400,191) (279,139)
----------- ------------
$(3,501,048) $ (2,475,940)
=========== ============
Distributions from Net Realized Gain:
Class A Shares.......................... $ (868,860) $ (4,664,049)
Class B Shares.......................... (1,263,337) (6,626,846)
Class C Shares.......................... (293,349) (1,592,536)
----------- ------------
$(2,425,546) $(12,883,431)
=========== ============
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
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
Year Ended December 31, Operations) to
------------------------------------- December 31,
Class A Shares 1998 1997 1996 1995(a) 1994(a)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period........................... $13.810 $13.008 $ 10.00 $ 9.27 $ 9.43
------- ------- ------- ------ -------
Net Investment Income............ .509 .364 .351 .27 .23
Net Realized and Unrealized
Gain/Loss...................... (2.139) 2.220 3.514 .85 (.18)
------- ------- ------- ------ -------
Total from Investment Operations... (1.630) 2.584 3.865 1.12 .05
------- ------- ------- ------ -------
Less:
Distributions from and in Excess
of Net Investment Income....... .380 .380 .380 .2456 .153
Return of Capital Distribution... -0- -0- -0- .1444 .057
Distributions from Net Realized
Gain........................... .222 1.402 .477 -0- -0-
------- ------- ------- ------ -------
Total Distributions................ .602 1.782 .857 .39 .21
------- ------- ------- ------ -------
Net Asset Value, End of the
Period........................... $11.578 $13.810 $13.008 $10.00 $ 9.27
======= ======= ======= ====== =======
Total Return (b)................... (11.99%) 20.66% 39.82% 12.39% .24%(c)
Net Assets at End of the Period (In
millions)........................ $ 41.7 $ 51.3 $ 23.3 $ 8.5 $ 4.6
Ratio of Expenses to Average Net
Assets**......................... 1.76% 1.77% 2.60% 2.67% 1.26%
Ratio of Net Investment Income to
Average Net Assets**............. 3.98% 2.77% 3.21% 2.92% 4.28%
Portfolio Turnover................. 113% 159% 97% 94% 28%*
* Non-annualized
** If certain expenses had not been assumed by Van Kampen, total return would have been
lower and the ratios would have been as follows:
Ratio of Expenses to Average Net
Assets........................... N/A N/A 2.61% 3.16% 3.03%
Ratio of Net Investment Income to
Average Net Assets............... N/A 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.
See Notes to Financial Statements
17
<PAGE> 19
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
Year Ended December 31, Operations) to
-------------------------------------- December 31,
Class B Shares 1998 1997 1996 1995(a) 1994(a)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.............................. $ 13.800 $13.008 $ 10.00 $ 9.28 $ 9.43
-------- ------- ------- ------ ------
Net Investment Income................. .409 .272 .266 .19 .20
Net Realized and Unrealized
Gain/Loss........................... (2.129) 2.206 3.519 .843 (.176)
-------- ------- ------- ------ ------
Total from Investment Operations...... (1.720) 2.478 3.785 1.033 .024
-------- ------- ------- ------ ------
Less:
Distributions from and in Excess of
Net Investment Income............. .284 .284 .300 .197 .1268
Return of Capital Distribution...... -0- -0- -0- .116 .0472
Distributions from Net Realized
Gain.............................. .222 1.402 .477 -0- -0-
-------- ------- ------- ------ ------
Total Distributions................... .506 1.686 .777 .313 .174
-------- ------- ------- ------ ------
Net Asset Value, End of the Period.... $ 11.574 $13.800 $13.008 $10.00 $ 9.28
======== ======= ======= ====== ======
Total Return (b)...................... (12.62%) 19.76% 38.82% 11.37% (.04%)(c)
Net Assets at End of the Period (In
millions)........................... $ 64.4 $ 73.2 $ 26.5 $ 12.0 $ 9.1
Ratio of Expenses to Average Net
Assets**............................ 2.53% 2.52% 3.37% 3.50% 1.84%
Ratio of Net Investment Income to
Average Net Assets**................ 3.26% 2.03% 2.39% 2.07% 3.81%
Portfolio Turnover.................... 113% 159% 97% 94% 28%*
* Non-Annualized
** If certain expenses had not been assumed by Van Kampen, total return would have been lower
and the ratios would have been as follows:
Ratio of Expenses to Average Net
Assets.............................. N/A N/A 3.39% 3.99% 3.60%
Ratio of Net Investment Income to
Average Net Assets.................. N/A 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.
