SEMI
ANNUAL
REPORT
FRANKLIN REAL ESTATE SECURITIES FUND
OCTOBER 31, 1998
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.
(PICTURE OMITTED)
Matt Avery
Portfolio Manager
Franklin Real Estate
Securities Fund
CONTENTS
Shareholder Letter ..... 1
Performance Summaries
Class I ............... 5
Class II .............. 7
Advisor Class ......... 9
Financial Highlights &
Statement of Investments 11
Financial Statements ... 17
Notes to
Financial Statements ... 20
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 14 of
this report.
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 Goal: 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).
This semiannual report of Franklin Real Estate Securities Fund covers the six
months ended October 31, 1998. Although the real estate industry experienced
strong operating fundamentals and low interest rates during this period,
investors' concerns about the U.S. economy and a slowdown in acquisition
activity resulting from an inability to access capital markets contributed to
weak REIT stock prices.
Within this environment, the fund's Class I shares posted a -13.65% six-month
cumulative total return, as shown in the Performance Summary on page 5. The
fund's benchmark, the unmanaged Wilshire Real Estate Securities Index, posted a
- -14.45% total return for the same period.1
1. Source: Standard & Poor's(R) Micropal. Index is unmanaged and includes
reinvested dividends. One cannot invest directly in an index.
Throughout the reporting period, we continued to focus on property types and
geographic regions with strong supply and demand fundamentals, while attempting
to identify management teams capable of adding value through intensive property
management and capital markets experience. In following this strategy, we
maintained the majority of the fund's investments in the diversified property
type, hotel, apartment, office, and industrial property sectors where we
anticipate the strongest cash flow growth and attractive stock valuations.
On October 31, the diversified property type sector represented the fund's
largest weighting, 20.2% of total net assets. Companies in this segment of the
market have real estate portfolios diversified by both property type and
location. During the latter part of the period, we took advantage of this
segment's weak prices and added to our holdings of Security Capital Group, Inc.
and Glenborough Realty Trust, Inc. At the close of the period, both of these
well-managed companies were among our top 10 holdings.
The hotel sector, 16.3% of total net assets, was our second-largest property
type. During the six months under review, we increased our positions in Starwood
Lodging Trust, MeriStar Hospitality Corp., and Host Marriott Corp. Although
prices of these stocks had weakened, partly due to changes in their corporate
structures, in our opinion, these companies retained excellent growth prospects
under nearly any structure and offered compelling valuations at the time of
purchase.
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
At the end of the period, the apartment sector represented 15.7% of the fund's
total net assets. Core holdings included Archstone Communities Trust, Equity
Residential Properties Trust, Camden Properties Trust, and Post Properties, Inc.
Despite our belief that apartment stocks represented a combination of favorable
supply/demand fundamentals, strong valuations and stable cash flows, we sold our
Summit Properties, Inc. holdings. In our opinion, this multifamily REIT, located
in the Southeast, may be vulnerable to new development in many of its markets.
Lower interest rates and record levels of home buying across the country during
the past six months contributed to strong relative performance for the home
building and residential communities sectors. Taking advantage of the high
valuations of such stocks, we sold our positions in Cavalier Homes, Inc. and
Clayton Homes, Inc.
Looking forward, we are optimistic about the long-term prospects for REITs. In
our opinion, strong sector fundamentals and stable cash flows from real estate
leases could provide the industry with excellent earnings relative to the
overall market during the rest of 1998 and throughout 1999. Additionally, as a
result of lower stock prices, REITs have been trading at the most attractive
valuations seen in the last several years. We believe that this sector will
continue to grow in capitalization and diversity, and we will maintain our focus
on top-quality real estate companies which can create significant cash flow
growth and shareholder value.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
TOP 10 HOLDINGS
10/31/98
COMPANY % OF TOTAL
INDUSTRY NET ASSETS
Archstone
Communities Trust 3.48%
Apartments
Security Capital Group, Inc. 3.46%
Diversified Property Type
MeriStar Hospitality Corp. 3.28%
Hotels
Starwood Lodging Trust 3.28%
Hotels
Equity Residential
Properties Trust 3.06%
Apartments
Host Marriott Corp. 2.83%
Hotels
Glenborough Realty
Trust, Inc. 2.71%
Diversified Property Type
Public Storage, Inc. 2.69%
Storage
Simon Property Group, Inc. 2.68%
Regional Malls
Kimco Realty Corp. 2.57%
Retail - Community Centers
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of October 31, 1998, the end of the reporting period. However,
market and economic conditions are changing constantly, which can be expected to
affect our strategies and the fund's portfolio composition. Although historical
performance is no guarantee of future results, these insights may help you
better understand our investment and management philosophy.
