ANNUAL REPORT
AUGUST 31, 1998
TEMPLETON GLOBAL REAL ESTATE FUND
[PHOTO]
[LOGO] FRANKLIN TEMPLETON
PAGE
[FRANKLIN TEMPLETON 50-YEAR LOGO]
Thank you for investing with Franklin Templeton. We encourage our investors to
maintain a long-term perspective and remember that all securities markets move
both up and down, as do mutual fund share prices. We appreciate your past
support and look forward to serving your investment needs in the years ahead.
In 1992, Sir John Templeton retired after a 50-year career of helping investors
manage their money. Currently he devotes all of his time and efforts to the John
Templeton Foundation. A major portion of his assets remain invested in the
Templeton funds which are managed by many of the investment professionals he
selected and trained.
[PHOTO OF JEFFREY A. EVERETT]
JEFFREY A. EVERETT, CFA
Portfolio Manager
Templeton Global Real Estate Fund
PAGE
SHAREHOLDER LETTER
Your Fund's Objective: Templeton Global Real Estate Fund seeks long-term capital
growth, with current income as a secondary objective, by investing primarily in
securities of issuers throughout the world which are principally engaged in or
related to the real estate industry or which own significant real estate assets.
Dear Shareholder:
This annual report for Templeton Global Real Estate Fund covers the fiscal year
ended August 31, 1998. During this period, global equity markets experienced
extreme volatility, and many stocks dropped appreciably in value. Real estate
stocks were no exception, and Templeton Global Real Estate Fund-Class I produced
a one-year cumulative total return of -19.94%, as discussed in the Performance
Summary on page 6.
The universe of real estate stocks has continued to grow and develop as an asset
class, yielding an increasing number of opportunities for the Fund. Over the
past eight years, we have witnessed the equity market capitalization of U.S.
Real Estate Investment Trusts increase from about $9 billion to over $134
billion.(1) The European listed real estate market has also
1. Source: National Association of Real Estate Investment Trusts.
You will find a complete listing of the Fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 16 of
this report.
CONTENTS
<TABLE>
<S> <C>
Shareholder Letter ............ 1
Performance Summaries
Class I .................... 6
Class II ................... 10
Financial Highlights &
Statement of Investments ...... 14
Financial Statements .......... 20
Notes to Financial
Statements .................... 23
Independent Auditor's Report .. 27
Tax Designation ............... 28
</TABLE>
[PYRAMID GRAPH]
PAGE
GEOGRAPHIC DISTRIBUTION
Based on Total Net Assets
8/31/98
<TABLE>
<S> <C>
UNITED STATES 50.0%
EUROPE 18.9%
ASIA 12.3%
CANADA 6.4%
LATIN AMERICA 4.1%
OTHER 3.8%
SHORT-TERM
INVESTMENTS &
OTHER NET ASSETS 4.5%
</TABLE>
grown. Although as of August 31, 1998, the publicly traded European real estate
market makes up only 3% of the total estimated European real estate market, this
percentage could double by 2002. However, such rapid growth and increasing
liquidity does not come without dislocations, which can cause wide swings in
market performance.
In contrast to the past several years, when a strong U.S. real estate market
helped make the performance of many real estate investment trusts (REITs)(2)
resemble that of "growth" stocks, prices of the Fund's U.S. REITs generally
declined during the period under review. However, we believe that the industry
has begun a period of consolidation, during which time a few companies will
establish themselves as leaders. Although we did not purchase additional REITs
during this reporting period, we maintained our positions in several, including
Crescent Real Estate Equities Company. Management of the firm has purchased
property allowing it significant leeway in establishing rent levels. It also has
established a dominant position in the market, and, in our opinion, could
deliver value as an industry consolidator. We also continued to hold stock in
regional companies, such as Summit Properties Inc. and Highwood Properties Inc.,
which we believe have the potential to command premium stock prices during this
consolidation phase.
As the U.S. market matured, the European real estate market entered a period of
expansive growth. Historically, there have been few publicly traded European
real estate companies, and their stocks have typically had limited liquidity. In
our opinion, however, this situation
2. A REIT is a company that owns and manages large real estate investments,
providing investors with potential benefits from owning real estate on a scale
that most individuals could not achieve.
2
PAGE
should change as large financial and industrial institutions realize the
benefits of more liquid real estate holdings and spin off their real estate
assets into separate, publicly traded companies. We also believe rental income
may grow as a result of increased demand for office space from companies
requiring a presence in cities across the continent. Furthermore, unprecedented
low interest rates necessary for admission to the European Monetary Union should
provide many European real estate companies access to inexpensive capital for
growth and expansion.
In our opinion, the general price declines in European real estate stocks during
the reporting period reflected a lack of understanding by investors that this
asset class can provide strong defensive characteristics for a portfolio. We
therefore maintained existing holdings such as Union du Credit Bail Immobilier
Unibail, which owns premier office properties in Paris. We also attempted to
identify undervalued companies that could benefit from imminent economic changes
in Europe, and added positions to the Fund in companies with assets in the
central business districts of several major European cities. One such purchase
was Prima Inmobiliaria SA, which owns and acquires office and industrial
buildings in Madrid and Barcelona. As of August 31, 1998, our European holdings
comprised 18.9% of total net assets, up from 13.6% one year earlier.
An extremely difficult macroeconomic environment in Asia during the reporting
period caused property prices there to decline dramatically. In Hong Kong,
prices of real estate and real estate stocks plunged, as
TOP 10 HOLDINGS
8/31/98
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- --------------------------------------------
<S> <C>
Revenue Property Ltd.
Real Estate, Canada 4.9%
Equity Residential Properties
Real Estate, U.S. 4.6%
Rouse Co.
Real Estate, U.S. 4.3%
CBL & Associates Properties Inc.
Real Estate, U.S. 3.8%
LTC Properties Inc.
Real Estate, U.S. 3.6%
General Growth Properties
Real Estate, U.S. 3.6%
Weeks Corp.
Real Estate, U.S. 3.6%
Highwood Properties Inc., REIT,
Real Estate, U.S. 3.1%
Union du Credit Bail
Immobilier Unibail
Real Estate, France 3.0%
Crescent Real Estate
Equities Co.
