SHAREHOLDER LETTER
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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).
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Dear Shareholder:
This annual report of Franklin Real Estate Securities Fund covers the fiscal
year ended April 30, 2000 -- a disappointing period for many investors in real
estate securities. During most of the reporting period, the real estate
securities market turned in a weak overall performance due to investor concerns
about slowing cash flow growth, and to a lack of interest in value stocks in
general. But during the latter part of the period, returns on real estate
investment trusts (REITs) began to improve as turbulence in the broader markets
led a number of investors to diversify their holdings by investing in real
estate companies.
CONTENTS
Shareholder Letter ................................................ 1
Performance Summary ............................................... 6
Financial Highlights & Statement of Investments ................... 10
Financial Statements .............................................. 16
Notes to Financial Statements ..................................... 20
Independent Auditors' Report ...................................... 24
Tax Designation ................................................... 25
[PYRAMID GRAPHIC OMITTED]
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), which is a complete
listing of the fund's portfolio holdings, including dollar value and number of
shares or principal amount. The SOI begins on page 14.
PROPERTY-TYPE ALLOCATION
Based on Total Net Assets
4/30/00
Office 23.1%
Diversified 20.4%
Apartment 14.2%
Retail 12.9%
Hotel 10.9%
Industrial 4.7%
Self Storage 3.2%
Health Care 1.5%
Manufactured Housing 1.3%
Other 3.3%
Short-Term Investments & Other Net Assets 4.5%
Within this environment, Franklin Real Estate Securities Fund - Class A posted a
-2.77% one-year cumulative total return, as shown in the Performance Summary on
page 6. The Wilshire Real Estate Securities Index, the fund's benchmark, fell
-0.13% during that time.(1)
Although the generally poor performance of real estate stocks hurt the
performance of the fund, it did give us the opportunity to take advantage of
lower stock prices by initiating holdings in REITs which were trading at some of
the most attractive valuations we have seen over the last several years. As you
know, REITs are real estate companies that own and manage income-producing
properties such as apartments, hotels, shopping centers and office buildings.
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 property type.
During the reporting period, we continued to focus on property types with strong
supply and demand fundamentals. We also attempted to discover management teams
able to add value through capital markets experience and property management
expertise. Searching for attractive stock valuations and the strongest cash-flow
growth, we maintained most of the fund's investments in the office, diversified,
apartment, retail and hotel sectors.
1. Source: Standard and Poor's(R) Micropal. The Wilshire Real Estate
Securities Index is a market capitalization-weighted index comprised of publicly
traded real estate investment trusts (REITs) and real estate operating
companies. The index is unmanaged and includes reinvested dividends. One cannot
invest directly in an index, nor is an index representative of the fund's
portfolio.
On April 30, 2000, office stocks represented the fund's largest property-type
weighting, comprising 23.1% of total net assets. Due to continuing strong
domestic economic growth, we believed that this sector offered a combination of
favorable supply and demand fundamentals and attractive valuations.
Consequently, we initiated a position in CarrAmerica, a national suburban office
REIT with strong growth potential and a healthy development pipeline.
The diversified property sector, the fund's second-largest weighting,
represented 20.4% of total net assets at period's end. Equities in this segment
of the real estate securities market are diversified by property type and
location. During the year, we purchased shares in Reckson Associates, a REIT
that owns and manages office, industrial and retail properties in the northeast.
In our opinion, Reckson's exposure to supply-constrained markets such as New
York should enable the company to sustain strong internal growth.
TOP 10 HOLDINGS
4/30/00
COMPANY % OF TOTAL
SECTOR NET ASSETS
------------------------------------------------------------
Equity Office Properties Trust
REITs 5.6%
Starwood Hotels & Resorts
Worldwide Inc.
Hotels/Resorts 5.0%
Equity Residential
Properties Trust
REITs 4.7%
Security Capital Group Inc., B
Real Estate 4.4%
Apartment Investment
& Management Co., A
REITs 4.1%
ProLogis Trust
REITs 4.1%
MeriStar Hospitality Corp.
REITs 3.6%
Liberty Property Trust
REITs 3.6%
Glenborough Realty Trust Inc.
REITs 3.5%
Simon Property Group Inc.
REITs 3.3%
Apartment stocks (14.2% of total net assets) was the fund's third-largest
property sector on April 30, 2000. The best-performing property type as a result
of balanced supply and demand and expectations of stable cash flow growth, it
contributed positively to the fund's performance during the year. However,
concerned about potential oversupply due to excess building, we reduced our
exposure to southern-based apartments by selling our position in Camden
Properties, a Houston-based REIT.
We made several changes to our holdings in the retail sector, our fourth-largest
weighting (12.9% of total net assets). Due to a continuing slowdown in cash flow
growth for neighborhood shopping centers, we sold Regency Realty and Burnham
Pacific. But we did initiate positions in two mall REITs, General Growth and
Chelsea, both of which, in our opinion, have excellent management teams, above
average growth prospects and attractive valuations.
Concerned about overbuilding and weak growth prospects, we reduced our exposure
to the hotel stocks sector by selling our positions in Prime Hospitality,
Innkeepers, Winston and FelCor. On April 30, the sector, our fifth-largest
property-type weighting, represented 10.9% of the fund's total net assets.
Looking forward, we are optimistic about long-term prospects for REITs and
Franklin Real Estate Securities Fund. Earnings growth, while moderating, appears
to be solid, and, in our opinion, real estate securities will once again attract
investors due to continuing rent increases, stronger industry fundamentals and a
balanced supply/demand environment. We believe the fund is well positioned to
benefit from growth in this sector and shall continue to search for top-quality
real estate companies capable of creating significant value for our
shareholders.
