TABLE OF CONTENTS
Letter to Policy Owners 2
Economic Overview 3
Change in Unit Prices 5
Portfolio Objectives & Risks 6
Portfolio Summaries
Portfolios Seeking Capital Growth
Capital Growth Fund 13
Mutual Discovery Securities Fund 14
Natural Resources Securities Fund 14
Small Cap Fund 15
Templeton Developing Markets Equity Fund 16
Templeton Global Growth Fund 17
Templeton International Equity Fund 18
Templeton International Smaller Companies Fund 18
Templeton Pacific Growth Fund 19
Portfolios Seeking Growth and Income
Growth and Income Fund 20
Income Securities Fund 21
Mutual Shares Securities Fund 22
Real Estate Securities Fund 23
Rising Dividends Fund 25
Templeton Global Asset Allocation Fund 26
Utility Equity Fund 27
Portfolios Seeking Current Income
High Income Fund 28
Templeton Global Income Securities Fund 28
U.S. Government Securities Fund 29
Zero Coupon Funds 30
Portfolio Seeking Capital Preservation and Income
Money Market Fund 31
Allianz Life Variable Account A
Financial Statements and Notes 32
Franklin Valuemark Funds
Statement of Investments 64
Financial Statements and Notes 158
CELEBRATING 50 YEARS
This year marks 50 years of business for Franklin Templeton. Over these years,
the mutual fund industry has experienced profound changes in technology,
regulations and customer expectations. As one of the largest mutual fund
families, we're proud to be an innovative industry leader, providing people like
you with an opportunity to invest around the globe. We thank you for your past
support and look forward to serving your investment needs in the years ahead.
LETTER TO POLICY OWNERS
Dear Policy Owner:
This semi-annual report covers the six months ended June 30, 1997, for
Franklin Valuemark(R) Life, Allianz ValueLife, and the Franklin Valuemark
Funds.*
On the following pages you will find a summary covering global market
conditions over the past six months, as well as discussions of each
portfolio's performance. It is important to remember that financial markets
fluctuate daily and past investment conditions and results are not indicative
of future trends.
We look to the future with confidence and believe Franklin Valuemark(R) Life
and Allianz ValueLife will continue to be appropriate vehicles for
tax-conscious investors seeking to meet their long-term retirement and other
financial and insurance needs. As always, we thank you for your continued
support and look forward to serving you in the years to come.
Sincerely,
Rupert H. Johnson, Jr.
Director and Vice President
Franklin Valuemark Funds
Lowell C. Anderson
Chairman of the Board
Allianz Life Insurance Company
of North America
*As of June 30, 1997, Franklin Valuemark(R) Life is not available in the
following states: Washington D.C., New Jersey, New York, Pennsylvania, and
Vermont. As of June 30, 1997, Allianz ValueLife is not available for sale in
the following states: Washington D.C., Maine, New Jersey, and New York.
ECONOMIC OVERVIEW
In the U.S.: Up, up and away?
A growing sense of nervousness from market participants and the Federal
Reserve Board (the Fed) shadowed the market's seemingly untethered rise, and
accompanying volatility, over the six-month period. The question on
everyone's mind: "How high can the market go?" The Dow Jones(R) Industrial
Average gained roughly 1200 points during the reporting period, pushing
through the 7000-point mark for the first time, in mid-February 1997. Strong
economic growth (first quarter GDP posted an annualized rate of 5.8%),
combined with the stock market's meteoric rise, prompted some degree of
caution on the part of the Fed. The chief topic on Wall Street was whether
the Federal Open Market Committee would increase the federal funds rate.
To no one's surprise, the Fed nudged the federal funds rate higher at its
March meeting, citing heightened inflation risk as the reason behind the
quarter-point increase. And while the market experienced a roughly 10%
correction, stock prices rebounded sharply by the end of the six months under
review, a move that could be viewed as encouraging.
The economy remains interest-rate sensitive, reacting quickly to any changes.
While expanding economic growth and increased interest rates went
hand-in-hand in the first quarter of 1997, the economy appears to be slowing
slightly, with interest rates trending downward by the end of the reporting
period.
And in the foreign markets...
Many European stocks also appreciated in value as companies there generated
healthy profits due to privatization, restructuring and cost-reduction
programs. Switzerland, the Netherlands, Spain and Denmark were among the
region's best-performing equity markets. Although European equity markets
were strong, their fixed-income markets didn't fare as well. The U.S. dollar
rose against most foreign currencies, reducing returns for U.S. holders of
foreign bonds.
Emerging markets generally experienced substantial gains during the reporting
period, with Latin America, in particular, delivering stellar returns. For
example, Brazil's Bovespa Index soared 86% and Mexico's Bolsa Index surged
33%, as measured in U.S. dollars.1 Asian developing markets, however,
provided mixed results: The Hong Kong and Chinese markets rose, while those
in Thailand, Singapore, and the Philippines declined.
1. Source: Bloomberg.
Outlook for the Second Half
Interest rates will probably continue to fluctuate as the Fed looks for signs
of increasing inflationary pressures and other indicators to determine if
additional action is necessary. And while further Fed action could lead to
some volatility in the domestic markets, we have yet to see any major changes
in the economy. It is important to remember, however, that markets correct --
in our opinion, it is desirable for them to do so. The quarter-point increase
in the federal funds rate may be a precursor of one or two more adjustments
before the year ends. Large federal budget deficits are still too fresh in
investors' memories, and apparently much attention is directed toward keeping
the budget in close balance. We feel, therefore, that the economy should not
see much higher rates in the near term -- certainly not like those experienced
during 1994.
Variable Account A
Change in Unit Prices
% Change
Unit Price* Unit Price* in Unit Price
Portfolio Name 12/31/96 6/30/97 12/31/96 to 6/30/97
Capital Growth Fund++ $11.30 $12.37 9.44%
Growth and Income Fund $31.39 $35.35 12.61%
High Income Fund $22.19 $23.17 4.45%
Income Securities Fund $21.75 $23.10 6.24%
Money Market Fund $15.55 $15.88 2.15%
Mutual Discovery Securities Fund++ $10.19 $11.27 10.62%
Mutual Shares Securities Fund $10.34 $11.09 7.28%
Natural Resources Securities Fund++++ $15.70 $14.31 -8.88%
Real Estate Securities Fund $27.57 $29.55 7.19%
Rising Dividends Fund $15.80 $18.31 15.90%
Small Cap Fund $13.01 $14.01 7.66%
Templeton Developing
Markets Equity Fund $11.29 $13.44 19.05%
Templeton Global Asset
Allocation Fund $12.65 $13.78 8.95%
Templeton Global Growth Fund $13.32 $15.12 13.45%
Templeton Global Income
Securities Fund $16.70 $16.69 -0.03%
Templeton International Equity Fund $16.60 $18.82 13.41%
Templeton International
Smaller Companies Fund++ $11.19 $11.83 5.70%
Templeton Pacific Growth Fund $15.41 $15.81 2.60%
U.S. Government Securities Fund $20.53 $21.22 3.35%
Utility Equity Fund $24.82 $26.55 6.97%
Zero Coupon Fund - 2000++ $23.88 $24.35 1.99%
Zero Coupon Fund - 2005++ $26.89 $27.37 1.78%
Zero Coupon Fund - 2010++ $29.93 $30.37 1.48%
*The unit prices have been rounded to the nearest hundredth. Percent change
is calculated using actual unit prices.
++Zero Coupon Funds, Capital Growth Fund, Templeton International Smaller
Companies Fund and the Mutual Discovery Securities Fund are not available in
Allianz ValueLife.
++++Effective May 1, 1997, the Precious Metals Fund's name changed to the
Natural Resources Securities Fund.
Note: The unit value is the total value of assets in the sub-account (which
is equal to the portfolio's net assets), minus the daily charges variable
account charges, with a charge or credit for reserved taxes, and then divided
by the total number of units.
The unit value does NOT include certain cost of insurance and deferred issue
charges (including sales charges) deducted from the Policy Account or from
premium payments; values would have been lower if these were included. These
charges and deductions can have a significant effect on policy account,
insurance benefit, and cash surrender values. See the policy prospectus
provided by the insurance company for a complete description of these
charges, including applicable sales charges.
Investment returns and the value of your principal will vary with market
conditions, so you may have a gain or loss when you sell your units. Past
performance cannot guarantee future results.
PORTFOLIO OBJECTIVES AND RISKS
A Word About Risk
All of the portfolios are subject to certain risks. Generally, investments
offering the potential for higher returns are accompanied by a higher degree
of risk. Stocks, and other equities representing an ownership interest in a
corporation, have historically outperformed other asset classes over the long
term, but tend to fluctuate more dramatically over the shorter term. Bonds
and other debt obligations are affected by changes in interest rates and the
creditworthiness of their issuers. High yield, lower-rated ("junk") bonds
generally have greater price swings and higher default risks. Foreign
investing, especially in developing countries, has additional risks such as
changes in currency values, market price swings, and political or social
instability. These and other risks to which particular portfolios may be
subject -- such as specialized industry sectors or use of complex securities --
are discussed in the prospectus.
Portfolios Seeking Capital Growth
<TABLE>
<CAPTION>
<S> <C>
Portfolio Description
Capital Growth Fund Seeks capital appreciation with current income as a
secondary consideration. The portfolio invests primarily in
equity securities, including common stocks and securities
convertible into common stocks.
Mutual Discovery Seeks capital appreciation by investing in U.S. and foreign
Securities Fund equity securities, including common and preferred stocks
and securities convertible into common stocks, as well as
debt obligations of any quality. The portfolio also seeks
to invest in securities of domestic and foreign companies
involved in mergers, consolidations, liquidations and
reorganizations or as to which there exist tender or
exchange offers, and may participate in such transactions.
Natural Resources Seeks capital appreciation through concentration of its
Securities investments in securities of issuers that produce, refine,
Fund*(Formerly Precious process, or market natural resources as well as those that
Metals Fund)` provide support services for natural resources companies.
The portfolio's secondary objective is to provide current
income return through the receipt of dividends or interest
from its investments.
*Effective May 1, 1997, the Precious Metals Fund's name changed to the
Natural Resources Securities Fund.
Small Cap Fund Seeks long-term capital growth. Under normal market
conditions, the portfolio invests primarily in equity
securities of small capitalization growth companies. The
portfolio may also invest in foreign securities, which
involve special risks. Small company securities may have
greater price swings than mid-sized or large company
securities.
Portfolios Seeking Capital Growth (cont.)
Portfolio Description
Templeton Developing Seeks long-term capital appreciation. The portfolio seeks to
Markets Equity Fund achieve this objective by investing primarily in equity
securities of issuers in countries having developing markets
operating under normal market conditions. The portfolio is
subject to special and higher risks related to foreign
developing markets, including changes in currency values,
market price swings, and economic, social, and political
developments in the countries where the portfolio is invested
and the relatively smaller size and lesser liquidity of those
markets.
Templeton Global Seeks long-term capital growth; any income realized will be
Growth Fund incidental. The portfolio seeks to achieve its objective
through a flexible policy of investing in stocks and debt
obligations of companies and governments of any nation,
including developing markets operating under normal market
conditions. Investments in foreign securities involve special
risks including changes in currency values, market price
swings, and economic, social, and political developments in
the countries where the portfolio is invested. Developing
markets involve similar but higher risks related to the
smaller size and lesser liquidity of those markets.
Templeton Seeks long-term capital growth. Under normal market
International Equity conditions, the portfolio will invest at least 65% of its
Fund total assets in an internationally diversified portfolio of
equity securities. These equity securities will trade on
markets in countries other than the U.S., including developing
markets, and be issued by companies domiciled in countries
other than the U.S., or companies that derive at least 50% of
either their revenues or pre-tax income from activities
outside the U.S. Investments in foreign securities involve
special risks including changes in currency values, market
price swings, and economic, social, and political developments
in the countries where the portfolio is invested. Developing
markets involve similar but higher risks related to the
smaller size and lesser liquidity of those markets.
Portfolios Seeking Capital Growth (cont.)
Portfolio Description
Templeton Seeks long-term capital appreciation. The portfolio seeks to
International achieve this objective by investing primarily in equity
Smaller Companies securities of smaller companies outside the U.S., including
Fund developing markets operating under normal market conditions.
Investments in foreign securities involve special risks
including changes in currency values, market price swings, and
economic, social, and political developments in the countries
where the portfolio is invested. Developing markets involve
similar but higher risks related to the smaller size and
lesser liquidity of those markets. Small company securities
may have greater price swings than mid-sized or larger company
securities.
Templeton Pacific Seeks long-term capital growth. Under normal conditions, the
Growth Fund portfolio will invest at least 65% of its assets in equity
securities which trade on markets in the Pacific Rim,
including developing markets, and which are issued by
companies domiciled in the Pacific Rim or companies that
derived at least 50% of either their revenues or pre-tax
income from activities in the Pacific Rim. For purposes of the
portfolio's 65% investment policy, the countries in the
Pacific Rim include Australia, China, Hong Kong, India,
Indonesia, Japan, Korea, Malaysia, New Zealand, Pakistan, the
Philippines, Singapore and Thailand. The portfolio invests
primarily in a single geographical region of largely
developing foreign markets and could experience significant
changes in share price in any given year.
Portfolios Seeking Growth and Income
Portfolio Description
Growth and Income Seeks capital appreciation. The portfolio's secondary
Fund objective is to provide current income return. The portfolio
pursues capital appreciation by investing primarily in
domestic common stocks, securities convertible into common
stocks and preferred stocks.
Income Securities Seeks to maximize income while maintaining prospects for
Fund capital appreciation. The portfolio will pursue its objective
by investing in a diversified portfolio of domestic and
foreign (including developing markets) debt obligations, which
may include high yield, high risk, lower-rated bonds, as well
as equity securities, selected with particular consideration
of current income production along with capital appreciation.
Lower-rated and similar non-rated securities, commonly known
as "junk bonds," have higher credit risks and may have greater
price movements. Foreign securities involve special risks,
including currency fluctuations and political uncertainty;
developing markets involve higher risks.
Mutual Shares Seeks capital appreciation with income as a secondary
Securities Fund objective by investing in U.S. and foreign equity securities,
including common and preferred stocks and securities
convertible into common stocks, as well as debt obligations of
any quality. The portfolio also seeks to invest in securities
of domestic and foreign companies involved in mergers,
consolidations, liquidations and reorganizations or as to
which there exist tender or exchange offers, and may
participate in such transactions.
Real Estate Seeks capital appreciation, with a secondary objective of
Securities Fund earning current income on its investments. The portfolio
pursues its principal objective by concentrating in securities
of companies in the real estate industry, primarily equity
real estate investment trusts (REITs). By investing primarily
in a single industry, the portfolio will be affected more by
the unfavorable developments or market downturns in that
industry sector than would a portfolio that invests in a wide
variety of industries.
Rising Dividends Fund Seeks capital appreciation and current income incidental to
capital appreciation. In seeking capital appreciation, the
portfolio invests with a long-term investment horizon.
Preservation of capital, while not an objective, is also an
important consideration. The portfolio seeks to achieve its
investment objectives by investing, as a fundamental policy,
at least 65% of its net assets in financially sound companies
that have paid consistently rising dividends based on the
investment philosophy that the securities of such companies,
because of their dividend record, have a strong potential to
increase in value.
Portfolios Seeking Growth and Income (cont.)
Portfolio Description
Templeton Global Seeks a high level of total return through a flexible policy
Asset Allocation Fund of investing in the following market segments: equity
securities of issuers of any nation, debt obligations of
companies and governments of any nation, and money market
instruments. The mix of investments among these three market
segments will be adjusted in an attempt to capitalize on total
return potential produced by changing economic conditions
throughout the world. Investments in foreign securities
involve special risks including changes in currency values,
market price swings, and economic, social, and political
developments in the countries where the portfolio is invested.
Developing markets involve similar but higher risks related to
the smaller size and lesser liquidity of those markets.
Utility Equity Fund Seeks both capital appreciation and current income by
concentrating investments in the securities of companies in
the public utilities industry. The portfolio pursues its
objective by investing, under normal conditions, at least 65%
of the portfolio's total assets in securities of issuers
engaged in the public utilities industry, which includes the
manufacture, production, generation, transmission and sale of
gas and electric energy and water. Assets may also be invested
in issuers engaged in the communications field, including
entities such as telephone, telegraph, satellite, microwave
and other companies providing communication facilities for the
public benefit. The portfolio may also invest in foreign
securities, which involve special risk considerations,
including currency fluctuations and political uncertainty;
developing markets involve heightened risks. Because the
portfolio may invest in relatively few issuers, changes in the
value of a particular issuer, interest rate movements, changes
in currency values and other risks of foreign investing may
have a greater effect on the portfolio's results.
Portfolios Seeking Current Income
Portfolio Description
High Income Fund Seeks a high level of current return. As a secondary
objective, the portfolio seeks capital appreciation to the
extent consistent with its principal objective. The portfolio
may invest in both debt obligations and dividend-paying common
or preferred stocks, including high risk securities, and will
seek to invest in whatever type of investment is offering the
highest yield and expected total return without excessive risk
at the time of purchase. Lower-rated and similar non-rated
securities, commonly known as "junk bonds," have higher credit
risks and may have greater price movements.
Templeton Global Seeks high current income, consistent with preservation of
Income Securities capital, with capital appreciation as a secondary
Fund consideration. The portfolio will pursue its objectives by
investing at least 65% of its net assets in both domestic and
foreign debt obligations including those in developing markets
and related foreign currency transactions. The portfolio may
invest in relatively few issuers; therefore, changes in the
value of a particular issuer, interest rate movements, changes
in currency values and other special risks of foreign
investment may have a greater effect on the portfolio's
results.
U.S. Government Seeks to earn income through investments in a portfolio
Securities Fund limited to securities which are obligations of the U.S.
government, its agencies or instrumentalities. These
obligations may include fixed-rate or adjustable-rate mortgage
backed securities. Individual securities, but not shares of
the portfolio, are guaranteed by the U.S. government as to
timely payment of principal and interest.
Three Zero Coupon Seek to provide as high an investment return as is consistent
Funds2005, 2010) (maturity dates: 2000 with the preservation of capital. Each
portfolio seeks to return a reasonably assured targeted dollar
amount, predictable at the time of investment, on a specific
target date in the future by investing primarily in zero
coupon securities that pay no cash income but are acquired by
the portfolio at substantial discounts from their value at
maturity. In response to interest rate changes, zero coupon
securities may experience greater changes in market value than
interest- paying securities of similar maturity. The
portfolios may not be appropriate for short-term investors or
those who intend to withdraw money before the maturity date.
Portfolio Seeking Preservation of Capital and Income
Portfolio Description
Money Market Fund Seeks to obtain as high a level of current income (in the
context of the type of investment available to the portfolio)
consistent with capital preservation and liquidity. An
investment is neither insured nor guaranteed by the U.S.
government. The portfolio will seek to maintain a $1 per share
net asset value, but there is no guarantee that it will be
successful in doing so.
</TABLE>
PORTFOLIO SUMMARIES
Portfolios Seeking Capital Growth
Capital Growth Fund
Volatility returned to the domestic equity markets in 1997, with the Standard &
Poor's(R) 500 (S&P 500(R)) index experiencing moves of 1% or more -- up and down
- -- throughout approximately two-thirds of the trading days in the first half of
the year. While such volatility may cause consternation among investors, to us
it presents opportunities to buy securities of good companies that are currently
out of favor. During times like these, many portfolio managers feel compelled to
take some course of action, increasing portfolio turnover and further
contributing to exaggerated stock price movements. Sometimes, we believe the
best course of action during periods of volatility is to just sit tight with
one's investments.
It was with this low turnover philosophy that the Capital Growth Fund
portfolio was originally created -- to try to identify what we believe are
solid companies with promising growth prospects, and buy and hold them for
the long term. The portfolio consists of what we consider good quality growth
companies, generally large-cap and mid-cap (greater than $1 billion) stocks.
Our aim is not to achieve wealth overnight, but rather provide investors with
the potential for consistent growth over time.
On June 30, 1997, the portfolio held stocks of 79 companies across a diverse
group of industries, including software, finance, energy, data networking,
healthcare, semiconductors, and consumer products, to name a few. Such broad
diversity can help to mitigate the fluctuations attendant with the stock
market's volatility.
Our expectation is that the market will continue to experience greater
volatility in the coming years versus the reduced volatility over the last
several years. In part, this is due to concerns for sustained earnings growth
of individual companies. It is our belief that the S&P 500 will not produce
double-digit earnings growth again this year or next. In such an environment
of slowing corporate profit growth, solid stable growth companies -- such as
those your portfolio seeks to invest in -- are sought by investors. As growth
warrants a premium in the market due to its scarcity, investors tend to push
the prices of such growth stocks higher -- a condition which we believe should
benefit many of your portfolio holdings.
Capital Growth Fund
Top 10 Industries on 6/30/97
Based on Total Net Assets
% of Total
Industry Net Assets
Software &
Technology Services 12.8%
Electronic Technology 10.8%
Health Technology 10.2%
Consumer Non-Durables 6.7%
Financial Services 5.8%
Utilities 4.9%
Process Industries 3.7%
Semi-Conductors 3.7%
Consumer Services 3.5%
Energy & Minerals 3.3%
For a complete list of portfolio holdings, please see page 64 of this report.
Mutual Discovery Securities Fund
The Mutual Discovery Securities Fund seeks capital appreciation, with income
as a secondary objective, by investing in domestic and foreign equity
securities. These include common and preferred stocks, securities convertible
into common stocks, as well as debt obligations of any quality. On June 30,
1997, 70.4% of the portfolio's assets were invested in equity securities,
2.3% in fixed-income securities, and the remaining 27.3% in short-term and
other securities. Of course, these holdings will change as conditions warrant.
When an index such as the S&P 500 is up 20.06% in the first six months of
1997, some might ask, "why not just throw in the towel and own an index
fund?" The answer is basic: We believe that our value approach is the best
way to achieve consistent, long-term appreciation with low risk and low
volatility. The mix of our businesses -- cheap stocks, "special situations"
such as mergers and spinoffs, and bankruptcies -- is intended to provide the
best risk-adjusted returns in a wide variety of market conditions.
Our most recent efforts to find value in these markets included buying stakes
in a number of energy companies, including in the oil service business and on
the exploration and production side. We also found good value in selected
healthcare names, some of which have come down in price due to short-term
dislocations. Strong merger and acquisition activity is also providing some
good investment opportunities. Many foreign stocks are still attractive to
us, and though the larger capitalization names are generally less compelling
than they were a year or two ago, we believe opportunities in the smaller
capitalization companies are still plentiful.
Natural Resources Securities Fund(formerly Precious Metals Fund)
On May 1, 1997, the Precious Metals Fund's investment objective changed,
broadening its industry concentration policy to companies in natural
resources industries -- thereby creating the Natural Resources Securities
Fund. The portfolio seeks capital appreciation, with current income as a
secondary objective, by now investing in the equity securities of domestic
and foreign companies in or related to the natural resources sector.
On June 30, 1997, 93.7% of the portfolio's total net assets were invested in
equity securities, 1.3% in convertible corporate bonds, and 5.0% in
short-term and other assets. Companies in the gold and precious metals sector
remain our largest weighting at 59.1%, down from 79.5% on May 1, 1997. In
accordance with the portfolio's new objective, we continue to selectively
reallocate assets to various other natural resources sectors, including
energy, base metals, paper & forest products, steel, and chemicals.
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
New positions in the energy sector include exploration and production
companies with the potential for above-average growth in reserves and
production. Barrett Resources, Newfield Exploration and Nuevo Energy were
among this sector's companies where we found good investment opportunities.
Additionally, we found oilfield services and equipment companies that have
benefited from current strong demand and high utilization rates, including
newly purchased Diamond Offshore Drilling, Inc. and Transocean Offshore, Inc.
- -- two leading offshore drilling rig operators globally. Strong growth in
worldwide hydrocarbon demand combined with modest supply provides a positive
outlook for energy fundamentals over the next several years.
The price of gold bullion declined further during the reporting period,
dropping below $340 per ounce -- negatively impacting the portfolio's holdings
in the precious metals sector. In spite of positive physical demand, the
continued Central Bank selling, strong equity markets and an overall lack of
inflation adversely affected investor sentiment. Short-side and aggressive
options selling also combined to further depress the gold price. On a
protracted basis, we view the resilient physical demand (especially from
developing countries) and long-term supply consistency as attractive and,
therefore, remain optimistic that gold should appreciate in value.
Looking forward, we continue to focus on highly profitable companies with
skilled management, strong growth profiles and solid financials. We will look
for companies that should prosper throughout economic cycles, and thus
identify those companies we believe have sustainable advantages either
through strategic asset bases or technological expertise.
Small Cap Fund
The six-month period under review proved to be favorable for equity
investors, although larger capitalization stocks outperformed their small cap
counterparts. In part due to concerns about market volatility, the Franklin
Small Cap Fund portfolio underperformed during the first quarter of 1997
before turning in strong results in the second quarter. Our second quarter
performance was spurred by the continued strength of the U.S. economy,
coupled with lack of inflationary pressure. These economic conditions helped
prevent a meaningful rise in interest rates and provided a favorable backdrop
for equity markets in general.
During the period, we looked for small companies in their emerging growth
phase, focusing on those corporations we believe have an identifiable and
sustainable competitive advantage. Such an advantage often leads to superior
revenue and earnings growth. Our research uncovered attractive investments in
a variety of industries, and the portfolio's performance was aided by our
holdings in the energy, technology and healthcare sectors.
We remain bullish on the prospects for the energy sector, which benefited
from a favorable supply-and-demand relationship. In the second quarter of
this year, we added to several of our positions in this sector, including
Varco International, Inc., a leading maker of drilling equipment. The
technology sector experienced volatility throughout most of the reporting
period, and we took advantage of this to selectively initiate several new
positions and add to several existing names. Among the new positions in the
portfolio is Electronic Arts Inc., a leading developer of entertainment
software.
We remain optimistic about the prospects for small cap stocks, despite the
recent large cap bias of the market. In our opinion, small cap stocks are
attractively valued relative to the overall market, and the growing economy
and apparent lack of inflationary pressure should create an environment
conducive to the prosperity of small cap companies.
Templeton Developing Markets Equity Fund
On June 30, 1997, the portfolio was invested in 414 individual emerging
market equity securities, among 32 industry sectors and 23 countries, with
Brazil as the largest country holding (12.2% of total net assets), followed
by Mexico (11.3%) and Argentina (8.2%). We think the current geographic
breadth of the portfolio helps minimize risk, thereby reducing the volatility
of the returns on the portfolio while still maintaining the prospects for
strong performance.
The first six months of 1997 saw substantial gains in developing market
equity prices, underpinned by strong economic fundamentals and high capital
inflows from developed market countries. As in 1996, the Latin America region
was the star performer this reporting period. A combination of improved
macroeconomic management, cyclical economic recovery and an improved export
position drove equity prices higher throughout the region, particularly in
Brazil -- which realized unrelenting gains. The Asian region experienced mixed
performance during the six-month period, with many countries suffering from
oversupply in key sectors and a cyclical decline in exports. Malaysia, the
Philippines, Singapore and Thailand were among the hardest hit.
Looking forward, we believe that Asia's exports are likely to recover over
the remainder of the year and into 1998, driven primarily by increased demand
from the U.S. and Europe. A significant rebound in Asian exports would help
economies grow faster and bolster some of the more moribund stock markets in
that region, particularly South Korea and Thailand. We already detect signs
of a cyclical recovery in Asia's export market.
World demand for emerging market securities is its strongest since the 1960s,
and inventory levels in the U.S. and other countries are low in general. This
should benefit exporters in Latin America and Europe as well as Asia. Despite
positive growth in the first half of 1997, we believe developing markets as a
whole still represent good value.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Templeton Global Growth Fund
Volatility and uncertainty were key factors in the world's financial markets
for the first six months of 1997. The U.S. equity market started the year at
an all-time high, and continued, although the trend was not smooth. In North
America -- and the U.S., in particular -- strong economic growth with
surprisingly modest inflation confounded experts, and the ebb and flow of
interest rates reintroduced volatility in the markets. Stock valuations --
whether price/book or price/earnings -- stretched relative to five- and
ten-year averages and, in some cases, are at unprecedented levels. As
valuations rose for many U.S. stocks, we sold or trimmed some of our holdings
in this region. Among those we reduced or sold were Lucent Technologies,
Highwood Properties, Inc., and IBM.
Because we found what we consider new bargains and opportunities, Europe
remained a significant geographic weighting for us (34.0% of total net
assets). During the six months under review, many European companies
generated strong profits due to privatization, restructuring, and
cost-reduction programs. Most stock markets rose as government efforts to
meet standards for membership in the European Monetary Union (EMU) led to
improved fiscal and monetary policies and lower interest rates. The results
of the French election introduced a new element of uncertainty over the EMU,
where privatization and corporate rationalization could become more difficult
under a socialist government. Nonetheless, careful stock picking and analysis
of companies during times of macro-economic confusion has rewarded our
investors in the past, though past performance cannot guarantee future
results.
The U.K. in particular appeared to swallow the tough medicine of reforming
its labor markets, deregulating its financial markets, and privatizing
state-owned enterprises. As a result, we analyzed an increasing number of
British companies, primarily because of valuations and -- secondarily --
because we think long-term managements there seemingly have to overcome fewer
hurdles to deliver value.
The picture in our emerging markets exposure was mixed. Latin America
rebounded sharply in 1997, with Brazil and Argentina posting phenomenal
performances (52.6% and 26.4% six-month total returns, respectively). On the
other hand, economic deterioration and political turmoil detrimentally
affected Asia's share prices. Regardless, we believe that opportunities are
born out of adversity, and we search diligently for overlooked opportunities
in South Korea, Thailand and China.
Japan, Asia's largest developed market, experienced mixed performance so far
in 1997. We have redoubled our efforts to ensure that we will be in a
position to act when valuations drop to a level where more Japanese companies
qualify as bargains under our criteria.
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 4 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Templeton International Equity Fund
During the six months ended June 30, 1997, the strength of the portfolio's
emerging markets holdings as well as good stock selection bolstered our
overall performance. At period end, the portfolio's largest country
allocations were the U.K. (14.1% of total net assets), Sweden (9.3%), and
Netherlands (7.8%). We allowed our cash position to rise somewhat (from 12%
to 15.1%) to be prepared for any future market weakness.
After several years of underperfomance, the world's developing markets have
rebounded and we were able to uncover many bargain-priced securities in these
areas, most notably in Latin American countries, where we think fundamentals
improved as these nations adapt to capitalist economies. Our Brazilian
holdings -- including telephone company Telebras, steelmaker Companhia
Siderurgica Nacional, ADR (CSN) and banking giant Bradesco -- performed well.
Our European stock holdings also aided the portfolio's performance in early
1997. Sweden, Finland, Italy and Spain turned in particularly good
performances, but the strength of the U.S. dollar somewhat reduced those
gains. Additionally, Eastern European markets soared in early 1997, but due
to the relatively small size of these markets and -- in some cases --
regulatory and operational impediments, it was difficult for the portfolio to
gain access. Our large exposure to cyclical securities also provided good
results as investors focused on the possibility of a cyclical upturn in the
European economy. The portfolio's largest holding -- Philips Electronics
(Netherlands/3.0% of total net assets) -- advanced strongly in the first six
months of 1997 after its new management strategy to maximize share value
raised investor interest.
We believe that the long-term prospects for emerging market companies remain
exceptionally bright, based on the continued rapid development of their own
economies as well as the benefits these countries should realize from an
eventual upturn in the developed world's economic activity level.
Templeton International Smaller Companies Fund
Throughout the six-month reporting period, the portfolio, using a disciplined
focus on long-term value, continued in its endeavor to purchase the shares of
undervalued small-cap companies outside the U.S. On June 30, 1997, the
portfolio had $29 million in assets under management and was invested in 31
countries. The largest positions by geographic area were Europe (34.0% of
total net assets), Asia (19.7%), and Latin America (5.4%). By country, the
largest positions were Hong Kong (10.3%), United Kingdom (8.1%), Netherlands
(6.6%), Spain (4.8%), and Sweden (3.9%).
European stock markets moved sharply higher, propelled by excitement over
monetary union, lower interest rates, and moderate economic expansion. In
Asia, Hong Kong's stock exchange rose more than 20% in the time leading up to
the colony's reversion to China.
GRAPHIC MATERIAL 5 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Currently, worldwide financial valuations are at historically high levels,
reflecting continued investor optimism over future corporate profitability
and strong cash inflows. While identifying investment bargains in this
environment is a challenge, we are confident that our disciplined approach to
finding undervalued small-cap stocks can reward long-term investors.
Templeton Pacific Growth Fund
On June 30, 1997, the fund's top five geographic allocations were Hong Kong
(25.8% of total net assets), Japan (18.6%), Singapore (12.5%), Australia
(10.7%), and Malaysia (8.6%).
A recovery in Hong Kong's retail and property sectors helped buoy its stock
market, and the portfolio benefited from the rising share prices of Cheung
Kong Holdings Ltd. and Hon Kwok Land Investment Co. Ltd., two companies with
real estate holdings in Hong Kong.
Japan's economy continued to falter as its banking system faced huge amounts
of uncollectable loans secured by land or stock worth less than the amount of
the loans. Although our holdings of Sony Corp. performed well, the yen's
decline during the period adversely affected the portfolio.
Indonesia, plagued by political problems that led to rioting in Jakarta,
experienced severe stock market volatility, and we took this opportunity to
purchase shares of PT Bank Bali and PT Panin Bank, two financial institutions
that we believe have growth potential. Seeking to capitalize on volatility in
stock markets of Thailand and India, we purchased shares of Thai Farmers Bank
Public Co. Ltd. and Bangkok Bank Public Co. Ltd., and initiated a position in
Industrial Credit & Investment Corp. of India.
In our opinion, the Pacific Rim continues to offer a variety of investment
opportunities in industrialized nations such as Hong Kong, and in nations
rich with natural resources.
Templeton Pacific
Growth Fund
Top 10 Holdings on 6/30/97
Based on Total Net Assets
Company/ % of Total
INDUSTRY,COUNTRY Net Assets
New World
Development Co. Ltd./ 3.0%
REAL ESTATE, HONG KONG
City Developments, Inc./ 2.7%
CONSTRUCTION & HOUSING,
SINGAPORE
Malaysia International
Shipping Corp./ 2.7%
MULTI-INDUSTRY, MALAYSIA
Cheung Kong Holdings Ltd./ 2.5%
MULTI-INDUSTRY, HONG KONG
Singapore Airlines Ltd./ 2.5%
TRANSPORTATION, SINGAPORE
Nippon Telegraph &
Telephone Corp./ 2.5%
TELECOMMUNICATIONS, JAPAN
Wheelock & Co., Ltd./ 2.4%
MULTI-INDUSTRY, HONG KONG
GIO Australia Holdings, Ltd./ 2.3%
FINANCIAL SERVICES, AUSTRALIA
Brambles Industries, Ltd./ 2.3%
MULTI-INDUSTRY, AUSTRALIA
Philippine National Bank/ 2.1%
BANKING, PHILIPPINES
For a complete list of portfolio holdings, please see page 143 of this report.
Portfolios Seeking Growth and Income
Growth and Income Fund
The strategy of the Growth and Income Fund portfolio is to buy corporate
stocks that are selling at attractive prices according to valuation
parameters such as dividend yield, book value, cash earnings, and revenues.
This strategy generally entails investing at times when a company or sector
is out of favor due to depressed fundamentals or market uncertainty about
future prospects. In our opinion, utility stocks, especially electric
companies, represent such an investment opportunity. Concerns over industry
deregulation have led to stocks selling at their most attractive relative
yield valuations in over 25 years. While the electric utility stocks held in
the portfolio registered disappointing relative returns during the past six
months, we are continuing to focus our investments in what we believe are
competitive, well-positioned companies and beneficiaries of anticipated
industry consolidation. For example, we initiated an investment in Entergy
Corp., a New Orleans-based utility that offered a 7.0% yield and sold at
approximately 10 times earnings at time of purchase.
Energy stocks continue to represent one of the portfolio's largest investment
sectors. Investment fundamentals such as earnings, cash flow and dividends
have been strong. We believe future prospects in this sector are also
favorable as rising worldwide demand for oil and gas, in relation to
exploration and production activity, should lead to strong prices and profit
growth for leading companies in the industry. Energy investments represent
five of the portfolio's top ten positions, including Atlantic Richfield Co.,
Texaco Inc., YPF Sociedad Anonima, Chevron Corp., and Exxon Corp.
Our investments in financial stocks, specifically savings & loans and
insurance companies, experienced notable gains during the period. The
portfolio's savings & loan holdings, which included Roosevelt Financial
Group, Inc., were subject to recent takeover bids, which led to higher
prices. In the insurance sector, Lincoln National Corp. and St. Paul Cos.,
Inc. performed well as a combination of good valuations and strong
fundamentals led to their strong gains in the period. Investments in consumer
staples and health care stocks also performed well (Tambrands Inc. received a
takeover bid by Proctor & Gamble) and the major pharmaceutical stocks
continued to move higher on strengthening fundamentals. In the second quarter
of 1997, we did take advantage of recent weakness in one of the few
weak-performing drug companies -- Pharmacia & Upjohn Inc. -- to add to our
position in this industry. Pharmacia & Upjohn is trading at a significant
discount to its peers and is currently restructuring its operations which, in
our opinion, should lead to a resumption in earnings growth and higher
valuations.
Foreign stocks represented 12.0% of the portfolio's total net assets on June
30, 1997. Currently, compared to domestic companies, many foreign stocks have
higher dividend yields and more attractive valuations in terms of
price/earnings ratios in sectors such as pharmaceuticals, energy, basic
materials, and financials. In addition to the above-mentioned Pharmacia &
Upjohn Inc., we initiated positions in two foreign companies during the
reporting period: Imperial Chemical (U.K.) and Mid Ocean Limited (Bermuda), a
reinsurance company.
Looking forward, we remain committed to our disciplined, value-oriented
approach, which has produced consistent and favorable long-term results.
Growth and Income Fund
Top Industries on 6/30/97
Based on Total Net Assets
% of Total
Industry Net Assets
Financials 17.7%
Energy & Resources 15.7%
Electric Utilities 12.9%
Basic Materials 12.0%
Telephone Services 10.6%
Consumer Staples 8.3%
Health Care 6.2%
Gas Utilities 4.0%
Manufacturing 4.0%
Retail 2.2%
For a complete list of portfolio holdings, please see page 67 of this report.
Income Securities Fund
The stock market appreciated during the period under review, driven by solid
economic growth and a benign inflation environment. In contrast, the bond
market experienced little change over the period, despite Treasury bond
volatility related to the strength of the economy and the federal funds rate
increase in March. The recovery in the second quarter was precipitated by
signs of slower economic growth. Most of the portfolio's sectors performed
well during the last six months, with the exception of gold stocks (which
declined following a drop in the price of gold).
Our fixed-income holdings consisted of corporate (33.2% of total net assets),
foreign (12.3%), and U.S. Treasury bonds (8.3%). Although corporate bonds
have generally performed well over the past two years, we were still able to
find good values in companies with positive business and credit prospects. We
added selectively to existing bond positions, initiated positions in
Bellwether Exploration (energy) and Paging Network (telecommunications), and
purchased bonds issued to refinance three of the portfolio's existing
positions (Anacomp, Del Monte, and Revlon Worldwide). In addition, several of
the portfolio's corporate bond holdings benefited from buyout or merger
announcements over the last six months (Smith's Food, CommNet Cellular, and
Mesa Petroleum).
The portfolio's foreign bond positions turned in a strong performance. In
February, we took advantage of strength in our Mexican Brady bonds, swapping
these positions for Brazilian Brady bonds, which appeared to offer greater
value. We also sold our Canadian bond position in May due to valuation
concerns and currency risk. With respect to U.S. Treasuries, we increased our
exposure by purchasing bonds amid market weakness earlier in the year.
Most of the portfolio's equity sectors performed well during the last six
months, with energy and pharmaceutical stocks leading the way. Energy stocks
were strong performers as a result of a generally positive earnings outlook.
However, these stocks did experience weakness in February and March due to a
temporary decline in energy prices. We took advantage of this weakness by
adding to existing positions in Nuevo Energy and Swift Energy as we believe
the long-term outlook for these companies remains positive.
We maintained the portfolio's utility weighting (22% of total net assets)
because we believe many of the stocks in this sector are undervalued and
offer attractive high current income. In addition, many utility companies
have made significant progress in adapting to industry deregulation through
cost cutting, consolidation and diversifying into unregulated business lines.
Over the period, we added to existing utility positions in the portfolio, and
initiated positions in MidAmerican Energy (mid-western electric & gas
utility) and CMS Energy (Michigan electric & gas utility).
Looking at other sectors of the portfolio, we purchased two new convertible
real estate positions in Vornado Realty Trust (REIT) and Macerich Co. (REIT),
two high-quality companies with excellent growth prospects. In the
pharmaceutical sector, strong price appreciation prompted us to sell the
portfolio's remaining pharmaceutical holdings as we believed further
appreciation potential for these stocks was limited at current levels.
Finally, due to valuation concerns, we recognized significant gains from the
Altera and Xilinx convertible bond positions purchased during last July's
technology sell-off.
With valuations in the stock and bond markets relatively high, we remain
selective as we search for investments with high current income and good
appreciation potential. We will continue to utilize our extensive research
capabilities in searching for attractively valued securities, and believe
that the portfolio's cash position should provide us with the ability to take
advantage of investment opportunities as they arise.
Mutual Shares Securities Fund
The Mutual Shares Securities Fund seeks capital appreciation, with income as
a secondary objective, by investing in domestic and foreign equity
securities. These include common and preferred stocks, securities convertible
into common stocks, as well as debt obligations of any quality. On June 30,
1997, 65.4% of the portfolio's total net assets were invested in equity
securities, 2.9% in fixed-income securities, and the remaining 31.7% in
short-term and other securities. Of course, these holdings will change as
conditions warrant.
When an index such as the S&P 500 is up 20.06% in the first six months of
1997, some might ask, "why not just throw in the towel and own an index
fund?" The answer is basic: We believe that our value approach is the best
way to achieve consistent, long-term appreciation with low risk and low
volatility. The mix of our businesses -- cheap stocks, "special situations"
such as mergers and spinoffs, and bankruptcies -- is intended to provide the
best risk-adjusted returns in a wide variety of market conditions.
Our most recent efforts to find value in these markets included buying stakes
in a number of energy companies, including in the oil service business and on
the exploration and production side. We also found good value in selected
healthcare names, some of which have come down in price due to short-term
dislocations. Strong merger and acquisition activity is also providing some
good investment opportunities. Many foreign stocks are still attractive to
us, and though the larger capitalization names are generally less compelling
than they were a year or two ago, we believe opportunities in the smaller
capitalization companies are still plentiful.
Real Estate Securities Fund
During the six-month period under review, the U.S. real estate market
performed well as robust economic growth and limited new property development
helped drive occupancy and rental rates higher. In addition, cost savings
from consolidation and growing economies of scale had a positive impact on
real estate companies. Although fundamentals in the real estate industry
remained strong in 1997, prices of real estate stocks -- after appreciating
significantly in the fourth quarter of 1996 -- fell slightly after the Federal
Reserve Board raised interest rates on March 25, 1997. The sector rebounded
in the second quarter of 1997 as the markets stabilized and real estate
stocks continued to report positive results.
The market capitalization and liquidity of equity real estate investment
trusts (REITs) increased significantly over the past several years as the
strong real estate market attracted new investors. In fact, REITs now
represent approximately 8.4% of the Russell 2000 Index of small
capitalization funds. As the public market for real estate companies expands,
we remain committed to our long-term investment strategy of focusing on
property types and geographic regions with strong supply and demand
fundamentals. We attempt to identify those management teams with the ability
to add value through intensive property management and strong capital markets
experience. In keeping with this strategy, we maintained the majority of the
portfolio's investments in hotel, apartment, industrial, office, and
self-storage properties, where we anticipate the most favorable supply and
demand fundamentals and strongest cash flow growth.
At the end of the reporting period, the hotel sector was the portfolio's
largest property-type weighting, representing 20.5% of total net assets, up
from 17.9% six months ago. Available hotel rooms have become scarce in many
cities across the country, reflecting higher occupancy rates. This
contributed to the excellent operating results and significant consolidation
activity, which made hotels our strongest performing sector. During the
period, we initiated a position in Prime Hospitality Corporation, an
attractively-valued lodging company. At the high-end of the hotel/resort
segment, we purchased shares in Colorado-based Vail Resorts, Inc. We also
added to core holdings such as FelCor Suite Hotels Inc., Winston Hotels, and
Host Marriott Corporation.
On June 30, 1997, the apartment sector was the portfolio's second-largest
exposure, representing 18.7% of total net assets. We maintained large
positions in our core apartment holdings, such as Equity Residential
Properties Trust, Security Capital Pacific Trust, and Bay Apartment
Communities, Inc. We also initiated a position in Charles E. Smith
Residential Realty, Inc. -- an apartment company focused on the ownership and
operation of downtown high-rise apartments.
During the past six months, we increased our exposure to the industrial
property sector by adding to our existing positions in Security Capital
Industrial Trust, Spieker Properties, Inc., Meridian Industrial Trust, and
Liberty Property Trust, as their valuations became attractive due to weakness
in office/industrial sector securities. On June 30, 1997, the industrial
sector weighting was 9.8% of total net assets, up from 8.9% six months ago.
Finally, adhering to our disciplined focus on valuation, we realized gains in
several securities in the home building, retail and hotel sectors. We
believed the valuations of these specific stocks did not reflect slowing
growth rates, which could cause weakness in the future.
Looking forward, we are confident about the prospects for real estate
securities, particularly equity REITs, because of the combination of strong
underlying fundamentals, favorable valuations, and attractive growth
opportunities they offer. We will continue to utilize our real estate
background and perspective combined with the securities experience and
resources of our research team. The portfolio will continue to focus on
high-quality real estate companies that are creating significant cash flow
and dividend growth to generate attractive total returns.
Rising Dividends Fund
Our investment strategy is based on our belief that companies with
consistently rising dividends should, over time, realize appreciation in
their stock prices. We select portfolio securities based on several criteria.
To be eligible for purchase, stocks must pass certain investment "screens,"
or screening procedures, including consistent and substantial dividend
increases, strong balance sheets, and relatively low price/earnings ratios.
We seek fundamentally sound companies that meet our standards and attempt to
acquire them at attractive prices, often when they are out of favor with
other investors.
The stock market -- and a number of securities in the portfolio -- continued to
benefit from an environment characterized by solid economic growth and low
inflation. One of our holdings, State Street Corp. -- a provider of services
to institutional investors, was a direct beneficiary of rising prices for
financial assets. Bristol-Myers' strong new product pipeline appears to be
increasing its earnings growth rate. Cohu Inc.'s order backlog for its
semiconductor test handling equipment grew in the first two quarters of 1997
after falling for most of 1996. Investors have begun to appreciate that M.A.
Hanna's earnings have become increasingly less cyclical in recent years. Many
analysts are expecting earnings growth at America's largest company, General
Electric, to be accelerating. Mercury General is experiencing very strong
growth in auto insurance premiums, Family Dollar Stores continues to do well
with its small-scale and low-priced general merchandise stores, and the much
larger Wal-Mart Stores has benefited from better inventory control and an
expanding international presence.
The prices of several stocks in the portfolio fell during the period despite
the strong market. Wallace Computer Services had lower-than-expected earnings
growth as a result of slower-than-anticipated rollout of the company's
services to new accounts and a slowdown in direct mail business. MMI
Companies (insurance - property/casualty) also reported earnings that were
lower than expected. The company was hurt by a slowdown in medical
malpractice premium growth. We think both of these companies are still very
attractive businesses and, therefore, we purchased additional shares during
the period.
New positions added to the portfolio during the six-month period included Nike,
Inc., Washington Mutual, Inc., Hubbell, Inc. - Class B, Diebold, Inc., and
American Heritage Life Investment Corp. Nike has become one of the world's most
recognizable brand names; however, a slowdown in its domestic footwear sales
caused its stock to fall to an attractive valuation. Still, international sales,
as well as domestic apparel sales, continue to be very strong. Washington Mutual
is a rapidly growing west coast financial services company, increasing its
dividend for seven consecutive quarters. Hubbell, a manufacturer of electrical
components, increased its dividend for 37 years, and Diebold -- which makes
card-based transaction systems such as automatic teller machines -- has 43 years
of dividend increases. American Heritage Life specializes in selling life and
health insurance through automatic payroll deductions, and not only has 27 years
of consecutive dividend increases but also has 21 years of increasing operating
earnings.
Rising Dividends Fund
Top 10 Holdings on 6/30/97
Based on Total Net Assets
Company, % of Total
INDUSTRY Net Assets
Family Dollar Stores, 3.81%
RETAIL
Wallace Computer
Services, Inc., 3.35%
BUSINESS SERVICES
Nike, Inc., 2.82%
CONSUMER PRODUCTS
Dimon, Inc., 2.74%
CONSUMER PRODUCTS
Allied Group, Inc., 2.60%
INSURANCE - PROPERTY/
CASUALTY
Millipore Corp., 2.56%
INDUSTRIAL
Wal-Mart Stores, Inc., 2.51%
RETAIL
Circle International, 2.42%
TRANSPORTATION
Mercury General Corp., 2.36%
INSURANCE - PROPERTY/
CASUALTY
Hanna (M.A.) Co., 2.27%
INDUSTRIAL
For a complete list of portfolio holdings, please see page 100 of this report.
Several positions were eliminated from the portfolio, including C.R. Bard,
Inc., Arnold Industries, Inc., and Loctite Corp. Bard has had difficulty
growing revenues in a very competitive pricing environment, and Arnold
Industries is no longer increasing its dividend. Loctite, a specialty
chemical company, was acquired by another company in January 1997 at a gain
of 37%.
Notable year-over-year dividend increases during the past six months came
from Baldor Electric Co. (+20%), Cohu, Inc. (+20%), Leggett & Platt, Inc.
(+18.2%), Merck & Co. (+23.5%), Mercury General Corp. (+20.8%), Nucor Corp.
(+25%), Wal-Mart Stores, Inc. (+28.6%), and Washington Mutual, Inc. (+18.2%).
As shown in the table on page 25, our 10 largest positions on June 30, 1997,
comprised 27% of the portfolio's total net assets. It is interesting to note
how these 10 companies would, in the aggregate, answer the portfolio's
screening criteria based on a simple average of statistical measures. On
average, these 10 companies have raised their dividends 16 years in a row and
by 400% in the last 10 years. Their most recent dividend increases averaged
17.4%, for a yield of 1.4% on June 30, 1997, and a dividend payout ratio of
24%. Long-term debt averaged 23% of capitalization, and the average
price/earnings ratio was 17.7%, versus 19.8% for that of the unmanaged S&P
500 Stock Index on the same date.
We think that these companies are representative of the fundamentally high
quality of the portfolio. We also believe that, over the long haul, companies
that increase cash payments to shareholders, year after year, should be
superior builders of wealth.
Templeton Global Asset Allocation Fund
Volatility and uncertainty have been key factors in the world's financial
markets for much of the first half of 1997. The U.S. equity market began the
year at an all-time high, and proceeded to rise and fall. At the same time,
the U.S. dollar rose against most foreign currencies, reducing returns for
U.S. holders of foreign bonds. Since these events affected markets
differently, market selection and currency management were two key factors
impacting the portfolio over the reporting period.
While the U.S. remained our largest portfolio holding (20.1% of total net
assets on June 30, 1997), high stock valuations in this region have brought
us to sell or reduce some of our holdings, particularly financial ones. Among
those equity positions we sold were Citicorp and Lucent Technologies. Within
the European bond markets, we added to our positions in Italy and Sweden,
purchases funded by the May sale of some German bonds.
GRAPHIC MATERIAL 6 OMITTED - SEE APPENDIX AT END OF DOCUMENT
The picture in our emerging markets exposure has been mixed. Latin America
rebounded sharply in 1997, with Brazil and Argentina posting phenomenal
performance (52.6% and 26.4% six-month total returns, respectively). As a
result, our emerging markets exposure remained relatively unchanged over the
period, with the largest allocations in Brazil, Argentina, and Mexico. On the
other hand, economic deterioration and political turmoil had a detrimental
effect on Asia's share prices. Regardless, we believe that opportunities are
born out of adversity, and we search diligently for overlooked opportunities,
particularly in South Korea, Thailand, and China.
Utility Equity Fund
Although U.S. utility markets were generally weak during the six months under
review, Latin American, European and Asian utility stocks performed
relatively well.
Our U.S. weightings declined slightly over the period (from 82.2% of total
net assets to 81.9%). Investors ignored large segments of the U.S. utility
market due to concerns over changing federal and state regulations. Both the
electric power generation and telecommunications industries experienced
significant deregulatory changes throughout 1996 and into 1997, causing the
average electric utility stock price to increase slightly. Regardless, we
feel that there are select buying opportunities in this market segment and
will continue to look for new investment opportunities.
Overall, our weighting in the foreign markets increased slightly during the
six-month period. We took profits in some European and Asian companies as
several of our holdings in these regions reached our target price range. We
also increased our Latin American position, particularly in electric power as
some governments in this region are trying to privatize this industry in
order to attract the needed technological knowledge and investments.
Looking forward, we believe that the global utility market offers very
attractive equity investment opportunities. In the U.S., high-quality utility
companies with aggressive, entrepreneurial management have been generating
strong earnings growth, and we hold a positive view of the California and
federal attempts at deregulation. Outside the U.S., the ongoing privatization
and deregulation of the utility industry continues to represent, we feel,
high quality investment opportunities with the potential for strong growth
rates and excellent total returns.
Utility Equity Fund
Top 10 Holdings on 6/30/97
Based on Total Net Assets
% of Total
Company Net Assets
Duke Power Co. 4.69%
TECO Energy, Inc. 4.23%
Southern Co. 3.95%
CINergy Corp. 3.91%
Enron Corp. 3.90%
Florida Progress Corp. 3.26%
American Electric Power 2.97%
FPL Group, Inc. 2.97%
GPU, Inc. 2.96%
Entergy Corp. 2.76%
For a complete list of portfolio holdings, please see page 149 of this report.
Portfolios Seeking Current Income
High Income Fund
Over the six months under review, the portfolio made several industry
allocation changes. We reduced our positions in the automotive and chemical
industries to capitalize on profits made in these somewhat cyclical holdings.
To avoid possible underperformance from an increasingly competitive
environment, we also reduced our cable television exposure.
During the reporting period, we increased our holdings in the broadcasting
and wireless communications industries, mainly to take advantage of rapid
market penetration, deregulation and industry consolidation in these sectors.
Additionally, industry consolidation created positive opportunities to
increase positions in the containers and packaging and the industrial sectors.
Within the wireless communications and telecommunications sectors, Nextel,
Telecom and Millicom performed well. Other strong performers include Collins
& Aikman Products (automotive), Smith's Food & Drug (food retailing), Ralphs
Grocery Co. (food retailing), Algoma Steel (metals & mining), and Mesa
Operating (energy). Mesa benefited substantially from a merger with an
investment grade-rated company, and has itself been upgraded to a Ba2 rating
by Moody's Investors Service.
Looking forward, we expect a favorable outlook for the high yield bond market
assuming we experience ongoing steady economic growth. However, the portfolio
will continue to acquire higher-quality issues, realizing that the growth
phase of the U.S. economy is now in its seventh year. Although we do not see
significant risk of recession on the short-term horizon, we believe that this
is a prudent investment strategy for the long term. Barring significant
fluctuations from moderate growth and low inflation trends in the first half
of 1997, a prosperous outlook remains for the high yield bond market.
High Income Fund
Top 10 Industries on 6/30/97
Based on Total Net Assets
% of Total
Industry Net Assets
Wireless
Communications 11.8%
Cable Television 10.5%
Industrial Products 9.0%
Health Care Services 7.3%
Gaming/Leisure 6.3%
Food & Beverage 4.8%
Food Retailing 4.6%
Forest/Paper Products 4.2%
Containers & Packaging 4.1%
Broadcasting 3.9%
For a complete list of portfolio holdings, please see page 70 of this report.
GRAPHIC MATERIAL 7 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Templeton Global Income Securities Fund
During the period under review, interest rates fell in almost all global bond
markets, increasing the value of most global fixed-income securities. At the
same time, however, the U.S. dollar rose against most foreign currencies,
reducing returns for U.S. holders of foreign bonds. Since these events
affected markets differently, market selection and currency management were
two key factors impacting the portfolio over the reporting period.
Responding to fluctuating economic conditions, we remained conservatively
positioned with respect to both interest rate and currency risk. Early in the
period, we reduced our Denmark exposure (from 7.2% of total net assets on
December 31, 1996, to 3.9%), eliminated our Ireland (1.2%) exposure, and
reinvested the proceeds in German and U.S. securities. We eliminated our
position in Japan, as that economy exhibited initial signs of underlying
strength. We also added to our positions in Italy and Sweden, purchases
funded by the May sale of some German bonds.
As of June 30, 1997, the portfolio held approximately 83% of its assets in
intermediate-term securities of dollar bloc countries (the U.S., Australia,
Canada, and dollar-denominated emerging markets), while holding roughly 16%
in intermediate-term European securities. Our emerging markets exposure
remained relatively unchanged over the six-month period, with Brazil,
Argentina and Mexico our largest allocations in this region.
U.S. Government Securities Fund
The U.S. Government Securities Fund holds a diversified portfolio of agency
mortgage and government securities, with holdings of Government National
Mortgage Association (GNMA or "Ginnie Mae") mortgage passthroughs as our
largest positions. Some other portfolio holdings were Federal National
Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation
(FHLMC) passthroughs and debentures issued by the Financing Corporation
(FICO) and the Tennessee Valley Authority (TVA). On June 30, 1997, the fund's
investments consisted of 71.0% of total net assets in mortgage-backed
securities (of which approximately 42.3% were Ginnie Maes), and 28.2% in
other U.S. government and agency securities and short-term investments. Of
course, these holdings may change as market conditions warrant.
As reports of strong economic growth surfaced in the fourth quarter of 1996,
U.S. interest rates -- which had declined between the third quarter and
December 1996 -- reversed course and pushed higher. Investors feared that with
labor markets tight, higher growth would continue to push wage growth higher.
This could eventually be passed on to consumers in the form of higher prices.
To no one's surprise, the Federal Reserve Board nudged the federal funds rate
up slightly at the Open Market Committee meeting in March, citing heightened
inflation risk as the reason behind the quarter-point increase.
The mortgage passthrough market experienced lower prepayment risk as yields
remained higher. This helped the mortgage passthroughs perform well compared
with other government bonds (including U.S. Treasuries) as investors
benefited from the added yield these securities provide.
Over the remainder of 1997, we expect that interest rate volatility will
remain subdued, which will continue to benefit mortgage passthrough
securities. However, overall yield levels may move to the higher end of their
recent trading range as consumer activity and economic growth rebound in the
second half of 1997.
Three Zero Coupon Funds (maturity dates: 2000, 2005, 2010)
Over the course of the first half of 1997, interest rates increased -- but
only slightly. Strong economic growth heightened prospects that inflation
would accelerate; however, by mid-year, there was only scant evidence that
inflation was on the rise. In addition to the continued favorable news on
inflation, the bond markets rallied because of the progress made on reducing
the federal budget deficit.
The Zero Coupon Fund portfolios aim to maintain investments as close to the
target maturities as practically possible. This makes changes in the interest
rates a highly significant factor affecting the unit value of these
portfolios. With four years to maturity in the 2000 portfolio, this portfolio
could possibly experience an approximate 4% swing in value for every 100
basis point (or 1%) swing in interest rates. Likewise, the 2005 fund has the
potential to move up or down approximately 9% for the same swing in interest
rates, and the 2010 may move -- up or down -- 14%.
Naturally, if held to maturity, individual zero coupon bonds will return a
fixed rate. Zero coupon investments, therefore, can be attractive for both
aggressive and risk averse investors. Of course, a managed portfolio of zero
coupon bonds will fluctuate with cash flow in or out of the portfolio, or
vary with market conditions. In each portfolio, we strive to maintain -- at
all times -- a duration within 12 months of the target maturity. We do not try
to time the market; instead, our portfolio activity mirrors shareholder
activity. We make purchases when money flows into the portfolios, and sell
securities to meet redemptions. Additionally, we hold primarily U.S. Treasury
and agency zero coupon and stripped securities, as well as top-rated
corporate securities. We believe this strategy keeps default risk at a
minimum.
Portfolio Seeking Capital Preservation and Income
Money Market Fund
Strong economic growth coupled with mild inflation characterized most of the
period under review. Real Gross Domestic Product (GDP) growth for the quarter
ended March 31, 1997, was 5.9% -- considerably above the Federal Reserve
Board's (the Fed's) targeted long-term growth rate of 2.5%. Moreover,
unemployment levels trended down to 4.8%, the lowest level experienced in 25
years. In spite of the blistering economic growth, inflation indicators
remained relatively low. However, the Fed responded preemptively to the
potential for higher prices by increasing the federal funds rate on March 25.
In response to this rise, most other short-term rates also rose slightly
during the period.
Since we maintained a relatively neutral weighted average maturity during the
six-month reporting period, the portfolio's seven-day yield reflected the
rise in short-term rates. Our seven-day yield began the period at 5.04% and
ended at 5.18%.
We continue to invest the portfolio's assets in securities that are among the
highest quality available to money market portfolios. Since the portfolio's
objective is to provide shareholders with a high quality conservative
investment, we do not invest in leveraged derivative or other potentially
volatile securities that we believe involve undue risk.
Looking forward, we feel the economy is in the later stages of the current
business cycle. Growth should continue to result from higher private
consumption, capital spending, and improving foreign economies. However, we
expect these forces -- coupled with a tight labor market -- could jeopardize
the current, benign inflation picture. As a result, the Fed may be compelled
to raise short-term rates further.
The Money Market Fund's relatively short-weighted average maturity should
position the portfolio effectively for this type of interest rate
environment. As interest rates rise, we should be able to reinvest the
portfolio's securities at a faster rate due to the relatively short overall
maturity.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES Capital Growth Fund (NOTE1)
Common Stocks 83.1%
Commercial Services 2.6%
<S> <C> <C>
30,000 Equifax, Inc. ........................................................ $ 1,115,625
18,000 a Robert Half International, Inc. ...................................... 847,125
------------
1,962,750
------------
Consumer Products - Durables 1.3%
28,000 Mattel, Inc. ......................................................... 948,500
------------
Consumer Products - Non-Durables 6.7%
12,000 Campbell Soup Co. .................................................... 600,000
7,000 The Coca-Cola Co. .................................................... 472,500
8,000 Gillette Co. ......................................................... 758,000
10,000 Hershey Foods Corp. .................................................. 553,125
20,000 Nike, Inc., Class B .................................................. 1,167,500
20,000 PepsiCo, Inc. ........................................................ 751,250
5,000 Proctor & Gamble Co. ................................................. 706,250
------------
5,008,625
------------
Consumer Services 3.5%
40,000 a CUC International, Inc. .............................................. 1,032,500
7,000 Disney (Walt) Co. .................................................... 561,750
40,000 a Mirage Resorts, Inc. ................................................. 1,010,000
------------
2,604,250
------------
Containers & Packaging 1.6%
38,500 a Owens-Illinois, Inc. ................................................. 1,193,500
------------
Electronic Technology 10.8%
21,750 a 3Com Corp. ........................................................... 978,750
17,500 a Ascend Communications, Inc. .......................................... 689,063
17,000 a Cisco Systems, Inc. .................................................. 1,141,125
6,000 a Compaq Computer Corp. ................................................ 595,500
12,000 Hewlett-Packard Co. .................................................. 672,000
40,000 a Imation Corp. ........................................................ 1,055,000
18,750 Molex, Inc. .......................................................... 684,375
18,000 a Newbridge Networks Corp. ............................................. 783,000
13,000 a Uniphase Corp. ....................................................... 757,250
8,000 United Technologies Corp. ............................................ 664,000
------------
8,020,063
------------
Energy & Minerals 3.3%
30,000 a Barrett Resources Corp. .............................................. 898,125
27,000 Enron Oil & Gas Co. .................................................. 489,375
20,000 Royal Dutch Petroleum Co., New York Shares, ADR ...................... 1,087,500
------------
2,475,000
------------
Financial Services 5.8%
5,000 American International Group, Inc. ................................... 746,875
5,000 Citicorp ............................................................. 602,813
18,000 Fannie Mae............................................................ 785,250
8,300 a Hartford Life, Inc., Class A.......................................... 311,250
25,600 a HomeSide, Inc. ....................................................... 560,000
18,000 Schwab (Charles) Corp. ............................................... 732,375
2,000 Wells Fargo & Co. .................................................... 539,000
------------
4,277,563
------------
Health Care Services 1.7%
10,000 a Oxford Health Plans, Inc. ............................................ 717,500
9,000 a PacifiCare Health Systems, Inc., Class B ............................. 574,875
------------
1,292,375
------------
Health Technology 10.2%
10,000 Abbott Laboratories .................................................. $ 667,500
12,000 Allergan, Inc. ....................................................... 381,750
10,000 American Home Products Corp. ......................................... 765,000
14,000 a Amgen, Inc. .......................................................... 813,750
15,000 Baxter International, Inc. ........................................... 783,750
10,000 a Boston Scientific Corp. .............................................. 614,375
15,000 Johnson & Johnson..................................................... 965,625
7,000 Lilly (Eli) & Co. .................................................... 765,188
40,000 Mentor Corp. ......................................................... 1,185,000
6,000 Merck & Co., Inc. .................................................... 621,000
------------
7,562,938
------------
Industrial Services 0.5%
3,000 Schlumberger, Ltd. ................................................... 375,000
------------
Media & Broadcasting 1.6%
25,000 Time Warner, Inc. .................................................... 1,206,250
------------
Process Industries 3.7%
10,000 Air Products and Chemicals, Inc. ..................................... 812,500
20,000 Millipore Corp. ...................................................... 880,000
30,000 Sigma-Aldrich Corp. .................................................. 1,051,875
------------
2,744,375
------------
Producer Manufacturing 3.3%
16,000 Emerson Electric Co. ................................................. 881,000
7,000 Minnesota Mining and Manufacturing Co. ............................... 714,000
32,000 a U.S. Filter Corp. .................................................... 872,000
------------
2,467,000
------------
Retail 2.6%
15,000 McDonald's Corp. ..................................................... 724,688
35,000 Wal-Mart Stores, Inc. ................................................ 1,183,438
------------
1,908,126
------------
Semiconductors 3.7%
25,000 a Adaptec, Inc. ........................................................ 868,750
5,000 Intel Corp. .......................................................... 709,063
12,000 Linear Technology Corp. .............................................. 621,000
12,000 a Xilinx, Inc. ......................................................... 588,750
------------
2,787,563
------------
Software & Technology Services 12.8%
25,000 Adobe Systems, Inc. .................................................. 876,563
16,000 Automatic Data Processing, Inc. ...................................... 752,000
30,000 a Broderbund Software, Inc. ............................................ 740,625
30,000 a Electronic Arts, Inc. ................................................ 1,008,750
17,000 Electronic Data Systems Corp. ........................................ 697,000
24,000 First Data Corp. ..................................................... 1,054,500
30,000 a Intuit, Inc. ......................................................... 688,124
2,400 a Microsoft Corp. ...................................................... 303,300
16,000 a Oracle Corp. ......................................................... 806,000
30,000 a SABRE Group Holdings, Inc. ........................................... 813,750
20,000 a Sterling Commerce, Inc. .............................................. 657,500
30,000 a Synopsys, Inc. ....................................................... 1,102,500
------------
9,500,612
------------
Transportation 2.5%
30,000 Air Express International Corp. ...................................... $ 1,192,500
25,000 Southwest Airlines Co. ............................................... 646,874
------------
1,839,374
------------
Utilities 4.9%
12,000 a AES Corp. ............................................................ 849,000
35,000 a AirTouch Communications, Inc. ........................................ 958,124
23,000 Enron Corp. .......................................................... 938,688
15,000 GTE Corp. ............................................................ 658,124
8,900 MCN Corp. ............................................................ 272,563
------------
3,676,499
------------
Total Long Term Investments (Cost $53,451,493) ................. 61,850,363
------------
FACE
AMOUNT
f,gReceivables from Repurchase Agreements 16.2%
$ 12,046,850 Joint Repurchase Agreement, 5.884%, 07/01/97
(Maturity Value $12,053,427) (Cost $12,051,457)
Aubrey G. Lanston & Co., Inc., (Maturity Value $1,194,681)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $1,194,681)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $703,953)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $1,194,681)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $1,194,681)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $597,345)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $1,194,681)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co., L.P., (Maturity Value $1,194,681)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $1,194,681)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $1,194,681)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $1,194,681)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 . 12,051,457
------------
Total Investments (Cost $65,502,950) 99.3% ................ 73,901,820
Other Assets and Liabilities, Net 0.7% .................... 518,168
------------
Net Assets 100.0% ......................................... $74,419,988
============
At June 30, 1997, the net unrealized appreciation based on the
cost of investments for income tax purposes of $65,523,666
was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost .................... $ 9,673,413
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value .................... (1,295,259)
------------
Net unrealized appreciation ........................................ $ 8,378,154
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
aNon-income producing.
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES Growth and Income Fund (NOTE1)
f,gCommon Stocks 93.6%
<S> <C> <C>
Automobile 1.5%
547,000 Chrysler Corp. ....................................................... $ 17,948,438
------------
Chemicals - Basic 4.1%
242,300 Dow Chemical Co. ..................................................... 21,110,388
320,000 Imperial Chemical Industries, Plc., Sponsored ADR .................... 18,200,000
428,570 Millennium Chemicals, Inc. ........................................... 9,749,968
------------
49,060,356
------------
Consumer Products 1.3%
391,800 Dial Corp. ........................................................... 6,121,875
182,900 Tambrands, Inc. ...................................................... 9,122,138
------------
15,244,013
------------
Electrical Equipment 2.2%
230,000 AMP, Inc. ............................................................ 9,602,500
262,200 General Electric Co. ................................................. 17,141,325
------------
26,743,825
------------
Financial Services 7.7%
263,100 Banc One Corp. ....................................................... 12,743,906
207,500 BankBoston Corp. ..................................................... 14,952,969
115,900 J.P. Morgan & Co., Inc. .............................................. 12,097,063
320,000 National City Corp. .................................................. 16,800,000
119,700 b Nordbanken AB, Sponsored ADR ......................................... 8,077,488
379,900 PNC Bank Corp. ....................................................... 15,813,338
510,000 Roosevelt Financial Group, Inc. ...................................... 12,407,280
------------
92,892,044
------------
Forest Products & Paper 4.9%
136,000 Georgia-Pacific Corp. ................................................ 11,611,000
1,020,000 b Portucel Industrial-Empresa Produtora de Celulosa,
SA, Sponsored ADR ................................................... 7,563,504
318,400 Potlatch Corp. ....................................................... 14,407,600
240,000 Union Camp Corp. ..................................................... 12,000,000
255,000 Weyerhaeuser Co. ..................................................... 13,260,000
------------
58,842,104
------------
Insurance 4.8%
324,400 Lincoln National Corp. ............................................... 20,883,250
214,100 Mid Ocean, Ltd. ...................................................... 11,226,869
297,000 d Scor (France) ........................................................ 11,957,425
131,000 St. Paul Cos., Inc. .................................................. 9,988,750
121,500 Zenith National Insurance Corp. ...................................... 3,280,500
------------
57,336,794
------------
Miscellaneous Manufacturing 4.0%
430,000 British Steel, Plc., Sponsored ADR ................................... 10,857,500
167,300 Cooper Industries, Inc. .............................................. 8,323,175
345,100 Fortune Brands, Inc. ................................................. 12,876,544
163,750 Hanson, Plc., Sponsored ADR .......................................... 4,093,750
120,500 Minnesota Mining and Manufacturing Co. ............................... 12,291,000
------------
48,441,969
------------
Oil & Gas Transmission 4.0%
280,000 Consolidated Natural Gas Co. ......................................... 15,067,500
357,400 National Fuel Gas Co. ................................................ 14,988,463
547,800 Pacific Enterprises .................................................. 18,419,775
------------
48,475,738
------------
Petroleum - Integrated 15.7%
233,700 Amoco Corp. .......................................................... $ 20,317,294
414,000 Atlantic Richfield Co. ............................................... 29,187,000
305,000 Chevron Corp. ........................................................ 22,550,938
427,000 Exxon Corp. .......................................................... 26,260,500
256,000 Mobil Corp. .......................................................... 17,888,000
385,000 Occidental Petroleum Corp. ........................................... 9,649,063
256,200 Texaco, Inc. ......................................................... 27,861,750
357,800 Ultramar Diamond Shamrock Corp. ...................................... 11,673,225
775,000 YPF Sociedad Anonima, Sponsored ADR .................................. 23,831,250
------------
189,219,020
------------
Pharmaceuticals 6.2%
78,000 American Home Products Corp. ......................................... 5,967,000
417,000 Bristol-Myers Squibb Co. ............................................. 33,777,000
420,800 Glaxo Wellcome, Plc., Sponsored ADR .................................. 17,594,700
510,000 Pharmacia & Upjohn, Inc. ............................................. 17,722,500
------------
75,061,200
------------
Printing, Publishing & Media 0.8%
375,000 Dun & Bradstreet Corp. ............................................... 9,843,750
------------
Real Estate Investment Trust 5.2%
460,300 Equity Residential Properties Trust .................................. 21,864,250
575,000 FelCor Suite Hotels, Inc. ............................................ 21,418,750
595,700 Simon DeBartolo Group, Inc. .......................................... 19,062,400
------------
62,345,400
------------
Retail 2.2%
501,900 Penney (J.C.) Co., Inc. .............................................. 26,192,906
------------
Telecommunications 10.6%
72,000 Ameritech Corp. ...................................................... 4,891,500
252,000 AT&T Corp. ........................................................... 8,835,750
115,800 BellSouth Corp. ...................................................... 5,370,225
161,300 British Telecommunications, Plc., Sponsored ADR ...................... 11,976,525
544,500 GTE Corp. ............................................................ 23,889,938
462,000 NYNEX Corp. .......................................................... 26,622,750
601,900 Southern New England Telecommunications Corp. ........................ 23,398,863
583,100 U S WEST Communications Group ........................................ 21,975,581
------------
126,961,132
------------
Tobacco 4.8%
900,000 d Imperial Tobacco Group, Plc. (United Kingdom) ........................ 5,792,769
528,300 Imperial Tobacco Group, Plc., ADR .................................... 6,800,700
347,800 Philip Morris Cos., Inc. ............................................. 15,433,625
363,560 RJR Nabisco Holdings Corp. ........................................... 11,997,480
640,000 UST, Inc. ............................................................ 17,760,000
------------
57,784,574
------------
Transportation 0.7%
252,000 Illinois Central Corp. ............................................... 8,804,250
------------
Utilities 12.9%
466,100 Central & South West Corp. ........................................... 9,904,625
327,000 CINergy Corp. ........................................................ 11,383,688
484,000 Dominion Resources, Inc. ............................................. 17,726,500
590,000 Enova Corp. .......................................................... 14,196,875
553,000 Entergy Corp. ........................................................ 15,138,375
425,300 GPU, Inc. ............................................................ 15,257,632
401,400 New England Electric System .......................................... 14,851,800
403,000 OGE Energy Corp. ..................................................... 18,336,500
410,000 PacifiCorp ........................................................... $ 9,020,000
444,900 PECO Energy Co. ...................................................... 9,342,900
310,700 PG&E Corp. ........................................................... 7,534,475
288,000 Public Service Co. of Colorado ....................................... 11,952,000
------------
154,645,370
------------
Total Long Term Investments (Cost $893,292,316) ................1,125,842,883
------------
FACE
AMOUNT
f,gReceivables from Repurchase Agreements 6.3%
$ 75,926,090 Joint Repurchase Agreement, 5.884%, 07/01/97
(Maturity Value $75,962,063) (Cost $75,949,649)
Aubrey G. Lanston & Co., Inc., (Maturity Value $7,529,018)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $7,529,018)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $4,436,392)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $7,529,018)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $7,529,018)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $3,764,509)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $7,529,018)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co., L.P., (Maturity Value $7,529,018)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $7,529,018)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $7,529,018)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $7,529,018)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00.. 75,949,649
------------
Total Investments (Cost $969,241,965) 99.9% ...............1,201,792,532
Other Assets and Liabilities, Net 0.1%..................... 1,490,687
------------
Net Assets 100.0%..........................................$1,203,283,219
============
At June 30,1997, the net unrealized appreciation based on the cost
of investments for income tax purposes of $969,251,742 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ..........................$ 242,539,222
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value .................... (9,998,432)
------------
Net unrealized appreciation ........................................$ 232,540,790
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
bPurchased in a private placement transaction; resale may only be to qualified
institutional buyers.
dSecurities are traded in foreign currency and value is stated in U.S. dollars.
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES/ VALUE
WARRANTS High Income Fund (NOTE1)
a Common Stocks & Warrants 0.1%
<S> <C> <C>
33,568 Bucyrus-Erie Co. ..................................................... $ 356,660
6,900 Empire Gas Corp., warrants ........................................... 34,500
70 Foodmaker, Inc., warrants ............................................ 3,243
5,000 Gulf States Steel, warrants .......................................... 25,500
7,800 International Wireless Holding Co., warrants ......................... 156
6,500 Nextel Communications, Inc., warrants ................................ 65
395 Thermadyne Holdings Corp. ............................................ 12,443
5,000 Wireless One, Inc., warrants ......................................... 50
------------
Total Common Stocks & Warrants (Cost $716,040).................. 432,617
------------
Preferred Stocks 4.4%
4,500,000 b Asia Pulp & Paper Co., Ltd., 12.00%, pfd., Class A ................... 4,623,750
1,300 Fresenius Medical Care A.G., 9.00%, pfd., PIK ........................ 1,319,500
8,979 PanAmSat Corp., 12.75%, pfd., PIK .................................... 11,011,428
2,374 Time Warner, Inc., 10.25%, pfd., Series M, PIK ....................... 2,637,872
------------
Total Preferred Stocks (Cost $17,476,758) ...................... 19,592,550
------------
Total Common Stocks & Warrants,
and Preferred Stocks (Cost $18,192,798) ............................. 20,025,167
------------
FACE
AMOUNT
Bonds 93.6%
Automotive 0.4%
$ 700,000 Aetna Industrial, Inc., senior notes, 11.875%, 10/01/06 .............. 763,000
1,000,000 Collins & Aikman Corp., senior sub. notes, 11.50%, 04/15/06 .......... 1,137,500
------------
1,900,500
------------
Broadcasting 3.9%
2,500,000 Benedek Broadcasting Corp., senior notes, 11.875%, 03/01/05 .......... 2,775,000
6,500,000 Granite Broadcasting Corp., senior sub. notes, 10.375%, 05/15/05 ..... 6,646,250
1,000,000 Jacor Communications, Inc., guaranteed senior sub. notes, 9.75%, 12/15/06 1,050,000
2,000,000 SCI Television, Inc., S.F., senior notes, 11.00%, 06/30/05 ........... 2,140,000
2,000,000 SFX Broadcasting, Inc., senior sub. notes, Series B, 10.75%, 05/15/06 2,155,000
2,500,000 Sinclair Broadcast Group, Inc., senior sub. notes, 10.00%, 09/30/05 .. 2,587,500
------------
17,353,750
------------
Cable Television 10.5%
4,000,000 Cablevision Industries Corp., senior sub. deb., 9.25%, 04/01/08 ...... 4,315,956
3,000,000 Cablevision Systems Corp., senior sub. deb., 10.50%, 05/15/16 ........ 3,315,000
4,500,000 Cablevision Systems Corp., senior sub. deb., 9.875%, 04/01/23 ........ 4,741,875
1,500,000 Cablevision Systems Corp., senior sub. notes, 9.25%, 11/01/05 ........ 1,545,000
3,000,000 Century Communications Corp., senior sub. notes, 9.50%, 03/01/05 ..... 3,090,000
2,000,000 Comcast Corp., senior sub. deb., 9.125%, 10/15/06 .................... 2,097,500
2,000,000 Comcast Corp., senior sub. deb., 9.50%, 01/15/08 ..................... 2,110,000
1,500,000 Continental Cablevision, Inc., senior deb., 9.50%, 08/01/13 .......... 1,708,123
1,000,000 Continental Cablevision, Inc., senior sub. deb., 11.00%, 06/01/07 .... 1,125,714
2,700,000 Diamond Cable Communications Co., Plc., senior disc. notes,
zero coupon to 12/15/00, (original accretion rate 11.75%), 11.75%
thereafter, 12/15/05 ................................................ 1,836,000
1,500,000 b Diamond Cable Communications Co., Plc., senior disc. notes,
zero coupon to 02/15/02, (original accretion rate 10.75%), 10.75%
thereafter, 02/15/07 ................................................ 855,000
2,200,000 Le Groupe Videotron Ltee, senior notes, 10.625%, 02/15/05 ............ 2,442,000
5,700,000 c Rogers Cablesystems, Inc., senior secured deb. (Canada), 9.65%, 01/15/14 4,189,507
1,500,000 Rogers Communications, Inc., senior deb., 10.875%, 04/15/04 .......... 1,578,750
8,000,000 TeleWest Communications, Plc., senior deb., zero coupon to 10/01/00,
(original accretion rate 11.00%), 11.00% thereafter,
10/01/07 ............................................................ 5,800,000
1,500,000 Time Warner, Inc., deb., 9.125%, 01/15/13 ............................ 1,657,500
3,000,000 Turner Broadcasting Systems, Inc., senior deb., 8.40%, 02/01/24 ...... 2,987,994
5,000,000 Wireless One, Inc., units, senior disc. notes, zero coupon to 08/01/01,
(original accretion rate 13.50%), 13.50% thereafter, 08/01/06 ....... 1,350,000
------------
46,745,919
------------
Chemicals 3.3%
$ 3,750,000 Applied Extrusion Technologies, Inc., senior notes,
Series B, 11.50%, 04/01/02........................................... $ 3,956,250
2,500,000 Harris Chemical of North America, senior sub. notes, 10.75%, 10/15/03 2,562,500
3,600,000 IMC Global, Inc., senior deb., 9.45%, 12/15/11 ....................... 4,247,816
4,000,000 Uniroyal Chemical Co. Investors, disc. notes, zero coupon to 05/01/98,
(original accretion rate 12.00%), 12.00% thereafter,
05/01/05 ............................................................ 3,680,000
------------
14,446,566
------------
Consumer Products 3.0%
3,000,000 E & S Holdings Corp., senior sub. notes, Series B, 10.375%, 10/01/06 . 3,120,000
300,000 Playtex Family Products Corp., senior sub. notes, 9.00%, 12/15/03 .... 304,500
10,000,000 b Revlon Worldwide Corp., senior disc. notes, zero coupon to 03/15/00,
(original accretion rate 10.75%), 10.75% thereafter, 03/15/01 ....... 6,787,500
3,000,000 RJR Nabisco, Inc., notes, 9.25%, 08/15/13 ............................ 3,123,750
------------
13,335,750
------------
Containers & Packaging 4.1%
3,500,000 Container Corp., senior notes, Series A, 11.25%, 05/01/04 ............ 3,850,000
6,000,000 Owens-Illinois, Inc., senior notes, 8.10%, 05/15/07 .................. 6,105,000
1,000,000 Owens-Illinois, Inc., senior sub. notes, 10.00%, 08/01/02 ............ 1,050,000
1,000,000 Owens-Illinois, Inc., senior sub. notes, 9.75%, 08/15/04 ............. 1,050,000
1,000,000 Plastic Containers, Inc., senior notes, 10.00%, 12/15/06 ............. 1,040,000
5,000,000 Radnor Holdings Corp., senior notes, 10.00%, 12/01/03 ................ 5,075,000
------------
18,170,000
------------
Energy 2.0%
1,000,000 Dawson Production Services, Inc., senior notes, 9.375%, 02/01/07 ..... 1,020,000
5,000,000 Empire Gas Corp., units, senior secured notes, 7.00% to 07/15/99,
12.875% thereafter, 07/15/04 ........................................ 4,512,500
800,000 Forcenergy, Inc., senior sub. notes, 9.50%, 11/01/06 ................. 836,000
1,800,000 Mesa Operating Co., company guaranteed, senior sub. notes,
zero coupon to 07/01/01, (original accretion rate 11.625%), 11.625%
thereafter, 07/01/06 ................................................ 1,395,000
1,000,000 b Pogo Producing Co., sub. notes, 8.75%, 05/15/07 ...................... 997,000
------------
8,760,500
------------
Food & Beverage 4.8%
3,000,000 Coca Cola Bottling Group Southwest, Inc.,
senior sub. notes, 9.00%, 11/15/03................................... 3,119,999
700,000 Curtice-Burns Food, Inc., senior sub. notes, 12.25%, 02/01/05 ........ 778,750
3,000,000 Doane Products Co., senior notes, 10.625%, 03/01/06 .................. 3,180,000
250,000 Dr. Pepper Bottling Co. of Texas, senior notes, 10.25%, 02/15/00 ..... 259,063
1,600,000 International Home Foods, Inc., company guaranteed,
senior sub. notes, 10.375%, 11/01/06 ................................ 1,656,000
4,700,000 PMI Acquisition Corp., senior sub. notes, 10.25%, 09/01/03 ........... 4,970,250
4,000,000 RC/Arby's Corp., senior notes, 9.75%, 08/01/00 ....................... 4,080,000
3,000,000 Texas Bottling Group, Inc., senior sub. notes, 9.00%, 11/15/03 ....... 3,120,000
------------
21,164,062
------------
Food Retailing 4.6%
1,700,000 Dominick's Finer Foods, senior sub. notes, 10.875%, 05/01/05 ......... 1,889,125
3,691,000 Grand Union Co., senior notes, 12.00%, 09/01/04 ...................... 2,749,795
4,000,000 Pathmark Stores, Inc., senior sub. notes, 9.625%, 05/01/03 ........... 3,880,000
1,000,000 Pathmark Stores, Inc., S.F., sub. notes, 11.625%, 06/15/02 ........... 1,015,000
3,000,000 Penn Traffic Co., senior notes, 8.625%, 12/15/03 ..................... 2,452,500
3,750,000 Ralphs Grocery Co., senior notes, 10.45%, 06/15/04 ................... 4,045,313
1,500,000 b Shoppers Food Warehouse Corp., senior notes, 9.75%, 06/15/04 ......... 1,500,000
2,500,000 Smith's Food & Drug Centers, Inc., senior sub. notes, 11.25%, 05/15/07 2,946,875
------------
20,478,608
------------
Forest & Paper Products 4.2%
7,700,000 Four M Corp., senior notes, Series B, 12.00%, 06/01/06 ............... 7,969,500
3,000,000 Rapp International Finance Co., secured notes, 13.25%, 12/15/05 ...... 3,210,000
2,000,000 Repap New Brunswick, senior notes, second priority, 10.625%, 04/15/05 1,900,000
$ 3,000,000 Repap Wisconsin, Inc., senior secured notes, 9.25%, 02/01/02 ......... $ 3,037,500
2,300,000 S.D. Warren Co., senior sub. notes, Series B, 12.00%, 12/15/04 ....... 2,570,250
------------
18,687,250
------------
Gaming & Leisure 6.3%
3,000,000 Aztar Corp., senior sub. notes, 13.75%, 10/01/04 ..................... 3,435,000
1,000,000 Eldorado Resorts, L.L.C., senior sub. notes, 10.50%, 08/15/06 ........ 1,072,500
5,900,000 Players International, Inc., senior notes, 10.875%, 04/15/05 ......... 6,121,250
3,000,000 Rio Hotel & Casino, Inc., senior sub. notes, 10.625%, 07/15/05 ....... 3,232,500
7,500,000 Showboat, Inc., senior sub. notes, 13.00%, 08/01/09 .................. 8,990,625
5,000,000 Six Flags Theme Parks, senior sub. notes, zero coupon to 06/15/98,
(original accretion rate 12.25%), 12.25% thereafter, 06/15/05 ....... 5,125,000
------------
27,976,875
------------
Health Care Services 7.3%
7,770,000 Abbey Healthcare Group, Inc., senior sub. notes, 9.50%, 11/01/02 ..... 8,090,513
5,500,000 Mariner Health Group, Inc., senior sub. notes, 9.50%, 04/01/06 ....... 5,589,375
2,000,000 Maxxim Medical, Inc., guaranteed senior sub. notes, 10.50%, 08/01/06 . 2,115,000
1,000,000 Regency Health Services, Inc., senior sub. notes, 9.875%, 10/15/02 ... 1,025,000
5,500,000 Sola Group, Ltd., senior sub. notes, 6.00% to 12/15/98,
9.625% thereafter, 12/15/03 ......................................... 5,335,000
850,000 Tenet Healthcare Corp., senior notes, 9.625%, 09/01/02 ............... 918,000
2,400,000 Tenet Healthcare Corp., senior notes, 8.625%, 12/01/03 ............... 2,496,000
3,400,000 Tenet Healthcare Corp., senior sub. notes, 10.125%, 03/01/05 ......... 3,740,000
3,250,000 Tenet Healthcare Corp., senior sub. notes, 8.625%, 01/15/07 .......... 3,298,750
------------
32,607,638
------------
Industrial Products 9.0%
11,500,000 b Allied Waste Industries, Inc., senior disc. notes, zero coupon to 06/01/02,
(original accretion rate 11.30%), 11.30% thereafter, 06/01/07 ...... 7,187,500
2,500,000 b Allied Waste Industries, Inc., senior sub. notes, 10.25%, 12/01/06 ... 2,675,000
8,500,000 American Standard Cos., Inc., senior sub. deb., zero coupon to 06/01/98,
(original accretion rate 10.50%), 10.50% thereafter, 06/01/05 ...... 8,404,375
1,000,000 Day International Group, senior sub. notes, 11.125%, 06/01/05 ........ 1,065,000
6,500,000 EASCO Corp., senior notes, Series B, 10.00%, 03/15/01 ................ 6,695,000
3,200,000 Goss Graphic Systems, Inc., senior sub. notes, 12.00%, 10/15/06 ...... 3,536,000
1,200,000 Intertek Finance, Plc., senior sub. notes, 10.25%, 11/01/06 .......... 1,245,000
3,500,000 b L-3 Communications Corp., senior sub. notes, 10.375%, 05/01/07 ....... 3,701,250
5,500,000 Nortek, Inc., senior sub. notes, 9.875%, 03/01/04 .................... 5,623,750
------------
40,132,875
------------
Lodging 1.8%
1,000,000 John Q. Hammons Hotels, L.P., first mortgage, 8.875%, 02/15/04 ....... 1,015,000
1,500,000 John Q. Hammons Hotels, L.P., first mortgage, 9.75%, 10/01/05 ........ 1,571,250
3,000,000 Prime Hospitality Corp., senior sub. notes, Series B, 9.75%, 04/01/07 3,135,000
2,310,000 Red Roof Inns, Inc., senior notes, 9.625%, 12/15/03 .................. 2,361,975
------------
8,083,225
------------
Media 3.8%
1,700,000 American Media Operation, senior sub. notes, 11.625%, 11/15/04 ....... 1,861,500
4,500,000 Hollinger Publishing, guaranteed senior sub. notes, 9.25%, 03/15/07 .. 4,590,000
2,500,000 K-III Communications Corp., senior notes, 10.25%, 06/01/04 ........... 2,700,000
5,000,000 c News America Holdings, Inc., deb. (Australia), 8.625%, 02/07/14 ...... 3,459,061
4,250,000 Outdoor Systems, Inc., senior sub. notes, 8.875%, 06/15/07 ........... 4,149,063
------------
16,759,624
------------
Metals & Mining 3.6%
4,000,000 AK Steel Holding Corp., senior notes, 9.125%, 12/15/06 ............... 4,130,000
4,000,000 Algoma Steel, Inc., first mortgage, 12.375%, 07/15/05 ................ 4,450,000
5,000,000 Gulf States Steel, first mortgage, 13.50%, 04/15/03 .................. 5,000,000
$ 1,000,000 b Neenah Corp., senior sub. notes, 11.125%, 05/01/07 ................... $ 1,057,500
1,110,000 UCAR Global Enterprises, senior sub. notes, Series B, 12.00%, 01/15/05 1,259,850
------------
15,897,350
------------
Technology & Information Systems 2.9%
1,000,000 Amphenol Corp., senior sub. notes, 9.875%, 05/15/07 .................. 1,030,000
1,400,000 Bell & Howell Co., senior disc. deb., Series B, zero coupon to 03/01/00,
(original accretion rate 11.50%), 11.50% thereafter, 03/01/05 ...... 1,134,000
2,450,000 Bell & Howell Operating Co., senior notes, 9.25%, 07/15/00 ........... 2,535,750
800,000 Bell & Howell Operating Co., senior sub. notes,
Series B, 10.75%, 10/01/02 .......................................... 844,000
4,000,000 b Borg-Warner Security Corp., senior sub. notes, 9.625%, 03/15/07 ...... 4,020,000
1,150,000 Celestica International, Inc., senior sub. notes, 10.50%, 12/31/06 ... 1,239,125
2,000,000 Exide Electronics Group, Inc., senior sub. notes, 11.50%, 03/15/06 ... 2,130,000
------------
12,932,875
------------
Telecommunications 1.6%
2,000,000 Intelcom Group, Inc., senior disc. notes, zero coupon to 05/01/01,
(original accretion rate 12.50%), 12.50% thereafter, 05/01/06 ....... 1,345,000
1,500,000 Orion Network Systems, Inc., units,
senior disc. notes, zero coupon to 01/15/02,
(original accretion rate 12.50%), 12.50% thereafter, 01/15/07 ...... 862,500
6,500,000 Teleport Communications Group, Inc., senior disc. notes, zero
coupon to 07/01/01, (original accretion rate 11.125%), 11.125%
thereafter, 07/01/07 ................................................ 4,704,375
------------
6,911,875
------------
Textiles & Apparel 1.3%
5,500,000 Clark-Schwebel, Inc., senior notes, Series B, 10.50%, 04/15/06 ....... 5,940,000
------------
Transportation 1.5%
1,600,000 Eletson Holdings, Inc., first mortgage notes, 9.25%, 11/15/03 ........ 1,628,000
4,500,000 Gearbulk Holding, Ltd., senior notes, 11.25%, 12/01/04 ............... 4,995,000
------------
6,623,000
------------
Utilities 1.9%
3,000,000 CMS Energy Corp., senior notes, Series B, 9.875%, 10/01/99 ........... 3,097,500
2,500,000 El Paso Electric Co., first mortgage, 8.90%, 02/01/06 ................ 2,675,000
2,576,240 Midland Funding Corp. I, deb., Series C-94, 10.33%, 07/23/02 ......... 2,831,133
2,000 System Energy Resource, S.F., first mortgage, 11.375%, 09/01/16 ...... 2,141
------------
8,605,774
------------
Wireless Communication 11.8%
6,000,000 Arch Communications Group, Inc., senior disc. notes,
zero coupon to 03/15/01, (original accretion rate 10.875%),
10.875% thereafter, 03/15/08 ....................................... 3,150,000
3,000,000 b Comcast Cellular, senior notes, 9.50%, 05/01/07 ...................... 3,022,500
6,500,000 Dial Call Communications, units, senior disc. notes,
zero coupon to 04/15/99, (original accretion rate 12.25%),
12.25% thereafter, 04/15/04 ......................................... 5,313,750
7,800,000 International Wireless Communications, Inc., senior disc.
notes, zero coupon to 08/15/01 ...................................... 4,095,000
7,000,000 b McCaw International, Ltd., units, senior disc. notes, 13.00%, 04/15/07 3,325,000
9,300,000 Millicom International Cellular, SA, senior disc. notes, 13.50%, 06/01/06 6,696,000
4,700,000 Paging Network, Inc., senior sub. notes, 10.125%, 08/01/07 ........... 4,582,500
4,500,000 Paging Network, Inc., senior sub. notes, 10.00%, 10/15/08 ............ 4,297,500
3,000,000 Rogers Cantel Mobile Communications, Inc., deb., 9.75%, 06/01/16 ..... 3,195,000
10,000,000 Sprint Spectrum, L.P., senior disc. notes, zero coupon to 08/15/01,
(original accretion rate 12.50%), 12.50% thereafter, 08/15/06 ....... 7,275,000
7,500,000 Sygnet Wireless, Inc., senior notes, 11.50%, 10/01/06 ................ 7,537,500
------------
52,489,750
------------
Total Bonds (Cost $400,403,040) ................................ 416,003,766
------------
Total Long Term Investments (Cost $418,595,838) ................ 436,028,933
------------
f,gReceivables from Repurchase Agreements 2.0%
$ 8,972,603 Joint Repurchase Agreement, 5.884%, 07/01/97,
(Maturity Value $8,975,968) (Cost $8,974,501)
Aubrey G. Lanston & Co., Inc., (Maturity Value $889,658)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $889,658)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $524,217)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $889,658)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $889,658)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $444,829)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $889,658)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co., L.P., (Maturity Value $889,658)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $889,658)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $889,658)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $889,658)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 . $ 8,974,501
------------
Total Investments (Cost $427,570,339) 100.1% .............. 445,003,434
Liabilities in Excess of Other Assets (0.1%)............... (657,141)
------------
Net Assets 100.0%.......................................... $444,346,293
============
At June 30, 1997, the net unrealized appreciation based on the cost
of investments for income tax purposes of $427,570,339 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost .......................... $ 23,465,562
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value .................... (6,032,467)
------------
Net unrealized appreciation ........................................ $ 17,433,095
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
PIK - Payment-in-Kind
S.F. - Sinking Fund
bPurchased in a private placement transaction; resale may only be to qualified
institutional buyers.
cFace amount is stated in foreign currency and value is stated in U.S. dollars.