Real Estate, U.S. 2.5%
</TABLE>
3
PAGE
developers who had been enjoying huge profit margins saw demand for their
properties shrink. Adding to the pressure on Hong Kong property stocks was the
fact that these stocks comprise a significant portion of Hong Kong's Hang Seng
Index, (3) and many investors purchase them as proxies for the entire market
rather than for their value as real estate stocks. This can cause their prices
to decline due to technical factors affecting the broader Hong Kong market
rather than as a result of stock-specific fundamentals. Of course, we focus on
stock-specific fundamentals and shall seek, as always, to acquire stock in
companies we believe have strong balance sheets and management for a fraction of
what we consider to be their potential value. Even under our worst-case
scenario, we believe companies such as Cheung Kong Holdings Ltd. and New World
Development Co. Ltd. should weather this period and may eventually outperform
other stocks.
Looking forward, we're confident about the future of real estate stocks. The
road may not always be smooth, but, in our opinion, many of today's undervalued
stocks have the potential to create value over the long term.
Please remember that this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1998, the end of the reporting period. However, market
and economic conditions are changing constantly, which can be expected to affect
our strategies and the Fund's portfolio composition. Although historical
performance is no guarantee of future results, these insights may help you
better understand our investment and management philosophy.
3. An index is an unmanaged group of securities that is used to measure market
performance. One cannot invest directly in an index.
4
PAGE
Also, there are special risks involved with global investing related to market,
currency, economic, social, political and other factors. Emerging markets
involve similar but heightened risks, in addition to those associated with their
relatively small size and lesser liquidity. Investing in any emerging market
means accepting a certain amount of volatility and, in some cases, severe market
corrections. Since the Fund concentrates on the real estate industry, its share
price may experience greater volatility than those of more broadly diversified
investments. 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 equity market has increased 785% in the last 15 years, but has suffered six
declines of more than 20% during that time. (4) The special risks associated
with these types of investments, as well as other considerations, are discussed
in the Fund's prospectus.
We thank you for your participation in Templeton Global Real Estate Fund and
look forward to serving you in the future. Please feel free to contact us with
any questions or comments you may have.
Sincerely,
/s/JEFFREY A. EVERETT
Jeffrey A. Everett, CFA
Portfolio Manager
Templeton Global Real Estate Fund, Inc.
4. Source: Bloomberg. Based on quarterly percentage price change over 15 years
ended June 30, 1998. Market returns are measured in Hong Kong dollars.
5
PAGE
PERFORMANCE SUMMARY
CLASS I
Templeton Global Real Estate Fund - Class I produced a cumulative total return
of -19.94% for the one-year period ended August 31, 1998. Cumulative total
return measures the change in value of an investment, assuming reinvestment of
all distributions, 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 on
page 9, the Fund's Class I shares delivered a cumulative total return of
slightly more than 65% since inception on September 12, 1989.
The Fund's share price, as measured by net asset value, decreased $3.63, from
$16.33 on August 31, 1997, to $12.70 on August 31, 1998. During the reporting
period, shareholders received per-share distributions of 33 cents ($0.33) in
income dividends and 13 cents ($0.13) in long-term capital gains. Distributions
will vary depending on income earned by the Fund and any profits realized from
the sale of securities in the portfolio, as well as the level of the Fund's
operating expenses.
The graph on page 8 compares the performance of the Fund's Class I shares since
their inception and the unmanaged Morgan Stanley Capital International(R) (MSCI)
World Index, which includes approximately 1,500
Past performance is not predictive of future results.
6
PAGE
companies representing the stock markets of 23 countries, including the U.S.,
Canada, the United Kingdom, and Japan. It also shows the Fund's performance
versus the Consumer Price Index (CPI), a commonly used measure of inflation.
Please remember, the Fund's performance differs from that of an index because an
index is not managed according to any investment strategy, does not contain cash
(the Fund generally carries a certain percentage of cash at any given time), and
includes no initial sales charge or management or operating expenses. Of course,
one cannot invest directly in an index, nor is an index representative of the
Fund's portfolio.
Past performance is not predictive of future results.
7
PAGE
CLASS I
Total Return Index Comparison
$10,000 Investment (9/12/89 - 8/31/98)
[LINE GRAPH]
The following line graph compares the performance of Templeton Global Real
Estate Fund's Class I shares to that of the Morgan Stanley Capital International
World Index and to the Consumer Price Index, based on a $10,000 investment from
9/12/89 to 8/31/98.
<TABLE>
<CAPTION>
MSCI
Templeton Global Real World
Estate Fund - Class I* Index CPI
<S> <C> <C> <C>
9/12/89 $9,425 $10,000 $10,000
Sep-89 $9,425 $10,418 $10,019
Oct-89 $9,369 $10,072 $10,068
Nov-89 $9,369 $10,476 $10,091
Dec-89 $9,435 $10,814 $10,106
Jan-90 $9,102 $10,311 $10,210
Feb-90 $9,093 $9,870 $10,258
Mar-90 $9,150 $9,276 $10,315
Apr-90 $8,827 $9,144 $10,331
May-90 $9,368 $10,109 $10,355
Jun-90 $9,549 $10,038 $10,411
Jul-90 $9,596 $10,131 $10,451
Aug-90 $8,437 $9,185 $10,547
Sep-90 $7,800 $8,218 $10,635
Oct-90 $7,767 $8,987 $10,699
Nov-90 $7,905 $8,841 $10,723
