<PAGE>
Templeton Real Estate
Securities Fund
- --------------------------------------------------------------------------------
Your Fund's Objective:
The Templeton Real Estate Securities Fund seeks long-term capital growth by
investing primarily in securities of domestic and foreign companies which are
principally engaged in or related to the real estate industry, or which own
significant real estate assets. Current income is a secondary objective.
- --------------------------------------------------------------------------------
October 16, 1995
Dear Shareholder:
The fiscal year ended August 31, 1995, was a challenging period for the
Templeton Real Estate Securities Fund. During the first half of the period, U.S.
and Hong Kong real estate markets were adversely affected by rising interest
rates, Latin American markets were hit hard when the Mexican government devalued
the peso in December, and European markets suffered from falling rents and
weakening property values. The second half of the year, however, presented a
different picture. Real estate values started to rebound in the U.S. when the
Federal Reserve Board declined to raise interest rates, and Hong Kong's property
market, tied to U.S. interest rates, displayed signs of recovery as well.
Within this volatile environment, the Fund's Class I shares posted a one-year
total return of -1.74%, as shown in the Performance Summary on page 6. However,
we have always maintained a long-term perspective in managing the Fund, and we
urge shareholders to view their investments in the same manner. As reported in
the
1
<PAGE>
Performance Summary, the Fund's Class I shares provided a cumulative total
return of 57.99% since its inception on September 12, 1989./1/
On August 31, 1995, the Fund's largest single-country exposure was the United
States, where we focused on Real Estate Investment Trusts (REITs). We believe
that REITs compare favorably with utilities, the group most frequently mentioned
as similar in terms of dividend yield and defensive characteristics. Although
REITs have fewer regulatory obstacles and higher growth prospects than
utilities, they sell with higher dividend yields. These anomalies help
demonstrate the value of REITs at current prices.
Despite the fact that we usually find undervalued real estate in Europe, the
Fund had few European holdings in its portfolio on August 31, 1995. Our
assessment of supply and demand, the most critical aspects of real estate
investment, indicate that real estate prices and rents should decline further in
Europe during the next several months. Many European cities feature two-tiered
markets, with an over-supply of old office space and a shortage of new, prime
1. Total return measures the change in value of an investment, assuming
reinvestment of dividend and capital gains distributions, and does not include
the maximum initial sales charge. Past performance is not indicative of future
results.
- --------------------------------------------------------------------------------
Templeton Real Estate
Securities Fund
Geographic Distribution on 8/31/95
Based on Total Net Assets
<TABLE>
<CAPTION>
[GRAPH APPEARS HERE]
<S> <C>
United States Stocks 50.3%
European Stocks 11.9%
Asian Stocks 11.4%
Short-Term Obligations &
Other Net Assets 9.0%
Canadian Stocks 5.2%
Fixed-Income Securities 5.2%
Australian &
New Zealand Stocks 4.6%
Latin American Stocks 2.4%
</TABLE>
office space. In Paris, for instance, a tenant desiring 5,000 square feet of
space in a desirable location can choose from many potential buildings, while a
tenant requiring 100,000 square feet does not have a similar choice. As a
result, it would appear that new development is imminent, but given current
construction costs, we do not think that falling rents will support such
development. Although the two-tiered property markets could present future
opportunities, in the interim they pose risks for investors looking to invest in
European real estate companies.
2
<PAGE>
In previous reports, we discussed the large number of investment opportunities
in Asia, citing how many were available in Korea, Thailand, Indonesia and
Malaysia. We continue to maintain a sanguine outlook concerning the future of
property investments in this region. Most favorably, supply and demand in much
of this area is either in equilibrium or very close to it. We feel that
experienced management, financial strength, and undervalued assets characterize
almost all of the Asian companies in which we have invested.
Therefore, we continue to observe several benefits of investing in global real
estate markets. First, real estate is an extremely undervalued asset class in
many parts of the world. Second, the Fund's investments in more than 20 markets
offers the compelling feature of diversification. Last, we feel that there are
still potential bargains in real estate at a time when the levels of many global
equity markets are significantly higher than they were a year ago. As the charts
to the right show, French property stocks have fallen dramatically since 1993,
and Canadian property stocks have not yet rebounded from 1990 levels.
Canadian Property Stocks vs.
Canadian Equity Stocks
Canada-DS Property Price Index vs.
Toronto SE (300) Composite Price Index
8/30/90 - 8/31/95
[GRAPH APPEARS HERE SHOWING THE COMPARISON BETWEEN THE CANADA-DS PROPERTY PRICE
INDEX AND THE TORONTO SE (300) COMPOSITE PRICE INDEX FROM 1990 TO 1995.]
