CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Shareholder Letter ........................................................ 1
Performance Summary ....................................................... 4
Financial Highlights & Statement of Investments ........................... 6
Financial Statements ...................................................... 13
Notes to Financial Statements ............................................. 17
</TABLE>
[PYRAMID GRAPHIC]
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).
- --------------------------------------------------------------------------------
Dear Shareholder:
This semiannual report for Franklin Real Estate Securities Fund covers the six
months ended October 31, 1999. During this time, real estate securities turned
in a weak overall performance due to investor concerns about the sector's
slowing cash-flow growth and a lack of interest in value stocks in general.
While higher interest rates may also have had an impact on the group's stock
prices, historically a low correlation has existed between short-term interest
rate changes and Real Estate Investment Trust (REIT) prices. Within this
environment, Franklin Real Estate Securities Fund - Class A posted a -12.38%
six-month cumulative total return, as shown in the Performance Summary on page
5. The Wilshire Real Estate Securities Index, the fund's benchmark, and the
Standard & Poor's 500(R) Stock Index posted returns of -11.26% and +2.74%,
respectively.(1)
On September 23, 1999, the assets of the Templeton Real Estate Securities Fund
were merged into Franklin Real Estate Securities Fund, as part of a tax-free
reorganization. We plan to maintain the current ceiling of 10% of total net
assets allocated to foreign securities, and anticipate no fundamental change in
the way we manage the Franklin Real Estate Securities Fund. However, as a result
of this merger, the fund's holdings of foreign securities rose modestly.
(1.) Indexes are unmanaged and include reinvested dividends. One cannot invest
directly in an index.
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 10 of
this report.
<PAGE>
U.S. GEOGRAPHIC ALLOCATION
Based on Total Net Assets
10/31/99
[PIE CHART GRAPHIC]
National 63.9%
Northeast 9.3%
Southeast 5.7%
Northwest 5.5%
Southwest 4.7%
Other 4.7%
Cash & Equivalents 6.2%
TOP 10 HOLDINGS
10/31/99
<TABLE>
<CAPTION>
COMPANY, % OF TOTAL
INDUSTRY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Equity Residential Properties Trust
REITs 4.6%
Equity Office Properties Trust
REITs 4.5%
Security Capital Group Inc., B
Real Estate 4.4%
Apartment Investment & Management Co., A
REITs 3.8%
Public Storage Inc.
REITs 3.6%
Glenborough Reality Trust Inc.
REITs 3.3%
Highwoods Properties Inc.
REITs 3.1%
MeriStar Hospitality Corp.
REITs 3.1%
Starwood Hotels & Resorts Worldwide Inc.
Hotels/Resorts 3.0%
</TABLE>
Throughout the reporting period, office REITs represented an attractive
combination of favorable supply/demand fundamentals and attractive valuations,
and at the close of the period, these holdings composed our largest
property-type weighting (22.1% of total net assets). The portfolio acquired
positions in two domestic office stocks from the Templeton merger: Boston
Properties Inc., a central business district office REIT focusing on the Boston,
San Francisco and Washington, DC markets; and CarrAmerica Realty Corp., a
national suburban office REIT. In our opinion, both companies have strong growth
opportunities and excellent management teams.
On October 31, 1999, the diversified property sector was the fund's second-
largest weighting (19.5% of total net assets). Stocks in this segment of
the real estate securities market are diversified by both property type and by
property location. In this sector, we sold our shares of Colonial Properties
Trust, owners of retail, office and apartment properties in the southeastern
United States, because of the less than favorable property fundamentals in many
of the company's markets and uncertainty in their projected cash-flow growth.
The apartment sector, the fund's third-largest weighting, represented 14.8% of
total net assets at period end. It was the fund's best-performing sector during
the six months under review, and we made no significant changes to it.
We did, however, make some changes in the retail malls and community centers
sector (9.7% of total net assets). Due to our concern about their higher-risk
operating strategies, we sold our positions in Burnham Pacific Properties Inc.
and Mills Corporation, and initiated a new position in General Growth Properties
(GGP), a REIT that owns, develops and operates mall shopping centers throughout
the United States. We believe that GGP has the potential to grow significantly
through both internal rental increases and select development opportunities, and
feel that its stock offers compelling value.
