[Flag Investors Logo]
Real Estate
Securities
Semi-Annual Report
June 30, 1999
<PAGE>
Report Highlights
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o The first half of 1999 saw significant recovery in real estate stocks, with
total returns in line with estimates for 1999's expected performance. The
Fund's total return was 7.9%, which compares with the Wilshire Real Estate
Securities Index at 6.8%, and the NAREIT Equity Index at 4.8%.
o Conditions in the real estate industry continue to be solid, with most
sectors and regions in a dynamic equilibrium that results in real rental
increases and reduced or stable vacancy. There are only a few locations
likely to suffer from excess supply over the next two years.
o The United States' economy continues to grow, and the recent rate increase
signals that the Federal Reserve believes inflation to be a bigger
potential concern than recession. Traditionally, real estate companies have
done relatively well in periods of moderate but predictable inflation.
o The public real estate companies' operating results have been at or above
expectations thus far in 1999, and should remain strong through 2001. While
growth has moderated from the record level of 1998, REIT multiples are near
their historic lows on both an absolute basis and compared to S&P 500
multiples.
o Now that REIT stock prices have returned to levels that are close to net
asset value, returns may reflect the results of the underlying assets --
relatively high current yields and moderate growth.
o If real estate stocks maintain their historically low correlation to other
industry sectors, they may be expected to improve the investment efficiency
of diversified portfolios.
o We continue to believe that this is a good time to allocate additional
assets to public real estate companies.
<PAGE>
Letter to Shareholders
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To Our Shareholders:
We are pleased to report on the Flag Investors Real Estate Securities
Fund's operations for the first half of 1999. The Fund seeks total return with a
significant income component by investing in a diversified portfolio of REITs
and real estate operating companies.
The sub-advisor and portfolio manager -- LaSalle Investment Management
(Securities), L.P. -- has ten professionals dedicated solely to evaluating and
investing in public real estate securities. Its management team brings direct
operating experience in property development, management, investment, and
finance as well as more than a decade of successful REIT portfolio management
experience to its efforts on behalf of your Fund.
The Flag Real Estate Fund's Performance
Since its inception at the beginning of 1995, the Flag Investors Real
Estate Securities Fund has produced competitive returns for its shareholders:
Total Return Performance(1)
<TABLE>
<CAPTION>
Year- Since
to-Date 1-Year 3-Year Inception(2)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fund (gross return) A Shares 7.9% -9.2% 9.2% 11.6%
B Shares 7.5% -9.9% 8.4% 10.8%
Institutional Shares 8.0% -8.9% N/A 5.6%
Wilshire Real Estate Securities Index(3) 6.8% -6.9% 9.8% 11.6%
NAREIT Equity(4) 4.8% -9.0% 9.6% 11.3%
</TABLE>
- --------------
(1) Past performance is not an indicator of future results. Investment return
and principal value will fluctuate so that shares, when redeemed, may be
worth more or less than original cost. These figures assume the
reinvestment of dividends and capital gains and exclude the impact of any
sales charge. If the maximum 4.5% sales charge were reflected, the quoted
performance would be lower. Returns for less than 1 year are not
annualized. See additional Performance Information on page 6.
(2) Inception dates: Class A 1/3/95, Class B 1/3/95, Institutional 3/31/97.
(3 The Wilshire Real Estate Securities Index is a market capitalization
weighted index of publicly traded real estate securities, such as Real
Estate Investment Trusts (REITs), Real Estate Operating Companies (REOCs)
and partnerships. The Index is comprised of companies whose charter is the
equity ownership and operation of commercial real estate. The Index is
rebalanced monthly and returns are calculated on a buy and hold basis. The
Index has been constructed to avoid survivor bias. The Index is unmanaged
and individuals cannot invest in the Index.
(4) National Association of Real Estate Investment Trust.
Source: LaSalle Investment Management (Securities); Wilshire Associates; NAREIT.
1
<PAGE>
Letter to Shareholders (continued)
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Total returns for real estate companies during the first half reflected
market recognition of the stronger companies in the industry, and continued
releasing gains in much of the office sector. The positive performance in the
hotel sector was led by the recovery of some of the better companies. Retail's
weak first half came after relatively good performance in the sector in 1998.
Market Commentary -- A Return to Rational Performance
1998 was perhaps the most frustrating time for institutional investors and
REIT managements since the renaissance of the industry began in the early 1990s.
Despite real estate industry performance and an economy that many observers
called the best in a decade, the public companies in the real estate industry
traded down in absolute terms, and underperformed the broad market, particularly
the largest companies represented in the S&P 500.
We believe 1998's performance was, beyond anything else, a matter of
momentum investors chasing a record-setting bull market. While this continues to
be a factor, as evidenced by the last few days of June, the market has at least
given the real estate companies some recognition for their current earnings and
dividend improvements.
Valuations continue to be compelling. REIT multiples are near their lowest
level since 1990; the REIT - S&P value margin has rarely been wider. New
construction is at modest levels in most sectors and regions, and there is no
glut on the horizon. Rental rate increases at above trendline growth rates are
being achieved and are expected to continue for a number of quarters.
Portfolio Distribution at June 30, 1999
[Graphic Omitted]
In the printed version there appears a pie chart with the
following percentages depicted:
Residential 21%
Hotels 10%
Diversified 15%
Self-Storage 8%
Retail 12%
Office/Industrial 34%
2
<PAGE>
- --------------------------------------------------------------------------------
As the first half's earnings results showed, the companies' operations
remain strong. Many analysts underestimated per share gains early in the year.
