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 811-08034
---------
FRANKLIN REAL ESTATE SECURITIES TRUST
-------------------------------------
(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
-----------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area
code: (650) 312-2000
--------------
Date of fiscal year end: 4/30
----
Date of reporting period: 4/30/04
-------
ITEM 1. REPORTS TO STOCKHOLDERS.
APRIL 30, 2004
[GRAPHIC OMITTED]
ANNUAL REPORT AND SHAREHOLDER LETTER SECTOR
WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at franklintempleton.com. see
inside for details.
FRANKLIN REAL ESTATE
SECURITIES FUND
[GRAPHIC OMITTED]
[LOGO OMITTED]
FRANKLIN(R) TEMPLETON(R)
INVESTMENTS
FRANKLIN o Templeton o Mutual Series
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE
Franklin Templeton's distinct multi-manager structure combines the specialized
expertise of three world-class investment management groups--Franklin, Templeton
and Mutual Series.
SPECIALIZED EXPERTISE
Each of our portfolio management groups operates autonomously, relying on its
own research and staying true to the unique investment disciplines that underlie
its success.
FRANKLIN. Founded in 1947, Franklin is a leader in tax-free investing and a
driving force in fixed income investing around the globe. They also bring
expertise in growth- and value-style U.S. equity investing.
TEMPLETON. Founded in 1940, Templeton pioneered international investing and, in
1954, launched what has become the industry's oldest global fund. Today, with
research offices in over 25 countries, they offer investors the broadest global
reach in the industry.
MUTUAL SERIES. Founded in 1949, Mutual Series is dedicated to a unique style of
value investing, searching aggressively for opportunity among undervalued
stocks, arbitrage situations and distressed companies.
TRUE DIVERSIFICATION
Because our management groups work independently and adhere to distinctly
different investment approaches, Franklin, Templeton and Mutual Series funds
typically have a low overlap of securities. That's why our funds can be used to
build truly diversified portfolios covering every major asset class.
RELIABILITY YOU CAN TRUST
At Franklin Templeton Investments, we seek to consistently provide investors
with exceptional risk-adjusted returns over the long term, as well as the
reliable account services that have helped us become one of the most trusted
names in financial services.
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
[GRAPHIC OMITTED]
Not part of the annual report
Contents
SHAREHOLDER LETTER .............................. 1
ANNUAL REPORT
Franklin Real Estate Securities Fund ............ 3
Performance Summary ............................. 6
Financial Highlights and
Statement of Investments ........................ 11
Financial Statements ............................ 18
Notes to Financial Statements ................... 22
Report of Independent Registered
Public Accounting Firm .......................... 29
Tax Designation ................................. 30
Board Members and Officers ...................... 31
Proxy Voting Policies and Procedures ............ 36
Annual Report
Franklin Real Estate Securities Fund
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, including equity real
estate investment trusts (REITs). 1
We are pleased to bring you Franklin Real Estate Securities Fund's annual report
for the fiscal year ended April 30, 2004.
PERFORMANCE OVERVIEW
For the year under review, Franklin Real Estate Securities Fund - Class A posted
a +25.43% cumulative total return. Compared with its benchmark indexes during
the same period, the Fund's return was comparable to the Wilshire Real Estate
Securities Index's 25.72% return, and it outperformed the Standard & Poor's
Composite Index's (S&P 500's) 22.87% return. 2 You can find the Fund's long-term
performance data in the Performance Summary beginning on page 6.
ECONOMIC AND MARKET OVERVIEW
During the 12 months ended April 30, 2004, the U.S. economy strengthened. Driven
in part by massive fiscal and economic stimuli injected into the economy last
year, the second half of 2003 experienced the fastest advance in output of U.S.
made goods and services in nearly 20 years. Annualized gross domestic product
(GDP) growth rose 8.2% and 4.1% in the third and fourth quarters of 2003. The
economy showed broad fundamental improvement as first quarter 2004 GDP increased
an annualized 4.4% amid robust manufacturing activity, home buying
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 broad measure of the performance of publicly traded real estate securities,
such as real estate investment trusts and real estate operating companies. The
index is capitalization-weighted and rebalanced monthly, and returns are
calculated on a buy-and-hold basis. 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 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 NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 15.
Annual Report | 3
and productivity growth. The U.S. dollar's value declined against most major
currencies, particularly versus the euro, which benefited the competitive
position of many products produced by U.S. companies and contributed to
corporate profit improvements. Business sentiment rose in 2004 through
period-end. Consumer spending, which had been constrained by slow wage growth
and heavy indebtedness, rebounded by March, further supporting a solid economic
recovery.
Productivity gains, shifting global manufacturing operations, raw materials
shortages, and rising fuel prices, as well as U.S. political uncertainty in an
election year, appeared to inhibit U.S. job growth for much of the reporting
period. However, monthly unemployment figures for November 2003 through April
2004 were below 6%, underscored by a significant and long-awaited rise in hiring
since February. 3 In light of positive economic developments, inflation
experienced an uptick by March, influenced by higher energy and commodity
prices.
Domestic equity markets sustained a rally through year-end 2003, spurred by data
showing robust economic growth and improving corporate balance sheets, then
flattened in the first four months of 2004. Despite continued signs of improved
corporate fundamentals through period-end, investors appeared cautious due to
geopolitical uncertainty, escalating military activity in Iraq, and speculation
about when the Federal Reserve Board might act to constrain inflation by pushing
up historically low interest rates. The S&P 500 rose 22.87% for the 12 months
under review, while the technology-heavy NASDAQ Composite Index gained 31.79%. 4
As economic data improved, some interest rates decreased in fall 2003. However,
amid some lingering concerns about the economic recovery's strength, for a time
interest rates moved within a narrow range before rising toward period-end.
Real estate stocks, as measured by the Wilshire Real Estate Securities Index,
outpaced the broader markets. Despite sluggish underlying conditions in the
commercial real estate market, related stocks continued a strong upward trend
begun more than three years ago. Although interest rates began to rise,
investors maintained a keen interest in the relatively high dividend yields
being offered by many real estate stocks compared with other investments.
3. Source: Bureau of Labor Statistics.
4. Source: Standard & Poor's Micropal. See footnote 2 for a description of the
S&P 500. 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 3,000 companies.
4 | Annual Report
INVESTMENT STRATEGY
We use a fundamental, value-oriented, long-term approach, focusing primarily on
the market price of a company's securities relative to our evaluation of the
company's long-term earnings, asset value and cash flow growth potential. In
addition, we analyze supply and demand trends and outlooks for various property
types and regional markets while evaluating company management and a security's
underlying properties.
MANAGER'S DISCUSSION
Our low weighting in apartment stocks relative to the Wilshire Real Estate
Securities Index benefited the Fund's relative performance during the year under
review as sluggish job growth and housing market strength led to lower equity
prices. The Fund's relatively low weighting in local shopping center operators
also boosted relative performance. Many of these companies suffered from
investor perception that grocer tenants could lose market share over time to
competitors such as Wal-Mart. Our shares of Cendant (sold by year-end) and
Ventas contributed positively to the Fund's total return during the reporting
period.
On the other hand, our low relative weighting in hotels, which performed well,
negatively impacted the Fund's relative performance. These stocks historically
exhibited a high degree of correlation to an improving economy. Our low
weighting in outlet shopping centers also detracted from Fund returns as these
companies displayed solid returns and stable fundamentals during the period.
Thank you for your continued participation in Franklin Real Estate Securities
Fund. We look forward to serving your future investment needs.
[PHOTO OMITTED]
/S/Alex W. Peters, CFA
Alex W. Peters, CFA
Portfolio Manager
Franklin Real Estate Securities Fund
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
APRIL 30, 2004, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN
INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING
ON FACTORS SUCH AS 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, 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.
TOP 10 HOLDINGS
4/30/04
- -----------------------------------------
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- -----------------------------------------
Simon Property Group Inc. 5.0%
REITS
- -----------------------------------------
Vornado Realty Trust 4.7%
REITS
- -----------------------------------------
Rouse Co. 3.8%
REITS
- -----------------------------------------
Equity Residential 3.8%
REITS
- -----------------------------------------
Boston Properties Inc. 3.5%
REITS
- -----------------------------------------
Macerich Co. 3.5%
REITS
- -----------------------------------------
General Growth Properties Inc. 3.5%
REITS
- -----------------------------------------
ProLogis 3.4%
REITS
- -----------------------------------------
iStar Financial Inc. 3.0%
REITS
- -----------------------------------------
PS Business Parks Inc. 2.5%
REITS
- -----------------------------------------
Annual Report | 5
Performance Summary as of 4/30/04
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for 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 4/30/04 4/30/03
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$3.66 $20.63 $16.97
- --------------------------------------------------------------------------------
DISTRIBUTIONS (5/1/03-4/30/04)
- --------------------------------------------------------------------------------
Dividend Income $0.6285
- --------------------------------------------------------------------------------
CLASS B CHANGE 4/30/04 4/30/03
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$3.61 $20.45 $16.84
- --------------------------------------------------------------------------------
DISTRIBUTIONS (5/1/03-4/30/04)
- --------------------------------------------------------------------------------
Dividend Income $0.4981
- --------------------------------------------------------------------------------
CLASS C CHANGE 4/30/04 4/30/03
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$3.59 $20.37 $16.78
- --------------------------------------------------------------------------------
DISTRIBUTIONS (5/1/03-4/30/04)
- --------------------------------------------------------------------------------
Dividend Income $0.5018
- --------------------------------------------------------------------------------
ADVISOR CLASS CHANGE 4/30/04 4/30/03
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$3.66 $20.68 $17.02
- --------------------------------------------------------------------------------
DISTRIBUTIONS (5/1/03-4/30/04)
- --------------------------------------------------------------------------------
Dividend Income $0.6822
- --------------------------------------------------------------------------------
6 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE
CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES
CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER;
CLASS C: 1% CDSC IN FIRST YEAR ONLY. CUMULATIVE TOTAL RETURN EXCLUDES SALES
CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND VALUE OF $10,000 INVESTMENT INCLUDE
MAXIMUM SALES CHARGES.
