UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-08034
FRANKLIN REAL ESTATE SECURITIES TRUST
-------------------------------------
(Exact name of registrant as specified in charter)
ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
----------------------------------------------
(Address of principal executive offices) (Zip code)
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
--------------
Date of fiscal year end: 4/30
----
Date of reporting period: 4/30/10
--------
ITEM 1. REPORTS TO STOCKHOLDERS.
APRIL 30, 2010
ANNUAL REPORT
AND SHAREHOLDER LETTER
SIGN UP FOR ELECTRONIC DELIVERY
on franklintempleton.com
(GRAPHIC)
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
Important Notice to Shareholders .......................................... 15
Financial Highlights and Statement of Investments ......................... 16
Financial Statements ...................................................... 22
Notes to Financial Statements ............................................. 26
Report of Independent Registered Public Accounting Firm ................... 35
Board Members and Officers ................................................ 36
Shareholder Information ................................................... 41
Shareholder Letter
Dear Shareholder:
During the year ended April 30, 2010, the U.S. economy showed signs of an
increasingly broad-based expansion while interest rates remained near all-time
lows and inflation was muted. Although corporate and global economic data
underscored some weak spots amid short-term improvements, by fourth quarter 2009
and into 2010, most companies beat consensus earnings estimates, aided by
government incentives and a wave of restructuring and cost-cutting initiatives.
U.S. equity markets enjoyed an unusually strong rally until first quarter 2010,
when volatility returned as investors began to heed signs of overvaluation. In
addition, concerns about some European countries' credit-worthiness contributed
to significant market uncertainty. Investors also questioned the global
recovery's sustainability as some government stimulus measures began to wind
down. During the reporting period, U.S. Treasury yields rose and fell in
response to wavering investor sentiment. The yield curve reached historically
steep levels during the first quarter of 2010 and flattened only slightly by
period-end.
We think it is important to put short-term market developments in perspective.
Keep in mind we have navigated through past periods of high market volatility by
remaining committed to our long-term perspective and disciplined investment
philosophy. Although conditions remain challenging, our experience gives us
reason to be optimistic about the potential for future market stabilization and
economic recovery.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Not part of the annual report | 1
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 from the
portfolio managers. Please remember that all securities markets fluctuate, as do
mutual fund share prices.
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/ Edward B. Jamieson
Edward B. Jamieson
President and Chief Executive Officer - Investment Management
Franklin Real Estate Securities Trust
THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF APRIL 30, 2010. 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)
This annual report for Franklin Real Estate Securities Fund covers the fiscal
year ended April 30, 2010.
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.
PERFORMANCE OVERVIEW
Franklin Real Estate Securities Fund - Class A delivered a +63.61% cumulative
total return for the 12 months under review. The Fund underperformed its
benchmark, the S&P(R) U.S. Property Index, which posted a +70.87% return, but
outperformed its previous benchmark, the Standard & Poor's(R) 500 Index (S&P
500(R)), which had a +38.84% return for the same period.(2) The S&P U.S.
Property Index replaced the S&P 500 as the Fund's benchmark because it better
reflects the Fund's portfolio composition. You can find the Fund's long-term
performance data in the Performance Summary beginning on page 8.
(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.
(2.) Source: (C) 2010 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 is a
market capitalization-weighted index of 500 stocks designed to measure
total U.S. equity market performance. The indexes are unmanaged and include
reinvested dividends. One cannot invest directly in an index, and an index
is not representative of the Fund's portfolio.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 20.
Annual Report | 3
PORTFOLIO BREAKDOWN
Based on Total Net Assets as of 4/30/10
(BAR CHART)
Specialized REITs 25.9%
Retail REITs 21.9%
Office REITs 18.5%
Residential REITs 17.3%
Diversified REITs 7.0%
Industrial REITs 5.5%
Other 1.3%
Short-Term Investments & Other Net Assets 2.6%
ECONOMIC AND MARKET OVERVIEW
The U.S. economy ended the fiscal year under review in much better shape than it
began and showed signs of broad-based improvements. In the latter half of the
period, U.S. manufacturing and exports posted gains, consumer spending and
confidence rebounded from recessionary lows, and the services sector expanded
for the first time in more than two years. However, challenges remained as mixed
economic reports, elevated debt concerns surrounding the U.S. budget deficit and
lack of job prospects for the unemployed hindered the economy's advance. Fourth
quarter 2009 and first quarter 2010 corporate profit growth largely surpassed
consensus estimates, which allowed businesses to begin restocking inventories
that were depleted during the recession. Prices for new and previously occupied
homes rose in most regions due to lower interest rates, a first-time homebuyer
tax credit program, and prices dipping to levels that lured bargain hunters.
Unfortunately, the housing sector overall remained weak as the pace of home
sales and housing starts failed to gain traction.
The U.S. economy expanded at its fastest pace in six years during 2009's fourth
quarter, led by large inventory adjustments, government spending, a revival of
business investment and rising exports. U.S. economic output as measured by
gross domestic product grew at an annualized rate of 5.6% in the fourth quarter,
followed by an estimated annualized 3.0% advance in 2010's first quarter.(3) As
renewed signs of a demand-led recovery emerged, oil prices jumped from $51 per
barrel to $86 during the year under review. The April 2010 inflation rate was an
annualized 2.2%.(4) Core inflation, which excludes food and energy costs, rose
at a 0.9% annualized rate(4) and was below the Federal Reserve Board's (Fed's)
informal target range of 1.5% to 2.0%.
Given few inflationary pressures and uncertainty surrounding the economic
recovery, the Federal Open Market Committee (FOMC) announced it intended to hold
the federal funds target rate in the 0% to 0.25% range "for an extended period"
as it laid the groundwork for an eventual tightening of monetary policy. As the
economy improved, the Fed began withdrawing more of the extraordinary support
policies it had provided in response to the 2008 financial crisis. Late in the
reporting period, the labor market improved somewhat as the economy began to add
jobs, and the unemployment rate dropped from a 26-year high of 10.1% in October
2009 to 9.9% in April.(4)
(3.) Source: Bureau of Economic Analysis.
(4.) Source: Bureau of Labor Statistics.
4 | Annual Report
TOP 10 HOLDINGS
4/30/10
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------- ----------
Simon Property Group Inc.
RETAIL REITS 8.6%
Host Hotels & Resorts Inc.
SPECIALIZED REITS 6.6%
Boston Properties Inc.
OFFICE REITS 6.4%
Equity Residential
RESIDENTIAL REITS 6.2%
Vornado Realty Trust
DIVERSIFIED REITS 5.5%
Public Storage
SPECIALIZED REITS 4.9%
Ventas Inc.
SPECIALIZED REITS 4.9%
HCP Inc.
SPECIALIZED REITS 3.7%
AvalonBay Communities Inc.
RESIDENTIAL REITS 2.7%
AMB Property Corp.
INDUSTRIAL REITS 2.6%
As investor confidence improved amid encouraging economic data, equity markets
generally rallied, though the advance was uneven. On April 12, 2010, the Dow
Jones Industrial Average (Dow) closed above 11,000, a level it had not reached
in nearly 19 months. The rally was driven in part by investor optimism about
corporate profits, a recovering economy and the announcement of a debt relief
plan for the ailing Greek government. This achievement was largely symbolic,
however, and volatile trading activity soon resumed. The market plunged after
independent credit rating agency Standard & Poor's slashed its credit ratings
for Spain, Greece and Portugal but rebounded after the FOMC announced it would
keep interest rates stable and many companies released upbeat earnings reports.
For the 12 months under review, the blue chip stocks of the Dow delivered a
+38.69% total return, while the broader S&P 500 posted a +38.84% total return
and the technology-heavy NASDAQ Composite Index returned +44.63%.(5) All major
industry groups posted gains for the period, with the strongest returns from the
cyclical industrials, consumer discretionary and financials sectors.
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 12 months ended April 30, 2010, most of the Fund's positions
contributed to its absolute performance as the stock market sharply rebounded
from the lows of early 2009. Key contributors to the Fund's returns relative to
the S&P U.S. Property Index included Developers Diversified Realty, Host Hotels
& Resorts and UDR. Shares of Developers Diversified, a U.S. REIT that develops
and owns shopping centers, rose in
(5.) Source: (C) 2010 Morningstar. The Dow is a price-weighted average based on
the average market price of 30 blue chip stocks that are generally industry
leaders. See footnote 2 for a description of the S&P 500. The NASDAQ
Composite Index is a broad-based, market capitalization-weighted index
designed to measure all NASDAQ domestic and international based common type
stocks listed on The NASDAQ Stock Market.
Annual Report | 5
value over the 12-month period as businesses signed new leases and renewed
existing ones during the economic recovery. The company also significantly
reduced its debt load through equity and debt offerings and asset sales. In
addition, Developers Diversified received a significant private equity infusion
from the Ottos, a wealthy German family viewed as a savvy retail investor and
owner/operator in Europe with a 24% stake in the company.
Host Hotels, which owns and operates 110 luxury hotels, benefited the Fund as
investors purchased shares apparently assuming hotel revenues and profits could
bounce back quickly as the economy improved. One of the reasons investors
favored hotel stocks is a hotel stay is typically just a few days, a much
smaller commitment compared with a five- to 10-year lease to rent office space
or a store front. During the period under review, our analysis on Host Hotels
helped the Fund as we determined that Wall Street analysts had underestimated
the rebound in business travel. The Fund's overweighting in apartment REIT UDR,
an owner/operator of sizable assets in the relatively stable Washington, DC,
metro market, boosted relative returns as the company's share price climbed
during the period. UDR experienced increased demand from tenants who preferred
to rent instead of buy a home in the current residential home market. In
addition, with relatively low rents, UDR achieved stable occupancy rates.
Despite the Fund's one-year gain, several holdings detracted from relative
performance. These included Kimco Realty, Mack-Cali Realty and Apartment
Investment & Management. Returns for Kimco, a shopping center REIT, and
Mack-Cali, a suburban office REIT, trailed the S&P U.S. Property Index's return
though they were still positive. Apartment Investment & Management enjoyed
positive absolute performance, but the Fund's underweighting was a drag on
relative results. In a year where the stock market rallied significantly, the
Fund's cash position (short-term investments and other net assets), though
small, hindered relative performance because an index holds no cash.
