(GRAPHIC APPEARS HERE)
Real Estate
Securities Fund
Annual Report
December 31, 1999
<PAGE>
REPORT HIGHLIGHTS
o U. S. real estate fundamentals are healthy for most property types and
markets, and the vast majority of companies are posting excellent results. The
real estate business continues to benefit from the strength of the overall
economy.
o Capital market conditions for REITs remained negative for much of 1999, but
have improved recently. Diminished selling pressure and heavy share repurchase
activity have created a more favorable supply/demand picture for REIT shares.
We believe that this change will begin to shift investors' focus toward
company operating performance and current valuation levels and away from short
term technical factors.
o Despite limited access to capital, we expect REIT earnings growth to remain at
respectable levels. We are currently targeting FFO per share growth of 8 - 9%
in 2000 and 6 - 8% in 2001. For most REITs, the primary driver of earnings
growth is the leveraged effect of higher net operating income from existing
assets. The majority of REITs with properties subject to long term leases
continue to benefit from the rollover of below market rate leases. A number of
REITs have generated above average growth due to new development activity.
o The REIT market is as cheap as it has been in our fifteen years in this
business. As of the end of December, REIT stocks in the Fund's portfolio
were trading at a discount of roughly 20% to our year-end NAV estimates. Also,
the overall REIT industry is currently trading at an FFO multiple of 7.5x 2000
estimates versus an historical average multiple of over 12x.
o We believe these factors make this an excellent time to allocate assets to the
real estate sector.
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholder:
The Flag Investors Real Estate Securities 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), has more than a dozen professionals dedicated solely to 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 real estate portfolio management experience
to its efforts on behalf of your Fund.
Fund Performance
On December 31, 1999, the Net Asset Value (NAV) of the Fund was $10.74
per Class A share and $10.72 per Class B share. In addition, 12 monthly
dividends and one capital gains distribution were paid in 1999, totaling
$0.58 per Class A share and $0.48 per Class B share.
Average Annual Total Return(1)
For the Periods Ended 12/31/99
Since
1-Year 3-Year Inception(2)
- ------------------------------------------------------------------------------
Fund (net return) A Shares (2.85)% (2.09)% 8.05%
B Shares (3.50)% (2.80)% 7.27%
Institutional Shares (2.56)% N/A (3.02)%
Wilshire Real Estate Securities Index(3) (3.19)% (1.50)% 8.30%
- ----------
(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 for Class A Shares were reflected, the
quoted performance would be lower. Returns for less than 1 year are not
annualized. See additional Performance Information on page 12.
(2) Inception dates: Class A 1/3/95, Class B 1/3/95, Institutional 3/31/97,
Wilshire Real Estate Securities Index 12/31/94.
(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.
Source: LaSalle Investment Management (Securities); Wilshire Associates.
1
<PAGE>
LETTER TO SHAREHOLDERS (CONTINUED)
1999 was a year in which stock market leadership was commanded by a
narrow group of high tech and large cap companies, with companies offering
stable growth and current income almost completely ignored. REIT earnings were
up more than 10% for the year, yet the stocks produced a negative total return.
Most of this letter is devoted to analyzing the real estate market and the
prospects of its public companies. In summary, we believe that there is little
connection today between the companies' fundamentals and the market's
perception, but that this situation will change, to the benefit of holders of
real estate shares.
The results of your portfolio were slightly better than the REIT market
as a whole in 1999, with contributions from our concentration in apartment,
office and industrial companies coupled with an underweighting in retail stocks.
The portfolio is largely made up of high quality, higher growth companies, which
we believe will benefit if broad market investors reallocate funds to the
sector, and which should increase their dominance of their markets and sectors
in the years to come.
Market Comment
With the unhappy recent performance of real estate stocks versus
the broad market, it is hard to believe that we are just now concluding the
best decade in the history of the real estate business, and that industry
conditions remain healthy and have the potential to be more stable than they
have ever been. But this is the case.
In 1990 the United States economy was in serious turmoil, with much of
the discomfort caused by the expected imminent collapse of the banking and
lending system largely brought on by the real estate excesses of the 1980s. The
savings and loan industry was bankrupt, and every market had substantial numbers
of vacant, or at least bankrupt properties and developments. The real estate
industry was in depression, and the recession of the overall United States
economy was beginning to take the California economy down to its worst levels
since the Depression.
Out of this trough of despair came an effective force for building a
strong real estate industry, the public REIT. For the first time ever, the
leading owners and developers of real estate were financed principally by
equity, and had significant money to invest. In addition, the executives running
the companies
2
<PAGE>
now had substantial capital of their own on the table subject to loss if their
companies did not do well over the long term.
Decisions became more conservative, with less temptation to do the next
highly-levered deal in order to make payroll for the development team. With
rated debt in the picture, company finances were more widely known, and
companies were less likely to over-leverage. More information also made it more
likely that new development would be curtailed if oversupply appeared imminent
in a given market.
This has resulted in conditions which promise solid real growth in real
estate with reduced expectations of strong cyclical swings. Profitable
prosperity is the hallmark of the United States real estate industry today, as
it is of the Nation's economy as a whole.
