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
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FRANKLIN REAL ESTATE SECURITIES TRUST
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(Exact name of registrant as specified in charter)
ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Address of principal executive offices) (Zip code)
CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Name and address of agent for service)
Registrant's telephone number, including area Code: (650) 312-2000
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Date of fiscal year end: 4/30
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Date of reporting period: 4/30/08
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ITEM 1. REPORTS TO STOCKHOLDERS.
APRIL 30, 2008
ANNUAL REPORT AND SHAREHOLDER LETTER
SECTOR
FRANKLIN REAL ESTATE SECURITIES FUND
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(GRAPHIC)
(FRANKLIN TEMPLETON INVESTMENTS LOGO)
FRANKLIN TEMPLETON INVESTMENTS
FRANKLIN - Templeton - Mutual Series
Annual Report
Franklin Real Estate Securities Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Real Estate Securities Fund
seeks to maximize total return by investing at least 80% of its net assets in
equity securities of companies in the real estate industry, including real
estate investment trusts (REITs) and companies that derive at least half of
their assets or revenues from the ownership, construction, management or sale of
residential, commercial or industrial real estate.(1)
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
PORTFOLIO BREAKDOWN
Based on Total Net Assets as of 4/30/08
(PIE CHART)
Real Estate Investment Trusts ......................... 90.6%
Short-Term Investments and Other Net Assets ........... 9.4%
This annual report for Franklin Real Estate Securities Fund covers the fiscal
year ended April 30, 2008.
PERFORMANCE OVERVIEW
Franklin Real Estate Securities Fund - Class A had a -22.16% cumulative total
return for the 12 months under review. On June 29, 2007, Dow Jones & Company
converted the Dow Jones Wilshire Real Estate Securities Index (RESI) from a full
capitalization index to a float-adjusted index to better
(1.) REITs are real estate investment trust companies, usually with publicly
traded stock, that manage a portfolio of income-producing real estate
properties such as apartments, hotels, industrial properties, office
buildings or shopping centers. The Fund predominantly invests in "equity"
REITs, which also take ownership positions in real estate. Shareholders of
equity REITs generally receive income from rents received and receive
capital gains when properties are sold at a profit. REITs are generally
operated by experienced property management teams and typically concentrate
on a specific geographic region or property type.
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 20.
Annual Report | 3
reflect the investible universe of publicly traded real estate securities.
Historical performance for the benchmark has been adjusted to reflect this
change. The Fund underperformed its narrow benchmark, the Dow Jones Wilshire
RESI, which had a -13.95% return, and underperformed its broad benchmark, the
Standard & Poor's 500 Composite Index (S&P 500), which had a -4.68% return for
the same period.(2) You can find the Fund's long-term performance data in the
Performance Summary beginning on page 9.
ECONOMIC AND MARKET OVERVIEW
During the 12 months ended April 30, 2008, the U.S. economy slowed. The housing
downturn negatively affected the overall economy by fourth quarter 2007 as
credit conditions worsened and the pace of consumer spending declined. Gross
domestic product (GDP) growth decelerated sharply from 4.9% in the third quarter
of 2007 and registered annualized rates of 0.6% in the fourth quarter of 2007
and an estimated 0.9% in the first quarter of 2008. A weaker U.S. dollar
compared with many foreign currencies over the past year contributed to
increased exports, which along with inventory buildup helped the fragile economy
in the first quarter.
The unemployment rate increased from 4.5% at the beginning of the period to 5.0%
in April 2008.(3) Continued deterioration in consumer confidence, home prices
and the job market, as well as rising mortgage and fuel costs, plagued the
economy. Volatile oil prices reached a historical high in April, topping $119
per barrel, before retreating to $113 by period-end. For the 12 months ended
April 30, 2008, the core Consumer Price Index (CPI), which excludes food and
energy costs, rose 2.3%, which was higher than its 10-year average rate.(3)
Faced with a deepening housing contraction and stressed financial markets, the
Federal Reserve Board made several cuts to the federal funds target rate during
the period, including 225 basis points so far in 2008. For the 12-month period,
the federal funds target rate fell 325 basis points from 5.25% to 2.00%. As
investors fled riskier, poorer-performing assets, U.S. Treasuries rallied, and
the 10-year Treasury note yield fell from 4.63% at the beginning of the period
to 3.77% on April 30, 2008.
(2.) Source: Standard & Poor's Micropal. The Dow Jones Wilshire RESI 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 float-adjusted, 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.
(3.) Source: Bureau of Labor Statistics.
4 | Annual Report
Stock markets were volatile during the period partly due to investor concerns
about slowing economic growth. Overall, the blue chip stocks of the Dow Jones
Industrial Average had a 12-month total return of +0.47%, while the broader
Standard & Poor's 500 Index (S&P 500) had a -4.68% return and the
technology-heavy NASDAQ Composite Index had a -3.74% return.(4) The energy,
materials and consumer staples sectors performed relatively well.
Large-capitalization stocks generally outperformed small caps, and growth stocks
fared better than their value counterparts.
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
The Fund underperformed the Dow Jones Wilshire RESI during this fiscal year
mainly because of its allocation to the homebuilding industry, which performed
poorly and is not included in the index. Unfortunately, the weak housing market
was challenging for homebuilders and lenders, and the Fund had several
detractors from absolute and relative performance. Some of the most notable
detractors were homebuilders Standard Pacific, Lennar, KB Home, D.R. Horton,
M.D.C. Holdings and NVR, as well as iStar Financial. The homebuilders all
suffered from declining housing starts and home values. Specialty real estate
finance company iStar sustained a quarterly loss due to a significantly higher
provision for loan losses mainly in real estate lending and investor
expectations that it would have difficulty refinancing pending debt maturities.
As a result, the company's stock price suffered dramatically.
(4.) Source: Standard & Poor's Micropal. The Dow Jones Industrial Average is
price weighted based on the average market price of 30 blue chip stocks of
companies that are generally industry leaders. See footnote 2 for a
description of the S&P 500. The NASDAQ Composite Index measures all NASDAQ
domestic and international based common type stocks listed on The NASDAQ
Stock Market. The index is market value weighted and includes more than
3,000 companies.
TOP 10 HOLDINGS
4/30/08
% OF TOTAL
COMPANY SECTOR/INDUSTRY NET ASSETS
- -------------------------------- ----------
Simon Property Group Inc.
REAL ESTATE INVESTMENT TRUSTS 8.4%
ProLogis
REAL ESTATE INVESTMENT TRUSTS 5.5%
Vornado Realty Trust
REAL ESTATE INVESTMENT TRUSTS 5.4%
Equity Residential
REAL ESTATE INVESTMENT TRUSTS 5.0%
Kimco Realty Corp.
REAL ESTATE INVESTMENT TRUSTS 4.6%
Host Hotels & Resorts Inc.
REAL ESTATE INVESTMENT TRUSTS 4.6%
Boston Properties Inc.
REAL ESTATE INVESTMENT TRUSTS 4.1%
Public Storage
REAL ESTATE INVESTMENT TRUSTS 3.9%
HCP Inc.
REAL ESTATE INVESTMENT TRUSTS 3.9%
AvalonBay Communities Inc.
REAL ESTATE INVESTMENT TRUSTS 3.7%
Annual Report | 5
During the year under review, among holdings that contributed the most to Fund
performance relative to the Dow Jones Wilshire RESI were Ventas, Nationwide
Health Properties, Boardwalk REIT and Equity Residential. Ventas, a health care
REIT, has concentrations in skilled nursing facilities and acute care hospitals,
and raised its exposure to assisted living facilities via its acquisition of
Sunrise, which it will operate through its taxable REIT subsidiary. Since each
of these segments is driven by declining health conditions, they are relatively
protected from economic slowdowns. Nationwide Health, a health care REIT,
acquired a significant amount of medical office buildings, which are relatively
insulated from economic activity due to being associated with hospitals or
universities. Boardwalk, the largest apartment owner and the third-largest REIT
in Canada, operates assets in several Canadian provinces. The company's solid
financial results in the first quarter of 2008 were driven mainly by its
exposure to the energy-dominated markets of Calgary and Edmonton, Alberta.
Equity Residential, the largest U.S. apartment REIT, owns and operates assets
located mainly on both coasts and in Chicago. In the latter part of the period,
these companies benefited during the housing crisis as quasi-government agencies
continued to lend to the sector and apartments became more affordable and more
attractive than houses, especially given expectations that home prices will
continue to decline.
The Fund's portfolio management changed on February 1, 2008, to a three-person
team consisting of Jack Foster, Boris Pialloux and David Levy, who also manage
other real estate portfolios.
6 | Annual Report
Thank you for your continued participation in Franklin Real Estate Securities
Fund. We look forward to serving your future investment needs.
Sincerely,
(PHOTO OF JOHN W. FOSTER)
/s/ John W. Foster
John W. Foster
(PHOTO OF BORIS E. PIALLOUX)
/s/ Boris E. Pialloux
Boris E. Pialloux, CFA
(PHOTO OF DAVID LEVY)
/s/ David Levy
David Levy
Portfolio Management Team
Franklin Real Estate Securities Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF APRIL 30, 2008, 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,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER 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.
Annual Report | 7
JOHN (JACK) W. FOSTER assumed portfolio manager responsibilities for Franklin
Real Estate Securities Fund in February 2008. Mr. Foster's responsibilities
include advising institutional real estate investors on global property
investments and management of global real estate portfolios, which include
property securities and unlisted property securities for the firm.
Before joining Franklin Templeton Investments in 1987, Mr. Foster worked as a
commercial real estate broker in New York City. His real estate career started
more than 20 years ago in Maryland and Virginia, where he worked in residential
housing development. Mr. Foster earned a B. A. from Columbia University.
BORIS E. PIALLOUX assumed portfolio manager responsibilities for Franklin Real
Estate Securities Fund in February 2008. He manages several global real estate
funds and focuses on the analysis of European property stocks.
Prior to joining Franklin Templeton Investments in 2006, Mr. Pialloux was an
equity analyst with Deutsche Asset Management/Scudder, and held business
development and marketing positions with Mitchell Hutchins (UBS Paine Weber)
Weiss, Peck & Greer (Robeco Group), and Societe Generale Asset Management. He
holds an M.B.A. in finance from the University of Texas. He is a Chartered
Financial Analyst (CFA) Charterholder.
DAVID LEVY assumed portfolio manager responsibilities for Franklin Real Estate
Securities Fund in February 2008. He is also a research analyst covering U.S.
REITs.
Prior to joining Franklin Templeton, Mr. Levy spent more than 16 years at New
York Life Investment Management where, since 1997, he was a portfolio manager
for New York Life's REIT portfolios. Mr. Levy's experience at New York Life
Investment Management also included portfolio management for convertible
securities and analysis of corporate bonds. Prior to this, Mr. Levy was employed
by Alexander & Alexander in Atlanta, Georgia, as a retirement plan manager.
Mr. Levy holds an M.B.A. with a concentration in finance and international
business from Columbia University's School of Business and a B. A. in
mathematics from Emory University.
