Your Fund's Objective:
The Franklin Real Estate Securities Fund seeks to maximize total return by
investing in securities of companies in the real estate industry, primarily
equity real estate investment trusts (REITs). To reduce the volume of mail
shareholders receive and to reduce expenses, only one copy of most fund reports,
such as annual and semi-annual reports, may be mailed to a household. Additional
copies can be obtained, without charge, by calling Franklin Templeton Fund
Information at 1-800/DIAL BEN (1-800/342-5236).
December 15, 1995
Dear Shareholder:
We are pleased to bring you the semi-annual report of the Franklin Real Estate
Securities Fund for the period ended October 31, 1995.
During the six months under review, the U.S. real estate market continued to
recover. Despite new property development within certain geographic regions and
property types, occupancy and rental rates rose across many markets as tenants
absorbed vacant space in new and existing properties. This trend contributed to
an improvement in the performance of real estate related securities. We are
pleased to report that your fund's Class I shares, as shown in the Performance
Summary on page 5, provided a total return of +11.15% for the reporting period,
surpassing its benchmark, the unmanaged Wilshire Real Estate Securities Index,
which posted a total return of +6.68% for the same period.* The fund's strong
performance was the result of our overall security selection, as well as the
fund's relatively high exposure to the hotel and homebuilding sectors and
relatively low exposure to the retail property sector.
*The Wilshire Real Estate Securities Index is an unmanaged,
market-capitalization weighted index of publicly traded real estate securities
including both REITs and Real Estate Operating Companies.
As you know, the fund invests in the securities of companies operating in the
real estate industry, focusing primarily on equity real estate investment trusts
(REITs), as well as securities issued by homebuilders and developers. Equity
REITs are real estate companies that own and manage income-producing properties
such as apartments or hotels. The income, primarily rent from these properties,
is generally passed through to investors in the form of dividends. Equity REIT
management teams look to increase property income, and consequently dividend
payments to investors, by increasing rents on existing properties and by
acquiring or developing additional properties. These companies provide
experienced property management teams and generally concentrate on a specific
geographic region and property type.
GRAPHIC MATERIAL 1 AND 2 OMMITTED - SEE APPENDIX AT END OF DOCUMENT
Our long-term investment strategy is focused on equity REITs and real estate
operating companies with strong growth prospects and attractive valuations. We
favor companies that invest in a single property type and maintain a dominant
position in their local markets, which can often provide them with a competitive
advantage in terms of future growth. The result of our approach has been a
high-quality, diversified real estate securities portfolio with stable and
growing dividends and excellent total return prospects. Keep in mind that there
are special risks involved with investing in a non-diversified fund
concentrating in real estate securities, such as declines in the value of real
estate and increased susceptibility to adverse economic or regulatory
developments. These risks are further discussed in the fund's prospectus.
The majority of the fund's investments were concentrated in securities of
regionally dominant firms operating in the apartment, hotel, industrial, and
self-storage sectors. Although the fund's largest sector continued to be
apartments, we sold several positions that could be adversely affected by slower
cash flow growth, reducing the overall weighting from 30.2% of total net assets
on April 30, 1995, to 24.0% on October 31, 1995. Among the securities sold were
equity REITs that were experiencing unexpectedly large increases in operating
expenses, located in areas where we expected declining job and population
growth, or at risk from new apartment construction in their local markets. We
continued to hold positions of top-quality apartment operators with strong cash
flow growth, such as Equity Residential Properties Trust and Security Capital
Pacific Trust. In addition, we increased our exposure to Bay Apartment
Communities and Irvine Apartment Communities, two California-based equity REITs
that we believe face limited risk from new development and are poised for
substantial rent growth.
Over the course of the reporting period, we increased the fund's exposure to the
hotel sector from 14.2% to 18.7% of total net assets as growing demand for hotel
rooms continued to outpace new construction. Room rates and occupancy rates have
risen since 1991, producing hotel revenue growth of more than 5% per year from
1991 through 1994. New hotel development was limited during this period due to
restrictive lending practices by banks and financial institutions. The fund's
core holdings in this sector are FelCor Suite Hotels, Winston Hotels, and Host
Marriott Corp. Positions added to the portfolio include Starwood Lodging Trust,
Red Lion Hotels, and Patriot American Hospitality, Inc. Our outlook for hotel
properties remains positive, and we expect the fund's hotel REITs to report
double-digit cash flow growth as this market continues to strengthen.