At period-end, we believe that the real estate sector, and U.S. REITs
specifically, was at an attractive point in the economic cycle. Although
valuations for certain REIT stocks may have rallied a bit too much for the short
term, in our assessment, real estate and REITs could start to perform well over
the next few years. Many companies' earnings could improve over time as the
economic slowdown appears to us to have ended. Our analysis also pointed to
selective opportunities in most U.S. REIT sectors because of reasonably
favorable valuations. The Fund's REIT holdings have generally navigated economic
downturns in the past, and appear to us to have emerged intact from the recent
slowdown with sufficient liquidity. We believe these companies are likely to
persevere due to conservative balance sheets, cash flow generation
6 | Annual Report
that is larger than dividend payout requirements, and ownership of higher
quality "hard assets" in their respective markets. Our analysis also showed our
REIT holdings could have the capacity to acquire future distressed opportunities
to increase their asset base. Distressed selling may occur over the next few
years among weaker REITs or other financially challenged companies, which could
create opportunities for REITs with sufficient capacity to acquire quality
assets at attractive valuations. In this challenging environment, we believe the
portfolio's high income and low volatility strategy, in combination with our
active management policy, has the potential to generate positive returns over
time.
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 Securities Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF APRIL 30, 2010, 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 4/30/10
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 4/30/10 4/30/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$4.73 $12.57 $7.84
DISTRIBUTIONS (5/1/09-4/30/10)
Dividend Income $0.1581
Tax Return of Capital $0.0392
Total $0.1973
CLASS B (SYMBOL: FBREX) CHANGE 4/30/10 4/30/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$4.65 $12.35 $7.70
DISTRIBUTIONS (5/1/09-4/30/10)
Dividend Income $0.1564
Tax Return of Capital $0.0392
Total $0.1956
CLASS C (SYMBOL: FRRSX) CHANGE 4/30/10 4/30/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$4.59 $12.23 $7.64
DISTRIBUTIONS (5/1/09-4/30/10)
Dividend Income $0.0963
Tax Return of Capital $0.0392
Total $0.1355
ADVISOR CLASS (SYMBOL: FRLAX) CHANGE 4/30/10 4/30/09
- ----------------------------- ------ ------- -------
Net Asset Value (NAV) +$4.76 $12.65 $7.89
DISTRIBUTIONS (5/1/09-4/30/10)
Dividend Income $0.1807
Tax Return of Capital $0.0392
Total $0.2199
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) +63.61% -15.09% +100.12%
Average Annual Total Return(2) +54.17% -4.36% +6.55%
Value of $10,000 Investment(3) $15,417 $8,004 $18,856
Avg. Ann. Total Return (3/31/10)(4) +85.12% -4.83% +6.56%
Total Annual Operating Expenses(5) 1.26%
CLASS B 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------ -------
Cumulative Total Return(1) +63.69% -16.79% +89.18%
Average Annual Total Return(2) +59.69% -3.83% +6.58%
Value of $10,000 Investment(3) $15,969 $8,226 $18,918
Avg. Ann. Total Return (3/31/10)(4) +92.33% -4.30% +6.59%
Total Annual Operating Expenses(5) 1.26%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------ -------
Cumulative Total Return(1) +62.31% -18.21% +85.75%
Average Annual Total Return(2) +61.31% -3.94% +6.39%
Value of $10,000 Investment(3) $16,131 $8,179 $18,575
Avg. Ann. Total Return (3/31/10)(4) +93.50% -4.41% +6.40%
Total Annual Operating Expenses(5) 2.01%
ADVISOR CLASS 1-YEAR 5-YEAR 10-YEAR
- ------------- ------- ------ -------
Cumulative Total Return(1) +63.98% -14.06% +105.18%
Average Annual Total Return(2) +63.98% -2.98% +7.45%
Value of $10,000 Investment(3) $16,398 $8,594 $20,518
Avg. Ann. Total Return (3/31/10)(4) +96.62% -3.46% +7.46%
Total Annual Operating Expenses(5) 1.01%
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, GO TO
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.
CLASS A (5/1/00-4/30/10)
(PERFORMANCE GRAPH)
FRANKLIN REAL ESTATE S&P-500 S&P U.S.
DATE SECURITIES FUND - CLASS A INDEX PROPERTY INDEX
- ---------- ------------------------- ------- --------------
5/1/2000 $ 9,425 $10,000 $10,000
5/31/2000 $ 9,636 $ 9,795 $10,096
6/30/2000 $10,099 $10,036 $10,398
7/31/2000 $10,974 $ 9,879 $11,314
8/31/2000 $10,602 $10,493 $10,904
9/30/2000 $10,893 $ 9,939 $11,329
10/31/2000 $10,475 $ 9,897 $10,889
11/30/2000 $10,565 $ 9,117 $11,069
12/31/2000 $11,290 $ 9,161 $11,834
1/31/2001 $11,517 $ 9,486 $11,951
2/28/2001 $11,319 $ 8,621 $11,770
3/31/2001 $11,252 $ 8,075 $11,918
4/30/2001 $11,535 $ 8,703 $12,189
5/31/2001 $11,479 $ 8,761 $12,521
6/30/2001 $12,045 $ 8,548 $13,270
7/31/2001 $11,744 $ 8,464 $13,014
8/31/2001 $12,002 $ 7,934 $13,483
9/30/2001 $11,376 $ 7,293 $12,988
10/31/2001 $10,955 $ 7,432 $12,608
11/30/2001 $11,760 $ 8,002 $13,299
12/31/2001 $12,153 $ 8,072 $13,673
1/31/2002 $12,145 $ 7,955 $13,700
2/28/2002 $12,433 $ 7,801 $13,918
3/31/2002 $13,174 $ 8,095 $14,781
4/30/2002 $13,352 $ 7,604 $14,895
5/31/2002 $13,499 $ 7,548 $15,085
6/30/2002 $13,744 $ 7,010 $15,489
7/31/2002 $12,968 $ 6,464 $14,652
8/31/2002 $12,960 $ 6,506 $14,691
9/30/2002 $12,368 $ 5,799 $14,169
10/31/2002 $11,810 $ 6,310 $13,491
11/30/2002 $12,225 $ 6,681 $14,099
12/31/2002 $12,359 $ 6,288 $14,217
1/31/2003 $12,030 $ 6,124 $13,828
2/28/2003 $12,244 $ 6,032 $14,048
3/31/2003 $12,471 $ 6,090 $14,344
4/30/2003 $13,016 $ 6,592 $14,959
5/31/2003 $13,898 $ 6,939 $15,813
6/30/2003 $14,374 $ 7,028 $16,175
7/31/2003 $14,931 $ 7,152 $17,043
8/31/2003 $15,047 $ 7,291 $17,160
9/30/2003 $15,505 $ 7,214 $17,746
10/31/2003 $15,810 $ 7,622 $18,070
11/30/2003 $16,520 $ 7,689 $18,851
12/31/2003 $17,011 $ 8,092 $19,456
1/31/2004 $17,644 $ 8,241 $20,323
2/29/2004 $18,135 $ 8,355 $20,667
3/31/2004 $19,017 $ 8,229 $21,807
4/30/2004 $16,326 $ 8,100 $18,624
5/31/2004 $17,331 $ 8,211 $19,941
6/30/2004 $17,879 $ 8,371 $20,515
7/31/2004 $18,063 $ 8,094 $20,627
8/31/2004 $19,444 $ 8,127 $22,284
9/30/2004 $19,586 $ 8,215 $22,235
10/31/2004 $20,572 $ 8,340 $23,442
11/30/2004 $21,383 $ 8,678 $24,434
12/31/2004 $22,477 $ 8,973 $25,683
1/31/2005 $21,163 $ 8,754 $23,579
2/28/2005 $21,700 $ 8,938 $24,277
3/31/2005 $21,384 $ 8,780 $23,859
4/30/2005 $22,214 $ 8,614 $25,230
5/31/2005 $22,950 $ 8,888 $26,135
6/30/2005 $24,100 $ 8,900 $27,456
7/31/2005 $25,268 $ 9,231 $29,388
8/31/2005 $24,649 $ 9,147 $28,238
9/30/2005 $24,685 $ 9,221 $28,299
10/31/2005 $24,288 $ 9,067 $27,660
11/30/2005 $25,358 $ 9,410 $28,796
12/31/2005 $25,449 $ 9,414 $28,797
1/31/2006 $26,834 $ 9,663 $30,899
2/28/2006 $26,903 $ 9,689 $31,461
3/31/2006 $27,497 $ 9,810 $33,075
4/30/2006 $26,656 $ 9,941 $31,810
5/31/2006 $25,519 $ 9,655 $30,861
6/30/2006 $26,058 $ 9,668 $32,479
7/31/2006 $25,919 $ 9,728 $33,599
8/31/2006 $26,953 $ 9,959 $34,947
9/30/2006 $27,567 $10,216 $35,645
10/31/2006 $29,013 $10,549 $37,839
11/30/2006 $30,908 $10,750 $39,627
12/31/2006 $30,865 $10,900 $38,925
1/31/2007 $32,349 $11,065 $42,266
2/28/2007 $31,508 $10,849 $41,270
3/31/2007 $30,097 $10,970 $40,304
4/30/2007 $30,647 $11,456 $40,334
5/31/2007 $30,881 $11,856 $40,280
6/30/2007 $27,852 $11,659 $36,516
7/31/2007 $24,628 $11,297 $33,591
8/31/2007 $25,193 $11,467 $35,688
9/30/2007 $25,344 $11,896 $37,213
10/31/2007 $25,427 $12,085 $37,644
11/30/2007 $23,353 $11,580 $34,058
12/31/2007 $22,290 $11,499 $32,335
1/31/2008 $21,777 $10,810 $32,196
2/29/2008 $21,085 $10,458 $30,948
3/31/2008 $22,582 $10,413 $32,969
4/30/2008 $23,857 $10,920 $34,876
5/31/2008 $23,767 $11,062 $34,924
6/30/2008 $21,410 $10,129 $31,047
7/31/2008 $21,968 $10,044 $31,946
8/31/2008 $22,344 $10,189 $32,696
9/30/2008 $22,176 $ 9,281 $32,631
10/31/2008 $15,604 $ 7,723 $22,253
11/30/2008 $12,161 $ 7,169 $16,916
12/31/2008 $13,793 $ 7,245 $19,798
1/31/2009 $11,161 $ 6,634 $16,334
2/28/2009 $ 8,808 $ 5,928 $12,878
3/31/2009 $ 9,029 $ 6,447 $13,328
4/30/2009 $11,528 $ 7,064 $17,550
5/31/2009 $11,734 $ 7,459 $17,942
6/30/2009 $11,389 $ 7,474 $17,397
7/31/2009 $12,527 $ 8,039 $19,230
8/31/2009 $14,093 $ 8,330 $21,939
9/30/2009 $14,964 $ 8,640 $23,385
10/31/2009 $14,206 $ 8,480 $22,216
11/30/2009 $15,188 $ 8,988 $23,750
12/31/2009 $16,160 $ 9,162 $25,458
1/31/2010 $15,185 $ 8,832 $24,092
2/28/2010 $16,070 $ 9,106 $25,425
3/31/2010 $17,721 $ 9,656 $28,036
4/30/2010 $18,856 $ 9,808 $29,988
AVERAGE ANNUAL TOTAL RETURN
CLASS A 4/30/10
- ------- -------
1-Year +54.17%
5-Year -4.36%
10-Year +6.55%
CLASS B (5/1/00-4/30/10)
(PERFORMANCE GRAPH)
FRANKLIN REAL ESTATE S&P 500 S&P U.S.