We appreciate your participation in Franklin Real Estate Securities Fund and
welcome your comments or suggestions.
Sincerely,
/s/ Matt Avery
Matt Avery
Portfolio Manager
Franklin Real Estate Securities Fund
/s/ Doug Barton
Doug Barton
Portfolio Manager
Franklin Real Estate Securities Fund
PERFORMANCE SUMMARY
Class I
Franklin Real Estate Securities Fund - Class I posted a -13.65% cumulative total
return for the six-month period ended October 31, 1998. Cumulative total return
measures the change in value of an investment, assuming reinvestment of all
distributions, and does not include the initial sales charge. We always maintain
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 +73.27% cumulative total return
since inception on January 3, 1994.
The fund's share price, as measured by net asset value, decreased $2.41, from
$17.66 on April 30, 1998, to $15.25 on October 31, 1998. During the reporting
period, shareholders received no distributions. 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.
Performance
Class I
Periods ended 10/31/98
SINCE
INCEPTION
1-YEAR 3-YEAR (1/3/94)
- ---------------------------------------------------------------
Cumulative Total Return1 -12.48% +43.44% +73.27%
Average Annual Total Return2 -17.53% +10.57% +10.70%
Value of $10,000 Investment3 $8,247 $13,516 $16,331
10/31/96 10/31/97 10/31/98
- ---------------------------------------------------------------
One-Year Total Return4 +26.37% +29.68% -12.48%
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and has been restated to reflect the
current, maximum 5.75% initial sales charge. Prior to August 3, 1998, fund
shares were offered at a lower initial sales charge; thus, actual total returns
would have been higher.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated and have been restated to reflect the current,
maximum 5.75% initial sales charge. Prior to August 3, 1998, fund shares were
offered at a lower initial sales charge; thus, actual total returns would have
been higher.
4. One-year total return represents the change in value of an investment over
the indicated periods ended on the specified dates and does not include the
initial sales charge. All calculations assume reinvestment of distributions at
net asset value. Since markets can go down as well as up, investment return and
principal value will fluctuate with market conditions, 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.
Class II
Franklin Real Estate Securities Fund - Class II posted a -13.91% cumulative
total return for the six-month period ended October 31, 1998. Cumulative total
return measures the change in value of an investment, assuming reinvestment of
all distributions and does not include sales charges. We always maintain 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 8, the fund's Class II shares delivered a +55.15% cumulative total return
since inception on May 1, 1995.
The fund's share price, as measured by net asset value, decreased $2.42, from
$17.40 on April 30, 1998, to $14.98 on October 31, 1998. During the reporting
period, shareholders received no distributions. 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.
Performance
Class II
Periods ended 10/31/98
SINCE
INCEPTION
1-YEAR 3-YEAR (5/1/95)
- ----------------------------------------------------------------------
Cumulative Total Return1 -13.11% +40.19% +55.15%
Average Annual Total Return2 -14.82% +11.54% +13.03%
Value of $10,000 Investment3 $8,518 $13,877 $15,356
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 18 months of purchase.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the indicated periods and include sales charges.
All calculations assume reinvestment of distributions at net asset value. Since
markets can go down as well as up, investment return and principal value will
fluctuate with market conditions, 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.
Advisor Class
Franklin Real Estate Securities Fund - Advisor Class posted a -13.56% cumulative
total return for the six-month period ended October 31, 1998. Cumulative total
return measures the change in value of an investment, assuming reinvestment of
all distributions. We always maintain 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 10, the fund's Advisor Class
shares delivered a +74.13% cumulative total return since inception on January 3,
1994.
