CONTENTS
Shareholder Letter 1
Performance Summary
Class I 5
Class II 7
Advisor Class 9
Financial Highlights &
Statement of Investments 11
Financial Statements 17
Notes to
Financial Statements 20
Equity real estate investment trusts (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 on to
investors in the form of dividends. These companies provide experienced property
management teams and generally concentrate on a specific geographic region and
property type.
SHAREHOLDER LETTER
Your Fund's Objective: 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).
Dear Shareholder:
It is a pleasure to bring you the Franklin Real Estate Securities Fund
semi-annual report, which covers the six months ended October 31, 1997.
During the reporting period, the U.S. real estate industry continued to benefit
from an environment of sustained economic growth and relatively low interest
rates. Demand for commercial and residential space remained robust, driven
primarily by the growing economy. At the same time, development of new supply
was restrained in most property sectors, leading to rising occupancy and rental
rates. As a result, most real estate companies continued to report strong cash
flow growth from operations. Ongoing consolidation also contributed to the
industry's growth, as private real estate companies and single-building owners
merged with public real estate firms to take advantage of the financing
flexibility and economies of scale enjoyed by the larger, public companies. For
example, several of the fund's positions were involved in high-profile public
mergers, including Starwood Lodging Corp.'s announced merger with both Westin
and ITT Sheraton and Equity Office Properties Trust's announced merger with
Beacon Properties Corp. Within this environment, the fund's Class I shares
delivered a +16.39% cumulative total return for the six months ended October 31,
1997, as discussed in the Performance Summary on page 5, outperforming the
Standard & Poor's 500(R) Stock Index, which generated a total return of +15.15%
for the same period.*
*The Standard & Poor's 500 Stock Index is an index of widely held common stocks
covering a variety of industries. The index, calculated by Standard &
Poor's(R), is a total return index with dividends reinvested. One cannot
invest directly in an index.
Throughout the reporting period, we remained committed to our strategy of
focusing on property types and geographic regions with strong supply and demand
fundamentals, while attempting to identify those management teams capable of
adding value through intensive property management and strong, capital markets
experience. In keeping with this strategy, we maintained the majority of the
fund's investments in hotel, apartment, office, and industrial property
securities, where we anticipated the strongest cash flow growth, as well as the
most favorable supply and demand fundamentals.
At the end of the period, the hotel sector was the fund's largest property-type
weighting, representing 18.4% of total net assets. During the period, new
development in the upscale hotel sector remained limited, while demand continued
to grow, resulting in higher room rates and strong cash flow growth. We
initiated a position in Innkeepers USA Trust, an equity REIT that owns upscale,
extended-stay hotels including Residence Inns and Summerfield Inns. We also
added to such core holdings as FelCor Suite Hotels, Inc., Patriot American
Hospitality, Inc., Starwood Lodging Trust, CapStar Hotel Co., and Host Marriott
Corp.
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
The apartment sector was the fund's second largest property-type weighting,
representing 16.9% of total net assets on October 31, 1997. Although supply and
demand were near equilibrium in this sector, we believed these securities
offered attractive valuations relative to other sectors, as well as the
potential for steady cash flow growth. We added to core holdings such as Equity
Residential Properties Trust and Security Capital Pacific Trust. In addition we
initiated a position in Smith, Charles E. Residential Realty, Inc., a company
that owns and operates downtown high-rise apartments.
In the office sector, we initiated positions in Equity Office Properties Trust,
SL Green Realty Corp., and Tower Realty Trust, Inc. We believed these companies
were attractively priced and offered excellent long-term growth potential. As a
result, our weighting in this sector increased, from 6.9% on April 30, 1997, to
12.5% on October 31, 1997.
