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
-------------------------------------
(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
-------------------------------------------------------------
(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
----
Date of reporting period: 4/30/09
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ITEM 1. REPORTS TO STOCKHOLDERS.
APRIL 30, 2009
ANNUAL REPORT
AND SHAREHOLDER LETTER
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SECTOR
FRANKLIN
REAL ESTATE SECURITIES FUND
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)
FRANKLIN - Templeton - Mutual Series
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE(R)
Franklin Templeton's distinct multi-manager
structure combines the specialized expertise of
three world-class investment management groups--
Franklin, Templeton and Mutual Series.
SPECIALIZED EXPERTISE Each of our portfolio management groups operates
autonomously, relying on its own research and
staying true to the unique investment disciplines
that underlie its success.
FRANKLIN. Founded in 1947, Franklin is a recognized
leader in fixed income investing and also brings
expertise in growth- and value-style U.S. equity
investing.
TEMPLETON. Founded in 1940, Templeton pioneered
international investing and, in 1954, launched what
has become the industry's oldest global fund. Today,
with offices in over 25 countries, Templeton offers
investors a truly global perspective.
MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what it
believes are undervalued stocks, as well as
arbitrage situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work independently and
adhere to different investment approaches, Franklin,
Templeton and Mutual Series funds typically have
distinct portfolios. That's why our funds can be
used to build truly diversified allocation plans
covering every major asset class.
RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with exceptional
risk-adjusted returns over the long term, as well as
the reliable, accurate and personal service that has
helped us become one of the most trusted names in
financial services.
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
(GRAPHIC)
Not part of the annual report
Contents
SHAREHOLDER LETTER ........................................................ 1
ANNUAL REPORT
Franklin Real Estate Securities Fund ...................................... 3
Performance Summary ....................................................... 8
Your Fund's Expenses ...................................................... 13
Financial Highlights and Statement of Investments ......................... 15
Financial Statements ...................................................... 20
Notes to Financial Statements ............................................. 24
Report of Independent Registered Public Accounting Firm ................... 33
Tax Designation ........................................................... 34
Board Members and Officers ................................................ 35
Shareholder Information ................................................... 40
Shareholder Letter
Dear Shareholder:
The 12-month period ended April 30, 2009, was an extraordinary and stressful
time for investors and those of us who have worked in financial markets for many
years. During this turbulent period, the U.S. recession deepened, the
unemployment rate surged and consumer spending fell. Most stocks suffered major
losses as investors worried about an uncertain future. With a new president,
Barack Obama, the country and the financial markets were eager to see how
effectively the government could address these problems. Although this
environment is bound to provoke great concern, we think it is important to put
short-term market developments in perspective. Keep in mind that as daunting as
current conditions may be, we have navigated through other periods of high
market volatility, such as the U.S. stock market's severe decline of 1987 and
the bursting of the technology bubble in 2000. We remain committed to our
long-term perspective and disciplined investment philosophy. Therefore, we view
recent declines as potential opportunities to find bargains that we believe may
be well positioned to become eventual winners. Although conditions remain
challenging, our experience gives us ample reason to be optimistic about future
market stabilization and recovery.
Franklin Real Estate Securities Fund's annual report goes into greater detail
about prevailing conditions during the period under review. In addition, you
will find performance data, financial information and a discussion about
investment management decisions. Please remember that all securities markets
fluctuate, as do mutual fund share prices.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Not part of the annual report | 1
If you would like more frequent updates, franklintempleton.com provides daily
prices, monthly performance figures, portfolio holdings and other information.
You can also access your account, buy and sell shares, read timely articles, and
find helpful financial planning tools. We hope you will take advantage of these
online services.
Although market conditions are constantly changing, we remain committed to our
disciplined strategy as we manage the Fund, keeping in mind the trust you have
placed in us. As always, we recommend investors consult their financial advisors
and review their portfolios to design a long-term strategy and portfolio
allocation that meet their individual needs, goals and risk tolerance. We firmly
believe that most people benefit from professional advice, and that advice is
invaluable as investors navigate current market conditions.
We thank you for investing with Franklin Templeton, welcome your questions and
comments, and look forward to serving your investment needs in the years ahead.
Sincerely,
/s/ Rupert H. Johnson, Jr.
Rupert H. Johnson, Jr.
President and Chief Executive Officer -
Investment Management
Franklin Real Estate Securities Trust
THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF APRIL 30, 2009. THE
INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY,
INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE.
2 | Not part of the annual report
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 (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
PORTFOLIO BREAKDOWN
Based on Total Net Assets as of 4/30/09
(PIE CHART)
Real Estate Investment Trusts.... 97.5%
Short-Term Investments &
Other Net Assets.............. 2.5%
This annual report for Franklin Real Estate Securities Fund covers the fiscal
year ended April 30, 2009.
PERFORMANCE OVERVIEW
Franklin Real Estate Securities Fund - Class A had a -51.68% cumulative total
return for the 12 months under review. The Fund performed comparably to its
narrow benchmark, the S&P U.S. Property Index, which had a -49.68% total return,
but underperformed its broad benchmark, the Standard & Poor's 500
(1.) A REIT is a type of real estate company that is dedicated to owning and
usually operating income-producing real estate properties such as
apartments, hotels, industrial properties, office buildings or shopping
centers. Equity REITs generally receive income from rents received, 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 19.
Annual Report | 3
Index (S&P 500), which had a -35.31% total return for the same period.(2) You
can find the Fund's long-term performance data in the Performance Summary
beginning on page 8.
ECONOMIC AND MARKET OVERVIEW
During the 12-month period ended April 30, 2009, the U.S. economy and stock
markets suffered significant declines, but tentative signs of stabilization
emerged near period-end. The government's abrupt conservatorship of Fannie Mae
and Freddie Mac in early September 2008 and the failure of several blue chip
banks and financial institutions roiled equity markets for most of the reporting
period. Despite government interventions and massive emergency funding, the
nation's economic troubles were exacerbated as manufacturing activity weakened
at its fastest pace in nearly 30 years. Although home sales declined for most of
the period, they edged higher near period-end. Jobless claims mounted and the
unemployment rate rose to 8.9% in April 2009.(3) Reflecting a broad-based
contraction in consumer spending, falling corporate profits and slowing exports,
economic growth, as measured by gross domestic product (GDP), fell in the third
and fourth quarters of 2008 at annualized rates of 0.5% and 6.3% after
increasing at a 2.8% annualized rate in the second quarter. In 2009's first
quarter, GDP declined at an estimated 5.7% annualized rate.
Oil prices stood at $113 per barrel at the beginning of the period, but
retreated dramatically to $51 by period-end. Many other commodities such as
agricultural products and base metals followed similar trends. Partially as a
result of the steep price corrections, inflation declined significantly during
the period, and April's inflation rate was an annualized -0.7%.(3) Core
inflation, which excludes food and energy costs, rose at a 1.9% annual rate,
which was within the Federal Reserve Board's (Fed's) informal target range of
1.5%-2.0%.(3)
A slowing economy and decelerating inflation prompted policymakers to further
lower interest rates and enact stimulus plans. During the 12 months under
review, the Fed lowered the federal funds target rate to a range of 0% to 0.25%
from 2.00% at the start of the period. The government introduced various new
measures to enhance market liquidity and outlined details of its Public-Private
(2.) Source: (C) 2009 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. The S&P U.S. Property Index measures the investible
universe of publicly traded property companies in the U.S. 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
Investment Program, with an objective of removing devalued real estate-related
assets from banks' balance sheets.
Market volatility was high during the reporting period, but near period-end,
stock markets began to rebound from severely depressed levels. Overall, however,
they declined significantly during the period. For the 12 months under review,
the blue chip stocks of the Dow Jones Industrial Average had a total return of
- -34.19%, the broader S&P 500 a -35.31% total return, and the technology-heavy
NASDAQ Composite Index a -28.13% total return.(4) All sectors lost value, and
the financials, industrials and energy sectors had the largest declines.
INVESTMENT STRATEGY
We are research-driven, fundamental investors with an active investment
strategy. We use a bottom-up, value-oriented, long-term approach that
incorporates macro-level views in our evaluation process. We analyze individual
stock and real estate market fundamentals including 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
During the reporting period, stock selection in office REITs and specialized
REITs hurt the Fund's performance relative to the narrow benchmark S&P U.S.
Property Index. Weakening fundamental conditions negatively affected office
REITs and some specialized REITs such as hotels, due to their relatively high
correlation to economic decline. Significant detractors included office REIT SL
Green Realty, which suffered from its exposure to the midtown Manhattan office
market, and office REIT Digital Realty. Based on our analysis, we held a
positive outlook on Digital Realty's prospects due to relatively resilient
demand for data centers and Internet services in the economic slowdown. Within
the specialized REITs sector, Health Care REIT detracted from relative
performance, as did Hospitality Properties Trust, a hotel REIT that we sold
during the Fund's fiscal year. In our view, Health Care REIT's prospects
appeared favorable due to its secure dividend yield and because a sizable
portion of its revenues were from
TOP 10 HOLDINGS
4/30/09
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------- ----------
Simon Property Group Inc. 8.9%
REAL ESTATE INVESTMENT TRUSTS
Vornado Realty Trust 6.8%
REAL ESTATE INVESTMENT TRUSTS
Boston Properties Inc. 6.1%
REAL ESTATE INVESTMENT TRUSTS
Ventas Inc. 4.5%
REAL ESTATE INVESTMENT TRUSTS
Kimco Realty Corp. 4.2%
REAL ESTATE INVESTMENT TRUSTS
Public Storage 4.0%
REAL ESTATE INVESTMENT TRUSTS
HCP Inc. 3.9%
REAL ESTATE INVESTMENT TRUSTS
Equity Residential 3.2%
REAL ESTATE INVESTMENT TRUSTS
Federal Realty Investment Trust 3.2%
REAL ESTATE INVESTMENT TRUSTS
Host Hotels & Resorts Inc. 3.1%
REAL ESTATE INVESTMENT TRUSTS
(4.) Source: (C) 2009 Morningstar. 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.
Annual Report | 5
government reimbursements. Other holdings that hurt performance included
industrial REIT ProLogis and retail REIT National Retail Properties.
On the other hand, stock selection among residential and diversified REITs
contributed to the Fund's performance relative to its narrow benchmark. An
underweighted position in residential REITs also supported Fund returns, and key
contributors included Equity Lifestyle Properties and Equity Residential, which
declined in value less than the narrow benchmark. Manufactured home REIT Equity
Lifestyles Properties benefited from lower prices for trailer park homes and
recreational vehicles and an ability to rent to customers unable to purchase.
Equity Residential, the largest U.S. apartment REIT, owns and operates apartment
buildings located mainly on the east and west coasts. In the first part of the
reporting period, Equity Residential experienced increased rental demand amid
declining home values. Office and industrial REIT Liberty Property Trust was a
notable contributor. Other contributors included Corporate Office Properties
Trust, an office REIT, and Public Storage, a specialized REIT. Corporate Office
Properties Trust operates in economically independent niche markets and caters
to several government agencies and associated contractors. Public Storage, a
large self-storage REIT, was supported by increased storage demand by
individuals who downsized their living space and small businesses that scaled
down inventories.
6 | Annual Report
Thank you for your continued participation in Franklin Real Estate Securities
Fund. We look forward to serving your future investment needs.
