UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-8034
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FRANKLIN REAL ESTATE SECURITIES TRUST
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(Exact name of registrant as specified in charter)
ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
(Address of principal executive offices) (Zip code)
MURRAY L. SIMPSON, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Name and address of agent for service)
Registrant's telephone number, including area code: (650) 312-2000
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Date of fiscal year end: 4/30
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Date of reporting period: 4/30/03
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ITEM 1. REPORTS TO STOCKHOLDERS.
ANNUAL REPORT
FRANKLIN REAL ESTATE
SECURITIES FUND
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YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: FRANKLIN REAL ESTATE
SECURITIES FUND SEEKS TO MAXIMIZE TOTAL RETURN BY INVESTING AT LEAST 80% OF ITS
NET ASSETS IN SECURITIES OF COMPANIES IN THE REAL
ESTATE INDUSTRY, PRIMARILY EQUITY REAL ESTATE INVESTMENT TRUSTS (REITS). 1
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This annual report for Franklin Real Estate Securities Fund covers the fiscal
year ended April 30, 2003. During the 12 months under review, real estate stocks
turned in another impressive performance, marking the third consecutive year in
which publicly traded real estate stocks, as measured by the Wilshire Real
Estate Securities Index, outpaced the Standard & Poor's 500 Composite Index (S&P
500), Dow Jones Industrial Average and Nasdaq Composite Index. 2 Despite
1. Equity REITs are real estate companies that own and manage income-producing
properties such as apartments or hotels. The income, primarily rent from these
properties, is generally passed on to investors in the form of dividends. These
companies provide experienced property management teams and generally
concentrate on a specific geographic region and property type.
2. Source: Standard & Poor's Micropal. The Wilshire Real Estate Securities Index
is a market capitalization-weighted index comprising publicly traded real estate
investment trusts (REITs) and real estate operating companies. The S&P 500
consists of 500 stocks chosen for market size, liquidity and industry group
representation. Each stock's weight in the index is proportionate to its market
value. The S&P 500 is one of the most widely used benchmarks of U.S. equity
performance. The Dow Jones Industrial Average is price-weighted based on the
average market price of 30 blue chip stocks of companies that are generally
industry leaders. Total return, calculated by Wilshire Associates Inc., includes
reinvested dividends. The Nasdaq Composite Index measures all domestic and
international common stocks listed on the Nasdaq Stock Market. The index is
market value-weighted and includes over 4,000 companies. The indexes are
unmanaged and include reinvested dividends. One cannot invest directly in an
index, nor is an index representative of the Fund's portfolio.
The dollar value, number of shares or principal amount, and complete legal
titles of all portfolio holdings are listed in the Fund's Statement of
Investments (SOI). The SOI begins on page 17.
ANNUAL REPORT 4
a sluggish commercial real estate market, weakened fundamentals and bleak
economic outlook, real estate stocks outperformed the broader indexes as
investors looked to their relatively lower volatility in a time of geopolitical
and economic uncertainty. Other explanations for the resiliency include real
estate stocks' defensive nature and investors' reduced expectations for returns
from other asset classes. For the year ended April 30, 2003, Franklin Real
Estate Securities Fund - Class A posted a -2.51% cumulative total return as
shown in the Performance Summary beginning on page 9. The Fund's benchmark
indexes, the Wilshire Real Estate Securities Index and S&P 500, returned -1.56%
and -13.30% for the same period. 2
With the exception of the retail-oriented landlords, occupancies and rents for
most operators fell during the year under review. Although the rate of decline
slowed, the general trend continued downward. The negative impact was
particularly striking in the apartment sector, which was hurt by job growth
declines and strong competition from single-family housing. Other real estate
sectors also suffered, as the modest signs of economic recovery did not yet
result in significantly improved fundamentals. Yet, despite the difficult
environment for a number of real estate operators, real estate stock performance
was another story altogether. Real estate is often viewed as a lagging cyclical
sector and, true to form, earnings growth declined during the period; however,
many investors seemed to prefer real estate stocks for their better relative
fundamentals and generally more visible profiles. Many real estate operators
enjoy the stability of multiple long-term leases, often backed by letters of
credit, with reasonable growth from contractually mandated rent step-ups, and
staggered such that only a modest percentage of their overall portfolio is up
for annual renewal. In particular, many investors focused
TOP 10 HOLDINGS
4/30/03
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
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Simon Property Group Inc. 4.8%
REITS
Vornado Realty Trust 4.1%
REITS
ProLogis 3.8%
REITS
Equity Office
Properties Trust 3.7%
REITS
Boston Properties Inc. 3.7%
REITS
Macerich Co. 3.6%
REITS
Cendant Corp. 3.2%
OTHER CONSUMER SERVICES
iStar Financial Inc. 3.1%
REITS
Public Storage Inc. 3.0%
REITS
PS Business Parks Inc. 2.7%
REITS
ANNUAL REPORT 5
on real estate investment trusts (REITs), which by mandate must distribute at
least 90% of their taxable income to shareholders via dividends.
At period-end, we found mall stocks reasonably valued, and we expect their
fundamentals to remain intact and future growth prospects to remain solid.
Office stocks lagged most other property types during the year under review,
largely due to widespread concerns of a protracted slowdown in demand. However,
believing that certain office real estate securities represent an attractive
combination of secure leases, compelling valuations and favorable supply
characteristics, we added to our position during the period. Diversified real
estate, a sector whose focus is not limited to any single property type, offered
some of the most attractively valued real estate securities, in our opinion. The
apartment sector struggled largely due to a lack of demand, competition from
single-family housing and some modest overbuilding in certain regions. In 2002,
we became increasingly concerned about the effects of a slowing economy on the
hotel industry because, of all the real estate property groups, hotel operations
have a high sensitivity to economic changes. We did take advantage of some share
price weakness to increase the Fund's exposure, as we believe this sector will
benefit significantly when the economy fully recovers and the uncertainty
surrounding the Iraq situation dissipates.
6 ANNUAL REPORT
We initiated several significant positions during the year under review. In the
retail sector, we purchased two regional mall owners, Macerich and Rouse, which
have, in our opinion, above-average growth prospects. In the office sector, we
purchased Brookfield Properties and Parkway Properties. Both companies traded at
valuations we found attractive relative to their projected growth rates. In the
hotel sector, we purchased Hilton Hotels, Fairmont Hotels and Felcor Lodging
Trust after the stocks traded down with the entire hotel group. We initiated
health care positions Ventas and Windrose Medical Properties, two companies that
we think should benefit from favorable long-term demographics as the population
continues to age. We also added two homebuilders, Meritage and Lennar, to the
Fund. Both stocks traded at valuations we found reasonable, relative to their
growth prospects. During the period, we sold a number of positions that met our
value-based target prices, including First Industrial Realty Trust, Alexandria
Real Estate Equities and Shurgard Storage Centers.
Looking ahead, we remain optimistic because we believe real estate securities
are reasonably valued and should benefit as the economy returns to a more robust
property-operating environment. Although demand for space moderated with the
economic pullback, we believe a recovery should lead to demand stabilization.
Compared with previous real estate cycles, the current downturn in fundamentals
has been, in our opinion, almost solely driven by a dearth of demand as supply
has remained relatively in check, due to the recently constrained development
levels.
ANNUAL REPORT 7
Thank you for your investment in Franklin Real Estate
Securities Fund. We appreciate your support, welcome
your comments and suggestions, and look forward to serving you in the future.
/S/SIGNATURE
Douglas Barton, CFA
Portfolio Manager
Franklin Real Estate Securities Fund
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This discussion reflects our analysis, opinions and portfolio holdings as of
April 30, 2003, the end of the reporting period. Our strategies and the Fund's
portfolio composition will change depending on market and economic conditions.
These opinions may not be relied upon as investment advice or an offer for a
particular security. The information is not a complete analysis of every aspect
of any market, country, industry, security or the Fund. Statements of fact are
from sources considered reliable, but the advisor makes no representation or
warranty as to their completeness or accuracy. Although historical performance
is no guarantee of future results, these insights may help you understand our
investment management philosophy.
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ANNUAL REPORT 8
PERFORMANCE SUMMARY AS OF 4/30/03
YOUR DIVIDEND INCOME WILL VARY DEPENDING ON THE DIVIDENDS OR INTEREST PAID BY
THE SECURITIES IN THE FUND'S PORTFOLIO, ADJUSTED FOR THE OPERATING EXPENSES OF
EACH CLASS. CAPITAL GAIN DISTRIBUTIONS ARE NET PROFITS REALIZED FROM THE SALE OF
PORTFOLIO SECURITIES. THE PERFORMANCE TABLE AND GRAPHS DO NOT REFLECT ANY TAXES
DUE ON FUND DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS, IF ANY, OR ANY REALIZED GAINS
ON THE SALE OF FUND SHARES. TOTAL RETURN REFLECTS THE FUND'S DIVIDEND INCOME,
CAPITAL GAIN DISTRIBUTIONS, IF ANY, AND ANY UNREALIZED GAINS OR LOSSES.
PRICE AND DISTRIBUTION INFORMATION
CLASS A CHANGE 4/30/03 4/30/02
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Net Asset Value (NAV) -$1.12 $16.97 $18.09
DISTRIBUTIONS (5/1/02-4/30/03)
Dividend Income $0.6502
CLASS B CHANGE 4/30/03 4/30/02
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Net Asset Value (NAV) -$1.14 $16.85 $17.99
DISTRIBUTIONS (5/1/02-4/30/03)
Dividend Income $0.5532
CLASS C CHANGE 4/30/03 4/30/02
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Net Asset Value (NAV) -$1.13 $16.78 $17.91
DISTRIBUTIONS (5/1/02-4/30/03)
Dividend Income $0.5353
ADVISOR CLASS CHANGE 4/30/03 4/30/02
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Net Asset Value (NAV) -$1.12 $17.02 $18.14
DISTRIBUTIONS (5/1/02-4/30/03)
Dividend Income $0.6918
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CLASS A: Subject to the current, maximum 5.75% initial sales charge. Prior to
8/3/98, 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.
