SEMI ANNUAL REPORT
FEBRUARY 28, 1998
TEMPLETON GLOBAL
REAL ESTATE FUND
[FRANKLIN TEMPLETON LOGO]
PAGE
[FRANKLIN TEMPLETON CELEBRATING OVER 50 YEARS LOGO]
Thank you for investing with Franklin Templeton. We encourage our investors to
maintain a long-term perspective, and to expect that mixed in with the good
years can be some bad years. It's important to 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 JEFFERY A. EVERETT APPEARS HERE]
JEFFREY A. EVERETT
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:
We are pleased to bring you the semi-annual report of Templeton Global Real
Estate Fund for the six months ended February 28, 1998. A strong performance by
our U.S. holdings during this period helped to offset the damage inflicted on
our Hong Kong stocks by the Asian currency crisis, and the Fund's Class I shares
produced a six-month total return of 0.61%, as discussed in the Performance
Summary on page 5.
Although the Asian crisis caused investor concern about the overall valuation of
the U.S. market, domestic real estate stocks remained popular due to their
reputation for providing relative safety during market declines. During the
reporting period, we maintained slightly over 50% of the Fund's total net assets
in
You may find a complete listing of the Fund's portfolio holdings, including the
number of shares and dollar value, beginning on page 11 of this report.
CONTENTS
Shareholder Letter ........ 1
Performance Summary
Class I ................ 5
Class II ............... 7
Financial Highlights &
Statement of Investments .. 9
Financial Statements ...... 15
Notes to Financial
Statements ................ 18
[FUND CATEGORY PYRAMID]
PAGE
GEOGRAPHIC DISTRIBUTION
Based on Total Net Assets
2/28/98
United States 50.6%
Europe 16.9%
Asia 16.0%
Canada 6.8%
Latin America 5.3%
Other 3.2%
Short-Term
Investments &
Other Net Assets 1.2%
U.S. stocks, about two-thirds of which were Real Estate Investment Trusts
(REITs).(1) Several of these holdings helped steady the Fund's performance
throughout the market's volatility. For example, Crescent Real Estate Equities
Co., an owner and developer of properties in Texas and Colorado, and Engle Homes
Inc., a home builder in several Sun Belt states, were very successful at growing
their portfolios with low costs and high profits. Before the end of the period,
we sold our position in Engle Homes at a profit.
Shortly before the period began, we initiated a position in Boston Properties
Inc., a REIT developing office properties in Boston, New York and Washington,
D.C. Its experienced management enabled the company to make several
significantly discounted acquisitions of prime office complexes such as the
Prudential Center in Boston. We believe their strategy of redeveloping existing
buildings in prime locations is preferable to acquiring land for the subsequent
development of new buildings.
The Asian crisis sent property stocks plummeting throughout the region,
particularly in Hong Kong, where developers had benefited from an extreme
imbalance between the unceasing demand for residential housing and a highly
restricted supply. As the crisis caused the availability of mortgage financing
to virtually disappear, property sales dried up, values sank, and prices of some
Hong Kong development companies fell more than 50% during October 1997. In
response, the Hong Kong government attempted to restore liquidity to the market
by creating a mortgage interest deduction that effectively reduced residential
mortgage rates by three percentage points. Believing this could help the
strongest developers remain profitable, we sought to take
(1). 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
advantage of devastated share prices by increasing our exposure to Cheung Kong
Holdings Ltd. and New World Development Co. Ltd., two of Hong Kong's largest
developers.
Compared with Asia's turbulence, the European market seemed quiet. But it is
rapidly expanding as real estate developers and owners make stock offerings in
an effort to take advantage of foreign and local interest. In France,
representing 4.9% of the Fund's total net assets, rents for new and refurbished
buildings have begun to recover from their lows. If the French economy continues
to improve, our investments there could benefit.
Looking forward, proposed legislation to restrict the scope of approved
activities may impact the profitability of REITs in the United States. However,
we expect to remain selective purchasers of REITs whenever we find them at what
we consider bargain prices. We will also monitor closely the possible emergence
of publicly traded real estate assets in Latin America, Eastern Europe and
Russia. If the stock markets of these nations continue to develop and become
more liquid, we may see the U.S.-style securitization of real estate assets. If
this happens, we intend to participate.