(PHOTO OF JOHN W. FOSTER)
/s/ John W. Foster
John W. Foster
(PHOTO OF DAVID LEVY)
/s/ David Levy
David Levy
Portfolio Management Team
Franklin Real Estate Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF APRIL 30, 2009, 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
Performance Summary as of 4/30/09
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 4/30/09 4/30/08
- ----------------------- ------- ------- -------
Net Asset Value (NAV) -$10.69 $7.84 $18.53
DISTRIBUTIONS (5/1/08-4/30/09)
Dividend Income $0.3574
Long-Term Capital Gain $0.9353
Total $1.2927
CLASS B (SYMBOL: FBREX) CHANGE 4/30/09 4/30/08
- ----------------------- ------- ------- -------
Net Asset Value (NAV) -$10.55 $7.70 $18.25
DISTRIBUTIONS (5/1/08-4/30/09)
Dividend Income $0.3576
Long-Term Capital Gain $0.9353
Total $1.2929
CLASS C (SYMBOL: FRRSX) CHANGE 4/30/09 4/30/08
- ----------------------- ------- ------- -------
Net Asset Value (NAV) -$10.49 $7.64 $18.13
DISTRIBUTIONS (5/1/08-4/30/09)
Dividend Income $0.2724
Long-Term Capital Gain $0.9353
Total $1.2077
ADVISOR CLASS (SYMBOL: FRLAX) CHANGE 4/30/09 4/30/08
- ----------------------------- ------- ------- -------
Net Asset Value (NAV) -$10.73 $7.89 $18.62
DISTRIBUTIONS (5/1/08-4/30/09)
Dividend Income $0.3867
Long-Term Capital Gain $0.9353
Total $1.3220
8 | Annual Report
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.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- -------
Cumulative Total Return(1) -51.68% -29.39% +18.93%
Average Annual Total Return(2) -54.46% -7.82% +1.15%
Value of $10,000 Investment(3) $ 4,554 $ 6,655 $11,207
Avg. Ann. Total Return (3/31/09)(4) -62.32% -14.86% -0.25%
Total Annual Operating Expenses(5) 1.03%
CLASS B 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- -------
Cumulative Total Return(1) -51.73% -31.31% +12.18%
Average Annual Total Return(2) -53.42% -7.44% +1.16%
Value of $10,000 Investment(3) $ 4,658 $ 6,794 $11,218
Avg. Ann. Total Return (3/31/09)(4) -61.45% -14.51% -0.25%
Total Annual Operating Expenses(5) 1.59%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- -------
Cumulative Total Return(1) -52.04% -31.94% +10.48%
Average Annual Total Return(2) -52.46% -7.41% +1.00%
Value of $10,000 Investment(3) $ 4,754 $ 6,806 $11,048
Avg. Ann. Total Return (3/31/09)(4) -60.65% -14.46% -0.39%
Total Annual Operating Expenses(5) 1.78%
ADVISOR CLASS 1-YEAR 5-YEAR 10-YEAR
- ------------- ------- ------- -------
Cumulative Total Return(1) -51.53% -28.48% +22.03%
Average Annual Total Return(2) -51.53% -6.48% +2.01%
Value of $10,000 Investment(3) $ 4,847 $ 7,152 $12,203
Avg. Ann. Total Return (3/31/09)(4) -59.91% -13.61% +0.59%
Total Annual Operating Expenses(5) 0.78%
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 (800) 342-5236.
Annual Report | 9
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR A 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 4/30/09
- ------- -------
1-Year -54.46%
5-Year -7.82%
10-Year +1.15%
CLASS A (5/1/99-4/30/09)
(PERFORMANCE GRAPH)
FRANKLIN REAL ESTATE S&P BMI U.S.
DATE SECURITIES FUND - CLASS A S&P 500 INDEX PROPERTY INDEX
- ------------- ------------------------- ------------- --------------
5/1/1999 $ 9,423 $10,000 $10,000
5/31/1999 $ 9,541 $ 9,764 $10,246
6/30/1999 $ 9,385 $10,306 $10,083
7/31/1999 $ 8,957 $ 9,984 $ 9,754
8/31/1999 $ 8,796 $ 9,935 $ 9,602
9/30/1999 $ 8,448 $ 9,662 $ 9,216
10/31/1999 $ 8,256 $10,274 $ 9,019
11/30/1999 $ 8,070 $10,482 $ 8,829
12/31/1999 $ 8,388 $11,100 $ 9,080
1/31/2000 $ 8,375 $10,542 $ 9,107
2/29/2000 $ 8,198 $10,343 $ 8,907
3/31/2000 $ 8,600 $11,354 $ 9,215
4/30/2000 $ 9,162 $11,013 $ 9,827
5/31/2000 $ 9,367 $10,787 $ 9,921
6/30/2000 $ 9,817 $11,053 $10,217
7/31/2000 $10,667 $10,880 $11,118
8/31/2000 $10,306 $11,556 $10,716
9/30/2000 $10,589 $10,946 $11,133
10/31/2000 $10,182 $10,899 $10,700
11/30/2000 $10,270 $10,040 $10,877
12/31/2000 $10,975 $10,089 $11,629
1/31/2001 $11,196 $10,447 $11,744
2/28/2001 $11,003 $ 9,495 $11,566
3/31/2001 $10,938 $ 8,893 $11,712
4/30/2001 $11,213 $ 9,584 $11,978
5/31/2001 $11,158 $ 9,648 $12,305
6/30/2001 $11,709 $ 9,414 $13,040
7/31/2001 $11,416 $ 9,321 $12,789
8/31/2001 $11,667 $ 8,737 $13,249
9/30/2001 $11,058 $ 8,032 $12,763
10/31/2001 $10,649 $ 8,185 $12,390
11/30/2001 $11,432 $ 8,813 $13,068
12/31/2001 $11,814 $ 8,890 $13,436
1/31/2002 $11,807 $ 8,760 $13,463
2/28/2002 $12,086 $ 8,591 $13,677
3/31/2002 $12,807 $ 8,915 $14,525
4/30/2002 $12,979 $ 8,374 $14,637
5/31/2002 $13,122 $ 8,312 $14,824
6/30/2002 $13,360 $ 7,720 $15,220
7/31/2002 $12,606 $ 7,118 $14,399
8/31/2002 $12,598 $ 7,165 $14,436
9/30/2002 $12,023 $ 6,386 $13,924
10/31/2002 $11,481 $ 6,949 $13,258
11/30/2002 $11,884 $ 7,358 $13,855
12/31/2002 $12,014 $ 6,925 $13,971
1/31/2003 $11,694 $ 6,744 $13,589
2/28/2003 $11,903 $ 6,643 $13,805
3/31/2003 $12,123 $ 6,707 $14,095
4/30/2003 $12,653 $ 7,260 $14,699
5/31/2003 $13,510 $ 7,642 $15,539
6/30/2003 $13,973 $ 7,740 $15,895
7/31/2003 $14,514 $ 7,876 $16,748
8/31/2003 $14,627 $ 8,030 $16,863
9/30/2003 $15,073 $ 7,944 $17,438
10/31/2003 $15,369 $ 8,394 $17,757
11/30/2003 $16,059 $ 8,468 $18,524
12/31/2003 $16,537 $ 8,912 $19,119
1/31/2004 $17,152 $ 9,075 $19,971
2/29/2004 $17,629 $ 9,202 $20,309
3/31/2004 $18,486 $ 9,063 $21,429
4/30/2004 $15,870 $ 8,920 $18,301
5/31/2004 $16,847 $ 9,043 $19,595
6/30/2004 $17,380 $ 9,219 $20,160
7/31/2004 $17,559 $ 8,914 $20,269
8/31/2004 $18,901 $ 8,950 $21,898
9/30/2004 $19,039 $ 9,047 $21,850
10/31/2004 $19,998 $ 9,185 $23,036
11/30/2004 $20,786 $ 9,556 $24,011
12/31/2004 $21,849 $ 9,882 $25,238
1/31/2005 $20,572 $ 9,641 $23,170
2/28/2005 $21,095 $ 9,844 $23,856
3/31/2005 $20,788 $ 9,669 $23,445
4/30/2005 $21,594 $ 9,486 $24,792
5/31/2005 $22,309 $ 9,788 $25,683
6/30/2005 $23,427 $ 9,802 $26,981
7/31/2005 $24,562 $10,166 $28,879
8/31/2005 $23,961 $10,073 $27,749
9/30/2005 $23,996 $10,155 $27,808
10/31/2005 $23,610 $ 9,986 $27,181
11/30/2005 $24,650 $10,363 $28,297
12/31/2005 $24,739 $10,367 $28,298
1/31/2006 $26,085 $10,642 $30,364
2/28/2006 $26,152 $10,670 $30,916
3/31/2006 $26,729 $10,803 $32,502
4/30/2006 $25,912 $10,948 $31,258
5/31/2006 $24,806 $10,633 $30,326
6/30/2006 $25,331 $10,648 $31,917
7/31/2006 $25,195 $10,713 $33,017
8/31/2006 $26,201 $10,968 $34,341
9/30/2006 $26,797 $11,251 $35,027
10/31/2006 $28,203 $11,617 $37,184
11/30/2006 $30,045 $11,838 $38,941
12/31/2006 $30,004 $12,004 $38,251
1/31/2007 $31,446 $12,186 $41,534
2/28/2007 $30,628 $11,948 $40,555
3/31/2007 $29,257 $12,081 $39,605
4/30/2007 $29,792 $12,616 $39,635
5/31/2007 $30,019 $13,057 $39,582
6/30/2007 $27,075 $12,840 $35,883
7/31/2007 $23,941 $12,442 $33,009
8/31/2007 $24,490 $12,628 $35,070
9/30/2007 $24,637 $13,100 $36,569
10/31/2007 $24,718 $13,309 $36,991
11/30/2007 $22,701 $12,752 $33,468
12/31/2007 $21,668 $12,664 $31,775
1/31/2008 $21,170 $11,904 $31,639
2/29/2008 $20,497 $11,518 $30,412
3/31/2008 $21,952 $11,468 $32,397
4/30/2008 $23,191 $12,026 $34,272
5/31/2008 $23,104 $12,182 $34,319
6/30/2008 $20,812 $11,155 $30,509
7/31/2008 $21,355 $11,061 $31,393
8/31/2008 $21,721 $11,221 $32,130
9/30/2008 $21,557 $10,221 $32,066
10/31/2008 $15,169 $ 8,505 $21,867
11/30/2008 $11,822 $ 7,895 $16,623
12/31/2008 $13,408 $ 7,979 $19,455
1/31/2009 $10,849 $ 7,306 $16,051
2/28/2009 $ 8,562 $ 6,528 $12,655
3/31/2009 $ 8,777 $ 7,100 $13,097
4/30/2009 $11,207 $ 7,779 $17,246
Total Returns 12.07% -22.21% 72.46%
AVERAGE ANNUAL TOTAL RETURN
CLASS B 4/30/09
- ------- -------
1-Year -53.42%
5-Year -7.44%
10-Year +1.16%
CLASS B (5/1/99-4/30/09)
(PERFORMANCE GRAPH)
FRANKLIN REAL ESTATE S&P BMI U.S.