The fund's share price, as measured by net asset value, decreased $2.40, from
$17.70 on April 30, 1998, to $15.30 on October 31, 1998. During the reporting
period, shareholders received no distributions. 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.
Performance
Advisor Class
Periods ended 10/31/98
SINCE
INCEPTION
1-YEAR* 3-YEAR* (1/3/94)*
- -------------------------------------------------------------------
Cumulative Total Return1 -12.24% +44.15% +74.13%
Average Annual Total Return1 -12.24% +12.96% +12.18%
Value of $10,000 Investment2 $8,776 $14,415 $17,413
10/31/96 10/31/97 10/31/98
- -------------------------------------------------------------------
One-Year Total Return*,3 +26.37% +29.97% -12.24%
*On January 2, 1997, the fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. 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 sales
charge, but including the effect of Class I expenses, containing Rule 12b-1
fees; and (b) for periods after January 1, 1997, figures reflect actual Advisor
Class performance, including the deduction of all fees and expenses applicable
only to that class. Since January 2, 1997 (commencement of sales), the
cumulative total return of Advisor Class shares was 3.31%.
1. Cumulative total return represents the change in value of an investment over
the periods indicated. Average annual total return represents the average annual
change in value of an investment over the periods indicated.
2. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated.
3. One-year total return represents the change in value of an investment over
the periods ended on the specified dates.
All calculations assume reinvestment of distributions at net asset value. Since
markets can go down as well as up, investment return and principal value will
fluctuate with market conditions, 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.
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Financial Highlights
<TABLE>
<CAPTION>
Class I
-------------------------------------------------------------
Six Months Ended
October 31, 1998 Year Ended April 30,
-------------------------------------------
(unaudited) 1998 19975 1996 1995 19942
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period ................ $17.66 $15.44 $12.64 $10.58 $10.92. $10.00
-------------------------------------------------------------
Income from investment operations:
Net investment income .............................. .37 .63 .49 .43 .39 .06
Net realized and unrealized gains (losses).......... (2.78) 2.14 2.77 2.10 (.45) .86
-------------------------------------------------------------
Total from investment operations..................... (2.41) 2.77 3.26 2.53 (.06) .92
-------------------------------------------------------------
Less distributions from:
Net investment income .............................. - (.48) (.36) (.47) (.28) -
Net realized gains ................................. - (.07) (.10) - - -
-------------------------------------------------------------
Total distributions ................................. - (.55) (.46) (.47) (.28) -
-------------------------------------------------------------
Net asset value, end of period....................... $15.25 $17.66 $15.44 $12.64 $10.58 $10.92
=============================================================
Total return+ ....................................... (13.65%) 17.96% 25.97% 24.25% (.48% 9.20%
Ratios/supplemental data
Net assets, end of period (000s).................... $295,072 $330,030 $153,520 $33,634 $16,694 $5,634
Ratios to average net assets:
Expenses ........................................... 1.10%1 1.00% .98% .67% .25% .25%1
Expenses excluding waiver and payments by affiliate. 1.10%1 1.03% 1.09% 1.24% 1.40% 2.91%1
Net investment income .............................. 4.68%1 3.50% 3.88% 4.38% 4.86% 3.19%1
Portfolio turnover rate ............................. 4.45% 6.10% 6.80% 14.40% 3.74% -
</TABLE>
+Total return does not reflect sales commissions or the contingent deferred
sales charges, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
1Annualized.
2For the period January 3, 1994 (effective date) to April 30, 1994.
5For the period ending April 30, 1997, per share amounts have been calculated
using the daily average shares outstanding.