Of course, investing in emerging markets involves special considerations, which
may include risks related to market and currency volatility, adverse social,
economic and political developments and their relatively small size and lesser
liquidity. 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.
This discussion reflects the strategies we employed for the Fund during the six
months under review, and includes our opinions as of
TOP 10 HOLDINGS
2/28/98
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- -------------------------------------
Revenue Property Ltd.
Real Estate, Canada 5.1%
Cheung Kong Holdings Ltd.
Multi-Industry, Hong Kong 5.0%
Equity Residential
Properties Trust
Real Estate, U. S. 3.9%
Rouse Co.
Real Estate, U. S. 3.5%
LTC Properties Inc.
Real Estate, U. S. 3.1%
Weeks Corp.
Real Estate, U. S. 3.0%
Highwoods
Properties Inc., REIT
Real Estate, U.S. 3.0%
Security Capital
Pacific Trust, SBI
Real Estate, U. S. 2.7%
CBL & Associates
Properties Inc.
Real Estate, U. S. 2.7%
Crescent Real
Estate Equities Co.
Real Estate, U. S. 2.6%
3
PAGE
the close of the period. Because economic and market conditions are constantly
changing, our strategies and our evaluations, conclusions and decisions
regarding portfolio holdings may change as new circumstances arise. All figures
shown are as of February 28, 1998, and the Fund's holdings can be expected to
change with market developments and management of the portfolio. Although past
performance of a specific investment or sector cannot guarantee future
performance, such information can be useful in analyzing the securities we
purchase or sell for the Fund.
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
- -----------------------
Jeffery A. Everett, CFA
Portfolio Manager
Templeton Global Real Estate Fund
4
PAGE
PERFORMANCE SUMMARY
CLASS I
Templeton Global Real Estate Fund - Class I produced a 0.61% cumulative total
return for the six-month period ended February 28, 1998. Cumulative total return
measures the change in value of an investment, assuming reinvestment of
dividends and capital gains, if any, 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 6, the Fund's Class I shares delivered a cumulative total
return of more than 108% since inception on September 12, 1989.
During the reporting period, the Fund's share price, as measured by net asset
value, decreased $0.37, from $16.33 on August 31, 1997 to $15.96 on February 28,
1998. Shareholders received per-share distributions of 33 cents ($0.33) in
dividend income 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 Fund's portfolio, as well as the level of the
Fund's operating expenses.
Past performance is not predictive of future results.
5
PAGE
CLASS I
Periods Ended 2/28/98
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 5-YEAR (9/12/89)
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) 7.31% 59.11% 108.53%
Average Annual Total Return(2) 1.17% 8.44% 8.31%
Value of $10,000 Investment(3) $10,117 $14,997 $19,654
</TABLE>
<TABLE>
<CAPTION>
2/28/94 2/28/95 2/28/96 2/28/97 2/28/98
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One-Year Total Return(4) 27.17% -12.10% 11.79% 18.66% 7.31%
</TABLE>
(1). Cumulative total return represents the change in value of an investment
over the indicated periods and does not include the sales charge. See Note
below.
(2). Average annual total return represents the average annual change in value
of an investment over the indicated periods and includes the current, maximum
5.75% initial sales charge. See Note below.
(3). These figures represent the value of a hypothetical $10,000 investment in
the Fund over the indicated periods, and include the current, maximum 5.75%
initial sales charge. See Note below.
(4). One-year total return represents the change in value of an investment over
the one-year periods ended on the indicated dates, and does not include the
sales charge.
Note: Total returns have been restated to reflect the current maximum 5.75%
initial sales charge. Prior to July 1, 1992, the Fund's Class I shares were
offered at a higher initial sales charge. Thus, actual total returns would have
been lower. 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 dividends and capital gains at net asset
value. Investment return and principal value will fluctuate with market
conditions, currency volatility and the economic, social, and political climates
of countries where investments are made. 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.