We project that real estate companies will, in aggregate, produce 1999 per share
growth of 10% to 11%; 2000's growth should be about 9%, both comfortably above
our expected long term growth rates of 6% to 8% for quality property companies.
The principal sector overweighting is office/industrial, with a particular
focus on Central Business District (CBD) oriented companies and those operating
in supply-constrained areas. Apartments are also overweighted, particularly in
California and the Northeast. Retail is underweighted, with selected additions
in 1999 of quality mall and strip center companies. Hotels are underweighted,
although full service upscale holdings in selected CBDs are overweighted.
We added several investments in the first half, including Kimco Realty
Corp. and JDN Realty, high-quality developers and operators of strip retail, and
reinvested in Simon Properties, which was removed last summer due to concern
over institutional sales of its stock after the completion of a large merger.
Investments were also initiated in Kilroy, the largest office owner
specializing in Southern California, and Entertainment Properties Trust, the
leading acquirer and lessor of state-of-the-art multi-screen cinemas.
Our holdings in Irvine Apartments were liquidated pending a going-private
transaction, and SunTerra Resorts and Prison Realty were eliminated, reflecting
our concerns with significant changes in their management strategies and
organizational structures.
Public Market Trends: 2000
From time to time we find it useful to look at the longer-term trends that
affect the real estate business and the investors and operators who participate
in it.
o With public equity less available, REITs will focus on joint ventures and
asset sales to provide liquidity and support expansion. Fee businesses and
general partner or co-investment positions will also be used to leverage
return on equity and increase access to deal flow.
3
<PAGE>
Letter to Shareholders (continued)
- --------------------------------------------------------------------------------
o Capital constraints and higher real estate prices will combine to reduce
asset growth. Acquisitions will be more selective and will have to compete
for limited capital with development and existing asset repositioning
opportunities.
o Consolidation will continue, with the largest companies essentially buying
assets when acquiring other REITs. Combinations between equals will produce
limited stock market profits in the short term. Smaller companies not open
to this possibility will be left behind.
o The timing and magnitude of renewed inflation remain an open question.
Moderate rates of inflation and higher interest rates should favor those
companies with appropriate leverage and financing in place.
o Individual company selection has largely replaced sector and geography as
the key factor in producing superior investment returns. Management and
capital skills have come to the fore.
o Lower levels of capital raising activity could greatly reduce the
infrastructure that has been created by Wall Street to provide research on
the industry and its companies. We believe this gives an advantage to those
investment managers with deep internal capability in both securities and
real estate research.
Conclusions
With real estate markets in equilibrium and REIT stock prices close to net
asset value, we believe REITs should return to their traditional role of
offering high current yields, consistent moderate growth, and lower volatility
than the general stock market.
Based on our proprietary research, we believe 1999 and 2000 should be years
of favorable real estate fundamentals and strong (8% to 11%) FFO earnings growth
for the real estate companies.
We believe this continues to be an excellent time to initiate or increase
positions in real estate equities.
4
<PAGE>
- --------------------------------------------------------------------------------
We thank you for your participation in the Fund, and welcome your comments and
questions.
/s/ William K. Morrill, Jr. /s/ Keith R. Pauley, CFA /s/ James A. Ulmer III
William K. Morrill, Jr. Keith R. Pauley, CFA James A. Ulmer III
President Executive Vice President Vice President
July 23, 1999
5
<PAGE>
Flag Investors Real Estate Securities Fund
- --------------------------------------------------------------------------------
Additional Performance Information
The shareholder letter included in this report contains statistics designed
to help you evaluate the performance of your Fund's management. To further
assist in this evaluation, the Securities and Exchange Commission (SEC) requires
that we include the total return of each of the Fund's classes, according to a
standardized formula, for various time periods through the end of the most
recent calendar quarter.
The SEC standardized total return figures include the impact of the maximum
initial sales charge for the Class A Shares and the contingent deferred sales
charge applicable to the specified time period for the Class B Shares. Returns
would be higher for Class A Shares investors who qualified for a lower initial
sales charge or for Class B Shares investors who continued to hold their shares
past the end of the specified time period.
Average Annual Total Return
Periods Ended 6/30/99 1 Year 5 Years Since Inception(1)
Class A Shares (13.28)% -- 10.42%
Class B Shares (13.86)% -- 10.28%
Institutional Shares (8.94)% -- 0.83%
- ----------
(1) Inception dates: Class A 1/3/95, Class B 1/3/95, Institutional 3/31/97.
These performance figures assume the reinvestment of dividends and capital
gains.
While the total return figures are required by SEC rules, such comparisons
are of limited utility since the total return of the Fund's classes are adjusted
for sales charges and expenses while the total return of the indices are not. In
fact, if you wished to replicate the total return of these indices, you would
have to purchase the securities they represent, an effort that would require a
considerable amount of money and would incur expenses that are not reflected in
the index results.
The SEC total return figures may differ from total return figures in the
shareholder letter because the time periods may be different and because the SEC
figures include the impact of sales charges while the total return figures in
the shareholder letter do not. Any performance figures shown are for the full
period indicated. Since investment return and principal value will fluctuate, an
investor's shares may be worth more or less than their original cost when
redeemed. Past performance is not an indicator of future results.