During the period under review, we also initiated positions in Alexandria Real
Estate Equities, Inc. and Security Capital Group, Inc., both of which we
believed were attractively valued and could experience above average growth in
cash flow. Alexandria RealEstate Equities, Inc. is an equity REIT that owns
laboratory space used by pharmaceutical companies, and Security Capital Group,
Inc. is a research and investment company that creates and funds highly focused
real estate operating companies.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Looking forward, we believe the real estate industry should benefit from steady
demand for residential and commercial space and limited new development. In our
opinion, the prospects for investing in real estate securities are quite
attractive due to their unique combination of strong underlying fundamentals,
favorable valuations, and attractive growth opportunities.
Please remember, this discussion reflects our views and opinions as of October
31, 1997, the end of the reporting period. However, market and economic
conditions are changing constantly which may affect our strategies and portfolio
holdings. Although historic performance is no guarantee of future results, these
insights may help you understand our investment and management philosophy.
Of course, 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 discussed in the fund's prospectus.
We appreciate your participation in the Franklin Real Estate Securities Fund and
welcome your comments or suggestions.
Sincerely,
Matt Avery
Portfolio Manager
Franklin Real Estate Securities Fund
Top 10 Holdings
10/31/97
Company, % of Total
INDUSTRY Net Assets
Patriot American
Hospitality, Inc.,
HOTELS 3.8%
FelCor Suite Hotels, Inc.,
HOTELS 3.0%
Crescent Real Estate
Equities Co.,
OFFICE 2.7%
Storage Trust Realty,
STORAGE 2.7%
Highwoods Properties, Inc.,
OFFICE 2.7%
CapStar Hotel Co.,
HOTELS 2.6%
Arden Realty Group, Inc.,
OFFICE 2.5%
Host Marriott Corp.,
HOTELS 2.5%
Public Storage, Inc.,
STORAGE 2.5%
Simon DeBartolo
Group, Inc.,
RETAIL - REGIONAL MALLS 2.4%
For a complete list of portfolio holdings, please see page 14 of this report.
PERFORMANCE SUMMARY
Class I
Franklin Real Estate Securities Fund - Class I provided a +16.39% cumulative
total return for the six-month period ended October 31, 1997. 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 sales charge.
As measured by net asset value, the fund's share price increased $2.53, from
$15.44 on April 30, 1997, to $17.97 on October 31, 1997. Since the fund annually
distributes any dividends and capital gains in December, there were no
distributions during this reporting period. However, information concerning
distributions for the 1997 calendar year will be mailed to shareholders in late
December. Please note that distributions will vary depending on income earned by
the fund and any profits realized from the sale of securities in the portfolio,
as well as the level of the fund's operating expenses. The fund's dividend
policy is discussed in the prospectus.
Class I
Periods ended October 31, 1997
Since
Inception
One-Year Three-Year (1/3/94)
Cumulative Total Return1 29.68% 90.18% 97.97%
Average Annual Total Return2 23.87% 22.01% 18.12%
Value of $10,000 Investment3 $12,387 $18,163 $18,909
10/31/95 10/31/96 10/31/97
One-Year Total Return4 16.04% 26.37% 29.68%
1. Cumulative total returns represent the change in value of an investment over
the indicated periods and do not include the sales charge.
2. Average annualtotal returns represent the average annual change in value of
an investment over the indicated periods and include the maximum 4.5% initial
sales charge.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the specified periods and include the sales charge.
4. One-year total returns represent the change in value of an investment over
the periods ended on the indicated dates and do not include the sales charge.
All calculations assume reinvestment of dividends and capital gains, if any, at
net asset value. Investment return and principal value will fluctuate with
market conditions, and you may have a gain or loss when you sell your shares.
The fund's manager has agreed in advance to waive a portion of its management
fees, which reduces operating expenses and increases total return to
shareholders. Without this waiver, total returns would have been lower. The
waiver may be discontinued at any time upon notice to the fund's Board of
Trustees.
Past performance is not predictive of future results.
Class II
Franklin Real Estate Securities Fund - Class II provided a +15.99% cumulative
total return for the six-month period ended October 31, 1997. 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.