- --------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- --------------------------------------------------------------------------------
Cumulative Total Return 1 +25.43% +68.43% +184.45%
- --------------------------------------------------------------------------------
Average Annual Total Return 2 +18.19% +9.68% +10.36%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 3 $11,819 $15,870 $26,801
- --------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 4 +43.73% +15.48% +12.31%
- --------------------------------------------------------------------------------
CLASS B 1-YEAR 5-YEAR INCEPTION (1/1/99)
- --------------------------------------------------------------------------------
Cumulative Total Return 1 +24.43% +62.39% +71.92%
- --------------------------------------------------------------------------------
Average Annual Total Return 2 +20.43% +9.91% +10.58%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 3 $12,043 $16,039 $17,092
- --------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 4 +47.38% +15.78% +14.05%
- --------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR INCEPTION (5/1/95)
- --------------------------------------------------------------------------------
Cumulative Total Return 1 +24.50% +62.31% +167.10%
- --------------------------------------------------------------------------------
Average Annual Total Return 2 +23.50% +10.17% +11.53%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 3 $12,350 $16,231 $26,710
- --------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 4 +50.41% +15.99% +13.58%
- --------------------------------------------------------------------------------
ADVISOR CLASS 5 1-YEAR 5-YEAR 10-YEAR
- --------------------------------------------------------------------------------
Cumulative Total Return 1 +25.68% +70.63% +194.91%
- --------------------------------------------------------------------------------
Average Annual Total Return 2 +25.68% +11.28% +11.42%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 3 $12,568 $17,063 $29,491
- --------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 4 +52.90% +17.13% +13.38%
- --------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. ONGOING MARKET VOLATILITY
CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE RECENT RETURNS MAY DIFFER
FROM THOSE SHOWN. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, AND YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | Past performance does not guarantee future results. | 7
Performance Summary (CONTINUED)
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 any current, applicable, maximum sales charge, 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.
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------------------
CLASS A 4/30/04
- ---------------------------------------
1-Year +18.19%
- ---------------------------------------
5-Year +9.68%
- ---------------------------------------
10-Year +10.36%
- ---------------------------------------
[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 6 and the Wilshire Real
Estate Securities Index 6, based on a $10,000 investment from 5/1/94 to 4/30/04.
Franklin Real
Estate Securities Wilshire Real
Date Fund - Class A S&P 500 Index 6 Est. Secs. Index 6
5/1/94 $9,422 $10,000 $10,000
5/31/94 $9,594 $10,163 $10,208
6/30/94 $9,387 $9,915 $10,007
7/31/94 $9,379 $10,240 $10,030
8/31/94 $9,396 $10,659 $10,023
9/30/94 $9,275 $10,399 $9,856
10/31/94 $8,982 $10,632 $9,495
11/30/94 $8,663 $10,245 $9,124
12/31/94 $9,457 $10,397 $9,831
1/31/95 $9,147 $10,666 $9,513
2/28/95 $9,306 $11,082 $9,811
3/31/95 $9,395 $11,408 $9,868
4/30/95 $9,377 $11,744 $9,797
5/31/95 $9,740 $12,212 $10,121
6/30/95 $9,909 $12,496 $10,297
7/31/95 $10,130 $12,910 $10,463
8/31/95 $10,352 $12,942 $10,591
9/30/95 $10,635 $13,488 $10,785
10/31/95 $10,423 $13,440 $10,451
11/30/95 $10,582 $14,029 $10,560
12/31/95 $11,162 $14,299 $11,172
1/31/96 $11,448 $14,785 $11,326
2/29/96 $11,596 $14,923 $11,551
3/31/96 $11,614 $15,067 $11,644
4/30/96 $11,651 $15,288 $11,697
5/31/96 $11,927 $15,682 $11,957
6/30/96 $12,047 $15,742 $12,197
7/31/96 $11,983 $15,047 $12,088
8/31/96 $12,545 $15,365 $12,602
9/30/96 $12,914 $16,229 $12,917
10/31/96 $13,172 $16,676 $13,267
11/30/96 $13,586 $17,935 $13,817
12/31/96 $14,791 $17,580 $15,292
1/31/97 $14,981 $18,678 $15,510
2/28/97 $14,962 $18,825 $15,520
3/31/97 $15,057 $18,052 $15,573
4/30/97 $14,676 $19,129 $15,070
5/31/97 $15,199 $20,293 $15,519
6/30/97 $15,874 $21,202 $16,288
7/31/97 $16,283 $22,888 $16,824
8/31/97 $16,226 $21,606 $16,700
9/30/97 $17,699 $22,789 $18,346
10/31/97 $17,081 $22,029 $17,567
11/30/97 $17,433 $23,048 $17,920
12/31/97 $17,734 $23,443 $18,319
1/31/98 $17,548 $23,702 $18,061
2/28/98 $17,401 $25,411 $17,830
3/31/98 $17,803 $26,711 $18,181
4/30/98 $17,313 $26,980 $17,608
5/31/98 $17,156 $26,517 $17,439
6/30/98 $16,970 $27,593 $17,347
7/31/98 $15,842 $27,300 $16,140
8/31/98 $14,293 $23,357 $14,463
9/30/98 $15,048 $24,853 $15,273
10/31/98 $14,950 $26,873 $15,063
11/30/98 $15,136 $28,501 $15,346
12/31/98 $15,011 $30,142 $15,127
1/31/99 $14,529 $31,402 $14,799
2/28/99 $14,350 $30,427 $14,682
3/31/99 $14,329 $31,644 $14,603
4/30/99 $15,912 $32,869 $16,159
5/31/99 $16,111 $32,094 $16,432
6/30/99 $15,849 $33,874 $16,153
7/31/99 $15,126 $32,817 $15,534
8/31/99 $14,853 $32,655 $15,301
9/30/99 $14,266 $31,761 $14,611
10/31/99 $13,942 $33,770 $14,339
11/30/99 $13,627 $34,456 $14,114
12/31/99 $14,165 $36,484 $14,645
1/31/00 $14,143 $34,652 $14,705
2/29/00 $13,844 $33,996 $14,424
3/31/00 $14,524 $37,320 $15,056
4/30/00 $15,472 $36,198 $16,129
5/31/00 $15,818 $35,457 $16,323
6/30/00 $16,579 $36,331 $16,873
7/31/00 $18,014 $35,764 $18,388
8/31/00 $17,404 $37,984 $17,726
9/30/00 $17,882 $35,979 $18,302
10/31/00 $17,195 $35,826 $17,508
11/30/00 $17,344 $33,004 $17,902
12/31/00 $18,534 $33,166 $19,146
1/31/01 $18,906 $34,342 $19,338
2/28/01 $18,581 $31,212 $18,935
3/31/01 $18,470 $29,236 $18,951
4/30/01 $18,936 $31,506 $19,402
5/31/01 $18,843 $31,718 $19,945
6/30/01 $19,773 $30,946 $21,016
7/31/01 $19,278 $30,641 $20,596
8/31/01 $19,702 $28,725 $21,314
9/30/01 $18,674 $26,406 $20,050
10/31/01 $17,984 $26,909 $19,301
11/30/01 $19,305 $28,973 $20,551
12/31/01 $19,950 $29,227 $21,147
1/31/02 $19,938 $28,801 $21,238
2/28/02 $20,409 $28,245 $21,724
3/31/02 $21,627 $29,307 $23,061
4/30/02 $21,917 $27,531 $23,199
5/31/02 $22,160 $27,329 $23,433
6/30/02 $22,561 $25,383 $23,914
7/31/02 $21,287 $23,405 $22,433
8/31/02 $21,275 $23,558 $22,442
9/30/02 $20,303 $21,000 $21,450
10/31/02 $19,388 $22,847 $20,384
11/30/02 $20,068 $24,190 $21,393
12/31/02 $20,289 $22,770 $21,706
1/31/03 $19,747 $22,175 $21,072
2/28/03 $20,100 $21,842 $21,382
3/31/03 $20,472 $22,051 $21,925
4/30/03 $21,366 $23,869 $22,848
5/31/03 $22,814 $25,125 $24,159
6/30/03 $23,596 $25,446 $24,630
7/31/03 $24,511 $25,895 $26,059
8/31/03 $24,701 $26,399 $26,338
9/30/03 $25,453 $26,119 $27,225
10/31/03 $25,953 $27,596 $27,639
11/30/03 $27,119 $27,839 $28,836
12/31/03 $27,925 $29,297 $29,753
1/31/04 $28,964 $29,835 $30,863
2/29/04 $29,770 $30,250 $31,492
3/31/04 $31,217 $29,794 $33,353
4/30/04 $26,801 $29,327 $28,724
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------------------
CLASS B 4/30/04
- -------------------------------------------------
1-Year +20.43%
- -------------------------------------------------
5-Year +9.91%
- -------------------------------------------------
Since Inception (1/1/99) +10.58%
- -------------------------------------------------
[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 6 and the Wilshire Real
Estate Securizties Index 6, based on a $10,000 investment from 1/1/99 to
4/30/04.
Franklin Real
Estate Securities Wilshire Real
Date Fund - Class B S&P 500 Index 6 Est. Secs. Index 6
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 $10,905 $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 $10,834 $10,115
9/30/99 $9,462 $10,537 $9,659
10/31/99 $9,246 $11,203 $9,479
11/30/99 $9,029 $11,431 $9,331
12/31/99 $9,375 $12,104 $9,681
1/31/00 $9,360 $11,496 $9,721
2/29/00 $9,153 $11,279 $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 $12,601 $11,718
9/30/00 $11,780 $11,936 $12,099
10/31/00 $11,318 $11,886 $11,574
11/30/00 $11,409 $10,949 $11,834
12/31/00 $12,185 $11,003 $12,657
1/31/01 $12,423 $11,393 $12,784
2/28/01 $12,200 $10,355 $12,518
3/31/01 $12,123 $9,699 $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 $10,267 $13,893
7/31/01 $12,624 $10,166 $13,615
8/31/01 $12,887 $9,530 $14,090
9/30/01 $12,205 $8,760 $13,255
10/31/01 $11,752 $8,927 $12,759
11/30/01 $12,604 $9,612 $13,586
12/31/01 $13,022 $9,696 $13,980
1/31/02 $13,006 $9,555 $14,040
2/28/02 $13,307 $9,371 $14,361
3/31/02 $14,083 $9,723 $15,245
4/30/02 $14,273 $9,134 $15,336
5/31/02 $14,416 $9,067 $15,491
6/30/02 $14,671 $8,421 $15,809
7/31/02 $13,839 $7,765 $14,830
8/31/02 $13,823 $7,816 $14,836
9/30/02 $13,182 $6,967 $14,180
10/31/02 $12,584 $7,580 $13,475
11/30/02 $13,012 $8,025 $14,142
12/31/02 $13,152 $7,554 $14,349
1/31/03 $12,783 $7,357 $13,930
2/28/03 $13,013 $7,246 $14,135
3/31/03 $13,234 $7,316 $14,494
4/30/03 $13,816 $7,919 $15,104
5/31/03 $14,743 $8,335 $15,971
6/30/03 $15,234 $8,442 $16,282
7/31/03 $15,812 $8,591 $17,227
8/31/03 $15,928 $8,758 $17,411
9/30/03 $16,404 $8,665 $17,998
10/31/03 $16,711 $9,155 $18,271
11/30/03 $17,451 $9,236 $19,062
12/31/03 $17,957 $9,720 $19,669
1/31/04 $18,612 $9,898 $20,402
2/29/04 $19,117 $10,036 $20,819
3/31/04 $20,033 $9,884 $22,049
4/30/04 $17,092 $9,729 $18,988
8 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
[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 6 and the Wilshire Real
Estate Securities Index 6, based on a $10,000 investment from 5/1/95 to 4/30/04.