Thank you for your participation in Franklin Real Estate Securities Fund. As
always, we welcome your comments or suggestions.
Sincerely,
/s/ Douglas Barton
Douglas Barton
Portfolio Manager
Franklin Real Estate Securities Fund
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This discussion reflects our views, opinions and portfolio holdings as of April
30, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any industry, security or the fund. 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.
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CLASS A: 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.*
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: 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.*
*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
Directors.
ONE-YEAR PERFORMANCE SUMMARY
AS OF 4/30/00
One-year total return does not include sales charges. 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.
CLASS A
One-Year Total Return -2.77%
Net Asset Value (NAV) $13.87 (4/30/00) $15.18 (4/30/99)
Change in NAV -$1.31
Distributions (5/1/99-4/30/00) Dividend Income $0.6797
Long-Term Capital Gain $0.0727
----------------------------------
Total $0.7524
CLASS B
One-Year Total Return -3.43%
Net Asset Value (NAV) $13.81 (4/30/00) $15.16 (4/30/99)
Change in NAV -$1.35
Distributions (5/1/99-4/30/00) Dividend Income $0.6299
Long-Term Capital Gain $0.0727
----------------------------------
Total $0.7026
CLASS C
One-Year Total Return -3.46%
Net Asset Value (NAV) $13.73 (4/30/00) $14.97 (4/30/99)
Change in NAV -$1.24
Distributions (5/1/99-4/30/00) Dividend Income $0.5389
Long-Term Capital Gain $0.0727
----------------------------------
Total $0.6116
ADVISOR CLASS
One-Year Total Return -2.47%
Net Asset Value (NAV) $13.90 (4/30/00) $15.21 (4/30/99)
Change in NAV -$1.31
Distributions (5/1/99-4/30/00) Dividend Income $0.7168
Long-Term Capital Gain $0.0727
----------------------------------
Total $0.7895
Franklin Real Estate Securities Fund paid distributions derived from long-term
capital gains of 7.27 cents ($0.0727) per share in December 1999. The fund
hereby designates such distributions as capital gain dividends per Internal
Revenue Code Section 852 (b)(3).
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
AS OF 4/30/00
INCEPTION
CLASS A 1-YEAR 5-YEAR (1/3/94)
-------------------------------------
Cumulative Total Return(1) -2.77% +65.00% +79.32%
Average Annual Total Return(2) -8.38% +9.22% +8.65%
Value of $10,000 Investment(3) $9,162 $15,545 $16,901
INCEPTION
CLASS B 1-YEAR (1/1/99)
-------------------------------------
Cumulative Total Return(1) -3.43% +2.24%
Average Annual Total Return(2) -7.07% -1.22%
Value of $10,000 Investment(3) $9,293 $9,838
INCEPTION
CLASS C 1-YEAR 5-YEAR (5/1/95)
-------------------------------------
Cumulative Total Return(1) -3.46% +58.86% +58.86%
Average Annual Total Return(2) -5.33% +9.47% +9.47%
Value of $10,000 Investment(3) $9,467 $15,723 $15,723
INCEPTION
ADVISOR CLASS(4) 1-YEAR 5-YEAR (1/3/94)
-------------------------------------
Cumulative Total Return(1) -2.47% +69.38% +84.08%
Average Annual Total Return(2) -2.47% +11.11% +10.12%
Value of $10,000 Investment(3) $9,753 $16,938 $18,408
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.
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. 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 +7.38% and +2.16%, respectively.
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
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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.
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Past performance does not guarantee future results.
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), fund
expenses, account fees and reinvested distributions. The unmanaged indexes
differ from the fund in composition, do not pay management fees or expenses and
include reinvested dividends. One cannot invest directly in an index.
AVERAGE ANNUAL TOTAL RETURN
4/30/00
CLASS A
1-Year -8.38%
5-Year +9.22%
Since Inception (1/3/94) +8.65%
AVERAGE ANNUAL TOTAL RETURN
4/30/00
CLASS B
1-Year -7.07%
Since Inception (1/1/99) -1.22%
Class A {1/3/94 - 4/30/00}
<TABLE>
<CAPTION>
DATE FRANKLIN REAL ESTATE S&P 500 WILSHIRE REAL EST.