6
<PAGE>
Flag Investors Real Estate Securities Fund
- --------------------------------------------------------------------------------
Statement of Net Assets June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PERCENT UNREALIZED
MARKET MARKET OF NET GAIN/
SHARES SECURITY PRICE VALUE ASSETS (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMON STOCK - 99.5%
Diversified/Other - 14.7%
38,500 Capital Trust - Class A(1) $ 4.50 $ 173,250 0.5% $ (249,914)
30,100 Commercial Net Lease Realty 12.88 387,537 1.1 (69,100)
88,000 Catellus Development Corp.(1) 15.50 1,364,000 3.7 (275,446)
43,600 Vornado Realty Trust 35.31 1,539,625 4.2 368,711
118,744 Northstar Capital Partners(1,2) 15.88 1,885,061 5.2 (500,819)
2,430 Vornado Operating, Inc.(1) 8.00 19,440 0.0 4,386
----------- ----- -----------
5,368,913 14.7 (722,182)
Retail - 5.7%
48,000 Entertainment Properties Trust 17.63 846,000 2.3 28,200
7,300 Kimco Realty Corp. 39.13 285,612 0.8 4,046
7,500 JDN Realty Corp. 22.38 167,813 0.5 9,000
46,800 Developers Diversified
Realty Corp. 16.63 778,050 2.1 7,566
----------- ----- -----------
2,077,475 5.7 48,812
Apartments - 19.8%
35,000 Apartment Investment &
Management Co. 42.75 1,496,250 4.1 346,910
67,085 AvalonBay Communities, Inc. 37.00 2,482,145 6.8 298,000
16,104 Camden Property Trust 27.75 446,886 1.2 (27,141)
30,750 Equity Residential
Properties Trust 45.06 1,385,672 3.8 185,953
34,652 Post Properties, Inc. 41.00 1,420,753 3.9 171,680
----------- ----- -----------
7,231,706 19.8 975,402
Factory Outlets - 2.8%
27,200 Chelsea GCA Realty, Inc. 37.13 1,009,800 2.8 152,324
----------- ----- -----------
1,009,800 2.8 152,324
Hotels - 10.4%
120,983 Host Marriott Corp. 11.88 1,436,679 3.9 (562,530)
36,348 MeriStar Hospitality Corp. 22.44 815,558 2.2 (233,618)
20,500 MeriStar Hotels & Resorts, Inc.(1) 3.44 70,469 0.2 (52,362)
34,300 Starwood Lodging Trust 30.56 1,048,294 2.9 (740,649)
95,919 Wyndham Hotel Corp.(1) 4.50 431,640 1.2 (1,451,353)
----------- ----- -----------
3,802,640 10.4 (3,040,512)
</TABLE>
7
<PAGE>
Flag Investors Real Estate Securities Fund
- --------------------------------------------------------------------------------
Statement of Net Assets June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PERCENT UNREALIZED
MARKET MARKET OF NET GAIN/
SHARES SECURITY PRICE VALUE ASSETS (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mobile Homes - 1.4%
14,200 Sun Communities, Inc. $35.50 $ 504,100 1.4% $ 39,769
----------- ----- -----------
504,100 1.4 39,769
Office/Industrial - 33.5%
28,400 Boston Properties, Inc. 35.88 1,018,850 2.8 63,152
43,200 Duke Realty Investments, Inc. 22.56 974,700 2.7 95,549
50,000 Beacon Capital Partners(2) 15.38 768,750 2.1 (231,250)
25,400 Crescent Real Estate
Equities Co. 23.75 603,250 1.7 (322,398)
62,179 Equity Office Properties Trust 25.63 1,593,359 4.4 (131,369)
5,600 Kilroy Realty Corp. 24.38 136,500 0.4 9,820
35,200 Weeks Corp. 30.50 1,073,600 2.9 49,762
52,300 Mack-Cali Realty Corp. 30.94 1,618,031 4.4 (304,308)
12,000 PS Business Parks Inc. 24.38 292,500 0.8 1,095
63,200 Reckson Associates 23.50 1,485,200 4.1 130,821
32,016 Reckson Service
Industries, Inc.(1) 15.13 484,242 1.3 263,366
18,000 SL Green Realty Corp. 20.44 367,875 1.0 (34,868)
45,800 Spieker Properties, Inc. 38.88 1,780,475 4.9 225,537
----------- ----- -----------
12,197,332 33.5 (185,091)
Regional Malls - 3.6%
6,900 Macerich, Co. 26.25 181,125 0.5 (5,352)
24,100 Rouse Company 25.38 611,537 1.7 (62,519)
20,000 Simon Property Group, Inc. 25.38 507,500 1.4 (56,000)
----------- ----- -----------
1,300,162 3.6 (123,871)
Self Storage - 7.6%
52,500 Public Storage, Inc. 28.00 1,470,000 4.0 114,068
40,500 Storage USA, Inc. 31.88 1,290,938 3.6 (103,898)
----------- ----- -----------
2,760,938 7.6 10,170
Total Common Stock
(Cost $39,098,245) 36,253,066 99.5 (2,845,179)
----------- ----- -----------
Total Investments--99.5%
(Cost $39,098,245)(3) $36,253,066 99.5
Other Assets in Excess of Liabilities--0.5% 167,517 0.5
----------- -----
Total Net Assets--100.0% $36,420,583 100.0%
=========== =====
</TABLE>
8
<PAGE>
Flag Investors Real Estate Securities Fund
- --------------------------------------------------------------------------------
Statement of Net Assets (concluded) June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
Net Asset Value and Redemption Price Per:
Class A Share
($29,078,130 divided by 2,367,639 shares outstanding) $12.28
======
Class B Share
($6,715,693 divided by 548,121 shares outstanding) $12.25(4)
======
Institutional Share
($626,760 divided by 50,581 shares outstanding) $12.39
======
Maximum Offering Price Per:
Class A Share
($12.28 divided by 0.955) $12.86
======
Class B Share $12.25
======
Institutional Share $12.39
======
</TABLE>
- ---------------
(1) Non-income producing security.