Source: Datastream
The indexes have been indexed at 100. Canadian property stocks are represented
by the Canada-DS Property Price Index. The Canadian equity market is represented
by the Toronto SE (300) Composite Price Index. This index comparison is for
illustrative purposes only, and is not indicative of the future performance of
the Fund, Canadian property stocks or the Canadian equity market.
French Property Stock vs.
French Equity Market
France-DS Property Price Index vs. CAC 40 Price Index
8/30/90 - 8/31/95
[GRAPH APPEARS HERE SHOWING THE COMPARISON BETWEEN THE FRANCE-DS PROPERTY PRICE
INDEX AND THE CAC 40 PRICE INDEX FROM 1990 TO 1995.]
SOURCE: DATASTREAM
The indexes have been indexed at 100. French property stocks are represented by
the France-DS Property Price Index. The French equity market is represented by
the CAC 40 Price Index. This index comparison is for illustrative purposes only,
and is not indicative of the future performance of the Fund, French property
stocks or the French equity market.
3
<PAGE>
Because of our observances noted earlier, we remain optimistic about
opportunities for the Templeton Real Estate Securities Fund. In the U.S. alone,
securitization of real estate, primarily through REITs, has helped the real
estate market, and should mitigate some of the excesses exhibited in this sector
during past cycles. This is primarily due to more plentiful information,
increased liquidity, and ease of investment. Worldwide technological advances,
changing political climates, integration of global real estate markets, and
improving underlying fundamentals in property markets also point to a
potentially bright future for investing in real estate throughout the world.
Of course, global investing carries special risks, and the Fund's share price
and returns will fluctuate with market conditions, currency volatility, and the
economic and political climates where the investments are made. While short-term
volatility can be disconcerting, declines of as much as 40% to 50% are not
unusual in emerging markets. For example, the Hong Kong market has increased
763% in the last 15 years, but has suffered six declines of more than 20% during
that time./2/ There are additional risks associated with investments in
developing markets, due to the relatively small size
2. Source: Bloomberg. Based on quarterly percentage change over 15 years ended
June 30, 1995.
- --------------------------------------------------------------------------------
Templeton Real Estate
Securities Fund
Top Ten Holdings on 8/31/95
Based on Total Net Assets
<TABLE>
<CAPTION>
% of Total
Company, Industry, Country Net Assets
- --------------------------------------------------------------------------------
<S> <C>
Patten Corp., Real Estate, United States 3.2%
- --------------------------------------------------------------------------------
Weeks Corp., Real Estate, United States 2.9%
- --------------------------------------------------------------------------------
Revenue Property Ltd., Real Estate,
Canada 2.5%
- --------------------------------------------------------------------------------
Rouse Co., Real Estate, United States 2.5%
- --------------------------------------------------------------------------------
LTC Properties Inc., Real Estate,
United States 2.4%
- --------------------------------------------------------------------------------
Empresas ICA Sociedad Controladora SA, ADR,
Construction & Housing, Mexico 2.3%
- --------------------------------------------------------------------------------
Sun Hung Kai Properties Ltd., Real Estate,
Hong Kong 2.0%
- --------------------------------------------------------------------------------
HGI Realty Inc., Business & Public Services,
United States 2.0%
- --------------------------------------------------------------------------------
Fletcher Challenge Ltd., ADR,
Forest Products & Paper, New Zealand 1.9%
- --------------------------------------------------------------------------------
Nationwide Health Properties Inc.,
Real Estate, United States 1.8%
- --------------------------------------------------------------------------------
</TABLE>
For a detailed listing of portfolio holdings, see page 10 of this report.
of the markets and the lesser liquidity of their securities. It should also be
noted that, because the Fund concentrates on the real estate industry, its share
price may be more volatile than those of more broadly diversified investments.
These special risks and other considerations are discussed in the Fund's
prospectus.
4
<PAGE>
In closing, we would like to mention that, although Sir John Templeton has not
been involved in investment management of the Templeton funds since October
1992, we were saddened by his recent decision to step down as Chairman and
Director of the U.S.-registered Templeton funds. The Fund's Board of Directors
has elected John Wm. Galbraith, former vice chairman of Templeton, Galbraith &
Hansberger, Ltd. to succeed him. The investment manager will continue to use the
investment philosophies and principles established by Sir John.
We thank you for your participation in the Templeton Real Estate Securities Fund
and welcome your comments and suggestions.
Sincerely,
/s/ Mark Holowesko
Mark Holowesko
President
Templeton Real Estate Securities Fund
/s/ Jeffrey A. Everett
Jeffrey A. Everett
Portfolio Manager
Templeton Real Estate Securities Fund
5
<PAGE>
Performance Summary
The Templeton Real Estate Securities Fund's Class I shares provided a total
return of -1.74% for the one-year period ended August 31, 1995. Total return
measures the change in value of an investment, assuming reinvestment of dividend
and capital gains distributions, and does not include the Fund's maximum
initial sales charge.
