<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.
April 15, 1996
Dear Shareholder:
We are pleased to bring you the semi-annual report of the Templeton Real Estate
Securities Fund for the period ended February 29, 1996.
The six months under review were a difficult time for global real estate
securities markets. Real estate prices were lackluster compared with other asset
classes, and U.S. real estate investments underperformed the overall U.S. equity
market, which surged to historically high levels. Within this environment,
the Fund's Class I Shares provided a six-month total return of 3.66%, as
discussed in the Performance Summary on page 6.
In the U.S., real estate investment trusts (REITs) oriented toward retail stores
account for the largest segment of publicly traded REITs. Consequently, weak
sales at traditionally strong-performing chains such as The Limited, and the
questionable financial stability of historically leading retailers such as
Kmart, caused uncertainty among investors and dampened enthusiasm for REITs
1
<PAGE>
as a whole. The effect on the Fund's performance was minimal, however, because
only one of our top ten holdings (Rouse Corp.) owned a significant amount of
retail property.
Although REITs underperformed the overall U.S. equity market during the period,
they continued to offer diversification and attractive yields. Specifically,
REITs provided high yields relative to 10-year U.S. Treasury bonds. On February
29, 1996, their average yield was 7.24%, compared with the 10-year U.S.
Treasury's yield of 6.13%./1,2/ We took advantage of this and increased our U.S.
REIT exposure, from 22.8% of the Fund's total net assets on August 31, 1995 to
33.0% on February 29, 1996.
With regard to foreign holdings, Asian emerging markets continued to intrigue us
for several reasons. First and foremost, valuations appeared compelling, though
not to the extent of those we witnessed several months ago. Additionally, many
of the Fund's property stocks offered higher dividend yields than other Asian
equities. Asia's rapid movement toward urbanization also appeals to us. Many
experts believe that urban population in seven
1. Source: National Association of Real Estate Investment Trusts
2. The value of Treasuries, if held to maturity, is fixed; principal is
guaranteed and interest is fixed. A REIT's investment return and share price
will fluctuate with market conditions.
[GRAPH APPEARS HERE]
TEMPLETON REAL ESTATE
SECURITIES FUND
Geographic Distribution on 2/29/96
Based on Total Net Assets
United States Stocks 58.6%
Asian Stocks 14.4%
European Stocks 12.3%
Australian &
New Zealand Stocks 2.5%
Latin American Stocks 1.1%
Other Stocks 2.7%
Fixed-Income Securities 2.0%
Short-Term Obligations &
Other Net Assets 6.4%
major countries, including Hong Kong, Singapore, Malaysia, Thailand, Indonesia,
China, and the Philippines, will increase by more than 80% during the next 15
years. We feel that several of the Fund's investments in Hong Kong, China, and
Indonesia are well-positioned to benefit from what should be significantly
greater demand for residential housing throughout Asia.
In Europe, we focused our attention primarily on France, where the real estate
market has been weak for the past
2
<PAGE>
five years. We initiated a position in Unibail (Union du Credit Bail
Immobilier), a French real estate company that owns office properties in Paris
and the surrounding suburbs. Due to its superior management and properties,
Unibail's 1995 earnings increased by 10%, impressive in a weak market. We
continue to like the fundamentals and prospects of Bail Investissement, another
French real estate company, with a sound balance sheet and a strong dividend
yield of 8.1%. We originally purchased the company's shares at a substantial
discount to the book value of its properties, and in our opinion, the stock
appears undervalued partly because the company's financial statements are
disclosed only in French, possibly deterring other foreign investors.
This discussion reflects the strategies we employed for the Fund during the six-
month period, and includes our opinions as of the close of the period. Since
economic and market conditions are constantly changing, our strategies and our
evaluations, conclusions and decisions regarding portfolio holdings may change
as new circumstances arise. Although past performance of a specific investment
or sector cannot guarantee future performance, such
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
TEMPLETON REAL ESTATE
SECURITIES FUND
Top 10 Holdings on 2/29/96 Based on Total Net Assets
% of Total
Company, Industry, Country Net Assets
<S> <C>
Weeks Corp.; Real Estate, United States 4.3%
Patten Corp.; Real Estate, United States 3.9%
LTC Properties Inc.; Real Estate, United States 2.9%
Sun Hung Kai Properties Ltd.; Real Estate, Hong Kong 2.6%
CBL & Associates Properties Inc.; Real Estate, United States 2.6%
Rouse Co.; Real Estate, United States 2.5%
Cheung Kong Holdings Ltd.; Multi-Industry, Hong Kong 2.2%
Nationwide Health Properties Inc.; Real Estate, United States 2.0%
General Growth Properties; Real Estate, United States 1.9%
Security Capital Pacific Trust, SBI; Real Estate, United States 1.8%
</TABLE>
For a complete list of portfolio holdings, please see page 10 of this report.