DATE SECURITIES FUND - CLASS B S&P 500 INDEX PROPERTY INDEX
- ------------- ------------------------- ------------- --------------
5/1/1999 $10,000 $10,000 $10,000
5/31/1999 $10,119 $ 9,764 $10,246
6/30/1999 $ 9,947 $10,306 $10,083
7/31/1999 $ 9,492 $ 9,984 $ 9,754
8/31/1999 $ 9,314 $ 9,935 $ 9,602
9/30/1999 $ 8,938 $ 9,662 $ 9,216
10/31/1999 $ 8,734 $10,274 $ 9,019
11/30/1999 $ 8,529 $10,482 $ 8,829
12/31/1999 $ 8,855 $11,100 $ 9,080
1/31/2000 $ 8,841 $10,542 $ 9,107
2/29/2000 $ 8,646 $10,343 $ 8,907
3/31/2000 $ 9,063 $11,354 $ 9,215
4/30/2000 $ 9,657 $11,013 $ 9,827
5/31/2000 $ 9,860 $10,787 $ 9,921
6/30/2000 $10,335 $11,053 $10,217
7/31/2000 $11,219 $10,880 $11,118
8/31/2000 $10,837 $11,556 $10,716
9/30/2000 $11,127 $10,946 $11,133
10/31/2000 $10,691 $10,899 $10,700
11/30/2000 $10,776 $10,040 $10,877
12/31/2000 $11,510 $10,089 $11,629
1/31/2001 $11,735 $10,447 $11,744
2/28/2001 $11,524 $ 9,495 $11,566
3/31/2001 $11,452 $ 8,893 $11,712
4/30/2001 $11,735 $ 9,584 $11,978
5/31/2001 $11,662 $ 9,648 $12,305
6/30/2001 $12,239 $ 9,414 $13,040
7/31/2001 $11,924 $ 9,321 $12,789
8/31/2001 $12,173 $ 8,737 $13,249
9/30/2001 $11,529 $ 8,032 $12,763
10/31/2001 $11,101 $ 8,185 $12,390
11/30/2001 $11,906 $ 8,813 $13,068
12/31/2001 $12,300 $ 8,890 $13,436
1/31/2002 $12,285 $ 8,760 $13,463
2/28/2002 $12,570 $ 8,591 $13,677
3/31/2002 $13,303 $ 8,915 $14,525
4/30/2002 $13,483 $ 8,374 $14,637
5/31/2002 $13,617 $ 8,312 $14,824
6/30/2002 $13,858 $ 7,720 $15,220
7/31/2002 $13,072 $ 7,118 $14,399
8/31/2002 $13,057 $ 7,165 $14,436
9/30/2002 $12,451 $ 6,386 $13,924
10/31/2002 $11,887 $ 6,949 $13,258
11/30/2002 $12,291 $ 7,358 $13,855
12/31/2002 $12,423 $ 6,925 $13,971
1/31/2003 $12,075 $ 6,744 $13,589
2/28/2003 $12,292 $ 6,643 $13,805
3/31/2003 $12,501 $ 6,707 $14,095
4/30/2003 $13,051 $ 7,260 $14,699
5/31/2003 $13,926 $ 7,642 $15,539
6/30/2003 $14,390 $ 7,740 $15,895
7/31/2003 $14,936 $ 7,876 $16,748
8/31/2003 $15,045 $ 8,030 $16,863
9/30/2003 $15,495 $ 7,944 $17,438
10/31/2003 $15,785 $ 8,394 $17,757
11/30/2003 $16,484 $ 8,468 $18,524
12/31/2003 $16,962 $ 8,912 $19,119
1/31/2004 $17,581 $ 9,075 $19,971
2/29/2004 $18,058 $ 9,202 $20,309
3/31/2004 $18,923 $ 9,063 $21,429
4/30/2004 $16,239 $ 8,920 $18,301
5/31/2004 $17,224 $ 9,043 $19,595
6/30/2004 $17,759 $ 9,219 $20,160
7/31/2004 $17,935 $ 8,914 $20,269
8/31/2004 $19,293 $ 8,950 $21,898
9/30/2004 $19,423 $ 9,047 $21,850
10/31/2004 $20,384 $ 9,185 $23,036
11/30/2004 $21,177 $ 9,556 $24,011
12/31/2004 $22,255 $ 9,882 $25,238
1/31/2005 $20,936 $ 9,641 $23,170
2/28/2005 $21,446 $ 9,844 $23,856
3/31/2005 $21,125 $ 9,669 $23,445
4/30/2005 $21,943 $ 9,486 $24,792
5/31/2005 $22,650 $ 9,788 $25,683
6/30/2005 $23,766 $ 9,802 $26,981
7/31/2005 $24,910 $10,166 $28,879
8/31/2005 $24,278 $10,073 $27,749
9/30/2005 $24,301 $10,155 $27,808
10/31/2005 $23,898 $ 9,986 $27,181
11/30/2005 $24,926 $10,363 $28,297
12/31/2005 $25,004 $10,367 $28,298
1/31/2006 $26,348 $10,642 $30,364
2/28/2006 $26,397 $10,670 $30,916
3/31/2006 $26,966 $10,803 $32,502
4/30/2006 $26,122 $10,948 $31,258
5/31/2006 $24,994 $10,633 $30,326
6/30/2006 $25,504 $10,648 $31,917
7/31/2006 $25,356 $10,713 $33,017
8/31/2006 $26,352 $10,968 $34,341
9/30/2006 $26,929 $11,251 $35,027
10/31/2006 $28,330 $11,617 $37,184
11/30/2006 $30,165 $11,838 $38,941
12/31/2006 $30,097 $12,004 $38,251
1/31/2007 $31,530 $12,186 $41,534
2/28/2007 $30,686 $11,948 $40,555
3/31/2007 $29,303 $12,081 $39,605
4/30/2007 $29,823 $12,616 $39,635
5/31/2007 $30,050 $13,057 $39,582
6/30/2007 $27,102 $12,840 $35,883
7/31/2007 $23,963 $12,442 $33,009
8/31/2007 $24,512 $12,628 $35,070
9/30/2007 $24,659 $13,100 $36,569
10/31/2007 $24,741 $13,309 $36,991
11/30/2007 $22,722 $12,752 $33,468
12/31/2007 $21,688 $12,664 $31,775
1/31/2008 $21,189 $11,904 $31,639
2/29/2008 $20,515 $11,518 $30,412
3/31/2008 $21,972 $11,468 $32,397
4/30/2008 $23,213 $12,026 $34,272
5/31/2008 $23,125 $12,182 $34,319
6/30/2008 $20,831 $11,155 $30,509
7/31/2008 $21,375 $11,061 $31,393
8/31/2008 $21,740 $11,221 $32,130
9/30/2008 $21,577 $10,221 $32,066
10/31/2008 $15,184 $ 8,505 $21,867
11/30/2008 $11,834 $ 7,895 $16,623
12/31/2008 $13,422 $ 7,979 $19,455
1/31/2009 $10,861 $ 7,306 $16,051
2/28/2009 $ 8,572 $ 6,528 $12,655
3/31/2009 $ 8,786 $ 7,100 $13,097
4/30/2009 $11,218 $ 7,779 $17,246
12.18% -22.21% 72.46%
10 | Annual Report
Performance Summary (CONTINUED)
CLASS C (5/1/99-4/30/09)
(PERFORMANCE GRAPH)
FRANKLIN REAL ESTATE S&P BMI U.S.
DATE SECURITIES FUND - CLASS C S&P 500 INDEX PROPERTY INDEX
- ---------- ------------------------- ------------- --------------
5/1/1999 $10,000 $10,000 $10,000
5/31/1999 $10,120 $ 9,764 $10,246
6/30/1999 $ 9,947 $10,306 $10,083
7/31/1999 $ 9,492 $ 9,984 $ 9,754
8/31/1999 $ 9,312 $ 9,935 $ 9,602
9/30/1999 $ 8,938 $ 9,662 $ 9,216
10/31/1999 $ 8,731 $10,274 $ 9,019
11/30/1999 $ 8,530 $10,482 $ 8,829
12/31/1999 $ 8,856 $11,100 $ 9,080
1/31/2000 $ 8,842 $10,542 $ 9,107
2/29/2000 $ 8,646 $10,343 $ 8,907
3/31/2000 $ 9,063 $11,354 $ 9,215
4/30/2000 $ 9,654 $11,013 $ 9,827
5/31/2000 $ 9,858 $10,787 $ 9,921
6/30/2000 $10,334 $11,053 $10,217
7/31/2000 $11,215 $10,880 $11,118
8/31/2000 $10,831 $11,556 $10,716
9/30/2000 $11,119 $10,946 $11,133
10/31/2000 $10,688 $10,899 $10,700
11/30/2000 $10,774 $10,040 $10,877
12/31/2000 $11,502 $10,089 $11,629
1/31/2001 $11,728 $10,447 $11,744
2/28/2001 $11,524 $ 9,495 $11,566
3/31/2001 $11,451 $ 8,893 $11,712
4/30/2001 $11,728 $ 9,584 $11,978
5/31/2001 $11,662 $ 9,648 $12,305
6/30/2001 $12,235 $ 9,414 $13,040
7/31/2001 $11,919 $ 9,321 $12,789
8/31/2001 $12,169 $ 8,737 $13,249
9/30/2001 $11,526 $ 8,032 $12,763
10/31/2001 $11,096 $ 8,185 $12,390
11/30/2001 $11,905 $ 8,813 $13,068
12/31/2001 $12,299 $ 8,890 $13,436
1/31/2002 $12,284 $ 8,760 $13,463
2/28/2002 $12,562 $ 8,591 $13,677
3/31/2002 $13,297 $ 8,915 $14,525
4/30/2002 $13,477 $ 8,374 $14,637
5/31/2002 $13,613 $ 8,312 $14,824
6/30/2002 $13,860 $ 7,720 $15,220
7/31/2002 $13,062 $ 7,118 $14,399
8/31/2002 $13,047 $ 7,165 $14,436
9/30/2002 $12,444 $ 6,386 $13,924
10/31/2002 $11,870 $ 6,949 $13,258
11/30/2002 $12,283 $ 7,358 $13,855
12/31/2002 $12,408 $ 6,925 $13,971
1/31/2003 $12,066 $ 6,744 $13,589
2/28/2003 $12,284 $ 6,643 $13,805
3/31/2003 $12,493 $ 6,707 $14,095
4/30/2003 $13,037 $ 7,260 $14,699
5/31/2003 $13,915 $ 7,642 $15,539
6/30/2003 $14,376 $ 7,740 $15,895
7/31/2003 $14,932 $ 7,876 $16,748
8/31/2003 $15,041 $ 8,030 $16,863
9/30/2003 $15,485 $ 7,944 $17,438
10/31/2003 $15,776 $ 8,394 $17,757
11/30/2003 $16,477 $ 8,468 $18,524
12/31/2003 $16,957 $ 8,912 $19,119
1/31/2004 $17,570 $ 9,075 $19,971
2/29/2004 $18,048 $ 9,202 $20,309
3/31/2004 $18,917 $ 9,063 $21,429
4/30/2004 $16,231 $ 8,920 $18,301
5/31/2004 $17,219 $ 9,043 $19,595
6/30/2004 $17,749 $ 9,219 $20,160
7/31/2004 $17,925 $ 8,914 $20,269
8/31/2004 $19,280 $ 8,950 $21,898
9/30/2004 $19,412 $ 9,047 $21,850
10/31/2004 $20,377 $ 9,185 $23,036
11/30/2004 $21,165 $ 9,556 $24,011
12/31/2004 $22,237 $ 9,882 $25,238
1/31/2005 $20,922 $ 9,641 $23,170
2/28/2005 $21,443 $ 9,844 $23,856
3/31/2005 $21,113 $ 9,669 $23,445
4/30/2005 $21,925 $ 9,486 $24,792
5/31/2005 $22,634 $ 9,788 $25,683
6/30/2005 $23,754 $ 9,802 $26,981
7/31/2005 $24,893 $10,166 $28,879
8/31/2005 $24,268 $10,073 $27,749
9/30/2005 $24,282 $10,155 $27,808
10/31/2005 $23,887 $ 9,986 $27,181
11/30/2005 $24,919 $10,363 $28,297
12/31/2005 $24,989 $10,367 $28,298
1/31/2006 $26,339 $10,642 $30,364
2/28/2006 $26,388 $10,670 $30,916
3/31/2006 $26,950 $10,803 $32,502
4/30/2006 $26,112 $10,948 $31,258
5/31/2006 $24,979 $10,633 $30,326
6/30/2006 $25,492 $10,648 $31,917
7/31/2006 $25,344 $10,713 $33,017
8/31/2006 $26,343 $10,968 $34,341
9/30/2006 $26,913 $11,251 $35,027
10/31/2006 $28,320 $11,617 $37,184
11/30/2006 $30,152 $11,838 $38,941
12/31/2006 $30,086 $12,004 $38,251
1/31/2007 $31,515 $12,186 $41,534
2/28/2007 $30,678 $11,948 $40,555
3/31/2007 $29,288 $12,081 $39,605
4/30/2007 $29,811 $12,616 $39,635
5/31/2007 $30,020 $13,057 $39,582
6/30/2007 $27,054 $12,840 $35,883
7/31/2007 $23,907 $12,442 $33,009
8/31/2007 $24,443 $12,628 $35,070
9/30/2007 $24,565 $13,100 $36,569
10/31/2007 $24,635 $13,309 $36,991
11/30/2007 $22,607 $12,752 $33,468
12/31/2007 $21,566 $12,664 $31,775
1/31/2008 $21,060 $11,904 $31,639
2/29/2008 $20,389 $11,518 $30,412
3/31/2008 $21,817 $11,468 $32,397
4/30/2008 $23,037 $12,026 $34,272
5/31/2008 $22,935 $12,182 $34,319
6/30/2008 $20,634 $11,155 $30,509
7/31/2008 $21,171 $11,061 $31,393
8/31/2008 $21,516 $11,221 $32,130
9/30/2008 $21,334 $10,221 $32,066
10/31/2008 $15,003 $ 8,505 $21,867
11/30/2008 $11,684 $ 7,895 $16,623
12/31/2008 $13,246 $ 7,979 $19,455
1/31/2009 $10,715 $ 7,306 $16,051
2/28/2009 $ 8,445 $ 6,528 $12,655
3/31/2009 $ 8,662 $ 7,100 $13,097
4/30/2009 $11,048 $ 7,779 $17,246
Total
Returns 10.48% -22.21% 72.46%
AVERAGE ANNUAL TOTAL RETURN
CLASS C 4/30/09
- ------- -------
1-Year -52.46%
5-Year -7.41%
10-Year +1.00%
ADVISOR CLASS (5/1/99-4/30/09)
(PERFORMANCE GRAPH)
FRANKLIN REAL ESTATE
SECURITIES FUND - S&P BMI U.S.