The Fund's managers have always maintained a long-term perspective and we
encourage shareholders to do the same. As you can see from the chart on the
following page, the Fund's Class I shares delivered a cumulative total return of
57.99% for the period from its inception on September 12, 1989, through
August 31, 1995.
As measured by net asset value, the price of the Fund's Class I shares decreased
from $13.66 on August 31, 1994, to $13.20 on August 31, 1995, while the price of
the Fund's Class II shares increased from $12.25 on May 1, 1995 (the inception
date for these shares) to $13.17 on August 31, 1995.
During the reporting period, Class I shareholders received 21.5 cents ($0.215)
per share in dividend income. Class II shareholders did not receive
distributions, because Class II shares were not in existence when distributions
were paid. Of course, past performance is not predictive of future results, and
distributions will vary depending on income earned by the Fund, as well as any
profits realized from the sale of securities in the portfolio.
As you can see from the graph on the following page, the Fund outperformed the
unmanaged Morgan Stanley Capital International (MSCI) World Index, which tracks
22 equity markets worldwide. It also shows how an investment in the Fund has
kept your purchasing power ahead of inflation, as measured by the Consumer Price
Index. Class II shares are not represented as they have not been available for a
sufficient amount of time. Please remember the Fund's performance differs from
that of an index because the index does not contain cash (the Fund generally
carries a certain percentage of cash at any given time) and includes no sales
charges or management expenses. Of course, one cannot invest directly in an
index.
6
<PAGE>
- --------------------------------------------------------------------------------
Templeton Real Estate
Securities Fund -- Class I
Total Return Index Comparison
$10,000 Investment (9/12/89 - 8/31/95)
[GRAPH APPEARS HERE SHOWING COMPARISON BETWEEN TEMPLETON REAL ESTATE SECURITIES
FUND, MSCI WORLD INDEX AND CPI]
<TABLE>
<CAPTION>
9/89 8/95
<S> <C> <C>
Templeton Real Estate Securities Fund/1/ $ 10,000 $ 14,891
MSCI World Index/2/ $ 10,000 $ 14,608
CPI/3/ $ 10,000 $ 12,278
</TABLE>
- --------------------------------------------------------------------------------
1. Includes all sales charges and represents the change in value of an
investment over the period shown, assuming reinvestment of dividends and
capital gains. Past performance is not indicative of future results.
2. Index is unmanaged and includes reinvested dividends.
3. Source: U.S. Bureau of Labor Statistics.
Templeton Real Estate
Securities Fund
Periods ended August 31, 1995
<TABLE>
<CAPTION>
Since Since
Inception Inception
One-Year Three-Year (9/12/89) (05/01/95)
<S> <C> <C> <C> <C>
Average Annual
Total Return/1/
Class I Shares -7.39% 8.58% 6.90% --
Aggregate Total
Return/2/
Class II Shares -- -- -- 5.43%
Cumulative Total
Return/3/
Class I Shares -1.74% 35.75% 57.99% --
Class II Shares -- -- -- 7.51%
</TABLE>
1. Average annual total return represents the average annual change in value of
an investment over the indicated periods. The figures have been restated to
reflect the current maximum 5.75% initial sales charge for Class I shares.
See note below.
2. Aggregate total return represents the change in value of an investment over
the periods indicated and reflects the deduction of the maximum 1.00% initial
sales charge and 1.00% contingent deferred sales charge (CDSC) for Class II
shares, applicable to shares redeemed within the first 18 months of investment.
See note below.
3. Cumulative total return measures the change in value of an investment over
the specified periods and does not include the maximum 5.75% sales charge for
Class I shares, or the maximum 1.00% initial sales charge and 1.00% CDSC for
Class II shares, applicable to shares redeemed within the first 18 months of
investment. See note below.
Note: Prior to July 1, 1992, Class I shares were offered at a higher sales
charge. Thus, actual total return to purchasers of shares during that period
would have been different than noted above. Class II shares, which the Fund
began offering on May 1, 1995, are subject to different fees and expenses, which
will affect their performance. Please see the prospectus for more details
concerning Class I and Class II shares.
All total return calculations reflect the deduction of a proportional share of
Fund expenses on an annual basis and assume that all dividend and capital gains
distributions were reinvested when paid. Investment return and principal value
will fluctuate with market conditions, currencies, and the economic and
political climates of countries where investments are made, so that your shares,
when redeemed, may be worth more or less than their initial cost. Past
performance is not predictive of future results.