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Past performance does not guarantee future results.
ANNUAL REPORT 9
PERFORMANCE SUMMARY (CONT.)
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 any current, applicable, maximum sales
charge(s).
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and include any current, applicable, maximum
sales charge(s).
4. In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
5. Distribution rate is based on an annualization of the sum of the respective
class's past four quarterly dividends and the maximum offering price (NAV for
Classes B and Advisor) per share on 4/30/03.
6. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the 30 days ended 4/30/03.
7. Effective 1/2/97, the Fund began offering Advisor Class shares, which do not
have sales charges or a Rule 12b-1 plan. Performance quotations for this class
reflect the following methods of calculation: (a) For periods prior to 1/2/97, a
restated figure is used based upon the Fund's Class A performance, excluding the
effect of Class A's maximum initial sales charge, but reflecting the effect of
the Class A Rule 12b-1 fees; and (b) for periods after 1/1/97, actual Advisor
Class performance is used reflecting all charges and fees applicable to that
class. Since 1/2/97 (commencement of sales), the cumulative and average annual
total returns of Advisor Class shares were +49.48% and +6.56%.
PERFORMANCE
INCEPTION
CLASS A 1-YEAR 5-YEAR (1/3/94)
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Cumulative Total Return 1 -2.51% +23.41% +147.64%
Average Annual Total Return 2 -8.10% +3.07% +9.51%
Value of $10,000 Investment 3 $9,190 $11,630 $23,340
Avg. Ann. Total Return (3/31/03) 4 -10.79% +1.62% +9.09%
Distribution Rate 5 3.61%
30-Day Standardized Yield 6 3.63%
INCEPTION
CLASS B 1-YEAR 3-YEAR (1/1/99)
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Cumulative Total Return 1 -3.20% +35.14% +38.16%
Average Annual Total Return 2 -6.95% +9.73% +7.39%
Value of $10,000 Investment 3 $9,305 $13,214 $13,616
Avg. Ann. Total Return (3/31/03) 4 -9.67% +10.50% +6.44%
Distribution Rate 5 3.28%
30-Day Standardized Yield 6 3.11%
INCEPTION
CLASS C 1-YEAR 5-YEAR (5/1/95)
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Cumulative Total Return 1 -3.27% +19.05% +114.54%
Average Annual Total Return 2 -5.16% +3.34% +9.87%
Value of $10,000 Investment 3 $9,484 $11,783 $21,233
Avg. Ann. Total Return (3/31/03) 4 -7.89% +1.87% +9.38%
Distribution Rate 5 3.16%
30-Day Standardized Yield 6 3.08%
INCEPTION
ADVISOR CLASS 7 1-YEAR 5-YEAR (1/3/94)
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Cumulative Total Return 1 -2.27% +25.07% +156.24%
Average Annual Total Return 2 -2.27% +4.58% +10.61%
Value of $10,000 Investment 3 $9,773 $12,507 $25,624
Avg. Ann. Total Return (3/31/03) 4 -5.10% +3.10% +10.19%
Distribution Rate 5 4.06%
30-Day Standardized Yield 6 4.10%
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Ongoing market volatility can significantly affect short-term performance; more
recent returns may differ from those shown. Investment return and principal
value will fluctuate with market conditions, and you may have a gain or loss
when you sell your shares. Investing in a non-diversified fund concentrating in
real estate securities involves risks such as declines in the value of real
estate and adverse economic or regulatory developments. Small- and medium-cap
stocks historically been more volatile than larger-cap stocks, particularly over
the short term. These and other risks are described more fully in the Fund's
prospectus.
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Past performance does not guarantee future results.
10 ANNUAL REPORT
PERFORMANCE SUMMARY (CONT.)
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
INCLUDE REINVESTED DIVIDENDS. THEY DIFFER FROM THE FUND IN COMPOSITION AND DO
NOT PAY MANAGEMENT FEES OR EXPENSES. ONE CANNOT INVEST DIRECTLY IN AN INDEX.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
The following line graph compares the performance of Franklin Real Estate
Securities Fund -Class A with that of the S&P 500 Index 8 and the Wilshire Real
Estate Securities Index 8, based on a $10,000 investment from 1/3/94 to 4/30/03.
Date Franklin Real Estate Securities Fund - Class A S&P 500 Wilshire Real Est. Secs. Index
- ---- ---------------------------------------------- ------- ------------------------------
1/3/94 $9,425 $10,000 $10,000
1/31/94 $9,661 $10,340 $10,300
2/28/94 $10,198 $10,060 $10,721
3/31/94 $10,066 $9,622 $10,225
4/30/94 $10,292 $9,745 $10,339
5/31/94 $10,481 $9,904 $10,554
6/30/94 $10,254 $9,662 $10,347
7/31/94 $10,245 $9,978 $10,370
8/31/94 $10,264 $10,387 $10,363
9/30/94 $10,132 $10,133 $10,190
10/31/94 $9,811 $10,360 $9,817
11/30/94 $9,463 $9,983 $9,433
12/31/94 $10,330 $10,131 $10,164
1/31/95 $9,991 $10,393 $9,836
2/28/95 $10,166 $10,797 $10,144
3/31/95 $10,262 $11,116 $10,203
4/30/95 $10,243 $11,443 $10,129
5/31/95 $10,640 $11,899 $10,464
6/30/95 $10,824 $12,175 $10,647
7/31/95 $11,066 $12,578 $10,818
8/31/95 $11,308 $12,610 $10,950
9/30/95 $11,618 $13,142 $11,151
10/31/95 $11,385 $13,095 $10,806
11/30/95 $11,560 $13,668 $10,918
12/31/95 $12,193 $13,932 $11,551
1/31/96 $12,505 $14,406 $11,711
2/29/96 $12,667 $14,540 $11,943
3/31/96 $12,687 $14,679 $12,039
4/30/96 $12,727 $14,895 $12,094
5/31/96 $13,029 $15,278 $12,363
6/30/96 $13,160 $15,336 $12,611
7/31/96 $13,089 $14,658 $12,498
8/31/96 $13,704 $14,967 $13,029
9/30/96 $14,106 $15,809 $13,355
10/31/96 $14,388 $16,245 $13,717
11/30/96 $14,841 $17,471 $14,286
12/31/96 $16,157 $17,125 $15,811
1/31/97 $16,364 $18,194 $16,037
2/28/97 $16,344 $18,338 $16,046
3/31/97 $16,447 $17,586 $16,101
4/30/97 $16,032 $18,634 $15,581
5/31/97 $16,603 $19,767 $16,045
6/30/97 $17,340 $20,653 $16,841
7/31/97 $17,787 $22,294 $17,395
8/31/97 $17,725 $21,046 $17,266
9/30/97 $19,334 $22,197 $18,969
10/31/97 $18,659 $21,456 $18,163
11/30/97 $19,043 $22,449 $18,528
12/31/97 $19,372 $22,835 $18,941
1/31/98 $19,169 $23,086 $18,674
2/28/98 $19,008 $24,751 $18,435
3/31/98 $19,447 $26,018 $18,798
4/30/98 $18,912 $26,281 $18,206
5/31/98 $18,740 $25,829 $18,031
6/30/98 $18,537 $26,878 $17,936
7/31/98 $17,306 $26,593 $16,687
8/31/98 $15,614 $22,753 $14,953
9/30/98 $16,438 $24,211 $15,791
10/31/98 $16,331 $26,180 $15,575
11/30/98 $16,534 $27,766 $15,867
12/31/98 $16,397 $29,365 $15,640
1/31/99 $15,870 $30,593 $15,301
2/28/99 $15,676 $29,641 $15,180
3/31/99 $15,653 $30,827 $15,098
4/30/99 $17,382 $32,020 $16,708
5/31/99 $17,599 $31,264 $16,990
6/30/99 $17,313 $33,000 $16,701
7/31/99 $16,523 $31,970 $16,062
8/31/99 $16,225 $31,810 $15,821
9/30/99 $15,584 $30,939 $15,107
10/31/99 $15,229 $32,897 $14,826
11/30/99 $14,886 $33,565 $14,593
12/31/99 $15,474 $35,542 $15,142
1/31/00 $15,449 $33,758 $15,204
2/29/00 $15,122 $33,119 $14,914
3/31/00 $15,865 $36,359 $15,567
4/30/00 $16,901 $35,264 $16,677
5/31/00 $17,279 $34,541 $16,877
6/30/00 $18,110 $35,394 $17,446
7/31/00 $19,678 $34,842 $19,012
8/31/00 $19,011 $37,006 $18,328
9/30/00 $19,533 $35,052 $18,924
10/31/00 $18,783 $34,905 $18,102
11/30/00 $18,945 $32,154 $18,510
12/31/00 $20,246 $32,312 $19,796
1/31/01 $20,653 $33,459 $19,994
2/28/01 $20,297 $30,411 $19,578
3/31/01 $20,176 $28,486 $19,594
4/30/01 $20,685 $30,696 $20,060
5/31/01 $20,583 $30,902 $20,622
6/30/01 $21,599 $30,151 $21,729
7/31/01 $21,059 $29,856 $21,295
8/31/01 $21,522 $27,990 $22,038
9/30/01 $20,399 $25,731 $20,731
10/31/01 $19,645 $26,222 $19,956
11/30/01 $21,088 $28,234 $21,249
12/31/01 $21,792 $28,482 $21,865
1/31/02 $21,779 $28,066 $21,959
2/28/02 $22,294 $27,525 $22,462
3/31/02 $23,624 $28,559 $23,843
4/30/02 $23,942 $26,829 $23,991
5/31/02 $24,207 $26,633 $24,233
6/30/02 $24,645 $24,737 $24,730
7/31/02 $23,253 $22,810 $23,199
8/31/02 $23,240 $22,958 $23,209
9/30/02 $22,179 $20,465 $22,180
10/31/02 $21,178 $22,264 $21,071
11/30/02 $21,922 $23,573 $22,114
12/31/02 $22,163 $22,189 $22,437
1/31/03 $21,571 $21,610 $21,782
2/28/03 $21,956 $21,286 $22,102
3/31/03 $22,363 $21,490 $22,664
4/30/03 $23,340 $23,261 $23,618
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
The following line graph compares the performance of Franklin Real Estate
Securities Fund -Class B with that of the S&P 500 Index 8 and the Wilshire Real
Estate Securities Index 8, based on a $10,000 investment from 1/1/99 to 4/30/03.