See Notes to Financial Statements
18
<PAGE> 20
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
Year Ended December 31, Operations) to
------------------------------------- December 31,
Class C Shares 1998(a) 1997 1996 1995(a) 1994(a)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.............................. $13.790 $12.999 $ 9.99 $ 9.28 $ 9.43
------- ------- ------- ------ -------
Net Investment Income................. .409 .271 .266 .20 .22
Net Realized and Unrealized
Gain/Loss........................... (2.125) 2.206 3.520 .823 (.178)
------- ------- ------- ------ -------
Total from Investment Operations...... (1.716) 2.477 3.786 1.023 .042
------- ------- ------- ------ -------
Less:
Distributions from and in Excess of
Net Investment Income............. .284 .284 .300 .197 .1399
Return of Capital Distribution...... -0- -0- -0- .116 .0521
Distributions from Net Realized
Gain.............................. .222 1.402 .477 -0- -0-
------- ------- ------- ------ -------
Total Distribution.................... .506 1.686 .777 .313 .192
------- ------- ------- ------ -------
Net Asset Value, End of the Period.... $11.568 $13.790 $12.999 $ 9.99 $ 9.28
======= ======= ======= ====== =======
Total Return (b)...................... (12.63%) 19.78% 38.86% 11.26% .15%(c)
Net Assets at End of the Period (In
millions)........................... $ 17.1 $ 17.4 $ 7.7 $ 3.1 $ 1.3
Ratio of Expenses to Average Net
Assets**............................ 2.54% 2.52% 3.38% 3.54% 1.62%
Ratio of Net Investment Income to
Average Net Assets**................ 3.31% 2.00% 2.39% 2.11% 3.92%
Portfolio Turnover.................... 113% 159% 97% 94% 28%*
* Non-Annualized.
** If certain expenses had not been assumed by Van Kampen, total return would have been lower
and the ratios would have been as follows:
Ratio of Expenses to Average Net
Assets.............................. N/A N/A 3.40% 4.03% 3.38%
Ratio of Net Investment Income to
Average Net Assets.................. N/A 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.
See Notes to Financial Statements
19
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen 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. For
unlisted securities and listed securities for which the last sales price is not
available the Fund's security valuation methodology was changed in 1998 from bid
side pricing to the mean of the bid and asked prices. The impact of the change,
which was not material, is included as a component of the change in unrealized
appreciation/depreciation for the year ended December 31, 1998. 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 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.
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
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.
D. ORGANIZATIONAL COSTS--The Fund has reimbursed Van Kampen Funds Inc. or its
affiliates (collectively "Van Kampen") 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 Van Kampen 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.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of loss and offset such losses against any future realized capital gains.
At December 31, 1998, the Fund had an accumulated capital loss carryforward for
tax purposes of $2,357,933 which will expire on December 31, 2006. Net realized
gains or losses may differ for financial reporting and tax purposes primarily as
a result of the deferral of post October 31 losses which are not recognized for
tax purposes until the first day of the following fiscal year and losses for tax
purposes resulting from wash sales.
At December 31, 1998, for federal income tax purposes the cost of long- and
short-term investments is $128,304,696; the aggregate gross unrealized
appreciation is $4,502,467 and the aggregate gross unrealized depreciation is
$11,085,342, resulting in net unrealized depreciation on long- and short-term
investments of $6,582,875.
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
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, 1998. The Fund designated and paid a 20% rate gain distribution of
$961,766. In January 1999, the Fund provided tax information to shareholders for
the 1998 calendar year.
The Fund distributes any return of capital it receives from the Real Estate
Investment Trusts (the "REITs") in which it 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.
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. On
April 23, 1998, the Board of Trustees approved a subadvisory agreement with
Morgan Stanley Dean Witter Investment Management Inc. (the "Subadviser") to
provide advisory services to the Fund and the Adviser with respect to the Fund's
investments. The Adviser pays 50% of its advisory fee to the Subadviser. This
subadvisory agreement became effective October 1, 1998.
For the year ended December 31, 1998, the Fund recognized expenses of
approximately $8,300 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, 1998, the Fund recognized expenses of
approximately $84,000 representing Van Kampen's cost of providing accounting
services to the Fund.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent for the Fund. For the year ended December 31,
1998, the Fund recognized expenses of approximately $321,600. Beginning in 1998,
the transfer agency fees are determined through negotiations with the Fund's
Board of Trustees and are based on competitive market benchmarks.
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. 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 $2,500.