- --------------------------------------------------------------------------------
7
<PAGE>
Templeton Real Estate Securities Fund
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
<TABLE>
<CAPTION>
CLASS I
---------------------------------------------
YEAR ENDED AUGUST 31
---------------------------------------------
1995 1994 1993 1992 1991
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $ 13.66 $ 12.66 $ 10.40 $ 10.08 $ 8.88
-------- -------- ------- ------- -------
Income from investment
operations:
Net investment income .39 .22 .25 .37 .53
Net realized and unrealized
gain (loss) (.64) 1.00 2.36 .43 1.13
-------- -------- ------- ------- -------
Total from investment operations (.25) 1.22 2.61 .80 1.66
-------- -------- ------- ------- -------
Distributions:
Dividends from net investment
income (.21) (.22) (.35) (.48) (.37)
Distributions from net realized
gains -- -- -- -- (.09)
-------- -------- ------- ------- -------
Total distributions (.21) (.22) (.35) (.48) (.46)
-------- -------- ------- ------- -------
Change in net asset value (.46) 1.00 2.26 .32 1.20
-------- -------- ------- ------- -------
Net asset value, end of year $ 13.20 $ 13.66 $ 12.66 $ 10.40 $ 10.08
======== ======== ======= ======= =======
TOTAL RETURN * (1.74)% 9.69% 25.94% 8.29% 20.06%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000) $130,149 $131,544 $61,820 $36,955 $32,830
Ratio of expenses to average net
assets 1.55% 1.58% 1.68% 1.69% 1.98%
Ratio of expenses, net of
reimbursement, to average net
assets 1.55% 1.58% 1.68% 1.69% 1.25%
Ratio of net investment income
to average net assets 3.05% 1.97% 2.60% 3.64% 5.48%
Portfolio turnover rate 38.69% 32.34% 19.74% 32.35% 25.24%
</TABLE>
*TOTAL RETURN DOES NOT REFLECT SALES COMMISIONS.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
Templeton Real Estate Securities Fund
Financial Highlights (cont.)
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
CLASS II
---------------
FOR THE PERIOD
MAY 1, 1995+
THROUGH
AUGUST 31, 1995
---------------
<S> <C>
Net asset value, beginning of period $12.25
------
Income from investment operations:
Net investment income .03
Net realized and unrealized gain .89
------
Total from investment operations .92
------
Net asset value, end of period $13.17
======
TOTAL RETURN * 7.51%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $1,823
Ratio of expenses to average net assets 2.26%**
Ratio of net investment income to average net assets 1.71%**
</TABLE>
*TOTAL RETURN DOES NOT REFLECT SALES COMMISSIONS OR THE DEFERRED CONTINGENT
SALES CHARGE. NOT ANNUALIZED FOR PERIODS OF LESS THAN ONE YEAR.
**ANNUALIZED.
+COMMENCEMENT OF OFFERING OF SALES.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
Templeton Real Estate Securities Fund
Investment Portfolio, August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCKS: 83.9%
- ------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Banking: 4.6%
Banque Nationale de Paris Fr. 30,000 $ 1,230,081
HSBC Holdings PLC H.K. 154,006 2,069,064
Royal Bank of Canada Can. 60,000 1,334,947
TR Financial Corp. U.S. 65,000 1,470,625
------------
6,104,717
- ------------------------------------------------------------------------------
Building Materials & Components: 2.0%
Byucksan Development Co. Ltd. Kor. 66,360 1,227,300
Pioneer International Ltd. Aus. 300,325 781,056
*Unicem Unione Cementi
Marchino Emiliane Itl. 28,000 189,312
*Unicem Unione Cementi
Marchino Emiliane, di Risp Itl. 139,580 480,106
------------
2,677,774
- ------------------------------------------------------------------------------
Business & Public Services: 2.0%
HGI Realty Inc. U.S. 107,520 2,701,440
- ------------------------------------------------------------------------------
Construction & Housing: 10.3%
*Atlantic Gulf Communities
Corp. U.S. 150,000 1,275,000
Dragados y Construcciones SA Sp. 50,000 799,314
Empresas ICA Sociedad
Controladora SA, ADR Mex. 85,000 1,020,000
Engle Homes U.S. 147,500 1,290,625
Kaufman & Broad Home Corp. U.S. 150,000 2,006,250
Raine PLC U.K. 630,000 283,484
*Schuler Homes Inc. U.S. 178,300 2,117,313
Sirti SPA Itl. 180,000 1,311,609
*++Sundance Homes Inc. U.S. 660,000 1,897,500
*U.S. Home Corp. U.S. 65,000 1,560,000
------------
13,561,095
- ------------------------------------------------------------------------------
Energy Sources: 1.6%
Societe Elf Aquitane SA Fr. 10,317 755,109
Valero Energy Corp. U.S. 60,700 1,388,513
------------
2,143,622
- ------------------------------------------------------------------------------
Financial Services: 1.0%
Federal National Mortgage
Assn. U.S. 7,000 667,625
India Fund, B Ind. 300,000 584,192
------------
1,251,817
- ------------------------------------------------------------------------------
Forest Products & Paper: 8.3%
Assidomaen AB Swe. 47,000 984,826
Fletcher Challenge Ltd., ADR N.Z. 90,000 2,452,500
Georgia-Pacific Corp. U.S. 20,000 1,800,000
</TABLE>
10
<PAGE>
Templeton Real Estate Securities Fund
Investment Portfolio, August 31, 1995 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Forest Products & Paper (cont.)