Date Franklin Real Estate Securities Fund - Class B S&P 500 Wilshire Real Est. Sec. Index
- ---- ---------------------------------------------- ------- -----------------------------
1/1/99 $10,000 $10,000 $10,000
1/31/99 $9,679 $10,418 $9,783
2/28/99 $9,553 $10,094 $9,706
3/31/99 $9,539 $10,498 $9,653
4/30/99 $10,587 $10,904 $10,682
5/31/99 $10,712 $10,647 $10,863
6/30/99 $10,531 $11,238 $10,678
7/31/99 $10,049 $10,887 $10,269
8/31/99 $9,860 $10,833 $10,115
9/30/99 $9,462 $10,536 $9,659
10/31/99 $9,246 $11,203 $9,479
11/30/99 $9,029 $11,430 $9,331
12/31/99 $9,375 $12,103 $9,681
1/31/00 $9,360 $11,496 $9,721
2/29/00 $9,153 $11,278 $9,535
3/31/00 $9,594 $12,381 $9,953
4/30/00 $10,224 $12,009 $10,663
5/31/00 $10,438 $11,763 $10,791
6/30/00 $10,941 $12,053 $11,154
7/31/00 $11,878 $11,865 $12,156
8/31/00 $11,473 $12,602 $11,718
9/30/00 $11,780 $11,937 $12,099
10/31/00 $11,318 $11,886 $11,574
11/30/00 $11,409 $10,950 $11,834
12/31/00 $12,185 $11,003 $12,657
1/31/01 $12,423 $11,394 $12,784
2/28/01 $12,200 $10,356 $12,518
3/31/01 $12,123 $9,700 $12,528
4/30/01 $12,423 $10,453 $12,826
5/31/01 $12,346 $10,523 $13,185
6/30/01 $12,957 $10,268 $13,893
7/31/01 $12,624 $10,167 $13,615
8/31/01 $12,887 $9,532 $14,090
9/30/01 $12,205 $8,762 $13,255
10/31/01 $11,752 $8,930 $12,759
11/30/01 $12,604 $9,615 $13,586
12/31/01 $13,022 $9,699 $13,980
1/31/02 $13,006 $9,558 $14,040
2/28/02 $13,307 $9,373 $14,361
3/31/02 $14,083 $9,726 $15,245
4/30/02 $14,273 $9,136 $15,339
5/31/02 $14,416 $9,069 $15,494
6/30/02 $14,671 $8,424 $15,812
7/31/02 $13,839 $7,768 $14,833
8/31/02 $13,823 $7,818 $14,839
9/30/02 $13,182 $6,969 $14,181
10/31/02 $12,584 $7,582 $13,472
11/30/02 $13,012 $8,027 $14,139
12/31/02 $13,152 $7,556 $14,346
1/31/03 $12,783 $7,359 $13,927
2/28/03 $13,013 $7,249 $14,132
3/31/03 $13,234 $7,318 $14,491
4/30/03 $13,616 $7,921 $15,101
For more current performance, see "Funds and Performance" at
franklintempleton.com or call 1-800/342-5236.
Past performance does not guarantee future results.
ANNUAL REPORT 11
PERFORMANCE SUMMARY (CONT.)
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
The following line graph compares the performance of Franklin Real Estate
Securities Fund -Class C with that of the S&P 500 Index 8 and the Wilshire Real
Estate Securities Index 8, based on a $10,000 investment from 5/1/95 to 4/30/03.
Date Franklin Real Estate Securities Fund - Class C S&P 500 Wilshire Real Est. Sec. Index
- ---- ---------------------------------------------- ------- -----------------------------
5/1/95 $9,897 $10,000 $10,000
5/31/95 $10,262 $10,399 $10,331
6/30/95 $10,439 $10,640 $10,511
7/31/95 $10,654 $10,992 $10,680
8/31/95 $10,888 $11,020 $10,810
9/30/95 $11,178 $11,485 $11,009
10/31/95 $10,953 $11,444 $10,668
11/30/95 $11,103 $11,945 $10,779
12/31/95 $11,709 $12,175 $11,404
1/31/96 $11,991 $12,589 $11,561
2/29/96 $12,146 $12,706 $11,790
3/31/96 $12,165 $12,828 $11,886
4/30/96 $12,194 $13,017 $11,939
5/31/96 $12,476 $13,352 $12,206
6/30/96 $12,583 $13,402 $12,450
7/31/96 $12,515 $12,810 $12,339
8/31/96 $13,088 $13,080 $12,863
9/30/96 $13,466 $13,815 $13,185
10/31/96 $13,728 $14,197 $13,542
11/30/96 $14,156 $15,268 $14,104
12/31/96 $15,395 $14,966 $15,609
1/31/97 $15,585 $15,900 $15,832
2/28/97 $15,555 $16,026 $15,842
3/31/97 $15,635 $15,369 $15,896
4/30/97 $15,236 $16,285 $15,382
5/31/97 $15,775 $17,275 $15,841
6/30/97 $16,464 $18,049 $16,626
7/31/97 $16,873 $19,483 $17,173
8/31/97 $16,803 $18,392 $17,046
9/30/97 $18,321 $19,398 $18,727
10/31/97 $17,672 $18,750 $17,931
11/30/97 $18,021 $19,619 $18,291
12/31/97 $18,328 $19,956 $18,699
1/31/98 $18,113 $20,176 $18,436
2/28/98 $17,959 $21,630 $18,200
3/31/98 $18,359 $22,738 $18,558
4/30/98 $17,836 $22,967 $17,974
5/31/98 $17,672 $22,572 $17,801
6/30/98 $17,467 $23,489 $17,707
7/31/98 $16,299 $23,240 $16,474
8/31/98 $14,699 $19,884 $14,763
9/30/98 $15,468 $21,159 $15,589
10/31/98 $15,355 $22,879 $15,376
11/30/98 $15,530 $24,265 $15,665
12/31/98 $15,394 $25,663 $15,441
1/31/99 $14,894 $26,736 $15,106
2/28/99 $14,698 $25,904 $14,987
3/31/99 $14,676 $26,940 $14,906
4/30/99 $16,286 $27,983 $16,495
5/31/99 $16,482 $27,322 $16,773
6/30/99 $16,199 $28,839 $16,488
7/31/99 $15,460 $27,939 $15,857
8/31/99 $15,166 $27,799 $15,619
9/30/99 $14,557 $27,038 $14,914
10/31/99 $14,219 $28,749 $14,637
11/30/99 $13,893 $29,333 $14,407
12/31/99 $14,423 $31,060 $14,949
1/31/00 $14,400 $29,501 $15,010
2/29/00 $14,081 $28,944 $14,723
3/31/00 $14,761 $31,774 $15,368
4/30/00 $15,723 $30,818 $16,464
5/31/00 $16,055 $30,186 $16,662
6/30/00 $16,830 $30,932 $17,223
7/31/00 $18,266 $30,449 $18,770
8/31/00 $17,641 $32,340 $18,094
9/30/00 $18,109 $30,633 $18,682
10/31/00 $17,406 $30,504 $17,871
11/30/00 $17,547 $28,100 $18,273
12/31/00 $18,732 $28,238 $19,543
1/31/01 $19,100 $29,240 $19,739
2/28/01 $18,768 $26,576 $19,328
3/31/01 $18,649 $24,894 $19,344
4/30/01 $19,100 $26,826 $19,804
5/31/01 $18,994 $27,006 $20,359
6/30/01 $19,926 $26,349 $21,452
7/31/01 $19,411 $26,091 $21,023
8/31/01 $19,818 $24,461 $21,757
9/30/01 $18,772 $22,487 $20,466
10/31/01 $18,072 $22,916 $19,701
11/30/01 $19,388 $24,674 $20,978
12/31/01 $20,031 $24,891 $21,586
1/31/02 $20,006 $24,527 $21,679
2/28/02 $20,459 $24,054 $22,175
3/31/02 $21,656 $24,959 $23,539
4/30/02 $21,950 $23,446 $23,685
5/31/02 $22,171 $23,275 $23,924
6/30/02 $22,573 $21,618 $24,415
7/31/02 $21,274 $19,934 $22,903
8/31/02 $21,249 $20,063 $22,913
9/30/02 $20,267 $17,884 $21,898
10/31/02 $19,332 $19,456 $20,803
11/30/02 $20,005 $20,600 $21,832
12/31/02 $20,208 $19,391 $22,151
1/31/03 $19,651 $18,885 $21,504
2/28/03 $20,006 $18,602 $21,820
3/31/03 $20,347 $18,780 $22,375
4/30/03 $21,233 $20,328 $23,317
AVERAGE ANNUAL TOTAL RETURN
CLASS C 4/30/03
- ----------------------------
1-Year -5.16%
5-Year +3.34%
Since Inception (5/1/95)+9.87%
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
The following line graph compares the performance of Franklin Real Estate
Securities Fund - Advisor Class with that of the S&P 500 Index 8 and the
Wilshire Real Estate Securities Index 8, based on a $10,000 investment from
1/3/94 to 4/30/03.