<TABLE>
<CAPTION>
Class II
---------------------------------------------
Six Months Ended
October 31, 1998 Year Ended April 30,
--------------------------
(unaudited) 1998 19975 19963
---------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period ............... $17.40 $15.26 $12.56 $10.58
---------------------------------------------
Income from investment operations:
Net investment income ............................. .32 .45 .43 .44
Net realized and unrealized gains (losses)......... (2.74) 2.15 2.68 2.00
---------------------------------------------
Total from investment operations ................... (2.42) 2.60 3.11 2.44
---------------------------------------------
Less distributions from:
Net investment income ............................. - (.39) (.31) (.46)
Net realized gains ................................ - (.07) (.10) -
---------------------------------------------
Total distributions ................................ - (.46) (.41) (.46)
---------------------------------------------
Net asset value, end of period ..................... $14.98 $17.40 $15.26 $12.56
=============================================
Total return+ ...................................... (13.91%) 17.07% 24.94% 23.21%
Ratios/supplemental data
Net assets, end of period (000s) .................. $118,194 $137,048 $58,540 $6,282
Ratios to average net assets:
Expenses .......................................... 1.85%1 1.75% 1.75% 1.41%
Expenses excluding waiver and payments by affiliate 1.85%1 1.78% 1.86% 1.98%
Net investment income ............................. 3.93%1 2.77% 2.92% 3.65%
Portfolio turnover rate ............................ 4.45% 6.10% 6.80% 14.40%
</TABLE>
+Total return does not reflect sales commissions or the contingent deferred
sales charges, and is not annualized.
1Annualized.
3For the period May 1, 1995 (effective date) to April 30, 1996.
5For the period ending April 30, 1997, per share amounts have been calculated
using the daily average shares outstanding.
<TABLE>
<CAPTION>
Advisor Class
-----------------------------------------
Six Months Ended
October 31, 1998 Year Ended April 30,
----------------------
(unaudited) 1998 19974,5
-----------------------------------------
<S> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period............ $17.70 $15.45 $15.30
-----------------------------------------
Income from investment operations:
Net investment income ......................... .59 .52 .18
Net realized and unrealized gains (losses)..... (2.99) 2.31 (.03)
-----------------------------------------
Total from investment operations ............... (2.40) 2.83 .15
-----------------------------------------
Less distributions from:
Net investment income ......................... - (.51) -
Net realized gains ............................ - (.07) -
-----------------------------------------
Total distributions ............................ - (.58) -
-----------------------------------------
Net asset value, end of period ................. $15.30 $17.70 $15.45
=========================================
Total return+ .................................. (13.56%) 18.35% .98%
Ratios/supplemental data
Net assets, end of period (000s) .............. $5,633 $8,929 $625
Ratios to average net assets:
Expenses ...................................... .85%1 .75% .75%1
Expenses excluding waiver and payments by affiliate .85%1 .78% .86%1
Net investment income ......................... 4.93%1 3.97% 3.44%1
Portfolio turnover rate ........................ 4.45% 6.10% 6.80%
</TABLE>
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Statement of Investments, October 31, 1998 (unaudited)
SHARES VALUE
Common Stocks 93.9%
Equity REIT - Apartments 15.7%
Amli Residential Properties Trust .................. 145,000 $ 3,262,500
Archstone Communities Trust ........................ 725,000 14,590,625
Avalonbay Communities, Inc. ........................ 110,000 3,533,750
Camden Property Trust .............................. 340,074 9,139,489
Equity Residential Properties Trust ................ 305,000 12,810,000
Gables Residential Trust ........................... 160,000 4,210,000
Irvine Apartment Communities, Inc. ................. 190,000 4,987,500
Post Properties, Inc. .............................. 240,000 9,285,000
Smith, Charles E. Residential Realty, Inc. ......... 125,000 3,828,125
-----------
65,646,989
-----------
Equity REIT - Diversified Property Type 15.3%
Crescent Real Estate Equities, Co. ................. 400,000 10,025,000