SECURITIES FUND - CLASS A SECS. INDEX
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
01/03/1994 $9,425 $10,000 $10,000
01/31/1994 $9,661 $10,340 $10,300
02/28/1994 $10,198 $10,060 $10,721
03/31/1994 $10,066 $9,621 $10,225
04/30/1994 $10,292 $9,744 $10,339
05/31/1994 $10,481 $9,904 $10,554
06/30/1994 $10,254 $9,661 $10,347
07/31/1994 $10,245 $9,978 $10,370
08/31/1994 $10,264 $10,387 $10,363
09/30/1994 $10,132 $10,134 $10,190
10/31/1994 $9,811 $10,362 $9,817
11/30/1994 $9,463 $9,985 $9,433
12/31/1994 $10,330 $10,133 $10,164
01/31/1995 $9,991 $10,395 $9,836
02/28/1995 $10,166 $10,800 $10,144
03/31/1995 $10,262 $11,119 $10,203
04/30/1995 $10,243 $11,446 $10,129
05/31/1995 $10,640 $11,904 $10,464
06/30/1995 $10,824 $12,180 $10,647
07/31/1995 $11,066 $12,584 $10,818
08/31/1995 $11,308 $12,616 $10,950
09/30/1995 $11,618 $13,148 $11,151
10/31/1995 $11,385 $13,101 $10,806
11/30/1995 $11,560 $13,676 $10,918
12/31/1995 $12,193 $13,940 $11,551
01/31/1996 $12,505 $14,414 $11,711
02/29/1996 $12,667 $14,548 $11,943
03/31/1996 $12,687 $14,688 $12,039
04/30/1996 $12,727 $14,904 $12,094
05/31/1996 $13,029 $15,288 $12,363
06/30/1996 $13,160 $15,346 $12,611
07/31/1996 $13,089 $14,668 $12,498
08/31/1996 $13,704 $14,977 $13,029
09/30/1996 $14,106 $15,821 $13,355
10/31/1996 $14,388 $16,257 $13,717
11/30/1996 $14,841 $17,486 $14,286
12/31/1996 $16,157 $17,140 $15,811
01/31/1997 $16,364 $18,211 $16,037
02/28/1997 $16,344 $18,353 $16,046
03/31/1997 $16,447 $17,599 $16,101
04/30/1997 $16,032 $18,650 $15,581
05/31/1997 $16,603 $19,785 $16,045
06/30/1997 $17,340 $20,672 $16,841
07/31/1997 $17,787 $22,317 $17,395
08/31/1997 $17,725 $21,068 $17,266
09/30/1997 $19,334 $22,222 $18,969
10/31/1997 $18,659 $21,480 $18,163
11/30/1997 $19,043 $22,474 $18,528
12/31/1997 $19,372 $22,861 $18,941
01/31/1998 $19,169 $23,115 $18,674
02/28/1998 $19,008 $24,781 $18,435
03/31/1998 $19,447 $26,050 $18,798
04/30/1998 $18,912 $26,313 $18,206
05/31/1998 $18,740 $25,861 $18,031
06/30/1998 $18,537 $26,911 $17,936
07/31/1998 $17,306 $26,623 $16,687
08/31/1998 $15,614 $22,773 $14,953
09/30/1998 $16,438 $24,233 $15,791
10/31/1998 $16,331 $26,203 $15,575
11/30/1998 $16,534 $27,791 $15,867
12/31/1998 $16,397 $29,391 $15,640
01/31/1999 $15,870 $30,620 $15,301
02/28/1999 $15,676 $29,668 $15,180
03/31/1999 $15,653 $30,854 $15,089
04/30/1999 $17,382 $32,049 $16,698
05/31/1999 $17,599 $31,292 $16,980
06/30/1999 $17,313 $33,029 $16,691
07/31/1999 $16,523 $31,998 $16,052
08/31/1999 $16,225 $31,838 $15,811
09/30/1999 $15,584 $30,966 $15,098
10/31/1999 $15,229 $32,926 $14,817
11/30/1999 $14,886 $33,595 $14,592
12/31/1999 $15,474 $35,573 $15,141
01/31/2000 $15,449 $33,788 $15,203
02/29/2000 $15,122 $33,149 $14,912
03/31/2000 $15,865 $36,391 $15,565
04/30/2000 $16,901 $35,296 $16,675
</TABLE>
Class B {1/1/99 - 4/30/00}
<TABLE>
<CAPTION>
DATE FRANKLIN REAL ESTATE S&P 500 WILSHIRE REAL EST.
SECURITIES FUND - CLASS B SEC. INDEX
----------------------------------------------------------------------------------
<S> <C> <C> <C>
01/01/1999 $10,000 $10,000 $10,000
01/31/1999 $ 9,679 $10,418 $ 9,783
02/28/1999 $ 9,553 $10,094 $ 9,706
03/31/1999 $ 9,539 $10,498 $ 9,647
04/30/1999 $10,587 $10,904 $10,676
05/31/1999 $10,712 $10,647 $10,856
06/30/1999 $10,531 $11,238 $10,672
07/31/1999 $10,049 $10,887 $10,263
08/31/1999 $ 9,860 $10,833 $10,109
09/30/1999 $ 9,462 $10,536 $ 9,653
10/31/1999 $ 9,246 $11,203 $ 9,474
11/30/1999 $ 9,029 $11,430 $ 9,330
12/31/1999 $ 9,375 $12,103 $ 9,680
01/31/2000 $ 9,360 $11,496 $ 9,720
02/29/2000 $ 9,153 $11,278 $ 9,534
03/31/2000 $ 9,594 $12,381 $ 9,952
04/30/2000 $ 9,838 $12,009 $10,662
</TABLE>
Past performance does not guarantee future results.