Date Franklin Real Estate Securities Fund - Advisor Class S&P 500 Wilshire Real Est. Secs. Index
- ---- ---------------------------------------------------- ------- ------------------------------
1/3/94 $10,000 $10,000 $10,000
1/31/94 $10,250 $10,340 $10,300
2/28/94 $10,820 $10,060 $10,721
3/31/94 $10,680 $9,622 $10,225
4/30/94 $10,920 $9,745 $10,339
5/31/94 $11,120 $9,904 $10,554
6/30/94 $10,880 $9,662 $10,347
7/31/94 $10,870 $9,978 $10,370
8/31/94 $10,890 $10,387 $10,363
9/30/94 $10,750 $10,133 $10,190
10/31/94 $10,410 $10,360 $9,817
11/30/94 $10,040 $9,983 $9,433
12/31/94 $10,960 $10,131 $10,164
1/31/95 $10,601 $10,393 $9,836
2/28/95 $10,786 $10,797 $10,144
3/31/95 $10,888 $11,116 $10,203
4/30/95 $10,868 $11,443 $10,129
5/31/95 $11,289 $11,899 $10,464
6/30/95 $11,484 $12,175 $10,647
7/31/95 $11,741 $12,578 $10,818
8/31/95 $11,998 $12,610 $10,950
9/30/95 $12,327 $13,142 $11,151
10/31/95 $12,080 $13,095 $10,806
11/30/95 $12,265 $13,668 $10,918
12/31/95 $12,937 $13,932 $11,551
1/31/96 $13,268 $14,406 $11,711
2/29/96 $13,439 $14,540 $11,943
3/31/96 $13,461 $14,679 $12,039
4/30/96 $13,503 $14,895 $12,094
5/31/96 $13,824 $15,278 $12,363
6/30/96 $13,963 $15,336 $12,611
7/31/96 $13,888 $14,658 $12,498
8/31/96 $14,540 $14,967 $13,029
9/30/96 $14,967 $15,809 $13,355
10/31/96 $15,266 $16,245 $13,717
11/30/96 $15,747 $17,471 $14,286
12/31/96 $17,142 $17,125 $15,811
1/31/97 $17,363 $18,194 $16,037
2/28/97 $17,352 $18,338 $16,046
3/31/97 $17,462 $17,586 $16,101
4/30/97 $17,021 $18,634 $15,581
5/31/97 $17,638 $19,767 $16,045
6/30/97 $18,420 $20,653 $16,841
7/31/97 $18,905 $22,294 $17,395
8/31/97 $18,839 $21,046 $17,266
9/30/97 $20,546 $22,197 $18,969
10/31/97 $19,841 $21,456 $18,163
11/30/97 $20,260 $22,449 $18,528
12/31/97 $20,611 $22,835 $18,941
1/31/98 $20,407 $23,086 $18,674
2/28/98 $20,236 $24,751 $18,435
3/31/98 $20,703 $26,018 $18,798
4/30/98 $20,145 $26,281 $18,206
5/31/98 $19,963 $25,829 $18,031
6/30/98 $19,746 $26,878 $17,936
7/31/98 $18,449 $26,593 $16,687
8/31/98 $16,651 $22,753 $14,953
9/30/98 $17,539 $24,211 $15,791
10/31/98 $17,413 $26,180 $15,575
11/30/98 $17,641 $27,766 $15,867
12/31/98 $17,497 $29,365 $15,640
1/31/99 $16,948 $30,593 $15,301
2/28/99 $16,741 $29,641 $15,180
3/31/99 $16,728 $30,827 $15,098
4/30/99 $18,559 $32,020 $16,708
5/31/99 $18,803 $31,264 $16,990
6/30/99 $18,498 $33,000 $16,701
7/31/99 $17,668 $31,970 $16,062
8/31/99 $17,351 $31,810 $15,821
9/30/99 $16,667 $30,939 $15,107
10/31/99 $16,289 $32,897 $14,826
11/30/99 $15,923 $33,565 $14,593
12/31/99 $16,555 $35,542 $15,142
1/31/00 $16,542 $33,758 $15,204
2/29/00 $16,180 $33,119 $14,914
3/31/00 $16,980 $36,359 $15,567
4/30/00 $18,100 $35,264 $16,677
5/31/00 $18,504 $34,541 $16,877
6/30/00 $19,404 $35,394 $17,446
7/31/00 $21,080 $34,842 $19,012
8/31/00 $20,380 $37,006 $18,328
9/30/00 $20,940 $35,052 $18,924
10/31/00 $20,137 $34,905 $18,102
11/30/00 $20,311 $32,154 $18,510
12/31/00 $21,719 $32,312 $19,796
1/31/01 $22,155 $33,459 $19,994
2/28/01 $21,787 $30,411 $19,578
3/31/01 $21,667 $28,486 $19,594
4/30/01 $22,212 $30,696 $20,060
5/31/01 $22,103 $30,902 $20,622
6/30/01 $23,206 $30,151 $21,729
7/31/01 $22,627 $29,856 $21,295
8/31/01 $23,124 $27,990 $22,038
9/30/01 $21,921 $25,731 $20,731
10/31/01 $21,126 $26,222 $19,956
11/30/01 $22,674 $28,234 $21,249
12/31/01 $23,435 $28,482 $21,865
1/31/02 $23,435 $28,066 $21,959
2/28/02 $23,988 $27,525 $22,462
3/31/02 $25,410 $28,559 $23,843
4/30/02 $25,780 $26,829 $23,991
5/31/02 $26,064 $26,633 $24,233
6/30/02 $26,551 $24,737 $24,730
7/31/02 $25,041 $22,810 $23,199
8/31/02 $25,041 $22,958 $23,209
9/30/02 $23,902 $20,465 $22,180
10/31/02 $22,827 $22,264 $21,071
11/30/02 $23,626 $23,573 $22,114
12/31/02 $23,904 $22,189 $22,437
1/31/03 $23,253 $21,610 $21,782
2/28/03 $23,682 $21,286 $22,102
3/31/03 $24,115 $21,490 $22,664
4/30/03 $25,624 $23,261 $23,618
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 7 4/30/03
- ----------------------------
1-Year -2.27%
5-Year +4.58%
Since Inception (1/3/94)+10.61%
8. Source: Standard & Poor's Micropal. The S&P 500 consists of 500 stocks chosen
for market size, liquidity and industry group representation. Each stock's
weight in the index is proportionate to its market value. The S&P 500 is one of
the most widely used benchmarks of U.S. equity performance. The Wilshire Real
Estate Securities Index is a market capitalization-weighted index comprising
publicly traded real estate investment trusts (REITs) and real estate operating
companies.
Past performance does not guarantee future results.
12 ANNUAL REPORT
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Financial Highlights
CLASS A
-----------------------------------------------
YEAR ENDED APRIL 30,
-----------------------------------------------
2003 2002 2001 2000 1999
-----------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ....................... $18.10 $16.26 $13.87 $15.18 $17.66
-----------------------------------------------
Income from investment operations:
Net investment income (loss) a .......................... .63 .66 .64 .67 .81
Net realized and unrealized gains (losses) .............. (1.11) 1.82 2.41 (1.23) (2.31)
-----------------------------------------------
Total from investment operations ......................... (.48) 2.48 3.05 (.56) (1.50)
-----------------------------------------------
Less distributions from:
Net investment income ................................... (.65) (.64) (.66) (.68) (.75)
Net realized gains ...................................... -- -- -- (.07) (.23)
-----------------------------------------------
Total distributions ...................................... (.65) (.64) (.66) (.75) (.98)
-----------------------------------------------
Net asset value, end of year ............................. $16.97 $18.10 $16.26 $13.87 $15.18
-----------------------------------------------
Total return b ........................................... (2.51)% 15.74% 22.39% (2.77)% (8.09)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .......................... $423,363 $431,749 $356,296 $332,562 $278,301
Ratios to average net assets:
Expenses ................................................ .98% .96% 1.04% 1.02% .96%
Net investment income ................................... 3.76% 3.96% 4.16% 4.93% 5.15%
Portfolio turnover rate .................................. 29.76% 37.26% 29.03% 25.44% 25.97%
aBased on average shares outstanding effective April 30, 2000.
bTotal return does not reflect the sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
ANNUAL REPORT 13
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Financial Highlights (CONTINUED)
CLASS B
----------------------------------------------------
YEAR ENDED APRIL 30,
----------------------------------------------------
2003 2002 2001 2000 1999 C
----------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ....................... $17.99 $16.17 $13.81 $15.16 $14.32
----------------------------------------------------
Income from investment operations:
Net investment income (loss) a .......................... .50 .52 .48 .56 .10
Net realized and unrealized gains (losses) .............. (1.10) 1.82 2.45 (1.21) .74
----------------------------------------------------
Total from investment operations ......................... (.60) 2.34 2.93 (.65) .84
----------------------------------------------------
Less distributions from:
Net investment income ................................... (.55) (.52) (.57) (.63) --
Net realized gains ...................................... -- -- -- (.07) --
----------------------------------------------------
Total distributions ...................................... (.55) (.52) (.57) (.70) --
----------------------------------------------------
Net asset value, end of year ............................. $16.84 $17.99 $16.17 $13.81 $15.16
----------------------------------------------------
Total return b ........................................... (3.20)% 14.90% 21.51% (3.43)% 5.87%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .......................... $40,703 $26,650 $12,264 $4,889 $1,119
Ratios to average net assets:
Expenses ................................................ 1.74% 1.71% 1.79% 1.77% 1.57% d
Net investment income ................................... 3.00% 3.11% 3.11% 4.25% 4.54% d
Portfolio turnover rate .................................. 29.76% 37.26% 29.03% 25.44% 25.97%
aBased on average shares outstanding effective year ended April 30, 2000.
bTotal return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
cFor the period January 1, 1999 (effective date) to April 30, 1999.
dAnnualized.