As measured by net asset value, the fund's share price increased $2.44, from
$15.26 on April 30, 1997, to $17.70 on October 31, 1997. Since the fund annually
distributes any dividends and capital gains in December, there were no
distributions during this reporting period. However, information concerning
distributions for the 1997 calendar year will be mailed to shareholders in late
December. Please note that distributions will vary depending on income earned by
the fund and any profits realized from the sale of securities in the portfolio,
as well as the level of the fund's operating expenses. The fund's dividend
policy is discussed in the prospectus.
Class II
Periods ended October 31, 1997
Since
Inception
One-Year (5/1/95)
Cumulative Total Return1 28.72% 78.55%
Average Annual Total Return2 26.47% 25.55%
Value of $10,000 Investment3 $12,647 $17,672
1. Cumulative total returns represent the change in value of an investment over
the indicated periods and do not include sales charges.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated, and include the 1.0% initial sales
charge and 1.0% contingent deferred sales charge, applicable to shares redeemed
within 18 months of investment.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the indicated periods and include all sales charges. All calculations
assume reinvestment of dividends and capital gains, if any, at net asset value.
Investment return and principal value will fluctuate with market conditions, and
you may have a gain or loss when you sell your shares.
The fund's manager has agreed in advance to waive a portion of
its management fees, which reduces expenses and increases total return to
shareholders. Without this waiver, total returns would have been lower. The
waiver may be discontinued at any time upon notice to the fund's Board of
Trustees.
Past performance is not predictive of future results.
Advisor Class
Franklin Real Estate Securities Fund - Advisor Class provided a +16.57%
cumulative total return for the six-month period ended October 31, 1997.
Cumulative total return measures the change in value of an investment, assuming
reinvestment of dividends and capital gains, if any.
The price of the fund's shares, as measured by net asset value,increased $2.56,
from $15.45 on April 30, 1997, to $18.01 on October 31, 1997. Since the fund
annually distributes any dividends and capital gains in December, there were no
distributions during this reporting period. However, information concerning
distributions for the 1997 calendar year will be mailed to shareholders in late
December. Please note that distributions will vary depending on income earned by
the fund and any profits realized from the sale of securities in the portfolio,
as well as the level of the fund's operating expenses. The fund's dividend
policy is discussed in the prospectus.
Advisor Class
Periods ended October 31, 1997
Since
Inception
of the Fund
One-Year* Three-Year* (1/3/94)*
Cumulative Total Return1 29.97% 90.60% 98.41%
Average Annual Total Return1 29.97% 23.99% 19.62%
Value of $10,000 Investment2 $12,997 $19,060 $19,841
10/31/95 10/31/96 10/31/97
One-Year Total Return*,3 16.04% 26.37% 29.97%
*Effective January 2, 1997, the fund began offering Advisor Class shares to
certain eligible investors as described in its prospectus. This share class does
not have sales charges nor Rule 12b-1 plans. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures reflect
the fund's Class I performance, excluding the effect of the Class I maximum
initial sales charge, but including the effect of Class I expenses, including
Rule 12b-1 fees; and (b) for periods after January 1, 1997, figures reflect
actual Advisor Class performance including the deduction of all charges and fees
applicable only to that class. Since January 2, 1997 (commencement of sales),
the cumulative total return of Advisor Class shares was +21.72%.
1. Cumulativetotal returns represent the change in value of an investment over
the indicated periods. Average annual total returns represent the average annual
change in value of an investment over the indicated periods.
2. These figures represent the value of a hypothetical $10,000 investment in the
fund over the indicated periods.
3. One-year total returns represent the change in value of an
investment over the periods ended on the specified dates.
All 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.
The fund's manager has agreed in advance to waive a portion of its management
fees, which reduces expenses and increases total return to shareholders. Without
this waiver, total returns would have been lower. The waiver may be discontinued
at any time upon notice to the fund's Board of Trustees.
Past performance is not predictive of future results.