Price Earnings Ratios: S&P500 Vs. REITs -- 1986-1999
(GRAPHIC APPEARS HERE)
Valuation Comparison - REITs Vs S&P Through 12/31/99
S&P 500 Price/4 Quarters Forward FFO Multiple
Q1 86 14.61 14
15.2 14.85
Q3 14.02 15.14
14.68 14.97
Q1 87 17.26 16.28
17.52 16.66
Q3 17.26 15.03
12.61 12.78
Q1 88 12.51 13.51
12.18 13.53
Q3 11.61 13.52
11.34 14.14
Q1 89 11.52 13.96
12.18 14.6
Q3 13.53 14.47
13.67 14.52
Q1 90 13.54 13.61
14.32 13.37
Q3 12.24 10.52
13.34 12.06
Q1 91 15.47 12.8
15.96 12.32
Q3 17.01 12.98
18.79 14.64
Q1 92 17.86 12.96
17.44 12.95
Q3 17.55 13.78
17.68 13.98
Q1 93 17.9 15.3
17.3 14.35
Q3 16.9 14.7
16.4 12.5
Q1 94 15.2 12.3
14.7 12.1
Q3 14.8 11.4
13.9 11.3
Q1 95 14.5 10.9
15.1 11.1
Q3 13.7 11.2
14.5 11.4
Q1 96 15.4 11.3
15.6 11.4
Q3 14.1 11.8
15.8 13.7
Q1 97 16.2 12.6
18.9 12.9
Q3 20.7 13.6
21.2 13
Q1 98 24.1 12.2
25 11.3
Q3 19.9 9.6
24.1 9.5
Q1 99 25.2 8.6
26.9 8.8
Q3 23.3 8.1
Q4 99 26.7 8.1
Source: Goldman Sachs
In a rational world this would translate into solid continuing gains in
the prices of real estate companies. Alas, today's world is far from rational.
The favorite word of REIT executives and analysts alike is "disconnect."
Everyone sees that earnings and asset values are rising, but public market price
for these assets continue to fall.
3
<PAGE>
LETTER TO SHAREHOLDERS (CONTINUED)
One reason for the decline in REIT prices is that in the investment
market greed has almost completely eclipsed fear. With inflation thought to
be out of the picture, investors have moved away from hard assets and stable
income producing investments and increasingly focused on growth and concept
stocks.
Another reason for the decline in the REIT market was the unusually
high levels of equity issuance that took place in 1996 and 1997, with 25% of
the entire REIT equity market's capitalization issued in 1997 alone. The
departure of broad market investors from the REIT sector, following on the heels
of such high levels of equity issuance, created an oversupply of REIT paper.
Looking ahead, we believe the supply-demand picture for REIT shares
will be much improved. Price pressure from unit investment trust redemptions and
tax-loss selling has abated and we have begun to see some signs of renewed
interest from both value investors and institutional real estate investors in
response to unprecedented valuation levels.
Just as important, the companies have shifted their focus from equity
issuance to share repurchase programs. Over the next twelve months, we
anticipate further shrinkage in the equity base of the industry which could
help tilt the supply-demand balance in a direction that would be favorable to
REIT pricing.
Capital Strategies
More and more, companies are executing plans that assume they will not
access additional public equity capital in the foreseeable future. Strategies
vary. While development and value-added acquisitions continue, they are at a
dramatically lower pace. The required return has increased, and the number of
deals that qualify has dwindled. Capital is being recycled through the sale or
joint-venture of more mature properties; occasionally these properties are spun
off into new entities.
Joint-ventures with institutional financial partners are proliferating,
with the REIT as general partner with a promoted interest. These ventures are
typically more highly levered than the REITs are themselves, with the leverage
carried off the REITs' balance sheets. Balance sheet leverage is increasing, but
coverage continues to be strong at two to three times. Often the best economic
return
4
<PAGE>
on capital is the repurchase of a REIT's own stock. This is occasionally being
carried to its logical conclusion through leveraged buyouts or liquidations.
Real Estate Fundamentals
Earnings growth remained strong in 1999 for most companies in the major
property sectors (apartment, retail, and office/industrial), albeit at a
slightly lower level than 1998's record pace. The extra earning power generated
by accretive acquisitions in 1997 and 1998 has been largely replaced with
stronger internal growth as portfolios are being more effectively managed, and
as slower-growth assets are being winnowed from portfolios. To some extent,
then, a faster growth rate is being traded for higher-quality earnings.
Lasalle Investment Management Real Company Universe: Earnings Growth Estimates
Property Current FFO/Share Growth
Type Div. Yield `99 vs `98
- ---------------------------------------------------------------------
Apartments 7.5% 10.5%
Diversified 6.9% 14.9%
Factory Outlets 13.2% 12.8%
Health Care 18.1% 3.1%
Lodging 6.5% 6.7%
Manufactured Homes 6.8% 9.5%
Net Lease 16.4% 1.4%
Office/Industrial 7.2% 12.0%
Regional Malls 9.4% 10.1%
Self Storage 7.6% 11.1%
Shopping Centers 9.6% 11.3%
Weighted Average 8.3% 10.7%
Source: La Salle Investment Management (Securities)
Apartments
1999 was a strong year in terms of fundamentals and relative
performance in the apartment sector. New construction slowed modestly from
1998 levels and rental demand remained strong. As a result, occupancies
remained between
5
<PAGE>
LETTER TO SHAREHOLDERS (CONTINUED)
94%-96% for most apartment REITs and rental growth continued to exceed
inflation.
Apartment REITs significantly outperformed the broader REIT market,
posting a 10.7% total return. The strong relative performance of the sector
reflects improving fundamentals and continued strong operating results for the
better apartment companies.
2000 should be another solid year for the apartment REITs. We are
expecting the apartment companies to have above average FFO per share growth and
NAV per share increases. We also believe the apartment sector has below average
risk of deteriorating fundamentals. Companies focusing on infill markets and
downtown development should have the strongest operating performance due to more
favorable fundamentals. Top markets include northern and southern California,
Boston, Chicago, New York City and Washington D.C.
Retail
1999 was a banner year in terms of fundamentals in the retail industry.
Consumer confidence and spending reached all time highs propelling total
sales to increase 8.8% during the year; holiday sales were up 7.7%. Retail
REITs, particularly the regional mall companies, should exceed expectations for
the year and post FFO growth of 10-12%.
Unfortunately, the strong operating results did not translate into
capital market performance. Retail REITs significantly underperformed the
broader REIT market, posting a -11.8% total return for the sector as a whole. We
attribute the underperformance in retail primarily to fears about e-commerce.