DATE ADVISOR CLASS S&P 500 INDEX PROPERTY INDEX
- ---------- -------------------- ------------- --------------
5/1/1999 $10,000 $10,000 $10,000
5/31/1999 $10,131 $ 9,764 $10,246
6/30/1999 $ 9,967 $10,306 $10,083
7/31/1999 $ 9,520 $ 9,984 $ 9,754
8/31/1999 $ 9,349 $ 9,935 $ 9,602
9/30/1999 $ 8,981 $ 9,662 $ 9,216
10/31/1999 $ 8,777 $10,274 $ 9,019
11/30/1999 $ 8,580 $10,482 $ 8,829
12/31/1999 $ 8,920 $11,100 $ 9,080
1/31/2000 $ 8,913 $10,542 $ 9,107
2/29/2000 $ 8,718 $10,343 $ 8,907
3/31/2000 $ 9,150 $11,354 $ 9,215
4/30/2000 $ 9,753 $11,013 $ 9,827
5/31/2000 $ 9,971 $10,787 $ 9,921
6/30/2000 $10,455 $11,053 $10,217
7/31/2000 $11,359 $10,880 $11,118
8/31/2000 $10,982 $11,556 $10,716
9/30/2000 $11,283 $10,946 $11,133
10/31/2000 $10,850 $10,899 $10,700
11/30/2000 $10,944 $10,040 $10,877
12/31/2000 $11,703 $10,089 $11,629
1/31/2001 $11,938 $10,447 $11,744
2/28/2001 $11,740 $ 9,495 $11,566
3/31/2001 $11,675 $ 8,893 $11,712
4/30/2001 $11,969 $ 9,584 $11,978
5/31/2001 $11,910 $ 9,648 $12,305
6/30/2001 $12,504 $ 9,414 $13,040
7/31/2001 $12,192 $ 9,321 $12,789
8/31/2001 $12,460 $ 8,737 $13,249
9/30/2001 $11,812 $ 8,032 $12,763
10/31/2001 $11,383 $ 8,185 $12,390
11/30/2001 $12,217 $ 8,813 $13,068
12/31/2001 $12,627 $ 8,890 $13,436
1/31/2002 $12,627 $ 8,760 $13,463
2/28/2002 $12,925 $ 8,591 $13,677
3/31/2002 $13,692 $ 8,915 $14,525
4/30/2002 $13,891 $ 8,374 $14,637
5/31/2002 $14,044 $ 8,312 $14,824
6/30/2002 $14,306 $ 7,720 $15,220
7/31/2002 $13,493 $ 7,118 $14,399
8/31/2002 $13,493 $ 7,165 $14,436
9/30/2002 $12,879 $ 6,386 $13,924
10/31/2002 $12,300 $ 6,949 $13,258
11/30/2002 $12,730 $ 7,358 $13,855
12/31/2002 $12,880 $ 6,925 $13,971
1/31/2003 $12,530 $ 6,744 $13,589
2/28/2003 $12,761 $ 6,643 $13,805
3/31/2003 $12,994 $ 6,707 $14,095
4/30/2003 $13,576 $ 7,260 $14,699
5/31/2003 $14,493 $ 7,642 $15,539
6/30/2003 $14,989 $ 7,740 $15,895
7/31/2003 $15,577 $ 7,876 $16,748
8/31/2003 $15,706 $ 8,030 $16,863
9/30/2003 $16,185 $ 7,944 $17,438
10/31/2003 $16,510 $ 8,394 $17,757
11/30/2003 $17,249 $ 8,468 $18,524
12/31/2003 $17,767 $ 8,912 $19,119
1/31/2004 $18,434 $ 9,075 $19,971
2/29/2004 $18,946 $ 9,202 $20,309
3/31/2004 $19,868 $ 9,063 $21,429
4/30/2004 $17,063 $ 8,920 $18,301
5/31/2004 $18,119 $ 9,043 $19,595
6/30/2004 $18,694 $ 9,219 $20,160
7/31/2004 $18,894 $ 8,914 $20,269
8/31/2004 $20,344 $ 8,950 $21,898
9/30/2004 $20,496 $ 9,047 $21,850
10/31/2004 $21,534 $ 9,185 $23,036
11/30/2004 $22,388 $ 9,556 $24,011
12/31/2004 $23,536 $ 9,882 $25,238
1/31/2005 $22,163 $ 9,641 $23,170
2/28/2005 $22,734 $ 9,844 $23,856
3/31/2005 $22,409 $ 9,669 $23,445
4/30/2005 $23,285 $ 9,486 $24,792
5/31/2005 $24,062 $ 9,788 $25,683
6/30/2005 $25,270 $ 9,802 $26,981
7/31/2005 $26,500 $10,166 $28,879
8/31/2005 $25,862 $10,073 $27,749
9/30/2005 $25,897 $10,155 $27,808
10/31/2005 $25,491 $ 9,986 $27,181
11/30/2005 $26,611 $10,363 $28,297
12/31/2005 $26,712 $10,367 $28,298
1/31/2006 $28,182 $10,642 $30,364
2/28/2006 $28,255 $10,670 $30,916
3/31/2006 $28,886 $10,803 $32,502
4/30/2006 $28,006 $10,948 $31,258
5/31/2006 $26,816 $10,633 $30,326
6/30/2006 $27,382 $10,648 $31,917
7/31/2006 $27,247 $10,713 $33,017
8/31/2006 $28,350 $10,968 $34,341
9/30/2006 $28,989 $11,251 $35,027
10/31/2006 $30,525 $11,617 $37,184
11/30/2006 $32,531 $11,838 $38,941
12/31/2006 $32,485 $12,004 $38,251
1/31/2007 $34,051 $12,186 $41,534
2/28/2007 $33,170 $11,948 $40,555
3/31/2007 $31,700 $12,081 $39,605
4/30/2007 $32,289 $12,616 $39,635
5/31/2007 $32,547 $13,057 $39,582
6/30/2007 $29,355 $12,840 $35,883
7/31/2007 $25,961 $12,442 $33,009
8/31/2007 $26,566 $12,628 $35,070
9/30/2007 $26,718 $13,100 $36,569
10/31/2007 $26,818 $13,309 $36,991
11/30/2007 $24,629 $12,752 $33,468
12/31/2007 $23,520 $12,664 $31,775
1/31/2008 $22,982 $11,904 $31,639
2/29/2008 $22,255 $11,518 $30,412
3/31/2008 $23,840 $11,468 $32,397
4/30/2008 $25,180 $12,026 $34,272
5/31/2008 $25,085 $12,182 $34,319
6/30/2008 $22,610 $11,155 $30,509
7/31/2008 $23,197 $11,061 $31,393
8/31/2008 $23,606 $11,221 $32,130
9/30/2008 $23,431 $10,221 $32,066
10/31/2008 $16,492 $ 8,505 $21,867
11/30/2008 $12,844 $ 7,895 $16,623
12/31/2008 $14,585 $ 7,979 $19,455
1/31/2009 $11,801 $ 7,306 $16,051
2/28/2009 $ 9,311 $ 6,528 $12,655
3/31/2009 $ 9,558 $ 7,100 $13,097
4/30/2009 $12,203 $ 7,779 $17,246
Total
Returns 22.03% -22.21% 72.46%
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 4/30/09
- ------------- -------
1-Year -51.53%
5-Year -6.48%
10-Year +2.01%
Annual Report | 11
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. EFFECTIVE JULY
1, 2009, THE FUND IS CLASSIFIED AS A NONDIVERSIFIED FUND BECAUSE IT MAY INVEST A
GREATER PORTION OF ITS ASSETS IN THE SECURITIES OF ONE ISSUER AND HAVE A SMALLER
NUMBER OF ISSUERS THAN A DIVERSIFIED FUND. THE FUND INTENDS, HOWEVER, TO MEET
CERTAIN TAX DIVERSIFICATION REQUIREMENTS. THE FUND'S PROSPECTUS ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.
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. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(6.) Source: (C) 2009 Morningstar. 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 S&P
U.S. Property Index measures the investible universe of publicly traded
property companies in the U.S.
12 | Annual Report
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
- - 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.
Annual Report | 13
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.
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 11/1/08 VALUE 4/30/09 PERIOD* 11/1/08-4/30/09
----------------- -------------- -----------------------
CLASS A
Actual $1,000 $ 738.80 $ 6.85
Hypothetical (5% return before expenses) $1,000 $1,016.91 $ 7.95
CLASS B
Actual $1,000 $ 738.20 $ 6.85
Hypothetical (5% return before expenses) $1,000 $1,016.91 $ 7.95
CLASS C
Actual $1,000 $ 736.30 $10.12
Hypothetical (5% return before expenses) $1,000 $1,013.14 $11.73
ADVISOR CLASS
Actual $1,000 $ 739.90 $ 5.82
Hypothetical (5% return before expenses) $1,000 $1,018.10 $ 6.76
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 1.59%; B: 1.59%; C: 2.35%; and Advisor:
1.35%), multiplied by the average account value over the period, multiplied
by 181/365 to reflect the one-half year period.