information can be useful in analyzing securities we purchase or sell for the
Fund.
Looking forward, we are optimistic about the potential the Fund offers for long-
term growth. Although performances of U.S. real estate stocks were weak relative
to other equity investments during the period, we believe
3
<PAGE>
that real estate prices appear extremely undervalued compared with valuations in
the overall equity market.
The chart below provides an interesting comparison between the prices of single-
family homes in the U.S. and the Standard & Poor's 500 Stock Index (S&P 500)
(R). As you can see, the disparity in valuations has become more pronounced
since 1982, when the S&P 500 began to perform strongly. While single-family
homes do not represent an asset class in which one can purchase stock, we are
nonetheless bullish on the potential investment prospects for many U.S. real
estate companies.
We are also optimistic about the Fund's potential to continue earning the above-
average dividend yields typically associated with investing in real estate
stocks. While long-term capital appreciation remains our primary objective,
dividend yields represent an important element of the Fund. In a bull market,
they can easily be overlooked, but in more uncertain times, dividend yields can
be crucial to overall investment performance.
There are, of course, special risks involved with global investing related to
market, currency, economic, political, and other factors. Developing markets
involve similar
[GRAPH APPEARS HERE SHOWING COMPARISON BETWEEN STANDARD AND POOR'S 500 STOCK
INDEX AND THE U.S. SINGLE FAMILY HOMES MEDIAN SALE PRICE]
STANDARD & POOR'S 500 STOCK INDEX(R) vs. U.S. SINGLE-FAMILY HOMES MEDIAN SALE
PRICE (1/31/66-2/29/96)
1/66 9/70 5/75 1/80 9/84 5/89 1/94 2/96
*Source: National Association of Realtors (Washington D.C.)
4
<PAGE>
but heightened risks, in addition to risks associated with the relatively small
size and lesser liquidity of these markets. Since 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.
In closing, we would like to mention that the Board of Directors has approved a
proposal to change the Fund's name. Although its investment objective will
remain the same, the Fund will be known as the Templeton Global Real Estate
Fund, effective May 15, 1996, to better reflect the securities held within its
portfolio.
We appreciate your participation in the Fund and look forward to serving your
investment needs in the years to come.
Sincerely,
/s/ Mark Holowesko
Mark Holowesko, CFA
President
Templeton Real Estate Securities Fund
/s/ Jeffrey A. Everett
Jeffrey A. Everett, CFA
Portfolio Manager
Templeton Real Estate Securities Fund
5
<PAGE>
PERFORMANCE SUMMARY
CLASS I SHARES
The Templeton Real Estate Securities Fund Class I Shares reported a total return
of 3.66% for the six-month period ended February 29, 1996. Total return measures
the change in value of an investment, assuming reinvestment of dividends, and
does not include the initial sales charge. While we expect market volatility in
the short term, we have always maintained a long-term perspective when managing
the Fund, and we encourage shareholders to view their investments in a similar
manner. As you can see from the table to the right, the Fund has delivered a
cumulative total return of more than 63% since inception on September 12, 1989.
As measured by net asset value, the price of the Fund's Class I Shares increased
from $13.20 on August 31, 1995 to $13.29 on February 29, 1996. During this time,
shareholders received 37.5 cents ($0.375) per share in dividend income.
Of course, past performance is not predictive of future results, and dividends
will vary depending on income earned by the Fund.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEMPLETON REAL ESTATE
SECURITIES FUND -- CLASS I SHARES
Periods Ended 2/29/96
Since
Inception
One-Year Five-Year (9/12/89)
<S> <C> <C> <C>
Cumulative
Total Return/1/ 11.79% 61.33% 63.77%
Average Annual
Total Return/2/ 5.36% 8.74% 6.94%
</TABLE>
1. Cumulative total return represents the change in value of an investment over
the indicated periods, and does not include the maximum 5.75% initial sales
charge.