2
<PAGE>
Looking forward, we are optimistic about prospects for investing in real estate
securities because they appear to possess a combination of strong fundamentals,
favorable valuations and attractive growth opportunities. And earnings, while
leveling off, appear solid due to rent growth and selective development
opportunities. We believe this sector will grow in capitalization and diversity,
and we will continue to search for top-quality real estate companies, which can
create significant value for our shareholders.
Sincerely,
/s/ Matt Avery
Matt Avery
Portfolio Manager
Franklin Real Estate Securities Fund
/s/ Douglas Barton
Douglas Barton
Portfolio Manager
Franklin Real Estate Securities Fund
- --------------------------------------------------------------------------------
This discussion reflects our views, opinions and portfolio holdings as of
October 31, 1999, the end of the reporting period. Our strategies and the fund's
portfolio composition will change depending on market and economic conditions.
Although historical performance is no guarantee of future results, these
insights may help you understand our investment and management philosophy.
- --------------------------------------------------------------------------------
PROPERTY-TYPE ALLOCATION
Based on Total Net Assets
10/31/99
[BAR CHART GRAPHIC]
Office 22.1%
Diversified Property Type 19.5%
Apartments 14.8%
Hotels 11.0%
Retail Malls 5.3%
Retail Community Centers 4.5%
Industrial 3.8%
Storage 3.6%
Health Care 2.8%
Manufactured Homes 1.7%
Other 4.7%
Cash & Equivalents 6.2%
3
<PAGE>
- --------------------------------------------------------------------------------
CLASS A (formerly Class I):
Subject to 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 may differ. Effective May 1, 1994, the fund implemented a Rule
12b-1 plan, which affects subsequent performance.
CLASS B:
Subject to no initial sales charge, but subject to a contingent deferred sales
charge (CDSC) declining from 4% to 0% over six years. These shares have higher
annual fees and expenses than Class A shares.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% CDSC for shares redeemed within 18
months of investment. These shares have higher annual fees and expenses than
Class A shares.
ADVISOR CLASS:
No initial sales charge or Rule 12b-1 fees and are available to a limited class
of investors.
- --------------------------------------------------------------------------------
PERFORMANCE SUMMARY AS OF 10/31/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE INFORMATION
<TABLE>
<CAPTION>
CLASS A CHANGE 10/31/99 4/30/99
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value -$1.88 $13.30 $15.18
</TABLE>
<TABLE>
<CAPTION>
CLASS B CHANGE 10/31/99 4/30/99
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value -$1.92 $13.24 $15.16
</TABLE>
<TABLE>
<CAPTION>
CLASS C CHANGE 10/31/99 4/30/99
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value -$1.90 $13.07 $14.97
</TABLE>
<TABLE>
<CAPTION>
ADVISOR CLASS CHANGE 10/31/99 4/30/99
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value -$1.86 $13.35 $15.21
</TABLE>
Past performance is not predictive of future results.
4
<PAGE>
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 6-MONTH 1-YEAR 5-YEAR (1/3/94)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -12.38% -6.75% +55.22% +61.58%
Average Annual Total Return(2) -17.44% -12.11% +7.90% +7.48%
Value of $10,000 Investment(3) $8,256 $8,789 $14,623 $15,229
</TABLE>
<TABLE>
<CAPTION>
10/31/95 10/31/96 10/31/97 10/31/98 10/31/99
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One-Year Total Return(4) +16.04% +26.37% +29.68% -12.48% -6.75%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B 6-MONTH (1/1/99)
- --------------------------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return(1) -12.66% -7.54%
Aggregate Total Return(2) -16.16% -11.24%
Value of $10,000 Investment(3) $8,384 $8,876
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 6-MONTH 1-YEAR 3-YEAR (5/1/95)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -12.69% -7.40% +3.58% +43.67%
Average Annual Total Return(2) -14.42% -9.18% +0.85% +8.13%
Value of $10,000 Investment(3) $8,558 $9,082 $10,256 $14,219
</TABLE>
<TABLE>
<CAPTION>
10/31/96 10/31/97 10/31/98 10/31/99
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One-Year Total Return(4) +25.34% +28.72% -13.11% -7.40%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
ADVISOR CLASS(5) 6-MONTH 1-YEAR 5-YEAR (1/3/94)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -12.23% -6.46% +59.13% +65.66%
Average Annual Total Return(2) -12.23% -6.46% +9.74% +9.04%
Value of $10,000 Investment(3) $8,777 $9,354 $15,913 $16,566
</TABLE>
<TABLE>
<CAPTION>
10/31/95 10/31/96 10/31/97 10/31/98 10/31/99
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One-Year Total Return(4) +16.04% +26.37% +29.97% -12.24% -6.46%
</TABLE>
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the current, applicable,
maximum sales charge(s) for that class. Six-month return has not been
annualized. Since Class B shares have existed for less than one year, aggregate
total return for that class represents total return since inception, including
the maximum sales charge.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated and include the current, applicable, maximum
sales charge(s) for that class.