We have a positive near-term outlook for the regional mall group where
leasing momentum appears to be quite strong. We believe that the strong retail
environment will continue in 2000 and lead once again to above average internal
growth and total FFO growth of 8-10%. We are also optimistic that the fears
about e-commerce may subside somewhat this year. Savvy regional mall owners have
dropped defensive posturing with respect to the Internet and are actively
pursuing their own Internet initiatives to enhance the in-mall shopping
experience.
6
<PAGE>
The neighborhood shopping center segment, which is more resilient to
economic swings in either direction, will benefit less from the rosy economic
outlook, but should continue to post positive internal growth in 2000. We
maintain a cautious view of this type of retail because of the competitive
nature of the retailing business and the lack of barriers to entry for new
construction.
Office/Industrial
Office REITs were one of the better performing sectors in 1999. The
office REIT benchmark posted a total return of 3.3%. Fundamentals for office
properties remained healthy in 1999. Suburban office vacancies increased
somewhat to 10.6% (up 1.5% from 1998) while CBD office vacancies remained flat
at 8.6%. New construction starts slowed in 1999 as a result of capital market
discipline and office absorption remained strong.
2000 is expected to be the peak year for new office deliveries. In
addition, we anticipate a decline in net absorption due to slowing job growth.
If we are correct, vacancies should increase modestly in 2000, but remain at
healthy levels, and rental growth should slow to inflationary levels in most
suburban markets. Select CBD markets should continue to experience much stronger
rental growth. Many of the public office REITs will have strong built-in
internal growth due to rollover of below market rate leases.
We remain positive on the outlook for office REITs in 2000. The
rollover of below market leases should continue to generate strong internal
growth for many of the companies in the better markets. New development activity
will also be a major earnings driver for selected companies. Many of the office
REITs are still trading at attractive discounts to NAV.
The industrial market is in a state of healthy equilibrium. Supply and
demand for industrial space are usually fairly well matched and that is the case
today. The growth in e-commerce should lead to strong demand for warehouse space
in the next 18 months. However, we also anticipate a strong supply response.
Market rental growth in the industrial sector is likely to be inflationary in
all but the most infill or hard to replicate markets. Same store NOI growth in
the industrial REIT market is likely to be in the 1.5% to 4.0% range.
7
<PAGE>
LETTER TO SHAREHOLDERS (CONTINUED)
Hotels
Despite supply outpacing demand in 1999, RevPAR growth remained ahead
of inflation at 3.2%. Full-service hotel companies continued to have the
strongest results, with occupancies at 74% versus 60% for limited service
hotels.
An out-of-favor sector, hotel REIT stocks significantly underperformed
the REIT market in 1999, down -16.2%. With supply expected to exceed demand
growth again in 2000, internal growth estimates may come under pressure in 2000.
Most of the hotel REIT stocks are trading at discounts to NAV greater
than 25% and offer dividend yields greater than 12%. However, we remain
cautious on the sector due to the current weakness in fundamentals and our
expectation that fundamentals will not rebound until at least 2001.
Portfolio Distribution at December 31, 1999
(GRAPHIC APPEARS HERE)
East North Central 11%
Southwest 12% Northeast 24%
Southeast 14% Mountain 5%
Other 3%
Mideast 9% Pacific 22%
The portfolio is diversified among regions of the United States as well
as among sectors. Regional emphasis is on locations that have solid underlying
demographics combined with significant restrictions on the development of new
supply. Thus there is an overweighting on the Northeast and West Coast, as well
as on central business districts in "24-hour" cities.
Price Versus Net Asset Value
The market increasingly uses Net Asset Value (NAV) as a method for
determining the relative attractiveness of public real estate companies. NAV
changes
8
<PAGE>
incorporate earnings growth and the real estate capitalization rates used to
value these operating earnings. As the markets mature, earnings increases are
expected to moderate, but to remain solid.
Cap rates have been stable to slightly higher over the past few
quarters. Higher interests rates and slowing market rent growth may continue to
exert modest upward pressure on cap rates over the next several months. However,
with most of the better companies projecting healthy net operating income
increases, we believe NAV per share estimates should still increase over the
next twelve months.
Perhaps the most critical factor regarding NAVs in evaluating REITs is
the very large discount of most companies' stock prices to their Net Asset
Values today.
REIT Price Versus Net Asset Value
(GRAPHIC APPEARS HERE)
Historical Premium/Discount Of REIT
Stock To NAV As Of 12/31/99
Dec-93 0.077
0.073
0.108
0.128
0.056
0.076
Jun-94 0.053
0.038
0.013
0.002
-0.047
-0.081
Dec-94 0.045
-0.004
-0.009
-0.014
-0.036
0
Jun-95 0.001
0.014
0.016
0.042
0.017
-0.001
Dec-95 0.082
0.076
0.091
0.088
0.06
0.084
Jun-96 0.111
0.096
0.133
0.138
0.156
0.19
Dec-96 0.282
0.294
0.269
0.275
0.189
0.216
Jun-97 0.255
0.276
0.257
0.302
0.195
0.222
Dec-97 0.24
0.214
0.127
0.144
0.104
0.098
Jun-98 0.081
0.01
-0.08
0.005
-0.015
-0.009
Dec-98 -0.022
-0.052
-0.071
-0.117
-0.036
0
Jun-99 -0.015
-0.056
-0.073
-0.118
-0.15
-0.174
Dec-99 -0.165
Source: Green Street Advisors
Investment Strategy
The majority of the Fund's portfolio continues to be invested in high
quality, market dominant real estate operating companies. These tend to be
larger companies that we believe are well positioned to generate consistent
growth over time. They focus on building a business in specific industry
segments; some have been able to develop brands, a rarity in the real estate
industry. Quality is cheap today and the larger high quality companies should be
first to rebound in a REIT market recovery.
9
<PAGE>
LETTER TO SHAREHOLDERS (CONCLUDED)
We generally avoid property owners with balance sheet constraints
and/or inferior property management capabilities. Some of the companies with
business and property problems will ultimately be liquidated. Occasionally, if
such companies are trading at a compelling discount to net asset value, they may
be included in our portfolios for shorter-term trading purposes.