14 | Annual Report
Franklin Real Estate Securities Trust
FINANCIAL HIGHLIGHTS
FRANKLIN REAL ESTATE SECURITIES FUND
YEAR ENDED APRIL 30,
----------------------------------------------------------
CLASS A 2009 2008 2007 2006 2005
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ...................... $ 18.53 $ 26.19 $ 26.95 $ 25.99 $ 20.63
-------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) ............................. 0.36 0.46 0.44 0.50 0.49
Net realized and unrealized gains (losses) ........... (9.75) (6.38) 3.60 4.50 6.88
-------- -------- -------- -------- --------
Total from investment operations ........................ (9.39) (5.92) 4.04 5.00 7.37
-------- -------- -------- -------- --------
Less distributions from:
Net investment income ................................ (0.36) (0.48) (0.42) (0.61) (0.53)
Net realized gains ................................... (0.94) (1.26) (4.38) (3.43) (1.48)
-------- -------- -------- -------- --------
Total distributions ..................................... (1.30) (1.74) (4.80) (4.04) (2.01)
-------- -------- -------- -------- --------
Contingent deferred sales charges retained by the Fund .. --(c) --(c) -- -- --
Redemption fees(c, d) ................................... -- -- -- -- --
-------- -------- -------- -------- --------
Net asset value, end of year ............................ $ 7.84 $ 18.53 $ 26.19 $ 26.95 $ 25.99
======== ======== ======== ======== ========
Total return(e) ......................................... (51.68)%(f) (22.16)% 14.97% 20.00% 36.07%
RATIOS TO AVERAGE NET ASSETS
Expenses(g) ............................................. 1.22% 0.99% 0.96% 0.88% 0.92%
Net investment income ................................... 2.92% 2.21% 1.63% 1.84% 2.03%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ......................... $140,567 $364,296 $751,489 $808,892 $671,587
Portfolio turnover rate ................................. 134.36% 94.51% 15.51% 42.09% 36.90%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
(f) The Trust's advisor fully reimbursed the Fund for a loss on transactions
not meeting the Fund's investment guidelines, which otherwise would have
reduced total return by 0.31%. See Note 9.
(g) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 15
Franklin Real Estate Securities Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
YEAR ENDED APRIL 30,
------------------------------------------------------
CLASS B 2009 2008 2007 2006 2005
- ------- ------- ------- ------ ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ...................... $ 18.25 $ 25.80 $ 26.62 $ 25.77 $ 20.45
------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income(b) ............................. 0.36 0.34 0.24 0.30 0.31
Net realized and unrealized gains (losses) ........... (9.61) (6.27) 3.55 4.45 6.83
------- ------- ------- ------- -------
Total from investment operations ........................ (9.25) (5.93) 3.79 4.75 7.14
------- ------- ------- ------- -------
Less distributions from:
Net investment income ................................ (0.36) (0.36) (0.23) (0.47) (0.34)
Net realized gains ................................... (0.94) (1.26) (4.38) (3.43) (1.48)
------- ------- ------- ------- -------
Total distributions ..................................... (1.30) (1.62) (4.61) (3.90) (1.82)
------- ------- ------- ------- -------
Contingent deferred sales charges retained by the Fund .. --(c) --(c) -- -- --
Redemption fees(c, d) ................................... -- -- -- -- --
------- ------- ------- ------- -------
Net asset value, end of year ............................ $ 7.70 $ 18.25 $ 25.80 $ 26.62 $ 25.77
======= ======= ======= ======= =======
Total return(e) ......................................... (51.73)%(f) (22.51)% 14.17% 19.05% 35.12%
RATIOS TO AVERAGE NET ASSETS
Expenses(g) ............................................. 1.22% 1.55% 1.70% 1.63% 1.66%
Net investment income ................................... 2.92% 1.65% 0.89% 1.09% 1.29%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ......................... $ 7,110 $23,998 $57,353 $71,458 $72,841
Portfolio turnover rate ................................. 134.36% 94.51% 15.51% 42.09% 36.90%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
(f) The Trust's advisor fully reimbursed the Fund for a loss on transactions
not meeting the Fund's investment guidelines, which otherwise would have
reduced total return by 0.31%. See Note 9.
(g) 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,
--------------------------------------------------------
CLASS C 2009 2008 2007 2006 2005
- ------- ------- ------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ...................... $ 18.13 $ 25.66 $ 26.50 $ 25.66 $ 20.37
------- ------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) ............................. 0.26 0.30 0.24 0.30 0.31
Net realized and unrealized gains (losses) ........... (9.54) (6.25) 3.53 4.44 6.79
------- ------- -------- -------- --------
Total from investment operations ........................ (9.28) (5.95) 3.77 4.74 7.10
------- ------- -------- -------- --------
Less distributions from:
Net investment income ................................ (0.27) (0.32) (0.23) (0.47) (0.33)
Net realized gains ................................... (0.94) (1.26) (4.38) (3.43) (1.48)
------- ------- -------- -------- --------
Total distributions ..................................... (1.21) (1.58) (4.61) (3.90) (1.81)
------- ------- -------- -------- --------
Contingent deferred sales charges retained by the Fund .. --(c) --(c) -- -- --
Redemption fees(c, d) ................................... -- -- -- -- --
------- ------- -------- -------- --------
Net asset value, end of year ............................ $ 7.64 $ 18.13 $ 25.66 $ 26.50 $ 25.66
======= ======= ======== ======== ========
Total return(e) ......................................... (52.04)%(f) (22.72)% 14.16% 19.10% 35.07%
RATIOS TO AVERAGE NET ASSETS
Expenses(g) ............................................. 1.97% 1.74% 1.70% 1.62% 1.67%
Net investment income ................................... 2.17% 1.46% 0.89% 1.10% 1.28%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ......................... $27,610 $74,259 $155,247 $192,172 $189,468
Portfolio turnover rate ................................. 134.36% 94.51% 15.51% 42.09% 36.90%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
(f) The Trust's advisor fully reimbursed the Fund for a loss on transactions
not meeting the Fund's investment guidelines, which otherwise would have
reduced total return by 0.31%. See Note 9.
(g) 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,
-----------------------------------------------------
ADVISOR CLASS 2009 2008 2007 2006 2005
- ------------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ...................... $ 18.62 $ 26.32 $ 27.06 $ 26.06 $ 20.68
------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income(b) ............................. 0.34 0.58 0.51 0.58 0.56
Net realized and unrealized gains (losses) ........... (9.74) (6.48) 3.61 4.52 6.89
------- ------- ------- ------- -------
Total from investment operations ........................ (9.40) (5.90) 4.12 5.10 7.45
------- ------- ------- ------- -------
Less distributions from:
Net investment income ................................ (0.39) (0.54) (0.48) (0.67) (0.59)
Net realized gains ................................... (0.94) (1.26) (4.38) (3.43) (1.48)
------- ------- ------- ------- -------
Total distributions ..................................... (1.33) (1.80) (4.86) (4.10) (2.07)
------- ------- ------- ------- -------
Contingent deferred sales charges retained by the Fund .. --(c) --(c) -- -- --
Redemption fees(c, d) ................................... -- -- -- -- --
------- ------- ------- ------- -------
Net asset value, end of year ............................ $ 7.89 $ 18.62 $ 26.32 $ 27.06 $ 26.06
======= ======= ======= ======= =======
Total return ............................................ (51.53)%(e) (22.02)% 15.29% 20.28% 36.46%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) ............................................. 0.97% 0.74% 0.71% 0.63% 0.67%
Net investment income ................................... 3.17% 2.46% 1.88% 2.09% 2.28%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ......................... $ 1,979 $ 3,751 $49,723 $48,368 $39,990
Portfolio turnover rate ................................. 134.36% 94.51% 15.51% 42.09% 36.90%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(e) The Trust's advisor fully reimbursed the Fund for a loss on transactions
not meeting the Fund's investment guidelines, which otherwise would have
reduced total return by 0.31%. See Note 9.
(f) 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
STATEMENT OF INVESTMENTS, APRIL 30, 2009
FRANKLIN REAL ESTATE SECURITIES FUND SHARES VALUE
------------------------------------ ------- ------------
COMMON STOCKS 97.5%
REAL ESTATE INVESTMENT TRUSTS 97.5%
Alexandria Real Estate Equities Inc. .................................. 59,600 $ 2,174,208
AMB Property Corp. .................................................... 215,900 4,121,531
AvalonBay Communities Inc. ............................................ 73,172 4,156,901
Boston Properties Inc. ................................................ 220,300 10,887,226
Camden Property Trust ................................................. 78,200 2,121,566
CBL & Associates Properties Inc. ...................................... 74,000 587,560
Cedar Shopping Centers Inc. ........................................... 225,900 810,981
Corporate Office Properties Trust ..................................... 96,600 2,952,096
Developers Diversified Realty Corp. ................................... 455,070 1,879,439
Digital Realty Trust Inc. ............................................. 86,000 3,096,860
Douglas Emmett Inc. ................................................... 158,300 1,514,931
EastGroup Properties Inc. ............................................. 45,800 1,539,338
Equity Lifestyle Properties Inc. ...................................... 91,700 3,637,739
Equity Residential .................................................... 248,844 5,696,039
Essex Property Trust Inc. ............................................. 59,100 3,752,259
Federal Realty Investment Trust ....................................... 101,200 5,586,240
HCP Inc. .............................................................. 318,300 6,986,685
Health Care REIT Inc. ................................................. 138,200 4,708,474
Highwoods Properties Inc. ............................................. 84,000 2,015,160
Host Hotels & Resorts Inc. ............................................ 719,236 5,530,925
Kimco Realty Corp. .................................................... 612,600 7,363,452
Liberty Property Trust ................................................ 202,200 4,921,548
The Macerich Co. ...................................................... 151,200 2,650,536
(a) Mack-Cali Realty Corp. ................................................ 199,700 5,363,942
National Retail Properties Inc. ....................................... 189,400 3,359,956
Nationwide Health Properties Inc. ..................................... 147,900 3,651,651
ProLogis .............................................................. 416,300 3,792,493
PS Business Parks Inc. ................................................ 29,000 1,268,750
Public Storage ........................................................ 106,800 7,140,648
Realty Income Corp. ................................................... 236,700 5,285,511
Regency Centers Corp. ................................................. 106,100 3,973,445
Simon Property Group Inc. ............................................. 305,200 15,748,320
SL Green Realty Corp. ................................................. 83,500 1,474,610
Tanger Factory Outlet Centers Inc. .................................... 143,700 4,788,084
Taubman Centers Inc. .................................................. 157,300 3,746,886
UDR Inc. .............................................................. 446,862 4,499,901
Ventas Inc. ........................................................... 277,142 7,937,347
Vornado Realty Trust .................................................. 248,200 12,134,498
------------
TOTAL COMMON STOCKS (COST $157,552,658) ............................... 172,857,736
------------
SHORT TERM INVESTMENTS (COST $341,622) 0.2%
MONEY MARKET FUNDS 0.2%
(b) Franklin Institutional Fiduciary Trust Money Market Portfolio, 0.04% .. 341,622 341,622
------------
TOTAL INVESTMENTS (COST $157,894,280) 97.7% ........................... 173,199,358
OTHER ASSETS, LESS LIABILITIES 2.3% ................................... 4,067,161
------------
NET ASSETS 100.0% ..................................................... $177,266,519
============
See Abbreviations on page 32.
(a) A portion or all of the security purchased on a delayed delivery basis. See
Note 1(c).
(b) 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 | 19
Franklin Real Estate Securities Trust
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2009
FRANKLIN
REAL ESTATE
SECURITIES FUND
---------------
Assets:
Investments in securities:
Cost - Unaffiliated issuers ................ $ 157,552,658
Cost - Sweep Money Fund (Note 7) ........... 341,622
-------------
Total cost of investments .................. $ 157,894,280
=============
Value - Unaffiliated issuers ............... $ 172,857,736
Value - Sweep Money Fund (Note 7) .......... 341,622
-------------
Total value of investments ................. 173,199,358
Receivables:
Investment securities sold ................. 38,482,961
Capital shares sold ........................ 232,654
Dividends .................................. 1,011,683
Other assets .................................. 533
-------------
Total assets ............................ 212,927,189
-------------
Liabilities:
Payables:
Investment securities purchased ............ 35,016,373
Capital shares redeemed .................... 337,780
Affiliates ................................. 177,624
Accrued expenses and other liabilities ........ 128,893
-------------
Total liabilities ....................... 35,660,670
-------------
Net assets, at value ................. $ 177,266,519
=============
Net assets consist of:
Paid-in capital ............................... $ 321,021,854
Undistributed net investment income ........... 207,497
Net unrealized appreciation (depreciation) .... 15,305,078
Accumulated net realized gain (loss) .......... (159,267,910)
-------------
Net assets, at value ................. $ 177,266,519
=============
The accompanying notes are an integral part of these financial statements.