4. One-year total return represents the change in value of an investment over
the one-year periods ended on the specified dates and does not include sales
charges.
5. 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
Class A performance, excluding the effect of the Class A sales charge, but
including the effect of Rule 12b-1 fees and other Class A expenses; 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 and average annual
total returns of Advisor Class shares were -3.36% and -1.20% respectively.
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.
Past performance is not predictive of future results.
5
<PAGE>
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Financial Highlights
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED APRIL 30,
OCTOBER 31, 1999 ------------------------------------------------------------------------
(UNAUDITED)** 1999 1998 1997** 1996 1995
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning
of period ......................... $15.18 $17.66 $15.44 $12.64 $10.58 $10.92
---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ............. .34 .81 .63 .49 .43 .39
Net realized and unrealized gains
(losses) ......................... (2.22) (2.31) 2.14 2.77 2.10 (.45)
---------------------------------------------------------------------------------------------
Total from investment operations ... (1.88) (1.50) 2.77 3.26 2.53 (.06)
---------------------------------------------------------------------------------------------
Less distributions from:
Net investment income ............. -- (.75) (.48) (.36) (.47) (.28)
Net realized gains ................ -- (.23) (.07) (.10) -- --
---------------------------------------------------------------------------------------------
Total distributions ................ -- (.98) (.55) (.46) (.47) (.28)
---------------------------------------------------------------------------------------------
Net asset value, end of period ..... $13.30 $15.18 $17.66 $15.44 $12.64 $10.58
=============================================================================================
Total return* ...................... (12.38%) (8.09%) 17.96% 25.97% 24.25% (.48%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .. $301,183 $278,301 $330,030 $153,520 $33,634 $16,694
Ratios to average net assets:
Expenses .......................... 1.00%(1) .96% 1.00% .98% .67% .25%
Expenses excluding waiver and
payments by affiliate ............ 1.00%(1) .96% 1.03% 1.09% 1.24% 1.40%
Net investment income ............. 4.74%(1) 5.15% 3.50% 3.88% 4.38% 4.86%
Portfolio turnover rate ............ 8.80% 25.97% 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 for periods less than one year.
**Based on average shares outstanding.
(1) Annualized
6
<PAGE>
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS B
-----------------------------------
SIX MONTHS ENDED
OCTOBER 31, 1999 YEAR ENDED
(UNAUDITED)** APRIL 30, 1999(2)
-----------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $15.16 $14.32
-----------------------------------
Income from investment operations:
Net investment income ........................ .28 .10
Net realized and unrealized gains ............ (2.20) .74
-----------------------------------
Total from investment operations .............. (1.92) .84
-----------------------------------
Net asset value, end of period ................ $13.24 $15.16
-----------------------------------
Total return* ................................. (12.66%) 5.87%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $3,092 $1,119
Ratios to average net assets:
Expenses ..................................... 1.76%(1) 1.57%(1)
Net investment income ........................ 4.00%(1) 4.54%(1)
Portfolio turnover rate ....................... 8.80% 25.97%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charges, and is not annualized for periods less than one year.
**Based on average shares outstanding.
(1) Annualized
(2) For the period January 1, 1999 (effective date) to April 30, 1999.