Colonial Properties Trust .......................... 283,300 7,790,750
Duke Realty Investment, Inc. ....................... 410,000 9,788,750
Glenborough Realty Trust, Inc. ..................... 530,000 11,361,875
Liberty Property Trust ............................. 380,000 8,740,000
Spieker Properties, Inc. ........................... 260,000 8,970,000
Vornado Realty Trust ............................... 221,000 7,444,938
-----------
64,121,313
-----------
Equity REIT - Health Care 3.5%
Health Care Property Investors, Inc. ............... 114,300 3,843,338
Nationwide Health Properties, Inc. ................. 180,000 4,151,250
Omega Healthcare Investors, Inc. ................... 225,000 6,975,000
-----------
14,969,588
-----------
Equity REIT - Hotels 12.1%
FelCor Lodging Trust, Inc. ......................... 425,000 10,014,063
Innkeepers USA Trust ............................... 410,000 4,715,000
MeriStar Hospitality Corp. ......................... 743,700 13,758,450
Patriot American Hospitality, Inc. ................. 575,000 5,103,125
Starwood Lodging Trust ............................. 485,000 13,731,563
Winston Hotels, Inc. ............................... 370,000 3,168,119
-----------
50,490,320
-----------
Equity REIT - Industrial 5.3%
Cabot Industrial Trust ............................. 245,000 4,900,000
Meridian Industrial Trust, Inc. .................... 330,000 7,260,000
ProLogis Trust ..................................... 455,000 9,924,688
-----------
22,084,688
-----------
Equity REIT - Office 11.3%
Alexandria Real Estate Equities, Inc. .............. 351,900 9,391,331
Arden Realty Group, Inc. ........................... 425,000 9,190,625
Equity Office Properties Trust ..................... 340,000 8,160,000
Highwoods Properties, Inc. ......................... 300,000 8,381,250
Equity REIT - Office (cont.)
Mack-Cali Realty Corp. ............................. 275,000 $ 8,146,875
SL Green Realty Corp. ............................... 223,000 4,223,063
-----------
47,493,144
-----------
Equity REIT - Residential Communities 2.7%
Manufactured Home Communities, Inc. ................ 170,000 4,239,375
Sun Communities, Inc. .............................. 220,000 7,356,250
-----------
11,595,625
-----------
Equity REIT - Retail - Community Centers 6.7%
Burnham Pacific Properties, Inc. ................... 382,500 5,020,313
Developers Diversified Realty Corp. ................ 280,000 5,285,000
Kimco Realty Corp. ................................. 270,000 10,749,375
cPacific Retail Trust ............................... 640,499 7,090,324
-----------
28,145,012
-----------
Equity REIT - Retail - Regional Malls 5.9%
Simon Property Group, Inc. ......................... 375,000 11,226,563
The Macerich Co. ................................... 295,000 8,130,938
The Mills Corp. .................................... 251,200 5,447,900
-----------
24,805,401
-----------
Equity REIT - Storage 6.1%
Public Storage, Inc. ............................... 422,000 11,262,125
Storage Trust Realty ............................... 440,000 9,872,500
Storage USA, Inc. .................................. 140,000 4,261,250
-----------
25,395,875
-----------
Diversified Property Type 4.9%
aCrescent Operating, Inc. ........................... 16,000 79,000
aSecurity Capital Group, Inc. ....................... 909,400 14,493,563
Security Capital US Realty .......................... 675,000 5,805,000
aVornado Operating Co. .............................. 11,050 69,063
-----------
20,446,626
-----------
Home Builders .2%
aSouthern Energy Homes, Inc. ........................ 120,000 690,000
-----------
Hotels 4.2%
aCandlewood Hotel Co., Inc. ......................... 385,000 1,540,000
aHost Marriott Corp. ................................ 818,500 11,868,250
aMeriStar Hotels & Resorts, Inc. .................... 392,000 931,000
aPrime Hospitality Corp. ............................ 350,000 3,193,750
-----------
17,533,000
-----------
Total Long Term Investments (Cost $432,081,924) .... 393,417,581
-----------
bRepurchase Agreement 6.4%
Joint Repurchase Agreement, 5.350%, 11/02/98,
(Maturity Value $26,698,748)(Cost $26,686,851)...... $26,686,851 $26,686,851
Barclays Capital Group, Inc.
Chase Securities, Inc.
CIBC Wood Gundy Securities Corp.
Deutsche Morgan Grenfell/C.J. Lawrence, Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America, L.L.C.
Greenwich Capital Markets, Inc.
NationsBanc Montgomery Securities, L.L.C.
Paribas Corp.