DATE SECURITIES FUND - CLASS B INDEX PROPERTY INDEX
- ---------- ------------------------- ------- --------------
5/1/2000 $10,000 $10,000 $10,000
5/31/2000 $10,210 $ 9,795 $10,096
6/30/2000 $10,702 $10,036 $10,398
7/31/2000 $11,618 $ 9,879 $11,314
8/31/2000 $11,222 $10,493 $10,904
9/30/2000 $11,522 $ 9,939 $11,329
10/31/2000 $11,070 $ 9,897 $10,889
11/30/2000 $11,159 $ 9,117 $11,069
12/31/2000 $11,918 $ 9,161 $11,834
1/31/2001 $12,151 $ 9,486 $11,951
2/28/2001 $11,933 $ 8,621 $11,770
3/31/2001 $11,858 $ 8,075 $11,918
4/30/2001 $12,151 $ 8,703 $12,189
5/31/2001 $12,076 $ 8,761 $12,521
6/30/2001 $12,674 $ 8,548 $13,270
7/31/2001 $12,348 $ 8,464 $13,014
8/31/2001 $12,606 $ 7,934 $13,483
9/30/2001 $11,938 $ 7,293 $12,988
10/31/2001 $11,495 $ 7,432 $12,608
11/30/2001 $12,328 $ 8,002 $13,299
12/31/2001 $12,737 $ 8,072 $13,673
1/31/2002 $12,722 $ 7,955 $13,700
2/28/2002 $13,016 $ 7,801 $13,918
3/31/2002 $13,775 $ 8,095 $14,781
4/30/2002 $13,961 $ 7,604 $14,895
5/31/2002 $14,101 $ 7,548 $15,085
6/30/2002 $14,351 $ 7,010 $15,489
7/31/2002 $13,536 $ 6,464 $14,652
8/31/2002 $13,520 $ 6,506 $14,691
9/30/2002 $12,894 $ 5,799 $14,169
10/31/2002 $12,309 $ 6,310 $13,491
11/30/2002 $12,728 $ 6,681 $14,099
12/31/2002 $12,864 $ 6,288 $14,217
1/31/2003 $12,503 $ 6,124 $13,828
2/28/2003 $12,728 $ 6,032 $14,048
3/31/2003 $12,945 $ 6,090 $14,344
4/30/2003 $13,514 $ 6,592 $14,959
5/31/2003 $14,420 $ 6,939 $15,813
6/30/2003 $14,901 $ 7,028 $16,175
7/31/2003 $15,466 $ 7,152 $17,043
8/31/2003 $15,579 $ 7,291 $17,160
9/30/2003 $16,045 $ 7,214 $17,746
10/31/2003 $16,346 $ 7,622 $18,070
11/30/2003 $17,069 $ 7,689 $18,851
12/31/2003 $17,564 $ 8,092 $19,456
1/31/2004 $18,205 $ 8,241 $20,323
2/29/2004 $18,699 $ 8,355 $20,667
3/31/2004 $19,595 $ 8,229 $21,807
4/30/2004 $16,816 $ 8,100 $18,624
5/31/2004 $17,835 $ 8,211 $19,941
6/30/2004 $18,390 $ 8,371 $20,515
7/31/2004 $18,572 $ 8,094 $20,627
8/31/2004 $19,978 $ 8,127 $22,284
9/30/2004 $20,112 $ 8,215 $22,235
10/31/2004 $21,108 $ 8,340 $23,442
11/30/2004 $21,929 $ 8,678 $24,434
12/31/2004 $23,045 $ 8,973 $25,683
1/31/2005 $21,679 $ 8,754 $23,579
2/28/2005 $22,208 $ 8,938 $24,277
3/31/2005 $21,875 $ 8,780 $23,859
4/30/2005 $22,722 $ 8,614 $25,230
5/31/2005 $23,454 $ 8,888 $26,135
6/30/2005 $24,610 $ 8,900 $27,456
7/31/2005 $25,794 $ 9,231 $29,388
8/31/2005 $25,140 $ 9,147 $28,238
9/30/2005 $25,163 $ 9,221 $28,299
10/31/2005 $24,746 $ 9,067 $27,660
11/30/2005 $25,811 $ 9,410 $28,796
12/31/2005 $25,891 $ 9,414 $28,797
1/31/2006 $27,284 $ 9,663 $30,899
2/28/2006 $27,334 $ 9,689 $31,461
3/31/2006 $27,924 $ 9,810 $33,075
4/30/2006 $27,050 $ 9,941 $31,810
5/31/2006 $25,881 $ 9,655 $30,861
6/30/2006 $26,410 $ 9,668 $32,479
7/31/2006 $26,257 $ 9,728 $33,599
8/31/2006 $27,287 $ 9,959 $34,947
9/30/2006 $27,885 $10,216 $35,645
10/31/2006 $29,336 $10,549 $37,839
11/30/2006 $31,236 $10,750 $39,627
12/31/2006 $31,165 $10,900 $38,925
1/31/2007 $32,650 $11,065 $42,266
2/28/2007 $31,776 $10,849 $41,270
3/31/2007 $30,343 $10,970 $40,304
4/30/2007 $30,882 $11,456 $40,334
5/31/2007 $31,097 $11,856 $40,280
6/30/2007 $28,029 $11,659 $36,516
7/31/2007 $24,762 $11,297 $33,591
8/31/2007 $25,315 $11,467 $35,688
9/30/2007 $25,452 $11,896 $37,213
10/31/2007 $25,525 $12,085 $37,644
11/30/2007 $23,424 $11,580 $34,058
12/31/2007 $22,350 $11,499 $32,335
1/31/2008 $21,841 $10,810 $32,196
2/29/2008 $21,150 $10,458 $30,948
3/31/2008 $22,644 $10,413 $32,969
4/30/2008 $23,929 $10,920 $34,876
5/31/2008 $23,839 $11,062 $34,924
6/30/2008 $21,475 $10,129 $31,047
7/31/2008 $22,034 $10,044 $31,946
8/31/2008 $22,412 $10,189 $32,696
9/30/2008 $22,243 $ 9,281 $32,631
10/31/2008 $15,651 $ 7,723 $22,253
11/30/2008 $12,198 $ 7,169 $16,916
12/31/2008 $13,835 $ 7,245 $19,798
1/31/2009 $11,195 $ 6,634 $16,334
2/28/2009 $ 8,835 $ 5,928 $12,878
3/31/2009 $ 9,056 $ 6,447 $13,328
4/30/2009 $11,563 $ 7,064 $17,550
5/31/2009 $11,770 $ 7,459 $17,942
6/30/2009 $11,424 $ 7,474 $17,397
7/31/2009 $12,565 $ 8,039 $19,230
8/31/2009 $14,135 $ 8,330 $21,939
9/30/2009 $15,010 $ 8,640 $23,385
10/31/2009 $14,249 $ 8,480 $22,216
11/30/2009 $15,233 $ 8,988 $23,750
12/31/2009 $16,209 $ 9,162 $25,458
1/31/2010 $15,231 $ 8,832 $24,092
2/28/2010 $16,119 $ 9,106 $25,425
3/31/2010 $17,774 $ 9,656 $28,036
4/30/2010 $18,918 $ 9,808 $29,988
AVERAGE ANNUAL TOTAL RETURN
CLASS B 4/30/10
- ------- -------
1-Year +59.69%
5-Year -3.83%
10-Year +6.58%
10 | Annual Report
Performance Summary (CONTINUED)
CLASS C (5/1/00-4/30/10)
(PERFORMANCE GRAPH)
FRANKLIN REAL ESTATE S&P 500 S&P U.S.