7
<PAGE>
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED APRIL 30,
OCTOBER 31, 1999 -------------------------------------------
(UNAUDITED)** 1999 1998 1997** 1996(3)
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the period)
Net asset value, beginning
of period ......................... $14.97 $17.40 $15.26 $12.56 $10.58
--------------------------------------------------------------
Income from investment operations:
Net investment income ............. .27 .68 .45 .43 .44
Net realized and unrealized gains . (2.17) (2.25) 2.15 2.68 2.00
--------------------------------------------------------------
Total from investment operations ... (1.90) (1.57) 2.60 3.11 2.44
--------------------------------------------------------------
Less distributions from:
Net investment income ............. -- (.63) (.39) (.31) (.46)
Net realized gains ................ -- (.23) (.07) (.10) --
--------------------------------------------------------------
Total distributions ................ -- (.86) (.46) (.41) (.46)
--------------------------------------------------------------
Net asset value, end of period ..... $13.07 $14.97 $17.40 $15.26 $12.56
==============================================================
Total return* ...................... (12.69%) (8.69%) 17.07% 24.94% 23.21%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .. $87,988 $105,861 $137,048 $58,540 $6,282
Ratios to average net assets:
Expenses .......................... 1.76%(1) 1.71% 1.75% 1.75% 1.41%
Expenses excluding waiver and
payments by affiliate ............ 1.76%(1) 1.71% 1.78% 1.86% 1.98%
Net investment income ............. 3.80%(1) 4.40% 2.77% 2.92% 3.65%
Portfolio turnover rate ............ 8.80% 25.97% 6.10% 6.80% 14.40%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charges, and is not annualized for periods less than one year.
**Based on average shares outstanding.
(1) Annualized
(3) For the period May 1, 1995 (effective date) to April 30, 1996.
8
<PAGE>
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
ADVISOR CLASS
-------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED APRIL 30,
OCTOBER 31, 1999 --------------------------------------
(UNAUDITED)** 1999 1998 1997**(4)
-------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the period)
Net asset value, beginning of
period............................ $15.21 $17.70 $15.45 $15.30
-------------------------------------------------------------
Income from investment operations:
Net investment income ............. .36 1.44 .52 .18
Net realized and unrealized gains
(losses) ......................... (2.22) (2.91) 2.31 (.03)
-------------------------------------------------------------
Total from investment operations ... (1.86) (1.47) 2.83 0.15
-------------------------------------------------------------
Less distributions from:
Net investment income ............. -- (.79) (.51) --
Net realized gains ................ -- (.23) (.07) --
-------------------------------------------------------------
Total distributions ................ -- (1.02) (.58) --
-------------------------------------------------------------
Net asset value, end of period ..... $13.35 $15.21 $17.70 $15.45
=============================================================
Total return* ...................... (12.23%) (7.87%) 18.35% .98%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .. $13,929 $2,576 $8,929 $625
Ratios to average net assets:
Expenses .......................... .76%(1) .71% .75% .75%(1)
Expenses excluding waiver and
payments by affiliate ............ .76%(1) .71% .78% .86%(1)
Net investment income ............. 4.94%(1) 5.40% 3.97% 3.44%(1)
Portfolio turnover rate ............ 8.80% 25.97% 6.10% 6.80%
</TABLE>
*Total return is not annualized for periods less than one year.
**Based on average shares outstanding.
(1) Annualized.
(4) For the period January 2, 1997 (effective date) to April 30, 1997.
See notes to financial statements.