Mayr-Melnhof Karton AG Aus. 25,000 $ 1,559,398
Primex Forest Products Ltd. Can. 180,000 1,072,426
St. Joe Paper Co. U.S. 20,000 1,225,000
Weyerhaeuser Co. U.S. 40,000 1,840,000
------------
10,934,150
- ------------------------------------------------------------------------------
Insurance: 0.1%
Partnerre Ltd. Bmu. 3,000 83,625
- ------------------------------------------------------------------------------
Leisure & Tourism: 1.1%
Grand Hotel Holdings Ltd. H.K. 2,469,000 845,220
Oriental Hotel Public Co. Ltd.,
fgn. Thai. 187,400 547,767
------------
1,392,987
- ------------------------------------------------------------------------------
Merchandising: 1.2%
Wessel & Vett AS, C Den. 32,275 1,529,822
- ------------------------------------------------------------------------------
Metals & Mining: 2.2%
Bohler Uddeholm AG, 144a Aus. 11,500 829,822
Maanshan Iron & Steel Co. Ltd., H Chn. 3,520,000 586,591
Renison Goldfields Consolidated
Ltd. Aus. 350,000 1,460,076
------------
2,876,489
- ------------------------------------------------------------------------------
Multi-Industry: 1.6%
Cheung Kong Holdings Ltd. H.K. 400,000 1,984,240
Swire Pacific Ltd., A H.K. 25,000 187,314
------------
2,171,554
- ------------------------------------------------------------------------------
Real Estate: 46.2%
+American Health Properties Inc. U.S. 64,300 1,398,525
Bail Investissement Fr. 8,700 1,461,359
Beacon Properties Corp. U.S. 55,000 1,182,500
*++Canlan Investment Corp. Can. 595,600 2,217,837
Carr Realty Corp. U.S. 65,000 1,251,250
*Catellus Development Corp. U.S. 290,000 1,848,750
+CBL & Associates Properties Inc. U.S. 95,000 2,090,000
+Charles E. Smith Residential
Realty Inc. U.S. 80,000 1,830,000
Credit Foncier de France SA Fr. 50,004 1,337,151
+Federal Realty Investment Trust U.S. 33,000 721,875
+General Growth Properties U.S. 104,000 2,093,000
+Health Care Property Investors
Inc. U.S. 30,000 971,250
Home Properties Management Inc. U.S. 50,000 881,250
+IRT Property Co. U.S. 134,200 1,291,675
</TABLE>
11
<PAGE>
Templeton Real Estate Securities Fund
Investment Portfolio, August 31, 1995 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Real Estate (cont.)