SBC Warburg Dillon Read, Inc.
Collateralized by U.S. Treasury Bills and Notes
-----------
Total Investments (Cost $458,768,775) 100.3% ....... 420,104,432
Other Assets, less Liabilities (.3%) ............... (1,205,278)
-----------
Net Assets 100.0% .................................. $418,899,154
===========
PORTFOLIO ABBREVIATION:
L.L.C. - Limited Liability Corp.
REIT - Real Estate Investment Trust
aNon-income producing.
bInvestment is through participation in a joint account with other funds managed
by the investment advisor. At October 31, 1998, all repurchase agreements had
been entered into on October 30, 1998. cSee Note 6 regarding restricted
securities.
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Financial Statements
Statement of Assets and Liabilities
October 31, 1998 (unaudited)
Assets:
Investments in securities, at value (cost $458,768,775) ... $420,104,432
Receivables:
Capital shares sold ...................................... 1,220,324
Dividends and interest ................................... 780,323
------------
Total assets ......................................... 422,105,079
------------
Liabilities:
Payables:
Capital shares redeemed .................................. 1,772,943
Affiliates ............................................... 1,154,105
Shareholders ............................................. 227,816
Other liabilities ......................................... 51,061
------------
Total liabilities .................................... 3,205,925
------------
Net assets, at value ................................ $418,899,154
============
Net assets consist of:
Undistributed net investment income ....................... $ 13,466,886
Net unrealized depreciation ............................... (38,664,343)
Accumulated net realized gain ............................. 6,175,862
Capital shares ............................................ 437,920,749
------------
Net assets, at value ................................. $418,899,154
============
Class I:
Net asset value per share ($295,072,141 / 19,354,183
shares outstanding)*...................................... $15.25
------------
Maximum offering price per share ($15.25 / 94.25%) ........ $16.18
------------
Class II:
Net asset value per share ($118,193,559 / 7,892,291
shares outstanding)*...................................... $14.98
------------
Maximum offering price per share ($14.98 / 99.00%) ........ $15.13
------------
Advisor Class:
Net asset value and maximum offering price per share
($5,633,454 / 368,103 shares outstanding) ................. $15.30
------------
*Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Financial Statements (continued)
Statement of Operations
for the six months ended October 31, 1998 (unaudited)
Investment income:
Dividends ..................................... $11,940,256
Interest ...................................... 1,084,248
------------
Total investment income .................. $13,024,504
Expenses:
Management fees (Note 3) ...................... 1,148,484
Distribution fees (Note 3)
Class I ...................................... 395,851
Class II ..................................... 644,291
Transfer agent fees (Note 3) .................. 582,429
Custodian fees ................................ 1,908
Reports to shareholders ....................... 55,420
Registration and filing fees .................. 89,666
Professional fees ............................. 11,685
Directors' fees and expenses .................. 6,826
Other ......................................... 6,076
------------
Total expenses ........................... 2,942,636
------------
Net investment income ................... 10,081,868
------------
Realized and unrealized gains (losses):
Net realized gain from investments ............ 897,617
Net unrealized depreciation on investments .... (79,778,801)
------------
Net realized and unrealized loss ............... (78,881,184)
------------
Net decrease in net assets resulting from operations $(68,799,316)
============
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, 1998
(unaudited) and the year ended April 30, 1998
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
OCTOBER 31,1998 APRIL 30, 1998
-----------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 10,081,868 $ 12,086,241
Net realized gain from investments 897,617 5,825,033
Net unrealized appreciation (depreciation) on investments (79,778,801) 25,890,441
----------------------------------
Net increase (decrease) in net assets resulting from operations (68,799,316) 43,801,715
Distributions to shareholders from:
Net investment income:
Class I -- (7,019,512)
Class II -- (2,230,303)
Advisor Class -- (131,663)
Net realized gains:
Class I -- (1,735,325)
Class II -- (686,324)
Advisor Class -- (30,392)
----------------------------------
Total distributions to shareholders
-- (11,833,519)
Capital share transactions (Note 2)
Class I 12,170,161 153,188,550
Class II 1,018,776 69,878,349
Advisor Class (1,498,134) 8,287,762
----------------------------------
Total capital share transactions 11,690,803 231,354,661
Net increase (decrease) in net assets (57,108,513) 263,322,857
Net assets:
Beginning of period 476,007,667 212,684,810
----------------------------------
End of period $418,899,154 $476,007,667
----------------------------------
Undistributed net investment income included in net assets
End of period $ 13,466,886 $ 3,385,018
==================================
</TABLE>
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
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.