In general, we continue to find attractive investment opportunities in
all of the major property sectors. Based on current valuation levels, with
the exception of the health care and lodging sectors, the differences in
valuation levels between the various property sectors are modest.
Very truly yours,
/s/ William K. Morrill, Jr. /s/ Keith R. Pauley /s/ James A. Ulmer III
William K. Morrill, Jr. Keith R. Pauley James A. Ulmer III
President Executive Vice President Vice President
January 31, 2000
10
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
Dividend Declaration
1999 Year-End Dividend
The Board of Directors has declared a year-end per share
distribution payable on December 13 , 1999 to shareholders of record on December
6, 1999.
Class A Class B Institutional
Shares Shares Shares
Long-term capital gains $0.14 $0.14 $0.14
===== ===== =====
Dividends for Calendar 1999
Total dividends declared for calendar 1999 are as follows:
Class A Class B Institutional
Shares Shares Shares
Income $0.44 $0.34 $0.47
Long-term capital gains 0.14 0.14 0.14
===== ===== =====
Total distributions $0.58 $0.48 $0.61
Shareholders who have elected to participate in the Fund's dividend
reinvestment plan have received their distribution in additional shares of the
Fund. If you are not currently a plan participant but would like to have your
dividends reinvested at net asset value, please contact your investment
representative or the Fund at 1-800-553-8080.
11
<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, on an annual basis, a line graph comparing the
performance of each of the the Fund's classes to that of an appropriate market
index. This graph measures the growth of a $10,000 hypothetical investment from
the inception date of the respective class through the end of the most recent
fiscal year-end. TheSEC also requires that we report the total return of each
class, according to a standardized formula, for various time periods through the
end of the most recent calendar quarter.
Both the line graph and 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.
While the graphs and 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.
12
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
Additional Performance Information (continued)
Change in Value of a $10,000 Investment in Class A Shares(1)
January 3, 1995-December 31, 1999
(GRAPHIC APPEARS HERE)
Flag Investors Real Estate Wilshire Real Estate
Securities Fund $14,057 Securities Index $14,761
"1/95" 9,550 10,000
9,686 10,210
"6/95" 10,159 10,649
10,767 11,150
"12/95" 11,287 11,551
11,480 12,036
"6/96" 11,987 12,602
12,718 13,345
"12/96" 14,978 15,801
15,478 16,085
"6/97" 16,010 16,825
18,187 18,945
"12/97" 18,275 18,907
18,009 18,765
"6/98" 17,186 17,904
14,380 15,763
"12/98" 14,468 15,613
14,500 15,650
"6/99" 15,606 16,679
"12/99" 14,057 14,761
Average Annual Total Return(1)
Periods Ended 12/31/99 1 Year 5 Years Since Inception(2)
Class A Shares (7.22)% -- 7.04%
- ----------
(1) Past performance is not an indicator of future results. These figures assume
the reinvestment of dividends and capital gains distributions and include
the Fund's 4.50% maximum sales charge.
(2) January 3, 1995.
13
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
Additional Performance Information (continued)
Change in Value of a $10,000 Investment in Class B Shares(1)
January 3, 1995-December 31, 1999
(GRAPHIC APPEARS HERE)
Flag Investors Real Estate Wilshire Real Estate
Securities Fund $14,053 Securities Index $14,761
1/95 10,000 10,000
10,125 10,210
6/95 10,602 10,649
11,218 11,150
12/95 11,740 11,551
11,911 12,036
6/96 12,418 12,602
13,147 13,345
12/96 15,457 15,801
15,943 16,085
6/97 16,467 16,825
18,678 18,945
12/97 18,421 18,907
18,126 18,765
6/98 17,696 17,904
14,371 15,763
12/98 14,408 15,613
14,410 15,775
6/99 15,514 16,679
15,000 15,000
12/99 14,053 14,761
Average Annual Total Return(1)
Periods Ended 12/31/99 1 Year 5 Years Since Inception(2)
Class B Shares (7.36)% -- 7.03%
- ----------
(1) Past performance is not an indicator of future results.These figures assume
the reinvestment of dividends and capital gains distributions and include
the Fund's applicable sales charge.
(2) January 3, 1995.
14
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
Additional Performance Information (concluded)
Change in Value of a $10,000 Investment in Institutional Shares(1)
March 31, 1997-December 31, 1999
(GRAPHIC APPEARS HERE)
Flag Investors Real Estate Wilshire Real Estate
Securities Fund $9,190 Securities Index $7,878
3/97 10,000 10,000
6/97 10,374 10,469
11,820 11,791
12/97 11,884 11,767
18,424 11,679
6/98 11,188 11,143
14,670 9,810
12/98 9,431 9,717
9,500 9,800
6/99 10,188 10,381
9,069 8,039
12/99 9,190 7,878
Average Annual Total Return(1)
Periods Ended 12/31/99 1 Year 5 Years Since Inception(2)
Institutional Shares (2.56)% -- (3.02)%
- ----------
(1) Past performance is not an indicator of future results. These figures assume
the reinvestment of dividends and capital gains distributions.
(2) March 31, 1997.