9
<PAGE>
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
STATEMENT OF INVESTMENTS, OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 93.5%
DIVERSIFIED FINANCIAL SERVICES
HSBC Holdings PLC ...................... Hong Kong 873 $ 10,478
------------
ENGINEERING & CONSTRUCTION .2%
Taylor Woodrow PLC ..................... United Kingdom 321,919 755,381
------------
HOTELS/RESORTS 5.1%
(a),(c)Candlewood Hotel Co. Inc. .............. United States 685,000 1,370,000
Mandarin Oriental International Ltd. ... Singapore 1,501,000 1,170,780
(a)MeriStar Hotels & Resorts Inc. ......... United States 392,000 980,000
(a)Prime Hospitality Corp. ................ United States 187,200 1,462,500
Starwood Hotels & Resorts Worldwide Inc. United States 535,000 12,271,563
(a)Wyndham International Inc., A .......... United States 1,211,830 3,484,011
------------
20,738,854
------------
MULTI-SECTOR COMPANIES .9%
Hutchison Whampoa Ltd. ................. Hong Kong 210,000 2,108,244
St. Joe Co. ............................ United States 60,000 1,432,500
-----------
3,540,744
-----------
RAILROADS .4%
Florida East Coast Industries Inc. ..... United States 44,000 1,639,000
-----------
REAL ESTATE 8.2%
China Resources Beijing Land Ltd. ...... China 1,520,000 224,982
(a) China Resources Beijing Land Ltd.,
144A................................... China 480,300 71,091
(a) Crescent Operating Inc. ................ United States 16,000 64,000
Inversiones Y Representacion SA ........ Argentina 344,072 1,039,617
Inversiones y Representacion SA, GDR ... Argentina 846 25,539
Lend Lease Corp. Ltd. .................. Australia 33,464 384,766
(a) Northstar Capital Investment Corp.,
144A................................... United States 100,000 1,450,000
Revenue Property Ltd. .................. Canada 2,200,000 3,514,855
(a) Security Capital Group Inc., B ......... United States 1,289,400 17,729,250
(a) Security Capital U.S. Realty, ADR ...... Luxembourg 337,500 5,167,969
Union du Credit Bail Immobilier ........ France 26,850 3,922,674
-----------
33,594,743
-----------
REAL ESTATE INVESTMENT TRUSTS 78.7%
Alexandria Real Estate Equities Inc. ... United States 351,900 10,117,125
American Health Properties Inc. ........ United States 64,300 1,298,056
Apartment Investment &
Management Co., A..................... United States 412,500 15,520,313
Archstone Communities Trust ............ United States 487,000 9,740,000
Arden Realty Inc. ...................... United States 390,000 7,848,750
AvalonBay Communities Inc. ............. United States 235,000 7,593,438
Boston Properties Inc. ................. United States 65,000 1,937,813
Brandywine Realty Trust ................ United States 714,300 12,009,169
Cabot Industrial Trust ................. United States 245,000 4,900,000
Camden Property Trust .................. United States 99,474 2,692,015
Carramerica Realty Corp. ............... United States 115,900 2,578,775
Charles E. Smith Residential Realty Inc. United States 120,000 4,080,000
Crescent Real Estate Equities Co. ...... United States 355,530 5,932,907
</TABLE>
10
<PAGE>
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
STATEMENT OF INVESTMENTS, OCTOBER 31, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
REAL ESTATE INVESTMENT TRUSTS (CONT.)
Developers Diversified Realty Corp. ... United States 230,000 $ 3,277,500
Duke-Weeks Realty Corp. ............... United States 498,752 9,788,008
Equity Office Properties Trust ........ United States 821,000 18,164,625
Equity Residential Properties Trust ... United States 448,800 18,765,450
FelCor Lodging Trust Inc. ............. United States 251,200 4,270,400
General Growth Properties ............. United States 98,830 2,859,893
Glenborough Realty Trust Inc. ......... United States 1,029,000 13,441,313
Highwoods Properties Inc. ............. United States 527,800 12,766,163
Host Marriott Corp. ................... United States 759,709 6,837,381
Kimco Realty Corp. .................... United States 260,000 8,872,500
Liberty Property Trust ................ United States 535,000 12,505,625
LTC Properties Inc. ................... United States 226,000 2,401,250
The Macerich Co. ...................... United States 235,000 4,700,000
Mack-Cali Realty Corp. ................ United States 367,000 9,450,250
Meristar Hospitality Corp. ............ United States 773,700 12,427,556
Nationwide Health Properties Inc. ..... United States 122,000 2,020,625
Omega Healthcare Investors Inc. ....... United States 280,000 5,547,500
Prologis Trust ........................ United States 543,000 10,486,688
Public Storage Inc. ................... United States 605,400 14,605,275
Regency Realty Corp. .................. United States 297,439 5,893,010
Rouse Co. ............................. United States 160,700 3,555,488
Simon Property Group Inc. ............. United States 455,000 10,493,438
SL Green Realty Corp. ................. United States 194,500 3,537,469
Spieker Properties Inc. ............... United States 260,000 9,083,750