Franklin Real
Estate Securities Wilshire Real
Date Fund - Class C S&P 500 Index 6 Est. Secs. Index 6
5/1/95 $10,000 $10,000 $10,000
5/31/95 $10,368 $10,399 $10,331
6/30/95 $10,548 $10,640 $10,511
7/31/95 $10,765 $10,993 $10,680
8/31/95 $11,001 $11,020 $10,810
9/30/95 $11,294 $11,485 $11,009
10/31/95 $11,067 $11,444 $10,668
11/30/95 $11,218 $11,946 $10,779
12/31/95 $11,831 $12,176 $11,404
1/31/96 $12,115 $12,590 $11,561
2/29/96 $12,272 $12,707 $11,790
3/31/96 $12,292 $12,829 $11,886
4/30/96 $12,321 $13,018 $11,939
5/31/96 $12,606 $13,354 $12,206
6/30/96 $12,713 $13,404 $12,450
7/31/96 $12,645 $12,813 $12,339
8/31/96 $13,224 $13,083 $12,863
9/30/96 $13,606 $13,819 $13,185
10/31/96 $13,871 $14,200 $13,542
11/30/96 $14,303 $15,272 $14,104
12/31/96 $15,555 $14,970 $15,609
1/31/97 $15,747 $15,905 $15,832
2/28/97 $15,717 $16,029 $15,842
3/31/97 $15,797 $15,372 $15,896
4/30/97 $15,394 $16,289 $15,382
5/31/97 $15,939 $17,280 $15,841
6/30/97 $16,635 $18,054 $16,626
7/31/97 $17,048 $19,489 $17,173
8/31/97 $16,978 $18,398 $17,046
9/30/97 $18,511 $19,405 $18,727
10/31/97 $17,855 $18,758 $17,931
11/30/97 $18,208 $19,626 $18,291
12/31/97 $18,519 $19,962 $18,699
1/31/98 $18,301 $20,183 $18,436
2/28/98 $18,146 $21,638 $18,200
3/31/98 $18,550 $22,745 $18,558
4/30/98 $18,021 $22,974 $17,974
5/31/98 $17,856 $22,579 $17,801
6/30/98 $17,649 $23,496 $17,707
7/31/98 $16,468 $23,246 $16,474
8/31/98 $14,852 $19,889 $14,763
9/30/98 $15,629 $21,163 $15,589
10/31/98 $15,515 $22,883 $15,376
11/30/98 $15,691 $24,269 $15,665
12/31/98 $15,554 $25,667 $15,441
1/31/99 $15,049 $26,740 $15,106
2/28/99 $14,851 $25,909 $14,987
3/31/99 $14,829 $26,945 $14,906
4/30/99 $16,456 $27,988 $16,495
5/31/99 $16,653 $27,329 $16,773
6/30/99 $16,368 $28,844 $16,488
7/31/99 $15,620 $27,945 $15,857
8/31/99 $15,323 $27,806 $15,619
9/30/99 $14,708 $27,045 $14,914
10/31/99 $14,367 $28,756 $14,637
11/30/99 $14,037 $29,340 $14,407
12/31/99 $14,572 $31,067 $14,949
1/31/00 $14,549 $29,506 $15,010
2/29/00 $14,227 $28,949 $14,723
3/31/00 $14,914 $31,779 $15,368
4/30/00 $15,886 $30,823 $16,464
5/31/00 $16,221 $30,192 $16,662
6/30/00 $17,005 $30,937 $17,223
7/31/00 $18,456 $30,453 $18,770
8/31/00 $17,824 $32,344 $18,094
9/30/00 $18,297 $30,637 $18,682
10/31/00 $17,587 $30,507 $17,871
11/30/00 $17,729 $28,103 $18,273
12/31/00 $18,927 $28,241 $19,543
1/31/01 $19,299 $29,243 $19,739
2/28/01 $18,963 $26,578 $19,328
3/31/01 $18,843 $24,895 $19,344
4/30/01 $19,299 $26,828 $19,804
5/31/01 $19,191 $27,008 $20,359
6/30/01 $20,133 $26,351 $21,452
7/31/01 $19,613 $26,092 $21,023
8/31/01 $20,024 $24,460 $21,757
9/30/01 $18,967 $22,485 $20,466
10/31/01 $18,259 $22,914 $19,701
11/30/01 $19,590 $24,671 $20,978
12/31/01 $20,239 $24,887 $21,586
1/31/02 $20,214 $24,524 $21,679
2/28/02 $20,672 $24,051 $22,175
3/31/02 $21,881 $24,956 $23,539
4/30/02 $22,178 $23,444 $23,680
5/31/02 $22,401 $23,271 $23,919
6/30/02 $22,807 $21,614 $24,410
7/31/02 $21,495 $19,930 $22,899
8/31/02 $21,470 $20,060 $22,908
9/30/02 $20,478 $17,882 $21,895
10/31/02 $19,533 $19,455 $20,807
11/30/02 $20,213 $20,599 $21,837
12/31/02 $20,418 $19,389 $22,156
1/31/03 $19,855 $18,882 $21,509
2/28/03 $20,213 $18,598 $21,825
3/31/03 $20,559 $18,777 $22,380
4/30/03 $21,454 $20,325 $23,322
5/31/03 $22,898 $21,394 $24,660
6/30/03 $23,657 $21,668 $25,141
7/31/03 $24,571 $22,050 $26,600
8/31/03 $24,751 $22,479 $26,884
9/30/03 $25,481 $22,241 $27,790
10/31/03 $25,961 $23,499 $28,213
11/30/03 $27,114 $23,705 $29,434
12/31/03 $27,903 $24,947 $30,370
1/31/04 $28,913 $25,405 $31,503
2/29/04 $29,699 $25,758 $32,146
3/31/04 $31,129 $25,370 $34,045
4/30/04 $26,710 $24,972 $29,320
AVERAGE ANNUAL TOTAL RETURN
- ----------------------------------------------------
CLASS C 4/30/04
- ----------------------------------------------------
1-Year +23.50%
- ----------------------------------------------------
5-Year +10.17%
- ----------------------------------------------------
Since Inception (5/1/95) +11.53%
- ----------------------------------------------------
[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 6 and the Wilshire Real
Estate Securities Index 6, based on a $10,000 investment from 5/1/94 to 4/30/04.