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. 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.
b. 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
distribute all of its taxable income.
c. 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.
d. 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. SHARES OF BENEFICIAL INTEREST
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.
2. SHARES OF BENEFICIAL INTEREST (cont.)
At October 31, 1998, 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, 1998 APRIL 30, 1998
----------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------
<S> <C> <C> <C> <C>
Class I Shares
Shares sold....................................... 5,497,086 $90,167,883 13,583,071 $238,264,244
Shares issued in reinvestment of distributions.... -- -- 443,3 7,781,587
Shares redeemed................................... (4,834,318) (77,997,722) (5,277,774) (92,857,281)
----------------------------------------------------------
Net increase...................................... 662,768 $12,170,161 8,748,692 $153,188,550
==========================================================
Class II Shares
Shares sold....................................... 1,464,232 $23,591,404 4,882,257 $ 84,464,637
Shares issued in reinvestment of distributions.... -- -- 147,303 2,554,233
Shares redeemed................................... (1,446,032) (22,572,628) (990,554) (17,140,521)
----------------------------------------------------------
Net increase...................................... 18,200 $ 1,018,776 4,039,006 $ 69,878,349
==========================================================
Advisor Shares
Shares sold....................................... 249,834 $ 4,258,806 517,824 $ 9,252,101
Shares issued in reinvestment of distribution..... -- -- 9,090 159,714
Shares redeemed................................... (386,270) (5,756,940) (62,790) (1,124,053)
----------------------------------------------------------
Net increase (decrease)........................... (136,436) $(1,498,134) 464,124 $ 8,287,762
==========================================================
</TABLE>
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Fund are also officers and/or directors 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. 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
----------------------------------------------------------------------
.625% First $100 million
.500% Over $100 million, up to and including $250 million
.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.
3. TRANSACTIONS WITH AFFILIATES (cont.)
The Fund reimburses Distributors up to .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 $300,259 and $54,477,
respectively.
The Fund paid transfer agent fees of $582,429, of which $265,799 was paid to
Investor Services.
4. INCOME TAXES
At October 31, 1998, the net unrealized depreciation based on the cost of
investments for income tax purposes of $458,768,775 was as follows:
Unrealized appreciation.................... $ 9,204,206
Unrealized depreciation.................... (47,868,549)
-------------
Net unrealized depreciation................ $(38,664,343)
=============
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended October 31, 1998 aggregated $56,359,985 and $18,371,898,
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, 1998, the Fund held the following restricted security representing
1.7% of the Fund's net assets:
SHARES ISSUER ACQUISITION DATE COST VALUE
- --------------------------------------------------------------------------------
640,499 Pacific Retail Trust 8/30/96 $7,598,685 $7,090,324
Franklin Real Estate Securities Fund Semi-Annual Report October 31, 1998.
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, 1998, based on total net
assets.
U.S.Geographic Allocation on October 31, 1998
National 45.2%
Southwest 13.5%
Southwest 10.7%
Northeast 9.2%
Northwest 9.1%
Mideast 6.2%
Cash and Equivalents 6.1%
GRAPHIC MATERIAL (2)
This chart shows in bar format the property type allocation of the Franklin Real
Estate Securities Fund on October 31, 1998, based on total net assets.
Property -Type Allocation on October 31, 1998
Diversified Property Type 20.2%
Hotels 16.3%
Apartments 15.7%
Office 11.3%
Industrial 5.3%
Retail - Community Centers 6.7%
Storage 6.1%
Retail - Regional Malls 5.9%
Health Care 3.5%
Residential Communities 2.7%
Home Builders 0.2%
Cash 6.1%