In addition to initiating positions in the hotel sector, we made two other new
investments during the reporting period. First, we added a position in Security
Capital U.S. Realty, a Luxembourg-based corporation with ownership in U.S.-based
companies that own and operate real estate properties. Our second new position
is Southern Energy Homes, Inc., a manufactured-home builder in the Southeast
that is currently benefiting from strong economic growth in that region and a
shift by homebuyers to more affordable alternatives, such as manufactured homes.
The fund's retail sector represented 10.7% of total net assets at the end of the
period. This was significantly underweighted compared with the Wilshire Index,
which had a 37% weighting in this sector. We believe retailers will continue to
face serious obstacles, including lower profit margins, increased competition
and slow sales growth. Many retail landlords may find it difficult to raise
occupancy and rental rates within such an environment. The fund benefited from
its relatively small exposure to this sector because retail REITs produced the
lowest total returns across all property types during the six-month reporting
period. Our retail positions include the leading owners and operators of
regional malls, shopping centers and factory outlets. We believe these companies
should benefit from strong owner-tenant relationships and from turmoil in the
retail industry, which may create opportunities to acquire properties from
distressed sellers.
Overall, the real estate industry's recovery is well underway across most
property types. Rising demand for space from new and existing tenants, coupled
with a relatively low level of new construction, should continue to drive this
recovery. Considering their conservative debt levels, quality management teams
and strong property types, we believe the fund's equity REITs are
well-positioned to generate cash flow and dividend growth of approximately 5% to
10% over the next few years. We believe that the fund's investments in equity
REITs and other real estate securities are attractively valued and should
continue to benefit from the recovery in the real estate industry.
We appreciate your participation in the Franklin Real Estate Securities Fund and
look forward to serving your investment needs in the years to come.
Sincerely,
Charles B. Johnson
Chairman of the Board
Performance Summary
The Franklin Real Estate Securities Fund's Class I and Class II shares provided
total returns of +11.15% and +10.67%, respectively, for the six-month period
ended October 31, 1995. 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.
As measured by net asset value, the price of the fund's Class I shares increased
from $10.58 on April 30, 1995 to $11.76 on October 31, 1995, and Class II shares
increased from $10.59 on May 1, 1995 (the date the fund began offering these
shares), to $11.72 on October 31, 1995. Of course, past performance is not
predictive of future results.
Since the fund pays out any dividends and capital gains annually in December,
there were no distributions during this reporting period. Shareholders should be
aware that distributions will vary depending on income earned by the fund and
any profits realized from the sale of securities in the portfolio.
Franklin Real Estate Securities Fund
Periods ended October 31, 1995
Since Since
Inception Inception
One-Year (01/03/94) (05/01/95)
Cumulative
Total Return1
Class I Shares 16.04% 20.80% --
Class II Shares -- -- 10.67%
Average Annual
Total Return2
Class I Shares 10.83% 8.14% --
Aggregate
Total Return3
Class II Shares -- -- 8.54%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the maximum 4.5% initial sales charge
for Class I shares, or the maximum 1.0% initial sales charge and 1.0% contingent
deferred sales charge (CDSC) for Class II shares, applicable to shares redeemed
within the first 18 months of investment.
2. Average annual total return represents the average annual change in value of
an investment over the specified periods and includes the maximum 4.5% initial
sales charge for Class I shares.
3. Aggregate total return represents the change in value of an investment over
the period indicated and reflects the deduction of the maximum 1.0% initial
sales charge and 1.0% CDSC for Class II Shares, applicable to shares redeemed
within the first 18 months of investment. Since Class II Shares have been in
existence for less than one year, average annual total returns are not provided.
All total return calculations assume reinvestment of dividends and capital
gains, if any. Investment return and principal value will fluctuate with market
conditions, and you may have a gain or loss when you sell your shares. Class II
shares, which the fund began offering on May 1, 1995, are subject to different
fees and expenses, which will affect their performance. Past performance is not
predictive of future results.