8 | Annual Report
Performance Summary as of 4/30/08
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
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FREEX) CHANGE 4/30/08 4/30/07
- ------------------------------ ------ ------- -------
Net Asset Value (NAV) -$7.66 $18.53 $26.19
DISTRIBUTIONS (5/1/07-4/30/08)
Dividend Income $0.4796
Short-Term Capital Gain $0.3386
Long-Term Capital Gain $0.9242
TOTAL $1.7424
CLASS B (SYMBOL: FBREX) CHANGE 4/30/08 4/30/07
- ------------------------------ ------ ------- -------
Net Asset Value (NAV) -$7.55 $18.25 $25.80
DISTRIBUTIONS (5/1/07-4/30/08)
Dividend Income $0.3543
Short-Term Capital Gain $0.3386
Long-Term Capital Gain $0.9242
TOTAL $1.6171
CLASS C (SYMBOL: FRRSX) CHANGE 4/30/08 4/30/07
- ------------------------------ ------ ------- -------
Net Asset Value (NAV) -$7.53 $18.13 $25.66
DISTRIBUTIONS (5/1/07-4/30/08)
Dividend Income $0.3196
Short-Term Capital Gain $0.3386
Long-Term Capital Gain $0.9242
TOTAL $1.5824
ADVISOR CLASS (SYMBOL: FRLAX) CHANGE 4/30/08 4/30/07
- ------------------------------ ------ ------- -------
Net Asset Value (NAV) -$7.70 $18.62 $26.32
DISTRIBUTIONS (5/1/07-4/30/08)
Dividend Income $0.5342
Short-Term Capital Gain $0.3386
Long-Term Capital Gain $0.9242
TOTAL $1.7970
Annual Report | 9
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. 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; ADVISOR CLASS: NO SALES CHARGES. UNTIL AUGUST 31, 2008,
THE FUND MAY CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------------------------------------- ------- ------- --------
Cumulative Total Return(1) -22.16% +83.29% +126.21%
Average Annual Total Return(2) -26.64% +11.55% +7.86%
Value of $10,000 Investment(3) $ 7,336 $17,271 $ 21,317
Avg. Ann. Total Return (3/31/08)(4) -29.29% +11.28% +6.97%
Total Annual Operating Expenses(5) 0.98%
INCEPTION
CLASS B 1-YEAR 5-YEAR (1/1/99)
- ------------------------------------- ------- ------- ---------
Cumulative Total Return(1) -22.51% +77.07% +146.28%
Average Annual Total Return(2) -25.34% +11.85% +10.14%
Value of $10,000 Investment(3) $ 7,466 $17,507 $ 24,628
Avg. Ann. Total Return (3/31/08)(4) -28.10% +11.58% +9.59%
Total Annual Operating Expenses(5) 1.72%(6)
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------------------------------------- ------- ------- --------
Cumulative Total Return(1) -22.72% +76.70% +110.35%
Average Annual Total Return(2) -23.43% +12.06% +7.72%
Value of $10,000 Investment(3) $ 7,657 $17,670 $ 21,035
Avg. Ann. Total Return (3/31/08)(4) -26.19% +11.80% +6.83%
Total Annual Operating Expenses(5) 1.72%
ADVISOR CLASS 1-YEAR 5-YEAR 10-YEAR
- ------------------------------------- ------- ------- --------
Cumulative Total Return(1) -22.02% +85.47% +131.97%
Average Annual Total Return(2) -22.02% +13.15% +8.78%
Value of $10,000 Investment(3) $ 7,798 $18,547 $ 23,197
Avg. Ann. Total Return (3/31/08)(4) -24.80% +12.91% +7.89%
Total Annual Operating Expenses(5) 0.73%
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND
PERFORMANCE" AT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
10 | Annual Report
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
reinvestment of any income or distributions. 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 4/30/08
- ------- -------
1-Year -26.64%
5-Year +11.55%
10-Year +7.86%
CLASS A (5/1/98-4/30/08)
(PERFORMANCE GRAPH)
FRANKLIN REAL ESTATE 'S&P 500 DOW JONES WILSHIRE REAL
DATE SECURITIES FUND - CLASS A INDEX ESTATE SECURITIES INDEX
- ------------- ------------------------- -------- -----------------------
5/1/1998 $ 9,424 $10,000 $10,000
5/31/1998 $ 9,338 $ 9,828 $ 9,904
6/30/1998 $ 9,237 $10,227 $ 9,852
7/31/1998 $ 8,623 $10,118 $ 9,166
8/31/1998 $ 7,780 $ 8,656 $ 8,214
9/30/1998 $ 8,191 $ 9,210 $ 8,673
10/31/1998 $ 8,138 $ 9,959 $ 8,555
11/30/1998 $ 8,239 $10,563 $ 8,715
12/31/1998 $ 8,171 $11,171 $ 8,591
1/31/1999 $ 7,908 $11,639 $ 8,404
2/28/1999 $ 7,811 $11,277 $ 8,338
3/31/1999 $ 7,800 $11,728 $ 8,293
4/30/1999 $ 8,661 $12,182 $ 9,177
5/31/1999 $ 8,770 $11,895 $ 9,332
6/30/1999 $ 8,627 $12,555 $ 9,174
7/31/1999 $ 8,233 $12,163 $ 8,823
8/31/1999 $ 8,085 $12,102 $ 8,691
9/30/1999 $ 7,766 $11,771 $ 8,300
10/31/1999 $ 7,589 $12,516 $ 8,145
11/30/1999 $ 7,417 $12,770 $ 8,017
12/31/1999 $ 7,711 $13,522 $ 8,319
1/31/2000 $ 7,698 $12,843 $ 8,353
2/29/2000 $ 7,535 $12,600 $ 8,193
3/31/2000 $ 7,906 $13,832 $ 8,551
4/30/2000 $ 8,422 $13,416 $ 9,161
5/31/2000 $ 8,610 $13,141 $ 9,270
6/30/2000 $ 9,024 $13,465 $ 9,582
7/31/2000 $ 9,805 $13,254 $10,443
8/31/2000 $ 9,473 $14,078 $10,067
9/30/2000 $ 9,733 $13,334 $10,394
10/31/2000 $ 9,359 $13,278 $ 9,943
11/30/2000 $ 9,440 $12,231 $10,167
12/31/2000 $10,088 $12,291 $10,873
1/31/2001 $10,291 $12,727 $10,982
2/28/2001 $10,114 $11,567 $10,754
3/31/2001 $10,054 $10,834 $10,762
4/30/2001 $10,307 $11,676 $11,020
5/31/2001 $10,257 $11,754 $11,328
6/30/2001 $10,763 $11,468 $11,936
7/31/2001 $10,494 $11,355 $11,698
8/31/2001 $10,724 $10,644 $12,106
9/30/2001 $10,165 $ 9,785 $11,388
10/31/2001 $ 9,789 $ 9,971 $10,962
11/30/2001 $10,508 $10,736 $11,673
12/31/2001 $10,859 $10,830 $12,011
1/31/2002 $10,853 $10,672 $12,063
2/28/2002 $11,109 $10,466 $12,339
3/31/2002 $11,772 $10,860 $13,099
4/30/2002 $11,930 $10,201 $13,179
5/31/2002 $12,062 $10,126 $13,312
6/30/2002 $12,280 $ 9,405 $13,585
7/31/2002 $11,587 $ 8,672 $12,744
8/31/2002 $11,580 $ 8,729 $12,749
9/30/2002 $11,051 $ 7,780 $12,186
10/31/2002 $10,553 $ 8,465 $11,580
11/30/2002 $10,924 $ 8,963 $12,153
12/31/2002 $11,044 $ 8,437 $12,331
1/31/2003 $10,749 $ 8,216 $11,969
2/28/2003 $10,941 $ 8,092 $12,145
3/31/2003 $11,144 $ 8,171 $12,454
4/30/2003 $11,630 $ 8,844 $12,978
5/31/2003 $12,418 $ 9,310 $13,723
6/30/2003 $12,844 $ 9,429 $13,991
7/31/2003 $13,342 $ 9,595 $14,802
8/31/2003 $13,445 $ 9,782 $14,960
9/30/2003 $13,855 $ 9,678 $15,465
10/31/2003 $14,127 $10,226 $15,700
11/30/2003 $14,761 $10,316 $16,379
12/31/2003 $15,200 $10,857 $16,900
1/31/2004 $15,766 $11,056 $17,529
2/29/2004 $16,204 $11,210 $17,888
3/31/2004 $16,992 $11,040 $18,946
4/30/2004 $14,588 $10,867 $16,316
5/31/2004 $15,486 $11,016 $17,543
6/30/2004 $15,976 $11,230 $18,087
7/31/2004 $16,140 $10,859 $18,183
8/31/2004 $17,374 $10,903 $19,603
9/30/2004 $17,501 $11,021 $19,561
10/31/2004 $18,382 $11,189 $20,620
11/30/2004 $19,106 $11,642 $21,587
12/31/2004 $20,084 $12,038 $22,783
1/31/2005 $18,910 $11,745 $20,896
2/28/2005 $19,390 $11,992 $21,534
3/31/2005 $19,108 $11,779 $21,280
4/30/2005 $19,849 $11,556 $22,348
5/31/2005 $20,507 $11,924 $23,085
6/30/2005 $21,534 $11,941 $24,295
7/31/2005 $22,578 $12,385 $26,132
8/31/2005 $22,025 $12,272 $25,089
9/30/2005 $22,057 $12,371 $25,172
10/31/2005 $21,702 $12,165 $24,696
11/30/2005 $22,658 $12,625 $25,822
12/31/2005 $22,740 $12,629 $25,933
1/31/2006 $23,977 $12,964 $27,790
2/28/2006 $24,039 $12,999 $28,407
3/31/2006 $24,570 $13,161 $29,921
4/30/2006 $23,818 $13,337 $28,817
5/31/2006 $22,802 $12,954 $28,007
6/30/2006 $23,284 $12,971 $29,609
7/31/2006 $23,159 $13,051 $30,660
8/31/2006 $24,084 $13,362 $31,697
9/30/2006 $24,632 $13,706 $32,305
10/31/2006 $25,924 $14,153 $34,347
11/30/2006 $27,617 $14,422 $35,992
12/31/2006 $27,579 $14,624 $35,182
1/31/2007 $28,905 $14,845 $38,363
2/28/2007 $28,153 $14,555 $37,496
3/31/2007 $26,893 $14,718 $36,491
4/30/2007 $27,385 $15,370 $36,484
5/31/2007 $27,594 $15,906 $36,487
6/30/2007 $24,887 $15,642 $33,079
7/31/2007 $22,006 $15,157 $30,489
8/31/2007 $22,511 $15,384 $32,276
9/30/2007 $22,646 $15,959 $33,554
10/31/2007 $22,720 $16,213 $33,933
11/30/2007 $20,867 $15,535 $30,614
12/31/2007 $19,917 $15,427 $28,964
1/31/2008 $19,459 $14,502 $28,851
2/29/2008 $18,841 $14,031 $27,746
3/31/2008 $20,178 $13,970 $29,578
4/30/2008 $21,317 $14,651 $31,394
Total Returns 113.17% 46.51% 213.94%
AVERAGE ANNUAL TOTAL RETURN
CLASS B 4/30/08
- ------- -------
1-Year -25.34%
5-Year +11.85%