6
PAGE
CLASS II
Templeton Global Real Estate Fund - Class II produced a cumulative total return
of 0.14% for the six months ended February 28, 1998. Cumulative total return
measures the change in value of an investment, assuming reinvestment of
dividends and capital gains, if any, and does not include sales charges.
During the reporting period, the Fund's share price, as measured by net asset
value, decreased $0.33, from $16.16 on August 31, 1997, to $15.83 on February
28, 1998. Shareholders received per-share distributions of 21.48 cents ($0.2148)
in dividend income 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 Fund's portfolio, as well as the
level of the Fund's operating expenses.
Past performance is not predictive of future results.
7
PAGE
CLASS II
Periods Ended 2/28/98
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR (5/1/95)
- ------------------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return(1) 6.32% 39.12%
Average Annual Total Return(2) 4.29% 11.98%
Value of $10,000 Investment(3) $10,429 $13,777
</TABLE>
<TABLE>
<CAPTION>
2/28/97 2/28/98
- -----------------------------------------------------------------------
<S> <C> <C>
One-Year Total Return(4) 17.87% 6.32%
</TABLE>
(1). Cumulative total return represents the change in value of an investment
over the indicated periods and does not include sales charges.
(2). Average annual total return represents the average annual change in value
of an investment over the indicated periods, and includes the 1.0% initial sales
charge and the 1.0% contingent deferred sales charge applicable to shares
redeemed within the first 18 months of investment.
(3). These figures represent the value of a hypothetical $10,000 investment in
the Fund over the indicated periods, and include all sales charges.
(4). One-year total return represents the change in value of an investment over
the one-year periods ended on the indicated dates, and does not include sales
charges.
All calculations assume reinvestment of dividends and capital gains at net asset
value. Investment return and principal value will fluctuate with market
conditions, currency volatility and the economic, social, and political climates
of countries where investments are made. 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.
8
PAGE
TEMPLETON GLOBAL REAL ESTATE FUND
Financial Highlights
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 1998 -------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE - CLASS I
(For a share outstanding throughout the
period)
Net asset value, beginning of period....... $16.33 $13.78 $13.20 $13.66 $12.66 $10.40
----------------------------------------------------------------------------
Income from investment operations:
Net investment income..................... .14 .39 .31 .39 .22 .25
Net realized and unrealized gain (loss)... (.05) 2.58 .64 (.64) 1.00 2.36
----------------------------------------------------------------------------
Total from investment operations........... .09 2.97 .95 (.25) 1.22 2.61
----------------------------------------------------------------------------
Less distributions from:
Net investment income..................... (.33) (.42) (.37) (.21) (.22) (.35)
Net realized gains........................ (.13) -- -- -- -- --
----------------------------------------------------------------------------
Total distributions........................ (.46) (.42) (.37) (.21) (.22) (.35)
----------------------------------------------------------------------------
Net asset value, end of period............. $15.96 $16.33 $13.78 $13.20 $13.66 $12.66
============================================================================
Total Return*.............................. .61% 22.06% 7.48% (1.74)% 9.69% 25.94%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's).......... $140,886 $151,777 $125,875 $130,149 $131,544 $61,820
Ratios to average net assets:
Expenses.................................. 1.48%** 1.45% 1.51% 1.55% 1.58% 1.68%
Net investment income..................... 1.72%** 2.55% 2.73% 3.05% 1.97% 2.60%
Portfolio turnover rate.................... 16.68% 24.03% 20.07% 38.69% 32.34% 19.74%
Average commission rate paid***............ $.0042 $.0053 $.0418 -- -- --
</TABLE>
*Total return does not reflect sales commissions and is not annualized.
**Annualized.
***Relates to purchases and sales of equity securities. Prior to fiscal year
1996 disclosure of average commission rate was not required.