20 | Annual Report
Franklin Real Estate Securities Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
April 30, 2009
FRANKLIN
REAL ESTATE
SECURITIES FUND
---------------
CLASS A:
Net assets, at value ................................................... $140,567,096
============
Shares outstanding ..................................................... 17,928,128
============
Net asset value per share(a) ........................................... $ 7.84
============
Maximum offering price per share (net asset value per share / 94.25%) .. $ 8.32
============
CLASS B:
Net assets, at value ................................................... $ 7,110,358
============
Shares outstanding ..................................................... 923,115
============
Net asset value and maximum offering price per share(a) ................ $ 7.70
============
CLASS C:
Net assets, at value ................................................... $ 27,610,025
============
Shares outstanding ..................................................... 3,615,202
============
Net asset value and maximum offering price per share(a) ................ $ 7.64
============
ADVISOR CLASS:
Net assets, at value ................................................... $ 1,979,040
============
Shares outstanding ..................................................... 250,942
============
Net asset value and maximum offering price per share ................... $ 7.89
============
(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 21
Franklin Real Estate Securities Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the year ended April 30, 2009
FRANKLIN
REAL ESTATE
SECURITIES FUND
---------------
Investment income:
Dividends:
Unaffiliated issuers ............................................... $ 11,900,771
Sweep Money Fund (Note 7) .......................................... 355,153
-------------
Total investment income ......................................... 12,255,924
-------------
Expenses:
Management fees (Note 3a) ............................................. 1,505,252
Distribution fees: (Note 3c)
Class A ............................................................ 580,034
Class B ............................................................ 34,976
Class C ............................................................ 467,167
Transfer agent fees (Note 3e) ......................................... 1,130,609
Custodian fees (Note 4) ............................................... 5,729
Reports to shareholders ............................................... 74,675
Registration and filing fees .......................................... 87,508
Professional fees ..................................................... 47,548
Trustees' fees and expenses ........................................... 14,320
Other ................................................................. 18,350
-------------
Total expenses .................................................. 3,966,168
Expense reductions (Note 4) ..................................... (254)
-------------
Net expenses ................................................. 3,965,914
-------------
Net investment income ..................................... 8,290,010
-------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ........................................................ (161,792,843)
Realized gain distributions from REITs ............................. 10,003,026
Foreign currency transactions ...................................... (693)
-------------
Net realized gain (loss) .................................. (151,790,510)
-------------
Net change in unrealized appreciation (depreciation) on:
Investments ........................................................ (86,073,793)
Translation of other assets and liabilities denominated in
foreign currencies .............................................. (747)
-------------
Net change in unrealized appreciation (depreciation) ...... (86,074,540)
-------------
Net increase from payments by affiliates and net losses realized on
the disposal of investments in violation of restrictions (Note 9) .. 1,153,995
-------------
Net realized and unrealized gain (loss) .................................. (236,711,055)
-------------
Net increase (decrease) in net assets resulting from operations .......... $(228,421,045)
=============
The accompanying notes are an integral part of these financial statements.
22 | 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,
------------------------------
2009 2008
------------- --------------
Increase (decrease) in net assets:
Operations:
Net investment income ................................................ $ 8,290,010 $ 13,105,598
Net realized gain (loss) from investments and foreign currency
transactions ...................................................... (151,790,510) 17,049,587
Net change in unrealized appreciation (depreciation) on investments
and translation of other assets and liabilities denominated in
foreign currencies ................................................ (86,074,540) (236,452,693)
Net increase from payments by affiliates and net losses realized on
the disposal of investments in violation of restrictions .......... 1,153,995 --
------------- --------------
Net increase (decrease) in net assets resulting from operations ... (228,421,045) (206,297,508)
------------- --------------
Distributions to shareholders from:
Net investment income
Class A ........................................................... (6,722,673) (11,091,340)
Class B ........................................................... (422,448) (597,753)
Class C ........................................................... (1,062,302) (1,531,927)
Advisor Class ..................................................... (78,272) (699,908)
Net realized gains:
Class A ........................................................... (17,167,711) (25,948,466)
Class B ........................................................... (971,910) (1,905,516)
Class C ........................................................... (3,381,052) (5,416,489)
Advisor Class ..................................................... (223,653) (261,854)
------------- --------------
Total distributions to shareholders ..................................... (30,030,021) (47,453,253)
------------- --------------
Capital share transactions: (Note 2)
Class A ........................................................... (20,634,930) (197,074,002)
Class B ........................................................... (4,714,620) (18,894,412)
Class C ........................................................... (5,787,022) (41,790,573)
Advisor Class ..................................................... 533,067 (36,022,748)
------------- --------------
Total capital share transactions ........................................ (30,603,505) (293,781,735)
------------- --------------
Contingent deferred sales charges retained by the Fund .................. 15,469 20,608
Redemption fees ......................................................... 310 4,810
------------- --------------
Net increase (decrease) in net assets .......................... (289,038,792) (547,507,078)
Net assets:
Beginning of year ....................................................... 466,305,311 1,013,812,389
------------- --------------
End of year ............................................................. $ 177,266,519 $ 466,305,311
============= ==============
Undistributed net investment income included in net assets:
End of year ............................................................. $ 207,497 $ 208,041
============= ==============
The accompanying notes are an integral part of these financial statements.
Annual Report | 23
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 an 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 Trust 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.
24 | 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. SECURITIES PURCHASED ON A DELAYED DELIVERY BASIS
The Fund may purchase securities on a delayed delivery basis, with payment and
delivery scheduled for a future date. These transactions are subject to market
fluctuations and are subject to the risk that the value at delivery may be more
or less than the trade date purchase price. Although the Fund will generally
purchase these securities with the intention of holding the securities, it may
sell the securities before the settlement date. Sufficient assets have been
segregated for these securities.
D. 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.
E. 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, 2009, and has
determined that no provision for income tax is required in the Fund's financial
statements.
Annual Report | 25
Franklin Real Estate Securities Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
F. 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.
Estimated expenses are accrued daily. Dividend income is recorded on the
ex-dividend date. Distributions to shareholders are recorded on the ex-dividend
date and are determined according 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, not
including 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 Trust 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.
G. 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.
H. REDEMPTION FEES
A short term trading redemption fee was imposed, with some exceptions, on any
fund shares that were redeemed or exchanged within seven calendar days following
their purchase date. The redemption fee was 2% of the amount redeemed. Such fees
were retained by the fund and accounted for as an addition to paid-in capital.
Effective September 1, 2008, the redemption fee was eliminated.
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)
I. 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.
2. SHARES OF BENEFICIAL INTEREST
At April 30, 2009, there were an unlimited number of shares authorized (without
par value). Transactions in the Fund's shares were as follows:
YEAR ENDED APRIL 30,
-------------------------------------------------------
2009 2008
------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- -------------
CLASS A SHARES:
Shares sold ....................... 4,298,229 $ 51,550,550 2,927,657 $ 59,851,699
Shares issued in reinvestment of
distributions .................. 2,412,877 22,383,792 1,943,432 34,522,852
Shares redeemed ................... (8,446,515) (94,569,272) (13,906,308) (291,448,553)
---------- ------------ ----------- -------------
Net increase (decrease) ........... (1,735,409) $(20,634,930) (9,035,219) $(197,074,002)
========== ============ =========== =============
CLASS B SHARES:
Shares sold ....................... 46,772 $ 564,929 54,981 $ 1,057,718
Shares issued in reinvestment of
distributions .................. 137,767 1,273,808 131,029 2,265,121
Shares redeemed ................... (576,415) (6,553,357) (1,094,140) (22,217,251)
---------- ------------ ----------- -------------
Net increase (decrease) ........... (391,876) $ (4,714,620) (908,130) $ (18,894,412)
========== ============ =========== =============
CLASS C SHARES:
Shares sold ....................... 626,743 $ 7,986,858 464,143 $ 9,010,610
Shares issued in reinvestment of
distributions .................. 446,296 3,973,094 362,534 6,225,096
Shares redeemed ................... (1,553,703) (17,746,974) (2,781,441) (57,026,279)
---------- ------------ ----------- -------------
Net increase (decrease) ........... (480,664) $ (5,787,022) (1,954,764) $ (41,790,573)
========== ============ =========== =============
ADVISOR CLASS SHARES:
Shares sold ....................... 123,937 $ 1,323,111 505,619 $ 11,234,023
Shares issued in reinvestment of
distributions .................. 29,806 272,668 43,406 895,499
Shares redeemed ................... (104,308) (1,062,712) (2,236,736) (48,152,270)
---------- ------------ ----------- -------------
Net increase (decrease) ........... 49,435 $ 533,067 (1,687,711) $ (36,022,748)
========== ============ =========== =============
Annual Report | 27
Franklin Real Estate Securities Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
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/ trustees of the
following subsidiaries:
SUBSIDIARY AFFILIATION
- ---------- ----------------------
Franklin Templeton Institutional, LLC (FT Institutional) 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
A. MANAGEMENT FEES
The Fund pays an investment management fee to FT Institutional based on the
month-end 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
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.
28 | 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%(b)
Class C ............ 1.00%
(b) 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 in
accordance 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 ............................................ $59,517
Contingent deferred sales charges retained ................... $ 3,500(a)
(a) Net of $15,469 retained by the Fund in accordance with NASD Rule 2830.
E. TRANSFER AGENT FEES
For the year ended April 30, 2009, the Fund paid transfer agent fees of
$1,130,609, of which $756,467 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, 2009, the
custodian fees were reduced as noted in the Statement of Operations.
5. INCOME TAXES
For tax purposes, capital losses may be carried over to offset future capital
gains, if any. At April 30, 2009, the Fund had tax basis capital losses of
$32,158,781 expiring in 2017.
For tax purposes, realized capital 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, 2009, the Fund deferred realized capital losses of
$65,285,676.
Annual Report | 29
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, 2009
and 2008, was as follows:
2009 2008
----------- -----------
Distributions paid from:
Ordinary income ........... $ 8,289,159 $22,912,094
Long term capital gain .... 21,740,862 24,541,159
----------- -----------
$30,030,021 $47,453,253
=========== ===========
At April 30, 2009, the cost of investments, net unrealized appreciation
(depreciation), and undistributed ordinary income for income tax purposes were
as follows:
Cost of investments ..................................... $219,717,734
============
Unrealized appreciation ................................. $ 8,140,591
Unrealized depreciation ................................. (54,658,967)
------------
Net unrealized appreciation (depreciation) .............. $(46,518,376)
============
Distributable earnings - undistributed ordinary income .. $ 207,497
============
Net investment income (loss) differs for financial statement and tax purposes
primarily due to differing treatment of foreign currency transactions.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales, foreign currency
transactions and a loss on investments.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
year ended April 30, 2009, aggregated $381,317,201 and $392,960,060,
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.
8. CREDIT FACILITY
Effective January 23, 2009, the Fund, together with other U.S. registered and
foreign investment funds managed by Franklin Templeton Investments
(individually, "Borrower";
30 | Annual Report
Franklin Real Estate Securities Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
8. CREDIT FACILITY (CONTINUED)
collectively "Borrowers"), entered into a joint syndicated senior unsecured
credit facility totaling $725 million (Global Credit Facility) to provide a
source of funds to the Borrowers for temporary and emergency purposes, including
the ability to meet future unanticipated or unusually large redemption requests.