DATE SECURITIES FUND - CLASS C INDEX PROPERTY INDEX
- ---------- ------------------------- ------- --------------
5/1/2000 $10,000 $10,000 $10,000
5/31/2000 $10,211 $ 9,795 $10,096
6/30/2000 $10,704 $10,036 $10,398
7/31/2000 $11,618 $ 9,879 $11,314
8/31/2000 $11,220 $10,493 $10,904
9/30/2000 $11,518 $ 9,939 $11,329
10/31/2000 $11,071 $ 9,897 $10,889
11/30/2000 $11,160 $ 9,117 $11,069
12/31/2000 $11,914 $ 9,161 $11,834
1/31/2001 $12,148 $ 9,486 $11,951
2/28/2001 $11,937 $ 8,621 $11,770
3/31/2001 $11,861 $ 8,075 $11,918
4/30/2001 $12,148 $ 8,703 $12,189
5/31/2001 $12,080 $ 8,761 $12,521
6/30/2001 $12,673 $ 8,548 $13,270
7/31/2001 $12,346 $ 8,464 $13,014
8/31/2001 $12,605 $ 7,934 $13,483
9/30/2001 $11,940 $ 7,293 $12,988
10/31/2001 $11,494 $ 7,432 $12,608
11/30/2001 $12,332 $ 8,002 $13,299
12/31/2001 $12,740 $ 8,072 $13,673
1/31/2002 $12,725 $ 7,955 $13,700
2/28/2002 $13,013 $ 7,801 $13,918
3/31/2002 $13,774 $ 8,095 $14,781
4/30/2002 $13,961 $ 7,604 $14,895
5/31/2002 $14,101 $ 7,548 $15,085
6/30/2002 $14,357 $ 7,010 $15,489
7/31/2002 $13,531 $ 6,464 $14,652
8/31/2002 $13,515 $ 6,506 $14,691
9/30/2002 $12,891 $ 5,799 $14,169
10/31/2002 $12,296 $ 6,310 $13,491
11/30/2002 $12,724 $ 6,681 $14,099
12/31/2002 $12,853 $ 6,288 $14,217
1/31/2003 $12,499 $ 6,124 $13,828
2/28/2003 $12,724 $ 6,032 $14,048
3/31/2003 $12,941 $ 6,090 $14,344
4/30/2003 $13,505 $ 6,592 $14,959
5/31/2003 $14,414 $ 6,939 $15,813
6/30/2003 $14,892 $ 7,028 $16,175
7/31/2003 $15,467 $ 7,152 $17,043
8/31/2003 $15,581 $ 7,291 $17,160
9/30/2003 $16,040 $ 7,214 $17,746
10/31/2003 $16,342 $ 7,622 $18,070
11/30/2003 $17,068 $ 7,689 $18,851
12/31/2003 $17,565 $ 8,092 $19,456
1/31/2004 $18,200 $ 8,241 $20,323
2/29/2004 $18,695 $ 8,355 $20,667
3/31/2004 $19,595 $ 8,229 $21,807
4/30/2004 $16,814 $ 8,100 $18,624
5/31/2004 $17,837 $ 8,211 $19,941
6/30/2004 $18,386 $ 8,371 $20,515
7/31/2004 $18,568 $ 8,094 $20,627
8/31/2004 $19,972 $ 8,127 $22,284
9/30/2004 $20,109 $ 8,215 $22,235
10/31/2004 $21,108 $ 8,340 $23,442
11/30/2004 $21,924 $ 8,678 $24,434
12/31/2004 $23,035 $ 8,973 $25,683
1/31/2005 $21,672 $ 8,754 $23,579
2/28/2005 $22,212 $ 8,938 $24,277
3/31/2005 $21,870 $ 8,780 $23,859
4/30/2005 $22,711 $ 8,614 $25,230
5/31/2005 $23,446 $ 8,888 $26,135
6/30/2005 $24,606 $ 8,900 $27,456
7/31/2005 $25,786 $ 9,231 $29,388
8/31/2005 $25,138 $ 9,147 $28,238
9/30/2005 $25,153 $ 9,221 $28,299
10/31/2005 $24,743 $ 9,067 $27,660
11/30/2005 $25,812 $ 9,410 $28,796
12/31/2005 $25,885 $ 9,414 $28,797
1/31/2006 $27,284 $ 9,663 $30,899
2/28/2006 $27,335 $ 9,689 $31,461
3/31/2006 $27,917 $ 9,810 $33,075
4/30/2006 $27,049 $ 9,941 $31,810
5/31/2006 $25,875 $ 9,655 $30,861
6/30/2006 $26,406 $ 9,668 $32,479
7/31/2006 $26,252 $ 9,728 $33,599
8/31/2006 $27,288 $ 9,959 $34,947
9/30/2006 $27,878 $10,216 $35,645
10/31/2006 $29,335 $10,549 $37,839
11/30/2006 $31,234 $10,750 $39,627
12/31/2006 $31,165 $10,900 $38,925
1/31/2007 $32,645 $11,065 $42,266
2/28/2007 $31,779 $10,849 $41,270
3/31/2007 $30,339 $10,970 $40,304
4/30/2007 $30,880 $11,456 $40,334
5/31/2007 $31,097 $11,856 $40,280
6/30/2007 $28,024 $11,659 $36,516
7/31/2007 $24,764 $11,297 $33,591
8/31/2007 $25,320 $11,467 $35,688
9/30/2007 $25,446 $11,896 $37,213
10/31/2007 $25,518 $12,085 $37,644
11/30/2007 $23,418 $11,580 $34,058
12/31/2007 $22,340 $11,499 $32,335
1/31/2008 $21,815 $10,810 $32,196
2/29/2008 $21,120 $10,458 $30,948
3/31/2008 $22,599 $10,413 $32,969
4/30/2008 $23,863 $10,920 $34,876
5/31/2008 $23,758 $11,062 $34,924
6/30/2008 $21,374 $10,129 $31,047
7/31/2008 $21,930 $10,044 $31,946
8/31/2008 $22,288 $10,189 $32,696
9/30/2008 $22,099 $ 9,281 $32,631
10/31/2008 $15,542 $ 7,723 $22,253
11/30/2008 $12,103 $ 7,169 $16,916
12/31/2008 $13,721 $ 7,245 $19,798
1/31/2009 $11,099 $ 6,634 $16,334
2/28/2009 $ 8,748 $ 5,928 $12,878
3/31/2009 $ 8,972 $ 6,447 $13,328
4/30/2009 $11,444 $ 7,064 $17,550
5/31/2009 $11,639 $ 7,459 $17,942
6/30/2009 $11,283 $ 7,474 $17,397
7/31/2009 $12,394 $ 8,039 $19,230
8/31/2009 $13,954 $ 8,330 $21,939
9/30/2009 $14,802 $ 8,640 $23,385
10/31/2009 $14,033 $ 8,480 $22,216
11/30/2009 $14,998 $ 8,988 $23,750
12/31/2009 $15,963 $ 9,162 $25,458
1/31/2010 $14,991 $ 8,832 $24,092
2/28/2010 $15,841 $ 9,106 $25,425
3/31/2010 $17,451 $ 9,656 $28,036
4/30/2010 $18,575 $ 9,808 $29,988
AVERAGE ANNUAL TOTAL RETURN
CLASS C 4/30/10
- ------- -------
1-Year +61.31%
5-Year -3.94%
10-Year +6.39%
Advisor Class (5/1/00-4/30/10)
(PERFORMANCE GRAPH)
FRANKLIN REAL ESTATE
SECURITIES FUND S&P 500 S&P U.S.
DATE - ADVISOR CLASS INDEX PROPERTY INDEX
- ---------- ------------------------- ------- --------------
5/1/2000 $10,000 $10,000 $10,000
5/31/2000 $10,223 $ 9,795 $10,096
6/30/2000 $10,720 $10,036 $10,398
7/31/2000 $11,646 $ 9,879 $11,314
8/31/2000 $11,260 $10,493 $10,904
9/30/2000 $11,569 $ 9,939 $11,329
10/31/2000 $11,125 $ 9,897 $10,889
11/30/2000 $11,221 $ 9,117 $11,069
12/31/2000 $11,999 $ 9,161 $11,834
1/31/2001 $12,240 $ 9,486 $11,951
2/28/2001 $12,037 $ 8,621 $11,770
3/31/2001 $11,971 $ 8,075 $11,918
4/30/2001 $12,272 $ 8,703 $12,189
5/31/2001 $12,212 $ 8,761 $12,521
6/30/2001 $12,821 $ 8,548 $13,270
7/31/2001 $12,501 $ 8,464 $13,014
8/31/2001 $12,775 $ 7,934 $13,483
9/30/2001 $12,111 $ 7,293 $12,988
10/31/2001 $11,672 $ 7,432 $12,608
11/30/2001 $12,527 $ 8,002 $13,299
12/31/2001 $12,947 $ 8,072 $13,673
1/31/2002 $12,947 $ 7,955 $13,700
2/28/2002 $13,253 $ 7,801 $13,918
3/31/2002 $14,038 $ 8,095 $14,781
4/30/2002 $14,243 $ 7,604 $14,895
5/31/2002 $14,400 $ 7,548 $15,085
6/30/2002 $14,669 $ 7,010 $15,489
7/31/2002 $13,835 $ 6,464 $14,652
8/31/2002 $13,835 $ 6,506 $14,691
9/30/2002 $13,205 $ 5,799 $14,169
10/31/2002 $12,611 $ 6,310 $13,491
11/30/2002 $13,053 $ 6,681 $14,099
12/31/2002 $13,206 $ 6,288 $14,217
1/31/2003 $12,847 $ 6,124 $13,828
2/28/2003 $13,084 $ 6,032 $14,048
3/31/2003 $13,323 $ 6,090 $14,344
4/30/2003 $13,920 $ 6,592 $14,959
5/31/2003 $14,860 $ 6,939 $15,813
6/30/2003 $15,369 $ 7,028 $16,175
7/31/2003 $15,972 $ 7,152 $17,043
8/31/2003 $16,104 $ 7,291 $17,160
9/30/2003 $16,594 $ 7,214 $17,746
10/31/2003 $16,928 $ 7,622 $18,070
11/30/2003 $17,686 $ 7,689 $18,851
12/31/2003 $18,217 $ 8,092 $19,456
1/31/2004 $18,901 $ 8,241 $20,323
2/29/2004 $19,425 $ 8,355 $20,667
3/31/2004 $20,371 $ 8,229 $21,807
4/30/2004 $17,495 $ 8,100 $18,624
5/31/2004 $18,578 $ 8,211 $19,941
6/30/2004 $19,168 $ 8,371 $20,515
7/31/2004 $19,373 $ 8,094 $20,627
8/31/2004 $20,859 $ 8,127 $22,284
9/30/2004 $21,015 $ 8,215 $22,235
10/31/2004 $22,079 $ 8,340 $23,442
11/30/2004 $22,955 $ 8,678 $24,434
12/31/2004 $24,132 $ 8,973 $25,683
1/31/2005 $22,724 $ 8,754 $23,579
2/28/2005 $23,309 $ 8,938 $24,277
3/31/2005 $22,976 $ 8,780 $23,859
4/30/2005 $23,874 $ 8,614 $25,230
5/31/2005 $24,672 $ 8,888 $26,135
6/30/2005 $25,910 $ 8,900 $27,456
7/31/2005 $27,171 $ 9,231 $29,388
8/31/2005 $26,517 $ 9,147 $28,238
9/30/2005 $26,553 $ 9,221 $28,299
10/31/2005 $26,136 $ 9,067 $27,660
11/30/2005 $27,284 $ 9,410 $28,796
12/31/2005 $27,389 $ 9,414 $28,797
1/31/2006 $28,896 $ 9,663 $30,899
2/28/2006 $28,970 $ 9,689 $31,461
3/31/2006 $29,617 $ 9,810 $33,075
4/30/2006 $28,715 $ 9,941 $31,810
5/31/2006 $27,495 $ 9,655 $30,861
6/30/2006 $28,075 $ 9,668 $32,479
7/31/2006 $27,937 $ 9,728 $33,599
8/31/2006 $29,068 $ 9,959 $34,947
9/30/2006 $29,723 $10,216 $35,645
10/31/2006 $31,298 $10,549 $37,839
11/30/2006 $33,354 $10,750 $39,627
12/31/2006 $33,307 $10,900 $38,925
1/31/2007 $34,913 $11,065 $42,266
2/28/2007 $34,010 $10,849 $41,270
3/31/2007 $32,503 $10,970 $40,304
4/30/2007 $33,107 $11,456 $40,334
5/31/2007 $33,371 $11,856 $40,280
6/30/2007 $30,098 $11,659 $36,516
7/31/2007 $26,619 $11,297 $33,591
8/31/2007 $27,239 $11,467 $35,688
9/30/2007 $27,395 $11,896 $37,213
10/31/2007 $27,497 $12,085 $37,644
11/30/2007 $25,252 $11,580 $34,058
12/31/2007 $24,115 $11,499 $32,335
1/31/2008 $23,564 $10,810 $32,196
2/29/2008 $22,819 $10,458 $30,948
3/31/2008 $24,444 $10,413 $32,969
4/30/2008 $25,817 $10,920 $34,876
5/31/2008 $25,720 $11,062 $34,924
6/30/2008 $23,183 $10,129 $31,047
7/31/2008 $23,784 $10,044 $31,946
8/31/2008 $24,203 $10,189 $32,696
9/30/2008 $24,024 $ 9,281 $32,631
10/31/2008 $16,910 $ 7,723 $22,253
11/30/2008 $13,169 $ 7,169 $16,916
12/31/2008 $14,954 $ 7,245 $19,798
1/31/2009 $12,100 $ 6,634 $16,334
2/28/2009 $ 9,547 $ 5,928 $12,878
3/31/2009 $ 9,800 $ 6,447 $13,328
4/30/2009 $12,512 $ 7,064 $17,550
5/31/2009 $12,734 $ 7,459 $17,942
6/30/2009 $12,360 $ 7,474 $17,397
7/31/2009 $13,588 $ 8,039 $19,230
8/31/2009 $15,294 $ 8,330 $21,939
9/30/2009 $16,244 $ 8,640 $23,385
10/31/2009 $15,425 $ 8,480 $22,216
11/30/2009 $16,501 $ 8,988 $23,750
12/31/2009 $17,566 $ 9,162 $25,458
1/31/2010 $16,512 $ 8,832 $24,092
2/28/2010 $17,469 $ 9,106 $25,425
3/31/2010 $19,269 $ 9,656 $28,036
4/30/2010 $20,518 $ 9,808 $29,988
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 4/30/10
- ------------- -------
1-Year +63.98%
5-Year -2.98%
10-Year +7.45%
Annual Report | 11
Performance Summary (CONTINUED)
ENDNOTES
INVESTING IN A NONDIVERSIFIED FUND CONCENTRATING IN REAL ESTATE SECURITIES
INVOLVES SPECIAL RISKS, SUCH AS DECLINES IN THE VALUE OF REAL ESTATE AND
INCREASED SUSCEPTIBILITY TO ADVERSE ECONOMIC OR REGULATORY DEVELOPMENTS
AFFECTING THE SECTOR. THE FUND'S INVESTMENTS IN SMALL- AND MEDIUM-CAPITALIZATION
STOCKS CARRY SPECIAL RISKS, SINCE THESE SECURITIES HAVE HISTORICALLY BEEN MORE
VOLATILE IN PRICE THAN LARGER CAPITALIZATION STOCKS, PARTICULARLY OVER THE SHORT
TERM. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT
RISKS.