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES Income Securities Fund (NOTE1)
Common Stocks 31.3%
<S> <C> <C>
Apparel & Textiles 0.2%
419,424 a,jBibb Co. ............................................................... $ 2,935,968
------------
Building Materials 0.1%
47,500 Hanson, Plc., Sponsored ADR ............................................ 1,187,500
------------
Computer & Technology 0.2%
190,223 a Anacomp, Inc. .......................................................... 2,282,676
------------
Consumer Products 2.2%
95,000 Imperial Tobacco Group, Plc., ADR ...................................... 1,222,916
600,000 Philip Morris Cos., Inc. ............................................... 26,625,000
60,000 RJR Nabisco Holdings Corp. ............................................. 1,980,000
93,750 a,bSpecialty Foods Corp. .................................................. 23,437
------------
29,851,353
------------
Energy 2.4%
576,500 d Athabasca Oil Sands Trust (Canada) ..................................... 9,601,723
60,000 Atlantic Richfield Co. ................................................. 4,230,000
50,000 BP Prudhoe Bay Royalty Trust ........................................... 831,250
500,000 b,dCanadian Oil Sands Trust - Units (Canada) .............................. 8,725,877
65,000 a Noble Drilling Corp. ................................................... 1,466,563
279,642 a Santa Fe Energy Resources, Inc. ........................................ 4,107,242
125,000 Ultramar Diamond Shamrock Corp. ........................................ 4,078,125
------------
33,040,780
------------
Metals 1.2%
55,009 a Avgold, Ltd., ADR ...................................................... 539,539
185,200 Driefontein Consolidated, Ltd., Sponsored ADR .......................... 1,250,100
60,000 Evander Gold Mines, Ltd., ADR .......................................... 254,574
390,000 Free State Consolidated Gold Mines, Ltd., ADR .......................... 1,950,000
91,874 Freeport-McMoRan Copper & Gold, Inc., Class A .......................... 2,687,315
216,500 Impala Platinum Holdings, Ltd., ADR .................................... 2,421,726
223,161 Rustenburg Platinum Holdings, Ltd., ADR ................................ 4,082,507
19,000 St. Helena Gold Mines, Ltd., ADR ....................................... 80,750
256,000 Vaal Reefs Exploration & Mining Co., Ltd., ADR ......................... 1,232,000
102,500 Western Deep Levels, Ltd., ADR ......................................... 2,447,188
------------
16,945,699
------------
Real Estate Investment Trust 2.1%
150,000 Equity Residential Properties Trust .................................... 7,125,000
275,000 FelCor Suite Hotels, Inc. .............................................. 10,243,750
150,000 Gables Residential Trust ............................................... 3,787,500
100,000 Meditrust Corp. ........................................................ 3,987,500
102,900 Simon DeBartolo Group, Inc. ............................................ 3,292,800
------------
28,436,550
------------
Telecommunications 1.0%
360,000 U S WEST Communications Group .......................................... 13,567,500
------------
Utilities 21.8%
390,000 American Electric Power Co. ............................................ 16,380,000
670,000 Central & South West Corp. ............................................. 14,237,500
511,000 CINergy Corp. .......................................................... 17,789,187
500,000 Delmarva Power & Light Co. ............................................. 9,531,250
375,000 Dominion Resources, Inc. ............................................... 13,734,375
610,000 Edison International ................................................... 15,173,750
47,500 Energy Group, Plc., Sponsored ADR ...................................... 2,012,813
525,000 Enova Corp. ............................................................ 12,632,812
550,000 Entergy Corp. .......................................................... 15,056,250
410,000 Florida Progress Corp. ................................................. 12,838,125
240,000 FPL Group, Inc. ........................................................ 11,055,000
320,000 GPU, Inc. .............................................................. $ 11,480,000
142,000 Hawaiian Electric Industries, Inc. ..................................... 5,484,750
315,000 Houston Industries, Inc. ............................................... 6,752,812
400,000 Long Island Lighting Co. ............................................... 9,200,000
265,100 MidAmerican Energy Holdings Co. ........................................ 4,589,544
175,000 Nevada Power Co. ....................................................... 3,718,750
330,000 New England Electric System ............................................ 12,210,000
300,000 New York State Electric & Gas Corp. .................................... 6,262,500
385,000 Ohio Edison Co. ........................................................ 8,397,812
120,000 PacifiCorp ............................................................. 2,640,000
400,000 PECO Energy Co. ........................................................ 8,400,000
610,000 PG&E Corp. ............................................................. 14,792,500
233,100 Potomac Electric Power Co. ............................................. 5,390,438
395,000 Public Service Enterprise Group, Inc. .................................. 9,875,000
135,000 SCANA Corp. ............................................................ 3,349,688
460,000 Southern Co. ........................................................... 10,062,500
400,000 Southwestern Public Service Co. ........................................ 15,725,000
370,000 Texas Utilities Co. .................................................... 12,741,875
190,000 Western Resources, Inc. ................................................ 6,163,125
------------
297,677,356
------------
Miscellaneous 0.1%
14,000 a Echelon International Corp., Inc. ...................................... 319,375
27,142 Millennium Chemicals, Inc. ............................................. 617,481
------------
936,856
------------
Total Common Stocks (Cost $389,107,386) .......................... 426,862,238
------------
Preferred Stocks 0.7%
Automotive
16,726 a Harvard Industries, Inc., 14.25% pfd., PIK.............................. 13,068
------------
Cable Systems 0.2%
2,713 Time Warner, Inc., 10.25% pfd., Series M................................ 3,013,896
------------
Consumer Products 0.1%
11,000 Pantry Pride, Inc., $14.875 pfd., Series B.............................. 1,104,813
------------
Paper & Forest Products 0.4%
5,000,000 b Asia Pulp & Paper Co., Ltd., 12.00% pfd., Class A....................... 5,137,500
------------
Total Preferred Stocks (Cost $9,317,800) ......................... 9,269,277
------------
Convertible Preferred Stocks 9.3%
Apparel & Textile 0.2%
50,000 Fieldcrest Cannon, Inc., $3.00 cvt. pfd., Series A...................... 2,300,000
------------
Cable Systems 0.5%
265,000 Cablevision Systems Corp., 8.50%, cvt. pfd., Series I................... 7,188,125
------------
Energy 3.4%
65,000 Devon Financing Trust, $3.25 cvt. pfd................................... 4,594,687
315,000 Enron Corp., 6.25%, cvt. pfd............................................ 6,024,375
235,000 b McDermott International, Inc., $2.875 cvt. pfd., Series C............... 11,632,500
100,000 Nuevo Energy Co., 5.75%, cvt. pfd., Series A............................ 4,825,000
75,000 b Occidental Petroleum Corp., $3.875, cvt. pfd............................ 4,387,500
170,000 b Parker & Parsley Capital, 6.25% cvt. pfd................................ 10,943,750
39,525 Patina Oil & Gas Corp., 7.125% cvt. pfd................................. 1,106,700
100,000 Snyder Oil Corp., $1.50 cvt. exch. pfd.................................. 2,525,000
------------
46,039,512
------------
Lodging 0.4%
100,000 b Host Marriott Financial Trust, 6.75%, cvt. pfd.......................... $ 5,800,000
------------
Metals 2.2%
150,000 Amax Gold, Inc., $3.75 cvt. pfd., Series B.............................. 7,987,500
65,000 Armco, Inc., $3.625 cum. cvt. pfd., Series A............................ 2,770,625
65,000 Battle Mountain Gold Co., $3.25 cvt. pfd................................ 3,107,813
135,000 Coeur D' Alene Mines Corp., 7.00% cvt. pfd.............................. 2,261,250
55,000 Cyprus Minerals, $4.00 cvt. pfd., Series A.............................. 3,031,875
108,800 Freeport-McMoRan Copper & Gold, Inc., $1.25 cum. cvt. pfd............... 3,359,200
60,000 b Freeport-McMoRan, Inc., $4.375 cvt. exch. pfd........................... 3,300,000
70,000 Hecla Mining Co., $3.50 cvt. pfd., Series B............................. 3,268,125
25,000 b Titanium Metals, 6.625% cvt. pfd........................................ 1,318,750
------------
30,405,138
------------
Real Estate Investment Trust 1.4%
135,000 Security Capital Industrial Trust, 7.00%, cvt. pfd...................... 3,763,125
400,000 Security Capital Pacific Trust, $1.75, cvt. pfd., Series A.............. 12,200,000
60,000 Vornado Realty Trust, 6.50%, cvt. pfd., Series A........................ 3,180,000
------------
19,143,125
------------
Telecommunications 0.6%
150,000 d Nortel Inversora, SA, 10.00%, cvt. pfd. (Argentina)..................... 7,368,750
------------
Utility 0.6%
160,000 j CMS Energy Corp., 7.75%, quarterly cvt. pfd............................. 8,294,400
------------
Total Convertible Preferred Stocks (Cost $118,898,990) ........... 126,539,050
------------
Miscellaneous
30,814 a Miscellaneous Securities (Cost $10,477)................................. 15,407
------------
Total Common Stocks, Preferred Stocks, Convertible Preferred Stocks,
and Miscellaneous Securities (Cost $517,334,653)...................... 562,685,972
------------
FACE
AMOUNT
Corporate Bonds 26.8%
Apparels & Textiles 1.9%
10,000,000 Consoltex Group, Inc., senior sub. notes, Series B, 11.00%, 10/01/03 ... 10,350,000
8,300,000 Hartmarx Corp., senior sub. notes, 10.875%, 01/15/02 ................... 8,632,000
1,000,000 Polysindo International Finance Corp., secured notes, 11.375%, 06/15/06 1,102,500
500,000 The William Carter Co., senior sub. notes, 10.375%, 12/01/06 ........... 523,750
5,000,000 WestPoint Stevens, Inc., senior sub. deb., 9.375%, 12/15/05 ............ 5,225,000
------------
25,833,250
------------
Automotive 0.5%
4,000,000 Collins & Aikman Corp., senior sub. notes, 11.50%, 04/15/06 ............ 4,550,000
400,000 Exide Corp., senior notes, 10.75%, 12/15/02 ............................ 423,000
5,000,000 i Harvard Industries, Inc., senior notes, 11.125%, 08/01/05 .............. 2,025,000
------------
6,998,000
------------
Building Products 0.7%
9,250,000 Inter-City Products Corp., senior notes, 9.75%, 03/01/00 ............... 9,527,500
------------
Cable Systems 1.5%
4,000,000 Cablevision Systems Corp., senior sub. deb., 9.875%, 04/01/23 .......... 4,215,000
8,000,000 Continental Cablevision, Inc., senior deb., 9.50%, 08/01/13 ............ 9,109,991
7,300,000 Helicon Group, L.P. Corp., S.F., senior secured notes,
Series B, 11.00%, 11/01/03............................................. 7,628,500
------------
20,953,491
------------
Chemicals 1.0%
$8,000,000 Applied Extrusion Technologies, Inc., senior notes,
Series B, 11.50%, 04/01/02 ............................................$ 8,440,000
725,000 Uniroyal Chemical Co. Investors, senior notes, 10.50%, 05/01/02 ........ 788,438
4,150,000 Uniroyal Chemical Co. Investors, senior sub. notes, 11.00%, 05/01/03 ... 4,523,500
------------
13,751,938
------------
Computer & Technology 0.4%
6,000,000 b Anacomp, Inc., senior sub. notes, 10.875%, 04/01/04 .................... 6,120,000
------------
Consumer Products 2.6%
500,000 E&S Holdings Corp., senior sub. notes, Series B, 10.375%, 10/01/06 ..... 520,000
7,750,000 Hines Horticulture, senior sub. notes, 11.75%, 10/15/05 ................ 8,253,750
1,300,000 L.F.C. Holding Corp., senior deb., 15.00%, 06/15/02 .................... 780,000
5,050,000 Mafco, Inc., senior sub. notes, 11.875%, 11/15/02 ...................... 5,454,000
8,000,000 Playtex Family Products Corp., senior sub. notes, 9.00%, 12/15/03 ...... 8,120,000
5,000,000 Revlon Consumer Product Corp., senior sub. notes,
Series B, 10.50%, 02/15/03 ............................................ 5,337,500
5,000,000 RJR Nabisco, Inc., notes, 9.25%, 08/15/13 .............................. 5,206,250
1,150,000 Sealy Corp., senior sub. notes, 9.50%, 05/01/03 ........................ 1,207,500
------------
34,879,000
------------
Containers & Packaging 0.5%
2,450,000 Calmar, Inc., senior sub. notes, Series B, 11.50%, 08/15/05 ............ 2,609,250
2,000,000 Packaging Resources, Inc., senior notes, 11.625%, 05/01/03 ............. 2,070,000
1,000,000 Printpack, Inc., senior sub. notes, 10.625%, 08/15/06 .................. 1,070,000
300,000 U.S. Can Corp., senior sub. notes, 10.125%, 10/15/06 ................... 321,750
------------
6,071,000
------------
Energy 1.4%
1,000,000 Bellwether Exploration Co., senior sub. notes, 10.875%, 04/01/07 ....... 1,067,500
3,250,000 Energy Ventures, senior notes, 10.25%, 03/15/04 ........................ 3,510,000
9,835,000 Gerrity Oil & Gas Corp., senior sub. notes, 11.75%, 07/15/04 ........... 10,769,325
1,000,000 Global Marine, Inc., senior secured notes, 12.75%, 12/15/99 ............ 1,051,250
1,000,000 Mesa Operating Co., company guaranteed,
senior sub. notes, 10.625%, 07/01/06 .................................. 1,142,500
1,000,000 Plains Resources, Inc., senior sub. notes, 10.25%, 03/15/06 ............ 1,085,000
------------
18,625,575
------------
Entertainment 0.1%
650,000 AMF Group, Inc., Series B, 10.875%, 03/15/06 ........................... 705,250
------------
Financial Services
500,000 First Nationwide Escrow, senior sub. notes, 10.625%, 10/01/03 .......... 555,000
------------
Food & Beverages 2.4%
5,000,000 Curtice-Burns Food, Inc., senior sub. notes, 12.25%, 02/01/05 .......... 5,562,500
4,000,000 b Del Monte Corp., senior sub. notes, 12.25%, 04/15/07 ................... 4,280,000
3,000,000 Doane Products Co., senior notes, 10.625%, 03/01/06 .................... 3,180,000
1,010,000 Dr. Pepper Bottling Co. of Texas, senior notes, 10.25%, 02/15/00 ....... 1,046,613
4,100,000 International Home Foods, Inc., company guaranteed,
senior sub. notes, 10.375%, 11/01/06 .................................. 4,243,500
6,350,000 PMI Acquisition Corp., senior sub. notes, 10.25%, 09/01/03 ............. 6,715,125
4,000,000 Specialty Foods Corp., senior sub. notes, Series B, 11.25%, 08/15/03 ... 3,440,000
4,000,000 Specialty Foods Corp., senior unsecured notes, Series B, 10.25%, 08/15/01 3,900,000
------------
32,367,738
------------
Food Chains 2.8%
1,000,000 Americold Corp., senior sub. notes, 12.875%, 05/01/08 .................. 1,052,500
9,000,000 Americold Corp., senior sub. notes, Series B, 11.50%, 03/01/05 ......... 9,675,000
6,000,000 Bruno's, Inc., senior sub. notes, 10.50%, 08/01/05 ..................... 6,075,000
7,000,000 Grand Union Co., senior notes, 12.00%, 09/01/04 ........................ 5,215,000
10,000,000 Ralphs Grocery Co., senior sub. notes, 11.00%, 06/15/05 ................ 10,900,000
4,000,000 Smith's Food & Drug Centers, Inc., senior sub. notes, 11.25%, 05/15/07 . 4,715,000
------------
37,632,500
------------
Gaming & Leisure 1.5%
$9,000,000 Aztar Corp., senior sub. notes, 11.00%, 10/01/02 ....................... $ 9,337,500
500,000 Eldorado Resorts, L.L.C., senior sub. notes, 10.50%, 08/15/06 .......... 536,250
2,200,000 Harveys Casinos Resorts, senior sub. notes, 10.625%, 06/01/06 .......... 2,343,000
8,000,000 Rio Hotel & Casino, Inc., senior sub. notes, 10.625%, 07/15/05 ......... 8,620,000
------------
20,836,750
------------
Health Care Services 0.5%
3,000,000 Dade International, Inc., senior sub. notes, 11.125%, 05/01/06 ......... 3,330,000
4,000,000 Sola Group, Ltd., senior sub. notes, 6.00%
to 12/15/98, 9.625% thereafter, 12/15/03 .............................. 3,880,000
------------
7,210,000
------------
Industrial Products 2.0%
8,650,000 EASCO Corp., senior notes, Series B, 10.00%, 03/15/01 .................. 8,909,500
2,000,000 Nortek, Inc., senior sub. notes, 9.875%, 03/01/04 ...................... 2,045,000
10,000,000 RBX Corp., senior sub. notes, 11.25%, 10/15/05 ......................... 8,550,000
5,030,000 RHI Holdings, Inc., senior sub. deb., 11.875%, 03/01/99 ................ 5,030,000
2,696,000 Thermadyne Holdings Corp., notes, 10.75%, 11/01/03 ..................... 2,776,880
246,000 Thermadyne Holdings Corp., senior notes, 10.25%, 05/01/02 .............. 248,460
------------
27,559,840
------------
Media & Broadcasting 0.2%
2,000,000 Benedek Broadcasting Corp., senior notes, 11.875%, 03/01/05 ............ 2,220,000
------------
Metals 1.1%
1,000,000 Armco Steel, Inc., senior notes, 11.375%, 10/15/99 ..................... 1,035,000
7,000,000 Jorgensen, Earle M. Co., senior notes, 10.75%, 03/01/00 ................ 7,000,000
6,000,000 Republic Engineered Steel, Inc., first mortgage, 9.875%, 12/15/01 ...... 5,595,000
815,000 UCAR Global Enterprises, senior sub. notes, Series B, 12.00%, 01/15/05 . 925,025
------------
14,555,025
------------
Paper & Forest Products 1.0%
2,000,000 Four M Corp., senior notes, Series B, 12.00%, 06/01/06 ................. 2,070,000
7,000,000 Rapp International Finance Co., secured notes, 13.25%, 12/15/05 ........ 7,490,000
5,000,000 Riverwood International, senior sub. notes, 10.875%, 04/01/08 .......... 4,537,500
------------
14,097,500
------------
Publishing 0.1%
1,600,000 Bell & Howell Operating Co., senior sub. notes, Series B, 10.75%, 10/01/02 1,688,000
------------
Restaurants 0.3%
10,000,000 i Flagstar Corp., S.F., senior sub. deb., 11.25%, 11/01/04 ............... 4,150,000
------------
Retail 0.7%
10,000,000 Levitz Furniture Corp., senior notes, 13.375%, 10/15/98 ................ 10,000,000
------------
Telecommunications 0.6%
5,000,000 CommNet Cellular, Inc., sub. notes, 11.25%, 07/01/05 ................... 5,787,500
3,000,000 Paging Network, Inc., senior sub. notes, 10.125%, 08/01/07 ............. 2,925,000
------------
8,712,500
------------
Utilities 3.0%
195,782,500 c ESCOM, E168, utility deb., 11.00%, 06/01/08, (South Africa)............. 34,789,131
3,680,343 Midland Funding Corp. I, deb., Series C-94, 10.33%, 07/23/02 ........... 4,044,476
2,000,000 Texas-New Mexico Power Co., secured deb., 10.75%, 09/15/03 ............. 2,135,898
------------
40,969,505
------------
Total Corporate Bonds (Cost $359,447,798) ........................ 366,019,362
------------
Convertible Corporate Bonds 5.4%
Automotive 0.2%
4,000,000 b Exide Corp., cvt. senior sub. notes, 2.90%, 12/15/05 ................... 2,510,000
------------
Biotechnology 0.1%
$2,000,000 Centocor, Inc., Eurobonds, cvt. sub. deb., 6.75%, 10/16/01 ............. $ 1,960,000
------------
Computer & Technology 0.9%
11,000,000 Acclaim Entertainment, Inc., cvt. sub. notes, 10.00%, 03/01/02 ......... 10,175,000
2,815,000 Maxtor Corp., cvt. sub. deb., 5.75%, 03/01/12 .......................... 1,956,425
------------
12,131,425
------------
Electrical Equipment 0.6%
8,000,000 Trans-Lux Corp., cvt. sub. notes, 7.50%, 12/01/06 ...................... 8,760,000
------------
Energy 1.6%
9,000,000 Oryx Energy Co., cvt. sub. deb., 7.50%, 05/15/14 ....................... 8,865,000
7,500,000 Snyder Oil Corp., cvt. sub. notes, 7.00%, 05/15/01 ..................... 7,763,250
5,000,000 Swift Energy Co., cvt. sub. notes, 6.25%, 11/15/06 ..................... 5,025,000
------------
21,653,250
------------
Health Care Services 0.1%
1,000,000 b Medical Care International, Inc., cvt. sub. deb., 6.75%, 10/01/06 ...... 1,000,000
------------
Metals 1.2%
5,000,000 Ashanti Capital, Ltd., cvt. notes, 5.50%, 03/15/03 ..................... 4,087,500
100,000 Coeur D'Alene Mines Corp., cvt. senior sub. deb., 6.00%, 06/10/02 ...... 87,000
6,000,000 Coeur D'Alene Mines Corp., cvt. sub. deb., 6.375%, 01/31/04 ............ 5,520,000
1,800,000 FMC Corp., Eurobonds, cvt. senior sub. deb., 6.75%, 01/16/05 ........... 1,714,500
5,850,000 b Homestake Mining Co., cvt. sub. deb., 5.50%, 06/23/00 .................. 5,689,125
------------
17,098,125
------------
Pollution Control 0.2%
3,610,000 Air & Water Technology Corp., cvt. sub. deb., 8.00%, 05/15/15 .......... 3,014,350
------------
Real Estate Investment Trust 0.4%
5,000,000 b Macerich Co., cvt. sub. deb., 7.25%, 12/15/02 .......................... 4,987,500
------------
Retail 0.1%
1,180,000 Drug Emporium, Inc., cvt. sub. deb., 7.75%, 10/01/14 ................... 1,041,350
------------
Total Convertible Corporate Bonds (Cost $73,260,770) ............. 74,156,000
------------
Zero Coupon/Step-up Bonds 3.5%
4,000,000 AMF Group, Inc., senior disc. notes, Series B, zero coupon to 03/15/01,
(original accretion rate 12.25%), 12.25%, 03/15/06 .................... 2,850,000
10,000,000 Bell & Howell Co., senior disc. deb., Series B, zero coupon to 03/01/00,
(original accretion rate 11.50%), 11.50% thereafter, 03/01/05 ........ 8,100,000
2,600,000 Dr. Pepper Bottling Holdings, Inc., senior disc. notes,
zero coupon to 02/15/98, (original accretion rate 11.625%), 11.625%
thereafter, 02/15/03................................................... 2,574,000
10,000,000 Food 4 Less, Inc., zero coupon to 06/15/00, (original accretion rate 13.625%),
13.625% thereafter, 07/15/05 .......................................... 7,900,000
14,000,000 Marcus Cable Holding Co., senior disc. notes, zero coupon to 06/15/00,
(original accretion rate 14.25%), 14.25% thereafter, 12/15/05......... 11,060,000
1,300,000 Mesa Operating Co., company guaranteed, senior sub. notes,
zero coupon to 07/01/01, (original accretion rate 11.625%), 11.625%
thereafter, 07/01/06................................................... 1,007,500
6,000,000 b Revlon Worldwide Corp., senior disc. notes, zero coupon to 03/15/00,
(original accretion rate 10.75%), 10.75% thereafter, 03/15/01 ........ 4,072,500
8,000,000 Revlon Worldwide Corp., senior secured disc. notes, Series B,
(original accretion rate 12.00%), 0.00%, 03/15/98 ..................... 7,620,000
2,250,000 Specialty Foods Corp., senior secured disc. deb., Series B,
zero coupon to 08/13/99, (original accretion rate 13.00%), 13.00%
thereafter, 08/15/05................................................... 978,750
1,500,000 Uniroyal Chemical Co. Investors, disc. notes, zero coupon to 05/01/98,
(original accretion rate 12.00%), 12.00% thereafter, 05/01/05......... 1,380,000
------------
Total Zero Coupon/Step-up Bonds (Cost $43,955,445)................ 47,542,750
------------
Total Bonds (Cost $476,664,013)................................... 487,718,112
------------
U.S. Government Securities 8.3%
95,000,000 U.S. Treasury Bonds, 6.25% - 7.125%, 02/15/23 - 08/15/23 ............... 90,015,702
23,500,000 U.S. Treasury Notes, 6.00% - 6.375%, 11/30/97 - 08/15/02 ............... 23,523,141
------------
Total U.S. Government Securities (Cost $114,669,377).............. 113,538,843
------------
a,bForeign Government & Agency Securities 9.8%
110,000,000 Republic of Argentina, Series L, 5.25%, 03/31/23 ....................... $ 76,312,500
8,700,000 Republic of Brazil, 6.50%, 01/01/01 .................................... 8,582,550
7,920,000 Republic of Brazil, 6.6875%, 04/15/06 .................................. 7,316,100
39,000,000 Republic of Brazil, 5.25%, 04/15/24 .................................... 26,471,250
75,000,000 c Republic of South Africa, 12.00%, 02/28/05 (South Africa)............... 14,749,642
------------
Total Foreign Government & Agency Securities (Cost $107,569,690).. 133,432,042
------------
Total Long Term Investments (Cost $1,216,237,733).................1,297,374,969
------------
f,gReceivables from Repurchase Agreements 3.7%
49,803,194 Joint Repurchase Agreement, 5.884%, 07/01/97
(Maturity Value $49,826,756) (Cost $49,818,613)
Aubrey G. Lanston & Co., Inc., (Maturity Value $4,938,604)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $4,938,604)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $2,910,021)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $4,938,604)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $4,938,604)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $2,469,299)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $4,938,604)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co., L.P., (Maturity Value $4,938,604)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $4,938,604)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $4,938,604)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $4,938,604)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 ... 49,818,613
------------
Total Investments (Cost $1,266,056,346) 98.8% ...............1,347,193,582
Other Assets and Liabilities, Net 1.2% ...................... 16,892,976
------------
Net Assets 100.0% ...........................................$1,364,086,558
============
At June 30, 1997, the net unrealized appreciation based on the cost
of investments for income tax purposes of $1,266,056,346
was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ......................$ 137,462,598
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value ...................... (56,325,362)
------------
Net unrealized appreciation........................................... $ 81,137,236
============
</TABLE>
PORTFOLIOABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
PIK - Payment-In-Kind
S.F. - Sinking Fund
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to
qualified institutional buyers.
cFace amount is stated in foreign currency and value is stated in U.S. dollars.
dSecurities are traded in foreign currency and value is stated in U. S. dollars.
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
iSee Note 7 regarding defaulted securities.
jSee Note 9 regarding restricted securities.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT Money Market Fund (NOTE1)
e Short Term Investments 97.6%
<S> <C> <C>
Certificates of Deposit 12.7%
10,000,000 Bayerische Vereinsbank, New York Branch, 5.65%, 10/21/97 ............... $ 10,000,000
10,000,000 Landesbank Hessen-Thuringen Girozentrale, New York Branch, 6.09%, 09/11/97 10,009,621
15,000,000 Swiss Bank Corp., New York Branch, 5.70%, 07/23/97 - 07/24/97 .......... 15,000,000
15,000,000 Westdeutsche Landesbank, New York Branch,
5.68% - 5.72%, 08/19/97 - 09/08/97.................................... 15,000,000
------------
Total Certificates of Deposit (Cost $50,009,621).................. 50,009,621
------------
Commercial Paper 65.5%
15,000,000 American Express Credit Corp., 5.55% - 5.56%, 07/30/97 - 09/25/97 ...... 14,845,023
10,000,000 Ameritech Corp., 5.55%, 10/20/97 ....................................... 9,828,875
10,000,000 ANZ (Delaware) Inc., 5.60%, 07/08/97 ................................... 9,989,111
5,000,000 Associates Corp. of North America, 5.62%, 07/21/97 ..................... 4,984,389
10,000,000 BIL North America, Inc., 5.60%, 07/03/97 ............................... 9,996,889
10,000,000 Campbell Soup Co., 5.26%, 08/25/97 ..................................... 9,919,639
13,500,000 CIESCO, L.P., 5.60%, 07/17/97 - 07/18/97 ............................... 13,464,845
15,000,000 Coca-Cola Co., 5.50%, 09/09/97 - 09/12/97 .............................. 14,835,000
15,000,000 Dupont de Nemours, Inc., 5.50% - 5.51%, 07/29/97 - 08/20/97 ............ 14,918,741
5,000,000 General Electric Capital Corp., 5.50%, 07/31/97 ........................ 4,976,875
15,000,000 Goldman Sachs Group, L.P., 5.55% - 5.57%, 08/08/97 - 09/04/97 .......... 14,891,132
10,000,000 H.J. Heinz Corp., 5.55% - 5.95%, 07/02/97 - 07/08/97 ................... 9,993,869
15,000,000 Halifax Building Society, 5.58%, 07/15/97 .............................. 14,967,450
10,000,000 MetLife Funding, Inc., 5.55%, 08/05/97 ................................. 9,946,042
15,000,000 Merrill Lynch & Co., Inc., 5.57% - 5.60%, 08/27/97 - 09/17/97 .......... 14,850,992
15,000,000 Morgan Stanley Group, Inc., 5.60% - 5.62%, 07/22/97 - 08/26/97 ......... 14,896,497
12,000,000 National Rural Utilities Cooperative Finance Corp.,
5.28% - 5.52%,07/21/97 - 08/04/97 ..................................... 11,941,451
4,200,000 Province of British Columbia, 5.30%, 07/28/97 .......................... 4,183,305
5,000,000 Schering Corp., 5.56%, 07/01/97 ........................................ 5,000,000
15,000,000 Svenska Handelsbanken, Inc., 5.58% - 5.605%, 07/02/97 - 07/11/97 ....... 14,990,665
10,000,000 Toyota Motor Credit Corp., 5.54%, 07/16/97 ............................. 9,976,917
10,000,000 U.S. Central Credit Union, 5.61%, 08/11/97 ............................. 9,936,108
15,000,000 Wool International, 5.52%, 07/31/97 .................................... 14,931,000
------------
Total Commercial Paper (Cost $258,264,815) ....................... 258,264,815
------------
Total Investments before Repurchase Agreements (Cost $308,274,436) 308,274,436
------------
Receivables from Repurchase Agreements 19.4%
31,580,000 Chase Securities, Inc., 5.60%, 07/01/97, (Maturity Value $31,584,912)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99 ..................... 31,580,000
15,000,000 CIBC Wood Gundy Securities Corp., 5.95%, 07/01/97, (Maturity Value $15,002,479)
Collateral: U.S. Treasury Notes, 5.25%, 12/31/97 ...................... 15,000,000
15,000,000 SBC Warburg, Inc., 5.92%, 07/01/97, (Maturity Value $15,002,467)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99 ..................... 15,000,000
15,000,000 UBS Securities, L.L.C., 5.90%, 07/01/97, (Maturity Value $15,002,458)
Collateral: U.S. Treasury Notes, 5.50%, 02/28/99 ...................... 15,000,000
------------
Total Receivables from Repurchase Agreements (Cost $76,580,000) .. 76,580,000
------------
Total Investments (Cost $384,854,436) 97.6% ................. 384,854,436
Other Assets and Liabilities, Net 2.4% ...................... 9,443,384
------------
Net Assets 100.0% ........................................... $394,297,820
============
</TABLE>
At June 30, 1997, there was no unrealized appreciation or depreciation for
financial statement or income tax purposes.
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
eCertain short-term securities are traded on a discount basis; the rates shown
are the discount rates at the time of purchase by the Fund. Other securities
bear interest at the rates shown, payable at fixed dates or upon maturity.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
VALUE
COUNTRY* SHARES Mutual Discovery Securities Fund (NOTE1)
a,jCommon Stocks & Other Equity Interests 70.1%
<S> <C> <C> <C>
Appliances & Household Durables 1.3%
SE 9,000 Electrolux, AB, Series B ...................................... $ 649,215
US 12,000 Electrolux, AB, Series B, Sponsored ADR ....................... 871,500
--------------
1,520,715
--------------
Automobiles 1.1%
IT 275,000 Fiat, SpA ..................................................... 988,731
US 5,000 General Motors Corp. .......................................... 278,438
--------------
1,267,169
--------------
Banking 1.8%
US 20,000 a Life Financial Corp. .......................................... 270,000
US 10,000 a Pacific Bank, N.A. ............................................ 360,000
US 105,000 SC Bancorp .................................................... 1,496,250
--------------
2,126,250
--------------
Beverages & Tobacco 1.4%
GB 16,000 B.A.T. Industries, Plc. ....................................... 143,216
US 2,500 Farmer Brothers Co. ........................................... 317,500
GB 65,000 Grand Metropolitan, Plc. ...................................... 629,444
GB 35,000 Guinness, Plc. ................................................ 342,720
NL 1,300 Heineken Holding, NV, Class A ................................. 201,997
--------------
1,634,877
--------------
Broadcasting & Publishing 8.1%
NO 14,100 A-Pressen, AS, Class A ........................................ 340,515
FI 12,500 Aamulehti Yhtymae OY, II ...................................... 457,368
US 40,000 Dow Jones & Co., Inc. ......................................... 1,607,500
US 4,800 Dun & Bradstreet Corp. ........................................ 126,000
AU 300,000 John Fairfax Holdings, Ltd. ................................... 711,255
GB 50,000 Midland Independent Newspapers, Plc. .......................... 149,461
GB 114,800 Mirror Group, Plc. ............................................ 359,413
NL 24,300 NV Holdingsmij de Telegraaf ................................... 524,897
GB 40,600 Pearson, Plc. ................................................. 470,238
HK 278,000 Shaw Brothers Hong Kong, Ltd. ................................. 312,186
CA 75,000 Southam, Inc. ................................................. 1,281,726
US 10,000 TCA Cable TV, Inc. ............................................ 376,250
GB 29,877 United News & Media, Plc. ..................................... 346,539
US 23,700 a US West, Inc. ................................................. 479,925
GB 55,000 Yorkshire Tyne Tees Television Holdings, Plc. ................. 1,039,568
US 34,300 a Young Broadcasting Corp., Class A ............................. 1,114,750
--------------
9,697,591
--------------
Business & Public Services 1.7%
SE 8,000 Esselte, Class A .............................................. 183,052
IT 80,000 a IFIL Finanziaria Partecipazioni, SpA .......................... 275,674
FR 12,678 Suez Lyonnaise des Eaux, SA.................................... 1,277,146
US 9,700 a Tenet Healthcare Corp. ........................................ 286,756
--------------
2,022,628
--------------
Chemicals 2.7%
SE 30,000 Aga, AB, Class B .............................................. 399,457
DD 5,900 BASF, AG ...................................................... 217,710
US 20,000 a Bush Boake Allen, Inc. ........................................ 622,500
US 15,000 ChemFirst, Inc. ............................................... 406,875
GB 125,000 Inspec Group, Plc. ............................................ 412,163
GB 60,000 Laporte, Plc. ................................................. 640,977
US 15,000 Olin Corp. .................................................... 585,938
--------------
3,285,620
--------------
Construction & Housing 2.8%
ES 6,600 Grupo Acciona, SA ............................................. $ 743,536
NL 1,542 Hollandsche Beton Groep, NV ................................... 351,701
US 40,000 Lennar Corp. .................................................. 1,277,500
US 7,500 Martin Marietta Materials, Inc. ............................... 242,813
SE 15,300 Skanska, AB, Class B .......................................... 676,440
--------------
3,291,990
--------------
Data Processing & Reproduction 1.3%
US 20,000 a Intuit, Inc. .................................................. 458,750
US 75,000 a National Processing, Inc. ..................................... 768,750
IT 190,000 Tecnost Mael, SpA ............................................. 344,357
--------------
1,571,857
--------------
Electrical & Electronics 0.3%
US 14,500 a Wang Labs, Inc., Class A ...................................... 309,031
--------------
Electronic Components & Instruments 1.7%
US 10,032 a Amphenol Corp., Class A ....................................... 389,994
US 5,000 a Dynatech, Corp. ............................................... 178,750
US 15,000 Harman International Industries, Inc. ......................... 631,875
US 20,000 a Imation Corp. ................................................. 527,500
CA 47,300 a NBS Technologies, Inc. ........................................ 115,771
SE 8,800 Spectra Physics, AB, Class A .................................. 158,128
--------------
2,002,018
--------------
Energy Equipment & Services 1.0%
US 37,000 Bouygues Offshore, SA, ADR .................................... 462,500
US 10,000 Transocean Offshore, Inc. ..................................... 726,250
--------------
1,188,750
--------------
Energy Sources 4.2%
FR 2,430 a Cie Generale De Geophysique, SA ............................... 236,520
US 17,900 a Cie Generale De Geophysique, SA, ADR .......................... 344,575
FR 10,800 Elf Aquitaine, SA ............................................. 1,165,144
GB 27,000 Energy Group, Plc. ............................................ 288,215
IT 175,000 Eni, SpA ...................................................... 989,511
US 17,000 Enserch Corp. ................................................. 378,250
NO 16,600 Saga Petroleum, AS, Class B ................................... 289,909
GB 44,400 Shell Transport & Trading Co., Plc. ........................... 302,783
US 15,000 a United Meridian Corp. ......................................... 450,000
GB 85,000 Yorkshire Water, Plc. ......................................... 552,757
--------------
4,997,664
--------------
Financial Services 2.9%
US 20,000 Advanta Corp., Class B ........................................ 713,750
US 18,700 Arthur J Gallagher Co. ........................................ 705,925
US 20,000 Asia Tigers Fund, Inc. ........................................ 226,250
FR 1,000 AXA-UAP ....................................................... 62,195
FR 19,500 Cerus-Compagnies Europeennes Reunies, SA ...................... 98,550
US 8,000 a,j Cityscape Financial Corp. ..................................... 151,525
BE 5,000 Credit Communal Holding Dexia Belgium.......................... 536,955
GB 50,000 a Edinburg Dragon Trust, Plc. ................................... 72,649
US 12,000 Long Island Bancorp, Inc. ..................................... 435,750
US 7,500 Morgan Stanley Dean Witter Discover & Co. ..................... 322,969
US 8,000 a SPS Transaction Services, Inc. ................................ 148,000
--------------
3,474,518
--------------
Food & Household Products 3.3%
GB 56,212 Cadbury Schweppes, Plc. ....................................... 501,283
US 50,000 Ralcorp Holdings, Inc. ........................................ 737,500
SE 25,000 a Sardus, AB .................................................... $ 214,918
US 34,000 a U S Industries, Inc. .......................................... 1,211,250
NL 5,800 Van Melle, NV ................................................. 455,041
GB 50,000 Williams, Plc. ................................................ 268,947
FR 10,232 a Worms Et Compagnie ............................................ 605,907
--------------
3,994,846
--------------
Forest Products & Paper 0.7%
CA 10,000 Fletcher Challenge Canada Ltd., Class A ....................... 168,362
CA 36,000 a Pacific Forest Products, Ltd. ................................. 658,243
--------------
826,605
--------------
Health & Personal Care 2.9%
US 30,000 a Apria Healthcare Group, Inc. .................................. 532,500
US 10,000 a Beverly Enterprises, Inc. ..................................... 162,500
US 4,160 a Foundation Health Systems, Inc., Class A ...................... 126,100
US 50,000 a Grancare, Inc., Delaware ...................................... 540,625
US 5,000 a Mid Atlantic Medical Services, Inc. ........................... 77,813
US 65,000 a Summit Care Corp. ............................................. 877,500
US 25,000 a United Dental Care, Inc., Delaware ............................ 375,000
US 5,000 a Vencor, Inc. .................................................. 211,250
US 28,813 a Vitalink Pharmacy Services, Inc. .............................. 551,049
--------------
3,454,337
--------------
Industrial Components 3.6%
GB 51,612 Charter, Plc. ................................................. 686,739
US 20,000 a DT Industries, Inc. ........................................... 715,000
US 20,000 Kennametal, Inc. .............................................. 860,000
GB 180,000 LucasVarity, Plc. ............................................. 623,491
FR 13,300 Michelin, SA, Class B ......................................... 798,674
GB 130,477 Tomkins, Plc. ................................................. 564,939
US 5,000 a Veritas DGC, Inc. ............................................. 112,500
--------------
4,361,343
--------------
Insurance 2.3%
US 2,500 20th Century Industries ....................................... 52,500
US 1,020 a Alleghany Corp. ............................................... 221,850
US 2,901 American General Corp. ........................................ 138,523
IT 200,000 Istituto Nazionale delle Assicurazioni ........................ 302,930
FI 5,000 Pohjola Insurance Co., Ltd., Class A .......................... 149,247
US 24,100 Pxre Corp. .................................................... 741,075
US 2,000 Reliable Life Insurance Co., Class A .......................... 252,000
GB 65,000 Royal & Sun Alliance Insurance Group, Plc. .................... 479,525
FR 8,900 Scor .......................................................... 358,320
--------------
2,695,970
--------------
Leisure & Tourism 0.2%
US 6,000 Comcast Corp., Class A ........................................ 128,250
FR 800 Pathe, SA ..................................................... 158,729
--------------
286,979
--------------
Machinery & Engineering 1.3%
US 20,000 Greenfield Industries, Inc. ................................... 540,000
FI 20,000 The Rauma Group ............................................... 458,331
GB 100,000 Triplex Lloyd, Plc. ........................................... 257,290
GB 40,000 TT Group, Plc. ................................................ 246,465
--------------
1,502,086
--------------
Merchandising 2.7%
US 25,000 a Dress Barn, Inc. .............................................. $ 487,500
DK 28,000 East Asiatic Co., Ltd. ........................................ 662,058
US 25,000 a Footstar, Inc. ................................................ 653,125
SE 50,000 a Hemkopskedjan, AB.............................................. 513,865
GB 57,400 Vendome Luxury Group, Plc. .................................... 423,935
US 15,000 a Waban, Inc. ................................................... 482,813
--------------
3,223,296
--------------
Metals & Mining 0.1%
US 16,000 a WHX Corp. ..................................................... 122,000
--------------
Multi-Industry 12.0%
NO 39,500 Aker RGI, ASA, Class A ........................................ 776,074
NO 71,940 Aker RGI, ASA, Class B ........................................ 1,256,388
SE 46,000 Bulten, AB, Class B ........................................... 362,743
CH 700 Cie Financiere Richemont, AG, Class A ......................... 1,011,298
FR 1,761 Cie Generale d'Industrie et de Participation, CGIP ............ 500,429
SE 68,900 Custos, AB, Class A ........................................... 1,478,560
SE 41,540 Custos, AB, Class B ........................................... 894,113
CA 2,600 Empire Co., Ltd., Class A ..................................... 33,890
FR 484 Financiere Et Industrielle Gaz Et Eaux, SA .................... 200,153
CA 50,000 Gendis, Inc., Class A ......................................... 493,320
US 15,000 Harcourt General, Inc. ........................................ 714,375
GB 60,000 Hogg Robinson, Plc. ........................................... 214,325
SE 11,000 Investor, AB, Class B.......................................... 579,471
SE 5,500 Invik & Co., AB, Class B ...................................... 243,520
SE 22,000 Kinnevik, AB, Class B ......................................... 612,889
FR 16,000 Lagardere, SCA ................................................ 464,751
FR 3,770 Marine - Wendel, SA ........................................... 384,910
FR 317 Montaigne Participations et Gestion, SA ....................... 156,162
US 15,000 Morton International, Inc. .................................... 452,813
CH 4,850 Oerlikon-Buehrle Holding, AG .................................. 567,853
SE 16,500 Oresund Investment, AB ........................................ 447,935
DK 9,350 Sophus Berendsen, Class B ..................................... 1,351,828
FR 950 Ste Eurafrance ................................................ 389,589
BE 8,300 Ste Generale de Belgique, SA .................................. 774,882
--------------
14,362,271
--------------
Real Estate 3.2%
US 50,000 Alexander Haagen Properties, Inc. ............................. 812,500
US 50,000 Berkshire Realty Co. .......................................... 531,250
SE 32,000 a Castellum, AB ................................................. 239,933
US 80,000 First Union Real Estate Equity & Mtg. Investments, SBI ........ 1,135,000
US 30,000 Mark Centers Trust ............................................ 288,750
US 514,590 a,j Re Acquisition, L.L.C. ........................................ 514,590
US 6,900 Santa Anita Realty Enterprises, Inc. .......................... 214,330
FR 2,000 Ste Des Immeubles De France ................................... 115,710
--------------
3,852,063
--------------
Recreation & Other Consumer Goods 1.3%
GB 50,000 EMI Group, Plc. ............................................... 897,184
US 30,000 a Scientific Games Holdings Corp. ............................... 618,750
--------------
1,515,934
--------------
Telecommunications 1.6%
US 20,309 a Cellular Communications International, Inc. ................... 670,003
DK 1,300 GN Great Nordic, Ltd. ......................................... 138,029
US 60,000 a Palmer Wireless, Inc., Class A ................................ $ 1,012,500
US 15,000 a United States Satellite Broadcasting Co., Inc., Class A ....... 123,750
--------------
1,944,282
--------------
Transportation 2.4%
US 3,000 Florida East Coast Industries, Inc. ........................... 333,000
US 20,000 a Fritz Cos. .................................................... 193,750
US 20,000 a Landstar System, Inc. ......................................... 562,500
US 8,000 a M.S. Carriers, Inc. ........................................... 201,000
GB 75,000 Railtrack Group, Plc. ......................................... 781,236
NZ 50,000 Tranz Rail Holdings, Ltd., Sponsored ADR ...................... 843,750
--------------
2,915,236
--------------
Utilities Electrical & Gas 0.2%
US 12,000 Southwest Gas Corp. ........................................... 238,500
--------------
Total Common Stocks & Other Equity Interests (Cost $83,799,907) 83,686,426
--------------
Preferred Stocks 0.3%
US 5,000 Granite Broadcasting Corp., $1.938 cum. cvt. pfd., ............ 257,500
US 5 a North Atlantic Trading Co., Inc., 12.00%, pfd. ................ 125,000
--------------
Total Preferred Stocks (Cost $392,250) .................. 382,500
--------------
FACE
AMOUNT
Bonds & Notes 2.3%
US $ 425,000 a American Communication Services, Inc., senior disc.
notes, zero coupon to 11/01/00, (original accretion rate 13.00%),
13.00% thereafter, 11/01/05................................... 250,750
US 830,000 CAI Wireless Systems, Inc., senior notes, 12.25%, 09/15/02 .... 265,600
US 100,000 a Consorcio G Grupo Dina, SA de CV, zero coupon, 11/15/02 ....... 87,500
US 1,125,000 a CS Wireless Systems, Inc., senior disc. notes,
Series B, zero coupon to 03/01/01, (original accretion rate 11.375%),
11.375% thereafter, 03/01/06.................................. 264,375
US 250,000 b Globalstar Telecommunications, Ltd., L.P., senior notes, 11.25%, 06/15/04 235,625
US 100,000 b North Atlantic Trading Co., Inc., senior notes, 11.00%, 06/15/04 101,500
US 500 a,m People's Choice TV Corp., senior disc. notes, 13.125%, 06/1/04 187,500
US 150,000 a,k Sassco, Inc., 12.75%, 02/15/05 ................................ 157,500
US 250,000 b TFM, SA de CV, 10.25%, 06/15/07 ............................... 253,125
US 300,000 a,b TFM, SA de CV, zero coupon to 06/15/02,
(original accretion rate 11.75%), 11.75% thereafter, 06/15/09 174,000
US 67,500 b Vicap, SA, company guaranteed, 11.375%, 05/15/07 .............. 707,906
--------------
Total Bonds (Cost $2,912,038) ........................... 2,685,381
--------------
Bonds & Notes in Reorganization 1.1%
US 440,634 a Buenos Aires Embotelladora, SA, bank claim .................... 354,710
a Eurotunnel Jr. Credit Facility,
GB 50,000 l Tranche B ..................................................... 26,065
GB 860,000 Tranche B ..................................................... 676,697
Mercury Finance Co., Commercial Paper
US 13,628 03/17/97 ...................................................... 12,538
US 6,194 04/11/97 ...................................................... 5,698
US 17,345 04/18/97 ...................................................... 15,957
US 9,911 04/22/97 ...................................................... 9,118
US 14,867 04/24/97 ...................................................... 13,678
US 225,000 Mercury Finance Co., MTN, 7.42%, 06/29/00 ..................... 207,000
--------------
Total Bonds & Notes in Reorganization (Cost $1,161,955) . 1,321,461
--------------
Total Long Term Investments (Cost $88,266,150) .......... 86,754,307
--------------
e Short Term Investments 25.1%
US$ 1,000,000 Federal Home Loan Mortgage Association, 5.50% with maturities to 07/10/97 998,652
US 7,815,000 FHLB, 5.45% - 5.52% with maturities to 09/10/97 ............... 7,763,027
US13,100,000 FHLMC, 5.426% - 5.54% with maturities to 08/18/97.............. 13,032,834
US 8,250,000 FNMA, 5.43% - 5.54% with maturities to 09/26/97 ............... 8,175,789
--------------
Total Short Term Investments (Cost $25,530,216) ......... 29,970,302
--------------
Total Investments (Cost $113,796,366) 98.9% ........ 118,046,070
Other Assets and Liabilities, Net 0.6% ............. 745,871
Equity in Forward Contracts 0.5% ................... 599,635
--------------
Net Assets 100.0% .................................. 119,391,576
==============
At June 30, 1997, the net unrealized appreciation based on the
cost of investments for income tax purposes of
$113,796,366 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ............. $ 6,049,527
Aggregate gross unrealized depreciation for all investments in
which there was an excess of value over tax cost ............. (1,799,823)
--------------
Net unrealized appreciation ................................. $ 4,249,704
==============
COUNTRY LEGEND:
AU - Australia
BE - Belgium
CA - Canada
CH - Switzerland
DD - Germany
DK - Denmark
ES - Spain
FI - Finland
FR - France
GB - United Kingdom
HK - Hong Kong
IT - Italy
MX - Mexico
NL - Netherlands
NO - Norway
NZ - New Zealand
SE - Sweden
US - United States
PORTFOLIO ABBREVIATIONS:
FHLB - Federal Home Loan Bank
FHLMC - Federal Home Loan Mortgage Corp.
FNMA - Federal National Mortgage Association
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
MTN - Medium Term Note
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing
bPurchased in a private placement transaction; resale may only be to qualified institutional buyers.
eCertain short-term securities are traded on a discount basis; the rates shown are the discount rates at the time of
purchase by the Fund. Other securities bear interest at the rates shown, payable at fixed dates or upon maturity.
jSee Note 9 regarding restricted securities.
kSee Note 1(i) regarding securities purchased on a when-issued basis.
lTraded in European Currency Unit.
mIn Units.
The accompanying notes are an integral part of these financial statements.
</TABLE>
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
VALUE
COUNTRY* SHARES Mutual Shares Securities Fund (NOTE1)
<S> <C> <C> <C>
a Common Stocks & Other Equity Interests 65.4%
Aerospace & Military Technological Services 2.0%
US 12,000 General Motors Corp., Class H ................................. $ 693,000
US 42,000 a Hexcel Corp. .................................................. 724,500
US 15,000 a Litton Industries, Inc. ....................................... 724,687
US 5,000 Lockheed Martin Corp. ......................................... 517,813
US 75,000 a Loral Space & Communications .................................. 1,125,000
US 6,500 McDonnell Douglas Corp. ....................................... 445,250
--------------
4,230,250
--------------
Appliances & Household Durables 0.9%
US 50,000 Black & Decker Corp. .......................................... 1,859,375
--------------
Automobiles 1.2%
US 45,000 General Motors Corp. .......................................... 2,505,938
--------------
Banking 0.7%
US 15,000 Chase Manhattan Corp. ......................................... 1,455,938
--------------
Beverages & Tobacco 4.2%
GB 92,000 B.A.T. Industries, Plc. ....................................... 823,493
GB 360,000 a Gallaher Group, Plc. .......................................... 1,684,624
US 5,500 a Gallaher Group, Plc., ADR ..................................... 101,405
GB 40,000 Grand Metropolitan, Plc. ...................................... 387,350
NL 3,000 Heineken Holding, NV, Class A ................................. 466,147
US 60,000 Philip Morris Cos., Inc. ...................................... 2,662,500
US 75,000 RJR Nabisco Holdings Corp. .................................... 2,475,000
--------------
8,600,519
--------------
Broadcasting & Publishing 10.0%
US 30,000 Belo (AH) Corp. ............................................... 1,248,750
GB 25,300 Daily Mail & General Trust, Plc, Class A ...................... 695,182
US 80,000 Dow Jones & Co., Inc. ......................................... 3,215,000
US 14,000 Dun & Bradstreet Corp. ........................................ 367,500
US 35,000 Houghton Mifflin Co............................................ 2,336,250
US 45,000 a Outdoor Systems, Inc. ......................................... 1,721,250
US 60,000 Scripps (EW) Co., Class A ..................................... 2,497,500
CA 150,000 Southam, Inc. ................................................. 2,563,452
GB 102,000 United News & Media, Plc. ..................................... 1,183,084
US 205,000 a US West, Inc. ................................................. 4,151,250
US 35,000 a Viacom, Inc., Class B ......................................... 1,050,000
--------------
21,029,218
--------------
Building Materials & Components 0.7%
US 35,000 a American Standard Cos., Inc. .................................. 1,566,250
--------------
Business & Public Services 1.1%
FR 17,976 Suez Lyonnaise des Eaux, SA ................................... 1,810,805
US 20,000 a Tenet Healthcare Corp. ........................................ 591,250
--------------
2,402,055
--------------
Chemicals 1.4%
DD 10,800 BASF, AG ...................................................... 398,521
US 35,062 Olin Corp. .................................................... 1,373,357
US 12,000 Rohm & Haas, Co. .............................................. 1,080,750
--------------
2,852,628
--------------
Construction & Housing 0.5%
US 30,000 Martin Marietta Materials, Inc. ............................... 971,250
--------------
Data Processing & Reproduction 0.4%
US 25,000 a NCR Corp. ..................................................... 743,750
--------------
Electronic Components & Instruments 1.2%
US 64,400 a Imation Corp. ................................................. $ 1,698,550
US 9,700 Raychem Corp. ................................................. 721,437
--------------
2,419,987
--------------
Energy Equipment & Services 1.4%
CA 82,000 a CS Resources, Ltd. ............................................ 947,102
US 32,500 a Rowan Cos., Inc. .............................................. 916,094
US 15,000 Transocean Offshore, Inc. ..................................... 1,089,374
--------------
2,952,570
--------------
Energy Sources 5.8%
US 50,000 Ashland, Inc. ................................................. 2,318,750
FR 16,800 Elf Aquitaine, SA ............................................. 1,812,446
CA 30,000 Imperial Oil, Ltd. ............................................ 1,541,250
US 25,000 a Pennzoil Co.................................................... 1,918,750
US 50,000 a Reading & Bates Corp. ......................................... 1,337,500
NO 29,300 Saga Petroleum, AS, Class B.................................... 511,707
US 92,200 a Santa Fe Energy Resources, Inc. ............................... 1,354,188
GB 78,300 Shell Transport & Trading Co., Plc. ........................... 533,961
US 12,000 a Western Atlas, Inc. ........................................... 879,000
--------------
12,207,552
--------------
Financial Services 2.9%
US 50,000 Advanta Corp., Class B ........................................ 1,784,375
US 5,000 Beneficial Corp. .............................................. 355,313
US 12,000 a,j Cityscape Financial Corp. ..................................... 227,287
US 17,000 Lehman Brothers Holdings, Inc. ................................ 688,500
US 70,000 Morgan Stanley Dean Witter Discover & Co. ..................... 3,014,375
--------------
6,069,850
--------------
Food & Household Products 2.7%
GB 105,270 Cadbury Schweppes, Plc. ....................................... 938,768
US 50,000 Tupperware Corp. .............................................. 1,825,000
US 50,000 a U S Industries, Inc. .......................................... 1,781,250
NL 15,070 Van Melle, NV.................................................. 1,182,322
--------------
5,727,340
--------------
Forest Products & Paper 1.6%
US 20,000 Bowater, Inc. ................................................. 925,000
US 5,000 Greif Brothers Corp., Class A ................................. 135,000
US 19,000 St. Joe Paper Corp. ........................................... 1,591,250
US 15,111 Temple Inland, Inc. ........................................... 815,994
--------------
3,467,244
--------------
Health & Personal Care 3.6%
US 80,900 a Apria Healthcare Group, Inc. .................................. 1,435,975
US 50,000 a Beverly Enterprises, Inc. ..................................... 812,500
US 75,470 a Foundation Health Systems, Inc., Class A ...................... 2,287,683
US 15,000 a Mid Atlantic Medical Services, Inc. ........................... 233,438
US 25,000 a Pacificare Health Systems, Inc., Class A ...................... 1,514,063
US 8,500 a Pacificare Health Systems, Inc., Class B ...................... 542,938
US 7,500 Rhone-Poulenc Rorer, Inc. ..................................... 681,563
--------------
7,508,160
--------------
Industrial Components 0.6%
GB 280,000 LucasVarity, Plc. ............................................. 969,875
US 7,800 a Owens-Illinois, Inc. .......................................... 241,800
--------------
1,211,675
--------------
Insurance 3.6%
US 25,000 20th Century Industries ....................................... $ 525,000
US 2,550 a Alleghany Corp. ............................................... 554,625
US 7,253 American General Corp. ........................................ 346,307
US 42,300 AON Corp. ..................................................... 2,189,025
US 41,206 Argonaut Group, Inc. .......................................... 1,215,577
US 25,000 Fund American Enterprises Holdings, Inc. ...................... 2,625,000
US 3,000 Selective Insurance Group, Inc. ............................... 145,313
--------------
7,600,847
--------------
Leisure & Tourism 2.3%
US 30,000 a Circus Circus Enterprises, Inc. ............................... 738,750
US 60,000 Comcast Corp., Class A ........................................ 1,282,500
US 50,000 Hilton Hotels Corp. ........................................... 1,328,124
US 20,000 a ITT Corp. ..................................................... 1,221,250
US 12,500 Readers Digest Association, Inc., Class A ..................... 358,594
--------------
4,929,218
--------------
Machinery & Engineering 1.5%
US 9,500 Federal - Mogul Corp. ......................................... 332,500
US 75,000 ITT Industries, Inc. .......................................... 1,931,250
US 30,000 New Holland, NV ............................................... 821,250
--------------
3,085,000
--------------
Merchandising 0.7%
US 44,000 Dillards, Inc., Class A ....................................... 1,523,500
--------------
Metals & Mining 1.2%
US 25,000 LTV Corp. ..................................................... 356,250
US 30,000 Reynolds Metals Co. ........................................... 2,137,500
--------------
2,493,750
--------------
Multi-Industry 5.2%
US 35,000 Harcourt General, Inc. ........................................ 1,666,875
SE 21,900 Investor, AB, Class A ......................................... 1,132,441
SE 93,100 Investor, AB, Class B ......................................... 4,904,434
FR 20,000 Lagardere, SCA ................................................ 580,938
CA 25,000 McMillan Bloedel, Ltd. ........................................ 343,061
US 75,000 Morton International, Inc. .................................... 2,264,063
--------------
10,891,812
--------------
Real Estate 0.3%
US 8,000 a Alexander's, Inc. ............................................. 563,000
--------------
Recreation & Other Consumer Goods 0.8%
US 50,000 Mattel, Inc. .................................................. 1,693,750
--------------
Telecommunications 4.5%
US 10,618 AT&T Corp. .................................................... 350,631
US 50,000 MCI Communications Corp. ...................................... 1,914,063
US 15,000 Sprint ........................................................ 789,375
US 97,000 a Tele Communications, Inc., Class A ............................ 2,303,750
US 63,400 Telephone & Data Systems, Inc. ................................ 2,405,238
US 100,000 a Three Hundred Sixty Degrees Communications Co. ................ 1,712,500
--------------
9,475,557
--------------
Transportation 2.4%
US 15,000 Burlington Northern Santa Fe Corp. ............................ 1,348,125
US 11,500 Florida East Coast Industries, Inc. ........................... 1,276,500
GB 150,000 Railtrack Group, Plc. ......................................... 1,562,474
US 6,000 Ryder Systems, Inc. ........................................... $ 198,000
US 14,300 Xtra Corp. .................................................... 628,306
--------------
5,013,405
--------------
Total Common Stocks & Other Equity Interests (Cost $130,238,049) 137,051,388
--------------
Preferred Stock 0.1%
US 5 North Atlantic Trading Co., Inc., 12.00%, pfd. (Cost $125,000) 125,000
--------------
FACE
AMOUNT
Bonds & Notes 2.9%
US $ 825,000 a American Communication Services, Inc., senior disc. notes,
zero coupon to 11/01/00, (original accretion rate 13.00%),
13.00% thereafter, 11/01/05 .................................. 486,750
US 1,650,000 CAI Wireless Systems, Inc., senior notes, 12.25%, 09/15/02 .... 528,000
US 175,000 a Consorcio Grupo Dina, SA, de CV, zero coupon, 11/15/02 ........ 153,125
US 2,250,000 a CS Wireless, Inc., senior disc. notes, Series B,
zero coupon to 03/01/01, (original accretion rate 11.375%), 11.375%
thereafter, 03/01/06.......................................... 528,750
US 1,000,000 a,b Falcon Building Products, Inc., zero coupon, to 06/15/02,
10.50% thereafter, 06/15/07 .................................. 595,000
US 500,000 b Globalstar Telecommunications, Ltd., L.P.,
senior notes, 11.25%, 06/15/04 ............................... 471,250
US 100,000 b North Atlantic Trading Co., Inc., senior notes, 11.00%, 06/15/04 101,500
US 500 a,m People's Choice TV Corp., senior disc. notes, 13.125%, 06/01/04 187,500
US 250,000 a,k Sassco, Inc., 12.75%, 02/15/05 ................................ 262,500
US 250,000 b TFM, SA de CV, 10.25%, 06/15/07 ............................... 253,125
US 600,000 a,b TFM, SA de CV, zero coupon to 06/15/02,
(original accretion rate 11.75%), 11.75% thereafter, 06/15/09 348,000
CA 500,000 b Uniforet, Inc., 11.125%, 10/15/06 ............................. 450,000
US 1,150,000 b Vicap, SA, company guaranteed, 11.375%, 05/15/07 .............. 1,206,063
US 500,000 b Wavetek Corp., 10.125%, 06/15/07 .............................. 510,000
--------------
Total Bonds & Notes (Cost $6,361,026) ................... 6,081,563
--------------
Bonds & Notes in Reorganization 1.3%
US 100,000 a Dow Corning Corp., bank claim ................................. 120,500
a Eurotunnel Jr Credit Facility,
GB 84,000 l Tranche B ..................................................... 43,790
GB 1,540,000 Tranche B ..................................................... 1,211,760
Mercury Finance Co., Commercial Paper
US 27,256 03/17/97 ...................................................... 25,076
US 12,389 04/11/97 ...................................................... 11,398
US 1,000,000 04/16/97 ...................................................... 920,000
US 34,689 04/18/97 ..................................................... 31,914
US 19,822 04/22/97 ...................................................... 18,236
US 29,734 04/24/97 ...................................................... 27,355
US 375,000 Mercury Finance Co., MTN, 7.42%, 06/29/00 ..................... 345,000
--------------
Total Bonds & Notes in Reorganization (Cost $2,497,619) . 2,755,029
--------------
Total Bonds (Cost $8,858,645) ........................... 8,836,592
--------------
Total Long Term Investments (Cost $139,221,694) ......... 146,012,980
--------------
e Short Term Investments 29.3%
US 2,000,000 Federal Home Loan Mortgage Association, 5.50%, 07/10/97 ....... 1,997,304
US18,800,000 FHLB, 5.42% to 5.51% with maturities to 09/10/97 .............. 18,691,295
US14,604,000 FHLMC, 5.425% to 5.54% with maturities to 09/03/97 ............ 14,534,524
US26,450,000 FNMA, 5.354% to 5.54% with maturities to 10/02/97 ............. 26,211,857
--------------
Total Short Term Investments (Cost $59,695,137) ......... 61,434,980
--------------
Total Investments (Cost $198,916,831) 98.9% ........ 207,447,960
Other Assets and Liabilities, Net 1.0%.............. 2,086,363
Equity in Forward Contracts 0.1% ................... 282,280
--------------
Net Assets 100.0% .................................. $209,816,603
==============
At June 30, 1997, the net unrealized appreciation based on the
cost of investments for income tax purposes of
$198,916,831 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ............. $ 10,727,281
Aggregate gross unrealized depreciation for all investments
in which there was an excess of value over tax cost .......... (2,196,152)
--------------
Net unrealized appreciation ................................. $ 8,531,129
==============
COUNTRY LEGEND:
CA - Canada
DD - Germany
FR - France
GB - United Kingdom
MX - Mexico
NL - Netherlands
NO - Norway
SE - Sweden
US - United States
PORTFOLIO ABBREVIATIONS:
FHLB - Federal Home Loan Bank
FHLMC - Federal Home Loan Mortgage Corp.
FNMA - Federal National Mortgage Association
L.P. - Limited Partnership
MTN - Medium Term Note
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified institutional buyers.
eCertain short-term securities are traded on a discount basis; the rates shown are the discount rates at the time of
purchase by the Fund. Other securities bear interest at the rates shown, payable at fixed dates or upon maturity.
jSee Note 9 regarding restricted securities.
kSee Note 1(i) regarding securities purchased on a when-issued basis.
lTraded in European Currency Unit.
mIn Units.
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES/ VALUE
COUNTRY* WARRANTSNatural Resources Fund (NOTE1)
<S> <C> <C> <C>
a Common Stocks & Warrants 93.7%
Capital Goods 1.1%
US 62,000 a Atchinson Casting Corp. ....................................... $ 1,030,750
--------------
Environmental Control & Construction 1.9%
US 20,700 Lone Star Industries, Inc. .................................... 937,969
US 25,100 a Owens-Illinois, Inc. .......................................... 778,100
--------------
1,716,069
--------------
Metals - Diversified 12.9%
AU 2,937,000 a Austral Coal, Ltd. ............................................ 997,909
US 160,718 Freeport-McMoRan Copper & Gold, Inc., Class A ................. 4,701,002
AU 320,000 Pasminco, Ltd. ................................................ 649,945
GB 318,429 Rio Tinto, Plc. ............................................... 5,549,400
--------------
11,898,256
--------------
Mining - Precious Metals 57.8%
AU 586,600 a Acacia Resources, Ltd. ........................................ 770,665
US 214,042 Ashanti Goldfields Co., Ltd., Sponsored GDR ................... 2,501,616
CA 694,200 a,b Asquith Resources, Inc., Legend Shares ........................ 326,753
ZA 201,140 a Avgold, Ltd. .................................................. 197,284
US 126,595 Barrick Gold Corp. ............................................ 2,785,090
ZA 125,000 Beatrix Mines, Ltd. ........................................... 566,178
CA 69,000 a Bema Gold Corp. ............................................... 417,213
US 209,000 a Campbell Resources, Inc., warrants ............................ 35,927
US 210,000 a Canyon Resources Corp. ........................................ 511,875
US 67,000 b Compania de Minas Buenaventura, SA, Sponsored ADR ............. 1,319,063
CA 151,200 a Dayton Mining Corp. ........................................... 525,551
US 63,000 DeBeers Consolidated Mines, Ltd., ADR ......................... 2,327,063
US 249,500 Driefontein Consolidated, Ltd., Sponsored ADR ................. 1,684,125
AU 1,480,000 a Equinox Resources, N.L. ....................................... 480,512
CA 155,300 b Euro-Nevada Mining Corp. ...................................... 4,779,500
CA 15,000 Euro-Nevada Mining Corp., Legend Shares ....................... 461,639
CA 80,800 b Franco-Nevada Mining Corp., Ltd. .............................. 4,051,848
CA 2,500 Franco-Nevada Mining Corp., Ltd., Legend Shares ............... 125,367
CA 234,600 a Geomaque Explorations, Ltd. ................................... 543,626
US 37,000 a Getchell Gold Corp. ........................................... 1,299,625
AU 201,800 Great Central Mines, Ltd. ..................................... 384,274
CA 170,900 a Greenstone Resources, Ltd. .................................... 1,497,440
AU 495,000 a Helix Resources, N.L. ......................................... 523,248
US 49,488 Homestake Mining Co. .......................................... 646,437
AU 820,260 a Leo Shield Exploration, N.L. .................................. 253,927
AU 329,500 a Lihir Gold, Ltd. .............................................. 549,822
CA 275,700 a Minefinders Corp., Ltd., warrants ............................. 998,226
US 42,400 Newmont Gold Co. .............................................. 1,693,350
US 57,755 Newmont Mining Corp. .......................................... 2,252,445
AU 1,535,571 Normandy Mining, Ltd. ......................................... 1,727,549
AU 230,000 a Orogen Minerals, Ltd. ......................................... 658,175
US 17,200 a,b Orogen Minerals, Ltd., GDR .................................... 492,200
CA 110,000 a Pangea Goldfields, Inc. ....................................... 318,621
US 167,800 Placer Dome, Inc. ............................................. 2,747,725
AU 632,500 Plutonic Resources, Ltd. ...................................... 1,977,130
ZA 40,000 Rangold & Exploration Co., Ltd. ............................... 176,328
US 97,179 Rustenburg Platinum Holdings, Ltd., ADR ....................... 1,777,792
AU 505,900 Sons Of Gwali, Ltd. ........................................... 1,883,154
US 82,300 a,b Stillwater Mining Co. ......................................... 1,625,424
CA 159,100 Teck Corp., Class B ........................................... 3,220,135
US 339,000 Vaal Reefs Exploration & Mining Co., Ltd., ADR ................ 1,631,438
CA 152,733 a Williams Resources, Inc. ...................................... $ 237,790
CA 71,300 Williams Resources, Inc., Legend Shares ....................... 111,007
--------------
53,094,157
--------------
Oil/Gas Equipment & Services 8.8%
US 23,300 a Core Laboratories, NV ......................................... 605,800
US 20,000 a Diamond Offshore Drilling, Inc. ............................... 1,562,500
US 6,000 a ENSCO International, Inc. ..................................... 316,500
US 28,000 a Input/Output, Inc. ............................................ 507,500
US 45,000 a Rowan Cos., Inc. .............................................. 1,268,438
US 9,700 a Santa Fe International Corp. .................................. 329,800
US 27,700 a Stolt Comex Seaway, SA ........................................ 702,888
CA 54,200 a Tesco Corp. ................................................... 706,470
US 20,000 Transocean Offshore, Inc. ..................................... 1,452,500
US 20,000 a Varco International, Inc. ..................................... 645,000
--------------
8,097,396
--------------
Oil/Gas Exploration & Production 7.7%
CA 70,000 a Abacan Resource Corp. ......................................... 223,035
US 150,000 a Abacan Resource Corp. ......................................... 478,125
US 50,000 a Barrett Resources Corp. ....................................... 1,496,875
US 127,000 a Hugoton Energy Corp. .......................................... 1,762,125
US 25,000 a Newfield Exploration Co. ...................................... 500,000
US 12,000 a Nuevo Energy Co. .............................................. 492,000
CA 150,000 a Summit Resources, Ltd. ........................................ 651,725
US 96,700 a Titan Exploration, Inc. ....................................... 1,172,488
US 10,000 a United Meridian Corp. ......................................... 300,000
--------------
7,076,373
--------------
Oil/Gas Pipelines & Distribution 0.4%
US 11,400 MCN Corp. ..................................................... 349,125
--------------
Real Estate Investment Trusts 2.0%
US 23,000 a Alexandria Real Estate Equities, Inc. ......................... 504,562
US 21,000 FelCor Suite Hotels, Inc. ..................................... 782,250
US 21,000 Storage Trust Realty .......................................... 556,500
--------------
1,843,312
--------------
Steel 1.1%
US 22,600 a UCAR International, Inc. ...................................... 1,033,950
--------------
Total Common Stocks & Warrants (Cost $90,512,027)........ 86,139,388
--------------
FACE
AMOUNT
Convertible Bonds 1.3%
US $ 800,000 Dayton Mining Corp. cvt. sub. deb., 7.00%, 04/01/02 ........... 764,000
US 270,000 b Rangold & Exploration Co., Ltd., cvt. sub. notes, 7.00%, 10/03/01 259,200
CA 200,000 Williams Resources, Inc., cvt. sub. deb., 8.00%, 01/23/02 ..... 127,447
--------------
Total Convertible Bonds (Cost $1,219,740)................ 1,150,647
--------------
Total Long Term Investments (Cost $91,731,767)........... 87,290,035
--------------
f,g Receivables from Repurchase Agreements 2.4%
US$2,245,156 Joint Repurchase Agreement, 5.884%, 07/01/97
(Maturity Value $2,246,220) (Cost $2,245,853)
Aubrey G. Lanston & Co., Inc., (Maturity Value $222,635)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $222,635)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $131,184)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $222,635)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $222,635)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $111,321)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $222,635)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co., L.P., (Maturity Value $222,635)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $222,635)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $222,635)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $222,635)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 $ 2,245,853
Total Investments (Cost $93,977,620) 97.4% ......... 89,535,888
Other Assets and Liabilities, Net 2.6% .............. 2,368,128
--------------
Net Assets 100.0% ................................. $91,904,016
==============
At June 30, 1997, the net unrealized depreciation based on the
cost of investments for income tax purposes of
$93,977,620 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ............. $11,280,099
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value ............. (15,721,831)
--------------
Net unrealized depreciation ................................. $ (4,441,732)
==============
COUNTRY LEGEND:
AU - Australia
CA - Canada
GB - United Kingdom
US - United States
ZA - South Africa
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified institutional buyers.
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES Real Estate Securities Fund (NOTE1)
Common Stocks 92.6%
<S> <C> <C>
Equity REIT - Apartments 18.7%
180,000 Amli Residential Properties Trust ...................................... $ 4,252,500
200,000 Bay Apartment Communities, Inc. ........................................ 7,400,000
170,000 Camden Property Trust .................................................. 5,376,250
63,000 Charles E. Smith Residential Realty, Inc. .............................. 1,819,125
220,000 Equity Residential Properties Trust .................................... 10,450,000
212,000 Evans Withycombe Residential, Inc. ..................................... 4,399,000
195,000 Gables Residential Trust ............................................... 4,923,750
145,600 Irvine Apartment Communities, Inc. ..................................... 4,277,000
225,000 Oasis Residential, Inc. ................................................ 5,287,500
100,000 Post Properties, Inc. .................................................. 4,056,250
330,000 Security Capital Atlantic, Inc. ........................................ 7,899,375
310,000 Security Capital Pacific Trust ......................................... 7,091,250
225,000 Summit Properties, Inc. ................................................ 4,640,625
20,157 United Dominion Realty Trust, Inc. ..................................... 285,977
------------
72,158,602
------------
Equity REIT - Health Care 4.3%
84,100 a Alexandria Real Estate Equities, Inc. .................................. 1,844,944
135,000 Health Care Property Investors, Inc. ................................... 4,758,750
200,000 Nationwide Health Properties, Inc. ..................................... 4,400,000
168,000 Omega Healthcare Investors, Inc. ....................................... 5,491,500
------------
16,495,194
------------
Equity REIT - Hotels 12.4%
200,700 Equity Inns, Inc. ...................................................... 2,684,363
360,000 FelCor Suite Hotels, Inc. .............................................. 13,410,000
430,000 Patriot American Hospitality, Inc. ..................................... 10,965,000
265,050 Starwood Lodging Trust ................................................. 11,314,322
620,000 Winston Hotels, Inc. ................................................... 9,338,750
------------
47,712,435
------------
Equity REIT - Industrial 9.8%
122,500 Duke Realty Investments, Inc. .......................................... 4,961,250
260,000 Liberty Property Trust ................................................. 6,467,500
300,000 Meridian Industrial Trust, Inc. ........................................ 7,050,000
367,473 Security Capital Industrial Trust ...................................... 7,900,670
200,000 Spieker Properties, Inc. ............................................... 7,037,500
140,000 Weeks Corp. ............................................................ 4,375,000
------------
37,791,920
------------
Equity REIT - Mixed Property Type 3.3%
195,000 Colonial Properties Trust .............................................. 5,728,125
275,000 Glenborough Realty Trust, Inc. ......................................... 6,943,750
------------
12,671,875
------------
Equity REIT - Office 7.4%
265,100 Arden Realty Group, Inc. ............................................... 6,892,600
145,000 Beacon Properties Corp. ................................................ 4,839,375
275,000 Crescent Real Estate Equities Co. ...................................... 8,731,250
250,000 Highwoods Properties, Inc. ............................................. 8,000,000
------------
28,463,225
------------
Equity REIT - Residential Communities 2.4%
200,000 Manufactured Home Communities, Inc. .................................... 4,612,500
140,000 Sun Communities, Inc. .................................................. 4,698,750
------------
9,311,250
------------
Equity REIT - Retail - Community Centers 7.5%
220,000 Burnham Pacific Properties, Inc. ....................................... $ 3,025,000
110,000 Developers Diversified Realty Corp. .................................... 4,400,000
150,000 Kimco Realty Corp. ..................................................... 4,762,500
866,067 j Pacific Retail Trust ................................................... 10,392,804
90,000 Vornado Realty Trust ................................................... 6,491,250
------------
29,071,554
------------
Equity REIT - Retail - Regional Malls 5.4%
310,000 Simon DeBartolo Group, Inc. ............................................ 9,920,000
170,700 The Macerich Co. ....................................................... 4,736,925
215,000 The Mills Corp. ........................................................ 5,952,813
------------
20,609,738
------------
Equity REIT - Storage 6.7%
350,000 Public Storage, Inc. ................................................... 10,237,500
370,000 Storage Trust Realty ................................................... 9,805,000
150,500 Storage USA, Inc. ...................................................... 5,756,625
------------
25,799,125
------------
Home Builders 3.6%
100,000 a Beazer Homes USA, Inc. ................................................. 1,600,000
306,100 a Belmont Homes, Inc. .................................................... 2,104,438
281,250 Clayton Homes, Inc. .................................................... 4,007,813
300,000 a NVR, Inc. .............................................................. 4,575,000
193,100 a Southern Energy Homes, Inc. ............................................ 1,762,037
------------
14,049,288
------------
Hotels 8.1%
650,000 a,hCandlewood Hotel Co., Inc. ............................................. 5,443,750
350,000 a CapStar Hotel Co. ...................................................... 11,200,000
570,000 a Host Marriott Corp. .................................................... 10,153,124
224,500 a Prime Hospitality Corp. ................................................ 4,433,874
------------
31,230,748
------------
Mixed Property Type 3.0%
27,500 a Crescent Operating, Inc. ............................................... 330,000
500,000 Security Capital US Realty.............................................. 7,450,000
144,000 a Vail Resorts, Inc. ..................................................... 3,645,000
------------
11,425,000
------------
Total Common Stocks (Cost $262,500,445) .......................... 356,789,954
------------
FACE
AMOUNT
Bonds 0.5%
$2,000,000 US Home Corp., cvt. sub. notes, 4.875%, 11/01/05 (Cost $1,970,000) ..... 1,875,000
------------
Total Long Term Investments (Cost $264,470,445) .................. 358,664,954
------------
f,gReceivables from Repurchase Agreements 6.9%
$26,685,830 Joint Repurchase Agreement, 5.884%, 07/01/97
(Maturity Value $26,697,578) (Cost $26,693,215)
Aubrey G. Lanston & Co., Inc., (Maturity Value $2,646,144)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $2,646,144)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $1,559,209)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $2,646,144)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $2,646,144)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $1,323,073)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $2,646,144)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co, L.P., (Maturity Value $2,646,144)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $2,646,144)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $2,646,144)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $2,646,144)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 ... $ 26,693,215
------------
Total Investments (Cost $291,163,660) 100.0% ................ 385,358,169
Other Assets and Liabilities, Net............................. 127,338
------------
Net Assets 100.0% ........................................... $385,485,507
============
At June 30, 1997, the net unrealized appreciation based on the cost
of investments for income tax purposes of $291,163,660
was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ..................... $ 96,839,183
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value ...................... (2,644,674)
------------
Net unrealized appreciation .......................................... $ 94,194,509
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
REIT - Real Estate Investment Trust
aNon-income producing.