+LTC Properties Inc. U.S. 226,000 $ 3,220,500
+Meditrust Inc. U.S. 70,400 2,314,400
+Merry Land & Investment Co. Inc. U.S. 65,000 1,397,500
+Nationwide Health Properties Inc. U.S. 61,000 2,386,625
New World Development Co. Ltd. H.K. 454,658 1,656,292
*Newhall Investment Properties U.S. 20,300 --
+Omega Healthcare Investors U.S. 57,184 1,472,480
Parkway Holdings Ltd. Sing. 418,000 976,608
*++Patten Corp. U.S. 1,136,139 4,260,521
+Pennsylvania Real Estate
Investment Trust, SBI U.S. 34,000 718,250
PT Jaya Properties, fgn. Indo. 250,000 796,934
Revenue Property Ltd. Can. 955,800 2,206,651
Rouse Co. U.S. 156,300 3,301,838
Ryoden Development Ltd. H.K. 3,650,000 886,449
+Security Capital Industrial Trust U.S. 74,222 1,187,552
+Security Capital Pacific Trust,
SBI U.S. 108,911 2,014,854
South West Property Trust Inc. U.S. 125,000 1,500,000
Sun Hung Kai Properties Ltd. H.K. 370,000 2,688,606
Taylor Woodrow PLC U.K. 656,177 1,181,053
*Union Valley Corp. U.S. 1,255 13
+Weeks Corp. U.S. 150,000 3,825,000
+Weingarten Realty Investors, SBI U.S. 31,100 1,111,825
Westfield Trust Units Aus. 754,285 1,326,679
------------
61,007,052
- -------------------------------------------------------------------------------
Telecommunications: 0.5%
Telecomunicacoes Brasileiras SA,
ADR, 144a Braz. 490 21,131
Telefonos de Mexico SA, L, ADR Mex. 20,000 655,000
------------
676,131
- -------------------------------------------------------------------------------
Transportation: 1.2%
Florida East Coast Industries Inc. U.S. 11,000 774,125
Peninsular & Oriental Steam
Navigation Co. U.K. 100,000 861,159
------------
1,635,284
------------
TOTAL COMMON STOCKS (cost $108,469,610) 110,747,559
- -------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
Templeton Real Estate Securities Fund
Investment Portfolio, August 31, 1995 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------
PREFERRED STOCKS: 1.9%
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
American Health Properties
Psychiatric Group, pfd. U.S. 6,430 $ 104,488
Baumax AG, pfd. Aus. 25,000 956,463
Nacional Financiera SA,
11.25%, conv.,
pfd., 05/15/98 Mex. 15,700 531,838
Telebras-Telecomunicacoes
Brasileiras SA, pfd., ADR Braz. 21,500 935,250
------------
TOTAL PREFERRED STOCKS (cost
$2,858,693) 2,528,039
- -------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY**
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
BONDS: 5.2%
- -------------------------------------------------------------------------------
Empresas ICA Sociedad
Controladora SA, 5.00%,
conv., 3/15/04 U.S. 3,500,000 2,082,500
Industrial Credit &
Investment Corp., of
India, 2.50%,
conv., 4/03/00 U.S. 1,000,000 800,000
Industrial Credit &
Investment Corp. of
India, conv., 4/03/00,
144a U.S. 200,000 160,000
National Power PLC, 6.25%,
9/23/08 U.K. 833,000 1,576,868
Revenue Properties Ltd.,
6.00%, conv., 3/01/04 U.S. 1,400,000 1,150,625
South West Property Trust
Inc., 8.00%,
conv., 1/15/03 U.S. 250,000 301,250
U.S. Treasury Note,
7.875%, 2/15/96 U.S. 800,000 807,752
------------
TOTAL BONDS (cost $8,505,524) 6,878,995
- -------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 8.9% (cost
$11,683,676)
- -------------------------------------------------------------------------------
U S Treasury Bills, 5.26%
to 5.41% with
maturities to 10/19/95 U.S. 11,723,000 11,685,360
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS: 99.9% (cost
$131,517,503) 131,839,953
OTHER ASSETS, LESS LIABILITIES: 0.1% 132,686
------------
TOTAL NET ASSETS: 100.0% $131,972,639
============
</TABLE>
*NON-INCOME PRODUCING.
**CURRENCY OF COUNTRIES INDICATED.
+REAL ESTATE INVESTMENT TRUST (22.8% OF TOTAL NET ASSETS).
++SEE NOTE 5.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
Templeton Real Estate Securities Fund
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1995
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (identified cost
$131,517,503) $131,839,953
Cash 5,185
Receivables:
Investment securities sold 2,218,449
Fund shares sold 292,213
Dividends and interest 563,614
------------
Total assets 134,919,414
------------
Liabilities:
Payables:
Investment securities purchased 2,173,988
Fund shares redeemed 525,332
Accrued expenses 247,455
------------
Total liabilities 2,946,775
------------
Net assets, at value $131,972,639
============
Net assets consist of:
Undistributed net investment income $ 2,945,004
Net unrealized appreciation 322,450
Accumulated net realized loss (2,292,776)
Net capital paid in on shares of beneficial interest 130,997,961
------------
Net assets, at value $131,972,639
============
Class I:
Net asset value per share ($130,149,372 / 9,861,117
shares outstanding) $ 13.20
============
Maximum offering price
($13.20 / 94.25%) $ 14.00
============
Class II:
Net asset value per share
($1,823,267 / 138,496 shares outstanding) $ 13.17
============
Maximum offering price
($13.17 / 99.00%) $ 13.30
============
</TABLE>
STATEMENT OF OPERATIONS
for the year ended August 31, 1995
<TABLE>
<S> <C> <C>
Investment income:
(net of $190,935
foreign taxes withheld)
Dividends $ 4,303,077
Interest 1,678,206
-----------
Total income $ 5,981,283
Expenses:
Management fees (Note 3) 974,779
Administrative fees (Note 3) 194,956
Distribution fees (Note 3)
Class I 325,533
Class II 2,642
Transfer agent fees (Note 3) 240,500
Custodian fees 34,000
Reports to shareholders 118,944
Audit fees 15,500
Legal fees (Note 3) 18,500
Registration and filing fees 74,500
Trustees' fees and expenses 16,000
Other 3,453
-----------
Total expenses 2,019,307
-----------
Net investment income 3,961,976
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 2,702,404
Foreign currency transactions (51,458)
-----------
2,650,946
Net unrealized depreciation on investments (9,032,322)
-----------
Net realized and unrealized loss (6,381,376)
-----------
Net decrease in net assets resulting from
operations $(2,419,400)