(2) Securities are fair valued by management see Note 1.
(3) Aggregate cost for federal tax purposes was $38,430,455.
(4) Redemption value is $11.76 following a maximum 4% contingent deferred sales
charge.
See Notes to Financial Statements.
9
<PAGE>
Flag Investors Real Estate Securities Fund
- --------------------------------------------------------------------------------
Statement of Operations
For the
Six Months
Ended
June 30,
- --------------------------------------------------------------------------------
1999(1)
Investment Income:
Dividends ............................................... $ 1,004,221
Interest ................................................ 8,663
-----------
Total income ....................................... 1,012,884
-----------
Expenses:
Investment Advisory Fees ................................ 122,888
Distribution Fees ....................................... 72,147
Professional Fees ....................................... 44,510
Transfer Agent Fees ..................................... 24,493
Registration Fees ....................................... 24,049
Accounting Fees ......................................... 17,670
Organization Fees ....................................... 14,047
Shareholder Reporting Fees .............................. 11,903
Custodian Fees .......................................... 11,837
Miscellaneous Expenses .................................. 1,330
Directors' Fees ......................................... 992
-----------
Total Expenses ..................................... 345,866
Less: Fees Waived ....................................... (88,060)
-----------
Net Expenses ....................................... 257,806
-----------
Net Investment Income ................................... 755,078
-----------
Realized and unrealized gain/(loss) on investments:
Net realized loss from security transactions ............ (236,599)
Change in unrealized appreciation of investments ........ 2,133,895
-----------
Net gain on investments ................................. 1,897,296
-----------
Net increase in net assets resulting from operations ....... $ 2,652,374
===========
- ------------
(1) Unaudited.
See Notes to Financial Statements.
10
<PAGE>
Flag Investors Real Estate Securities Fund
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Six For the
Months Year Ended
Ended June 30, December 31,
- -------------------------------------------------------------------------------------------------
1999(1) 1998
<S> <C> <C>
Increase/(Decrease) in Net Assets:
Operations:
Net investment income ................................... $ 755,078 $ 2,007,708
Net realized gain/(loss) from security transactions ..... (236,599) 981,839
Change in unrealized appreciation/
depreciation of investments ........................... 2,133,895 (14,660,156)
------------ ------------
Net increase/(decrease) in net assets resulting
from operations ....................................... 2,652,374 (11,670,609)
------------ ------------
Distributions to Shareholders from:
Net investment income:
Class A Shares ........................................ (685,290) (1,296,479)
Class B Shares ........................................ (125,191) (249,595)
Institutional Shares .................................. (13,798) (24,043)
------------ ------------
Net realized long-term gains:
Class A Shares ........................................ -- (1,218,097)
Class B Shares ........................................ -- (295,348)
Institutional Shares .................................. -- (23,198)
------------ ------------
Return of capital:
Class A Shares ........................................ -- (103,847)
Class B Shares ........................................ -- (21,830)
Institutional Shares .................................. -- (1,944)
------------ ------------
Total distributions ..................................... (824,279) (3,234,381)
------------ ------------
Capital Share Transactions:
Proceeds from sale of shares ............................ 2,497,282 15,886,815
Value of shares issued in reinvestment of dividends ..... 659,838 2,740,207
Cost of shares redeemed ................................. (10,026,566) (14,115,495)
------------ ------------
Increase/(decrease) in net assets derived from
capital share transactions ............................ (6,869,446) 4,511,527
------------ ------------
Total decrease in net assets ............................ (5,041,351) (10,393,463)
Net Assets:
Beginning of period ..................................... 41,461,934 51,855,397
------------ ------------
End of period (including distributions in excess
of net investment income of $69,217 and
$0, respectively) ..................................... $ 36,420,583 $ 41,461,934
============ ============
</TABLE>
- ------------
(1) Unaudited.
See Notes to Financial Statements.
11
<PAGE>
Flag Investors Real Estate Securities Fund
- --------------------------------------------------------------------------------
Financial Highlights--Class A Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Six
Months Ended
June 30,
- --------------------------------------------------------------------------------
1999(1)
<S> <C>
Per Share Operating Performance:
Net asset value at beginning of period ................ $ 11.64
--------
Income from Investment Operations:
Net investment income ................................. 0.23
Net realized and unrealized gain/(loss) on investments 0.67
--------
Total from Investment Operations ...................... 0.90
--------
Less Distributions:
Distributions from net investment income .............. (0.26)
Distributions from net realized capital gains ......... --
Return of capital ..................................... --
--------
Total distributions ................................... (0.26)
--------
Net asset value at end of period ...................... $ 12.28
========
Total Return(4) .......................................... 7.86%
Ratios to Average Daily Net Assets:
Expenses(5) ........................................... 1.25%(7)
Net investment income(6) .............................. 4.13%(7)
Supplemental Data:
Net assets at end of period (000) ..................... $ 29,078
Portfolio turnover rate ............................... 6%
</TABLE>
- ---------------
(1) Unaudited.