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
hSee Note 8 regarding holdings of 5% or more of voting securities.
jSee Note 9 regarding restricted securities.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES Rising Dividends Fund (NOTE1)
f,gCommon Stocks 97.0%
<S> <C> <C>
Banks 12.0%
172,400 CoreStates Financial Corp. ............................................. $ 9,266,500
151,000 First Union Corp. ...................................................... 13,967,500
224,150 Mercantile Bankshares Corp. ............................................ 8,966,000
449,900 National Commerce BanCorp. ............................................. 9,897,800
243,200 State Street Corp. ..................................................... 11,248,000
561,028 TrustCo Bank Corp., New York ........................................... 11,991,974
134,500 Washington Mutual, Inc. ................................................ 8,036,375
203,000 Wilmington Trust Corp. ................................................. 9,287,250
------------
82,661,399
------------
Business Services 8.5%
252,700 Avery Dennison Corp. ................................................... 10,139,588
363,500 Brady (W.H.) Co. ....................................................... 10,541,500
498,200 Ennis Business Forms ................................................... 4,795,175
326,900 Standard Register Co. .................................................. 10,011,313
769,400 Wallace Computer Services, Inc. ........................................ 23,130,088
------------
58,617,664
------------
Consumer Products 16.0%
436,900 Alberto-Culver Co., Class A ............................................ 10,185,231
184,033 Block Drug Co., Inc., Class A .......................................... 8,051,444
715,100 Dimon, Inc. ............................................................ 18,950,150
313,700 Newell Co. ............................................................. 12,430,363
334,000 Nike, Inc., Class B .................................................... 19,497,250
324,300 Philip Morris Cos., Inc. ............................................... 14,390,813
320,400 Stanhome, Inc. ......................................................... 10,533,150
368,500 Universal Corp. ........................................................ 11,699,875
175,800 UST, Inc. .............................................................. 4,878,450
------------
110,616,726
------------
Drugs & Health Care 2.5%
73,700 Bristol-Myers Squibb Co. ............................................... 5,969,700
56,800 Merck & Co., Inc. ...................................................... 5,878,800
194,900 West Co., Inc. ......................................................... 5,579,013
------------
17,427,513
------------
Electronics & Technology 7.1%
121,100 Baldor Electric Co. .................................................... 3,580,019
256,100 Cohu, Inc. ............................................................. 8,003,125
66,000 Diebold, Inc. .......................................................... 2,574,000
146,100 General Electric Co. ................................................... 9,551,288
231,500 Hewlett-Packard Co. .................................................... 12,964,000
131,700 Hubbell, Inc. .......................................................... 5,794,800
117,700 Rockwell International Corp. ........................................... 6,944,300
------------
49,411,532
------------
Energy 1.6%
204,000 Royal Dutch Petroleum Co., New York Shares, ADR ........................ 11,092,500
------------
Financial Services 2.2%
348,000 Fannie Mae ............................................................. 15,181,500
------------
Industrial 21.3%
109,600 Donaldson Co., Inc. .................................................... 4,164,800
215,600 Dover Corp. ............................................................ 13,259,400
503,600 Durco International, Inc. .............................................. 14,730,300
34,400 Graco, Inc. ............................................................ 1,036,300
545,400 Hanna (M.A.) Co. ....................................................... 15,714,338
211,600 Kaydon Corp. ........................................................... 10,500,650
251,800 Kimball International, Inc., Class B ................................... 10,134,950
91,800 Leggett & Platt, Inc. .................................................. $ 3,947,400
402,800 Millipore Corp. ........................................................ 17,723,200
236,000 Monsanto Co. ........................................................... 10,162,750
339,600 Myers Industries, Inc. ................................................. 5,730,750
276,200 Nucor Corp. ............................................................ 15,605,300
360,900 Superior Industries International, Inc. ................................ 9,563,850
228,200 Superior Surgical Manufacturing Co., Inc. .............................. 2,681,350
13,918 The Boeing Co. ......................................................... 738,524
474,800 Watts Industries, Inc., Class A ........................................ 11,395,200
------------
147,089,062
------------
Insurance - Life 0.2%
33,100 American Heritage Life Investment Corp. ................................ 1,092,300
------------
Insurance - Property Casualty 13.1%
472,600 Allied Group, Inc. ..................................................... 17,958,800
45,000 American International Group, Inc. ..................................... 6,721,875
196,200 Chubb Corp. ............................................................ 13,120,875
223,900 Mercury General Corp. .................................................. 16,288,725
589,300 h MMI Cos., Inc. ......................................................... 15,395,463
377,225 RLI Corp. .............................................................. 13,745,135
97,300 St. Paul Cos., Inc. .................................................... 7,419,124
------------
90,649,997
------------
Retail 10.1%
968,000 Family Dollar Stores, Inc. ............................................. 26,378,000
349,300 Gap, Inc. .............................................................. 13,579,037
222,100 Rite Aid Corp. ......................................................... 11,077,237
80,300 The Limited, Inc. ...................................................... 1,626,074
514,200 Wal-Mart Stores, Inc. .................................................. 17,386,387
------------
70,046,735
------------
Transportation 2.4%
635,000 Circle International Group, Inc. ....................................... 16,748,124
------------
Total Common Stocks (Cost $466,269,578)........................... 670,635,052
------------
Convertible Preferred Stocks 0.2%
24,200 American Heritage Life Investment Corp.,
8.50% cvt. pfd. (Cost $1,210,000)...................................... 1,331,000
------------
Total Long Term Investments (Cost $467,479,578)................... 671,966,052
------------
f,gReceivables from Repurchase Agreements 3.9%
$26,982,361 Joint Repurchase Agreement, 5.884%, 07/01/97
(Maturity Value $26,995,111) (Cost $26,990,699)
Aubrey G. Lanston & Co., Inc., (Maturity Value $2,675,634)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $2,675,634)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $1,576,591)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $2,675,634)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $2,675,634)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $1,337,814)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $2,675,634)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co, L.P., (Maturity Value $2,675,634)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $2,675,634)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $2,675,634)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $2,675,634)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 ... $ 26,990,699
------------
Total Investments (Cost $494,470,277) 101.1%................. 698,956,751
Liabilities in Excess of Other Assets (1.1)% ................ (7,771,364)
------------
Net Assets 100.0% ........................................... $691,185,387
============
At June 30, 1997, the net unrealized appreciation based on the cost
of investments for income tax purposes of $494,766,393 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ...................... $204,910,156
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value ...................... (719,798)
------------
Net unrealized appreciation .......................................... $204,190,358
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
hSee Note 8 regarding holdings of 5% or more of voting securities.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES Small Cap Fund (NOTE1)
a,dCommon Stocks 103.9%
<S> <C> <C>
Commercial Services 1.3%
80,650 a Labor Ready, Inc. ...................................................... $ 816,581
72,200 Norrell Corp. .......................................................... 2,382,600
------------
3,199,181
------------
Consumer Products Durables 6.5%
56,650 a Belmont Homes, Inc. .................................................... 389,469
124,200 a Cannondale Corp. ....................................................... 2,204,550
146,250 Clayton Homes, Inc. .................................................... 2,084,063
129,500 a Galoob Toys, Inc. ...................................................... 2,444,313
75,000 a K-2, Inc. .............................................................. 2,376,563
140,000 Oakwood Homes .......................................................... 3,360,000
56,600 a RockShox, Inc. ......................................................... 976,350
24,400 a Sola International, Inc. ............................................... 817,400
115,800 a Southern Energy Homes, Inc. ............................................ 1,056,675
------------
15,709,383
------------
Consumer Products Non-Durables 4.2%
111,100 a Consolidated Cigar Holdings, Inc. ...................................... 3,083,025
190,000 a Designer Holdings, Ltd. ................................................ 1,935,625
77,600 a The North Face, Inc. ................................................... 1,416,200
93,800 a Tommy Hilfiger Corp. ................................................... 3,769,588
------------
10,204,438
------------
Consumer Services 3.5%
101,100 a CapStar Hotel Co. ...................................................... 3,235,200
176,400 a Prime Hospitality Corp. ................................................ 3,483,900
74,100 a Vail Resorts, Inc. ..................................................... 1,782,000
------------
8,501,100
------------
Electronic Technology 7.3%
9,300 a 3Dfx Interactive, Inc. ................................................. 124,388
78,800 a Coherent, Inc. ......................................................... 3,506,600
10,200 a Harmonic Lightwaves, Inc. .............................................. 174,675
117,800 a Komag, Inc. ............................................................ 1,928,975
57,000 a Natural Microsystems Corp. ............................................. 2,052,000
58,600 a Newbridge Networks Corp. ............................................... 2,549,100
183,000 a Spectralink Corp. ...................................................... 1,029,375
93,300 a Tekelec ................................................................ 3,300,488
101,800 a Tracor, Inc. ........................................................... 2,557,725
112,500 a Visioneer, Inc. ........................................................ 407,813
------------
17,631,139
------------
Energy & Minerals 8.8%
291,900 a Abacan Resource Corp. .................................................. 930,431
150,000 a,dAbacan Resource Corp. (Canada) ......................................... 477,932
2,000 a Atwood Oceanic, Inc. ................................................... 134,000
95,500 a Barrett Resources Corp. ................................................ 2,859,031
72,000 a Cliffs Drilling Co. .................................................... 2,628,000
73,000 Devon Energy Corp. ..................................................... 2,682,750
90,700 a Input/Output, Inc. ..................................................... 1,643,938
100,000 a Marine Drilling Cos., Inc. ............................................. 1,962,500
243,200 a Titan Exploration, Inc. ................................................ 2,948,800
152,900 a Varco International, Inc. .............................................. 4,931,025
------------
21,198,407
------------
Financial Services 7.3%
46,300 Chartwell Re Corp. ..................................................... 1,389,000
65,000 EVEREN Capital Corp. ................................................... 2,027,188
38,400 Executive Risk, Inc. ................................................... 1,996,800
162,300 a HomeSide, Inc. ......................................................... $ 3,550,313
7,200 a Life USA Holding, Inc. ................................................. 102,600
160,000 a Risk Capital Holdings, Inc. ............................................ 3,360,000
56,600 d Scor (France) .......................................................... 2,278,755
67,700 a Silicon Valley Bancshares .............................................. 3,063,425
------------
17,768,081
------------
Health Care Services 6.0%
78,600 a Access Health, Inc. .................................................... 1,925,700
153,900 a Capstone Pharmacy Services, Inc. ....................................... 1,673,663
7,326 HBO & Company .......................................................... 504,606
91,400 a Healthcare Recoveries, Inc. ............................................ 1,770,875
44,900 a Medaphis Corp. ......................................................... 451,806
124,000 a Medic Computer Systems, Inc. ........................................... 2,759,000
43,200 a Renal Care Group, Inc. ................................................. 1,800,900
20,000 a Total Renal Care Holdings, Inc. ........................................ 803,750
159,000 a Transition Systems, Inc. ............................................... 2,891,813
------------
14,582,113
------------
Health Technology 6.8%
106,000 a DepoTech Corp. ......................................................... 1,444,250
69,300 a Inhale Therapeutic Systems ............................................. 1,715,175
110,000 Mentor Corp. ........................................................... 3,258,750
210,000 a Neurobiological Technologies, Inc. ..................................... 472,500
85,000 a Neurogen Corp. ......................................................... 1,933,750
64,900 a Noven Pharmaceuticals, Inc. ............................................ 462,413
245,000 a OrthoLogic Corp. ....................................................... 1,347,500
75,700 a Penederm, Inc. ......................................................... 1,021,950
26,400 a Pharmacopeia, Inc. ..................................................... 349,800
116,100 a Serologicals Corp. ..................................................... 2,670,300
46,700 a Vertex Pharmaceuticals, Inc. ........................................... 1,786,275
------------
16,462,663
------------
Industrial Services 0.9%
52,000 Butler Manufacturing Co. ............................................... 1,722,500
5,400 a Core Laboratories, NV .................................................. 140,400
6,600 a Waters Corp. ........................................................... 236,775
------------
2,099,675
------------
Non-Energy & Minerals 1.4%
30,000 Carpenter Technology Corp. ............................................. 1,372,500
87,400 a Gibraltar Steel Corp. .................................................. 2,010,200
------------
3,382,700
------------
Process Industries 2.3%
69,200 ChemFirst, Inc. ........................................................ 1,877,050
80,500 a UCAR International, Inc. ............................................... 3,682,866
------------
5,559,916
------------
Producer Manufacturing 4.4%
60,200 Easco, Inc. ............................................................ 586,950
156,400 a Gentex Corp. ........................................................... 3,088,900
267,600 JLG Industries, Inc. ................................................... 3,646,050
65,700 Roper Industries, Inc. ................................................. 3,408,188
------------
10,730,088
------------
Real Estate Investment Trust 3.1%
60,000 Arden Realty Group, Inc. ............................................... 1,560,000
97,000 FelCor Suite Hotels, Inc. .............................................. 3,613,250
27,400 Omega Healthcare Investors, Inc. ....................................... $ 895,638
98,000 Winston Hotels, Inc. ................................................... 1,476,125
------------
7,545,013
------------
Retail 2.6%
30,000 a AnnTaylor Stores Corp. ................................................. 585,000
93,000 a Guitar Center, Inc. .................................................... 1,569,375
157,400 a Rent-Way, Inc. ......................................................... 2,321,650
71,600 a West Marine, Inc. ...................................................... 1,843,700
------------
6,319,725
------------
Semiconductors 8.7%
103,600 a Adaptec, Inc. .......................................................... 3,600,100
40,000 a Altera Corp. ........................................................... 2,020,000
71,700 a C-Cube Microsystems, Inc. .............................................. 1,259,231
21,800 a Etec Systems, Inc. ..................................................... 934,675
36,100 a Lattice Semiconductor Corp. ............................................ 2,039,650
55,000 Linear Technology Corp. ................................................ 2,846,250
116,500 a NeoMagic Corp. ......................................................... 2,606,688
108,000 a PMC-Sierra, Inc. ....................................................... 2,835,000
49,200 a Uniphase Corp. ......................................................... 2,865,900
------------
21,007,494
------------
Technology Services 13.1%
87,800 a Activision, Inc. ....................................................... 1,262,125
49,800 a Affiliated Computer Services, Inc. ..................................... 1,394,400
37,000 a Arbor Software Corp. ................................................... 1,304,250
45,000 a Broderbund Software, Inc. .............................................. 1,110,938
94,700 a Business Objects, SA, ADR .............................................. 923,325
102,200 a Electronic Arts, Inc. .................................................. 3,436,475
61,500 a Envoy Corp. ............................................................ 2,044,875
104,900 a First USA Paymentech, Inc. ............................................. 3,035,544
75,000 a FORE Systems, Inc. ..................................................... 1,021,875
6,300 a Forrester Research, Inc. ............................................... 179,569
125,700 a Integrated Systems, Inc. ............................................... 1,476,975
14,900 a International Network Services ......................................... 387,400
81,100 a Intuit, Inc. ........................................................... 1,860,231
125,000 a Phoenix Technologies, Ltd. ............................................. 1,625,000
60,000 a Remedy Corp. ........................................................... 2,400,000
58,000 a Sapient Corp. .......................................................... 2,871,000
38,500 a Software Artistry, Inc. ................................................ 611,188
32,163 a Sterling Commerce, Inc. ................................................ 1,057,359
84,000 a Synopsys, Inc. ......................................................... 3,087,000
29,000 a Trusted Information Systems, Inc. ...................................... 344,375
21,000 a XcelleNet, Inc. ........................................................ 343,875
------------
31,777,779
------------
Transportation 3.5%
60,000 Air Express International Corp. ........................................ 2,385,000
57,000 a Atlantic Coast Airlines, Inc. .......................................... 897,750
76,600 Circle International Group, Inc. ....................................... 2,020,325
115,000 Expeditors International of Washington, Inc. ........................... 3,263,125
------------
8,566,200
------------
Utilities & Communications 12.2%
191,700 a Arch Communications Group, Inc. ........................................ 1,461,713
61,339 a Cable & Wireless Communications, Plc. .................................. 1,648,486
95,400 a CommNet Cellular, Inc. ................................................. 3,315,150
84,500 HSN, Inc. .............................................................. 2,640,625
195,000 a ICG Communications, Inc. ............................................... $ 3,753,750
112,800 a Iridium World Communications ........................................... 2,044,500
62,400 a Millicom International Cellular, SA .................................... 2,979,600
444,800 a Paging Network, Inc. ................................................... 3,905,922
143,000 a Primus Telecommunications Group, Inc. .................................. 1,501,500
139,300 a Rural Cellular Corp., Class A .......................................... 1,436,531
310,200 a Western Wireless Corp. ................................................. 4,924,425
------------
29,612,202
------------
Total Long Term Investments (Cost $225,570,656) .................. 251,857,297
------------
Total Investments (Cost $225,570,656) 103.9% ................ 251,857,297
Liabilities in Excess of Other Assets (3.9%) ................ (9,440,679)
------------
Net Assets 100.0% ........................................... $242,416,618
============
At June 30, 1997, the net unrealized appreciation based on the
cost of investments for income tax purposes of $225,783,142
was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ...................... $ 40,589,995
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value ...................... (14,515,840)
------------
Net unrealized appreciation .......................................... $ 26,074,155
============
</TABLE>
aNon-income producing.
dSecurities are traded in foreign currency and value is stated in U.S. dollars.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES/
RIGHTS & VALUE
COUNTRY* WARRANTS Templeton Developing Markets Equity Fund (NOTE1)
Common Stocks, Rights & Warrants 79.7%
<S> <C> <C> <C>
Argentina 8.2%
AR 78,876 Aluar Aluminio Argentino, SA, Class B ........................... $ 283,996
AR 493,180 Astra Cia Argentina de Petroleo, SA.............................. 1,045,699
AR 530,163 Atanor Cia Nacional Para la Industria Quimica, SA, Class D ...... 853,690
AR 101,725 a Banco Bansud, SA, Class B ....................................... 1,576,974
AR 608,471 Banco de Galicia y Buenos Aires, SA, Class B .................... 4,046,938
AR 86,333 Banco Frances del Rio de la Plata, SA ........................... 935,124
US 56,200 a Buenos Aires Embotelladora, SA, Sponsored ADR ................... 562
AR 15,555 Capex, SA, Class A .............................................. 146,239
AR 310,746 CIADEA, SA ...................................................... 1,336,407
AR 36,010 Juan Minetti, SA ................................................ 172,874
AR 978,245 Molinos Rio de Plata, SA, Class B ............................... 3,825,512
AR 49,212 Nobleza Piccardo Sdad Industrial Comercial y Financial .......... 324,848
AR 662,707 Perez Companc, SA, Class B ...................................... 5,322,338
AR 184,000 Quilmes Industrial, SA .......................................... 2,139,000
AR 4,000 Quilmes Industrial, SA, reg. .................................... 41,000
AR 31,781 a Sevel Argentina, SA, Class C .................................... 64,843
AR 22,230 Siderar, Class A ................................................ 91,379
AR 1,290,000 a Sociedad Comercial del Plata Cadelplata Come .................... 4,206,031
AR 126,224 Transportadora de Gas del Sur, SA, Class B ...................... 305,508
US 153,410 YPF Sociedad Anonima, Sponsored ADR.............................. 4,717,357
AR 2,840 a Zanella Hermanos, SA ............................................ 611
--------------
31,436,930
--------------
Brazil 3.7%
US 36,800 Aracruz Celulose, SA, ADR ....................................... 749,800
BR 77,613,291 Banco Bradesco, SA .............................................. 742,573
BR 111,182,976 a Banco do Brasil, SA ............................................. 1,167,031
BR 36,132,595 a Banco do Brasil, SA, Series A, warrants ......................... 117,472
BR 54,198,893 a Banco do Brasil, SA, Series B, warrants ......................... 151,538
BR 90,331,488 a Banco do Brasil, SA, Series C, warrants ......................... 251,725
BR 36,703,000 Companhia Siderurgica Nacional .................................. 1,210,307
BR 9,982,000 Eletrobras-Centrais Eletricas Brasileiras, SA ................... 5,581,872
BR 2,224,000 a Mannesmann, SA .................................................. 256,166
BR 29,560,000 Telecomunicacoes Brasileiras - Telebras, SA ..................... 4,008,880
--------------
14,237,364
--------------
China 2.7%
US 9,000 a Beijing Yanhua Petrochemical Co., Ltd., Sponsored ADR ........... 103,500
CN 1,666,340 China Southern Glass Co., Ltd., Class B ......................... 871,101
CN 1,158,000 a Chiwan Wharf Holdings, Ltd., Class B ............................ 708,495
CN 865,000 Guangzhou Shipyard International Co., Ltd., Class H ............. 161,895
CN 2,107,000 a Luoyang Glass Co., Ltd., Class H ................................ 367,154
US 96,500 Shandong Huaneng Power Co., Ltd., Sponsored ADR ................. 1,037,375
CN 1,269,000 a Shanghai Chlor-Alkali Chemical Co., Ltd., Class B ............... 362,934
CN 1,016,600 a Shanghai Dazhong Taxi Shareholding Co., Ltd., Class B ........... 902,741
CN 327,600 a Shanghai Industrial Sewing Machine Corp. ........................ 39,967
CN 1,732,500 a Shanghai Jin Jiang Tower Co., Ltd., Class B ..................... 547,470
CN 592,900 Shanghai Lujiaxui Finance & Trade Zn Dev Stock Co., Ltd, Class B 847,847
CN 157,000 Shanghai New Asia Group Co., Ltd., Class B ...................... 85,722
CN 2,304,000 Shanghai Petrochemical Co., Ltd., Class H ....................... 553,153
CN 636,480 a Shanghai Refrigerator Compressor Co., Ltd., Class B ............. 305,510
CN 406,750 a Shanghai Shangling Electric Appliance, Class B .................. 83,790
CN 1,481,000 Shanghai Tyre & Rubber Co., Ltd., Class B ....................... 725,690
CN 1,744,361 a Shanghai Vacuum Electron Devices Co., Ltd., Class B ............. 348,872
CN 682,000 a Shanghai Yaohua Pilkington Glass, Class B ....................... 246,884
CN 2,163,349 Shenzhen Vanke Co., Ltd., Class B ............................... $ 2,102,670
CN 34,000 a Tsingtao Brewey Co., Class H .................................... 13,166
--------------
10,415,936
--------------
Czech Republic 1.1%
CS 95,430 a CEZ.............................................................. 2,633,830
CS 19,358 Chemopetrol Group, AS ........................................... 683,511
CS 17 Elektrarny Opatovice, AS ........................................ 2,228
CS 1,000 Komercni Banka, AS .............................................. 51,807
CS 7,610 SPT Telecom, AS ................................................. 797,891
CS 130 a Tabak, AS ....................................................... 30,467
--------------
4,199,734
--------------
Ghana 0.4%
US 143,427 Ashanti Goldfields Co., Ltd., Sponsored GDR ..................... 1,676,303
--------------
Greece 4.1%
GR 57,999 Alpha Credit Bank ............................................... 3,945,950
GR 31,000 Alpha Leasing, SA ............................................... 822,649
GR 61,140 Delta Dairy, SA ................................................. 756,711
GR 6,220 Elais Oleaginous Co. ............................................ 180,910
GR 17,983 Ergo Bank, SA ................................................... 1,080,119
GR 40,690 Etba Leasing .................................................... 413,254
GR 36,250 Hellas Can - Container Manufacturers ............................ 669,683
GR 16,450 Hellenic Telecommunications Organization, SA .................... 386,235
US 154,000 b Hellenic Telecommunications Organization, SA .................... 3,615,813
GR 170,450 a Hellenic Telecommunications Organization, SA, rights ............ 20,941
GR 29,000 a Intracom, SA, reg. .............................................. 1,320,629
GR 5,687 a National Bank of Greece, SA ..................................... 695,582
GR 34,340 Titan Cement Co., reg............................................ 1,693,812
--------------
15,602,288
--------------
Hong Kong 7.5%
HK 529,000 Cheung Kong Holdings, Ltd. ...................................... 5,223,562
HK 70,000 Cross Harbour Tunnel Co., Ltd. .................................. 149,536
HK 268,208 Dairy Farm International Holdings, Ltd. ......................... 201,156
HK 1,154,000 a East Asiatic Co., (Hong Kong), Ltd. (The) ....................... 192,897
HK 530,679 Great Wall Electronic International, Ltd. ....................... 56,854
HK 1,536,000 Hang Lung Development ........................................... 2,815,329
HK 577,000 Hongkong Electric Holdings, Ltd. ................................ 2,323,700
HK 81,000 Hongkong & Shanghai Hotels, Ltd. ................................ 129,122
HK 347,000 Hopewell Holdings, Ltd. ......................................... 219,470
HK 180,357 HSBC Holdings, Plc. ............................................. 5,424,236
HK 33,418 Jardine Matheson Holdings, Ltd. ................................. 237,268
HK 108,625 Jardine Strategic Holdings, Ltd. ................................ 410,602
HK 1,005,804 K Wah International Holdings, Ltd. .............................. 189,547
HK 755,600 Lai Sun Development Co., Ltd. ................................... 848,518
HK 301,000 Lai Sun Garment International, Ltd. ............................. 369,096
HK 151,651 a Lai Sun Hotels International, Ltd., warrants .................... 13,311
HK 882,000 Laws International Holdings, Ltd. ............................... 225,415
HK 717,127 New World Development Co., Ltd. ................................. 4,276,492
HK 2,102,400 a S. Megga International Holdings, Ltd. ........................... 149,255
HK 311,598 Semi-Tech (Global) Co., Ltd. .................................... 508,786
HK 109,400 Sun Hung Kai & Co., Ltd. ........................................ 32,831
HK 42,080 a Sun Hung Kai & Co., Ltd, warrants ............................... 3,965
HK 276,000 Sun Hung Kai Properties, Ltd. ................................... 3,322,061
HK 12,500 Swire Pacific, Ltd., Class A .................................... 112,539
HK 95,000 Swire Pacific, Ltd., Class B .................................... 144,082
HK 600,000 Tian An China Investments Co., Ltd. ............................. 81,319
HK 886,000 Tungtex (Holdings) Co., Ltd. .................................... $ 91,490
HK 207,000 Wheelock & Co., Ltd. ............................................ 508,997
HK 2,753,200 a Wo Kee Hong Holdings, Ltd. ...................................... 195,456
HK 300,000 a Yaohan Hongkong Corp., Ltd. ..................................... 15,489
HK 251,200 Yue Yuen Industrial Holdings .................................... 520,408
--------------
28,992,789
--------------
India 2.6%
IN 141,850 a Arvind Mills, Ltd. .............................................. 515,098
IN 95,700 a Bank of Baroda................................................... 247,270
IN 6,200 Bharat Petroleum Corp., Ltd. .................................... 77,846
IN 6,750 a Bombay Dyeing & Manufacturing Co., Ltd. ......................... 18,195
IN 6,000 BSES, Ltd. ...................................................... 39,930
IN 82,750 Cochin Refineries, Ltd. ......................................... 353,652
IN 28,900 Grasim Industries, Ltd. Ord INR10 ............................... 301,513
IN 271,700 Great Eastern Shipping Co. ...................................... 371,880
IN 11,800 Gujarat Ambuja Cements, Ltd. .................................... 114,209
IN 52,100 a Gujarat Industries Power, Ltd. .................................. 41,476
IN 7,000 Gujarat Narmada Valley Fertilizers Co., Ltd. .................... 4,448
IN 3,175 Hindalco Industries ............................................. 86,470
IN 25,900 Hindustan Organic Chemicals, Ltd. ............................... 18,087
IN 55,900 Hindustan Petroleum Corp., Ltd. ................................. 707,338
IN 61,600 a India Cements, Ltd. ............................................. 185,832
US 3,051 India Cements, Ltd., GDR ........................................ 9,153
IN 38,500 Indian Aluminium Co., Ltd. ...................................... 143,300
IN 127,200 Indian Petrochemicals Corp., Ltd. ............................... 515,196
IN 20,350 Indian Rayon & Industries, Ltd. ................................. 210,321
US 7,113 Indian Rayon & Industries, Ltd., GDR ............................ 89,090
IN 143,300 Indo Gulf Fertilisers & Chemicals Corp., Ltd. ................... 138,096
IN 190,480 Industrial Credit & Inv. Corp. of India (ICICI) ................. 416,342
IN 166,300 a Industrial Development Bank of India ............................ 474,977
IN 66,700 ITC Bhadrachalam Paperboards, Ltd. .............................. 85,704
IN 85,300 Larsen &Toubro, Ltd. ............................................ 581,374
IN 100 Madras Cements .................................................. 22,556
IN 2,600 Mahanagar Telephone Nigam, Ltd. ................................. 21,969
IN 198,200 a National Aluminium Co., Ltd. .................................... 251,902
IN 114,800 a Oriental Bank of Commerce ....................................... 223,507
IN 58,700 Reliance Industries, Ltd. ....................................... 609,545
IN 190,500 Shipping Corporation of India, Ltd. ............................. 259,410
IN 505,900 Steel Authority of India, Ltd. .................................. 289,691
US 45,000 Steel Authority of India, Ltd., GDR, reg S ...................... 402,750
IN 9,100 Sterlite Industries (India), Ltd. ............................... 67,996
IN 76,350 a Tata Chemicals, Ltd. ............................................ 386,015
IN 91,600 Tata Engineering & Locomotive Co., Telco ........................ 1,156,514
IN 97,450 a Tata Iron & Steel Co., Ltd. ..................................... 520,595
IN 3,200 Thermax, Ltd. ................................................... 31,285
IN 2,000 Wockhardt ....................................................... 11,006
--------------
10,001,538
--------------
Indonesia 5.6%
US 49,500 a Asia Pulp & Paper Co., Ltd., Sponsored ADR ...................... 748,688
ID 1,771,000 PT Bank Dagang Nasional Indonesia, fgn. ......................... 1,256,157
ID 126,500 a PT Bank Dagang Nasional Indonesia, warrants ..................... 52,015
ID 162,000 PT Bank Danamon, fgn. ........................................... 84,930
ID 570,500 PT Bank PDFCI, fgn. ............................................. 533,671
ID 2,259,000 PT Barito Pacific Timber, fgn. .................................. 1,927,395
ID 150,000 PT BBL Dharmala Finance, fgn. ................................... 209,704
ID 205,500 PT BDNI Capital Corp., fgn. ..................................... 162,659
ID 2,493,750 PT Charoen Pokphand Indonesia, fgn. ............................. $ 1,127,930
ID 800,000 PT Ciputra Dev................................................... 797,697
ID 196,000 a PT Dharmala Intiland, fgn. ...................................... 282,072
ID 2,447,500 PT Gadjah Tunggal TBK, fgn. ..................................... 1,207,648
ID 715,000 PT Indah Kiat Pulp & Paper Corp., fgn. .......................... 418,945
ID 643,500 a PT Indah Kiat Pulp & Paper Corp., rights......................... 112,454
ID 777,000 PT Indocement Tunggal Prakarsa, fgn. ............................ 1,206,075
ID 206,000 PT Indosat, fgn ................................................. 616,221
ID 12,000 a PT Inter-Pacific Bank, fgn. ..................................... 10,979
ID 885,000 a PT Jakarta International Hotel & Development TBK, fgn. .......... 1,009,817
ID 337,500 PT Japfa Comfeed Indonesia TBK................................... 225,509
ID 127,000 PT Kalbe Farma, fgn. ............................................ 169,716
ID 109,000 PT Modern Photo Film Co., fgn. .................................. 385,444
ID 441,750 a PT Multibreeder Adirama TBK, fgn. ............................... 158,936
ID 676,630 PT Pabrik Kertas Tjiwi Kimia, fgn. .............................. 785,970
ID 17,000 PT Semen Cibinong TBK, fgn. ..................................... 44,562
ID 118,500 PT Semen Gresik, fgn. ........................................... 265,553
ID 745,800 PT Sinar Mas Agro Resources & Technology Corp., fgn. ............ 674,655
ID 3,099,250 PT Sinar Mas Multi Artha, fgn. .................................. 2,835,457
ID 232,440 a PT Sinar Mas Multi Artha, warrants, fgn. ........................ 117,080
ID 349,000 a PT Sumalindo Lestari Jaya, fgn. ................................. 315,707
ID 658,320 PT Summarecon Agung, fgn. ....................................... 392,502
ID 794,500 PT Tambang Timah, fgn. .......................................... 1,233,239
ID 338,500 PT Ultra Jaya Milk, fgn. ........................................ 184,421
ID 68,200 a PT Unggul Indah Corp., fgn. ..................................... 109,367
ID 483,000 PT United Tractors, fgn. ........................................ 1,787,418
--------------
21,450,593
--------------
Israel 1.2%
IL 25,730 Agis Industries, Ltd. ........................................... 269,798
IL 577,883 Bank Hapoalim BM................................................. 1,203,193
IL 251,327 Clal Industries, Ltd. ........................................... 1,256,460
IL 15,748 Discount Investment Corp. ....................................... 1,255,809
IL 768 First International Bank of Israel .............................. 593,395
IL 265 Koor Industries, Ltd. ........................................... 23,402
--------------
4,602,057
--------------
Jordan
ZR 10,000 a Jordan Cement Factories, Ltd. ................................... 57,546
--------------
Malaysia 2.3%
MY 155,000 a Aokam Perdana, Bhd. ............................................. 172,563
MY 418,000 Berjaya Singer, Bhd. ............................................ 808,177
MY 89,000 Berjaya Singer, Bhd., fgn. ...................................... 172,076
MY 204,000 Boustead Holdings, Bhd., fgn. ................................... 444,532
MY 50,000 Federal Flour Mills, Bhd. ....................................... 123,811
MY 288,200 Hong Leong Industries, Bhd. ..................................... 913,471
MY 38,000 a Hong Leong Industries, Bhd., warrants, fgn. ..................... 31,315
MY 75,000 Island & Peninsula, Bhd., fgn. .................................. 240,689
MY 688,000 Leader Universal Holdings, Bhd. ................................ 1,237,528
MY 256,666 Malaysia International Shipping, Bhd., fgn. ..................... 666,071
MY 517,000 MBF Capital, Bhd. ............................................... 950,428
MY 237,500 Perlis Plantations, Bhd., fgn. .................................. 696,315
MY 1,297,000 Renong, Bhd. .................................................... 1,695,761
MY 16,750 a Renong, Bhd., warrants .......................................... 8,826
MY 726,000 Shangri-La Hotels (Malaysia) Bhd. ............................... 693,209
MY 123,000 Shangri La Hotels (Malaysia) Bhd., fgn. ......................... 117,445
--------------
8,972,217
--------------
Mexico 11.3%
MX 1,846,000 Cementos Mexicanos, SA de CV (Cemex), Class B ................... $ 8,995,240
MX 408,639 Cifra, SA de CV, Series A ....................................... 755,329
MX 3,341,085 Cifra, SA de CV, Series C ....................................... 5,342,707
US 38,400 Coca Cola Femsa, SA, Sponsored ADR .............................. 1,982,400
MX 181,938 Cydea, SA de CV.................................................. 485,657
MX 110,034 DESC, SA, Class B ............................................... 803,572
MX 13,515 DESC, SA, Class C ............................................... 97,508
MX 250,000 Fomento Economico Mexicano, SA de CV, Class B ................... 1,487,346
MX 13,429 Grupo Carso, SA de CV ........................................... 93,506
MX 899,000 a Grupo Financiero Banamex Accival, SA, Class B ................... 2,309,192
MX 1,146,137 a Grupo Financiero Banamex Accival, SA, Class L ................... 2,713,092
MX 5,650,000 a Grupo Financiero Bancomer, SA de CV, Class B .................... 2,717,577
MX 2,096,259 a Grupo Financiero Bancomer, SA de CV, Class L .................... 752,246
MX 2,162,816 a Grupo Financiero Serfin, SA, Class B ............................ 691,709
MX 97,000 Telefonos de Mexico, SA, Class L ................................ 232,057
US 228,200 Telefonos de Mexico, SA, Class L, Sponsored, ADR ................ 10,896,550
US 1,500 Transportacion Maritima Mexicana, SA de CV, Class L, ADR ........ 9,281
MX 843,849 a Vitro, SA ....................................................... 3,118,480
--------------
43,483,449
--------------
Philippines 0.2%
PH 299,000 a Filinvest Development Corp. ..................................... 71,417
PH 600,000 a Keppel Philippine Holdings Inc., Class B ........................ 72,793
PH 5,146,500 a Philex Mining Corp., Class B .................................... 429,265
PH 25,970 a Philippine National Bank ........................................ 176,245
PH 435,000 a RFM Corp. ....................................................... 105,551
--------------
855,271
--------------
Poland 0.8%
PL 67,955 a Bank Gdanski, SA ................................................ 785,726
US 23,000 a Bank Gdanski, SA, GDR ........................................... 270,250
PL 269,000 Bank Inicjatyw Gospodarczch, SA, Class G ........................ 323,307
PL 13,638 Bank Przemyslowo-Handlowy, SA ................................... 670,177
PL 18,000 a Mostostal Export, SA ............................................ 56,960
PL 15,410 a Polifarb Ceiszyu, SA ............................................ 78,304
PL 10,000 a Raciborska Fabryka Kotlow, SA ................................... 44,424
PL 53,051 Rolimpex, SA .................................................... 209,847
PL 20,000 Warta, SA ....................................................... 289,061
PL 14,742 Wielkopolski Bank Kredytowy, SA ................................. 84,330
PL 9,372 Zaklady Cementowo Wapiennicze Gorazdze Chorula .................. 320,812
--------------
3,133,198
--------------
Portugal 4.0%
PT 382,894 Banco Comercial Portugues, SA ................................... 7,231,886
PT 151,980 Banco Espirito Santo e Comercial de Lisboa ...................... 3,444,788
PT 63,454 Banco Totta & Acores, SA ........................................ 1,060,391
PT 50,022 BPI SGPS, SA .................................................... 973,495
US 93,840 Espirito Santo Financial Holding, SA, ADR ....................... 1,865,070
PT 75,000 Portucel Industrial-Empresa Produtoria de Celulosa, SA .......... 556,140
PT 7,010 a Sociedade Portuguesa de Celulose, SA ............................ 209,515
--------------
15,341,285
--------------
Singapore 3.0%
SG 293,000 Acer Computer International, Ltd. ............................... 539,120
SG 22,000 a Acer Computer International, Ltd., warrants ..................... 12,650
SG 184,000 Acma, Ltd., fgn. ................................................ 316,598
SG 46,000 a Acma, Ltd., fgn., warrants ...................................... 23,166
SG 18,000 British American Tobacco, Ltd. .................................. 73,022
SG 202,000 First Capital Corp., Ltd. ....................................... $ 525,593
SG 331,000 First Capital Corp., Ltd., fgn. ................................. 861,244
SG 72,000 GP Batteries International, Ltd. ................................ 214,535
SG 18,000 a GP Batteries International, Ltd., warrants ...................... 27,450
SG 1,698,000 Hai Sun Hup Group, Ltd. ......................................... 1,223,292
SG 391,200 a Hai Sun Hup Group, Ltd., warrants ............................... 103,977
SG 167,000 Hinds Hotels International, Ltd. ................................ 299,028
SG 177,000 Hinds Hotels International, Ltd., fgn. .......................... 316,934
SG 100,000 Hour Glass, Ltd. ................................................ 78,338
SG 285,000 Inchcape Berhad., fgn. .......................................... 1,026,614
SG 75,500 Isetan (Singapore), Ltd., fgn. .................................. 171,099
SG 269,000 Jurong Shipyard, fgn ............................................ 1,166,538
SG 328,000 MCL Land, Ltd. .................................................. 497,839
SG 476,000 Natsteel, Ltd., fgn. ............................................ 1,211,891
SG 78,000 Natsteel, Ltd., loc. ............................................ 198,587
SG 178,000 Osprey Maritime, Ltd. ........................................... 232,818
SG 178,000 a Osprey Maritime, Ltd., rights ................................... 52,291
SG 2,000 Overseas Union Enterprise, Ltd. ................................. 9,233
SG 16,000 Robinson & Co., Ltd. ............................................ 83,374
SG 322,000 Sembawang Corp., Ltd. ........................................... 1,463,943
SG 164,000 United Industrial Corp. ......................................... 123,886
SG 639,000 United Industrial Corp., Ltd., fgn. ............................. 482,703
SG 111,000 WBL Corp., Ltd. ................................................. 335,399
--------------
11,671,162
--------------
Slovak Republic 0.2%
SS 6,600 a Nafta Gbely, AS ................................................. 215,936
SS 27,010 Slovnaft, AS .................................................... 666,795
--------------
882,731
--------------
South Africa 3.6%
ZA 14,000 Aeci, Ltd. ...................................................... 83,315
ZA 12,700 Alpha, Ltd. ..................................................... 219,038
ZA 11,919 Anglo American Industrial Corp., Ltd. ........................... 522,786
ZA 21,800 Anglo American Platinum Corp., Ltd. ............................. 180,185
ZA 34,715 Anglovaal Industried, Ltd. ...................................... 127,015
ZA 626,000 BTR Dunlop, Ltd. ................................................ 620,895
ZA 73,000 CG Smith, Ltd. .................................................. 407,075
ZA 1,599,800 Del Monte Royal Foods, Ltd. ..................................... 828,638
ZA 6,000 Edgars Stores ................................................... 156,711
ZA 342,029 Engen, Ltd. ..................................................... 1,707,504
ZA 63,600 First National Bank Holdings, Ltd. .............................. 546,705
ZA 10,721 Foodcorp, Ltd. .................................................. 81,524
ZA 76,800 Kersaf Investments, Ltd. ........................................ 534,062
ZA 42,100 Malbak, Ltd. .................................................... 66,811
ZA 74,000 McCarthy Retail, Ltd. ........................................... 212,034
ZA 107,000 Palabora Mining Co., Ltd. ....................................... 1,981,045
ZA 10,345 Potgietersrust Platinums, Ltd. .................................. 78,095
ZA 311,500 a Rainbow Chicken, Ltd. ........................................... 62,479
ZA 118,070 Rembrandt Group, Ltd. ........................................... 1,259,552
ZA 16,500 Reunert, Ltd. ................................................... 56,552
ZA 128,351 Sappi, Ltd. ..................................................... 1,159,883
ZA 218,800 Sentrachem, Ltd. ................................................ 385,806
ZA 31,000 South African Breweries, Ltd. ................................... 951,455
ZA 1,456,473 South African Iron & Steel Industrial Corp., Ltd. ............... 963,063
ZA 689,585 Sun International (South Africa), Ltd. .......................... 389,098
ZA 400 Toyota South Africa, Ltd. ....................................... $ 2,530
ZA 151,000 Voltex Holdings, Ltd. ........................................... 85,202
--------------
13,669,058
--------------
South Korea 2.2%
KR 12,000 Asia Cement Co., Ltd. ........................................... 391,892
KR 88,730 Boram Bank Co., Ltd. ............................................ 584,539
KR 1,850 BYC Co., Ltd. ................................................... 190,625
KR 27,375 Central Banking Corp............................................. 413,091
US 25,400 Cho Hung Bank Co., Ltd., GDR .................................... 182,245
KR 5,960 Dae Duck Electronics Co., Ltd. .................................. 375,856
KR 84,876 Daegu Bank ...................................................... 727,535
KR 25,292 a Daegu Bank, rights .............................................. 40,208
KR 21,000 Dongkuk Steel Mill Co., Ltd. .................................... 480,068
KR 1,000 Hae In Corp., Ltd. .............................................. 55,180
US 33,028 Hana Bank, GDR .................................................. 477,260
KR 3,950 Hankook Cosmetics Co., Ltd. ..................................... 106,312
KR 142,520 Korea First Bank ................................................ 593,833
KR 64,400 Korea Kumho Petrochemical ....................................... 446,739
KR 53,410 Kyong Nam Bank .................................................. 574,903
KR 1,000 Moon Bae Steel Co., Ltd. ........................................ 31,982
KR 5,830 Samsung Display Devices (L), Ltd ................................ 321,577
KR 11,000 a Samsung Heavy Industries Co., Ltd. .............................. 115,946
KR 81,990 Ssangyong Oil Refining Co., Ltd.................................. 1,661,959
KR 52,287 Tong Yang Merchant Bank ......................................... 541,711
--------------
8,313,461
--------------
Sri Lanka
LK 17,960 Associated Motorways, Ltd. ...................................... 11,208
LK 9,142 John Keells Holdings, Ltd. ...................................... 47,750
--------------
58,958
--------------
Thailand 6.6%
TH 30,800 American Standard Sanitaryware (THB) Public Co., Ltd., fgn. ..... 165,265
TH 18,400 Asia Credit Public Co., Ltd., fgn. .............................. 46,879
TH 48,000 Asia Credit Public Co., Ltd., loc. .............................. 100,984
TH 49,100 Ayudhya Insurance Public Co., Ltd., fgn. ........................ 379,077
TH 488,200 Bangkok Bank Public Co., Ltd. ................................... 2,431,106
TH 35,000 Bangkok Bank Public Co., Ltd., fgn. ............................. 240,494
TH 7,900 Bangkok Insurance ............................................... 101,857
TH 4,900 Bangkok Insurance, fgn. ......................................... 85,592
TH 495,100 Bangkok Land Public Co., Ltd., fgn. ............................. 353,575
TH 20,000 Bank of Ayudhya Public Co., Ltd. ................................ 30,882
TH 231,700 Bank of Ayudhya Public Co., Ltd., fgn. .......................... 362,241
TH 138,000 Charoen Pokphand Feedmill Public Co., Ltd. ...................... 271,685
TH 376,900 a Charoen Pokphand Feedmill Public Co., Ltd., fgn. ................ 931,156
TH 331,000 First Bangkok City Bank Public Co., Ltd., fgn. .................. 265,132
TH 43,300 Hana Microelectronics Co., Ltd. ................................. 202,251
TH 38,900 Hana Microelectronics Co., Ltd., fgn. ........................... 208,728
TH 16,000 Hua Thai Manufacturing Public Co., Ltd. ......................... 27,176
TH 752,900 Industrial Finance Corp. of Thailand, fgn. ...................... 959,108
TH 30,000 Jasmine International Public Co., Ltd. .......................... 27,794
TH 825,000 Jasmine International Public Co., Ltd., fgn. .................... 732,484
TH 124,650 a Karat Sanitaryware Public Co., Ltd., fgn. ....................... 62,554
TH 50,700 Kian Gwan (Thailand) Public Co., Ltd., fgn. ..................... 129,172
TH 205,400 a Land and House Public Co., Ltd. ................................. 443,370
TH 102,700 a Land and House Public Co., Ltd., fgn. ........................... 428,164
TH 397,000 Phatra Thanakit Public Co., Ltd. ................................ 406,118
TH 477,300 Phatra Thanakit Public Co., Ltd., fgn. .......................... $ 589,600
TH 95,200 Regional Container Lines Public Co., Ltd., fgn. ................. 565,945
TH 256,800 a Royal Ceramic Industry Public Co., Ltd., fgn. ................... 39,653
TH 80,700 Saha Pathanapibul Public Co Ltd., fgn. .......................... 143,301
TH 199,600 Saha-Union Public Co., Ltd. ..................................... 125,207
TH 390,000 Saha-Union Public Co., Ltd., fgn. ............................... 286,045
TH 42,600 Sanyo Universal Electric Public Co., Ltd. ....................... 37,001
TH 5,200 Sanyo Universal Electric Public Co., Ltd., fgn. ................. 4,516
TH 41,000 Serm Suk Public Co., Ltd. ....................................... 506,466
TH 80,800 The Siam Cement Public Co., Ltd., fgn. .......................... 1,397,352
TH 4,900 The Siam Cement Public Co., Ltd., fgn. .......................... 73,013
TH 1,661,500 Siam City Bank Public Co., Ltd., fgn. ........................... 978,108
TH 197,600 Siam Commercial Bank Ltd., fgn. ................................. 808,554
TH 149,000 Siam Commercial Bank Ltd., loc. ................................. 557,923
TH 23,200 a Sino-Thai Engineering & Construction Public Co. ................. 64,482
TH 87,100 a Sino-Thai Engineering & Construction Public Co., fgn. ........... 242,085
TH 589,000 a Thai Airways International Public Co., Ltd. ..................... 864,003
TH 116,410 Thai Asahi Glass Public Co., Ltd. ............................... 69,653
TH 1,333,300 Thai Farmers Bank Public Co., Ltd. .............................. 4,091,772
TH 30,000 Thai Farmers Bank Public Co., Ltd., fgn. ........................ 127,389
TH 290,000 Thai Investments and Securities Ltd. ............................ 593,322
TH 425,800 Thai Military Bank Ltd., fgn. ................................... 476,671
TH 1,043,520 Thai Petrochemical Industry Public Co., Ltd., fgn. .............. 654,592
TH 43,000 Thai Rayon Public Co., Ltd. ..................................... 91,295
TH 2,300 Thai Rayon Public Co., Ltd., fgn. ............................... 4,950
TH 313,100 a Thai Telephone & Telecommunication Public Co., Ltd. ............. 129,930
TH 26,400 Thai Wacoal Public Co., Ltd., fgn. .............................. 87,643
TH 8,450 Thai Wah Public Co., Ltd., fgn. ................................. 3,262
TH 25,000 Tipco Asphalt Public Co., Ltd. .................................. 130,284
TH 42,000 Tipco Asphalt Public Co., Ltd., fgn, (TASCO) .................... 218,877
TH 185,000 Total Access Communication Public Co., Ltd. ..................... 858,400
TH 205,200 United Communications Industries, fgn. .......................... 863,416
TH 109,000 United Communications Industry Public Co., Ltd., loc. ........... 450,222
TH 4,500 United Motor Works (Siam) Public Co., Ltd. ...................... 5,342
--------------
25,533,118
--------------
Turkey 5.7%
TR 103,403,250 Akbank .......................................................... 8,876,562
TR 1,380,000 a Alarko Gayrimenkul Yatirim Ortakigi, AS ......................... 58,536
TR 1,704,000 Alarko Sanayii ve Ticaret, SA ................................... 203,642
TR 2,075,000 Alcatel Teletas Endustri Tic, AS ................................ 384,195
TR 4,705,000 a Anadolu Anonim Turk Sigorta Sirketi ............................. 126,713
TR 4,688,000 a Anadolu Anonim Turk Sigorta Sirketi, new ........................ 126,255
TR 6,487,457 Arcelik, AS ..................................................... 873,584
TR 159,000 Bagfas .......................................................... 38,004
TR 7,609,151 Beko Elektronik, AS ............................................. 614,777
TR 1,580,000 Borusan, AS ..................................................... 95,741
TR 3,223,070 Cimentas Izmir Cimento Fabrikasi Turk, AS ....................... 428,585
TR 1,416,000 Cimsa Cimento Sanayi ve Ticaret, AS ............................. 190,675
TR 3,500,000 Erciyas Biracilik ............................................... 418,280
TR 17,375,000 Eregli Demir ve Celik Fabrikalari, AS ........................... 2,895,346
TR 3,990,142 Izocam Ticaret ve Sanayii, AS, br. .............................. 137,012
TR 4,291,666 Koc Holding, AS ................................................. 1,011,334
TR 3,446,800 Koc Yatirim ve Sanayii Mamullesi Pazarlanca, AS ................. 916,671
TR 1,620,528 Marshall Boya ve Vernik Sanayii, AS ............................. 201,850
TR 1,345,000 a Netas Northern Electric Telekomunic Asyon, AS ................... 371,284
TR 280,000 Petkim Petrokimya Holding, AS ................................... 96,145
TR 4,829,663 Tat Konserve Sanayii, AS ........................................ $ 357,693
TR 22,514,025 Tofas Turk Otomobil Fabrikasi, AS ............................... 1,091,405
TR 6,949,993 Turk Demir Dokum, br. ........................................... 350,951
TR 53,025,330 Turkiye Garanti Bankasi, AS ..................................... 1,999,272
TR 2,141,344 Vakif Finansal Kiralama, AS ..................................... 33,520
TR 3,212,015 a Vakif Finansal Kiralama, AS, new ................................ 31,898
--------------
21,929,930
--------------
Venezuela 2.5%
VE 341,440 Ceramica Carabobo CA, Class A ................................... 371,737
US 272,288 Ceramica Carabobo CA, Class A, ADR .............................. 296,449
VE 2,765,696 a Consolidada Carabobo, Class B ................................... 157,657
VE 1,245,939 Electricidad de Caracas ......................................... 1,996,221
VE 60,000 Industrias Ventane .............................................. 42,522
VE 10,000 a Manufacturera de Aparatos Domesticos, SA ........................ 10,682
US 387,000 Mavesa, SA, ADR ................................................. 3,918,375
VE 100,000 Siderurgica Venezolana Sivensa Saica Svs ........................ 51,766
US 241,650 Siderurgica Venezolana Sivensa Saica Svs, ADR ................... 1,250,928
US 22,878 Siderurgica Venezolana Sivensa SAICA Svs., ADR, Class B, new .... 105,742
VE 328,975 Vencemos de Cementos, SA ........................................ 1,115,043
VE 31,537 Venezolana de Cementos-Vencemos, #2 ............................. 101,710
--------------
9,418,832
--------------
Zimbabwe 0.2%
ZW 42,258 Delta Corp....................................................... 64,841
ZW 25,000 Ta Holdings...................................................... 4,713
ZW 587,000 Transarchipel Shipping, Ltd.- TSL ............................... 322,966
ZW 860,046 Zimbabwe Sun, Ltd. .............................................. 320,491
--------------
713,011
--------------
Total Common Stocks, Rights & Warrants (Cost $253,242,874). 306,648,759
--------------
Preferred Stocks 8.6%
Brazil 8.5%
BR 110,000,000 a Banco do Brazil, SA, pfd. ....................................... 1,318,099
BR 218,198,700 a Banespa-Banco do Estado de Sao Paulo, SA, pfd. .................. 5,373,134
BR 4,496,000 Brasmotor, SA, pfd. ............................................. 1,002,313
BR 2,975,700 Copene-Petroquimica do Nordeste, SA, A, pfd. .................... 1,102,879
BR 50,115,800 Duratex, SA, pfd. ............................................... 2,653,011
BR 11,529,000 Eletrobras-Centrais Eletricas Brasileiras, SA, B, pfd. .......... 6,875,313
BR 1,484,200 Itausa-Investimentos Itau, SA, pfd. ............................. 1,364,877
BR 362,700 a Mannesmann, SA, pfd. ............................................ 46,830
BR 43,115,000 Petrobras-Petroleo Brasileiro, SA, pfd. ......................... 11,975,121
BR 30,878,000 Uniao de Bancos Brasileiros, SA, pfd. ........................... 1,132,667
--------------
32,844,244
--------------
Malaysia
MY 26,800 Renong, cvt. pfd. ............................................... 8,494
--------------
Philippines
PH 79,090 RFM Corp., cvt. pfd. ............................................ 14,032
--------------
Singapore
SG 96,120 a Osprey Maritime, Ltd., rights, pfd. ............................. 7
--------------
South Africa 0.1%
ZA 771,052 Rainbow Chicken Ltd., cvt. pfd. ................................. 152,953
--------------
Total Preferred Stocks (Cost $18,285,046).................. 33,019,730
--------------
Convertible Bonds................................................
AR 6,000 Juan Minetti SA, cvt., 12/30/05 ................................. $ 6,001
ZA 24,000 McCarthy Retail Ltd., zero, cvt., 09/30/03 ...................... 69,032
--------------
Total Convertible Bonds (Cost $84,816) .................... 75,033
--------------
Total Long Term Investments (Cost $271,612,736) ........... $339,743,522
--------------
e Short Term Investments 11.4%
US 44,087,000 U.S. Treasury Bills, 4.68% - 5.141%, with maturities to
09/25/97 (Cost $43,787,477) .................................... 43,787,013
--------------
Total Investments 99.7% (Cost $315,400,213) .......... 383,530,535
Other Asset and Liabilities, Net 0.3% ................ 1,234,633
--------------
Net Assets 100.0% .................................... $384,765,168
==============
At June 30, 1997, the net unrealized appreciation based on the cost of
investments for income tax purposes of $315,502,709 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ..................... $ 99,796,561
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ..................... (31,768,735)
--------------
Net unrealized appreciation.................................... $ 68,027,826
==============
CURRENCY LEGEND:
AR - Argentina
BR - Brazil
CN - China
CS - Czech Republic
GR - Greece
HK - Hong Kong
ID - Indonesia
IL - Israel
IN - India
KR - South Korea
LK - Sri Lanka
MX - Mexico
MY - Malaysia
PH - Philippines
PL - Poland
PT - Portugal
SG - Singapore
SS - Slovak Republic
TH - Thailand
TR - Turkey
US - United States
VE - Venezuela
ZA - South Africa
ZR - Jordan
ZW - Zimbabwe
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private placement transactions; resale may only be to qualified institutional buyers.
eCertain short-term securities are traded on a discount basis; the rates shown are the discount rates at the time of
purchase by the Fund. Other securities bear interest at the rates shown, payable at fixed dates or upon maturity.
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
VALUE
COUNTRY* SHARES Templeton Global Asset Allocation Fund (NOTE1)
a,b Common Stocks 58.7%
<S> <C> <C> <C>
Argentina 0.2%
US 2,000 Telecom Argentina Stet - France Telecom, SA, Sponsored ADR ...... $ 105,000
US 6,900 Transportadora de Gas del Sur, SA, Class B, Sponsored ADR ....... 86,250
--------------
191,250
--------------
Australia 1.4%
AU 60,707 Coles Myer Ltd. ................................................. 315,815
AU 317,009 David Jones, Ltd. ............................................... 442,810
AU 95,654 HIH Winterthur International Holdings, Ltd. ..................... 231,115
AU 42,439 Pacific BBA, Ltd. ............................................... 160,217
AU 10,182 RGC, Ltd. ....................................................... 37,286
--------------
1,187,243
--------------
Austria 0.6%
AT 1,060 b Boehler - Uddeholm, AG .......................................... 82,200
AT 3,000 EVN Energie-Versorgung Niederoesterreich, AG .................... 386,513
--------------
468,713
--------------
Belgium 0.1%
BE 600 a Union Miniere, NPV .............................................. 56,182
--------------
Bermuda 1.5%
US 8,400 Ace, Ltd. ....................................................... 620,550
US 17,500 PartnerRe, Ltd. ................................................. 667,188
--------------
1,287,738
--------------
Brazil 2.4%
US 7,500 Companhia Energetica de Minas Gerais, Sponsored ADR ............. 383,906
BR 16,300,000 Companhia Siderurgica Nacional .................................. 537,504
US 7,700 Companhia Siderurgica Nacional, Sponsored ADR ................... 253,913
US 12,600 a Lojas Americanas, SA, ADR ....................................... 170,879
US 28,300 Usinas Siderugicas de Minas Gerais, Sponsored ADR ............... 311,300
US 15,100 Vale do Rio Doce, ADR ........................................... 333,966
--------------
1,991,468
--------------
Canada 0.8%
CA 20,200 Hudson's Bay Co. ................................................ 453,456
CA 15,200 Intrawest Corp. ................................................. 252,609
--------------
706,065
--------------
Chile 0.1%
US 4,800 Madeco Manufacturera de Cobre, SA, ADR .......................... 117,600
--------------
China 1.5%
US 69,740 a Beijing Yanhua Petrochemical Co., Ltd., Sponsored ADR ........... 802,010
HK 834,000 Shanghai Petrochemical Co., Ltd. ................................ 200,230
HK 1,332,000 Yizheng Chemical Fibre Co., Ltd., Class H ....................... 237,265
--------------
1,239,505
--------------
Columbia 0.1%
US 5,000 a,b Cementos Paz del Rio, SA, ADR ................................... 75,000
--------------
Ecuador 0.4%
US 400 La Cemento Nacional CA, Sponsored GDR ........................... 83,200
US 1,400 b La Cemento Nacional CA, Sponsored GDR ........................... 291,200
--------------
374,400
--------------
Egypt 1.1%
EG 45,299 a Suez Cement Co. ................................................. 882,056
--------------
Finland 1.8%
FI 10,000 Enso Oy, Class R ................................................ 92,437
FI 3,750 Metsa - Serla Oy, Class B ....................................... 30,547
FI 17,400 Oy Nokia, AB, Series A .......................................... $ 1,313,524
FI 117 The Rauma Group ................................................. 2,681
FI 4,200 UPM-Kymmene Corp. ............................................... 98,676
--------------
1,537,865
--------------
France 3.1%
FR 12,331 AXA-UAP ......................................................... 766,924
FR 9,000 Banque Nationale de Paris ....................................... 370,922
FR 1,805 Elf Aquitane, SA ................................................ 194,730
FR 9,900 Rhone-Poulenc, Class A .......................................... 403,083
FR 14,639 Scor ............................................................ 589,376
FR 2,500 Unibail - Union du Credit - Bail Immobilier ..................... 233,975
--------------
2,559,010
--------------
Germany 0.3%
DD 360 Volkswagen, AG .................................................. 272,906
--------------
Greece 0.3%
GR 3,832 Alpha Credit Bank ............................................... 260,712
--------------
Hong Kong 1.5%
HK 32,000 Cheung Kong Holdings, Ltd. ...................................... 315,981
HK 111,000 Grand Hotel Holdings, Ltd., Class A ............................. 44,774
HK 1,114,960 Hon Kwok Land Investment, Ltd. .................................. 366,986
HK 7,963 Peregrine Investments Holdings, Ltd. ............................ 16,394
HK 244,000 Shun Tak Holdings, Ltd. ......................................... 149,601
HK 190,140 Yue Yuen Industrial Holdings .................................... 393,911
--------------
1,287,647
--------------
Hungary 0.3%
US 12,107 b Mol Magyar Olaj - Es Gazipari RT, GDS ........................... 269,381
--------------
Indonesia 0.5%
US 19,300 a Asia Pacific Resources International, Class A ................... 94,087
ID 42,000 PT Bank Bali, fgn. .............................................. 112,253
ID 216,000 PT Lippo Bank, fgn. ............................................. 222,039
--------------
428,379
--------------
Irish Republic 0.6%
GB 42,733 Bank of Ireland ................................................. 470,747
--------------
Israel 0.4%
US 12,860 Tadiran, Ltd., Sponsored ADR .................................... 368,118
--------------
Italy 1.1%
IT 74,700 Banca Fideuram, SpA ............................................. 242,245
IT 34,500 Cartiere Burgo, SpA ............................................. 191,725
IT 233,000 Istituto Nazionale delle Assicurazioni .......................... 352,914
IT 15,000 Recordati Industria Chimica e Farmaceutica, SpA, di Risp ........ 52,174
IT 10,000 STET (Sta Finanziaria Telefonica Torino), SpA ................... 58,262
--------------
897,320
--------------
Japan 1.0%
JP 9,700 Daito Trust Construction Co. .................................... 114,257
JP 5,000 Matsushita Electric Industrial Co., Ltd. ........................ 100,777
JP 7,000 Nintendo Co., Ltd. .............................................. 585,115
JP 5,000 Yamato Kogyo Co., Ltd. .......................................... 49,298
--------------
849,447
--------------
Mexico 1.8%
MX 69,251 ALFA, SA de CV, Class A ......................................... 472,602
MX 58,000 b ALFA, SA de CV, Class A ......................................... 395,820
MX 11,766 Cifra, SA de CV, Series A........................................ $ 21,748
MX 96,200 Cifra, SA de CV, Series B ....................................... 179,270
US 3,000 Empresas ICA Sociedad Controladora, SA de CV, Sponsored ADR ..... 48,187
US 20,000 a Grupo Simec, SA de CV, ADR ...................................... 72,500
US 6,709 Telefonos de Mexico, SA, Class L, Sponsored ADR ................. 320,355
--------------
1,510,482
--------------
Netherlands 0.5%
NL 5,097 ING Groep, NV.................................................... 234,998
NL 2,900 Philips Electronics, NV ......................................... 207,723
--------------
442,721
--------------
New Zealand 0.5%
NZ 28,000 Air New Zealand, Ltd., Class B .................................. 85,586
NZ 51,300 Ceramico Corp., Ltd. ............................................ 50,875
US 16,000 Tranz Rail Holdings, Ltd., Sponsored ADR ........................ 270,000
--------------
406,461
--------------
Norway 0.4%
NO 14,800 Elkem, ASA ...................................................... 289,772
NO 1,700 Nycomed, ASA, Class B ........................................... 24,239
--------------
314,011
--------------
Philippines 0.1%
PH 429,524 Metro Pacific Corp. ............................................. 92,823
--------------
Russia 1.2%
US 14,201 Gazprom, ADR, Reg S ............................................. 242,482
US 10,000 b Mosenergo, ADR .................................................. 420,000
US 7,099 Mosenergo, ADR, Reg. S .......................................... 298,158
--------------
960,640
--------------
South Africa
ZA 402 Rustenburg Platinum Holdings, Ltd. .............................. 7,354
--------------
South Korea 2.4%
KR 1,580 Korea Chemical Co., Ltd ......................................... 133,169
KR 39,730 Korea Electric Power Corp. ...................................... 1,185,636
KR 25,719 Korea Long Term Credit Bank ..................................... 407,207
KR 2,725 a Korean Air ...................................................... 56,116
KR 1,890 Pohang Iron & Steel Co., Ltd. ................................... 192,726
KR 1,630 Shinhan Bank .................................................... 24,003
--------------
1,998,857
--------------
Spain 0.9%
ES 9,500 Dragados & Construcciones, SA ................................... 197,285
ES 4,300 Gas y Electricidad, SA .......................................... 230,831
ES 20,500 Iberdrola, SA ................................................... 258,772
ES 1,750 Telefonica de Espana ............................................ 50,594
--------------
737,482
--------------
Sweden 1.2%
SE 2,300 Electrolux, AB, Series B ........................................ 165,910
SE 1,150 a Granges, AB ..................................................... 15,238
SE 4,700 Marieberg Tidnings, AB, Class A ................................. 116,657
SE 9,575 Mo Och Domsjoe, AB, B ........................................... 314,401
SE 10,198 Skandia Forsakrings, AB ......................................... 375,726
SE 1,650 Svenska Handelsbanken, Class A .................................. 52,472
--------------
1,040,404
--------------
Switzerland 1.9%
CH 4,085 Credit Suisse Group ............................................. $ 524,435
CH 70 Kuoni Reison, AG, Class B ....................................... 239,644
CH 115 SGS Societe Generale de Surveillance Holding, SA, Class B ....... 245,669
CH 1,390 Zurich Versicherungsgesellschaft................................. 552,954
--------------
1,562,702
--------------
Thailand 0.1%
TH 30,000 Chareon Pokphand Feedmill Public Co., Ltd., fgn. ................ 74,117
TH 20,400 Robinson Department Store Public Co., Ltd., fgn. ................ 7,678
--------------
81,795
--------------
United Kingdom 6.5%
GB 76,100 Amvescap, Plc. .................................................. 444,188
GB 40,000 BG, Plc. ........................................................ 147,213
GB 66,780 British Energy, Plc. ............................................ 162,921
GB 47,700 b British Energy, Plc. ............................................ 116,372
GB 206,500 British Steel, Plc. ............................................. 512,390
GB 65,000 British Telecommunications, Plc. ................................ 482,772
GB 63,400 BTR, Plc. ....................................................... 216,968
GB 40,000 a Centrica, Plc. .................................................. 48,793
GB 45,000 Cordiant, Plc. .................................................. 92,549
GB 13,500 Dawson International, Plc. ...................................... 16,074
GB 124,039 Harrisons & Crosfield, Plc. ..................................... 229,285
GB 30,000 Imperial Chemical Industries, Plc. .............................. 417,409
GB 21,666 Lex Service, Plc. ............................................... 135,843
GB 93,800 National Grid Group, Plc. ....................................... 342,872
GB 118,414 a Railtrack Group, Plc. ........................................... 1,233,459
US 7,000 Sea Containers, Ltd., Class A ................................... 158,375
GB 222,600 Somerfield, Plc. ................................................ 678,376
GB 2,200 W.H. Smith Group, Plc. .......................................... 13,171
--------------
5,449,030
--------------
United States 20.1%
US 17,000 a 3Com Corp. ...................................................... 765,000
US 2,860 AK Steel Holding Corp. .......................................... 126,197
US 26,800 Archer - Daniels - Midland Co. .................................. 629,800
US 2,900 A.S.A. Holdings, Inc. ........................................... 83,013
US 7,000 AT&T Corp. ...................................................... 245,437
US 33,026 a Bay Networks, Inc. .............................................. 877,253
US 5,900 Beacon Properties Corp. ......................................... 196,912
US 13,600 a Boston Chicken, Inc. ............................................ 190,400
US 6,800 Carramerica Realty Corp. ........................................ 195,500
US 3,000 Conseco, Inc. ................................................... 111,000
US 2,900 a Crescent Operating, Inc. ........................................ 34,800
US 29,000 Crescent Real Estate Equities Co. ............................... 920,750
US 11,100 Dayton Hudson Corp. ............................................. 590,381
US 4,490 a DSC Communications Corp. ........................................ 99,903
US 2,200 Edwards (A.G.), Inc. ............................................ 94,050
US 30,200 Entergy Corp. ................................................... 826,725
US 12,450 a Fruit of the Loom, Inc., Class A ................................ 385,950
US 2,700 General Motors Corp. ............................................ 150,356
US 3100 General Motors Corp., Class H ................................... 179,025
US 2,500 Georgia-Pacific Corp. ........................................... 213,437
US 3,600 Goodyear Tire & Rubber, Co. ..................................... 227,925
US 16,600 Highwoods Properties, Inc. ...................................... 531,200
US 12,000 Horizon Group, Inc. ............................................. 161,250
US 9,500 Houghton Mifflin Co. ............................................ 634,125
US 18,200 a Humana, Inc. .................................................... 420,875
US 8,000 IBP, Inc. ....................................................... $ 186,000
US 7,000 International Business Machines Corp. ........................... 631,312
US 13,000 a Landstar System, Inc. ........................................... 365,625
US 14,000 Merrill Lynch & Co., Inc. ....................................... 834,750
US 20,000 Morgan Stanley Dean Witter Discover & Co. ....................... 861,250
US 5,300 Motorola, Inc. .................................................. 402,800
US 437 a NCR Corp. ....................................................... 13,001
US 8,000 Oregon Steel Mills, Inc. ........................................ 159,500
US 24,800 a Paragon Trade Brands, Inc. ...................................... 423,150
US 1,800 PECO Energy Co. ................................................. 37,800
US 5,200 a Pinnacle Systems, Inc. .......................................... 88,725
US 29,000 a Playtex Products, Inc. .......................................... 271,875
US 7,600 Post Properties, Inc. ........................................... 308,275
US 12,000 Presidential Life Corp. ......................................... 232,500
US 13,500 The Rouse Co. ................................................... 398,250
US 15,000 Summit Properties, Inc. ......................................... 309,375
US 17,500 Sun Co., Inc. ................................................... 542,500
US 1,400 Texas Utilties Co. .............................................. 48,213
US 7,000 Torchmark Corp. ................................................. 498,750
US 6,000 U S WEST Communications Group ................................... 226,125
US 8,000 UNUM Corp. ...................................................... 336,000
US 2,400 Valero Energy Corp. ............................................. 87,000
US 7,100 Walbro Corp. .................................................... 143,775
US 7,500 Weeks Corp. ..................................................... 234,375
US 17,000 Wheelabrator Technologies, Inc. ................................. 262,438
--------------
16,794,628
--------------
Total Common Stocks (Cost $40,305,847) .................... 49,178,142
--------------
Preferred Stock 4.5%
Argentina 1.0%
US 4,700 Cia de Inversiones en Telecomunicaciones,
SA, cvt. pfd., 7.00%, 03/03/98 ................................. 319,600
US 7,800 b Cia Inversiones Telecomunicaciones, SA, cvt. pfd. ............... 530,400
--------------
850,000
--------------
Brazil 3.3%
BR 116,766,000 Banco Bradesco, SA, pfd. ........................................ 1,176,825
BR 13,400 Cia Vale do Rio Doce, pfd. ...................................... 296,367
BR 534,000 Coteminas Cia Tecidos Norte de Minas, pfd. ...................... 208,332
BR 6,245,073 a Lojas Americanas, SA, pfd. ...................................... 84,695
BR 17,369,300 a Petrobras Distribuidora ,SA, pfd. ............................... 453,372
BR 1,851,000 Petrobras-Petroleo Brasileiro, SA, pfd. ......................... 514,112
--------------
2,733,703
--------------
Canada
CA 15,200 a Intrawest Corp., non-resort pfd. ................................ 28,618
--------------
Greece 0.2%
GR 29,990 Michaniki, SA, pfd. ............................................. 186,680
--------------
Total Preferred Stocks (Cost $3,060,137) .................. 3,479,401
--------------
FACE
AMOUNT
Bonds 30.0%
Argentina 2.3%
US $ 100,000 Bridas Corp., Yankee, 12.50%, 11/18/99 .......................... 110,000
US 100,000 b Industrias Metalurgicas Pescarmona,11.75%, 03/27/98 ............. 103,750
US 625,000 Republic of Argentina, 9.25%, 02/23/01 .......................... 653,906
US 100,000 Republic of Argentina, 8.75%, 05/09/02 .......................... 100,050
AR $ 50,000 Republic of Argentina, notes, Series REGS, 11.75%, 02/12/07 ..... $ 55,508
US 700,000 Republic of Argentina, unsecured notes, 11.375%, 01/30/17 ....... 780,500
US 75,000 Republic of Argentina, unsecured notes, Series BGL4, 11.00%, 10/09/06 83,250
--------------
1,886,964
--------------
Australia 1.0%
AU 873,000 Government of Australia, bonds, Series 1002, 10.00%, 10/15/02 ... 760,990
AU 7,971 HIH Winterthur International Holdings. Ltd., 8.00%, 11/02/01 .... 32,741
--------------
793,731
--------------
Brazil 2.9%
US 150,000 b Centrais Electricas Brasileiras-Eletrobas, SA,
senior unsubordinated notes, 10.00%, 10/30/98 .................. 154,875
US 500,000 Republic of Brazil, notes, 8.875%, 11/05/01 ..................... 516,875
US 100,000 Republic of Brazil, 6.5625%, FRN, 04/15/09 ...................... 87,875
US 1,225,000 Republic of Brazil, bonds, 10.125%, 05/15/27 .................... 1,180,594
US 575,000 Republic of Brazil, cvt., Series L, 6.9375%, FRN, 04/15/12 ...... 474,375
--------------
2,414,594
--------------
Canada 2.6%
CA 917,000 Government of Canada, deb., Series A32, 10.50%, 07/01/00 ........ 758,205
CA 182,000 Government of Canada, deb., Series A37, 10.50%, 03/01/01 ........ 153,243
CA 775,000 Government of Canada, deb., Series J25, 10.00%, 05/01/02 ........ 659,735
US 1,024,000 Repap Enterprises Inc., 8.50%, cvt., 08/01/97 ................... 568,320
--------------
2,139,503
--------------
Denmark 1.1%
DK 2,310,000 Kingdom of Denmark, bonds, 9.00%, 11/15/00 ...................... 395,941
DK 3,065,000 Kingdom of Denmark, bonds, 8.00%, 05/15/03 ...................... 522,443
--------------
918,384
--------------
Ecuador 0.5%
US 275,000 b Republic of Ecuador, 11.25%, 04/25/02 ........................... 289,781
US 175,000 Republic of Ecuador, disc, FRN, 6.50%, 02/28/25 ................. 124,906
--------------
414,687
--------------
Germany 1.6%
DD 815,000 Federal Republic of Germany, Bundesobligation,
bonds, Series 110, 5.375%, 02/22/99 ............................ 481,831
DD 1,270,000 Federal Republic of Germany, Bundesobligation, bonds,
Series 118, 5.25%, 02/21/01 .................................... 754,106
DD 155,000 Federal Republic of Germany, Unity, bonds, 8.75%, 08/20/01 ...... 103,298
--------------
1,339,235
--------------
Indonesia 0.5%
US 300,000 PT Indah Kiat Financial Mauritius, 10.00%, 07/1/07 .............. 299,625
US 87,000 PT Polysindo Intl. Finance Co., Series B, 11.375%, 06/15/06 ..... 95,918
--------------
395,543
--------------
Italy 2.4%
IT 370,000,000 Buoni Poliennali del Tes, 10.50%, 04/15/98 ...................... 223,363
IT 595,000,000 Buoni Poliennali del Tes, 10.50%, 07/15/00 ...................... 390,808
IT 170,000,000 Buoni Poliennali del Tes, deb., 12.00%, 01/17/99 ................ 107,828
IT 905,000,000 Buoni Poliennali del Tes, deb., 10.00%, 08/01/03 ................ 621,475
IT 260,000,000 Government of Italy, bonds, 7.75%, 11/01/06 ..................... 162,251
US 490,000 Government of Italy, cvt. bonds, 5.00%, 06/28/01 ................ 501,662
--------------
2,007,387
--------------
Mexico 1.7%
US 130,000 Bancomer, SA, 8.00%, 07/07/98 ................................... 131,144
US 200,000 b Cemex, SA, 10.75%, 07/15/00 ..................................... 212,750
US 175,000 United Mexican States, bonds, 9.875%, 01/15/07 .................. 184,406
US $ 600,000 United Mexican States, bonds, 11.375%, 09/15/16 ................. $ 675,000
US 225,000 United Mexican States, bonds, 11.50%, 05/15/26 .................. 257,063
--------------
1,460,363
--------------
Netherlands 0.3%
NL 500,000 Netherlands Government., 7.00%, 03/15/99, 1 & 2.................. 268,735
--------------
Phillipines 0.3%
US 270,000 Phillipine Long Distance Telephone Co., 9.25%, 06/30/06 ......... 282,825
--------------
Poland 0.5%
US 400,000 b Poland Communications Inc., 9.875%, 11/01/03 .................... 399,700
--------------
Russia 0.6%
US 500,000 b Minfin of Russia, 10.00%, 06/26/07 .............................. 495,820
--------------
Spain 1.6%
ES 58,930,000 Government of Spain, deb., 12.25%, 03/25/00 ..................... 470,800
ES 107,270,000 Government of Spain, deb., 10.10%, 02/28/01 ..................... 842,508
--------------
1,313,308
--------------
Sweden 1.1%
SE 300,000 Government of Sweden, bonds, Series 1030, 13.00%, 06/15/01 ...... 48,896
SE 4,600,000 Government of Sweden, bonds, Series 1033, 10.25%, 05/05/03 ...... 717,030
SE 1,000,000 Government of Sweden, bonds, Series 1037, 8.00%, 08/15/07 ....... 142,048
--------------
907,974
--------------
Trinidad and Tobago 0.2%
US 170,000 b Sei Holdings IX Inc., 11.00%, 11/30/00 .......................... 182,750
--------------
United Kingdom 1.0%
GB 450,000 UK Treasury, deb., 10.00%, 02/26/01 ............................. 814,959
--------------
United States 6.9%
US 405,000 U.S. Treasury Bond, 6.375%, 08/15/02 ............................ 404,874
US 880,000 U S Treasury Note, 7.875%, 11/15/99 ............................. 912,725
US 880,000 U S Treasury Note, 8.50%, 02/15/00 .............................. 928,401
US 371,000 U S Treasury Note, 6.125%, 07/31/00 ............................. 369,957
US 1,010,000 U S Treasury Note, 6.25%, 08/31/00 .............................. 1,009,685
US 1,515,000 U S Treasury Note, 6.625%, 04/30/02 ............................. 1,529,205
US 596,000 U S Treasury Note, 7.25%, 08/15/04 .............................. 621,517
--------------
5,776,364
--------------
Venezuela 0.9%
US 100,000 b Republic of Venezuela, senior unsubordinated deb., 9.125%, 06/18/07 100,375
US 500,000 Republic of Venezuela, Series A, 6.75%, 03/31/20 ................ 393,750
US 250,000 Venezuela DCB, 6.50%, FRN, 12/18/07 ............................. 232,188
--------------
726,313
--------------
Total Bonds (Cost $25,357,170) ............................ 25,258,739
--------------
Total Long Term Investments (Cost $68,723,154) ............ 77,916,282
--------------
e Short Term Investments 0.4%
US 300,000 FNMA, 5.43%, 07/14/97 (Cost $299,412) ........................... 299,416
--------------
Total Investments before Repurchase Agreement (Cost $69,022,566) 78,215,698
--------------
f Receivables from Repurchase Agreement 4.8%
US 3,991,000 Swiss Bank Corp., 5.90%, 07/01/97 (Maturity Value
$3,991,654) (Cost $3,991,000)
Collateral: U.S. Treasury Note, 6.875%, 08/31/99 ............... 3,991,000
--------------
Total Investments (Cost $73,013,566) 98.4% ........... 82,206,698
Other Assets and Liabilities, Net 1.5% ............... 1,233,657
Equity in Forward Contracts 0.1% ..................... 45,215
--------------
Net Assets 100.0%..................................... $83,485,570
==============
At June 30, 1997, the net unrealized appreciation based on the cost
of investments for income tax purposes of $73,013,566 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost................ $10,985,671
Aggregate gross unrealized depreciation for all investments in
which there was an excess of value over tax cost................ (1,792,539)
--------------
Net unrealized appreciation.................................... $ 9,193,132
==============
COUNTRY LEGEND:
AR - Argentina
AT - Austria
AU - Australia
BE - Belgium
BR - Brazil
CA - Canada
CH - Switzerland
DD - Germany
DK - Denmark
EG - Egypt
ES - Spain
FI - Finland
FR - France
GB - United Kingdom
GR - Greece
HK - Hong Kong
ID - Indonesia
IT - Italy
JP - Japan
KR - South Korea
MX - Mexico
NL - Netherlands
NO - Norway
NZ - New Zealand
PH - Philippines
SE - Sweden
TH - Thailand
US - United States
ZA South Africa
PORTFOLIOABBREVIATIONS:
FNMA - Federal National Mortgage Association
FRN - Floating Rate Notes
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified institutional buyers.
eCertain short-term securrities are traded on a discount basis; the rates shown are the discount rates at the time of
purchase by the Fund. Other securirties bear interest at the rates shown, payable at fixed dates or upon maturity.
fFace amount for repurchase agreements is for the underlying collateral.