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
Templeton Real Estate Securities Fund
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended August 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 3,961,976 $ 1,928,443
Net realized gain on investment and foreign
currency transactions 2,650,946 2,178,205
Net unrealized appreciation (depreciation) (9,032,322) 2,206,703
------------ ------------
Net increase (decrease) in net assets resulting
from operations (2,419,400) 6,313,351
Distributions to shareholders
from net investment income
Class I (2,183,210) (1,220,841)
Fund share transactions (Note 2)
Class I 3,224,436 64,630,790
Class II 1,807,089 --
------------ ------------
Net increase in net assets 428,915 69,723,300
Net assets:
Beginning of year 131,543,724 61,820,424
------------ ------------
End of year $131,972,639 $131,543,724
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
Templeton Real Estate Securities Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Templeton Real Estate Securities Fund (the Fund), is a Massachusetts business
trust and an open-end, diversified management investment company registered un-
der the Investment Company Act of 1940. The following summarizes the Fund's
significant accounting policies.
a. Securities Valuations:
Securities listed or traded on a recognized national or foreign stock exchange
or NASDAQ are valued at the last reported sales prices on the principal ex-
change on which the securities are traded. Over-the-counter securities and
listed securities for which no sale is reported are valued at the mean between
the last current bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
and approved in good faith by the Board of Trustees.
b. Foreign Currency Transactions:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the rate of exchange of
such currencies against U.S. dollars on the date of valuation. Purchases and
sales of portfolio securities and income items denominated in foreign curren-
cies are translated into U.S. dollar amounts on the respective dates of such
transactions. When the Fund purchases or sells foreign securities it customar-
ily enters into a foreign exchange contract to minimize foreign exchange risk
between the trade date and the settlement date of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of for-
eign currencies, currency gains or losses realized between the trade and set-
tlement dates on securities transactions, the differences between the amounts
of dividends, interest, and foreign withholding taxes recorded on the Fund's
books, and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities at the end
of the fiscal period, resulting from changes in the exchange rates.
c. Income Taxes:
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all its
taxable income to its shareholders. Therefore, no provision has been made for
income taxes.
d. Security Transactions, Investment Income, Distributions and Expenses:
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Certain dividend income on foreign securi-
ties is recorded as soon as information is available to the Fund. Interest in-
come and estimated expenses are accrued daily. Distributions to shareholders,
which are determined in accordance with income tax regulations, are recorded on
the ex-dividend date.
16
<PAGE>
Templeton Real Estate Securities Fund
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
2. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Effective May 1, 1995, the Fund offered two classes of shares: Class I shares
and Class II shares. Shares of each class are identical except for their ini-
tial sales load, a contingent deferred sales charge on Class II shares, distri-
bution fees, and voting rights on matters affecting a single class. All Fund
shares outstanding before May 1, 1995 were designated as Class I shares. At Au-
gust 31, 1995, there were an unlimited number of shares of beneficial interest
authorized ($0.01 par value). Transactions in the Fund's shares were as fol-
lows:
<TABLE>
<CAPTION>
CLASS I
--------------------------------------------------
YEAR ENDED YEAR ENDED
AUGUST 31, 1995 AUGUST 31, 1994
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 3,107,103 $ 39,860,934 5,960,485 $ 81,011,479
Shares issued on
reinvestment
of distributions 145,407 1,858,319 75,358 1,001,203
Shares redeemed (3,021,430) (38,494,817) (1,289,281) (17,381,892)
---------- ------------ ---------- ------------
Net increase 231,080 $ 3,224,436 4,746,562 $ 64,630,790
========== ============ ========== ============
<CAPTION>
CLASS II
------------------------
FOR THE PERIOD
MAY 1, 1995
THROUGH
AUGUST 31, 1995
------------------------
SHARES AMOUNT
---------- ------------
<S> <C> <C>
Shares sold 139,647 $ 1,822,153
Shares redeemed (1,151) (15,064)
---------- ------------
Net increase 138,496 $ 1,807,089
========== ============
</TABLE>
17
<PAGE>
Templeton Real Estate Securities Fund
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Certain officers of the Fund are also directors or officers of Templeton,
Galbraith & Hansberger Ltd. (TGH), Templeton Global Investors, Inc. (TGII),
Franklin Templeton Distributors, Inc. (FTD), and Franklin Templeton Investor
Services, Inc. (FTIS), the Fund's investment manager, administrative manager,
principal underwriter, and transfer agent, respectively. The Fund pays monthly
an investment management fee to TGH equal, on an annual basis, to 0.75% of the
average daily net assets of the Fund. The Fund pays TGII monthly a fee of 0.15%
per annum on the first $200 million of the Fund's average daily net assets,
0.135% of the next $500 million, 0.10% of the next $500 million, and 0.075% per
annum of such average net assets in excess of $1.2 billion. For the year ended
August 31, 1995, FTD received net commissions of $159,475 from the sale of the
Fund's shares and FTIS received fees of $240,500.