(2) Commencement of operations.
(3) Distributions per share have been reclassified to reflect the actual return
of capital amounts for 1995.
(4) Total return excludes the effect of sales charge.
(5) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 1.70% (annualized), 1.55%, 1.58%,
2.28% and 3.25% (annualized) for the period ended June 30, 1999 and for the
years ended December 31, 1998, 1997 and 1996 and the period ended December
31, 1995, respectively.
(6) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been 3.66% (annualized),
3.98%, 3.54%, 4.26% and 3.89% (annualized) for the period ended June 30,
1999, and for the years ended December 31, 1998, 1997 and 1996 and the
period ended December 31, 1995, respectively.
(7) Annualized.
(8) Effective January 1, 1996, the Fund's expense and net investment income
ratios have been based on average daily net assets. Prior to that date they
were based on average monthly net assets. Under the prior method, the ratio
of expenses to average net assets was 1.19% and the ratio of net investment
income to average net assets was 5.95%.
12
<PAGE>
Flag Investors Real Estate Securities Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
For the Years January 3, 1995(2)
Ended December 31, through December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period ................ $ 15.78 $ 13.89 $ 11.20 $ 10.00
------- -------- -------- -------
Income from Investment Operations:
Net investment income ................................. 0.58 0.52 0.61 0.56
Net realized and unrealized gain/(loss) on investments (3.79) 2.44 2.90 1.21
------- -------- -------- -------
Total from Investment Operations ...................... (3.21) 2.96 3.51 1.77
------- -------- -------- -------
Less Distributions:
Distributions from net investment income .............. (0.46) (0.60) (0.58) (0.49)(3)
Distributions from net realized capital gains ......... (0.43) (0.47) (0.22) (0.05)
Return of capital ..................................... (0.04) -- (0.02) (0.03)(3)
------- -------- -------- -------
Total distributions ................................... (0.93) (1.07) (0.82) (0.57)
------- -------- -------- -------
Net asset value at end of period ...................... $ 11.64 $ 15.78 $ 13.89 $ 11.20
======= ======== ======== =======
Total Return(4) .......................................... (20.82)% 22.01% 32.70% 18.19%
Ratios to Average Daily Net Assets:
Expenses(5) ........................................... 1.25% 1.25% 1.25% 1.25%(7,8)
Net investment income(6) .............................. 4.28% 3.87% 5.29% 6.09%(7,8)
Supplemental Data:
Net assets at end of period (000) ..................... $33,239 $ 41,773 $ 19,816 $ 7,171
Portfolio turnover rate ............................... 24% 35% 23% 28%
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
Flag Investors Real Estate Securities Fund
- --------------------------------------------------------------------------------
Financial Highlights--Class B Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Six
Months Ended
June 30,
- --------------------------------------------------------------------------------------
1999(1)
<S> <C>
Per Share Operating Performance:
Net asset value at beginning of period .................... $11.60
------
Income from Investment Operations:
Net investment income ..................................... 0.19
Net realized and unrealized gain/(loss) on investments .... 0.67
------
Total from Investment Operations .......................... 0.86
------
Less Distributions:
Dividends from net investment income ...................... (0.21)
Distributions from net realized capital gains ............. --
Return of capital ......................................... --
------
Total distributions ....................................... (0.21)
------
Net asset value at end of period .......................... $12.25
======
Total Return(4) .............................................. 7.51%
Ratios to Average Daily Net Assets:
Expenses(5) ............................................... 2.00%(7)
Net investment income(6) .................................. 3.38%(7)
Supplemental Data:
Net assets at end of period (000) ......................... $6,716
Portfolio turnover rate ................................... 6%
</TABLE>
- -----------
(1) Unaudited.
(2) Commencement of operations.
(3) Distributions per share have been reclassified to reflect the actual return
of capital amounts for 1995.
(4) Total return excludes the effect of sales charge.
(5) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 2.45% (annualized), 2.30%, 2.33%,
3.03% and 4.05% (annualized) for the period ended June 30, 1999, and for the
years ended December 31, 1998, 1997, and 1996 and the period ended December
31, 1995, respectively.
(6) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been 2.91% (annualized),
3.18%, 2.79%, 3.43% and 3.09% (annualized) for the period ended June 30,
1999, and for the years ended December 31, 1998, 1997, and 1996 and the
period ended December 31, 1995, respectively.
(7) Annualized.
(8) Effective January 1, 1996, the Fund's expense and net investment income
ratios are based on average daily net assets. Prior to that date they were
based on average monthly net assets. Under the prior method, the ratio of
expenses to average net assets was 1.90% and the ratio of net investment
income to average net assets was 5.25%.