Franklin Real
Estate Securities Wilshire Real
Date Fund - Advisor Class S&P 500 Index 6 Est. Secs. Index 6
5/1/94 $10,000 $10,000 $10,000
5/31/94 $10,183 $10,163 $10,208
6/30/94 $9,963 $9,915 $10,007
7/31/94 $9,954 $10,240 $10,030
8/31/94 $9,973 $10,659 $10,023
9/30/94 $9,844 $10,399 $9,856
10/31/94 $9,533 $10,632 $9,495
11/30/94 $9,194 $10,245 $9,124
12/31/94 $10,037 $10,397 $9,831
1/31/95 $9,708 $10,666 $9,513
2/28/95 $9,877 $11,082 $9,811
3/31/95 $9,971 $11,408 $9,868
4/30/95 $9,952 $11,744 $9,797
5/31/95 $10,338 $12,212 $10,121
6/30/95 $10,517 $12,496 $10,297
7/31/95 $10,752 $12,910 $10,463
8/31/95 $10,987 $12,942 $10,591
9/30/95 $11,288 $13,488 $10,785
10/31/95 $11,062 $13,440 $10,451
11/30/95 $11,232 $14,029 $10,560
12/31/95 $11,847 $14,299 $11,172
1/31/96 $12,150 $14,785 $11,326
2/29/96 $12,307 $14,923 $11,551
3/31/96 $12,327 $15,067 $11,644
4/30/96 $12,366 $15,288 $11,697
5/31/96 $12,659 $15,682 $11,957
6/30/96 $12,786 $15,742 $12,197
7/31/96 $12,718 $15,047 $12,088
8/31/96 $13,315 $15,365 $12,602
9/30/96 $13,706 $16,229 $12,917
10/31/96 $13,980 $16,676 $13,267
11/30/96 $14,420 $17,935 $13,817
12/31/96 $15,698 $17,580 $15,292
1/31/97 $16,171 $18,678 $15,510
2/28/97 $16,161 $18,825 $15,520
3/31/97 $16,263 $18,052 $15,573
4/30/97 $15,853 $19,129 $15,070
5/31/97 $16,427 $20,293 $15,519
6/30/97 $17,154 $21,202 $16,288
7/31/97 $17,606 $22,888 $16,824
8/31/97 $17,544 $21,606 $16,700
9/30/97 $19,133 $22,789 $18,346
10/31/97 $18,477 $22,029 $17,567
11/30/97 $18,867 $23,048 $17,920
12/31/97 $19,193 $23,443 $18,319
1/31/98 $19,003 $23,702 $18,061
2/28/98 $18,844 $25,411 $17,830
3/31/98 $19,279 $26,711 $18,181
4/30/98 $18,760 $26,980 $17,608
5/31/98 $18,592 $26,517 $17,439
6/30/98 $18,391 $27,593 $17,347
7/31/98 $17,183 $27,300 $16,140
8/31/98 $15,507 $23,357 $14,463
9/30/98 $16,334 $24,853 $15,273
10/31/98 $16,218 $26,873 $15,063
11/30/98 $16,430 $28,501 $15,346
12/31/98 $16,296 $30,142 $15,127
1/31/99 $15,784 $31,402 $14,799
2/28/99 $15,591 $30,427 $14,682
3/31/99 $15,580 $31,644 $14,603
4/30/99 $17,285 $32,869 $16,159
5/31/99 $17,511 $32,094 $16,432
6/30/99 $17,228 $33,874 $16,153
7/31/99 $16,454 $32,817 $15,534
8/31/99 $16,158 $32,655 $15,301
9/30/99 $15,521 $31,761 $14,611
10/31/99 $15,169 $33,770 $14,339
11/30/99 $14,828 $34,456 $14,114
12/31/99 $15,416 $36,484 $14,645
1/31/00 $15,404 $34,652 $14,705
2/29/00 $15,067 $33,996 $14,424
3/31/00 $15,812 $37,320 $15,056
4/30/00 $16,856 $36,198 $16,129
5/31/00 $17,232 $35,457 $16,323
6/30/00 $18,069 $36,331 $16,873
7/31/00 $19,631 $35,764 $18,388
8/31/00 $18,979 $37,984 $17,726
9/30/00 $19,499 $35,979 $18,302
10/31/00 $18,752 $35,826 $17,508
11/30/00 $18,913 $33,004 $17,902
12/31/00 $20,226 $33,166 $19,146
1/31/01 $20,632 $34,342 $19,338
2/28/01 $20,290 $31,212 $18,935
3/31/01 $20,178 $29,236 $18,951
4/30/01 $20,687 $31,506 $19,402
5/31/01 $20,586 $31,718 $19,945
6/30/01 $21,613 $30,946 $21,016
7/31/01 $21,075 $30,641 $20,596
8/31/01 $21,536 $28,725 $21,314
9/30/01 $20,416 $26,406 $20,050
10/31/01 $19,675 $26,909 $19,301
11/30/01 $21,117 $28,973 $20,551
12/31/01 $21,827 $29,227 $21,147
1/31/02 $21,827 $28,801 $21,238
2/28/02 $22,342 $28,245 $21,724
3/31/02 $23,667 $29,307 $23,061
4/30/02 $24,010 $27,531 $23,199
5/31/02 $24,274 $27,329 $23,433
6/30/02 $24,728 $25,383 $23,914
7/31/02 $23,323 $23,405 $22,433
8/31/02 $23,323 $23,558 $22,442
9/30/02 $22,262 $21,000 $21,450
10/31/02 $21,260 $22,847 $20,384
11/30/02 $22,005 $24,190 $21,393
12/31/02 $22,264 $22,770 $21,706
1/31/03 $21,659 $22,175 $21,072
2/28/03 $22,057 $21,842 $21,382
3/31/03 $22,461 $22,051 $21,925
4/30/03 $23,467 $23,869 $22,848
5/31/03 $25,053 $25,125 $24,159
6/30/03 $25,910 $25,446 $24,630
7/31/03 $26,926 $25,895 $26,059
8/31/03 $27,149 $26,399 $26,338
9/30/03 $27,977 $26,119 $27,225
10/31/03 $28,540 $27,596 $27,639
11/30/03 $29,818 $27,839 $28,836
12/31/03 $30,713 $29,297 $29,753
1/31/04 $31,868 $29,835 $30,863
2/29/04 $32,751 $30,250 $31,492
3/31/04 $34,345 $29,794 $33,353
4/30/04 $29,491 $29,327 $28,724
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------------------
ADVISOR CLASS 5 4/30/04
- ---------------------------------------
1-Year +25.68%
- ---------------------------------------
5-Year +11.28%
- ---------------------------------------
10-Year +11.42%
- ---------------------------------------
Annual Report | Past performance does not guarantee future results. | 9
Performance Summary (CONTINUED)
ENDNOTES
INVESTING IN A NON-DIVERSIFIED FUND CONCENTRATING IN THE REAL ESTATE SECTOR
INVOLVES SPECIAL RISKS SUCH AS DECLINES IN THE VALUE OF REAL ESTATE, AND
INCREASED SUSCEPTIBILITY TO ADVERSE ECONOMIC AND REGULATORY DEVELOPMENTS
AFFECTING THE SECTOR. THE FUND'S INVESTMENTS IN SMALL- AND MEDIUM-CAPITALIZATION
STOCKS CARRY SPECIAL RISKS, SINCE THESE SECURITIES HAVE HISTORICALLY DISPLAYED
MORE PRICE VOLATILITY THAN LARGER-CAPITALIZATION STOCKS, PARTICULARLY OVER THE
SHORT TERM. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN
INVESTMENT RISKS.
CLASS A: Prior to 8/3/98, these shares were offered at a lower initial sales
charge; thus actual total returns may differ.
CLASS B: These shares have higher annual fees and expenses than Class A shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These shares have higher
annual fees and expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include a sales charge.
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.
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.
4. In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
5. 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 +87.87% and +8.98%.
6. 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 broad measure of the performance of publicly traded
real estate securities, such as real estate investment trusts and real estate
operating companies. The index is capitalization-weighted and rebalanced
monthly, and returns are calculated on a buy-and-hold basis.
10 | Past performance does not guarantee future results. | Annual Report
Franklin Real Estate Securities Trust
FINANCIAL HIGHLIGHTS
FRANKLIN REAL ESTATE SECURITIES FUND
----------------------------------------------------------
YEAR ENDED APRIL 30,
CLASS A 2004 2003 2002 2001 2000
----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................................. $16.97 $18.10 $16.26 $13.87 $15.18
----------------------------------------------------------
Income from investment operations:
Net investment income a .......................................... .55 .63 .66 .64 .67
Net realized and unrealized gains (losses) ........................ 3.74 (1.11) 1.82 2.41 (1.23)
----------------------------------------------------------
Total from investment operations ................................... 4.29 (.48) 2.48 3.05 (.56)
----------------------------------------------------------
Less distributions from:
Net investment income ............................................. (.63) (.65) (.64) (.66) (.68)
Net realized gains ................................................ -- -- -- -- (.07)
----------------------------------------------------------
Total distributions ................................................ (.63) (.65) (.64) (.66) (.75)
----------------------------------------------------------
Net asset value, end of year ....................................... $20.63 $16.97 $18.10 $16.26 $13.87
==========================================================
Total return b ..................................................... 25.43% (2.51)% 15.74% 22.39% (2.77)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................................... $550,176 $423,363 $431,749 $356,296 $332,562
Ratios to average net assets:
Expenses .......................................................... 1.01% .98% .96% 1.04% 1.02%
Net investment income ............................................. 2.64% 3.76% 3.96% 4.16% 4.93%
Portfolio turnover rate ............................................ 27.34% 29.76% 37.26% 29.03% 25.44%
aBased on average daily shares outstanding.
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 | 11
Franklin Real Estate Securities Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
----------------------------------------------------------
YEAR ENDED APRIL 30,
CLASS B 2004 2003 2002 2001 2000
----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................................. $16.84 $17.99 $16.17 $13.81 $15.16
----------------------------------------------------------
Income from investment operations:
Net investment income a ........................................... .39 .50 .52 .48 .56
Net realized and unrealized gains (losses) ........................ 3.72 (1.10) 1.82 2.45 (1.21)
----------------------------------------------------------
Total from investment operations ................................... 4.11 (.60) 2.34 2.93 (.65)
----------------------------------------------------------
Less distributions from:
Net investment income ............................................. (.50) (.55) (.52) (.57) (.63)
Net realized gains ................................................ -- -- -- -- (.07)
----------------------------------------------------------
Total distributions ................................................ (.50) (.55) (.52) (.57) (.70)
----------------------------------------------------------
Net asset value, end of year ....................................... $20.45 $16.84 $17.99 $16.17 $13.81
==========================================================
Total return b ..................................................... 24.43% (3.20)% 14.90% 21.51% (3.43)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................................... $56,334 $40,703 $26,650 $12,264 $4,889
Ratios to average net assets:
Expenses .......................................................... 1.76% 1.74% 1.71% 1.79% 1.77%
Net investment income ............................................. 1.89% 3.00% 3.11% 3.11% 4.25%
Portfolio turnover rate ............................................ 27.34% 29.76% 37.26% 29.03% 25.44%
aBased on average daily shares outstanding.
bTotal return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
12 | Annual Report
Franklin Real Estate Securities Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
----------------------------------------------------------
YEAR ENDED APRIL 30,
CLASS C 2004 2003 2002 2001 2000
----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................................. $16.78 $17.91 $16.08 $13.73 $14.97
----------------------------------------------------------
Income from investment operations:
Net investment income a ........................................... .39 .51 .53 .51 .55
Net realized and unrealized gains (losses) ........................ 3.70 (1.10) 1.80 2.40 (1.18)
----------------------------------------------------------
Total from investment operations ................................... 4.09 (.59) 2.33 2.91 (.63)
----------------------------------------------------------
Less distributions from:
Net investment income ............................................. (.50) (.54) (.50) (.56) (.54)
Net realized gains ................................................ -- -- -- -- (.07)
----------------------------------------------------------
Total distributions ................................................ (.50) (.54) (.50) (.56) (.61)
----------------------------------------------------------
Net asset value, end of year ....................................... $20.37 $16.78 $17.91 $16.08 $13.73
==========================================================
Total return b ..................................................... 24.50% (3.27)% 14.92% 21.48% (3.46)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................................... $149,656 $114,474 $120,394 $96,364 $77,635
Ratios to average net assets:
Expenses .......................................................... 1.76% 1.70% 1.71% 1.78% 1.77%
Net investment income ............................................. 1.89% 3.04% 3.23% 3.36% 4.08%
Portfolio turnover rate ............................................ 27.34% 29.76% 37.26% 29.03% 25.44%
aBased on average daily shares outstanding.
bTotal return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
Annual Report | 13
cFor the period January 1, 1999 (effective date) to April 30, 1999.