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES/ VALUE
COUNTRY* WARRANTS Templeton Global Growth Fund (NOTE1)
a,b Common Stocks & Warrants 81.4%
<S> <C> <C> <C>
Argentina 2.1%
AR 681,655 Inversiones y Representacion .................................... $ 2,979,279
US 1,400 Inversiones y Representacion, GDR ............................... 61,250
US 50,000 Telecom Argentina Stet-France Telecom, SA, Sponsored ADR ........ 2,625,000
US 386,900 Transportadora de Gas del Sur, SA, Class B, Sponsored ADR ....... 4,836,250
US 155,000 YPF Sociedad Anonima, Sponsored ADR ............................. 4,766,250
--------------
15,268,029
--------------
Australia 2.7%
AU 1,070,971 Coles Myer, Ltd. ................................................ 5,571,488
AU 2,185,051 HIH Winterthur International Holdings, Ltd. ..................... 5,279,415
AU 2,149,000 Pacific Dunlop, Ltd. ............................................ 6,360,580
AU 712,750 RGC, Ltd. ....................................................... 2,610,076
--------------
19,821,559
--------------
Austria 1.2%
AT 30,000 Boehler-Uddeholm, AG ............................................ 2,326,416
AT 35,400 EVN Energie-Versorgung Niederoesterreich, AG .................... 4,560,851
AT 13,000 VA Technologie, AG .............................................. 2,379,031
--------------
9,266,298
--------------
Bermuda 2.1%
US 80,000 Ace, Ltd. ....................................................... 5,910,000
US 255,000 PartnerRe, Ltd. ................................................. 9,721,875
--------------
15,631,875
--------------
Brazil 1.1%
BR 129,100,000 Companhia Siderugica Nacional ................................... 4,257,164
US 98,100 a Uniao de Bancos Brasileiros, SA, GDR ............................ 3,641,963
--------------
7,899,127
--------------
Canada 1.7%
CA 119,700 Intrawest Corp. ................................................. 1,989,294
CA 74,000 a Newbridge Networks Corp. ........................................ 3,219,000
CA 384,200 Oshawa Group, Ltd., Class A ..................................... 5,745,125
CA 195,000 Primex Forest Products, Ltd. .................................... 1,094,355
--------------
12,047,774
--------------
China 0.3%
CN 13,356,000 Yizheng Chemical Fibre Co., Ltd., Class H ....................... 2,379,059
--------------
Czech Republic 0.6%
US 171,000 a,b Komercni Banka, AS, GDR ......................................... 3,561,075
CZ 9,000 SPT Telecom, AS ................................................. 943,629
--------------
4,504,704
--------------
Denmark 0.8%
DK 110,200 Tele Danmark, AS, Class B ....................................... 5,725,839
--------------
Ecuador 0.1%
US 400 La Cemento Nacional CA, Sponsored GDR ........................... 83,200
US 3,600 b La Cemento Nacional CA, Sponsored GDR ........................... 748,800
--------------
832,000
--------------
Finland 2.3%
FI 145,000 Enso Oy, Class R................................................. 1,340,330
FI 270,000 Metsa-Serla Oy, Class B ......................................... 2,199,413
FI 130,000 Oy Nokia, AB, Series A .......................................... 9,813,683
FI 65,000 Outokumpu, Oy, Series A ......................................... 1,289,298
FI 2,450 The Rauma Group ................................................. 56,146
FI 88,000 UPM-Kymmene Corp. ............................................... 2,067,498
--------------
16,766,368
--------------
France 5.5%
FR 157,102 AXA-UAP ......................................................... $ 9,770,923
FR 129,225 Banque Nationale de Paris........................................ 5,325,828
FR 23,792 Compagnie Generale d'Industrie et de Participations ............. 6,761,046
FR 68,900 Credit Commercial de France ..................................... 2,919,342
FR 83,000 Pechiney, SA, Class A ........................................... 3,269,607
US 112,708 Pechiney, SA, Class A, Sponsored ADR ............................ 2,211,895
FR 5,388 Galeries Lafayette .............................................. 2,233,425
FR 41,972 Elf Aquitane, SA ................................................ 4,528,094
FR 32,029 Unibail-Union du Credit-Bail Immobilier ......................... 2,997,592
--------------
40,017,752
--------------
Germany 0.7%
DD 6,300 Volkswagen, AG .................................................. 4,775,847
--------------
Greece 0.5%
GR 45,333 Alpha Credit Bank ............................................... 3,084,214
US 7,333 b Alpha Credit Bank ............................................... 498,926
--------------
3,583,140
--------------
Hong Kong 4.9%
HK 800,000 Cheung Kong Holdings, Ltd. ...................................... 7,899,526
HK 1,608,500 Hong Kong Electric Holdings, Ltd. ............................... 6,477,766
HK 278,149 HSBC Holdings, Plc. ............................................. 8,365,329
HK 800,000 Jardine Strategic Holdings, Ltd. ................................ 3,024,000
HK 40,000 a Jardine Strategic Holdings, Ltd., warrants ...................... 200
HK 3,600,000 Shun Tak Holdings, Ltd. ......................................... 2,207,221
HK 861,000 Swire Pacific, Ltd., Class A .................................... 7,751,701
HK 75,000 Swire Pacific, Ltd., Class B .................................... 113,749
--------------
35,839,492
--------------
Hungary 0.8%
US 256,358 b Mol Magyar Olaj - Es Gazipari RT, GDS ........................... 5,703,965
--------------
India 0.3%
GB 720,000 a India Fund (The), Class B ....................................... 1,336,908
US 37,000 b Larsen & Toubro, Ltd., GDR ...................................... 633,625
--------------
1,970,533
--------------
Indonesia 0.2%
ID 305,700 a Asia Pacific Resources International, Class A ................... 1,490,288
--------------
Italy 1.5%
IT 896,800 Banca Fideuram, SpA ............................................. 2,908,241
IT 1,745,200 Fiat, SpA ....................................................... 6,274,669
IT 962,290 Telecom Italia, SpA ............................................. 1,925,259
--------------
11,108,169
--------------
Japan 1.8%
JP 186,500 Daito Trust Construction Co. .................................... 2,196,798
JP 603,500 Hitachi, Ltd. ................................................... 6,740,075
JP 200,000 Matsushita Electric Industrial Co., Ltd. ........................ 4,031,062
--------------
12,967,935
--------------
Mexico 2.1%
MX 176,000 ALFA, SA de CV, Class A ......................................... 1,201,108
US 901,000 b ALFA, SA de CV, Class A ......................................... 6,148,854
MX 232,384 Cifra, SA de CV, Series A ....................................... 429,539
MX 1,900,000 Cifra, SA de CV, Series B ....................................... 3,540,670
US 86,400 Telefonos de Mexico, SA, Class L, Sponsored ADR ................. 4,125,600
--------------
15,445,771
--------------
Netherlands 1.2%
NL 56,500 European Vinyls Corp., International, NV ........................ $ 1,430,562
NL 105,188 ING Groep, NV ................................................... 4,849,719
NL 50,000 Koninklijke Frans Maas Groep, NV ................................ 1,604,768
NL 40,000 Koninklijke Nedlloyd, NV ........................................ 1,155,433
--------------
9,040,482
--------------
New Zealand 0.3%
NZ 583,873 Fisher & Paykel Industries, Ltd. ................................ 2,280,429
--------------
Norway 0.7%
NO 180,600 Helikopter Services Group, ASA .................................. 2,316,269
NO 155,100 Nycomed ASA, Class A ............................................ 2,285,488
NO 45,000 Nycomed ASA, Class B ............................................ 641,612
--------------
5,243,369
--------------
Philippines 0.6%
PH 19,923,321 Metro Pacific Corp. ............................................. 4,305,540
--------------
Singapore 0.1%
SG 310,000 Singapore Finance, Ltd. ......................................... 444,499
--------------
South Africa 0.7%
ZA 287,065 Rustenburg Platinum Holdings, Ltd. .............................. 5,251,575
--------------
South Korea 1.8%
KR 22,961 Byucksan Corp. .................................................. 217,199
KR 11,227 Keumkang, Ltd. .................................................. 536,064
KR 25,286 Kookmin Bank..................................................... 476,907
KR 92,200 Korea Electric Power Corp. ...................................... 2,751,464
KR 8,611 a Korean Air....................................................... 177,326
KR 100,000 Pacific Chemical Co.............................................. 2,488,739
KR 43,215 Pohang Iron & Steel Co., Ltd. ................................... 4,406,689
KR 123,920 Shinhan Bank..................................................... 1,824,785
KR 1,000 Tae Kwang Industrial Co., Ltd. .................................. 394,144
--------------
13,273,317
--------------
Spain 2.6%
ES 4,400 Banco Popular Espanol, SA ....................................... 1,077,978
ES 225,000 Banco Santander, SA ............................................. 6,932,474
ES 63,900 Cristaleria Espanola, SA ........................................ 5,520,509
ES 450,000 Iberdrola, SA ................................................... 5,680,353
--------------
19,211,314
--------------
Sweden 3.7%
SE 350,000 Asea, AB, Class A ............................................... 4,909,185
SE 192,100 Assidomaen, AB................................................... 5,463,383
SE 722,500 Munksjoe, AB..................................................... 7,425,344
SE 190,000 Skandia Forsakrings, AB, free.................................... 7,000,194
SE 68,000 Volvo, AB, Class B .............................................. 1,819,663
--------------
26,617,769
--------------
Switzerland 4.0%
CH 5,475 Credit Suisse Group.............................................. 702,884
CH 2,200 Kuoni Reisen, AG, Class B ....................................... 7,531,667
CH 4,160 Novartis ........................................................ 6,648,025
CH 3,000 SGS Societe Generale de Surveillance Holdings, SA, Class B ...... 6,408,764
CH 19,500 Zurich Versicherungsgesellschaft ................................ 7,757,275
--------------
29,048,615
--------------
United Kingdom 7.6%
GB 1,376,200 BG, Plc. ........................................................ 5,064,867
GB 1,291,217 BICC ............................................................ 3,795,231
US 655,100 b British Energy, Plc. ............................................ $ 1,598,231
GB 1,074,500 British Telecommunications, Plc. ................................ 7,980,599
GB 1,180,000 BTR, Plc. ....................................................... 4,038,202
GB 135,000 BTR, Plc., Class A .............................................. 448,498
GB 1,376,200 a Centrica, Plc. .................................................. 1,678,740
GB 1,455,000 Cordiant, Plc. .................................................. 2,992,431
GB 1,194,900 Courtaulds, Plc. ................................................ 6,725,777
GB 1,396,100 Dawson International, Plc. ...................................... 1,662,328
GB 466,666 Lex Service, Plc. ............................................... 2,925,940
GB 256,000 London Pacific Group, Ltd. ...................................... 888,874
GB 249,000 McBride, Plc. ................................................... 561,866
GB 1,569,627 National Grid Group, Plc. ....................................... 5,737,533
GB 1,828,200 Northern Foods, Plc. ............................................ 6,058,582
GB 228,111 Safeway, Plc. ................................................... 1,320,065
GB 275,300 W.H. Smith Group, Plc. .......................................... 1,648,160
--------------
55,125,924
--------------
United States 24.8%
US 294,000 Archer-Daniels-Midland Co. ...................................... 6,909,000
US 127,000 AT&T Corp. ...................................................... 4,452,937
US 339,000 a Banner Aerospace, Inc. .......................................... 3,008,625
US 230,000 a Bay Networks, Inc ............................................... 6,109,375
US 169,500 Dayton Hudson Corp. ............................................. 9,015,281
US 84,800 a DSC Communications Corp. ........................................ 1,886,800
US 97,400 Edwards (A.G.), Inc. ............................................ 4,163,850
US 58,500 Entergy Corp. ................................................... 1,601,437
US 156,000 Fannie Mae ...................................................... 6,805,500
US 90,000 Ford Motor Co. .................................................. 3,397,500
US 136,500 e Fruit of the Loom Inc., Class A ................................. 4,231,500
US 89,000 General Growth Properties ....................................... 2,981,500
US 60,000 General Motors Corp. ............................................ 3,341,250
US 66,000 General Motors Corp., Class H ................................... 3,811,500
US 34,000 Georgia-Pacific Corp. ........................................... 2,902,750
US 70,000 Goodyear Tire & Rubber Co. ...................................... 4,431,875
US 164,900 Highwood Properties, Inc., REIT ................................. 5,276,800
US 34,700 Horizon Group Inc................................................ 466,281
US 52,800 Houghton Mifflin Co.............................................. 3,524,400
US 250,000 a Humana, Inc. .................................................... 5,781,250
US 110,043 IBP, Inc. ....................................................... 2,558,500
US 48,900 a Landstar System, Inc............................................. 1,375,312
US 97,902 Limited, Inc. ................................................... 1,982,515
US 84,000 Merrill Lynch & Co., Inc......................................... 5,008,500
US 218,600 Morgan Stanley Dean Witter Discover & Co. ....................... 9,413,462
US 100,000 Motorola, Inc. .................................................. 7,600,000
US 32,000 National Health Investors, Inc. ................................. 1,256,000
US 157,000 a OMI Corp. ....................................................... 1,501,313
US 50,000 Owens Corning ................................................... 2,156,250
US 70,000 PECO Energy Co. ................................................. 1,470,000
US 151,700 Pharmacia & Upjohn, Inc. ........................................ 5,271,575
US 150,000 a Pinnacle Systems, Inc. .......................................... 2,559,375
US 150,000 Post Properties, Inc. ........................................... 6,084,375
US 24,000 Reliastar Financial Corp. ....................................... 1,755,000
US 80,000 The Rouse Co. ................................................... 2,360,000
US 130,000 a Syms Corp. ...................................................... 1,291,875
US 120,000 Torchmark Corp. ................................................. 8,550,000
US 127,466 Travelers, Inc. ................................................. 8,038,325
US 172,200 U.S. WEST Communications Group .................................. 6,489,787
US 228,400 UNUM Corp. ...................................................... $ 9,592,800
US 81,000 Valero Energy Corp. ............................................. 2,936,250
US 115,000 Weeks Corp. ..................................................... 3,593,750
US 240,000 Wheelabrator Technologies, Inc. ................................. 3,705,000
--------------
180,649,375
--------------
Total Common Stocks & Warrants (Cost $455,471,281)......... 593,537,732
--------------
Preferred Stocks 3.0%
Australia 0.6%
AU 1,103,025 News Corp., Ltd., pfd. .......................................... 4,347,405
--------------
Brazil 2.0%
BR 258,441,822 Banco Bradesco, SA, pfd. ........................................ 2,604,704
BR 1,952,000 Coteminas Cia Tecidos Norte de Minas, pfd. ...................... 761,544
US 75,000 Telecomunicacoes Brasileiras-Telebras, SA, pfd., Sponsored ADR .. 11,381,250
--------------
14,747,498
--------------
Canada
CA 119,700 a Intrawest Corp., pfd., Series NRP................................ 225,367
--------------
Greece 0.3%
GR 374,380 Michaniki, SA, pfd............................................... 2,330,420
--------------
Mexico 0.1%
US 6,500 Nacional Financiera, SA, 11.25%, 05/15/98, cvt., pfd. ........... 312,000
--------------
Total Preferred Stocks (Cost $14,045,243) ................. 21,962,690
--------------
Total Common Stocks, Warrants and Preferred
Stocks (Cost $469,516,524)...................................... 615,500,422
--------------
FACE
AMOUNT
Convertible Bonds 0.9%
Italy 0.7%
IT $ 4,950,000 Government of Italy, cvt. bonds, 5.00%, 06/28/01 ................ 5,067,810
--------------
Mexico 0.1%
US 1,210,000 a Empresas ICA Sociedad Controladora, SA de CV,
sub. deb., Series U.S., 5.00%, 03/15/04 ........................ 955,900
--------------
Thailand 0.1%
US 3,602,000 MDX Public Co., Ltd., cvt. unsecured notes, 4.75%, 09/17/03 ..... 576,320
--------------
Total Convertible Bonds (Cost $7,307,417) ................. 6,600,030
--------------
Total Long Term Investments (Cost $476,823,941) ........... 622,100,452
--------------
e Short Term Investments 5.2%
US 1,286,000 FHLMC, 5.45%, 07/14/97 .......................................... 1,283,497
US 36,510,000 FNMA, 5.43%,07/14/97 ............................................ 36,438,952
--------------
Total Short Term Investments (Cost $37,716,177)............ 37,722,449
--------------
Total Investments before Repurchase Agreement
(Cost $514,540,118)............................................. 659,822,901
--------------
f Receivables from Repurchase Agreements 9.2%
US 20,285,000 Aubrey G. Langston & Co., 5.85%, 07/01/97,
(Maturity Value $33,449,434.65)
Collateral: U.S. Treasury Note, 6.125%,08/31/98 ................ 33,444,000
US 32,943,000 Swiss Bank Corp., 5.90%, 07/01/97, (Maturity Value $33,916,557.64)
Collateral: U.S. Treasury Note, 7.50%, 11/15/01 ................ 33,911,000
--------------
Total Receivables from Repurchase Agreements (Cost $67,355,000) 67,355,000
--------------
Total Investments (Cost $581,895,118) 99.7% .......... 727,177,901
Other Assets and Liabilities, Net 0.3% ............... 1,995,946
--------------
Net Assets 100.0% .................................... $729,173,847
==============
At June 30, 1997, the net unrealized appreciation based on the
cost of investments for income tax purposes of
$581,908,465 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ............... $168,243,312
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value ............ (22,973,876)
--------------
Net unrealized appreciation ................................... $145,269,436
==============
COUNTRY LEGEND:
AR - Argentina
AT - Austria
AU - Australia
BR - Brazil
CA - Canada
CH - Switzerland
CN - China
CZ - Czech Republic
DD - Germany
DK - Denmark
ES - Spain
FI - Finland
FR - France
GB - United Kingdom
GR - Greece
HK - Hong Kong
ID - Indonesia
IT - Italy
JP - Japan
KR - South Korea
MX - Mexico
NL - Netherland
NO - Norway
NZ - New Zealand
PH - Philippines
SE - Sweden
SG - Singapore
US - United States
ZA - South Africa
PORTFOLIO ABBREVIATIONS:
FHLMC -Federal Home Loan Mortgage Corp.
FNMA -Federal National Mortgage Association
REIT - Real Estate Investment Trust
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified institutional buyers.
eCertain short-term securrities are traded on a discount basis; the rates shown are the discount rates at the time of
purchase by the Fund. Other securirties bear interest at the rates shown, payable at fixed dates or upon maturity.
fFace amount for repurchase agreements is for the underlying collateral.
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
FACE VALUE
COUNTRY* AMOUNT Templeton Global Income Securities Fund (NOTE1)
Bonds 92.5%
<S> <C> <C> <C>
Argentina 5.7%
US $ 6,250,000 Republic of Argentina, 8.75%, 05/09/02 .......................... $ 6,253,125
US 2,895,000 Republic of Argentina, bonds, 10.95%, 11/01/99 .................. 3,144,694
US 1,545,000 Republic of Argentina, senior unsecured notes, Series
BGLO, 8.375%, 12/20/03 ......................................... 1,566,244
US 160,000 Republic of Argentina, Series L, 5.50%, VRN, 03/31/23 ........... 111,000
US 550,000 Republic of Argentina, unsecured notes, 11.375%, 01/30/17 ....... 613,250
--------------
11,688,313
--------------
Australia 4.0%
AU 9,368,000 Government of Australia, bonds, Series 1002, 10.00%, 10/15/02 ... 8,166,037
--------------
Brazil 5.9%
US 2,437,414 Republic of Brazil, Series C, 8.00%, 04/15/14 ................... 1,978,579
US 3,905,000 Republic of Brazil, notes, 8.875%, 11/05/01 ..................... 4,036,794
US 3,780,000 Republic of Brazil, 6.5625%, FRN, 04/15/09 ...................... 3,321,675
US 2,300,000 Republic of Brazil, bonds, 10.125%, 05/15/27 .................... 2,216,625
US 620,000 Republic of Brazil, cvt., Series L, 6.9375%, FRN, 04/15/12 ...... 511,500
--------------
12,065,173
--------------
Canada 8.8%
CA 5,956,000 Government of Canada, deb., Series A32, 10.50%, 07/01/00 ........ 4,924,613
CA 5,947,000 Government of Canada, deb., Series A37, 10.50%, 03/01/01 ........ 5,007,336
CA 9,565,000 Government of Canada, deb., Series J25, 10.00%, 05/01/02 ........ 8,142,409
--------------
18,074,358
--------------
Denmark 3.9%
DK 15,995,000 Kingdom of Denmark, bonds, 8.00%, 05/15/03 ...................... 2,726,418
DK 30,380,000 Kingdom of Denmark, bonds, 9.00%, 11/15/00 ...................... 5,207,229
--------------
7,933,647
--------------
Germany 9.1%
DD 19,970,000 Government of Germany, Bundesobligation,
bonds, Series 118, 5.25%, 02/21/01 ............................. 11,857,867
DD 8,900,000 Federal Republic of Germany, Unity, bonds, 8.75%, 08/20/01 ...... 5,931,292
DD 1,190,000 Treuhandanstalt, 7.75%, 10/01/02 ................................ 775,523
--------------
18,564,682
--------------
Italy 8.0%
IT 3,035,000,000 Buoni Poliennali del Tes, deb., 12.00%, 01/17/99 ................ 1,925,048
IT 3,870,000,000 Buoni Poliennali del Tes, deb., 10.50%, 07/15/00 ................ 2,541,894
IT 8,660,000,000 Buoni Poliennali del Tes, deb., 10.00%, 08/01/03 ................ 5,946,934
IT 3,225,000,000 Government of Italy, bonds, 7.75%, 11/01/06 ..................... 2,012,541
IT 6,440,000,000 Government of Italy, deb., 10.50%, 04/15/98 ..................... 3,887,723
--------------
16,314,140
--------------
Mexico 6.4%
US 7,985,000 United Mexican States, notes, 9.75%, 02/06/01 ................... 8,446,134
US 1,125,000 United Mexican States, bonds, 11.375%, 09/15/16 ................. 1,265,625
US 620,000 United Mexican States, bonds, 11.50%, 05/15/26 .................. 708,350
US 3,450,000 United Mexican States, deb., Series A, 6.25%, 12/31/19 .......... 2,669,438
--------------
13,089,547
--------------
Panama 0.6%
US 1,250,000 Republic of Panama, 7.875%, 02/13/02 ............................ 1,246,875
--------------
Spain 5.7%
ES 962,000,000 Government of Spain, deb., 12.25%, 03/25/00 ..................... 7,685,553
ES 511,100,000 Government of Spain, bonds, 10.10%, 02/28/01 .................... 4,014,225
--------------
11,699,778
--------------
Sweden 2.9%
SE $ 12,900,000 Government of Sweden, bonds, Series 1033, 10.25%, 05/05/03....... $ 2,010,802
SE 13,600,000 Government of Sweden, bonds, Series 1037, 8.00%, 08/15/07 ....... 1,931,857
SE 12,100,000 Government of Sweden, deb., Series 1030, 13.00%, 06/15/01 ....... 1,972,133
--------------
5,914,792
--------------
United Kingdom 4.2%
GB 4,720,000 United Kingdom Treasury, deb., 10.00%, 02/26/01 ................. 8,548,018
--------------
United States 25.5%
US 9,610,000 U.S. Treasury Bond, 6.375%, 08/15/02 ............................ 9,607,002
US 7,965,000 U.S. Treasury Note, 6.25%, 08/31/00 ............................. 7,962,515
US 23,545,000 U.S. Treasury Note, 6.625%, 04/30/02 ............................ 23,765,758
US 10,344,000 U.S. Treasury Note, 7.25%, 08/15/04 ............................. 10,786,858
--------------
52,122,133
--------------
Venezuela 1.8%
US 1,940,000 Republic of Venezuela, senior unsubordinated deb., 9.125%, 06/18/07 1,947,275
US 2,250,000 Republic of Venezuela, Series A, 6.75%, 03/31/20 ................ 1,771,875
--------------
3,719,150
--------------
Total Bonds (Cost $189,915,923) ........................... 189,146,643
--------------
Total Investments (Cost $189,915,923) 92.5% .......... 189,146,643
Equity in Forward Contracts 0.3% ..................... 517,359
Other Assets and Liabilities, Net 7.2% ............... 14,774,879
--------------
Net Assets 100.0% .................................... $204,438,881
==============
At June 30, 1997, the net unrealized depreciation based on the
cost of investments for income tax purposes of $189,915,923 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ............... $ 1,393,234
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value ............... (2,162,514)
--------------
Net unrealized depreciation ................................... $ (769,280)
==============
COUNTRY LEGEND:
AU - Australia
CA - Canada
DD - Germany
DK - Denmark
ES - Spain
GB - United Kingdom
IT - Italy
SE - Sweden
US - United States
PORTFOLIO ABBREVIATIONS:
FRN - Floating Rate Notes
VRN - Variable Rate Notes
*Securities traded in currency of country indicated and valued in U.S. dollars.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
SHARES/
RIGHTS & VALUE
COUNTRY* WARRANTS Templeton International Equity Fund (NOTE1)
a,b Common Stocks, Rights & Warrants 83.4%
<S> <C> <C> <C>
Argentina 1.7%
AR 647,568 CIADEA, SA ...................................................... $ 2,784,962
US 221,700 Transportadora de Gas del Sur, SA, Class B, Sponsored ADR ....... 2,771,250
AR 25,100 YPF Sociedad Anonima, Class D ................................... 773,196
US 495,000 YPF Sociedad Anonima, Sponsored ADR ............................. 15,221,250
--------------
21,550,658
--------------
Australia 4.9%
AU 1,615,827 David Jones, Ltd. ............................................... 2,257,048
AU 1,431,025 Email, Ltd. ..................................................... 5,121,531
AU 1,549,534 Gio Australia Holdings, Ltd. .................................... 4,796,884
AU 1,024,647 National Foods, Ltd. ............................................ 1,439,002
AU 90,000 News Corp., Ltd., pfd. .......................................... 354,721
AU 6,527,766 Pacific Dunlop, Ltd. ............................................ 19,320,792
AU 7,462,117 Pioneer International, Ltd. ..................................... 28,847,374
--------------
62,137,352
--------------
Austria 0.5%
AT 33,000 Boehler-Uddeholm, AG ............................................ 2,559,057
US 27,055 b Boehler-Uddeholm, AG ............................................ 2,098,039
AT 39,400 Mayr-Melnhof Karton, AG ......................................... 2,024,055
--------------
6,681,151
--------------
Belgium 0.5%
BE 10,650 Arbed, SA ....................................................... 1,228,049
BE 9,054 Solvay, SA ...................................................... 5,333,281
--------------
6,561,330
--------------
Bermuda 2.1%
US 362,500 Ace, Ltd. ....................................................... 26,779,687
--------------
Brazil 0.8%
BR 1,021,000 Banco Itau, SA .................................................. 571,885
US 276,365 Companhia Siderurgica Nacional, Sponsored ADR ................... 9,113,332
--------------
9,685,217
--------------
Canada 1.7%
CA 357,000 Hudson's Bay Co.................................................. 8,014,048
CA 254,000 London Insurance Group, Inc. .................................... 4,892,574
CA 447,000 National Bank of Canada ......................................... 5,599,841
CA 230,000 Oshawa Group, Ltd., Class A ..................................... 3,439,299
--------------
21,945,762
--------------
China 1.3%
US 650,700 a Beijing Yanhua Petrochemical Co., Ltd., Sponsored ADR ........... 7,483,050
HK 6,960,000 Maanshan Iron and Steel Co., Class H ............................ 1,455,372
US 338,300 Shandong Huaneng Power Co., Ltd., Sponsored ADR ................. 3,636,725
HK 19,340,200 Yizheng Chemical Fibre Co., Ltd., Class H ....................... 3,445,004
--------------
16,020,151
--------------
Czech Republic 0.2%
US 120,000 a,b Komercni Banka, AS, GDR ......................................... 2,499,000
--------------
Ecuador 0.1%
US 400 La Cemento Nacional CA, Sponsored GDR ........................... 83,200
US 6,840 b La Cemento Nacional CA, Sponsored GDR ........................... 1,422,720
--------------
1,505,920
--------------
Finland 3.4%
FI 111,562 a Amer Group, Ltd. ................................................ 2,040,998
FI 1,754,300 Enso Oy, Class R ............................................... 16,216,148
FI 1,254,500 Merita Ltd., Class A ............................................ 4,106,976
FI 231,000 Oy Nokia, AB, Series A .......................................... $ 17,438,159
FI 171,000 Outokumpu, OY, Series A ......................................... 3,391,844
--------------
43,194,125
--------------
France 5.2%
FR 14,323 Alcatel Alsthom, SA ............................................. 1,793,818
FR 12,133 BERTRAND FAURE .................................................. 638,992
FR 13,292 Cie de Saint Gobain ............................................. 1,938,374
FR 128,800 Credit Commercial de France ..................................... 5,457,349
FR 148,024 Elf Aquitaine, SA ............................................... 15,969,373
FR 55,849 Marine-Wendel, SA ............................................... 5,702,078
FR 366,481 Pechiney, SA, Class A ........................................... 14,436,733
FR 558,200 a Regie Nationale des Usines Renault, SA .......................... 14,124,311
FR 62,039 Total SA, Class B ............................................... 6,270,724
--------------
66,331,752
--------------
Germany 1.9%
DD 407,000 Deutsche Bank, AG ............................................... 23,898,618
--------------
Greece 0.5%
GR 96,791 Ergo Bank, SA ................................................... 5,813,591
--------------
Hong Kong 5.8%
HK 7,134,100 C.P. Pokphand ................................................... 2,210,040
HK 188,600 Cheung Kong Holdings, Ltd. ...................................... 1,862,313
HK 9,576,543 Dairy Farm International Holdings, Ltd. ......................... 7,182,407
HK 779,000 Hang Lung Development ........................................... 1,427,826
HK 467,400 Hong Kong Aircraft Engineering Co., Ltd. ........................ 1,701,326
HK 1,635,708 Jardine Matheson Holdings, Ltd. ................................. 11,613,527
HK 2,864,250 Jardine Strategic Holdings, Ltd. ................................ 10,783,901
HK 318,250 a Jardine Strategic Holdings, Ltd., warrants ...................... 125,709
HK 121,900 a Oriental Press Group, Ltd., warrants ............................ 6,766
HK 7,155,000 Peregrine Investments Holdings, Ltd. ............................ 14,730,584
HK 715,500 a Peregrine Investments Holdings, Ltd., warrants .................. 314,006
HK 12,748,000 Shun Tak Holdings, Ltd. ......................................... 7,816,013
HK 3,172,400 a Sing Tao Holdings, Ltd. ......................................... 1,187,505
HK 7,937,100 Swire Pacific, Ltd., Class B .................................... 12,037,862
HK 394,800 Yue Yuen Industrial Holdings..................................... 817,903
--------------
73,817,688
--------------
India
US 109,700 b Gujarat Narmada Valley Fertilizers Co., Ltd., GDR................ 274,250
--------------
Indonesia 0.3%
ID 167,500 PT Barito Pacific Timber, fgn. .................................. 142,912
ID 5,118,052 PT Indah Kiat Pulp & Paper Corp., fgn............................ 2,998,859
ID 4,606,247 a PT Indah Kiat Pulp & Paper Corp., rights......................... 804,957
ID 614,066 a PT Indah Kiat Pulp & Paper Corp., warrants ...................... 227,245
--------------
4,173,973
--------------
Italy 2.4%
IT 148,000 Banco di Sardegna, SpA, di Risp ................................. 1,336,825
IT 696,200 Cartiere Burgo, SpA ............................................. 3,868,961
IT 3,083,100 Fiat, SpA ....................................................... 11,084,936
IT 904,000 Sasib SpA, di Risp .............................................. 1,782,041
IT 1,833,800 Sirti, SpA ...................................................... 10,603,106
IT 468,000 Unione Cementi Marchino Emiliane (Unicem), di Risp .............. 1,196,300
--------------
29,872,169
--------------
Mexico 0.6%
MX 1,983,600 Grupo Mexico, SA de CV, Class B ................................. 7,455,359
--------------
Netherlands 7.8%
NL 32,300 Akzo Nobel, NV .................................................. $ 4,426,461
NL 19,000 DSM, NV ......................................................... 1,890,417
NL 563,685 ING Groep, NV.................................................... 25,988,839
NL 240,308 Internatio-Muller, NV ........................................... 7,578,106
NL 147,900 Koninklijke Bijenkorf Beheer, NV (KBB) .......................... 10,345,239
NL 504,000 NV Holdingmaatschappij De Telegraaf ............................. 10,886,749
NL 534,307 Philips Electronics, NV ......................................... 38,271,723
--------------
99,387,534
--------------
New Zealand 2.4%
NZ 2,322,000 Air New Zealand, Ltd., Class B .................................. 7,097,493
NZ 3,243,400 Carter Holt Harvey, Ltd. ........................................ 8,393,744
NZ 1,321,124 Fisher & Paykel Industries, Ltd. ................................ 5,159,904
NZ 6,020,000 Fletcher Challenge Forests ...................................... 8,750,654
US 47,765 Tranz Rail Holdings, Ltd., Sponsored ADR ........................ 806,034
--------------
30,207,829
--------------
Norway 2.7%
NO 176,200 Fokus Bank, AS .................................................. 1,490,531
NO 355,960 Hafslund, ASA, Class B........................................... 1,932,981
NO 134,000 Helikopter Services Group, ASA .................................. 1,718,605
NO 289,600 Nycomed, ASA, Class A ........................................... 4,267,423
NO 1,005,660 Nycomed, ASA, Class B ........................................... 14,338,737
NO 199,000 Union Bank of Norway, Primary Capital Certificate ............... 5,891,912
NO 295,000 Unitor, AS ...................................................... 4,226,246
--------------
33,866,435
--------------
Peru 1.0%
PE 2,445,602 Cpt-Telefonica del Peru, SA, Class B ............................ 6,426,332
US 251,900 Cpt-Telefonica del Peru, SA, Class B, ADR ....................... 6,596,631
--------------
13,022,963
--------------
Portugal 0.6%
PT 321,978 BPI - SGPS, SA .................................................. 6,266,121
US 239,400 b Portucel Industrial-Empresa Produtora de Celulosa, SA, Sponsored ADR 1,775,197
--------------
8,041,318
--------------
South Africa 1.1%
ZA 417,465 Rustenburg Platinum Holdings, Ltd. .............................. 7,637,116
ZA 722,582 Sappi, Ltd. ..................................................... 6,529,835
--------------
14,166,951
--------------
South Korea 1.5%
KR 60,104 Byucksan Corp.................................................... 568,551
KR 155,586 Daegu Bank ...................................................... 1,333,642
KR 30,600 Dae Han Synthetic Fiber Co. ..................................... 3,097,905
KR 19,110 Keumkang, Ltd. .................................................. 912,459
KR 57,900 Korea Chemical Co., Ltd ......................................... 4,880,047
KR 66,000 Korea Electric Power Corp........................................ 1,969,595
KR 87,100 Korea Long Term Credit Bank ..................................... 1,379,047
KR 155,990 Pacific Chemical Co. ............................................ 3,882,184
KR 10,450 Pohang Iron & Steel Co., Ltd. ................................... 1,065,600
--------------
19,089,030
--------------
Spain 4.4%
ES 27,500 Banco Bilbao Vizcaya ............................................ 2,233,967
ES 15,600 Banco Popular Espanol, SA ....................................... 3,821,921
ES 246,970 Compania Sevillana de Electricidad .............................. 2,547,638
ES 378,000 Dragados & Construcciones, SA ................................... 7,849,881
ES 1,517,800 Iberdrola, SA ................................................... $ 19,159,199
ES 646,100 Telefonica de Espana ............................................ 18,679,240
ES 52,200 Unipapel, SA .................................................... 1,098,202
--------------
55,390,048
--------------
Sweden 9.3%
SE 806,000 Asea, AB, Class A ............................................... 11,305,152
SE 515,500 Celsius, AB, Class B ............................................ 10,129,403
SE 382,000 Electrolux, AB, Series B ........................................ 27,555,556
SE 257,100 a Enator, AB, Class B ............................................. 4,586,620
SE 158,500 Esselte, Class B ................................................ 3,729,171
SE 163,000 Foreningsbanken, AB, Series A ................................... 3,624,329
SE 191,000 a Granges, AB ..................................................... 2,530,864
SE 210,000 Marieberg Tidnings, AB, Class A ................................. 5,212,333
SE 1,288,000 a Stena Line, AB, Class B ......................................... 6,243,940
SE 804,250 Stora Kopparbergs Bergslags, AB, Class B ........................ 13,100,058
SE 155,400 Svenska Handelsbanken, Class A .................................. 4,941,943
SE 922,000 Volvo, AB, Class B .............................................. 24,672,484
--------------
117,631,853
--------------
Switzerland 4.1%
CH 13,989 Adecco, SA ...................................................... 5,370,222
CH 3,690 a Baloise-Holding ................................................. 8,792,331
CH 12,800 Bucher Holding, AG .............................................. 13,321,465
CH 3,570 Kuoni Reisen, AG, Class B ....................................... 12,221,842
CH 2,506 Novartis ........................................................ 4,004,796
CH 15,400 SMH, AG, br. .................................................... 8,793,975
--------------
52,504,631
--------------
Thailand 0.1%
TH 17,900 Charoen Pokphand Feedmill Public Co., Ltd., fgn. ................ 44,223
TH 344,900 Siam City Cement Public Co., Ltd., fgn. ......................... 1,404,630
--------------
1,448,853
--------------
Turkey 0.4%
US 19,688,738 Tofas Turk Otomobil Fabrikasi, AS, Sponsored GDR ................ 4,626,853
--------------
United Kingdom 14.1%
GB 2,536,000 Anglian Group, Plc............................................... 10,410,232
GB 2,908,800 BG, Plc.......................................................... 10,705,337
GB 2,147,200 British Steel, Plc. ............................................. 5,327,862
GB 1,446,000 British Telecommunications, Plc. ................................ 10,739,829
GB 4,204,600 BTR, Plc. ....................................................... 14,389,004
GB 1,290,000 a Centrica, Plc. .................................................. 1,573,590
GB 7,123,000 Cordiant, Plc. .................................................. 14,649,545
GB 2,919,000 Courtaulds, Plc. ................................................ 16,430,282
GB 5,560,000 Harrisons & Crosfield, Plc. ..................................... 10,277,607
GB 449,950 Hepworth, Plc. .................................................. 1,775,852
GB 2,493,900 Hillsdown Holdings, Plc. ........................................ 7,018,753
GB 32,000 Imperial Chemical Industries, Plc. .............................. 445,236
GB 1,330,900 Kwik Save Group, Plc. ........................................... 6,748,806
GB 902,000 Lex Service, Plc. ............................................... 5,655,431
GB 1,890,000 London Pacific Group, Ltd. ...................................... 6,562,391
GB 1,000,000 McBride, Plc. ................................................... 2,256,491
GB 1,487,610 Meggitt, Plc. ................................................... 3,096,659
GB 641,668 National Westminster Bank, Plc. ................................. 8,628,735
GB 612,300 a,b Railtrack Group, Plc. ........................................... 6,378,019
GB 1,695,778 Safeway, Plc. ................................................... 9,813,367
GB 50,000 Tate & Lyle, Plc. ............................................... 371,780
GB 978,479 Thames Water Group, Plc. ........................................ $ 11,300,358
GB 3,844,900 Thorn, Plc. ..................................................... 11,013,053
GB 710,700 a Waste Management International, Plc. ............................ 3,302,058
--------------
178,870,277
--------------
Total Common Stocks, Rights & Warrants (Cost $827,145,250) 1,058,452,328
--------------
Preferred Stocks 1.5%
Brazil 1.3%
BR 525,200,000 Banco Bradesco, SA, pfd. ........................................ 5,293,224
US 57,300 Telecomunicacoes Brasileiras - Telebras, SA, pfd., Sponsored ADR 8,695,275
BR 56,824,000 Uniao de Bancos Brasileiros, SA, pfd. ........................... 2,084,418
--------------
16,072,917
--------------
Hong Kong 0.2%
US 1,531,000 Jardine Strategic Holdings, Ltd., 7.50%, cvt., pfd. ............. 1,890,785
--------------
Total Preferred Stocks (Cost $12,281,998) ................. 17,963,702
--------------
FACE
AMOUNT
Bonds 5.0%
United States
US $63,665,000 Federal National Mortgage Association, 07/14/97 (Cost $63,530,561) 63,541,108
--------------
Total Long Term Investments (Cost $902,957,809) ........... 1,139,957,138
--------------
f Receivable from Repurchase Agreements 9.9%
US 50,000,000 Aubrey G. Lanston & Co., 5.85%, 07/01/97,
(Maturity Value $63,678,346.05) Collateral: U.S. Treasury Notes,
6.250%, 06/30/02 ............................................... 63,668,000
US 50,000,000 Swiss Bank Corp., 5.90%, 07/01/97, (Maturity Value $62,349,216.67)
Collateral: U.S. Treasury Notes, 5.875%, 11/15/99 .............. 62,339,000
--------------
Total Receivables from Repurchase Agreements (Cost $126,007,000) 126,007,000
--------------
Total Investments (Cost $1,028,964,809) 99.8%......... 1,265,964,138
Other Assets and Liablities, Net 0.2%................. 3,026,788
--------------
Net Assets 100.0%.....................................$1,268,990,926
==============
At June 30, 1997, the net unrealized appreciation based on the
cost of investments for income tax purposes of
$1,029,249,534 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost............. $ 281,565,630
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value............. (44,851,026)
--------------
Net unrealized appreciation.................................... $ 236,714,604
==============
CURRENCY LEGEND:
AR - Argentina
AT - Austria
AU - Australia
BE - Belgium
BR - Brazil
CA - Canada
CH - Switzerland
DD - Germany
ES - Spain
FI - Finland
FR - France
GB - United Kingdom
GR - Greece
HK - Hong Kong
ID - Indonesia
IT - Italy
KR - South Korea
MX - Mexico
NL - Netherlands
NO - Norway
NZ - New Zealand
PE - Peru
PT - Portugal
SE - Sweden
TH - Thailand
US - United States
ZA - South Africa
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified institutional buyers.
fFace amount for repurchase agreements is for the underlying collateral.
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES/ VALUE
COUNTRY* WARRANTS Templeton International Smaller Companies Fund (NOTE1)
a Common Stocks & Warrants 62.8%
<S> <C> <C> <C>
Argentina 1.2%
AR 45,900 CIADEA, SA ...................................................... $ 197,400
US 24,300 a Mirgor SA, Comercial Industrial Financiera Inmobi, Class C, ADR . 68,648
US 7,000 Transportadora de Gas del Sur, SA, Class B, Sponsored ADR ....... 87,500
--------------
353,548
--------------
Australia 1.9%
AU 87,500 David Jones, Ltd. ............................................... 122,223
AU 324,000 Davids, Ltd. .................................................... 283,777
AU 44,964 Email, Ltd. ..................................................... 160,923
--------------
566,923
--------------
Austria 1.0%
AT 3,853 Boehler - Uddeholm, AG .......................................... 298,789
--------------
Brazil 1.4%
BR 5,207,000 Bombril, SA ..................................................... 62,636
US 9,200 a Uniao de Bancos Brasileiros, SA, GDR ............................ 341,550
--------------
404,186
--------------
Canada 0.8%
CA 1,480 Hudson's Bay Co. ................................................ 33,224
CA 13,500 Oshawa Group, Ltd., Class A ..................................... 201,872
--------------
235,096
--------------
China 2.0%
CN 52,000 China International Marine Containers, Class B .................. 61,415
CN 179,000 Dongfang Electrical Machinery Co., Ltd., Class H ................ 57,762
US 110,400 b Guangdong Electric Power Development Co., Ltd., Class B ......... 90,488
US 40,000 b Guangdong Kelon Electrical Hldgs Ltd.,Class H ................... 38,207
CN 92,000 Guangdong Kelon Electrical Hldgs. Ltd., Class H ................. 87,876
CN 161,000 Inner Mongolia Erdos Cashmere Products, Class B ................. 135,240
CN 650,000 Yizheng Chemical Fibre Co., Ltd., Class H ....................... 115,782
--------------
586,770
--------------
Denmark 1.8%
DK 2,252 Det Danske Traelastkompagni, AS.................................. 205,871
DK 9,100 a ISS International Service System, AS, Class B ................... 326,180
--------------
532,051
--------------
Ecuador 0.8%
US 1,075 La Cemento Nacional CA, Sponsored GDR ........................... 223,600
--------------
Egypt 0.5%
US 6,500 b Commercial Intl Bank Ltd., GDR .................................. 136,013
--------------
Finland 0.7%
FI 11,300 a Amer Group, Ltd. ................................................ 206,731
--------------
France 2.9%
FR 4,300 BERTRAND FAURE .................................................. 226,462
FR 539 Eramet, SA ...................................................... 24,856
FR 294 Galeries Lafayette .............................................. 121,868
FR 1,283 Marine - Wendel, SA ............................................. 130,992
FR 2,200 Sylea, SA ....................................................... 210,390
FR 2,356 Vallourec ....................................................... 143,965
--------------
858,533
--------------
Germany 0.5%
DD 2,256 Moebel Walther, AG .............................................. 137,127
--------------
Hong Kong 10.3%
HK 904,000 Baltrans Holdings, Ltd. ......................................... 151,692
HK 432,100 C.P. Pokphand ................................................... 133,858
HK 213,000 Giordano International, Ltd. .................................... $ 145,715
HK 55,100 Hong Kong Aircraft Engineering Co., Ltd. ........................ 200,563
HK 126,904 Hung Hing Printing Group, Ltd. .................................. 70,436
HK 215,000 Kumagai Gumi Hong Kong, Ltd. .................................... 223,400
HK 391,000 Li & Fung, Ltd. ................................................. 439,082
HK 280,000 Melco International Development, Ltd. ........................... 91,258
HK 250,000 Orient Overseas International, Ltd. ............................. 177,481
HK 23,225 Peregrine Investments Holdings, Ltd. ............................ 47,815
HK 295,000 a Pioneer Industries International Holdings, Ltd. ................. 136,128
HK 931,000 Sinocan Holdings, Ltd. .......................................... 459,655
HK 23,000 Swank International Manufacturing Co., Ltd. ..................... 2,494
HK 741,000 Techtronic Industries Co., Ltd. ................................. 131,992
HK 525,000 Tungtex Holdings ................................................ 54,212
HK 136,000 V Tech Holdings, Ltd. ........................................... 256,296
HK 924,000 a Wai Kee Holdings, Ltd. .......................................... 218,259
HK 138,600 a Wai Kee Holdings, Ltd., warrants ................................ 13,239
HK 14,400 Wing Hang Bank .................................................. 86,988
--------------
3,040,563
--------------
Hungary 0.3%
US 5,560 b Tiszai Vegyi Kombinat RT, GDR ................................... 96,327
--------------
India 0.1%
IN 3,800 Gujarat Ambuja Cements, Ltd. .................................... 36,779
--------------
Indonesia 1.6%
ID 144,100 PT Steady Safe, fgn. ............................................ 168,867
ID 204,000 PT Tambang Timah, fgn. .......................................... 316,653
--------------
485,520
--------------
Israel
US 200 Tadiran Ltd., Sponsored ADR ..................................... 5,725
--------------
Italy 0.5%
IT 9,566 Cartiere Burgo, SpA ............................................. 53,161
US 3,600 b Esaote Biomedica, SpA, ADR ...................................... 94,184
--------------
147,345
--------------
Mexico 0.4%
MX 151,800 a Empaques Ponderosa, SA de CV, Class B ........................... 124,238
--------------
Netherlands 5.9%
NL 1,223 Crown-Van Gelder Papier, SA ..................................... 103,739
NL 7,740 De Boer Unigro................................................... 273,654
NL 3,000 Gamma Holdings, NV .............................................. 161,241
NL 15,750 Heidemij, NV..................................................... 157,267
NL 960 Hollandsche Beton Groep, NV ..................................... 218,958
NL 3,744 Internatio-Muller, NV ........................................... 118,067
NL 1,850 Nagron Nationaal Grondbezit, NV ................................. 212,059
NL 14,500 Otra, NV ........................................................ 232,691
NL 10,932 Schuttersveld Holding ........................................... 266,213
--------------
1,743,889
--------------
New Zealand 1.7%
NZ 6,625 Fisher & Paykel Industries, Ltd. ................................ 25,875
NZ 66,054 Fletcher Challenge Forests ...................................... 96,016
NZ 155,800 Tourism Holdings, Ltd. .......................................... 221,179
US 8,900 Tranz Rail Holdings, Ltd., Sponsored ADR ........................ 150,188
--------------
493,258
--------------
Norway 1.5%
NO 16,400 Helikopter Services Group, ASA .................................. $ 210,337
NO 600 Norske Skogindustrier, AS, Class A .............................. 20,671
NO 7,170 Union Bank of Norway, Primary Capital Certificate ............... 212,286
--------------
443,294
--------------
Singapore 1.7%
US 60,000 Inchcape Berhad ................................................. 216,129
SG 39,000 Singapore Business Service (1978), Ltd., fgn. ................... 186,857
SG 60,000 Singapore Finance, Ltd. ......................................... 86,032
--------------
489,018
--------------
South Africa 1.7%
ZA 21,500 Impala Platinum Holdings, Ltd. .................................. 240,495
ZA 60,000 Murray & Roberts Hldgs., Ltd. ................................... 140,842
ZA 67,700 Sentrachem, Ltd. ................................................ 122,195
--------------
503,532
--------------
South Korea 2.3%
KR 3,200 Dae Han Synthetic Fiber Co. ..................................... 323,964
KR 2,900 Korea Chemical Co., Ltd. ........................................ 244,424
KR 6,800 Korea Long Term Credit Bank ..................................... 107,664
--------------
676,052
--------------
Spain 4.8%
ES 3,272 Banco de Valencia, SA ........................................... 68,837
ES 4,000 Banco Pastor, SA ................................................ 301,323
ES 1,291 Cristaleria Espanola, SA ........................................ 111,533
ES 14,155 Dragados & Construcciones, SA ................................... 293,955
ES 1,500 Electricas Reunidas de Zaragoza.................................. 62,911
ES 34,500 Energia e Industrias Aragonesas Eia S ........................... 248,185
ES 3,700 Gas y Electridad, SA ............................................ 198,622
ES 1,250 Grupo Acciona, SA ............................................... 140,821
--------------
1,426,187
--------------
Sweden 3.9%
SE 21,400 Catena, Class A ................................................. 250,365
SE 4,000 Celsius, AB, Class B ............................................ 78,599
SE 4,800 b Dahl International, AB .......................................... 94,318
US 6,300 b Dahl International, AB, ADR ..................................... 123,793
SE 1,657 Foreningsbanken, AB, Series A ................................... 36,847
SE 200 Granges, AB ..................................................... 2,650
SE 8,160 Marieberg Tidnings, AB, Class A ................................. 202,536
SE 12,995 Munksjoe, AB .................................................... 133,553
SE 19,045 Scribona, AB, Class B ........................................... 221,582
--------------
1,144,243
--------------
Switzerland 0.8%
CH 44 Kardex, AG ...................................................... 13,256
CH 52 Sarna Kunststoff Holding, AG .................................... 51,626
CH 200 Swisslog Holding, AG ............................................ 66,416
CH 245 Zehnder Holding, AG ............................................. 117,426
--------------
248,724
--------------
Thailand 1.6%
TH 71,300 Charoen Pokphand Feedmill Public Co., Ltd., fgn. ................ 176,151
TH 11,800 Robinson Department Store Public Co., Ltd., fgn. ................ 4,441
TH 1,000 Saha - Union Public Co., Ltd..................................... 733
TH 27,100 Siam City Cement Public Co., Ltd., fgn. ......................... $ 110,367
TH 69,500 Thai Glass Industries Public Co., Ltd., fgn. .................... 182,436
--------------
474,128
--------------
Turkey 0.1%
US 148,313 b Tofas Turk Otomobil Fabrikasi, AS, Sponsored GDR ................ 34,853
--------------
United Kingdom 8.1%
GB 35,337 Albert Fisher Group, Plc. ....................................... 25,451
GB 6,978 Charter, Plc. ................................................... 92,848
GB 21,900 Eurodis Electron, Plc. .......................................... 49,235
GB 187,300 Hazlewood Foods, Plc. ........................................... 349,341
GB 100,000 Hillsdown Holdings, Plc. ........................................ 281,437
GB 54,100 Lex Service, Plc. ............................................... 339,200
GB 16,000 LucasVarity, Plc. ............................................... 55,421
GB 64,100 McBride, Plc. ................................................... 144,641
GB 78,000 Perkins Foods, Plc. ............................................. 107,162
US 500 Sea Containers, Ltd., Class A ................................... 11,313
GB 82,800 Somerfield, Plc. ................................................ 252,334
GB 64,000 Storehouse, Plc. ................................................ 200,903
GB 95,700 Wace Group, Plc. ................................................ 52,592
GB 34,300 Wagon Industrial Holdings, Plc. ................................. 127,949
GB 72,200 Weir Group, Plc. ................................................ 297,582
--------------
2,387,409
--------------
Total Common Stocks & Warrants (Cost $16,757,262) ......... 18,540,451
--------------
Preferred Stocks 2.9%
Austria 0.6%
AT 6,000 a,b Bank Austria AG, new, pfd. ...................................... 183,985
--------------
Brazil 1.6%
BR 842,000 Cia Brasileira de Petroleo Ipiranga, pfd. ....................... 13,695
BR 335,000 Coteminas Cia Tecidos Norte de Minas, pfd. ...................... 130,695
BR 103,395,000 Electrolux do Brasil SA, pfd. ................................... 164,233
BR 227,200 Weg SA, pfd. .................................................... 156,173
--------------
464,796
--------------
Netherlands 0.7%
NL 4,025 Ballast Nedam, NV, certificate, cvt. pfd. ....................... 201,978
--------------
Total Preferred Stocks (Cost $870,738) .................... 850,759
--------------
Total Long Term Investments (Cost $17,628,000) ............ 19,391,210
--------------
FACE
AMOUNT
e Short Term Investments 14.8%
US $1,450,000 FHLMC, 5.45%, 07/11/97 .......................................... 1,447,586
US 2,910,000 FNMA, 5.43% - 5.75%, with maturities - 07/14/97 ................. 2,906,937
--------------
Total Short Term Investments (Cost $4,354,281) ............ 4,354,523
--------------
Total Investments before Repurchase
Agreements (Cost $21,982,281) .................................. 23,745,733
--------------
f Receivables from Repurchase Agreements 14.7%
US $1,463,000 Aubrey G. Lanston & Co., 5.50%, 07/01/97
(Maturity Value $1,450,222)
Collateral: U.S. Treasury Note, 5.875%, 04/30/98 ............... $ 1,450,000
US 1,468,000 Swiss Bank Corp., 5.90%, 07/01/97 (Maturity Value $1,450,238)
Collateral: U.S. Treasury Note, 5.875%, 03/31/99 ............... 1,450,000
US 1,450,000 UBS Securities, L.L.C., 5.87%, 07/01/97 (Maturity Value $1,450,236)
Collateral: U.S. Treasury Note, 6.00%, 08/15/99 ................ 1,450,000
--------------
Total Receivables from Repurchase Agreements (Cost $4,350,000) 4,350,000
--------------
Total Investments (Cost $26,332,281) 95.2% ........... 28,095,733
Other Assets and Liabilities, Net 4.8% ............... 1,408,908
--------------
Net Assets 100.0% .................................... $29,504,641
==============
At June 30, 1997, the net unrealized appreciation based on the cost
of investments for income tax purposes of $26,332,281 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ..................... $ 2,458,287
Aggregate gross unrealized depreciation for all investments in which
there was an excess of value over tax cost ..................... (694,835)
--------------
Net unrealized appreciation ................................... $ 1,763,452
==============
COUNTRY LEGEND:
AR - Argentina
AT - Austria
AU - Australia
BR - Brazil
CA - Canada
CH - Switzerland
CN - China
DD - Germany
DK - Denmark
ES - Spain
FI - Finland
FR - France
GB - United Kingdom
HK - Hong Kong
ID - Indonesia
IN - India
IT - Italy
KR - South Korea
MX - Mexico
NL - Netherlands
NO - Norway
NZ - New Zealand
SE - Sweden
SG - Singapore
TH - Thailand
US - United States
ZA - South Africa
PORTFOLIO ABBREVIATIONS:
FHLMC -Federal Home Loan Mortgage Corp.
FNMA -Federal National Mortgage Association
L.L.C. - Limited Liability Corp.
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified institutional buyers.
eCertain short-term securities are traded on a discount basis; the rates shown are the discount rates at the time of
purchase by the Fund. Other securities bea interest at the rates shown, payable at fixed dates or upon maturity.
fFace amount for repurchase agreements is for the underlying collateral.
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES/
RIGHTS & VALUE
COUNTRY* WARRANTS Templeton Pacific Growth Fund (NOTE1)
a,b Common Stocks, Rights & Warrants 99.7%
<S> <C> <C> <C>
Australia 10.7%
AU 750,000 Australia & New Zealand Banking Group, Ltd....................... $5,606,228
AU 366,275 Brambles Industries, Ltd. ....................................... 7,243,253
AU 1,521,000 Capral Aluminium, Ltd. .......................................... 5,546,904
AU 1,080,000 Coles Myer, Ltd. ................................................ 5,618,459
AU 2,399,145 Gio Australia Holdings, Ltd. .................................... 7,427,020
US 118,100 b Qantas Airways, Ltd., ADR........................................ 2,684,413
--------------
34,126,277
--------------
China 2.4%
US 181,500 Guangshen Railway Co., Ltd., ADR ................................ 3,970,312
HK 1,008,000 a,b GZI Transport, Ltd. ............................................. 403,341
US 201,600 a,b GZI Transport, Ltd., warrants ................................... 20,818
HK 3,216,000 Maanshan Iron and Steel Co., Class H ............................ 672,482
US 225,000 Shandong Huaneng Power Co., Ltd., Sponsored ADR ................. 2,418,750
--------------
7,485,703
--------------
Hong Kong 25.8%
HK 3,000,000 Cathay Pacific Airways, Ltd. .................................... 6,215,068
HK 800,000 Cheung Kong Holdings, Ltd. ...................................... 7,899,526
HK 931,000 China Light & Power Co., Ltd. ................................... 5,275,502
US 4,311,086 Dairy Farm International Holdings, Ltd. ......................... 3,233,314
HK 5,415,000 Grand Hotel Holdings, Ltd., Class A ............................. 2,184,229
HK 5,400,399 Hon Kwok Land Investment, Ltd. .................................. 1,777,525
HK 745,000 Hong Kong Ferry Holdings Co., Ltd. .............................. 1,442,438
HK 2,438,633 Hong Kong Telecommunications, Ltd. .............................. 5,823,282
HK 216,200 HSBC Holdings, Plc. ............................................. 6,502,214
HK 632,031 Jardine Matheson Holdings, Ltd. ................................. 4,487,420
HK 3,860,000 National Mutual Asia, Ltd. ...................................... 4,284,848
HK 1,600,678 New World Development Co., Ltd. ................................. 9,545,432
HK 3,790,000 a Road King Infrastructure, Ltd. .................................. 3,204,278
HK 3,210,000 Shun Tak Holdings, Ltd. ......................................... 1,968,105
HK 4,888,000 South China Morning Post (Holdings), Ltd. ....................... 4,795,064
HK 645,000 Swire Pacific, Ltd., Class A .................................... 5,807,023
HK 3,100,000 Wheelock & Co., Ltd. ............................................ 7,622,656
--------------
82,067,924
--------------
India 0.4%
US 156,100 Great Eastern Shipping Co. ...................................... 1,239,044
--------------
Indonesia 4.7%
US 300,000 a Asia Pacific Resources International, Class A ................... 1,462,500
ID 1,567,000 PT Bank Bali, fgn. .............................................. 4,188,117
ID 4,121,750 PT Bank Pan Indonesia TBK........................................ 2,711,678
ID 2,060,875 a PT Bank Pan Indonesia TBK, rights ............................... 338,960
ID 950,000 PT Barito Pacific Timber, fgn. .................................. 810,547
ID 3,657,384 a PT Indorama Synthetics, fgn. .................................... 3,383,682
ID 129,000 a PT Inti Indorayon Utama, fgn. ................................... 90,173
ID 771,525 PT Pabrik Kertas Tjiwi Kimia, fgn. .............................. 896,200
ID 3,423,000 PT Panasia Indosyntec, fgn. ..................................... 950,051
--------------
14,831,908
--------------
Japan 18.6%
JP 1,011,000 Daicel Chemical Industries, Ltd. ................................ 3,907,800
JP 409,000 Daito Trust Construction Co. .................................... 4,817,642
JP 1,200 East Japan Railway .............................................. 6,156,531
JP 582,800 Hitachi, Ltd. ................................................... 6,508,891
JP 254,000 Hokuetsu Paper Mills, Ltd. ...................................... 1,544,699
JP 308,000 Matsushita Electric Industrial Co., Ltd. ........................ 6,207,835
JP 824,000 Mitsubishi Heavy Industries, Ltd. ............................... 6,319,658
JP 10,800 Nintendo Co., Ltd. .............................................. $ 902,748
JP 821 Nippon Telegraph & Telephone Corp. .............................. 7,879,766
JP 700,000 Nisshinbo Industries, Inc. ...................................... 6,351,976
JP 50,000 Sony Corp. ...................................................... 4,358,258
JP 330,000 Wacoal Corp. .................................................... 4,088,648
--------------
59,044,452
--------------
Malaysia 8.6%
MY 1,310,000 Commerce Asset-Holding Bhd., fgn. ............................... 3,451,466
MY 16,667 a Commerce Asset-Holding Bhd., fgn., warrants. .................... 26,546
MY 262,000 a Commerce Asset-Holding Bhd., rights ............................. 15,571
MY 2,607,000 Golden Hope Plantations Bhd., fgn. .............................. 4,482,718
MY 1,634,000 Hicom Holdings Bhd............................................... 3,094,501
MY 3,342,667 Malaysia International Shipping, Bhd., fgn. ..................... 8,674,512
MY 928,000 Public Finance Bhd., fgn. ....................................... 1,426,561
MY 1,798,800 Sime Darby Bhd., fgn. ........................................... 5,986,498
--------------
27,158,373
--------------
New Zealand 3.9%
NZ 4,177,353 Brierley Investments, Ltd. ...................................... 4,085,958
NZ 2,411,800 Carter Holt Harvey, Ltd. ........................................ 6,241,608
NZ 192,500 Fletcher Challenge Building, Ltd. ............................... 579,248
NZ 192,500 Fletcher Challenge Energy, Ltd. ................................. 581,863
NZ 30,800 Fletcher Challenge Forests ...................................... 44,771
NZ 385,000 Fletcher Challenge Paper, Ltd. .................................. 933,596
--------------
12,467,044
--------------
Pakistan 3.8%
PK 2,618,000 Fauji Fertilizer Co., Ltd. ...................................... 5,149,272
US 91,000 a Hub Power Co., Ltd., GDR, reg.S ................................. 2,252,250
PK 6,300,000 Pakistan Telecom Corp., PTC ..................................... 4,792,860
--------------
12,194,382
--------------
Philippines 2.5%
PH 5,675,000 a Filinvest Land, Inc. ............................................ 1,420,041
PH 962,500 a Philippine National Bank ........................................ 6,531,980
--------------
7,952,021
--------------
Singapore 12.5%
SG 888,600 City Developments Ltd., fgn. .................................... 8,701,406
SG 518,000 Development Bank of Singapore, Ltd., fgn. ....................... 6,521,648
SG 1,240,000 Inchcape Berhad ................................................. 4,466,671
SG 393,800 Overseas Union Bank Ltd., fgn. .................................. 2,451,437
SG 78,760 a Overseas Union Bank Ltd., rights ................................ 105,219
SG 1,217,000 Parkway Holdings Ltd., fgn. ..................................... 5,447,856
SG 882,000 Singapore Airlines Ltd., fgn. ................................... 7,896,482
SG 213,000 Singapore Finance Ltd. .......................................... 305,414
SG 2,102,000 Van Der Horst, Ltd. ............................................. 3,866,727
--------------
39,762,860
--------------
South Korea 0.8%
KR 99,030 Pacific Chemical Co. ............................................ 2,464,598
--------------
Thailand 5.0%
TH 622,000 Bangkok Bank Public Co., Ltd., fgn. ............................. 4,273,924
TH 829,900 Charoen Pokphand Feedmill Public Co., Ltd., fgn. ................ 2,050,322
TH 2,783,133 Industrial Finance Corp. of Thailand, fgn. ...................... 3,545,392
TH 2,531,400 Krung Thai Bank ................................................. 2,638,402
TH 327,900 Robinson Department Store Public Co., Ltd., fgn. ................ 123,413
TH 36,570 Thai Farmers Bank Public Co., Ltd. .............................. 112,230
TH 733,440 Thai Farmers Bank Public Co., Ltd., fgn. ........................ $ 3,114,395
TH 91,680 a Thai Farmers Bank Public Co., Ltd., fgn., warrants. ............. 39,815
--------------
15,897,893
--------------
Total Common Stocks, Rights & Warrants (Cost $277,637,121) 316,692,479
--------------
Preferred Stocks
US 31,000 Dairy Farm International Holdings, Ltd.,
6.50%, cvt. pfd. (Cost $31,000)................................. 22,863
--------------
Total Common Stocks, Rights & Warrants and Preferred
Stocks (Cost $277,668,121) ..................................... 316,715,342
--------------
FACE
AMOUNT
Convertible Bonds 0.2%
US $ 360,000 PT Inti Indorayon Utama, 5.50%, cvt., 10/01/02 .................. 430,200
US 1,307,000 MDX Public Co., Ltd., cvt. unsecured notes, 4.75%, 09/17/03 ..... 209,120
--------------
Total Convertible Bonds (Cost $1,941,281) ................. 639,320
--------------
Total Long Term Investments (Cost $279,609,402) ........... 317,354,662
--------------
e Short Term Investments
US 71,000 U. S. Treasury Bill, 08/21/97 (Cost $70,476) .................... 70,493
--------------
Total Investments before Repurchase Agreements
(Cost $279,679,878) ............................................ 317,425,155
--------------
f Receivables from Repurchase Agreements 0.7%
US 2,305,000 Swiss Bank Corp., 5.90%, 07/01/97 (Maturity Value $2,276,373)
(Cost $2,276,000)
Collateral: U.S. Treasury Note, 5.875%, 03/31/99 ............... 2,276,000
--------------
Total Investments (Cost $281,955,878) 100.6% ......... 319,701,155
Liabilities in Excess of Other Assets (0.6%) ......... (2,106,339)
--------------
Net Assets 100.0% .................................... $317,594,816
==============
At June 30, 1997, the net unrealized appreciation based on the
cost of investments for income tax purposes of
$285,511,117 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ............... $ 67,784,258
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value ............... (33,594,220)
--------------
Net unrealized appreciation ................................... $ 34,190,038
==============
COUNTRY LEGEND:
AU - Australia
HK - Hong Kong
ID - Indonesia
JP - Japan
KR - South Korea
MY - Malaysia
NZ - New Zealand
PH - Philippines
PK - Pakistan
SG - Singapore
TH - Thailand
US - United States
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified institutional buyers.
eCertain short-term securities are traded on a discount basis; the rates shown are the discount rates at the time of
purchase by the Fund. Other securities bear interest at the rates shown, payable at fixed dates or upon maturity.
fFace amount for repurchase agreements is for the underlying collateral.
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT U.S. Government Securities Fund (NOTE1)
Mortgage-Backed Securities 71.0%
<S> <C> <C>
Government National Mortgage Association (GNMA) - Fixed Rate 40.8%
$ 12,524,753 GNMA I, SF, 6.00%, 12/15/23 - 01/15/24 ................................. $ 11,747,766
2,179,820 GNMA II, 6.00%, 01/20/24 - 10/20/24 .................................... 2,024,607
55,008,570 GNMA I, SF, 6.50%, 05/15/23 - 05/15/24 ................................. 53,053,063
3,786,675 GNMA II, 6.50%, 01/20/26 ............................................... 3,614,077
8,656,588 GNMA, PL, 6.50%, 09/15/28 .............................................. 8,163,940
54,671,644 GNMA I, SF, 7.00%, 03/15/22 - 12/15/26 ................................. 54,070,685
29,140,634 GNMA II, 7.00%, 01/20/24 - 1/20/27 ..................................... 28,574,018
1,817,025 GNMA I, SF, 7.25%, 11/15/25 ............................................ 1,801,672
2,227,552 GNMA, PL, 7.25%, 05/15/22 - 08/15/22 ................................... 2,254,506
45,373,677 GNMA I, SF, 7.50%, 02/15/17 - 02/15/27 ................................. 45,810,487
36,554,842 GNMA II, 7.50%, 11/20/16 - 11/20/26 .................................... 36,670,332
28,059,300 GNMA I, SF, 8.00%, 04/15/05 - 06/15/25 ................................. 28,934,716
3,245,033 GNMA II, 8.00%, 02/20/16 - 08/20/26 .................................... 3,329,558
2,237,944 GNMA I, SF, 8.25%, 04/15/25 ............................................ 2,309,111
10,666,036 GNMA I, SF, 8.50%, 08/15/21 - 12/15/24 ................................. 11,159,771
3,870,483 GNMA I, SF, 9.00%, 04/15/16 - 02/15/21 ................................. 4,154,574
9,503,260 GNMA I, SF, 9.50%, 10/15/15 - 12/15/21 ................................. 10,312,378
1,690,526 GNMA II, 9.50%, 04/20/25 ............................................... 1,807,917
7,760,299 GNMA I, SF, 10.00%, 08/15/17 - 08/15/21 ................................ 8,487,555
--------------
318,280,733
--------------
Government National Mortgage Association (GNMA) - Adjustable Rate 1.5%
3,430,490 GNMA, Cap 11.50%, Margin 1.50% + CMT, Resets Annually, 7.125%, 07/20/17 3,528,946
3,171,257 GNMA, Cap 11.50%, Margin 2.50% + CMT, Resets Annually, 7.50%, 07/20/25 . 3,299,915
4,797,426 GNMA, Cap 14.00%, Margin 1.50% + CMT, Resets Annually, 7.00%, 01/20/16 . 4,927,580
--------------
11,756,441
--------------
Federal National Mortgage Association (FNMA) - Fixed Rate 7.2%
6,823,698 FNMA, 6.00%, 10/01/23 - 04/01/24 ....................................... 6,397,153
15,534,028 FNMA, 6.50%, 01/01/24 - 06/01/24 ....................................... 14,985,842
1,866,854 FNMA, 7.00%, 05/01/24 .................................................. 1,841,838
7,793,681 FNMA, PL, 7.00%, 03/17/35 .............................................. 7,428,314
11,336,549 FNMA, 7.50%, 04/01/23 - 08/01/25 ....................................... 11,408,689
12,644,842 FNMA, 8.00%, 07/01/16 - 02/01/25 ....................................... 13,009,463
982,554 FNMA, 8.50%, 10/01/19 - 03/01/22 ....................................... 1,027,834
--------------
56,099,133
--------------
Federal National Mortgage Association (FNMA) - Adjustable Rate 9.0%
8,823,253 FNMA, Cap 12.059%, Margin 1.25% + COFI,
Resets Monthly, 6.016%, 11/01/35 ...................................... 8,744,108
4,874,001 FNMA, Cap 12.49%, Margin 2.00% + CMT,
Resets Annually, 7.772%, 02/01/19 ..................................... 5,119,017
2,189,402 FNMA, Cap 12.786%, Margin 1.25% + COFI,
Resets Monthly, 6.009%, 02/01/03 ...................................... 2,176,966
6,333,386 FNMA, Cap 12.819%, Margin 2.127% + CMT,
Resets Annually, 7.893%, 09/01/18 ..................................... 6,687,295
14,364,771 FNMA, Cap 12.93%, Margin 2.24% + CMT,
Resets Annually, 7.058%, 02/01/27 ..................................... 14,552,662
4,331,621 FNMA, Cap 13.313%, Margin 2.126% + CMT,
Resets Annually, 7.805%, 07/01/19 ..................................... 4,543,914
13,136,379 FNMA, Cap 13.644%, Margin 2.011% + CMT,
Resets Annually, 7.703%, 01/01/18 ..................................... 13,792,541
427,774 FNMA, Cap 13.843%, Margin 1.25% + COFI,
Resets Monthly, 6.03%, 02/01/17 ....................................... 421,469
876,844 FNMA, Cap 14.071%, Margin 1.25% + COFI,
Resets Monthly, 6.009%, 12/01/18 ...................................... 863,920
5,478,804 FNMA, Cap 14.625%, Margin 1.25% + COFI,
Resets Monthly, 6.005%, 06/01/02 ...................................... 5,430,590
2,810,484 FNMA, Cap 14.808%, Margin 1.825% + 3CMT,
Resets Tri-Annually, 8.542%, 07/01/20 ................................. 2,908,711
4,743,241 FNMA, Cap 15.156%, Margin 2.284% + 3CMT,
Resets Tri-Annually, 8.576%, 03/01/20 ................................. 4,975,707
--------------
70,216,900
--------------
Federal Home Loan Mortgage Corp. (FHLMC) - Fixed Rate 8.9%
22,061,757 FHLMC, 6.50%, 06/01/08 - 01/01/24 ...................................... 21,408,708
16,777,379 FHLMC, 7.00%, 04/01/24 ................................................. 16,578,565
19,700,484 FHLMC, PL, 7.00%, 09/17/31 ............................................. 19,263,330
5,595,800 FHLMC, 7.50%, 11/01/22 - 05/01/24 ...................................... 5,652,404
4,094,568 FHLMC, 8.00%, 05/01/16 - 05/01/22 ...................................... 4,223,708
$ 1,232,615 FHLMC, 8.50%, 04/01/18 - 03/01/22 ...................................... $ 1,287,633
760,566 FHLMC, 9.00%, 03/01/03 ................................................. 789,239
--------------
69,203,587
--------------
Federal Home Loan Mortgage Corp. (FHLMC)
- Adjustable Rate 3.6%
3,200,929 FHLMC, Cap 10.99%, Margin 2.225% + CMT,
Resets Annually, 7.883%, 06/01/22 ..................................... 3,350,765
4,533,507 FHLMC, Cap 12.522%, Margin 2.105% + CMT,
Resets Annnually, 7.7%, 06/01/22 ...................................... 4,755,739
2,467,328 FHLMC, Cap 13.006%, Margin 2.00% + CMT,
Resets Annually, 7.685%, 09/01/19 ..................................... 2,583,169
3,235,477 FHLMC, Cap 13.125%, Margin 2.00% + CMT,
Resets Annually, 7.626%, 07/01/18 ..................................... 3,383,920
6,743,016 FHLMC, Cap 13.458%, Margin 2.195% + CMT,
Resets Annually, 7.907%, 02/01/19 ..................................... 7,064,253
6,770,020 FHLMC, Cap 13.879%, Margin 2.089% + CMT,
Resets Annually, 7.755%, 04/01/18 ..................................... 7,097,553
--------------
28,235,399
--------------
Total Mortgage-Backed Securities (Cost $547,332,903) .................. 553,792,193
--------------
Other Government & Agency Securities 25.0%
2,000,000 Federal Agriculture Mortgage Corp., 6.91%, 07/15/97 .................... 2,000,872
5,000,000 Federal Agriculture Mortgage Corp., 7.23%, 01/17/07 .................... 4,988,165
5,000,000 Federal Farm Credit Bank, 5.80%, 09/16/03 .............................. 4,763,519
15,000,000 FICO Strips, Series 1, 0.00%, 05/11/99 ................................. 13,375,079
3,876,000 FICO Strips, Series 1, 0.00%, 11/11/01 ................................. 2,925,825
1,925,000 FICO Strips, Series 1, 0.00%, 05/11/02 ................................. 1,405,340
1,758,000 FICO Strips, Series 1, 0.00%, 05/11/09 ................................. 771,101
10,000,000 FICO Strips, Series 1, 0.00%, 05/11/13 ................................. 3,246,729
11,024,000 FICO Strips, Series 13, 0.00%, 06/27/09 ................................ 4,790,092
5,000,000 FICO Strips, Series 15, 0.00%, 09/07/98 ................................ 4,659,520
10,000,000 FICO Strips, Series 15, 0.00%, 03/07/02 ................................ 7,387,500
3,202,000 FICO Strips, Series 16, 0.00%, 04/05/09 ................................ 1,414,169
4,745,000 FICO Strips, Series 16, 0.00%, 10/05/10 ................................ 1,873,515
2,060,000 FICO Strips, Series A, 0.00%, 02/08/09 ................................. 919,955
7,000,000 FICO Strips, Series D, 0.00%, 09/26/01 ................................. 5,328,077
15,000,000 FNMA, 6.05%, 11/10/97 .................................................. 15,017,818
5,000,000 Housing Urban Development, Series 96-A, 7.63%, 08/01/14 ................ 5,072,479
5,000,000 Housing Urban Development, Series 96-A, 7.66%, 08/01/15 ................ 5,076,154
4,685,663 SBA, 6.45%, 12/01/15 ................................................... 4,506,296
4,929,887 SBA, 6.70%, 12/01/16 ................................................... 4,798,704
7,960,239 SBA, Cap 10.50%, Margin Prime - 0.50%, Resets Quarterly, 8.00%, 03/25/19 8,298,549
7,003,387 SBA, Cap 10.85%, Margin Prime - 0.40%, Resets Quarterly, 8.10%, 06/25/19 7,344,802
8,915,415 SBA, Cap 10.875%, Margin Prime - 0.125%, Resets Quarterly, 8.375%, 03/25/18 9,492,132
5,000,000 SLMA, 5.64%, 11/26/97 .................................................. 4,995,415
5,000,000 SLMA, 6.16%, 12/02/99 .................................................. 4,955,115
15,000,000 SLMA, 0.00%, 05/15/14 .................................................. 4,001,578
10,000,000 Tennessee Valley Authority, 0.00%, 04/15/03 ............................ 6,855,180
6,000,000 Tennessee Valley Authority, 0.00%, 04/15/42 ............................ 2,336,140
5,000,000 Tennessee Valley Authority, 5.98%, 04/01/36 ............................ 5,036,370
5,000,000 Tennessee Valley Authority, 6.125%, 07/15/03 ........................... 4,872,640
19,249,000 Tennessee Valley Authority, 6.235%, 07/15/45 ........................... 19,150,520
10,000,000 Tennessee Valley Authority, 7.25%, 07/15/43 ............................ 9,643,760
1,000,000 Tennessee Valley Authority, 8.375%, 10/01/99 ........................... 1,044,500
12,000,000 Tennessee Valley Authority, 8.625%, 11/15/29 ........................... 12,905,210
--------------
Total Other Agency Government Securities (Cost $191,633,360) .......... 195,252,820
--------------
U.S. Government Securities 1.3%
5,000,000 U.S. Treasury Notes, 5.75%, 08/15/03 ................................... 4,829,690
5,000,000 U.S. Treasury Notes, 5.875%, 03/31/99 .................................. 4,989,065
--------------
Total U.S. Government Securities (Cost $9,992,578) .................... 9,818,755
--------------
Total Long Term Investments (Cost $748,958,841) ....................... 758,863,768
--------------
f,gReceivables from Repurchase Agreements 1.9%
$ 14,532,067 Joint Repurchase Agreement, 5.884%, 07/01/97,
(Maturity $14,537,982) (Cost $14,535,607)
Aubrey G. Lanston & Co., Inc., (Maturity Value $1,440,939)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $1,440,939)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $849,061)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $1,440,939)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $1,440,939)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $720,470)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $1,440,939)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co., L.P., (Maturity Value $1,440,939)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $1,440,939)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $1,440,939)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $1,440,939)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 ... $ 14,535,607
--------------
Total Investments (Cost $763,494,448) 99.2%............................ 773,399,375
Other Assets and Liabilities, Net 0.8%................................. 5,923,313
--------------
Net Assets 100.0%...................................................... $779,322,688
==============
At June 30, 1997 the net unrealized appreciation based on the cost
of investments for income tax purposes of $763,494,448 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ...................... $ 15,872,778
Aggregate gross unrealized depreciation for all investments in which there
was an excess of tax cost over value .................................. (5,967,851)
--------------
Net unrealized appreciation ........................................... $ 9,904,927
==============
PORTFOLIO ABBREVIATIONS:
</TABLE>
3CMT - 3 Year Constant Maturity Treasury Index
CMT - 1 Year Constant Maturity Treasury Index
COFI - 11th District Cost of Funds Index
FICO - Financing Corp.
L.L.C. - 1Limited Liability Corp.
L.P. - Limited Partnership
PL - Project Loan
SBA - Small Business Administration
SF - Single Family
SLMA - Student Loan Marketing Association
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES/ VALUE
COUNTRY* RIGHTS Utility Equity Fund (NOTE1)
a,b Common Stocks & Rights 97.2%
<S> <C> <C> <C>
US 255,600 a AES Corp. ....................................................... $ 18,083,700
US 946,100 a AirTouch Communications, Inc. ................................... 25,899,488
US 1,000,000 Allegheny Power System, Inc. .................................... 26,687,500
US 770,230 American Electric Power Co. ..................................... 32,349,660
US 100,000 Ameritech Corp. ................................................. 6,793,750
US 104,600 a Ascend Communications, Inc. ..................................... 4,118,625
US 360,000 AT&T Corp. ...................................................... 12,622,500
CN 3,291,000 a Beijing Datang Power Generation Co., Ltd......................... 1,518,636
US 158,600 b BSES, Ltd., Sponsored GDR ....................................... 4,222,725
US 1,021,100 Central & South West Corp. ...................................... 21,698,375
US 1,223,900 CINergy Corp. ................................................... 42,607,019
US 33,100 Companhia Energetica de Minas Gerais, Sponsored ADR ............. 1,694,306
US 465,000 Dominion Resources, Inc. ........................................ 17,030,625
US 716,000 DPL, Inc. ....................................................... 17,631,500
US 1,064,600 Duke Energy Corp. ............................................... 51,034,263
US 39,200 a Echelon International Corp., Inc. ............................... 894,250
US 763,600 Edison International ............................................ 18,994,550
BR 22,700,000 Eletropaulo-Eletricidade de Sao Paulo, SA ....................... 6,642,051
US 978,800 Empresa Nacional Electricidad, SA, Sponsored ADR ................ 22,084,175
US 732,560 Enova Corp. ..................................................... 17,627,225
US 1,040,000 Enron Corp. ..................................................... 42,445,000
US 496,300 Enron Global Power & Pipelines, L.L.C. .......................... 16,532,994
US 1,096,200 Entergy Corp. ................................................... 30,008,475
US 195,000 b Espoon Sahko Oy ................................................. 5,182,223
US 1,076,300 a Esprit Telecom Group, Plc., ADR ................................. 8,610,400
US 1,132,000 Florida Progress Corp. .......................................... 35,445,750
US 701,300 FPL Group, Inc. ................................................. 32,303,631
US 900,000 GPU, Inc. ....................................................... 32,287,500
MX 55,600 a Grupo Iusacell, SA, Series D .................................... 77,008
US 144,440 a Grupo Iusacell, SA, Series L, Sponsored ADR ..................... 2,654,085
US 400,840 GTE Corp. ....................................................... 17,586,855
GR 361,800 Hellenic Telecommunication Organization, SA ..................... 8,494,813
GR 361,800 Hellenic Telecommunication Organization, SA, rights ............. 44,450
HK 1,250,000 Hongkong Electric Holdings, Ltd.................................. 5,034,012
US 138,000 a Huaneng Power International, Inc., Sponsored ADR ................ 3,519,000
US 1,380,000 a ICG Communications, Inc. ........................................ 26,565,000
US 211,400 a Itron, Inc. ..................................................... 5,469,975
KR 290,000 Korea Electric Power Corp. ...................................... 8,654,279
BR 10,140,600 Light Servicos de Eletricidade, SA .............................. 5,046,045
US 142,000 MCN Corp. ....................................................... 4,348,750
US 288,400 MidAmerican Energy Holdings Co. ................................. 4,992,925
GB 302,500 National Power, Plc. ............................................ 2,629,602
NO 429,000 a,b NetCom, ASA ..................................................... 4,565,573
US 210,000 New Jersey Resources Corp. ...................................... 6,588,750
JP 2,870 Nippon Telegraph & Telephone Corp. .............................. 27,545,589
US 649,900 NIPSCO Industries, Inc. ......................................... 26,848,994
US 323,000 a Nynex CableComms Group, Sponsored ADR ........................... 6,424,470
US 223,100 OGE Energy Corp. ................................................ 10,151,050
US 229,600 Pacific Enterprises ............................................. 7,720,300
US 950,000 PacifiCorp ...................................................... 20,900,000
US 166,600 PECO Energy Co................................................... 3,498,600
US 1,055,150 PG&E Corp. ...................................................... 25,587,388
US 843,000 Pinnacle West Capital Corp. ..................................... 25,342,688
US 189,500 Public Service Co. of Colorado .................................. 7,864,250
US 104,200 Public Service Enterprise Group, Inc. ........................... 2,605,000
US 100,000 SBC Communications, Inc. ........................................ 6,187,500
US 940,644 SCANA Corp. ..................................................... 23,339,729
GB 590,000 Scottish Power, Plc. ............................................ 3,841,696
KR 2,043 SK Telecom Co., Ltd. ............................................ $ 1,544,257
US 1,966,790 Southern Co. .................................................... 43,023,531
GB 366,091 Southern Electric, Plc. ......................................... 2,703,815
US 442,700 Southwestern Public Service Co. ................................. 17,403,644
IT 1,540,000 Stet Societa Finanziaria Telefonica, SpA ........................ 5,333,906
US 1,800,000 Teco Energy, Inc. ............................................... 46,012,500
US 315,000 Tele Danmark, AS, Sponsored ADR ................................. 8,229,375
PT 11,000 a Telecel-Comunicacaoes Pessoais, SA .............................. 912,552
US 230,000 Telecom Argentina Stet - France Telecom, SA, Sponsored ADR ...... 12,075,000
IT 6,000,000 a Telecom Italia, SpA ............................................. 12,004,237
US 79,400 Telefonica de Espana, Sponsored ADR ............................. 6,848,250
US 69,000 a TeleWest Communications, Plc., Sponsored ADR .................... 1,078,125
US 611,350 Texas Utilities Co. ............................................. 21,053,366
JP 135,000 Tokyo Electric Power Co. ........................................ 2,838,758
JP 2,000,000 Tokyo Gas Co., Ltd. ............................................. 5,549,254
TH 916,600 Total Access Communication Public Co., Ltd. ..................... 4,253,020
US 370,000 Transportadora de Gas del Sur, SA, Class B, Sponsored ADR ....... 4,625,000
US 155,000 a Vimpel-Communications, Sponsored ADR ............................ 5,890,000
--------------
Total Common Stocks & Rights (Cost $979,406,795) .......... 1,058,557,862
--------------
Convertible Preferred Stocks 1.9%
US 175,000 j CMS Energy Corp., 7.75%, quarterly cvt. pfd. .................... 9,072,000
US 240,000 Nortel Inversora, SA, 10.00%, cvt. pfd........................... 11,790,000
--------------
Total Convertible Preferred Stocks (Cost $18,083,247) ..... 20,862,000
--------------
Total Long Term Investments (Cost $997,490,042) ........... 1,079,419,862
--------------
FACE
AMOUNT
f,g Receivables from Repurchase Agreements 0.9%
US $9,789,578 Joint Repurchase Agreement, 5.884%, 07/01/97
(Maturity Value $9,795,106) (Cost $9,793,505)
Aubrey G. Lanston & Co., Inc., (Maturity Value $970,847)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $970,847)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $572,060)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $970,847)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $970,847)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $485,423)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $970,847)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co., L.P., (Maturity Value $970,847)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $970,847)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $970,847)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $970,847)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 9,793,505
--------------
Total Investments (Cost $1,007,283,547) 100.0% ....... 1,089,213,367
Liabilities in Excess of Other Assets ................. (254,073)
--------------
Net Assets 100.0% ....................................$1,088,959,294
==============
At June 30, 1997, the net unrealized appreciation based on the
cost of investments for income tax purposes of
$1,007,283,547 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ............... $ 137,283,530
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value ............... (55,353,710)
--------------
Net unrealized appreciation ................................... $ 81,929,820
==============
COUNTRY LEGEND:
BR - Brazil
CN - China
GB - United Kingdom
GR - Greece
HK - Hong Kong
IT - Italy
JP - Japan
KR - South Korea
MX - Mexico
NO - Norway
PT - Portugal
TH - Thailand
US - United States
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified institutional buyers.
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
jSee Note 9 regarding restricted securities.
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT Zero Coupon Fund - 2000 (NOTE1)
f,gLong Term Investments 99.1%
<S> <C> <C>
Government & Agency Securities 97.5%
$ 7,567,000 FHLB Strips, Series A-1, 0.00%, 02/25/01 ............................... $ 5,990,869
2,884,000 FHLB Strips, Series A-1, 0.00%, 08/25/01 ............................... 2,208,437
465,000 FHLB Strips, Series A-1, 0.00%, 02/25/02 ............................... 344,424
16,175,000 FHLMC, notes, 0.00%, 05/15/00 .......................................... 13,512,754
9,023,000 FICO Strips, 0.00%, 03/26/01 ........................................... 7,100,639
2,000,000 FICO Strips, 0.00%, 04/06/01 ........................................... 1,570,864
1,139,000 FICO Strips, Series 1, 0.00%, 11/11/00 ................................. 919,738
1,000,000 FICO Strips, Series 7, 0.00%, 02/03/01 ................................. 794,743
17,390,000 FICO Strips, Series 12, 0.00%, 12/06/00 ................................ 13,974,846
6,000,000 FICO Strips, Series 12, 0.00%, 06/06/01 ................................ 4,660,205
4,000,000 FICO Strips, Series 13, 0.00%, 06/27/01 ................................ 3,095,027
148,000 FICO Strips, Series 15, 0.00%, 09/07/00 ................................ 120,893
5,000,000 FICO Strips, Series 15, 0.00%, 03/07/01 ................................ 3,948,465
5,875,000 FICO Strips, Series 17, 0.00%, 10/05/00 ................................ 4,774,805
6,200,000 FICO Strips, Series 18, 0.00%, 10/06/00 ................................ 5,038,020
4,965,000 FICO Strips, Series D, 0.00%, 09/26/00 ................................. 4,042,006
5,550,000 FICO Strips, Series D, 0.00%, 02/03/01 ................................. 4,410,823
3,800,000 FNMA Strips, 0.00%, 11/22/99 ........................................... 3,271,150
1,000,000 FNMA Strips, 0.00%, 02/12/02 ........................................... 742,473
500,000 FNMA Strips, Series 1, 0.00%, 02/12/00 ................................. 424,080
1,875,000 FNMA Strips, Series 1, 0.00%, 02/01/01 ................................. 1,491,229
1,000,000 FNMA Strips, Series 1, 0.00%, 02/01/02 ................................. 743,980
3,000,000 FNMA Strips, Series 2, 0.00%, 08/12/01 ................................. 2,302,746
9,195,000 REFCO Strips, 0.00%, 01/15/01 .......................................... 7,371,079
3,320,000 Tennessee Valley Authority, 0.00%, 07/15/00 ............................ 2,743,136
2,500,000 Tennessee Valley Authority, 0.00%, 10/15/00 ............................ 2,031,895
65,000 Tennessee Valley Authority, 0.00%, 01/01/01 ............................ 51,688
10,500,000 Tennessee Valley Authority, 0.00%, 04/15/01 ............................ 8,249,083
1,000,000 Tennessee Valley Authority, 0.00%, 04/15/02 ............................ 735,272
1,110,375 U.S. Treasury Strips, 0.00%, 11/15/00 .................................. 897,562
2,778,750 U.S. Treasury Strips, 0.00%, 02/15/01 .................................. 2,207,639
9,635,000 U.S. Treasury Strips, 0.00%, 02/15/01 .................................. 7,689,799
15,000 U.S. Treasury Strips, 0.00%, 02/15/01 .................................. 11,980
--------------
117,472,349
--------------
Other Securities - "AAA" Rated 1.6%
220,000 InterAmerican Development Bank, 0.00%, 12/16/00 ........................ 175,978
405,000 International Bank for Reconstruction and Development, 0.00%, 02/15/00 . 343,359
945,000 International Bank for Reconstruction and Development, 0.00%, 08/15/00 . 774,839
735,000 International Bank for Reconstruction and Development, 0.00%, 02/15/01 . 582,272
--------------
1,876,448
--------------
Total Long Term Investments (Cost $114,210,502)........................ 119,348,797
--------------
f,gReceivables from Repurchase Agreements 1.3%
$ 1,563,347 Joint Repurchase Agreement, 5.884%, 07/01/97
(Maturity Value $1,564,040) (Cost $1,563,784)
Aubrey G. Lanston & Co., Inc., (Maturity Value $155,021)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $155,021)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $91,341)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $155,021)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $155,021)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $77,510)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $155,021)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co., L.P., (Maturity Value $155,021)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $155,021)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $155,021)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities L.L.C., (Maturity Value $155,021)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 ... $ 1,563,784
--------------
Total Investments (Cost $115,774,286) 100.4% .......................... 120,912,581
Liabilities in Excess of Other Assets (0.4%) .......................... (487,664)
--------------
Net Assets 100.0% ..................................................... $120,424,917
==============
At June 30, 1997, the net unrealized appreciation based on the cost
of investments for income tax purposes of $115,774,286 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ............................ $ 5,340,948
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ............................ (202,653)
--------------
Net unrealized appreciation ........................................... $ 5,138,295
==============
</TABLE>
PORTFOLIO ABBREVIATIONS:
FHLB - Federal Home Loan Bank
FHLMC - Federal Home Loan Mortgage Corp.