14
<PAGE>
Flag Investors Real Estate Securities Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
For the Years January 3, 1995(2)
Ended December 31, through December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period .................... $ 15.71 $13.84 $11.18 $10.00
------- ------ ------ ------
Income from Investment Operations:
Net investment income ..................................... 0.47 0.42 0.52 0.50
Net realized and unrealized gain/(loss) on investments .... (3.77) 2.42 2.89 1.20
------- ------ ------ ------
Total from Investment Operations .......................... (3.30) 2.84 3.41 1.70
------- ------ ------ ------
Less Distributions:
Dividends from net investment income ...................... (0.34) (0.50) (0.51) (0.42)(3)
Distributions from net realized capital gains ............. (0.43) (0.47) (0.22) (0.05)
Return of capital ......................................... (0.04) -- (0.02) (0.05)(3)
------- ------ ------ ------
Total distributions ....................................... (0.81) (0.97) (0.75) (0.52)
------- ------ ------ ------
Net asset value at end of period .......................... $ 11.60 $15.71 $13.84 $11.18
======= ====== ====== ======
Total Return(4) .............................................. (21.39)% 21.11% 31.67% 17.40%
Ratios to Average Daily Net Assets:
Expenses(5) ............................................... 2.00% 2.00% 2.00% 2.00%(7,8)
Net investment income(6) .................................. 3.48% 3.12% 4.46% 5.39%(7,8)
Supplemental Data:
Net assets at end of period (000) ......................... $ 7,641 $9,799 $5,295 $3,016
Portfolio turnover rate ................................... 24% 35% 23% 28%
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
Flag Investors Real Estate Securities Fund
- --------------------------------------------------------------------------------
Financial Highlights--Institutional Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Period
For the Six For the March 31, 1997(2)
Months Ended Year Ended through
June 30, December 31, December 31,
- ---------------------------------------------------------------------------------------------------------------------------
1999(1) 1998 1997
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning
of period ................................................ $11.74 $ 15.91 $14.19
------ ------- ------
Income from Investment Operations:
Net investment income ...................................... 0.27 0.58 0.47
Net realized and unrealized
gain/(loss) on investments ............................... 0.66 (3.78) 2.14
------ ------- ------
Total from Investment Operations ........................... 0.93 (3.20) 2.61
------ ------- ------
Less Distributions:
Dividends from net investment
income ................................................... (0.28) (0.50) (0.42)
Distributions from net realized
capital gains ............................................ -- (0.43) (0.47)
Return of capital .......................................... -- (0.04) --
------ ------- ------
Total distributions ........................................ (0.28) (0.97) (0.89)
------ ------- ------
Net asset value at end of period .............................. $12.39 $ 11.74 $15.91
====== ======= ======
Total Return .................................................. 8.03% (20.64)% 18.84%
Ratios to Average Daily Net Assets:
Expenses(3) ................................................ 1.00%(5) 1.00% 1.00%(5)
Net investment income(4) ................................... 4.48%(5) 4.73% 4.30%(5)
Supplemental Data:
Net assets at end of period (000) .......................... $ 627 $ 582 $ 288
Portfolio turnover rate .................................... 6% 24% 35%
</TABLE>
- ------------
(1) Unaudited.
(2) Commencement of operations.
(3) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 1.45% (annualized), 1.28% and 1.39%
(annualized) for the six months ended June 30, 1999, for the year ended
December 31, 1998 and for the period ended December 31, 1997, respectively.
(4) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been 3.91% (annualized), 4.45%
and 3.73% (annualized) for the six months ended June 30, 1999, for the year
ended December 31, 1998 and for the period ended December 31, 1997,
respectively.
(5) Annualized.
See Notes to Financial Statements.
16
<PAGE>
Flag Investors Real Estate Securities Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements (Unaudited)
NOTE 1--Significant Accounting Policies
Flag Investors Real Estate Securities Fund, Inc. (the "Fund"), which was
organized as a Maryland Corporation on May 2, 1994, and commenced operations
January 3, 1995, is registered under the Investment Company Act of 1940 as a
non-diversified open-end investment management company. Its objective is to seek
total return primarily through investments in equity securities of companies
that are principally engaged in the real estate industry.
The Fund consists of three share classes: Class A Shares and Class B
Shares, which both began operation January 3, 1995, and Institutional Shares,
which began operations March 31, 1997.
The Class A and Class B Shares are subject to different sales charges. The
Class A Shares have a 4.50% maximum front-end sales charge and the Class B
Shares have a 4.00% maximum contingent deferred sales charge. In addition, each
class has a different distribution fee. The Institutional Shares have neither a
sales charge nor a distribution fee.
When preparing the Fund's financial statements in accordance with generally
accepted accounting principles, management makes estimates and assumptions.
These estimates affect 1) the assets and liabilities that we report at the date
of the financial statements; 2) the contingent assets and liabilities that we
disclose at the date of the financial statements; and 3) the revenues and
expenses that we report for the period. Our estimates could be different from
the actual results. The Fund's significant accounting policies are:
A. SECURITY VALUATION--The Fund values a portfolio security that is
primarily traded on a national exchange by using the last price reported
for the day. If there are no sales or the security is not traded on a
listed exchange, the Fund values the security at its last bid price in
the over-the-counter market. The Fund values short-term obligations with
maturities of 60 days or less at amortized cost. When a market quotation
is unavailable, the Investment Advisor determines a fair value using
procedures that the Board of Directors establishes and monitors. At June
30, 1999, there were two Board valued securities collectively valued at
$2,653,811, representing 7.8% of net assets of the Fund.
B. REPURCHASE AGREEMENTS-- The Fund may enter into tri-party repurchase
agreements with broker-dealers and domestic banks. A repurchase
agreement is a short-term investment in which the Fund buys a debt
security that the broker agrees to repurchase at a set time and price.