The fund's manager has agreed in advance to waive all of its management fees,
which reduces operating expenses and increases total return to shareholders.
Without this waiver, the fund's total return would have been lower. The waiver
may be discontinued at any time, upon notice to the fund's Board of Trustees.
FRANKLIN REAL ESTATE SECURITIES TRUST
Franklin Real Estate Securities Fund
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, October 31, 1995 (unaudited)
Value
Shares (Note 1)
Common Stocks 92.6%
Equity REIT - Apartments24.0%
<S> <C> <C>
13,000 Amli Residential Properties Trust ............................................... $ 250,250
31,000 Bay Apartment Communities, Inc. ................................................. 639,375
16,000 Camden Property Trust............................................................ 332,000
25,000 Equity Residential Properties Trust ............................................. 700,000
24,000 Evans Withycombe Residential, Inc. .............................................. 453,000
14,000 Gables Residential Trust ........................................................ 301,000
23,000 Irvine Apartment Communities, Inc. .............................................. 411,125
25,000 Merry Land & Investment Co. ..................................................... 525,000
24,000 Oasis Residential, Inc. ......................................................... 522,000
20,000 Post Properties, Inc. ........................................................... 600,000
31,000 Security Capital Pacific Trust................................................... 554,125
19,000 South West Property Trust........................................................ 230,375
15,000 Summit Properties, Inc. ......................................................... 277,500
20,000 United Dominion Realty Trust, Inc. .............................................. 275,000
-------------
6,070,750
-------------
Equity REIT - Health Care4.8%
8,000 Health Care Property Investors, Inc. ............................................ 271,000
10,000 Nationwide Health Properties, Inc. .............................................. 411,250
21,000 Omega Healthcare Investors, Inc. ................................................ 532,875
-------------
1,215,125
-------------
Equity REIT - Hotels13.7%........................................................
50,000 Equity Inns, Inc. ............................................................... 587,500
29,000 FelCor Suite Hotels, Inc. ....................................................... 837,375
15,000 Patriot American Hospitality, Inc. .............................................. 365,625
30,000 RFS Hotel Investors, Inc. ....................................................... 453,750
17,000 Starwood Lodging Trust .......................................................... 463,250
69,000 Winston Hotels, Inc. ............................................................ 767,625
-------------
3,475,125
-------------
Equity REIT - Industrial9.2%
15,000 CenterPoint Properties Corp. .................................................... 339,375
13,000 Duke Realty Investment, Inc. .................................................... 398,125
21,000 Liberty Property Trust........................................................... 425,250
31,500 Security Capital Industrial Trust ............................................... 515,813
13,000 Spieker Properties, Inc. ........................................................ 315,250
14,000 Weeks Corp. ..................................................................... 322,000
-------------
2,315,813
-------------
Equity REIT - Mixed Property Type 1.0%
10,000 Colonial Properties Trust........................................................ $ 250,000
-------------
Equity REIT - Office3.8%
11,000 Beacon Properties Corp. ......................................................... 239,250
9,500 Crescent Real Estate Equities, Inc. ............................................. 304,000
16,000 Highwoods Properties, Inc. ...................................................... 426,000
-------------
969,250
-------------
Equity REIT - Residential Communities3.7%
20,000 Manufactured Home Communities, Inc. ............................................. 330,000
13,000 ROC Communities, Inc. ........................................................... 292,500
13,000 Sun Communities, Inc. ........................................................... 323,375
-------------
945,875
-------------
Equity REIT - Retail - Community Shopping Centers3.4%
10,000 Developers Diversified Realty Corp. ............................................. 285,000
6,000 Kimco Realty Corp. .............................................................. 221,250
10,000 Vornado Realty Trust ............................................................ 358,750
-------------
865,000
-------------
Equity REIT - Retail - Outlet Centers2.0%
10,000 Chelsea GCA Realty, Inc. ........................................................ 277,500
9,000 Tanger Factory Outlet Centers, Inc. ............................................. 211,500
-------------
489,000
-------------
Equity REIT - Retail - Regional Malls5.3%
20,000 DeBartolo Realty Corp. .......................................................... 260,000
8,500 General Growth Properties Trust.................................................. 171,062
13,000 Simon Property Group, Inc. ...................................................... 303,875
17,500 The Macerich Company............................................................. 352,187
15,000 The Mills Corp. ................................................................. 256,875
-------------
1,343,999
-------------
Equity REIT - Storage7.4%
33,000 Storage Equities, Inc. .......................................................... 606,375
39,000 Storage Trust Realty ............................................................ 765,375
17,000 Storage USA, Inc. ............................................................... 497,250
-------------
1,869,000
-------------
Home Builders5.3%
14,000 a Beazer Homes USA, Inc. .......................................................... 245,000
5,000 Centex Corp. .................................................................... 163,750
8,000 Kaufman & Broad Homes Corp. ..................................................... 93,000
Home Builders (cont.)