Since Inception (1/1/99) +10.14%
CLASS B (1/1/99-4/30/08)
(PERFORMANCE GRAPH)
FRANKLIN REAL ESTATE SECURITIES S&P 500 DOW JONES WILSHIRE REAL
DATE FUND - CLASS B INDEX ESTATE SECURITIES INDEX
- ------------- ------------------------------- ------- -----------------------
1/1/1999 $10,000 $10,000 $10,000
1/31/1999 $ 9,679 $10,418 $ 9,783
2/28/1999 $ 9,553 $10,094 $ 9,706
3/31/1999 $ 9,539 $10,498 $ 9,653
4/30/1999 $10,587 $10,905 $10,682
5/31/1999 $10,712 $10,647 $10,863
6/30/1999 $10,531 $11,238 $10,679
7/31/1999 $10,049 $10,887 $10,270
8/31/1999 $ 9,860 $10,833 $10,116
9/30/1999 $ 9,462 $10,536 $ 9,661
10/31/1999 $ 9,246 $11,203 $ 9,481
11/30/1999 $ 9,029 $11,431 $ 9,332
12/31/1999 $ 9,375 $12,104 $ 9,683
1/31/2000 $ 9,360 $11,496 $ 9,723
2/29/2000 $ 9,153 $11,278 $ 9,536
3/31/2000 $ 9,594 $12,382 $ 9,954
4/30/2000 $10,224 $12,009 $10,664
5/31/2000 $10,438 $11,763 $10,791
6/30/2000 $10,941 $12,053 $11,154
7/31/2000 $11,878 $11,864 $12,156
8/31/2000 $11,473 $12,601 $11,718
9/30/2000 $11,780 $11,936 $12,099
10/31/2000 $11,318 $11,886 $11,574
11/30/2000 $11,409 $10,949 $11,835
12/31/2000 $12,185 $11,002 $12,657
1/31/2001 $12,423 $11,392 $12,784
2/28/2001 $12,200 $10,354 $12,518
3/31/2001 $12,123 $ 9,698 $12,528
4/30/2001 $12,423 $10,451 $12,827
5/31/2001 $12,346 $10,521 $13,186
6/30/2001 $12,957 $10,265 $13,894
7/31/2001 $12,624 $10,164 $13,616
8/31/2001 $12,887 $ 9,528 $14,092
9/30/2001 $12,205 $ 8,759 $13,256
10/31/2001 $11,752 $ 8,926 $12,760
11/30/2001 $12,604 $ 9,610 $13,587
12/31/2001 $13,022 $ 9,694 $13,981
1/31/2002 $13,006 $ 9,553 $14,041
2/28/2002 $13,307 $ 9,369 $14,363
3/31/2002 $14,083 $ 9,721 $15,248
4/30/2002 $14,273 $ 9,132 $15,341
5/31/2002 $14,416 $ 9,064 $15,496
6/30/2002 $14,671 $ 8,419 $15,813
7/31/2002 $13,839 $ 7,763 $14,834
8/31/2002 $13,823 $ 7,813 $14,840
9/30/2002 $13,182 $ 6,964 $14,184
10/31/2002 $12,584 $ 7,577 $13,479
11/30/2002 $13,012 $ 8,023 $14,147
12/31/2002 $13,152 $ 7,552 $14,353
1/31/2003 $12,783 $ 7,354 $13,933
2/28/2003 $13,013 $ 7,244 $14,137
3/31/2003 $13,234 $ 7,314 $14,497
4/30/2003 $13,816 $ 7,917 $15,107
5/31/2003 $14,743 $ 8,334 $15,974
6/30/2003 $15,234 $ 8,440 $16,285
7/31/2003 $15,812 $ 8,589 $17,230
8/31/2003 $15,928 $ 8,756 $17,414
9/30/2003 $16,404 $ 8,663 $18,001
10/31/2003 $16,711 $ 9,153 $18,275
11/30/2003 $17,451 $ 9,234 $19,066
12/31/2003 $17,957 $ 9,718 $19,672
1/31/2004 $18,612 $ 9,897 $20,404
2/29/2004 $19,117 $10,034 $20,823
3/31/2004 $20,033 $ 9,883 $22,053
4/30/2004 $17,192 $ 9,728 $18,992
5/31/2004 $18,234 $ 9,861 $20,420
6/30/2004 $18,801 $10,053 $21,053
7/31/2004 $18,987 $ 9,720 $21,165
8/31/2004 $20,425 $ 9,759 $22,818
9/30/2004 $20,562 $ 9,865 $22,770
10/31/2004 $21,580 $10,016 $24,002
11/30/2004 $22,420 $10,421 $25,128
12/31/2004 $23,561 $10,776 $26,520
1/31/2005 $22,164 $10,513 $24,324
2/28/2005 $22,704 $10,734 $25,066
3/31/2005 $22,364 $10,544 $24,770
4/30/2005 $23,230 $10,344 $26,013
5/31/2005 $23,979 $10,673 $26,872
6/30/2005 $25,160 $10,689 $28,280
7/31/2005 $26,371 $11,086 $30,418
8/31/2005 $25,702 $10,985 $29,204
9/30/2005 $25,726 $11,074 $29,301
10/31/2005 $25,300 $10,889 $28,747
11/30/2005 $26,388 $11,301 $30,058
12/31/2005 $26,470 $11,305 $30,187
1/31/2006 $27,894 $11,604 $32,348
2/28/2006 $27,946 $11,636 $33,066
3/31/2006 $28,548 $11,781 $34,829
4/30/2006 $27,655 $11,939 $33,544
5/31/2006 $26,460 $11,595 $32,601
6/30/2006 $27,000 $11,611 $34,466
7/31/2006 $26,844 $11,683 $35,690
8/31/2006 $27,898 $11,961 $36,896
9/30/2006 $28,509 $12,269 $37,604
10/31/2006 $29,992 $12,669 $39,981
11/30/2006 $31,934 $12,909 $41,896
12/31/2006 $31,863 $13,091 $40,953
1/31/2007 $33,396 $13,289 $44,655
2/28/2007 $32,527 $13,029 $43,646
3/31/2007 $31,070 $13,174 $42,476
4/30/2007 $31,639 $13,758 $42,468
5/31/2007 $31,879 $14,238 $42,472
6/30/2007 $28,752 $14,001 $38,505
7/31/2007 $25,422 $13,567 $35,490
8/31/2007 $26,005 $13,771 $37,570
9/30/2007 $26,161 $14,286 $39,058
10/31/2007 $26,247 $14,513 $39,499
11/30/2007 $24,105 $13,906 $35,636
12/31/2007 $23,008 $13,810 $33,715
1/31/2008 $22,479 $12,981 $33,584
2/29/2008 $21,764 $12,560 $32,298
3/31/2008 $23,310 $12,505 $34,429
4/30/2008 $24,628 $13,115 $36,543
Total Returns 146.28% 31.15% 265.43%
Annual Report | 11
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
CLASS C 4/30/08
- ------- -------
1-Year -23.43%
5-Year +12.06%
10-Year +7.72%
CLASS C (5/1/98-4/30/08)
(PERFORMANCE GRAPH)
FRANKLIN REAL ESTATE S&P 500 DOW JONES WILSHIRE REAL
DATE SECURITIES FUND - CLASS C INDEX ESTATE SECURITIES INDEX
- ------------- ------------------------- -------- -----------------------
5/1/1998 $10,000 $10,000 $10,000
5/31/1998 $ 9,908 $ 9,828 $ 9,904
6/30/1998 $ 9,793 $10,227 $ 9,852
7/31/1998 $ 9,138 $10,118 $ 9,166
8/31/1998 $ 8,241 $ 8,656 $ 8,214
9/30/1998 $ 8,672 $ 9,210 $ 8,673
10/31/1998 $ 8,609 $ 9,959 $ 8,555
11/30/1998 $ 8,707 $10,563 $ 8,715
12/31/1998 $ 8,631 $11,171 $ 8,591
1/31/1999 $ 8,350 $11,639 $ 8,404
2/28/1999 $ 8,241 $11,277 $ 8,338
3/31/1999 $ 8,228 $11,728 $ 8,293
4/30/1999 $ 9,131 $12,182 $ 9,177
5/31/1999 $ 9,241 $11,895 $ 9,332
6/30/1999 $ 9,082 $12,555 $ 9,174
7/31/1999 $ 8,668 $12,163 $ 8,823
8/31/1999 $ 8,503 $12,102 $ 8,691
9/30/1999 $ 8,161 $11,771 $ 8,300
10/31/1999 $ 7,972 $12,516 $ 8,145
11/30/1999 $ 7,789 $12,770 $ 8,017
12/31/1999 $ 8,086 $13,522 $ 8,319
1/31/2000 $ 8,073 $12,843 $ 8,353
2/29/2000 $ 7,894 $12,600 $ 8,193
3/31/2000 $ 8,276 $13,832 $ 8,551
4/30/2000 $ 8,815 $13,416 $ 9,161
5/31/2000 $ 9,001 $13,141 $ 9,270
6/30/2000 $ 9,436 $13,465 $ 9,582
7/31/2000 $10,241 $13,254 $10,443
8/31/2000 $ 9,890 $14,078 $10,067
9/30/2000 $10,153 $13,334 $10,394
10/31/2000 $ 9,759 $13,278 $ 9,943
11/30/2000 $ 9,838 $12,231 $10,167
12/31/2000 $10,502 $12,291 $10,873
1/31/2001 $10,709 $12,727 $10,982
2/28/2001 $10,522 $11,567 $10,754
3/31/2001 $10,456 $10,834 $10,762
4/30/2001 $10,709 $11,676 $11,020
5/31/2001 $10,649 $11,754 $11,328
6/30/2001 $11,172 $11,468 $11,936
7/31/2001 $10,883 $11,355 $11,698
8/31/2001 $11,111 $10,644 $12,106
9/30/2001 $10,525 $ 9,785 $11,388
10/31/2001 $10,132 $ 9,971 $10,962
11/30/2001 $10,870 $10,736 $11,673
12/31/2001 $11,230 $10,830 $12,011
1/31/2002 $11,217 $10,672 $12,063
2/28/2002 $11,471 $10,466 $12,339
3/31/2002 $12,142 $10,860 $13,099
4/30/2002 $12,306 $10,201 $13,179
5/31/2002 $12,430 $10,126 $13,312
6/30/2002 $12,656 $ 9,405 $13,585
7/31/2002 $11,927 $ 8,672 $12,744
8/31/2002 $11,914 $ 8,729 $12,749
9/30/2002 $11,363 $ 7,780 $12,186
10/31/2002 $10,839 $ 8,465 $11,580
11/30/2002 $11,216 $ 8,963 $12,153
12/31/2002 $11,330 $ 8,437 $12,331
1/31/2003 $11,018 $ 8,216 $11,969
2/28/2003 $11,216 $ 8,092 $12,145
3/31/2003 $11,408 $ 8,171 $12,454
4/30/2003 $11,904 $ 8,844 $12,978
5/31/2003 $12,706 $ 9,310 $13,723
6/30/2003 $13,127 $ 9,429 $13,991
7/31/2003 $13,634 $ 9,595 $14,802
8/31/2003 $13,734 $ 9,782 $14,960
9/30/2003 $14,139 $ 9,678 $15,465
10/31/2003 $14,405 $10,226 $15,700
11/30/2003 $15,046 $10,316 $16,379
12/31/2003 $15,483 $10,857 $16,900
1/31/2004 $16,043 $11,056 $17,529
2/29/2004 $16,480 $11,210 $17,888
3/31/2004 $17,273 $11,040 $18,946
4/30/2004 $14,821 $10,867 $16,316
5/31/2004 $15,723 $11,016 $17,543
6/30/2004 $16,207 $11,230 $18,087
7/31/2004 $16,368 $10,859 $18,183
8/31/2004 $17,605 $10,903 $19,603
9/30/2004 $17,726 $11,021 $19,561
10/31/2004 $18,607 $11,189 $20,620
11/30/2004 $19,326 $11,642 $21,587
12/31/2004 $20,305 $12,038 $22,783
1/31/2005 $19,104 $11,745 $20,896
2/28/2005 $19,580 $11,992 $21,534
3/31/2005 $19,278 $11,779 $21,280
4/30/2005 $20,020 $11,556 $22,348
5/31/2005 $20,667 $11,924 $23,085
6/30/2005 $21,690 $11,941 $24,295
7/31/2005 $22,731 $12,385 $26,132
8/31/2005 $22,159 $12,272 $25,089
9/30/2005 $22,172 $12,371 $25,172
10/31/2005 $21,811 $12,165 $24,696
11/30/2005 $22,753 $12,625 $25,822
12/31/2005 $22,818 $12,629 $25,933
1/31/2006 $24,051 $12,964 $27,790
2/28/2006 $24,096 $12,999 $28,407
3/31/2006 $24,608 $13,161 $29,921