2. Average annual total return represents the average annual change in value of
an investment over the indicated periods, and includes the maximum 5.75% initial
sales charge.
All total return figures assume reinvestment of dividends and capital gains when
paid. Prior to July 1, 1992, Class I Shares were offered at a higher initial
sales charge. Thus, actual total return to purchasers of shares during that
period would have been somewhat lower than noted above. Investment return and
principal value will fluctuate with market conditions, currencies and the
economic and political climates 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.
6
<PAGE>
PERFORMANCE SUMMARY
CLASS II SHARES
The Templeton Real Estate Securities Fund Class II Shares reported a total
return of 3.25% for the six-month period ended February 29, 1996. Total return
measures the change in value of an investment, assuming reinvestment of
dividends, and does not include the initial sales charge.
As measured by net asset value, the price of the Fund's Class II Shares
increased from $13.17 on August 31, 1995 to $13.23 on February 29, 1996. During
this time, shareholders received 35.3 cents ($0.353) per share in dividend
income. Of course, past performance is not predictive of future results, and
dividends will vary depending on income earned by the Fund.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
TEMPLETON REAL ESTATE
SECURITIES FUND -- CLASS II SHARES
Periods Ended 2/29/96
Since
Inception
Six-Month (5/1/95)
<S> <C> <C>
Cumulative
Total Return/1/ 3.25% 11.01%
Aggregate
Total Return/2/ 1.20% 8.80%
</TABLE>
1. Cumulative total return represents the change in value of an investment over
the indicated periods. It does not include the 1.0% initial sales charge or the
1.0% Contingent Deferred Sales Charge (CDSC), applicable to shares redeemed
within the first 18 months of investment.
2. Aggregate total return represents the change in value of an investment over
the indicated periods. It includes the 1.0% initial sales charge and 1.0% CDSC,
applicable to shares redeemed within the first 18 months of investment. Since
Class II Shares have been in existence for less than one year, average annual
total returns are not provided.
All total return figures assume reinvestment of dividends and capital gains when
paid. Investment return and principal value will fluctuate with market
conditions, currencies and the economic and political climates 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--CLASS I
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED AUGUST 31
FEBRUARY 29, 1996 ---------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991
----------------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value beginning of period $ 13.20 $ 13.66 $ 12.66 $ 10.40 $ 10.08 $ 8.88
-------- -------- -------- ------- ------- -------
Income from investment operations:
Net investment income .14 .39 .22 .25 .37 .53
Net realized and unrealized gain (loss) .32 (.64) 1.00 2.36 .43 1.13
-------- -------- -------- ------- ------- -------
Total from investment operations .46 (.25) 1.22 2.61 .80 1.66
-------- -------- -------- ------- ------- -------
Distributions:
Dividends from net investment income (.37) (.21) (.22) (.35) (.48) (.37)
Distributions from net realized gains -- -- -- -- -- (.09)
-------- -------- -------- ------- ------- -------
Total distributions (.37) (.21) (.22) (.35) (.48) (.46)
-------- -------- -------- ------- ------- -------
Change in net asset value .09 (.46) 1.00 2.26 .32 1.20
-------- -------- -------- ------- ------- -------
Net asset value, end of period $ 13.29 $ 13.20 $ 13.66 $ 12.66 $ 10.40 $ 10.08
======== ======== ======== ======= ======= =======
TOTAL RETURN* 3.66% (1.74)% 9.69% 25.94% 8.29% 20.06%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $125,279 $130,149 $131,544 $61,820 $36,955 $32,830
Ratio of expenses to average net assets 1.49%** 1.55% 1.58% 1.68% 1.69% 1.98%
Ratio of expenses, net of reimbursement, to
average net assets 1.49%** 1.55% 1.58% 1.68% 1.69% 1.25%
Ratio of net investment income to average
net assets 2.12%** 3.05% 1.97% 2.60% 3.64% 5.48%
Portfolio turnover rate 11.92% 38.69% 32.34% 19.74% 32.35% 25.24%
Average commission rate
paid (per share) $ .0921
</TABLE>
*TOTAL RETURN DOES NOT REFLECT SALES COMMISSIONS. NOT ANNUALIZED FOR PERIODS
OF LESS THAN ONE YEAR.