9
PAGE
TEMPLETON GLOBAL REAL ESTATE FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28,1998 --------------------------
(UNAUDITED) 1997 1996 1995+
-----------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE - CLASS II
(For a share outstanding throughout the period)
Net asset value, beginning of period........................ $16.16 $13.67 $13.17 $12.25
-----------------------------------------------
Income from investment operations:
Net investment income...................................... .07 .31 .33 .03
Net realized and unrealized gain (loss).................... (.06) 2.52 .52 .89
-----------------------------------------------
Total from investment operations............................ .01 2.83 .85 .92
-----------------------------------------------
Less distributions from:
Net investment income...................................... (.21) (.34) (.35) --
Net realized gains......................................... (.13) -- -- --
-----------------------------------------------
Total distributions......................................... (.34) (.34) (.35) --
-----------------------------------------------
Net asset value, end of period.............................. $15.83 $16.16 $13.67 $13.17
===============================================
Total Return*............................................... .14% 21.12% 6.69% 7.51%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........................... $8,667 $8,917 $5,275 $1,823
Ratios to average net assets:
Expenses................................................... 2.23%** 2.20% 2.26% 2.26%**
Net investment income...................................... .97%** 1.74% 2.20% 1.71%**
Portfolio turnover rate..................................... 16.68% 24.03% 20.07% 38.69%
Average commission rate paid***............................. $.0042 $.0053 $.0418 --
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge and is not annualized.
**Annualized.
***Relates to purchases and sales of equity securities. Prior to fiscal year
1996 disclosure of average commission rate was not required.
+For the period May 1, 1995 (effective date) to August 31, 1995.
10 See Notes to Financial Statements.
PAGE
TEMPLETON GLOBAL REAL ESTATE FUND
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 92.2%
BANKING 2.8%
Banque Nationale de Paris BNP............................... France 30,646 $ 1,854,432
HSBC Holdings Plc. ......................................... Hong Kong 35,324 1,021,967
National Australia Cap Sec Plc. ............................ Australia 3,400 96,475
National Westminster Bank Plc. ............................. United Kingdom 65,000 1,198,845
PT Lippo Bank, fgn. ........................................ Indonesia 12,500 1,082
*Shinhan Bank Co. Ltd. ..................................... South Korea 7,224 34,373
------------
4,207,174
------------
BUILDING MATERIALS & COMPONENTS 1.6%
Suez Cement Co. ............................................ Egypt 88,000 1,772,286
Unione Cementi Marchino Emiliane (Unicem), di Risp.......... Italy 139,580 702,097
------------
2,474,383
------------
BUSINESS & PUBLIC SERVICES .9%
+Horizon Group Inc. ........................................ United States 107,520 1,290,240
------------
CONSTRUCTION & HOUSING 2.6%
*Crossmann Communities Inc. ................................ United States 4,500 117,000
Daito Trust Construction Co. Ltd. .......................... Japan 191,600 1,701,761
++*Sundance Homes Inc. ..................................... United States 690,000 1,725,000
Toda Corp. ................................................. Japan 70,000 340,841
------------
3,884,602
------------
DATA PROCESSING & REPRODUCTION .8%
Rank Group Plc. ............................................ United Kingdom 224,500 1,235,345
------------
ENERGY SOURCES 2.4%
Petron Corporation.......................................... Philippines 1,426,000 211,525
Societe Elf Aquitaine SA.................................... France 10,317 1,175,644
Valero Energy Corp., new.................................... United States 60,700 2,154,850
------------
3,542,019
------------
FINANCIAL SERVICES 1.2%
Fannie Mae ................................................. United States 27,000 1,722,938
*Security Capital Group, wts. .............................. United States 13,795 50,869
------------
1,773,807
------------
FOREST PRODUCTS & PAPER 2.3%