DATE FRANKLIN REAL ESTATE S&P 500 WILSHIRE REAL
SECURITIES FUND - CLASS C EST. SEC. INDEX
------------------------------------------------------------------------------
05/01/1995 $ 9,897 $10,000 $10,000
05/31/1995 $10,262 $10,400 $10,331
06/30/1995 $10,439 $10,641 $10,511
07/31/1995 $10,654 $10,995 $10,680
08/31/1995 $10,888 $11,022 $10,810
09/30/1995 $11,178 $11,487 $11,009
10/31/1995 $10,953 $11,446 $10,668
11/30/1995 $11,103 $11,948 $10,779
12/31/1995 $11,709 $12,179 $11,404
01/31/1996 $11,991 $12,593 $11,561
02/29/1996 $12,146 $12,710 $11,790
03/31/1996 $12,165 $12,832 $11,886
04/30/1996 $12,194 $13,021 $11,939
05/31/1996 $12,476 $13,357 $12,206
06/30/1996 $12,583 $13,407 $12,450
07/31/1996 $12,515 $12,815 $12,339
08/31/1996 $13,088 $13,085 $12,863
09/30/1996 $13,466 $13,822 $13,185
10/31/1996 $13,728 $14,203 $13,542
11/30/1996 $14,156 $15,277 $14,104
12/31/1996 $15,395 $14,975 $15,609
01/31/1997 $15,585 $15,911 $15,832
02/28/1997 $15,555 $16,035 $15,842
03/31/1997 $15,635 $15,376 $15,896
04/30/1997 $15,236 $16,294 $15,382
05/31/1997 $15,775 $17,286 $15,841
06/30/1997 $16,464 $18,060 $16,626
07/31/1997 $16,873 $19,498 $17,173
08/31/1997 $16,803 $18,406 $17,046
09/30/1997 $18,321 $19,415 $18,727
10/31/1997 $17,672 $18,766 $17,931
11/30/1997 $18,021 $19,635 $18,291
12/31/1997 $18,328 $19,973 $18,699
01/31/1998 $18,113 $20,195 $18,436
02/28/1998 $17,959 $21,651 $18,200
03/31/1998 $18,359 $22,759 $18,558
04/30/1998 $17,836 $22,989 $17,974
05/31/1998 $17,672 $22,594 $17,801
06/30/1998 $17,467 $23,511 $17,707
07/31/1998 $16,299 $23,259 $16,474
08/31/1998 $14,699 $19,896 $14,763
09/30/1998 $15,468 $21,171 $15,589
10/31/1998 $15,355 $22,893 $15,376
11/30/1998 $15,530 $24,280 $15,665
12/31/1998 $15,394 $25,678 $15,441
01/31/1999 $14,894 $26,752 $15,106
02/28/1999 $14,698 $25,920 $14,987
03/31/1999 $14,676 $26,956 $14,897
04/30/1999 $16,286 $28,000 $16,485
05/31/1999 $16,482 $27,339 $16,763
06/30/1999 $16,199 $28,856 $16,478
07/31/1999 $15,460 $27,956 $15,847
08/31/1999 $15,166 $27,816 $15,609
09/30/1999 $14,557 $27,054 $14,905
10/31/1999 $14,219 $28,766 $14,628
11/30/1999 $13,893 $29,350 $14,406
12/31/1999 $14,423 $31,079 $14,947
01/31/2000 $14,400 $29,519 $15,009
02/29/2000 $14,081 $28,961 $14,722
03/31/2000 $14,761 $31,794 $15,367
04/30/2000 $15,723 $30,837 $16,463
DATE FRANKLIN REAL ESTATE S&P 500 WILSHIRE
SECURITIES FUND - ADVISOR REAL EST.
CLASS SECS. INDEX
--------------------------------------------------------------------------------
01/03/1994 $10,000 $10,000 $10,000
01/31/1994 $10,250 $10,340 $10,300
02/28/1994 $10,820 $10,060 $10,721
03/31/1994 $10,680 $ 9,621 $10,225
04/30/1994 $10,920 $ 9,744 $10,339
05/31/1994 $11,120 $ 9,904 $10,554
06/30/1994 $10,880 $ 9,661 $10,347
07/31/1994 $10,870 $ 9,978 $10,370
08/31/1994 $10,890 $10,387 $10,363
09/30/1994 $10,750 $10,134 $10,190
10/31/1994 $10,410 $10,362 $ 9,817
11/30/1994 $10,040 $ 9,985 $ 9,433
12/31/1994 $10,960 $10,133 $10,164
01/31/1995 $10,601 $10,395 $ 9,836
02/28/1995 $10,786 $10,800 $10,144
03/31/1995 $10,888 $11,119 $10,203
04/30/1995 $10,868 $11,446 $10,129
05/31/1995 $11,289 $11,904 $10,464
06/30/1995 $11,484 $12,180 $10,647
07/31/1995 $11,741 $12,584 $10,818
08/31/1995 $11,998 $12,616 $10,950
09/30/1995 $12,327 $13,148 $11,151
10/31/1995 $12,080 $13,101 $10,806
11/30/1995 $12,265 $13,676 $10,918
12/31/1995 $12,937 $13,940 $11,551
01/31/1996 $13,268 $14,414 $11,711
02/29/1996 $13,439 $14,548 $11,943
03/31/1996 $13,461 $14,688 $12,039
04/30/1996 $13,503 $14,904 $12,094
05/31/1996 $13,824 $15,288 $12,363
06/30/1996 $13,963 $15,346 $12,611
07/31/1996 $13,888 $14,668 $12,498
08/31/1996 $14,540 $14,977 $13,029
09/30/1996 $14,967 $15,821 $13,355
10/31/1996 $15,266 $16,257 $13,717
11/30/1996 $15,747 $17,486 $14,286
12/31/1996 $17,142 $17,140 $15,811
01/31/1997 $17,363 $18,211 $16,037
02/28/1997 $17,352 $18,353 $16,046
03/31/1997 $17,462 $17,599 $16,101
04/30/1997 $17,021 $18,650 $15,581
05/31/1997 $17,638 $19,785 $16,045
06/30/1997 $18,420 $20,672 $16,841
07/31/1997 $18,905 $22,317 $17,395
08/31/1997 $18,839 $21,068 $17,266
09/30/1997 $20,546 $22,222 $18,969
10/31/1997 $19,841 $21,480 $18,163
11/30/1997 $20,260 $22,474 $18,528
12/31/1997 $20,611 $22,861 $18,941
01/31/1998 $20,407 $23,115 $18,674
02/28/1998 $20,236 $24,781 $18,435
03/31/1998 $20,703 $26,050 $18,798
04/30/1998 $20,145 $26,313 $18,206
05/31/1998 $19,963 $25,861 $18,031
06/30/1998 $19,746 $26,911 $17,936
07/31/1998 $18,449 $26,623 $16,687
08/31/1998 $16,651 $22,773 $14,953
09/30/1998 $17,539 $24,233 $15,791
10/31/1998 $17,413 $26,203 $15,575
11/30/1998 $17,641 $27,791 $15,867
12/31/1998 $17,497 $29,391 $15,640
01/31/1999 $16,948 $30,620 $15,301
02/28/1999 $16,741 $29,668 $15,180
03/31/1999 $16,728 $30,854 $15,089
04/30/1999 $18,559 $32,049 $16,698
05/31/1999 $18,803 $31,292 $16,980
06/30/1999 $18,498 $33,029 $16,691
07/31/1999 $17,668 $31,998 $16,052
08/31/1999 $17,351 $31,838 $15,811
09/30/1999 $16,667 $30,966 $15,098
10/31/1999 $16,289 $32,926 $14,817
11/30/1999 $15,923 $33,595 $14,592
12/31/1999 $16,555 $35,573 $15,141
01/31/2000 $16,542 $33,788 $15,203
02/29/2000 $16,180 $33,149 $14,912
03/31/2000 $16,980 $36,391 $15,565
04/30/2000 $18,408 $35,296 $16,675
*Source: Standard and Poor's Micropal. The S&P 500 Composite Index measures the
performance of 500 domestic stocks. The index is unmanaged and includes
reinvested dividends. One cannot invest directly in an index, nor is an index
representative of the fund's portfolio.