6,000 Lennar Corp. .................................................................... $ 137,250
17,500 a NVR, Inc. ....................................................................... 175,000
18,000 a,e Southern Energy Homes, Inc. ..................................................... 265,500
10,000 a U.S. Home Corp. ................................................................. 268,750
-------------
1,348,250
-------------
Hotels5.0%
58,000 a Host Marriott Corp. ............................................................. 717,750
28,000 a Red Lion Hotels, Inc. ........................................................... 553,000
-------------
1,270,750
-------------
Mixed Property Type4.0%
100,000 a,f Security Capital US Realty....................................................... 1,000,000
-------------
Total Common Stocks (Cost $22,239,975)........................................... 23,427,937
-------------
Convertible Preferred Stocks.1%
500 b Catellus Development Corp., $3.625 cvt. pfd., Series B (Cost $24,875)............ 19,063
-------------
Total Common Stocks and Convertible Preferred Stocks
(Cost $22,264,850).............................................................. 23,447,000
-------------
Face
Amount
c,d Receivables from Repurchase Agreements7.8%
$ 1,950,083 Joint Repurchase Agreement, 5.887%, 11/01/95 (Cost $1,981,562)
Daiwa Securities America, Inc., (Maturity Value $436,015)
Collateral: U.S. Treasury Bills, 04/25/96
U.S. Treasury Notes, 6.125%, 09/30/00
Donaldson, Lufkin & Jenrette, (Maturity Value $515,290)
Collateral: U.S. Treasury Notes, 5.125% - 8.25%, 07/31/96 - 03/31/0
Swiss Bank Corp., (Maturity Value $515,290)
Collateral: U.S. Treasury Notes, 6.875%, 03/31/00
UBS Securities, Inc., (Maturity Value $515,290)
Collateral: U.S. Treasury Notes, 5.125% - 8.50%, 11/15/95 - 01/31/00........... 1,981,562
-------------
Total Investments (Cost $24,246,412)100.5% ...................................... 25,428,562
Liabilities in Excess of Other Assets, Net (.5)% ................................ (123,106)
-------------
Net Assets100.0% $25,305,456
=============
At October 31, 1995, the net unrealized appreciation based on
the cost of investments for income tax purposes of $24,246,412 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost............................... $1,638,612
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value............................... (456,462)
-------------
Net unrealized appreciation...................................................... $1,182,150
=============
</TABLE>
PORTFOLIO ABBREVIATIONS:
REIT - Real Estate Investment Trust
aNon-income producing.
bSee Note 7 regarding Rule 144A securities.
cFace amount for repurchase agreements is for the underlying collateral.
dSee Note 1(e) regarding Joint Repurchase Agreement.
eSee Note 1(f) regarding securities purchased on a when-issued basis.
fSee Note 1(a) regarding securities valued by the Board of Trustees.
The accompanying notes are an integral part of these financial statements.