Franklin Real Estate Securities Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
----------------------------------------------------------
YEAR ENDED APRIL 30,
ADVISOR CLASS 2004 2003 2002 2001 2000
----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year $17.02 $18.14 $16.30 $13.90 $15.21
----------------------------------------------------------
Income from investment operations:
Net investment income a .58 .67 .66 .63 .73
Net realized and unrealized gains (losses) 3.76 (1.10) 1.86 2.47 (1.25)
----------------------------------------------------------
Total from investment operations 4.34 (.43) 2.52 3.10 (.52)
----------------------------------------------------------
Less distributions from:
Net investment income (.68) (.69) (.68) (.70) (.72)
Net realized gains -- -- -- -- (.07)
----------------------------------------------------------
Total distributions (.68) (.69) (.68) (.70) (.79)
----------------------------------------------------------
Net asset value, end of year $20.68 $17.02 $18.14 $16.30 $13.90
==========================================================
Total return b 25.68% (2.27)% 16.06% 22.72% (2.47)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $41,101 $27,532 $25,879 $9,438 $3,915
Ratios to average net assets:
Expenses .76% .73% .71% .79% .77%
Net investment income 2.89% 4.01% 3.96% 4.06% 5.27%
Portfolio turnover rate 27.34% 29.76% 37.26% 29.03% 25.44%
aBased on average daily shares outstanding.
bTotal return is not annualized for periods less than one year.
14 | See notes to financial statements. | Annual Report
Franklin Real Estate Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2004
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN REAL ESTATE SECURITIES FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 97.5%
HOMEBUILDING 2.2%
Lennar Corp., A ........................................................................ 87,600 $ 4,104,060
M.D.C. Holdings Inc. ................................................................... 36,410 2,249,774
a Meritage Corp. ......................................................................... 129,600 8,793,360
a NVR Inc. ............................................................................... 5,300 2,390,300
-------------
17,537,494
-------------
HOTEL/RESORTS/CRUISELINES 4.3%
Fairmont Hotels & Resorts Inc. (Canada) ................................................ 582,100 14,377,870
a La Quinta Corp. ........................................................................ 729,200 5,242,948
Starwood Hotels & Resorts Worldwide Inc. ............................................... 373,500 14,861,565
-------------
34,482,383
-------------
REAL ESTATE DEVELOPMENT 7.1%
Boardwalk Equities Inc. (Canada) ....................................................... 1,331,500 15,325,831
Brookfield Properties Corp. (Canada) ................................................... 315,840 8,780,352
Forest City Enterprises Inc., A ........................................................ 222,300 11,657,412
LNR Property Corp. ..................................................................... 42,500 2,134,350
a,b Northstar Capital Investment Corp., 144A ............................................... 100,000 1,350,000
St. Joe Co. ............................................................................ 433,700 17,001,040
-------------
56,248,985
-------------
REAL ESTATE INVESTMENT TRUSTS 83.9%
Alexandria Real Estate Equities Inc. ................................................... 115,000 6,534,300
AMB Property Corp. ..................................................................... 50,100 1,518,030
American Financial Realty Trust ........................................................ 225,700 3,340,360
Amli Residential Properties Trust ...................................................... 195,000 4,933,500
Archstone-Smith Trust .................................................................. 241,325 6,619,545
Arden Realty Inc. ...................................................................... 363,400 10,255,148
Ashford Hospitality Trust .............................................................. 514,000 4,317,600
Avalonbay Communities Inc. ............................................................. 284,400 14,114,772
Bedford Property Investors Inc. ........................................................ 305,220 8,268,410
Boston Properties Inc. ................................................................. 600,150 28,207,050
Brandywine Realty Trust ................................................................ 322,900 8,182,286
Capital Automotive ..................................................................... 379,200 10,666,896
CarrAmerica Realty Corp. ............................................................... 643,000 18,331,930
Catellus Development Corp. ............................................................. 704,180 15,175,079
Chelsea Property Group Inc. ............................................................ 116,700 5,951,700
Corporate Office Properties Trust ...................................................... 653,100 13,290,585
Cousins Properties Inc. ................................................................ 234,300 6,588,516
Developers Diversified Realty Corp. .................................................... 58,200 1,906,050
Duke Realty Corp. ...................................................................... 65,652 1,914,412
Entertainment Properties Trust ......................................................... 321,800 10,767,428
Equity Residential ..................................................................... 1,097,000 30,123,620
Federal Realty Investment Trust, SBI ................................................... 112,500 4,171,500
General Growth Properties Inc. ......................................................... 1,024,290 27,768,502
Annual Report | 15
Franklin Real Estate Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN REAL ESTATE SECURITIES FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
REAL ESTATE INVESTMENT TRUSTS (CONT.)
Glenborough Realty Trust Inc. .......................................................... 281,100 $ 5,281,869
Glimcher Realty Trust .................................................................. 193,700 4,096,755
Health Care Property Investors Inc. .................................................... 372,300 8,897,970
a Host Marriott Corp. .................................................................... 1,021,000 12,149,900
iStar Financial Inc. ................................................................... 681,600 24,224,064
Kilroy Realty Corp. .................................................................... 415,000 13,010,250
Kimco Realty Corp. ..................................................................... 148,400 6,342,616
Koger Equity Inc. ...................................................................... 527,200 11,044,840
Lexington Corporate Properties Trust ................................................... 420,300 7,771,347
Liberty Property Trust ................................................................. 550,700 20,128,085
Macerich Co. ........................................................................... 668,400 27,985,908
Manufactured Home Communities Inc. ..................................................... 245,500 7,684,150
a MeriStar Hospitality Corp. ............................................................. 415,200 2,408,160
Parkway Properties Inc. ................................................................ 183,000 7,265,100
Pennsylvania Real Estate Investment Trust .............................................. 40,665 1,315,526
ProLogis ............................................................................... 910,100 26,775,142
PS Business Parks Inc. ................................................................. 535,000 20,303,250
Public Storage Inc. .................................................................... 386,500 16,151,835
Ramco-Gershenson Properties Trust ...................................................... 343,500 8,134,080
Reckson Associates Realty Corp. ........................................................ 168,700 4,009,999
Regency Centers Corp. .................................................................. 285,700 10,830,887
Rouse Co. .............................................................................. 707,400 30,630,420
Simon Property Group Inc. .............................................................. 821,200 39,590,052
SL Green Realty Corp. .................................................................. 473,400 19,314,720
Sun Communities Inc. ................................................................... 29,000 1,013,550
Tanger Factory Outlet Centers Inc. ..................................................... 117,300 4,480,860
Taubman Centers Inc. ................................................................... 228,500 4,455,750
Trizec Properties Inc. ................................................................. 867,200 12,418,304
U.S. Restaurant Properties Inc. ........................................................ 494,600 7,893,816
United Dominion Realty Trust Inc. ...................................................... 173,100 3,107,145
Ventas Inc. ............................................................................ 695,000 15,352,550
Vornado Realty Trust ................................................................... 735,800 37,121,110
Washington Real Estate Investment Trust, SBI ........................................... 74,000 2,012,800
c Windrose Medical Properties ............................................................ 269,300 3,126,573
-------------
669,276,602
-------------
TOTAL COMMON STOCKS (COST $614,896,659) .................................................. 777,545,464
-------------
PREFERRED STOCKS (COST $3,502,663) .8%
REAL ESTATE INVESTMENT TRUSTS
Host Marriott Corp., 6.75%, cvt. pfd. .................................................. 132,600 6,654,398
-------------
TOTAL LONG TERM INVESTMENTS (COST $618,399,322) .......................................... 784,199,862
-------------
16 | Annual Report
Franklin Real Estate Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN REAL ESTATE SECURITIES FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS (COST $13,984,971) 1.8%
d Franklin Institutional Fiduciary Trust Money Market Portfolio .......................... 13,984,971 13,984,971
-------------
TOTAL INVESTMENTS (COST $632,384,293) 100.1% ............................................. 798,184,833
OTHER ASSETS, LESS LIABILITIES (0.1)% .................................................... (918,160)
-------------
NET ASSETS 100.0% ........................................................................ $797,266,673
=============
aNon-income producing.
bSee Note 9 regarding restricted securities.
cSee Note 8 regarding Holdings of 5% Voting Securities.
dSee Note 7 regarding investments in affiliated Money Market Portfolio.
Annual Report | See notes to financial statements. | 17
Franklin Real Estate Securities Trust
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2004
-------------
FRANKLIN
REAL ESTATE
SECURITIES
FUND
-------------
Assets:
Investments in securities:
Cost - Unaffiliated issuers ................................... $618,399,322
Cost - Sweep money fund (Note 7) .............................. 13,984,971
-------------
Value - Unaffiliated issuers .................................. 784,199,862
Value - Sweep money fund (Note 7) ............................. 13,984,971
Receivables:
Investment securities sold .................................... 110,351
Capital shares sold ........................................... 1,624,519
Dividends and interest ........................................ 981,496
-------------
Total assets .............................................. 800,901,199
-------------
Liabilities:
Payables:
Capital shares redeemed ....................................... 2,204,028
Affiliates .................................................... 978,785
Shareholders .................................................. 373,608
Other liabilities .............................................. 78,105
-------------
Total liabilities ......................................... 3,634,526
-------------
Net assets, at value .................................... $797,266,673
=============
Net assets consist of:
Undistributed net investment income ............................ $ 809,794
Net unrealized appreciation (depreciation) ..................... 165,800,540
Accumulated net realized gain (loss) ........................... 1,260,869
Capital shares ................................................. 629,395,470
=============
Net assets, at value .................................... $797,266,673
=============
18 | Annual Report
Franklin Real Estate Securities Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
April 30, 2004
-------------
FRANKLIN
REAL ESTATE
SECURITIES
FUND
-------------
CLASS A:
Net assets, at value ........................................... $550,176,373
=============
Shares outstanding ............................................. 26,672,200
=============
Net asset value per share a .................................... $20.63
=============
Maximum offering price per share
(net asset value per share / 94.25%) .......................... $21.89
=============
CLASS B:
Net assets, at value ........................................... $ 56,333,975
=============
Shares outstanding ............................................. 2,754,833
=============
Net asset value and maximum offering price per share a ......... $20.45
=============
CLASS C:
Net assets, at value ........................................... $149,655,607
=============
Shares outstanding ............................................. 7,347,775
=============
Net asset value and maximum offering price per share a ......... $20.37
=============
ADVISOR CLASS:
Net assets, at value ........................................... $ 41,100,718
=============
Shares outstanding ............................................. 1,987,272
=============
Net asset value and maximum offering price per share ........... $20.68
=============
aRedemption price is equal to net asset value less any applicable contingent
deferred sales charge.