At December 31, 1998, Van Kampen owned 10,605 Class A shares, 53 Class B and
53 Class C shares.
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, 1998, capital aggregated $43,933,627, $69,341,200, and
$17,941,526 for Classes A, B, and C, respectively. For the year ended December
31, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A..................................... 6,983,175 $ 89,637,024
Class B..................................... 1,955,125 24,939,392
Class C..................................... 584,081 7,222,484
---------- -------------
Total Sales................................... 9,522,381 $ 121,798,900
========== =============
Dividend Reinvestment:
Class A..................................... 164,711 $ 2,034,093
Class B..................................... 189,265 2,349,248
Class C..................................... 44,624 552,421
---------- -------------
Total Dividend Reinvestment................... 398,600 $ 4,935,762
========== =============
Repurchases:
Class A..................................... (7,262,378) $ (92,416,901)
Class B..................................... (1,886,995) (22,972,821)
Class C..................................... (418,251) (5,035,128)
---------- -------------
Total Repurchases............................. (9,567,624) $(120,424,850)
========== =============
</TABLE>
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
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:
<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>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares will
automatically convert to Class A shares after the eighth year following
purchase. 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.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
-----------------------
YEAR OF REDEMPTION CLASS B CLASS C
- -------------------------------------------------------------------------
<S> <C> <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
</TABLE>
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
For the year ended December 31, 1998, Van Kampen, as Distributor for the
Fund, received net commissions on sales of the Fund's Class A shares of
approximately $70,000 and CDSC on the redeemed shares of approximately $339,900.
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 $158,567,382 and $150,065,064,
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, 1998, are payments retained by Van Kampen of
approximately $634,171.
6. FUND MERGER
On October 23, 1997 the Board of Trustees approved the merger of the Van Kampen
U.S. Real Estate Fund ("USRE Fund") into the Fund through a tax-free
reorganization subject to the approval of USRE Fund shareholders. USRE Fund
shareholders approved the merger on February 4, 1999. The merger is scheduled to
take place on February 19, 1999.
25
<PAGE> 27
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Van Kampen 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 Real Estate Securities
Fund (the "Fund") at December 31, 1998 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, 1998 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
February 4, 1999
26
<PAGE> 28
VAN KAMPEN FUNDS
EQUITY FUNDS
Domestic
Aggressive Equity
Aggressive Growth
American Value
Comstock
Emerging Growth
Enterprise
Equity Growth
Equity Income
Growth
Growth and Income
Harbor
Pace
Real Estate Securities
Utility
Value
Global/International
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Franchise
Global Managed Assets
International Magnum
Latin American
FIXED-INCOME FUNDS
Income
Corporate Bond
Global Fixed Income
Global Government Securities
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
Short-Term Global Income
Strategic Income
U.S. Government
U.S. Government Trust for Income
Worldwide High Income
Tax Exempt Income
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
Capital Preservation
Reserve
Tax Free Money
Senior Loan
Prime Rate Income Trust
Senior Floating Rate
To find out more about any of these
funds, ask your financial advisor 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 fund
prospectus or to receive additional
fund information, choose from one of
the following:
- - visit our Web site at
www.vankampen.com--to view a prospectus, select Download 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.vankampen.com and
selecting Contact Us
27
<PAGE> 29
VAN KAMPEN REAL ESTATE SECURITIES FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
PAUL G. YOVOVICH
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and
Chief Financial Officer
CURTIS W. MORRELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
ASSET MANAGEMENT INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
INVESTMENT SUBADVISER
MORGAN STANLEY DEAN WITTER
INVESTMENT MANAGEMENT INC.
1221 Avenue of the Americas
New York, New York 10020
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN
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
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Drive
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940.
(C) Van Kampen Funds Inc., 1999 All rights reserved.
SM denotes a service mark of Van Kampen Funds 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, 1999 the report must, if used with prospective investors,
be accompanied by a quarterly performance update.
28
<PAGE> 30
- --------------------------------------------------------------------------------
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the Fund's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Fund's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Fund's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Fund. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Fund may invest that, in turn, may adversely affect