4/30/2006 $23,844 $13,337 $28,817
5/31/2006 $22,809 $12,954 $28,007
6/30/2006 $23,277 $12,971 $29,609
7/31/2006 $23,141 $13,051 $30,660
8/31/2006 $24,054 $13,362 $31,697
9/30/2006 $24,575 $13,706 $32,305
10/31/2006 $25,859 $14,153 $34,347
11/30/2006 $27,532 $14,422 $35,992
12/31/2006 $27,472 $14,624 $35,182
1/31/2007 $28,776 $14,845 $38,363
2/28/2007 $28,013 $14,555 $37,496
3/31/2007 $26,744 $14,718 $36,491
4/30/2007 $27,221 $15,370 $36,484
5/31/2007 $27,412 $15,906 $36,487
6/30/2007 $24,703 $15,642 $33,079
7/31/2007 $21,830 $15,157 $30,489
8/31/2007 $22,319 $15,384 $32,276
9/30/2007 $22,430 $15,959 $33,554
10/31/2007 $22,494 $16,213 $33,933
11/30/2007 $20,643 $15,535 $30,614
12/31/2007 $19,693 $15,427 $28,964
1/31/2008 $19,230 $14,502 $28,851
2/29/2008 $18,617 $14,031 $27,746
3/31/2008 $19,921 $13,970 $29,578
4/30/2008 $21,035 $14,651 $31,394
Total Returns 110.35% 46.51% 213.94%
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 4/30/08
- ------------- -------
1-Year -22.02%
5-Year +13.15%
10-Year +8.78%
ADVISOR CLASS (5/1/98-4/30/08)
(PERFORMANCE GRAPH)
FRANKLIN REAL ESTATE SECURITIES S&P 500 DOW JONES WILSHIRE REAL
DATE FUND - ADVISOR CLASS INDEX ESTATE SECURITIES INDEX
- ------------- ------------------------------- ------- -----------------------
5/1/1998 $10,000 $10,000 $10,000
5/31/1998 $ 9,910 $ 9,828 $ 9,904
6/30/1998 $ 9,802 $10,227 $ 9,852
7/31/1998 $ 9,158 $10,118 $ 9,166
8/31/1998 $ 8,266 $ 8,656 $ 8,214
9/30/1998 $ 8,706 $ 9,210 $ 8,673
10/31/1998 $ 8,644 $ 9,959 $ 8,555
11/30/1998 $ 8,757 $10,563 $ 8,715
12/31/1998 $ 8,686 $11,171 $ 8,591
1/31/1999 $ 8,413 $11,639 $ 8,404
2/28/1999 $ 8,310 $11,277 $ 8,338
3/31/1999 $ 8,304 $11,728 $ 8,293
4/30/1999 $ 9,213 $12,182 $ 9,177
5/31/1999 $ 9,334 $11,895 $ 9,332
6/30/1999 $ 9,182 $12,555 $ 9,174
7/31/1999 $ 8,770 $12,163 $ 8,823
8/31/1999 $ 8,613 $12,102 $ 8,691
9/30/1999 $ 8,274 $11,771 $ 8,300
10/31/1999 $ 8,086 $12,516 $ 8,145
11/30/1999 $ 7,904 $12,770 $ 8,017
12/31/1999 $ 8,218 $13,522 $ 8,319
1/31/2000 $ 8,212 $12,843 $ 8,353
2/29/2000 $ 8,032 $12,600 $ 8,193
3/31/2000 $ 8,429 $13,832 $ 8,551
4/30/2000 $ 8,985 $13,416 $ 9,161
5/31/2000 $ 9,186 $13,141 $ 9,270
6/30/2000 $ 9,632 $13,465 $ 9,582
7/31/2000 $10,464 $13,254 $10,443
8/31/2000 $10,117 $14,078 $10,067
9/30/2000 $10,395 $13,334 $10,394
10/31/2000 $ 9,996 $13,278 $ 9,943
11/30/2000 $10,082 $12,231 $10,167
12/31/2000 $10,782 $12,291 $10,873
1/31/2001 $10,998 $12,727 $10,982
2/28/2001 $10,815 $11,567 $10,754
3/31/2001 $10,756 $10,834 $10,762
4/30/2001 $11,026 $11,676 $11,020
5/31/2001 $10,972 $11,754 $11,328
6/30/2001 $11,520 $11,468 $11,936
7/31/2001 $11,232 $11,355 $11,698
8/31/2001 $11,479 $10,644 $12,106
9/30/2001 $10,882 $ 9,785 $11,388
10/31/2001 $10,487 $ 9,971 $10,962
11/30/2001 $11,255 $10,736 $11,673
12/31/2001 $11,633 $10,830 $12,011
1/31/2002 $11,633 $10,672 $12,063
2/28/2002 $11,908 $10,466 $12,339
3/31/2002 $12,614 $10,860 $13,099
4/30/2002 $12,797 $10,201 $13,179
5/31/2002 $12,938 $10,126 $13,312
6/30/2002 $13,180 $ 9,405 $13,585
7/31/2002 $12,431 $ 8,672 $12,744
8/31/2002 $12,431 $ 8,729 $12,749
9/30/2002 $11,865 $ 7,780 $12,186
10/31/2002 $11,331 $ 8,465 $11,580
11/30/2002 $11,728 $ 8,963 $12,153
12/31/2002 $11,866 $ 8,437 $12,331
1/31/2003 $11,543 $ 8,216 $11,969
2/28/2003 $11,756 $ 8,092 $12,145
3/31/2003 $11,971 $ 8,171 $12,454
4/30/2003 $12,507 $ 8,844 $12,978
5/31/2003 $13,352 $ 9,310 $13,723
6/30/2003 $13,809 $ 9,429 $13,991
7/31/2003 $14,351 $ 9,595 $14,802
8/31/2003 $14,470 $ 9,782 $14,960
9/30/2003 $14,910 $ 9,678 $15,465
10/31/2003 $15,210 $10,226 $15,700
11/30/2003 $15,891 $10,316 $16,379
12/31/2003 $16,368 $10,857 $16,900
1/31/2004 $16,983 $11,056 $17,529
2/29/2004 $17,454 $11,210 $17,888
3/31/2004 $18,304 $11,040 $18,946
4/30/2004 $15,719 $10,867 $16,316
5/31/2004 $16,692 $11,016 $17,543
6/30/2004 $17,222 $11,230 $18,087
7/31/2004 $17,407 $10,859 $18,183
8/31/2004 $18,742 $10,903 $19,603
9/30/2004 $18,882 $11,021 $19,561
10/31/2004 $19,838 $11,189 $20,620
11/30/2004 $20,625 $11,642 $21,587
12/31/2004 $21,682 $12,038 $22,783
1/31/2005 $20,418 $11,745 $20,896
2/28/2005 $20,944 $11,992 $21,534
3/31/2005 $20,644 $11,779 $21,280
4/30/2005 $21,451 $11,556 $22,348
5/31/2005 $22,168 $11,924 $23,085
6/30/2005 $23,280 $11,941 $24,295
7/31/2005 $24,413 $12,385 $26,132
8/31/2005 $23,826 $12,272 $25,089
9/30/2005 $23,858 $12,371 $25,172
10/31/2005 $23,484 $12,165 $24,696
11/30/2005 $24,515 $12,625 $25,822
12/31/2005 $24,609 $12,629 $25,933
1/31/2006 $25,963 $12,964 $27,790
2/28/2006 $26,030 $12,999 $28,407
3/31/2006 $26,611 $13,161 $29,921
4/30/2006 $25,801 $13,337 $28,817
5/31/2006 $24,704 $12,954 $28,007
6/30/2006 $25,226 $12,971 $29,609
7/31/2006 $25,101 $13,051 $30,660
8/31/2006 $26,118 $13,362 $31,697
9/30/2006 $26,707 $13,706 $32,305
10/31/2006 $28,121 $14,153 $34,347
11/30/2006 $29,969 $14,422 $35,992
12/31/2006 $29,927 $14,624 $35,182
1/31/2007 $31,370 $14,845 $38,363
2/28/2007 $30,558 $14,555 $37,496
3/31/2007 $29,204 $14,718 $36,491
4/30/2007 $29,747 $15,370 $36,484
5/31/2007 $29,984 $15,906 $36,487
6/30/2007 $27,043 $15,642 $33,079
7/31/2007 $23,917 $15,157 $30,489
8/31/2007 $24,474 $15,384 $32,276
9/30/2007 $24,615 $15,959 $33,554
10/31/2007 $24,706 $16,213 $33,933
11/30/2007 $22,689 $15,535 $30,614
12/31/2007 $21,668 $15,427 $28,964
1/31/2008 $21,172 $14,502 $28,851
2/29/2008 $20,503 $14,031 $27,746
3/31/2008 $21,963 $13,970 $29,578
4/30/2008 $23,197 $14,651 $31,394
Total Returns 131.97% 46.51% 213.94%
12 | Annual Report
Performance Summary (CONTINUED)
ENDNOTES
INVESTING IN A FUND CONCENTRATING IN REAL ESTATE SECURITIES INVOLVES SPECIAL
RISKS SUCH AS DECLINES IN THE VALUE OF REAL ESTATE, AND INCREASED SUSCEPTIBILITY
TO ADVERSE ECONOMIC OR REGULATORY DEVELOPMENTS AFFECTING THE SECTOR. THE FUND'S
INVESTMENTS IN SMALL- AND MEDIUM-CAPITALIZATION STOCKS CARRY SPECIAL RISKS,
SINCE THESE SECURITIES HAVE HISTORICALLY BEEN MORE VOLATILE IN PRICE 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.
(2.) Average annual total return represents the average annual change in value
of an investment over the periods indicated.
(3.) These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
(4.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(5.) Figures are as stated in the Fund's prospectus current as of the date of
this report.
(6.) The Class B distribution and service (12b-1) fees, which are a component of
total annual operating expenses, may consist of a maximum dealer-service
fee of 0.25% and an asset based sales charge of 0.75%. Effective December
17, 2007, the Fund discontinued payments of the asset based sales charge to
maintain compliance with NASD Rule 2830, which sets forth a maximum
aggregate sales charge allowed under the rule.
(7.) 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 Dow Jones 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
float adjusted, capitalization weighted and rebalanced monthly, and returns
are calculated on a buy-and-hold basis.
Annual Report | 13
Your Fund's Expenses
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
14 | Annual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 11/1/07 VALUE 4/30/08 PERIOD* 11/1/07-4/30/08
----------------- -------------- -----------------------
CLASS A
Actual $1,000 $ 938.20 $4.58
Hypothetical (5% return before expenses) $1,000 $1,020.14 $4.77
CLASS B
Actual $1,000 $ 937.50 $5.68
Hypothetical (5% return before expenses) $1,000 $1,019.00 $5.92
CLASS C
Actual $1,000 $ 935.10 $8.18
Hypothetical (5% return before expenses) $1,000 $1,016.41 $8.52
ADVISOR CLASS
Actual $1,000 $ 938.90 $3.37
Hypothetical (5% return before expenses) $1,000 $1,021.38 $3.52
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.95%; B: 1.18%; C: 1.70%; and Advisor:
0.70%), multiplied by the average account value over the period, multiplied
by 182/366 to reflect the one-half year period.