Dec-90 $8,200 $9,028 $10,723
Jan-91 $8,984 $9,360 $10,787
Feb-91 $9,567 $10,228 $10,803
Mar-91 $10,009 $9,928 $10,819
Apr-91 $10,281 $10,007 $10,835
May-91 $10,381 $10,236 $10,866
Jun-91 $10,029 $9,605 $10,899
Jul-91 $10,230 $10,061 $10,915
Aug-91 $10,110 $10,030 $10,947
Sep-91 $10,311 $10,295 $10,996
Oct-91 $10,139 $10,464 $11,011
Nov-91 $10,003 $10,010 $11,043
Dec-91 $11,022 $10,740 $11,052
Jan-92 $11,423 $10,543 $11,068
Feb-92 $11,296 $10,363 $11,108
Mar-92 $11,127 $9,877 $11,164
Apr-92 $11,264 $10,016 $11,180
May-92 $11,634 $10,416 $11,195
Jun-92 $11,433 $10,069 $11,236
Jul-92 $11,264 $10,096 $11,260
Aug-92 $10,969 $10,344 $11,292
Sep-92 $11,085 $10,251 $11,323
Oct-92 $11,197 $9,975 $11,364
Nov-92 $11,143 $10,156 $11,379
Dec-92 $11,479 $10,240 $11,372
Jan-93 $11,905 $10,276 $11,428
Feb-93 $12,352 $10,521 $11,468
Mar-93 $13,029 $11,133 $11,509
Apr-93 $13,149 $11,651 $11,540
May-93 $13,302 $11,922 $11,556
Jun-93 $13,193 $11,823 $11,572
Jul-93 $13,313 $12,069 $11,572
Aug-93 $13,825 $12,624 $11,604
Sep-93 $14,033 $12,393 $11,628
Oct-93 $14,437 $12,736 $11,677
Nov-93 $14,448 $12,018 $11,685
Dec-93 $15,265 $12,608 $11,684
Jan-94 $15,842 $13,442 $11,717
Feb-94 $15,708 $13,270 $11,757
Mar-94 $14,943 $12,700 $11,798
Apr-94 $14,921 $13,095 $11,813
May-94 $15,010 $13,131 $11,821
Jun-94 $14,410 $13,097 $11,861
Jul-94 $14,921 $13,348 $11,892
Aug-94 $15,154 $13,752 $11,941
Sep-94 $14,965 $13,393 $11,973
Oct-94 $14,666 $13,776 $11,982
Nov-94 $14,152 $13,182 $11,997
Dec-94 $14,090 $13,312 $11,997
Jan-95 $13,639 $13,115 $12,045
Feb-95 $13,808 $13,308 $12,093
Mar-95 $13,706 $13,952 $12,133
Apr-95 $13,819 $14,441 $12,173
May-95 $14,473 $14,567 $12,197
Jun-95 $14,586 $14,566 $12,221
Jul-95 $14,902 $15,298 $12,221
Aug-95 $14,891 $14,959 $12,254
Sep-95 $15,094 $15,398 $12,277
Oct-95 $14,673 $15,159 $12,317
Nov-95 $14,685 $15,688 $12,308
Dec-95 $14,936 $16,150 $12,300
Jan-96 $15,365 $16,444 $12,373
Feb-96 $15,435 $16,547 $12,413
Mar-96 $15,331 $16,826 $12,477
Apr-96 $15,551 $17,224 $12,525
May-96 $15,830 $17,242 $12,549
Jun-96 $15,784 $17,333 $12,557
Jul-96 $15,400 $16,724 $12,581
Aug-96 $16,004 $16,919 $12,605
Sep-96 $16,376 $17,585 $12,645
Oct-96 $16,658 $17,710 $12,685
Nov-96 $17,178 $18,706 $12,709
Dec-96 $17,992 $18,410 $12,709
Jan-97 $18,327 $18,634 $12,749
Feb-97 $18,315 $18,852 $12,787
Mar-97 $18,123 $18,483 $12,819
Apr-97 $17,729 $19,090 $12,834
May-97 $18,662 $20,272 $12,826
Jun-97 $19,080 $21,285 $12,842
Jul-97 $19,906 $22,269 $12,857
Aug-97 $19,535 $20,783 $12,882
Sep-97 $20,540 $21,915 $12,914
Oct-97 $18,651 $20,765 $12,946
Nov-97 $18,784 $21,136 $12,938
Dec-97 $18,940 $21,397 $12,923
Jan-98 $18,768 $21,997 $12,946
Feb-98 $19,654 $23,488 $12,972
Mar-98 $20,073 $24,483 $12,998
Apr-98 $19,703 $24,726 $13,021
May-98 $19,014 $24,420 $13,045
Jun-98 $18,300 $25,003 $13,060
Jul-98 $17,536 $24,966 $13,076
Aug-98 $15,640 $21,641 $13,092
</TABLE>
THE HISTORICAL DATA SHOWN PERTAIN ONLY TO THE FUND'S CLASS I SHARES. THE FUND
OFFERS ANOTHER SHARE CLASS SUBJECT TO DIFFERENT FEES AND EXPENSES, WHICH AFFECT
ITS PERFORMANCE. SEE THE PROSPECTUS FOR DETAILS.
*Performance figures represent the change in value of an investment over the
period shown and have been restated to include the current, maximum 5.75%
initial sales charge, assuming reinvestment of distributions at net asset value.
Prior to July 1, 1992, Fund shares were offered at a higher initial sales
charge; thus, actual total returns would have been lower. On January 1, 1993,
the Fund implemented a Rule 12b-1 plan, which affects subsequent performance.
Past performance is not predictive of future results.
**Source: Morgan Stanley Capital International. Index is unmanaged and includes
reinvested dividends. One cannot invest directly in an index.
***Source: Bureau of Labor Statistics (8/31/98).
Past performance is not predictive of future results.
8
PAGE
CLASS I
Periods ended 8/31/98
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 5-YEAR (9/12/89)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) -19.94% 13.20% 65.94%
Average Annual Total Return(2) -24.56% 1.29% 5.11%
Value of $10,000 Investment(3) $7,544 $10,669 $15,640
<CAPTION>
8/31/94 8/31/95 8/31/96 8/31/97 8/31/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One-Year Total Return(4) 9.69% -1.74% 7.48% 22.06% -19.94%
</TABLE>
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and has been restated to include the
current, maximum 5.75% initial sales charge. Prior to July 1, 1992, Fund shares
were offered at a higher sales charge; thus, actual total returns would have
been lower.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and have been restated to include the current,
maximum 5.75% initial sales charge. Prior to July 1, 1992, Fund shares were
offered at a higher sales charge; thus, actual total returns would have been
lower.
4. One-year total return represents the change in value of an investment over
the periods ended on the dates indicated and does not include the sales charge.
On January 1, 1993, the Fund's Class I shares implemented a Rule 12b-1 plan,
which affects subsequent performance. All calculations assume reinvestment of
distributions at net asset value. Since markets can go down as well as up,
investment return and principal value will fluctuate with market conditions,
currency volatility, and the economic, social and political climates of
countries where the Fund invests. Emerging markets involve heightened risks
related to the same factors, in addition to those associated with their
relatively small size and lesser liquidity. You may have a gain or loss when you
sell your shares.
Past performance is not predictive of future results.
9
PAGE
CLASS II
Templeton Global Real Estate Fund - Class II produced a cumulative total return
of -20.61% for the one-year period ended August 31, 1998. Cumulative total
return measures the change in value of an investment, assuming reinvestment of
all distributions, and does not include sales charges.