ANNUAL REPORT 14
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Financial Highlights (CONTINUED)
CLASS C
--------------------------------------------------
YEAR ENDED APRIL 30,
--------------------------------------------------
2003 2002 2001 2000 1999
--------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ........................ $17.91 $16.08 $13.73 $14.97 $17.40
--------------------------------------------------
Income from investment operations:
Net investment income (loss) a ........................... .51 .53 .51 .55 .68
Net realized and unrealized gains (losses) ............... (1.10) 1.80 2.40 (1.18) (2.25)
--------------------------------------------------
Total from investment operations .......................... (.59) 2.33 2.91 (.63) (1.57)
--------------------------------------------------
Less distributions from:
Net investment income .................................... (.54) (.50) (.56) (.54) (.63)
Net realized gains ....................................... -- -- -- (.07) (.23)
--------------------------------------------------
Total distributions ....................................... (.54) (.50) (.56) (.61) (.86)
--------------------------------------------------
Net asset value, end of year .............................. $16.78 $17.91 $16.08 $13.73 $14.97
--------------------------------------------------
Total return b ............................................ (3.27)% 14.92% 21.48% (3.46)% (8.69)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ...........................$114,474 $120,394 $96,364 $77,635 $105,861
Ratios to average net assets:
Expenses ................................................. 1.70% 1.71% 1.78% 1.77% 1.71%
Net investment income .................................... 3.04% 3.23% 3.36% 4.08% 4.40%
Portfolio turnover rate ................................... 29.76% 37.26% 29.03% 25.44% 25.97%
aBased on average shares outstanding effective April 30, 2000.
bTotal return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
ANNUAL REPORT 15
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Financial Highlights (CONTINUED)
ADVISOR CLASS
---------------------------------------------------
YEAR ENDED APRIL 30,
---------------------------------------------------
2003 2002 2001 2000 1999
---------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ..................... $18.14 $16.30 $13.90 $15.21 $17.70
---------------------------------------------------
Income from investment operations:
Net investment income (loss) a ........................ .67 .66 .63 .73 1.44
Net realized and unrealized gains (losses) ............ (1.10) 1.86 2.47 (1.25) (2.91)
---------------------------------------------------
Total from investment operations ....................... (.43) 2.52 3.10 (.52) (1.47)
---------------------------------------------------
Less distributions from:
Net investment income ................................. (.69) (.68) (.70) (.72) (.79)
Net realized gains .................................... -- -- -- (.07) (.23)
---------------------------------------------------
Total distributions .................................... (.69) (.68) (.70) (.79) (1.02)
---------------------------------------------------
Net asset value, end of year ........................... $17.02 $18.14 $16.30 $13.90 $15.21
---------------------------------------------------
Total return b ......................................... (2.27)% 16.06% 22.72% (2.47)% (7.87)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ........................ $27,532 $25,879 $9,438 $3,915 $2,576
Ratios to average net assets:
Expenses .............................................. .73% .71% .79% .77% .71%
Net investment income ................................. 4.01% 3.96% 4.06% 5.27% 5.40%
Portfolio turnover rate ................................ 29.76% 37.26% 29.03% 25.44% 25.97%
aBased on average shares outstanding effective April 30, 2000.
bTotal return is not annualized for periods less than one year.
See notes to financial statements.
16 ANNUAL REPORT
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
STATEMENT OF INVESTMENTS, APRIL 30, 2003
SHARES VALUE
- --------------------------------------------------------------------------------------------------------------
COMMON STOCKS 93.3%
HOMEBUILDING 1.4%
Lennar Corp. ................................................................... 27,000 $ 1,464,480
Lennar Corp., B ................................................................ 2,700 144,585
a Meritage Corp. ................................................................. 182,400 6,958,560
------------
8,567,625
------------
HOTEL/RESORTS/CRUISELINES 2.9%
a,c Candlewood Hotel Co. Inc. ...................................................... 685,000 363,050
Fairmont Hotels & Resorts Inc. (Canada) ........................................ 235,000 5,386,200
Hilton Hotels Corp. ............................................................ 160,700 2,140,524
Starwood Hotels & Resorts Worldwide Inc. ....................................... 373,500 10,024,740
------------
17,914,514
------------
OTHER CONSUMER SERVICES 3.2%
a Cendant Corp. .................................................................. 1,342,500 19,170,900
------------
REAL ESTATE DEVELOPMENT 6.1%
Boardwalk Equities Inc. (Canada) ............................................... 1,331,500 13,874,230
Brookfield Properties Corp. (Canada) ........................................... 315,840 6,395,760
a Catellus Development Corp. ..................................................... 395,900 8,385,162
Forest City Enterprises Inc., A ................................................ 183,400 6,703,270
a,d orthstar Capital Investment Corp., 144A ........................................ 100,000 1,350,000
------------
36,708,422
------------
REAL ESTATE INVESTMENT TRUSTS 79.7%
AMB Property Corp. ............................................................. 552,400 15,080,520
Apartment Investment & Management Co., A ....................................... 101,500 3,832,640
Archstone-Smith Trust .......................................................... 241,325 5,502,210
Arden Realty Inc. .............................................................. 281,700 6,712,911
Avalonbay Communities Inc. ..................................................... 128,000 5,105,920
Bedford Property Investors Inc. ................................................ 304,420 8,112,793
Boston Properties Inc. ......................................................... 566,050 22,189,160
Brandywine Realty Trust ........................................................ 242,900 5,416,670
Camden Property Trust .......................................................... 175,000 6,116,250
CarrAmerica Realty Corp. ....................................................... 583,000 15,204,640
Chelsea Property Group Inc. .................................................... 30,000 1,189,800
Cousins Properties Inc. ........................................................ 404,600 10,624,796
Crescent Real Estate Equities Co. .............................................. 141,400 2,005,052
Duke Realty Corp. .............................................................. 65,652 1,798,865
Entertainment Properties Trust ................................................. 210,000 5,659,500
Equity Office Properties Trust ................................................. 855,561 22,218,919
Equity Residential ............................................................. 447,600 11,597,316
FelCor Lodging Trust Inc. ...................................................... 175,000 1,240,750
General Growth Properties Inc. ................................................. 227,130 12,632,970
Glenborough Realty Trust Inc. .................................................. 924,000 15,319,920
Glimcher Realty Trust .......................................................... 636,200 13,143,892
a Host Marriott Corp. ............................................................ 1,071,000 8,268,120
ANNUAL REPORT 17
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
STATEMENT OF INVESTMENTS, APRIL 30, 2003 (CONT.)
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
REAL ESTATE INVESTMENT TRUSTS (CONT.)
iStar Financial Inc. .......................................................... 632,600 $ 18,933,718
Kilroy Realty Corp. ........................................................... 165,000 4,095,300
Lexington Corporate Properties Trust .......................................... 303,700 5,235,788
Liberty Property Trust ........................................................ 474,200 14,837,718
Macerich Co. .................................................................. 653,000 21,549,000
Manufactured Home Communities Inc. ............................................ 295,500 9,467,820
MeriStar Hospitality Corp. .................................................... 590,500 2,456,480
Parkway Properties Inc. ....................................................... 183,000 7,067,460
ProLogis ...................................................................... 889,600 22,898,304
PS Business Parks Inc. ........................................................ 535,000 16,643,850
Public Storage Inc. ........................................................... 561,500 18,052,225
Ramco-Gershenson Properties Trust ............................................. 413,500 9,448,475
Reckson Associates Realty Corp. ............................................... 480,200 9,051,770
RFS Hotel Investors Inc. ...................................................... 124,300 1,334,982
Rouse Co. ..................................................................... 464,100 16,127,475
Simon Property Group Inc. ..................................................... 800,200 29,383,344
SL Green Realty Corp. ......................................................... 352,400 11,357,852
Sun Communities Inc. .......................................................... 271,500 10,463,610
Taubman Centers Inc. .......................................................... 739,200 12,943,392
Trizec Properties Inc. ........................................................ 606,000 5,641,860
Ventas Inc. ................................................................... 695,000 9,035,000
Vornado Realty Trust .......................................................... 652,700 24,802,600
c Windrose Medical Properties ................................................... 334,800 3,250,908
------------
483,052,545
------------
TOTAL COMMON STOCKS (COST $496,328,932) ....................................... 565,414,006
------------
PREFERRED STOCKS (COST $3,502,663) .8%
REAL ESTATE INVESTMENT TRUSTS
a Host Marriott Corp., 6.75%, cvt. pfd. ......................................... 132,600 5,062,138
------------
TOTAL LONG TERM INVESTMENTS (COST $499,831,595) 570,476,144
------------
SHORT TERM INVESTMENTS (COST $43,577,116) 7.2%
b Franklin Institutional Fiduciary Trust Money Market Portfolio ................. 43,577,116 43,577,116
------------
TOTAL INVESTMENTS (COST $543,408,711) 101.3% .................................. 614,053,260
OTHER ASSETS, LESS LIABILITIES (1.3)% ......................................... (7,981,646)
------------
NET ASSETS 100.0% ............................................................. $606,071,614
------------
aNon-income producing.
bSee Note 6 regarding investments in the Franklin Institutional Fiduciary
Trust Money Market Portfolio.
cSee Note 7 regarding Holdings of 5% Voting Securities.
dSee Note 8 regarding restricted securities.
See notes to financial statements.