**Source: Standard and Poor's Micropal. The Wilshire Real Estate Securities
Index is a market capitalization-weighted index comprised of publicly traded
real estate investment trusts (REITs) and real estate operating companies. The
index is unmanaged and includes reinvested dividends. One cannot invest directly
in an index, nor is an index representative of the fund's portfolio.
***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 to that class.
AVERAGE ANNUAL TOTAL RETURN 4/30/00
CLASS C
---------------------------------------
1-Year -5.33%
5-Year +9.47%
Since Inception (5/1/95) +9.47%
AVERAGE ANNUAL TOTAL RETURN
4/30/00
ADVISOR CLASS***
---------------------------------------
1-Year -2.47%
5-Year +11.11%
Since Inception (1/3/94) +10.12%
Past performance does not guarantee future results.
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Financial Highlights
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------
YEAR ENDED APRIL 30,
---------------------------------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 15.18 $ 17.66 $ 15.44 $ 12.64 $ 10.58
---------------------------------------------------------------------------
Income from investment operations:
Net investment income(a)........................... .67 .81 .63 .49 .43
Net realized and unrealized gains (losses) ........ (1.23) (2.31) 2.14 2.77 2.10
---------------------------------------------------------------------------
Total from investment operations ................... (.56) (1.50) 2.77 3.26 2.53
---------------------------------------------------------------------------
Less distributions from:
Net investment income ............................. (.68) (.75) (.48) (.36) (.47)
Net realized gains ................................ (.07) (.23) (.07) (.10) --
---------------------------------------------------------------------------
Total distributions ................................ (.75) (.98) (.55) (.46) (.47)
---------------------------------------------------------------------------
Net asset value, end of year ....................... $ 13.87 $ 15.18 $ 17.66 $ 15.44 $ 12.64
===========================================================================
Total return(b)..................................... (2.77%) (8.09%) 17.96% 25.97% 24.25%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 332,562 $ 278,301 $ 330,030 $ 153,520 $ 33,634
Ratios to average net assets:
Expenses .......................................... 1.02% .96% 1.00% .98% .67%
Expenses excluding waiver and payments by affiliate 1.02% .96% 1.03% 1.09% 1.24%
Net investment income ............................. 4.93% 5.15% 3.50% 3.88% 4.38%
Portfolio turnover rate ............................ 25.44% 25.97% 6.10% 6.80% 14.40%
</TABLE>
(a) Based on average shares outstanding for year ended April 30, 1997 and
effective April 30, 2000.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charges, and is not annualized for periods less than one year.
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS B
------------------------------
YEAR ENDED APRIL 30,
------------------------------
2000 1999(c)
-------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 15.16 $ 14.32
------------------------------
Income from investment operations:
Net investment income(a).................... .56 .10
Net realized and unrealized gains (losses) . (1.21) .74
------------------------------
Total from investment operations ............ (.65) .84
------------------------------
Less distributions from:
Net investment income ...................... (.63) --
Net realized gains ......................... (.07) --
------------------------------
Total distributions ......................... (.70) --
------------------------------
Net asset value, end of year ................ $ 13.81 $ 15.16
==============================
Total return(b).............................. (3.43%) 5.87%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 4,889 $ 1,119
Ratios to average net assets:
Expenses ................................... 1.77% 1.57%(d)
Net investment income ...................... 4.25% 4.54%(d)
Portfolio turnover rate ..................... 25.44% 25.97%
</TABLE>
(a) Based on average shares outstanding effective year ended April 30, 2000.
(b) Total return does not reflect contingent deferred sales charges, and is not
annualized for periods less than one year.
(c) For the period January 1, 1999 (effective date) to April 30, 1999.