The Fund's share price, as measured by net asset value, decreased $3.61, from
$16.16 on August 31, 1997, to $12.55 on August 31, 1998. During the reporting
period, shareholders received per-share distributions of 21.48 cents ($0.2148)
in income dividends and 13 cents ($0.13) in long-term capital gains.
Distributions will vary depending on income earned by the Fund and any profits
realized from the sale of securities in the portfolio, as well as the level of
the Fund's operating expenses.
Past performance is not predictive of future results.
10
PAGE
The graph on the following page compares the performance of the Fund's Class II
shares since inception and the unmanaged Morgan Stanley Capital International(R)
(MSCI) World Index, which includes approximately 1,500 companies representing
the stock markets of 23 countries, including the U.S., Canada, the United
Kingdom, and Japan. It also shows the Fund's performance versus the Consumer
Price Index (CPI), a commonly used measure of inflation. Please remember that
the Fund's performance differs from that of an index because an index is not
managed according to any investment strategy, does not contain cash (the Fund
generally carries a certain percentage of cash at any given time), and includes
no sales charges or management or operating expenses. Of course, one cannot
invest directly in an index, nor is an index representative of the Fund's
portfolio.
Past performance is not predictive of future results.
11
PAGE
CLASS II
Total Return Index Comparison
$10,000 Investment (5/1/95 - 8/31/98)
[LINE GRAPH]
The following line graph compares the performance of Templeton Global Real
Estate Fund's Class II shares to that of the Morgan Stanley Capital
International World Index and to the Consumer Price Index, based on a $10,000
investment from 5/1/95 to 8/31/98.
<TABLE>
<CAPTION>
Templeton Global
Real Estate Fund - MSCI World
Class II* Index CPI
<S> <C> <C> <C>
5/1/95 $9,903 $10,000 $10,000
May-95 $10,364 $10,088 $10,020
Jun-95 $10,437 $10,086 $10,040
Jul-95 $10,663 $10,593 $10,040
Aug-95 $10,639 $10,359 $10,067
Sep-95 $10,784 $10,663 $10,086
Oct-95 $10,471 $10,497 $10,119
Nov-95 $10,479 $10,863 $10,112
Dec-95 $10,652 $11,183 $10,105
Jan-96 $10,952 $11,387 $10,164
Feb-96 $10,993 $11,458 $10,197
Mar-96 $10,910 $11,651 $10,250
Apr-96 $11,060 $11,927 $10,289
May-96 $11,251 $11,940 $10,309
Jun-96 $11,209 $12,002 $10,316
Jul-96 $10,935 $11,581 $10,335
Aug-96 $11,359 $11,716 $10,355
Sep-96 $11,616 $12,177 $10,388
Oct-96 $11,804 $12,264 $10,421
Nov-96 $12,167 $12,953 $10,441
Dec-96 $12,736 $12,748 $10,441
Jan-97 $12,966 $12,904 $10,473
Feb-97 $12,958 $13,054 $10,505
Mar-97 $12,813 $12,799 $10,531
Apr-97 $12,524 $13,219 $10,544
May-97 $13,171 $14,038 $10,537
Jun-97 $13,460 $14,739 $10,550
Jul-97 $14,031 $15,421 $10,563
Aug-97 $13,758 $14,392 $10,583
Sep-97 $14,456 $15,175 $10,609
Oct-97 $13,120 $14,379 $10,636
Nov-97 $13,197 $14,636 $10,629
Dec-97 $13,290 $14,816 $10,617
Jan-98 $13,168 $15,232 $10,636
Feb-98 $13,777 $16,265 $10,657
Mar-98 $14,064 $16,954 $10,678
Apr-98 $13,803 $17,122 $10,697
May-98 $13,298 $16,910 $10,717
Jun-98 $12,794 $17,314 $10,730
Jul-98 $12,254 $17,288 $10,742
Aug-98 $10,922 $14,985 $10,755
</TABLE>
THE HISTORICAL DATA SHOWN PERTAIN ONLY TO THE FUND'S CLASS II SHARES. THE FUND
OFFERS ANOTHER SHARE CLASS SUBJECT TO DIFFERENT FEES AND EXPENSES, WHICH AFFECT
ITS PERFORMANCE. SEE THE PROSPECTUS FOR DETAILS.
*Performance figures represent the change in value of an investment over the
periods shown and include all sales charges, assuming reinvestment of
distributions at net asset value. Past performance is not predictive of future
results.
**Source: Morgan Stanley Capital International. Index is unmanaged and includes
reinvested dividends. One cannot invest directly in an index.
***Source: Bureau of Labor Statistics (8/31/98).
Past performance is not predictive of future results.
12
PAGE
CLASS II
Periods ended 8/31/98
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 3-YEAR (5/1/95)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) -20.61% 2.59% 10.29%
Average Annual Total Return(2) -22.18% 0.52% 2.68%
Value of $10,000 Investment(3) $7,782 $10,156 $10,922
<CAPTION>
8/31/96 8/31/97 8/31/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
One-Year Total Return(4) 6.69% 21.12% -20.61%
</TABLE>
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the 1.0% initial sales
charge and the 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months of investment.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and include all sales charges.
4. One-year total return represents the change in value of an investment over
the periods ended on the dates indicated and does not include sales charges.
All calculations assume reinvestment of distributions at net asset value. Since
markets can go down as well as up, investment return and principal value will
fluctuate with market conditions, currency volatility and the economic, social
and political climates of countries where the Fund invests. Emerging markets
involve heightened risks related to the same factors, in addition to those
associated with their relatively small size and lesser liquidity. You may have a
gain or loss when you sell your shares.
Past performance is not predictive of future results.
13
PAGE
TEMPLETON GLOBAL REAL ESTATE FUND
Financial Highlights
<TABLE>
<CAPTION>
CLASS I
--------------------------------------------------------
YEAR ENDED AUGUST 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year......................... $16.33 $13.78 $13.20 $13.66 $12.66
--------------------------------------------------------
Income from investment operations:
Net investment income..................................... .46 .39 .31 .39 .22
Net realized and unrealized gains (losses)................ (3.63) 2.58 .64 (.64) 1.00
--------------------------------------------------------
Total from investment operations........................... (3.17) 2.97 .95 (.25) 1.22
--------------------------------------------------------
Less distributions from:
Net investment income..................................... (.33) (.42) (.37) (.21) (.22)
Net realized gains........................................ (.05) -- -- -- --
In excess of net realized gains........................... (.08) -- -- -- --
--------------------------------------------------------
Total distributions........................................ (.46) (.42) (.37) (.21) (.22)
--------------------------------------------------------
Net asset value, end of year............................... $12.70 $16.33 $13.78 $13.20 $13.66
--------------------------------------------------------
--------------------------------------------------------
Total Return*.............................................. (19.94)% 22.06% 7.48% (1.74)% 9.69%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................ $97,823 $151,777 $125,875 $130,149 $131,544
Ratios to average net assets:
Expenses.................................................. 1.45% 1.45% 1.51% 1.55% 1.58%
Net investment income..................................... 2.70% 2.55% 2.73% 3.05% 1.97%
Portfolio turnover rate.................................... 23.18% 24.03% 20.07% 38.69% 32.34%
</TABLE>
*Total return does not reflect sales commissions.