Summit Properties Inc. ................ United States 91,300 1,746,113
Sun Communities Inc. .................. United States 220,000 7,012,500
Trinet Corporate Realty Trust Inc. .... United States 500,000 11,531,250
Vornado Realty Trust .................. United States 180,200 5,710,088
Winston Hotels Inc. ................... United States 200,500 1,629,095
------------
319,628,564
------------
TOTAL COMMON STOCKS
(COST $456,521,667) .................. 379,907,764
------------
PREFERRED STOCKS .1%
BUILDING MATERIALS CHAINS .1%
Baumax AG, pfd. (COST $1,227,555) ..... Austria 36,907 562,471
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL*
AMOUNT
----------
<S> <C> <C> <C>
CONVERTIBLE BONDS .1%
REAL ESTATE .1%
Revenue Property Ltd., cvt., 6.00%,
3/01/04 (COST $550,000) .............. Canada $ 550,000 451,000
------------
TOTAL LONG TERM INVESTMENTS
(COST $458,299,222) .................. 380,921,235
------------
</TABLE>
11
<PAGE>
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
STATEMENT OF INVESTMENTS, OCTOBER 31, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT TERM INVESTMENTS 6.0%
(b)Franklin Institutional Fiduciary
Trust Money Market Portfolio
(COST $24,246,393) ................... United States 24,246,393 $ 24,246,393
------------
TOTAL INVESTMENTS
(COST $482,545,615) 99.7% ............ 405,167,628
OTHER ASSETS, LESS LIABILITIES .3% .... 1,024,467
------------
NET ASSETS 100.0% ..................... $406,192,095
============
</TABLE>
*The principal amount is stated in U.S. Dollars unless otherwise indicated.
(a) Non-income producing securities.
(b) The Franklin Institutional Fiduciary Trust Money Market Portfolio is managed
by Franklin Advisers, Inc.
(c) The Investment Company Act of 1940 defines "affiliated companies" as
investments in portfolio companies in which the Fund owns 5% or more of the
outstanding voting securities. Investments in "affiliated companies" at October
31, 1999 were $1,370,000.
See notes to financial statements.
12
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FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<S> <C>
Assets:
Investments in securities at value (cost $482,545,615) ..... $ 405,167,628
Receivables:
Investment securities sold ................................ 4,298,648
Capital shares sold ....................................... 607,423
Dividends and interest .................................... 634,135
-------------
Total assets .......................................... 410,707,834
-------------
Liabilities:
Payables:
Investment securities purchased ........................... 1,886,250
Capital shares redeemed ................................... 1,825,112
Affiliates ................................................ 459,704
Shareholders .............................................. 87,340
Other liabilities .......................................... 257,333
-------------
Total liabilities ..................................... 4,515,739
-------------
Net assets, at value ................................. $ 406,192,095
=============
Net assets consist of:
Undistributed net investment income ........................ $ 13,708,541
Net unrealized depreciation ................................ (77,377,747)
Accumulated net realized loss .............................. (6,194,525)
Capital shares ............................................. 476,055,826
-------------
Net assets, at value .................................. $ 406,192,095
=============
</TABLE>
See notes to financial statements.
13
<PAGE>
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Financial Statements (continued)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999 (UNAUDITED) (CONT.)
<TABLE>
<S> <C>
CLASS A:
Net assets, at value .............................................. $301,182,926
============
Shares outstanding ................................................ 22,642,172
============
Net asset value per share* ........................................ $13.30
============
Maximum offering price per share (net asset value per share/94.25%) $14.11
============
CLASS B:
Net assets, at value .............................................. $ 3,092,339
============
Shares outstanding ................................................ 233,601
============
Net asset value and maximum offering price per share* ............. $13.24
============
CLASS C:
Net assets, at value .............................................. $ 87,988,219
============
Shares outstanding ................................................ 6,731,091
============
Net asset value per share* ........................................ $13.07
============
Maximum offering price per share (net asset value per share/99.00%) $13.20
============
ADVISOR CLASS:
Net assets, at value .............................................. $ 13,928,611
============
Shares outstanding ................................................ 1,043,204
============
Net asset value and maximum offering price per share .............. $13.35
============
</TABLE>
*Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements.