18 ANNUAL REPORT
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2003
Assets:
Investments in securities:
Cost - Unaffiliated issuers ............................................................. $534,670,591
Cost - Non-controlled affiliated issuers ................................................ 8,738,120
-------------
Value - Unaffiliated issuers ............................................................ 610,439,302
Value - Non-controlled affiliated issuers ............................................... 3,613,958
Receivables:
Investment securities sold .............................................................. 2,172,529
Capital shares sold ..................................................................... 1,040,369
Dividends ............................................................................... 53,025
-------------
Total assets ........................................................................ 617,319,183
-------------
Liabilities:
Payables:
Investment securities purchased ......................................................... 9,316,954
Capital shares redeemed ................................................................. 1,026,265
Affiliates .............................................................................. 604,743
Shareholders ............................................................................ 239,139
Other liabilities ........................................................................ 60,468
-------------
Total liabilities ................................................................... 11,247,569
-------------
Net assets, at value ................................................................ $606,071,614
-------------
Net assets consist of:
Undistributed net investment income ...................................................... $ 3,919,089
Net unrealized appreciation (depreciation) ............................................... 70,644,549
Accumulated net realized gain (loss) ..................................................... (34,201,189)
Capital shares ........................................................................... 565,709,165
-------------
Net assets, at value ................................................................ $606,071,614
-------------
ANNUAL REPORT 19
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Financial Statements (CONTINUED)
STATEMENT OF ASSETS AND LIABILITIES (CONT.)
APRIL 30, 2003
CLASS A:
Net assets, at value .................................................................... $423,363,256
-------------
Shares outstanding ...................................................................... 24,944,845
-------------
Net asset value per share a ............................................................. $16.97
-------------
Maximum offering price per share (Net asset value per share / 94.25%) ................... $18.01
-------------
CLASS B:
Net assets, at value .................................................................... $ 40,702,735
-------------
Shares outstanding ...................................................................... 2,416,320
-------------
Net asset value and maximum offering price per share a .................................. $16.84
-------------
CLASS C:
Net assets, at value .................................................................... $114,473,883
-------------
Shares outstanding ...................................................................... 6,820,701
-------------
Net asset value per share a ............................................................. $16.78
-------------
Maximum offering price per share (Net asset value per share / 99%) ...................... $16.95
-------------
ADVISOR CLASS:
Net assets, at value .................................................................... $ 27,531,740
-------------
Shares outstanding ...................................................................... 1,618,054
-------------
Net asset value and maximum offering price per share .................................... $17.02
-------------
aRedemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements.
20 ANNUAL REPORT
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Financial Statements (CONTINUED)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 2003
Investment income:
Dividends:
Unaffiliated issuers .................................................................... $ 27,525,744
Non-controlled affiliated issuers (Note 7) .............................................. 43,524
------------
Total investment income ............................................................. 27,569,268
------------
Expenses:
Management fees (Note 3) ................................................................. 2,746,198
Distribution fees (Note 3)
Class A ................................................................................. 1,014,377
Class B ................................................................................. 346,899
Class C ................................................................................. 1,129,899
Transfer agent fees (Note 3) ............................................................. 1,196,242
Custodian fees ........................................................................... 5,730
Reports to shareholders .................................................................. 93,027
Registration and filing fees ............................................................. 120,314
Professional fees ........................................................................ 53,608
Trustees' fees and expenses .............................................................. 17,072
Other .................................................................................... 24,256
------------
Total expenses ...................................................................... 6,747,622
------------
Net investment income .......................................................... 20,821,646
------------
Realized and unrealized gains (losses): Net realized gain (loss) from:
Investments:
Unaffiliated Issuers .................................................................... 9,754,442
Non-controlled affiliated issuers (Note 7) .............................................. (13)
------------
Net realized gain (loss) ............................................................ 9,754,429
------------
Net unrealized appreciation (depreciation) on investments ................................. (47,868,488)
------------
Net realized and unrealized gain (loss) ................................................... (38,114,059)
------------
Net increase (decrease) in net assets resulting from operations ........................... $(17,292,413)
------------
See notes to financial statements.
ANNUAL REPORT 21
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Financial Statements (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED APRIL 30, 2003 AND 2002
YEAR ENDED YEAR ENDED
APRIL 30, 2003 APRIL 30, 2002
---------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income (loss) .............................................. $ 20,821,646 $ 19,286,486
Net realized gain (loss) from investments ................................. 9,754,429 4,185,228
Net unrealized appreciation (depreciation) on investments ................. (47,868,488) 54,191,283
---------------------------------
Net increase (decrease) in net assets resulting from operations ....... (17,292,413) 77,662,997
Distributions to shareholders from:
Net investment income:
Class A .................................................................. (15,525,626) (14,167,625)
Class B .................................................................. (1,101,235) (554,409)
Class C .................................................................. (3,752,350) (3,157,505)
Advisor Class ............................................................ (1,056,973) (535,471)
---------------------------------
Total distributions to shareholders ........................................ (21,436,184) (18,415,010)
Capital share transactions: (Note 2)
Class A .................................................................. 18,619,722 33,143,141
Class B .................................................................. 15,731,041 11,912,423
Class C .................................................................. 2,334,359 11,972,662
Advisor Class ............................................................ 3,442,434 14,034,939
---------------------------------
Total capital share transactions ........................................... 40,127,556 71,063,165
Net increase (decrease) in net assets ................................. 1,398,959 130,311,152
Net assets
Beginning of year .......................................................... 604,672,655 474,361,503
---------------------------------
End of year ................................................................ $606,071,614 $604,672,655
---------------------------------
Undistributed net investment income included in net assets:
End of year ................................................................ $ 3,919,089 $ 4,533,627
---------------------------------
See notes to financial statements.
22 ANNUAL REPORT
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Real Estate Securities Fund (the Fund) is a separate, non-diversified
series of Franklin Real Estate Securities Trust (the Trust), which is an
open-end investment company registered under the Investment Company of 1940. The
Fund seeks total return.
The following summarizes the Fund's significant accounting policies.
A. SECURITY VALUATION
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. 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, 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 all of its taxable income.
D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
Distributions received by the Fund from securities may be a return of capital
(ROC). Such distributions reduce the cost basis of the securities, and any
distributions in excess of the cost basis are recognized as capital gains.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
ANNUAL REPORT 23
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Notes to Financial Statements (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
E. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America 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.
F. GUARANTEES AND INDEMNIFICATION
In the normal course of business the Fund enters into contracts with service
providers that contain general indemnification clauses. The Fund's maximum
exposure under these arrangements is unknown as this would involve future claims
that may be made against the Fund that have not yet occurred. However, based on
experience, the Fund expects the risk of loss to be remote.
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, contingent
deferred sales charges, distribution fees, voting rights on matters affecting a
single class and its exchange privilege.
At April 30, 2003, there were an unlimited number of shares authorized ($.01 par
value). Transactions in the Fund's shares were as follows:
YEAR ENDED APRIL 30,
----------------------------------------------------------------
2003 2002
----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------
CLASS A SHARES:
Shares sold ..................................... 12,286,539 $208,359,787 12,489,217 $ 208,780,303
Shares issued in reinvestment
of distributions ............................... 837,542 14,066,071 791,916 12,762,067
Shares redeemed ................................. (12,039,132) (203,806,136) (11,336,129) (188,399,229)
----------------------------------------------------------------
Net increase (decrease) ......................... 1,084,949 $ 18,619,722 1,945,004 $ 33,143,141
----------------------------------------------------------------
CLASS B SHARES:
Shares sold ..................................... 1,164,255 $ 19,457,743 819,781 $ 13,575,254
Shares issued in reinvestment
of distributions ............................... 57,888 961,046 29,838 477,513
Shares redeemed ................................. (287,065) (4,687,748) (126,977) (2,140,344)
----------------------------------------------------------------
Net increase (decrease) ......................... 935,078 $ 15,731,041 722,642 $ 11,912,423
----------------------------------------------------------------
CLASS C SHARES:
Shares sold ..................................... 1,791,610 $ 29,763,024 1,646,549 $ 27,030,520
Shares issued in reinvestment
of distributions ............................... 192,794 3,206,631 169,961 2,705,418
Shares redeemed ................................. (1,884,732) (30,635,296) (1,088,281) (17,763,276)
----------------------------------------------------------------
Net increase (decrease) ......................... 99,672 $ 2,334,359 728,229 $ 11,972,662
----------------------------------------------------------------
24 ANNUAL REPORT
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Notes to Financial Statements (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
YEAR ENDED APRIL 30,
-----------------------------------------------------
2003 2002
-----------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------
ADVISOR CLASS SHARES:
Shares sold ......................................... 504,347 $ 8,530,129 962,284 $ 15,914,285
Shares issued in reinvestment
of distributions ................................... 58,960 991,256 28,119 456,271
Shares redeemed ..................................... (371,994) (6,078,951) (142,813) (2,335,617)
-----------------------------------------------------
Net increase (decrease) ............................. 191,313 $ 3,442,434 847,590 $ 14,034,939
-----------------------------------------------------
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, LLC (FT
Services), Franklin/Templeton Distributors, Inc. (Distributors) and
Franklin/Templeton Investor Services, LLC (Investor Services), the Fund's
investment manager, administrative manager, principal underwriter and transfer
agent, respectively.
The Fund pays an investment management fee to Advisers based on the average net
assets of the Fund as follows:
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
-----------------------------------------------------------------
.625% First $100 million
.500% Over $100 million, up to and including $250 million
.450% Over $250 million
Under an agreement with Advisers, FT Services provides administrative services
to the Fund. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Fund.
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 $1,286,813 and $95,470,
respectively.
The Fund paid transfer agent fees of $1,196,242, of which $793,142 was paid to
Investor Services.