14
PAGE
TEMPLETON GLOBAL REAL ESTATE FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS II
-----------------------------------------------
YEAR ENDED AUGUST 31,
-----------------------------------------------
1998 1997 1996 1995+
-----------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $16.16 $13.67 $13.17 $12.25
-----------------------------------------------
Income from investment operations:
Net investment income...................................... .30 .31 .33 .03
Net realized and unrealized gains (losses)................. (3.57) 2.52 .52 .89
-----------------------------------------------
Total from investment operations............................ (3.27) 2.83 .85 .92
-----------------------------------------------
Less distributions from:
Net investment income...................................... (.21) (.34) (.35) --
Net realized gains......................................... (.05) -- -- --
In excess of net realized gains............................ (.08) -- -- --
-----------------------------------------------
Total distributions......................................... (.34) (.34) (.35) --
-----------------------------------------------
Net asset value, end of year................................ $12.55 $16.16 $13.67 $13.17
-----------------------------------------------
-----------------------------------------------
Total Return*............................................... (20.61)% 21.12% 6.69% 7.51%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $6,869 $8,917 $5,275 $1,823
Ratios to average net assets:
Expenses................................................... 2.20% 2.20% 2.26% 2.26%**
Net investment income...................................... 1.97% 1.74% 2.20% 1.71%**
Portfolio turnover rate..................................... 23.18% 24.03% 20.07% 38.69%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge and is not annualized.
**Annualized.
+For the period May 1, 1995 (effective date) to August 31, 1995.
See Notes to Financial Statements.
15
PAGE
TEMPLETON GLOBAL REAL ESTATE FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1998
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 89.1%
BANKING 2.7%
Bangkok Bank Public Co. Ltd., fgn. ......................... Thailand 291,000 $ 204,881
Banque Nationale de Paris BNP............................... France 9,936 679,044
Development Bank of Singapore Ltd., fgn. ................... Singapore 43,000 148,902
HSBC Holdings Plc. ......................................... Hong Kong 79,916 1,696,457
National Australia Cap Sec Plc. ............................ Australia 3,400 92,225
*Shinhan Bank Co. Ltd. ..................................... South Korea 7,224 16,957
------------
2,838,466
------------
BUILDING MATERIALS & COMPONENTS 1.8%
Suez Cement Co. ............................................ Egypt 88,000 1,369,147
Unione Cementi Marchino Emiliane (Unicem), di Risp.......... Italy 139,580 546,755
------------
1,915,902
------------
CONSTRUCTION & HOUSING 2.2%
Daito Trust Construction Co. Ltd. .......................... Japan 101,800 814,746
++*Sundance Homes Inc. ..................................... United States 640,600 1,281,200
Toda Corp. ................................................. Japan 70,000 243,431
------------
2,339,377
------------
ENERGY SOURCES 1.0%
Societe Elf Aquitaine SA.................................... France 10,317 1,054,394
------------
FINANCIAL SERVICES .6%
Housing Development Finance Corp. Ltd. ..................... India 6,100 367,370
Lend Lease Corp. Ltd. ...................................... Australia 16,000 302,605
*Security Capital Group, wts. .............................. United States 13,795 296
------------
670,271
------------
FOREST PRODUCTS & PAPER 1.2%
St. Joe Co. ................................................ United States 60,000 1,203,750
------------
LEISURE & TOURISM 2.4%
Grand Hotel Holdings Ltd. .................................. Hong Kong 2,469,000 382,336
Mandarin Oriental Intl. Ltd. ............................... Singapore 1,501,000 705,470
Oriental Hotel (Thailand) Public Co. Ltd., fgn. ............ Thailand 76,200 378,272
Rank Group Plc.............................................. United Kingdom 224,500 1,067,633
------------
2,533,711
------------
MERCHANDISING .7%
Li & Fung Ltd. ............................................. Hong Kong 70,000 82,202
Wessel & Vett AS, C......................................... Denmark 12,000 645,299
------------
727,501
------------
</TABLE>
16
PAGE
TEMPLETON GLOBAL REAL ESTATE FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1998 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
METALS & MINING 1.9%
Anglo American Platinum Corp. Ltd. ......................... South Africa 1,208 $ 15,041
Boehler Uddeholm AG......................................... Austria 9,500 453,342
Industrias Penoles SA....................................... Mexico 391,100 937,589
RGC Ltd. ................................................... Australia 447,522 551,883
------------
1,957,855
------------
MISC MATERIALS & COMMODITIES .3%
De Beers/Centenary Linked Units, Reg. ...................... South Africa 27,600 333,764
------------
MULTI-INDUSTRY 5.1%
Cheung Kong Holdings Ltd. .................................. Hong Kong 618,000 2,392,505
First Pacific Co. .......................................... Hong Kong 1,952,667 604,759
Hutchison Whampoa Ltd. ..................................... Hong Kong 210,000 910,546
*Metro Pacific Corp. MDI.................................... Philippines 21,431,777 318,051
Swire Pacific Ltd., B....................................... Hong Kong 800 359
Wheelock and Company Ltd. .................................. Hong Kong 2,086,000 1,096,945
------------
5,323,165
------------
REAL ESTATE 62.4%
+American Health Properties Inc. ........................... United States 64,300 1,430,675
Bail Investissement......................................... France 8,700 1,193,858
+Boston Properties Inc. .................................... United States 65,000 1,856,563
*Canlan Investment Corp. ................................... Canada 293,000 299,716
+Carramerica Realty Corp. .................................. United States 65,000 1,462,500
*Catellus Development Corp. ................................ United States 90,000 1,130,625
+CBL & Associates Properties Inc. .......................... United States 160,000 3,980,000
+Charles E. Smith Residential Realty Inc. .................. United States 80,000 2,380,000
China Resources Beijing Land Ltd. .......................... China 2,000,000 281,319
China Resources Beijing Land Ltd., 144A..................... China 480,300 67,559
+Crescent Real Estate Equities Co. ......................... United States 113,500 2,610,500
+Equity Residential Properties.............................. United States 100,000 3,993,750
+Federal Realty Investment Trust............................ United States 33,000 664,125
+General Growth Properties.................................. United States 104,000 3,750,500
+Highwood Properties Inc., REIT............................. United States 127,800 3,250,913
Inversiones y Representacion SA............................. Argentina 338,051 811,485
Inversiones y Representacion SA, GDR........................ Argentina 832 19,760
+LTC Properties Inc. ....................................... United States 226,000 3,771,375
+Nationwide Health Properties Inc. ......................... United States 122,000 2,493,375
New Asia Realty and Trust Co. Ltd., A....................... Hong Kong 388,000 240,334
New World Development Co. Ltd. ............................. Hong Kong 761,109 820,118
+*Northstar Capital Investment Corp. ....................... United States 95,000 1,947,500
+Omega Healthcare Investors................................. United States 57,183 1,636,863
*Prima Inmobiliaria SA...................................... Spain 95,500 637,028
+Prologis Trust............................................. United States 93,808 1,876,160
Revenue Property Ltd. ...................................... Canada 3,294,739 5,160,701
Rouse Co. .................................................. United States 156,300 4,493,625
</TABLE>
17
PAGE
TEMPLETON GLOBAL REAL ESTATE FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1998 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
REAL ESTATE (CONT.)