FRANKLIN REAL ESTATE SECURITIES TRUST
Franklin Real Estate Securities Fund
Financial Statements
Statement of Assets and Liabilities
October 31, 1995 (unaudited)
Assets:
Investments in securities, at value
(identified cost $22,264,850) $23,447,000
Receivables from repurchase agreements,
at value and cost 1,981,562
Cash 15,110
Receivables:
Capital shares sold 76,624
Dividends and interest 68,717
Prepaid expenses 11,632
Unamortized organization costs (Note 2) 8,618
--------------
Total assets 25,609,263
--------------
Liabilities:
Payables:
Investment securities purchased:
Regular delivery 26,534
When-issued basis (Note 1) 249,750
Distribution fees 19,498
Shareholder servicing costs 1,980
Capital shares repurchased 6,045
--------------
Total liabilities 303,807
--------------
Net assets, at value $25,305,456
==============
Net assets consist of:
Undistributed net investment income $ 716,552
Unrealized appreciation on investments 1,182,150
Accumulated net realized loss (17,372)
Class I capital shares 19,874
Class II capital shares 1,645
Additional paid-in capital 23,402,607
--------------
Net assets, at value $25,305,456
==============
Net asset value per share for Class I*
($23,378,203: 1,987,449 shares
outstanding) $11.76
==============
Net asset value per share for Class II*
($1,927,253: 164,496 shares
outstanding) $11.72
==============
*Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
Statement of Operations
for the six months ended October 31, 1995 (unaudited)
Investment income:
Dividends $437,027
Interest 65,412
--------------
Total income $ 502,439
Expenses:
Management fees (Note 6) 68,948
Distribution fees - Class I (Note 6)26,139
Distribution fees - Class II (Note 6)4,610
Shareholder servicing costs
(Note 6) 10,801
Reports to shareholders 15,234
Registration fees 8,418
Professional fees 6,345
Amortization of organization costs
(Note 2) 1,362
Custodian fees 804
Other 2,001
Payments from manager
(Note 6) (86,607)
--------------
Total expenses 58,055
--------------
Net investment income 444,384
--------------
Realized and unrealized gain
(loss) on investments:
Net realized loss (42,245)
Net unrealized appreciation 1,666,596
--------------
Net realized and unrealized
gain on investments 1,624,351
--------------
Net increase in net assets resulting
from operations $2,068,735
==============
FRANKLIN REAL ESTATE SECURITIES TRUST
<TABLE>
<CAPTION>
Franklin Real Estate Securities Fund
Financial Statements (cont.)
Statements of Changes in Net Assets for the six months ended October 31, 1995
(unaudited) and the year ended April 30, 1995
Six Months Ended Year Ended
10/31/95 4/30/95
---------- --------
Increase (decrease) in net assets:
Operations:
<S> <C> <C>
Net investment income......................................................... $ 444,384 $ 635,829
Net realized gain (loss) from security transactions........................... (42,245) 24,873
Net unrealized appreciation (depreciation) on investments..................... 1,666,596 (661,697)
---------- --------
Net increase (decrease) in net assets resulting from operations........... 2,068,735 (995)
Distributions to shareholders from undistributed net investment income:
Class I....................................................................... -- (394,547)
Increase in net assets from capital share transactions (Note 4)................ 6,542,447 11,455,576
---------- --------
Net increase in net assets................................................ 8,611,182 11,060,034
Net assets:
Beginning of period............................................................ 16,694,274 5,634,240
---------- --------
End of period (including undistributed net investment income of
$716,552 at 10/31/95 and $272,168 at 04/30/95) ............................... $25,305,456 $16,694,274
========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN REAL ESTATE SECURITIES TRUST
Franklin Real Estate Securities Fund
Notes to Financial Statements (unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Real Estate Securities Trust (the Trust) is an open-end,
non-diversified management investment company (mutual fund), registered under
the Investment Company Act of 1940 as amended. The Trust currently consists of
one fund, Franklin Real Estate Securities Fund (the Fund).
The Fund offers two classes of shares, Class I and Class II. Class I shares are
sold with a higher front-end sales charge than Class II shares. Each class of
shares may be subject to a contingent deferred sales charge and has the same
rights, except with respect to the effect of the respective sales charges, the
distribution fees borne by each class, voting rights on matters affecting a
single class and the exchange privilege of each class.