CLASS 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) 2010 Morningstar. The S&P U.S. Property Index measures the
investible universe of publicly traded property companies in the U.S. The
S&P 500 is a market capitalization-weighted index of 500 stocks designed to
measure total U.S. equity market performance.
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 11/1/09 VALUE 4/30/10 PERIOD* 11/1/09-4/30/10
----------------- -------------- -----------------------
CLASS A
Actual $1,000 $1,327.70 $ 7.62
Hypothetical (5% return before expenses) $1,000 $1,018.25 $ 6.61
CLASS B
Actual $1,000 $1,328.30 $ 7.50
Hypothetical (5% return before expenses) $1,000 $1,018.35 $ 6.51
CLASS C
Actual $1,000 $1,323.70 $11.87
Hypothetical (5% return before expenses) $1,000 $1,014.58 $10.29
ADVISOR CLASS
Actual $1,000 $1,330.20 $ 6.18
Hypothetical (5% return before expenses) $1,000 $1,019.49 $ 5.36
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 1.32%; B: 1.30% net of expense waiver; C:
2.06%; and Advisor: 1.07%), multiplied by the average account value over
the period, multiplied by 181/365 to reflect the one-half year period.
14 | Annual Report
Important Notice to Shareholders
REVISED SECTION 19(A) NOTICE
The Fund's previous estimate of the sources from which its dividends of $0.1973
per share for Class A, $0.1956 per share for Class B, $0.1355 per share for
Class C and $0.2199 for Advisor Class, which were paid on December 17, 2009
(ex-dividend date December 15, 2009), have been revised to reflect that $0.1581,
$0.1564, $0.0963 and $0.1807 of such amounts represented a distribution of net
investment income for Class A, Class B, Class C and Advisor Class, respectively;
for each class $0.0000 of such amounts represented gain from the sale of
securities; and for each class $0.0392 of such amounts represented a return of
capital for tax purposes.
Annual Report | 15
Franklin Real Estate Securities Trust
FINANCIAL HIGHLIGHTS
FRANKLIN REAL ESTATE SECURITIES FUND
YEAR ENDED APRIL 30,
----------------------------------------------------------
CLASS A 2010 2009 2008 2007 2006
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 7.84 $ 18.53 $ 26.19 $ 26.95 $ 25.99
-------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) ..................... 0.15 0.36 0.46 0.44 0.50
Net realized and unrealized gains (losses) ... 4.78 (9.75) (6.38) 3.60 4.50
-------- -------- -------- -------- --------
Total from investment operations ................ 4.93 (9.39) (5.92) 4.04 5.00
-------- -------- -------- -------- --------
Less distributions from:
Net investment income ........................ (0.16) (0.36) (0.48) (0.42) (0.61)
Net realized gains ........................... -- (0.94) (1.26) (4.38) (3.43)
Tax return of capital ........................ (0.04) -- -- -- --
-------- -------- -------- -------- --------
Total distributions ............................. (0.20) (1.30) (1.74) (4.80) (4.04)
-------- -------- -------- -------- --------
Contingent deferred sales charges retained by
the Fund(c) .................................. --(d) --(d) --(d) -- --
Redemption fees(e) .............................. -- --(d) --(d) --(d) --(d)
-------- -------- -------- -------- --------
Net asset value, end of year .................... $ 12.57 $ 7.84 $ 18.53 $ 26.19 $ 26.95
======== ======== ======== ======== ========
Total return(f) ................................. 63.61% (51.68)%(g) (22.16)% 14.97% 20.00%
RATIOS TO AVERAGE NET ASSETS
Expenses(h) ..................................... 1.32% 1.22% 0.99% 0.96% 0.88%
Net investment income ........................... 1.54% 2.92% 2.21% 1.63% 1.84%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $182,793 $140,567 $364,296 $751,489 $808,892
Portfolio turnover rate ......................... 58.27% 134.36% 94.51% 15.51% 42.09%
(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) Effective October 1, 2009, the fund no longer retains contingent deferred
sales charges.
(d) Amount rounds to less than $0.01 per share.
(e) Effective September 1, 2008, the redemption fee was eliminated.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
(g) 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.
(h) 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 B 2010 2009 2008 2007 2006
- ------- ------ ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ......................... $ 7.70 $ 18.25 $ 25.80 $ 26.62 $ 25.77
------ ------- ------- ------- -------
Income from investment operations(a):
Net investment income(b) ................................ 0.16 0.36 0.34 0.24 0.30
Net realized and unrealized gains (losses) .............. 4.69 (9.61) (6.27) 3.55 4.45
------ ------- ------- ------- -------
Total from investment operations ........................... 4.85 (9.25) (5.93) 3.79 4.75
------ ------- ------- ------- -------
Less distributions from:
Net investment income ................................... (0.16) (0.36) (0.36) (0.23) (0.47)
Net realized gains ...................................... -- (0.94) (1.26) (4.38) (3.43)
Tax return of capital ................................... (0.04) -- -- -- --
------ ------- ------- ------- -------
Total distributions ........................................ (0.20) (1.30) (1.62) (4.61) (3.90)
------ ------- ------- ------- -------
Contingent deferred sales charges retained by the Fund(c) .. --(d) --(d) --(d) -- --
Redemption fees(e) ......................................... -- --(d) --(d) --(d) --(d)
------ ------- ------- ------- -------
Net asset value, end of year ............................... $12.35 $ 7.70 $ 18.25 $ 25.80 $ 26.62
====== ======= ======= ======= =======
Total return(f) ............................................ 63.69% (51.73)%(g) (22.51)% 14.17% 19.05%
RATIOS TO AVERAGE NET ASSETS
Expenses before waiver and payments by affiliates(h) ....... 1.74% 1.22% 1.55% 1.70% 1.63%
Expenses net of waiver and payments by affiliates .......... 1.31% 1.22% 1.55% 1.70% 1.63%
Net investment income ...................................... 1.55% 2.92% 1.65% 0.89% 1.09%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................ $6,959 $ 7,110 $23,998 $57,353 $71,458
Portfolio turnover rate .................................... 58.27% 134.36% 94.51% 15.51% 42.09%
(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) Effective October 1, 2009, the fund no longer retains contingent deferred
sales charges.
(d) Amount rounds to less than $0.01 per share.
(e) Effective September 1, 2008, the redemption fee was eliminated.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
(g) 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.
(h) 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,
-----------------------------------------------------------
CLASS C 2010 2009 2008 2007 2006
- ------- ------- ------- ------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ......................... $ 7.64 $ 18.13 $ 25.66 $ 26.50 $ 25.66
------- ------- ------- -------- --------
Income from investment operations(a):
Net investment income(b) ................................ 0.07 0.26 0.30 0.24 0.30
Net realized and unrealized gains (losses) .............. 4.66 (9.54) (6.25) 3.53 4.44
------- ------- ------- -------- --------
Total from investment operations ........................... 4.73 (9.28) (5.95) 3.77 4.74
------- ------- ------- -------- --------
Less distributions from:
Net investment income ................................... (0.10) (0.27) (0.32) (0.23) (0.47)
Net realized gains ...................................... -- (0.94) (1.26) (4.38) (3.43)
Tax return of capital ................................... (0.04) -- -- -- --
------- ------- ------- -------- --------
Total distributions ........................................ (0.14) (1.21) (1.58) (4.61) (3.90)
------- ------- ------- -------- --------
Contingent deferred sales charges retained by the Fund(c) .. --(d) --(d) --(d) -- --
Redemption fees(e) ......................................... -- --(d) --(d) --(d) --(d)
------- ------- ------- -------- --------
Net asset value, end of year ............................... $ 12.23 $ 7.64 $ 18.13 $ 25.66 $ 26.50
======= ======= ======= ======== ========
Total return(f) ............................................ 62.31% (52.04)%(g) (22.72)% 14.16% 19.10%
RATIOS TO AVERAGE NET ASSETS
Expenses(h) ................................................ 2.07% 1.97% 1.74% 1.70% 1.62%
Net investment income ...................................... 0.79% 2.17% 1.46% 0.89% 1.10%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................ $43,732 $27,610 $74,259 $155,247 $192,172
Portfolio turnover rate .................................... 58.27% 134.36% 94.51% 15.51% 42.09%
(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) Effective October 1, 2009, the fund no longer retains contingent deferred
sales charges.
(d) Amount rounds to less than $0.01 per share.
(e) Effective September 1, 2008, the redemption fee was eliminated.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
(g) 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.