**ANNUALIZED.
8
<PAGE>
TEMPLETON REAL ESTATE SECURITIES FUND
Financial Highlights (cont.)
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE--CLASS II
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
SIX MONTHS FOR THE PERIOD
ENDED MAY 1, 1995+
FEBRUARY 29, 1996 THROUGH
(UNAUDITED) AUGUST 31, 1995
----------------- ---------------
<S> <C> <C>
Net asset value, beginning of period $13.17 $12.25
------ ------
Income from investment operations:
Net investment income .16 .03
Net realized and unrealized gain .25 .89
------ ------
Total from investment operations .41 .92
------ ------
Distributions to shareholders from net in-
vestment income (.35) --
------ ------
Change in net asset value .06 .92
------ ------
Net asset value, end of period $13.23 $13.17
====== ======
TOTAL RETURN* 3.25% 7.51%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $3,247 $1,823
Ratio of expenses to average net assets 2.17%** 2.26%**
Ratio of net investment income to average
net assets 1.38%** 1.71%**
Portfolio turnover rate 11.92% 38.69%
Average commission rate paid (per share) $.0921
</TABLE>
*TOTAL RETURN DOES NOT REFLECT SALES COMMISSIONS OR THE CONTINGENT DEFERRED
SALES CHARGE. NOT ANNUALIZED FOR PERIODS OF LESS THAN ONE YEAR.
**ANNUALIZED.
+COMMENCEMENT OF SALES.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
TEMPLETON REAL ESTATE SECURITIES FUND
Investment Portfolio, February 29, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS: 90.4%
- -------------------------------------------------------------------------------
Banking: 2.9%
Banque Nationale de Paris Fr. 30,000 $ 1,160,473
HSBC Holdings PLC H.K. 55,612 891,990
TR Financial Corp. U.S. 65,000 1,698,125
------------
3,750,588
- -------------------------------------------------------------------------------
Building Materials & Components: 1.2%
Byucksan Development Co. Ltd. Kor. 66,360 992,156
*Unione Cementi Marchino Emiliane Itl. 28,000 180,812
*Unione Cementi Marchino Emiliane,
di Risp Itl. 139,580 388,930
------------
1,561,898
- -------------------------------------------------------------------------------
Business & Public Services: 1.8%
HGI Realty Inc. U.S. 107,520 2,284,800
- -------------------------------------------------------------------------------
Construction & Housing: 8.3%
*Atlantic Gulf Communities Corp. U.S. 150,000 937,500
Dragados y Construcciones SA Sp. 50,000 702,832
Empresas ICA Sociedad Controladora
SA, ADR Mex. 10,000 116,250
Engle Homes U.S. 147,500 1,438,125
Kaufman & Broad Home Corp. U.S. 150,000 2,306,250
Raine PLC U.K. 630,000 135,150
*Schuler Homes Inc. U.S. 235,000 1,821,250
Sirti SPA Itl. 180,000 1,144,667
*++Sundance Homes Inc. U.S. 690,000 1,466,250
Toda Corp. Jpn. 70,000 632,791
------------
10,701,065
- -------------------------------------------------------------------------------
Energy Sources: 1.7%
Societe Elf Aquitane SA Fr. 10,317 711,807
Valero Energy Corp. U.S. 60,700 1,434,038
------------
2,145,845
- -------------------------------------------------------------------------------
Financial Services: 1.7%
Federal National Mortgage Assn. U.S. 52,000 1,644,500
*India Fund, B Ind. 300,000 537,840
------------
2,182,340
- -------------------------------------------------------------------------------
Forest Products & Paper: 3.9%
Assidomaen AB Swe. 47,000 1,054,889
Fletcher Challenge Ltd. Forestry
Division, ADR N.Z. 12,769 180,362
Georgia-Pacific Corp. U.S. 20,000 1,262,500
Mayr-Melnhof Karton AG Aust. 25,000 1,249,940
St. Joe Paper Co. U.S. 20,000 1,220,000
------------
4,967,691
- -------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
TEMPLETON REAL ESTATE SECURITIES FUND
Investment Portfolio, February 29, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Insurance: 0.1%
Partnerre Ltd. Bmu. 3,000 $ 91,125
- -------------------------------------------------------------------------------
Leisure & Tourism: 1.6%
Danubius Hotel and Spa Hun. 60,000 642,593
Grand Hotel Holdings Ltd. H.K. 2,469,000 966,087
Oriental Hotel Public Co. Ltd.,
fgn. Thai. 93,700 466,456
------------
2,075,136
- -------------------------------------------------------------------------------
Merchandising: 0.4%
Wessel & Vett AS, C Den. 12,000 549,127