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Financial Highlights
<TABLE>
<CAPTION>
Class I
Six Months Ended
October 31, 1997 Year Ended April 30,
(unaudited) 19975 1996 1995 19942
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $15.44 $12.64 $10.58 $10.92 $10.00
----------------------------------------------
Income from investment operations:
Net investment income .19 .49 .43 .39 .06
Net realized and unrealized gains (losses) 2.34 2.77 2.10 (.45) .86
---------------------------------------------
Total from investment operations 2.53 3.26 2.53 (.06) .92
----------------------------------------------
Less distributions from:
Net investment income -- (.36) (.47) (.28) --
Net realized gains -- (.10) -- -- --
----------------------------------------------
Total distributions -- (.46) (.47) (.28) --
----------------------------------------------
Net asset value, end of period $17.97 $15.44 $12.64 $10.58 $10.92
==============================================
Total return+ 16.39% 25.97% 24.25% (.48%) 9.20%
Ratios/supplemental data
Net assets, end of period (000's) $268,351 $153,520 $33,634 $16,694 $5,634
Ratios to average net assets:
Expenses 1.00%1 .98% .67% .25% .25%1
Expenses excluding waiver and payments by affiliate 1.04%1 1.09% 1.24% 1.40% 2.91%1
Net investment income 3.34%1 3.88% 4.38% 4.86% 3.19%1
Portfolio turnover rate 2.89% 6.80% 14.40% 3.74% --
Average commission rate paid++ $.0584 $.0576 $.0575 $-- $--
</TABLE>
+Total return does not reflect sales commissions or the contingent deferred
sales charges, and is not annualized.
++Relates to purchases and sales of equity securities. Prior to fiscal year end
1996 disclosure of average commission rate was not required.
1Annualized.
2Effective date of registration is January 3, 1994.
5For the period ending April 30, 1997, per share amounts have been calculated
using the daily average shares outstanding.
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Financial Highlights (continued)
Class II
Six Months Ended
<TABLE>
<CAPTION>
October 31, 1997 Year Ended April 30,
(unaudited) 19975 19963
<S> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $15.26 $12.56 $10.58
-------------------------------
Income from investment operations:
Net investment income .16 .43 .44
Net realized and unrealized gains 2.28 2.68 2.00
-------------------------------
Total from investment operations 2.44 3.11 2.44
-------------------------------
Less distributions from:
Net investment income -- (.31) (.46)
Net realized gains -- (.10) --
Total distributions -- (.41) (.46)
Net asset value, end of period $17.70 $15.26 $12.56
===============================
Total return+ 15.99% 24.94% 23.21%
Ratios/supplemental data
Net assets, end of period (000's) $104,566 $58,540 $6,282
Ratios to average net assets:
Expenses 1.75%1 1.75% 1.41%
Expenses excluding waiver and payments by affiliate 1.79%1 1.86% 1.98%
Net investment income 2.59%1 2.92% 3.65%
Portfolio turnover rate 2.89% 6.80% 14.40%
Average commission rate paid++ $.0584 $.0576 $.0575
</TABLE>
+Total return does not reflect sales commissions or the contingent deferred
sales charges, and is not annualized.
++Relates to purchases and sales of equity securities.
1Annualized.
3Effective date of Class II shares was May 1, 1995.
5For the period ending April 30, 1997, per share amounts have been calculated
using the daily average shares outstanding.
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Financial Highlights (continued)
Advisor Class
Six Months Ended Period Ended
October 31, 1997 April 30,
(unaudited) 19974,5
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $15.45 $15.30
Income from investment operations: --------------------
Net investment income .15 .18
Net realized and unrealized gains (losses) 2.41 (.03)
--------------------
Total from investment operations 2.56 .15
--------------------
Net asset value, end of period $18.01 $15.45
====================
Total return+ 16.57% .98%
Ratios/supplemental data
Net assets, end of period (000's) $2,132 $625
Ratios to average net assets:
Expenses .75%1 .75%1
Expenses excluding waiver and payments by affiliate .79%1 .86%1
Net investment income 3.59%1 3.44%1
Portfolio turnover rate 2.89% 6.80%
Average commission rate paid++ $.0584 $.0576
+Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized.