FICO - Financing Corp.
FNMA - Federal National Mortgage Association
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
REFCO - Resolution Funding Corp.
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT Zero Coupon Fund - 2005 (NOTE1)
f,gLong Term Investments 100.0%
<S> <C> <C>
Government & Agency Securities 96.5%
$ 1,000,000 FHLB Strips, Series A-1, 0.00%, 08/25/02 ............................... $ 716,024
800,000 FHLB Strips, Series A-1, 0.00%, 02/25/04 ............................... 515,407
9,110,000 FHLB Strips, Series A-1P, 0.00%, 02/25/04 .............................. 5,869,198
11,400,000 FICO Strips, 0.00%, 10/06/05 ........................................... 6,532,028
3,500,000 FICO Strips, Series 1, 0.00%, 05/11/05 ................................. 2,061,517
829,000 FICO Strips, Series 1, 0.00%, 11/11/05 ................................. 471,892
3,509,000 FICO Strips, Series 2, 0.00%, 11/02/05 ................................. 2,000,790
11,055,000 FICO Strips, Series 12, 0.00%, 12/06/05 ................................ 6,256,930
2,755,000 FICO Strips, Series 13, 0.00%, 12/27/05 ................................ 1,551,737
2,620,000 FICO Strips, Series 15, 0.00%, 09/07/05 ................................ 1,509,463
6,000,000 FICO Strips, Series 16, 0.00%, 04/05/06 ................................ 3,307,637
10,000,000 FICO Strips, Series 19, 0.00%, 12/06/05 ................................ 5,659,819
6,799,000 FICO Strips, Series D, 0.00%, 09/26/05 ................................. 3,903,332
1,763,000 FICO Strips, Series D, 0.00%, 03/26/06 ................................. 973,726
5,000,000 FICO Strips, Series F, 0.00%, 03/26/05 ................................. 2,972,495
120,000 FNMA Strips, 0.00%, 02/12/08 ........................................... 57,869
450,000 FNMA Strips, Series 1, 0.00%, 08/01/04 ................................. 280,933
1,000,000 FNMA Strips, Series 1, 0.00%, 02/12/05 ................................. 600,243
875,000 FNMA Strips, Series 1, 0.00%, 08/12/05 ................................. 506,877
4,307,000 FNMA Strips, Series 1, 0.00%, 02/01/06 ................................. 2,407,987
250,000 FNMA Strips, Series 1, 0.00%, 02/12/06 ................................. 139,412
1,730,000 FNMA Strips, Series 1, 0.00%, 02/01/08 ................................. 836,209
6,000,000 FNMA Strips, Series 2, 0.00%, 02/01/05 ................................. 3,609,491
530,000 FNMA Strips, Series 9, 0.00%, 08/01/06 ................................. 285,907
6,500,000 REFCO Strips, 0.00%, 01/15/06 .......................................... 3,695,692
3,000,000 REFCO Strips, Series R, 0.00%, 04/15/06 ................................ 1,674,294
6,200,000 Tennessee Valley Authority, 0.00%, 10/15/04 ............................ 3,819,869
2,260,000 Tennessee Valley Authority, 0.00%, 04/15/05 ............................ 1,341,500
1,000,000 Tennessee Valley Authority, 0.00%, 10/15/05 ............................ 573,409
16,390,000 U.S. Treasury Strips, 0.00%, 02/15/06 .................................. 9,322,942
--------------
73,454,629
--------------
Other Securities - "AAA" Rated 3.5%
1,500,000 Exxon Corp., 0.00%, 11/15/04 ........................................... 923,761
541,000 International Bank for Reconstruction and Development, 0.00%, 02/15/07 . 277,714
2,500,000 International Bank for Reconstruction and Development, 0.00%, 08/15/07 . 1,236,015
459,000 International Bank for Reconstruction and Development,
Series 2, 0.00%, 02/15/07.............................................. 235,565
--------------
2,673,055
--------------
Total Long Term Investments (Cost $70,813,920) ........................ 76,127,684
--------------
f,gReceivables from Repurchase Agreements
$ 26,224 Joint Repurchase Agreement, 5.884%, 07/01/97
(Maturity Value $26,896) (Cost $26,892)
Aubrey G. Lanston & Co., Inc., (Maturity Value $2,666)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $2,666)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $1,570)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $2,666)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $2,666)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $1,332)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $2,666)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co., L.P., (Maturity Value $2,666)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $2,666)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $2,666)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $2,666)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 ... $ 26,892
--------------
Total Investments (Cost $70,840,812) 100.0%............................ 76,154,576
Liabilities in Excess of Other Assets ................................. (23,958)
--------------
Net Assets 100.0% ..................................................... $76,130,618
==============
At June 30, 1997, the net unrealized appreciation based on the cost of
investments for income tax purposes of $70,840,812 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ............................ $ 6,007,572
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ............................ (693,808)
--------------
Net unrealized appreciation ........................................... $ 5,313,764
==============
</TABLE>
PORTFOLIO ABBR EVIATIONS:
FHLB - Federal Home Loan Bank
FICO - Financing Corp.
FNMA - Federal National Mortgage Association
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
REFCO - Resolution Funding Corp.
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT Zero Coupon Fund - 2010 (NOTE1)
f,gLong Term Investments 100.1%
<S> <C> <C>
Government & Agency Securities 95.0%
$ 4,450,000 FHLMC, capital deb., 0.00%, 11/29/19 ................................... $ 905,958
4,040,000 FICO Strips, 0.00%, 10/06/10 ........................................... 1,594,790
16,246,000 FICO Strips, Series 1, 0.00%, 11/11/10 ................................. 6,363,540
2,000,000 FICO Strips, Series 3, 0.00%, 05/30/10 ................................. 811,200
1,528,000 FICO Strips, Series 4, 0.00%, 10/06/10 ................................. 603,178
3,021,000 FICO Strips, Series 8, 0.00%, 08/03/10 ................................. 1,209,097
2,837,000 FICO Strips, Series 11, 0.00%, 02/08/11 ................................ 1,090,993
4,550,000 FICO Strips, Series 12, 0.00%, 06/06/09 ................................ 1,985,456
7,500,000 FICO Strips, Series 12, 0.00%, 12/06/10 ................................ 2,922,142
3,000,000 FICO Strips, Series 19, 0.00%, 06/06/10 ................................ 1,215,120
2,080,000 FICO Strips, Series 19, 0.00%, 12/06/10 ................................ 810,407
7,000,000 FICO Strips, Series A, 0.00%, 08/08/10 ................................. 2,798,669
860,000 FICO Strips, Series D, 0.00%, 03/26/10 ................................. 353,469
4,000,000 FICO Strips, Series D, 0.00%, 03/26/11 ................................. 1,523,036
12,412,000 FICO Strips, Series E, 0.00%, 11/02/10 ................................. 4,871,324
860,000 FICO Strips, Series F, 0.00%, 09/26/10 ................................. 340,268
5,311,000 FICO Strips, Series F, 0.00%, 02/08/11 ................................. 2,042,392
1,975,000 FNMA Strips, 0.00%, 08/12/09 ........................................... 852,112
5,000,000 FNMA Strips, Series 1, 0.00%, 02/01/10 ................................. 2,083,310
8,250,000 FNMA Strips, Series 1, 0.00%, 08/01/10 ................................. 3,311,574
1,230,000 FNMA Strips, Series 1, 0.00%, 08/12/10 ................................. 492,606
4,450,000 FNMA Strips, Series 1, 0.00%, 02/01/11 ................................. 1,718,243
3,281,000 FNMA, sub. deb., 0.00%, 02/01/12 ....................................... 1,176,199
20,000,000 REFCO Strips, 0.00%, 10/15/10 .......................................... 8,040,018
8,000,000 REFCO Strips, 0.00%, 01/15/11 .......................................... 3,154,960
8,650,000 SLMA, 0.00%, 05/15/14 .................................................. 2,307,577
412,000 Tennessee Valley Authority, 0.00%, 01/01/10 ............................ 168,130
12,000,000 Tennessee Valley Authority, 0.00%, 04/15/10 ............................ 4,913,760
1,320,000 Tennessee Valley Authority, 0.00%, 10/15/10 ............................ 519,854
9,525,000 Tennessee Valley Authority, 0.00%, 04/15/11 ............................ 3,608,326
7,295,000 Tennessee Valley Authority, 0.00%, 10/15/11 ............................ 2,661,179
19,610,000 U.S. Treasury Strips, 0.00%, 11/15/10 .................................. 7,946,873
--------------
74,395,760
--------------
Other Securities - "AAA" Rated 5.1%
1,392,000 International Bank for Reconstruction and Development, 0.00%, 02/15/11 . 526,403
2,800,000 International Bank for Reconstruction and Development, 0.00%, 02/15/12 . 981,254
3,287,000 International Bank for Reconstruction and Development, 0.00%, 02/15/13 . 1,066,355
4,100,000 International Bank for Reconstruction and Development, 0.00%, 08/15/13 . 1,278,330
500,000 International Bank for Reconstruction and Development,
Series 2, 0.00%, 02/15/11 ............................................. 189,081
--------------
4,041,423
--------------
Total Long Term Investments (Cost $69,806,434)......................... 78,437,183
--------------
f,gReceivables from Repurchase Agreements 0.1%
$ 71,137 Joint Repurchase Agreement, 5.884%, 07/01/97,
(Maturity Value $71,137) (Cost $71,125)
Aubrey G. Lanston & Co., Inc., (Maturity Value $7,051)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $7,051)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $4,152)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $7,051)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $7,051)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $3,526)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $7,051)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co., L.P., (Maturity Value $7,051)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $7,051)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $7,051)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $7,051)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 ... $ 71,125
--------------
Total Investments (Cost $69,877,559) 100.2% ........................... 78,508,308
Liabilities in Excess of Other Assets (0.2%) .......................... (163,952)
--------------
Net Assets 100.0% ..................................................... $78,344,356
==============
At June 30, 1997, the net unrealized appreciation based on the cost of
investments for income tax purposes of $70,244,886 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost............................. $ 8,391,135
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ............................ (127,713)
--------------
Net unrealized appreciation ........................................... $ 8,263,422
==============
</TABLE>
PORTFOLIO ABBREVIATIONS:
FHLMC - Federal Home Loan Mortgage Corp.
FICO - Financing Corp.
FNMA - Federal National Mortgage Association
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
REFCO - Resolution Funding Corp.
SLMA - Student Loan Marketing Association
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements
Statements of Assets and Liabilities
June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Capital Growth and High Income Money
Growth Fund Income Fund Income Fund Securities Fund Market Fund
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
At identified cost ................................$53,451,493 $ 893,292,316 $418,595,838 $1,216,237,733 $308,274,436
==============================================================================
At value .......................................... 61,850,363 1,125,842,883 436,028,933 1,297,374,969 308,274,436
Receivables from repurchase agreements,
at value and cost .................................. 12,051,457 75,949,649 8,974,501 49,818,613 76,580,000
Cash ............................................... 619,436 36,591 -- -- 8,821,758
Receivables:
Dividends and interest ............................ 32,179 3,844,426 7,801,440 17,267,403 765,330
Investment securities sold ........................ -- 1,132,660 -- 768,224 --
Capital shares sold ............................... -- -- 665,495 -- --
------------------------------------------------------------------------------
Total assets .................................. 74,553,435 1,206,806,209 453,470,369 1,365,229,209 394,441,524
------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ................... 86,563 3,042,881 -- 48,143 --
Capital shares repurchased ........................ -- -- 8,925,507 493,886 --
Management fees ................................... 44,990 462,707 185,055 518,828 137,131
Accrued expenses and other liabilities ............. 1,894 17,402 13,514 81,794 6,573
------------------------------------------------------------------------------
Total liabilities ............................. 133,447 3,522,990 9,124,076 1,142,651 143,704
------------------------------------------------------------------------------
Net assets, at value ................................$74,419,988 $1,203,283,219 $444,346,293 $1,364,086,558 $394,297,820
==============================================================================
Net assets consist of:
Undistributed net investment income ................ $ 202,147 $ 20,568,553 $ 20,882,895 $ 51,564,926 $--
Net unrealized appreciation on investments and
translation of assets and liabilities denominated
in foreign currencies .............................. 8,398,870 232,550,278 17,429,245 81,122,220 --
Accumulated net realized gain
(loss) from investments
and foreign currency transactions .................. (720,289) 41,125,976 819,314 31,432,497 --
Capital shares ..................................... 66,539,260 909,038,412 405,214,839 1,199,966,915 394,297,820
------------------------------------------------------------------------------
Net assets, at value ................................$74,419,988 $1,203,283,219 $444,346,293 $1,364,086,558 $394,297,820
==============================================================================
Shares outstanding .................................. 5,972,448 64,723,671 32,692,098 81,550,321 394,297,820
==============================================================================
Net asset value per share ........................... $12.46 $18.59 $13.59 $16.73 $1.00
==============================================================================
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
June 30, 1997 (unaudited)
Mutual Discovery Mutual Shares Natural Real Estate Rising
Securities Fund Securities Fund Resources Fund Securities Fund Dividends Fund
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
At identified cost ......................... $113,796,366 $198,916,831 $91,731,767 $264,470,445 $467,479,578
==============================================================================
At value ................................... 118,046,070 207,447,960 87,290,035 358,664,954 671,966,052
Receivables from repurchase agreements,
at value and cost ........................... -- -- 2,245,853 26,693,215 26,990,699
Cash ........................................ 252,127 1,383,744 358,054 227,506 --
Foreign currencies at value and cost ........ 849,031 166,840 -- -- --
Receivables:
Dividends and interest ..................... 195,023 273,391 86,185 1,554,367 1,205,206
Investment securities sold ................. 1,944,722 2,267,175 1,973,958 406,078 192,714
Capital shares sold ........................ 788,434 1,536,884 -- -- 292,368
Unrealized gain on forward foreign
currency contracts (Note 2) ................. 812,120 457,278 -- -- --
------------------------------------------------------------------------------
Total assets ........................... 122,887,527 213,533,272 91,954,085 387,546,120 700,647,039
------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased:
Regular delivery .......................... 3,009,525 3,060,374 -- 1,900,675 --
Delayed delivery (Note 1) ................. 144,375 240,625 -- -- 8,392,680
Capital shares repurchased ................. 6,300 86,508 -- -- 666,075
Management fees ............................ 85,716 120,114 49,159 159,274 402,897
Accrued expenses and other liabilities ...... 37,550 34,050 910 664 --
Unrealized loss on forward foreign
currency contracts (Note 2) ................. 212,485 174,998 -- -- --
------------------------------------------------------------------------------
Total liabilities ...................... 3,495,951 3,716,669 50,069 2,060,613 9,461,652
------------------------------------------------------------------------------
Net assets, at value ......................... $119,391,576 $209,816,603 $91,904,016 $385,485,507 $691,185,387
==============================================================================
Net assets consist of:
Undistributed net investment income ......... $ 1,109,308 $ 1,482,453 $ 347,904 $ 6,434,776 $ 4,376,948
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated
in foreign currencies ....................... 4,849,339 8,813,409 (4,441,691) 94,194,509 204,486,474
Accumulated net realized gain
(loss) from investments
and foreign currency transactions ........... 950,342 (376,767) (352,075) 5,771,871 36,592,744
Capital shares .............................. 112,482,587 199,897,508 96,349,878 279,084,351 445,729,221
------------------------------------------------------------------------------
Net assets, at value ......................... $119,391,576 $209,816,603 $91,904,016 $385,485,507 $691,185,387
==============================================================================
Shares outstanding ........................... 10,546,514 18,841,726 7,138,176 16,893,175 40,160,726
==============================================================================
Net asset value per share .................... $11.32 $11.14 $12.88 $22.82 $17.21
==============================================================================
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
June 30, 1997 (unaudited)
Templeton
Developing Templeton Templeton Templeton
Small Markets Global Asset Global Global Income
Cap Fund Equity Fund Allocation Fund Growth Fund Securities Fund
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
At identified cost ........................... $225,570,656 $315,400,213 $69,022,566 $514,540,118 $189,915,923
==============================================================================
At value ..................................... 251,857,297 383,530,535 78,215,698 659,822,901 189,146,643
Receivables from
repurchase agreements,
at value and cost ............................. -- -- 3,991,000 67,355,000 --
Cash .......................................... -- -- 211,792 -- 9,170,965
Foreign currencies at value and cost .......... -- 1,055,099 160,653 -- --
Receivables:
Dividends and interest ....................... 35,585 1,389,227 801,827 3,092,801 4,642,779
Investment securities sold ................... 494,233 2,074,773 1,628,299 -- 15,631,339
Capital shares sold .......................... -- 640,387 195,291 880,571 70,569
Unrealized gain on forward foreign
currency contracts (Note 2) ................... -- -- 129,306 -- 2,610,200
------------------------------------------------------------------------------
Total assets ............................. 252,387,115 388,690,021 85,333,866 731,151,273 221,272,495
------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased .............. -- 3,129,045 1,694,056 49,508 14,472,517
Capital shares repurchased ................... -- -- -- 23,411 154,217
Management fees .............................. 156,959 385,178 53,238 488,626 93,979
Payable upon return of
securities loaned (Note 10) ................... 2,013,000 -- -- -- --
Accrued expenses and other liabilities ........ 3,286 302,315 16,911 135,325 20,060
Unrealized loss on forward
foreign currency contracts (Note 2)............ -- -- 84,091 -- 2,092,841
Bank overdraft ................................ 7,797,252 108,315 -- 1,280,556 --
------------------------------------------------------------------------------
Total liabilities ........................ 9,970,497 3,924,853 1,848,296 1,977,426 16,833,614
------------------------------------------------------------------------------
Net assets, at value ........................... $242,416,618 $384,765,168 $83,485,570 $729,173,847 $204,438,881
==============================================================================
Net assets consist of:
Undistributed net investment income ........... $ 54,888 $ 3,522,304 $ 1,599,707 $ 9,933,949 $ 5,253,010
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated
in foreign currencies ......................... 26,286,641 68,130,322 9,235,509 145,282,783 (301,559)
Accumulated net realized gain
(loss) from investments
and foreign currency transactions ............. 4,500,600 5,216,952 641,710 18,236,103 (3,530,845)
Capital shares ................................ 211,574,489 307,895,590 72,008,644 555,721,012 203,018,275
------------------------------------------------------------------------------
Net assets, at value ........................... $242,416,618 $384,765,168 $83,485,570 $729,173,847 $204,438,881
==============================================================================
Shares outstanding ............................. 17,502,722 28,565,598 6,213,979 47,377,998 16,088,088
==============================================================================
Net asset value per share ...................... $13.85 $13.47 $13.44 $15.39 $12.71
==============================================================================
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
June 30, 1997 (unaudited)
Templeton
Templeton International Templeton
International Smaller Pacific U.S. Government
Equity Fund Companies Fund Growth Fund Securities Fund
<S> <C> <C> <C> <C>
Assets:
Investments in securities:
At identified cost ........................................ $ 902,957,809 $21,982,281 $279,679,878 $748,958,841
==============================================================================
At value .................................................. 1,139,957,138 23,745,733 317,425,155 758,863,768
Receivables from repurchase
agreements, at value and cost .............................. 126,007,000 4,350,000 2,276,000 14,535,607
Cash ....................................................... 214,419 2,734,825 94,134 --
Foreign currencies at value and cost ....................... 33,329 -- 5,874 --
Receivables:
Dividends and interest .................................... 5,914,733 76,921 1,505,602 6,273,095
Investment securities sold ................................ 902,256 45,248 -- 390,632
Capital shares sold ....................................... 199,593 161,088 136,952 314,885
------------------------------------------------------------------------------
Total assets .......................................... 1,273,228,468 31,113,815 321,443,717 780,377,987
------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ........................... 3,254,409 1,573,152 3,258,168 --
Capital shares repurchased ................................ -- 13 286,563 733,038
Management fees ........................................... 782,504 23,363 233,550 308,992
Accrued expenses and other liabilities ..................... 200,629 12,646 70,620 13,269
------------------------------------------------------------------------------
Total liabilities ..................................... 4,237,542 1,609,174 3,848,901 1,055,299
------------------------------------------------------------------------------
Net assets, at value ........................................ $1,268,990,926 $29,504,641 $317,594,816 $779,322,688
==============================================================================
Net assets consist of:
Undistributed net investment income ........................ $ 4,587,105 $ 437,478 $-- $ 26,381,806
Accumulated distributions in excess
of net investment income ................................... -- -- (233,641) --
Net unrealized appreciation on
investments and translation of assets
and liabilities denominated in foreign currencies .......... 236,999,329 1,763,452 37,745,277 9,904,927
Accumulated net realized gain
(loss) from investments and
foreign currency transactions .............................. 41,284,532 354,677 2,358,984 (15,599,250)
Capital shares ............................................. 986,119,960 26,949,034 277,724,196 758,635,205
------------------------------------------------------------------------------
Net assets, at value ........................................ $1,268,990,926 $29,504,641 $317,594,816 $779,322,688
==============================================================================
Shares outstanding .......................................... 77,230,276 2,484,755 21,289,513 58,989,435
==============================================================================
Net asset value per share ................................... $16.43 $11.87 $14.92 $13.21
==============================================================================
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
June 30, 1997 (unaudited)
Utility Zero Coupon Zero Coupon Zero Coupon
Equity Fund Fund - 2000 Fund - 2005 Fund - 2010
<S> <C> <C> <C> <C>
Assets:
Investments in securities:
At identified cost ........................................... $ 997,490,042 $114,210,502 $70,813,920 $69,806,434
==============================================================================
At value ..................................................... 1,079,419,862 119,348,797 76,127,684 78,437,183
Receivables from repurchase
agreements, at value and cost ................................. 9,793,505 1,563,784 26,892 71,125
Cash .......................................................... -- -- 1,407 --
Foreign currencies (Cost $486,209) ............................ 483,690 -- -- --
Receivables:
Dividends and interest ....................................... 1,838,570 -- -- --
Investment securities sold ................................... 846,109 -- -- --
Capital shares sold .......................................... 46,054 -- -- 12,804
------------------------------------------------------------------------------
Total assets ............................................. 1,092,427,790 120,912,581 76,155,983 78,521,112
------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased .............................. 1,817,406 -- -- --
Capital shares repurchased ................................... 1,176,941 447,029 -- 20,244
Management fees .............................................. 418,313 37,377 24,212 16,428
Accrued expenses and other liabilities ........................ 55,836 3,258 1,153 140,084
------------------------------------------------------------------------------
Total liabilities ........................................ 3,468,496 487,664 25,365 176,756
------------------------------------------------------------------------------
Net assets, at value ........................................... $1,088,959,294 $120,424,917 $76,130,618 $78,344,356
==============================================================================
Net assets consist of:
Undistributed net investment income ........................... $ 23,174,772 $ 3,914,051 $ 2,448,739 $ 2,499,046
Net unrealized appreciation on
investments and translation of assets
and liabilities denominated in foreign currencies ............. 81,932,248 5,138,295 5,313,764 8,630,749
Accumulated net realized gain
(loss) from investments and
foreign currency transactions ................................. 25,056,611 751,021 574,026 (589,012)
Capital shares ................................................ 958,795,663 110,621,550 67,794,089 67,803,573
------------------------------------------------------------------------------
Net assets, at value ........................................... $1,088,959,294 $120,424,917 $76,130,618 $78,344,356
==============================================================================
Shares outstanding ............................................. 63,253,739 8,324,305 4,867,554 5,027,827
==============================================================================
Net asset value per share ...................................... $17.22 $14.47 $15.64 $15.58
==============================================================================
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Operations
for the six months ended June 30, 1997 (unaudited)
Capital Growth and High Income Money
Growth Fund Income Fund Income Fund Securities Fund Market Fund
<S> <C> <C> <C> <C> <C>
Investment income:
Interest ......................................... $ 233,711 $ 1,792,187 $21,519,987 $38,568,505 $11,415,618
Dividends1 ....................................... 183,012 21,163,235 527,215 16,333,178 --
------------------------------------------------------------------------------
Total income ................................ 416,723 22,955,422 22,047,202 54,901,683 11,415,618
------------------------------------------------------------------------------
Expenses:
Management fees (Note 6) ......................... 211,213 2,640,673 1,106,945 3,121,566 1,058,727
Professional fees ................................ 1,479 15,176 6,918 33,946 7,886
Reports to shareholders .......................... 891 79,120 35,511 105,189 30,908
Custodian fees ................................... 270 13,999 3,647 65,784 2,598
Trustees' fees and expenses ...................... 94 3,776 1,701 5,090 1,574
Other ............................................ 619 8,267 8,059 14,552 3,686
Management fees waived
by manager (Note 6) .............................. -- -- -- -- (165,307)
------------------------------------------------------------------------------
Total expenses .............................. 214,566 2,761,011 1,162,781 3,346,127 940,072
------------------------------------------------------------------------------
Net investment income ....................... 202,157 20,194,411 20,884,421 51,555,556 10,475,546
------------------------------------------------------------------------------
Realized and unrealized gain
(loss) from investments
and foreign currency:
Net realized gain (loss) on:
Investments .................................... (576,845) 41,270,940 824,844 31,399,079 --
Foreign currency transactions .................. (3,494) 192 (3,487) 60,619 --
Net unrealized appreciation
(depreciation) on:
Investments .................................... 6,416,420 77,382,024 (801,796) 3,603,689 --
Translation of assets
and liabilities denominated
in foreign currencies ............................ -- (497) (3,098) (11,182) --
------------------------------------------------------------------------------
Net realized and unrealized
gain from investments
and foreign currencies ........................... 5,836,081 118,652,659 16,463 35,052,205 --
------------------------------------------------------------------------------
Net increase in net assets
resulting from operations ........................ $6,038,238 $138,847,070 $20,900,884 $86,607,761 $10,475,546
------------------------------------------------------------------------------
1Net of foreign taxes and fees withheld of $2,451, $406,531, and $100,660 for
the Capital Growth Fund, the Growth and Income Fund, and the Income Securities
Fund, respectively.
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Operations (cont.)
for the six months ended June 30, 1997 (unaudited)
Mutual Discovery Mutual Shares Natural Real Estate Rising
Securities Fund Securities Fund Resources Fund Securities Fund Dividends Fund
<S> <C> <C> <C> <C> <C>
Investment income:
Interest2 ....................................... $ 563,608 $1,202,509 $ 139,467 $ 756,757 $ 419,957
Dividends3 ...................................... 935,675 785,434 747,589 6,319,033 6,282,910
------------------------------------------------------------------------------
Total income ............................... 1,499,283 1,987,943 887,056 7,075,790 6,702,867
------------------------------------------------------------------------------
Expenses:
Management fees (Note 6) ........................ 308,069 421,659 309,270 917,204 2,268,468
Professional fees ............................... 6,520 8,472 2,431 4,256 7,544
Reports to shareholders ......................... 15,000 15,000 7,731 15,821 39,896
Custodian fees .................................. 36,193 22,557 9,133 1,270 2,721
Trustees' fees and expenses ..................... 535 535 448 1,025 1,801
Other ........................................... 402 37 1,359 9,175 2,995
------------------------------------------------------------------------------
Total expenses ............................. 366,719 468,260 330,372 948,751 2,323,425
------------------------------------------------------------------------------
Net investment income ...................... 1,132,564 1,519,683 556,684 6,127,039 4,379,442
------------------------------------------------------------------------------
Realized and unrealized
gain (loss) from investments
and foreign currency:
Net realized gain (loss) on:
Investments ................................... 793,060 (431,148) (192,004) 5,976,382 36,892,317
Foreign currency transactions ................. 157,282 57,430 (14,005) -- --
Net unrealized appreciation
(depreciation) on:
Investments ................................... 4,661,489 7,962,786 (9,709,641) 14,339,441 54,206,885
Translation of assets and
liabilities denominated
in foreign currencies ........................... -- 282,280 (5,421) -- --
------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) from investments
and foreign currencies .......................... 5,611,831 7,871,348 (9,921,071) 20,315,823 91,099,202
------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from operations ....................... $6,744,395 $9,391,031 $(9,364,387) $26,442,862 $95,478,644
==============================================================================
2Net of foreign taxes withheld of $51,616 for the Natural Resources Fund.
3Net of foreign taxes and fees withheld of $94,286, $41,226, $12,996, and
$36,770 for the Mutual Discovery Securities Fund, the Mutual Shares
Securities Fund, the Natural Resources Fund, and the Rising Dividends Fund,
respectively.
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Operations (cont.)
for the six months ended June 30, 1997 (unaudited)
Templeton
Developing Templeton Templeton Templeton
Small Markets Global Asset Global Global Income
Cap Fund Equity Fund Allocation Fund Growth Fund Securities Fund
<S> <C> <C> <C> <C> <C>
Investment income:
Interest4 ........................................ $ 390,296 $ 994,961 $1,230,045 $ 2,253,708 $7,806,742
Dividends5........................................ 437,071 5,265,770 755,137 11,186,361 7,384
------------------------------------------------------------------------------
Total income ................................ 827,367 6,260,731 1,985,182 13,440,069 7,814,126
------------------------------------------------------------------------------
Expenses:
Management fees (Note 6) ......................... 756,502 2,056,138 274,060 2,683,193 582,566
Professional fees ................................ 3,502 6,300 1,025 5,000 2,537
Reports to shareholders .......................... 14,158 18,600 4,992 38,400 15,650
Custodian fees ................................... 1,423 247,175 11,900 97,299 32,400
Trustees' fees and expenses ...................... 635 500 323 2,400 950
Other ............................................ 1,137 -- 5,063 3,944 676
------------------------------------------------------------------------------
Total expenses .............................. 777,357 2,328,713 297,363 2,830,236 634,779
------------------------------------------------------------------------------
Net investment income ....................... 50,010 3,932,018 1,687,819 10,609,833 7,179,347
------------------------------------------------------------------------------
Realized and unrealized gain
(loss) from investments
and foreign currency:
Net realized gain (loss) on:
Investments .................................... 4,563,518 5,438,504 586,623 18,336,505 (3,040,852)
Foreign currency transactions .................. 341 (86,906) 73,476 (6,352) 3,555,852
Net unrealized appreciation
(depreciation) on:
Investments .................................... 15,873,568 48,231,911 4,177,585 56,907,732 (6,794,384)
Translation of assets and
liabilities denominated
in foreign currencies ............................ -- -- 37,761 -- (179,145)
------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) from investments
and foreign currencies ........................... 20,437,427 53,583,509 4,875,445 75,237,885 (6,458,529)
------------------------------------------------------------------------------
Net increase in net assets
resulting from operations ........................ $20,487,437 $57,515,527 $6,563,264 $85,847,718 $ 720,818
==============================================================================
4Net of foreign taxes withheld of $7,507 and $154,832 for the Templeton Global
Asset Allocation Fund and the Templeton Global Income Securities Fund,
respectively.
5Net of foreign taxes and fees withheld of $24,227, $241,106, $59,635, and
$786,783 for the Small Cap Fund, the Templeton Developing Markets Equity Fund,
the Templeton Global Asset Allocation Fund, and the Templeton Global Growth
Fund, respectively.
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Operations (cont.)
for the six months ended June 30, 1997 (unaudited)
Templeton
Templeton International Templeton
International Smaller Pacific U.S. Government
Equity Fund Companies Fund Growth Fund Securities Fund
<S> <C> <C> <C> <C>
Investment income:
Interest ...................................................... $ 3,928,997 $ 224,271 $ 184,966 $28,335,260
Dividends6 .................................................... 25,309,868 358,018 4,974,027 --
------------------------------------------------------------------------------
Total income ............................................. 29,238,865 582,289 5,158,993 28,335,260
------------------------------------------------------------------------------
Expenses:
Management fees (Note 6) ...................................... 4,600,750 112,220 1,456,591 1,916,874
Professional fees ............................................. 16,000 1,660 4,150 6,948
Reports to shareholders ....................................... 60,000 1,600 26,500 68,633
Custodian fees ................................................ 391,000 3,900 107,300 3,567
Trustees' fees and expenses ................................... 3,300 550 1,100 2,745
Registration and filing fees .................................. -- 1,690 6,600 --
Other ......................................................... 57,260 59 700 4,844
------------------------------------------------------------------------------
Total expenses ........................................... 5,128,310 121,679 1,602,941 2,003,611
------------------------------------------------------------------------------
Net investment income .................................... 24,110,555 460,610 3,556,052 26,331,649
------------------------------------------------------------------------------
Realized and unrealized gain (loss)
from investments and foreign currency:
Net realized gain (loss) on:
Investments .................................................. 27,572,298 359,479 7,413,119 268,757
Foreign currency transactions ................................ (936,997) (4,802) (117,300) --
Net unrealized appreciation
(depreciation) on investments ................................. 102,676,570 659,380 (2,446,047) 2,858,479
------------------------------------------------------------------------------
Net realized and unrealized gain from
investments and foreign currencies............................. 129,311,871 1,014,057 4,849,772 3,127,236
------------------------------------------------------------------------------
Net increase in net assets
resulting from operations ..................................... $153,422,426 $1,474,667 $8,405,824 $29,458,885
==============================================================================
6Net of foreign taxes and fees withheld of $2,365,071, $40,670, and $382,468 for
the Templeton International Equity Fund, the Templeton International Smaller
Companies Fund, and the Templeton Pacific Growth Fund, respectively.
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Operations (cont.)
for the six months ended June 30, 1997 (unaudited)
Utility Zero Coupon Zero Coupon Zero Coupon
Equity Fund Fund - 2000 Fund - 2005 Fund - 2010
<S> <C> <C> <C> <C>
Investment income:
Interest .......................................................... $ 466,916 $4,159,562 $2,605,081 $2,656,008
Dividends7 ........................................................ 25,496,268 -- -- --
------------------------------------------------------------------------------
Total income ................................................. 25,963,184 4,159,562 2,605,081 2,656,008
------------------------------------------------------------------------------
Expenses:
Management fees (Note 6) .......................................... 2,615,249 366,868 242,059 243,175
Professional fees ................................................. 17,922 2,878 1,746 1,887
Reports to shareholders ........................................... 88,049 13,649 5,065 5,100
Custodian fees .................................................... 49,543 2,646 429 364
Trustees' fees and expenses ....................................... 5,018 638 270 270
Other ............................................................. 10,540 4,155 1,553 2,236
Management fees waived by manager (Note 6) ........................ -- (145,092) (95,021) (96,211)
------------------------------------------------------------------------------
Total expenses ............................................... 2,786,321 245,742 156,101 156,821
------------------------------------------------------------------------------
Net investment income ........................................ 23,176,863 3,913,820 2,448,980 2,499,187
------------------------------------------------------------------------------
Realized and unrealized gain (loss)
from investments and foreign currency:
Net realized gain (loss) on:
Investments ...................................................... 25,095,406 751,801 578,643 (169,893)
Foreign currency transactions .................................... (29,697) -- -- --
Net unrealized appreciation (depreciation) on:
Investments ...................................................... 28,961,913 (1,908,070) (1,418,733) (846,022)
Translation of assets and liabilities
denominated in foreign currencies ................................. 2,428 -- -- --
------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
from investments and foreign currencies ........................... 54,030,050 (1,156,269) (840,090) (1,015,915)
------------------------------------------------------------------------------
Net increase in net assets resulting from operations ............... $77,206,913 $2,757,551 $1,608,890 $1,483,272
==============================================================================
7Net of foreign taxes and fees withheld of $571,356 for the Utility Equity Fund.
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Changes in Net Assets
for the six months ended June 30, 1997 (unaudited)
and the year ended December 31, 1996
Capital Growth Fund Growth and Income Fund High Income Fund
Six months Year ended Six months Year ended Six months Year ended
ended 6/30/97 12/31/96* ended 6/30/97 12/31/96 ended 6/30/97 12/31/96
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................ $ 202,157 $ 110,214 $ 20,194,411 $ 39,513,404 $ 20,884,421 $ 37,008,728
Net realized gain
(loss) from investments
and foreign currency
transactions .......................... (580,339) (140,413) 41,271,132 37,811,712 821,357 1,210,500
Net unrealized appreciation
(depreciation)
on investments and translation of assets
and liabilities denominated
in foreign currencies ................ 6,416,420 1,982,450 77,381,527 55,138,252 (804,894) 13,294,221
--------------------------------------------------------------------------------------
Net increase in net
assets resulting
from operations ....................... 6,038,238 1,952,251 138,847,070 132,463,368 20,900,884 51,513,449
Distributions to
shareholders from:
Undistributed net
investment income ..................... (109,761) -- (39,059,424) (22,230,774) (37,006,747) (31,018,152)
Net realized capital gains ............ -- -- (37,881,070) (78,714,626) (1,213,933) (1,646,547)
Increase in net assets
from capital share
transactions (Note 3) ................. 23,824,800 42,714,460 63,387,635 156,983,572 15,570,564 66,343,229
--------------------------------------------------------------------------------------
Net increase (decrease)
in net assets ......................... 29,753,277 44,666,711 125,294,211 188,501,540 (1,749,232) 85,191,979
Net assets:
Beginning of period ................... 44,666,711 -- 1,077,989,008 889,487,468 446,095,525 360,903,546
--------------------------------------------------------------------------------------
End of period ......................... $74,419,988 44,666,711 $1,203,283,219 $1,077,989,008 $444,346,293 $446,095,525
======================================================================================
Undistributed net investment income
included in net assets:
Beginning of period .................. $ 109,751 $-- $ 39,433,566 $ 22,239,184 $ 37,005,221 $ 31,020,827
======================================================================================
End of period ........................ $ 202,147 $ 109,751 $ 20,568,553 $ 39,433,566 $ 20,882,895 $ 37,005,221
======================================================================================
*For the period May 1, 1996 (effective date) to December 31, 1996.
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended June 30, 1997 (unaudited)
and the year ended December 31, 1996
Mutual Discovery
Income Securities Fund Money Market Fund Securities Fund
Six months Year ended Six months Year ended Six months Year ended
ended 6/30/97 12/31/96 ended 6/30/97 12/31/96 ended 6/30/97 12/31/96**
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets:
Operations:
Net investment income ............... $ 51,555,556 $ 103,698,698 $ 10,475,546 $ 22,043,733 $ 1,132,564 $ 24,287
Net realized gain from
investments and
foreign currency transactions ........ 31,459,698 19,810,309 -- -- 950,342 1,860
Net unrealized appreciation on
investments and translation of assets
and liabilities denominated in
foreign currencies ................... 3,592,507 16,747,285 -- -- 4,661,489 187,850
--------------------------------------------------------------------------------------
Net increase in net
assets resulting
from operations ...................... 86,607,761 140,256,292 10,475,546 22,043,733 6,744,395 213,997
Distributions to shareholders from:
Undistributed net
investment income .................... (99,613,761) (66,927,738) (10,475,546) (22,043,733) (49,403) --
Net realized capital gains ........... (21,398,124) (11,125,807) -- -- -- --
Increase (decrease)
in net assets from
capital share
transactions (Note 3) ................ 47,831,262 21,919,171 (14,631,993) (20,617,040) 97,278,854 15,203,733
--------------------------------------------------------------------------------------
Net increase (decrease)
in net assets........................ 13,427,138 84,121,918 (14,631,993) (20,617,040) 103,973,846 15,417,730
Net assets:
Beginning of period .................. 1,350,659,420 1,266,537,502 408,929,813 429,546,853 15,417,730 --
--------------------------------------------------------------------------------------
End of period ........................$1,364,086,558 $1,350,659,420 $394,297,820 $408,929,813 $119,391,576 $15,417,730
======================================================================================
Undistributed net
investment income
included in net assets:
Beginning of period ................. $ 99,623,131 $ 91,003,300 $-- $-- $ 26,147 $--
======================================================================================
End of period ....................... $ 51,564,926 $ 99,623,131 $-- $-- $ 1,109,308 $ 26,147
======================================================================================
**For the period November 8, 1996 (effective date) to December 31, 1996.
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended June 30, 1997 (unaudited)
and the year ended December 31, 1996
Mutual Shares
Securities Fund Natural Resources Fund Real Estate Securities Fund
Six months Year ended Six months Year ended Six months Year ended
ended 6/30/97 12/31/96** ended 6/30/97 12/31/96 ended 6/30/97 12/31/96
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................. $ 1,519,683 $ 50,601 $ 556,684 $ 1,257,532 $ 6,127,039 $ 11,638,350
Net realized gain
(loss) from investments
and foreign currency transactions ...... (373,718) (3,049) (206,009) (188,566) 5,976,382 5,460,333
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies ..................... 8,245,066 568,343 (9,715,062) 935,906 14,339,441 57,769,186
--------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from operations .............. 9,391,031 615,895 (9,364,387) 2,004,872 26,442,862 74,867,869
Distributions to shareholders from:
Undistributed net
investment income ...................... (87,831) -- (1,423,769) (1,593,439) (10,951,988) (9,713,587)
Net realized capital gains ............. -- -- -- (1,460,667) (5,229,900) --
Increase (decrease) in net
assets from capital
share transactions (Note 3) ............ 172,836,481 27,061,027 (6,886,413) 5,519,005 52,503,338 44,093,562
--------------------------------------------------------------------------------------
Net increase
(decrease) in net assets ............... 182,139,681 27,676,922 (17,674,569) 4,469,771 62,764,312 109,247,844
Net assets:
Beginning of period .................... 27,676,922 -- 109,578,585 105,108,814 322,721,195 213,473,351
--------------------------------------------------------------------------------------
End of period ..........................$209,816,603 $27,676,922 $ 91,904,016 $109,578,585 $385,485,507 $322,721,195
======================================================================================
Undistributed net
investment income included
in net assets:
Beginning of period ................... $ 50,601 $-- $ 1,214,989 $ 1,615,202 $ 11,259,725 $ 9,334,962
======================================================================================
End of period ......................... $ 1,482,453 $ 50,601 $ 347,904 $ 1,214,989 $ 6,434,776 $ 11,259,725
======================================================================================
**For the period November 8, 1996 (effective date) to December 31, 1996.
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended June 30, 1997 (unaudited)
and the year ended December 31, 1996
Templeton Developing
Rising Dividends Fund Small Cap Fund Markets Equity Fund
Six months Year ended Six months Year ended Six months Year ended
ended 6/30/97 12/31/96 ended 6/30/97 12/31/96 ended 6/30/97 12/31/96
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets:
Operations:
Net investment income ............... $ 4,379,442 $ 9,955,580 $ 50,010 $ 585,485 $ 3,932,018 $ 3,874,067
Net realized gain
from investments and
foreign currency transactions ........ 36,892,317 31,514,069 4,563,859 6,726,182 5,351,598 6,246,440
Net unrealized
appreciation on investments
and translation of
assets and liabilities
denominated in
foreign currencies ................... 54,206,885 71,866,460 15,873,568 10,251,252 48,231,911 29,692,572
--------------------------------------------------------------------------------------
Net increase in net
assets resulting
from operations ...................... 95,478,644 113,336,109 20,487,437 17,562,919 57,515,527 39,813,079
Distributions to
shareholders from:
Undistributed
net investment income ................ (9,956,520) (10,368,611) (573,457) (33,640) (3,987,427) (2,182,460)
Net realized capital gains ........... (17,001,263) -- (6,796,191) (2,727) (6,324,884) (4,037,551)
Increase in net assets
from capital share
transactions (Note 3) ................ 25,240,825 31,202,926 58,329,859 140,140,940 65,463,531 80,421,511
--------------------------------------------------------------------------------------
Net increase in net assets ...... 93,761,686 134,170,424 71,447,648 157,667,492 112,666,747 114,014,579
Net assets:
Beginning of period .................. 597,423,701 463,253,277 170,968,970 13,301,478 272,098,421 158,083,842
--------------------------------------------------------------------------------------
End of period ........................ $691,185,387 $597,423,701 $242,416,618 $170,968,970 $384,765,168 $272,098,421
======================================================================================
Undistributed net
investment income
included in net assets:
Beginning of period ................. $ 9,954,026 $ 10,367,057 $ 578,335 $ 33,213 $ 3,577,713 $ 2,084,657
======================================================================================
End of period ....................... $ 4,376,948 $ 9,954,026 $ 54,888 $ 578,335 $ 3,522,304 $ 3,577,713
======================================================================================
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended June 30, 1997 (unaudited)
and the year ended December 31, 1996
Templeton Global Templeton Global Templeton Global Income
Asset Allocation Fund Growth Fund Securities Fund
Six months Year ended Six months Year ended Six months Year ended
ended 6/30/97 12/31/96 ended 6/30/97 12/31/96 ended 6/30/97 12/31/96
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................ $ 1,687,819 $ 1,438,196 $ 10,609,833 $ 10,065,463 $ 7,179,347 $ 16,565,628
Net realized gain
from investments and
foreign currency transactions ......... 660,099 477,024 18,330,153 5,117,524 515,000 419,588
Net unrealized
appreciation (depreciation)
on investments and translation of
assets and liabilities denominated
in foreign currencies ................. 4,215,346 4,638,002 56,907,732 73,557,750 (6,973,529) 3,321,562
------------------------------------------------------------------------------------------
Net increase in
net assets resulting
from operations ....................... 6,563,264 6,553,222 85,847,718 88,740,737 720,818 20,306,778
Distributions to shareholders from:
Undistributed net
investment income ..................... (1,548,504) (14,806) (11,070,041) (7,356,652) (14,522,463) (17,028,466)
Net realized capital gains ............ (446,684) (29,614) (3,690,014) (7,356,653) -- --
Increase (decrease)
in net assets from capital
share transactions (Note 3) ........... 22,643,368 35,036,621 78,208,797 167,094,838 (3,481,943) (24,749,927)
------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets ......................... 27,211,444 41,545,423 149,296,460 241,122,270 (17,283,588) (21,471,615)
Net assets:
Beginning of period ................... 56,274,126 14,728,703 579,877,387 338,755,117 221,722,469 243,194,084
------------------------------------------------------------------------------------------
End of period ......................... $83,485,570 $56,274,126 $729,173,847 $579,877,387 $204,438,881 $221,722,469
==========================================================================================
Undistributed net investment income
included in net assets:
Beginning of period .................. $ 1,460,392 $ (6,078) $ 10,394,157 $ 5,816,563 $ 12,596,126 $ 14,271,863
==========================================================================================
End of period ........................ $ 1,599,707 $ 1,460,392 $ 9,933,949 $ 10,394,157 $ 5,253,010 $ 12,596,126
==========================================================================================
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended June 30, 1997 (unaudited)
and the year ended December 31, 1996
Templeton International Templeton International Templeton
Equity Fund Smaller Companies Fund Pacific Growth Fund
Six months Year ended Six months Year ended Six months Year ended
ended 6/30/97 12/31/96 ended 6/30/97 12/31/96* ended 6/30/97 12/31/96
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............... $ 24,110,555 $ 30,226,760 $ 460,610 $ 141,365 $ 3,556,052 $ 5,661,152
Net realized gain
(loss) from investments
and foreign
currency transactions ................ 26,635,301 49,297,270 354,677 (8,721) 7,295,819 (4,312,669)
Net unrealized
appreciation (depreciation)
on investments and translation of
assets and liabilities denominated
in foreign currencies ................ 102,676,570 122,637,885 659,380 1,104,072 (2,446,047) 36,732,857
------------------------------------------------------------------------------------------
Net increase in
net assets resulting
from operations ...................... 153,422,426 202,161,915 1,474,667 1,236,716 8,405,824 38,081,340
Distributions to shareholders from:
Undistributed net
investment income .................... (47,271,084) (25,386,301) (155,776) -- (5,582,182) (10,991,812)
In excess of net
investment income .................... -- -- -- -- (233,641) --
Net realized
capital gains ........................ (35,002,253) (31,064,815) -- -- -- (6,370,262)
Increase (decrease)
in net assets from capital
share transactions (Note 3) .......... 89,742,463 112,271,953 11,930,712 15,018,322 (41,754,343) 4,104,011
-----------------------------------------------------------------------------------------
Net increase (decrease)
in net assets ........................ 160,891,552 257,982,752 13,249,603 16,255,038 (39,164,342) 24,823,277
Net assets:
Beginning of period .................. 1,108,099,374 850,116,622 16,255,038 -- 356,759,158 331,935,881
-----------------------------------------------------------------------------------------
End of period ........................$1,268,990,926 $1,108,099,374 $29,504,641 $16,255,038 $317,594,816 $356,759,158
=========================================================================================
Undistributed net investment income
(accumulated distributions in excess
of net investment income) included
in net assets:
Beginning of period ................. $ 27,747,634 $ 23,389,762 $ 132,644 $-- $ 2,026,130 $ 7,402,137
========================================================================================
End of period ....................... $ 4,587,105 $ 27,747,634 $ 437,478 $ 132,644 $ (233,641) $ 2,026,130
========================================================================================
*For the period May 1, 1996 (effective date) to December 31, 1996.
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended June 30, 1997 (unaudited)
and the year ended December 31, 1996
U.S. Government
Securities Fund Utility Equity Fund Zero Coupon Fund - 2000
Six months Year ended Six months Year ended Six months Year ended
ended 6/30/97 12/31/96 ended 6/30/97 12/31/96 ended 6/30/97 12/31/96
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .............. $ 26,331,649 $ 42,987,658 $ 23,176,863 $ 54,454,052 $ 3,913,820 $ 8,152,035
Net realized gain (loss) from
investments and foreign
currency transactions ............... 268,757 (158,758) 25,065,709 82,602,515 751,801 183,983
Net unrealized appreciation
(depreciation) on investments and
translation of assets and liabilities
denominated in foreign
currencies .......................... 2,858,479 (18,937,072) 28,964,341 (53,557,473) (1,908,070) (5,248,940)
------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations ........... 29,458,885 23,891,828 77,206,913 83,499,094 2,757,551 3,087,078
Distributions to shareholders from:
Undistributed net
investment income ................... (42,870,826) (41,654,771) (54,348,880) (65,540,030) (8,152,085) (7,341,063)
Net realized capital gains .......... -- -- (75,198,357) -- (184,468) (72,481)
Increase (decrease)
in net assets from
capital share
transactions (Note 3) ............... (51,122,888) 218,454,989 (60,990,702) (239,114,944) (3,597,023) (3,429,313)
------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets ....................... (64,534,829) 200,692,046 (113,331,026) (221,155,880) (9,176,025) (7,755,779)
Net assets:
Beginning of period ................. 843,857,517 643,165,471 1,202,290,320 1,423,446,200 129,600,942 137,356,721
------------------------------------------------------------------------------------------
End of period ....................... $779,322,688 $843,857,517 $1,088,959,294 $1,202,290,320 $120,424,917 $129,600,942
==========================================================================================
Undistributed net investment income
included in net assets:
Beginning of period ................ $ 42,920,983 $ 41,588,096 $ 54,346,789 $ 65,687,973 $ 8,152,316 $ 7,341,344
==========================================================================================
End of period ...................... $ 26,381,806 $ 42,920,983 $ 23,174,772 $ 54,346,789 $ 3,914,051 $ 8,152,316
==========================================================================================
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended June 30, 1997 (unaudited)
and the year ended December 31, 1996
Zero Coupon Fund - 2005 Zero Coupon Fund - 2010
Six months Year ended Six months Year ended
ended 6/30/97 12/31/96 ended 6/30/97 12/31/96
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............................................. $ 2,448,980 $ 4,940,116 $ 2,499,187 $ 4,878,408
Net realized gain (loss) from
investments and foreign currency transactions ...................... 578,643 19,477 (169,893) (191,720)
Net unrealized depreciation on
investments and translation of assets and
liabilities denominated in foreign currencies ...................... (1,418,733) (5,309,151) (846,022) (6,860,589)
------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations .......................................... 1,608,890 (349,558) 1,483,272 (2,173,901)
Distributions to shareholders from:
Undistributed net investment income ................................ (4,939,956) (4,218,190) (4,878,501) (4,092,016)
Net realized capital gains ......................................... (17,170) -- (39,001) (1,109,315)
Increase (decrease) in net assets from
capital share transactions (Note 3) ................................ (3,124,615) 3,949,514 2,962,840 558,186
------------------------------------------------------------------------------
Net decrease in net assets .................................... (6,472,851) (618,234) (471,390) (6,817,046)
Net assets:
Beginning of period ................................................ 82,603,469 83,221,703 78,815,746 85,632,792
------------------------------------------------------------------------------
End of period ...................................................... $76,130,618 $82,603,469 $78,344,356 $78,815,746
==============================================================================
Undistributed net investment
income included in net assets:
Beginning of period ................................................ $ 4,939,715 $ 4,217,789 $ 4,878,360 $ 4,091,968
==============================================================================
End of period ...................................................... $ 2,448,739 $ 4,939,715 $ 2,499,046 $ 4,878,360
==============================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Notes to Financial Statements (unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Valuemark Funds (the Trust) is an open-end, management investment
company (mutual fund) registered under the Investment Company Act of 1940, as
amended. The Trust currently consists of twenty-three separate funds (the
Funds), all of which are diversified except for the Templeton Global Income
Securities Fund. Each of the Funds issues a separate series of the Trust's
shares and maintains a totally separate investment portfolio. Shares of the
Funds are sold only to insurance company separate accounts to fund the benefits
of variable life insurance policies or variable annuity contracts issued by
Allianz Life Insurance Company of North America (Allianz Life), which was
formerly North American Life and Casualty Company (NALAC), and its affiliates.
The investment objectives of each Fund are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Capital Growth Growth and Income High Current Income Capital Preservation and Income
Capital Growth Fund Growth and Income Fund High Income Fund Money Market Fund
Mutual Discovery Securities Fund Income Securities Fund Templeton Global Income Securities Fund
Natural Resources Fund Mutual Shares Securities Fund U.S. Government Securities Fund
Small Cap Fund Real Estate Securities Fund Zero Coupon Fund - 2000
Templeton Developing
Markets Equity Fund Rising Dividends Fund Zero Coupon Fund - 2005
Templeton Global Growth Fund Templeton Global Asset Zero Coupon Fund - 2010
Templeton International Allocation Fund
Equity Fund Utility Equity Fund
Templeton International
Smaller Companies Fund
Templeton Pacific Growth Fund
</TABLE>
The Capital Growth Fund and the Templeton International Smaller Companies Fund
became effective on May 1, 1996, and the Mutual Shares Securities Fund and the
Mututal Discovery Securities Fund became effective November 8, 1996.
Effective May 1, 1997, the name of the Precious Metals Fund changed to the
Natural Resources Fund. Before May 1, 1997, the portfolio had different
investment objectives and policies.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
a. Security Valuation:
Portfolio securities listed on a securities exchange or on the NASDAQ for which
market quotations are readily available are valued at the last sale price or, if
there is no sale price, within the range of the most recent quoted bid and asked
prices. Other securities are valued based on a variety of factors, including
yield, risk, maturity, trade activity and recent developments related to the
securities. Portfolio securities which are traded both in the over-the-counter
market and on a securities exchange are valued according to the broadest and
most representative market as determined by the investment manager. The Trust
may utilize a pricing service, bank or broker/dealer experienced in such matters
to perform any of the pricing functions, under procedures approved by the Board
of Trustees (the Board). Securities for which market quotations are not
available, and securities restricted as to resale, are valued in accordance with
procedures established by the Board.
The value of a foreign security is determined as of the earlier of the close of
trading on the foreign exchange on which it is traded or the close of trading on
the New York Stock Exchange. That value is then converted into its U.S. dollar
equivalent at the foreign exchange rate in effect at noon, New York time, on the
day the value of the foreign security is determined. If no sale is reported at
that time, the mean between the current bid and asked prices is used.
Occasionally, events which affect the values of foreign securities and foreign
exchange rates may occur between the times at which they are determined and the
close of the exchange and will, therefore, not be reflected in the computation
of the Fund's net asset value, unless material. If events which materially
affect the value of these foreign securities occur during such period, these
securities will be valued in accordance with procedures established by the
Board.
Portfolio securities in the Money Market Fund are valued at amortized cost,
which approximates value. The Fund must maintain a dollar weighted average
maturity of 90 days or less and only purchase instruments having remaining
maturities of 397 days or less. If the Fund's portfolio has a remaining weighted
average maturity of greater than 90 days, the portfolio will be stated at value
based on recorded closing sales on a national securities exchange or, in the
absence of a recorded sale, within the range of the most recent quoted bid and
asked prices. The Board has established procedures designed to stabilize, to the
extent reasonably possible, the Fund's price per share as computed for the
purpose of sales and redemptions at $1.00.
b. Income Taxes:
The Funds intend to continue to qualify for the tax treatment applicable to
regulated investment companies under the Internal Revenue Code and to make the
requisite distributions to shareholders which will be sufficient to relieve the
Funds from income taxes. Each Fund is treated as a separate entity in the
determination of compliance with the Internal Revenue Code.
c. Security Transactions:
Security transactions are accounted for on the date the securities are purchased
or sold (trade date). Realized gains and losses on security transactions are
determined on the basis of specific identification.
d. Investment Income, Expenses and Distributions:
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income and estimated expenses are accrued daily.
Original issue discount is amortized as required by the Internal Revenue Code.
For the Money Market Fund, net investment income includes income, calculated on
an accrual basis, and estimated expenses which are accrued daily. The total
available for distribution is computed daily and includes the net investment
income, plus or minus any gains or losses on security transactions and any
changes in unrealized portfolio appreciation or depreciation. Distributions are
normally declared each day the New York Stock Exchange is open for business,
equal to the total available for distributions (as defined above), and are
payable to shareholders of record as of the close of business the preceding day.
Such distributions are automatically reinvested daily in additional shares of
the Fund at net asset value.
A portion of the distributions received from investments in Real Estate
Investment Trust (REIT) securities may be characterized as tax basis return of
capital (ROC) distributions, which are not recorded as dividend income, but
reduce the cost basis of the REIT securities. ROC distributions exceeding the
cost basis of the REIT security are recognized by the Funds as capital gain.
Net investment income differs for financial statement and tax purposes primarily
due to tax basis mark to market of unrealized gains with respect to differing
treatments of foreign currency transactions and defaulted securities - see Note
7.
Net realized capital gains and losses differ for financial statement and tax
purposes primarily due to tax basis mark to market of unrealized gains with
respect to differing treatments of wash sale and foreign currency transactions.
e. Accounting Estimates:
The preparation of financial statements in accordance with generally accepted
accounting principles 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. Expense Allocation:
Common expenses incurred by the Trust are allocated among the Funds based on the
ratio of net assets of each Fund to the combined net assets. In all other
respects, expenses are charged to each Fund as incurred on a specific
identification basis.
g. Foreign Currency Translation:
The accounting records of the Funds are maintained in U.S. dollars. All assets
and liabilities denominated in foreign currencies are translated into U.S.
dollars at the rate of exchange of the currencies against U.S. dollars on the
valuation date. Purchases and sales of securities, income and expenses are
translated at the rate of exchange quoted on the day that the transactions are
recorded. Differences between income and expense amounts recorded and collected
or paid are recognized when reported by the custodian.
g. Foreign Currency Translation: (cont.)
The Funds do not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from fluctuations arising
from changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales and maturities of
short-term securities, sales of foreign currencies, gains or losses realized
between the trade and settlement dates on security transactions, the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized appreciation or depreciation on
translation of assets and liabilities denominated in foreign currencies arise
from changes in the value of assets and liabilities other than investments in
securities at the end of the reporting period, resulting from changes in
exchange rates.
h. Repurchase Agreements:
The Funds may enter into a joint repurchase agreement whereby their uninvested
cash balances are deposited into a joint cash account to be used to invest in
one or more repurchase agreements with government securities dealers recognized
by the Federal Reserve Board and/or member banks of the Federal Reserve System.
The value and face amount of the joint repurchase agreement are allocated to the
Funds based on their pro-rata interest. A repurchase agreement is accounted for
as a loan by the Fund to the seller, collateralized by underlying U.S.
government securities, which are delivered to the Fund's custodian. The market
value, including accrued interest, of the initial collateralization is required
to be at least 102% of the dollar amount invested by the Funds, with the value
of the underlying securities marked to market daily to maintain coverage of at
least 100%. At June 30, 1997, all outstanding repurchase agreements held by the
Funds, had been entered into on that date.
i. Securities Purchased on a When-Issued or Delayed Delivery Basis:
The Funds may trade securities on a when-issued or delayed delivery basis, with
payment and delivery scheduled for a future date. These transactions are subject
to market fluctuations and are subject to the risk that the value at delivery
may be more or less than the trade date purchase price. Although the Funds will
generally purchase these securities with the intention of holding the
securities, they may sell the securities before the settlement date. These
securities are identified on the accompanying Statement of Investments in
Securities and Net Assets. The Funds have set aside sufficient investment
securities as collateral for these purchase commitments.
j. Mortgage Dollar Rolls:
The U.S. Government Securities Fund may enter into mortgage dollar rolls in
which the Fund sells mortgage-backed securities and simultaneously contracts to
repurchase substantially similar, but not identical, securities on a specified
future date, generally at a price lower than the price of the security sold. The
counterparty receives all principal and interest payments, including
prepayments, made on the mortgage-backed security sold while it is the holder.
Mortgage dollar rolls may be renewed with a new sale and repurchase price fixed
and a cash settlement made without physical delivery of the securities subject
to the contract, at the renewal date. Mortgage dollar rolls are accounted
for as collateralized financing transactions.
2. FORWARD FOREIGN CURRENCY CONTRACTS
A forward currency contract, which is individually negotiated and privately
traded by currency traders and their customers, is a commitment to purchase or
sell a specific currency for an agreed-upon price at a future date.
The Mutual Discovery Securities Fund, Mutual Shares Securities Fund, Templeton
Global Asset Allocation Fund, and Templeton Global Income Securities Fund may
enter into forward contracts with the objective of minimizing the risk to the
Funds from adverse changes in the relationship between currencies or to enhance
fund value. The Funds may also enter into a forward contract in relation to a
security denominated in a foreign currency or when they anticipate receipt in a
foreign currency of dividends or interest payments in order to "lock in" the
U.S. dollar price of a security or the U.S. dollar equivalent of such dividend
or interest payments.
Any gain or loss realized from a forward foreign currency contract is recorded
as a realized gain or loss from investments.
Each Fund segregates in its custodian bank sufficient cash, cash equivalents or
readily marketable debt securities as collateral for commitments created by open
forward contracts. The Funds could be exposed to risk if counterparties to the
contracts are unable to meet the terms of their contracts or if the value of the
foreign currency changes unfavorably.
As of June 30, 1997, the Mutual Discovery Securities Fund had the following
forward foreign currency contracts outstanding:
<TABLE>
<CAPTION>
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Gain (Loss)
<S> <C> <C> <C> <C>
905,464 Hong Kong Dollar ................ U.S. $ 116,972 07/10/97 U.S. $ 113
13,158,492 French Franc .................... 2,395,750 07/17/97 153,944
11,518,783 Swedish Krona ................... 1,600,187 08/15/97 108,324
110,956,871 Spanish Peseta .................. 769,678 08/18/97 16,306
21,435,909 French Franc .................... 3,802,075 08/29/97 139,695
3,431,961 Canadian Dollar ................. 2,506,633 08/29/97 11,986
4,455,520 Finnish Markka .................. 884,512 09/03/97 22,161
14,043,857 Norwegian Krone ................. 2,067,925 09/10/97 143,199
1,267,564 Swiss Franc ..................... 886,137 09/10/97 10,643
1,160,662 Dutch Guilder ................... 605,555 09/17/97 10,904
750,000 New Zealand Dollar .............. 515,888 09/17/97 7,567
338,784 Deutschemark .................... 202,865 09/18/97 7,444
12,675,669 Danish Krone .................... 1,966,777 10/24/97 44,428
41,039,048 Belgium C Franc ................. 1,160,055 11/07/97 18,729
37,461,879 Swedish Krona ................... 4,953,151 11/18/97 82,101
906,684 French Franc .................... 159,937 11/28/97 4,061
1,545,799 Dutch Guilder ................... 803,012 12/10/97 6,142
3,734,389,845 Italian Lira .................... 2,189,927 01/02/98 1,463
---------------- -----------
U.S.$27,587,036 789,210
================= -----------
Unrealized gain on offsetting forward
foreign currency contracts ...................... 22,910
-----------
Unrealized gain on forward
foreign currency ccontracts ..................... 812,120
-----------
Contracts to Sell (Foreign exchange currency)
6,023,524 British Pound ................... U.S.$ 9,845,826 07/18/97 (179,513)
547,395 Swiss Franc ..................... 374,415 09/10/97 (3,665)
196,366 British Pound ................... 317,622 10/20/97 (8,271)
962,828 Australian Dollar ............... 723,132 11/06/97 (5,199)
67,671 British Pound ................... 110,648 11/17/97 (1,562)
2,360,194 Swedish Krona ................... 305,238 11/18/97 (1,650)
---------------- -----------
U.S.$11,676,881 (199,860)
================= -----------
Contracts to Buy (Foreign exchange currency)
1,584,913 French Franc .................... U.S. $ 281,567 08/29/97 (10,780)
116,000 Finnish Markka .................. 23,399 09/03/97 (949)
336,488 Danish Krone .................... 51,927 10/24/97 (896)
---------------- -----------
U.S.$ 356,893 (12,625)
================= -----------
Unrealized loss on forward
foreign currency contracts ...................... (212,485)
-----------
Net unrealized gain on forward
foreign currency contracts ...................... U.S. $ 599,635
===========
The Mutual Shares Securities Fund had the following forward foreign currency contracts outstanding:
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Gain (Loss)
11,013,035 French Franc .................... U.S.$ 2,002,708 07/17/97 U.S. $ 126,421
20,568,232 Swedish Krona ................... 2,743,602 08/15/97 79,692
5,905,526 French Franc .................... 1,053,652 08/29/97 44,677
2,948,000 Canadian Dollar ................. 2,158,325 08/29/97 15,463
2,936,392 Norwegian Krone ................. 427,049 09/10/97 24,614
2,390,898 Dutch Guilder ................... 1,253,244 09/17/97 28,298
593,456 Deutschemark .................... 355,363 09/18/97 13,040
22,576,575 Swedish Krona ................... 3,042,665 11/18/97 107,104
3,705,585 French Franc .................... 651,703 11/28/97 14,641
837,593 Dutch Guilder ................... 435,113 12/10/97 3,328
---------------- -----------
U.S.$14,123,424 457,278
================= -----------
Unrealized gain on forward
foreign currency contracts ...................... 457,278
-----------
Contracts to Sell
(Foreign exchange currency)
5,415,830 British Pound ................... U.S.$ 8,848,925 07/18/97 (165,139)
876,310 Canadian Dollar ................. 635,007 08/29/97 (1,971)
238,850 Canadian Dollar ................. 173,079 11/28/97 (1,413)
---------------- -----------
U.S.$ 9,657,011 (168,523)
================= -----------
Contracts to Buy (Foreign exchange currency)
5,300,000 Swedish Krona ................... U.S. $ 689,610 08/15/97 (3,177)
388,142 Dutch Guilder ................... 202,157 09/17/97 (3,298)
---------------- -----------
U.S. $ 891,767 (6,475)
================= -----------
Unrealized loss on forward
foreign currency contracts ...................... (174,998)
-----------
Net unrealized gain on forward
foreign currency contracts ...................... U.S. $ 282,280
===========
The Templeton Global Asset Allocation Fund had the following forward foreign currency contracts outstanding:
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Gain (Loss)
3,630,000 German Deutschemark ............. U.S.$ 2,168,005 7/14/97 U.S. $ 84,189
4,200,000 German Deutschemark ............. 2,461,987 9/15/97 39,837
---------------- -----------
U.S.$ 4,629,992 124,026
================= -----------
Contracts to Buy (Foreign exchange currency)
127,600 British Pound U.S. $ 206,933 8/12/97 5,280
================= -----------
Unrealized gain on forward
foreign currency contracts ...................... U.S. $ 129,306
-----------
The Templeton Global Asset Allocation Fund: (cont.)
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Gain (Loss)
200,000 Australian Dollar ............... U.S. $ 150,746 9/29/97 U.S. $ (428)
319,000 British Pound ................... 512,761 8/12/97 (17,772)
---------------- -----------
U.S. $ 663,507 (18,200)
================= -----------
Contracts to Buy (Foreign exchange currency)
95,700 British Pound ................... U.S. $ 159,264 7/14/97 (104)
3,334,000 German Deutschemark ............. 1,957,311 7/14/97 (43,415)
---------------- -----------
U.S.$2,116,575 (43,519)
================= -----------
Unrealized loss on offsetting forward
foreign currency contracts ....................... (22,372)
-----------
Unrealized loss on forward foreign
currency contracts .............................. (84,091)
-----------
Net unrealized gain on forward
foreign currency contracts ...................... U.S. $ 45,215
===========
The Templeton Global Income Securities Fund had the following forward foreign currency contracts outstanding:
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Gain (Loss)
69,312,000 German Deutschemark ............. U.S.$41,396,363 7/14/97 U.S.$1,607,523
47,300,000 German Deutschemark ............. 27,719,008 9/15/97 440,986
---------------- -----------
U.S.$69,115,371 2,048,509
================= -----------
Contracts to Buy (Foreign exchange currency)
3,712,800 British Pound U.S.$ 6,088,737 8/12/97 86,062
================= -----------
Unrealized gain on offsetting forward
foreign currency contracts ....................... 475,629
-----------
Unrealized gain on forward
foreign currency contracts ...................... 2,610,200
-----------
Contracts to Sell (Foreign exchange currency)
2,700,000 Australian Dollars .............. U.S.$ 2,035,068 9/29/97 (5,774)
5,304,000 British Pound ................... 8,525,650 8/12/97 (295,493)
---------------- -----------
U.S.$10,560,718 (301,267)
================= -----------
Contracts to Buy (Foreign exchange currency)
58,991,000 German Deutschemark U.S.$34,709,993 7/14/97 (845,966)
================= -----------
Unrealized loss on offsetting forward
foreign currency contracts ....................... (945,608)
-----------
Unrealized loss on forward
foreign currency contracts ...................... (2,092,841)
-----------
Net unrealized gain on
forward foreign currency contracts .............. U.S. $ 517,359
===========
</TABLE>
3. TRUST SHARES
At June 30, 1997, there was an unlimited number of $.01 par value shares of
beneficial interest authorized. Transactions in each of the Fund's shares for
the six months ended June 30, 1997 and the year ended December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
Capital Growth Fund* Growth and Income Fund High Income Fund
------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
------------------------------------------------------------------------------
Six months ended June 30, 1997
<S> <C> <C> <C> <C> <C> <C>
Shares sold ................................. 3,513,176 $ 40,874,057 5,986,635 $ 110,737,331 7,712,199 $ 110,500,860
Shares issued in reinvestment
of distributions ............................ 8,739 109,761 4,094,758 76,940,493 2,802,103 38,220,680
Shares redeemed ............................. (1,480,295) (17,159,018) (6,764,452) (124,290,189) (9,333,561) (133,150,976)
------------------------------------------------------------------------------
Net increase ................................. 2,041,620 $ 23,824,800 3,316,941 $ 63,387,635 1,180,741 $ 15,570,564
==============================================================================
Year ended December 31, 1996
Shares sold ................................. 4,551,652 $ 49,307,053 17,103,384 $ 291,261,819 14,886,206 $ 203,832,754
Shares issued in reinvestment
of distributions ............................ -- -- 6,313,033 100,945,400 2,553,925 32,664,699
Shares redeemed ............................. (620,824) (6,592,593) (13,907,925) (235,223,647) (12,349,882) (170,154,224)
------------------------------------------------------------------------------
Net increase ................................. 3,930,828 $ 42,714,460 9,508,492 $ 156,983,572 5,090,249 $ 66,343,229
==============================================================================
Mutual Discovery
Income Securities Fund Money Market Fund Securities Fund**
------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
------------------------------------------------------------------------------
Six months ended June 30, 1997
<S> <C> <C> <C> <C> <C> <C>
Shares sold ................................. 5,083,091$ 89,213,806 399,650,039 $ 399,650,039 9,656,295 $103,980,632
Shares issued in reinvestment
of distributions ............................ 7,246,221 121,011,885 10,475,806 10,475,806 4,419 49,403
Shares redeemed ............................. (9,272,837)(162,394,429) (424,757,838) (424,757,838) (624,697) (6,751,181)
------------------------------------------------------------------------------
Net increase (decrease) ...................... 3,056,475$ 47,831,262 (14,631,993)$ (14,631,993) 9,036,017 $ 97,278,854
==============================================================================
Year ended December 31, 1996
Shares sold ................................. 12,978,656$ 215,025,216 624,484,193 $ 624,484,193 1,510,497 $ 15,203,733
Shares issued in
reinvestment of distributions ............... 4,981,081 78,053,545 22,025,506 22,025,506 -- --
Shares redeemed ............................. (16,378,905)(271,159,590) (667,126,739) (667,126,739) -- --
------------------------------------------------------------------------------
Net increase (decrease) ...................... 1,580,832$ 21,919,171 (20,617,040)$ (20,617,040) 1,510,497 $ 15,203,733
==============================================================================
Mutual Shares Natural Real Estate
Securities Fund** Resources Fund Securities Fund
------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
------------------------------------------------------------------------------
Six months ended June 30, 1997
Shares sold ................................. 16,907,359 $180,767,681 1,645,763 $ 22,862,200 3,601,172 $ 81,118,893
Shares issued in reinvestment
of distributions ............................ 7,793 87,831 107,292 1,423,769 722,406 16,181,888
Shares redeemed ............................. (747,327) (8,019,031) (2,282,999) (31,172,382) (1,998,415) (44,797,443)
------------------------------------------------------------------------------
Net increase (decrease) ...................... 16,167,825 $172,836,481 (529,944) $ (6,886,413) 2,325,163 $ 52,503,338
==============================================================================
Year ended December 31, 1996
Shares sold ................................. 2,673,916 $ 27,061,180 5,826,772 $ 92,609,906 4,215,417 $ 80,007,020
Shares issued in reinvestment
of distributions ............................ -- -- 200,533 3,054,106 541,263 9,713,587
Shares redeemed ............................. (15) (153) (5,826,876) (90,145,007) (2,455,248) (45,627,045)
------------------------------------------------------------------------------
Net increase ................................. 2,673,901 $ 27,061,027 200,429 $ 5,519,005 2,301,432 $ 44,093,562
==============================================================================
Rising Templeton Developing
Dividends Fund Small Cap Fund Markets Equity Fund
------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
------------------------------------------------------------------------------
Six months ended June 30, 1997
<S> <C> <C> <C> <C> <C> <C>
Shares sold ................................... 4,540,482$ 74,826,014 7,769,335 $100,564,086 7,309,306 $ 93,022,186
Shares issued in reinvestment
of distributions .............................. 1,563,677 26,957,783 542,684 7,369,648 774,197 10,312,311
Shares redeemed ............................... (4,735,137) (76,542,972) (3,765,366) (49,603,875) (2,986,336) (37,870,966)
------------------------------------------------------------------------------
Net increase ................................... 1,369,022$ 25,240,825 4,546,653 $ 58,329,859 5,097,167 $ 65,463,531
==============================================================================
Year ended December 31, 1996
Shares sold ................................... 9,416,748$ 128,553,979 17,929,579 $214,314,899 12,008,203 $131,040,673
Shares issued in reinvestment
of distributions .............................. 776,095 10,368,611 2,914 36,368 568,038 6,220,011
Shares redeemed ............................... (7,989,700)(107,719,664) (6,275,212) (74,210,327) (5,266,029) (56,839,173)
------------------------------------------------------------------------------
Net increase ................................... 2,203,143$ 31,202,926 11,657,281 $140,140,940 7,310,212 $ 80,421,511
==============================================================================
Templeton Global Asset Templeton Templeton Global
Allocation Fund Global Growth Fund Income Securities Fund
------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
------------------------------------------------------------------------------
Six months ended June 30, 1997
<S> <C> <C> <C> <C> <C> <C>
Shares sold ................................... 1,860,891 $24,093,371 7,233,062 $104,601,873 841,241 $ 11,263,787
Shares issued in reinvestment
of distributions .............................. 149,676 1,995,188 971,695 14,760,055 1,145,305 14,522,463
Shares redeemed ............................... (265,879) (3,445,191) (2,854,623) (41,153,131) (2,185,885) (29,268,193)
------------------------------------------------------------------------------
Net increase (decrease) ........................ 1,744,688 $22,643,368 5,350,134 $ 78,208,797 (199,339) $ (3,481,943)
==============================================================================
Year ended December 31, 1996
Shares sold ................................... 3,324,255 $37,900,419 16,172,059 $204,037,772 1,774,907 $ 23,229,506
Shares issued in reinvestment
of distributions .............................. 3,931 44,420 1,172,375 14,713,305 1,374,371 17,028,466
Shares redeemed ............................... (258,845) (2,908,218) (4,156,855) (51,656,239) (4,932,897) (65,007,899)
------------------------------------------------------------------------------
Net increase (decrease) ........................ 3,069,341 $35,036,621 13,187,579 $167,094,838 (1,783,619) $(24,749,927)
==============================================================================
Templeton
Templeton International Smaller Templeton
International Equity Fund Companies Fund* Pacific Growth Fund
------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
------------------------------------------------------------------------------
Six months ended June 30, 1997
<S> <C> <C> <C> <C> <C> <C>
Shares sold ................................... 10,002,043$ 160,909,285 1,344,677 $15,439,067 2,873,395 $ 41,681,862
Shares issued in reinvestment
of distributions .............................. 5,084,879 82,273,337 13,269 155,776 396,714 5,815,823
Shares redeemed ............................... (9,575,054)(153,440,159) (318,450) (3,664,131) (6,151,357) (89,252,028)
------------------------------------------------------------------------------
Net increase (decrease) ........................ 5,511,868$ 89,742,463 1,039,496 $11,930,712 (2,881,248) $ (41,754,343)
==============================================================================
Year ended December 31, 1996
Shares sold ................................... 16,304,017$ 233,298,562 1,887,934 $19,652,954 11,017,347 $ 162,907,832
Shares issued in reinvestment
of distributions .............................. 4,023,601 56,451,117 -- -- 1,175,496 17,362,074
Shares redeemed ............................... (12,410,252)(177,477,726) (442,675) (4,634,632) (11,892,182) (176,165,895)
------------------------------------------------------------------------------
Net increase ................................... 7,917,366$ 112,271,953 1,445,259 $15,018,322 300,661 $ 4,104,011
==============================================================================
U.S. Government
Securities Fund Utility Equity Fund Zero Coupon Fund - 2000
------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
------------------------------------------------------------------------------
Six months ended June 30, 1997
<S> <C> <C> <C> <C> <C> <C>
Shares sold ................................... 2,546,380$ 34,559,170 888,288 $ 16,213,346 347,709 $ 5,197,487
Shares issued in reinvestment
of distributions .............................. 3,245,331 42,870,826 7,553,775 129,547,237 575,728 8,336,552
Shares redeemed ............................... (9,469,679)(128,552,884) (11,332,875) (206,751,285) (1,129,368) (17,131,062)
------------------------------------------------------------------------------
Net decrease ................................... (3,677,968)$ (51,122,888) (2,890,812)$ (60,990,702) (205,931) $ (3,597,023)
==============================================================================
Year ended December 31, 1996
Shares sold ................................... 4,777,016$ 64,263,777 4,951,179 $ 87,970,395 1,346,751 $ 20,406,633
Shares issued in connection
with substitution transaction
(Note 11) ..................................... 22,031,312 292,135,204 -- -- -- --
Shares issued in reinvestment
of distributions .............................. 3,298,082 41,654,771 3,882,703 65,540,030 517,344 7,413,544
Shares redeemed ............................... (13,383,651)(179,598,763) (22,222,999) (392,625,369) (2,064,008) (31,249,490)
------------------------------------------------------------------------------
Net increase (decrease) ........................ 16,722,759$ 218,454,989 (13,389,117)$(239,114,944) (199,913) $ (3,429,313)
==============================================================================
Zero Coupon Fund - 2005 Zero Coupon Fund - 2010
---------------------------------------------------
Shares Amount Shares Amount
---------------------------------------------------
Six months ended June 30, 1997
<S> <C> <C> <C> <C>
Shares sold ................................................................. 256,752 $ 4,152,585 844,709 $ 13,427,378
Shares issued in reinvestment of distributions .............................. 315,540 4,957,126 313,017 4,917,502
Shares redeemed ............................................................. (757,260) (12,234,326) (968,971) (15,382,040)
---------------------------------------------------
Net increase ................................................................. (184,968)$ (3,124,615) 188,755 $ 2,962,840
===================================================
Year ended December 31, 1996
Shares sold ................................................................. 1,047,318 $ 16,865,102 2,638,570 $ 42,320,073
Shares issued in reinvestment of distributions .............................. 282,342 4,218,190 361,957 5,201,331
Shares redeemed ............................................................. (1,065,563) (17,133,778) (2,908,691) (46,963,218)
---------------------------------------------------
Net increase ................................................................. 264,097 $ 3,949,514 91,836 $ 558,186
===================================================
</TABLE>
*For the period May 1, 1996 (effective date) to December 31, 1996.
**For the period November 8, 1996 (effective date) to December 31, 1996.
4. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
At December 31, 1996, for tax purposes, the Trust had accumulated net realized
capital gains or capital loss carryovers as follows:
<TABLE>
<CAPTION>
Growth and High Income Real Estate Rising
Income Fund Income Fund Securities FundSecurities FundDividends Fund
---------------------------------------------------------------------
Accumulated
<S> <C> <C> <C> <C> <C>
net realized gains ............ $37,875,435 $1,211,890 $21,389,054 $5,228,326 $16,997,806
Templeton
Developing Templeton Templeton Templeton
Small Markets Global Asset Global International
Cap Fund Equity Fund Allocation Fund Growth Fund Equity Fund
---------------------------------------------------------------------
Accumulated
<S> <C> <C> <C> <C> <C>
net realized gains ................ $6,794,002 $6,195,420 $428,295 $3,597,282 $49,651,484
Utility Zero Coupon Zero Coupon Zero Coupon
Equity Fund Fund - 2000 Fund - 2005 Fund - 2010
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accumulated net realized gains .................... $75,189,259 $183,688 $16,721 $38,764
Money Natural Templeton Templeton
Capital Market Resources Global Income Pacific U.S. Government
Growth Fund Fund Fund Securities Fund Growth Fund Securities Fund
---------------------------------------------------------------------
Capital loss carryovers
<S> <C> <C> <C> <C> <C> <C> <C>
Expiring in: 1999 ........ $ -- $ -- $ -- $-- $-- $--
2000 ......... -- 418 -- -- -- --
2001 ......... -- 523 -- -- -- --
2002 ......... -- 7,568 -- -- 402,770 14,556,689
2003 ......... -- -- -- -- 3,643,075 826,481
2004 ......... 52,275 -- 146,066 1,767,518 -- --
---------------------------------------------------------------------
$52,275 $8,509 $146,066 $1,767,518 $4,045,845 $15,383,170
=====================================================================
</TABLE>
From November 1, 1996 through December 31, 1996, U.S. Government Securities
Fund, Zero Coupon Fund - 2010 and the Capital Growth Fund incurred $251,966,
$104,679 and $87,675 respectively of net realized capital losses. As permitted
by tax regulations, the fund intends to elect to defer these losses and treat
them as having arisen in the year ended December 31, 1997.
For tax purposes, the aggregate cost of securities is higher (and unrealized
appreciation is lower or unrealized depreciation is higher) than for financial
reporting purposes at June 30, 1997 by $20,716 in Capital Growth Fund, $9,777 in
Growth and Income Fund, $296,116 in Rising Dividends Fund, $212,486 in Small Cap
Fund, $102,496 in Templeton Developing Markets Equity Fund, $13,347 in Templeton
Global Growth Fund, $284,725 in Templeton International Equity Fund, $3,555,239
in Templeton Pacific Growth Fund, and $367,327 in Zero Coupon Fund - 2010.
5. PURCHASES AND SALES OF SECURITIES
Aggregate purchases and sales of securities (excluding purchases and sales of
short-term securities) for the six months ended June 30, 1997 were as follows:
<TABLE>
<CAPTION>
Income Mutual
Capital Growth and High Securities Discovery Mutual Shares
Growth Fund Income Fund Income Fund Fund Securities FundSecurities Fund
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Purchases ........ $22,071,333 $186,748,052 $79,057,984 $115,146,135 $88,059,427 $144,963,343
Sales ............ $ 3,830,427 $198,785,228 $72,845,351 $130,633,557 $14,308,924 $ 23,672,464
Templeton
Developing Templeton
Natural Real Estate Rising Small Markets Global Asset
Resources Fund Securities FundDividends Fund Cap Fund Equity Fund Allocation Fund
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Purchases ........ $25,853,709 $69,553,985 $107,490,262 $131,863,753 $64,473,900 $46,242,688
Sales ............ $33,945,628 $28,614,896 $107,963,997 $ 56,940,918 $23,328,389 $21,149,541
Templeton
Templeton Templeton Templeton International Templeton
Global Global Income International Smaller Pacific U.S. Government
Growth Fund Securities Fund Equity Fund Companies Fund Growth Fund Securities Fund
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Purchases ........ $62,614,699 $271,720,995 $136,529,691 $9,660,992 $25,929,088 $64,267,284
Sales ............ $41,798,077 $293,600,532 $164,609,271 $1,288,758 $62,849,757 $155,584,645
Utility Zero Coupon Zero Coupon Zero Coupon
Equity Fund Fund - 2000 Fund - 2005 Fund - 2010
---------------------------------------------------
<S> <C> <C> <C> <C>
Purchases ........................................ $101,287,201 $-- $-- $1,188,780
Sales ............................................ $260,475,084 $13,270,078 $8,188,025 $3,637,640
</TABLE>
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
a. Management Agreement:
Under the terms of a management agreement, Franklin Advisers, Inc. (Advisers),
provides investment advice, administrative services, office space and facilities
to each Fund, and receives fees computed monthly based on the average daily net
assets of each Fund except the Capital Growth Fund, the Mutual Discovery
Securities Fund, the Mutual Shares Securities Fund, the Rising Dividends Fund,
the Small Cap Fund, the Templeton Developing Markets Equity Fund, the Templeton
Global Asset Allocation Fund, the Templeton Global Growth Fund, the Templeton
International Equity Fund, the Templeton International Smaller Companies Fund,
and the Templeton Pacific Growth Fund as follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
0.625 of 1% First $100 million
0.500 of 1% over $100 million, up to and including $250 million
0.450 of 1% over $250 million, up to and including $10 billion
Fees are further reduced on net assets over $10 billion.