(h) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
18 | Annual Report
Franklin Real Estate Securities Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
YEAR ENDED APRIL 30,
--------------------------------------------------------
ADVISOR CLASS 2010 2009 2008 2007 2006
- ------------- ------ -------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ......................... $ 7.89 $ 18.62 $ 26.32 $ 27.06 $ 26.06
------ ------- ------- ------- -------
Income from investment operations(a):
Net investment income(b) ................................ 0.17 0.34 0.58 0.51 0.58
Net realized and unrealized gains (losses) .............. 4.81 (9.74) (6.48) 3.61 4.52
------ ------- ------- ------- -------
Total from investment operations ........................... 4.98 (9.40) (5.90) 4.12 5.10
------ ------- ------- ------- -------
Less distributions from:
Net investment income ................................... (0.18) (0.39) (0.54) (0.48) (0.67)
Net realized gains ...................................... -- (0.94) (1.26) (4.38) (3.43)
Tax return of capital ................................... (0.04) -- -- -- --
------ ------- ------- ------- -------
Total distributions ........................................ (0.22) (1.33) (1.80) (4.86) (4.10)
------ ------- ------- ------- -------
Contingent deferred sales charges retained by the Fund(c) .. --(d) --(d) --(d) -- --
Redemption fees(e) ......................................... -- --(d) --(d) --(d) --(d)
------ ------- ------- ------- -------
Net asset value, end of year ............................... $12.65 $ 7.89 $ 18.62 $ 26.32 $ 27.06
====== ======= ======= ======= =======
Total return ............................................... 63.98% (51.53)%(f) (22.02)% 15.29% 20.28%
RATIOS TO AVERAGE NET ASSETS
Expenses(g) ................................................ 1.07% 0.97% 0.74% 0.71% 0.63%
Net investment income ...................................... 1.79% 3.17% 2.46% 1.88% 2.09%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................ $5,308 $ 1,979 $ 3,751 $49,723 $48,368
Portfolio turnover rate .................................... 58.27% 134.36% 94.51% 15.51% 42.09%
(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) Effective October 1, 2009, the fund no longer retains contingent deferred
sales charges.
(d) Amount rounds to less than $0.01 per share.
(e) Effective September 1, 2008, the redemption fee was eliminated.
(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 | 19
Franklin Real Estate Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010
FRANKLIN REAL ESTATE SECURITIES FUND SHARES VALUE
------------------------------------ --------- ------------
COMMON STOCKS 97.4%
DIVERSIFIED REITS 7.0%
Liberty Property Trust .......................................... 102,200 $ 3,455,382
Vornado Realty Trust ............................................ 158,945 13,251,245
------------
16,706,627
------------
HOTELS, RESORTS & CRUISE LINES 0.6%
Starwood Hotels & Resorts Worldwide Inc. ........................ 28,400 1,548,084
------------
INDUSTRIAL REITS 5.5%
AMB Property Corp. .............................................. 224,800 6,262,928
DuPont Fabros Technology Inc. ................................... 105,500 2,338,935
ProLogis ........................................................ 351,800 4,633,206
------------
13,235,069
------------
OFFICE REITS 18.5%
Alexandria Real Estate Equities Inc. ............................ 72,400 5,126,644
BioMed Realty Trust Inc. ........................................ 30,000 555,300
Boston Properties Inc. .......................................... 194,000 15,298,840
Corporate Office Properties Trust ............................... 85,100 3,442,295
Digital Realty Trust Inc. ....................................... 90,700 5,324,090
Douglas Emmett Inc. ............................................. 112,400 1,881,576
Government Properties Income Trust .............................. 70,600 1,913,966
Highwoods Properties Inc. ....................................... 63,400 2,026,898
Kilroy Realty Corp. ............................................. 61,100 2,142,166
Mack-Cali Realty Corp. .......................................... 87,900 3,020,244
SL Green Realty Corp. ........................................... 53,900 3,350,963
------------
44,082,982
------------
REAL ESTATE OPERATING COMPANIES 0.7%
(a) Forest City Enterprises Inc., A ................................. 106,500 1,645,425
------------
RESIDENTIAL REITS 17.3%
Apartment Investment & Management Co., A ........................ 138,100 3,094,821
AvalonBay Communities Inc. ...................................... 62,972 6,551,607
BRE Properties Inc. ............................................. 27,900 1,165,104
Camden Property Trust ........................................... 98,100 4,750,983
Equity Lifestyle Properties Inc. ................................ 80,700 4,479,657
Equity Residential .............................................. 324,544 14,692,107
Essex Property Trust Inc. ....................................... 12,000 1,269,840
UDR Inc. ........................................................ 263,762 5,357,006
------------
41,361,125
------------
RETAIL REITS 21.9%
Cedar Shopping Centers Inc. ..................................... 182,000 1,448,720
Developers Diversified Realty Corp. ............................. 360,407 4,429,402
Federal Realty Investment Trust ................................. 55,200 4,271,928
General Growth Properties Inc. .................................. 63,743 1,000,765
Kimco Realty Corp. .............................................. 277,900 4,332,461
The Macerich Co. ................................................ 79,821 3,568,797
National Retail Properties Inc. ................................. 166,800 3,924,804
Realty Income Corp. ............................................. 93,900 3,078,981
Regency Centers Corp. ........................................... 99,900 4,100,895
Simon Property Group Inc. ....................................... 229,900 20,465,698
20 | Annual Report
Franklin Real Estate Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND SHARES VALUE
------------------------------------ --------- ------------
COMMON STOCKS (CONTINUED)
RETAIL REITS (CONTINUED)
Tanger Factory Outlet Centers Inc. .............................. 21,500 $ 894,400
Taubman Centers Inc. ............................................ 16,000 693,920
------------
52,210,771
------------
SPECIALIZED REITS 25.9%
HCP Inc. ........................................................ 276,500 8,881,180
Health Care REIT Inc. ........................................... 99,300 4,461,549
Hersha Hospitality Trust ........................................ 233,600 1,347,872
Host Hotels & Resorts Inc. ...................................... 976,600 15,879,516
LaSalle Hotel Properties ........................................ 92,200 2,429,470
Nationwide Health Properties Inc. ............................... 96,900 3,393,438
(a) Pebblebrook Hotel Trust ......................................... 45,300 892,410
Public Storage .................................................. 121,300 11,755,183
(a) Strategic Hotels & Resorts Inc. ................................. 173,600 1,114,512
Ventas Inc. ..................................................... 246,142 11,625,286
------------
61,780,416
------------
TOTAL COMMON STOCKS (COST $136,104,380) ......................... 232,570,499
------------
SHORT TERM INVESTMENTS (COST $6,105,882) 2.6%
MONEY MARKET FUNDS 2.6%
(b) Institutional Fiduciary Trust Money Market Portfolio, 0.00% ..... 6,105,882 6,105,882
------------
TOTAL INVESTMENTS (COST $142,210,262) 100.0% .................... 238,676,381
OTHER ASSETS, LESS LIABILITIES 0.0%(c) .......................... 114,815
------------
NET ASSETS 100.0% ............................................... $238,791,196
============
See Abbreviations on page 34.
(a) Non-income producing.
(b) See Note 7 regarding investments in the Institutional Fiduciary Trust Money
Market Portfolio. The rate shown is the annualized seven-day yield at
period end.
(c) Rounds to less than 0.1% of net assets.
The accompanying notes are an integral part of these financial statements.
Annual Report | 21
Franklin Real Estate Securities Trust
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2010
FRANKLIN
REAL ESTATE
SECURITIES FUND
---------------
Assets:
Investments in securities:
Cost - Unaffiliated issuers ......................................... $ 136,104,380
Cost - Sweep Money Fund (Note 7) .................................... 6,105,882
-------------
Total cost of investments ........................................... $ 142,210,262
=============
Value - Unaffiliated issuers ........................................ $ 232,570,499
Value - Sweep Money Fund (Note 7) ................................... 6,105,882
-------------
Total value of investments .......................................... 238,676,381
Receivables:
Capital shares sold ................................................. 892,868
Dividends ........................................................... 241,151
Other assets ........................................................... 497
-------------
Total assets ..................................................... 239,810,897
-------------
Liabilities:
Payables:
Capital shares redeemed ............................................. 687,514
Affiliates .......................................................... 218,354
Unaffiliated transfer agent fees ....................................... 67,648
Accrued expenses and other liabilities ................................. 46,185
-------------
Total liabilities ................................................ 1,019,701
-------------
Net assets, at value .......................................... $ 238,791,196
=============
Net assets consist of:
Paid-in capital ........................................................ $ 285,264,770
Net unrealized appreciation (depreciation) ............................. 96,466,119
Accumulated net realized gain (loss) ................................... (142,939,693)
-------------
Net assets, at value .......................................... $ 238,791,196
=============
The accompanying notes are an integral part of these financial statements.
22 | Annual Report
Franklin Real Estate Securities Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
April 30, 2010
FRANKLIN
REAL ESTATE
SECURITIES FUND
---------------
CLASS A:
Net assets, at value ................................................... $ 182,792,733
-------------
Shares outstanding ..................................................... 14,543,966
-------------
Net asset value per share(a) ........................................... $ 12.57
-------------
Maximum offering price per share (net asset value per share / 94.25%) .. $ 13.34
-------------
CLASS B:
Net assets, at value ................................................... $ 6,958,560
-------------
Shares outstanding ..................................................... 563,416
-------------
Net asset value and maximum offering price per share(a) ................ $ 12.35
-------------
CLASS C:
Net assets, at value ................................................... $ 43,732,166
-------------
Shares outstanding ..................................................... 3,576,602
-------------
Net asset value and maximum offering price per share(a) ................ $ 12.23
-------------
ADVISOR CLASS:
Net assets, at value ................................................... $ 5,307,737
-------------
Shares outstanding ..................................................... 419,704
-------------
Net asset value and maximum offering price per share ................... $ 12.65
-------------
(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 | 23
Franklin Real Estate Securities Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the year ended April 30, 2010
FRANKLIN
REAL ESTATE
SECURITIES FUND
---------------
Investment income:
Dividends:
Unaffiliated issuers ................................................. $ 5,824,814
Sweep Money Fund (Note 7) ............................................ 168
------------
Total investment income ........................................... 5,824,982
------------
Expenses:
Management fees (Note 3a) ............................................... 1,128,976
Distribution fees: (Note 3c)
Class A .............................................................. 399,465
Class B .............................................................. 46,613
Class C .............................................................. 337,327
Transfer agent fees (Note 3e) ........................................... 804,004
Custodian fees (Note 4) ................................................. 2,468
Reports to shareholders ................................................. 86,708
Registration and filing fees ............................................ 80,881
Professional fees ....................................................... 52,042
Trustees' fees and expenses ............................................. 11,924
Other ................................................................... 15,848
------------
Total expenses .................................................... 2,966,256
Expense reductions (Note 4) ....................................... (2)
Expenses waived/paid by affiliates (Note 3c) ...................... (30,015)
------------
Net expenses ................................................... 2,936,239
------------
Net investment income ....................................... 2,888,743
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments .......................................................... 14,539,563
Realized gain distributions from REITs ............................... 1,788,654
------------
Net realized gain (loss) ....................................... 16,328,217
------------
Net change in unrealized appreciation (depreciation) on investments .. 81,161,041
------------
Net realized and unrealized gain (loss) .................................... 97,489,258
------------
Net increase (decrease) in net assets resulting from operations ............ $100,378,001
============
The accompanying notes are an integral part of these financial statements.