Annual Report | 15
Franklin Real Estate Securities Trust
FINANCIAL HIGHLIGHTS
FRANKLIN REAL ESTATE SECURITIES FUND
YEAR ENDED APRIL 30,
----------------------------------------------------------------
2008 2007 2006 2005 2004
-------- -------- -------- -------- --------
CLASS A
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ...................... $ 26.19 $ 26.95 $ 25.99 $ 20.63 $ 16.97
-------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) ............................. 0.46 0.44 0.50 0.49 0.55
Net realized and unrealized gains (losses) ........... (6.38) 3.60 4.50 6.88 3.74
-------- -------- -------- -------- --------
Total from investment operations ........................ (5.92) 4.04 5.00 7.37 4.29
-------- -------- -------- -------- --------
Less distributions from:
Net investment income ................................ (0.48) (0.42) (0.61) (0.53) (0.63)
Net realized gains ................................... (1.26) (4.38) (3.43) (1.48) --
-------- -------- -------- -------- --------
Total distributions ..................................... (1.74) (4.80) (4.04) (2.01) (0.63)
-------- -------- -------- -------- --------
Contingent deferred sales charges retained by the Fund .. --(d) -- -- -- --
Redemption fees ......................................... --(d) --(d) --(d) --(d) --
-------- -------- -------- -------- --------
Net asset value, end of year ............................ $ 18.53 $ 26.19 $ 26.95 $ 25.99 $ 20.63
======== ======== ======== ======== ========
Total return(c) ......................................... (22.16)% 14.97% 20.00% 36.07% 25.43%
RATIOS TO AVERAGE NET ASSETS
Expenses ................................................ 0.99%(e) 0.96%(e) 0.88%(e) 0.92%(e) 1.01%
Net investment income ................................... 2.21% 1.63% 1.84% 2.03% 2.64%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ......................... $364,296 $751,489 $808,892 $671,587 $550,176
Portfolio turnover rate ................................. 94.51% 15.51% 42.09% 36.90% 27.34%
(a) The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing
of sales and repurchases of the Fund shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(b) Based on average daily shares outstanding.
(c) Total return does not reflect sales commissions or contingent deferred
sales charges.
(d) Amount rounds to less than $0.01 per share.
(e) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
16 | Annual Report
Franklin Real Estate Securities Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
YEAR ENDED APRIL 30,
-----------------------------------------------------------
2008 2007 2006 2005 2004
------- ------- ------- ------- -------
CLASS B
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ...................... $ 25.80 $ 26.62 $ 25.77 $ 20.45 $ 16.84
------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income(b) ............................. 0.34 0.24 0.30 0.31 0.39
Net realized and unrealized gains (losses) ........... (6.27) 3.55 4.45 6.83 3.72
------- ------- ------- ------- -------
Total from investment operations ........................ (5.93) 3.79 4.75 7.14 4.11
------- ------- ------- ------- -------
Less distributions from:
Net investment income ................................ (0.36) (0.23) (0.47) (0.34) (0.50)
Net realized gains ................................... (1.26) (4.38) (3.43) (1.48) --
------- ------- ------- ------- -------
Total distributions ..................................... (1.62) (4.61) (3.90) (1.82) (0.50)
------- ------- ------- ------- -------
Contingent deferred sales charges retained by the Fund .. --(d) -- -- -- --
Redemption fees ......................................... --(d) --(d) --(d) --(d) --
------- ------- ------- ------- -------
Net asset value, end of year ............................ $ 18.25 $ 25.80 $ 26.62 $ 25.77 $ 20.45
======= ======= ======= ======= =======
Total return(c) ......................................... (22.51)% 14.17% 19.05% 35.12% 24.43%
RATIOS TO AVERAGE NET ASSETS
Expenses ................................................ 1.55%(e) 1.70%(e) 1.63%(e) 1.66%(e) 1.76%
Net investment income ................................... 1.65% 0.89% 1.09% 1.29% 1.89%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ......................... $23,998 $57,353 $71,458 $72,841 $56,334
Portfolio turnover rate ................................. 94.51% 15.51% 42.09% 36.90% 27.34%
(a) The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing
of sales and repurchases of the Fund shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(b) Based on average daily shares outstanding.
(c) Total return does not reflect sales commissions or contingent deferred
sales charges.
(d) Amount rounds to less than $0.01 per share.
(e) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 17
Franklin Real Estate Securities Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
YEAR ENDED APRIL 30,
---------------------------------------------------------------
2008 2007 2006 2005 2004
------- -------- -------- -------- --------
CLASS C
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ...................... $ 25.66 $ 26.50 $ 25.66 $ 20.37 $ 16.78
------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) ............................. 0.30 0.24 0.30 0.31 0.39
Net realized and unrealized gains (losses) ........... (6.25) 3.53 4.44 6.79 3.70
------- -------- -------- -------- --------
Total from investment operations ........................ (5.95) 3.77 4.74 7.10 4.09
------- -------- -------- -------- --------
Less distributions from:
Net investment income ................................ (0.32) (0.23) (0.47) (0.33) (0.50)
Net realized gains ................................... (1.26) (4.38) (3.43) (1.48) --
------- -------- -------- -------- --------
Total distributions ..................................... (1.58) (4.61) (3.90) (1.81) (0.50)
------- -------- -------- -------- --------
Contingent deferred sales charges retained by the Fund .. --(d) -- -- -- --
Redemption fees ......................................... --(d) --(d) --(d) --(d) --
------- -------- -------- -------- --------
Net asset value, end of year ............................ $ 18.13 $ 25.66 $ 26.50 $ 25.66 $ 20.37
======= ======== ======== ======== ========
Total return(c) ......................................... (22.72)% 14.16% 19.10% 35.07% 24.50%
RATIOS TO AVERAGE NET ASSETS
Expenses ................................................ 1.74%(e) 1.70%(e) 1.62%(e) 1.67%(e) 1.76%
Net investment income ................................... 1.46% 0.89% 1.10% 1.28% 1.89%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ......................... $74,259 $155,247 $192,172 $189,468 $149,656
Portfolio turnover rate ................................. 94.51% 15.51% 42.09% 36.90% 27.34%
(a) The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing
of sales and repurchases of the Fund shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(b) Based on average daily shares outstanding.
(c) Total return does not reflect sales commissions or contingent deferred
sales charges.
(d) Amount rounds to less than $0.01 per share.
(e) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
18 | Annual Report
Franklin Real Estate Securities Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
YEAR ENDED APRIL 30,
------------------------------------------------------------
2008 2007 2006 2005 2004
------- ------- ------- ------- -------
ADVISOR CLASS
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ...................... $ 26.32 $ 27.06 $ 26.06 $ 20.68 $ 17.02
------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income(b) ............................. 0.58 0.51 0.58 0.56 0.58
Net realized and unrealized gains (losses) ........... (6.48) 3.61 4.52 6.89 3.76
------- ------- ------- ------- -------
Total from investment operations ........................ (5.90) 4.12 5.10 7.45 4.34
------- ------- ------- ------- -------
Less distributions from:
Net investment income ................................ (0.54) (0.48) (0.67) (0.59) (0.68)
Net realized gains ................................... (1.26) (4.38) (3.43) (1.48) --
------- ------- ------- ------- -------
Total distributions ..................................... (1.80) (4.86) (4.10) (2.07) (0.68)
------- ------- ------- ------- -------
Contingent deferred sales charges retained by the Fund .. --(c) -- -- -- --
Redemption fees ......................................... --(c) --(c) --(c) --(c) --
------- ------- ------- ------- -------
Net asset value, end of year ............................ $ 18.62 $ 26.32 $ 27.06 $ 26.06 $ 20.68
======= ======= ======= ======= =======
Total return ............................................ (22.02)% 15.29% 20.28% 36.46% 25.68%
RATIOS TO AVERAGE NET ASSETS
Expenses ................................................ 0.74%(d) 0.71%(d) 0.63%(d) 0.67%(d) 0.76%
Net investment income ................................... 2.46% 1.88% 2.09% 2.28% 2.89%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ......................... $ 3,751 $49,723 $48,368 $39,990 $41,101
Portfolio turnover rate ................................. 94.51% 15.51% 42.09% 36.90% 27.34%
(a) The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing
of sales and repurchases of the Fund shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(b) Based on average daily shares outstanding.
(c) Amount rounds to less than $0.01 per share.
(d) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 19
Franklin Real Estate Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2008
FRANKLIN REAL ESTATE SECURITIES FUND SHARES VALUE
- ---------------------------------------------------- ---------- ------------
LONG TERM INVESTMENTS 90.6%
COMMON STOCKS 90.3%
REAL ESTATE INVESTMENT TRUSTS 90.3%
AMB Property Corp. ............................. 126,900 $ 7,328,475
AvalonBay Communities Inc. ..................... 172,100 17,166,975
Boston Properties Inc. ......................... 192,100 19,304,129
Camden Property Trust .......................... 205,400 10,867,714
Corporate Office Properties Trust .............. 218,000 8,131,400
Cousins Properties Inc. ........................ 149,400 3,796,254
Developers Diversified Realty Corp. ............ 216,500 9,298,675
Douglas Emmett Inc. ............................ 388,600 9,233,136
Equity Lifestyle Properties Inc. ............... 101,300 5,008,272
Equity One Inc. ................................ 60,400 1,491,880
Equity Residential ............................. 560,044 23,253,027
Essex Property Trust Inc. ...................... 56,200 6,687,800
Federal Realty Investment Trust ................ 102,800 8,445,020
General Growth Properties Inc. ................. 243,400 9,969,664
HCP Inc. ....................................... 509,100 18,174,870
Highwoods Properties Inc. ...................... 181,700 6,366,768
Hospitality Properties Trust ................... 144,200 4,633,146
Host Hotels & Resorts Inc. ..................... 1,238,036 21,294,219
Kilroy Realty Corp. ............................ 141,900 7,424,208
Kimco Realty Corp. ............................. 499,000 19,915,090
Liberty Property Trust ......................... 206,800 7,244,204
The Macerich Co. ............................... 120,600 8,819,478
Nationwide Health Properties Inc. .............. 372,500 13,417,450
Parkway Properties Inc. ........................ 25,700 1,019,262
ProLogis ....................................... 406,198 25,432,057
Public Storage ................................. 200,500 18,185,350
Regency Centers Corp. .......................... 151,400 10,835,698
Simon Property Group Inc. ...................... 391,963 39,141,425
SL Green Realty Corp. .......................... 88,000 8,166,400
Sun Communities Inc. ........................... 164,400 3,197,580
Sunstone Hotel Investors Inc. .................. 287,300 5,366,764
Taubman Centers Inc. ........................... 187,000 10,597,290
UDR Inc. ....................................... 523,200 13,226,496
Ventas Inc. .................................... 272,542 13,234,640
Vornado Realty Trust ........................... 272,800 25,394,952
------------
TOTAL COMMON STOCKS (COST $319,672,086) ........ 421,069,768
------------
PREFERRED STOCK (COST $1,404,811) 0.3%
REAL ESTATE INVESTMENT TRUSTS 0.3%
Kimco Realty Corp., 7.75%, pfd., G ............. 56,000 1,386,000
------------
TOTAL LONG TERM INVESTMENTS
(COST $321,076,897) ......................... 422,455,768
------------
20 | Annual Report
Franklin Real Estate Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2008 (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND SHARES VALUE
- ---------------------------------------------------- ---------- ------------
SHORT TERM INVESTMENT (COST $19,986,840) 4.3%
MONEY MARKET FUND 4.3%
(a) Franklin Institutional Fiduciary Trust Money
Market Portfolio, 2.29% ........................ 19,986,840 $ 19,986,840
------------
TOTAL INVESTMENTS (COST $ 341,063,737) 94.9% ... 442,442,608
OTHER ASSETS, LESS LIABILITIES 5.1% ............ 23,862,703
------------
NET ASSETS 100.0% .............................. $466,305,311
============
(a) See Note 7 regarding investments in the Franklin Institutional Fiduciary
Trust Money Market Portfolio. The rate shown is the annualized seven-day
yield at period end.