Annual Report | See notes to financial statements. | 19
Franklin Real Estate Securities Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the year ended April 30, 2004
------------
FRANKLIN
REAL ESTATE
SECURITIES
FUND
------------
Investment income:
Dividends:
Unaffiliated issuers ........................................... $ 27,523,346
Non-controlled affiliated issuers (Note 8) ..................... 207,733
Sweep money fund (Note 7) ...................................... 288,077
------------
Total investment income .................................... 28,019,156
------------
Expenses:
Management fees (Note 3) ........................................ 3,576,653
Distribution fees (Note 3)
Class A ........................................................ 1,330,703
Class B ........................................................ 535,746
Class C ........................................................ 1,451,478
Transfer agent fees (Note 3) .................................... 1,948,221
Custodian fees (Note 4) ......................................... 11,096
Reports to shareholders ......................................... 110,055
Registration and filing fees .................................... 121,137
Professional fees ............................................... 34,821
Trustees' fees and expenses ..................................... 15,844
Other ........................................................... 35,926
------------
Total expenses ............................................. 9,171,680
------------
Net investment income .................................... 18,847,476
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments ........................ 35,462,622
Net unrealized appreciation (depreciation) on investments ........ 95,155,991
------------
Net realized and unrealized gain (loss) .......................... 130,618,613
------------
Net increase (decrease) in net assets resulting from operations .. $149,466,089
============
20 | See notes to financial statements. | Annual Report
Franklin Real Estate Securities Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended April 30, 2004 and 2003
------------------------------------
FRANKLIN REAL ESTATE SECURITES FUND
------------------------------------
2004 2003
------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ................................................................ $ 18,847,476 $ 20,821,646
Net realized gain (loss) from investments ............................................ 35,462,622 9,754,429
Net unrealized appreciation (depreciation) on investments ............................ 95,155,991 (47,868,488)
------------------------------------
Net increase (decrease) in net assets resulting from operations ................ 149,466,089 (17,292,413)
Distributions to shareholders from:
Net investment income:
Class A .............................................................................. (15,989,316) (15,525,626)
Class B .............................................................................. (1,287,641) (1,101,235)
Class C .............................................................................. (3,522,515) (3,752,350)
Advisor Class ........................................................................ (1,157,863) (1,056,973)
------------------------------------
Total distributions to shareholders ................................................. (21,957,335) (21,436,184)
Capital share transactions (Note 2):
Class A .............................................................................. 38,021,381 18,619,722
Class B .............................................................................. 6,862,038 15,731,041
Class C .............................................................................. 11,024,456 2,334,359
Advisor Class ........................................................................ 7,778,430 3,442,434
------------------------------------
Total capital share transactions .................................................... 63,686,305 40,127,556
Net increase (decrease) in net assets .......................................... 191,195,059 1,398,959
Net assets
Beginning of year ................................................................... 606,071,614 604,672,655
------------------------------------
End of year ......................................................................... $797,266,673 $606,071,614
====================================
Undistributed net investment income included in net assets:
End of year ......................................................................... $ 809,794 $ 3,919,089
====================================
Annual Report | See notes to financial statements. | 21
Franklin Real Estate Securities Trust
NOTES TO FINANCIAL STATEMENTS
FRANKLIN REAL ESTATE SECURITIES FUND
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 to maximize total return by investing at least 80% of its net assets
in securities of companies in the real estate industry, including equity real
estate investment trusts (REITS). The following summarizes the Fund's
significant accounting policies.
A. SECURITIES VALUATION
Securities listed or traded on a recognized national exchange are valued at the
last reported sales price. Securities listed or traded on NASDAQ are valued at
their official closing 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. If events occur that materially affect the values of
securities after the prices are determined, but prior to 4:00 p.m. Eastern time
or the close of trading on the NYSE, whichever is earlier, or if market
quotations are deemed not readily available or reliable, the securities
(including restricted securities) will be valued at fair value as determined
following procedures approved by the Board of Trustees. Investments in open-end
mutual funds are valued at the closing net asset value.
B. INCOME TAXES
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute substantially all of its taxable income.
C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
Distributions received by the Fund from securities may be a return of capital
(ROC). Such distributions reduce the cost basis of the securities, and any
distributions in excess of the cost basis are recognized as capital gains.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
22 | Annual Report
Franklin Real Estate Securities Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. 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 expenses during the reporting period. Actual results could differ from those
estimates.
E. GUARANTEES AND INDEMNIFICATIONS
Under the Trust's organizational documents, its officers and trustees are
indemnified against certain liability arising out of the performance of their
duties to the Trust. Additionally, in the normal course of business, the Trust
enters into contracts with service providers that contain general
indemnification clauses. The Trust's maximum exposure under these arrangements
is unknown as this would involve future claims that may be made against the
Trust that have not yet occurred. However, based on experience, the Trust
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, 2004, there were an unlimited number of shares authorized ($.01 par
value). Transactions in the Fund's shares were as follows:
-----------------------------------------------------------------
YEAR ENDED APRIL 30,
2004 2003
-----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------
CLASS A SHARES:
Shares sold ........................ 9,230,389 $ 191,433,534 12,286,539 $ 208,359,787
Shares issued in reinvestment of
distributions ..................... 728,989 14,577,701 837,542 14,066,071
Shares redeemed .................... (8,232,023) (167,989,854) (12,039,132) (203,806,136)
-----------------------------------------------------------------
Net increase (decrease) ............ 1,727,355 $ 38,021,381 1,084,949 $ 18,619,722
=================================================================
CLASS B SHARES:
Shares sold ........................ 759,546 $ 15,535,001 1,164,255 $ 19,457,743
Shares issued in reinvestment of
distributions ..................... 56,562 1,125,375 57,888 961,046
Shares redeemed .................... (477,595) (9,798,338) (287,065) (4,687,748)
-----------------------------------------------------------------
Net increase (decrease) ............ 338,513 $ 6,862,038 935,078 $ 15,731,041
=================================================================
Annual Report | 23
Franklin Real Estate Securities Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
-----------------------------------------------------------------
YEAR ENDED APRIL 30,
2004 2003
-----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------
CLASS C SHARES:
Shares sold ........................ 1,880,843 $ 38,530,037 1,791,610 $ 29,763,024
Shares issued in reinvestment of
distributions ..................... 154,537 3,059,609 192,794 3,206,631
Shares redeemed .................... (1,508,306) (30,565,190) (1,884,732) (30,635,296)
-----------------------------------------------------------------
Net increase (decrease) ............ 527,074 $ 11,024,456 99,672 $ 2,334,359
=================================================================
ADVISOR CLASS SHARES:
Shares sold ........................ 502,936 $ 10,591,257 504,347 $ 8,530,129
Shares issued in reinvestment of
distributions ..................... 54,494 1,095,771 58,960 991,256
Shares redeemed .................... (188,212) (3,908,598) (371,994) (6,078,951)
-----------------------------------------------------------------
Net increase (decrease) ............ 369,218 $ 7,778,430 191,313 $ 3,442,434
=================================================================
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Fund are also officers and/or directors of
the following entities:
- -----------------------------------------------------------------------------------------------------
ENTITY AFFILIATION
- -----------------------------------------------------------------------------------------------------
Franklin Advisers, Inc. (Advisers) Investment manager
Franklin/Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin Templeton Services, LLC (FT Services) Administrative manager
Franklin/Templeton Investor Services, LLC (Investor Services) Transfer agent
The Fund pays an investment management fee to Advisers based on the average
daily net assets of the Fund as follows:
- --------------------------------------------------------------------------------
ANNUALIZED FEE RATE AVERAGE 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 under a Rule 12b-1 Plan.
Distributors has advised the Fund it paid net commissions on sales of the Fund's
shares, and received contingent deferred sales charges for the year of $598,116
and $107,086, respectively.
The Fund paid transfer agent fees of $1,948,221, of which $978,124 was paid to
Investor Services.
24 | Annual Report
Franklin Real Estate Securities Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
4. EXPENSE OFFSET ARRANGEMENT
The Fund has entered into an arrangement with its custodian whereby credits
realized as a result of uninvested cash balances are used to reduce a portion of
the Fund's custodian expenses. During the year ended April 30, 2004, there were
no credits earned.
5. INCOME TAXES
At April 30, 2004, the cost of investments, net unrealized appreciation
(depreciation), undistributed ordinary income and undistributed long term
capital gains for income tax purposes were as follows:
Cost of investments ...................................... $632,900,335
-------------
Unrealized appreciation .................................. $174,135,854
Unrealized depreciation .................................. (8,851,356)
-------------
Net unrealized appreciation (depreciation) ............... $165,284,498
-------------
Undistributed ordinary income ............................ $ 1,184,457
Undistributed long term capital gains .................... $ 1,476,836
-------------
Distributable earnings ................................... $ 2,661,293
-------------
The tax character of distributions paid during the years ended April 30, 2004
and 2003, was as follows:
----------------------------
2004 2003
----------------------------
Distributions paid from:
Ordinary income .......................... $21,957,335 $21,436,184
----------------------------
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions and complex
securities.
Net realized gains differ for financial statement and tax purposes primarily due
to differing treatments of wash sales and foreign currency transactions.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term securities) for the
year ended April 30, 2004 aggregated $280,302,113 and $197,202,665,
respectively.
7. INVESTMENTS IN AFFILIATED 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 $288,077 of dividend income from investment in
the Sweep Money Fund for the year ended April 30, 2004.
Annual Report | 25
Franklin Real Estate Securities Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
8. HOLDINGS 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, 2004 were as shown below.
- --------------------------------------------------------------------------------------------------------
NUMBER OF NUMBER OF
SHARES HELD SHARES HELD VALUE REALIZED
AT BEGINNING GROSS GROSS AT END AT END INVESTMENT CAPITAL
NAME OF ISSUER OF YEAR ADDITIONS REDUCTIONS OF YEAR OF YEAR INCOME GAINS (LOSSES)
- --------------------------------------------------------------------------------------------------------
NON CONTROLLED AFFILIATES
Windrose Medical
Properties .......... 334,800 -- (65,500) 269,300 $--* $207,733 --
---------------------------------
*As of April 30, 2004, no longer an affiliate.