- -------------------------------------------------------------------------------
Metals & Mining: 2.6%
*Bohler Uddeholm AG, 144A Aust. 11,500 885,257
Maanshan Iron & Steel Co. Ltd., H Chn. 3,520,000 628,336
RGC Ltd. Aus. 350,000 1,787,284
------------
3,300,877
- -------------------------------------------------------------------------------
Multi-Industry: 2.1%
Cheung Kong Holdings Ltd. H.K. 400,000 2,781,047
- -------------------------------------------------------------------------------
Real Estate: 60.2%
+American Health Properties Inc. U.S. 64,300 1,494,975
Bail Investissement Fr. 8,700 1,510,102
Beacon Properties Corp U.S. 55,000 1,443,750
*++Canlan Investment Corp. Can. 595,600 1,910,296
Carramerica Realty Corp. U.S. 65,000 1,600,625
*Catellus Development Corp. U.S. 290,000 2,211,250
+CBL & Associates Properties Inc. U.S. 160,000 3,300,000
+Charles E. Smith Residential
Realty Inc. U.S. 80,000 1,880,000
Credit Foncier de France SA Fr. 50,004 727,089
+Equity Residential Properties U.S. 50,000 1,587,500
+Federal Realty Investment Trust,
SBI U.S. 33,000 742,500
+General Growth Properties U.S. 104,000 2,392,000
+Health Care Property Investors
Inc. U.S. 30,000 1,005,000
Home Properties Management Inc. U.S. 50,000 950,000
+IRT Property Co. U.S. 134,200 1,224,575
+LTC Properties Inc. U.S. 226,000 3,729,000
+Meditrust Inc., SBI U.S. 70,400 2,340,800
+Merry Land & Investment Co. Inc. U.S. 65,000 1,478,750
+Nationwide Health Properties Inc. U.S. 61,000 2,562,000
New Asia Realty and Trust Co.
Ltd., A H.K. 388,000 1,139,272
New World Development Co. Ltd. H.K. 454,658 2,217,155
*New World Infrastructure Ltd. H.K. 757 1,630
*Newhall Investment Properties U.S. 20,300 --
</TABLE>
11
<PAGE>
TEMPLETON REAL ESTATE SECURITIES FUND
Investment Portfolio, February 29, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Real Estate (cont.)
+Omega Healthcare Investors U.S. 57,184 $ 1,658,327
Parkway Holdings Ltd. Sing. 418,000 1,142,529
++Patten Corp. U.S. 1,136,139 4,970,608
+Pennsylvania Real Estate
Investment Trust, SBI U.S. 34,000 705,500
+Post Properties Inc. U.S. 67,000 2,177,500
PT Jaya Properties, fgn. Indo. 500,000 1,726,743
Revenue Property Ltd. Can. 955,800 1,463,119
Rouse Co. U.S. 156,300 3,145,538
Ryoden Development Ltd. H.K. 3,650,000 1,003,279
+Security Capital Industrial
Trust, SBI U.S. 86,592 1,547,832
+Security Capital Pacific Trust,
SBI U.S. 108,911 2,341,587
+South West Property Trust Inc. U.S. 150,000 2,137,500
+Summit Properties Inc. U.S. 75,000 1,518,750
Sun Hung Kai Properties Ltd. H.K. 370,000 3,302,332
Taylor Woodrow PLC U.K. 656,177 1,498,144
*Union du Credit Bail Immobilier
Unibail Fr. 14,700 1,583,420
*Union Valley Corp. U.S. 1,255 13
+Weeks Corp. U.S. 210,000 5,486,250
+Weingarten Realty Investors, SBI U.S. 31,100 1,166,250
Westfield Trust Aus. 754,285 1,326,210
------------
77,349,700
- -------------------------------------------------------------------------------
Telecommunications: 0.5%
Telecomunicacoes Brasileiras SA,
ADR, 144A Braz. 490 25,725
Telefonos de Mexico SA, L, ADR Mex. 20,000 610,000
------------
635,725
- -------------------------------------------------------------------------------
Transportation: 1.4%
Florida East Coast Industries Inc. U.S. 11,000 959,750
Peninsular & Oriental Steam
Navigation Co. U.K. 100,000 801,397
------------
1,761,147
------------
TOTAL COMMON STOCKS (cost $109,339,188) 116,138,111
- -------------------------------------------------------------------------------
PREFERRED STOCKS: 1.2%
- -------------------------------------------------------------------------------
American Health Properties
Psychiatric Group, pfd. U.S. 6,430 98,058
Baumax AG, pfd. Aust. 25,000 957,401
Nacional Financiera SA, 11.25%,
conv., pfd., 5/15/98 Mex. 15,700 510,250
------------
TOTAL PREFERRED STOCKS (cost $1,147,979) 1,565,709
- -------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
TEMPLETON REAL ESTATE SECURITIES FUND
Investment Portfolio, February 29, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
INDUSTRY ISSUE COUNTRY LOCAL CURRENCY** VALUE
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
BONDS: 2.0%
- -----------------------------------------------------------------------------------------------------------------------