Georgia-Pacific Corp. ...................................... United States 17,200 1,009,425
Georgia-Pacific Timber Group................................ United States 17,200 392,375
St. Joe Paper Corp. ........................................ United States 60,000 2,047,500
------------
3,449,300
------------
</TABLE>
11
PAGE
TEMPLETON GLOBAL REAL ESTATE FUND
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
LEISURE & TOURISM 1.5%
Grand Hotel Holdings Ltd. .................................. Hong Kong 2,469,000 $ 548,490
Mandarin Oriental Intl. Ltd. ............................... Singapore 1,501,000 1,253,335
Oriental Hotel (Thailand) Public Co. Ltd., fgn. ............ Thailand 76,200 410,648
------------
2,212,473
------------
MERCHANDISING .6%
Li & Fung Ltd. ............................................. Hong Kong 70,000 105,780
Wessel & Vett AS, C......................................... Denmark 12,000 789,748
------------
895,528
------------
METALS & MINING 3.1%
Anglo American Platinum Corp. Ltd. ......................... South Africa 1,208 17,210
Boehler Uddeholm AG......................................... Austria 9,500 610,610
British Steel Plc. ......................................... United Kingdom 515,800 1,240,680
*Industrias Penoles SA...................................... Mexico 391,100 1,651,663
PT Tambang Timah (Persero).................................. Indonesia 555,000 468,184
RGC Ltd. ................................................... Australia 447,522 607,600
------------
4,595,947
------------
MISCELLANEOUS MATERIALS & COMMODITIES .4%
De Beers Centenary Linked Units, Reg........................ South Africa 27,600 547,364
------------
MULTI-INDUSTRY 7.5%
Cheung Kong Holdings Ltd. .................................. Hong Kong 1,066,000 7,469,228
First Pacific Co. .......................................... Hong Kong 1,415,300 722,045
Hutchison Whampoa Ltd. ..................................... Hong Kong 210,000 1,484,985
Metro Pacific Corp. MDI..................................... Philippines 22,750,777 949,498
Swire Pacific Ltd., B....................................... Hong Kong 533,800 537,764
------------
11,163,520
------------
REAL ESTATE 58.6%
+American Health Properties Inc. ........................... United States 64,300 1,756,194
Bail Investissement......................................... France 8,700 1,301,817
+Boston Properties Inc. .................................... United States 65,000 2,210,000
*Canlan Investment Corp. ................................... Canada 595,600 1,108,969
+Carramerica Realty Corp. .................................. United States 65,000 1,933,750
*Catellus Development Corp. ................................ United States 90,000 1,631,250
+CBL & Associates Properties Inc. .......................... United States 160,000 3,980,000
+Charles E. Smith Residential Realty Inc. .................. United States 80,000 2,640,000
China Resources Beijing Land Ltd., 144A..................... China 480,300 241,933
+Crescent Real Estate Equities Co. ......................... United States 113,500 3,866,094
+Equity Residential Properties Trust........................ United States 100,000 4,793,750
+Federal Realty Investment Trust............................ United States 33,000 816,750
+General Growth Properties.................................. United States 104,000 3,796,000
+Health Care Property Investors Inc. ....................... United States 30,000 1,113,750
+Highwoods Properties Inc., REIT............................ United States 127,800 4,449,038
Inversiones y Representacion SA............................. Argentina 338,051 1,173,636
</TABLE>
12
PAGE
TEMPLETON GLOBAL REAL ESTATE FUND
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
REAL ESTATE (CONT.)
Inversiones y Representacion SA, GDR........................ Argentina 832 $ 29,016
+LTC Properties Inc. ....................................... United States 226,000 4,689,500
+Nationwide Health Properties Inc. ......................... United States 122,000 3,225,375
New Asia Realty and Trust Co. Ltd., A....................... Hong Kong 388,000 781,763
New World Development Co. Ltd. ............................. Hong Kong 747,632 2,756,848
+*Northstar Capital Investment Corp. ....................... United States 95,000 1,947,500
+Omega Healthcare Investors Inc. ........................... United States 57,184 2,219,442