The
17
<PAGE>
Flag Investors Real Estate Securities Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 1--concluded
third party, which is the broker's custodial bank, holds the collateral
in a separate account until the repurchase agreement matures. The
agreement requires that the collateral's market value, including any
accrued interest, exceed the broker's repurchase obligation. The Fund's
access to the collateral may be delayed or limited if the broker
defaults and the value of the collateral declines or if the broker
enters into an insolvency proceeding.
C. FEDERAL INCOME TAX -- The Fund determines its distributions according to
income tax regulations, which may be different from generally accepted
accounting principles. As a result, the Fund occasionally makes
reclassifications within its capital accounts to reflect income and
gains that are available for distribution under income tax regulations.
The Fund is organized as a regulated investment company. As long as it
maintains this status and distributes to its shareholders substantially
all of its taxable net investment income and net realized capital gains,
it will be exempt from most, if not all, federal income and excise
taxes. As a result, the Fund has made no provisions for federal income
taxes.
D. SECURITIES TRANSACTIONS, INVESTMENT INCOME, DISTRIBUTIONS AND OTHER --
The Fund uses the trade date to account for security transactions and
the specific identification method for financial reporting and income
tax purposes to determine the cost of investments sold or redeemed.
Interest income is recorded on an accrual basis and includes
amortization of premiums and accretion of discounts when appropriate.
Income and common expenses are allocated to each class based on its
respective average net assets. Class specific expenses are charged
directly to each class. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. The Fund has deferred
the costs incurred by its organization and the initial public offering
of shares. These costs are being amortized on the straight-line method
over a five-year period, which began when the Fund began operations.
Real Estate Investment Trusts ("REITs") provide the majority of the
dividend income that the Fund records. For income tax purposes, a
portion of these dividends may consist of capital gains and return of
capital. For financial reporting purposes, the Fund records these
dividends as dividend income and records the investment in the REIT at
market value.
18
<PAGE>
Flag Investors Real Estate Securities Fund
- --------------------------------------------------------------------------------
NOTE 2--Investment Advisory Fees, Transactions with Affiliates and Other Fees
Investment Company Capital Corp. ("ICC"), an indirect subsidiary of Bankers
Trust Corporation, is the Fund's investment advisor. In November 1998 Bankers
Trust Corporation ("BT Corp.") and Deutsche Bank AG ("Deutsche Bank") entered
into an Agreement and Plan of Merger. This merger transaction was consummated on
June 4, 1999. As a result of the transaction, BT Corp. became a wholly-owned
subsidiary of Deutsche Bank.
As compensation for its advisory services, the Fund pays ICC an annual fee
based on the Fund's average daily net assets. This fee is calculated daily and
paid monthly at the following annual rates: 0.65% of the first $100 million,
0.55% of the next $100 million, 0.50% of the next $100 million and 0.45% of the
amount over $300 million. For the six months ended June 30, 1999, ICC's advisory
fee was $122,888 of which $19,913 was payable at the end of the period.
ICC has agreed to waive a portion of its fee and reimburse expenses so that
the Fund's total operating expenses for any fiscal year do not exceed 1.25% of
the Class A Shares' average daily net assets, 2.00% of the Class B shares'
average daily net assets and 1.00% of the Institutional Shares' average daily
net assets. ICC waived fees of $88,060 for the six months ended June 30, 1999.
ICC also provides accounting services to the Fund for which the Fund pays
ICC an annual fee that is calculated daily and paid monthly based on the Fund's
average daily net assets. For the six months ended June 30, 1999, ICC's fee was
$17,670 of which $2,907 was payable at the end of the period.
ICC also provides transfer agency services to the Fund for which the Fund
pays ICC a per account fee that is calculated and paid monthly. For the six
months ended June 30, 1999, ICC's fee was $24,493 of which $19,697 was payable
at the end of the period.
Certain officers and directors of the Fund are also officers or directors
of ICC.
LaSalle Investment Management (Securities), L.P. ("LaSalle") is the Fund's
sub-advisor. As compensation for its sub-advisory services, ICC pays LaSalle a
fee based on the Fund's average daily net assets. This fee is calculated daily
and paid monthly at the following annual rates: 0.40% of the first $100 million,
0.35% of the next $100 million, 0.30% of the next $100 million and 0.25% of the
amount over $300 million.
19
<PAGE>
Flag Investors Real Estate Securities Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 2--concluded
Bankers Trust Corporation has provided custody services to the Fund since
September 22, 1997. For the six months ended June 30, 1999, custody fees
amounted to $11,837 of which $5,441 was payable at the end of the period.
ICC Distributors, Inc., a member of the Forum Group of companies, provides
distribution services to the Fund for which the Fund pays ICC Distributors an
annual fee pursuant to Rule 12b-1, that is calculated daily and paid monthly at
the annual rate of: 0.25%, of the Class A Shares' average daily net assets and
1.00% of the Class B Shares average daily net assets. The fees for Class B
Shares include a 0.25% shareholder servicing fee.
The Fund's complex offers a retirement plan for eligible Directors. The
actuarially computed pension expense allocated to the Fund for the six months
ended June 30, 1999 was $168 and the accrued liability was $1,444.