National Power PLC, 6.25%, 9/23/08 U.K. 833,000 $ 1,445,538
Revenue Properties, 6.00%, conv., 3/01/04 U.S. 1,400,000 1,120,000
------------
TOTAL BONDS (cost $3,855,216) 2,565,538
- -----------------------------------------------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 6.5% (cost $8,295,678)
- -----------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bills, 4.53% to 4.97% with
maturities to 5/02/96 U.S. 8,328,000 8,294,762
- -----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS: 100.1% (cost $122,638,061) 128,564,120
OTHER ASSETS, LESS LIABILITIES: (0.1)% (37,880)
------------
TOTAL NET ASSETS: 100.0% $128,526,240
============
</TABLE>
*NON-INCOME PRODUCING.
**CURRENCY OF COUNTRIES INDICATED.
+REAL ESTATE INVESTMENT TRUST (33.0% 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
February 29, 1996 (unaudited)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value
(identified cost $122,638,061) $128,564,120
Cash 1,926
Receivables:
Investment securities sold 7,000
Fund shares sold 159,946
Dividends and interest 459,752
------------
Total assets 129,192,744
------------
Liabilities:
Payables:
Investment securities purchased 94,020
Fund shares redeemed 374,771
Accrued expenses 197,713
------------
Total liabilities 666,504
------------
Net assets, at value $128,526,240
============
Net assets consist of:
Undistributed net investment income $ 586,735
Net unrealized appreciation 5,926,059
Accumulated net realized loss (4,731,686)
Net capital paid in on shares of beneficial interest 126,745,132
------------
Net assets, at value $128,526,240
============
Class I:
Net asset value per share
($125,278,875 / 9,428,454
shares outstanding) $ 13.29
============
Maximum offering price
($13.29 / 94.25%) $ 14.10
============
Class II:
Net asset value per share ($3,247,365 / 245,458
shares outstanding) $ 13.23
============
Maximum offering price ($13.23 / 99.00%) $ 13.36
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF OPERATIONS
for the six months ended February 29, 1996 (unaudited)
<TABLE>
<S> <C> <C>
Investment income:
(net of $34,822
foreign taxes withheld)
Dividends $ 1,903,759
Interest 415,644
-----------
Total income $2,319,403
Expenses:
Management fees (Note 3) 482,059
Administrative fees (Note 3) 96,412
Distribution fees (Note 3)
Class I 158,889
Class II 11,132
Transfer agent fees (Note 3) 97,000
Custodian fees 12,000
Reports to shareholders 49,000
Audit fees 8,500
Legal fees (Note 3) 9,500
Registration and filing fees 28,000
Trustees' fees and expenses 7,000
Other 3,491
-----------
Total expenses 962,983
----------
Net investment income 1,356,420
Realized and unrealized
gain (loss):
Net realized gain (loss) on:
Investments (2,439,529)
Foreign currency transactions 619
-----------
(2,438,910)
Net unrealized appreciation
on investments 5,603,609
-----------
Net realized and
unrealized gain 3,164,699
----------
Net increase in net assets resulting from operations $4,521,119
==========
</TABLE>
14
<PAGE>
TEMPLETON REAL ESTATE SECURITIES FUND
Financial Statements (cont.)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED
FEBRUARY 29, 1996 YEAR ENDED
(UNAUDITED) AUGUST 31, 1995
----------------- ---------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 1,356,420 $ 3,961,976
Net realized gain (loss) on investment and foreign currency transactions (2,438,910) 2,650,946
Net unrealized appreciation (depreciation) 5,603,609 (9,032,322)
------------ ------------
Net increase (decrease) in net assets resulting from operations 4,521,119 (2,419,400)
Distributions to shareholders
from net investment income
Class I (3,655,863) (2,183,210)
Class II (58,826) --
Fund share transactions (Note 2):
Class I (5,645,114) 3,224,436
Class II 1,392,285 1,807,089
------------ ------------
Net increase (decrease) in net assets (3,446,399) 428,915
Net assets:
Beginning of period 131,972,639 131,543,724
------------ ------------
End of period $128,526,240 $131,972,639
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
TEMPLETON REAL ESTATE SECURITIES FUND
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
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 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. 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.