++Relates to purchases and sales of equity securities.
1Annualized.
4Effective date of Advisor Class shares was January 2,
1997.
5For the period ending April 30, 1997, per share amounts have been
calculated using the daily average shares outstanding.
See notes to financial statements.
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Statement of Investments, October 31, 1997 (unaudited)
DESCRIPTION SHARES VALUE
Common Stocks 94.7%
Equity REIT - Apartments 16.9%
Amli Residential Properties Trust 145,000 $ 3,371,250
Bay Apartment Communities, Inc. 110,000 4,303,750
Camden Property Trust 240,000 7,200,000
Equity Residential Properties Trust 140,000 7,070,000
Evans Withycombe Residential, Inc. 100,000 2,525,000
Gables Residential Trust 160,000 4,230,000
Irvine Apartment Communities, Inc. 150,000 4,612,500
Oasis Residential, Inc. 112,500 2,517,188
Post Properties, Inc. 150,000 5,428,125
Security Capital Atlantic, Inc. 350,000 7,634,375
Security Capital Pacific Trust 280,000 6,265,000
Smith, Charles E. Residential Realty, Inc. 110,000 3,753,750
Summit Properties, Inc. 205,300 4,247,144
---------
63,158,082
Equity REIT - Health Care 4.1% ----------
Alexandria Real Estate Equities, Inc. 75,000 2,057,813
Health Care Property Investors, Inc. 114,300 4,386,263
Nationwide Health Properties, Inc. 180,000 4,061,250
Omega Healthcare Investors, Inc. 131,900 4,748,400
---------
15,253,726
----------
Equity REIT - Hotels 11.5%
FelCor Suite Hotels, Inc. 305,000 11,170,625
Innkeepers USA Trust 293,700 4,901,119
Patriot American Hospitality, Inc. 430,000 14,190,000
Starwood Lodging Trust 130,000 7,775,625
Winston Hotels, Inc. 370,000 5,041,250
---------
43,078,619
----------
Equity REIT - Industrial 11.8%
Duke Realty Investment, Inc. 320,000 7,200,000
Liberty Property Trust 270,000 7,560,000
Meridian Industrial Trust, Inc. 310,000 7,149,375
Security Capital Industrial Trust 340,000 8,351,250
Spieker Properties, Inc. 230,000 8,998,750
Weeks Corp. 170,000 5,100,000
---------
44,359,375
----------
Equity REIT - Mixed Property Type 4.0%
Colonial Properties Trust 210,000 5,958,750
Glenborough Realty Trust, Inc. 355,000 9,096,875
---------
15,055,625
----------
Equity REIT - Office 12.5%
Arden Realty Group, Inc. 312,600 9,534,300
Beacon Properties Corp. 130,000 5,476,250
Cali Realty Corp. 200,000 8,100,000
Equity REIT - Office (cont.)