PT Jaya Properties.......................................... Indonesia 3,874,500 205,630
++Revenue Property Ltd. .................................... Canada 3,294,739 7,639,304
Rouse Co. .................................................. United States 156,300 5,196,975
Ryoden Development Ltd. .................................... Hong Kong 3,650,000 612,851
+Security Capital Industrial Trust.......................... United States 93,808 2,274,844
+Security Capital Pacific Trust, SBI........................ United States 179,111 4,108,359
*Security Capital US Realty................................. Luxembourg 232,000 3,224,800
+Summit Properties Inc., REIT............................... United States 91,300 1,848,825
Taylor Woodrow Plc. ........................................ United Kingdom 315,802 1,061,379
Union du Credit Bail Immobilier Unibail..................... France 26,850 2,931,579
+Weeks Corp. ............................................... United States 135,000 4,455,000
Westfield Trust, units...................................... Australia 784,365 1,693,242
------------
87,715,163
------------
TELECOMMUNICATIONS .4%
Telecomunicacoes Brasileiras SA (Telebras).................. Brazil 6,664,000 660,356
------------
TRANSPORTATION 2.2%
East Japan Railway Co. ..................................... Japan 180 852,181
Florida East Coast Industries Inc. ......................... United States 11,000 1,199,000
Peninsular & Oriental Steam Navigation Co. ................. United Kingdom 102,523 1,317,472
------------
3,368,653
------------
UTILITIES ELECTRICAL & GAS 3.3%
*Korea Electric Power Corp. ................................ South Korea 80,440 1,073,847
*Mosenergo, ADR............................................. Russia 18,873 750,202
National Grid Group Plc. ................................... United Kingdom 199,070 1,124,930
National Power Plc. ........................................ United Kingdom 192,378 1,996,740
------------
4,945,719
------------
TOTAL COMMON STOCKS (COST $115,302,352)..................... 137,961,593
------------
PREFERRED STOCKS 4.1%
Baumax AG, pfd.............................................. Austria 36,907 630,144
Cia Vale do Rio Doce, pfd. ................................. Brazil 30,800 670,424
Cia Vale do Rio Doce, ADR, pfd., A.......................... Brazil 31,200 679,131
</TABLE>
13
PAGE
TEMPLETON GLOBAL REAL ESTATE FUND
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998 (UNAUDITED) (CONT.)
PREFERRED STOCKS (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------
<S> <C> <C> <C>
PREFERRED STOCKS (CONT.)
Equity Residential Properties Trust, conv., pfd., G......... United States 40,000 $ 1,000,000
Nacional Financiera SA, conv., pfd., 11.25%, 5/15/98........ Mexico 15,700 780,094
Petrobras Distribuidora SA, pfd............................. Brazil 38,683,700 677,731
Petroleo Brasileiro SA (Petrobras), pfd. ................... Brazil 7,301,000 1,653,812
------------
TOTAL PREFERRED STOCKS (COST $6,984,035).................... 6,091,336
------------
<CAPTION>
PRINCIPAL
AMOUNT**
----------
<S> <C> <C> <C>
BONDS 2.5%
Italy Govt., conv., 5.00%, 6/28/01.......................... Italy $1,345,000 2,163,769
Metro Pacific Capital, conv., 144A, 2.50%, 4/11/03.......... Philippines 175,000 128,625
++Revenue Property Ltd., conv., 6.00%, 3/01/04.............. Canada 1,400,000 1,365,000
------------
TOTAL BONDS (COST $2,957,172)............................... 3,657,394
------------
SHORT TERM INVESTMENTS 1.6%
Fannie Mae, 5.50% to 5.54%, with maturities to 3/26/98...... United States 176,000 175,643
Federal Farm Credit Banks, 5.47% to 5.55%,
with maturities to 6/02/98................................ United States 2,053,000 2,052,775
Federal Home Loan Mortgage Corp., 5.37% to 5.41%,
with maturities to 3/31/98................................ United States 233,000 232,206
------------
TOTAL SHORT TERM INVESTMENTS (COST $2,461,001).............. 2,460,624
------------
TOTAL INVESTMENTS (COST $127,704,560) 100.4%................ 150,170,947
OTHER ASSETS, LESS LIABILITIES (.4%)........................ (618,035)
------------
TOTAL NET ASSETS 100.0%..................................... $149,552,912
============
</TABLE>
*Non-income producing.
**Securities traded in U.S. dollars.
+Real Estate Investment Trust (37.5% of total net assets).
++Affiliated issuers (See Note 6).