Under the terms of a separate management agreement with the Templeton
International Equity Fund and the Templeton Pacific Growth Fund, Advisers
receives fees computed monthly based on average daily net assets as follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
1% First $100 million
0.90 of 1% over $100 million, up to and including $250 million
0.80 of 1% over $250 million, up to and including $500 million
Fees are further reduced on net assets over $500 million.
Under the terms of a separate management agreement with the Capital Growth Fund
and the Small Cap Fund, Advisers receives fees computed monthly based on average
daily net assets as follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
0.750 of 1% First $500 million
0.625 of 1% over $500 million, up to and including $1 billion
0.500 of 1% over $1 billion
Under the terms of a separate management agreement with the Rising Dividends
Fund, Franklin Advisory Services, Inc. (Advisory) receives fees computed monthly
based on the average daily net assets as follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
0.750 of 1% First $500 million
0.625 of 1% over $500 million, up to and including $1 billion
0.500 of 1% over $1 billion
Templeton Global Advisers Ltd. (TGAL) serves as the investment adviser for the
Templeton Global Growth Fund and receives fees computed monthly based on average
daily net assets as follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
1% First $100 million
0.90 of 1% over $100 million, up to and including $250 million
0.80 of 1% over $250 million, up to and including $500 million
Fees are further reduced on net assets over $500 million.
a. Management Agreement: (cont.)
TGAL serves as the investment adviser for the Templeton Global Asset Allocation
Fund and receives fees computed monthly based on average daily net assets as
follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
0.650 of 1% First $200 million
0.585 of 1% over $200 million, up to and including $1.3 billion
0.520 of 1% over $1.3 billion
Templeton Investment Counsel, Inc. (TICI) serves as the investment advisor for
the Templeton International Smaller Companies Fund and receives fees computed
monthly based on average daily net assets as follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
0.850 of 1% First $200 million
0.765 of 1% over $200 million, up to and including $1.3 billion
0.680 of 1% over $1.3 billion
Franklin Mutual Advisers, Inc. (Franklin Mutual) serves as the investment
advisor for the Mutual Discovery Fund and the Mutual Shares Fund, and receives a
monthly fee equal to an annual rate of .80 and .60 of 1%, respectively, of the
average daily net assets.
Templeton Asset Management, Ltd. (TAML) serves as the investment adviser for the
Templeton Developing Markets Equity Fund and receives a monthly fee equal to an
annual rate of 1.25 of 1% of the average daily net assets.
Under an agreement with Advisers, Franklin Templeton Services, Inc. (FT
Services) provides administrative services and facilities for the Funds, except
for the Mutual Discovery Securities Fund, the Mutual Shares Securities Fund, the
Rising Dividends Fund, the Templeton Developing Markets Fund, the Templeton
Global Asset Allocation Fund, the Templeton Global Growth Fund, and the
Templeton International Smaller Companies Fund. The fee is paid by Advisers and
computed monthly based on average daily net assets. It is not a separate expense
of the Funds.
Under an agreement with Advisory, FT Services provides administrative services
and facilities for the Rising Dividends Fund. The fee is paid by Advisory and
computed monthly based on average daily net assets. It is not a separate expense
of the fund.
Under an agreement with TGAL, FT Services provides administrative services and
facilities for the Templeton Global Growth Fund. The fee is paid by TGAL and
computed monthly based on average daily net assets. It is not a separate expense
of the fund.
Under an agreement with TAML, FT Services provides administrative services and
facilities for the Templeton Developing Markets Equity Fund. The fee is paid by
TAML and computed monthly based on average daily net assets. It is not a
separate expense of the fund.
FT Services serves as the business manager for the Mutual Discovery Securities
Fund, the Mutual Shares Securities Fund, the Templeton Global Asset Allocation
Fund, and the Templeton International Smaller Companies Fund. FT Services
receives fees from the funds computed monthly based on the average daily net
assets as follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
0.150 of 1% First $200 million
0.135 of 1% over $200 million, up to and including $700 million
0.100 of 1% over $700 million, up to and including $1.2 billion
Fees are further reduced on net assets over $1.2 billion.
a. Management Agreement: (cont.)
Under a subadvisory agreement, TICI provides services to the Templeton
International Equity Fund and the Templeton Pacific Growth Fund, and receives
from Advisers fees computed monthly based on the average daily net assets of
each Fund as follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
0.50 of 1% First $100 million
0.40 of 1% over $100 million, up to and including $250 million
0.30 of 1% over $250 million, up to and including $500 million
Fees are further reduced on net assets over $500 million.
Under a subadvisory agreement, TICI provides services to the Templeton Global
Asset Allocation Fund and receives from TGAL fees computed monthly based on the
average daily net assets as follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
0.250 of 1% First $200 million
0.225 of 1% over $200 million, up to and including $1.3 billion
0.200 of 1% over $1.3 billion
Under a subadvisory agreement, TICI provides services to the Templeton Global
Income Securities Fund and receives from Advisers fees computed monthly based on
the average daily net assets as follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
0.350 of 1% First $100 million
0.250 of 1% over $100 million, up to and including $250 million
0.200 of 1% over $250 million
Advisers agreed in advance to waive management fees for the Money Market Fund,
the Zero Coupon Fund - 2000, the Zero Coupon Fund - 2005, and the Zero Coupon
Fund - 2010, as noted in the Statement of Operations for the six months ended
June 30, 1997.
b. Distribution Plans:
The management agreements between the Funds, Advisers, TGAL, and TAML include
distribution plans pursuant to Rule 12b-1 under the 1940 Act. However, no
payments were made by any Fund as a result of the plans.
c. Shareholder Services Agreement:
Franklin/Templeton Investor Services, Inc. (Investor Services), under terms of
an agreement, performs shareholder servicing for the Funds and is not paid by
the Funds for the services.
d. Other Affiliates and Related Party Transactions:
Certain officers and trustees of the Trust are also officers and/or directors of
Advisers, Advisory, Franklin Mutual, Investor Services, TGAL, TAML, TICI, FT
Services, (all wholly-owned subsidiaries of Franklin Resources, Inc.), and/or
Allianz Life.
7. CREDIT RISK AND DEFAULTED SECURITIES
The High Income Fund, the Income Securities Fund, the Mutual Discovery
Securities Fund, and the Mutual Shares Securities Fund have 87.9%, 42.5%, 1.1%,
and 1.3%, respectively, of their portfolios invested in lower rated and
comparable quality unrated securities. Investments in high yield securities are
accompanied by a greater degree of credit risk and such lower rated securities
tend to be more sensitive to economic conditions than higher rated securities.
The risk of loss due to default by the issuer may be significantly greater for
the holders of high yield securities, because such securities are generally
unsecured and are often subordinated to other creditors of the issuer.
At June 30, 1997 the Income Securities Fund held two defaulted securities with a
value aggregating $6,175,000, representing .45% of the Fund's net assets. For
information as to the specific securities, see the accompanying Statement of
Investments in Securities and Net Assets.
For financial reporting purposes, it is the Fund's accounting practice to
discontinue accrual of income and provide an estimate for probable losses due to
unpaid interest income on defaulted bonds for the current reporting period.
There are certain credit risks, foreign currency exchange risk, or event risk
due to the manner in which certain Funds are invested, which may subject the
Funds more significantly to economic changes occurring in certain industries or
sectors as follows:
The High Income Fund has investments in excess of 10% of its net assets in Cable
Television and Wireless Communication.
The Templeton Developing Markets Equity Fund has investments in excess of 10% of
its net assets in Mexico.
The Templeton International Equity Fund has investments in excess of 10% of its
net assets in United Kingdom.
The Templeton International Smaller Companies Fund has investments in excess of
10% of its net assets in Hong Kong.
The Templeton Pacific Growth Fund has investments in excess of 10% of its net
assets in Australia, Hong Kong, Japan, and Singapore.
8. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
Investments in portfolio issuers, 5% or more of whose outstanding voting
securities are held by any of the Funds, are defined in the Investment Company
Act of 1940 as affiliated companies. The Real Estate Securities Fund and Rising
Dividends Fund had investments in such affiliated companies at June 30, 1997,
with a value in the amount of $5,443,750 and $15,395,463, respectively. See the
accompanying Statement of Investments in Securities and Net Assets for specific
information on such securities.
9. RESTRICTED SECURITIES
A restricted security is a security which has not been registered with the
Securities and Exchange Commission pursuant to the Securities Act of 1933. The
Funds may purchase restricted securities through a private offering and they
cannot be sold without prior registration under the Securities Act of 1933
unless such sale is pursuant to an exemption therefrom. Subsequent costs of
registration of such securities are borne by the issuer. A secondary market
exists for certain privately placed securities. The Funds value these restricted
securities as disclosed in Note 1(a). At June 30, 1997, the Funds held
restricted securities as follows:
<TABLE>
<CAPTION>
Income Securities Fund (0.8% of net assets)
Shares Security Acquisition Date Cost Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
419,424 Bibb Co. .......................... 03/30/93 - 09/27/96 $6,112,066 $2,935,968
160,000 CMS Energy Corp.,
7.75%, quarterly cvt. pfd. .................. 06/18/97 8,000,000 8,294,400
Mutual Discovery Securities Fund
- --------------------------------------------------------------------------------------------
(0.6% of net assets)
8,000 Cityscape Financial Corp. ......... 11/25/96 $160,000 $151,525
514,590 Re Acquisition, L.L.C. ............ 04/01/97 519,614 514,590
Mutual Shares Securities Fund
- --------------------------------------------------------------------------------------------
(0.1% of net assets)
12,000 Cityscape Financial Corp. ......... 11/25/96 $240,000 $227,287
Real Estate Securities Fund
- --------------------------------------------------------------------------------------------
(2.7% of net assets)
866,067 Pacific Retail Trust .............. 08/30/96 - 04/30/97 $9,864,902 $10,392,804
Utility Equity Fund (0.8% of net assets)
- --------------------------------------------------------------------------------------------
175,000 CMS Energy Corp., 7.75%,
quarterly cvt. pfd. ......... ............... 06/18/97 $8,750,000 $9,072,000
</TABLE>
10. LENDING OF PORTFOLIO SECURITIES
The Small Cap Fund loaned securities to certain brokers for which it received
cash collateral against the loaned securities in an amount equal to at least
100% of the market value of the loaned securities. Net interest income from the
investment of the cash collateral received was $815 for the period ended June
30, 1997. The value of the loaned securities was $2,028,250. The additional
required cash collateral was received by the Small Cap Fund on July 10, 1997.
11. LIQUIDATION OF INVESTMENT GRADE INTERMEDIATE BOND FUND AND ADJUSTABLE U.S.
GOVERNMENT FUND
On October 25, 1996, as a result of a substitution transaction, the U.S.
Government Securities Fund acquired all of the net assets of the Investment
Grade Intermediate Bond Fund and the Adjustable U.S. Government Fund pursuant to
a plan of liquidation approved by the Board on October 18, 1996. In connection
with this liquidation, the U.S. Government Securities Fund acquired the
portfolio securities and other assets and liabilities of the liquidating funds
in exchange for capital shares with an equivalent value.
The net assets acquired and shares issued by the U.S. Government Securities Fund
on October 25, 1996 were as follows:
Shares Issued by
Net Assets U.S. Gov't Sec. Fund
-----------------------------------
Investment Grade
Intermediate Bond Fund ............. $145,186,632 10,949,218
Adjustable U.S. Government
Securities Fund .................... 146,948,572 11,082,094
-----------------------------------
Total .............................. $292,135,204 22,031,312
===================================
12. OTHER CONSIDERATIONS
As the Manager of the High Income Fund and the Income Securities Fund, Advisers
may serve as a member of various credit committees, representing credit
interests in certain corporate restructuring negotiations. Currently, Advisers
serves on the credit committees for Bibb Co., and Anacomp, Inc., and therefore
may be in possession of certain material non-public information. Advisers have
not sold, nor does it intend to sell, any of the Fund's holdings in these
securities while in possession of material non-public information in
contravention of the Federal Securities Laws.
13. FINANCIAL HIGHLIGHTS
Selected data for each share of beneficial interest outstanding throughout the
period, by Fund, are as follows:
<TABLE>
<CAPTION>
Per Share Operating Performance Ratios/Supplemental Data
Net Total Distri- Distri- Ratio
Asset Net From butions butions Net Net of Net Port-
Value Net Realized & Invest- From From Asset Assets Ratio of Investment folio
at Begin-Invest-Unrealized ment Net Realized Total Value at at End Expenses Income to Turn- Average
Year ning of ment Gain (Loss) Opera- Investment Capital Distri- End of Total of Periodto Average Average over Commision
Ended Period Incomeon Securities tions Income Gains butions Period Return+(in 000's)Net Assets Net Assets Rate Rate****
Capital Growth Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19965 $10.00 $ .03 $1.33 $1.36 $ -- $ -- $ -- $11.36 13.60% $ 44,667 .77%* .96%* 3.91% .0567
19977 11.36 .02 1.10 1.12 (.02) -- (.02) 12.46 9.85 74,420 .76* .71* 7.93 .0572
Growth and Income Fund
1992 12.11 .08 .72 .80 (.12) -- (.12) 12.79 6.73 231,659 .62 1.44 25.22 --
1993 12.79 .09 1.22 1.31 (.11) -- (.11) 13.99 10.32 371,484 .58 1.00 41.56 --
1994 13.99 .19 (.47) (.28) (.09) (.20) (.29) 13.42 (3.41) 517,877 .54 1.81 99.21 --
1995 13.42 .41 3.92 4.33 (.20) (.41) (.61) 17.14 32.83 889,487 .52 3.30 116.54 --
1996 17.14 .62 1.64 2.26 (.41) (1.44) (1.85) 17.55 14.19 1,077,989 .50 4.06 23.01 .0407
19977 17.55 .32 1.98 2.30 (.64) (.62) (1.26) 18.59 13.03 1,203,283 .48* 3.58* 17.67 .0388
High Income Fund
1992 $10.62$ .38 $1.31 $1.69 $ (.54) $ -- $ (.54) $11.77 16.21% $ 67,991 .68% 9.76% 33.36% --
1993 11.77 .37 1.45 1.82 (.46) -- (.46) 13.13 15.71 196,972 .64 8.18 21.06 --
1994 13.13 .88 (1.18) (.30) (.55) (.07) (.62) 12.21 (2.26) 255,036 .60 9.45 22.94 --
1995 12.21 1.06 1.30 2.36 (.91) -- (.91) 13.66 19.76 360,904 .56 9.63 20.65 --
1996 13.66 1.20 .56 1.76 (1.20) (.06) (1.26) 14.16 13.90 446,096 .54 9.63 27.16 --
19977 14.16 .68 .01 .69 (1.22) (.04) (1.26) 13.59 4.84 444,346 .52* 9.48* 17.22 --
Income Securities Fund
1992 12.82 .40 1.26 1.66 (.59) (.24) (.83) 13.65 13.20 182,993 .67 7.44 12.59 --
1993 13.65 .33 2.18 2.51 (.31) (.05) (.36) 15.80 18.59 737,942 .56 6.66 10.12 --
1994 15.80 .82 (1.80) (.98) (.44) (.07) (.51) 14.31 (6.27) 1,000,002 .54 7.27 13.33 --
1995 14.31 1.16 1.96 3.12 (.89) (.07) (.96) 16.47 22.40 1,266,538 .51 8.05 33.14 --
1996 16.47 1.32 .44 1.76 (.87) (.15) (1.02) 17.21 11.28 1,350,659 .50 7.96 15.28 .0519
19977 17.21 .70 .44 1.14 (1.33) (.29) (1.62) 16.73 6.64 1,364,087 .50* 7.68* 9.00 .0504
Money Market Fund
1992 1.00 .030 -- .030 (.030) -- (.030) 1.00 3.06 86,907 .69 2.99 -- --
1993 1.00 .030 -- .030 (.030) -- (.030) 1.00 2.54 131,534 .66 2.53 -- --
1994 1.00 .040 -- .040 (.040) -- (.040) 1.00 3.82 518,618 .468 4.05 -- --
1995 1.00 .060 -- .060 (.060) -- (.060) 1.00 5.74 429,547 .408 5.58 -- --
1996 1.00 .050 -- .050 (.050) -- (.050) 1.00 5.16 408,930 .438 5.04 -- --
19977 1.00 .025 -- .025 (.025) -- (.025) 1.00 2.53 394,298 .448* 5.00* -- --
Mutual Discovery Securities Fund
19966 10.00 .02 .19 .21 -- -- -- 10.21 2.10 15,418 1.37* 2.11* .14 .0300
19977 10.21 .09 1.03 1.12 (.01) -- (.01) 11.32 10.92 119,392 1.12* 3.47* 28.63 .0303
Mutual Shares Securities Fund
19966 10.00 .02 .33 .35 -- -- -- 10.35 3.50 27,677 1.00* 2.56* 1.31 .0410
19977 10.35 .07 .73 .80 (.01) -- (.01) 11.14 7.68 209,817 .83* 2.69* 30.49 .0416
Natural Resources Fund
1992 10.71 .10 (1.14) (1.04) (.31) -- (.31) 9.36 (10.13) 13,827 .69 2.23 -- --
1993 9.36 .03 5.16 5.19 (.09) -- (.09) 14.46 55.62 73,575 .68 1.58 .01 --
1994 14.46 .16 (.45) (.29) (.08) -- (.08) 14.09 (2.01) 125,078 .68 1.63 7.66 --
1995 14.09 .22 .12 .34 (.20) (.15) (.35) 14.08 2.35 105,109 .66 1.40 15.66 --
1996 14.08 .15 .44 .59 (.20) (.18) (.38) 14.29 4.00 109,579 .65 1.00 21.77 .0221
19977 14.29 .09 (1.30) (1.21) (.20) -- (.20) 12.88 (8.54) 91,894 .66* 1.11* 26.87 .0307
Real Estate Securities Fund
1992 11.65 .14 1.24 1.38 (.24) -- (.24) 12.79 12.12 14,859 .69 4.50 2.76 --
1993 12.79 .09 2.33 2.42 (.17) -- (.17) 15.04 19.01 92,678 .67 4.05 5.84 --
1994 15.04 .38 .06 .44 (.17) -- (.17) 15.31 2.89 195,697 .62 4.00 11.73 --
1995 15.31 .78 1.83 2.61 (.52) -- (.52) 17.40 17.53 213,473 .59 4.74 22.15 --
1996 17.40 .79 4.74 5.53 (.78) -- (.78) 22.15 32.82 322,721 .57 4.80 10.32 .0519
19977 22.15 .28 1.38 1.66 (.67) (.32) (.99) 22.82 7.59 385,486 .53* 3.45* 8.63 .0553
Rising Dividends Fund
19921 10.00 .06 .92 .98 -- -- -- 10.98 9.80 97,687 .678* 2.11* 5.22 --
1993 10.98 .14 (.52) (.38) (.03) -- (.03) 10.57 (3.48) 299,730 .79 2.31 13.58 --
1994 10.57 .26 (.69) (.43) (.17) -- (.17) 9.97 (4.08) 309,929 .80 2.71 24.07 --
1995 9.97 .27 2.66 2.93 (.24) -- (.24) 12.66 29.74 463,253 .78 2.72 18.72 --
1996 12.66 .25 2.77 3.02 (.28) -- (.28) 15.40 24.18 597,424 .76 1.96 27.97 .0505
19977 15.40 .11 2.41 2.52 (.26) (.45) (.71) 17.21 16.33 691,185 .74* 1.40* 17.61 .0507
Small Cap Fund
19954 $10.00 $ .03 $ .21 $ .24 $ -- $ -- $ -- $10.24 2.30% $ 13,301 .90%* 2.70%* 16.04% --
1996 10.24 .02 2.95 2.97 (.01) -- (.01) 13.20 28.95 170,969 .77 .63 63.72 .0518
19977 13.20 (.01) 1.06 1.05 (.03) (.37) (.40) 13.85 8.06 242,417 .77* .05* 29.85 .0474
Templeton Developing Markets Equity Fund
19942 10.00 .07 (.51) (.44) -- -- -- 9.56 (4.40) 98,189 1.53* 1.85* 1.15 --
1995 9.56 .09 .18 .27 (.04) (.01) (.05) 9.78 2.77 158,084 1.41 2.01 19.96 --
1996 9.78 .12 1.97 2.09 (.10) (.18) (.28) 11.59 21.59 272,098 1.49 1.68 12.42 .0025
19977 11.59 .12 2.14 2.26 (.15) (.23) (.38) 13.47 19.49 384,765 1.42* 2.39* 3.67 .0025
Templeton Global Asset Allocation Fund
19953 10.00 .18 .52 .70 (.18) -- (.18) 10.52 7.01 14,729 .90* 3.84* 30.00 --
1996 10.52 .34 1.75 2.09 (.01) (.01) (.02) 12.59 19.84 56,274 .86 4.21 52.35 .0028
19977 12.59 .19 .99 1.18 (.26) (.07) (.33) 13.44+++9.43 83,486 .87* 4.92* 39.23 .0005
Templeton Global Growth Fund
19942 10.15 .07 .26 .33 -- -- -- 10.48 3.25 158,856 1.14* 2.49* 7.14 --
1995 10.48 .16 1.17 1.33 (.06) -- (.06) 11.75 12.72 338,755 .97 2.46 30.92 --
1996 11.75 .25 2.22 2.47 (.21) (.21) (.42) 13.80 21.28 579,877 .93 2.20 12.32 .0096
19977 13.80 .20 1.71 1.91 (.24) (.08) (.32) 15.39 13.87 729,174 .89* 3.34* 7.40 .0014
Templeton Global Income Securities Fund
1992 12.59 .26 (.30) (.04) (.40) (.15) (.55) 12.00 (.40) 75,062 .67 4.72 92.22 --
1993 12.00 .50 1.47 1.97 (.50) (.16) (.66) 13.31 16.68 206,594 .73 7.56 59.98 --
1994 13.31 .86 (1.52) (.66) (.33) (.13) (.46) 12.19 (4.99) 254,311 .71 7.99 79.38 --
1995 12.19 .29 1.47 1.76 (.49) -- (.49) 13.46 14.68 243,194 .64 7.59 152.89 --
1996 13.46 1.02 .17 1.19 (1.04) -- (1.04) 13.61 9.56 221,722 .61 7.30 140.96 --
19977 13.61 .52 (.45) .07 (.97) -- (.97) 12.71+++ .49 204,439 .61* 6.94* 146.89 --
Templeton International Equity Fund
19921 10.00 .14 (.38) (.24) -- -- -- 9.76 (2.40) 13,662 1.77* 3.91* 21.78 --
1993++ 9.76 .18 2.60 2.78 (.04) -- (.04) 12.50 28.56 310,146 1.12 1.58 29.50 --
1994 12.50 .19 (.07) .12 (.04) (.07) (.11) 12.51 .87 785,124 .99 2.17 12.22 --
1995 12.51 .37 .94 1.31 (.22) (.28) (.50) 13.32 10.59 850,117 .92 2.87 16.42 --
1996 13.32 .40 2.58 2.98 (.38) (.47) (.85) 15.45 22.98 1,108,099 .89 3.07 27.52 .0140
19977 15.45 .12 2.00 2.12 (.45) (.69) (1.14) 16.43 13.84 1,268,991 .89* 4.20* 13.54 .0013
Templeton International Smaller Companies Fund
19965 10.00 .10 1.15 1.25 -- -- -- 11.25 12.50 16,255 1.16* 2.51* -- .0031
19977 11.25 .15 .54 .69 (.07) -- (.07) 11.87 6.10 29,505 1.08* 4.10* 8.98 .0029
Templeton Pacific Growth Fund
19921 10.00 -- (.12) (.12) -- -- -- 9.88 (1.20) 5,788 1.318* -- 8.41 --
1993 9.88 .05 4.68 4.73 -- -- -- 14.61 47.87 215,882 1.14 1.29 12.36 --
1994 14.61 .22 (1.50) (1.28) (.03) (.06) (.09) 13.24 (8.79) 375,832 1.07 2.04 4.29 --
1995 13.24 .33 .71 1.04 (.26) (.11) (.37) 13.91 7.97 331,936 1.01 2.08 36.06 --
1996 13.91 .21 1.34 1.56 (.44) (.26) (.70) 14.76 11.10 356,759 .99 1.51 12.85 .0092
19977 14.76 .18 .26 .44 (.28) .00 (.28) 14.92 2.98 317,595 1.00* 2.22* 8.12 .0064
U.S. Government Securities Fund
1992 12.72 .52 .44 .96 (.43) (.01) (.44) 13.24 7.69 371,828 .59 7.07 28.64 --
1993 13.24 .50 .77 1.27 (.51) (.08) (.59) 13.92 9.71 684,303 .54 6.06 145.11 --
1994 13.92 .96 (1.59) (.63) (.67) (.05) (.72) 12.57 (4.55) 579,039 .53 6.87 18.25** --
1995 12.57 .93 1.46 2.39 (.96) -- (.96) 14.00 19.46 643,165 .52 6.72 18.68** --
1996 14.00 .75 (.31) .44 (.97) -- (.97) 13.47 3.62 843,858 .51 6.66 12.93*** --
19977 13.47 .53 (.03) .50 (.76) -- (.76) 13.21 3.73 779,323 .50* 6.55* 8.21 --
Utility Equity Fund
1992 $14.86 $ .35 $ .92 $1.27 $ (.31) $ -- $ (.31) $15.82 8.69% $ 667,118 .55% 5.18% 0.13% --
1993 15.82 .38 1.28 1.66 (.34) -- (.34) 17.14 10.54 1,589,634 .51 4.47 4.80 --
1994 17.14 .95 (2.94) (1.99) (.62) (.11) (.73) 14.42 (11.56) 1,155,110 .52 5.58 11.74 --
1995 14.42 .84 3.54 4.38 (.90) -- (.90) 17.90 31.35 1,423,446 .50 5.14 13.27 --
1996 17.90 .91 .29 1.20 (.92) -- (.92) 18.18 7.07 1,202,290 .50 4.20 29.69 .0252
19977 18.18 .51 .82 1.33 (.96) (1.33) (2.29) 17.22 7.37 1,088,959 .50* 4.16* 9.22 .0114
Zero Coupon Fund - 2000
1992 13.26 .57 .58 1.15 (.53) -- (.53) 13.88 9.04 48,217 .258 6.97 9.10 --
1993 13.88 .66 1.55 2.21 (.62) (.03) (.65) 15.44 16.15 76,916 .378 5.88 7.02 --
1994 15.44 .68 (1.71) (1.03) (.69) (.10) (.79) 13.62 (6.76) 94,230 .408 6.37 -- --
1995 13.62 .75 2.03 2.78 (.67) -- (.67) 15.73 20.67 137,357 .408 6.14 1.63 --
1996 15.73 .98 (.65) .33 (.86) (.01) (.87) 15.19 2.43 129,601 .408 6.14 .58 --
19977 15.19 .57 (.21) .36 (1.06) (.02) (1.08) 14.47 2.37 120,425 .408* 6.37* -- --
Zero Coupon Fund - 2005
1992 12.91 .65 .67 1.32 (.61) -- (.61) 13.62 10.81 18,295 .258 7.46 19.48 --
1993 13.62 .44 2.55 2.99 (.52) (.01) (.53) 16.08 22.21 42,998 .378 5.67 16.59 --
1994 16.08 .71 (2.24) (1.53) (.60) (.19) (.79) 13.76 (9.60) 51,499 .408 6.53 2.00 --
1995 13.76 .78 3.53 4.31 (.69) -- (.69) 17.38 31.76 83,222 .408 6.19 1.72 --
1996 17.38 .96 (1.13) (.17) (.86) -- (.86) 16.35 (.50) 82,603 .408 6.15 2.06 --
19977 16.35 .59 (.23) .36 (1.06) (.01) (1.07) 15.64 2.16 76,131 .408* 6.27* -- --
Zero Coupon Fund - 2010
1992 12.84 1.21 .03 1.24 (.73) -- (.73) 13.35 10.31 13,431 .258 7.64 54.50 --
1993 13.35 .50 2.81 3.31 (.94) (.04) (.98) 15.68 25.47 29,189 .258 5.89 36.63 --
1994 15.68 .55 (2.27) (1.72) (.63) (.31) (.94) 13.02 (10.97) 45,361 .408 6.57 4.34 --
1995 13.02 .76 4.75 5.51 (.49) -- (.49) 18.04 42.79 85,633 .408 6.41 31.45 --
1996 18.04 1.02 (1.65) (.63) (.88) (.24) (1.12) 16.29 (2.69) 78,816 .408 6.24 16.10 --
19977 16.29 .50 (.19) .31 (1.01) (.01) (1.02) 15.58 1.86 78,344 .408* 6.37* 1.55 --
*Annualized
**The portfolio turnover rate excludes mortgage dollar roll transactions.
***The portfolio turnover rate excludes transactions related to the liquidation of the Investment Grade Intermediate Bond Fund and
the Adjustable U.S. Government Fund and mortgage dollar roll transactions.
****Represents the average broker commission rate per share paid by the Fund in connection wih the execution of the Fund's portfolio
transactions in equity securities.
+Total return measures the change in value of an investment over the periods indicated. It assumes reinvestment and capital gains,
if any, at net asset value and is not annualized. The total return may differ from that reported in the Manager's Discussion due
to differences between the net asset values quoted and the net asset values calculated for financial reporting purposes.
++Per share amounts have been calculated using the average shares outstanding during the period.
+++The net asset value differs from the net asset value used to process shareholder activity as of the reporting date, which does
not include market adjustments for portfolio trades made on that date. These adjustments are generally accounted for on the day
following the trade date.
1For the period January 27, 1992 (effective date) to December 31, 1992.
2For the period March 15, 1994 (effective date) to December 31, 1994.
3For the period April 19, 1995 (effective date) to December 31, 1995.
4For the period November 1, 1995 (effective date) to December 31, 1995.
5For the period May 1, 1996 (effective date) to December 31, 1996.
6For the period November 8, 1996 (effective date) to December 31, 1996.
7For the six months ended June 30, 1997.
8During the periods indicated below, Advisers, the investment manager, agreed to waive in advance a portion of its management fees
and made payments of other expenses incurred by the Funds in the Trust. Had such action not been taken, the ratio of expenses to
average net assets would have been as follows:
</TABLE>
Ratio of
Expenses
to average
net assets
Money Market Fund
1994 .................................................... .54%
1995 .................................................... .53
1996 .................................................... .53
19977 ................................................... .52*
Rising Dividends Fund
19921 ................................................... .76*
Templeton Pacific Growth Fund
19921 ................................................... 2.57*
Zero Coupon Fund - 2000
1992 .................................................... .68
1993 .................................................... .67
1994 .................................................... .66
1995 .................................................... .63
1996 .................................................... .62
19977 ................................................... .64*
Zero Coupon Fund - 2005
1992 .................................................... .69
1993 .................................................... .67
1994 .................................................... .68
1995 .................................................... .66
1996 .................................................... .65
19977 ................................................... .64*
Zero Coupon Fund - 2010
1992 .................................................... .69
1993 .................................................... .68
1994 .................................................... .68
1995 .................................................... .66
1996 .................................................... .65
19977 ................................................... .64*
Franklin Valuemark Semi-Annual Report June 30, 1997
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING (PURSUANT TO ITEM
304(a) OF REGULATION S-T)
GRAPHIC MATERIAL (1)
This chart shows in pie format the sector breakdown of the fund's securities
on 6/30/97, based on total net assets.
Sector Breakdown on 6/30/97
Gold & Precious Metals 59.1%
Energy 16.9%
Base Metals 12.9%
Service/Related Industries 3.0%
REITs 2.0%
Steel 1.1%
Cash & Equivalents 5.0%
GRAPHIC MATERIAL (2)
This chart shows in pie format the geographic distribution of the fund's
securities on 6/30/97, based on total net assets.
Geographic Distribution on 6/30/97
Asia 38.5%
Latin America 34.2%
Europe 10.2%
Mid-East/Africa 5.4%
Short-Term & Other Net Assets 11.7%
GRAPHIC MATERIAL (3)
This chart shows in pie format the geographic distribution of the fund's
securities on 6/30/97, based on total net assets.
Geographic Distribution on 6/30/97
Europe 34.0%
North America 28.6%
Asia 10.0%
Latin America 7.5%
Australia/New Zealand 3.6%
Mid-East/Africa 0.7%
Short-Term & Other Net Assets 15.6%
GRAPHIC MATERIAL (4)
This chart shows in pie format the geographic distribution of the fund's
securities on 6/30/97, based on total net assets.
Geographic Distribution on 6/30/97
Europe 57.6%
Asia 9.6%
Australia/New Zealand 7.3%
Latin America 5.5%
North America 3.8%
Mid-East/Africa 1.1%
Short-Term & Other Net Assets 15.1%
GRAPHIC MATERIAL (5)
This chart shows in pie format the geographic distribution of the fund's
securities on 6/30/97, based on total net assets.
Geographic Distribution on 6/30/97
Europe 34.0%
Asia 19.7%
Latin America 5.4%
Australia/New Zealand 3.6%
Mid-East/Africa 2.2%
North America 0.8%
Short-Term & Other Net Assets 34.3%
GRAPHIC MATERIAL (6)
This chart shows in pie format the asset allocation of the fund's securities
on 6/30/97, based on total net assets.
Asset Allocation on 6/30/97
Equity Securities 63.2%
Fixed-Income Securities 30.0%
Short-Term & Other Net Assets 6.8%
GRAPHIC MATERIAL (7)
This chart shows in pie format the geographic distribution of the fund's
securities on 6/30/97, based on total net assets.
Geographic Distribution on 6/30/97
North America 41.8%
Europe 33.8%
Latin America 20.4%
Australia 4.0%
TABLE OF CONTENTS
Letter to Contract Owners 2
Economic Overview 3
Change in Unit Prices 5
Franklin Valuemark Total Returns 7
Portfolio Objectives & Risks 13
Portfolio Summaries
Portfolios Seeking Capital Growth
Capital Growth Fund 20
Mutual Discovery Securities Fund 21
Natural Resources Securities Fund 21
Small Cap Fund 22
Templeton Developing Markets Equity Fund 23
Templeton Global Growth Fund 24
Templeton International Equity Fund 25
Templeton International Smaller Companies Fund 25
Templeton Pacific Growth Fund 26
Portfolios Seeking Growth and Income
Growth and Income Fund 27
Income Securities Fund 28
Mutual Shares Securities Fund 29
Real Estate Securities Fund 30
Rising Dividends Fund 32
Templeton Global Asset Allocation Fund 33
Utility Equity Fund 34
Portfolios Seeking Current Income
High Income Fund 35
Templeton Global Income Securities Fund 35
U.S. Government Securities Fund 36
Zero Coupon Funds 37
Portfolio Seeking Capital Preservation and Income
Money Market Fund 38
Allianz Variable Account B
Financial Statements and Notes 39
Franklin Valuemark Funds
Statement of Investments 65
Financial Statements and Notes 159
CELEBRATING 50 YEARS
This year marks 50 years of business
for Franklin Templeton. Over these years, the mutual fund industry has
experienced profound changes in technology, regulations and customer
expectations. As one of the largest mutual fund families, we're proud to be
an innovative industry leader, providing people like you with an opportunity
to invest around the globe. We thank you for your past support and look
forward to serving your investment needs in the years ahead.
LETTER TO CONTRACT OWNERS
Dear Contract Owner:
This semi-annual report covers the six months ended June 30, 1997, for the
Franklin Valuemark(R) flexible premium deferred variable annuity, Franklin
Templeton Valuemark(R) Income Plus (VIP), an immediate variable annuity, and
the 23 Franklin Valuemark Funds available under the Valuemark variable
annuities. Currently, 15 of the Valuemark portfolios are available with VIP.
On the following pages you will find a summary covering global market
conditions over the past year as well as discussions of each portfolio's
performance. The portfolios' performance tables, presented on pages 7 through
12, show cumulative and average annual total returns. It is important to
remember that financial markets fluctuate daily, and past investment
conditions and results are not indicative of future trends.
We look to the future with confidence and believe Franklin Valuemark and VIP
will continue to be appropriate vehicles for tax-conscious investors seeking
to meet their long-term retirement and other financial needs. As always, we
thank you for your continued support and look forward to serving you in the
years to come.
Sincerely,
Rupert H. Johnson, Jr.
Director and Vice President
Franklin Valuemark Funds
Lowell C. Anderson
Chairman of the Board
Allianz Life Insurance Company
of North America
ECONOMIC OVERVIEW
IN THE U.S.: UP, UP AND AWAY?
A growing sense of nervousness from market participants and the Federal
Reserve Board (the Fed) shadowed the market's seemingly untethered rise, and
accompanying volatility, over the six-month period. The question on
everyone's mind: "How high can the market go?" The Dow Jones(R) Industrial
Average gained roughly 1200 points during the reporting period, pushing
through the 7000-point mark for the first time, in mid-February 1997. Strong
economic growth (first quarter GDP posted an annualized rate of 5.8%),
combined with the stock market's meteoric rise, prompted some degree of
caution on the part of the Fed. The chief topic on Wall Street was whether
the Federal Open Market Committee would increase the federal funds rate.
To no one's surprise, the Fed nudged the federal funds rate higher at its
March meeting, citing heightened inflation risk as the reason behind the
quarter-point increase. And while the market experienced a roughly 10%
correction, stock prices rebounded sharply by the end of the six months under
review, a move that could be viewed as encouraging.
The economy remains interest-rate sensitive, reacting quickly to any changes.
While expanding economic growth and increased interest rates went
hand-in-hand in the first quarter of 1997, the economy appears to be slowing
slightly, with interest rates trending downward by the end of the reporting
period.
AND IN THE FOREIGN MARKETS...
Many European stocks also appreciated in value as companies there generated
healthy profits due to privatization, restructuring and cost-reduction
programs. Switzerland, the Netherlands, Spain and Denmark were among the
region's best-performing equity markets. Although European equity markets
were strong, their fixed-income markets didn't fare as well. The U.S. dollar
rose against most foreign currencies, reducing returns for U.S. holders of
foreign bonds.
Emerging markets generally experienced substantial gains during the reporting
period, with Latin America, in particular, delivering stellar returns. For
example, Brazil's Bovespa Index soared 86% and Mexico's Bolsa Index surged
33%, as measured in U.S. dollars.1 Asian developing markets, however,
provided mixed results: The Hong Kong and Chinese markets rose, while those
in Thailand, Singapore, and the Philippines declined.
1. Source: Bloomberg.
OUTLOOK FOR THE SECOND HALF
Interest rates will probably continue to fluctuate as the Fed looks for signs
of increasing inflationary pressures and other indicators to determine if
additional action is necessary. And while further Fed action could lead to
some volatility in the domestic markets, we have yet to see any major changes
in the economy. It is important to remember, however, that markets correct --
in our opinion, it is desirable for them to do so. The quarter-point increase
in the federal funds rate may be a precursor of one or two more adjustments
before the year ends. Large federal budget deficits are still too fresh in
investors' memories, and apparently much attention is directed toward keeping
the budget in close balance. We feel, therefore, that the economy should not
see much higher rates in the near term -- certainly not like those experienced
during 1994.
Franklin Valuemark Variable Annuity
Change in Unit Prices
% Change
Unit Price* Unit Price*in Unit Price
Portfolio Name 12/31/96 6/30/97 12/31/96 to 6/30/97
Capital Growth Fund $11.25 $12.28 9.09%
Growth and Income Fund $19.49 $21.88 12.25%
High Income Fund $19.37 $20.17 4.11%
Income Securities Fund $21.71 $22.99 5.90%
Money Market Fund $13.36 $13.60 1.82%
Mutual Discovery Securities Fund $10.18 $11.23 10.26%
Mutual Shares Securities Fund $10.33 $11.05 6.94%
Natural Resources Securities Fund++ $14.47 $13.14 -9.17%
Real Estate Securities Fund $23.67 $25.29 6.85%
Rising Dividends Fund $15.30 $17.68 15.53%
Small Cap Fund $12.91 $13.86 7.31%
Templeton Developing
Markets Equity Fund $11.49 $13.63 18.67%
Templeton Global
Asset Allocation Fund $12.51 $13.59 8.60%
Templeton Global Growth Fund $13.56 $15.33 13.08%
Templeton Global
Income Securities Fund $16.78 $16.72 -0.35%
Templeton International
Equity Fund $16.08 $18.18 13.05%
Templeton International
Smaller Companies Fund $11.15 $11.74 5.36%
Templeton Pacific Growth Fund $14.93 $15.27 2.27%
U.S. Government Securities Fund $16.65 $17.15 3.02%
Utility Equity Fund $20.65 $22.02 6.63%
Zero Coupon Fund - 2000 $18.47 $18.78 1.66%
Zero Coupon Fund - 2005 $20.52 $20.82 1.45%
Zero Coupon Fund - 2010 $21.52 $21.77 1.15%
*The unit prices have been rounded to the nearest hundredth. Percent change
is calculated using actual unit prices.
++Effective May 1, 1997, the Precious Metals Fund's name changed to the
Natural Resources Securities Fund.
Note: The unit value is the total value of assets of the sub-account (which
is equal to the portfolio's net assets), minus the daily variable account
charges with
a charge or credit for reserved taxes, and then divided by the total number
of units. It does not reflect the contingent deferred sales charge that
declines from 6% to 0% over five full years for Valuemark III, 5% to 0% over
five full years for Valuemark II, or the annual contract maintenance charge;
if these were included, values would be lower.
Investment returns and the value of your principal will vary with market
conditions, so you may have a gain or loss when you sell your units. Past
performance cannot guarantee future results.
Franklin Valuemark IV
Change in Unit Prices
<TABLE>
<CAPTION>
% Change
Unit Price* Unit Price* in Unit Price
Portfolio Name 12/31/96 6/30/97 12/31/96 to 6/30/97
<S> <C> <C> <C>
Capital Growth Fund $11.25 $12.26 9.04%
Growth and Income Fund $19.35 $21.71 12.20%
High Income Fund $19.24 $20.02 4.06%
Income Securities Fund $21.55 $22.81 5.85%
Money Market Fund $13.27 $13.50 1.78%
Mutual Discovery Securities Fund $10.18 $11.22 10.21%
Mutual Shares Securities Fund $10.33 $11.04 6.89%
Natural Resources Securities Fund++ $14.36 $13.04 -9.21%
Real Estate Securities Fund $23.50 $25.10 6.80%
Rising Dividends Fund $15.24 $17.59 15.48%
Small Cap Fund $12.90 $13.84 7.27%
Templeton Developing Markets Equity Fund $11.46 $13.59 18.61%
Templeton Global Asset Allocation Fund $12.49 $13.56 8.55%
Templeton Global Growth Fund $13.53 $15.29 13.03%
Templeton Global Income Securities Fund $16.66 $16.59 -0.40%
Templeton International Equity Fund $16.01 $18.09 13.00%
Templeton International Smaller Companies Fund $11.14 $11.73 5.31%
Templeton Pacific Growth Fund $14.87 $15.20 2.22%
U.S. Government Securities Fund $16.53 $17.02 2.97%
Utility Equity Fund $20.53 $21.88 6.58%
Zero Coupon Fund - 2000 $18.34 $18.64 1.61%
Zero Coupon Fund - 2005 $20.38 $20.66 1.41%
Zero Coupon Fund - 2010 $21.37 $21.61 1.11%
</TABLE>
*The unit prices have been rounded to the nearest hundredth. Percent change
is calculated using actual unit prices.
++Effective May 1, 1997, the Precious Metals Fund's name changed to the
Natural Resources Securities Fund.
Note: The unit value is the total value of assets of the sub-account (which is
equal to the portfolio's net assets), minus the daily variable account charges
with a charge or credit for reserved taxes, and then divided by the total number
of units. It does not reflect the contingent deferred sales charge that declines
from 6% to 0% over seven full years for Valuemark IV, or the annual contract
maintenance charge; if these were included, values would be lower. Investment
returns and the value of your principal will vary with market conditions, so you
may have a gain or loss when you sell your units. Past performance cannot
guarantee future results.
Valuemark II
Standardized Total Returns for the periods ended June 30, 1997
With Contingent Deferred Sales Charge and Other Charges
<TABLE>
<CAPTION>
Inception Since
Portfolio Name Date 1-Year 5-Year Inception
<S> <C> <C> <C> <C>
Capital Growth Fund 5/1/96 16.52% N/A 16.16%
Growth and Income Fund* 1/24/89 16.24% 13.79% 9.64%
High Income Fund* 1/24/89 9.12% 9.77% 8.59%
Income Securities Fund* 1/24/89 8.11% 9.03% 10.29%
Money Market Fund* 1/24/89 -0.64% 2.62% 3.62%
Mutual Discovery Securities Fund 11/8/96 N/A N/A 7.90%
Mutual Shares Securities Fund 11/8/96 N/A N/A 6.12%
Natural Resources Securities Fund* 1/24/89 -17.97% 3.68% 3.20%
Real Estate Securities Fund* 1/24/89 27.12% 16.27% 11.54%
Rising Dividends Fund 1/27/92 28.47% 12.06% 10.97%
Small Cap Fund 11/1/95 11.41% N/A 19.70%
Templeton Developing Markets Equity Fund* 3/15/94 19.23% N/A 9.44%
Templeton Global Asset Allocation Fund 5/1/95 15.04% N/A 14.21%
Templeton Global Growth Fund* 3/15/94 18.53% N/A 13.47%
Templeton Global Income Securities Fund* 1/24/89 2.77% 4.62% 6.20%
Templeton International Equity Fund 1/27/92 18.55% 12.59% 11.55%
Templeton International Smaller Companies Fund 5/1/96 9.58% N/A 11.68%
Templeton Pacific Growth Fund 1/27/92 -3.76% 7.87% 8.02%
U.S. Government Securities Fund 3/14/89 3.20% 5.46% 6.63%
Utility Equity Fund 1/24/89 4.21% 8.04% 9.74%
Zero Coupon - 2000** 3/14/89 1.24% 6.50% 7.81%
Zero Coupon - 2005** 3/14/89 3.02% 8.79% 9.16%
Zero Coupon - 2010** 3/14/89 5.01% 10.47% 9.75%
</TABLE>
The above figures represent the average annual change in value, assuming
reinvestment of dividends and capital gains. Performance shown reflects all
charges, including the annual contract maintenance charge and applicable
contingent deferred sales charges (CDSC). The CDSC reduces from 5% to 0% over
five full years for each purchase payment and is adjusted for the applicable
withdrawal/surrender privilege. Averaged returns smooth out variations in a
portfolio's returns, which can be significant; they are not the same as
year-by-year results. For periods of less than one year, aggregate total returns
are shown. The sub-account results are based on past performance of the
portfolios. The portfolios may have started before the sub-accounts, contracts,
or their availability in all states. Investment returns and the value of your
principal will vary with market conditions, so you may have a gain or loss when
you sell your units. Past performance cannot predict or guarantee future
results.
*Past and present expense reductions by the manager increased total return; this
agreement may be discontinued at any time.
**The manager will keep total expenses to 0.40% or less of the portfolios' net
assets through 1997, which increases returns.
Valuemark II
Non-Standardized Total Returns for the periods ended June 30, 1997
Without Contingent Deferred Sales Charge and Other Charges
<TABLE>
<CAPTION>
Total Return Cumulative Total Return
Inception 1- 5- Since 3- 5- Since
Portfolio Name Date Year Year Inception Year Year Inception
<S> <C> <C> <C> <C> <C> <C> <C>
Capital Growth Fund 5/1/96 20.87% N/A 19.26% N/A N/A 22.77%
Growth and Income Fund* 1/24/89 20.59% 13.91% 9.72% 68.27% 91.81% 118.77%
High Income Fund* 1/24/89 13.47% 9.91% 8.67% 39.17% 60.39% 101.71%
Income Securities Fund* 1/24/89 12.46% 9.17% 10.37% 38.68% 55.09% 129.89%
Money Market Fund* 1/24/89 3.71% 2.79% 3.71% 11.85% 14.74% 36.03%
Mutual Discovery Securities Fund 11/8/96 N/A N/A N/A N/A N/A 12.25%
Mutual Shares Securities Fund 11/8/96 N/A N/A N/A N/A N/A 10.47%
Natural Resources Securities Fund* 1/24/89 -13.62% 3.83% 3.29% -2.72% 20.66% 31.41%
Real Estate Securities Fund* 1/24/89 31.47% 16.39% 11.63% 60.40% 113.63% 152.88%
Rising Dividends Fund 1/27/92 32.82% 12.21% 11.07% 81.72% 77.87% 76.79%
Small Cap Fund 11/1/95 15.76% N/A 21.67% N/A N/A 38.57%
Templeton Developing Markets Equity Fund* 3/15/94 23.58% N/A 9.86% 37.01% N/A 36.31%
Templeton Global Asset Allocation Fund 5/1/95 19.39% N/A 15.21% N/A N/A 35.90%
Templeton Global Growth Fund* 3/15/94 22.88% N/A 13.85% 53.66% N/A 53.34%
Templeton Global Income Securities Fund* 1/24/89 7.12% 4.78% 6.28% 23.60% 26.30% 67.21%
Templeton International Equity Fund 1/27/92 22.90% 12.72% 11.64% 49.04% 81.99% 81.80%
Templeton International
Smaller Companies Fund 5/1/96 13.93% N/A 14.79% N/A N/A 17.43%
Templeton Pacific Growth Fund 1/27/92 0.59% 8.01% 8.11% 15.14% 47.01% 52.70%
U.S. Government Securities Fund 3/14/89 7.55% 5.62% 6.72% 24.50% 31.42% 71.52%
Utility Equity Fund 1/24/89 8.56% 8.19% 9.81% 52.96% 48.22% 120.24%
Zero Coupon - 2000** 3/14/89 5.59% 6.64% 7.89% 20.87% 37.91% 87.81%
Zero Coupon - 2005** 3/14/89 7.37% 8.93% 9.23% 29.54% 53.34% 108.15%
Zero Coupon - 2010** 3/14/89 9.36% 10.60% 9.83% 39.02% 65.46% 117.71%
</TABLE>
Total return represents the cumulative or average annual change in value,
assuming reinvestment of dividends and capital gains and adjusted for the
applicable withdrawal/surrender privilege. The figures reflect all fund
operating expenses and variable account asset charges. They do not include the
applicable contingent deferred sales charges (5% to 0% over five full years) for
each purchase payment, or the annual $30 contract maintenance charge; if these
were deducted, returns would be lower. Averaged returns smooth out variations in
a portfolio's returns, which can be significant; they are not the same as
year-by-year results. For periods of less than one year, aggregate total returns
are shown. The sub-account results are based on past performance of the
portfolios. The portfolios may have started before the sub-accounts, contracts,
or their availability in all states. Investment returns and the value of your
principal will vary with market conditions, so you may have a gain or loss when
you sell your units. Past performance cannot guarantee future results.
Standardized performance data and other important disclosures are on page 7.
Please review this information and a Franklin Valuemark prospectus before
investing.
*Past and present expense reductions by the manager increased total return; this
agreement may be discontinued at any time. **The manager will keep total
expenses to 0.40% or less of the portfolios' net assets through 1997, which
increases returns.
Valuemark III
Standardized Total Returns for the periods ended June 30, 1997
With Contingent Deferred Sales Charge and Other Charges
<TABLE>
<CAPTION>
Inception Since
Portfolio Name Date 1-Year 5-Year Inception
<S> <C> <C> <C> <C>
Capital Growth Fund 5/1/96 15.67% N/A 16.16%
Growth and Income Fund* 1/24/89 15.39% 13.79% 9.64%
High Income Fund* 1/24/89 8.27% 9.77% 8.59%
Income Securities Fund* 1/24/89 7.26% 9.03% 10.29%
Money Market Fund* 1/24/89 -1.49% 2.62% 3.62%
Mutual Discovery Securities Fund 11/8/96 N/A N/A 7.05%
Mutual Shares Securities Fund 11/8/96 N/A N/A 5.27%
Natural Resources Securities Fund* 1/24/89 -18.82% 3.68% 3.20%
Real Estate Securities Fund* 1/24/89 26.27% 16.27% 11.54%
Rising Dividends Fund 1/27/92 27.62% 12.06% 10.97%
Small Cap Fund 11/1/95 10.56% N/A 19.70%
Templeton Developing Markets Equity Fund* 3/15/94 18.38% N/A 9.44%
Templeton Global Asset Allocation Fund 5/1/95 14.19% N/A 14.21%
Templeton Global Growth Fund* 3/15/94 17.68% N/A 13.47%
Templeton Global Income Securities Fund* 1/24/89 1.92% 4.62% 6.20%
Templeton International Equity Fund 1/27/92 17.70% 12.59% 11.55%
Templeton International Smaller Companies Fund 5/1/96 8.73% N/A 11.68%
Templeton Pacific Growth Fund 1/27/92 -4.61% 7.87% 8.02%
U.S. Government Securities Fund 3/14/89 2.35% 5.46% 6.63%
Utility Equity Fund 1/24/89 3.36% 8.04% 9.74%
Zero Coupon - 2000** 3/14/89 0.39% 6.50% 7.81%
Zero Coupon - 2005** 3/14/89 2.17% 8.79% 9.16%
Zero Coupon - 2010** 3/14/89 4.16% 10.47% 9.75%
</TABLE>
The above figures represent the average annual change in value, assuming
reinvestment of dividends and capital gains. Performance shown reflects all
charges, including the annual contract maintenance charge and applicable
contingent deferred sales charges (CDSC). The CDSC reduces from 6% to 0% over
five full years for each purchase payment and is adjusted for the applicable
withdrawal/surrender privilege. Averaged returns smooth out variations in a
portfolio's returns, which can be significant; they are not the same as
year-by-year results. For periods of less than one year, aggregate total returns
are shown. The sub-account results are based on past performance of the
portfolios. The portfolios may have started before the sub-accounts, contracts,
or their availability in all states. Investment returns and the value of your
principal will vary with market conditions, so you may have a gain or loss when
you sell your units. Past performance cannot predict or guarantee future
results.
*Past and present expense reductions by the manager increased total return; this
agreement may be discontinued at any time.
**The manager will keep total expenses to 0.40% or less of the portfolios' net
assets through 1997, which increases returns.
Valuemark III
Non-Standardized Total Returns for the periods ended June 30, 1997
Without Contingent Deferred Sales Charge and Other Charges
<TABLE>
<CAPTION>
Total Return Cumulative Total Return
Inception 1- 5- Since 3- 5- Since
Portfolio Name Date Year Year Inception Year Year Inception
<S> <C> <C> <C> <C> <C> <C> <C>
Capital Growth Fund 5/1/96 20.87% N/A 19.26% N/A N/A 22.77%
Growth and Income Fund* 1/24/89 20.59% 13.91% 9.72% 68.27% 91.81% 118.77%
High Income Fund* 1/24/89 13.47% 9.91% 8.67% 39.17% 60.39% 101.71%
Income Securities Fund* 1/24/89 12.46% 9.17% 10.37% 38.68% 55.09% 129.89%
Money Market Fund* 1/24/89 3.71% 2.79% 3.71% 11.85% 14.74% 36.03%
Mutual Discovery Securities Fund 11/8/96 N/A N/A N/A N/A N/A 12.25%
Mutual Shares Securities Fund 11/8/96 N/A N/A N/A N/A N/A 10.47%
Natural Resources Securities Fund* 1/24/89 -13.62% 3.83% 3.29% -2.72% 20.66% 31.41%
Real Estate Securities Fund* 1/24/89 31.47% 16.39% 11.63% 60.40% 113.63% 152.88%
Rising Dividends Fund 1/27/92 32.82% 12.21% 11.07% 81.72% 77.87% 76.79%
Small Cap Fund 11/1/95 15.76% N/A 21.67% N/A N/A 38.57%
Templeton Developing Markets Equity Fund* 3/15/94 23.58% N/A 9.86% 37.01% N/A 36.31%
Templeton Global Asset Allocation Fund 5/1/95 19.39% N/A 15.21% N/A N/A 35.90%
Templeton Global Growth Fund* 3/15/94 22.88% N/A 13.85% 53.66% N/A 53.34%
Templeton Global Income Securities Fund* 1/24/89 7.12% 4.78% 6.28% 23.60% 26.30% 67.21%
Templeton International Equity Fund 1/27/92 22.90% 12.72% 11.64% 49.04% 81.99% 81.80%
Templeton International Smaller Companies Fund5/1/96 13.93% N/A 14.79% N/A N/A 17.43%
Templeton Pacific Growth Fund 1/27/92 0.59% 8.01% 8.11% 15.14% 47.01% 52.70%
U.S. Government Securities Fund 3/14/89 7.55% 5.62% 6.72% 24.50% 31.42% 71.52%
Utility Equity Fund 1/24/89 8.56% 8.19% 9.81% 52.96% 48.22% 120.24%
Zero Coupon - 2000** 3/14/89 5.59% 6.64% 7.89% 20.87% 37.91% 87.81%
Zero Coupon - 2005** 3/14/89 7.37% 8.93% 9.23% 29.54% 53.34% 108.15%
Zero Coupon - 2010** 3/14/89 9.36% 10.60% 9.83% 39.02% 65.46% 117.71%
</TABLE>
Total return represents the cumulative or average annual change in value,
assuming reinvestment of dividends and capital gains and adjusted for the
applicable withdrawal/surrender privilege. The figures reflect all fund
operating expenses and variable account asset charges. They do not include the
applicable contingent deferred sales charges (6% to 0% over five full years) for
each purchase payment, or the annual $30 contract maintenance charge; if these
were deducted, returns would be lower. Averaged returns smooth out variations in
a portfolio's returns, which can be significant; they are not the same as
year-by-year results. For periods of less than one year, aggregate total returns
are shown. The sub-account results are based on past performance of the
portfolios. The portfolios may have started before the sub-accounts, contracts,
or their availability in all states. Investment returns and the value of your
principal will vary with market conditions, so you may have a gain or loss when
you sell your units. Past performance cannot guarantee future results.
Standardized performance data and other important disclosures are on page 9.
Please review this information and a Franklin Valuemark prospectus before
investing.
*Past and present expense reductions by the manager increased total return; this
agreement may be discontinued at any time.
**The manager will keep total expenses to 0.40% or less of the portfolios' net
assets through 1997, which increases returns.
Valuemark IV
Standardized Total Returns for the periods ended June 30, 1997
With Contingent Deferred Sales Charge and Other Charges
<TABLE>
<CAPTION>
Inception Since
Portfolio Name Date 1-Year 5-Year Inception
<S> <C> <C> <C> <C>
Capital Growth Fund 5/1/96 14.66% N/A 14.71%
Growth and Income Fund* 1/24/89 14.38% 13.32% 9.54%
High Income Fund* 1/24/89 7.26% 9.25% 8.49%
Income Securities Fund* 1/24/89 6.26% 8.50% 10.19%
Money Market Fund* 1/24/89 -2.48% 1.98% 3.53%
Mutual Discovery Securities Fund 11/8/96 N/A N/A 6.09%
Mutual Shares Securities Fund 11/8/96 N/A N/A 4.30%
Natural Resources Securities Fund* 1/24/89 -19.80% 3.06% 3.11%
Real Estate Securities Fund* 1/24/89 25.25% 15.84% 11.44%
Rising Dividends Fund 1/27/92 26.60% 11.58% 10.57%
Small Cap Fund 11/1/95 9.55% N/A 18.73%
Templeton Developing Markets Equity Fund* 3/15/94 17.37% N/A 8.58%
Templeton Global Asset Allocation Fund 5/1/95 13.19% N/A 12.95%
Templeton Global Growth Fund* 3/15/94 16.66% N/A 12.66%
Templeton Global Income Securities Fund* 1/24/89 0.92% 4.02% 6.10%
Templeton International Equity Fund 1/27/92 16.69% 12.11% 11.16%
Templeton International Smaller Companies Fund 5/1/96 7.73% N/A 10.22%
Templeton Pacific Growth Fund 1/27/92 -5.60% 7.32% 7.59%
U.S. Government Securities Fund 3/14/89 1.36% 4.87% 6.53%
Utility Equity Fund 1/24/89 2.46% 7.52% 9.65%
Zero Coupon - 2000** 3/14/89 -0.60% 5.92% 7.71%
Zero Coupon - 2005** 3/14/89 1.32% 8.26% 9.06%
Zero Coupon - 2010** 3/14/89 3.17% 9.96% 9.65%
</TABLE>
The above figures represent the average annual change in value, assuming
reinvestment of dividends and capital gains. Performance shown reflects all
charges, including the annual contract maintenance charge and applicable
contingent deferred sales charges (CDSC). The CDSC reduces from 6% to 0% over
seven full years for each purchase payment and is adjusted for the applicable
withdrawal/surrender privilege. Averaged returns smooth out variations in a
portfolio's returns, which can be significant; they are not the same as
year-by-year results. For periods of less than one year, aggregate total returns
are shown. The sub-account results are based on past performance of the
portfolios. The portfolios may have started before the sub-accounts, contracts,
or their availability in all states. Investment returns and the value of your
principal will vary with market conditions, so you may have a gain or loss when
you sell your units. Past performance cannot predict or guarantee future
results.
*Past and present expense reductions by the manager increased total return; this
agreement may be discontinued at any time.
**The manager will keep total expenses to 0.40% or less of the portfolios' net
assets through 1997, which increases returns.
Valuemark IV
Non-Standardized Total Returns for the periods ended June 30, 1997
Without Contingent Deferred Sales Charge and Other Charges
<TABLE>
<CAPTION>
Total Return Cumulative Total Return
Inception 1- 5- Since 3- 5- Since
Portfolio Name Date Year Year Inception Year Year Inception
<S> <C> <C> <C> <C> <C> <C> <C>
Capital Growth Fund 5/1/96 20.76% N/A 19.16% N/A N/A 22.64%
Growth and Income Fund* 1/24/89 20.48% 13.81% 9.63% 67.82% 90.95% 117.11%
High Income Fund* 1/24/89 13.36% 9.81% 8.58% 38.80% 59.67% 100.19%
Income Securities Fund* 1/24/89 12.36% 9.08% 10.27% 38.31% 54.40% 128.15%
Money Market Fund* 1/24/89 3.62% 2.70% 3.62% 11.55% 14.22% 35.02%
Mutual Discovery Securities Fund 11/8/96 N/A N/A N/A N/A N/A 12.19%
Mutual Shares Securities Fund 11/8/96 N/A N/A N/A N/A N/A 10.40%
Natural Resources Securities Fund* 1/24/89 -13.70% 3.73% 3.20% -2.98% 20.12% 30.41%
Real Estate Securities Fund* 1/24/89 31.35% 16.29% 11.53% 59.97% 112.67% 150.97%
Rising Dividends Fund 1/27/92 32.70% 12.11% 10.97% 81.23% 77.07% 75.93%
Small Cap Fund 11/1/95 15.65% N/A 21.56% N/A N/A 38.36%
Templeton Developing Markets Equity Fund* 3/15/94 23.47% N/A 9.76% 36.64% N/A 35.91%
Templeton Global Asset Allocation Fund 5/1/95 19.29% N/A 15.10% N/A N/A 35.63%
Templeton Global Growth Fund* 3/15/94 22.76% N/A 13.75% 53.25% N/A 52.88%
Templeton Global Income Securities Fund* 1/24/89 7.02% 4.69% 6.19% 23.27% 25.73% 65.95%
Templeton International Equity Fund 1/27/92 22.79% 12.62% 11.54% 48.64% 81.17% 80.91%
Templeton International Smaller Companies Fund5/1/96 13.83% N/A 14.69% N/A N/A 17.30%
Templeton Pacific Growth Fund 1/27/92 0.50% 7.91% 8.01% 14.83% 46.35% 51.96%
U.S. Government Securities Fund 3/14/89 7.46% 5.52% 6.62% 24.16% 30.83% 70.24%
Utility Equity Fund 1/24/89 8.56% 8.11% 9.72% 52.69% 47.70% 118.78%
Zero Coupon - 2000** 3/14/89 5.50% 6.54% 7.79% 20.54% 37.29% 86.41%
Zero Coupon - 2005** 3/14/89 7.42% 8.83% 9.14% 29.19% 52.65% 106.62%
Zero Coupon - 2010** 3/14/89 9.27% 10.50% 9.73% 38.65% 64.72% 116.08%
</TABLE>
Total return represents the cumulative or average annual change in value,
assuming reinvestment of dividends and capital gains and adjusted for the
applicable withdrawal/surrender privilege. The figures reflect all fund
operating expenses and variable account asset charges. They do not include the
applicable contingent deferred sales charges (6% to 0% over seven full years)
for each purchase payment, or the annual $30 contract maintenance charge; if
these were deducted, returns would be lower. Averaged returns smooth out
variations in a portfolio's returns, which can be significant; they are not the
same as year-by-year results. For periods of less than one year, aggregate total
returns are shown. The sub-account results are based on past performance of the
portfolios. The portfolios may have started before the sub-accounts, contracts,
or their availability in all states. Investment returns and the value of your
principal will vary with market conditions, so you may have a gain or loss when
you sell your units. Past performance cannot guarantee future results.
Standardized performance data and other important disclosures are on page 11.
Please review this information and a Franklin Valuemark prospectus before
investing.
*Past and present expense reductions by the manager increased total return; this
agreement may be discontinued at any time.
**The manager will keep total expenses to 0.40% or less of the portfolios' net
assets through 1997, which increases returns.
PORTFOLIO OBJECTIVES AND RISKS
A Word About Risk
All of the portfolios are subject to certain risks. Generally, investments
offering the potential for higher returns are accompanied by a higher degree
of risk. Stocks, and other equities representing an ownership interest in a
corporation, have historically outperformed other asset classes over the long
term, but tend to fluctuate more dramatically over the shorter term. Bonds
and other debt obligations are affected by changes in interest rates and the
creditworthiness of their issuers. High yield, lower-rated ("junk") bonds
generally have greater price swings and higher default risks. Foreign
investing, especially in developing countries, has additional risks such as
changes in currency values, market price swings, and political or social
instability. These and other risks to which particular portfolios may be
subject -- such as specialized industry sectors or use of complex securities --
are discussed in the prospectus.
<TABLE>
<CAPTION>
Portfolios Seeking Capital Growth
<S> <C>
Portfolio Description
Capital Growth Fund Seeks capital appreciation with current income as a secondary
consideration. The portfolio invests primarily in
equity securities, including common stocks and securities
convertible into common stocks.
Mutual Discovery Seeks capital appreciation by investing in U.S. and foreign
Securities Fund equity securities, including common and preferred stocks and
securities convertible into common stocks, as well as debt
obligations of any quality. The portfolio also seeks to invest
in securities of domestic and foreign companies involved in
mergers, consolidations, liquidations and reorganizations or
as to which there exist tender or exchange offers, and may
participate in such transactions.
Natural Resources Seeks capital appreciation through concentration of its
Securities investments in securities of issuers that produce, refine,
Fund*(Formerly process, or market natural resources as well as those that
Precious Metals provide support services for natural resources companies. The
Fund)` portfolio's secondary objective is to provide current income
return through the receipt of dividends or interest from its
investments.
*Effective May 1, 1997, the Precious Metals Fund's name changed to the
Natural Resources Securities Fund.
Small Cap Fund Seeks long-term capital growth. Under normal market
conditions, the portfolio invests primarily in equity
securities of small capitalization growth companies. The
portfolio may also invest in foreign securities, which involve
special risks. Small company securities may have greater price
swings than mid-sized or large company securities.
Portfolios Seeking Capital Growth (cont.)
Portfolio Description
Templeton Developing Seeks long-term capital appreciation. The portfolio seeks to
Markets Equity Fund achieve this objective by investing primarily in equity
securities of issuers in countries having developing markets
operating under normal market conditions. The portfolio is
subject to special and higher risks related to foreign
developing markets, including changes in currency values,
market price swings, and economic, social, and political
developments in the countries where the portfolio is invested
and the relatively smaller size and lesser liquidity of those
markets.
Templeton Global Seeks long-term capital growth; any income realized will be
Growth Fund incidental. The portfolio seeks to achieve its objective
through a flexible policy of investing in stocks and debt
obligations of companies and governments of any nation,
including developing markets operating under normal market
conditions. Investments in foreign securities involve special
risks including changes in currency values, market price
swings, and economic, social, and political developments in
the countries where the portfolio is invested. Developing
markets involve similar but higher risks related to the
smaller size and lesser liquidity of those markets.
Templeton Seeks long-term capital growth. Under normal market
International Equity conditions, the portfolio will invest at least 65% of its
Fund total assets in an internationally diversified portfolio of
equity securities. These equity securities will trade on
markets in countries other than the U.S., including developing
markets, and be issued by companies domiciled in countries
other than the U.S., or companies that derive at least 50% of
either their revenues or pre-tax income from activities
outside the U.S. Investments in foreign securities involve
special risks including changes in currency values, market
price swings, and economic, social, and political developments
in the countries where the portfolio is invested. Developing
markets involve similar but higher risks related to the
smaller size and lesser liquidity of those markets.
Portfolios Seeking Capital Growth (cont.)
Portfolio Description
Templeton Seeks long-term capital appreciation. The portfolio seeks to
International achieve this objective by investing primarily in equity
Smaller Companies securities of smaller companies outside the U.S., including
Fund developing markets operating under normal market conditions.
Investments in foreign securities involve special risks
including changes in currency values, market price swings, and
economic, social, and political developments in the countries
where the portfolio is invested. Developing markets involve
similar but higher risks related to the smaller size and
lesser liquidity of those markets. Small company securities
may have greater price swings than mid-sized or larger company
securities.
Templeton Pacific Seeks long-term capital growth. Under normal conditions, the
Growth Fund portfolio will invest at least 65% of its assets in equity
securities which trade on markets in the Pacific Rim,
including developing markets, and which are issued by
companies domiciled in the Pacific Rim or companies that
derived at least 50% of either their revenues or pre-tax
income from activities in the Pacific Rim. For purposes of the
portfolio's 65% investment policy, the countries in the
Pacific Rim include Australia, China, Hong Kong, India,
Indonesia, Japan, Korea, Malaysia, New Zealand, Pakistan, the
Philippines, Singapore and Thailand. The portfolio invests
primarily in a single geographical region of largely
developing foreign markets and could experience significant
changes in share price in any given year.
Portfolios Seeking Growth and Income
Portfolio Description
Growth and Income Seeks capital appreciation. The portfolio's secondary
Fund objective is to provide current income return. The portfolio
pursues capital appreciation by investing primarily in
domestic common stocks, securities convertible into common
stocks and preferred stocks.
Income Securities Seeks to maximize income while maintaining prospects for
Fund capital appreciation. The portfolio will pursue its objective
by investing in a diversified portfolio of domestic and
foreign (including developing markets) debt obligations, which
may include high yield, high risk, lower-rated bonds, as well
as equity securities, selected with particular consideration
of current income production along with capital appreciation.
Lower-rated and similar non-rated securities, commonly known
as "junk bonds," have higher credit risks and may have greater
price movements. Foreign securities involve special risks,
including currency fluctuations and political uncertainty;
developing markets involve higher risks.
Mutual Shares Seeks capital appreciation with income as a secondary
Securities Fund objective by investing in U.S. and foreign equity securities,
including common and preferred stocks and securities
convertible into common stocks, as well as debt obligations of
any quality. The portfolio also seeks to invest in securities
of domestic and foreign companies involved in mergers,
consolidations, liquidations and reorganizations or as to
which there exist tender or exchange offers, and may
participate in such transactions.
Real Estate Seeks capital appreciation, with a secondary objective of
Securities Fund earning current income on its investments. The portfolio
pursues its principal objective by concentrating in securities
of companies in the real estate industry, primarily equity
real estate investment trusts (REITs). By investing primarily
in a single industry, the portfolio will be affected more by
the unfavorable developments or market downturns in that
industry sector than would a portfolio that invests in a wide
variety of industries.
Rising Dividends Fund Seeks capital appreciation and current income incidental to
capital appreciation. In seeking capital appreciation, the
portfolio invests with a long-term investment horizon.
Preservation of capital, while not an objective, is also an
important consideration. The portfolio seeks to achieve its
investment objectives by investing, as a fundamental policy,
at least 65% of its net assets in financially sound companies
that have paid consistently rising dividends based on the
investment philosophy that the securities of such companies,
because of their dividend record, have a strong potential to
increase in value.
Portfolios Seeking Growth and Income (cont.)
Portfolio Description
Templeton Global Seeks a high level of total return through a flexible policy
Asset Allocation Fund of investing in the following market segments: equity
securities of issuers of any nation, debt obligations of
companies and governments of any nation, and money market
instruments. The mix of investments among these three market
segments will be adjusted in an attempt to capitalize on total
return potential produced by changing economic conditions
throughout the world. Investments in foreign securities
involve special risks including changes in currency values,
market price swings, and economic, social, and political
developments in the countries where the portfolio is invested.
Developing markets involve similar but higher risks related to
the smaller size and lesser liquidity of those markets.
Utility Equity Fund Seeks both capital appreciation and current income by
concentrating investments in the securities of companies in
the public utilities industry. The portfolio pursues its
objective by investing, under normal conditions, at least 65%
of the portfolio's total assets in securities of issuers
engaged in the public utilities industry, which includes the
manufacture, production, generation, transmission and sale of
gas and electric energy and water. Assets may also be invested
in issuers engaged in the communications field, including
entities such as telephone, telegraph, satellite, microwave
and other companies providing communication facilities for the
public benefit. The portfolio may also invest in foreign
securities, which involve special risk considerations,
including currency fluctuations and political uncertainty;
developing markets involve heightened risks. Because the
portfolio may invest in relatively few issuers, changes in the
value of a particular issuer, interest rate movements, changes
in currency values and other risks of foreign investing may
have a greater effect on the portfolio's results.
Portfolios Seeking Current Income
Portfolio Description
High Income Fund Seeks a high level of current return. As a secondary
objective, the portfolio seeks capital appreciation to the
extent consistent with its principal objective. The portfolio
may invest in both debt obligations and dividend-paying common
or preferred stocks, including high risk securities, and will
seek to invest in whatever type of investment is offering the
highest yield and expected total return without excessive risk
at the time of purchase. Lower-rated and similar non-rated
securities, commonly known as "junk bonds," have higher credit
risks and may have greater price movements.
Templeton Global Seeks high current income, consistent with preservation of
Income Securities capital, with capital appreciation as a secondary
Fund consideration. The portfolio will pursue its objectives by
investing at least 65% of its net assets in both domestic and
foreign debt obligations including those in developing markets
and related foreign currency transactions. The portfolio may
invest in relatively few issuers; therefore, changes in the
value of a particular issuer, interest rate movements, changes
in currency values and other special risks of foreign
investment may have a greater effect on the portfolio's
results.
U.S. Government Seeks to earn income through investments in a portfolio
Securities Fund limited to securities which are obligations of the U.S.
government, its agencies or instrumentalities. These
obligations may include fixed-rate or adjustable-rate mortgage
backed securities. Individual securities, but not shares of
the portfolio, are guaranteed by the U.S. government as to
timely payment of principal and interest.
Three Zero Coupon Seek to provide as high an investment return as is consistent
Funds2005, 2010) (maturity dates: 2000, with the preservation of capital. Each
portfolio seeks to return a reasonably assured targeted dollar
amount, predictable at the time of investment, on a specific
target date in the future by investing primarily in zero
coupon securities that pay no cash income but are acquired by
the portfolio at substantial discounts from their value at
maturity. In response to interest rate changes, zero coupon
securities may experience greater changes in market value than
interest- paying securities of similar maturity. The
portfolios may not be appropriate for short-term investors or
those who intend to withdraw money before the maturity date.
Portfolio Seeking Preservation of Capital and Income
Portfolio Description
Money Market Fund Seeks to obtain as high a level of current income (in the
context of the type of investment available to the portfolio)
consistent with capital preservation and liquidity. An
investment is neither insured nor guaranteed by the U.S.
government. The portfolio will seek to maintain a $1 per share
net asset value, but there is no guarantee that it will be
successful in doing so.
</TABLE>
PORTFOLIO SUMMARIES
Portfolios Seeking Capital Growth
Capital Growth Fund
Volatility returned to the domestic equity markets in 1997, with the Standard &
Poor's(R) 500 (S&P 500(R)) index experiencing moves of 1% or more -- up and down
- -- throughout approximately two-thirds of the trading days in the first half of
the year. While such volatility may cause consternation among investors, to us
it presents opportunities to buy securities of good companies that are currently
out of favor. During times like these, many portfolio managers feel compelled to
take some course of action, increasing portfolio turnover and further
contributing to exaggerated stock price movements. Sometimes, we believe the
best course of action during periods of volatility is to just sit tight with
one's investments.
It was with this low turnover philosophy that the Capital Growth Fund
portfolio was originally created -- to try to identify what we believe are
solid companies with promising growth prospects, and buy and hold them for
the long term. The portfolio consists of what we consider good quality growth
companies, generally large-cap and mid-cap (greater than $1 billion) stocks.
Our aim is not to achieve wealth overnight, but rather provide investors with
the potential for consistent growth over time.
On June 30, 1997, the portfolio held stocks of 79 companies across a diverse
group of industries, including software, finance, energy, data networking,
healthcare, semiconductors, and consumer products, to name a few. Such broad
diversity can help to mitigate the fluctuations attendant with the stock
market's volatility.
Our expectation is that the market will continue to experience greater
volatility in the coming years versus the reduced volatility over the last
several years. In part, this is due to concerns for sustained earnings growth
of individual companies. It is our belief that the S&P 500 will not produce
double-digit earnings growth again this year or next. In such an environment
of slowing corporate profit growth, solid stable growth companies -- such as
those your portfolio seeks to invest in -- are sought by investors. As growth
warrants a premium in the market due to its scarcity, investors tend to push
the prices of such growth stocks higher -- a condition which we believe should
benefit many of your portfolio holdings.
Capital Growth Fund
Top 10 Industries on 6/30/97
Based on Total Net Assets
% of Total
Industry Net Assets
Software &
Technology Services 12.8%
Electronic Technology 10.8%
Health Technology 10.2%
Consumer Non-Durables 6.7%
Financial Services 5.8%
Utilities 4.9%
Process Industries 3.7%
Semi-Conductors 3.7%
Consumer Services 3.5%
Energy & Minerals 3.3%
For a complete list of portfolio holdings, please see page 64 of this report.
Mutual Discovery Securities Fund
The Mutual Discovery Securities Fund seeks capital appreciation, with income
as a secondary objective, by investing in domestic and foreign equity
securities. These include common and preferred stocks, securities convertible
into common stocks, as well as debt obligations of any quality. On June 30,
1997, 70.4% of the portfolio's assets were invested in equity securities,
2.3% in fixed-income securities, and the remaining 27.3% in short-term and
other securities. Of course, these holdings will change as conditions warrant.
When an index such as the S&P 500 is up 20.06% in the first six months of
1997, some might ask, "why not just throw in the towel and own an index
fund?" The answer is basic: We believe that our value approach is the best
way to achieve consistent, long-term appreciation with low risk and low
volatility. The mix of our businesses -- cheap stocks, "special situations"
such as mergers and spinoffs, and bankruptcies -- is intended to provide the
best risk-adjusted returns in a wide variety of market conditions.
Our most recent efforts to find value in these markets included buying stakes
in a number of energy companies, including in the oil service business and on
the exploration and production side. We also found good value in selected
healthcare names, some of which have come down in price due to short-term
dislocations. Strong merger and acquisition activity is also providing some
good investment opportunities. Many foreign stocks are still attractive to
us, and though the larger capitalization names are generally less compelling
than they were a year or two ago, we believe opportunities in the smaller
capitalization companies are still plentiful.
Natural Resources Securities Fund (formerly Precious Metals Fund)
On May 1, 1997, the Precious Metals Fund's investment objective changed,
broadening its industry concentration policy to companies in natural
resources industries -- thereby creating the Natural Resources Securities
Fund. The portfolio seeks capital appreciation, with current income as a
secondary objective, by now investing in the equity securities of domestic
and foreign companies in or related to the natural resources sector.
On June 30, 1997, 93.7% of the portfolio's total net assets were invested in
equity securities, 1.3% in convertible corporate bonds, and 5.0% in
short-term and other assets. Companies in the gold and precious metals sector
remain our largest weighting at 59.1%, down from 79.5% on May 1, 1997. In
accordance with the portfolio's new objective, we continue to selectively
reallocate assets to various other natural resources sectors, including
energy, base metals, paper & forest products, steel, and chemicals.
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
New positions in the energy sector include exploration and production
companies with the potential for above-average growth in reserves and
production. Barrett Resources, Newfield Exploration and Nuevo Energy were
among this sector's companies where we found good investment opportunities.
Additionally, we found oilfield services and equipment companies that have
benefited from current strong demand and high utilization rates, including
newly purchased Diamond Offshore Drilling, Inc. and Transocean Offshore, Inc.
- -- two leading offshore drilling rig operators globally. Strong growth in
worldwide hydrocarbon demand combined with modest supply provides a positive
outlook for energy fundamentals over the next several years.
The price of gold bullion declined further during the reporting period,
dropping below $340 per ounce -- negatively impacting the portfolio's holdings
in the precious metals sector. In spite of positive physical demand, the
continued Central Bank selling, strong equity markets and an overall lack of
inflation adversely affected investor sentiment. Short-side and aggressive
options selling also combined to further depress the gold price. On a
protracted basis, we view the resilient physical demand (especially from
developing countries) and long-term supply consistency as attractive and,
therefore, remain optimistic that gold should appreciate in value.
Looking forward, we continue to focus on highly profitable companies with
skilled management, strong growth profiles and solid financials. We will look
for companies that should prosper throughout economic cycles, and thus
identify those companies we believe have sustainable advantages either
through strategic asset bases or technological expertise.
Small Cap Fund
The six-month period under review proved to be favorable for equity
investors, although larger capitalization stocks outperformed their small cap
counterparts. In part due to concerns about market volatility, the Franklin
Small Cap Fund portfolio underperformed during the first quarter of 1997
before turning in strong results in the second quarter. Our second quarter
performance was spurred by the continued strength of the U.S. economy,
coupled with lack of inflationary pressure. These economic conditions helped
prevent a meaningful rise in interest rates and provided a favorable backdrop
for equity markets in general.
During the period, we looked for small companies in their emerging growth
phase, focusing on those corporations we believe have an identifiable and
sustainable competitive advantage. Such an advantage often leads to superior
revenue and earnings growth. Our research uncovered attractive investments in
a variety of industries, and the portfolio's performance was aided by our
holdings in the energy, technology and healthcare sectors.
We remain bullish on the prospects for the energy sector, which benefited
from a favorable supply-and-demand relationship. In the second quarter of
this year, we added to several of our positions in this sector, including
Varco International, Inc., a leading maker of drilling equipment. The
technology sector experienced volatility throughout most of the reporting
period, and we took advantage of this to selectively initiate several new
positions and add to several existing names. Among the new positions in the
portfolio is Electronic Arts Inc., a leading developer of entertainment
software.
We remain optimistic about the prospects for small cap stocks, despite the
recent large cap bias of the market. In our opinion, small cap stocks are
attractively valued relative to the overall market, and the growing economy
and apparent lack of inflationary pressure should create an environment
conducive to the prosperity of small cap companies.
Templeton Developing Markets Equity Fund
On June 30, 1997, the portfolio was invested in 414 individual emerging
market equity securities, among 32 industry sectors and 23 countries, with
Brazil as the largest country holding (12.2% of total net assets), followed
by Mexico (11.3%) and Argentina (8.2%). We think the current geographic
breadth of the portfolio helps minimize risk, thereby reducing the volatility
of the returns on the portfolio while still maintaining the prospects for
strong performance.
The first six months of 1997 saw substantial gains in developing market
equity prices, underpinned by strong economic fundamentals and high capital
inflows from developed market countries. As in 1996, the Latin America region
was the star performer this reporting period. A combination of improved
macroeconomic management, cyclical economic recovery and an improved export
position drove equity prices higher throughout the region, particularly in
Brazil -- which realized unrelenting gains. The Asian region experienced mixed
performance during the six-month period, with many countries suffering from
oversupply in key sectors and a cyclical decline in exports. Malaysia, the
Philippines, Singapore and Thailand were among the hardest hit.
Looking forward, we believe that Asia's exports are likely to recover over
the remainder of the year and into 1998, driven primarily by increased demand
from the U.S. and Europe. A significant rebound in Asian exports would help
economies grow faster and bolster some of the more moribund stock markets in
that region, particularly South Korea and Thailand. We already detect signs
of a cyclical recovery in Asia's export market.
World demand for emerging market securities is its strongest since the 1960s,
and inventory levels in the U.S. and other countries are low in general. This
should benefit exporters in Latin America and Europe as well as Asia. Despite
positive growth in the first half of 1997, we believe developing markets as a
whole still represent good value.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Templeton Global Growth Fund
Volatility and uncertainty were key factors in the world's financial markets
for the first six months of 1997. The U.S. equity market started the year at
an all-time high, and continued, although the trend was not smooth. In North
America -- and the U.S., in particular -- strong economic growth with
surprisingly modest inflation confounded experts, and the ebb and flow of
interest rates reintroduced volatility in the markets. Stock valuations --
whether price/book or price/earnings -- stretched relative to five- and
ten-year averages and, in some cases, are at unprecedented levels. As
valuations rose for many U.S. stocks, we sold or trimmed some of our holdings
in this region. Among those we reduced or sold were Lucent Technologies,
Highwood Properties, Inc., and IBM.
Because we found what we consider new bargains and opportunities, Europe
remained a significant geographic weighting for us (34.0% of total net
assets). During the six months under review, many European companies
generated strong profits due to privatization, restructuring, and
cost-reduction programs. Most stock markets rose as government efforts to
meet standards for membership in the European Monetary Union (EMU) led to
improved fiscal and monetary policies and lower interest rates. The results
of the French election introduced a new element of uncertainty over the EMU,
where privatization and corporate rationalization could become more difficult
under a socialist government. Nonetheless, careful stock picking and analysis
of companies during times of macro-economic confusion has rewarded our
investors in the past, though past performance cannot guarantee future
results.
The U.K. in particular appeared to swallow the tough medicine of reforming
its labor markets, deregulating its financial markets, and privatizing
state-owned enterprises. As a result, we analyzed an increasing number of
British companies, primarily because of valuations and -- secondarily --
because we think long-term managements there seemingly have to overcome fewer
hurdles to deliver value.
The picture in our emerging markets exposure was mixed. Latin America
rebounded sharply in 1997, with Brazil and Argentina posting phenomenal
performances (52.6% and 26.4% six-month total returns, respectively). On the
other hand, economic deterioration and political turmoil detrimentally
affected Asia's share prices. Regardless, we believe that opportunities are
born out of adversity, and we search diligently for overlooked opportunities
in South Korea, Thailand and China.
Japan, Asia's largest developed market, experienced mixed performance so far
in 1997. We have redoubled our efforts to ensure that we will be in a
position to act when valuations drop to a level where more Japanese companies
qualify as bargains under our criteria.
GRAPHIC MATERIAL 4 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Templeton International Equity Fund
During the six months ended June 30, 1997, the strength of the portfolio's
emerging markets holdings as well as good stock selection bolstered our
overall performance. At period end, the portfolio's largest country
allocations were the U.K. (14.1% of total net assets), Sweden (9.3%), and
Netherlands (7.8%). We allowed our cash position to rise somewhat (from 12%
to 15.1%) to be prepared for any future market weakness.
After several years of underperfomance, the world's developing markets have
rebounded and we were able to uncover many bargain-priced securities in these
areas, most notably in Latin American countries, where we think fundamentals
improved as these nations adapt to capitalist economies. Our Brazilian
holdings -- including telephone company Telebras, steelmaker Companhia
Siderurgica Nacional, ADR (CSN) and banking giant Bradesco -- performed well.
Our European stock holdings also aided the portfolio's performance in early
1997. Sweden, Finland, Italy and Spain turned in particularly good
performances, but the strength of the U.S. dollar somewhat reduced those
gains. Additionally, Eastern European markets soared in early 1997, but due
to the relatively small size of these markets and -- in some cases --
regulatory and operational impediments, it was difficult for the portfolio to
gain access. Our large exposure to cyclical securities also provided good
results as investors focused on the possibility of a cyclical upturn in the
European economy. The portfolio's largest holding -- Philips Electronics
(Netherlands/3.0% of total net assets) -- advanced strongly in the first six
months of 1997 after its new management strategy to maximize share value
raised investor interest.