(d) Annualized
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS C
---------------------------------------------------------------------------
YEAR ENDED APRIL 30,
---------------------------------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 14.97 $ 17.40 $ 15.26 $ 12.56 $ 10.58
Income from investment operations:
Net investment income(a)........................... .55 .68 .45 .43 .44
Net realized and unrealized gains (losses) ........ (1.18) (2.25) 2.15 2.68 2.00
---------------------------------------------------------------------------
Total from investment operations ................... (.63) (1.57) 2.60 3.11 2.44
---------------------------------------------------------------------------
Less distributions from:
Net investment income ............................. (.54) (.63) (.39) (.31) (.46)
Net realized gains ................................ (.07) (.23) (.07) (.10) --
---------------------------------------------------------------------------
Total distributions ................................ (.61) (.86) (.46) (.41) (.46)
---------------------------------------------------------------------------
Net asset value, end of year ....................... $ 13.73 $ 14.97 $ 17.40 $ 15.26 $ 12.56
===========================================================================
Total return(b)..................................... (3.46%) (8.69%) 17.07% 24.94% 23.21%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 77,635 $ 105,861 $ 137,048 $ 58,540 $ 6,282
Ratios to average net assets:
Expenses .......................................... 1.77% 1.71% 1.75% 1.75% 1.41%
Expenses excluding waiver and payments by affiliate 1.77% 1.71% 1.78% 1.86% 1.98%
Net investment income ............................. 4.08% 4.40% 2.77% 2.92% 3.65%
Portfolio turnover rate ............................ 25.44% 25.97% 6.10% 6.80% 14.40%
</TABLE>
(a) Based on average shares outstanding for year ended April 30, 1997 and
effective April 30,2000.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charges, and is not annualized for periods less than one year.
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
ADVISOR CLASS
---------------------------------------------------------------
YEAR ENDED APRIL 30,
---------------------------------------------------------------
2000 1999 1998 1997(c)
---------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 15.21 $ 17.70 $ 15.45 $ 15.30
---------------------------------------------------------------
Income from investment operations:
Net investment income(a)........................... .73 1.44 .52 .18
Net realized and unrealized gains (losses) ........ (1.25) (2.91) 2.31 (.03)
---------------------------------------------------------------
Total from investment operations ................... (.52) (1.47) 2.83 .15
---------------------------------------------------------------
Less distributions from:
Net investment income ............................. (.72) (.79) (.51) --
Net realized gains ................................ (.07) (.23) (.07) --
---------------------------------------------------------------
Total distributions ................................ (.79) (1.02) (.58) --
---------------------------------------------------------------
Net asset value, end of year ....................... $ 13.90 $ 15.21 $ 17.70 $ 15.45
===============================================================
Total return(b)..................................... (2.47%) (7.87%) 18.35% .98%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 3,915 $ 2,576 $ 8,929 $ 625
Ratios to average net assets:
Expenses .......................................... .77% .71% .75% .75%(d)
Expenses excluding waiver and payments by affiliate .77% .71% .78% .86%(d)
Net investment income ............................. 5.27% 5.40% 3.97% 3.44%(d)
Portfolio turnover rate ............................ 25.44% 25.97% 6.10% 6.80%
</TABLE>
(a) Based on average shares outstanding for year ended April 30, 1997 and
effective April 30, 2000.
(b) Total return is not annualized for periods less than one year.
(c) For the period January 2, 1997 (effective date) to April 30, 1997.
(d) Annualized
See notes to financial statements.
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
STATEMENT OF INVESTMENTS, APRIL 30, 2000
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 95.5%
HOTELS/RESORTS 6.1%
(a),(c) Candlewood Hotel Co. Inc. ...................................................... 685,000 $ 1,177,344
(a) MeriStar Hotels & Resorts Inc. ................................................. 392,000 1,127,000
Starwood Hotels & Resorts Worldwide Inc. ....................................... 735,000 20,901,563
(a) Wyndham International Inc., A .................................................. 1,211,830 2,499,399
-------------
25,705,306
-------------
(a) REAL ESTATE 6.6%
Crescent Operating Inc. ........................................................ 16,000 27,500
Northstar Capital Investment Corp., 144A ....................................... 100,000 1,450,000
Security Capital Group Inc., B ................................................. 1,219,400 18,291,000
Security Capital U.S. Realty, ADR (Luxembourg) ................................. 487,500 7,739,063
-------------
27,507,563
-------------
REAL ESTATE INVESTMENT TRUSTS 82.8%
Alexandria Real Estate Equities Inc. ........................................... 351,900 11,260,800
Apartment Investment & Management Co., A ....................................... 432,500 17,191,875
Archstone Communities Trust .................................................... 407,000 8,801,375
Arden Realty Inc. .............................................................. 415,000 9,233,750
Avalonbay Communities Inc. ..................................................... 235,000 9,194,375
Boston Properties Inc. ......................................................... 65,000 2,266,875
Brandywine Realty Trust ........................................................ 714,300 12,410,963
Cabot Industrial Trust ......................................................... 145,000 2,791,250
CarrAmerica Realty Corp. ....................................................... 440,900 10,471,375
Charles E. Smith Residential Realty Inc. ....................................... 120,000 4,522,500
Chelsea GCA Realty Inc. ........................................................ 170,000 5,546,250
Crescent Real Estate Equities Co. .............................................. 220,530 3,776,576
Developers Diversified Realty Corp. ............................................ 230,000 3,493,125
Duke-Weeks Realty Corp. ........................................................ 598,752 12,985,434
Equity Office Properties Trust ................................................. 861,000 23,408,438
Equity Residential Properties Trust ............................................ 428,800 19,510,400
General Growth Properties Inc. ................................................. 393,830 12,947,161
Glenborough Realty Trust Inc. .................................................. 999,000 14,735,250
Glimcher Realty Trust .......................................................... 61,700 1,398,375
Health Care Property Investors Inc. ............................................ 50,154 1,398,043
Highwoods Properties Inc. ...................................................... 302,800 6,869,775
Host Marriott Corp. ............................................................ 424,709 4,539,077
Istar Financial Inc. ........................................................... 675,000 11,854,688
Kimco Realty Corp. ............................................................. 260,000 10,351,250
Liberty Property Trust ......................................................... 610,000 15,097,500
LTC Properties Inc. ............................................................ 226,000 1,341,875
The Macerich Co. ............................................................... 239,100 5,544,131
Mack-Cali Realty Corp. ......................................................... 308,500 7,943,875
MeriStar Hospitality Corp. ..................................................... 773,700 15,280,575
Nationwide Health Properties Inc. .............................................. 122,000 1,616,500
Omega Healthcare Investors Inc. ................................................ 280,000 1,715,000
ProLogis Trust ................................................................. 869,600 17,120,250
Public Storage Inc. ............................................................ 605,400 13,545,824
</TABLE>
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
REAL ESTATE INVESTMENT TRUSTS (CONT.)