14
<PAGE>
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<S> <C>
Investment income:
Dividends .................................................. $ 10,880,116
Interest ................................................... 437,453
------------
Total investment income ............................... 11,317,569
------------
Expenses:
Management fees (Note 3) ................................... 1,006,189
Distribution fees (Note 3)
Class A ................................................... 351,168
Class B ................................................... 10,783
Class C ................................................... 494,534
Transfer agent fees (Note 3) ............................... 318,767
Custodian fees ............................................. 2,259
Reports to shareholders .................................... 46,475
Registration and filing fees ............................... 86,610
Professional fees .......................................... 13,261
Trustees' fees and expenses ................................ 7,956
Other ...................................................... 8,074
------------
Total expenses ........................................ 2,346,076
------------
Net investment income ................................ 8,971,493
------------
Realized and unrealized gains (losses):
Net realized loss from:
Investments ............................................... (8,097,651)
Foreign currency transactions ............................. (1,590)
------------
Net realized loss ..................................... (8,099,241)
Net unrealized depreciation on:
Investments ............................................... (53,027,728)
Translation of assets and liabilities denominated
in foreign currencies .................................... (6,142)
------------
Net unrealized depreciation ........................... (53,033,870)
------------
Net realized and unrealized loss ............................ (61,133,111)
------------
Net decrease in net assets resulting from operations ........ $(52,161,618)
============
</TABLE>
See notes to financial statements.
15
<PAGE>
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, 1999 (UNAUDITED)
AND THE YEAR ENDED APRIL 30, 1999
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
OCTOBER 31, 1999 APRIL 30, 1999
-----------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ...................... $ 8,971,493 $ 20,749,071
Net realized gain (loss) from investments
and foreign currency transactions ......... (8,099,241) 2,824,842
Net unrealized depreciation on investments
and translation of assets and liabilities
denominated in foreign currencies ......... (53,033,870) (70,145,582)
-----------------------------------
Net decrease in net assets resulting
from operations ....................... (52,161,618) (46,571,669)
Distributions to shareholders from:
Net investment income:
Class A ................................... -- (14,270,797)
Class B ................................... -- --
Class C ................................... -- (4,896,531)
Advisor Class ............................. -- (254,676)
Net realized gains:
Class A ................................... -- (4,328,382)
Class B ................................... -- --
Class C ................................... -- (1,771,807)
Advisor Class ............................. -- (73,219)
-----------------------------------
Total distributions to shareholders ......... -- (25,595,412)
Capital share transactions: (Note 2 )
Class A .................................... 58,625,052 (2,604,117)
Class B .................................... 2,300,692 1,039,080
Class C .................................... (4,854,464) (10,181,802)
Advisor Class .............................. 14,424,913 (4,236,227)
-----------------------------------
Total capital share transactions ............ 70,496,193 (15,983,066)
Net increase (decrease) in net assets .. 18,334,575 (88,150,147)
Net assets
Beginning of period ......................... 387,857,520 476,007,667
-----------------------------------
End of period ............................... $ 406,192,095 $ 387,857,520
===================================
Undistributed net investment income included
in net assets:
End of period ............................... $ 13,708,541 $ 4,737,048
===================================
</TABLE>
See notes to financial statements.
16
<PAGE>
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Notes to Financial Statements (unaudited)
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. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Trustees.
b. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
c. INCOME TAXES:
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute substantially 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.
17
<PAGE>
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Notes to Financial Statements (unaudited) (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS: (CONT.)
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. SHARES OF BENEFICIAL INTEREST
The Fund offers four classes of shares: Class A, Class B, Class C and Advisor
Class. Effective January 1, 1999, Class I and Class II were renamed Class A and
Class C, respectively, and the Fund began offering a new class of shares, Class
B. Each class of shares differs by its initial sales load, distribution fees,
voting rights on matters affecting a single class and its exchange privilege.