E. ACCOUNTING ESTIMATES:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
16
<PAGE>
TEMPLETON REAL ESTATE SECURITIES FUND
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
2. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
The Fund offers two classes of shares: Class I shares and Class II shares.
Shares of each class are identical except for their initial sales load, a con-
tingent deferred sales charge on Class II shares, distribution fees, and voting
rights on matters affecting a single class. At February 29, 1996, there were an
unlimited number of shares of beneficial interest authorized ($0.01 par value).
Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
CLASS I
--------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 1996 AUGUST 31, 1995
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 844,972 $ 11,057,864 3,107,103 $ 39,860,934
Shares issued on reinvestment of distributions 243,837 3,115,281 145,407 1,858,319
Shares redeemed (1,521,472) (19,818,259) (3,021,430) (38,494,817)
---------- ------------ ---------- ------------
Net increase (decrease) (432,663) $ (5,645,114) 231,080 $ 3,224,436
========== ============ ========== ============
<CAPTION>
CLASS II
--------------------------------------------------
FOR THE PERIOD
MAY 1, 1995
SIX MONTHS ENDED THROUGH
FEBRUARY 29, 1996 AUGUST 31, 1995
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 115,568 $ 1,505,477 139,647 $ 1,822,153
Shares issued on reinvestment of distributions 4,365 55,598 -- --
Shares redeemed (12,971) (168,790) (1,151) (15,064)
---------- ------------ ---------- ------------
Net increase 106,962 $ 1,392,285 138,496 $ 1,807,089
========== ============ ========== ============
</TABLE>
3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Certain officers of the Fund are also directors or officers of Templeton Global
Advisors Ltd. (TGAL), Templeton Global Investors, Inc. (TGII), Franklin Temple-
ton Distributors, Inc. (FTD), and Franklin Templeton Investor Services, Inc.
(FTIS), the Fund's investment manager, administrative manager, principal under-
writer, and transfer agent, respectively.
The Fund pays monthly an investment management fee to TGAL 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 aver-
age 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 bil-
lion. For the six months ended February 29, 1996, FTD received net commissions
of $48,091 from the sale of the Funds shares and FTIS received fees of $97,000.
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
February 29, 1996, unreimbursed expenses amount to $25,446. Class II shares re-
deemed within 18 months are subject to a contingent deferred sales charge. Con-
tingent deferred sales charges of $532 were paid to FTD for the six months
ended February 29, 1996.
An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel
for the Fund, which firm received fees of $9,500 for the six months ended Feb-
ruary 29, 1996.
17
<PAGE>
TEMPLETON REAL ESTATE SECURITIES FUND
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the six
months ended February 29, 1996 aggregated $14,055,720 and $16,812,612, respec-
tively. The cost of securities for federal income tax purposes is $122,742,877.
Realized gains and losses are reported on an identified cost basis.
At February 29, 1996, the aggregate gross unrealized appreciation and deprecia-
tion of portfolio securities, based on cost for federal income tax purposes,
was as follows:
<TABLE>
<CAPTION>
<S> <C>
Unrealized appreciation $ 18,122,001
Unrealized depreciation (12,300,758)
------------
<CAPTION>
<S> <C>
Net unrealized appreciation $ 5,821,243
============
</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 February 29,
1996 amounted to $8,347,154.