the net asset value of the Fund. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
- --------------------------------------------------------------------------------
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> REAL ESTATE A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 126,989,948<F1>
<INVESTMENTS-AT-VALUE> 121,721,821<F1>
<RECEIVABLES> 2,872,043<F1>
<ASSETS-OTHER> 1,293<F1>
<OTHER-ITEMS-ASSETS> 11,890<F1>
<TOTAL-ASSETS> 124,607,047<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,477,518<F1>
<TOTAL-LIABILITIES> 1,477,518<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 43,933,627
<SHARES-COMMON-STOCK> 3,601,174
<SHARES-COMMON-PRIOR> 3,715,666
<ACCUMULATED-NII-CURRENT> 1,307,574<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (4,126,271)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (5,268,127)<F1>
<NET-ASSETS> 41,696,017
<DIVIDEND-INCOME> 7,647,105<F1>
<INTEREST-INCOME> 288,031<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (3,104,613)<F1>
<NET-INVESTMENT-INCOME> 4,830,523<F1>
<REALIZED-GAINS-CURRENT> (3,966,930)<F1>
<APPREC-INCREASE-CURRENT> (20,064,888)<F1>
<NET-CHANGE-FROM-OPS> (19,201,295)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (1,462,168)
<DISTRIBUTIONS-OF-GAINS> (868,860)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,983,175
<NUMBER-OF-SHARES-REDEEMED> (7,262,378)
<SHARES-REINVESTED> 164,711
<NET-CHANGE-IN-ASSETS> (9,617,551)
<ACCUMULATED-NII-PRIOR> (21,901)<F1>
<ACCUMULATED-GAINS-PRIOR> 2,266,205<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 1,374,881<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 3,104,613<F1>
<AVERAGE-NET-ASSETS> 48,419,648
<PER-SHARE-NAV-BEGIN> 13.810
<PER-SHARE-NII> 0.509
<PER-SHARE-GAIN-APPREC> (2.139)
<PER-SHARE-DIVIDEND> (0.380)
<PER-SHARE-DISTRIBUTIONS> (0.222)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.578
<EXPENSE-RATIO> 1.76
<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>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> REAL ESTATE B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 126,989,948<F1>
<INVESTMENTS-AT-VALUE> 121,721,821<F1>
<RECEIVABLES> 2,872,043<F1>
<ASSETS-OTHER> 1,293<F1>
<OTHER-ITEMS-ASSETS> 11,890<F1>
<TOTAL-ASSETS> 124,607,047<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,477,518<F1>
<TOTAL-LIABILITIES> 1,477,518<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 69,341,200
<SHARES-COMMON-STOCK> 5,561,643
<SHARES-COMMON-PRIOR> 5,304,248
<ACCUMULATED-NII-CURRENT> 1,307,574<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (4,126,271)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (5,268,127)<F1>
<NET-ASSETS> 64,372,976
<DIVIDEND-INCOME> 7,647,105<F1>
<INTEREST-INCOME> 288,031<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (3,104,613)<F1>
<NET-INVESTMENT-INCOME> 4,830,523<F1>
<REALIZED-GAINS-CURRENT> (3,966,930)<F1>
<APPREC-INCREASE-CURRENT> (20,064,888)<F1>
<NET-CHANGE-FROM-OPS> (19,201,295)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (1,638,689)
<DISTRIBUTIONS-OF-GAINS> (1,263,337)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,955,125
<NUMBER-OF-SHARES-REDEEMED> (1,886,995)
<SHARES-REINVESTED> 189,265
<NET-CHANGE-IN-ASSETS> (8,825,582)
<ACCUMULATED-NII-PRIOR> (21,901)<F1>
<ACCUMULATED-GAINS-PRIOR> 2,266,205<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 1,374,881<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 3,104,613<F1>
<AVERAGE-NET-ASSETS> 71,712,407
<PER-SHARE-NAV-BEGIN> 13.800
<PER-SHARE-NII> 0.409
<PER-SHARE-GAIN-APPREC> (2.129)
<PER-SHARE-DIVIDEND> (0.284)
<PER-SHARE-DISTRIBUTIONS> (0.222)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.574
<EXPENSE-RATIO> 2.53
<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>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> REAL ESTATE C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 126,989,948<F1>
<INVESTMENTS-AT-VALUE> 121,721,821<F1>
<RECEIVABLES> 2,872,043<F1>
<ASSETS-OTHER> 1,293<F1>
<OTHER-ITEMS-ASSETS> 11,890<F1>
<TOTAL-ASSETS> 124,607,047<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,477,518<F1>
<TOTAL-LIABILITIES> 1,477,518<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,941,526
<SHARES-COMMON-STOCK> 1,474,850
<SHARES-COMMON-PRIOR> 1,264,396
<ACCUMULATED-NII-CURRENT> 1,307,574<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (4,126,271)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (5,268,127)<F1>
<NET-ASSETS> 17,060,536
<DIVIDEND-INCOME> 7,647,105<F1>
<INTEREST-INCOME> 288,031<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (3,104,613)<F1>
<NET-INVESTMENT-INCOME> 4,830,523<F1>
<REALIZED-GAINS-CURRENT> (3,966,930)<F1>
<APPREC-INCREASE-CURRENT> (20,064,888)<F1>
<NET-CHANGE-FROM-OPS> (19,201,295)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (400,191)
<DISTRIBUTIONS-OF-GAINS> (293,349)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 584,081
<NUMBER-OF-SHARES-REDEEMED> (418,251)
<SHARES-REINVESTED> 44,624
<NET-CHANGE-IN-ASSETS> (374,944)
<ACCUMULATED-NII-PRIOR> (21,901)<F1>
<ACCUMULATED-GAINS-PRIOR> 2,266,205<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 1,374,881<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 3,104,613<F1>
<AVERAGE-NET-ASSETS> 17,237,956
<PER-SHARE-NAV-BEGIN> 13.790
<PER-SHARE-NII> 0.409
<PER-SHARE-GAIN-APPREC> (2.125)
<PER-SHARE-DIVIDEND> (0.284)
<PER-SHARE-DISTRIBUTIONS> (0.222)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.568
<EXPENSE-RATIO> 2.54
<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>