The accompanying notes are an integral part of these financial statements.
Annual Report | 21
Franklin Real Estate Securities Trust
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2008
FRANKLIN
REAL ESTATE
SECURITIES
FUND
------------
Assets:
Investments in securities:
Cost - Unaffiliated issuers ............................... $321,076,897
Cost - Sweep Money Fund (Note 7) .......................... 19,986,840
------------
Total cost of investments ................................. $341,063,737
============
Value - Unaffiliated issuers .............................. $422,455,768
Value - Sweep Money Fund (Note 7) ......................... 19,986,840
------------
Total value of investments ................................ 442,442,608
Foreign currency, at value (cost $ 7,707) .................... 8,454
Receivables:
Investment securities sold ................................ 30,344,501
Capital shares sold ....................................... 468,428
Dividends ................................................. 111,034
------------
Total assets ........................................... 473,375,025
------------
Liabilities:
Payables:
Investment securities purchased ........................... 5,366,726
Capital shares redeemed ................................... 1,101,756
Affiliates ................................................ 384,660
Accrued expenses and other liabilities ....................... 216,572
------------
Total liabilities ...................................... 7,069,714
------------
Net assets, at value ................................ $466,305,311
============
Net assets consist of:
Paid-in capital .............................................. $347,476,831
Undistributed net investment income .......................... 208,041
Net unrealized appreciation (depreciation) ................... 101,379,618
Accumulated net realized gain (loss) ......................... 17,240,821
------------
Net assets, at value ................................ $466,305,311
============
The accompanying notes are an integral part of these financial statements.
22 | Annual Report
Franklin Real Estate Securities Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
April 30, 2008
FRANKLIN
REAL ESTATE
SECURITIES
FUND
------------
CLASS A:
Net assets, at value ......................................... $364,296,121
------------
Shares outstanding ........................................... 19,663,537
------------
Net asset value per share(a) ................................. $ 18.53
------------
Maximum offering price per share (net asset value per share
/ 94.25%) ................................................. $ 19.66
------------
CLASS B:
Net assets, at value ......................................... $ 23,998,439
------------
Shares outstanding ........................................... 1,314,991
------------
Net asset value and maximum offering price per share(a) ...... $ 18.25
------------
CLASS C:
Net assets, at value ......................................... $ 74,259,367
------------
Shares outstanding ........................................... 4,095,866
------------
Net asset value and maximum offering price per share(a) ...... $ 18.13
------------
ADVISOR CLASS:
Net assets, at value ......................................... $ 3,751,384
------------
Shares outstanding ........................................... 201,507
------------
Net asset value and maximum offering price per share(a) ...... $ 18.62
------------
(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable, and redemption fees retained by the Fund.
The accompanying notes are an integral part of these financial statements.
Annual Report | 23
Franklin Real Estate Securities Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the year ended April 30, 2008
FRANKLIN
REAL ESTATE
SECURITIES
FUND
-------------
Investment income:
Dividends: (net of foreign taxes withheld of $81,849)
Unaffiliated issuers ..................................... $ 18,274,631
Sweep Money Fund (Note 7) ................................ 1,973,998
Interest .................................................... 982
-------------
Total investment income ............................... 20,249,611
-------------
Expenses:
Management fees (Note 3a) ................................... 2,956,988
Distribution fees: (Note 3c)
Class A .................................................. 1,194,486
Class B .................................................. 283,140
Class C .................................................. 972,224
Transfer agent fees (Note 3e) ............................... 1,375,478
Custodian fees (Note 4) ..................................... 8,071
Reports to shareholders ..................................... 151,346
Registration and filing fees ................................ 90,523
Professional fees ........................................... 40,362
Trustees' fees and expenses ................................. 52,186
Other ....................................................... 21,038
-------------
Total expenses ........................................ 7,145,842
Expense reductions (Note 4) ........................... (1,829)
-------------
Net expenses ....................................... 7,144,013
-------------
Net investment income ........................... 13,105,598
-------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments .............................................. 12,043,025
Realized gain distributions from REITs ................... 5,004,378
Foreign currency transactions ............................ 2,184
-------------
Net realized gain (loss) ........................ 17,049,587
-------------
Net change in unrealized appreciation (depreciation) on:
Investments .............................................. (236,453,463)
Translation of assets and liabilities denominated in
foreign currencies .................................... 770
-------------
Net change in unrealized appreciation
(depreciation) ............................... (236,452,693)
-------------
Net realized and unrealized gain (loss) ........................ (219,403,106)
-------------
Net increase (decrease) in net assets resulting from
operations .................................................. $(206,297,508)
=============
The accompanying notes are an integral part of these financial statements.
24 | Annual Report
Franklin Real Estate Securities Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
FRANKLIN REAL ESTATE
SECURITIES FUND
-------------------------------
YEAR ENDED APRIL 30,
2008 2007
-------------- --------------
Increase (decrease) in net assets:
Operations:
Net investment income ................................ $ 13,105,598 $ 15,882,312
Net realized gain (loss) from investments and foreign
currency transactions ............................. 17,049,587 75,744,530
Net change in unrealized appreciation (depreciation)
on investments and translation of assets and
liabilities denominated in foreign currencies ..... (236,452,693) 54,803,451
-------------- --------------
Net increase (decrease) in net assets resulting
from operations ............................. (206,297,508) 146,430,293
-------------- --------------
Distributions to shareholders from:
Net investment income:
Class A ........................................... (11,091,340) (12,005,354)
Class B ........................................... (597,753) (544,827)
Class C ........................................... (1,531,927) (1,484,947)
Advisor Class ..................................... (699,908) (821,027)
Net realized gains:
Class A ........................................... (25,948,466) (119,536,595)
Class B ........................................... (1,905,516) (9,443,402)
Class C ........................................... (5,416,489) (25,356,968)
Advisor Class ..................................... (261,854) (7,226,949)
-------------- --------------
Total distributions to shareholders ..................... (47,453,253) (176,420,069)
-------------- --------------
Capital share transactions: (Note 2)
Class A ........................................... (197,074,002) (35,191,568)
Class B ........................................... (18,894,412) (12,502,167)
Class C ........................................... (41,790,573) (32,263,255)
Advisor Class ..................................... (36,022,748) 2,857,083
-------------- --------------
Total capital share transactions ........................ (293,781,735) (77,099,907)
-------------- --------------
Contingent deferred sales charges retained by the Fund .. 20,608 --
Redemption fees ......................................... 4,810 12,287
-------------- --------------
Net increase (decrease) in net assets ............. (547,507,078) (107,077,396)
Net assets
Beginning of year ....................................... 1,013,812,389 1,120,889,785
-------------- --------------
End of year ............................................. $ 466,305,311 $1,013,812,389
============== ==============
Undistributed net investment income included in net assets:
End of year ............................................. $ 208,041 $ 1,254,331
============== ==============
The accompanying notes are an integral part of these financial statements.
Annual Report | 25
Franklin Real Estate Securities Trust
NOTES TO FINANCIAL STATEMENTS
FRANKLIN REAL ESTATE SECURITIES FUND
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Real Estate Securities Trust (Trust) is registered under the Investment
Company Act of 1940, as amended, (1940 Act) as a non-diversified, open-end
investment company, consisting of one fund, the Franklin Real Estate Securities
Fund (Fund). 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.
The following summarizes the Fund's significant accounting policies.
A. SECURITY VALUATION
Securities listed on a securities exchange or on the NASDAQ National Market
System are valued at the last quoted sale price or the official closing price of
the day, respectively. Over-the-counter securities and listed securities for
which there is no reported sale are valued within the range of the most recent
quoted bid and ask prices. Securities that trade in multiple markets or on
multiple exchanges are valued according to the broadest and most representative
market. Investments in open-end mutual funds are valued at the closing net asset
value.
The Fund has procedures to determine the fair value of individual securities and
other assets for which market prices are not readily available or which may not
be reliably priced. Methods for valuing these securities may include:
fundamental analysis, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Due to the inherent uncertainty of
valuations of such securities, the fair values may differ significantly from the
values that would have been used had a ready market for such investments
existed. Occasionally, events occur between the time at which trading in a
security is completed and the close of the NYSE that might call into question
the availability (including the reliability) of the value of a portfolio
security held by the Fund. If such an event occurs, the securities may be valued
using fair value procedures, which may include the use of independent pricing
services. All security valuation procedures are approved by the Trust's Board of
Trustees.
B. FOREIGN CURRENCY TRANSLATION
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities, income and expense items denominated in foreign currencies are
translated into U.S. dollars at the exchange rate in effect on the transaction
date. Occasionally, events may impact the availability or reliability of foreign
exchange rates used to convert the U.S. dollar equivalent value. If such an
event occurs, the foreign exchange rate will be valued at fair value using
procedures established and approved by the Trust's Board of Trustees.
26 | Annual Report
Franklin Real Estate Securities Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
B. FOREIGN CURRENCY TRANSLATION (CONTINUED)
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments on the
Statement of Operations.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
C. FOREIGN CURRENCY CONTRACTS
When the Fund purchases or sells foreign securities it may enter into foreign
exchange contracts to minimize foreign exchange risk from the trade date to the
settlement date of the transactions. A foreign exchange contract is an agreement
between two parties to exchange different currencies at an agreed upon exchange
rate at a future date. Realized and unrealized gains and losses on these
contracts are included in the Statement of Operations.
The risks of these contracts include movement in the values of the foreign
currencies relative to the U.S. dollar and the possible inability of the
counterparties to fulfill their obligations under the contracts, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities.
D. INCOME TAXES
No provision has been made for U.S. income taxes because it is the Fund's policy
to qualify as a regulated investment company under the Internal Revenue Code and
to distribute to shareholders substantially all of its taxable income and net
realized gains.
The Fund has reviewed the tax positions, taken on federal income tax returns,
for each of the three open tax years and as of April 30, 2008, and has
determined that no provision for income tax is required in the Fund's financial
statements.
E. 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 is
recorded on the ex-dividend date except that certain dividends from foreign
securities are recognized as soon as the Fund is notified of the ex-dividend
date. Distributions to shareholders are recorded on the ex-dividend date and are
determined according
Annual Report | 27
Franklin Real Estate Securities Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)
to income tax regulations (tax basis). Distributable earnings determined on a
tax basis may differ from earnings recorded in accordance with accounting
principles generally accepted in the United States of America. These differences
may be permanent or temporary. Permanent differences are reclassified among
capital accounts to reflect their tax character. These reclassifications have no
impact on net assets or the results of operations. Temporary differences are not
reclassified, as they may reverse in subsequent periods.
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. Differences in per share
distributions, by class, are generally due to differences in class specific
expenses.
Distributions received by the Fund from certain 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.