9. RESTRICTED SECURITIES
At April 30, 2004, 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, 2004, the Fund held
investments in restricted and illiquid securities that were valued under
approved methods by the Trustees, as follows:
- ------------------------------------------------------------------------------------------------------
ACQUISITION
SHARES ISSUER DATE COST VALUE
- ------------------------------------------------------------------------------------------------------
100,000 Northstar Capital Investment Corp., 144A ... 1/16/98 $1,993,250 $1,350,000
----------------------------
TOTAL RESTRICTED SECURITIES (.17% OF NET ASSETS) ................. $1,993,250 $1,350,000
============================
10. REGULATORY MATTERS
MASSACHUSETTS ADMINISTRATIVE PROCEEDING
On February 4, 2004, the Securities Division of the Office of the Secretary of
the Commonwealth of Massachusetts filed an administrative complaint against
Franklin Resources, Inc. and certain of its subsidiaries (the "Company")
claiming violations of the Massachusetts Uniform Securities Act ("Massachusetts
Act") with respect to an alleged arrangement to permit market timing (the "Mass.
Proceeding"). On February 14, 2004, the Company filed an answer denying all
violations of the Massachusetts Act.
26 | Annual Report
Franklin Real Estate Securities Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
10. REGULATORY MATTERS (CONTINUED)
GOVERNMENTAL INVESTIGATIONS
As part of ongoing investigations by the U.S. Securities and Exchange Commission
(SEC), the U.S. Attorney for the Northern District of California, the New York
Attorney General, the California Attorney General, the U.S. Attorney for the
District of Massachusetts, the Florida Department of Financial Services and the
Commissioner of Securities, the West Virginia Attorney General and the Vermont
Department of Banking, Insurance, Securities, and Health Care Administration,
relating to certain practices in the mutual fund industry, including late
trading, market timing and payments to securities dealers who sell Fund shares,
the Company and its subsidiaries, as well as certain current or former
executives and employees of the Company, have received requests for information
and/or subpoenas to testify or produce documents. The Company and its current
employees are providing documents and information in response to these requests
and subpoenas. In addition, the Company has responded to requests for similar
kinds of information from regulatory authorities in some of the foreign
countries where the Company conducts its global asset management business.
The staff of the SEC has informed the Company that it intends to recommend that
the SEC authorize a civil injunctive action against the Trust's investment
manager. The SEC's investigation is focused on the activities that are the
subject of the Mass. Proceeding described above and other instances of alleged
market timing by a limited number of third parties that ended in 2000. The
Company currently believes that the charges the SEC staff is contemplating are
unwarranted. There are discussions underway with the SEC staff in an effort to
resolve the issues raised in their investigation.
In response to requests for information and subpoenas from the SEC and the
California Attorney General, the Company has provided documents and testimony
has been taken relating to payments to security dealers who sell Fund shares.
Effective November 28, 2003, the Company determined not to direct any further
brokerage commissions where the allocation is based, not only on best execution,
but also on the sale of Fund shares.
OTHER LEGAL PROCEEDINGS
The Trust, in addition to other entities within Franklin Templeton Investments,
including the Company and certain of its subsidiaries, other funds, and current
and former officers, employees, and directors have been named in multiple
lawsuits in different federal courts in Nevada, California, Illinois, New York,
New Jersey, and Florida, alleging violations of various federal securities laws
and seeking, among other things, monetary damages and costs. Specifically, the
lawsuits claim breach of duty with respect to alleged arrangements to permit
market timing and/or late trading activity, or breach of duty with respect to
the valuation of the portfolio securities of certain funds managed by Company
subsidiaries, resulting in alleged market timing activity. The majority of these
lawsuits duplicate, in whole or in part, the allegations asserted in the Mass.
Proceeding detailed above. The lawsuits are styled as class actions or
derivative actions.
Annual Report | 27
Franklin Real Estate Securities Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
10. REGULATORY MATTERS (CONTINUED)
OTHER LEGAL PROCEEDINGS (CONTINUED)
In addition, the Company and its subsidiaries, as well as certain current and
former officers, employees, and directors have been named in multiple lawsuits
alleging violations of various securities laws and pendent state law claims
relating to the disclosure of directed brokerage payments and payment of
allegedly excessive commissions and advisory fees. These lawsuits are styled as
class actions and derivative actions.
Management strongly believes that the claims made in each of these lawsuits are
without merit and intends to vigorously defend against them.
The Company cannot predict with certainty the eventual outcome of the foregoing
Mass. Proceeding, other governmental investigations or class actions or other
lawsuits. The impact, if any, of these matters on the Trust is uncertain at this
time. If the Company determines that it bears responsibility for any unlawful or
inappropriate conduct that caused losses to the Trust, it is committed to making
the Trust or its shareholders whole, as appropriate.
28 | Annual Report
Franklin Real Estate Securities Trust
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2004, 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 the standards of the Public Company
Accounting Oversight Board (United States), which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at April
30, 2004 by correspondence with the custodian, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
June 9, 2004
Annual Report | 29
Franklin Real Estate Securities Trust
TAX DESIGNATION (UNAUDITED)
Under Section 852(b)(3)(c) of the Internal Revenue Code, the Fund hereby
designates $1,476,835 as a capital gain dividend for the fiscal year ended April
30, 2004.
Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby designates
up to a maximum of $3,271,203 as qualified dividends for purposes of the maximum
rate under Section 1(h)(11) of the Code for the fiscal year ended April 30,
2004. In January 2005, shareholders will receive Form 1099-DIV which will
include their share of qualified dividends distributed during the calendar year
2004. Shareholders are advised to check with their tax advisors for information
on the treatment of these amounts on their individual income tax returns.
Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby designates
11.61% of the ordinary income dividends as income qualifying for the dividends
received deduction for corporations for the fiscal year ended April 30, 2004.
30 | Annual Report
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
that person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK H. ABBOTT, III (83) Trustee Since 1993 112 None
One Franklin Parkway
San Matteo, CA94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Director, Abbott Corporation (an investment company).
- ------------------------------------------------------------------------------------------------------------------------------------
HARRIS J. ASHTON (71) Trustee Since 1993 141 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 (76) Trustee Since 1998 51 None
One Franklin Parkway
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Member 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 (71) Trustee Since 1993 142 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 (75) Trustee Since 1993 114 Director, The California Center for Land
One Franklin Parkway 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 | 31
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
GORDON S. MACKLIN (76) Trustee Since 1993 141 Director, White Mountains Insurance Group,
One Franklin Parkway Ltd. (holding company); Martek Biosciences
San Mateo, CA 94403-1906 Corporation; MedImmune, Inc.
(biotechnology); and Overstock.com (Internet
services); and FORMERLY, Director, MCI
Communication Corporation (subsequently
known as MCI WorldCom, Inc. and WorldCom,
Inc.) (communications services) (1988-2002)
and Spacehab, Inc. (aerospace services)
(1994-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Deputy Chairman, White Mountains Insurance Group, Ltd. (holding company); and FORMERLY, Chairman, White River Corporation
(financial services) (1993-1998) and Hambrecht & Quist Group (investment banking) (1987-1992); and President, National Association
of Securities Dealers, Inc. (1970-1987).
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED BOARD MEMBERS AND OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
**HARMON E. BURNS (59) Trustee and Since 1993 38 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.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and
of 49 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
**CHARLES B. JOHNSON (71) Trustee and Since 1993 141 None
One Franklin Parkway Chairman of
San Mateo, CA 94403-1906 the Board
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President, Franklin Templeton
Distributors, Inc.; Director, Fiduciary Trust Company International; and officer and/or director or trustee, as the case may be, of
some of the other subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
32 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
**RUPERT H. JOHNSON, JR. (63) Trustee, Trustee and 124 None
One Franklin Parkway President and President since
San Mateo, CA 94403-1906 Chief Executive 1993 and Chief
Officer - Executive
Investment Officer -
Management 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; and officer and/or director or trustee, as the case may be, of some of the other
subsidiaries of Franklin Resources, Inc. and of 49 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
MARTIN L. FLANAGAN (43) Vice President Since 1995 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Co-President and Chief Executive 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 or
trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 49 of the investment companies in
Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (56) Senior Vice Since 2002 Not Applicable None
500 East Broward Blvd. President and
Suite 2100 Chief Executive
Fort Lauderdale, FL 33394-3091 Officer -
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.
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (56) 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).
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 33
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
BARBARA J. GREEN (56) Vice President Since 2000 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Deputy General Counsel and Secretary, Franklin Resources, Inc.; Secretary and Senior Vice President, Templeton
Worldwide, Inc.; Secretary, Franklin Advisers, Inc., Franklin Advisory Services, LLC, Franklin Investment Advisory Services, Inc.,
Franklin Mutual Advisers, LLC, Franklin Templeton Alternative Strategies, Inc., Franklin Templeton Investor Services, LLC, Franklin
Templeton Services, LLC, Franklin Templeton Distributors, Inc., Templeton Investment Counsel, LLC, and Templeton/Franklin
Investment Services, Inc.; and officer of some 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).
- ------------------------------------------------------------------------------------------------------------------------------------
DIOMEDES LOO-TAM (65) Treasurer Since March Not Applicable None
One Franklin Parkway 2004
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Officer of 51 of the investment companies in Franklin Templeton Investments; and Consultant, MyVest Corporation (software
development company and investment advisory services); and FORMERLY, Director and member of Audit and Valuation Committees, Runkel
Funds, Inc. (2002-2003); Treasurer/Controller of most of the investment companies in Franklin Templeton Investments (1985-2000);
and Senior Vice President, Franklin Templeton Services, LLC (1997-2000).
- ------------------------------------------------------------------------------------------------------------------------------------
MICHAEL O. MAGDOL (66) Vice President Since 2002 Not Applicable Director, FTI Banque, Arch Chemicals, Inc.
600 Fifth Avenue - AML Compliance and Lingnan Foundation.
Rockefeller Center
New York, NY 10020-2302
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Chief Banking Officer and Director, Fiduciary Trust Company International; and officer and/or director, as the case
may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 48 of the investment companies in Franklin Templeton
Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
MURRAY L. SIMPSON (66) Vice President Since 2000 Not Applicable None
One Franklin Parkway and 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, as the case may be, of some of the
subsidiaries of Franklin Resources, Inc. and 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).
- ------------------------------------------------------------------------------------------------------------------------------------
34 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
GALEN G. VETTER (52) Chief Financial Since May 2004 Not Applicable None
500 East Broward Blvd. Officer
Suite 2100
Fort Lauderdale, FL 33394-3091
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Officer of 51 of the investment companies in Franklin Templeton Investments; Senior Vice President, Franklin Templeton Services,
LLC; and FORMERLY, Managing Director of RSM McGladrey, Inc.; and Partner of McGladrey & Pullen, LLP.