14 See Notes to Financial Statements.
PAGE
TEMPLETON GLOBAL REAL ESTATE FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1998 (UNAUDITED)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $127,704,560).... $150,170,947
Receivables:
Fund shares sold.......................................... 157,320
Dividends and interest.................................... 336,926
------------
Total assets.......................................... 150,665,193
------------
Liabilities:
Payables:
Investment securities purchased........................... 215,000
Fund shares redeemed...................................... 563,218
To affiliates............................................. 167,655
Distributions to shareholders.............................. 23,931
Funds advanced by custodian................................ 4,623
Other liabilities.......................................... 137,854
------------
Total liabilities..................................... 1,112,281
------------
Net assets, at value........................................ $149,552,912
============
Net assets consist of:
Undistributed net investment income........................ $ 202,478
Net unrealized appreciation................................ 22,466,387
Accumulated net realized gain.............................. 5,118,966
Beneficial shares.......................................... 121,765,081
------------
Net assets, at value........................................ $149,552,912
============
CLASS I:
Net asset value per share ($140,885,599 / 8,830,062 shares
outstanding).............................................. $15.96
============
Maximum offering price per share ($15.96 / 94.25%)......... $16.93
============
CLASS II:
Net asset value per share ($8,667,313 / 547,568 shares
outstanding)*............................................. $15.83
============
Maximum offering price per share ($15.83 / 99.00%)......... $15.99
============
</TABLE>
*Redemption price per share is equal to net asset value less any applicable
sales charge.
See Notes to Financial Statements.
15
PAGE
TEMPLETON GLOBAL REAL ESTATE FUND
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $68,375)
Dividends.................................................. $2,169,140
Interest................................................... 263,246
----------
Total investment income............................... $ 2,432,386
Expenses:
Management fees (Note 3)................................... 570,388
Administrative fees (Note 3)............................... 114,077
Distribution fees (Note 3)
Class I.............................................. 179,455
Class II............................................. 43,214
Transfer agent fees (Note 3)............................... 105,773
Custodian fees............................................. 28,547
Reports to shareholders.................................... 54,200
Registration and filing fees............................... 19,000
Professional fees (Note 3)................................. 35,987
Trustees' fees and expenses................................ 6,000
Other...................................................... 422
----------
Total expenses........................................ 1,157,063
-----------
Net investment income........................... 1,275,323
-----------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... 6,375,459
Foreign currency transactions............................. (26,889)
----------
Net realized gain...................................... 6,348,570
Net unrealized depreciation on investments............. (6,958,600)
-----------
Net realized and unrealized loss............................ (610,030)
-----------
Net increase in net assets resulting from operations........ $ 665,293
===========
</TABLE>
See Notes to Financial Statements.
16
PAGE
TEMPLETON GLOBAL REAL ESTATE FUND
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 28, 1998 YEAR ENDED
(UNAUDITED) AUGUST 31, 1997
--------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 1,275,323 $ 3,760,069
Net realized gain from investments and foreign currency
transactions............................................ 6,348,570 6,263,665
Net unrealized appreciation (depreciation) on
investments.............................................. (6,958,600) 19,072,168
------------------------------------
Net increase in net assets resulting from operations.... 665,293 29,095,902
Distributions to shareholders from:
Net investment income:
Class I.................................................. (3,012,878) (3,880,651)
Class II................................................. (118,814) (148,294)
Net realized gains:
Class I.................................................. (1,184,033) --
Class II................................................. (71,426) --
Capital share transactions (Note 2):
Class I.................................................. (7,348,817) 2,081,128
Class II................................................. (70,707) 2,396,525
------------------------------------
Net increase (decrease) in net assets................... (11,141,382) 29,544,610
Net assets:
Beginning of period........................................ 160,694,294 131,149,684
------------------------------------
End of period.............................................. $149,552,912 $160,694,294
====================================
Undistributed net investment income included in net assets:
End of period.............................................. $ 202,478 $ 2,058,847
====================================
</TABLE>
See Notes to Financial Statements.
17
PAGE
TEMPLETON GLOBAL REAL ESTATE FUND
Notes to Financial Statements (unaudited)
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 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. 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.
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
18
PAGE
TEMPLETON GLOBAL REAL ESTATE FUND
Notes to Financial Statements (unaudited) (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (CONT.)