F. 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.
G. REDEMPTION FEES
A short term trading redemption fee will be imposed, with some exceptions, on
any fund shares that are redeemed or exchanged within seven calendar days
following their purchase date. The redemption fee is 2% of the amount redeemed.
Such fees are retained by the fund and accounted for as an addition to paid-in
capital.
H. GUARANTEES AND INDEMNIFICATIONS
Under the Trust's organizational documents, its officers and trustees are
indemnified by the Trust against certain liabilities 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. Currently, the Trust expects the
risk of loss to be remote.
28 | Annual Report
Franklin Real Estate Securities Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
2. SHARES OF BENEFICIAL INTEREST
At April 30, 2008, there were an unlimited number of shares authorized (without
par value). Transactions in the Fund's shares were as follows:
YEAR ENDED APRIL 30,
---------------------------------------------------------
2008 2007
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
CLASS A SHARES:
Shares sold .................... 2,927,657 $ 59,851,699 5,064,113 $ 138,119,074
Shares issued in reinvestment of
distributions ............... 1,943,432 34,522,852 4,638,630 122,545,335
Shares redeemed ................ (13,906,308) (291,448,553) (11,017,963) (295,855,977)
----------- ------------- ----------- -------------
Net increase (decrease) ........ (9,035,219) $(197,074,002) (1,315,220) $ (35,191,568)
=========== ============= =========== =============
CLASS B SHARES:
Shares sold .................... 54,981 $ 1,057,718 48,938 $ 1,322,006
Shares issued in reinvestment of
distributions ............... 131,029 2,265,121 343,238 8,939,653
Shares redeemed ................ (1,094,140) (22,217,251) (852,984) (22,763,826)
----------- ------------- ----------- -------------
Net increase (decrease) ........ (908,130) $ (18,894,412) (460,808) $ (12,502,167)
=========== ============= =========== =============
CLASS C SHARES:
Shares sold .................... 464,143 $ 9,010,610 619,910 $ 16,442,775
Shares issued in reinvestment of
distributions ............... 362,534 6,225,096 934,950 24,219,969
Shares redeemed ................ (2,781,441) (57,026,279) (2,755,307) (72,925,999)
----------- ------------- ----------- -------------
Net increase (decrease) ........ (1,954,764) $ (41,790,573) (1,200,447) $ (32,263,255)
=========== ============= =========== =============
ADVISOR CLASS SHARES:
Shares sold .................... 505,619 $ 11,234,023 103,854 $ 2,938,791
Shares issued in reinvestment of
distributions ............... 43,406 895,499 292,559 7,766,999
Shares redeemed ................ (2,236,736) (48,152,270) (294,458) (7,848,707)
----------- ------------- ----------- -------------
Net increase (decrease) ........ (1,687,711) $ (36,022,748) 101,955 $ 2,857,083
=========== ============= =========== =============
3. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
trustees of the Trust are also officers and/or directors of the following
subsidiaries:
SUBSIDIARY AFFILIATION
- ------------------------------------------------------------- ----------------------
Franklin Templeton Institutional, LLC (FT Institutional) Investment manager
Franklin Advisers, Inc. (Advisers) Investment manager
Franklin Templeton Services, LLC (FT Services) Administrative manager
Franklin Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services) Transfer agent
Annual Report | 29
Franklin Real Estate Securities Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
A. MANAGEMENT FEES
Effective January 1, 2008, the Fund pays an investment management fee to FT
Institutional (from January 1, 2008 through January 31, 2008 the fee was paid to
Advisers) based on the average daily net assets of the Fund as follows:
ANNUALIZED FEE RATE NET ASSETS
- ------------------- ---------------------------------------------------
0.625% Up to and including $100 million
0.500% Over $100 million, up to and including $250 million
0.450% Over $250 million, up to and including $7.5 billion
0.440% Over $7.5 billion, up to and including $10 billion
0.430% Over $10 billion, up to and including $12.5 billion
0.420% Over $12.5 billion, up to and including $15 billion
0.400% In excess of $15 billion
Prior to January 1, 2008, the Fund paid fees to Advisers based on the average
daily net assets of the Fund as follows:
ANNUALIZED FEE RATE NET ASSETS
- ------------------- ---------------------------------------------------
0.625% Up to and including $100 million
0.500% Over $100 million, up to and including $250 million
0.450% Over $250 million, up to and including $10 billion
0.440% Over $10 billion, up to and including $12.5 billion
0.420% Over $12.5 billion, up to and including $15 billion
0.400% In excess of $15 billion
B. ADMINISTRATIVE FEES
Under an agreement with FT Institutional, FT Services provides administrative
services to the Fund. The fee is paid by FT Institutional based on average daily
net assets, and is not an additional expense of the Fund.
C. DISTRIBUTION FEES
The Fund's Board of Trustees has adopted distribution plans for each share
class, with the exception of Advisor Class shares, pursuant to Rule 12b-1 under
the 1940 Act. Under the Fund's Class A reimbursement distribution plan, the Fund
reimburses Distributors for costs incurred in connection with the servicing,
sale and distribution of the Fund's shares up to the maximum annual plan rate.
Under the Class A reimbursement distribution plan, costs exceeding the maximum
for the current plan year cannot be reimbursed in subsequent periods.
In addition, under the Fund's Class B and C compensation distribution plans, the
Fund pays Distributors for costs incurred in connection with the servicing, sale
and distribution of the Fund's shares up to the maximum annual plan rate for
each class.
30 | Annual Report
Franklin Real Estate Securities Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
C. DISTRIBUTION FEES (CONTINUED)
The maximum annual plan rates, based on the average daily net assets, for each
class, are as follows:
Class A ....... 0.25%
Class B ....... 1.00%(a)
Class C ....... 1.00%
(a) The Class B maximum annual plan rate consists of a dealer-service fee of
0.25% and an asset based sales charge of 0.75%. Effective December 17,
2007, the Fund discontinued payments of the asset based sales charge to
maintain compliance with NASD Rule 2830, which sets forth a maximum
aggregate sales charge allowed under the rule.
D. SALES CHARGES/UNDERWRITING AGREEMENTS
Distributors has advised the Fund of the following commission transactions
related to the sales and redemptions of the Fund's shares for the year:
Sales charges retained net of commissions
paid to unaffiliated broker/dealers ...... $123,378
Contingent deferred sales charges retained .. $ 80,497(a)
(a) Net of $20,608 retained by the Fund in accordance with NASD Rule 2830 for
the year ended April 30, 2008.
E. TRANSFER AGENT FEES
For the year ended April 30, 2008, the Fund paid transfer agent fees of
$1,375,478, of which $836,030 was retained by Investor Services.
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, 2008, the
custodian fees were reduced as noted in the Statement of Operations.
5. INCOME TAXES
For tax purposes, realized currency losses occurring subsequent to October 31,
may be deferred and treated as occurring on the first day of the following
fiscal year. At April 30, 2008, the Fund deferred realized currency losses of
$702.
Annual Report | 31
Franklin Real Estate Securities Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
5. INCOME TAXES (CONTINUED)
The tax character of distributions paid during the years ended April 30, 2008
and 2007, was as follows:
2008 2007
----------- ------------
Distributions paid from:
Ordinary income ......... $22,912,094 $ 18,809,420
Long term capital gain .. 24,541,159 157,610,649
----------- ------------
$47,453,253 $176,420,069
=========== ============
At April 30, 2008, 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 ......................... $349,558,270
------------
Unrealized appreciation ..................... $103,170,459
Unrealized depreciation ..................... (10,286,121)
------------
Net unrealized appreciation (depreciation) .. $ 92,884,338
------------
Undistributed ordinary income ............... $ 208,041
Undistributed long term capital gains ....... 25,736,056
------------
Distributable earnings ...................... $ 25,944,097
============
Net investment income differs for financial statement and tax purposes primarily
due to differing treatment of foreign currency transactions and pass-through
entity income.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatment of wash sales, foreign currency
transactions and pass-through entity income.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
year ended April 30, 2008, aggregated $565,374,657 and $901,847,519,
respectively.
7. INVESTMENTS IN FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO
The Fund may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (Sweep Money Fund), an open-end investment company managed by Franklin
Advisers Inc. (an affiliate of the investment manager). Management fees paid by
the Fund are reduced on assets invested in the Sweep Money Fund, in an amount
not to exceed the management and administrative fees paid by the Sweep Money
Fund.
32 | Annual Report
Franklin Real Estate Securities Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
8. NEW ACCOUNTING PRONOUNCEMENTS
In September 2006, Financial Accounting Standards Board (FASB) issued FASB
Statement No. 157, "Fair Value Measurement" (SFAS 157), which defines fair
value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. SFAS 157 is effective for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years. The Fund
believes the adoption of SFAS 157 will have no material impact on its financial
statements.
In March 2008, FASB issued FASB Statement No. 161, "Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133"
(SFAS 161), which expands disclosures about derivative investments and hedging
activities. SFAS 161 is effective for fiscal years beginning after November 15,
2008, and interim periods within those fiscal years. The Fund is currently
evaluating the impact, if any, of applying the various provisions of SFAS 161.
Annual Report | 33
Franklin Real Estate Securities Trust
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FRANKLIN REAL ESTATE SECURITIES FUND
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, 2008, 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 five years in the
period then ended, 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). Those standards
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, 2008 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
June 18, 2008
34 | Annual Report
Franklin Real Estate Securities Trust
TAX DESIGNATION (UNAUDITED)
FRANKLIN REAL ESTATE SECURITIES FUND
Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Fund
designates the maximum amount allowable but no less than $25,737,822 as a long
term capital gain dividend for the fiscal year ended April 30, 2008.
Under Section 854(b)(2) of the Code, the Fund designates 7.31% of the ordinary
income dividends as income qualifying for the dividends received deduction for
the fiscal year ended April 30, 2008.
Under Section 854(b)(2) of the Code, the Fund designates the maximum amount
allowable but no less than $1,899,871 as qualified dividends for purposes of the
maximum rate under Section 1(h)(11) of the Code for the fiscal year ended April
30, 2008. Distributions, including qualified dividend income, paid during
calendar year 2008 will be reported to shareholders on Form 1099-DIV in January
2009. 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 871(k)(1)(C) of the Code, the Fund designates the maximum amount
allowable but no less than $1,279,600 as interest related dividends for purposes
of the tax imposed under Section 871(a)(1)(A) of the Code for the fiscal year
ended April 30, 2008.
Annual Report | 35
Franklin Real Estate Securities Trust
BOARD MEMBERS AND OFFICERS
The name, year of birth and address of the officers and board members, as well
as their affiliations, positions held with the Fund, principal occupations
during the past five years and number of portfolios overseen in the Franklin
Templeton Investments fund complex are shown below.
INDEPENDENT BOARD MEMBERS
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH AND LENGTH OF FUND COMPLEX OVERSEEN
ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------ --------------- ------------------ ----------------------- ----------------------------------
HARRIS J. ASHTON (1932) Trustee Since 1993 143 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 (1928) Trustee Since 1998 122 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Retired; and FORMERLY, Vice President, senior member and past President, Board of Administration, California Public Employees
Retirement Systems (CALPERS) (1971-January 2008); member and Chairman of the Board, Sutter Community Hospitals; member, Corporate
Board, Blue Shield of California; and Chief Counsel, California Department of Transportation.
SAM GINN (1937) Trustee Since 2007 122 Chevron Corporation (global energy
One Franklin Parkway company) and ICO Global
San Mateo, CA 94403-1906 Communications (Holdings) Limited
(satellite company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Private investor; and formerly, Chairman of the Board, Vodafone AirTouch, PLC (wireless company); Chairman of the Board and Chief
Executive Officer, AirTouch Communications (cellular communications)(1993-1998) and Pacific Telesis Groups (telephone holding
company)(1988-1994).