Note 3--Capital Share Transactions
The Fund is authorized to issue up to 15 million shares of $.001 par value
capital stock (7 million Class A, 2 million Class B, 5 million Institutional
Class and 1 million undesignated). Transactions in shares of the Fund were as
follows:
<TABLE>
<CAPTION>
Class A Shares
------------------------------------------
For the Six For the
Months Ended Year Ended
June 30, 1999(1) Dec. 31, 1998
---------------- -------------
<S> <C> <C>
Shares sold ............................................ 170,607 913,519
Shares issued to shareholders on
reinvestment of dividends ........................... 48,573 173,588
Shares redeemed ........................................ (708,734) (878,163)
------------ ------------
Net increase/(decrease) in shares outstanding .......... (489,554) 208,944
============ ============
Proceeds from sale of shares ........................... $ 2,034,229 $ 12,447,914
Value of reinvested dividends .......................... 568,181 2,258,875
Cost of shares redeemed ................................ (8,215,476) (11,380,062)
------------ ------------
Net increase/(decrease) from capital
share transactions .................................. $ (5,613,066) $ 3,326,727
============ ============
</TABLE>
- -----------
(1) Unaudited.
20
<PAGE>
Flag Investors Real Estate Securities Fund
- --------------------------------------------------------------------------------
NOTE 3--concluded
<TABLE>
<CAPTION>
Class B Shares
-----------------------------------------
For the Six For the
Months Ended Year Ended
June 30, 1999(1) Dec. 31, 1998
---------------- -------------
<S> <C> <C>
Shares sold ........................................... 39,204 189,158
Shares issued to shareholders on
reinvestment of dividends .......................... 6,946 34,739
Shares redeemed ....................................... (156,485) (188,973)
----------- -----------
Net increase/(decrease) in shares outstanding ......... (110,335) 34,924
=========== ===========
Proceeds from sale of shares .......................... $ 463,053 $ 2,735,502
Value of reinvested dividends ......................... 79,638 449,966
Cost of shares redeemed ............................... (1,811,090) (2,520,889)
----------- -----------
Net increase/(decrease) from capital
share transactions ................................. $(1,268,399) $ 664,579
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Institutional Shares
-------------------------------------------
For the Six For the
Months Ended Year Ended
June 30, 1999(1) Dec. 31, 1998
---------------- -------------
<S> <C> <C>
Shares sold .............................................. -- 47,072
Shares issued to shareholders on
reinvestment of dividends ............................. 1,017 2,477
Shares redeemed .......................................... -- (18,105)
--------- ---------
Net increase in shares outstanding ....................... 1,017 31,444
========= =========
Proceeds from sale of shares ............................. -- $ 703,400
Value of reinvested dividends ............................ $ 12,019 31,366
Cost of shares redeemed .................................. -- (214,544)
--------- ---------
Net increase from capital
share transactions ....................................... $ 12,019 $ 520,222
========= =========
</TABLE>
- ----------
(1) Unaudited.
21
<PAGE>
Flag Investors Real Estate Securities Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
NOTE 4--Investment Transactions
Excluding short-term obligations, purchases of investment securities
aggregated $2,134,570 and sales of investment securities aggregated $9,007,045
for the six months ended June 30, 1999.
For Federal income tax purposes, the tax cost of investments held at June
30, 1999 was $38,430,455. At June 30, 1999, aggregate gross unrealized
appreciation for all securities in which there is an excess of value over tax
cost was $2,569,714, and aggregate gross unrealized depreciation for all
securities in which there is an excess of tax cost over value was $4,747,103.
NOTE 5--Net Assets
On June 30, 1999, net assets consisted of:
Paid-in capital:
Class A Shares ............................................ $ 31,097,054
Class B Shares ............................................ 6,970,780
Institutional Shares ...................................... 835,938
Distribution in excess of net investment income .............. (69,218)
Accumulated net realized gain from security transactions ..... 431,208
Unrealized depreciation of investments ....................... (2,845,179)
------------
$ 36,420,583
============
22
<PAGE>
This page intentionally left blank.
<PAGE>
Flag Investors Real Estate Securities Fund
- --------------------------------------------------------------------------------
Directors and Officers
Richard T. Hale
Chairman
James J. Cunnane
Director
Joseph R. Hardiman
Director
Louis E. Levy
Director
Eugene J. McDonald
Director
Rebecca W. Rimel
Director
Truman T. Semans
Director
Carl W. Vogt, Esq.
Director
William K. Morrill, Jr.
President
Keith R. Pauley
Executive Vice President
James A. Ulmer III
Vice President
Joseph A. Finelli
Treasurer
Amy M. Olmert
Secretary
Investment Objective
A mutual fund designed to seek total return primarily through investments in
equity securities of companies that are principally engaged in the real estate
industry.
<PAGE>
- --------------------------------------------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by an effective prospectus.
For more complete information regarding any of the Flag Investors Funds,
including charges and expenses, obtain a prospectus from your investment
representative or directly from the Fund at 1-800-767-FLAG. Read it carefully
before you invest.
- --------------------------------------------------------------------------------
<PAGE>
[LOGO]
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Specialty
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Balanced
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Fixed Income
Flag Investors Short-Intermediate Income Fund
Flag Investors Total Return U.S. Treasury Fund Shares
Tax-Free Income
Flag Investors Managed Municipal Fund Shares
Money Market
Flag Investors Cash Reserve Prime Shares
P.O. Box 515
Baltimore, Maryland 21203
800-767-FLAG
Distributed by:
ICC Distributors, Inc.
RESA
(8/99)