- ------------------------------------------------------------------------------------------------------------------------------------
*We base the number of portfolios on each separate series of the U.S. registered
investment companies within the Franklin Templeton Investments fund complex.
These portfolios have a common investment adviser or affiliated investment
advisers.
**Charles B. Johnson and Rupert H. Johnson, Jr. are considered to be 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 to be 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 SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE
COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE
INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN
THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD OF TRUSTEES HAVE DETERMINED
THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS
DESIGNATED FRANK W.T. LAHAYE AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD
BELIEVES THAT MR. LAHAYE QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE
BUSINESS BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS PRESIDENT AND DIRECTOR
OF MCCORMICK SELPH ASSOCIATES FROM 1954 THROUGH 1965; DIRECTOR AND CHAIRMAN OF
TELEDYNE CANADA LTD. FROM 1966 THROUGH 1971; DIRECTOR AND CHAIRMAN OF
QUARTERDECK CORPORATION FROM 1982 THROUGH 1998; AND SERVICES AS A DIRECTOR OF
VARIOUS OTHER PUBLIC COMPANIES INCLUDING U.S. TELEPHONE INC. (1981-1984), FISHER
IMAGING INC. (1991-1998) AND DIGITAL TRANSMISSIONS SYSTEMS (1995-1999). IN
ADDITION, MR. LAHAYE SERVED FROM 1981 TO 2000 AS A DIRECTOR AND CHAIRMAN OF
PEREGRINE VENTURE MANAGEMENT CO., A VENTURE CAPITAL FIRM, AND HAS BEEN A MEMBER
AND CHAIRMAN OF THE FUND'S AUDIT COMMITTEE SINCE ITS INCEPTION. AS A RESULT OF
SUCH BACKGROUND AND EXPERIENCE, THE BOARD OF TRUSTEES BELIEVES THAT MR. LAHAYE
HAS ACQUIRED AN UNDERSTANDING OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
FINANCIAL STATEMENTS, THE GENERAL APPLICATION OF SUCH PRINCIPLES IN CONNECTION
WITH THE ACCOUNTING ESTIMATES, ACCRUALS AND RESERVES, AND ANALYZING AND
EVALUATING FINANCIAL STATEMENTS THAT PRESENT A BREADTH AND LEVEL OF COMPLEXITY
OF ACCOUNTING ISSUES GENERALLY COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN
UNDERSTANDING OF INTERNAL CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN
UNDERSTANDING OF AUDIT COMMITTEE FUNCTIONS. MR. LAHAYE IS AN INDEPENDENT TRUSTEE
AS THAT TERM IS DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION
RULES AND RELEASES.
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 | 35
Franklin Real Estate Securities Trust
PROXY VOTING POLICIES AND PROCEDURES
FRANKLIN REAL ESTATE SECURITIES FUND
The Fund has established Proxy Voting Policies and Procedures ("Policies") that
the Fund uses to determine how to vote proxies relating to portfolio securities.
Shareholders may view the Fund's complete Policies online at
franklintempleton.com. Alternatively, shareholders may request copies of the
Policies free of charge by calling the Proxy Group collect at 1-954/847-2268 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy
Group.
36 | Annual Report
Literature Request
For a brochure and prospectus, which contains more complete information,
including charges, expenses and risks, 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, we may
monitor, record and access telephone calls to or from our service departments.
These calls can be identified by the presence of a regular beeping tone.
FRANKLIN TEMPLETON INVESTMENTS
INTERNATIONAL
Mutual European Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton International (Ex EM) Fund
GLOBAL
Franklin Global Aggressive Growth Fund
Franklin Global Growth Fund
Mutual Discovery Fund
Templeton Capital Accumulator Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund
GROWTH
Franklin Aggressive Growth Fund
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
Franklin Small Cap Growth Fund II 1
VALUE
Franklin Balance Sheet Investment Fund 2
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund 2
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund 3
Mutual Shares Fund
BLEND
Franklin Blue Chip Fund
Franklin Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
Franklin U.S. Long-Short Fund 4
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Utilities Fund
Franklin Technology Fund
Mutual Financial Services Fund
ASSET ALLOCATION
Franklin Templeton Corefolio Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
TARGET FUNDS
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 Federal Money Fund 5,6
Franklin Floating Rate Daily Access Fund
Franklin Floating Rate Trust 3
Franklin Income Fund
Franklin Money Fund 5,6
Franklin Short-Intermediate U.S. Government Securities Fund 5
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund 5
Templeton Global Bond Fund
TAX-FREE INCOME 7
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund 8
Tax-Exempt Money Fund 5,6
LIMITED-TERM FUNDS
California Limited-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Limited-Term Tax-Free Income Fund
INTERMEDIATE-TERM FUNDS
California Intermediate-Term Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
New York Intermediate-Term Tax-Free Income Fund
STATE-SPECIFIC 7
Alabama
Arizona
California 9
Colorado
Connecticut
Florida 9
Georgia
Kentucky
Louisiana
Maryland
Massachusetts 8
Michigan 8
Minnesota 8
Missouri
New Jersey
New York 9
North Carolina
Ohio 8
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance
Products Trust 10
1.The fund is closed to new investors. Existing shareholders can continue adding
to their accounts.
2.The fund is only open to existing shareholders as well as select retirement
plans.
3.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.
4.Upon reaching approximately $350 million in assets, the fund intends to close
to all investors.
5.An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
6.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. 7.For investors subject
to the alternative minimum tax, a small portion of fund dividends may be
taxable. Distributions of capital gains are generally taxable.
8.Portfolio of insured municipal securities.
9.These funds are available in two or more variations, including long-term
portfolios, portfolios of insured securities, a high-yield portfolio (CA) and
limited-term, intermediate-term and money market portfolios (CA and NY).
10.The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
02/04 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
Authorized for distribution only when accompanied or preceded by a prospectus.
Investors should carefully consider a fund's investment goals, risks, charges
and expenses before investing. The prospectus contains this and other
information; please read it carefully before investing.
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 A2004 06/04
ITEM 2. CODE OF ETHICS.
(a) The Registrant has adopted a code of ethics that applies to its principal
executive officers and principal financial and accounting officer.
(c) N/A
(d) N/A
(f) Pursuant to Item 11(A), the Registrant is attaching as an exhibit a copy of
its code of ethics that applies to its principal executive officers and
principal financial and accounting officer.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1) The Registrant has an audit committee financial expert serving on its
audit committee.
(2) The audit committee financial expert is Frank W. T. LaHaye and he is
"independent" as defined under the relevant Securities and Exchange Commission
Rules and Releases.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant for the audit of the registrant's annual
financial statements or for services that are normally provided by the
principal accountant in connection with statutory and regulatory filings or
engagements were $27,932 for the fiscal year ended April 30, 2004 and $25,418
for the fiscal year ended April 30, 2003.
(b) Audit-Related Fees
There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant that are
reasonably related to the performance of the audit of the registrant's
financial statements and are not reported under paragraph (a) of Item 4.
The aggregate fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant's investment
adviser and any entity controlling, controlled by or under common control
with the investment adviser that provides ongoing services to the registrant
that are reasonably related to the performance of the audit of the their
financial statements were $48,548 for the fiscal year ended April 30, 2004
and $2,500 for the fiscal year ended April 30, 2003. The services for which
these fees were paid included attestation services.
(c) Tax Fees
There were no fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant for tax compliance,
tax advice and tax planning.
There were no fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant's investment adviser
and any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant for tax
compliance, tax advice and tax planning.
(d) All Other Fees
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant not reported in
paragraphs (a)-(c) of Item 4 were $367 for the fiscal year ended April 30,
2004 and $0 for the fiscal year ended April 30, 2003. The services for which
these fees were paid included review of materials provided to the fund Board
in connection with the investment management contract renewal process.
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant's investment adviser
and any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant not
reported in paragraphs (a)-(c) of Item 4 were $99,633 for the fiscal year
ended April 30, 2004 and $12,975 for the fiscal year ended April 30, 2003.
The services for which these fees were paid included review of materials
provided to the fund Board in connection with the investment management
contract renewal process, subscription fees and a review of an ICI transfer
agent survey.
(e) (1) The Fund's audit committee is directly responsible for approving the
services to be provided by the auditors, including:
(i) pre-approval of all audit and audit related services;
(ii) pre-approval of all non-audit related services to be provided to
the Fund by the auditors;
(iii)pre-approval of all non-audit related services to be provided to
the Fund by the auditors to the Fund's investment adviser or to any entity
that controls, is controlled by or is under common control with the Fund's
investment adviser and that provides ongoing services to the Fund where the
non-audit services relate directly to the operations or financial reporting
of the Fund; and
(iv) establishment by the audit committee, if deemed necessary or
appropriate, as an alternative to committee pre-approval of services to be
provided by the auditors, as required by paragraphs (ii) and (iii) above, of
policies and procedures to permit such services to be pre-approved by other
means, such as through establishment of guidelines or by action of a
designated member or members of the committee; provided the policies and
procedures are detailed as to the particular service and the committee is
informed of each service and such policies and procedures do not include
delegation of audit committee responsibilities, as contemplated under the
Securities Exchange Act of 1934, to management; subject, in the case of (ii)
through (iv), to any waivers, exceptions or exemptions that may be available
under applicable law or rules.
(e) (2) None of the services provided to the registrant described in
paragraphs (b)-(d) of Item 4 were pre-approved by the audit committee
pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) The aggregate non-audit fees paid to the principal accountant for
services rendered by the principal accountant to the registrant and the
registrant's investment adviser and any entity controlling, controlled by or
under common control with the investment adviser that provides ongoing
services to the registrant were $148,548 for the fiscal year ended April 30,
2004 and $15,475 for the fiscal year ended April 30, 2003.
(h) No disclosures are required by this Item 4(h).
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. N/A
ITEM 6. SCHEDULE OF INVESTMENTS. N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES. N/A
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT
INVESTMENT COMPANY AND AFFILIATED PURCHASERS. N/A
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have
been no changes to the procedures by which shareholders may recommend nominees
to the Registrant's Board of Trustees that would require disclosure herein.
ITEM 10. 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 11. EXHIBITS.
(A) Code of Ethics
(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
Galen G. Vetter, 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
Galen G. Vetter, 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, 2004
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, 2004
By /s/Galen G. Vetter
Chief Financial Officer
Date June 30, 2004