Crescent Real Estate Equities, Co. 285,000$ 10,260,000
Equity Office Properties Trust 47,900 1,463,944
Highwoods Properties, Inc. 290,000 10,005,000
aSL Green Realty Corp. 43,000 1,077,688
Tower Realty Trust, Inc. 30,500 770,125
---------
46,687,307
----------
Equity REIT - Residential Communities 2.4%
Manufactured Home Communities, Inc. 170,000 4,250,000
Sun Communities, Inc. 140,000 4,882,500
---------
9,132,500
---------
Equity REIT - Retail - Community Centers 7.1%
Burnham Pacific Properties, Inc. 200,000 2,925,000
Developers Diversified Realty Corp. 120,000 4,740,000
Kimco Realty Corp. 210,000 6,720,000
cPacific Retail Trust 433,023 5,196,276
Vornado Realty Trust 161,000 7,184,625
---------
26,765,901
----------
Equity REIT - Retail - Regional Malls 5.8%
Simon DeBartolo Group, Inc. 295,000 9,126,563
The Macerich Co. 220,000 5,830,000
The Mills Corp. 276,500 6,912,500
---------
21,869,063
----------
Equity REIT - Storage 6.6%
Public Storage, Inc. 340,000 9,350,000
Storage Trust Realty 399,500 10,212,219
Storage USA, Inc. 140,000 5,311,250
----------
24,873,469
----------
Home Builders 2.2%
aBeazer Homes USA, Inc. 40,000 765,000
aBelmont Homes, Inc. 130,000 960,778
Clayton Homes, Inc. 130,000 2,136,875
aNVR, Inc. 100,000 2,187,500
aSouthern Energy Homes, Inc. 120,000 1,102,500
aU.S. Home Corp. 35,000 1,242,500
---------
8,395,153
---------
Hotels 6.9%
aCandlewood Hotel Co., Inc. 385,000 3,031,875
aCapStar Hotel Co. 270,000 9,568,125
aHost Marriott Corp. 450,000 9,393,750
aPrime Hospitality Corp. 190,000 3,871,250
---------
25,865,000
----------
Mixed Property Type 2.9%
aCrescent Operating, Inc. 16,000 $ 372,000
aSecurity Capital Group, Inc. 100,800 3,225,600
aSecurity Capital Group Warrants 50,909 245,000
aSecurity Capital US Realty 300,000 4,230,000
aVail Resorts, Inc. 95,100 2,644,965
---------
10,717,565
----------
Total Common Stocks (Cost $305,856,475) 355,211,385
-----------
PRINCIPAL
AMOUNT
bRepurchase Agreement 6.9%
Joint Repurchase Agreement, 5.671%, 11/03/97 (Cost $25,945,923)
Aubrey G. Lanston & Co., Inc.
B.A. Securities Inc.
Barclays de Zoete Wedd Securities, Inc.
Bear, Stearns & Co., Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson North America L.L.C.
Fuji Securities, Inc.
Lehman Brothers, Inc.
Sanwa Securities (USA) Co., L.P.
SBC Warburg, Inc.
UBS Securities L.L.C.
Collateralized by U.S. Treasury Bills & Notes $25,945,923 25,945,923
----------
Total Investments (Cost $331,802,398) 101.6% 381,157,308
Other Assets, less Liabilities (1.6%) (6,107,946)
-----------
Net Assets 100.0% $375,049,362
=============
aNon-income producing
bInvestment is through participation in a joint account with other funds managed
by the investment advisor. At October 31, 1997, all repurchase agreements held
by the Fund had been entered into on that date.
cSee Note 6 regarding restricted securities
See notes to financial statements.
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Financial Statements
Statement of Assets and Liabilities
October 31, 1997 (unaudited)
Assets:
Investments in securities, at value (cost $331,802,398) $381,157,308
Cash 1,045,639
Receivables:
Capital shares sold 3,113,532
Dividends and interest 951,385
Other assets 3,459
-----------
Total assets 386,271,323
------------
Liabilities:
Payables:
Investment securities purchased 2,612,061
Capital shares redeemed 45,553
Affiliates 578,830
Distributions to shareholders 47,715
Payable upon return of securities loaned (Note 7) 7,899,500
Other liabilities 38,302
----------
Total liabilities 11,221,961
----------
Net assets, at value $375,049,362
============
Net assets consist of:
Undistributed net investment income $ 6,266,552
Net unrealized appreciation 49,354,910
Accumulated net realized gain 2,433,961
Capital shares 316,993,939
===========
Net assets, at value $375,049,362
============
Class I:
Net asset value per share ($268,350,956 O 14,934,360
shares outstanding)* $17.97
--------
Maximum offering price per share (net asset value
per share O 95.50%) $18.82
--------
Class II:
Net asset value per share ($104,566,050 O 5,908,266
shares outstanding)* $17.70
--------
Maximum offering price per share (net asset value per
share O 99.00%) $17.88
--------
Advisor Class:
Net asset value and maximum offering price per share
($2,132,356 O 118,406 shares outstanding) $18.01
-------
*Redemption price per share is equal to net asset value less any applicable
sales charge.