The offering of Class II shares began May 1, 1995, at which time all previously
outstanding shares became Class I shares. 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.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
a. Security Valuation:
Portfolio securities listed on a securities exchange or on the NASDAQ National
Market System for which market quotations are readily available are valued at
the last quoted sale price of the day or, if there is no such reported sale,
within the range of the most recent quoted bid and asked prices. Other
securities for which market quotations are readily available are valued at
current market values, obtained from pricing services, which are based on a
variety of factors, including recent trades, institutional size trading in
similar types of securities (considering yield, risk and maturity) and/or
developments related to specific securities. Portfolio securities which are
traded both in the over-the-counter market and on a securities exchange are
valued according to the broadest and most representative market as determined by
the Investment manager. Other securities for which market quotations are not
available, if any, are valued in accordance with procedures established by the
Board of Trustees.
The fair values of securities restricted as to resale, if any, are determined
following procedures established by the Board of Trustees.
b. Income Taxes:
The Trust intends to continue to qualify for the tax treatment applicable to
regulated investment companies under the Internal Revenue Code and to make the
requisite distributions to its shareholders which will be sufficient to relieve
it from income and excise taxes. Therefore, no income tax provision is required.
c. Security Transactions:
Security transactions are accounted for on the date the securities are purchased
or sold (trade date). Realized gains and losses on security transactions are
determined on the basis of specific identification for both financial statement
and income tax purposes.
d. Investment Income, Expenses and Distributions:
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income and estimated expenses are accrued daily.
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
d. Investment Income, Expenses and Distributions: (cont.)
A portion of the distributions received by the Fund from investments in Real
Estate Investment Trust (REIT) securities may be characterized as tax basis
return of capital (ROC) distributions, which are not recorded as dividend
income, but reduce the cost basis of the REIT securities. ROC distributions
exceeding the cost basis of a REIT security are recognized by the Fund as
capital gain.
e. Repurchase Agreements:
The Trust may enter into a Joint Repurchase Agreement whereby its uninvested
cash balance is deposited into a joint cash account to be used to invest in one
or more repurchase agreements with government securities dealers recognized by
the Federal Reserve Board and/or member banks of the Federal Reserve System. The
value and face amount of the Joint Repurchase Agreement are allocated to the
Trust based on its pro rata interest.
In a repurchase agreement, the Trust purchases a U.S. government
security from a dealer or bank subject to an agreement to resell it at a
mutually agreed upon price and date. Such a transaction is accounted for as a
loan by the Trust to the seller, collateralized by the underlying security. The
transaction requires the initial collateralization of the seller's obligation by
U.S. government securities with market value, including accrued interest, of at
least 102% of the dollar amount invested by the Trust, with the value of the
underlying security marked to market daily to maintain coverage of at least
100%. The collateral is delivered to the Trust's custodian and held until resold
to the dealer or bank. At October 31, 1995, all outstanding Joint Repurchase
Agreement held by the Trust had been entered into on that date.
f. Securities urchased on a When-Issued or Delayed Delivery Basis:
The Trust may trade securities on a when-issued or delayed delivery basis, with
payment and delivery scheduled for a future date. These transactions are subject
to market fluctuations and are subject to the risk that the value at delivery
may be more or less than the trade date purchase price. Although the Trust will
generally purchase these securities with the intention of acquiring such
securities, they may sell such securities before the settlement date. These
securities are identified on the accompanying statement of investments in
securities and net assets. The Trust has set aside sufficient investment
securities as collateral for these purchase commitments.
2. UNAMORTIZED ORGANIZATION COSTS
The organization costs of the Trust are amortized on a straight-line basis over
a period of five years from January 3, 1994 (the effective date of registration
under the Securities Act of 1933). In the event Franklin Resources, Inc. (which
was the sole shareholder prior to the effective date) redeems its seed money
shares within the five-year period, the pro rata share of the then-unamortized
deferred organization cost will be deducted from the redemption price paid to
Franklin Resources, Inc. New investors purchasing shares of the Trust subsequent
to that date bear such costs during the amortization period only as such charges
are accrued daily against investment income.
3. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
At April 30, 1995 for tax purposes, the Trust had accumulated undistributed net
realized gains of $24,873.
For tax purposes, the aggregate cost of securities and unrealized appreciation
of the Trust are the same as for financial statement purposes at October 31,
1995.