15
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FLAG INVESTORS REAL ESTATE SECURITIES FUND
Schedule of Investments December 31, 1999
<TABLE>
<CAPTION>
Percent Unrealized
Market Market of Net Gain/
Shares Security Price Value Assets (Loss)
- -----------------------------------------------------------------------------------------------------------
<S><C>
Common Stock - 95.4%
Apartments - 22.8%
31,300 Apartment Investment &
Management Co. $39.81 $ 1,246,131 4.9% $ 213,711
51,585 AvalonBay Communities, Inc. 34.31 1,770,010 6.9 (33,775)
16,104 Camden Property Trust 27.38 440,847 1.7 (33,180)
29,150 Equity Residential
Properties Trust 42.69 1,244,341 4.8 85,445
30,552 Post Properties, Inc. 38.25 1,168,614 4.5 48,132
----------- ---- -----------
5,869,943 22.8 280,333
Diversified/Other - 9.7%
28,500 Capital Trust - Class A(1) 5.00 142,500 0.6 (170,664)
79,000 Catellus Development Corp.(1) 12.81 1,012,187 3.9 (465,258)
41,100 Vornado Realty Trust 32.50 1,335,750 5.2 208,430
----------- ---- -----------
2,490,437 9.7 (427,492)
Factory Outlets - 3.1%
26,700 Chelsea GCA Realty, Inc. 29.75 794,325 3.1 (50,052)
----------- ---- -----------
794,325 3.1 (50,052)
Hotels/Motels - 7.6%
44,983 Host Marriott Corp. 8.25 371,110 1.5 (397,432)
35,348 MeriStar Hospitality Corp. 16.00 565,568 2.2 (457,843)
14,500 MeriStar Hotels &
Resorts, Inc.(1) 3.56 51,656 0.2 (38,470)
28,800 Starwood Lodging Trust(1) 23.50 676,800 2.6 (817,172)
95,919 Wyndham Hotels(1) 2.94 281,762 1.1 (1,601,218)
----------- ---- -----------
1,946,896 7.6 (3,312,135)
Mobile Homes - 0.6%
5,200 Sun Communities, Inc. 32.19 167,375 0.6 (12,172)
----------- ---- -----------
167,375 0.6 (12,172)
Office/Industrial - 34.3%
50,000 Beacon Capital Partners(1,2) 12.00 600,000 2.3 (117,484)
21,900 Boston Properties, Inc. 31.12 681,637 2.6 (62,128)
23,400 Crescent Real Estate
Equities Co. 18.38 429,975 1.7 (426,564)
80,776 Duke Realty Investments, Inc. 19.50 1,575,132 6.1 (142,852)
49,079 Equity Office Properties Trust 24.62 1,208,570 4.7 (219,880)
</TABLE>
16
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
<TABLE>
<CAPTION>
Percent Unrealized
Market Market of Net Gain/
Shares Security Price Value Assets (Loss)
- -----------------------------------------------------------------------------------------------------------
<S><C>
5,600 Kilroy Realty Corp. $22.00 $ 123,200 0.5% $ (3,480)
47,000 Mack-Cali Realty Corp. 26.06 1,224,938 4.8 (531,074)
12,000 PS Business Parks, Inc. 22.75 273,000 1.1 (18,405)
53,100 Reckson Associates 20.50 1,088,550 4.2 (64,639)
13,500 SL Green Realty Corp. 21.75 293,625 1.1 (8,993)
37,100 Spieker Properties, Inc. 36.44 1,351,831 5.2 32,136
----------- ---- -----------
8,850,458 34.3 1,563,363
Regional Malls - 3.8%
900 Macerich, Co. 20.81 18,731 0.0 (4,601)
24,100 Rouse Company 21.25 512,125 2.0 (161,931)
20,000 Simon Property Group, Inc. 22.94 458,750 1.8 (104,750)
----------- ---- -----------
989,606 3.8 (271,282)
Retail - 4.9%
40,700 Developers Diversified
Realty Corp. 12.88 524,013 2.0 (159,857)
29,900 Entertainment
Properties Trust 13.19 394,306 1.5 (114,891)
7,500 JDN Realty Corp. 16.13 120,938 0.5 (37,875)
6,500 Kimco Realty Corp. 33.88 220,188 0.9 (30,031)
----------- ---- -----------
1,259,445 4.9 (342,654)
Self Storage - 7.8%
52,000 Public Storage, Inc. 22.69 1,179,750 4.6 (165,282)
27,500 Storage USA, Inc. 30.25 831,875 3.2 (130,601)
----------- ---- -----------
2,011,625 7.8 (295,883)
Warehouse/Industrial - 0.8%
10,600 Prologis Trust 19.25 204,050 0.8 (3,180)
----------- ---- -----------
204,050 0.8 (3,180)
Total Common Stock
(Cost $30,582,040) 24,584,160 95.4 (5,997,880)
----------- ---- -----------
Total Investments - 95.4%
(Cost $30,582,040)(3) $24,584,160 95.4%
=========== ====
</TABLE>
- ----------
(1) Non-income producing security.
(2) Security is fair valued by management using procedures adopted by the Board
of Directors (see Note 1).
(3) Aggregate cost for federal tax purposes was $30,079,504.
See Notes to Financial Statements.
17
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
December 31, 1999
<S><C>
Assets:
Investments, at Value (cost $30,582,040) $24,584,160
Cash 1,046,434
Receivable for Fund Shares Sold 284,609
Dividends Receivable 257,885
Prepaid and Other Assets 12,398
-----------
Total Assets 26,185,486
-----------
Liabilities:
Payable for Fund Shares Redeemed 359,960
Distribution Payable 94
Accrued Expenses 66,437
-----------
Total Liabilities 426,491
-----------
Net Assets Applicable to 2,398,788 Shares Outstanding $25,758,995
===========
Net Asset Value and Redemption Price Per:
Class A Share ($20,449,161/1,903,958 shares outstanding) $10.74
======
Class B Share ($4,724,948/440,894 shares outstanding) $10.72(1)
======
Institutional Class Share ($584,886/53,936 shares outstanding) $10.84
======
Maximum Offering Price Per:
Class A Share ($10.74/.955) $11.25
======
Class B Share $10.72
======
Institutional Class Share $10.84
======
</TABLE>
- ----------
(1) Redemption value is $10.29 following a maximum 4% contingent deferred sales
charge.
See Notes to Financial Statements.