Reckson Associates Realty Corp., B ............................................. 322,100 $ 6,925,150
Simon Property Group Inc. ...................................................... 537,100 13,628,912
SL Green Realty Corp. .......................................................... 194,500 4,996,218
Spieker Properties Inc. ........................................................ 180,000 7,976,250
Sun Communities Inc. ........................................................... 210,000 6,956,250
Vornado Realty Trust ........................................................... 180,200 6,216,900
-------------
346,864,190
-------------
TOTAL COMMON STOCKS (COST $431,730,715) ........................................ 400,077,059
-------------
SHORT TERM INVESTMENTS 4.9%
(b) Franklin Institutional Fiduciary Trust Money Market Portfolio (COST $20,487,889) 20,487,889 20,487,889
-------------
TOTAL INVESTMENTS (COST $452,218,604) 100.4% ................................... 420,564,948
OTHER ASSETS, LESS LIABILITIES (.4%) ........................................... (1,563,530)
-------------
NET ASSETS 100.0% .............................................................. $ 419,001,418
=============
</TABLE>
(a) Non-income producing
(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 non-controlled "affiliated
companies" at April 30, 2000 were $1,177,344.
See notes to financial statements.
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2000
Assets:
Investments in securities:
Cost - Unaffiliated issuers ......................... $ 447,498,084
Cost - Non-controlled affiliated issuers ............ 4,720,520
=============
Value - Unaffiliated issuers ........................ 419,387,604
Value - Non-controlled affiliated issuers ........... 1,177,344
Receivables:
Capital shares sold ................................. 1,034,842
Dividends ........................................... 441,060
-------------
Total assets .................................... 422,040,850
-------------
Liabilities:
Payables:
Investment securities purchased ..................... 1,380,227
Capital shares redeemed ............................. 977,744
Affiliates .......................................... 431,536
Shareholders ........................................ 188,250
Other liabilities .................................... 61,675
-------------
Total liabilities ............................... 3,039,432
-------------
Net assets, at value ........................... $ 419,001,418
=============
Net assets consist of:
Undistributed net investment income .................. $ 4,183,596
Net unrealized depreciation .......................... (31,654,019)
Accumulated net realized loss ........................ (24,385,095)
Capital shares ....................................... 470,856,936
-------------
Net assets, at value ........................... $ 419,001,418
=============
See notes to financial statements.
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Financial Statements (continued)
STATEMENT OF ASSETS AND LIABILITIES (CONT.)
APRIL 30, 2000
<TABLE>
<CAPTION>
<S> <C>
CLASS A:
Net assets, at value ................................................ $332,561,800
============
Shares outstanding .................................................. 23,979,878
============
Net asset value per share* .......................................... $13.87
============
Maximum offering price per share (net asset value per share / 94.25%) $14.72
CLASS B:
Net assets, at value ................................................ $ 4,889,159
============
Shares outstanding .................................................. 354,102
============
Net asset value and maximum offering price per share ................ $13.81
============
CLASS C:
Net assets, at value ................................................ $ 77,635,269
============
Shares outstanding .................................................. 5,654,949
============
Net asset value per share* .......................................... $13.73
============
Maximum offering price per share (net asset value per share / 99.00%) $13.87
============
ADVISOR CLASS:
Net assets, at value ................................................ $ 3,915,190
============
Shares outstanding .................................................. 281,734
============
Net asset value and maximum offering price per share ................ $13.90
============
</TABLE>
* Redemption price is equal to net asset value less any applicable contingent
deferred 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 YEAR ENDED APRIL 30, 2000
<TABLE>
<S> <C>
Investment income:
Dividends+ ............................................................. $ 22,774,333
Interest ............................................................... 445,861
------------
Total investment income ........................................... 23,220,194
------------
Expenses:
Management fees (Note 3) ............................................... 1,972,915
Distribution fees (Note 3)
Class A ............................................................... 713,514
Class B ............................................................... 30,326
Class C ............................................................... 880,705
Transfer agent fees (Note 3) ........................................... 867,151
Custodian fees ......................................................... 559
Reports to shareholders ................................................ 52,775
Registration and filing fees ........................................... 84,431
Professional fees ...................................................... 5,285
Trustees' fees and expenses ............................................ 17,216
Other .................................................................. 1,852
------------
Total expenses .................................................... 4,626,729
------------
Net investment income ............................................ 18,593,465
------------
Realized and unrealized gains (losses):
Net realized loss from:
Investments ........................................................... (24,158,856)
Foreign currency transactions ......................................... (17,882)
------------
Net realized loss ................................................ (24,176,738)
Net unrealized depreciation on:
Investments ........................................................... (7,309,779)
Translation of assets and liabilities denominated in foreign currencies (363)
------------
Net unrealized depreciation ....................................... (7,310,142)
------------
Net realized and unrealized loss ........................................ (31,486,880)
------------
Net decrease in net assets resulting from operations .................... $(12,893,415)
============
</TABLE>
+ Net of foreign taxes and fees of $13,527.