ANNUAL REPORT 25
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Notes to Financial Statements (CONTINUED)
4. INCOME TAXES
At April 30, 2003, the cost of investments, net unrealized appreciation
(depreciation), and undistributed ordinary income for income tax purposes were
as follows:
Cost of investments .........................$543,624,678
------------
Unrealized appreciation .....................$ 87,146,662
Unrealized depreciation ..................... (16,718,080)
------------
Net unrealized appreciation (depreciation) ..$ 70,428,582
------------
Distributable earnings - ordinary income ....$ 3,925,310
At April 30, 2003, the Fund had tax basis capital losses of $29,068,921 which
may be carried over to offset future capital gains. Such losses will expire in
2009.
At April 30, 2003, the Fund had deferred capital losses occurring subsequent to
October 31, 2002 of $4,922,523. For tax purposes, such losses will be reflected
in the year ending April 30, 2004.
The tax character of distributions paid during the years ended April 30, 2002
and 2003, was as follows:
Distributions paid from: 2003 2002
--------------------------
Ordinary Income .............. $21,436,184 $18,415,010
--------------------------
Net realized gains differ for financial statement and tax purposes primarily due
to differing treatments of wash sales and losses realized subsequent to October
31, 2002 on the sales of securities.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended April 30, 2003 aggregated $199,446,402 and $165,504,040, respectively.
6. INVESTMENTS IN FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO
The Fund may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (the Sweep Money Fund), an open-end investment company managed by
Advisers. Management fees paid by the Fund are reduced on assets invested in the
Sweep Money Fund, in an amount not to exceed the management fees paid by the
Sweep Money Fund. The Fund earned $358,600 of dividend income from investment in
the Sweep Money Fund for the year ended April 30, 2003.
26 ANNUAL REPORT
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Notes to Financial Statements (CONTINUED)
7. HOLDING OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
The Investment Company Act of 1940 defines "affiliated companies" to include
investments in portfolio companies in which a fund owns 5% or more of the
outstanding voting securities. Investments in "affiliated companies" for the
Fund at April 30, 2003 were as shown below.
REALIZED
NUMBER OF NUMBER OF CAPITAL
SHARES HELD GROSS GROSS SHARES HELD VALUE INVESTMENT INCOME GAINS/LOSSES
NAME OF ISSUER APRIL 30, 2002 ADDITIONS REDUCTIONS APRIL 30, 2003 APRIL 30, 2003 5/01/02-4/30/03 5/01/02-4/30/03
- ------------------------------------------------------------------------------------------------------------------------------------
NON CONTROLLED AFFILIATES
Candlewood Hotel Co. Inc. ........ 685,000 -- -- 685,000 $ 363,050 -- --
Windrose Medical Properties ...... -- 370,500 (35,700) 334,800 3,250,908 $43,524 $(13)
---------------------------------------------
TOTAL NON CONTROLLED AFFILIATES $3,613,958 $43,524 $(13)
---------------------------------------------
8. RESTRICTED SECURITIES
At April 30, 2003, investments in securities included issues that are restricted
or illiquid. Restricted securities are often purchased in private placement
transactions, are not registered under the Securities Act of 1933, may have
contractual restrictions on resale, and are valued under methods approved by the
Board of Trustees as reflecting fair value. A security may also be considered
illiquid if it lacks a readily available market or if its valuation has not
changed for a certain period of time. At April 30, 2003, the Fund held
investments in restricted and illiquid securities that were valued under
approved methods by the Trustees, as follows:
NUMBER ACQUISITION
OF SHARES ISSUER DATE COST VALUE
- -----------------------------------------------------------------------------------------------------------
100,000 Northstar Capital Investment Corp., 144A ........... 1/16/98 $1,993,250 $1,350,000
-----------------------------
TOTAL RESTRICTED SECURITIES (.22% OF NET ASSETS) $1,993,250 $1,350,000
-----------------------------
ANNUAL REPORT 27
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 FUND
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 Franklin Real Estate Securities
Fund (the "Fund") at April 30, 2003, 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 of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund'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 of America, 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, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
June 5, 2003
28 ANNUAL REPORT
FRANKLIN REAL ESTATE SECURITIES TRUST
FRANKLIN REAL ESTATE SECURITIES FUND
Tax Designation (unaudited)
Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby designates
3.11% of the ordinary income dividends as income qualifying for the dividends
received deduction for corporations for the fiscal year ended April 30, 2003.
Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby designates
up to a maximum of $677,214 as qualified dividends for purposes of the maximum
rate under Section 1(h)(11) of the Code for the fiscal year ended April 30,
2003. In January 2004, shareholders will receive Form 1099-DIV which will
include their share of qualified dividends distributed during the calendar year
2003. Shareholders are advised to check with their tax advisors for information
on the treatment of these amounts on their individual income tax returns.
ANNUAL REPORT 29
BOARD MEMBERS AND OFFICERS
The name, age and address of the officers and board members, as well as their
affiliations, positions held with the Trust, principal occupations during the
past five years and number of portfolios overseen in the Franklin Templeton
Investments fund complex are shown below. Each board member will serve until the
person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
NUMBER OF
PORTFOLIOS IN FUND
LENGTH OF COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION(S) TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK H. ABBOTT, III (82) Trustee Since 1993 109 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Director, Abbott Corporation (an investment company); and FORMERLY, Director, MotherLode Gold Mines Consolidated
(gold mining) (until 1996) and Vacu-Dry Co. (food processing) (until 1996).
- ------------------------------------------------------------------------------------------------------------------------------------
HARRIS J. ASHTON (70) Trustee Since 1993 136 Director, Bar-S Foods (meat packing
One Franklin Parkway company).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and formerly, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President,
Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).
- ------------------------------------------------------------------------------------------------------------------------------------
ROBERT F. CARLSON (75)
One Franklin Parkway
San Mateo, CA 94403-1906 Trustee Since 1998 49 None
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President and past President, Board of Administration, California Public Employees Retirement Systems (CALPERS); and
FORMERLY, member and Chairman of the Board, Sutter Community Hospitals; member, Corporate Board, Blue Shield of California; and
Chief Counsel, California Department of Transportation.
- ------------------------------------------------------------------------------------------------------------------------------------
S. JOSEPH FORTUNATO (70) Trustee Since 1993 140 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Attorney; and FORMERLY, member of the law firm of Pitney, Hardin, Kipp & Szuch.
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK W.T. LAHAYE (74) Trustee Since 1993 109 Director, The California Center for
One Franklin Parkway Land Recycling (redevelopment).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture capital).
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL REPORT
30
INTERESTED BOARD MEMBERS AND OFFICERS
NUMBER OF
PORTFOLIOS IN FUND
LENGTH OF COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION(S) TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
GORDON S. MACKLIN (74) Trustee Since 1993 141 Director, White Mountains Insurance
One Franklin Parkway Group, Ltd. (holding company); Martek
San Mateo, CA 94403-1906 Biosciences Corporation; MedImmune,
Inc. (biotechnology); Overstock.com
(Internet services); and Spacehab,
Inc. (aerospace services).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Deputy Chairman, White Mountains Insurance Group, Ltd. (holding company); and formerly, Chairman, White River Corporation
(financial services) (until 1998) and Hambrecht & Quist Group (investment banking) (until 1992); and President, National
Association of Securities Dealers, Inc. (until 1987).
- ------------------------------------------------------------------------------------------------------------------------------------
**HARMON E. BURNS (58) Trustee and Since 1993 34 None
One Franklin Parkway Vice President
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin
Templeton Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; Director, Franklin Investment Advisory Services,
Inc.; officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc.; and
officer of 48 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
**CHARLES B. JOHNSON (70) Trustee and Since 1993 137 None
One Franklin Parkway Chairman of the Board
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Chief Executive Officer, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice
President, Franklin Templeton Distributors, Inc.; Director, Fiduciary Trust Company International; officer and/or director or
trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc.; and officer of 45 of the investment
companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
**RUPERT H. JOHNSON, JR. (62) Trustee, President Trustee and 117 None
One Franklin Parkway and Chief Executive President since
San Mateo, CA 94403-1906 Officer - Investment 1993 and Chief
Management Executive Officer -
Investment
Management since
2002
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin
Templeton Distributors, Inc.; Director, Franklin Advisers, Inc. and Franklin Investment Advisory Services, Inc.; Senior Vice
President, Franklin Advisory Services, LLC; officer and/or director or trustee, as the case may be, of some of the other
subsidiaries of Franklin Resources, Inc.; and officer of 48 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL REPORT
31
NUMBER OF
PORTFOLIOS IN FUND
LENGTH OF COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION(S) TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
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MARTIN L. FLANAGAN (42) Vice President Since 1995 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Chief Financial Officer, Franklin Resources, Inc.; Senior Vice President and Chief Financial Officer, Franklin
Mutual Advisers, LLC; Executive Vice President, Chief Financial Officer and Director, Templeton Worldwide, Inc.; Executive Vice
President and Chief Operating Officer, Templeton Investment Counsel, LLC; President and Director, Franklin Advisers, Inc.;
Executive Vice President, Franklin Investment Advisory Services, Inc. and Franklin Templeton Investor Services, LLC; Chief
Financial Officer, Franklin Advisory Services, LLC; Chairman, Franklin Templeton Services, LLC; and officer and/or director of
some of the other subsidiaries of Franklin Resources, Inc. and of 49 of the investment companies in Franklin Templeton
Investments.
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JIMMY D. GAMBILL (55) Senior Vice Since 2002 Not Applicable None
500 East Broward Blvd. President and Chief
Suite 2100 Executive Officer -
Fort Lauderdale, FL 33394-3091 Finance and
Administration
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of 51 of the investment
companies in Franklin Templeton Investments.