Ryoden Development Ltd. .................................... Hong Kong 3,270,000 $ 198,330
*Security Capital US Realty................................. Luxembourg 232,000 2,343,200
+Summit Properties Inc., REIT............................... United States 91,300 1,529,275
Taylor Woodrow Plc. ........................................ United Kingdom 315,802 727,118
Union du Credit Bail Immobilier Unibail..................... France 26,850 3,184,746
+Weeks Corp. ............................................... United States 135,000 3,729,375
Westfield Trust, units...................................... Australia 784,365 1,391,442
------------
65,364,413
------------
TELECOMMUNICATIONS .9%
+++Receipts of Telebras Stock............................... Brazil 6,664,000 339,740
Telefonos de Mexico SA (Telmex), L, ADR..................... Mexico 15,700 560,294
------------
900,034
------------
TRANSPORTATION 3.0%
East Japan Railway Co. ..................................... Japan 180 863,092
Florida East Coast Industries Inc. ......................... United States 44,000 1,028,500
Peninsular & Oriental Steam Navigation Co. ................. United Kingdom 104,961 1,212,731
------------
3,104,323
------------
UTILITIES ELECTRICAL & GAS 2.9%
National Grid Group Plc. ................................... United Kingdom 199,070 1,439,215
National Power Plc. ........................................ United Kingdom 192,378 1,604,251
------------
3,043,466
------------
TOTAL COMMON STOCKS (COST $94,530,882)...................... 93,310,392
------------
PREFERRED STOCKS 3.1%
Banco Itau SA, pfd. ........................................ Brazil 1,117,000 474,552
Baumax AG, pfd. ............................................ Austria 36,907 716,797
Cia Vale do Rio Doce, A, pfd. .............................. Brazil 30,800 408,259
Cia Vale do Rio Doce, ADR, pfd. ............................ Brazil 31,200 413,561
+Equity Residential Properties Trust, G, cvt., pfd. ........ United States 40,000 860,000
Petrobras Distribuidora SA, pfd. ........................... Brazil 37,183,700 363,022
------------
TOTAL PREFERRED STOCKS (COST $5,347,947).................... 3,236,191
------------
<CAPTION>
PRINCIPAL
AMOUNT**
--------
<S> <C> <C> <C>
BONDS 3.3%
Government of Italy, cvt., 5.00%, 6/28/01................... Italy $1,345,000 2,177,219
Revenue Property Ltd., cvt., 6.00%, 3/01/04................. Canada 1,400,000 1,267,000
------------
TOTAL BONDS (COST $2,750,722)............................... 3,444,219
------------
SHORT TERM INVESTMENT (COST $222,904) .2%
U.S. Treasury Bill, 5.08%, 11/05/98......................... United States 225,000 223,095
------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENT (COST
$102,852,455)............................................. 100,213,897
------------
</TABLE>
18
PAGE
TEMPLETON GLOBAL REAL ESTATE FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1998 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT** VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(a)REPURCHASE AGREEMENT 3.4%
Swiss Bank Corp., 5.75%, 9/01/98 (Maturity Value $3,541,566)
(COST $3,541,000) Collateralized by U.S. Treasury Notes &
Bonds..................................................... United States $3,541,000 $ 3,541,000
------------
TOTAL INVESTMENTS (COST $106,393,455) 99.1%................. 103,754,897
OTHER ASSETS, LESS LIABILITIES .9%.......................... 937,306
------------
TOTAL NET ASSETS 100.0%..................................... $104,692,203
------------
------------
</TABLE>
*Non-income producing.
**Securities traded in U.S. dollars.
(a)At August 31, 1998, all repurchase agreements held by the Fund had been
entered into on that date.
+Real Estate Investment Trust (41.3% of total net assets).
++The Investment Company Act of 1940 defines "affiliated companies" as
investments in portfolio companies in which the Fund owns 5% or more of the
outstanding voting securities. Investments in "affiliated companies" at August
31, 1998 were $1,281,200.
+++Receipts of Telebras stock represent a basket of twelve new holding companies
to be received in conjunction with the "split-up" of Telecomunicacoes
Brasileiras SA (Telebras).
See Notes to Financial Statements.