24 | Annual Report
Franklin Real Estate Securities Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
FRANKLIN REAL ESTATE
SECURITIES FUND
----------------------------
YEAR ENDED APRIL 30,
----------------------------
2010 2009
------------ -------------
Increase (decrease) in net assets:
Operations:
Net investment income ................................................ $ 2,888,743 $ 8,290,010
Net realized gain (loss) from investments, foreign currency
transactions and realized gain distributions from REITs ........... 16,328,217 (151,790,510)
Net change in unrealized appreciation (depreciation) on investments
and translation of other assets and liabilities denominated in
foreign currencies ................................................ 81,161,041 (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 increase (decrease) in net assets resulting from
operations .................................................. 100,378,001 (228,421,045)
------------ -------------
Distributions to shareholders from:
Net investment income:
Class A ........................................................... (2,664,085) (6,722,673)
Class B ........................................................... (118,245) (422,448)
Class C ........................................................... (346,451) (1,062,302)
Advisor Class ..................................................... (48,176) (78,272)
Net realized gains:
Class A ........................................................... -- (17,167,711)
Class B ........................................................... -- (971,910)
Class C ........................................................... -- (3,381,052)
Advisor Class ..................................................... -- (223,653)
Tax return of capital:
Class A ........................................................... (631,767) --
Class B ........................................................... (27,359) --
Class C ........................................................... (133,348) --
Advisor Class ..................................................... (11,564) --
------------ -------------
Total distributions to shareholders ..................................... (3,980,995) (30,030,021)
------------ -------------
Capital share transactions: (Note 2)
Class A ........................................................... (33,255,615) (20,634,930)
Class B ........................................................... (3,382,605) (4,714,620)
Class C ........................................................... (54,594) (5,787,022)
Advisor Class ..................................................... 1,819,607 533,067
------------ -------------
Total capital share transactions ........................................ (34,873,207) (30,603,505)
------------ -------------
Contingent deferred sales charges retained by the Fund .................. 878 15,469
Redemption fees ......................................................... -- 310
------------ -------------
Net increase (decrease) in net assets .......................... 61,524,677 (289,038,792)
Net assets:
Beginning of year ....................................................... 177,266,519 466,305,311
------------ -------------
End of year ............................................................. $238,791,196 $ 177,266,519
------------ -------------
Undistributed net investment income included in net assets:
End of year ............................................................. $ -- $ 207,497
------------ -------------
The accompanying notes are an integral part of these financial statements.
Annual Report | 25
Franklin Real Estate Securities Trust
NOTES TO FINANCIAL STATEMENTS
FRANKLIN REAL ESTATE SECURITIES FUND
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Real Estate Securities Trust (Trust) is registered under the Investment
Company Act of 1940, as amended, (1940 Act) as 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
Equity and other 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. Certain equity securities are valued based upon
fundamental characteristics or relationships to similar securities. Investments
in open-end mutual funds are valued at the closing net asset value.
The Fund has procedures to determine the fair value of individual securities and
other assets for which market prices are not readily available or which may not
be reliably priced. Methods for valuing these securities may include:
fundamental analysis based upon the underlying investment book value,
anticipated future cash flows, market changes in comparable or similar
securities, 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 Fund'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. The Fund may enter
into foreign currency exchange contracts to facilitate transactions denominated
in a foreign currency. Purchases and sales of securities, income and expense
items denominated in foreign currencies are translated into U.S. dollars at the
exchange
26 | Annual Report
Franklin Real Estate Securities Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
B. FOREIGN CURRENCY TRANSLATION (CONTINUED)
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 Fund's
Board of Trustees.
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. INCOME TAXES
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. As a result, no provision for federal
income taxes is required. The Fund files U.S. income tax returns as well as tax
returns in certain other jurisdictions. As of April 30, 2010, and for all open
tax years, the Fund has determined that no provision for income tax is required
in the Fund's financial statements. Open tax years are those that remain subject
to examination by such taxing authorities, which in the case of the U.S. is
three years after the filing of a fund's tax return.
D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
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.
Annual Report | 27
Franklin Real Estate Securities Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)
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 Fund from certain securities may be a return of
capital (ROC). Such distributions reduce the cost basis of the securities, and
any distributions in excess of the cost basis are recognized as capital gains.
E. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the amounts of income
and expenses during the reporting period. Actual results could differ from those
estimates.
F. 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.
G. 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, on behalf of the Fund, enters into contracts with service
providers that contain general indemnification clauses. The Trust's maximum
exposure under these arrangements is unknown as this would involve future claims
that may be made against the Trust that have not yet occurred. Currently, the
Trust expects the risk of loss to be remote.
28 | Annual Report
Franklin Real Estate Securities Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
2. SHARES OF BENEFICIAL INTEREST
At April 30, 2010, there were an unlimited number of shares authorized (without
par value). Transactions in the Fund's shares were as follows:
YEAR ENDED APRIL 30,
-----------------------------------------------------
2010 2009
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
CLASS A SHARES:
Shares sold ....................... 4,268,997 $ 42,180,930 4,298,229 $ 51,550,550
Shares issued in reinvestment of
distributions .................. 316,139 3,066,157 2,412,877 22,383,792
Shares redeemed ................... (7,969,298) (78,502,702) (8,446,515) (94,569,272)
---------- ------------ ---------- ------------
Net increase (decrease) ........... (3,384,162) $(33,255,615) (1,735,409) $(20,634,930)
========== ============ ========== ============
CLASS B SHARES:
Shares sold ....................... 34,781 $ 330,447 46,772 $ 564,929
Shares issued in reinvestment of
distributions .................. 14,224 134,646 137,767 1,273,808
Shares redeemed ................... (408,704) (3,847,698) (576,415) (6,553,357)
---------- ------------ ---------- ------------
Net increase (decrease) ........... (359,699) $ (3,382,605) (391,876) $ (4,714,620)
========== ============ ========== ============
CLASS C SHARES:
Shares sold ....................... 825,938 $ 8,275,548 626,743 $ 7,986,858
Shares issued in reinvestment of
distributions .................. 43,619 425,145 446,296 3,973,094
Shares redeemed ................... (908,157) (8,755,287) (1,553,703) (17,746,974)
---------- ------------ ---------- ------------
Net increase (decrease) ........... (38,600) $ (54,594) (480,664) $ (5,787,022)
========== ============ ========== ============
ADVISOR CLASS SHARES:
Shares sold ....................... 243,052 $ 2,591,549 123,937 $ 1,323,111
Shares issued in reinvestment of
distributions .................. 5,550 54,236 29,806 272,668
Shares redeemed ................... (79,840) (826,178) (104,308) (1,062,712)
---------- ------------ ---------- ------------
Net increase (decrease) ........... 168,762 $ 1,819,607 49,435 $ 533,067
========== ============ ========== ============
3. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
trustees of the Trust are also officers and/or directors of the following
subsidiaries:
SUBSIDIARY AFFILIATION
- ---------- ----------------------
Franklin Templeton Institutional, LLC (FT Institutional) Investment manager
Franklin Templeton Services, LLC (FT Services) Administrative manager
Franklin Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services) Transfer agent
Annual Report | 29
Franklin Real Estate Securities Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
A. MANAGEMENT FEES
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 Trust'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.
The maximum annual plan rates, based on the average daily net assets, for each
class, are as follows:
Class A ..... 0.25%
Class B ..... 1.00%(a)
Class C ..... 1.00%
(a) The Class B maximum annual plan rate consists of a dealer-service fee of
0.25% and an asset based sales charge of 0.75%. For the period from
December 17, 2007 through September 30, 2009, the Fund temporarily
discontinued payments of the asset-based sales charge in accordance with
NASD Rule 2830, which sets forth a maximum aggregate sales charge payable
by a fund. Because the maximum aggregate sales charge adjusts based on
certain factors, payments of the asset-based sales charge could have
resumed on October 1, 2009. However, Distributors has voluntarily agreed to
waive the asset-based sales charge until further notice to the Board of
Trustees.
30 | Annual Report
Franklin Real Estate Securities Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
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 ............................................ $81,793
Contingent deferred sales charges retained ................... $12,055
E. TRANSFER AGENT FEES
For the year ended April 30, 2010, the Fund paid transfer agent fees of
$804,004, of which $545,258 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, 2010, 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, 2010, the capital loss carryforwards were as
follows:
Capital loss carryforwards expiring in:
2017 .... $32,158,781
2018 .... 63,919,027
-----------
$96,077,808
===========
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, 2010, the Fund deferred realized capital losses of
$1,883,172.
Annual Report | 31
Franklin Real Estate Securities Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
5. INCOME TAXES (CONTINUED)
The tax character of distributions paid during the years ended April 30, 2010
and 2009, was as follows:
2010 2009
---------- -----------
Distributions paid from:
Ordinary income ........... $3,176,957 $ 8,289,159
Long term capital gain .... -- 21,740,862
---------- -----------
$3,176,957 $30,030,021
Return of capital ......... 804,038 --
---------- -----------
$3,980,995 $30,030,021
========== ===========
Due to ROC and capital gain adjustments to previously recorded dividends
received by the Fund for certain securities, a portion of the distributions paid
for the year ending April 30, 2010 is determined to be a return of capital for
federal income tax purposes.
At April 30, 2010, the cost of investments and net unrealized appreciation
(depreciation) for income tax purposes were as follows:
Cost of investments .......................... $187,188,975
============
Unrealized appreciation ...................... $ 58,448,056
Unrealized depreciation ...................... (6,960,650)
------------
Net unrealized appreciation (depreciation) ... $ 51,487,406
============
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales and regulatory settlement.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
year ended April 30, 2010, aggregated $114,771,813 and $149,457,156,
respectively.
7. INVESTMENTS IN FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO
The Fund may invest in the 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). Persuant to a SEC exemptive order
specific to the Fund's investment in the Sweep Money Fund, management fees paid
by the Fund are reduced on assets invested in the Sweep Money Fund, in an amount
not to exceed the management and administrative fees paid by the Sweep Money
Fund.
32 | Annual Report
Franklin Real Estate Securities Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
8. CREDIT FACILITY
The Fund, together with other U.S. registered and foreign investment funds
(collectively "Borrowers"), managed by Franklin Templeton Investments, are
borrowers in a joint syndicated senior unsecured credit facility totaling $750
million (Global Credit Facility) which matures on January 21, 2011. This Global
Credit Facility provides 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 of 0.10% based upon the unused portion of the Global
Credit Facility, which is reflected in other expenses on the Statement of
Operations. During the year ended April 30, 2010, 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 Statements of Changes in Net
Assets.