Under the terms of the Global Credit Facility, the Fund shall, in addition to
interest charged on any borrowings made by the Fund and other costs incurred by
the Fund, pay its share of fees and expenses incurred in connection with the
implementation and maintenance of the Global Credit Facility, based upon its
relative share of the aggregate net assets of all of the Borrowers, including an
annual commitment fee based upon the unused portion of the Global Credit
Facility. During the period, the Fund incurred commitment fees of $161 of its
pro rata portion of the Global Credit Facility, which is reflected in Other
expenses on the Statement of Operations. During the year ended April 30, 2009,
the Fund did not utilize the Global Credit Facility.
9. INVESTMENT RESTRICTIONS
During the year ended April 30, 2009, the Fund inadvertently breached one of its
investment restrictions. For the year ended April 30, 2009, the Fund incurred a
loss of $1,153,995 on the investments. FT Institutional reimbursed the Fund for
such losses incurred which is reflected in the Statement of Operations and the
Statements of Changes in Net Assets.
10. FAIR VALUE MEASUREMENTS
The Fund adopted Financial Accounting Standards Board (FASB) Statement No. 157,
"Fair Value Measurement" (SFAS 157), on May 1, 2008. SFAS 157 defines fair
value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. The Fund has determined that the implementation
of SFAS 157 did not have a material impact on the Fund's financial statements.
SFAS 157 establishes a fair value hierarchy that distinguishes between market
data obtained from independent sources (observable inputs) and the Fund's own
market assumptions (unobservable inputs). These inputs are used in determining
the value of the Fund's investments and are summarized in the following fair
value hierarchy:
- Level 1 - quoted prices in active markets for identical securities
- Level 2 - other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment speed, credit risk,
etc.)
- Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
Annual Report | 31
Franklin Real Estate Securities Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
10. FAIR VALUE MEASUREMENTS (CONTINUED)
The inputs or methodology used for valuing securities are not an indication of
the risk associated with investing in those securities.
At April 30, 2009, all of the Fund's investments in securities carried at fair
value were in Level 1 inputs.
11. NEW ACCOUNTING PRONOUNCEMENTS
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 and interim periods beginning
after November 15, 2008. The Trust believes applying the various provisions of
SFAS 161 will not have a material impact on its financial statements.
In April 2009, FASB issued FASB Staff Position FSP FAS 157-4, "Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly" (FSP
FAS 157-4), which provides additional guidance when the volume and level of
activity for the asset or liability measured at fair value have significantly
decreased. Additionally, FSP FAS 157-4 amends SFAS 157, expanding disclosure
requirements by reporting entities surrounding the major categories of assets
and liabilities carried at fair value. FSP FAS 157-4 is effective for interim
and annual periods ending after June 15, 2009. The Trust is currently evaluating
the impact, if any, of applying FSP FAS 157-4.
In May 2009, FASB issued Statement No. 165, "Subsequent Events", which is
intended to establish general standards of accounting for and disclosure of
events that occur after the balance sheet date but before the statements are
issued or are available to be issued. FASB 165 is effective for interim or
annual financial periods ending after June 15, 2009, the adoption of FASB 165
will not have a material impact on the financial statements.
ABBREVIATIONS
SELECTED PORTFOLIO
REIT - Real Estate Investment Trust
32 | Annual Report
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 THE 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, 2009, 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, 2009 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
June 19, 2009
Annual Report | 33
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 $21,740,862 as a long
term capital gain dividend for the fiscal year ended April 30, 2009.
Under Section 871(k)(1)(C) of the Code, the Fund designates the maximum amount
allowable but no less than $241,065 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, 2009.
34 | Annual Report
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 Trust, principal occupations
during the past five years and number of portfolios overseen in the Franklin
Templeton Investments fund complex are shown below. Generally, each board member
serves until that person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------- --------------- ------------------ ----------------------- ------------------------------------
HARRIS J. ASHTON (1932) Trustee Since 1993 135 Bar-S Foods (meat packing company).
One Franklin Parkway
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 112 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Retired; and FORMERLY, Vice President, senior member and President, Board of Administration, California Public Employees
Retirement Systems (CALPERS) (1971-2008); 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 112 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 135 Hess Corporation (exploration and
One Franklin Parkway refining of oil and gas), H.J. Heinz
San Mateo, CA 94403-1906 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).
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).
Annual Report | 35
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------- --------------- ------------------ ----------------------- ------------------------------------
FRANK W.T. LAHAYE (1929) Trustee Since 1993 112 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).
FRANK A. OLSON (1932) Trustee Since 2007 135 Hess Corporation (exploration and
One Franklin Parkway refining of oil and gas) and Sentient
San Mateo, CA 94403-1906 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 112 None
One Franklin Parkway Independent 2006 and Lead
San Mateo, CA 94403-1906 Trustee Independent
Trustee since
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); Senior 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 LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------- --------------- ------------------ ----------------------- ------------------------------------
**CHARLES B. JOHNSON (1933) Trustee and Since 1993 135 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.
36 | Annual Report
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------- --------------- ------------------ ----------------------- ------------------------------------
**GREGORY E. JOHNSON (1961) Trustee Since 2007 91 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.
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
Vice President President - AML
- AML Compliance since
Compliance 2006
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) Chief Since March 2009 Not Applicable Not Applicable
One Franklin Parkway Executive
San Mateo, CA 94403-1906 Officer -
Finance and
Administration
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).
GASTON GARDEY (1967) Treasurer, Since March 2009 Not Applicable Not Applicable
One Franklin Parkway Chief Financial
San Mateo, CA 94403-1906 Officer and
Chief
Accounting
Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Fund Accounting, Franklin Templeton Investments; and officer of 28 of the investment companies in Franklin Templeton
Investments.
EDWARD L. GEARY (1962) Vice President Since March 2009 Not Applicable Not Applicable
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice 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.
Annual Report | 37
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------- --------------- ------------------ ----------------------- ------------------------------------
ALIYA S. GORDON (1973) Vice President Since March 2009 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Associate General Counsel, Franklin Templeton Investments; officer of 46 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Litigation Associate, Steefel, Levitt & Weiss, LLP (2000-2004).
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/or director, as the case may be, of some of the
other subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments.
RUPERT H. JOHNSON, JR. (1940) President and Since 2002 Not Applicable Not Applicable
One Franklin Parkway 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.
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.
38 | Annual Report
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------- --------------- ------------------ ----------------------- ------------------------------------
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).
* 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 (800) DIAL BEN/(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 April 14, 2009, the Board of Trustees (Board), including
a majority of non-interested or independent Trustees, approved renewal of the
investment management agreement for the Trust (Fund). In reaching this decision,
the Board took into account information furnished throughout the year at regular
Board meetings, as well as information prepared specifically in connection with
the annual renewal review process. Information furnished and discussed
throughout the year included investment performance reports and related
financial information for the Fund, as well as periodic reports on shareholder
services, legal, compliance, pricing, brokerage commissions and execution and
other services provided by the Investment Manager (Manager) and its affiliates.
Information furnished specifically in connection with the renewal process
included a report for the Fund prepared by Lipper, Inc. (Lipper), an independent
organization, as well as additional material, including a Fund profitability
analysis report prepared by management. The Lipper report compared the Fund's
investment performance and expenses with those of other mutual funds deemed
comparable to the Fund as selected by Lipper. The Fund profitability analysis
report discussed the profitability to Franklin Templeton Investments from its
overall U.S. fund operations, as well as on an individual fund-by-fund basis.
Included with such profitability analysis report was information on a
fund-by-fund basis listing portfolio managers and other accounts they manage, as
well as information on management fees charged by the Manager and its affiliates
including management's explanation of differences where relevant and a
three-year expense analysis with an explanation for any increase in expense
ratios. Additional material accompanying such report was a memorandum prepared
by management describing project initiatives and capital investments relating to
the services provided to the Fund by the Franklin Templeton Investments
organization, as well as a memorandum relating to economies of scale and a
comparative analysis concerning transfer agent fees charged the Fund. Such
material also discussed some of the actions taken by management in coping with
problems arising out of the past year's financial upheaval.
In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel. In approving
continuance of the investment management agreement for the Fund, the Board,
including a majority of independent Trustees, determined that the existing
management fee structure was fair and reasonable and that continuance of the
investment management agreement was in the best interests of the Fund and its
shareholders. While attention was given to all information furnished, the
following discusses some primary factors relevant to the Board's decision.
NATURE, EXTENT AND QUALITY OF SERVICES. The Board was satisfied with the nature
and quality of the overall services provided by the Manager and its affiliates
to the Fund and its shareholders. In addition to investment performance and
expenses discussed later, the Board's opinion was based, in part, upon periodic
reports furnished it showing that the investment policies and restrictions for
the Fund were consistently complied with as well as other reports periodically
furnished the Board covering matters such as the compliance of portfolio
managers and other
40 | Annual Report
Franklin Real Estate Securities Trust
SHAREHOLDER INFORMATION (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
management personnel with the code of ethics adopted throughout the Franklin
Templeton fund complex, the adherence to fair value pricing procedures
established by the Board, and the accuracy of net asset value calculations. The
Board also noted the extent of benefits provided Fund shareholders from being
part of the Franklin Templeton family of funds, including the right to exchange
investments between the same class of funds without a sales charge, the ability
to reinvest Fund dividends into other funds and the right to combine holdings in
other funds to obtain a reduced sales charge. Favorable consideration was given
to management's continuous efforts and expenditures in establishing back-up
systems and recovery procedures to function in the event of a natural disaster,
it being noted by the Board that such systems and procedures had functioned
smoothly during the Florida hurricanes and blackouts experienced in recent
years. Among other factors taken into account by the Board were the Manager's
best execution trading policies, including a favorable report by an independent
portfolio trading analytical firm. Consideration was also given to the
experience of the Fund's portfolio management team, the number of accounts
managed and general method of compensation. In this latter respect, the Board
noted that a primary factor in management's determination of a portfolio
manager's bonus compensation was the relative investment performance of the
funds he or she managed and that a portion of such bonus was required to be
invested in a predesignated list of funds within such person's fund management
area so as to be aligned with the interests of Fund shareholders. The Board also
took into account the quality of transfer agent and shareholder services
provided Fund shareholders by an affiliate of the Manager, noting continuing
expenditures by management to increase and improve the scope of such services,
periodic favorable reports on such service conducted by third parties, and the
continuous enhancements to and high industry ranking given the Franklin
Templeton website. Particular attention was given to the overall performance and
actions taken by the Manager and its affiliates in response to problems arising
out of the market turmoil and financial crisis experienced during the past year.
In this respect, the Board noted that management's independent credit analysis
and diligent risk management procedures had minimized exposure of funds within
the Franklin Templeton complex to subprime mortgages and that its continuous
monitoring of counterparty credit risk had limited fund exposure to firms
experiencing financial difficulties like Bear Stearns and AIG. The same type of
conservative approach and attention to risk had also prevented any structured
investment products or other volatile instruments from being held in the
portfolios of any of the money market funds within the Franklin Templeton
complex, including the sweep money fund utilized by many of the funds as part of
their cash management. The Board also took into account, among other things,
management's efforts in establishing a $725 million global credit facility for
the benefit of the funds and other accounts managed by Franklin Templeton
Investments to provide a source of cash for temporary and emergency purposes or
to meet unusual redemption requests as well as the strong financial position of
the Manager's parent company and its commitment to the mutual fund business. The
Board also noted that during the past year Franklin Templeton Investments, like
many other fund managers, had announced a hiring freeze and implemented employee
reductions, and
Annual Report | 41
Franklin Real Estate Securities Trust
SHAREHOLDER INFORMATION (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
the Board discussed with management the nature of such reductions and steps
being taken to minimize any negative impact on the nature and quality of
services being provided the Fund.
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment
performance of the Fund in view of its importance to shareholders. While
consideration was given to performance reports and discussions with portfolio
managers at Board meetings during the year, particular attention in assessing
performance was given to the Lipper reports furnished for the agreement renewal.