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>
THE FRANKLIN TEMPLETON GROUP
Literature Request - Call today for a free descriptive brochure and prospectus
on any of the funds listed below. The prospectus contains more complete
information, including fees, charges and expenses, and should be read carefully
before investing or sending money.
Templeton Funds
Americas Government
Securities Fund
Developing Markets Trust
Foreign Fund
Global Infrastructure Fund
Global Opportunities Trust
Greater European Fund
Growth Fund
Growth and Income Fund
Income Fund
Latin America Fund
Real Estate
Securities Fund
Smaller Companies
Growth Fund
World Fund
Franklin Funds Seeking
Tax-Free Income
Federal Tax-Free
Income Fund
Federal Intermediate-Term
Tax-Free Income Fund
High Yield Tax-Free
Income Fund
Insured Tax-Free
Income Fund***
Puerto Rico Tax-Free
Income Fund
Franklin State-Specific
Funds Seeking Tax-Free
Income
Alabama
Arizona*
Arkansas**
California*
Colorado
Connecticut
Florida*
Georgia
Hawaii**
Indiana
Kentucky
Louisiana
Maryland
Massachusetts***
Michigan***
Minnesota***
Missouri
New Jersey
New York*
North Carolina
Ohio***
Oregon
Pennsylvania
Tennessee
Texas
Virginia
Washington**
Franklin Funds
Seeking Capital Growth
California Growth Fund
DynaTech Fund
Equity Fund
Global Health
Care Fund
Gold Fund
Growth Fund
International
Equity Fund
Japan Fund
Pacific Growth Fund
Small Cap Growth Fund
Franklin Funds Seeking
Growth and Income
Balance Sheet
Investment Fund
Convertible Securities Fund
Equity Income Fund
Global Utilities Fund
Income Fund
Natural Resources Fund
Premier Return Fund
Real Estate Securities Fund
Rising Dividends Fund
Strategic Income Fund
Utilities Fund
Franklin Funds Seeking
High Current Income
AGE High Income Fund
Global Government
Income Fund
Investment Grade
Income Fund
U.S. Government
Securities Fund
Franklin Funds Seeking
High Current Income and
Stability of Principal
Adjustable Rate
Securities Fund
Adjustable U.S. Government
Securities Fund
Short-Intermediate U.S.
Government
Securities Fund
Franklin Funds for
Non-U.S. Investors
Tax-Advantaged High Yield
Securities Fund
Tax-Advantaged International
Bond Fund
Tax-Advantaged U.S.
Government Securities Fund
Franklin Templeton Global
Currency Funds
German Government
Bond Fund
Global Currency Fund
High Income Currency Fund
Hard Currency Fund
Franklin Money
Market Funds
Money Fund
Federal Money Fund
Tax-Exempt Money
Fund
California Tax-Exempt
Money Fund
New York Tax-Exempt
Money Fund
IFT U.S. Treasury Money
Market Portfolio
Franklin Fund for
Corporations
Corporate Qualified
Dividend Fund
Franklin Tax-Deferred
Annuity
Franklin Valuemark
Franklin Templeton
Valuemark Income Plus
(an immediate annuity)
Fund Information: 1-800/342-5236
Shareholder Services: 1-800/632-2301
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.
*Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of insured municipal securities, and a high yield
portfolio (CA).
**The fund may invest up to 100% of its assets in bonds that pay interest
subject to the federal alternative minimum tax.
***Portfolio of insured municipal securities.
<PAGE>
- -----------------------
TEMPLETON REAL ESTATE
SECURITIES FUND
PRINCIPAL UNDERWRITER:
Franklin Templeton
Distributors, Inc.
700 Central Avenue
St. Petersburg,
Florida 33701-3628
Shareholder Services
1-800-632-2301
Fund Information
1-800-342-5236
This report must be preceded or accompanied by the 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.
-----------------------
[RECYCLED PAPER LOGO APPEARS HERE]
TL410 S96 04/96
TEMPLETON
REAL
ESTATE
SECURITIES
FUND
Semi-Annual Report
February 29, 1996
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