4. TRUST SHARES
At October 31, 1995, there was an unlimited number of $.01 par value shares of
beneficial interest authorized. Transactions in the Trust's shares were as
follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
October 31, 1995 April 30, 1995
----------------- -------------------
Class I Shares: Shares Amount Shares Amount
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Shares sold ............................................... 415,402 $4,734,760 832,752 $ 8,930,068
Shares issued in reinvestment of distributions............. -- -- 28,085 288,993
Shares redeemed ........................................... (134,453) (1,539,404) (127,508) (1,332,755)
Changes from exercise of exchange privilege
Shares sold .............................................. 261,824 2,986,858 534,616 5,749,100
Shares redeemed .......................................... (133,056) (1,514,784) (206,118) (2,179,830)
------- --------- ------- ---------
Net increase .............................................. 409,717 $4,667,430 1,061,827 $11,455,576
======= ========= ======= =========
Six Months Ended
October 31,1995
-----------------
Class II Shares: Shares Amount
------ ---------
<S> <C> <C>
Shares sold ............................................... 164,618 $1,876,322
Shares redeemed ........................................... (276) (3,090)
Changes from exercise of exchange privilege
Shares sold .............................................. 506 5,785
Shares redeemed .......................................... (352) (4,000)
------ ---------
Net increase .............................................. 164,496 $1,875,017
====== =========
</TABLE>
5. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the six
months ended October 31, 1995 aggregated $7,873,463 and $1,560,643,
respectively.
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Franklin Advisers, Inc., ("Manager" or "Advisers"), under the terms of a
management agreement, provides investment advice, administrative services,
office space and facilities to the Trust, and receives fees computed monthly on
the net assets of the Trust at an annualized rate of 5/8 of 1% of the first $100
million of average daily net assets of the Trust, 1/2 of 1% of average daily net
assets in excess of $100 million up to $250 million, 45/100 of 1% of average
daily net assets in
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (cont.)
excess of $250 million up to $10 billion, 44/100 of 1% of average daily net
assets in excess of $10 billion up to $12.5 billion, 42/100 of 1% of average
daily net assets in excess of $12.5 billion up to $15 billion and 40/100 of 1%
of average daily net assets in excess of $15 billion. The terms of the
management agreement provide that aggregate annual expenses of the Trust be
limited to the extent necessary to comply with the limitations set forth in the
laws, regulations and administrative interpretations of the states in which the
Trust's shares are registered. The Trust's expenses did not exceed these
limitations; however, for the six months ended October 31, 1995, Advisers agreed
in advance to waive the management fees of $68,948 and made payments of $17,659
for other expenses as shown in the Statement of Operations.
In its capacity as underwriter for the shares of the Trust, Franklin/Templeton
Distributors. Inc. ("Distributors") receives commissions on sales of the Trust's
shares. Commissions are deducted from the gross proceeds received from the sale
of the Trust's shares, and as such are not expenses of the Trust. Distributors
may also make payments, out of its own resources, to dealers for certain sales
of Class I and Class II shares. Commissions received by Distributors and the
amounts paid to other dealers for the six months ended October 31, 1995 were as
follows:
<TABLE>
<CAPTION>
Class I Class II
------ -----
<S> <C> <C>
Total commissions received................ $182,747 $18,949
====== ======
Paid to other dealers..................... $161,742 $37,898
====== ======
</TABLE>
Distributors also received contingent deferred sales charge of $29 relating to
transactions in Class II shares.
Under the terms of a shareholder servicing agreement with Franklin/Templeton
Investor Services, Inc. ("Investor Services"), the Trust pays costs on a per
shareholder account basis. Such costs incurred for the six months ended October
31, 1995 aggregated $10,801, of which $9,870 was paid to Investor Services.
Under the terms of Distribution Plans pursuant to Rule 12b-1 of the Investment
Company Act of 1940, which was effective May 1, 1994 for Class I shares and May
1, 1995 for Class II shares, the Trust will reimburse Distributors in an amount
up to a maximum of 0.25% per annum for Class I and 1.00% per annum for Class II
of the average daily net assets of such class, for costs incurred in the
promotion, offering and marketing of the Class I and Class II shares. Fees
incurred under the agreement aggregated $30,749 for the six months ended October
31, 1995.