See notes to financial statements.
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Financial Statements (continued)
Statement of Operations
for the six months ended October 31, 1997 (unaudited)
Investment income:
Dividends $5,637,080
Interest 747,445
---------
Total investment income $ 6,384,525
Expenses:
Management fees (Note 3) 794,076
Distribution fees (Note 3)
Class I 252,261
Class II 403,890
Transfer agent fees (Note 3) 174,383
Custodian fees 893
Reports to shareholders 38,022
Registration and filing fees 157,532
Professional fees 5,002
Other 17,314
-------
Total expenses 1,843,373
Expenses waived/paid by affiliate (Note 3) (74,056)
----------
Net expenses 1,769,317
---------
Net investment income 4,615,208
---------
Realized and unrealized gains:
Net realized gain from investments 1,499,797
Net unrealized appreciation on investments 34,130,893
----------
Net realized and unrealized gain 35,630,690
----------
Net increase in net assets resulting from operations $40,245,898
===========
See notes to financial statements.
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Financial Statements (continued)
Statement of Changes in Net Assets for the six months ended October 31, 1997
(unaudited) and the year ended April 30, 1997
Six Months Year
Ended Ended
10/31/97 4/30/97
Increase (decrease) in net assets:
Operations:
Net investment income $ 4,615,208 $ 3,809,230
Net realized gain from investments 1,499,797 1,537,098
Net unrealized appreciation on investments 34,130,893 11,595,001
------------------------
Net increase in net assets resulting
from operations 40,245,898 16,941,329
Distributions to shareholders from:
Net investment income:
Class I -- (1,977,490)
Class II -- (553,996)
Net realized gains:
Class I -- (549,503)
Class II -- (176,830)
-------------------------
Total distributions to shareholders -- (3,257,819)
Capital share transactions (Note 2 ):
Class I 85,669,870 109,014,691
Class II 35,144,205 49,442,137
Advisor Class 1,304,579 628,137
-------------------------
Total capital share transactions 122,118,654 159,084,965
-------------------------
Net increase in net assets 162,364,552 172,768,475
Net assets:
Beginning of period 212,684,810 39,916,335
-------------------------
End of period $375,049,362 $212,684,810
=========================
Undistributed net investment income
included in net assets:
End of period $ 6,266,552 $ 1,651,344
=========================
See notes to financial statements.
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
a. Organization:
Franklin Real Estate Securities Fund (the Fund) is a separate, non-diversified
series of Franklin Real Estate Securities Trust (the Trust), which is an
open-end investment company registered under the Investment Company of 1940. The
Fund seeks total return.
The following summarizes the Fund's significant accounting policies.
b. 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. Restricted securities and 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.
c. Income Taxes:
No provision has been made for income taxes because each Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and
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.
Interest income and estimated expenses are accrued daily. Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
Distributions received by the Fund from securities may be a return of capital
(ROC). Such distributions reduce the cost basis of the securities, and any
distributions in excess of the cost basis are recognized as capital gains.
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. CAPITAL STOCK
The fund offers three classes of shares: Class I, Class II and Advisor Class.
The shares have the same rights except for their initial sales load,
distribution fees, voting rights on matters affecting a single class and the
exchange privilege of each class.