At October 31, 1999, 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, 1999 APRIL 30, 1999
-----------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares sold .................................. 3,570,387 $ 53,034,023 9,225,213 $ 143,312,658
Shares issued on merger (Note 6) ............. 4,934,693 67,161,175 -- --
Shares issued in reinvestment of distributions -- -- 1,176,516 16,682,975
Shares redeemed .............................. (4,202,124) (61,570,146) (10,753,928) (162,599,750)
-----------------------------------------------------------
Net increase (decrease) ...................... 4,302,956 $ 58,625,052 (352,199) $ (2,604,117)
===========================================================
CLASS B SHARES*:
Shares sold .................................. 168,528 $ 2,424,237 73,863 1,039,080
Shares issued in reinvestment of distributions -- -- -- --
Shares redeemed .............................. (8,790) (123,545) -- --
-----------------------------------------------------------
Net increase ................................. 159,738 $ 2,300,692 73,863 $ 1,039,080
===========================================================
</TABLE>
*Effective date of Class B was January 1, 1999.
18
<PAGE>
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Notes to Financial Statements (unaudited) (continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
OCTOBER 31, 1999 APRIL 30, 1999
-----------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS C SHARES:
Shares sold .................................. 588,289 $ 8,521,646 2,404,982 $ 36,953,551
Shares issued on merger (Note 6) ............. 264,812 3,545,838 -- --
Shares issued in reinvestment of distributions -- -- 414,295 5,808,896
Shares redeemed .............................. (1,194,888) (16,921,948) (3,620,490) (52,944,249)
-----------------------------------------------------------
Net decrease ................................. (341,787) $ (4,854,464) (801,213) $(10,181,802)
===========================================================
ADVISOR CLASS:
Shares sold .................................. 1,525,075 $ 23,511,223 444,802 $ 7,030,867
Shares issued in reinvestment of distributions -- -- 21,805 309,638
Shares redeemed .............................. (651,196) (9,086,310) (801,821) (11,576,732)
-----------------------------------------------------------
Net decrease ................................. 873,879 $ 14,424,913 (335,214) $ (4,236,227)
===========================================================
</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:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
-------------------------------------------------------------------
<S> <C>
.625% First $100 million
.500% Over $100 million, up to and including $250 million
.450% Over $250 million
</TABLE>
Management fees were reduced on assets invested in the Franklin Institutional
Fiduciary Trust Money Market Portfolio.
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.
The Fund reimburses Distributors, up to .25%, 1.00% and 1.00% per year of the
average daily net assets of Class A, Class B and Class C, 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 $203,465 and $29,176,
respectively.
The Fund paid transfer agent fees of $318,767, of which $311,987 was paid to
Investor Services.
19
<PAGE>
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Notes to Financial Statements (unaudited) (continued)
4. INCOME TAXES
At October 31, 1999, the net unrealized depreciation based on the cost of
investments for income tax purposes of $482,545,615 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation ......... $ 16,521,514
Unrealized depreciation ......... (93,899,501)
------------
Net unrealized depreciation ..... $(77,377,987)
============
</TABLE>
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions and non-deductible
expenses. Net realized capital gains differ for financial statement and tax
purposes primarily due to differing treatments of foreign currency transactions.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended October 31, 1999 aggregated $84,338,061 and $32,609,349,
respectively.
6. MERGER
On September 23, 1999, the Fund acquired the net assets of the Templeton Global
Real Estate Fund pursuant to a plan of reorganization approved by Templeton
Global Real Estate Fund's shareholders. The merger was accomplished by a
tax-free exchange of 4,934,693 Class A shares and 264,812 Class C shares of the
Fund (valued at $13.61 and $13.39, respectively) for the net assets of the
Templeton Global Real Estate Fund which aggregated $70,707,013, including
$4,687,247 of unrealized appreciation. The merger was accounted for as a
pooling-of-interests without restatement for financial reporting purposes. The
combined net assets of the Fund immediately after the merger were $395,430,543.
20
<PAGE>