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 YEARS ENDED APRIL 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
-----------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .............................................................. $ 18,593,465 $ 20,749,071
Net realized gain (loss) from investments and foreign currency transactions ........ (24,176,738) 2,824,842
Net unrealized depreciation on investments and translation of assets and liabilities
denominated in foreign currencies ................................................. (7,310,142) (70,145,582)
-----------------------------------
Net decrease in net assets resulting from operations ........................... (12,893,415) (46,571,669)
Distributions to shareholders from:
Net investment income:
Class A ........................................................................... (14,853,196) (14,270,797)
Class B ........................................................................... (168,494) --
Class C ........................................................................... (3,322,347) (4,896,531)
Advisor Class ..................................................................... (792,452) (254,676)
Net realized gains:
Class A ........................................................................... (1,586,241) (4,328,382)
Class B ........................................................................... (18,922) --
Class C ........................................................................... (451,133) (1,771,807)
Advisor Class ..................................................................... (82,460) (73,219)
-----------------------------------
Total distributions to shareholders ................................................. (21,275,245) (25,595,412)
Capital share transactions: (Note 2)
Class A ............................................................................ 76,055,854 (2,604,117)
Class B ............................................................................ 3,817,794 1,039,080
Class C ............................................................................ (18,711,550) (10,181,802)
Advisor Class ...................................................................... 4,150,460 (4,236,227)
-----------------------------------
Total capital share transactions .................................................... 65,312,558 (15,983,066)
Net increase (decrease) in net assets .......................................... 31,143,898 (88,150,147)
Net assets:
Beginning of year ................................................................... 387,857,520 476,007,667
-----------------------------------
End of year ......................................................................... $ 419,001,418 $ 387,857,520
===================================
Undistributed net investment income included in net assets:
End of year ......................................................................... $ 4,183,596 $ 4,737,048
===================================
</TABLE>
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
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 Act 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.
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Notes to Financial Statements (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. 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 April 30, 2000, there were an unlimited number of shares authorized ($.01 par
value). Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares sold .................................. 11,394,311 $ 155,053,740 9,225,213 $ 143,312,658
Shares issued in merger (Note 6) ............. 4,934,693 67,161,175 -- --
Shares issued in reinvestment of distributions 1,247,787 14,707,441 1,176,516 16,682,975
Shares redeemed .............................. (11,936,129) (160,866,502) (10,753,928) (162,599,750)
--------------------------------------------------------------------------
Net increase (decrease) ...................... 5,640,662 $ 76,055,854 (352,199) $ (2,604,117)
--------------------------------------------------------------------------
CLASS B SHARES*:
Shares sold .................................. 305,169 $ 4,166,852 73,863 $ 1,039,080
Shares issued in reinvestment of distributions 14,067 165,309 -- --
Shares redeemed .............................. (38,997) (514,367) -- --
--------------------------------------------------------------------------
Net increase ................................. 280,239 $ 3,817,794 73,863 $ 1,039,080
--------------------------------------------------------------------------
</TABLE>
*Effective date of Class B was January 1, 1999.
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Notes to Financial Statements (continued)
2. SHARES OF BENEFICIAL INTEREST (cont.)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS C SHARES:
Shares sold .................................. 1,187,506 $ 16,132,603 2,404,982 $ 36,953,551
Shares issued in merger (Note 6) ............. 264,812 3,545,838 -- --
Shares issued in reinvestment of distributions 279,374 3,262,585 414,295 5,808,896
Shares redeemed .............................. (3,149,621) (41,652,576) (3,620,490) (52,944,249)
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Net decrease ................................. (1,417,929) $(18,711,550) (801,213) $(10,181,802)
--------------------------------------------------------------------------
ADVISOR CLASS SHARES:
Shares sold .................................. 1,761,809 $ 26,587,748 444,802 $ 7,030,867
Shares issued in reinvestment of distributions 71,271 840,480 21,805 309,638
Shares redeemed .............................. (1,720,671) (23,277,768) (801,821) (11,576,732)
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Net increase (decrease) ...................... 112,409 $ 4,150,460 (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:
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
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 the Fund's shares, and received
contingent deferred sales charges for the year of $360,814 and $65,533,
respectively.
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES (CONT.)
The Fund paid transfer agent fees of $867,151, of which $681,047 was paid to
Investor Services.
Included in professional fees are legal fees of $8,483 that were paid to a law
firm in which a partner is an officer of the Fund.
4. INCOME TAXES
At April 30, 2000, the Fund had tax basis capital losses of $7,017,805 which may
be carried over to offset future capital gains. Such losses expire in 2008.
At April 30, 2000, the Fund had deferred capital losses and deferred currency
losses occurring subsequent to October 31, 1999 of $17,336,032 and $16,292,
respectively. For tax purposes, such losses will be reflected in the year ending
April 30, 2001.
At April 30, 2000, the net unrealized depreciation based on the cost of
investments for income tax purposes of $452,218,604 was as follows:
Unrealized appreciation ...... $ 33,079,035
Unrealized depreciation ...... (64,732,691)
Net unrealized depreciation .. $(31,653,656)
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions and non-deductible
merger 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 year
ended April 30, 2000 aggregated $138,208,353 and $94,623,580, 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 $422,374,187.
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Independent Auditors' Report
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
FRANKLIN REAL ESTATE SECURITIES TRUST
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Franklin Real Estate Securities
Trust (hereafter referred to as the Trust) at April 30, 2000, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the periods presented, in conformity with accounting principles generally
accepted in the United States. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at April 30,
2000 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
June 6, 2000
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Tax Designation
Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby designates
.68% of the ordinary income dividends as income qualifying for the dividends
received deduction for the fiscal year ended April 30, 2000.