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
differs 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 February 28, 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>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1998 AUGUST 31, 1997
-------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS I SHARES:
Shares sold................................................ 598,613 $ 9,438,531 2,014,081 $ 30,445,208
Shares issued on reinvestment of distributions............. 239,425 3,768,692 232,731 3,281,785
Shares redeemed............................................ (1,304,761) (20,556,040) (2,082,833) (31,645,865)
-------------------------------------------------------------
Net increase (decrease).................................... (466,723) $ (7,348,817) 163,979 $ 2,081,128
=============================================================
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1998 AUGUST 31, 1997
-------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS II SHARES:
Shares sold................................................ 64,147 $ 1,008,377 301,806 $ 4,542,020
Shares issued on reinvestment of distributions............. 10,567 164,828 9,139 128,318
Shares redeemed............................................ (79,056) (1,243,912) (144,901) (2,273,813)
-------------------------------------------------------------
Net increase (decrease).................................... (4,342) $ (70,707) 166,044 $ 2,396,525
=============================================================
</TABLE>
19
PAGE
TEMPLETON GLOBAL REAL ESTATE FUND
Notes to Financial Statements (unaudited) (continued)
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 aggregate 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 February 28, 1998, unreimbursed costs were $66,295. Distributors
received net commissions from sales of Fund shares, and received contingent
deferred sales charges for the period of $38,174 and $1,479, respectively.
Included in professional fees are legal fees of $11,401 that were paid to a law
firm in which a partner is an officer of the Fund.
4. INCOME TAXES
At August 31, 1997, the Fund had tax basis capital losses of $684,975 which may
be carried over to offset future capital gains. Such losses expire August 31,
2004.
At February 28, 1998, the net unrealized appreciation based on the cost of
investments for income tax purposes of $127,872,473 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 38,611,945
Unrealized depreciation..................................... (16,313,471)
------------
Net unrealized appreciation................................. $ 22,298,474
============
</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.
20
PAGE
TEMPLETON GLOBAL REAL ESTATE FUND
Notes to Financial Statements (unaudited) (continued)
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended February 28, 1997 aggregated $24,476,585 and $25,048,903,
respectively.
6. HOLDING OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
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 February 28, 1998
were:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES HELD GROSS GROSS SHARES HELD VALUE DIVIDEND INCOME
NAME OF ISSUER AUG. 31, 1997 ADDITIONS REDUCTIONS FEB. 28, 1998 FEB. 28, 1998 9/1/97-2/28/98
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue Property Ltd. .................. 3,294,739 -- -- 3,249,739 $ 7,639,304 --
Revenue Property Ltd., conv., 6.00%,
3/01/04................................ 1,400,000 -- -- 1,400,000 1,365,000 --
Sundance Homes Inc. .................... 690,000 -- -- 690,000 1,725,000 --
-------------------------------
TOTAL AFFILIATES........................ $10,729,304 $--
===============================
<CAPTION>
REALIZED
CAPITAL
NAME OF ISSUER GAINS
- ---------------------------------------------------
<S> <C>
Revenue Property Ltd. .................. --
Revenue Property Ltd., conv., 6.00%,
3/01/04................................ --
Sundance Homes Inc. .................... --
---------
TOTAL AFFILIATES........................ $--
=========
</TABLE>
21
PAGE
LITERATURE REQUEST
For a free brochure and prospectus, which contain more complete information,
including charges and expenses, call Franklin Fund Information, toll free, at
1-800/DIAL BEN (1-800/342-5236). Please read the prospectus carefully before you
invest or send 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
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
Franklin Templeton German
Government Bond Fund
Franklin Templeton Global
Currency Fund
Mutual European Fund
Templeton Global Bond Fund
Templeton Growth and
Income Fund
GLOBAL INCOME
Franklin Global Government
Income Fund
Franklin Templeton Hard
Currency Fund
Franklin Templeton High Income
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
Mutual Discovery 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
Templeton American Trust, Inc.
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 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
For Corporations
Franklin Corporate Qualified
Dividend 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
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.
PAGE
PRINCIPAL UNDERWRITER
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404-1585
SHAREHOLDER SERVICES
1-800/632-2301
FUND INFORMATION
1-800/342-5236
This report must be preceded or accompanied by the current prospectus for the
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.
[RECYCLE LOGO] Printed on recycled paper
410 S98 04/98