EDITH E. HOLIDAY (1952) Trustee Since 2005 143 Hess Corporation (exploration and
One Franklin Parkway refining of oil and gas), H.J.
San Mateo, CA 94403-1906 Heinz Company (processed foods and
allied products), RTI
International Metals, Inc.
(manufacture and distribution of
titanium), Canadian National
Railway (railroad) and White
Mountains Insurance Group, Ltd.
(holding company). (holding
company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and Secretary of
the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and
Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989).
FRANK W.T. LAHAYE (1929) Trustee Since 1993 122 Center for Creative Land Recycling
One Franklin Parkway (brownfield 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).
36 | Annual Report
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH AND LENGTH OF FUND COMPLEX OVERSEEN
ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------ --------------- ------------------ ----------------------- ----------------------------------
FRANK A. OLSON (1932) Trustee Since 2007 143 Hess Corporation (exploration and
One Franklin Parkway refining of oil and gas) and
San Mateo, CA 94403-1906 Sentient Jet (private jet
service).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of the Board (1980-2000) and Chief Executive Officer
(1977-1999)); and FORMERLY, Chairman of the Board, President and Chief Executive Officer, UAL Corporation (airlines).
LARRY D. THOMPSON (1945) Trustee Since 2007 143 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President - Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (consumer products); and FORMERLY,
Director, Delta Airlines (aviation) (2003-2005) and Providian Financial Corp. (credit card provider) (1997-2001); Senior Fellow of
The Brookings Institution (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy Attorney General,
U.S. Department of Justice (2001-2003).
JOHN B. WILSON (1959) Lead Trustee since 122 None
One Franklin Parkway Independent 2006 and Lead
San Mateo, CA 94403-1906 Trustee Independent
Trustee since
January 2008
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Founder, Hyannis Port Capital, Inc. (real estate and private equity investing); serves on private and non-profit
boards; and FORMERLY, Chief Operating Officer and Executive Vice President, Gap, Inc. (retail) (1996-2000); Chief Financial Officer
and Executive Vice President - Finance and Strategy, Staples, Inc. (office supplies) (1992-1996); Executive Vice President -
Corporate Planning, Northwest Airlines, Inc. (airlines) (1990-1992); and Vice President and Partner, Bain & Company (consulting
firm) (1986-1990).
INTERESTED BOARD MEMBERS AND OFFICERS
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH AND LENGTH OF FUND COMPLEX OVERSEEN
ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------ --------------- ------------------ ----------------------- ----------------------------------
**CHARLES B. JOHNSON (1933) Trustee and Since 1993 143 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.; Director, Templeton Worldwide, 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 42
of the investment companies in Franklin Templeton Investments.
**GREGORY E. JOHNSON (1961) Trustee Since 2007 94 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, President and Chief Executive Officer, Franklin Resources, Inc.; President, Templeton Worldwide, Inc.; Director, Templeton
Asset Management Ltd.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin
Resources, Inc. and of 33 of the investment companies in Franklin Templeton Investments.
Annual Report | 37
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH AND LENGTH OF FUND COMPLEX OVERSEEN
ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------ --------------- ------------------ ----------------------- ----------------------------------
JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable
One Franklin Parkway Compliance Officer since 2004
San Mateo, CA 94403-1906 Officer and and Vice President
Vice President - AML Compliance
- AML since 2006
Compliance
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and of
46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin Resources, Inc.
(1994-2001).
LAURA F. FERGERSON (1962) Treasurer, Treasurer Not Applicable Not Applicable
One Franklin Parkway Chief Financial since 2004,
San Mateo, CA 94403-1906 Officer and Chief Financial
Chief Officer and
Accounting Chief Accounting
Officer Officer since
February 2008
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 46 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of the
investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC
(1997-2003).
JIMMY D. GAMBILL (1947) Vice President Since Not Applicable Not Applicable
500 East Broward Blvd. February 2008
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of some of the other
subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments.
DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; officer and director of one of the subsidiaries of Franklin
Resources, Inc.; and officer of 46 of the investment companies in Franklin Templeton Investments.
RUPERT H. JOHNSON, JR. (1940) President Since 2002 Not Applicable Not Applicable
One Franklin Parkway and Chief
San Mateo, CA 94403-1906 Executive
Officer -
Investment
Management
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc. and
Templeton Worldwide, 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 44 of the investment companies in Franklin
Templeton Investments.
38 | Annual Report
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH AND LENGTH OF FUND COMPLEX OVERSEEN
ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------ --------------- ------------------ ----------------------- ----------------------------------
KAREN L. SKIDMORE (1952) Vice President Since 2006 Not Applicable Not Applicable
One Franklin Parkway and Secretary
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; and officer of 30 of the investment companies in Franklin
Templeton Investments.
CRAIG S. TYLE (1960) Vice President Since 2005 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin
Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Partner, Shearman & Sterling,
LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).
GALEN G. VETTER (1951) Senior Vice Since Not Applicable Not Applicable
500 East Broward Blvd. President February 2008
Suite 2100 and Chief
Fort Lauderdale, FL 33394-3091 Executive
Officer -
Finance and
Administration
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; officer of some of the other subsidiaries of Franklin Resources, Inc. and
of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Managing Director, RSM McGladrey, Inc.
(1999-2004); and Partner, McGladrey & Pullen, LLP (1979-1987 and 1991-2004).
* 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 manager or
affiliated investment managers.
** Charles B. Johnson is considered to be an interested person of the Trust
under the federal securities laws due to his position as officer and
director and major shareholder of Franklin Resources, Inc. (Resources),
which is the parent company of the Fund's investment manager and
distributor. Gregory E. Johnson 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 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the
father and uncle, respectively, of Gregory E. Johnson.
Note 2: Officer information is current as of the date of this report. It is
possible that after this date, information about officers may change.
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 HAS DETERMINED THAT THERE IS
AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS DESIGNATED
JOHN B. WILSON AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD BELIEVES THAT
MR. WILSON QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE BUSINESS
BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS CHIEF FINANCIAL OFFICER OF
STAPLES, INC. FROM 1992 TO 1996. MR. WILSON HAS BEEN A MEMBER AND CHAIRMAN OF
THE FUND'S AUDIT COMMITTEE SINCE 2006. AS A RESULT OF SUCH BACKGROUND AND
EXPERIENCE, THE BOARD BELIEVES THAT MR. WILSON 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. WILSON IS AN INDEPENDENT BOARD MEMBER 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 | 39
Franklin Real Estate Securities Trust
SHAREHOLDER INFORMATION
FRANKLIN REAL ESTATE SECURITIES FUND
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT
At a Board meeting held January 16, 2008, the Board of Trustees (Board),
including a majority of non-interested or independent Trustees, approved a new
investment management agreement for the Fund with Franklin Templeton
Institutional, LLC (FT Institutional), subject to shareholder approval, which
was subsequently obtained at a special meeting of Fund shareholders held May 15,
2008. In considering this matter, the independent Trustees received assistance
and advice from, and met separately with, independent counsel. The following
sets forth some of the primary factors relevant to the Board's decision.
In considering the new investment management agreement with FT Institutional,
the Board noted that the terms were substantially the same in most material
respects to those of the then existing previous agreement. Consequently, in
considering the new investment management agreement, primary consideration was
given by the Board on matters relating to FT Institutional and its portfolio
management personnel, who would be assuming primary day-to-day investment
responsibilities for the Fund. Information was furnished to the Board as to the
individual portfolio managers, including their background and experience, as
well as the investment performance of other real estate funds managed by FT
Institutional. The Board also noted that the policies of FT Institutional as to
various matters, including brokerage allocation and proxy voting, were identical
to those of the previous investment manager and that is employees were subject
to the same code of ethics as applied to employees of the previous investment
manager.
The Board also took into account the fact that the new investment management
agreement would have no effect on non-investment advisory services furnished to
the Fund by FT Institutional and its affiliates, including those relating to
compliance, shareholder servicing, accounting and internal audit, which the
Board continuously reviewed and found satisfactory. The Board also noted that
the new investment management agreement would have no effect on the expense
ratio of the Fund which, at the date of its most recent investment management
contract renewal, was in the least expensive quintile of its Lipper selected
expense group and would make no change in the level of investment management
fees charged, which contained breakpoints beyond their current asset levels. In
view of such facts, the Board believed that the schedule of fees to be paid
thereunder provided a sharing of benefits with the Fund and its shareholders to
the extent economies of scale would be realized by FT Institutional and its
affiliates.
40 | Annual Report
Franklin Real Estate Securities Trust
SHAREHOLDER INFORMATION (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
PROXY VOTING POLICIES AND PROCEDURES
The Trust has established Proxy Voting Policies and Procedures (Policies) that
the Trust uses to determine how to vote proxies relating to portfolio
securities. Shareholders may view the Trust'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 1-954/527-7678 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy
Group. Copies of the Trust's proxy voting records are also made available online
at franklintempleton.com and posted on the U.S. Securities and Exchange
Commission's website at sec.gov and reflect the most recent 12-month period
ended June 30.
QUARTERLY STATEMENT OF INVESTMENTS
The Trust files a complete statement of investments with the U.S. Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.
Annual Report | 41
(FRANKLIN TEMPLETON INVESTMENTS LOGO)
FRANKLIN TEMPLETON 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 Templeton Institutional, LLC
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 A2008 06/08
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 12(a)(1), 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 John B. Wilson 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 $24,773 for the fiscal year ended April 30, 2008 and $30,167 for the fiscal
year ended April 30, 2007.
(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.
There were no 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 their financial
statements.
(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.
The aggregate 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 were $0 for the fiscal year ended April
30, 2008 and $46,000 for the fiscal year ended April 30, 2007. The services for
which these fees were paid included tax compliance and advice.
(d) All Other Fees
There were no 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.
There were no 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 other than
services reported in paragraphs (a)-(c) of Item 4.
(e) (1) The registrant'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
registrant by the auditors to the registrant's investment adviser or to any
entity that controls, is controlled by or is under common control with the
registrant's investment adviser and that provides ongoing services to the
registrant where the non-audit services relate directly to the operations or
financial reporting of the registrant; 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 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 $0 for the fiscal year ended April 30, 2008 and $46,000 for the
fiscal year ended April 30, 2007.
(h) The registrant's audit committee of the board has considered whether the
provision of non-audit services that were rendered to the registrant's
investment adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another investment
adviser), and any entity controlling, controlled by, or under common control
with the investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X is compatible with maintaining the principal accountant's
independence.
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. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT
INVESTMENT COMPANIES. N/A
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END
MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. N/A
ITEM 10. 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 11. 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 12. EXHIBITS.
(a)(1) Code of Ethics
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Galen G. Vetter, Chief Executive Officer - Finance and Administration, and
Laura F. Fergerson, Chief Financial Officer and Chief Accounting Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Galen G. Vetter, Chief Executive Officer - Finance and Administration, and Laura
F. Fergerson, Chief Financial Officer and Chief Accounting 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/GALEN G. VETTER
------------------
Galen G. Vetter
Chief Executive Officer - Finance and Administration
Date June 26, 2008
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/GALEN G. VETTER
------------------
Galen G. Vetter
Chief Executive Officer - Finance and Administration
Date June 26, 2008
By /S/LAURA F. FERGERSON
---------------------
Laura F. Fergerson
Chief Financial Officer and Chief Accounting Officer
Date June 26, 2008