At October 31,1997, there were an unlimited number of shares authorized ($.01
par value). Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
October 31, 1997 April 30, 1997
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Class I
Shares sold 7,378,941 $126,906,025 10,056,249 $151,008,579
Shares issued in reinvestment of distributions 149,042 2,193,888
Shares redeemed (2,387,304) (41,236,155) (2,923,144) (44,187,776)
---------------------------------------------------------
Net increase 4,991,637 $ 85,669,870 7,282,147 $109,014,691
========================================================
Shares Amount Shares Amount
Class II
Shares sold 2,422,148 $ 40,996,915 3,439,134 $ 51,025,015
Shares issued in reinvestment of distributions . -- -- 42,697 622,945
Shares redeemed (348,967) (5,852,710) (147,017) (2,205,823)
------------------------------------------------------
Net increase 2,073,181 $ 35,144,205 3,334,814 $ 49,442,137
=======================================================
Period Ended
April 30, 1997*
Shares Amount Shares Amount
Advisor Class
Shares sold . 114,636 $ 1,961,064 57,886 $ 909,753
Shares redeemed . (36,645) (656,485) (17,471) (281,616)
------------------------------------------------------
Net increase 77,991 $ 1,304,579 40,415 $ 628,137
======================================================
*Effective date of Advisor Class shares
was January 2, 1997.
</TABLE>
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Fund are also officers and/or trustees of
Franklin Advisers, Inc. (Advisers), Franklin Templeton Services, Inc. (FT
Services), Franklin/Templeton Distributors, Inc. (Distributors) and
Franklin/Templeton Investor Services, Inc. (Investor Services), the Fund's
investment manager, administrative manager, principal underwriter and transfer
agent, respectively.
3. TRANSACTIONS WITH AFFILIATES (cont.)
The Fund pays an investment management fee to Advisers based on the average net
assets of the Fund as follows:
Annualized Fee Rate Average Daily Net Assets
0.625% First $100 million
0.500% Over $100 million, up to and including $250 million
0.450% Over $250 million
Under an agreement with Advisers, FT Services provides administrative services
to the Fund. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Fund.
Advisers agreed in advance to waive management fees, as noted in the Statement
of Operations.
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, respectively, for costs incurred in
marketing the Fund's shares.
Distributors paid net commissions on sales of Fund shares, and received
contingent deferred sales charges for the period of $221,934 and $12,352,
respectively.
4. INCOME TAXES
At October 31, 1997, the net unrealized appreciation based on the cost of
investments for income tax purposes of $331,802,398 was as follows:
Unrealized appreciation 51,430,545
Unrealized depreciation (2,075,635)
----------
Net unrealized appreciation $ 49,354,910
=============
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended October 31, 1997 aggregated $130,723,902 and $7,787,838,
respectively.
6. RESTRICTED SECURITIES
The Fund may purchase securities through a private offering that generally
cannot be sold to the public without prior registration under the Securities Act
of 1933. The costs of registering such securities are paid by the issuer. At
October 31, 1997, the Fund held the following restricted security representing
1.4% of the Fund's net assets:
Shares Issuer Acquisition Date Cost Value
433,023 Pacific Retail Trust 8/30/96 $4,932,335 $5,196,276
7. LENDING OF PORTFOLIO SECURITIES
The Fund loans securities to certain brokers for which it receives cash
collateral against the loaned securities in an amount equal to at least 102% of
the market value of the loaned securities. Net interest income from the
investment of the cash collateral received was $9,572 for the period ended
October 31, 1997. The value of the loaned securities was $7,745,719 at October
31, 1997.
Franklin Real Estate Securities Fund Semi-Annual Report October 31, 1997.
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 format the geographic allocation distribution of the
Franklin Real Estate Securities Fund on October 31, 1997, based on total net
assets.
U.S.Geographic Allocation on October 31, 1997
National 35.5%
Southwest 19.3%
Northeast 11.5%
Northwest 8.5%
Midwest 6.9%
Cash and Equvalents 5.3%
GRAPHIC MATERIAL (2)
This chart shows in bar format the property type allocation of the Franklin Real
Estate Securities Fund on October 31, 1997, based on total net assets.
Property -Type Allocation on October 31, 1997
Hotels 18.4%
Apartments 16.9%
Office 12.5%
Industrial 11.8%
Retail - Community Centers 7.1%
Other/Mix 6.9%
Storage 6.6%
Retail - Regional Malls 5.8%
Health Care 4.1%
Manufactured Home Parks 2.4%
Home Builders 2.2%
Cash 5.3%