18
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
Statement of Operations
For the
Year
Ended
December 31,
- ---------------------------------------------------------------------------
1999
Investment Income:
Dividends $ 2,005,739
Interest 9,345
------------
Total Income 2,015,084
------------
Expenses:
Investment Advisory Fee 221,377
Distribution Fee
Class A 68,055
Class B 62,463
Professional Fees 102,128
Transfer Agent Fee 49,392
Shareholder Reporting Fee 40,402
Registration Fees 35,426
Accounting Fee 33,167
Custodian Fee 32,561
Organization 28,328
Miscellaneous 2,254
Directors' Fee 2,000
------------
Total Expenses 677,553
Less:Fees Waived (206,400)
------------
Net Expenses 471,153
------------
Net Investment Income 1,543,931
------------
Realized and unrealized gain/(loss) on investments:
Net realized loss from security transactions (1,583,256)
Change in unrealized appreciation/
depreciation of investments (1,018,806)
------------
Net loss on investments (2,602,062)
------------
Net decrease in net assets resulting from operations $ (1,058,131)
============
See Notes to Financial Statements.
19
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Years Ended December 31,
1999 1998
<S><C>
Increase/(Decrease) in Net Assets:
Operations:
Net investment income $ 1,543,931 $ 2,007,708
Net realized gain/(loss)
from security transactions (1,583,256) 981,839
Change in unrealized appreciation/depreciation
of investments (1,018,806) (14,660,156)
------------ ------------
Net decrease in net assets resulting
from operations (1,058,131) (11,670,609)
Distributions to Shareholders from:
Net investment income:
Class A Shares (1,094,740) (1,296,479)
Class B Shares (204,218) (249,595)
Institutional Shares (24,521) (24,043)
------------ ------------
Net realized long-term gains:
Class A Shares (278,279) (1,218,097)
Class B Shares (58,997) (295,348)
Institutional Shares (6,919) (23,198)
------------ ------------
Return of capital:
Class A Shares -- (103,847)
Class B Shares -- (21,830)
Institutional Shares -- (1,944)
Total distributions (1,667,674) (3,234,381)
------------ ------------
Capital Share Transactions:
Proceeds from sale of shares 3,801,514 15,886,815
Value of shares issued in reinvestment
of dividends 1,381,079 2,740,207
Cost of shares redeemed (18,159,727) (14,115,495)
------------ ------------
Increase/(decrease) in net assets derived from
capital share transactions (12,977,134) 4,511,527
------------ ------------
Total decrease in net assets (15,702,939) (10,393,463)
Net Assets:
Beginning of year 41,461,934 51,855,397
------------ ------------
End of year $ 25,758,995 $ 41,461,934
============ ============
</TABLE>
See Notes to Financial Statements.
20
<PAGE>
This page intentionally left blank.
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
Financial Highlights--Class A Shares
(For a share outstanding throughout each period)
For the
Year Ended
December 31,
- -----------------------------------------------------------------------------
1999
Per Share Operating Performance:
Net asset value at beginning of period $ 11.64
-------
Income from Investment Operations:
Net investment income 0.53
Net realized and unrealized gain/(loss) on investments (0.85)
-------
Total from Investment Operations (0.32)
-------
Less Distributions:
Distributions from net investment income (0.44)
Distributions from net realized capital gains (0.14)
Return of capital --
-------
Total distributions (0.58)
-------
Net asset value at end of period $ 10.74
=======
Total Return(2) (2.85)%
Ratios to Average Daily Net Assets:
Expenses Before Waivers 1.86%
Expenses After Waivers 1.25%
Net investment income 4.67%
Supplemental Data:
Net assets at end of period (000) $20,449
Portfolio turnover rate 7%
- ----------
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Annualized.
(4) 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%.
22
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
For the Period
January 3, 1995(1)
For the Years Ended December 31, through December 31,
- ------------------------------------------------------------------------------
1998 1997 1996 1995
$ 15.78 $ 13.89 $ 11.20 $10.00
------- ------- ------- ------
0.58 0.52 0.61 0.56
(3.79) 2.44 2.90 1.21
------- ------- ------- ------
(3.21) 2.96 3.51 1.77
------- ------- ------- ------
(0.46) (0.60) (0.58) (0.49)
(0.43) (0.47) (0.22) (0.05)
(0.04) -- (0.02) (0.03)
------- ------- ------- ------
(0.93) (1.07) (0.82) (0.57)
------- ------- ------- ------
$ 11.64 $ 15.78 $ 13.89 $11.20
======= ======= ======= ======
(20.82)% 22.01% 32.70% 18.19%
1.55% 1.58% 2.28% 3.25%(3)
1.25% 1.25% 1.25% 1.25%(3,4)
4.28% 3.87% 5.29% 6.09%(3,4)
$33,239 $41,773 $19,816 $7,171
24% 35% 23% 28%
See Notes to Financial Statements.
23
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
Financial Highlights--Class B Shares
(For a share outstanding throughout each period)
For the
Year Ended
December 31,
- -----------------------------------------------------------------------------
1999
Per Share Operating Performance:
Net asset value at beginning of period $ 11.60
-------
Income from Investment Operations:
Net investment income 0.43
Net realized and unrealized gain/(loss) on investments (0.83)
-------
Total from Investment Operations (0.40)
-------
Less Distributions:
Dividends from net investment income (0.34)
Distributions from net realized capital gains (0.14)
Return of capital --
-------
Total distributions (0.48)
-------
Net asset value at end of period $ 10.72
=======
Total Return(2) (3.50)%
Ratios to Average Daily Net Assets:
Expenses Before Waivers 2.61%
Expenses After Waivers 2.00%
Net investment income 3.89%
Supplemental Data:
Net assets at end of period (000) $ 4,725
Portfolio turnover rate 7%
- ----------
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Annualized.
(4) 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%.