19
PAGE
TEMPLETON GLOBAL REAL ESTATE FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $102,852,455).... $100,213,897
Repurchase agreement, at value and cost.................... 3,541,000
Cash....................................................... 3,039
Receivables:
Investment securities sold................................ 1,724,407
Fund shares sold.......................................... 70,866
Dividends and interest.................................... 469,600
------------
Total assets.......................................... 106,022,809
------------
Liabilities:
Payables:
Investment securities purchased........................... 538,943
Fund shares redeemed...................................... 584,821
To affiliates............................................. 137,461
Accrued liabilities........................................ 69,381
------------
Total liabilities..................................... 1,330,606
------------
Net assets, at value........................................ $104,692,203
------------
------------
Net assets consist of:
Undistributed net investment income........................ $ 2,668,960
Net unrealized depreciation................................ (2,638,558)
Distributions in excess of net realized gain............... (747,857)
Beneficial shares.......................................... 105,409,658
------------
Net assets, at value........................................ $104,692,203
------------
------------
CLASS I:
Net asset value per share ($97,823,354 / 7,702,649 shares
outstanding)............................................. $12.70
------------
------------
Maximum offering price per share ($12.70 / 94.25%)......... $13.47
------------
------------
CLASS II:
Net asset value per share ($6,868,849 / 547,442 shares
outstanding)*............................................ $12.55
------------
------------
Maximum offering price per share ($12.55 / 99.00%)......... $12.68
------------
------------
</TABLE>
*Redemption price per share is equal to net asset value less any applicable
sales charge.
See Notes to Financial Statements.
20
PAGE
TEMPLETON GLOBAL REAL ESTATE FUND
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1998
<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $219,756)
Dividends.................................................. $5,518,960
Interest................................................... 431,441
----------
Total investment income............................... $ 5,950,401
Expenses:
Management fees (Note 3)................................... 1,075,695
Administrative fees (Note 3)............................... 215,139
Distribution fees (Note 3)
Class I................................................... 337,939
Class II.................................................. 82,956
Transfer agent fees (Note 3)............................... 199,773
Custodian fees............................................. 28,547
Reports to shareholders.................................... 104,200
Registration and filing fees............................... 39,000
Professional fees.......................................... 46,187
Trustees' fees and expenses................................ 14,000
Other...................................................... 1,598
----------
Total expenses........................................ 2,145,034
------------
Net investment income........................... 3,805,367
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... 1,456,549
Foreign currency transactions............................. (105,191)
----------
Net realized gain..................................... 1,351,358
Net unrealized depreciation on investments............ (32,063,545)
------------
Net realized and unrealized loss............................ (30,712,187)
------------
Net decrease in net assets resulting from operations........ $(26,906,820)
------------
------------
</TABLE>
See Notes to Financial Statements.
21
PAGE
TEMPLETON GLOBAL REAL ESTATE FUND
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 3,805,367 $ 3,760,069
Net realized gain from investments and foreign currency
transactions............................................ 1,351,358 6,263,665
Net unrealized appreciation (depreciation) on
investments.............................................. (32,063,545) 19,072,168
-------------------------------
Net increase (decrease) in net assets resulting from
operations............................................ (26,906,820) 29,095,902
Distributions to shareholders from:
Net investment income:
Class I.................................................. (3,003,171) (3,880,651)
Class II................................................. (118,402) (148,294)
Net realized gains:
Class I.................................................. (466,731) --
Class II................................................. (28,174) --
In excess of net realized gains:
Class I.................................................. (705,284) --
Class II................................................. (42,573) --
Capital share transactions (Note 2):
Class I.................................................. (24,576,319) 2,081,128
Class II................................................. (154,617) 2,396,525
-------------------------------
Net increase (decrease) in net assets................... (56,002,091) 29,544,610
Net assets:
Beginning of year.......................................... 160,694,294 131,149,684
-------------------------------
End of year................................................ $104,692,203 $160,694,294
-------------------------------
-------------------------------
Undistributed net investment income included in net assets
End of year................................................ $ 2,668,960 $ 2,058,847
-------------------------------
-------------------------------
</TABLE>
See Notes to Financial Statements.
22
PAGE
TEMPLETON GLOBAL REAL ESTATE FUND
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Global Real Estate Fund (the Fund) is registered under the Investment
Company Act of 1940 as a diversified, open-end investment company. The Fund
seeks long-term capital growth, with current income as a secondary objective, by
investing primarily in securities of issuers throughout the world 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. SECURITY VALUATION:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Trustees.
b. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date. When
the Fund purchases or sells foreign securities it will customarily enter into a
foreign exchange contract to minimize foreign exchange risk from the trade date
to the settlement date of such transactions.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign currency denominated assets and liabilities other than investments in
securities held at the end of the reporting period.
c. INCOME TAXES:
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute all of its taxable income.
23
PAGE
TEMPLETON GLOBAL REAL ESTATE FUND
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Certain income from foreign securities is recorded as soon as information is
available to the Fund. Interest income and estimated expenses are accrued daily.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
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.
2. BENEFICIAL SHARES
The Fund offers two classes of shares: Class I and Class II shares. The shares
differ by their initial sales load, distribution fees, voting rights on matters
affecting a single class of shares and the exchange privilege of each class.
At August 31, 1998, 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>
YEAR ENDED AUGUST 31,
-------------------------------------------------------------
1998 1997
-------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS I SHARES:
Shares sold................................................ 989,236 $ 15,410,679 2,014,081 $ 30,445,208
Shares issued on reinvestment of distributions............. 239,459 3,769,262 232,731 3,281,785
Shares redeemed............................................ (2,822,831) (43,756,260) (2,082,833) (31,645,865)
-------------------------------------------------------------
Net increase (decrease).................................... (1,594,136) $(24,576,319) 163,979 $ 2,081,128
-------------------------------------------------------------
-------------------------------------------------------------
</TABLE>
24
PAGE
TEMPLETON GLOBAL REAL ESTATE FUND
Notes to Financial Statements (continued)
2. BENEFICIAL SHARES (CONT.)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------------------------------------
1998 1997
-------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS II SHARES:
Shares sold................................................. 202,765 $ 3,004,691 301,806 $ 4,542,020
Shares issued on reinvestment of distributions.............. 10,557 164,676 9,139 128,318
Shares redeemed............................................. (217,790) (3,323,984) (144,901) (2,273,813)
-------------------------------------------------------
Net increase (decrease)..................................... (4,468) $ (154,617) 166,044 $ 2,396,525
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Fund are also officers or directors of Templeton Global
Advisors Ltd. (TGAL), Franklin Templeton Services, Inc. (FT Services),
Franklin/Templeton Distributors, Inc. (Distributors) and Franklin/Templeton
Investor Services, Inc. (Investors Services), the Fund's investment manager,
administrative manager, principal underwriter and transfer agent, respectively.