Certain officers and trustees of the Trust are also officers and/or directors of
Distributors, Advisers and Investor Services, all wholly-owned subsidiaries of
Franklin Resources, Inc. ("Resources").
At October 31, 1995, Resources owned 10% of the Trust's outstanding shares.
7. RULE 144A SECURITIES
Rule 144A provides a non-exclusive safe harbor exemption from the registration
requirements of the Securities Act of 1933 for specified resales of restricted
securities to qualified institutional investors. The Trust values these
securities as disclosed in Note 1(a).
At October 31, 1995, the Trust held a 144A security with a value of $19,063,
representing 0.08% of the Trust's net assets. See the accompanying Statement of
Investments in Securities and Net Assets for specific information on such
security.
8. FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
periods are as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended January 3, 1994a
Class I Shares: October 31, 1995 April 30, 1995 to April 30, 1994
----------- -------- -----------
Per Share Operating Performance
<S> <C> <C> <C>
Net asset value at beginning of period.......................... $10.58 $10.92 $10.00
----------- -------- -----------
Net investment income .......................................... .18 .39 .06
Net realized and unrealized gain (loss) on securities .......... 1.00 (.45) .86
----------- -------- -----------
Total from investment operations ............................... 1.18 (.06) .92
----------- -------- -----------
Distributions from net investment income ....................... -- (.28) --
----------- -------- -----------
Net asset value at end of period................................ $11.76 $10.58 $10.92
=========== ======== ===========
Total Return*................................................... 11.15% (.48%) 9.20%
Ratios/Supplemental Data
Net assets at end of period (in $000s) ......................... $23,378 $16,694 $5,634
Ratio of expenses to average net assets......................... .50%+ .25% .25%+
Ratio of expenses to average net assets
(before fee waiver and expense reduction) .................... 1.42%+ 1.40% 2.91%+
Ratio of net investment income to average net assets ........... 4.06%+ 4.86% 3.19%+
Portfolio turnover rate ........................................ 7.90% 3.74% --%
Six Months Ended
Class II Shares: October 31, 1995
-----------
Per Share Operating Performance
<S> <C>
Net asset value at beginning of period.......................... $10.58
-----------
Net investment income .......................................... .14
Net realized and unrealized gain on securities ................. 1.00
-----------
Total from investment operations ............................... 1.14
-----------
Net asset value at end of period................................ $11.72
===========
Total Return*................................................... 10.78%
Ratios/Supplemental Data
Net assets at end of year (in $000s) ........................... $1,927
Ratio of expenses to average net assets......................... 1.25%+
Ratio of expenses to average net assets
(before fee waiver and expense reduction) .................... 2.17%+
Ratio of net investment income to average net assets ........... 3.41%+
Portfolio turnover rate ........................................ 7.90%
</TABLE>
*Total return measures the change in value of an investment over the period
indicated. It is not annualized. It does not include the maximum initial sales
charge and assumes reinvestment of dividends and capital gains, if any, at net
asset value.
+Annualized.
++During the periods indicated, the Manager agreed in advance to waive its
management fees and made payments of other expenses incurred by the Trust.
aEffective date of registration.
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Franklin Real Estate Securities Fund
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING
(PURSUANT TO ITEM 304 (a) OF REGULATION S-T)
GRAPHIC MATERIAL (1)
This chart shows in pie chart format the fund's securities breakdown by region
as a percentage of the fund's total net assets.
Regional Breakdown on 10/31/95
Southeast 29.3%
National 27.9%
Southwest 11.8%
Northwest 9.1%
Midwest 8.8%
Northeast 5.8%
Cash 7.3%
GRAPHIC MATERIAL (2)
This chart shows in pie chart format the fund's securities breakdown by
property-type as a percentage of the fund's total net assets.
Portfolio Breakdown on 10/31/95
Apartment 24.0%
Hotels 18.7%
Retail 10.7%
Industrial 9.2%
Storage Centers 7.4%
Homebuilders 5.3%
Health Care 4.8%
Office 3.8%
Manufactured Home Parks 3.7%
Other 5.1%
Cash 7.3%