The Lipper report prepared for the Fund showed the investment performance of its
Class A shares for the 12-month period ended January 31, 2009, and the previous
10-year periods ended that date in comparison with a performance universe
consisting of all retail and institutional real estate funds as selected by
Lipper. Consistent with the market sell-off that occurred during the past year,
the Fund and all other funds within its performance universe experienced losses
during such period. On a comparative basis, the Lipper report showed the Fund's
total return to be above the median of the performance universe for the one-year
period, but on an annualized basis to be in the lowest quintile of such universe
for the previous three-, five- and 10-year periods. The Board noted that the
Fund's previous portfolio management had been replaced in 2008 and believed that
more time was needed to establish a meaningful performance record for its
current portfolio managers.
COMPARATIVE EXPENSES. Consideration was given to a comparative analysis of the
management fees and total expense ratios of the Fund compared with those of a
group of other funds selected by Lipper as constituting its appropriate Lipper
expense group. Lipper expense data is based upon historical information taken
from each fund's most recent annual report and, as a result of the severe
decline in mutual fund industry assets during the last quarter of 2008, is based
on asset levels that are higher than the level currently existing for most
funds. While recognizing the limitations inherent in Lipper's methodology and
recognizing that current expense ratios may increase as assets decline, the
Board believed that the independent analysis conducted by Lipper remained an
appropriate measure of comparative expenses. In reviewing comparative costs,
Lipper provides information on the Fund's contractual investment management fee
in comparison with the contractual investment management fee that would have
been charged by other funds within its Lipper expense group assuming they were
similar in size to the Fund, as well as the actual total expenses of the Fund in
comparison with those of its Lipper expense group. The Lipper contractual
investment management fee analysis considers administrative charges as being
part of management fees and total expenses for comparative consistency are shown
by Lipper for Fund Class A shares. The results of such expense comparisons
showed the Fund's contractual investment management fee rate, as well as its
actual total expense rate to both be in the least expensive quintile of its
Lipper expense group. The Board was satisfied with the management fees and total
expenses of the Fund in comparison to its Lipper expense group.
42 | Annual Report
Franklin Real Estate Securities Trust
SHAREHOLDER INFORMATION (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
MANAGEMENT PROFITABILITY. The Board also considered the level of profits
realized by the Manager and its affiliates in connection with the operation of
the Fund. In this respect, the Board reviewed the Fund profitability analysis
that addresses the overall profitability of Franklin Templeton's U.S. fund
business, as well as its profits in providing management and other services to
the Fund during the 12-month period ended September 30, 2008, being the most
recent fiscal year end for Franklin Resources, Inc., the Manager's parent.
During such period, the assets of the Franklin Templeton U.S. fund business were
significantly higher than currently existing, and to such extent the
profitability analysis does not reflect current fund operations. While taking
this into account in assessing the significance of the Fund profitability
analysis, the Board recognized such analysis was made at a given point in time
and that the decline in assets and effect on profitability would be reflected in
the profitability analysis covering Franklin Resources' 2009 fiscal year period.
In reviewing the analysis, attention was given to the methodology followed in
allocating costs to the Fund, it being recognized that allocation methodologies
are inherently subjective and various allocation methodologies may each be
reasonable while producing different results. In this respect, the Board noted
that, while being continuously refined and reflecting changes in the Manager's
own cost accounting, the cost allocation methodology was consistent with that
followed in profitability report presentations for the Fund made in prior years
and that the Fund's independent registered public accounting firm had been
engaged by the Manager to perform certain procedures on a biennial basis,
specified and approved by the Manager and the Fund's Board solely for their
purposes and use in reference to the profitability analysis. In reviewing and
discussing such analysis, management discussed with the Board its belief that
costs incurred in establishing the infrastructure necessary for the type of
mutual fund operations conducted by the Manager and its affiliates may not be
fully reflected in the expenses allocated to the Fund in determining its
profitability, as well as the fact that the level of profits, to a certain
extent, reflected operational cost savings and efficiencies initiated by
management. The Board also took into account management's expenditures in
improving shareholder services provided the Fund, as well as the need to meet
additional regulatory and compliance requirements resulting from the
Sarbanes-Oxley Act and recent SEC and other regulatory requirements. In
addition, the Board considered a third-party study comparing the profitability
of the Manager's parent on an overall basis as compared to other publicly held
managers broken down to show profitability from management operations exclusive
of distribution expenses, as well as profitability including distribution
expenses. The Board also considered the extent to which the Manager and its
affiliates might derive ancillary benefits from fund operations, including its
interest in a joint venture entity that financed up-front commissions paid to
brokers/dealers who sold fund Class B shares prior to February 2005 when the
offering of such shares was discontinued, as well as potential benefits
resulting from allocation of fund brokerage and the use of commission dollars to
pay for research. Based upon its consideration of all these factors, the Board
determined that the level of profits realized by the Manager and its affiliates
from providing services to the Fund was not excessive in view of the nature,
quality and extent of services provided.
Annual Report | 43
Franklin Real Estate Securities Trust
SHAREHOLDER INFORMATION (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
ECONOMIES OF SCALE. The Board also considered whether economies of scale are
realized by the Manager as the Fund grows larger and the extent to which this is
reflected in the level of management fees charged. While recognizing that any
precise determination is inherently subjective, the Board noted that based upon
the Fund profitability analysis, it appears that as some funds get larger, at
some point economies of scale do result in the Manager realizing a larger profit
margin on management services provided such a fund. The Board also noted that
economies of scale are shared with a fund and its shareholders through
management fee breakpoints so that as a fund grows in size, its effective
management fee rate declines. The fee structure under the Fund's investment
management agreement provides an initial fee of 0.625% on the first $100 million
of assets; 0.50% on the next $150 million of assets and 0.45% on the next $9.75
billion of assets, with breakpoints continuing in stages thereafter until
declining to a final breakpoint of 0.40% on assets in excess of $15 billion. The
Fund had assets of approximately $238 million at the end of 2008 and management
expressed its view that the existing fee schedule reaches a relatively low rate
quickly as the Fund grows and anticipates economies of scale as shown in the
favorable effective management fee and expense comparisons within its Lipper
expense group. The Board believes that to the extent any economies of scale may
be realized by the Manager and its affiliates, the schedule of fees under the
investment management agreement provides a sharing of benefits with the Fund and
its shareholders.
PROXY VOTING POLICIES AND PROCEDURES
The Fund's investment manager has established Proxy Voting Policies and
Procedures (Policies) that the Fund uses to determine how to vote proxies
relating to portfolio securities. Shareholders may view the Fund's complete
Policies online at franklintempleton.com. Alternatively, shareholders may
request copies of the Policies free of charge by calling the Proxy Group collect
at (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 Fund'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 Fund 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 (800)
SEC-0330.
44 | Annual Report
Franklin Templeton Funds
LITERATURE REQUEST. TO RECEIVE A PROSPECTUS, PLEASE CALL US AT (800)DIAL
BEN/(800)342-5236 OR VISIT franklintempleton.com. INVESTORS SHOULD CAREFULLY
CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES BEFORE
INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE CAREFULLY
READ THE PROSPECTUS BEFORE INVESTING. TO ENSURE THE HIGHEST QUALITY OF SERVICE,
WE MAY MONITOR, RECORD AND ACCESS TELEPHONE CALLS TO OR FROM OUR SERVICE
DEPARTMENTS. THESE CALLS CAN BE IDENTIFIED BY THE PRESENCE OF A REGULAR
BEEPING TONE.
VALUE
Franklin All Cap Value Fund
Franklin Balance Sheet Investment Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund(1)
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Quest Fund
Mutual Recovery Fund(2)
Mutual Shares Fund
BLEND
Franklin Focused Core Equity Fund
Franklin Large Cap Equity Fund
Franklin Rising Dividends Fund
GROWTH
Franklin Flex Cap Growth Fund
Franklin Growth Fund
Franklin Growth Opportunities Fund
Franklin Small Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Real Estate Fund
Franklin Gold & Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Utilities Fund
Mutual Financial Services Fund
GLOBAL
Mutual Global Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund
INTERNATIONAL
Franklin India Growth Fund
Franklin International Growth Fund
Franklin International Small Cap Growth Fund
Mutual European Fund
Mutual International Fund
Templeton BRIC Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Emerging Markets Small Cap Fund
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton Frontier Markets Fund
HYBRID
Franklin Balanced Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Templeton Income Fund
ASSET ALLOCATION
Franklin Templeton Corefolio(R) Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund
FIXED INCOME
Franklin Adjustable U.S. Government Securities Fund(3)
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund
Franklin Limited Maturity U.S. Government Securities Fund(3)
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund(3)
Templeton Global Bond Fund
Templeton Global Total Return Fund
Templeton International Bond Fund
TAX-FREE INCOME(4)
NATIONAL
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund(5)
LIMITED-/INTERMEDIATE-TERM
California Intermediate-Term Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Intermediate-Term Tax-Free Income Fund
STATE-SPECIFIC
Alabama
Arizona
California(6)
Colorado
Connecticut
Florida
Georgia
Kentucky
Louisiana
Maryland
Massachusetts(7)
Michigan(7)
Minnesota(7)
Missouri
New Jersey
New York(6)
North Carolina
Ohio(7)
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust(8)
(1.) The fund is closed to new investors. Existing shareholders and select
retirement plans can continue adding to their accounts.
(2.) The fund is a continuously offered, closed-end fund. Shares may be
purchased daily; there is no daily redemption. However, each quarter,
pending board approval, the fund will authorize the repurchase of 5%-25% of
the outstanding number of shares. Investors may tender all or a portion of
their shares during the tender period.
(3.) An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
(4.) For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are generally
taxable.
(5.) The fund invests primarily in insured municipal securities.
(6.) These funds are available in four or more variations, including long-term
portfolios, intermediate-term portfolios, portfolios of insured securities,
a high-yield portfolio (CA only) and money market portfolios.
(7.) The Board of Trustees approved the elimination of the non-fundamental
policy requiring the fund to invest at least 80% of net assets in insured
municipal securities and the removal of the word "Insured" from the fund
name. The changes became effective 2/17/09.
(8.) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
04/09 Not part of the annual report
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO) One Franklin Parkway
San Mateo, CA 94403-1906
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ANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN REAL ESTATE SECURITIES FUND
INVESTMENT MANAGER
Franklin Templeton Institutional, LLC
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
(800) DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
(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 A2009 06/09
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 $292,534 for the fiscal year ended April 30, 2009 and $325,694 for the
fiscal year ended April 30, 2008.
(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 $6,000 for the fiscal year ended
April 30, 2009 and $0 for the fiscal year ended April 30, 2008. The services for
which these fees were paid included tax compliance and advice.
(d) All Other Fees
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant not reported in
paragraphs (a)-(c) of Item 4 were $10,704 for the fiscal year ended April 30,
2009 and $0 for the fiscal year ended April 30, 2008. The services for which
these fees were paid included review of materials provided to the fund Board in
connection with the investment management contract renewal process.
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant other than
services reported in paragraphs (a)-(c) of Item 4 were $273,373 for the fiscal
year ended April 30, 2009 and $0 for the fiscal year ended April 30, 2008. The
services for which these fees were paid included review of materials provided to
the fund Board in connection with the investment management contract renewal
process.
(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 $290,077 for the fiscal year ended April 30, 2009 and $0 for the
fiscal year ended April 30, 2008.
(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 Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and
Gaston Gardey, Chief Financial Officer and Chief Accounting Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and
Gaston Gardey, 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/Laura F. Fergerson
------------------
Laura F. Fergerson
Chief Executive Officer - Finance and Administration
Date June 25, 2009
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/Gaston Gardey
------------------
Gaston gardey
Chief Executive Officer - Finance and Administration
Date June 25, 2009
By /sGaston Gardey
---------------------
Gaston Gardey
Chief Financial Officer and Chief Accounting Officer
Date June 25, 2009