We believe that the long-term prospects for emerging market companies remain
exceptionally bright, based on the continued rapid development of their own
economies as well as the benefits these countries should realize from an
eventual upturn in the developed world's economic activity level.
Templeton International Smaller Companies Fund
Throughout the six-month reporting period, the portfolio, using a disciplined
focus on long-term value, continued in its endeavor to purchase the shares of
undervalued small-cap companies outside the U.S. On June 30, 1997, the
portfolio had $29 million in assets under management and was invested in 31
countries. The largest positions by geographic area were Europe (34.0% of
total net assets), Asia (19.7%), and Latin America (5.4%). By country, the
largest positions were Hong Kong (10.3%), United Kingdom (8.1%), Netherlands
(6.6%), Spain (4.8%), and Sweden (3.9%).
European stock markets moved sharply higher, propelled by excitement over
monetary union, lower interest rates, and moderate economic expansion. In
Asia, Hong Kong's stock exchange rose more than 20% in the time leading up to
the colony's reversion to China.
GRAPHIC MATERIAL 5 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Currently, worldwide financial valuations are at historically high levels,
reflecting continued investor optimism over future corporate profitability
and strong cash inflows. While identifying investment bargains in this
environment is a challenge, we are confident that our disciplined approach to
finding undervalued small-cap stocks can reward long-term investors.
Templeton Pacific Growth Fund
On June 30, 1997, the fund's top five geographic allocations were Hong Kong
(25.8% of total net assets), Japan (18.6%), Singapore (12.5%), Australia
(10.7%), and Malaysia (8.6%).
A recovery in Hong Kong's retail and property sectors helped buoy its stock
market, and the portfolio benefited from the rising share prices of Cheung
Kong Holdings Ltd. and Hon Kwok Land Investment Co. Ltd., two companies with
real estate holdings in Hong Kong.
Japan's economy continued to falter as its banking system faced huge amounts
of uncollectable loans secured by land or stock worth less than the amount of
the loans. Although our holdings of Sony Corp. performed well, the yen's
decline during the period adversely affected the portfolio.
Indonesia, plagued by political problems that led to rioting in Jakarta,
experienced severe stock market volatility, and we took this opportunity to
purchase shares of PT Bank Bali and PT Panin Bank, two financial institutions
that we believe have growth potential. Seeking to capitalize on volatility in
stock markets of Thailand and India, we purchased shares of Thai Farmers Bank
Public Co. Ltd. and Bangkok Bank Public Co. Ltd., and initiated a position in
Industrial Credit & Investment Corp. of India.
In our opinion, the Pacific Rim continues to offer a variety of investment
opportunities in industrialized nations such as Hong Kong, and in nations
rich with natural resources.
Templeton Pacific
Growth Fund
Top 10 Holdings on 6/30/97
Based on Total Net Assets
Company/ % of Total
INDUSTRY,COUNTRY Net Assets
New World
Development Co. Ltd./ 3.0%
REAL ESTATE, HONG KONG
City Developments, Inc./ 2.7%
CONSTRUCTION & HOUSING,
SINGAPORE
Malaysia International
Shipping Corp./ 2.7%
MULTI-INDUSTRY, MALAYSIA
Cheung Kong Holdings Ltd./ 2.5%
MULTI-INDUSTRY, HONG KONG
Singapore Airlines Ltd./ 2.5%
TRANSPORTATION, SINGAPORE
Nippon Telegraph &
Telephone Corp./ 2.5%
TELECOMMUNICATIONS, JAPAN
Wheelock & Co., Ltd./ 2.4%
MULTI-INDUSTRY, HONG KONG
GIO Australia Holdings, Ltd./ 2.3%
FINANCIAL SERVICES, AUSTRALIA
Brambles Industries, Ltd./ 2.3%
MULTI-INDUSTRY, AUSTRALIA
Philippine National Bank/ 2.1%
BANKING, PHILIPPINES
For a complete list of portfolio holdings, please see page 143 of this report.
Portfolios Seeking Growth and Income
Growth and Income Fund
The strategy of the Growth and Income Fund portfolio is to buy corporate
stocks that are selling at attractive prices according to valuation
parameters such as dividend yield, book value, cash earnings, and revenues.
This strategy generally entails investing at times when a company or sector
is out of favor due to depressed fundamentals or market uncertainty about
future prospects. In our opinion, utility stocks, especially electric
companies, represent such an investment opportunity. Concerns over industry
deregulation have led to stocks selling at their most attractive relative
yield valuations in over 25 years. While the electric utility stocks held in
the portfolio registered disappointing relative returns during the past six
months, we are continuing to focus our investments in what we believe are
competitive, well-positioned companies and beneficiaries of anticipated
industry consolidation. For example, we initiated an investment in Entergy
Corp., a New Orleans-based utility that offered a 7.0% yield and sold at
approximately 10 times earnings at time of purchase.
Energy stocks continue to represent one of the portfolio's largest investment
sectors. Investment fundamentals such as earnings, cash flow and dividends
have been strong. We believe future prospects in this sector are also
favorable as rising worldwide demand for oil and gas, in relation to
exploration and production activity, should lead to strong prices and profit
growth for leading companies in the industry. Energy investments represent
five of the portfolio's top ten positions, including Atlantic Richfield Co.,
Texaco Inc., YPF Sociedad Anonima, Chevron Corp., and Exxon Corp.
Our investments in financial stocks, specifically savings & loans and
insurance companies, experienced notable gains during the period. The
portfolio's savings & loan holdings, which included Roosevelt Financial
Group, Inc., were subject to recent takeover bids, which led to higher
prices. In the insurance sector, Lincoln National Corp. and St. Paul Cos.,
Inc. performed well as a combination of good valuations and strong
fundamentals led to their strong gains in the period. Investments in consumer
staples and health care stocks also performed well (Tambrands Inc. received a
takeover bid by Proctor & Gamble) and the major pharmaceutical stocks
continued to move higher on strengthening fundamentals. In the second quarter
of 1997, we did take advantage of recent weakness in one of the few
weak-performing drug companies -- Pharmacia & Upjohn Inc. -- to add to our
position in this industry. Pharmacia & Upjohn is trading at a significant
discount to its peers and is currently restructuring its operations which, in
our opinion, should lead to a resumption in earnings growth and higher
valuations.
Foreign stocks represented 12.0% of the portfolio's total net assets on June
30, 1997. Currently, compared to domestic companies, many foreign stocks have
higher dividend yields and more attractive valuations in terms of
price/earnings ratios in sectors such as pharmaceuticals, energy, basic
materials, and financials. In addition to the above-mentioned Pharmacia &
Upjohn Inc., we initiated positions in two foreign companies during the
reporting period: Imperial Chemical (U.K.) and Mid Ocean Limited (Bermuda), a
reinsurance company.
Looking forward, we remain committed to our disciplined, value-oriented
approach, which has produced consistent and favorable long-term results.
Growth and Income Fund
Top Industries on 6/30/97
Based on Total Net Assets
% of Total
Industry Net Assets
Financials 17.7%
Energy & Resources 15.7%
Electric Utilities 12.9%
Basic Materials 12.0%
Telephone Services 10.6%
Consumer Staples 8.3%
Health Care 6.2%
Gas Utilities 4.0%
Manufacturing 4.0%
Retail 2.2%
For a complete list of portfolio holdings, please see page 67 of this report.
Income Securities Fund
The stock market appreciated during the period under review, driven by solid
economic growth and a benign inflation environment. In contrast, the bond
market experienced little change over the period, despite Treasury bond
volatility related to the strength of the economy and the federal funds rate
increase in March. The recovery in the second quarter was precipitated by
signs of slower economic growth. Most of the portfolio's sectors performed
well during the last six months, with the exception of gold stocks (which
declined following a drop in the price of gold).
Our fixed-income holdings consisted of corporate (33.2% of total net assets),
foreign (12.3%), and U.S. Treasury bonds (8.3%). Although corporate bonds
have generally performed well over the past two years, we were still able to
find good values in companies with positive business and credit prospects. We
added selectively to existing bond positions, initiated positions in
Bellwether Exploration (energy) and Paging Network (telecommunications), and
purchased bonds issued to refinance three of the portfolio's existing
positions (Anacomp, Del Monte, and Revlon Worldwide). In addition, several of
the portfolio's corporate bond holdings benefited from buyout or merger
announcements over the last six months (Smith's Food, CommNet Cellular, and
Mesa Petroleum).
The portfolio's foreign bond positions turned in a strong performance. In
February, we took advantage of strength in our Mexican Brady bonds, swapping
these positions for Brazilian Brady bonds, which appeared to offer greater
value. We also sold our Canadian bond position in May due to valuation
concerns and currency risk. With respect to U.S. Treasuries, we increased our
exposure by purchasing bonds amid market weakness earlier in the year.
Most of the portfolio's equity sectors performed well during the last six
months, with energy and pharmaceutical stocks leading the way. Energy stocks
were strong performers as a result of a generally positive earnings outlook.
However, these stocks did experience weakness in February and March due to a
temporary decline in energy prices. We took advantage of this weakness by
adding to existing positions in Nuevo Energy and Swift Energy as we believe
the long-term outlook for these companies remains positive.
We maintained the portfolio's utility weighting (22% of total net assets)
because we believe many of the stocks in this sector are undervalued and
offer attractive high current income. In addition, many utility companies
have made significant progress in adapting to industry deregulation through
cost cutting, consolidation and diversifying into unregulated business lines.
Over the period, we added to existing utility positions in the portfolio, and
initiated positions in MidAmerican Energy (mid-western electric & gas
utility) and CMS Energy (Michigan electric & gas utility).
Looking at other sectors of the portfolio, we purchased two new convertible
real estate positions in Vornado Realty Trust (REIT) and Macerich Co. (REIT),
two high-quality companies with excellent growth prospects. In the
pharmaceutical sector, strong price appreciation prompted us to sell the
portfolio's remaining pharmaceutical holdings as we believed further
appreciation potential for these stocks was limited at current levels.
Finally, due to valuation concerns, we recognized significant gains from the
Altera and Xilinx convertible bond positions purchased during last July's
technology sell-off.
With valuations in the stock and bond markets relatively high, we remain
selective as we search for investments with high current income and good
appreciation potential. We will continue to utilize our extensive research
capabilities in searching for attractively valued securities, and believe
that the portfolio's cash position should provide us with the ability to take
advantage of investment opportunities as they arise.
Mutual Shares Securities Fund
The Mutual Shares Securities Fund seeks capital appreciation, with income as
a secondary objective, by investing in domestic and foreign equity
securities. These include common and preferred stocks, securities convertible
into common stocks, as well as debt obligations of any quality. On June 30,
1997, 65.4% of the portfolio's total net assets were invested in equity
securities, 2.9% in fixed-income securities, and the remaining 31.7% in
short-term and other securities. Of course, these holdings will change as
conditions warrant.
When an index such as the S&P 500 is up 20.06% in the first six months of
1997, some might ask, "why not just throw in the towel and own an index
fund?" The answer is basic: We believe that our value approach is the best
way to achieve consistent, long-term appreciation with low risk and low
volatility. The mix of our businesses -- cheap stocks, "special situations"
such as mergers and spinoffs, and bankruptcies -- is intended to provide the
best risk-adjusted returns in a wide variety of market conditions.
Our most recent efforts to find value in these markets included buying stakes
in a number of energy companies, including in the oil service business and on
the exploration and production side. We also found good value in selected
healthcare names, some of which have come down in price due to short-term
dislocations. Strong merger and acquisition activity is also providing some
good investment opportunities. Many foreign stocks are still attractive to
us, and though the larger capitalization names are generally less compelling
than they were a year or two ago, we believe opportunities in the smaller
capitalization companies are still plentiful.
Real Estate Securities Fund
During the six-month period under review, the U.S. real estate market
performed well as robust economic growth and limited new property development
helped drive occupancy and rental rates higher. In addition, cost savings
from consolidation and growing economies of scale had a positive impact on
real estate companies. Although fundamentals in the real estate industry
remained strong in 1997, prices of real estate stocks -- after appreciating
significantly in the fourth quarter of 1996 -- fell slightly after the Federal
Reserve Board raised interest rates on March 25, 1997. The sector rebounded
in the second quarter of 1997 as the markets stabilized and real estate
stocks continued to report positive results.
The market capitalization and liquidity of equity real estate investment
trusts (REITs) increased significantly over the past several years as the
strong real estate market attracted new investors. In fact, REITs now
represent approximately 8.4% of the Russell 2000 Index of small
capitalization funds. As the public market for real estate companies expands,
we remain committed to our long-term investment strategy of focusing on
property types and geographic regions with strong supply and demand
fundamentals. We attempt to identify those management teams with the ability
to add value through intensive property management and strong capital markets
experience. In keeping with this strategy, we maintained the majority of the
portfolio's investments in hotel, apartment, industrial, office, and
self-storage properties, where we anticipate the most favorable supply and
demand fundamentals and strongest cash flow growth.
At the end of the reporting period, the hotel sector was the portfolio's
largest property-type weighting, representing 20.5% of total net assets, up
from 17.9% six months ago. Available hotel rooms have become scarce in many
cities across the country, reflecting higher occupancy rates. This
contributed to the excellent operating results and significant consolidation
activity, which made hotels our strongest performing sector. During the
period, we initiated a position in Prime Hospitality Corporation, an
attractively-valued lodging company. At the high-end of the hotel/resort
segment, we purchased shares in Colorado-based Vail Resorts, Inc. We also
added to core holdings such as FelCor Suite Hotels Inc., Winston Hotels, and
Host Marriott Corporation.
On June 30, 1997, the apartment sector was the portfolio's second-largest
exposure, representing 18.7% of total net assets. We maintained large
positions in our core apartment holdings, such as Equity Residential
Properties Trust, Security Capital Pacific Trust, and Bay Apartment
Communities, Inc. We also initiated a position in Charles E. Smith
Residential Realty, Inc. -- an apartment company focused on the ownership and
operation of downtown high-rise apartments.
During the past six months, we increased our exposure to the industrial
property sector by adding to our existing positions in Security Capital
Industrial Trust, Spieker Properties, Inc., Meridian Industrial Trust, and
Liberty Property Trust, as their valuations became attractive due to weakness
in office/industrial sector securities. On June 30, 1997, the industrial
sector weighting was 9.8% of total net assets, up from 8.9% six months ago.
Finally, adhering to our disciplined focus on valuation, we realized gains in
several securities in the home building, retail and hotel sectors. We
believed the valuations of these specific stocks did not reflect slowing
growth rates, which could cause weakness in the future.
Looking forward, we are confident about the prospects for real estate
securities, particularly equity REITs, because of the combination of strong
underlying fundamentals, favorable valuations, and attractive growth
opportunities they offer. We will continue to utilize our real estate
background and perspective combined with the securities experience and
resources of our research team. The portfolio will continue to focus on
high-quality real estate companies that are creating significant cash flow
and dividend growth to generate attractive total returns.
Rising Dividends Fund
Our investment strategy is based on our belief that companies with
consistently rising dividends should, over time, realize appreciation in
their stock prices. We select portfolio securities based on several criteria.
To be eligible for purchase, stocks must pass certain investment "screens,"
or screening procedures, including consistent and substantial dividend
increases, strong balance sheets, and relatively low price/earnings ratios.
We seek fundamentally sound companies that meet our standards and attempt to
acquire them at attractive prices, often when they are out of favor with
other investors.
The stock market -- and a number of securities in the portfolio -- continued to
benefit from an environment characterized by solid economic growth and low
inflation. One of our holdings, State Street Corp. -- a provider of services
to institutional investors, was a direct beneficiary of rising prices for
financial assets. Bristol-Myers' strong new product pipeline appears to be
increasing its earnings growth rate. Cohu Inc.'s order backlog for its
semiconductor test handling equipment grew in the first two quarters of 1997
after falling for most of 1996. Investors have begun to appreciate that M.A.
Hanna's earnings have become increasingly less cyclical in recent years. Many
analysts are expecting earnings growth at America's largest company, General
Electric, to be accelerating. Mercury General is experiencing very strong
growth in auto insurance premiums, Family Dollar Stores continues to do well
with its small-scale and low-priced general merchandise stores, and the much
larger Wal-Mart Stores has benefited from better inventory control and an
expanding international presence.
The prices of several stocks in the portfolio fell during the period despite
the strong market. Wallace Computer Services had lower-than-expected earnings
growth as a result of slower-than-anticipated rollout of the company's
services to new accounts and a slowdown in direct mail business. MMI
Companies (insurance - property/casualty) also reported earnings that were
lower than expected. The company was hurt by a slowdown in medical
malpractice premium growth. We think both of these companies are still very
attractive businesses and, therefore, we purchased additional shares during
the period.
New positions added to the portfolio during the six-month period included
Nike, Inc., Washington Mutual, Inc., Hubbell, Inc. - Class B, Diebold, Inc.,
and American Heritage Life Investment Corp. Nike has become one of the
world's most recognizable brand names; however, a slowdown in its domestic
footwear sales caused its stock to fall to an attractive valuation. Still,
international sales, as well as domestic apparel sales, continue to be very
strong. Washington Mutual is a rapidly growing west coast financial services
company, increasing its dividend for seven consecutive quarters. Hubbell, a
manufacturer of electrical components, increased its dividend for 37 years,
and Diebold -- which makes card-based transaction systems such as automatic
teller machines -- has 43 years of dividend increases. American Heritage Life
specializes in selling life and health insurance through automatic payroll
deductions, and not only has 27 years of consecutive dividend increases but
also has 21 years of increasing operating earnings.
Several positions were eliminated from the portfolio, including C.R. Bard,
Inc., Arnold Industries, Inc., and Loctite Corp. Bard has had difficulty
growing revenues in a very competitive pricing environment, and Arnold
Industries is no longer increasing its dividend. Loctite, a specialty
chemical company, was acquired by another company in January 1997 at a gain
of 37%.
Notable year-over-year dividend increases during the past six months came
from Baldor Electric Co. (+20%), Cohu, Inc. (+20%), Leggett & Platt, Inc.
(+18.2%), Merck & Co. (+23.5%), Mercury General Corp. (+20.8%), Nucor Corp.
(+25%), Wal-Mart Stores, Inc. (+28.6%), and Washington Mutual, Inc. (+18.2%).
As shown in the table on page 25, our 10 largest positions on June 30, 1997,
comprised 27% of the portfolio's total net assets. It is interesting to note
how these 10 companies would, in the aggregate, answer the portfolio's
screening criteria based on a simple average of statistical measures. On
average, these 10 companies have raised their dividends 16 years in a row and
by 400% in the last 10 years. Their most recent dividend increases averaged
17.4%, for a yield of 1.4% on June 30, 1997, and a dividend payout ratio of
24%. Long-term debt averaged 23% of capitalization, and the average
price/earnings ratio was 17.7%, versus 19.8% for that of the unmanaged S&P
500 Stock Index on the same date.
We think that these companies are representative of the fundamentally high
quality of the portfolio. We also believe that, over the long haul, companies
that increase cash payments to shareholders, year after year, should be
superior builders of wealth.
Rising Dividends Fund
Top 10 Holdings on 6/30/97
Based on Total Net Assets
Company, % of Total
INDUSTRY Net Assets
Family Dollar Stores, 3.81%
RETAIL
Wallace Computer
Services, Inc., 3.35%
BUSINESS SERVICES
Nike, Inc., 2.82%
CONSUMER PRODUCTS
Dimon, Inc., 2.74%
CONSUMER PRODUCTS
Allied Group, Inc., 2.60%
INSURANCE - PROPERTY/
CASUALTY
Millipore Corp., 2.56%
INDUSTRIAL
Wal-Mart Stores, Inc., 2.51%
RETAIL
Circle International, 2.42%
TRANSPORTATION
Mercury General Corp., 2.36%
INSURANCE - PROPERTY/
CASUALTY
Hanna (M.A.) Co., 2.27%
INDUSTRIAL
For a complete list of portfolio holdings, please see page 100 of this report.
GRAPHIC MATERIAL 6 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Templeton Global Asset Allocation Fund
Volatility and uncertainty have been key factors in the world's financial
markets for much of the first half of 1997. The U.S. equity market began the
year at an all-time high, and proceeded to rise and fall. At the same time,
the U.S. dollar rose against most foreign currencies, reducing returns for
U.S. holders of foreign bonds. Since these events affected markets
differently, market selection and currency management were two key factors
impacting the portfolio over the reporting period.
While the U.S. remained our largest portfolio holding (20.1% of total net
assets on June 30, 1997), high stock valuations in this region have brought
us to sell or reduce some of our holdings, particularly financial ones. Among
those equity positions we sold were Citicorp and Lucent Technologies. Within
the European bond markets, we added to our positions in Italy and Sweden,
purchases funded by the May sale of some German bonds.
The picture in our emerging markets exposure has been mixed. Latin America
rebounded sharply in 1997, with Brazil and Argentina posting phenomenal
performance (52.6% and 26.4% six-month total returns, respectively). As a
result, our emerging markets exposure remained relatively unchanged over the
period, with the largest allocations in Brazil, Argentina, and Mexico. On the
other hand, economic deterioration and political turmoil had a detrimental
effect on Asia's share prices. Regardless, we believe that opportunities are
born out of adversity, and we search diligently for overlooked opportunities,
particularly in South Korea, Thailand, and China.
Utility Equity Fund
Although U.S. utility markets were generally weak during the six months under
review, Latin American, European and Asian utility stocks performed
relatively well.
Our U.S. weightings declined slightly over the period (from 82.2% of total
net assets to 81.9%). Investors ignored large segments of the U.S. utility
market due to concerns over changing federal and state regulations. Both the
electric power generation and telecommunications industries experienced
significant deregulatory changes throughout 1996 and into 1997, causing the
average electric utility stock price to increase slightly. Regardless, we
feel that there are select buying opportunities in this market segment and
will continue to look for new investment opportunities.
Overall, our weighting in the foreign markets increased slightly during the
six-month period. We took profits in some European and Asian companies as
several of our holdings in these regions reached our target price range. We
also increased our Latin American position, particularly in electric power as
some governments in this region are trying to privatize this industry in
order to attract the needed technological knowledge and investments.
Looking forward, we believe that the global utility market offers very
attractive equity investment opportunities. In the U.S., high-quality utility
companies with aggressive, entrepreneurial management have been generating
strong earnings growth, and we hold a positive view of the California and
federal attempts at deregulation. Outside the U.S., the ongoing privatization
and deregulation of the utility industry continues to represent, we feel,
high quality investment opportunities with the potential for strong growth
rates and excellent total returns.
Utility Equity Fund
Top 10 Holdings on 6/30/97
Based on Total Net Assets
% of Total
Company Net Assets
Duke Power Co. 4.69%
TECO Energy, Inc. 4.23%
Southern Co. 3.95%
CINergy Corp. 3.91%
Enron Corp. 3.90%
Florida Progress Corp. 3.26%
American Electric Power 2.97%
FPL Group, Inc. 2.97%
GPU, Inc. 2.96%
Entergy Corp. 2.76%
For a complete list of portfolio holdings, please see page 149 of this report.
Portfolios Seeking Current Income
High Income Fund
Over the six months under review, the portfolio made several industry
allocation changes. We reduced our positions in the automotive and chemical
industries to capitalize on profits made in these somewhat cyclical holdings.
To avoid possible underperformance from an increasingly competitive
environment, we also reduced our cable television exposure.
During the reporting period, we increased our holdings in the broadcasting
and wireless communications industries, mainly to take advantage of rapid
market penetration, deregulation and industry consolidation in these sectors.
Additionally, industry consolidation created positive opportunities to
increase positions in the containers and packaging and the industrial sectors.
Within the wireless communications and telecommunications sectors, Nextel,
Telecom and Millicom performed well. Other strong performers include Collins
& Aikman Products (automotive), Smith's Food & Drug (food retailing), Ralphs
Grocery Co. (food retailing), Algoma Steel (metals & mining), and Mesa
Operating (energy). Mesa benefited substantially from a merger with an
investment grade-rated company, and has itself been upgraded to a Ba2 rating
by Moody's Investors Service.
Looking forward, we expect a favorable outlook for the high yield bond market
assuming we experience ongoing steady economic growth. However, the portfolio
will continue to acquire higher-quality issues, realizing that the growth
phase of the U.S. economy is now in its seventh year. Although we do not see
significant risk of recession on the short-term horizon, we believe that this
is a prudent investment strategy for the long term. Barring significant
fluctuations from moderate growth and low inflation trends in the first half
of 1997, a prosperous outlook remains for the high yield bond market.
High Income Fund
Top 10 Industries on 6/30/97
Based on Total Net Assets
% of Total
Industry Net Assets
Wireless
Communications 11.8%
Cable Television 10.5%
Industrial Products 9.0%
Health Care Services 7.3%
Gaming/Leisure 6.3%
Food & Beverage 4.8%
Food Retailing 4.6%
Forest/Paper Products 4.2%
Containers & Packaging 4.1%
Broadcasting 3.9%
For a complete list of portfolio holdings, please see page 70 of this report.
GRAPHIC MATERIAL 7 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Templeton Global Income Securities Fund
During the period under review, interest rates fell in almost all global bond
markets, increasing the value of most global fixed-income securities. At the
same time, however, the U.S. dollar rose against most foreign currencies,
reducing returns for U.S. holders of foreign bonds. Since these events
affected markets differently, market selection and currency management were
two key factors impacting the portfolio over the reporting period.
Responding to fluctuating economic conditions, we remained conservatively
positioned with respect to both interest rate and currency risk. Early in the
period, we reduced our Denmark exposure (from 7.2% of total net assets on
December 31, 1996, to 3.9%), eliminated our Ireland (1.2%) exposure, and
reinvested the proceeds in German and U.S. securities. We eliminated our
position in Japan, as that economy exhibited initial signs of underlying
strength. We also added to our positions in Italy and Sweden, purchases
funded by the May sale of some German bonds.
As of June 30, 1997, the portfolio held approximately 83% of its assets in
intermediate-term securities of dollar bloc countries (the U.S., Australia,
Canada, and dollar-denominated emerging markets), while holding roughly 16%
in intermediate-term European securities. Our emerging markets exposure
remained relatively unchanged over the six-month period, with Brazil,
Argentina and Mexico our largest allocations in this region.
U.S. Government Securities Fund
The U.S. Government Securities Fund holds a diversified portfolio of agency
mortgage and government securities, with holdings of Government National
Mortgage Association (GNMA or "Ginnie Mae") mortgage passthroughs as our
largest positions. Some other portfolio holdings were Federal National
Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation
(FHLMC) passthroughs and debentures issued by the Financing Corporation
(FICO) and the Tennessee Valley Authority (TVA). On June 30, 1997, the fund's
investments consisted of 71.0% of total net assets in mortgage-backed
securities (of which approximately 42.3% were Ginnie Maes), and 28.2% in
other U.S. government and agency securities and short-term investments. Of
course, these holdings may change as market conditions warrant.
As reports of strong economic growth surfaced in the fourth quarter of 1996,
U.S. interest rates -- which had declined between the third quarter and December
1996 -- reversed course and pushed higher. Investors feared that with labor
markets tight, higher growth would continue to push wage growth higher. This
could eventually be passed on to consumers in the form of higher prices. To no
one's surprise, the Federal Reserve Board nudged the federal funds rate up
slightly at the Open Market Committee meeting in March, citing heightened
inflation risk as the reason behind the quarter-point increase.
The mortgage passthrough market experienced lower prepayment risk as yields
remained higher. This helped the mortgage passthroughs perform well compared
with other government bonds (including U.S. Treasuries) as investors
benefited from the added yield these securities provide.
Over the remainder of 1997, we expect that interest rate volatility will
remain subdued, which will continue to benefit mortgage passthrough
securities. However, overall yield levels may move to the higher end of their
recent trading range as consumer activity and economic growth rebound in the
second half of 1997.
Three Zero Coupon Funds (maturity dates: 2000, 2005, 2010)
Over the course of the first half of 1997, interest rates increased -- but
only slightly. Strong economic growth heightened prospects that inflation
would accelerate; however, by mid-year, there was only scant evidence that
inflation was on the rise. In addition to the continued favorable news on
inflation, the bond markets rallied because of the progress made on reducing
the federal budget deficit.
The Zero Coupon Fund portfolios aim to maintain investments as close to the
target maturities as practically possible. This makes changes in the interest
rates a highly significant factor affecting the unit value of these
portfolios. With four years to maturity in the 2000 portfolio, this portfolio
could possibly experience an approximate 4% swing in value for every 100
basis point (or 1%) swing in interest rates. Likewise, the 2005 fund has the
potential to move up or down approximately 9% for the same swing in interest
rates, and the 2010 may move -- up or down -- 14%.
Naturally, if held to maturity, individual zero coupon bonds will return a
fixed rate. Zero coupon investments, therefore, can be attractive for both
aggressive and risk averse investors. Of course, a managed portfolio of zero
coupon bonds will fluctuate with cash flow in or out of the portfolio, or
vary with market conditions. In each portfolio, we strive to maintain -- at
all times -- a duration within 12 months of the target maturity. We do not try
to time the market; instead, our portfolio activity mirrors shareholder
activity. We make purchases when money flows into the portfolios, and sell
securities to meet redemptions. Additionally, we hold primarily U.S. Treasury
and agency zero coupon and stripped securities, as well as top-rated
corporate securities. We believe this strategy keeps default risk at a
minimum.
Portfolio Seeking Capital Preservation and Income
Money Market Fund
Strong economic growth coupled with mild inflation characterized most of the
period under review. Real Gross Domestic Product (GDP) growth for the quarter
ended March 31, 1997, was 5.9% -- considerably above the Federal Reserve
Board's (the Fed's) targeted long-term growth rate of 2.5%. Moreover,
unemployment levels trended down to 4.8%, the lowest level experienced in 25
years. In spite of the blistering economic growth, inflation indicators
remained relatively low. However, the Fed responded preemptively to the
potential for higher prices by increasing the federal funds rate on March 25.
In response to this rise, most other short-term rates also rose slightly
during the period.
Since we maintained a relatively neutral weighted average maturity during the
six-month reporting period, the portfolio's seven-day yield reflected the
rise in short-term rates. Our seven-day yield began the period at 5.04% and
ended at 5.18%.
We continue to invest the portfolio's assets in securities that are among the
highest quality available to money market portfolios. Since the portfolio's
objective is to provide shareholders with a high quality conservative
investment, we do not invest in leveraged derivative or other potentially
volatile securities that we believe involve undue risk.
Looking forward, we feel the economy is in the later stages of the current
business cycle. Growth should continue to result from higher private
consumption, capital spending, and improving foreign economies. However, we
expect these forces -- coupled with a tight labor market -- could jeopardize
the current, benign inflation picture. As a result, the Fed may be compelled
to raise short-term rates further.
The Money Market Fund's relatively short-weighted average maturity should
position the portfolio effectively for this type of interest rate
environment. As interest rates rise, we should be able to reinvest the
portfolio's securities at a faster rate due to the relatively short overall
maturity.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES Capital Growth Fund (NOTE1)
Common Stocks 83.1%
Commercial Services 2.6%
<S> <C> <C>
30,000 Equifax, Inc. ........................................................ $ 1,115,625
18,000 a Robert Half International, Inc. ...................................... 847,125
------------
1,962,750
------------
Consumer Products - Durables 1.3%
28,000 Mattel, Inc. ......................................................... 948,500
------------
Consumer Products - Non-Durables 6.7%
12,000 Campbell Soup Co. .................................................... 600,000
7,000 The Coca-Cola Co. .................................................... 472,500
8,000 Gillette Co. ......................................................... 758,000
10,000 Hershey Foods Corp. .................................................. 553,125
20,000 Nike, Inc., Class B .................................................. 1,167,500
20,000 PepsiCo, Inc. ........................................................ 751,250
5,000 Proctor & Gamble Co. ................................................. 706,250
------------
5,008,625
------------
Consumer Services 3.5%
40,000 a CUC International, Inc. .............................................. 1,032,500
7,000 Disney (Walt) Co. .................................................... 561,750
40,000 a Mirage Resorts, Inc. ................................................. 1,010,000
------------
2,604,250
------------
Containers & Packaging 1.6%
38,500 a Owens-Illinois, Inc. ................................................. 1,193,500
------------
Electronic Technology 10.8%
21,750 a 3Com Corp. ........................................................... 978,750
17,500 a Ascend Communications, Inc. .......................................... 689,063
17,000 a Cisco Systems, Inc. .................................................. 1,141,125
6,000 a Compaq Computer Corp. ................................................ 595,500
12,000 Hewlett-Packard Co. .................................................. 672,000
40,000 a Imation Corp. ........................................................ 1,055,000
18,750 Molex, Inc. .......................................................... 684,375
18,000 a Newbridge Networks Corp. ............................................. 783,000
13,000 a Uniphase Corp. ....................................................... 757,250
8,000 United Technologies Corp. ............................................ 664,000
------------
8,020,063
------------
Energy & Minerals 3.3%
30,000 a Barrett Resources Corp. .............................................. 898,125
27,000 Enron Oil & Gas Co. .................................................. 489,375
20,000 Royal Dutch Petroleum Co., New York Shares, ADR ...................... 1,087,500
------------
2,475,000
------------
Financial Services 5.8%
5,000 American International Group, Inc. ................................... 746,875
5,000 Citicorp ............................................................. 602,813
18,000 Fannie Mae............................................................ 785,250
8,300 a Hartford Life, Inc., Class A.......................................... 311,250
25,600 a HomeSide, Inc. ....................................................... 560,000
18,000 Schwab (Charles) Corp. ............................................... 732,375
2,000 Wells Fargo & Co. .................................................... 539,000
------------
4,277,563
------------
Health Care Services 1.7%
10,000 a Oxford Health Plans, Inc. ............................................ 717,500
9,000 a PacifiCare Health Systems, Inc., Class B ............................. 574,875
------------
1,292,375
------------
Health Technology 10.2%
10,000 Abbott Laboratories .................................................. $ 667,500
12,000 Allergan, Inc. ....................................................... 381,750
10,000 American Home Products Corp. ......................................... 765,000
14,000 a Amgen, Inc. .......................................................... 813,750
15,000 Baxter International, Inc. ........................................... 783,750
10,000 a Boston Scientific Corp. .............................................. 614,375
15,000 Johnson & Johnson..................................................... 965,625
7,000 Lilly (Eli) & Co. .................................................... 765,188
40,000 Mentor Corp. ......................................................... 1,185,000
6,000 Merck & Co., Inc. .................................................... 621,000
------------
7,562,938
------------
Industrial Services 0.5%
3,000 Schlumberger, Ltd. ................................................... 375,000
------------
Media & Broadcasting 1.6%
25,000 Time Warner, Inc. .................................................... 1,206,250
------------
Process Industries 3.7%
10,000 Air Products and Chemicals, Inc. ..................................... 812,500
20,000 Millipore Corp. ...................................................... 880,000
30,000 Sigma-Aldrich Corp. .................................................. 1,051,875
------------
2,744,375
------------
Producer Manufacturing 3.3%
16,000 Emerson Electric Co. ................................................. 881,000
7,000 Minnesota Mining and Manufacturing Co. ............................... 714,000
32,000 a U.S. Filter Corp. .................................................... 872,000
------------
2,467,000
------------
Retail 2.6%
15,000 McDonald's Corp. ..................................................... 724,688
35,000 Wal-Mart Stores, Inc. ................................................ 1,183,438
------------
1,908,126
------------
Semiconductors 3.7%
25,000 a Adaptec, Inc. ........................................................ 868,750
5,000 Intel Corp. .......................................................... 709,063
12,000 Linear Technology Corp. .............................................. 621,000
12,000 a Xilinx, Inc. ......................................................... 588,750
------------
2,787,563
------------
Software & Technology Services 12.8%
25,000 Adobe Systems, Inc. .................................................. 876,563
16,000 Automatic Data Processing, Inc. ...................................... 752,000
30,000 a Broderbund Software, Inc. ............................................ 740,625
30,000 a Electronic Arts, Inc. ................................................ 1,008,750
17,000 Electronic Data Systems Corp. ........................................ 697,000
24,000 First Data Corp. ..................................................... 1,054,500
30,000 a Intuit, Inc. ......................................................... 688,124
2,400 a Microsoft Corp. ...................................................... 303,300
16,000 a Oracle Corp. ......................................................... 806,000
30,000 a SABRE Group Holdings, Inc. ........................................... 813,750
20,000 a Sterling Commerce, Inc. .............................................. 657,500
30,000 a Synopsys, Inc. ....................................................... 1,102,500
------------
9,500,612
------------
Transportation 2.5%
30,000 Air Express International Corp. ...................................... $ 1,192,500
25,000 Southwest Airlines Co. ............................................... 646,874
------------
1,839,374
------------
Utilities 4.9%
12,000 a AES Corp. ............................................................ 849,000
35,000 a AirTouch Communications, Inc. ........................................ 958,124
23,000 Enron Corp. .......................................................... 938,688
15,000 GTE Corp. ............................................................ 658,124
8,900 MCN Corp. ............................................................ 272,563
------------
3,676,499
------------
Total Long Term Investments (Cost $53,451,493) ................. 61,850,363
------------
FACE
AMOUNT
f,gReceivables from Repurchase Agreements 16.2%
$ 12,046,850 Joint Repurchase Agreement, 5.884%, 07/01/97
(Maturity Value $12,053,427) (Cost $12,051,457)
Aubrey G. Lanston & Co., Inc., (Maturity Value $1,194,681)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $1,194,681)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $703,953)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $1,194,681)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $1,194,681)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $597,345)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $1,194,681)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co., L.P., (Maturity Value $1,194,681)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $1,194,681)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $1,194,681)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $1,194,681)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 . 12,051,457
------------
Total Investments (Cost $65,502,950) 99.3% ................ 73,901,820
Other Assets and Liabilities, Net 0.7% .................... 518,168
------------
Net Assets 100.0% ......................................... $74,419,988
============
At June 30, 1997, the net unrealized appreciation based on the
cost of investments for income tax purposes of $65,523,666
was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost .................... $ 9,673,413
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value .................... (1,295,259)
------------
Net unrealized appreciation ........................................ $ 8,378,154
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
aNon-income producing.
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES Growth and Income Fund (NOTE1)
f,gCommon Stocks 93.6%
<S> <C> <C>
Automobile 1.5%
547,000 Chrysler Corp. ....................................................... $ 17,948,438
------------
Chemicals - Basic 4.1%
242,300 Dow Chemical Co. ..................................................... 21,110,388
320,000 Imperial Chemical Industries, Plc., Sponsored ADR .................... 18,200,000
428,570 Millennium Chemicals, Inc. ........................................... 9,749,968
------------
49,060,356
------------
Consumer Products 1.3%
391,800 Dial Corp. ........................................................... 6,121,875
182,900 Tambrands, Inc. ...................................................... 9,122,138
------------
15,244,013
------------
Electrical Equipment 2.2%
230,000 AMP, Inc. ............................................................ 9,602,500
262,200 General Electric Co. ................................................. 17,141,325
------------
26,743,825
------------
Financial Services 7.7%
263,100 Banc One Corp. ....................................................... 12,743,906
207,500 BankBoston Corp. ..................................................... 14,952,969
115,900 J.P. Morgan & Co., Inc. .............................................. 12,097,063
320,000 National City Corp. .................................................. 16,800,000
119,700 b Nordbanken AB, Sponsored ADR ......................................... 8,077,488
379,900 PNC Bank Corp. ....................................................... 15,813,338
510,000 Roosevelt Financial Group, Inc. ...................................... 12,407,280
------------
92,892,044
------------
Forest Products & Paper 4.9%
136,000 Georgia-Pacific Corp. ................................................ 11,611,000
1,020,000 b Portucel Industrial-Empresa Produtora de Celulosa,
SA, Sponsored ADR ................................................... 7,563,504
318,400 Potlatch Corp. ....................................................... 14,407,600
240,000 Union Camp Corp. ..................................................... 12,000,000
255,000 Weyerhaeuser Co. ..................................................... 13,260,000
------------
58,842,104
------------
Insurance 4.8%
324,400 Lincoln National Corp. ............................................... 20,883,250
214,100 Mid Ocean, Ltd. ...................................................... 11,226,869
297,000 d Scor (France) ........................................................ 11,957,425
131,000 St. Paul Cos., Inc. .................................................. 9,988,750
121,500 Zenith National Insurance Corp. ...................................... 3,280,500
------------
57,336,794
------------
Miscellaneous Manufacturing 4.0%
430,000 British Steel, Plc., Sponsored ADR ................................... 10,857,500
167,300 Cooper Industries, Inc. .............................................. 8,323,175
345,100 Fortune Brands, Inc. ................................................. 12,876,544
163,750 Hanson, Plc., Sponsored ADR .......................................... 4,093,750
120,500 Minnesota Mining and Manufacturing Co. ............................... 12,291,000
------------
48,441,969
------------
Oil & Gas Transmission 4.0%
280,000 Consolidated Natural Gas Co. ......................................... 15,067,500
357,400 National Fuel Gas Co. ................................................ 14,988,463
547,800 Pacific Enterprises .................................................. 18,419,775
------------
48,475,738
------------
Petroleum - Integrated 15.7%
233,700 Amoco Corp. .......................................................... $ 20,317,294
414,000 Atlantic Richfield Co. ............................................... 29,187,000
305,000 Chevron Corp. ........................................................ 22,550,938
427,000 Exxon Corp. .......................................................... 26,260,500
256,000 Mobil Corp. .......................................................... 17,888,000
385,000 Occidental Petroleum Corp. ........................................... 9,649,063
256,200 Texaco, Inc. ......................................................... 27,861,750
357,800 Ultramar Diamond Shamrock Corp. ...................................... 11,673,225
775,000 YPF Sociedad Anonima, Sponsored ADR .................................. 23,831,250
------------
189,219,020
------------
Pharmaceuticals 6.2%
78,000 American Home Products Corp. ......................................... 5,967,000
417,000 Bristol-Myers Squibb Co. ............................................. 33,777,000
420,800 Glaxo Wellcome, Plc., Sponsored ADR .................................. 17,594,700
510,000 Pharmacia & Upjohn, Inc. ............................................. 17,722,500
------------
75,061,200
------------
Printing, Publishing & Media 0.8%
375,000 Dun & Bradstreet Corp. ............................................... 9,843,750
------------
Real Estate Investment Trust 5.2%
460,300 Equity Residential Properties Trust .................................. 21,864,250
575,000 FelCor Suite Hotels, Inc. ............................................ 21,418,750
595,700 Simon DeBartolo Group, Inc. .......................................... 19,062,400
------------
62,345,400
------------
Retail 2.2%
501,900 Penney (J.C.) Co., Inc. .............................................. 26,192,906
------------
Telecommunications 10.6%
72,000 Ameritech Corp. ...................................................... 4,891,500
252,000 AT&T Corp. ........................................................... 8,835,750
115,800 BellSouth Corp. ...................................................... 5,370,225
161,300 British Telecommunications, Plc., Sponsored ADR ...................... 11,976,525
544,500 GTE Corp. ............................................................ 23,889,938
462,000 NYNEX Corp. .......................................................... 26,622,750
601,900 Southern New England Telecommunications Corp. ........................ 23,398,863
583,100 U S WEST Communications Group ........................................ 21,975,581
------------
126,961,132
------------
Tobacco 4.8%
900,000 d Imperial Tobacco Group, Plc. (United Kingdom) ........................ 5,792,769
528,300 Imperial Tobacco Group, Plc., ADR .................................... 6,800,700
347,800 Philip Morris Cos., Inc. ............................................. 15,433,625
363,560 RJR Nabisco Holdings Corp. ........................................... 11,997,480
640,000 UST, Inc. ............................................................ 17,760,000
------------
57,784,574
------------
Transportation 0.7%
252,000 Illinois Central Corp. ............................................... 8,804,250
------------
Utilities 12.9%
466,100 Central & South West Corp. ........................................... 9,904,625
327,000 CINergy Corp. ........................................................ 11,383,688
484,000 Dominion Resources, Inc. ............................................. 17,726,500
590,000 Enova Corp. .......................................................... 14,196,875
553,000 Entergy Corp. ........................................................ 15,138,375
425,300 GPU, Inc. ............................................................ 15,257,632
401,400 New England Electric System .......................................... 14,851,800
403,000 OGE Energy Corp. ..................................................... 18,336,500
410,000 PacifiCorp ........................................................... $ 9,020,000
444,900 PECO Energy Co. ...................................................... 9,342,900
310,700 PG&E Corp. ........................................................... 7,534,475
288,000 Public Service Co. of Colorado ....................................... 11,952,000
------------
154,645,370
------------
Total Long Term Investments (Cost $893,292,316) ................1,125,842,883
------------
FACE
AMOUNT
f,gReceivables from Repurchase Agreements 6.3%
$ 75,926,090 Joint Repurchase Agreement, 5.884%, 07/01/97
(Maturity Value $75,962,063) (Cost $75,949,649)
Aubrey G. Lanston & Co., Inc., (Maturity Value $7,529,018)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $7,529,018)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $4,436,392)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $7,529,018)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $7,529,018)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $3,764,509)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $7,529,018)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co., L.P., (Maturity Value $7,529,018)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $7,529,018)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $7,529,018)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $7,529,018)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00.. 75,949,649
------------
Total Investments (Cost $969,241,965) 99.9% ...............1,201,792,532
Other Assets and Liabilities, Net 0.1%..................... 1,490,687
------------
Net Assets 100.0%..........................................$1,203,283,219
============
At June 30,1997, the net unrealized appreciation based on the cost
of investments for income tax purposes of $969,251,742 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ..........................$ 242,539,222
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value .................... (9,998,432)
------------
Net unrealized appreciation ........................................$ 232,540,790
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
bPurchased in a private placement transaction; resale may only be to qualified
institutional buyers.
dSecurities are traded in foreign currency and value is stated in U.S. dollars.
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES/ VALUE
WARRANTS High Income Fund (NOTE1)
a Common Stocks & Warrants 0.1%
<S> <C> <C>
33,568 Bucyrus-Erie Co. ..................................................... $ 356,660
6,900 Empire Gas Corp., warrants ........................................... 34,500
70 Foodmaker, Inc., warrants ............................................ 3,243
5,000 Gulf States Steel, warrants .......................................... 25,500
7,800 International Wireless Holding Co., warrants ......................... 156
6,500 Nextel Communications, Inc., warrants ................................ 65
395 Thermadyne Holdings Corp. ............................................ 12,443
5,000 Wireless One, Inc., warrants ......................................... 50
------------
Total Common Stocks & Warrants (Cost $716,040).................. 432,617
------------
Preferred Stocks 4.4%
4,500,000 b Asia Pulp & Paper Co., Ltd., 12.00%, pfd., Class A ................... 4,623,750
1,300 Fresenius Medical Care A.G., 9.00%, pfd., PIK ........................ 1,319,500
8,979 PanAmSat Corp., 12.75%, pfd., PIK .................................... 11,011,428
2,374 Time Warner, Inc., 10.25%, pfd., Series M, PIK ....................... 2,637,872
------------
Total Preferred Stocks (Cost $17,476,758) ...................... 19,592,550
------------
Total Common Stocks & Warrants,
and Preferred Stocks (Cost $18,192,798) ............................. 20,025,167
------------
FACE
AMOUNT
Bonds 93.6%
Automotive 0.4%
$ 700,000 Aetna Industrial, Inc., senior notes, 11.875%, 10/01/06 .............. 763,000
1,000,000 Collins & Aikman Corp., senior sub. notes, 11.50%, 04/15/06 .......... 1,137,500
------------
1,900,500
------------
Broadcasting 3.9%
2,500,000 Benedek Broadcasting Corp., senior notes, 11.875%, 03/01/05 .......... 2,775,000
6,500,000 Granite Broadcasting Corp., senior sub. notes, 10.375%, 05/15/05 ..... 6,646,250
1,000,000 Jacor Communications, Inc., guaranteed senior sub. notes, 9.75%, 12/15/06 1,050,000
2,000,000 SCI Television, Inc., S.F., senior notes, 11.00%, 06/30/05 ........... 2,140,000
2,000,000 SFX Broadcasting, Inc., senior sub. notes, Series B, 10.75%, 05/15/06 2,155,000
2,500,000 Sinclair Broadcast Group, Inc., senior sub. notes, 10.00%, 09/30/05 .. 2,587,500
------------
17,353,750
------------
Cable Television 10.5%
4,000,000 Cablevision Industries Corp., senior sub. deb., 9.25%, 04/01/08 ...... 4,315,956
3,000,000 Cablevision Systems Corp., senior sub. deb., 10.50%, 05/15/16 ........ 3,315,000
4,500,000 Cablevision Systems Corp., senior sub. deb., 9.875%, 04/01/23 ........ 4,741,875
1,500,000 Cablevision Systems Corp., senior sub. notes, 9.25%, 11/01/05 ........ 1,545,000
3,000,000 Century Communications Corp., senior sub. notes, 9.50%, 03/01/05 ..... 3,090,000
2,000,000 Comcast Corp., senior sub. deb., 9.125%, 10/15/06 .................... 2,097,500
2,000,000 Comcast Corp., senior sub. deb., 9.50%, 01/15/08 ..................... 2,110,000
1,500,000 Continental Cablevision, Inc., senior deb., 9.50%, 08/01/13 .......... 1,708,123
1,000,000 Continental Cablevision, Inc., senior sub. deb., 11.00%, 06/01/07 .... 1,125,714
2,700,000 Diamond Cable Communications Co., Plc., senior disc. notes,
zero coupon to 12/15/00, (original accretion rate 11.75%), 11.75%
thereafter, 12/15/05 ................................................ 1,836,000
1,500,000 b Diamond Cable Communications Co., Plc., senior disc. notes,
zero coupon to 02/15/02, (original accretion rate 10.75%), 10.75%
thereafter, 02/15/07 ................................................ 855,000
2,200,000 Le Groupe Videotron Ltee, senior notes, 10.625%, 02/15/05 ............ 2,442,000
5,700,000 c Rogers Cablesystems, Inc., senior secured deb. (Canada), 9.65%, 01/15/14 4,189,507
1,500,000 Rogers Communications, Inc., senior deb., 10.875%, 04/15/04 .......... 1,578,750
8,000,000 TeleWest Communications, Plc., senior deb., zero coupon to 10/01/00,
(original accretion rate 11.00%), 11.00% thereafter,
10/01/07 ............................................................ 5,800,000
1,500,000 Time Warner, Inc., deb., 9.125%, 01/15/13 ............................ 1,657,500
3,000,000 Turner Broadcasting Systems, Inc., senior deb., 8.40%, 02/01/24 ...... 2,987,994
5,000,000 Wireless One, Inc., units, senior disc. notes, zero coupon to 08/01/01,
(original accretion rate 13.50%), 13.50% thereafter, 08/01/06 ....... 1,350,000
------------
46,745,919
------------
Chemicals 3.3%
$ 3,750,000 Applied Extrusion Technologies, Inc., senior notes,
Series B, 11.50%, 04/01/02........................................... $ 3,956,250
2,500,000 Harris Chemical of North America, senior sub. notes, 10.75%, 10/15/03 2,562,500
3,600,000 IMC Global, Inc., senior deb., 9.45%, 12/15/11 ....................... 4,247,816
4,000,000 Uniroyal Chemical Co. Investors, disc. notes, zero coupon to 05/01/98,
(original accretion rate 12.00%), 12.00% thereafter,
05/01/05 ............................................................ 3,680,000
------------
14,446,566
------------
Consumer Products 3.0%
3,000,000 E & S Holdings Corp., senior sub. notes, Series B, 10.375%, 10/01/06 . 3,120,000
300,000 Playtex Family Products Corp., senior sub. notes, 9.00%, 12/15/03 .... 304,500
10,000,000 b Revlon Worldwide Corp., senior disc. notes, zero coupon to 03/15/00,
(original accretion rate 10.75%), 10.75% thereafter, 03/15/01 ....... 6,787,500
3,000,000 RJR Nabisco, Inc., notes, 9.25%, 08/15/13 ............................ 3,123,750
------------
13,335,750
------------
Containers & Packaging 4.1%
3,500,000 Container Corp., senior notes, Series A, 11.25%, 05/01/04 ............ 3,850,000
6,000,000 Owens-Illinois, Inc., senior notes, 8.10%, 05/15/07 .................. 6,105,000
1,000,000 Owens-Illinois, Inc., senior sub. notes, 10.00%, 08/01/02 ............ 1,050,000
1,000,000 Owens-Illinois, Inc., senior sub. notes, 9.75%, 08/15/04 ............. 1,050,000
1,000,000 Plastic Containers, Inc., senior notes, 10.00%, 12/15/06 ............. 1,040,000
5,000,000 Radnor Holdings Corp., senior notes, 10.00%, 12/01/03 ................ 5,075,000
------------
18,170,000
------------
Energy 2.0%
1,000,000 Dawson Production Services, Inc., senior notes, 9.375%, 02/01/07 ..... 1,020,000
5,000,000 Empire Gas Corp., units, senior secured notes, 7.00% to 07/15/99,
12.875% thereafter, 07/15/04 ........................................ 4,512,500
800,000 Forcenergy, Inc., senior sub. notes, 9.50%, 11/01/06 ................. 836,000
1,800,000 Mesa Operating Co., company guaranteed, senior sub. notes,
zero coupon to 07/01/01, (original accretion rate 11.625%), 11.625%
thereafter, 07/01/06 ................................................ 1,395,000
1,000,000 b Pogo Producing Co., sub. notes, 8.75%, 05/15/07 ...................... 997,000
------------
8,760,500
------------
Food & Beverage 4.8%
3,000,000 Coca Cola Bottling Group Southwest, Inc.,
senior sub. notes, 9.00%, 11/15/03................................... 3,119,999
700,000 Curtice-Burns Food, Inc., senior sub. notes, 12.25%, 02/01/05 ........ 778,750
3,000,000 Doane Products Co., senior notes, 10.625%, 03/01/06 .................. 3,180,000
250,000 Dr. Pepper Bottling Co. of Texas, senior notes, 10.25%, 02/15/00 ..... 259,063
1,600,000 International Home Foods, Inc., company guaranteed,
senior sub. notes, 10.375%, 11/01/06 ................................ 1,656,000
4,700,000 PMI Acquisition Corp., senior sub. notes, 10.25%, 09/01/03 ........... 4,970,250
4,000,000 RC/Arby's Corp., senior notes, 9.75%, 08/01/00 ....................... 4,080,000
3,000,000 Texas Bottling Group, Inc., senior sub. notes, 9.00%, 11/15/03 ....... 3,120,000
------------
21,164,062
------------
Food Retailing 4.6%
1,700,000 Dominick's Finer Foods, senior sub. notes, 10.875%, 05/01/05 ......... 1,889,125
3,691,000 Grand Union Co., senior notes, 12.00%, 09/01/04 ...................... 2,749,795
4,000,000 Pathmark Stores, Inc., senior sub. notes, 9.625%, 05/01/03 ........... 3,880,000
1,000,000 Pathmark Stores, Inc., S.F., sub. notes, 11.625%, 06/15/02 ........... 1,015,000
3,000,000 Penn Traffic Co., senior notes, 8.625%, 12/15/03 ..................... 2,452,500
3,750,000 Ralphs Grocery Co., senior notes, 10.45%, 06/15/04 ................... 4,045,313
1,500,000 b Shoppers Food Warehouse Corp., senior notes, 9.75%, 06/15/04 ......... 1,500,000
2,500,000 Smith's Food & Drug Centers, Inc., senior sub. notes, 11.25%, 05/15/07 2,946,875
------------
20,478,608
------------
Forest & Paper Products 4.2%
7,700,000 Four M Corp., senior notes, Series B, 12.00%, 06/01/06 ............... 7,969,500
3,000,000 Rapp International Finance Co., secured notes, 13.25%, 12/15/05 ...... 3,210,000
2,000,000 Repap New Brunswick, senior notes, second priority, 10.625%, 04/15/05 1,900,000
$ 3,000,000 Repap Wisconsin, Inc., senior secured notes, 9.25%, 02/01/02 ......... $ 3,037,500
2,300,000 S.D. Warren Co., senior sub. notes, Series B, 12.00%, 12/15/04 ....... 2,570,250
------------
18,687,250
------------
Gaming & Leisure 6.3%
3,000,000 Aztar Corp., senior sub. notes, 13.75%, 10/01/04 ..................... 3,435,000
1,000,000 Eldorado Resorts, L.L.C., senior sub. notes, 10.50%, 08/15/06 ........ 1,072,500
5,900,000 Players International, Inc., senior notes, 10.875%, 04/15/05 ......... 6,121,250
3,000,000 Rio Hotel & Casino, Inc., senior sub. notes, 10.625%, 07/15/05 ....... 3,232,500
7,500,000 Showboat, Inc., senior sub. notes, 13.00%, 08/01/09 .................. 8,990,625
5,000,000 Six Flags Theme Parks, senior sub. notes, zero coupon to 06/15/98,
(original accretion rate 12.25%), 12.25% thereafter, 06/15/05 ....... 5,125,000
------------
27,976,875
------------
Health Care Services 7.3%
7,770,000 Abbey Healthcare Group, Inc., senior sub. notes, 9.50%, 11/01/02 ..... 8,090,513
5,500,000 Mariner Health Group, Inc., senior sub. notes, 9.50%, 04/01/06 ....... 5,589,375
2,000,000 Maxxim Medical, Inc., guaranteed senior sub. notes, 10.50%, 08/01/06 . 2,115,000
1,000,000 Regency Health Services, Inc., senior sub. notes, 9.875%, 10/15/02 ... 1,025,000
5,500,000 Sola Group, Ltd., senior sub. notes, 6.00% to 12/15/98,
9.625% thereafter, 12/15/03 ......................................... 5,335,000
850,000 Tenet Healthcare Corp., senior notes, 9.625%, 09/01/02 ............... 918,000
2,400,000 Tenet Healthcare Corp., senior notes, 8.625%, 12/01/03 ............... 2,496,000
3,400,000 Tenet Healthcare Corp., senior sub. notes, 10.125%, 03/01/05 ......... 3,740,000
3,250,000 Tenet Healthcare Corp., senior sub. notes, 8.625%, 01/15/07 .......... 3,298,750
------------
32,607,638
------------
Industrial Products 9.0%
11,500,000 b Allied Waste Industries, Inc., senior disc. notes, zero coupon to 06/01/02,
(original accretion rate 11.30%), 11.30% thereafter, 06/01/07 ...... 7,187,500
2,500,000 b Allied Waste Industries, Inc., senior sub. notes, 10.25%, 12/01/06 ... 2,675,000
8,500,000 American Standard Cos., Inc., senior sub. deb., zero coupon to 06/01/98,
(original accretion rate 10.50%), 10.50% thereafter, 06/01/05 ...... 8,404,375
1,000,000 Day International Group, senior sub. notes, 11.125%, 06/01/05 ........ 1,065,000
6,500,000 EASCO Corp., senior notes, Series B, 10.00%, 03/15/01 ................ 6,695,000
3,200,000 Goss Graphic Systems, Inc., senior sub. notes, 12.00%, 10/15/06 ...... 3,536,000
1,200,000 Intertek Finance, Plc., senior sub. notes, 10.25%, 11/01/06 .......... 1,245,000
3,500,000 b L-3 Communications Corp., senior sub. notes, 10.375%, 05/01/07 ....... 3,701,250
5,500,000 Nortek, Inc., senior sub. notes, 9.875%, 03/01/04 .................... 5,623,750
------------
40,132,875
------------
Lodging 1.8%
1,000,000 John Q. Hammons Hotels, L.P., first mortgage, 8.875%, 02/15/04 ....... 1,015,000
1,500,000 John Q. Hammons Hotels, L.P., first mortgage, 9.75%, 10/01/05 ........ 1,571,250
3,000,000 Prime Hospitality Corp., senior sub. notes, Series B, 9.75%, 04/01/07 3,135,000
2,310,000 Red Roof Inns, Inc., senior notes, 9.625%, 12/15/03 .................. 2,361,975
------------
8,083,225
------------
Media 3.8%
1,700,000 American Media Operation, senior sub. notes, 11.625%, 11/15/04 ....... 1,861,500
4,500,000 Hollinger Publishing, guaranteed senior sub. notes, 9.25%, 03/15/07 .. 4,590,000
2,500,000 K-III Communications Corp., senior notes, 10.25%, 06/01/04 ........... 2,700,000
5,000,000 c News America Holdings, Inc., deb. (Australia), 8.625%, 02/07/14 ...... 3,459,061
4,250,000 Outdoor Systems, Inc., senior sub. notes, 8.875%, 06/15/07 ........... 4,149,063
------------
16,759,624
------------
Metals & Mining 3.6%
4,000,000 AK Steel Holding Corp., senior notes, 9.125%, 12/15/06 ............... 4,130,000
4,000,000 Algoma Steel, Inc., first mortgage, 12.375%, 07/15/05 ................ 4,450,000
5,000,000 Gulf States Steel, first mortgage, 13.50%, 04/15/03 .................. 5,000,000
$ 1,000,000 b Neenah Corp., senior sub. notes, 11.125%, 05/01/07 ................... $ 1,057,500
1,110,000 UCAR Global Enterprises, senior sub. notes, Series B, 12.00%, 01/15/05 1,259,850
------------
15,897,350
------------
Technology & Information Systems 2.9%
1,000,000 Amphenol Corp., senior sub. notes, 9.875%, 05/15/07 .................. 1,030,000
1,400,000 Bell & Howell Co., senior disc. deb., Series B, zero coupon to 03/01/00,
(original accretion rate 11.50%), 11.50% thereafter, 03/01/05 ...... 1,134,000
2,450,000 Bell & Howell Operating Co., senior notes, 9.25%, 07/15/00 ........... 2,535,750
800,000 Bell & Howell Operating Co., senior sub. notes,
Series B, 10.75%, 10/01/02 .......................................... 844,000
4,000,000 b Borg-Warner Security Corp., senior sub. notes, 9.625%, 03/15/07 ...... 4,020,000
1,150,000 Celestica International, Inc., senior sub. notes, 10.50%, 12/31/06 ... 1,239,125
2,000,000 Exide Electronics Group, Inc., senior sub. notes, 11.50%, 03/15/06 ... 2,130,000
------------
12,932,875
------------
Telecommunications 1.6%
2,000,000 Intelcom Group, Inc., senior disc. notes, zero coupon to 05/01/01,
(original accretion rate 12.50%), 12.50% thereafter, 05/01/06 ....... 1,345,000
1,500,000 Orion Network Systems, Inc., units,
senior disc. notes, zero coupon to 01/15/02,
(original accretion rate 12.50%), 12.50% thereafter, 01/15/07 ...... 862,500
6,500,000 Teleport Communications Group, Inc., senior disc. notes, zero
coupon to 07/01/01, (original accretion rate 11.125%), 11.125%
thereafter, 07/01/07 ................................................ 4,704,375
------------
6,911,875
------------
Textiles & Apparel 1.3%
5,500,000 Clark-Schwebel, Inc., senior notes, Series B, 10.50%, 04/15/06 ....... 5,940,000
------------
Transportation 1.5%
1,600,000 Eletson Holdings, Inc., first mortgage notes, 9.25%, 11/15/03 ........ 1,628,000
4,500,000 Gearbulk Holding, Ltd., senior notes, 11.25%, 12/01/04 ............... 4,995,000
------------
6,623,000
------------
Utilities 1.9%
3,000,000 CMS Energy Corp., senior notes, Series B, 9.875%, 10/01/99 ........... 3,097,500
2,500,000 El Paso Electric Co., first mortgage, 8.90%, 02/01/06 ................ 2,675,000
2,576,240 Midland Funding Corp. I, deb., Series C-94, 10.33%, 07/23/02 ......... 2,831,133
2,000 System Energy Resource, S.F., first mortgage, 11.375%, 09/01/16 ...... 2,141
------------
8,605,774
------------
Wireless Communication 11.8%
6,000,000 Arch Communications Group, Inc., senior disc. notes,
zero coupon to 03/15/01, (original accretion rate 10.875%),
10.875% thereafter, 03/15/08 ....................................... 3,150,000
3,000,000 b Comcast Cellular, senior notes, 9.50%, 05/01/07 ...................... 3,022,500
6,500,000 Dial Call Communications, units, senior disc. notes,
zero coupon to 04/15/99, (original accretion rate 12.25%),
12.25% thereafter, 04/15/04 ......................................... 5,313,750
7,800,000 International Wireless Communications, Inc., senior disc.
notes, zero coupon to 08/15/01 ...................................... 4,095,000
7,000,000 b McCaw International, Ltd., units, senior disc. notes, 13.00%, 04/15/07 3,325,000
9,300,000 Millicom International Cellular, SA, senior disc. notes, 13.50%, 06/01/06 6,696,000
4,700,000 Paging Network, Inc., senior sub. notes, 10.125%, 08/01/07 ........... 4,582,500
4,500,000 Paging Network, Inc., senior sub. notes, 10.00%, 10/15/08 ............ 4,297,500
3,000,000 Rogers Cantel Mobile Communications, Inc., deb., 9.75%, 06/01/16 ..... 3,195,000
10,000,000 Sprint Spectrum, L.P., senior disc. notes, zero coupon to 08/15/01,
(original accretion rate 12.50%), 12.50% thereafter, 08/15/06 ....... 7,275,000
7,500,000 Sygnet Wireless, Inc., senior notes, 11.50%, 10/01/06 ................ 7,537,500
------------
52,489,750
------------
Total Bonds (Cost $400,403,040) ................................ 416,003,766
------------
Total Long Term Investments (Cost $418,595,838) ................ 436,028,933
------------
f,gReceivables from Repurchase Agreements 2.0%
$ 8,972,603 Joint Repurchase Agreement, 5.884%, 07/01/97,
(Maturity Value $8,975,968) (Cost $8,974,501)
Aubrey G. Lanston & Co., Inc., (Maturity Value $889,658)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $889,658)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $524,217)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $889,658)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $889,658)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $444,829)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $889,658)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co., L.P., (Maturity Value $889,658)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $889,658)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $889,658)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $889,658)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 . $ 8,974,501
------------
Total Investments (Cost $427,570,339) 100.1% .............. 445,003,434
Liabilities in Excess of Other Assets (0.1%)............... (657,141)
------------
Net Assets 100.0%.......................................... $444,346,293
============
At June 30, 1997, the net unrealized appreciation based on the cost
of investments for income tax purposes of $427,570,339 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost .......................... $ 23,465,562
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value .................... (6,032,467)
------------
Net unrealized appreciation ........................................ $ 17,433,095
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
PIK - Payment-in-Kind
S.F. - Sinking Fund
bPurchased in a private placement transaction; resale may only be to qualified
institutional buyers.
cFace amount is stated in foreign currency and value is stated in U.S. dollars.
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES Income Securities Fund (NOTE1)
Common Stocks 31.3%
<S> <C> <C>
Apparel & Textiles 0.2%
419,424 a,jBibb Co. ............................................................... $ 2,935,968
------------
Building Materials 0.1%
47,500 Hanson, Plc., Sponsored ADR ............................................ 1,187,500
------------
Computer & Technology 0.2%
190,223 a Anacomp, Inc. .......................................................... 2,282,676
------------
Consumer Products 2.2%
95,000 Imperial Tobacco Group, Plc., ADR ...................................... 1,222,916
600,000 Philip Morris Cos., Inc. ............................................... 26,625,000
60,000 RJR Nabisco Holdings Corp. ............................................. 1,980,000
93,750 a,bSpecialty Foods Corp. .................................................. 23,437
------------
29,851,353
------------
Energy 2.4%
576,500 d Athabasca Oil Sands Trust (Canada) ..................................... 9,601,723
60,000 Atlantic Richfield Co. ................................................. 4,230,000
50,000 BP Prudhoe Bay Royalty Trust ........................................... 831,250
500,000 b,dCanadian Oil Sands Trust - Units (Canada) .............................. 8,725,877
65,000 a Noble Drilling Corp. ................................................... 1,466,563
279,642 a Santa Fe Energy Resources, Inc. ........................................ 4,107,242
125,000 Ultramar Diamond Shamrock Corp. ........................................ 4,078,125
------------
33,040,780
------------
Metals 1.2%
55,009 a Avgold, Ltd., ADR ...................................................... 539,539
185,200 Driefontein Consolidated, Ltd., Sponsored ADR .......................... 1,250,100
60,000 Evander Gold Mines, Ltd., ADR .......................................... 254,574
390,000 Free State Consolidated Gold Mines, Ltd., ADR .......................... 1,950,000
91,874 Freeport-McMoRan Copper & Gold, Inc., Class A .......................... 2,687,315
216,500 Impala Platinum Holdings, Ltd., ADR .................................... 2,421,726
223,161 Rustenburg Platinum Holdings, Ltd., ADR ................................ 4,082,507
19,000 St. Helena Gold Mines, Ltd., ADR ....................................... 80,750
256,000 Vaal Reefs Exploration & Mining Co., Ltd., ADR ......................... 1,232,000
102,500 Western Deep Levels, Ltd., ADR ......................................... 2,447,188
------------
16,945,699
------------
Real Estate Investment Trust 2.1%
150,000 Equity Residential Properties Trust .................................... 7,125,000
275,000 FelCor Suite Hotels, Inc. .............................................. 10,243,750
150,000 Gables Residential Trust ............................................... 3,787,500
100,000 Meditrust Corp. ........................................................ 3,987,500
102,900 Simon DeBartolo Group, Inc. ............................................ 3,292,800
------------
28,436,550
------------
Telecommunications 1.0%
360,000 U S WEST Communications Group .......................................... 13,567,500
------------
Utilities 21.8%
390,000 American Electric Power Co. ............................................ 16,380,000
670,000 Central & South West Corp. ............................................. 14,237,500
511,000 CINergy Corp. .......................................................... 17,789,187
500,000 Delmarva Power & Light Co. ............................................. 9,531,250
375,000 Dominion Resources, Inc. ............................................... 13,734,375
610,000 Edison International ................................................... 15,173,750
47,500 Energy Group, Plc., Sponsored ADR ...................................... 2,012,813
525,000 Enova Corp. ............................................................ 12,632,812
550,000 Entergy Corp. .......................................................... 15,056,250
410,000 Florida Progress Corp. ................................................. 12,838,125
240,000 FPL Group, Inc. ........................................................ 11,055,000
320,000 GPU, Inc. .............................................................. $ 11,480,000
142,000 Hawaiian Electric Industries, Inc. ..................................... 5,484,750
315,000 Houston Industries, Inc. ............................................... 6,752,812
400,000 Long Island Lighting Co. ............................................... 9,200,000
265,100 MidAmerican Energy Holdings Co. ........................................ 4,589,544
175,000 Nevada Power Co. ....................................................... 3,718,750
330,000 New England Electric System ............................................ 12,210,000
300,000 New York State Electric & Gas Corp. .................................... 6,262,500
385,000 Ohio Edison Co. ........................................................ 8,397,812
120,000 PacifiCorp ............................................................. 2,640,000
400,000 PECO Energy Co. ........................................................ 8,400,000
610,000 PG&E Corp. ............................................................. 14,792,500
233,100 Potomac Electric Power Co. ............................................. 5,390,438
395,000 Public Service Enterprise Group, Inc. .................................. 9,875,000
135,000 SCANA Corp. ............................................................ 3,349,688
460,000 Southern Co. ........................................................... 10,062,500
400,000 Southwestern Public Service Co. ........................................ 15,725,000
370,000 Texas Utilities Co. .................................................... 12,741,875
190,000 Western Resources, Inc. ................................................ 6,163,125
------------
297,677,356
------------
Miscellaneous 0.1%
14,000 a Echelon International Corp., Inc. ...................................... 319,375
27,142 Millennium Chemicals, Inc. ............................................. 617,481
------------
936,856
------------
Total Common Stocks (Cost $389,107,386) .......................... 426,862,238
------------
Preferred Stocks 0.7%
Automotive
16,726 a Harvard Industries, Inc., 14.25% pfd., PIK.............................. 13,068
------------
Cable Systems 0.2%
2,713 Time Warner, Inc., 10.25% pfd., Series M................................ 3,013,896
------------
Consumer Products 0.1%
11,000 Pantry Pride, Inc., $14.875 pfd., Series B.............................. 1,104,813
------------
Paper & Forest Products 0.4%
5,000,000 b Asia Pulp & Paper Co., Ltd., 12.00% pfd., Class A....................... 5,137,500
------------
Total Preferred Stocks (Cost $9,317,800) ......................... 9,269,277
------------
Convertible Preferred Stocks 9.3%
Apparel & Textile 0.2%
50,000 Fieldcrest Cannon, Inc., $3.00 cvt. pfd., Series A...................... 2,300,000
------------
Cable Systems 0.5%
265,000 Cablevision Systems Corp., 8.50%, cvt. pfd., Series I................... 7,188,125
------------
Energy 3.4%
65,000 Devon Financing Trust, $3.25 cvt. pfd................................... 4,594,687
315,000 Enron Corp., 6.25%, cvt. pfd............................................ 6,024,375
235,000 b McDermott International, Inc., $2.875 cvt. pfd., Series C............... 11,632,500
100,000 Nuevo Energy Co., 5.75%, cvt. pfd., Series A............................ 4,825,000
75,000 b Occidental Petroleum Corp., $3.875, cvt. pfd............................ 4,387,500
170,000 b Parker & Parsley Capital, 6.25% cvt. pfd................................ 10,943,750
39,525 Patina Oil & Gas Corp., 7.125% cvt. pfd................................. 1,106,700
100,000 Snyder Oil Corp., $1.50 cvt. exch. pfd.................................. 2,525,000
------------
46,039,512
------------
Lodging 0.4%
100,000 b Host Marriott Financial Trust, 6.75%, cvt. pfd.......................... $ 5,800,000
------------
Metals 2.2%
150,000 Amax Gold, Inc., $3.75 cvt. pfd., Series B.............................. 7,987,500
65,000 Armco, Inc., $3.625 cum. cvt. pfd., Series A............................ 2,770,625
65,000 Battle Mountain Gold Co., $3.25 cvt. pfd................................ 3,107,813
135,000 Coeur D' Alene Mines Corp., 7.00% cvt. pfd.............................. 2,261,250
55,000 Cyprus Minerals, $4.00 cvt. pfd., Series A.............................. 3,031,875
108,800 Freeport-McMoRan Copper & Gold, Inc., $1.25 cum. cvt. pfd............... 3,359,200
60,000 b Freeport-McMoRan, Inc., $4.375 cvt. exch. pfd........................... 3,300,000
70,000 Hecla Mining Co., $3.50 cvt. pfd., Series B............................. 3,268,125
25,000 b Titanium Metals, 6.625% cvt. pfd........................................ 1,318,750
------------
30,405,138
------------
Real Estate Investment Trust 1.4%
135,000 Security Capital Industrial Trust, 7.00%, cvt. pfd...................... 3,763,125
400,000 Security Capital Pacific Trust, $1.75, cvt. pfd., Series A.............. 12,200,000
60,000 Vornado Realty Trust, 6.50%, cvt. pfd., Series A........................ 3,180,000
------------
19,143,125
------------
Telecommunications 0.6%
150,000 d Nortel Inversora, SA, 10.00%, cvt. pfd. (Argentina)..................... 7,368,750
------------
Utility 0.6%
160,000 j CMS Energy Corp., 7.75%, quarterly cvt. pfd............................. 8,294,400
------------
Total Convertible Preferred Stocks (Cost $118,898,990) ........... 126,539,050
------------
Miscellaneous
30,814 a Miscellaneous Securities (Cost $10,477)................................. 15,407
------------
Total Common Stocks, Preferred Stocks, Convertible Preferred Stocks,
and Miscellaneous Securities (Cost $517,334,653)...................... 562,685,972
------------
FACE
AMOUNT
Corporate Bonds 26.8%
Apparels & Textiles 1.9%
10,000,000 Consoltex Group, Inc., senior sub. notes, Series B, 11.00%, 10/01/03 ... 10,350,000
8,300,000 Hartmarx Corp., senior sub. notes, 10.875%, 01/15/02 ................... 8,632,000
1,000,000 Polysindo International Finance Corp., secured notes, 11.375%, 06/15/06 1,102,500
500,000 The William Carter Co., senior sub. notes, 10.375%, 12/01/06 ........... 523,750
5,000,000 WestPoint Stevens, Inc., senior sub. deb., 9.375%, 12/15/05 ............ 5,225,000
------------
25,833,250
------------
Automotive 0.5%
4,000,000 Collins & Aikman Corp., senior sub. notes, 11.50%, 04/15/06 ............ 4,550,000
400,000 Exide Corp., senior notes, 10.75%, 12/15/02 ............................ 423,000
5,000,000 i Harvard Industries, Inc., senior notes, 11.125%, 08/01/05 .............. 2,025,000
------------
6,998,000
------------
Building Products 0.7%
9,250,000 Inter-City Products Corp., senior notes, 9.75%, 03/01/00 ............... 9,527,500
------------
Cable Systems 1.5%
4,000,000 Cablevision Systems Corp., senior sub. deb., 9.875%, 04/01/23 .......... 4,215,000
8,000,000 Continental Cablevision, Inc., senior deb., 9.50%, 08/01/13 ............ 9,109,991
7,300,000 Helicon Group, L.P. Corp., S.F., senior secured notes,
Series B, 11.00%, 11/01/03............................................. 7,628,500
------------
20,953,491
------------
Chemicals 1.0%
$8,000,000 Applied Extrusion Technologies, Inc., senior notes,
Series B, 11.50%, 04/01/02 ............................................$ 8,440,000
725,000 Uniroyal Chemical Co. Investors, senior notes, 10.50%, 05/01/02 ........ 788,438
4,150,000 Uniroyal Chemical Co. Investors, senior sub. notes, 11.00%, 05/01/03 ... 4,523,500
------------
13,751,938
------------
Computer & Technology 0.4%
6,000,000 b Anacomp, Inc., senior sub. notes, 10.875%, 04/01/04 .................... 6,120,000
------------
Consumer Products 2.6%
500,000 E&S Holdings Corp., senior sub. notes, Series B, 10.375%, 10/01/06 ..... 520,000
7,750,000 Hines Horticulture, senior sub. notes, 11.75%, 10/15/05 ................ 8,253,750
1,300,000 L.F.C. Holding Corp., senior deb., 15.00%, 06/15/02 .................... 780,000
5,050,000 Mafco, Inc., senior sub. notes, 11.875%, 11/15/02 ...................... 5,454,000
8,000,000 Playtex Family Products Corp., senior sub. notes, 9.00%, 12/15/03 ...... 8,120,000
5,000,000 Revlon Consumer Product Corp., senior sub. notes,
Series B, 10.50%, 02/15/03 ............................................ 5,337,500
5,000,000 RJR Nabisco, Inc., notes, 9.25%, 08/15/13 .............................. 5,206,250
1,150,000 Sealy Corp., senior sub. notes, 9.50%, 05/01/03 ........................ 1,207,500
------------
34,879,000
------------
Containers & Packaging 0.5%
2,450,000 Calmar, Inc., senior sub. notes, Series B, 11.50%, 08/15/05 ............ 2,609,250
2,000,000 Packaging Resources, Inc., senior notes, 11.625%, 05/01/03 ............. 2,070,000
1,000,000 Printpack, Inc., senior sub. notes, 10.625%, 08/15/06 .................. 1,070,000
300,000 U.S. Can Corp., senior sub. notes, 10.125%, 10/15/06 ................... 321,750
------------
6,071,000
------------
Energy 1.4%
1,000,000 Bellwether Exploration Co., senior sub. notes, 10.875%, 04/01/07 ....... 1,067,500
3,250,000 Energy Ventures, senior notes, 10.25%, 03/15/04 ........................ 3,510,000
9,835,000 Gerrity Oil & Gas Corp., senior sub. notes, 11.75%, 07/15/04 ........... 10,769,325
1,000,000 Global Marine, Inc., senior secured notes, 12.75%, 12/15/99 ............ 1,051,250
1,000,000 Mesa Operating Co., company guaranteed,
senior sub. notes, 10.625%, 07/01/06 .................................. 1,142,500
1,000,000 Plains Resources, Inc., senior sub. notes, 10.25%, 03/15/06 ............ 1,085,000
------------
18,625,575
------------
Entertainment 0.1%
650,000 AMF Group, Inc., Series B, 10.875%, 03/15/06 ........................... 705,250
------------
Financial Services
500,000 First Nationwide Escrow, senior sub. notes, 10.625%, 10/01/03 .......... 555,000
------------
Food & Beverages 2.4%
5,000,000 Curtice-Burns Food, Inc., senior sub. notes, 12.25%, 02/01/05 .......... 5,562,500
4,000,000 b Del Monte Corp., senior sub. notes, 12.25%, 04/15/07 ................... 4,280,000
3,000,000 Doane Products Co., senior notes, 10.625%, 03/01/06 .................... 3,180,000
1,010,000 Dr. Pepper Bottling Co. of Texas, senior notes, 10.25%, 02/15/00 ....... 1,046,613
4,100,000 International Home Foods, Inc., company guaranteed,
senior sub. notes, 10.375%, 11/01/06 .................................. 4,243,500
6,350,000 PMI Acquisition Corp., senior sub. notes, 10.25%, 09/01/03 ............. 6,715,125
4,000,000 Specialty Foods Corp., senior sub. notes, Series B, 11.25%, 08/15/03 ... 3,440,000
4,000,000 Specialty Foods Corp., senior unsecured notes, Series B, 10.25%, 08/15/01 3,900,000
------------
32,367,738
------------
Food Chains 2.8%
1,000,000 Americold Corp., senior sub. notes, 12.875%, 05/01/08 .................. 1,052,500
9,000,000 Americold Corp., senior sub. notes, Series B, 11.50%, 03/01/05 ......... 9,675,000
6,000,000 Bruno's, Inc., senior sub. notes, 10.50%, 08/01/05 ..................... 6,075,000
7,000,000 Grand Union Co., senior notes, 12.00%, 09/01/04 ........................ 5,215,000
10,000,000 Ralphs Grocery Co., senior sub. notes, 11.00%, 06/15/05 ................ 10,900,000
4,000,000 Smith's Food & Drug Centers, Inc., senior sub. notes, 11.25%, 05/15/07 . 4,715,000
------------
37,632,500
------------
Gaming & Leisure 1.5%
$9,000,000 Aztar Corp., senior sub. notes, 11.00%, 10/01/02 ....................... $ 9,337,500
500,000 Eldorado Resorts, L.L.C., senior sub. notes, 10.50%, 08/15/06 .......... 536,250
2,200,000 Harveys Casinos Resorts, senior sub. notes, 10.625%, 06/01/06 .......... 2,343,000
8,000,000 Rio Hotel & Casino, Inc., senior sub. notes, 10.625%, 07/15/05 ......... 8,620,000
------------
20,836,750
------------
Health Care Services 0.5%
3,000,000 Dade International, Inc., senior sub. notes, 11.125%, 05/01/06 ......... 3,330,000
4,000,000 Sola Group, Ltd., senior sub. notes, 6.00%
to 12/15/98, 9.625% thereafter, 12/15/03 .............................. 3,880,000
------------
7,210,000
------------
Industrial Products 2.0%
8,650,000 EASCO Corp., senior notes, Series B, 10.00%, 03/15/01 .................. 8,909,500
2,000,000 Nortek, Inc., senior sub. notes, 9.875%, 03/01/04 ...................... 2,045,000
10,000,000 RBX Corp., senior sub. notes, 11.25%, 10/15/05 ......................... 8,550,000
5,030,000 RHI Holdings, Inc., senior sub. deb., 11.875%, 03/01/99 ................ 5,030,000
2,696,000 Thermadyne Holdings Corp., notes, 10.75%, 11/01/03 ..................... 2,776,880
246,000 Thermadyne Holdings Corp., senior notes, 10.25%, 05/01/02 .............. 248,460
------------
27,559,840
------------
Media & Broadcasting 0.2%
2,000,000 Benedek Broadcasting Corp., senior notes, 11.875%, 03/01/05 ............ 2,220,000
------------
Metals 1.1%
1,000,000 Armco Steel, Inc., senior notes, 11.375%, 10/15/99 ..................... 1,035,000
7,000,000 Jorgensen, Earle M. Co., senior notes, 10.75%, 03/01/00 ................ 7,000,000
6,000,000 Republic Engineered Steel, Inc., first mortgage, 9.875%, 12/15/01 ...... 5,595,000
815,000 UCAR Global Enterprises, senior sub. notes, Series B, 12.00%, 01/15/05 . 925,025
------------
14,555,025
------------
Paper & Forest Products 1.0%
2,000,000 Four M Corp., senior notes, Series B, 12.00%, 06/01/06 ................. 2,070,000
7,000,000 Rapp International Finance Co., secured notes, 13.25%, 12/15/05 ........ 7,490,000
5,000,000 Riverwood International, senior sub. notes, 10.875%, 04/01/08 .......... 4,537,500
------------
14,097,500
------------
Publishing 0.1%
1,600,000 Bell & Howell Operating Co., senior sub. notes, Series B, 10.75%, 10/01/02 1,688,000
------------
Restaurants 0.3%
10,000,000 i Flagstar Corp., S.F., senior sub. deb., 11.25%, 11/01/04 ............... 4,150,000
------------
Retail 0.7%
10,000,000 Levitz Furniture Corp., senior notes, 13.375%, 10/15/98 ................ 10,000,000
------------
Telecommunications 0.6%
5,000,000 CommNet Cellular, Inc., sub. notes, 11.25%, 07/01/05 ................... 5,787,500
3,000,000 Paging Network, Inc., senior sub. notes, 10.125%, 08/01/07 ............. 2,925,000
------------
8,712,500
------------
Utilities 3.0%
195,782,500 c ESCOM, E168, utility deb., 11.00%, 06/01/08, (South Africa)............. 34,789,131
3,680,343 Midland Funding Corp. I, deb., Series C-94, 10.33%, 07/23/02 ........... 4,044,476
2,000,000 Texas-New Mexico Power Co., secured deb., 10.75%, 09/15/03 ............. 2,135,898
------------
40,969,505
------------
Total Corporate Bonds (Cost $359,447,798) ........................ 366,019,362
------------
Convertible Corporate Bonds 5.4%
Automotive 0.2%
4,000,000 b Exide Corp., cvt. senior sub. notes, 2.90%, 12/15/05 ................... 2,510,000
------------
Biotechnology 0.1%
$2,000,000 Centocor, Inc., Eurobonds, cvt. sub. deb., 6.75%, 10/16/01 ............. $ 1,960,000
------------
Computer & Technology 0.9%
11,000,000 Acclaim Entertainment, Inc., cvt. sub. notes, 10.00%, 03/01/02 ......... 10,175,000
2,815,000 Maxtor Corp., cvt. sub. deb., 5.75%, 03/01/12 .......................... 1,956,425
------------
12,131,425
------------
Electrical Equipment 0.6%
8,000,000 Trans-Lux Corp., cvt. sub. notes, 7.50%, 12/01/06 ...................... 8,760,000
------------
Energy 1.6%
9,000,000 Oryx Energy Co., cvt. sub. deb., 7.50%, 05/15/14 ....................... 8,865,000
7,500,000 Snyder Oil Corp., cvt. sub. notes, 7.00%, 05/15/01 ..................... 7,763,250
5,000,000 Swift Energy Co., cvt. sub. notes, 6.25%, 11/15/06 ..................... 5,025,000
------------
21,653,250
------------
Health Care Services 0.1%
1,000,000 b Medical Care International, Inc., cvt. sub. deb., 6.75%, 10/01/06 ...... 1,000,000
------------
Metals 1.2%
5,000,000 Ashanti Capital, Ltd., cvt. notes, 5.50%, 03/15/03 ..................... 4,087,500
100,000 Coeur D'Alene Mines Corp., cvt. senior sub. deb., 6.00%, 06/10/02 ...... 87,000
6,000,000 Coeur D'Alene Mines Corp., cvt. sub. deb., 6.375%, 01/31/04 ............ 5,520,000
1,800,000 FMC Corp., Eurobonds, cvt. senior sub. deb., 6.75%, 01/16/05 ........... 1,714,500
5,850,000 b Homestake Mining Co., cvt. sub. deb., 5.50%, 06/23/00 .................. 5,689,125
------------
17,098,125
------------
Pollution Control 0.2%
3,610,000 Air & Water Technology Corp., cvt. sub. deb., 8.00%, 05/15/15 .......... 3,014,350
------------
Real Estate Investment Trust 0.4%
5,000,000 b Macerich Co., cvt. sub. deb., 7.25%, 12/15/02 .......................... 4,987,500
------------
Retail 0.1%
1,180,000 Drug Emporium, Inc., cvt. sub. deb., 7.75%, 10/01/14 ................... 1,041,350
------------
Total Convertible Corporate Bonds (Cost $73,260,770) ............. 74,156,000
------------
Zero Coupon/Step-up Bonds 3.5%
4,000,000 AMF Group, Inc., senior disc. notes, Series B, zero coupon to 03/15/01,
(original accretion rate 12.25%), 12.25%, 03/15/06 .................... 2,850,000
10,000,000 Bell & Howell Co., senior disc. deb., Series B, zero coupon to 03/01/00,
(original accretion rate 11.50%), 11.50% thereafter, 03/01/05 ........ 8,100,000
2,600,000 Dr. Pepper Bottling Holdings, Inc., senior disc. notes,
zero coupon to 02/15/98, (original accretion rate 11.625%), 11.625%
thereafter, 02/15/03................................................... 2,574,000
10,000,000 Food 4 Less, Inc., zero coupon to 06/15/00, (original accretion rate 13.625%),
13.625% thereafter, 07/15/05 .......................................... 7,900,000
14,000,000 Marcus Cable Holding Co., senior disc. notes, zero coupon to 06/15/00,
(original accretion rate 14.25%), 14.25% thereafter, 12/15/05......... 11,060,000
1,300,000 Mesa Operating Co., company guaranteed, senior sub. notes,
zero coupon to 07/01/01, (original accretion rate 11.625%), 11.625%
thereafter, 07/01/06................................................... 1,007,500
6,000,000 b Revlon Worldwide Corp., senior disc. notes, zero coupon to 03/15/00,
(original accretion rate 10.75%), 10.75% thereafter, 03/15/01 ........ 4,072,500
8,000,000 Revlon Worldwide Corp., senior secured disc. notes, Series B,
(original accretion rate 12.00%), 0.00%, 03/15/98 ..................... 7,620,000
2,250,000 Specialty Foods Corp., senior secured disc. deb., Series B,
zero coupon to 08/13/99, (original accretion rate 13.00%), 13.00%
thereafter, 08/15/05................................................... 978,750
1,500,000 Uniroyal Chemical Co. Investors, disc. notes, zero coupon to 05/01/98,
(original accretion rate 12.00%), 12.00% thereafter, 05/01/05......... 1,380,000
------------
Total Zero Coupon/Step-up Bonds (Cost $43,955,445)................ 47,542,750
------------
Total Bonds (Cost $476,664,013)................................... 487,718,112
------------
U.S. Government Securities 8.3%
95,000,000 U.S. Treasury Bonds, 6.25% - 7.125%, 02/15/23 - 08/15/23 ............... 90,015,702
23,500,000 U.S. Treasury Notes, 6.00% - 6.375%, 11/30/97 - 08/15/02 ............... 23,523,141
------------
Total U.S. Government Securities (Cost $114,669,377).............. 113,538,843
------------
a,bForeign Government & Agency Securities 9.8%
110,000,000 Republic of Argentina, Series L, 5.25%, 03/31/23 ....................... $ 76,312,500
8,700,000 Republic of Brazil, 6.50%, 01/01/01 .................................... 8,582,550
7,920,000 Republic of Brazil, 6.6875%, 04/15/06 .................................. 7,316,100
39,000,000 Republic of Brazil, 5.25%, 04/15/24 .................................... 26,471,250
75,000,000 c Republic of South Africa, 12.00%, 02/28/05 (South Africa)............... 14,749,642
------------
Total Foreign Government & Agency Securities (Cost $107,569,690).. 133,432,042
------------
Total Long Term Investments (Cost $1,216,237,733).................1,297,374,969
------------
f,gReceivables from Repurchase Agreements 3.7%
49,803,194 Joint Repurchase Agreement, 5.884%, 07/01/97
(Maturity Value $49,826,756) (Cost $49,818,613)
Aubrey G. Lanston & Co., Inc., (Maturity Value $4,938,604)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $4,938,604)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $2,910,021)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $4,938,604)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $4,938,604)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $2,469,299)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $4,938,604)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co., L.P., (Maturity Value $4,938,604)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $4,938,604)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $4,938,604)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $4,938,604)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 ... 49,818,613
------------
Total Investments (Cost $1,266,056,346) 98.8% ...............1,347,193,582
Other Assets and Liabilities, Net 1.2% ...................... 16,892,976
------------
Net Assets 100.0% ...........................................$1,364,086,558
============
At June 30, 1997, the net unrealized appreciation based on the cost
of investments for income tax purposes of $1,266,056,346
was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ......................$ 137,462,598
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value ...................... (56,325,362)
------------
Net unrealized appreciation........................................... $ 81,137,236
============
</TABLE>
PORTFOLIOABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
PIK - Payment-In-Kind
S.F. - Sinking Fund
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to
qualified institutional buyers.
cFace amount is stated in foreign currency and value is stated in U.S. dollars.
dSecurities are traded in foreign currency and value is stated in U. S. dollars.