24
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
For the Period
For the Years January 3, 1995(1)
Ended December 31, through December 31,
- -------------------------------------------------------------------------------
1998 1997 1996 1995
$ 15.71 $13.84 $11.18 $10.00
------- ------ ------ ------
0.47 0.42 0.52 0.50
(3.77) 2.42 2.89 1.20
------- ------ ------ ------
(3.30) 2.84 3.41 1.70
------- ------ ------ ------
(0.34) (0.50) (0.51) (0.42)
(0.43) (0.47) (0.22) (0.05)
(0.04) -- (0.02) (0.05)
------- ------ ------ ------
(0.81) (0.97) (0.75) (0.52)
------- ------ ------ ------
$ 11.60 $15.71 $13.84 $11.18
======= ====== ====== ======
(21.39)% 21.11% 31.67% 17.40%
2.30% 2.33% 3.03% 4.05%(3)
2.00% 2.00% 2.00% 2.00%(3,4)
3.48% 3.12% 4.46% 5.39%(3,4)
$ 7,641 $9,799 $5,295 $3,016
24% 35% 23% 28%
See Notes to Financial Statements.
25
<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 For the March 31, 1997(1)
Year Ended Year Ended through
December 31, December 31, December 31,
1999 1998 1997
<S><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 0.58 0.58 0.47
Net realized and unrealized
gain/(loss) on investments (0.87) (3.78) 2.14
------ ------ ------
Total from Investment Operations (0.29) (3.20) 2.61
------ ------ ------
Less Distributions:
Dividends from net investment
income (0.47) (0.50) (0.42)
Distributions from net realized
capital gains (0.14) (0.43) (0.47)
Return of capital -- (0.04) --
------ ------ ------
Total distributions (0.61) (0.97) (0.89)
------ ------ ------
Net asset value at end of period $10.84 $11.74 $15.91
====== ====== ======
Total Return (2.56)% (20.64)% 18.84%
Ratios to Average Daily Net Assets:
Expenses Before Waivers 1.61% 1.28% 1.39%(2)
Expenses After Waivers 1.00% 1.00% 1.00%(2)
Net investment income(3) 5.18% 4.73% 4.30%(2)
Supplemental Data:
Net assets at end of period (000) $ 585 $ 582 $ 288
Portfolio turnover rate 7% 24% 35%
</TABLE>
- ----------
(1) Commencement of operations.
(2) Annualized.
See Notes to Financial Statements.
26
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
Notes to Financial Statements
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 began 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 active share classes: Class A Shares and
Class B Shares, which both began operations 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 the
average of the last bid and asked prices 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. In
determining fair value, management considers all relevant
qualitative and quantitative information available. These factors
are subject to change over time and are reviewed periodically. The
values assigned to fair value investments are based on available
information and do not necessarily represent amounts that might
ultimately be realized, since such amounts depend on future
developments inherent in long-term investments. Furthermore, because
of the inherent uncertainty of valuation, those estimated values may
differ significantly from
27
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
Notes to Financial Statements (continued)
NOTE 1--continued
the values that would have been used had a ready market of the
investments existed, and the differences could be material. At
December 31, 1999, there was one Board valued security valued at
$600,000, representing 2.3% 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 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, gains 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
28
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
Notes to Financial Statements (continued)
NOTE 1--concluded
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.
NOTE 2--Investment Advisory Fees, Transactions with Affiliates and Other Fees
Investment Company Capital Corp. ("ICC"), an indirect subsidiary of
Deutsche Bank AG, is the Fund's investment advisor. 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 year ended December 31, 1999, ICC's advisory fee was $221,377 of which
$13,937 was payable at the end of the year.
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 $206,400 for the year ended December 31,
1999.
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.
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 year ended December 31, 1999, ICC's
fee was $33,167 of which $2,310 was payable at the end of the year.
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
year ended December 31, 1999, ICC's fee was $49,392 of which $11,218 was payable
at the end of the year.
29
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
Notes to Financial Statements (continued)
NOTE 2--concluded
Certain officers and directors of the Fund are also officers or
directors of ICC and LaSalle.
ICC Distributors, Inc. 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. For the year ended December 31, 1999, ICC's fee was $130,518 of which
$8,125 was payable at the end of the year.
Bankers Trust Company, an affiliate of the advisor, is the Fund's
custodian. For the year ended December 31, 1999, custody fees amounted to
$32,561 of which $7,065 was payable at the end of the year.
The Fund participates along with other Flag Investors funds in a
retirement plan for eligible Directors. The actuarially computed pension
expense allocated to the Fund for the year ended December 31, 1999 was $339 and
the accrued liability was $1,615.
Note 3--Capital Share Transactions
The Fund is authorized to issue up to 30 million shares of $.001 par
value capital stock (7 million Class A, 2 million Class B, 15 million Class C, 5
million Institutional Class and 1 million undesignated). Transactions in
shares of the Fund were as follows:
On June 4, 1999, Bankers Trust Corporation, then the parent company of
ICC, was acquired by Deutsche Bank AG. As a result, ICC became an indirect
wholly owned subsidiary of Deutsche Bank AG.
<TABLE>
<CAPTION>
Class A Shares
------------------------------------
For the For the
Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998
--------------- --------------
<S><C>
Shares sold 234,138 913,519
Shares issued to shareholders on
reinvestment of dividends 102,913 173,588
Shares redeemed (1,289,617) (878,163)
-------------- ------------
Net increase/(decrease) in shares outstanding (952,566) 208,944
============== ============
Proceeds from sale of shares $ 2,736,131 $ 12,447,914
Value of reinvested dividends 1,159,479 2,258,875
Cost of shares redeemed (14,527,139) (11,380,062)
-------------- ------------
Net increase/(decrease) from capital
share transactions $ (10,631,529) $ 3,326,727
============== ============
</TABLE>
30
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
Note 3--concluded
<TABLE>
<CAPTION>
Class B Shares
--------------------------------------
For the For the
Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998
------------------ ------------------
<S><C>
Shares sold 92,453 189,158
Shares issued to shareholders on
reinvestment of dividends 17,489 34,739
Shares redeemed (327,505) (188,973)
-------------- ------------
Net increase/(decrease) in shares outstanding (217,563) 34,924
============== ============
Proceeds from sale of shares $ 1,042,883 $ 2,735,502
Value of reinvested dividends 193,940 449,966
Cost of shares redeemed (3,632,588) (2,520,889)
-------------- ------------
Net increase/(decrease) from capital
share transactions $ (2,395,765) $ 664,579
============== ============
</TABLE>
<TABLE>
<CAPTION>
Institutional Shares
--------------------------------------
For the For the
Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998
------------------ ------------------
<S><C>
Shares sold 1,926 47,072
Shares issued to shareholders on
reinvestment of dividends 2,446 2,477
Shares redeemed -- (18,105)
-------------- ------------
Net increase in shares outstanding 4,372 31,444
============== ============
Proceeds from sale of shares $ 22,500 $ 703,400
Value of reinvested dividends 27,660 31,366
Cost of shares redeemed -- (214,544)
-------------- ------------
Net increase from capital
share transactions $ 50,160 $ 520,222
============== ============
</TABLE>
31
<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 $2,395,652 and sales of investment securities aggregated $15,583,238
for the year ended December 31, 1999.