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DAVID P. GOSS (55) Vice President Since 2000 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Associate General Counsel, Franklin Resources, Inc.; officer and director of one of the subsidiaries of Franklin Resources, Inc.;
officer of 51 of the investment companies in Franklin Templeton Investments; and FORMERLY, President, Chief Executive Officer and
Director, Property Resources Equity Trust (until 1999) and Franklin Select Realty Trust (until 2000).
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BARBARA J. GREEN (55) Vice President Since 2000 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President and Deputy General Counsel, Franklin Resources, Inc.; Senior Vice President, Templeton Worldwide, Inc.; officer of
one of the other subsidiaries of Franklin Resources, Inc. and of 51 of the investment companies in Franklin Templeton Investments;
and formerly, Deputy Director, Division of Investment Management, Executive Assistant and Senior Advisor to the Chairman,
Counselor to the Chairman, Special Counsel and Attorney Fellow, U.S. Securities and Exchange Commission (1986-1995); Attorney,
Rogers & Wells (until 1986); and Judicial Clerk, U.S. District Court (District of Massachusetts) (until 1979).
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MICHAEL O. MAGDOL (65) Vice President - AML Since 2002 Not Applicable Director, FTI Banque, Arch Chemicals,
600 Fifth Avenue Compliance Inc. and Lingnan Foundation.
Rockefeller Center
New York, NY 10048-0772
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Chief Banking Officer and Director, Fiduciary Trust Company International; officer and/or director, as the case may
be, of some of the other subsidiaries of Franklin Resources, Inc.; and officer of 47 of the investment companies in Franklin
Templeton Investments.
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ANNUAL REPORT
32
NUMBER OF
PORTFOLIOS IN FUND
LENGTH OF COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION(S) TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
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KIMBERLEY H. MONASTERIO (39) Treasurer and Chief Treasurer Not Applicable None
One Franklin Parkway Financial Officer since 2000
San Mateo, CA 94403-1906 and Chief
Financial
Officer since
2002
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; and officer of 51 of the investment companies in Franklin Templeton
Investments.
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MURRAY L. SIMPSON (65) Vice President and Since 2000 Not Applicable None
One Franklin Parkway Secretary
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Executive Vice President and General Counsel, Franklin Resources, Inc.; officer and/or director of some of the subsidiaries of
Franklin Resources, Inc.; officer of 51 of the investment companies in Franklin Templeton Investments; and FORMERLY, Chief
Executive Officer and Managing Director, Templeton Franklin Investment Services (Asia) Limited (until 2000); and Director,
Templeton Asset Management Ltd. (until 1999).
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*We base the number of portfolios on each separate series of the U.S. registered
investment companies within the Franklin Templeton Investments trust complex.
These portfolios have a common investment adviser or affiliated investment
advisers.
**Charles B. Johnson and Rupert H. Johnson, Jr. are considered interested
persons of the Trust under the federal securities laws due to their positions as
officers and directors and major shareholders of Franklin Resources Inc.
(Resources), which is the parent company of the Trust's adviser and distributor.
Harmon E. Burns is considered an interested person of the Trust under the
federal securities laws due to his position as officer and director of
Resources.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
- --------------------------------------------------------------------------------
The Statement of Additional Information (SAI) includes additional information
about the board members and is available, without charge, upon request.
Shareholders may call 1-800/DIAL BEN (1-800/342-5236) to request the SAI.
- --------------------------------------------------------------------------------
ANNUAL REPORT
33
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LITERATURE REQUEST
For a brochure and prospectus, which contain more complete information,
including charges and expenses, call Franklin Templeton Investments at
1-800/DIAL BEN(R) (1-800/342-5236). Please read the prospectus carefully before
investing or sending money. To ensure the highest quality of service, telephone
calls to or from our service departments may be monitored, recorded and
accessed. These calls can be determined by the presence of a regular beeping
tone.
FRANKLIN TEMPLETON INVESTMENTS
GLOBAL GROWTH
Franklin Global Aggressive
Growth Fund
Franklin Global Growth Fund
Franklin Global Health Care Fund
Mutual Discovery Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller
Companies Fund
Templeton Global Opportunities Trust
Templeton Global Smaller
Companies Fund
Templeton Growth Fund
Templeton International (Ex EM) Fund
Templeton World Fund
GLOBAL GROWTH & INCOME
Franklin Global Communications Fund
Mutual European Fund
Templeton Global Bond Fund
GLOBAL INCOME
Franklin Templeton Hard
Currency Fund
GROWTH
Franklin Aggressive Growth Fund
Franklin Biotechnology
Discovery Fund
Franklin Blue Chip Fund
Franklin Capital Growth Fund 1
Franklin DynaTech Fund
Franklin Flex Cap Growth Fund 2
Franklin Gold and Precious
Metals Fund
Franklin Growth Fund
Franklin Large Cap Growth Fund
Franklin Small-Mid Cap
Growth Fund
Franklin Technology Fund
Franklin U.S. Long-Short Fund 3
GROWTH & INCOME
Franklin Balance Sheet Investment Fund 4
Franklin Convertible
Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund 4
Franklin Natural Resources Fund
Franklin Real Estate
Securities Fund
Franklin Rising Dividends Fund
Franklin Small Cap Value Fund
Franklin Utilities Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual Qualified Fund
Mutual Shares Fund
FUND ALLOCATOR SERIES
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth
Target Fund
Franklin Templeton Moderate
Target Fund
INCOME
Franklin Adjustable U.S. Government Securities Fund 5
Franklin's AGE High Income Fund
Franklin Floating Rate Daily
Access Fund
Franklin Floating Rate Trust 6
Franklin Short-Intermediate
U.S. Government Securities Fund 5
Franklin Strategic Income Fund
Franklin Total Return Fund
Franklin U.S. Government
Securities Fund 5
Franklin Federal Money Fund 5,7
Franklin Money Fund 5,7
TAX-FREE INCOME 8
Double Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free
Income Fund
Insured Tax-Free Income Fund 9
Tax-Exempt Money Fund 5,7
STATE-SPECIFIC
TAX-FREE INCOME 8
Alabama
Arizona
California 10
Colorado
Connecticut
Florida 10
Georgia
Kentucky
Louisiana
Maryland
Massachusetts 9
Michigan 9
Minnesota 9
Missouri
New Jersey
New York 10
North Carolina
Ohio 9
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust 11
1. Formerly Franklin Growth and Income Fund. Effective 5/1/02, the fund's name
changed; investment goal and strategy remained the same.
2. Formerly Franklin California Growth Fund. Effective 9/1/02, the fund's name
changed and its investment criteria was modified to invest a majority of its net
assets in California companies, as opposed to at least 80% of net assets.
3. Upon reaching approximately $350 million in assets, the fund will close to
all investors.
4. The fund is only open to existing shareholders as well as select retirement
plans.
5. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
6. The fund is a continuously offered, closed-end fund. Shares may be purchased
daily; there is no daily redemption. However, each quarter, pending board
approval, the fund will authorize the repurchase of 5%-25% of the outstanding
number of shares. Investors may tender all or a portion of their shares during
the tender period.
7. No assurance exists that the fund's $1.00 per share price will be maintained.
It is possible to lose money by investing in the fund.
8. For investors subject to the alternative minimum tax, a small portion of
these dividends may be taxable. Distributions of capital gains are generally
taxable.
9. Portfolio of insured municipal securities.
10. These funds are available in two or more variations, including long-term
portfolios, portfolios of insured securities, a high-yield portfolio (CA) and
intermediate-term and money market portfolios (CA and NY).
11. The funds of the Franklin Templeton Variable Insurance Products Trust are
generally only available as investment options in variable annuity or variable
life insurance contracts.
12/02
Not part of the annual report
[LOGO OMITTED]
FRANKLIN(R) TEMPLETON(R)
INVESTMENTS
One Franklin Parkway
San Mateo, CA 94403-1906
WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
- ------------------------------------------------
ELIGIBLE SHAREHOLDERS CAN SIGN UP FOR EDELIVERY
AT FRANKLINTEMPLETON.COM. SEE INSIDE FOR DETAILS.
ANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN REAL ESTATE SECURITIES FUND
INVESTMENT MANAGER
Franklin Advisers, Inc.
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
1-800/632-2301
This report must be preceded or accompanied by the current Franklin Real Estate
Securities Fund prospectus, which contains more complete information including
charges and expenses.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.
192 A2003 06/03
ITEM 2. CODE OF ETHICS. N/A
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. N/A
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. N/A
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES. N/A
ITEM 9. CONTROLS AND PROCEDURES.
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Registrant maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Registrant's filings under the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 is recorded,
processed, summarized and reported within the periods specified in the rules and
forms of the Securities and Exchange Commission. Such information is accumulated
and communicated to the Registrant's management, including its principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure. The Registrant's management,
including the principal executive officer and the principal financial officer,
recognizes that any set of controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired
control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.
(B) CHANGES IN INTERNAL CONTROLS. There have been no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Shareholder Report on Form N-CSR.
ITEM 10. EXHIBITS.
(A)N/A
(B)(1) CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
OF JIMMY D. GAMBILL, CHIEF EXECUTIVE OFFICER - FINANCE AND ADMINISTRATION, AND
KIMBERLEY H. MONASTERIO, CHIEF FINANCIAL OFFICER
(B)(2) CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
OF JIMMY D. GAMBILL, CHIEF EXECUTIVE OFFICER - FINANCE AND ADMINISTRATION, AND
KIMBERLEY H. MONASTERIO, CHIEF FINANCIAL OFFICER
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FRANKLIN REAL ESTATE SECURITIES TRUST
By/S/Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date June 30, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By/S/Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date June 30, 2003
By /S/Kimberley H. Monasterio
Chief Financial Officer
Date June 30, 2003