10. FAIR VALUE MEASUREMENTS
The Trust follows a fair value hierarchy that distinguishes between market data
obtained from independent sources (observable inputs) and the Trust'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)
The inputs or methodology used for valuing securities are not an indication of
the risk associated with investing in those securities.
At April 30, 2010, all of the Fund's investments in securities carried at fair
value were in Level 1 inputs. For detailed industry descriptions, see the
accompanying Statement of Investments.
Annual Report | 33
Franklin Real Estate Securities Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
11. NEW ACCOUNTING PRONOUNCEMENTS
In January 2010, the Financial Accounting Standards Board issued an Accounting
Standards Update which enhances and clarifies existing fair value measurement
disclosure requirements and is effective for interim and annual periods
beginning after December 15, 2009. The Fund believes the adoption of this
Accounting Standards Update will not have a material impact on its financial
statements.
12. SUBSEQUENT EVENTS
The Fund has evaluated subsequent events through the issuance of the financial
statements and determined that no events have occurred that require disclosure.
ABBREVIATIONS
SELECTED PORTFOLIO
REIT - Real Estate Investment Trust
34 | 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 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, 2010, 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 audit. We conducted our audit
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 audit, which included confirmation
of securities at April 30, 2010 by correspondence with the custodian and
brokers, provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
June 16, 2010
Annual Report | 35
Franklin Real Estate Securities Trust
BOARD MEMBERS AND OFFICERS
The name, year of birth and address of the officers and board members, as well
as their affiliations, positions held with the Trust, principal occupations
during the past five years and number of portfolios overseen in the Franklin
Templeton Investment 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 131 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).
SAM GINN (1937) Trustee Since 2007 108 ICO Global Communications (Holdings)
One Franklin Parkway Limited (satellite company).
San Mateo, CA 94403-1906
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 131 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).
FRANK W.T. LAHAYE (1929) Trustee Since 1993 107 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture
capital).
36 | Annual Report
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------- --------------- ------------------ ----------------------- -------------------------------------
J. MICHAEL LUTTIG (1954) Trustee Since 131 Boeing Capital Corporation (aircraft
One Franklin Parkway December 2009 financing).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Executive Vice President, General Counsel and member of Executive Council, The Boeing Company; and formerly, Federal Appeals
Court Judge, U.S. Court of Appeals for the Fourth Circuit (1991-2006).
FRANK A. OLSON (1932) Trustee Since 2007 131 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 139 Cbeyond, Inc. (business
One Franklin Parkway communications provider).
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 108 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 131 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.; and officer and/or director or
trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 41 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
- ------------------- --------------- ------------------ ----------------------- -------------------------------------
**GREGORY E. JOHNSON (1961) Trustee Since 2007 88 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, President and Chief Executive Officer, Franklin Resources, 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 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 President
Vice President - AML Compliance
- AML since 2006
Compliance
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and
of 45 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin Resources,
Inc. (1994-2001).
LAURA F. FERGERSON (1962) Chief Since 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 45 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 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 27 of the investment companies in Franklin Templeton
Investments.
ALIYA S. GORDON (1973) Vice President Since 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 45 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 45 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
- ------------------- --------------- ------------------ ----------------------- -------------------------------------
STEVEN J. GRAY (1955) Vice President Since Not Applicable Not Applicable
One Franklin Parkway August 2009
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc.; and
officer of 45 of the investment companies in Franklin Templeton Investments.
EDWARD B. JAMIESON (1948) President and Since April Not Applicable Not Applicable
One Franklin Parkway Chief 2010
San Mateo, CA 94403-1906 Executive
Officer -
Investment
Management
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Chief Investment Officer and Director, Franklin Advisers, Inc.; Executive Vice President, Franklin Templeton
Institutional, LLC; officer and/or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc.
and of 10 of the investment companies in Franklin Templeton Investments.
ROBERT C. ROSSELOT (1960) Vice President Since Not Applicable Not Applicable
500 East Broward Blvd. August 2009
Suite 2100
Fort Lauderdale,
FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President
and Secretary, Templeton Investment Counsel, LLC; Vice President, Secretary and Trust Officer, Fiduciary Trust International of
the South; and officer of 45 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 45 of the investment companies in Franklin
Templeton Investments.
Annual Report | 39
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 45 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 is the father 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 A 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 PRINCIPALS 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.
40 | Annual Report
Franklin Real Estate Securities Trust
SHAREHOLDER INFORMATION
FRANKLIN REAL ESTATE SECURITIES FUND
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT
At a Board meeting held April 13, 2010, 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 reports 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
to U.S. mutual funds and other accounts, 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.
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 management personnel with the code of ethics adopted
throughout the Franklin Templeton fund
Annual Report | 41
Franklin Real Estate Securities Trust
SHAREHOLDER INFORMATION (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
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 management's conservative approach and diligent risk management
procedures, including continuous monitoring of counterparty credit risk and
attention given to derivatives and other complex instruments. The Board also
took into account, among other things, management's efforts in establishing a
global credit facility for the benefit of the Fund 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 as evidenced by its subsidization of money market funds.
The Board also noted management's efforts to minimize any negative impact on the
nature and quality of services provided the Fund arising from Franklin Templeton
Investments' implementation of a hiring freeze and employee reductions in
response to market conditions during the latter part of 2008 and early 2009.
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, 2010, and the previous
10-year
42 | Annual Report
Franklin Real Estate Securities Trust
SHAREHOLDER INFORMATION (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
periods ended that date in comparison with a performance universe consisting of
all retail and institutional real estate funds as selected by Lipper. The Lipper
report showed the Fund's total return to be in the lowest quintile of the
performance universe for the one-year period, and on an annualized basis to also
be in the lowest quintile of such universe for the previous three-, five- and
10-year periods. In discussing the Fund's comparative underperformance for the
one-year period, management stated that the largest factor was the Fund's need
to maintain a cash position sufficient to accommodate net redemptions
experienced during such period, although stock selection and sector weighting
were contributing factors. Management also discussed steps being taken to
improve performance and noted that the Fund's previous portfolio manager had
been replaced in 2008. The Board was not satisfied with the Fund's investment
performance as shown in the Lipper report and intends to continuously monitor
future results, but believes that more time is needed to establish a meaningful
performance record for its current portfolio management team. The Board also
noted that the Fund's actual total return for the one-year period as shown in
the Lipper report exceeded 36%.
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 information taken from each
fund's most recent annual report, which reflects historical asset levels that
may be quite different from those currently existing, particularly in a period
of market volatility. While recognizing such inherent limitation and the fact
that expense ratios generally increase as assets decline and decrease as assets
grow, the Board believed the independent analysis conducted by Lipper to be an
appropriate measure of comparative expenses. In reviewing comparative costs,
Lipper provides information on each 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 expense ratio 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 ratio 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 respective
Lipper expense group.
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
Annual Report | 43
Franklin Real Estate Securities Trust
SHAREHOLDER INFORMATION (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
to the Fund during the 12-month period ended September 30, 2009, being the most
recent fiscal year-end for Franklin Resources, Inc., the Manager's parent. 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 review the reasonableness of the allocation
methodologies solely for use by the Fund's Board. 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 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.
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 $7.25
billion of assets, with
44 | Annual Report
Franklin Real Estate Securities Trust
SHAREHOLDER INFORMATION (CONTINUED)
FRANKLIN REAL ESTATE SECURITIES FUND
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
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 $221 million at the end of 2009 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.
HOUSEHOLDING OF REPORTS AND PROSPECTUSES
You will receive the Fund's financial reports every six months as well as an
annual updated summary prospectus (prospectus available upon request). To reduce
Fund expenses, we try to identify related shareholders in a household and send
only one copy of the financial reports and summary prospectus. This process,
called "householding," will continue indefinitely unless you instruct us
otherwise. If you prefer not to have these documents householded, please call us
at (800) 632-2301. At any time you may view current prospectuses/summary
prospectuses and financial reports on our website. If you choose, you may
receive these documents through electronic delivery.
Annual Report | 45
This page intentionally left blank.
This page intentionally left blank.
This page intentionally left blank.
Franklin Templeton Funds
LITERATURE REQUEST. TO RECEIVE A SUMMARY PROSPECTUS AND/OR 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 A 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 DynaTech Fund
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 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 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 Conservative Allocation Fund(3)
Franklin Templeton Growth Allocation Fund(3)
Franklin Templeton Moderate Allocation Fund(3)
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(4)
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund
Franklin Limited Maturity U.S. Government Securities Fund(4)
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(4)
Templeton Global Bond Fund
Templeton Global Total Return Fund
Templeton International Bond Fund
TAX-FREE INCOME(5)
NATIONAL
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund(6)
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(7)
Colorado
Connecticut
Florida
Georgia
Kentucky
Louisiana
Maryland
Massachusetts(8)
Michigan(8)
Minnesota(8)
Missouri
New Jersey
New York(7)
North Carolina
Ohio(8)
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust(9)
(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.) Effective 5/1/10, the Franklin Templeton Target Funds changed their name to
the Franklin Templeton Allocation Funds. The funds' investment goals and
principal investment strategies remained unchanged.
(4.) An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
(5.) For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are generally
taxable.
(6.) The fund invests primarily in insured municipal securities.
(7.) These funds are available in three or more variations, including long-term
portfolios, intermediate-term portfolios, portfolios of insured securities,
a high-yield portfolio (CA only) and a money market portfolio (CA only).
(8.) 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 2/15/09.
(9.) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
07/10 Not part of the annual report
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO) One Franklin Parkway
San Mateo, CA 94403-1906
SIGN UP FOR ELECTRONIC DELIVERY
on franklintempleton.com
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 summary
prospectus and/or prospectus. Investors should carefully consider a fund's
investment goals, risks, charges and expenses before investing. A 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.
(C) 2010 Franklin Templeton Investments. All rights reserved.
192 A 06/10
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 $25,261 for the fiscal year ended April 30, 2010 and $26,297 for the
fiscal year ended April 30, 2009.
(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 $762 for the fiscal year ended
April 30, 2010 and $6,000 for the fiscal year ended April 30, 2009. 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 $0 for the fiscal year ended April 30,
2010 and $348 for the fiscal year ended April 30, 2009. 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 $0 for the fiscal
year ended April 30, 2010 and $283,729 for the fiscal year ended April 30, 2009.
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 $762 for the fiscal year ended April 30, 2010 and $290,077 for
the fiscal year ended April 30, 2009.
(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, 2010
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/LAURA F. FERGERSON
------------------
Laura F. Fergerson
Chief Executive Officer - Finance and Administration
Date June 25, 2010
By /s/GASTON GARDEY
---------------------
Gaston Gardey
Chief Financial Officer and Chief Accounting Officer
Date June 25, 2010