Under the distribution plans for Class I and Class II shares, the Fund reim-
burses FTD quarterly for FTD's costs and expenses in connection with any activ-
ity that is primarily intended to result in a sale of Fund shares, subject to a
maximum of 0.25% and 1.00% per annum of the average daily net assets of Class I
and Class II shares, respectively. Under the Class I distribution plan, costs
and expenses exceeding the maximum may be reimbursed in subsequent periods. At
August 31, 1995, unreimbursed expenses amount to $30,457. Class II shares re-
deemed within 18 months are subject to a contingent deferred sales charge. Con-
tingent deferred sales charges of $6,024 were paid to FTD for the year ended
August 31, 1995.
An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel
for the Fund, which firm received fees of $18,500 for the year ended August 31,
1995.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the
year ended August 31, 1995 aggregated $69,128,735 and $43,704,074, respective-
ly. The cost of securities for federal income tax purposes is $131,047,691. Re-
alized gains and losses are reported on an identified cost basis.
At August 31, 1995, the aggregate gross unrealized appreciation and deprecia-
tion of portfolio securities, based on cost for federal income tax purposes,
was as follows:
<TABLE>
<S> <C>
Unrealized appreciation $ 13,019,630
Unrealized depreciation (12,227,368)
------------
Net unrealized appreciation $ 792,262
============
</TABLE>
5. HOLDING OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
The Investment Company Act of 1940 defines "affiliated companies" as invest-
ments in portfolio companies in which the Fund owns 5% or more of the outstand-
ing voting securities. Investments in "affiliated companies" at August 31, 1995
amounted to $8,375,858.
6. CAPITAL LOSS CARRYFORWARD
At August 31, 1995, the Fund had tax basis capital losses of $3,300,000 which
may be carried over to offset future capital gains. Of this amount, $1,000,000
arose from the merger with National Real Estate Fund on December 14, 1990. Such
losses expire in the year ending August 31, 2000.
18
<PAGE>
Templeton Real Estate Securities Fund
Independent Auditor's Report
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders
Templeton Real Estate Securities Fund
We have audited the accompanying statement of assets and liabilities, including
the investment portfolio, of Templeton Real Estate Securities Fund as of August
31, 1995, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for the periods indicated in the accompany-
ing financial statements. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to ex-
press an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial high-
lights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of Au-
gust 31, 1995, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Tem-
pleton Real Estate Securities Fund as of August 31, 1995, the results of its
operations, the changes in its net assets and the financial highlights for the
periods indicated, in conformity with generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
New York, New York
September 29, 1995
19
<PAGE>
TEMPLETON REAL
ESTATE SECURITIES
FUND
Auditors
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, New York 10017-2416
PRINCIPAL UNDERWRITER:
Franklin Templeton
Distributors, Inc.
700 Central Avenue
St. Petersburg,
Florida 33701-3628
Account Services
1-800-354-9191
Sales Information
1-800-292-9293
This report must be preceded or accompanied by a current prospectus of the
Templeton Real Estate Securities Fund, which contains more complete information
including charges and expenses.
Like any investment in securities, the value of the Fund's portfolio will be
subject to the risk of loss from market, currency, economic, political, and
other factors, as well as investment decisions by the investment manager which
will not always be profitable or wise. The Fund and its investors are not
protected from such losses by the investment manager. Therefore, investors who
cannot accept this risk should not invest in shares of the Fund.
To ensure the highest quality of service, telephone calls to or from our
service departments may be monitored, recorded, and accessed. These calls can
be determined by the presence of a regular beeping tone.
TL410 A95 10/95
[LOGO OF RECYCLED PAPER APPEARS HERE]
TEMPLETON
REAL
ESTATE
SECURITIES
FUND
Annual Report
August 31, 1995
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