The Fund pays an investment management fee to TGAL of 0.75% per year of the
average daily net assets of the Fund. The Fund pays an administrative fee to FT
Services based on the Fund's average daily net assets as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- -----------------------------------------------------------------
<S> <C>
0.15% First $200 million
0.135% Over $200 million, up to and including $700 million
0.10% Over $700 million, up to and including $1.2 billion
0.075% Over $1.2 billion
</TABLE>
The Fund reimburses Distributors up to 0.25% and 1.00% per year of the average
daily net assets of Class I and Class II shares, respectively, for costs
incurred in marketing the Fund's Class I and Class II shares. Under the Class I
distribution plan, costs exceeding the maximum may be reimbursed in subsequent
periods. At August 31, 1998, unreimbursed costs were $89,940. Distributors
received net commissions from sales of Fund shares, and received contingent
deferred sales charges for the period of $53,103 and $6,227, respectively.
Legal fees of $13,549 were paid to a law firm in which a partner is an officer
of the Fund.
4. INCOME TAXES
At August 31, 1998, the Fund has deferred capital losses and deferred foreign
currency losses occurring subsequent to October 31, 1997 of $516,346 and
$108,756, respectively. For tax purposes, such losses will be reflected in the
year ending August 31, 1999.
25
PAGE
TEMPLETON GLOBAL REAL ESTATE FUND
Notes to Financial Statements (continued)
4. INCOME TAXES (CONT.)
At August 31, 1998, the net unrealized depreciation based on the cost of
investments for income tax purposes of $103,039,496 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 16,269,867
Unrealized depreciation..................................... (19,095,466)
------------
Net unrealized depreciation................................. $ (2,825,599)
------------
------------
</TABLE>
Net investment income and net realized capital gains differ for financial
statement and tax purposes primarily due to differing treatments of passive
foreign investment companies and foreign currency transactions.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended August 31, 1998 aggregated $31,753,431 and $50,021,877, respectively.
26
PAGE
TEMPLETON GLOBAL REAL ESTATE FUND
Independent Auditor's Report
THE BOARD OF TRUSTEES AND SHAREHOLDERS
TEMPLETON GLOBAL REAL ESTATE FUND
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Templeton Global Real Estate Fund as of August
31, 1998, 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
accompanying financial statements. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights 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
August 31, 1998, 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
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Templeton Global Real Estate Fund as of August 31, 1998, 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.
[McGladrey & Pullen, LLP]
New York, New York
September 29, 1998
27
PAGE
TEMPLETON GLOBAL REAL ESTATE FUND
Tax Designation
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby
designates the following amount as a capital gain dividend for the fiscal year
ended August 31, 1998:
<TABLE>
<S> <C>
20% Rate Gain............................................... $1,287,920
----------
</TABLE>
Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby designates
11.66% of the ordinary income dividends as income qualifying for the dividends
received deduction for the fiscal year ended August 31, 1998.
28
PAGE
LITERATURE REQUEST
For a free brochure and prospectus, which contain more complete information,
including charges and expenses, call Franklin Templeton Fund Information at
1-800/DIAL BEN(R) (1-800/342-5236). Please read the prospectus carefully before
investing or sending money. 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.
FRANKLIN TEMPLETON GROUP
GLOBAL GROWTH
Franklin Global Health Care Fund
Mutual Discovery Fund
Templeton Developing
Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller
Companies Fund
Templeton Global
Infrastructure Fund
Templeton Global
Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global
Smaller Companies Fund
Templeton Greater European Fund
Templeton Growth Fund
Templeton Latin America Fund
Templeton Pacific Growth Fund
Templeton World Fund
GLOBAL GROWTH AND INCOME
Franklin Global Utilities Fund
Mutual European Fund
Templeton Global Bond Fund
Templeton Growth and
Income Fund
GLOBAL INCOME
Franklin Global Government
Income Fund
Franklin Templeton Global
Currency Fund
Franklin Templeton Hard
Currency Fund
Templeton Americas Government
Securities Fund
GROWTH
Franklin Biotechnology
Discovery Fund
Franklin Blue Chip Fund
Franklin California Growth Fund
Franklin DynaTech Fund
Franklin Equity Fund
Franklin Gold Fund
Franklin Growth Fund
Franklin MidCap Growth Fund
Franklin Small Cap
Growth Fund
GROWTH AND INCOME
Franklin Asset Allocation Fund
Franklin Balance Sheet
Investment Fund*
Franklin Convertible
Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Franklin MicroCap Value Fund*
Franklin Natural Resources Fund
Franklin Real Estate
Securities Fund
Franklin Rising Dividends Fund
Franklin Strategic Income Fund
Franklin Utilities Fund
Franklin Value Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual Qualified Fund
Mutual Shares Fund
FUND ALLOCATOR SERIES
Franklin Templeton Conservative
Target Fund
Franklin Templeton Moderate
Target Fund
Franklin Templeton Growth
Target Fund
INCOME
Franklin Adjustable Rate
Securities Fund
Franklin Adjustable U.S.
Government Securities Fund
Franklin's AGE High Income Fund
Franklin Bond Fund
Franklin Floating Rate Trust
Franklin Investment Grade
Income Fund
Franklin Short-Intermediate
U.S. Government Securities Fund
Franklin U.S. Government
Securities Fund
Franklin Money Fund
Franklin Federal Money Fund
FRANKLIN FUNDS SEEKING
TAX-FREE INCOME
Federal Intermediate-Term
Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund
Puerto Rico Tax-Free
Income Fund
Tax-Exempt Money 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***
VARIABLE ANNUITIES++
Franklin Valuemark(R)
Franklin Templeton
Valuemark Income Plus
(an immediate annuity)
*These funds are now closed to new accounts, with the exception of retirement
plan accounts.
**Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of insured municipal securities, and/or a high yield
portfolio (CA) and a money market portfolio (CA and NY).
***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.
++Franklin Valuemark and Franklin Templeton Valuemark Income Plus are issued by
Allianz Life Insurance Company of North America or by its wholly owned
subsidiary, Preferred Life Insurance Company of New York, and distributed by
NALAC Financial Plans, LLC. The Franklin Valuemark Funds are managed by Franklin
Advisers, Inc. and its Templeton and Franklin affiliates.
09/98
PAGE
PRINCIPAL UNDERWRITER
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404-1585
1-800/DIAL BEN(R)
www.franklin-templeton.com
SHAREHOLDER SERVICES
1-800/632-2301
FUND INFORMATION
1-800/342-5236
This report must be preceded or accompanied by the current prospectus of
Templeton Global Real Estate Fund, which contains more complete information
including risk factors, 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.
410 A98 10/98 [LOGO] Printed on recycled paper