For Federal income tax purposes, the tax cost of investments held at
December 31, 1999 was $30,079,504. At December 31, 1999, aggregate gross
unrealized appreciation for all securities in which there is an excess of value
over tax cost was $753,119, and aggregate gross unrealized depreciation for all
securities in which there is an excess of tax cost over value was $6,248,463.
Note 5--Net Assets
On December 31, 1999, net assets consisted of:
Paid-in capital:
Class A Shares $26,061,514
Class B Shares 5,839,588
Institutional Shares 873,506
Accumulated net realized loss from security transactions (1,017,733)
Unrealized depreciation of investments (5,997,880)
-----------
$25,758,995
===========
NOTE 6 -- Federal Income Tax Information
The Fund has deferred post October capital losses of $1,559,306 to next
year.
32
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
Report of Independent Accountants
To the Board of Directors and Shareholders of
Flag Investors Real Estate Securities Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule 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 the Flag Investors Real Estate
Securities Fund, Inc. (hereafter referred to as the "Fund") at December 31,
1999, and the results of its operations, the changes in its net assets and the
financial highlights for each of the fiscal periods presented, in conformity
with accounting principles generally accepted in the United States. 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 auditing standards generally accepted in the United States, 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, 1999 by correspondence with the custodian, provide
a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Baltimore, Maryland
February 11, 2000
33
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
Tax Information (Unaudited)
For the Tax Year Ended December 31, 1999
We are providing this information as required by the Internal Revenue
Code. The amounts shown may differ from those elsewhere in this report because
of differences between tax and financial reporting requirements.
The fund's distributions to shareholders included $344,195 from
long-term capital gains; of which all was subject to the 20% rate gains
category.
34
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
Special Meeting (Unaudited)
A Special Meeting of Shareholders (the "Special Meeting") was held on
October 7, 1999, at which time shareholders voted to approve a new investment
advisory agreement with ICC and a new sub-advisory agreement with LaSalle.
Additionally, shareholders elected the Board of Director. The Special Meeting
was reconvened on October 22, 1999, at which time shareholders voted not to
eliminate or modify certain fundamental investment restrictions of the Fund.
The results of the shareholder voting at the Special Meeting are as
follows:
<TABLE>
<CAPTION>
Withheld/ Broker
Proposal For Against Abstain Non-Votes
- ----------------------------------------------------------------------------------------------------
<S><C>
Elect Richard T. Hale 2,279,599 28,316
Elect Richard R. Burt 2,277,736 30,179
Elect Joseph R. Hardiman 2,279,599 28,316
Elect Louis E. Levy 2,279,599 28,316
Elect Eugene J. McDonald 2,279,599 28,316
Elect Rebecca W. Rimel 2,279,599 28,316
Elect Truman T. Semans 2,276,421 31,494
Elect Robert H. Wadsworth 2,279,599 28,316
Investment Advisory Agreement
with ICC 2,280,712 11,690 15,513
Sub-Advisory Agreement with ICC and
LaSalle Investment Management, L.P. 2,276,132 14,236 17,547
Eliminate policy concerning
short sales 772,201 30,200 28,281 1,488,515
Eliminate policy regarding purchasing
of securities on margin 764,777 39,517 26,388 1,488,515
Eliminate policy regarding purchases of
oil, gas and mineral interests 776,562 27,981 26,140 1,488,514
Modify policy regarding borrowing 770,948 34,418 25,317 1,488,514
Modify policy regarding loans 773,430 30,820 26,433 1,488,514
</TABLE>
35
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
Directors and Officers
RICHARD T. HALE
Chairman
RICHARD R. BURT WILLIAM K. MORRILL, JR.
Director President
JOSEPH R. HARDIMAN KEITH R. PAULEY
Director Executive Vice President
LOUIS E. LEVY JAMES A. ULMER III
Director Vice President
EUGENE J. MCDONALD CHARLES A. RIZZO
Director Treasurer
REBECCA W. RIMEL AMY M. OLMERT
Director Secretary
TRUMAN T. SEMANS DANIEL O. HIRSCH
Director Assistant Secretary
ROBERT H. WADSWORTH
Director
Investment Objective
A mutual fund that seeks total return primarily through investments in equity
securities of companies that are principally engaged in the real estate
industry.
36
<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>
(GRAPHIC APPEARS HERE)
Balanced
Value Builder Fund
Growth
Equity Partners Fund
Emerging Growth Fund
Specialty
Communications Fund
Real Estate Securities Fund
International
International Fund
European Mid-Cap Fund
Japanese Equity Fund
Top 50 Strategy
Top 50 World
Top 50 Europe
Top 50 Asia
Top 50 U.S.
Fixed Income
Total Return U.S. Treasury Fund Shares
Short-Intermediate Income Fund
Tax-Free Income
Managed Municipal Fund Shares
Money Market
Cash Reserve Prime Shares
P.O. Box 515
Baltimore, Maryland 21203
800-767-FLAG
www.flaginvestors.com
ICC Distributors, Inc.
REANN(02/00)