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
iSee Note 7 regarding defaulted securities.
jSee Note 9 regarding restricted securities.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT Money Market Fund (NOTE1)
e Short Term Investments 97.6%
<S> <C> <C>
Certificates of Deposit 12.7%
10,000,000 Bayerische Vereinsbank, New York Branch, 5.65%, 10/21/97 ............... $ 10,000,000
10,000,000 Landesbank Hessen-Thuringen Girozentrale, New York Branch, 6.09%, 09/11/97 10,009,621
15,000,000 Swiss Bank Corp., New York Branch, 5.70%, 07/23/97 - 07/24/97 .......... 15,000,000
15,000,000 Westdeutsche Landesbank, New York Branch,
5.68% - 5.72%, 08/19/97 - 09/08/97.................................... 15,000,000
------------
Total Certificates of Deposit (Cost $50,009,621).................. 50,009,621
------------
Commercial Paper 65.5%
15,000,000 American Express Credit Corp., 5.55% - 5.56%, 07/30/97 - 09/25/97 ...... 14,845,023
10,000,000 Ameritech Corp., 5.55%, 10/20/97 ....................................... 9,828,875
10,000,000 ANZ (Delaware) Inc., 5.60%, 07/08/97 ................................... 9,989,111
5,000,000 Associates Corp. of North America, 5.62%, 07/21/97 ..................... 4,984,389
10,000,000 BIL North America, Inc., 5.60%, 07/03/97 ............................... 9,996,889
10,000,000 Campbell Soup Co., 5.26%, 08/25/97 ..................................... 9,919,639
13,500,000 CIESCO, L.P., 5.60%, 07/17/97 - 07/18/97 ............................... 13,464,845
15,000,000 Coca-Cola Co., 5.50%, 09/09/97 - 09/12/97 .............................. 14,835,000
15,000,000 Dupont de Nemours, Inc., 5.50% - 5.51%, 07/29/97 - 08/20/97 ............ 14,918,741
5,000,000 General Electric Capital Corp., 5.50%, 07/31/97 ........................ 4,976,875
15,000,000 Goldman Sachs Group, L.P., 5.55% - 5.57%, 08/08/97 - 09/04/97 .......... 14,891,132
10,000,000 H.J. Heinz Corp., 5.55% - 5.95%, 07/02/97 - 07/08/97 ................... 9,993,869
15,000,000 Halifax Building Society, 5.58%, 07/15/97 .............................. 14,967,450
10,000,000 MetLife Funding, Inc., 5.55%, 08/05/97 ................................. 9,946,042
15,000,000 Merrill Lynch & Co., Inc., 5.57% - 5.60%, 08/27/97 - 09/17/97 .......... 14,850,992
15,000,000 Morgan Stanley Group, Inc., 5.60% - 5.62%, 07/22/97 - 08/26/97 ......... 14,896,497
12,000,000 National Rural Utilities Cooperative Finance Corp.,
5.28% - 5.52%,07/21/97 - 08/04/97 ..................................... 11,941,451
4,200,000 Province of British Columbia, 5.30%, 07/28/97 .......................... 4,183,305
5,000,000 Schering Corp., 5.56%, 07/01/97 ........................................ 5,000,000
15,000,000 Svenska Handelsbanken, Inc., 5.58% - 5.605%, 07/02/97 - 07/11/97 ....... 14,990,665
10,000,000 Toyota Motor Credit Corp., 5.54%, 07/16/97 ............................. 9,976,917
10,000,000 U.S. Central Credit Union, 5.61%, 08/11/97 ............................. 9,936,108
15,000,000 Wool International, 5.52%, 07/31/97 .................................... 14,931,000
------------
Total Commercial Paper (Cost $258,264,815) ....................... 258,264,815
------------
Total Investments before Repurchase Agreements (Cost $308,274,436) 308,274,436
------------
Receivables from Repurchase Agreements 19.4%
31,580,000 Chase Securities, Inc., 5.60%, 07/01/97, (Maturity Value $31,584,912)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99 ..................... 31,580,000
15,000,000 CIBC Wood Gundy Securities Corp., 5.95%, 07/01/97, (Maturity Value $15,002,479)
Collateral: U.S. Treasury Notes, 5.25%, 12/31/97 ...................... 15,000,000
15,000,000 SBC Warburg, Inc., 5.92%, 07/01/97, (Maturity Value $15,002,467)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99 ..................... 15,000,000
15,000,000 UBS Securities, L.L.C., 5.90%, 07/01/97, (Maturity Value $15,002,458)
Collateral: U.S. Treasury Notes, 5.50%, 02/28/99 ...................... 15,000,000
------------
Total Receivables from Repurchase Agreements (Cost $76,580,000) .. 76,580,000
------------
Total Investments (Cost $384,854,436) 97.6% ................. 384,854,436
Other Assets and Liabilities, Net 2.4% ...................... 9,443,384
------------
Net Assets 100.0% ........................................... $394,297,820
============
</TABLE>
At June 30, 1997, there was no unrealized appreciation or depreciation for
financial statement or income tax purposes.
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
eCertain short-term securities are traded on a discount basis; the rates shown
are the discount rates at the time of purchase by the Fund. Other securities
bear interest at the rates shown, payable at fixed dates or upon maturity.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
VALUE
COUNTRY* SHARES Mutual Discovery Securities Fund (NOTE1)
a,jCommon Stocks & Other Equity Interests 70.1%
<S> <C> <C> <C>
Appliances & Household Durables 1.3%
SE 9,000 Electrolux, AB, Series B ...................................... $ 649,215
US 12,000 Electrolux, AB, Series B, Sponsored ADR ....................... 871,500
--------------
1,520,715
--------------
Automobiles 1.1%
IT 275,000 Fiat, SpA ..................................................... 988,731
US 5,000 General Motors Corp. .......................................... 278,438
--------------
1,267,169
--------------
Banking 1.8%
US 20,000 a Life Financial Corp. .......................................... 270,000
US 10,000 a Pacific Bank, N.A. ............................................ 360,000
US 105,000 SC Bancorp .................................................... 1,496,250
--------------
2,126,250
--------------
Beverages & Tobacco 1.4%
GB 16,000 B.A.T. Industries, Plc. ....................................... 143,216
US 2,500 Farmer Brothers Co. ........................................... 317,500
GB 65,000 Grand Metropolitan, Plc. ...................................... 629,444
GB 35,000 Guinness, Plc. ................................................ 342,720
NL 1,300 Heineken Holding, NV, Class A ................................. 201,997
--------------
1,634,877
--------------
Broadcasting & Publishing 8.1%
NO 14,100 A-Pressen, AS, Class A ........................................ 340,515
FI 12,500 Aamulehti Yhtymae OY, II ...................................... 457,368
US 40,000 Dow Jones & Co., Inc. ......................................... 1,607,500
US 4,800 Dun & Bradstreet Corp. ........................................ 126,000
AU 300,000 John Fairfax Holdings, Ltd. ................................... 711,255
GB 50,000 Midland Independent Newspapers, Plc. .......................... 149,461
GB 114,800 Mirror Group, Plc. ............................................ 359,413
NL 24,300 NV Holdingsmij de Telegraaf ................................... 524,897
GB 40,600 Pearson, Plc. ................................................. 470,238
HK 278,000 Shaw Brothers Hong Kong, Ltd. ................................. 312,186
CA 75,000 Southam, Inc. ................................................. 1,281,726
US 10,000 TCA Cable TV, Inc. ............................................ 376,250
GB 29,877 United News & Media, Plc. ..................................... 346,539
US 23,700 a US West, Inc. ................................................. 479,925
GB 55,000 Yorkshire Tyne Tees Television Holdings, Plc. ................. 1,039,568
US 34,300 a Young Broadcasting Corp., Class A ............................. 1,114,750
--------------
9,697,591
--------------
Business & Public Services 1.7%
SE 8,000 Esselte, Class A .............................................. 183,052
IT 80,000 a IFIL Finanziaria Partecipazioni, SpA .......................... 275,674
FR 12,678 Suez Lyonnaise des Eaux, SA.................................... 1,277,146
US 9,700 a Tenet Healthcare Corp. ........................................ 286,756
--------------
2,022,628
--------------
Chemicals 2.7%
SE 30,000 Aga, AB, Class B .............................................. 399,457
DD 5,900 BASF, AG ...................................................... 217,710
US 20,000 a Bush Boake Allen, Inc. ........................................ 622,500
US 15,000 ChemFirst, Inc. ............................................... 406,875
GB 125,000 Inspec Group, Plc. ............................................ 412,163
GB 60,000 Laporte, Plc. ................................................. 640,977
US 15,000 Olin Corp. .................................................... 585,938
--------------
3,285,620
--------------
Construction & Housing 2.8%
ES 6,600 Grupo Acciona, SA ............................................. $ 743,536
NL 1,542 Hollandsche Beton Groep, NV ................................... 351,701
US 40,000 Lennar Corp. .................................................. 1,277,500
US 7,500 Martin Marietta Materials, Inc. ............................... 242,813
SE 15,300 Skanska, AB, Class B .......................................... 676,440
--------------
3,291,990
--------------
Data Processing & Reproduction 1.3%
US 20,000 a Intuit, Inc. .................................................. 458,750
US 75,000 a National Processing, Inc. ..................................... 768,750
IT 190,000 Tecnost Mael, SpA ............................................. 344,357
--------------
1,571,857
--------------
Electrical & Electronics 0.3%
US 14,500 a Wang Labs, Inc., Class A ...................................... 309,031
--------------
Electronic Components & Instruments 1.7%
US 10,032 a Amphenol Corp., Class A ....................................... 389,994
US 5,000 a Dynatech, Corp. ............................................... 178,750
US 15,000 Harman International Industries, Inc. ......................... 631,875
US 20,000 a Imation Corp. ................................................. 527,500
CA 47,300 a NBS Technologies, Inc. ........................................ 115,771
SE 8,800 Spectra Physics, AB, Class A .................................. 158,128
--------------
2,002,018
--------------
Energy Equipment & Services 1.0%
US 37,000 Bouygues Offshore, SA, ADR .................................... 462,500
US 10,000 Transocean Offshore, Inc. ..................................... 726,250
--------------
1,188,750
--------------
Energy Sources 4.2%
FR 2,430 a Cie Generale De Geophysique, SA ............................... 236,520
US 17,900 a Cie Generale De Geophysique, SA, ADR .......................... 344,575
FR 10,800 Elf Aquitaine, SA ............................................. 1,165,144
GB 27,000 Energy Group, Plc. ............................................ 288,215
IT 175,000 Eni, SpA ...................................................... 989,511
US 17,000 Enserch Corp. ................................................. 378,250
NO 16,600 Saga Petroleum, AS, Class B ................................... 289,909
GB 44,400 Shell Transport & Trading Co., Plc. ........................... 302,783
US 15,000 a United Meridian Corp. ......................................... 450,000
GB 85,000 Yorkshire Water, Plc. ......................................... 552,757
--------------
4,997,664
--------------
Financial Services 2.9%
US 20,000 Advanta Corp., Class B ........................................ 713,750
US 18,700 Arthur J Gallagher Co. ........................................ 705,925
US 20,000 Asia Tigers Fund, Inc. ........................................ 226,250
FR 1,000 AXA-UAP ....................................................... 62,195
FR 19,500 Cerus-Compagnies Europeennes Reunies, SA ...................... 98,550
US 8,000 a,j Cityscape Financial Corp. ..................................... 151,525
BE 5,000 Credit Communal Holding Dexia Belgium.......................... 536,955
GB 50,000 a Edinburg Dragon Trust, Plc. ................................... 72,649
US 12,000 Long Island Bancorp, Inc. ..................................... 435,750
US 7,500 Morgan Stanley Dean Witter Discover & Co. ..................... 322,969
US 8,000 a SPS Transaction Services, Inc. ................................ 148,000
--------------
3,474,518
--------------
Food & Household Products 3.3%
GB 56,212 Cadbury Schweppes, Plc. ....................................... 501,283
US 50,000 Ralcorp Holdings, Inc. ........................................ 737,500
SE 25,000 a Sardus, AB .................................................... $ 214,918
US 34,000 a U S Industries, Inc. .......................................... 1,211,250
NL 5,800 Van Melle, NV ................................................. 455,041
GB 50,000 Williams, Plc. ................................................ 268,947
FR 10,232 a Worms Et Compagnie ............................................ 605,907
--------------
3,994,846
--------------
Forest Products & Paper 0.7%
CA 10,000 Fletcher Challenge Canada Ltd., Class A ....................... 168,362
CA 36,000 a Pacific Forest Products, Ltd. ................................. 658,243
--------------
826,605
--------------
Health & Personal Care 2.9%
US 30,000 a Apria Healthcare Group, Inc. .................................. 532,500
US 10,000 a Beverly Enterprises, Inc. ..................................... 162,500
US 4,160 a Foundation Health Systems, Inc., Class A ...................... 126,100
US 50,000 a Grancare, Inc., Delaware ...................................... 540,625
US 5,000 a Mid Atlantic Medical Services, Inc. ........................... 77,813
US 65,000 a Summit Care Corp. ............................................. 877,500
US 25,000 a United Dental Care, Inc., Delaware ............................ 375,000
US 5,000 a Vencor, Inc. .................................................. 211,250
US 28,813 a Vitalink Pharmacy Services, Inc. .............................. 551,049
--------------
3,454,337
--------------
Industrial Components 3.6%
GB 51,612 Charter, Plc. ................................................. 686,739
US 20,000 a DT Industries, Inc. ........................................... 715,000
US 20,000 Kennametal, Inc. .............................................. 860,000
GB 180,000 LucasVarity, Plc. ............................................. 623,491
FR 13,300 Michelin, SA, Class B ......................................... 798,674
GB 130,477 Tomkins, Plc. ................................................. 564,939
US 5,000 a Veritas DGC, Inc. ............................................. 112,500
--------------
4,361,343
--------------
Insurance 2.3%
US 2,500 20th Century Industries ....................................... 52,500
US 1,020 a Alleghany Corp. ............................................... 221,850
US 2,901 American General Corp. ........................................ 138,523
IT 200,000 Istituto Nazionale delle Assicurazioni ........................ 302,930
FI 5,000 Pohjola Insurance Co., Ltd., Class A .......................... 149,247
US 24,100 Pxre Corp. .................................................... 741,075
US 2,000 Reliable Life Insurance Co., Class A .......................... 252,000
GB 65,000 Royal & Sun Alliance Insurance Group, Plc. .................... 479,525
FR 8,900 Scor .......................................................... 358,320
--------------
2,695,970
--------------
Leisure & Tourism 0.2%
US 6,000 Comcast Corp., Class A ........................................ 128,250
FR 800 Pathe, SA ..................................................... 158,729
--------------
286,979
--------------
Machinery & Engineering 1.3%
US 20,000 Greenfield Industries, Inc. ................................... 540,000
FI 20,000 The Rauma Group ............................................... 458,331
GB 100,000 Triplex Lloyd, Plc. ........................................... 257,290
GB 40,000 TT Group, Plc. ................................................ 246,465
--------------
1,502,086
--------------
Merchandising 2.7%
US 25,000 a Dress Barn, Inc. .............................................. $ 487,500
DK 28,000 East Asiatic Co., Ltd. ........................................ 662,058
US 25,000 a Footstar, Inc. ................................................ 653,125
SE 50,000 a Hemkopskedjan, AB.............................................. 513,865
GB 57,400 Vendome Luxury Group, Plc. .................................... 423,935
US 15,000 a Waban, Inc. ................................................... 482,813
--------------
3,223,296
--------------
Metals & Mining 0.1%
US 16,000 a WHX Corp. ..................................................... 122,000
--------------
Multi-Industry 12.0%
NO 39,500 Aker RGI, ASA, Class A ........................................ 776,074
NO 71,940 Aker RGI, ASA, Class B ........................................ 1,256,388
SE 46,000 Bulten, AB, Class B ........................................... 362,743
CH 700 Cie Financiere Richemont, AG, Class A ......................... 1,011,298
FR 1,761 Cie Generale d'Industrie et de Participation, CGIP ............ 500,429
SE 68,900 Custos, AB, Class A ........................................... 1,478,560
SE 41,540 Custos, AB, Class B ........................................... 894,113
CA 2,600 Empire Co., Ltd., Class A ..................................... 33,890
FR 484 Financiere Et Industrielle Gaz Et Eaux, SA .................... 200,153
CA 50,000 Gendis, Inc., Class A ......................................... 493,320
US 15,000 Harcourt General, Inc. ........................................ 714,375
GB 60,000 Hogg Robinson, Plc. ........................................... 214,325
SE 11,000 Investor, AB, Class B.......................................... 579,471
SE 5,500 Invik & Co., AB, Class B ...................................... 243,520
SE 22,000 Kinnevik, AB, Class B ......................................... 612,889
FR 16,000 Lagardere, SCA ................................................ 464,751
FR 3,770 Marine - Wendel, SA ........................................... 384,910
FR 317 Montaigne Participations et Gestion, SA ....................... 156,162
US 15,000 Morton International, Inc. .................................... 452,813
CH 4,850 Oerlikon-Buehrle Holding, AG .................................. 567,853
SE 16,500 Oresund Investment, AB ........................................ 447,935
DK 9,350 Sophus Berendsen, Class B ..................................... 1,351,828
FR 950 Ste Eurafrance ................................................ 389,589
BE 8,300 Ste Generale de Belgique, SA .................................. 774,882
--------------
14,362,271
--------------
Real Estate 3.2%
US 50,000 Alexander Haagen Properties, Inc. ............................. 812,500
US 50,000 Berkshire Realty Co. .......................................... 531,250
SE 32,000 a Castellum, AB ................................................. 239,933
US 80,000 First Union Real Estate Equity & Mtg. Investments, SBI ........ 1,135,000
US 30,000 Mark Centers Trust ............................................ 288,750
US 514,590 a,j Re Acquisition, L.L.C. ........................................ 514,590
US 6,900 Santa Anita Realty Enterprises, Inc. .......................... 214,330
FR 2,000 Ste Des Immeubles De France ................................... 115,710
--------------
3,852,063
--------------
Recreation & Other Consumer Goods 1.3%
GB 50,000 EMI Group, Plc. ............................................... 897,184
US 30,000 a Scientific Games Holdings Corp. ............................... 618,750
--------------
1,515,934
--------------
Telecommunications 1.6%
US 20,309 a Cellular Communications International, Inc. ................... 670,003
DK 1,300 GN Great Nordic, Ltd. ......................................... 138,029
US 60,000 a Palmer Wireless, Inc., Class A ................................ $ 1,012,500
US 15,000 a United States Satellite Broadcasting Co., Inc., Class A ....... 123,750
--------------
1,944,282
--------------
Transportation 2.4%
US 3,000 Florida East Coast Industries, Inc. ........................... 333,000
US 20,000 a Fritz Cos. .................................................... 193,750
US 20,000 a Landstar System, Inc. ......................................... 562,500
US 8,000 a M.S. Carriers, Inc. ........................................... 201,000
GB 75,000 Railtrack Group, Plc. ......................................... 781,236
NZ 50,000 Tranz Rail Holdings, Ltd., Sponsored ADR ...................... 843,750
--------------
2,915,236
--------------
Utilities Electrical & Gas 0.2%
US 12,000 Southwest Gas Corp. ........................................... 238,500
--------------
Total Common Stocks & Other Equity Interests (Cost $83,799,907) 83,686,426
--------------
Preferred Stocks 0.3%
US 5,000 Granite Broadcasting Corp., $1.938 cum. cvt. pfd., ............ 257,500
US 5 a North Atlantic Trading Co., Inc., 12.00%, pfd. ................ 125,000
--------------
Total Preferred Stocks (Cost $392,250) .................. 382,500
--------------
FACE
AMOUNT
Bonds & Notes 2.3%
US $ 425,000 a American Communication Services, Inc., senior disc.
notes, zero coupon to 11/01/00, (original accretion rate 13.00%),
13.00% thereafter, 11/01/05................................... 250,750
US 830,000 CAI Wireless Systems, Inc., senior notes, 12.25%, 09/15/02 .... 265,600
US 100,000 a Consorcio G Grupo Dina, SA de CV, zero coupon, 11/15/02 ....... 87,500
US 1,125,000 a CS Wireless Systems, Inc., senior disc. notes,
Series B, zero coupon to 03/01/01, (original accretion rate 11.375%),
11.375% thereafter, 03/01/06.................................. 264,375
US 250,000 b Globalstar Telecommunications, Ltd., L.P., senior notes, 11.25%, 06/15/04 235,625
US 100,000 b North Atlantic Trading Co., Inc., senior notes, 11.00%, 06/15/04 101,500
US 500 a,m People's Choice TV Corp., senior disc. notes, 13.125%, 06/1/04 187,500
US 150,000 a,k Sassco, Inc., 12.75%, 02/15/05 ................................ 157,500
US 250,000 b TFM, SA de CV, 10.25%, 06/15/07 ............................... 253,125
US 300,000 a,b TFM, SA de CV, zero coupon to 06/15/02,
(original accretion rate 11.75%), 11.75% thereafter, 06/15/09 174,000
US 67,500 b Vicap, SA, company guaranteed, 11.375%, 05/15/07 .............. 707,906
--------------
Total Bonds (Cost $2,912,038) ........................... 2,685,381
--------------
Bonds & Notes in Reorganization 1.1%
US 440,634 a Buenos Aires Embotelladora, SA, bank claim .................... 354,710
a Eurotunnel Jr. Credit Facility,
GB 50,000 l Tranche B ..................................................... 26,065
GB 860,000 Tranche B ..................................................... 676,697
Mercury Finance Co., Commercial Paper
US 13,628 03/17/97 ...................................................... 12,538
US 6,194 04/11/97 ...................................................... 5,698
US 17,345 04/18/97 ...................................................... 15,957
US 9,911 04/22/97 ...................................................... 9,118
US 14,867 04/24/97 ...................................................... 13,678
US 225,000 Mercury Finance Co., MTN, 7.42%, 06/29/00 ..................... 207,000
--------------
Total Bonds & Notes in Reorganization (Cost $1,161,955) . 1,321,461
--------------
Total Long Term Investments (Cost $88,266,150) .......... 86,754,307
--------------
e Short Term Investments 25.1%
US$ 1,000,000 Federal Home Loan Mortgage Association, 5.50% with maturities to 07/10/97 998,652
US 7,815,000 FHLB, 5.45% - 5.52% with maturities to 09/10/97 ............... 7,763,027
US13,100,000 FHLMC, 5.426% - 5.54% with maturities to 08/18/97.............. 13,032,834
US 8,250,000 FNMA, 5.43% - 5.54% with maturities to 09/26/97 ............... 8,175,789
--------------
Total Short Term Investments (Cost $25,530,216) ......... 29,970,302
--------------
Total Investments (Cost $113,796,366) 98.9% ........ 118,046,070
Other Assets and Liabilities, Net 0.6% ............. 745,871
Equity in Forward Contracts 0.5% ................... 599,635
--------------
Net Assets 100.0% .................................. 119,391,576
==============
At June 30, 1997, the net unrealized appreciation based on the
cost of investments for income tax purposes of
$113,796,366 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ............. $ 6,049,527
Aggregate gross unrealized depreciation for all investments in
which there was an excess of value over tax cost ............. (1,799,823)
--------------
Net unrealized appreciation ................................. $ 4,249,704
==============
COUNTRY LEGEND:
AU - Australia
BE - Belgium
CA - Canada
CH - Switzerland
DD - Germany
DK - Denmark
ES - Spain
FI - Finland
FR - France
GB - United Kingdom
HK - Hong Kong
IT - Italy
MX - Mexico
NL - Netherlands
NO - Norway
NZ - New Zealand
SE - Sweden
US - United States
PORTFOLIO ABBREVIATIONS:
FHLB - Federal Home Loan Bank
FHLMC - Federal Home Loan Mortgage Corp.
FNMA - Federal National Mortgage Association
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
MTN - Medium Term Note
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing
bPurchased in a private placement transaction; resale may only be to qualified institutional buyers.
eCertain short-term securities are traded on a discount basis; the rates shown are the discount rates at the time of
purchase by the Fund. Other securities bear interest at the rates shown, payable at fixed dates or upon maturity.
jSee Note 9 regarding restricted securities.
kSee Note 1(i) regarding securities purchased on a when-issued basis.
lTraded in European Currency Unit.
mIn Units.
The accompanying notes are an integral part of these financial statements.
</TABLE>
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
VALUE
COUNTRY* SHARES Mutual Shares Securities Fund (NOTE1)
<S> <C> <C> <C>
a Common Stocks & Other Equity Interests 65.4%
Aerospace & Military Technological Services 2.0%
US 12,000 General Motors Corp., Class H ................................. $ 693,000
US 42,000 a Hexcel Corp. .................................................. 724,500
US 15,000 a Litton Industries, Inc. ....................................... 724,687
US 5,000 Lockheed Martin Corp. ......................................... 517,813
US 75,000 a Loral Space & Communications .................................. 1,125,000
US 6,500 McDonnell Douglas Corp. ....................................... 445,250
--------------
4,230,250
--------------
Appliances & Household Durables 0.9%
US 50,000 Black & Decker Corp. .......................................... 1,859,375
--------------
Automobiles 1.2%
US 45,000 General Motors Corp. .......................................... 2,505,938
--------------
Banking 0.7%
US 15,000 Chase Manhattan Corp. ......................................... 1,455,938
--------------
Beverages & Tobacco 4.2%
GB 92,000 B.A.T. Industries, Plc. ....................................... 823,493
GB 360,000 a Gallaher Group, Plc. .......................................... 1,684,624
US 5,500 a Gallaher Group, Plc., ADR ..................................... 101,405
GB 40,000 Grand Metropolitan, Plc. ...................................... 387,350
NL 3,000 Heineken Holding, NV, Class A ................................. 466,147
US 60,000 Philip Morris Cos., Inc. ...................................... 2,662,500
US 75,000 RJR Nabisco Holdings Corp. .................................... 2,475,000
--------------
8,600,519
--------------
Broadcasting & Publishing 10.0%
US 30,000 Belo (AH) Corp. ............................................... 1,248,750
GB 25,300 Daily Mail & General Trust, Plc, Class A ...................... 695,182
US 80,000 Dow Jones & Co., Inc. ......................................... 3,215,000
US 14,000 Dun & Bradstreet Corp. ........................................ 367,500
US 35,000 Houghton Mifflin Co............................................ 2,336,250
US 45,000 a Outdoor Systems, Inc. ......................................... 1,721,250
US 60,000 Scripps (EW) Co., Class A ..................................... 2,497,500
CA 150,000 Southam, Inc. ................................................. 2,563,452
GB 102,000 United News & Media, Plc. ..................................... 1,183,084
US 205,000 a US West, Inc. ................................................. 4,151,250
US 35,000 a Viacom, Inc., Class B ......................................... 1,050,000
--------------
21,029,218
--------------
Building Materials & Components 0.7%
US 35,000 a American Standard Cos., Inc. .................................. 1,566,250
--------------
Business & Public Services 1.1%
FR 17,976 Suez Lyonnaise des Eaux, SA ................................... 1,810,805
US 20,000 a Tenet Healthcare Corp. ........................................ 591,250
--------------
2,402,055
--------------
Chemicals 1.4%
DD 10,800 BASF, AG ...................................................... 398,521
US 35,062 Olin Corp. .................................................... 1,373,357
US 12,000 Rohm & Haas, Co. .............................................. 1,080,750
--------------
2,852,628
--------------
Construction & Housing 0.5%
US 30,000 Martin Marietta Materials, Inc. ............................... 971,250
--------------
Data Processing & Reproduction 0.4%
US 25,000 a NCR Corp. ..................................................... 743,750
--------------
Electronic Components & Instruments 1.2%
US 64,400 a Imation Corp. ................................................. $ 1,698,550
US 9,700 Raychem Corp. ................................................. 721,437
--------------
2,419,987
--------------
Energy Equipment & Services 1.4%
CA 82,000 a CS Resources, Ltd. ............................................ 947,102
US 32,500 a Rowan Cos., Inc. .............................................. 916,094
US 15,000 Transocean Offshore, Inc. ..................................... 1,089,374
--------------
2,952,570
--------------
Energy Sources 5.8%
US 50,000 Ashland, Inc. ................................................. 2,318,750
FR 16,800 Elf Aquitaine, SA ............................................. 1,812,446
CA 30,000 Imperial Oil, Ltd. ............................................ 1,541,250
US 25,000 a Pennzoil Co.................................................... 1,918,750
US 50,000 a Reading & Bates Corp. ......................................... 1,337,500
NO 29,300 Saga Petroleum, AS, Class B.................................... 511,707
US 92,200 a Santa Fe Energy Resources, Inc. ............................... 1,354,188
GB 78,300 Shell Transport & Trading Co., Plc. ........................... 533,961
US 12,000 a Western Atlas, Inc. ........................................... 879,000
--------------
12,207,552
--------------
Financial Services 2.9%
US 50,000 Advanta Corp., Class B ........................................ 1,784,375
US 5,000 Beneficial Corp. .............................................. 355,313
US 12,000 a,j Cityscape Financial Corp. ..................................... 227,287
US 17,000 Lehman Brothers Holdings, Inc. ................................ 688,500
US 70,000 Morgan Stanley Dean Witter Discover & Co. ..................... 3,014,375
--------------
6,069,850
--------------
Food & Household Products 2.7%
GB 105,270 Cadbury Schweppes, Plc. ....................................... 938,768
US 50,000 Tupperware Corp. .............................................. 1,825,000
US 50,000 a U S Industries, Inc. .......................................... 1,781,250
NL 15,070 Van Melle, NV.................................................. 1,182,322
--------------
5,727,340
--------------
Forest Products & Paper 1.6%
US 20,000 Bowater, Inc. ................................................. 925,000
US 5,000 Greif Brothers Corp., Class A ................................. 135,000
US 19,000 St. Joe Paper Corp. ........................................... 1,591,250
US 15,111 Temple Inland, Inc. ........................................... 815,994
--------------
3,467,244
--------------
Health & Personal Care 3.6%
US 80,900 a Apria Healthcare Group, Inc. .................................. 1,435,975
US 50,000 a Beverly Enterprises, Inc. ..................................... 812,500
US 75,470 a Foundation Health Systems, Inc., Class A ...................... 2,287,683
US 15,000 a Mid Atlantic Medical Services, Inc. ........................... 233,438
US 25,000 a Pacificare Health Systems, Inc., Class A ...................... 1,514,063
US 8,500 a Pacificare Health Systems, Inc., Class B ...................... 542,938
US 7,500 Rhone-Poulenc Rorer, Inc. ..................................... 681,563
--------------
7,508,160
--------------
Industrial Components 0.6%
GB 280,000 LucasVarity, Plc. ............................................. 969,875
US 7,800 a Owens-Illinois, Inc. .......................................... 241,800
--------------
1,211,675
--------------
Insurance 3.6%
US 25,000 20th Century Industries ....................................... $ 525,000
US 2,550 a Alleghany Corp. ............................................... 554,625
US 7,253 American General Corp. ........................................ 346,307
US 42,300 AON Corp. ..................................................... 2,189,025
US 41,206 Argonaut Group, Inc. .......................................... 1,215,577
US 25,000 Fund American Enterprises Holdings, Inc. ...................... 2,625,000
US 3,000 Selective Insurance Group, Inc. ............................... 145,313
--------------
7,600,847
--------------
Leisure & Tourism 2.3%
US 30,000 a Circus Circus Enterprises, Inc. ............................... 738,750
US 60,000 Comcast Corp., Class A ........................................ 1,282,500
US 50,000 Hilton Hotels Corp. ........................................... 1,328,124
US 20,000 a ITT Corp. ..................................................... 1,221,250
US 12,500 Readers Digest Association, Inc., Class A ..................... 358,594
--------------
4,929,218
--------------
Machinery & Engineering 1.5%
US 9,500 Federal - Mogul Corp. ......................................... 332,500
US 75,000 ITT Industries, Inc. .......................................... 1,931,250
US 30,000 New Holland, NV ............................................... 821,250
--------------
3,085,000
--------------
Merchandising 0.7%
US 44,000 Dillards, Inc., Class A ....................................... 1,523,500
--------------
Metals & Mining 1.2%
US 25,000 LTV Corp. ..................................................... 356,250
US 30,000 Reynolds Metals Co. ........................................... 2,137,500
--------------
2,493,750
--------------
Multi-Industry 5.2%
US 35,000 Harcourt General, Inc. ........................................ 1,666,875
SE 21,900 Investor, AB, Class A ......................................... 1,132,441
SE 93,100 Investor, AB, Class B ......................................... 4,904,434
FR 20,000 Lagardere, SCA ................................................ 580,938
CA 25,000 McMillan Bloedel, Ltd. ........................................ 343,061
US 75,000 Morton International, Inc. .................................... 2,264,063
--------------
10,891,812
--------------
Real Estate 0.3%
US 8,000 a Alexander's, Inc. ............................................. 563,000
--------------
Recreation & Other Consumer Goods 0.8%
US 50,000 Mattel, Inc. .................................................. 1,693,750
--------------
Telecommunications 4.5%
US 10,618 AT&T Corp. .................................................... 350,631
US 50,000 MCI Communications Corp. ...................................... 1,914,063
US 15,000 Sprint ........................................................ 789,375
US 97,000 a Tele Communications, Inc., Class A ............................ 2,303,750
US 63,400 Telephone & Data Systems, Inc. ................................ 2,405,238
US 100,000 a Three Hundred Sixty Degrees Communications Co. ................ 1,712,500
--------------
9,475,557
--------------
Transportation 2.4%
US 15,000 Burlington Northern Santa Fe Corp. ............................ 1,348,125
US 11,500 Florida East Coast Industries, Inc. ........................... 1,276,500
GB 150,000 Railtrack Group, Plc. ......................................... 1,562,474
US 6,000 Ryder Systems, Inc. ........................................... $ 198,000
US 14,300 Xtra Corp. .................................................... 628,306
--------------
5,013,405
--------------
Total Common Stocks & Other Equity Interests (Cost $130,238,049) 137,051,388
--------------
Preferred Stock 0.1%
US 5 North Atlantic Trading Co., Inc., 12.00%, pfd. (Cost $125,000) 125,000
--------------
FACE
AMOUNT
Bonds & Notes 2.9%
US $ 825,000 a American Communication Services, Inc., senior disc. notes,
zero coupon to 11/01/00, (original accretion rate 13.00%),
13.00% thereafter, 11/01/05 .................................. 486,750
US 1,650,000 CAI Wireless Systems, Inc., senior notes, 12.25%, 09/15/02 .... 528,000
US 175,000 a Consorcio Grupo Dina, SA, de CV, zero coupon, 11/15/02 ........ 153,125
US 2,250,000 a CS Wireless, Inc., senior disc. notes, Series B,
zero coupon to 03/01/01, (original accretion rate 11.375%), 11.375%
thereafter, 03/01/06.......................................... 528,750
US 1,000,000 a,b Falcon Building Products, Inc., zero coupon, to 06/15/02,
10.50% thereafter, 06/15/07 .................................. 595,000
US 500,000 b Globalstar Telecommunications, Ltd., L.P.,
senior notes, 11.25%, 06/15/04 ............................... 471,250
US 100,000 b North Atlantic Trading Co., Inc., senior notes, 11.00%, 06/15/04 101,500
US 500 a,m People's Choice TV Corp., senior disc. notes, 13.125%, 06/01/04 187,500
US 250,000 a,k Sassco, Inc., 12.75%, 02/15/05 ................................ 262,500
US 250,000 b TFM, SA de CV, 10.25%, 06/15/07 ............................... 253,125
US 600,000 a,b TFM, SA de CV, zero coupon to 06/15/02,
(original accretion rate 11.75%), 11.75% thereafter, 06/15/09 348,000
CA 500,000 b Uniforet, Inc., 11.125%, 10/15/06 ............................. 450,000
US 1,150,000 b Vicap, SA, company guaranteed, 11.375%, 05/15/07 .............. 1,206,063
US 500,000 b Wavetek Corp., 10.125%, 06/15/07 .............................. 510,000
--------------
Total Bonds & Notes (Cost $6,361,026) ................... 6,081,563
--------------
Bonds & Notes in Reorganization 1.3%
US 100,000 a Dow Corning Corp., bank claim ................................. 120,500
a Eurotunnel Jr Credit Facility,
GB 84,000 l Tranche B ..................................................... 43,790
GB 1,540,000 Tranche B ..................................................... 1,211,760
Mercury Finance Co., Commercial Paper
US 27,256 03/17/97 ...................................................... 25,076
US 12,389 04/11/97 ...................................................... 11,398
US 1,000,000 04/16/97 ...................................................... 920,000
US 34,689 04/18/97 ..................................................... 31,914
US 19,822 04/22/97 ...................................................... 18,236
US 29,734 04/24/97 ...................................................... 27,355
US 375,000 Mercury Finance Co., MTN, 7.42%, 06/29/00 ..................... 345,000
--------------
Total Bonds & Notes in Reorganization (Cost $2,497,619) . 2,755,029
--------------
Total Bonds (Cost $8,858,645) ........................... 8,836,592
--------------
Total Long Term Investments (Cost $139,221,694) ......... 146,012,980
--------------
e Short Term Investments 29.3%
US 2,000,000 Federal Home Loan Mortgage Association, 5.50%, 07/10/97 ....... 1,997,304
US18,800,000 FHLB, 5.42% to 5.51% with maturities to 09/10/97 .............. 18,691,295
US14,604,000 FHLMC, 5.425% to 5.54% with maturities to 09/03/97 ............ 14,534,524
US26,450,000 FNMA, 5.354% to 5.54% with maturities to 10/02/97 ............. 26,211,857
--------------
Total Short Term Investments (Cost $59,695,137) ......... 61,434,980
--------------
Total Investments (Cost $198,916,831) 98.9% ........ 207,447,960
Other Assets and Liabilities, Net 1.0%.............. 2,086,363
Equity in Forward Contracts 0.1% ................... 282,280
--------------
Net Assets 100.0% .................................. $209,816,603
==============
At June 30, 1997, the net unrealized appreciation based on the
cost of investments for income tax purposes of
$198,916,831 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ............. $ 10,727,281
Aggregate gross unrealized depreciation for all investments
in which there was an excess of value over tax cost .......... (2,196,152)
--------------
Net unrealized appreciation ................................. $ 8,531,129
==============
COUNTRY LEGEND:
CA - Canada
DD - Germany
FR - France
GB - United Kingdom
MX - Mexico
NL - Netherlands
NO - Norway
SE - Sweden
US - United States
PORTFOLIO ABBREVIATIONS:
FHLB - Federal Home Loan Bank
FHLMC - Federal Home Loan Mortgage Corp.
FNMA - Federal National Mortgage Association
L.P. - Limited Partnership
MTN - Medium Term Note
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified institutional buyers.
eCertain short-term securities are traded on a discount basis; the rates shown are the discount rates at the time of
purchase by the Fund. Other securities bear interest at the rates shown, payable at fixed dates or upon maturity.
jSee Note 9 regarding restricted securities.
kSee Note 1(i) regarding securities purchased on a when-issued basis.
lTraded in European Currency Unit.
mIn Units.
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES/ VALUE
COUNTRY* WARRANTSNatural Resources Fund (NOTE1)
<S> <C> <C> <C>
a Common Stocks & Warrants 93.7%
Capital Goods 1.1%
US 62,000 a Atchinson Casting Corp. ....................................... $ 1,030,750
--------------
Environmental Control & Construction 1.9%
US 20,700 Lone Star Industries, Inc. .................................... 937,969
US 25,100 a Owens-Illinois, Inc. .......................................... 778,100
--------------
1,716,069
--------------
Metals - Diversified 12.9%
AU 2,937,000 a Austral Coal, Ltd. ............................................ 997,909
US 160,718 Freeport-McMoRan Copper & Gold, Inc., Class A ................. 4,701,002
AU 320,000 Pasminco, Ltd. ................................................ 649,945
GB 318,429 Rio Tinto, Plc. ............................................... 5,549,400
--------------
11,898,256
--------------
Mining - Precious Metals 57.8%
AU 586,600 a Acacia Resources, Ltd. ........................................ 770,665
US 214,042 Ashanti Goldfields Co., Ltd., Sponsored GDR ................... 2,501,616
CA 694,200 a,b Asquith Resources, Inc., Legend Shares ........................ 326,753
ZA 201,140 a Avgold, Ltd. .................................................. 197,284
US 126,595 Barrick Gold Corp. ............................................ 2,785,090
ZA 125,000 Beatrix Mines, Ltd. ........................................... 566,178
CA 69,000 a Bema Gold Corp. ............................................... 417,213
US 209,000 a Campbell Resources, Inc., warrants ............................ 35,927
US 210,000 a Canyon Resources Corp. ........................................ 511,875
US 67,000 b Compania de Minas Buenaventura, SA, Sponsored ADR ............. 1,319,063
CA 151,200 a Dayton Mining Corp. ........................................... 525,551
US 63,000 DeBeers Consolidated Mines, Ltd., ADR ......................... 2,327,063
US 249,500 Driefontein Consolidated, Ltd., Sponsored ADR ................. 1,684,125
AU 1,480,000 a Equinox Resources, N.L. ....................................... 480,512
CA 155,300 b Euro-Nevada Mining Corp. ...................................... 4,779,500
CA 15,000 Euro-Nevada Mining Corp., Legend Shares ....................... 461,639
CA 80,800 b Franco-Nevada Mining Corp., Ltd. .............................. 4,051,848
CA 2,500 Franco-Nevada Mining Corp., Ltd., Legend Shares ............... 125,367
CA 234,600 a Geomaque Explorations, Ltd. ................................... 543,626
US 37,000 a Getchell Gold Corp. ........................................... 1,299,625
AU 201,800 Great Central Mines, Ltd. ..................................... 384,274
CA 170,900 a Greenstone Resources, Ltd. .................................... 1,497,440
AU 495,000 a Helix Resources, N.L. ......................................... 523,248
US 49,488 Homestake Mining Co. .......................................... 646,437
AU 820,260 a Leo Shield Exploration, N.L. .................................. 253,927
AU 329,500 a Lihir Gold, Ltd. .............................................. 549,822
CA 275,700 a Minefinders Corp., Ltd., warrants ............................. 998,226
US 42,400 Newmont Gold Co. .............................................. 1,693,350
US 57,755 Newmont Mining Corp. .......................................... 2,252,445
AU 1,535,571 Normandy Mining, Ltd. ......................................... 1,727,549
AU 230,000 a Orogen Minerals, Ltd. ......................................... 658,175
US 17,200 a,b Orogen Minerals, Ltd., GDR .................................... 492,200
CA 110,000 a Pangea Goldfields, Inc. ....................................... 318,621
US 167,800 Placer Dome, Inc. ............................................. 2,747,725
AU 632,500 Plutonic Resources, Ltd. ...................................... 1,977,130
ZA 40,000 Rangold & Exploration Co., Ltd. ............................... 176,328
US 97,179 Rustenburg Platinum Holdings, Ltd., ADR ....................... 1,777,792
AU 505,900 Sons Of Gwali, Ltd. ........................................... 1,883,154
US 82,300 a,b Stillwater Mining Co. ......................................... 1,625,424
CA 159,100 Teck Corp., Class B ........................................... 3,220,135
US 339,000 Vaal Reefs Exploration & Mining Co., Ltd., ADR ................ 1,631,438
CA 152,733 a Williams Resources, Inc. ...................................... $ 237,790
CA 71,300 Williams Resources, Inc., Legend Shares ....................... 111,007
--------------
53,094,157
--------------
Oil/Gas Equipment & Services 8.8%
US 23,300 a Core Laboratories, NV ......................................... 605,800
US 20,000 a Diamond Offshore Drilling, Inc. ............................... 1,562,500
US 6,000 a ENSCO International, Inc. ..................................... 316,500
US 28,000 a Input/Output, Inc. ............................................ 507,500
US 45,000 a Rowan Cos., Inc. .............................................. 1,268,438
US 9,700 a Santa Fe International Corp. .................................. 329,800
US 27,700 a Stolt Comex Seaway, SA ........................................ 702,888
CA 54,200 a Tesco Corp. ................................................... 706,470
US 20,000 Transocean Offshore, Inc. ..................................... 1,452,500
US 20,000 a Varco International, Inc. ..................................... 645,000
--------------
8,097,396
--------------
Oil/Gas Exploration & Production 7.7%
CA 70,000 a Abacan Resource Corp. ......................................... 223,035
US 150,000 a Abacan Resource Corp. ......................................... 478,125
US 50,000 a Barrett Resources Corp. ....................................... 1,496,875
US 127,000 a Hugoton Energy Corp. .......................................... 1,762,125
US 25,000 a Newfield Exploration Co. ...................................... 500,000
US 12,000 a Nuevo Energy Co. .............................................. 492,000
CA 150,000 a Summit Resources, Ltd. ........................................ 651,725
US 96,700 a Titan Exploration, Inc. ....................................... 1,172,488
US 10,000 a United Meridian Corp. ......................................... 300,000
--------------
7,076,373
--------------
Oil/Gas Pipelines & Distribution 0.4%
US 11,400 MCN Corp. ..................................................... 349,125
--------------
Real Estate Investment Trusts 2.0%
US 23,000 a Alexandria Real Estate Equities, Inc. ......................... 504,562
US 21,000 FelCor Suite Hotels, Inc. ..................................... 782,250
US 21,000 Storage Trust Realty .......................................... 556,500
--------------
1,843,312
--------------
Steel 1.1%
US 22,600 a UCAR International, Inc. ...................................... 1,033,950
--------------
Total Common Stocks & Warrants (Cost $90,512,027)........ 86,139,388
--------------
FACE
AMOUNT
Convertible Bonds 1.3%
US $ 800,000 Dayton Mining Corp. cvt. sub. deb., 7.00%, 04/01/02 ........... 764,000
US 270,000 b Rangold & Exploration Co., Ltd., cvt. sub. notes, 7.00%, 10/03/01 259,200
CA 200,000 Williams Resources, Inc., cvt. sub. deb., 8.00%, 01/23/02 ..... 127,447
--------------
Total Convertible Bonds (Cost $1,219,740)................ 1,150,647
--------------
Total Long Term Investments (Cost $91,731,767)........... 87,290,035
--------------
f,g Receivables from Repurchase Agreements 2.4%
US$2,245,156 Joint Repurchase Agreement, 5.884%, 07/01/97
(Maturity Value $2,246,220) (Cost $2,245,853)
Aubrey G. Lanston & Co., Inc., (Maturity Value $222,635)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $222,635)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $131,184)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $222,635)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $222,635)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $111,321)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $222,635)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co., L.P., (Maturity Value $222,635)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $222,635)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $222,635)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $222,635)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 $ 2,245,853
Total Investments (Cost $93,977,620) 97.4% ......... 89,535,888
Other Assets and Liabilities, Net 2.6% .............. 2,368,128
--------------
Net Assets 100.0% ................................. $91,904,016
==============
At June 30, 1997, the net unrealized depreciation based on the
cost of investments for income tax purposes of
$93,977,620 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ............. $11,280,099
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value ............. (15,721,831)
--------------
Net unrealized depreciation ................................. $ (4,441,732)
==============
COUNTRY LEGEND:
AU - Australia
CA - Canada
GB - United Kingdom
US - United States
ZA - South Africa
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified institutional buyers.
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES Real Estate Securities Fund (NOTE1)
Common Stocks 92.6%
<S> <C> <C>
Equity REIT - Apartments 18.7%
180,000 Amli Residential Properties Trust ...................................... $ 4,252,500
200,000 Bay Apartment Communities, Inc. ........................................ 7,400,000
170,000 Camden Property Trust .................................................. 5,376,250
63,000 Charles E. Smith Residential Realty, Inc. .............................. 1,819,125
220,000 Equity Residential Properties Trust .................................... 10,450,000
212,000 Evans Withycombe Residential, Inc. ..................................... 4,399,000
195,000 Gables Residential Trust ............................................... 4,923,750
145,600 Irvine Apartment Communities, Inc. ..................................... 4,277,000
225,000 Oasis Residential, Inc. ................................................ 5,287,500
100,000 Post Properties, Inc. .................................................. 4,056,250
330,000 Security Capital Atlantic, Inc. ........................................ 7,899,375
310,000 Security Capital Pacific Trust ......................................... 7,091,250
225,000 Summit Properties, Inc. ................................................ 4,640,625
20,157 United Dominion Realty Trust, Inc. ..................................... 285,977
------------
72,158,602
------------
Equity REIT - Health Care 4.3%
84,100 a Alexandria Real Estate Equities, Inc. .................................. 1,844,944
135,000 Health Care Property Investors, Inc. ................................... 4,758,750
200,000 Nationwide Health Properties, Inc. ..................................... 4,400,000
168,000 Omega Healthcare Investors, Inc. ....................................... 5,491,500
------------
16,495,194
------------
Equity REIT - Hotels 12.4%
200,700 Equity Inns, Inc. ...................................................... 2,684,363
360,000 FelCor Suite Hotels, Inc. .............................................. 13,410,000
430,000 Patriot American Hospitality, Inc. ..................................... 10,965,000
265,050 Starwood Lodging Trust ................................................. 11,314,322
620,000 Winston Hotels, Inc. ................................................... 9,338,750
------------
47,712,435
------------
Equity REIT - Industrial 9.8%
122,500 Duke Realty Investments, Inc. .......................................... 4,961,250
260,000 Liberty Property Trust ................................................. 6,467,500
300,000 Meridian Industrial Trust, Inc. ........................................ 7,050,000
367,473 Security Capital Industrial Trust ...................................... 7,900,670
200,000 Spieker Properties, Inc. ............................................... 7,037,500
140,000 Weeks Corp. ............................................................ 4,375,000
------------
37,791,920
------------
Equity REIT - Mixed Property Type 3.3%
195,000 Colonial Properties Trust .............................................. 5,728,125
275,000 Glenborough Realty Trust, Inc. ......................................... 6,943,750
------------
12,671,875
------------
Equity REIT - Office 7.4%
265,100 Arden Realty Group, Inc. ............................................... 6,892,600
145,000 Beacon Properties Corp. ................................................ 4,839,375
275,000 Crescent Real Estate Equities Co. ...................................... 8,731,250
250,000 Highwoods Properties, Inc. ............................................. 8,000,000
------------
28,463,225
------------
Equity REIT - Residential Communities 2.4%
200,000 Manufactured Home Communities, Inc. .................................... 4,612,500
140,000 Sun Communities, Inc. .................................................. 4,698,750
------------
9,311,250
------------
Equity REIT - Retail - Community Centers 7.5%
220,000 Burnham Pacific Properties, Inc. ....................................... $ 3,025,000
110,000 Developers Diversified Realty Corp. .................................... 4,400,000
150,000 Kimco Realty Corp. ..................................................... 4,762,500
866,067 j Pacific Retail Trust ................................................... 10,392,804
90,000 Vornado Realty Trust ................................................... 6,491,250
------------
29,071,554
------------
Equity REIT - Retail - Regional Malls 5.4%
310,000 Simon DeBartolo Group, Inc. ............................................ 9,920,000
170,700 The Macerich Co. ....................................................... 4,736,925
215,000 The Mills Corp. ........................................................ 5,952,813
------------
20,609,738
------------
Equity REIT - Storage 6.7%
350,000 Public Storage, Inc. ................................................... 10,237,500
370,000 Storage Trust Realty ................................................... 9,805,000
150,500 Storage USA, Inc. ...................................................... 5,756,625
------------
25,799,125
------------
Home Builders 3.6%
100,000 a Beazer Homes USA, Inc. ................................................. 1,600,000
306,100 a Belmont Homes, Inc. .................................................... 2,104,438
281,250 Clayton Homes, Inc. .................................................... 4,007,813
300,000 a NVR, Inc. .............................................................. 4,575,000
193,100 a Southern Energy Homes, Inc. ............................................ 1,762,037
------------
14,049,288
------------
Hotels 8.1%
650,000 a,hCandlewood Hotel Co., Inc. ............................................. 5,443,750
350,000 a CapStar Hotel Co. ...................................................... 11,200,000
570,000 a Host Marriott Corp. .................................................... 10,153,124
224,500 a Prime Hospitality Corp. ................................................ 4,433,874
------------
31,230,748
------------
Mixed Property Type 3.0%
27,500 a Crescent Operating, Inc. ............................................... 330,000
500,000 Security Capital US Realty.............................................. 7,450,000
144,000 a Vail Resorts, Inc. ..................................................... 3,645,000
------------
11,425,000
------------
Total Common Stocks (Cost $262,500,445) .......................... 356,789,954
------------
FACE
AMOUNT
Bonds 0.5%
$2,000,000 US Home Corp., cvt. sub. notes, 4.875%, 11/01/05 (Cost $1,970,000) ..... 1,875,000
------------
Total Long Term Investments (Cost $264,470,445) .................. 358,664,954
------------
f,gReceivables from Repurchase Agreements 6.9%
$26,685,830 Joint Repurchase Agreement, 5.884%, 07/01/97
(Maturity Value $26,697,578) (Cost $26,693,215)
Aubrey G. Lanston & Co., Inc., (Maturity Value $2,646,144)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $2,646,144)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $1,559,209)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $2,646,144)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $2,646,144)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $1,323,073)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $2,646,144)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co, L.P., (Maturity Value $2,646,144)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $2,646,144)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $2,646,144)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $2,646,144)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 ... $ 26,693,215
------------
Total Investments (Cost $291,163,660) 100.0% ................ 385,358,169
Other Assets and Liabilities, Net............................. 127,338
------------
Net Assets 100.0% ........................................... $385,485,507
============
At June 30, 1997, the net unrealized appreciation based on the cost
of investments for income tax purposes of $291,163,660
was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ..................... $ 96,839,183
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value ...................... (2,644,674)
------------
Net unrealized appreciation .......................................... $ 94,194,509
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
REIT - Real Estate Investment Trust
aNon-income producing.
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
hSee Note 8 regarding holdings of 5% or more of voting securities.
jSee Note 9 regarding restricted securities.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES Rising Dividends Fund (NOTE1)
f,gCommon Stocks 97.0%
<S> <C> <C>
Banks 12.0%
172,400 CoreStates Financial Corp. ............................................. $ 9,266,500
151,000 First Union Corp. ...................................................... 13,967,500
224,150 Mercantile Bankshares Corp. ............................................ 8,966,000
449,900 National Commerce BanCorp. ............................................. 9,897,800
243,200 State Street Corp. ..................................................... 11,248,000
561,028 TrustCo Bank Corp., New York ........................................... 11,991,974
134,500 Washington Mutual, Inc. ................................................ 8,036,375
203,000 Wilmington Trust Corp. ................................................. 9,287,250
------------
82,661,399
------------
Business Services 8.5%
252,700 Avery Dennison Corp. ................................................... 10,139,588
363,500 Brady (W.H.) Co. ....................................................... 10,541,500
498,200 Ennis Business Forms ................................................... 4,795,175
326,900 Standard Register Co. .................................................. 10,011,313
769,400 Wallace Computer Services, Inc. ........................................ 23,130,088
------------
58,617,664
------------
Consumer Products 16.0%
436,900 Alberto-Culver Co., Class A ............................................ 10,185,231
184,033 Block Drug Co., Inc., Class A .......................................... 8,051,444
715,100 Dimon, Inc. ............................................................ 18,950,150
313,700 Newell Co. ............................................................. 12,430,363
334,000 Nike, Inc., Class B .................................................... 19,497,250
324,300 Philip Morris Cos., Inc. ............................................... 14,390,813
320,400 Stanhome, Inc. ......................................................... 10,533,150
368,500 Universal Corp. ........................................................ 11,699,875
175,800 UST, Inc. .............................................................. 4,878,450
------------
110,616,726
------------
Drugs & Health Care 2.5%
73,700 Bristol-Myers Squibb Co. ............................................... 5,969,700
56,800 Merck & Co., Inc. ...................................................... 5,878,800
194,900 West Co., Inc. ......................................................... 5,579,013
------------
17,427,513
------------
Electronics & Technology 7.1%
121,100 Baldor Electric Co. .................................................... 3,580,019
256,100 Cohu, Inc. ............................................................. 8,003,125
66,000 Diebold, Inc. .......................................................... 2,574,000
146,100 General Electric Co. ................................................... 9,551,288
231,500 Hewlett-Packard Co. .................................................... 12,964,000
131,700 Hubbell, Inc. .......................................................... 5,794,800
117,700 Rockwell International Corp. ........................................... 6,944,300
------------
49,411,532
------------
Energy 1.6%
204,000 Royal Dutch Petroleum Co., New York Shares, ADR ........................ 11,092,500
------------
Financial Services 2.2%
348,000 Fannie Mae ............................................................. 15,181,500
------------
Industrial 21.3%
109,600 Donaldson Co., Inc. .................................................... 4,164,800
215,600 Dover Corp. ............................................................ 13,259,400
503,600 Durco International, Inc. .............................................. 14,730,300
34,400 Graco, Inc. ............................................................ 1,036,300
545,400 Hanna (M.A.) Co. ....................................................... 15,714,338
211,600 Kaydon Corp. ........................................................... 10,500,650
251,800 Kimball International, Inc., Class B ................................... 10,134,950
91,800 Leggett & Platt, Inc. .................................................. $ 3,947,400
402,800 Millipore Corp. ........................................................ 17,723,200
236,000 Monsanto Co. ........................................................... 10,162,750
339,600 Myers Industries, Inc. ................................................. 5,730,750
276,200 Nucor Corp. ............................................................ 15,605,300
360,900 Superior Industries International, Inc. ................................ 9,563,850
228,200 Superior Surgical Manufacturing Co., Inc. .............................. 2,681,350
13,918 The Boeing Co. ......................................................... 738,524
474,800 Watts Industries, Inc., Class A ........................................ 11,395,200
------------
147,089,062
------------
Insurance - Life 0.2%
33,100 American Heritage Life Investment Corp. ................................ 1,092,300
------------
Insurance - Property Casualty 13.1%
472,600 Allied Group, Inc. ..................................................... 17,958,800
45,000 American International Group, Inc. ..................................... 6,721,875
196,200 Chubb Corp. ............................................................ 13,120,875
223,900 Mercury General Corp. .................................................. 16,288,725
589,300 h MMI Cos., Inc. ......................................................... 15,395,463
377,225 RLI Corp. .............................................................. 13,745,135
97,300 St. Paul Cos., Inc. .................................................... 7,419,124
------------
90,649,997
------------
Retail 10.1%
968,000 Family Dollar Stores, Inc. ............................................. 26,378,000
349,300 Gap, Inc. .............................................................. 13,579,037
222,100 Rite Aid Corp. ......................................................... 11,077,237
80,300 The Limited, Inc. ...................................................... 1,626,074
514,200 Wal-Mart Stores, Inc. .................................................. 17,386,387
------------
70,046,735
------------
Transportation 2.4%
635,000 Circle International Group, Inc. ....................................... 16,748,124
------------
Total Common Stocks (Cost $466,269,578)........................... 670,635,052
------------
Convertible Preferred Stocks 0.2%
24,200 American Heritage Life Investment Corp.,
8.50% cvt. pfd. (Cost $1,210,000)...................................... 1,331,000
------------
Total Long Term Investments (Cost $467,479,578)................... 671,966,052
------------
f,gReceivables from Repurchase Agreements 3.9%
$26,982,361 Joint Repurchase Agreement, 5.884%, 07/01/97
(Maturity Value $26,995,111) (Cost $26,990,699)
Aubrey G. Lanston & Co., Inc., (Maturity Value $2,675,634)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $2,675,634)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $1,576,591)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $2,675,634)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $2,675,634)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $1,337,814)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $2,675,634)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co, L.P., (Maturity Value $2,675,634)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $2,675,634)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $2,675,634)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $2,675,634)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 ... $ 26,990,699
------------
Total Investments (Cost $494,470,277) 101.1%................. 698,956,751
Liabilities in Excess of Other Assets (1.1)% ................ (7,771,364)
------------
Net Assets 100.0% ........................................... $691,185,387
============
At June 30, 1997, the net unrealized appreciation based on the cost
of investments for income tax purposes of $494,766,393 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ...................... $204,910,156
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value ...................... (719,798)
------------
Net unrealized appreciation .......................................... $204,190,358
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
hSee Note 8 regarding holdings of 5% or more of voting securities.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES Small Cap Fund (NOTE1)
a,dCommon Stocks 103.9%
<S> <C> <C>
Commercial Services 1.3%
80,650 a Labor Ready, Inc. ...................................................... $ 816,581
72,200 Norrell Corp. .......................................................... 2,382,600
------------
3,199,181
------------
Consumer Products Durables 6.5%
56,650 a Belmont Homes, Inc. .................................................... 389,469
124,200 a Cannondale Corp. ....................................................... 2,204,550
146,250 Clayton Homes, Inc. .................................................... 2,084,063
129,500 a Galoob Toys, Inc. ...................................................... 2,444,313
75,000 a K-2, Inc. .............................................................. 2,376,563
140,000 Oakwood Homes .......................................................... 3,360,000
56,600 a RockShox, Inc. ......................................................... 976,350
24,400 a Sola International, Inc. ............................................... 817,400
115,800 a Southern Energy Homes, Inc. ............................................ 1,056,675
------------
15,709,383
------------
Consumer Products Non-Durables 4.2%
111,100 a Consolidated Cigar Holdings, Inc. ...................................... 3,083,025
190,000 a Designer Holdings, Ltd. ................................................ 1,935,625
77,600 a The North Face, Inc. ................................................... 1,416,200
93,800 a Tommy Hilfiger Corp. ................................................... 3,769,588
------------
10,204,438
------------
Consumer Services 3.5%
101,100 a CapStar Hotel Co. ...................................................... 3,235,200
176,400 a Prime Hospitality Corp. ................................................ 3,483,900
74,100 a Vail Resorts, Inc. ..................................................... 1,782,000
------------
8,501,100
------------
Electronic Technology 7.3%
9,300 a 3Dfx Interactive, Inc. ................................................. 124,388
78,800 a Coherent, Inc. ......................................................... 3,506,600
10,200 a Harmonic Lightwaves, Inc. .............................................. 174,675
117,800 a Komag, Inc. ............................................................ 1,928,975
57,000 a Natural Microsystems Corp. ............................................. 2,052,000
58,600 a Newbridge Networks Corp. ............................................... 2,549,100
183,000 a Spectralink Corp. ...................................................... 1,029,375
93,300 a Tekelec ................................................................ 3,300,488
101,800 a Tracor, Inc. ........................................................... 2,557,725
112,500 a Visioneer, Inc. ........................................................ 407,813
------------
17,631,139
------------
Energy & Minerals 8.8%
291,900 a Abacan Resource Corp. .................................................. 930,431
150,000 a,dAbacan Resource Corp. (Canada) ......................................... 477,932
2,000 a Atwood Oceanic, Inc. ................................................... 134,000
95,500 a Barrett Resources Corp. ................................................ 2,859,031
72,000 a Cliffs Drilling Co. .................................................... 2,628,000
73,000 Devon Energy Corp. ..................................................... 2,682,750
90,700 a Input/Output, Inc. ..................................................... 1,643,938
100,000 a Marine Drilling Cos., Inc. ............................................. 1,962,500
243,200 a Titan Exploration, Inc. ................................................ 2,948,800
152,900 a Varco International, Inc. .............................................. 4,931,025
------------
21,198,407
------------
Financial Services 7.3%
46,300 Chartwell Re Corp. ..................................................... 1,389,000
65,000 EVEREN Capital Corp. ................................................... 2,027,188
38,400 Executive Risk, Inc. ................................................... 1,996,800
162,300 a HomeSide, Inc. ......................................................... $ 3,550,313
7,200 a Life USA Holding, Inc. ................................................. 102,600
160,000 a Risk Capital Holdings, Inc. ............................................ 3,360,000
56,600 d Scor (France) .......................................................... 2,278,755
67,700 a Silicon Valley Bancshares .............................................. 3,063,425
------------
17,768,081
------------
Health Care Services 6.0%
78,600 a Access Health, Inc. .................................................... 1,925,700
153,900 a Capstone Pharmacy Services, Inc. ....................................... 1,673,663
7,326 HBO & Company .......................................................... 504,606
91,400 a Healthcare Recoveries, Inc. ............................................ 1,770,875
44,900 a Medaphis Corp. ......................................................... 451,806
124,000 a Medic Computer Systems, Inc. ........................................... 2,759,000
43,200 a Renal Care Group, Inc. ................................................. 1,800,900
20,000 a Total Renal Care Holdings, Inc. ........................................ 803,750
159,000 a Transition Systems, Inc. ............................................... 2,891,813
------------
14,582,113
------------
Health Technology 6.8%
106,000 a DepoTech Corp. ......................................................... 1,444,250
69,300 a Inhale Therapeutic Systems ............................................. 1,715,175
110,000 Mentor Corp. ........................................................... 3,258,750
210,000 a Neurobiological Technologies, Inc. ..................................... 472,500
85,000 a Neurogen Corp. ......................................................... 1,933,750
64,900 a Noven Pharmaceuticals, Inc. ............................................ 462,413
245,000 a OrthoLogic Corp. ....................................................... 1,347,500
75,700 a Penederm, Inc. ......................................................... 1,021,950
26,400 a Pharmacopeia, Inc. ..................................................... 349,800
116,100 a Serologicals Corp. ..................................................... 2,670,300
46,700 a Vertex Pharmaceuticals, Inc. ........................................... 1,786,275
------------
16,462,663
------------
Industrial Services 0.9%
52,000 Butler Manufacturing Co. ............................................... 1,722,500
5,400 a Core Laboratories, NV .................................................. 140,400
6,600 a Waters Corp. ........................................................... 236,775
------------
2,099,675
------------
Non-Energy & Minerals 1.4%
30,000 Carpenter Technology Corp. ............................................. 1,372,500
87,400 a Gibraltar Steel Corp. .................................................. 2,010,200
------------
3,382,700
------------
Process Industries 2.3%
69,200 ChemFirst, Inc. ........................................................ 1,877,050
80,500 a UCAR International, Inc. ............................................... 3,682,866
------------
5,559,916
------------
Producer Manufacturing 4.4%
60,200 Easco, Inc. ............................................................ 586,950
156,400 a Gentex Corp. ........................................................... 3,088,900
267,600 JLG Industries, Inc. ................................................... 3,646,050
65,700 Roper Industries, Inc. ................................................. 3,408,188
------------
10,730,088
------------
Real Estate Investment Trust 3.1%
60,000 Arden Realty Group, Inc. ............................................... 1,560,000
97,000 FelCor Suite Hotels, Inc. .............................................. 3,613,250
27,400 Omega Healthcare Investors, Inc. ....................................... $ 895,638
98,000 Winston Hotels, Inc. ................................................... 1,476,125
------------
7,545,013
------------
Retail 2.6%
30,000 a AnnTaylor Stores Corp. ................................................. 585,000
93,000 a Guitar Center, Inc. .................................................... 1,569,375
157,400 a Rent-Way, Inc. ......................................................... 2,321,650
71,600 a West Marine, Inc. ...................................................... 1,843,700
------------
6,319,725
------------
Semiconductors 8.7%
103,600 a Adaptec, Inc. .......................................................... 3,600,100
40,000 a Altera Corp. ........................................................... 2,020,000
71,700 a C-Cube Microsystems, Inc. .............................................. 1,259,231
21,800 a Etec Systems, Inc. ..................................................... 934,675
36,100 a Lattice Semiconductor Corp. ............................................ 2,039,650
55,000 Linear Technology Corp. ................................................ 2,846,250
116,500 a NeoMagic Corp. ......................................................... 2,606,688
108,000 a PMC-Sierra, Inc. ....................................................... 2,835,000
49,200 a Uniphase Corp. ......................................................... 2,865,900
------------
21,007,494
------------
Technology Services 13.1%
87,800 a Activision, Inc. ....................................................... 1,262,125
49,800 a Affiliated Computer Services, Inc. ..................................... 1,394,400
37,000 a Arbor Software Corp. ................................................... 1,304,250
45,000 a Broderbund Software, Inc. .............................................. 1,110,938
94,700 a Business Objects, SA, ADR .............................................. 923,325
102,200 a Electronic Arts, Inc. .................................................. 3,436,475
61,500 a Envoy Corp. ............................................................ 2,044,875
104,900 a First USA Paymentech, Inc. ............................................. 3,035,544
75,000 a FORE Systems, Inc. ..................................................... 1,021,875
6,300 a Forrester Research, Inc. ............................................... 179,569
125,700 a Integrated Systems, Inc. ............................................... 1,476,975
14,900 a International Network Services ......................................... 387,400
81,100 a Intuit, Inc. ........................................................... 1,860,231
125,000 a Phoenix Technologies, Ltd. ............................................. 1,625,000
60,000 a Remedy Corp. ........................................................... 2,400,000
58,000 a Sapient Corp. .......................................................... 2,871,000
38,500 a Software Artistry, Inc. ................................................ 611,188
32,163 a Sterling Commerce, Inc. ................................................ 1,057,359
84,000 a Synopsys, Inc. ......................................................... 3,087,000
29,000 a Trusted Information Systems, Inc. ...................................... 344,375
21,000 a XcelleNet, Inc. ........................................................ 343,875
------------
31,777,779
------------
Transportation 3.5%
60,000 Air Express International Corp. ........................................ 2,385,000
57,000 a Atlantic Coast Airlines, Inc. .......................................... 897,750
76,600 Circle International Group, Inc. ....................................... 2,020,325
115,000 Expeditors International of Washington, Inc. ........................... 3,263,125
------------
8,566,200
------------
Utilities & Communications 12.2%
191,700 a Arch Communications Group, Inc. ........................................ 1,461,713
61,339 a Cable & Wireless Communications, Plc. .................................. 1,648,486
95,400 a CommNet Cellular, Inc. ................................................. 3,315,150
84,500 HSN, Inc. .............................................................. 2,640,625
195,000 a ICG Communications, Inc. ............................................... $ 3,753,750
112,800 a Iridium World Communications ........................................... 2,044,500
62,400 a Millicom International Cellular, SA .................................... 2,979,600
444,800 a Paging Network, Inc. ................................................... 3,905,922
143,000 a Primus Telecommunications Group, Inc. .................................. 1,501,500
139,300 a Rural Cellular Corp., Class A .......................................... 1,436,531
310,200 a Western Wireless Corp. ................................................. 4,924,425
------------
29,612,202
------------
Total Long Term Investments (Cost $225,570,656) .................. 251,857,297
------------
Total Investments (Cost $225,570,656) 103.9% ................ 251,857,297
Liabilities in Excess of Other Assets (3.9%) ................ (9,440,679)
------------
Net Assets 100.0% ........................................... $242,416,618
============
At June 30, 1997, the net unrealized appreciation based on the
cost of investments for income tax purposes of $225,783,142
was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ...................... $ 40,589,995
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value ...................... (14,515,840)
------------
Net unrealized appreciation .......................................... $ 26,074,155
============
</TABLE>
aNon-income producing.
dSecurities are traded in foreign currency and value is stated in U.S. dollars.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES/
RIGHTS & VALUE
COUNTRY* WARRANTS Templeton Developing Markets Equity Fund (NOTE1)
Common Stocks, Rights & Warrants 79.7%
<S> <C> <C> <C>
Argentina 8.2%
AR 78,876 Aluar Aluminio Argentino, SA, Class B ........................... $ 283,996
AR 493,180 Astra Cia Argentina de Petroleo, SA.............................. 1,045,699
AR 530,163 Atanor Cia Nacional Para la Industria Quimica, SA, Class D ...... 853,690
AR 101,725 a Banco Bansud, SA, Class B ....................................... 1,576,974
AR 608,471 Banco de Galicia y Buenos Aires, SA, Class B .................... 4,046,938
AR 86,333 Banco Frances del Rio de la Plata, SA ........................... 935,124
US 56,200 a Buenos Aires Embotelladora, SA, Sponsored ADR ................... 562
AR 15,555 Capex, SA, Class A .............................................. 146,239
AR 310,746 CIADEA, SA ...................................................... 1,336,407
AR 36,010 Juan Minetti, SA ................................................ 172,874
AR 978,245 Molinos Rio de Plata, SA, Class B ............................... 3,825,512
AR 49,212 Nobleza Piccardo Sdad Industrial Comercial y Financial .......... 324,848
AR 662,707 Perez Companc, SA, Class B ...................................... 5,322,338
AR 184,000 Quilmes Industrial, SA .......................................... 2,139,000
AR 4,000 Quilmes Industrial, SA, reg. .................................... 41,000
AR 31,781 a Sevel Argentina, SA, Class C .................................... 64,843
AR 22,230 Siderar, Class A ................................................ 91,379
AR 1,290,000 a Sociedad Comercial del Plata Cadelplata Come .................... 4,206,031
AR 126,224 Transportadora de Gas del Sur, SA, Class B ...................... 305,508
US 153,410 YPF Sociedad Anonima, Sponsored ADR.............................. 4,717,357
AR 2,840 a Zanella Hermanos, SA ............................................ 611
--------------
31,436,930
--------------
Brazil 3.7%
US 36,800 Aracruz Celulose, SA, ADR ....................................... 749,800
BR 77,613,291 Banco Bradesco, SA .............................................. 742,573
BR 111,182,976 a Banco do Brasil, SA ............................................. 1,167,031
BR 36,132,595 a Banco do Brasil, SA, Series A, warrants ......................... 117,472
BR 54,198,893 a Banco do Brasil, SA, Series B, warrants ......................... 151,538
BR 90,331,488 a Banco do Brasil, SA, Series C, warrants ......................... 251,725
BR 36,703,000 Companhia Siderurgica Nacional .................................. 1,210,307
BR 9,982,000 Eletrobras-Centrais Eletricas Brasileiras, SA ................... 5,581,872
BR 2,224,000 a Mannesmann, SA .................................................. 256,166
BR 29,560,000 Telecomunicacoes Brasileiras - Telebras, SA ..................... 4,008,880
--------------
14,237,364
--------------
China 2.7%
US 9,000 a Beijing Yanhua Petrochemical Co., Ltd., Sponsored ADR ........... 103,500
CN 1,666,340 China Southern Glass Co., Ltd., Class B ......................... 871,101
CN 1,158,000 a Chiwan Wharf Holdings, Ltd., Class B ............................ 708,495
CN 865,000 Guangzhou Shipyard International Co., Ltd., Class H ............. 161,895
CN 2,107,000 a Luoyang Glass Co., Ltd., Class H ................................ 367,154
US 96,500 Shandong Huaneng Power Co., Ltd., Sponsored ADR ................. 1,037,375
CN 1,269,000 a Shanghai Chlor-Alkali Chemical Co., Ltd., Class B ............... 362,934
CN 1,016,600 a Shanghai Dazhong Taxi Shareholding Co., Ltd., Class B ........... 902,741
CN 327,600 a Shanghai Industrial Sewing Machine Corp. ........................ 39,967
CN 1,732,500 a Shanghai Jin Jiang Tower Co., Ltd., Class B ..................... 547,470
CN 592,900 Shanghai Lujiaxui Finance & Trade Zn Dev Stock Co., Ltd, Class B 847,847
CN 157,000 Shanghai New Asia Group Co., Ltd., Class B ...................... 85,722
CN 2,304,000 Shanghai Petrochemical Co., Ltd., Class H ....................... 553,153
CN 636,480 a Shanghai Refrigerator Compressor Co., Ltd., Class B ............. 305,510
CN 406,750 a Shanghai Shangling Electric Appliance, Class B .................. 83,790
CN 1,481,000 Shanghai Tyre & Rubber Co., Ltd., Class B ....................... 725,690
CN 1,744,361 a Shanghai Vacuum Electron Devices Co., Ltd., Class B ............. 348,872
CN 682,000 a Shanghai Yaohua Pilkington Glass, Class B ....................... 246,884
CN 2,163,349 Shenzhen Vanke Co., Ltd., Class B ............................... $ 2,102,670
CN 34,000 a Tsingtao Brewey Co., Class H .................................... 13,166
--------------
10,415,936
--------------
Czech Republic 1.1%
CS 95,430 a CEZ.............................................................. 2,633,830
CS 19,358 Chemopetrol Group, AS ........................................... 683,511
CS 17 Elektrarny Opatovice, AS ........................................ 2,228
CS 1,000 Komercni Banka, AS .............................................. 51,807
CS 7,610 SPT Telecom, AS ................................................. 797,891
CS 130 a Tabak, AS ....................................................... 30,467
--------------
4,199,734
--------------
Ghana 0.4%
US 143,427 Ashanti Goldfields Co., Ltd., Sponsored GDR ..................... 1,676,303
--------------
Greece 4.1%
GR 57,999 Alpha Credit Bank ............................................... 3,945,950
GR 31,000 Alpha Leasing, SA ............................................... 822,649
GR 61,140 Delta Dairy, SA ................................................. 756,711
GR 6,220 Elais Oleaginous Co. ............................................ 180,910
GR 17,983 Ergo Bank, SA ................................................... 1,080,119
GR 40,690 Etba Leasing .................................................... 413,254
GR 36,250 Hellas Can - Container Manufacturers ............................ 669,683
GR 16,450 Hellenic Telecommunications Organization, SA .................... 386,235
US 154,000 b Hellenic Telecommunications Organization, SA .................... 3,615,813
GR 170,450 a Hellenic Telecommunications Organization, SA, rights ............ 20,941
GR 29,000 a Intracom, SA, reg. .............................................. 1,320,629
GR 5,687 a National Bank of Greece, SA ..................................... 695,582
GR 34,340 Titan Cement Co., reg............................................ 1,693,812
--------------
15,602,288
--------------
Hong Kong 7.5%
HK 529,000 Cheung Kong Holdings, Ltd. ...................................... 5,223,562
HK 70,000 Cross Harbour Tunnel Co., Ltd. .................................. 149,536
HK 268,208 Dairy Farm International Holdings, Ltd. ......................... 201,156
HK 1,154,000 a East Asiatic Co., (Hong Kong), Ltd. (The) ....................... 192,897
HK 530,679 Great Wall Electronic International, Ltd. ....................... 56,854
HK 1,536,000 Hang Lung Development ........................................... 2,815,329
HK 577,000 Hongkong Electric Holdings, Ltd. ................................ 2,323,700
HK 81,000 Hongkong & Shanghai Hotels, Ltd. ................................ 129,122
HK 347,000 Hopewell Holdings, Ltd. ......................................... 219,470
HK 180,357 HSBC Holdings, Plc. ............................................. 5,424,236
HK 33,418 Jardine Matheson Holdings, Ltd. ................................. 237,268
HK 108,625 Jardine Strategic Holdings, Ltd. ................................ 410,602
HK 1,005,804 K Wah International Holdings, Ltd. .............................. 189,547
HK 755,600 Lai Sun Development Co., Ltd. ................................... 848,518
HK 301,000 Lai Sun Garment International, Ltd. ............................. 369,096
HK 151,651 a Lai Sun Hotels International, Ltd., warrants .................... 13,311
HK 882,000 Laws International Holdings, Ltd. ............................... 225,415
HK 717,127 New World Development Co., Ltd. ................................. 4,276,492
HK 2,102,400 a S. Megga International Holdings, Ltd. ........................... 149,255
HK 311,598 Semi-Tech (Global) Co., Ltd. .................................... 508,786
HK 109,400 Sun Hung Kai & Co., Ltd. ........................................ 32,831
HK 42,080 a Sun Hung Kai & Co., Ltd, warrants ............................... 3,965
HK 276,000 Sun Hung Kai Properties, Ltd. ................................... 3,322,061
HK 12,500 Swire Pacific, Ltd., Class A .................................... 112,539
HK 95,000 Swire Pacific, Ltd., Class B .................................... 144,082
HK 600,000 Tian An China Investments Co., Ltd. ............................. 81,319
HK 886,000 Tungtex (Holdings) Co., Ltd. .................................... $ 91,490
HK 207,000 Wheelock & Co., Ltd. ............................................ 508,997
HK 2,753,200 a Wo Kee Hong Holdings, Ltd. ...................................... 195,456
HK 300,000 a Yaohan Hongkong Corp., Ltd. ..................................... 15,489
HK 251,200 Yue Yuen Industrial Holdings .................................... 520,408
--------------
28,992,789
--------------
India 2.6%
IN 141,850 a Arvind Mills, Ltd. .............................................. 515,098
IN 95,700 a Bank of Baroda................................................... 247,270
IN 6,200 Bharat Petroleum Corp., Ltd. .................................... 77,846
IN 6,750 a Bombay Dyeing & Manufacturing Co., Ltd. ......................... 18,195
IN 6,000 BSES, Ltd. ...................................................... 39,930
IN 82,750 Cochin Refineries, Ltd. ......................................... 353,652
IN 28,900 Grasim Industries, Ltd. Ord INR10 ............................... 301,513
IN 271,700 Great Eastern Shipping Co. ...................................... 371,880
IN 11,800 Gujarat Ambuja Cements, Ltd. .................................... 114,209
IN 52,100 a Gujarat Industries Power, Ltd. .................................. 41,476
IN 7,000 Gujarat Narmada Valley Fertilizers Co., Ltd. .................... 4,448
IN 3,175 Hindalco Industries ............................................. 86,470
IN 25,900 Hindustan Organic Chemicals, Ltd. ............................... 18,087
IN 55,900 Hindustan Petroleum Corp., Ltd. ................................. 707,338
IN 61,600 a India Cements, Ltd. ............................................. 185,832
US 3,051 India Cements, Ltd., GDR ........................................ 9,153
IN 38,500 Indian Aluminium Co., Ltd. ...................................... 143,300
IN 127,200 Indian Petrochemicals Corp., Ltd. ............................... 515,196
IN 20,350 Indian Rayon & Industries, Ltd. ................................. 210,321
US 7,113 Indian Rayon & Industries, Ltd., GDR ............................ 89,090
IN 143,300 Indo Gulf Fertilisers & Chemicals Corp., Ltd. ................... 138,096
IN 190,480 Industrial Credit & Inv. Corp. of India (ICICI) ................. 416,342
IN 166,300 a Industrial Development Bank of India ............................ 474,977
IN 66,700 ITC Bhadrachalam Paperboards, Ltd. .............................. 85,704
IN 85,300 Larsen &Toubro, Ltd. ............................................ 581,374
IN 100 Madras Cements .................................................. 22,556
IN 2,600 Mahanagar Telephone Nigam, Ltd. ................................. 21,969
IN 198,200 a National Aluminium Co., Ltd. .................................... 251,902
IN 114,800 a Oriental Bank of Commerce ....................................... 223,507
IN 58,700 Reliance Industries, Ltd. ....................................... 609,545
IN 190,500 Shipping Corporation of India, Ltd. ............................. 259,410
IN 505,900 Steel Authority of India, Ltd. .................................. 289,691
US 45,000 Steel Authority of India, Ltd., GDR, reg S ...................... 402,750
IN 9,100 Sterlite Industries (India), Ltd. ............................... 67,996
IN 76,350 a Tata Chemicals, Ltd. ............................................ 386,015
IN 91,600 Tata Engineering & Locomotive Co., Telco ........................ 1,156,514
IN 97,450 a Tata Iron & Steel Co., Ltd. ..................................... 520,595
IN 3,200 Thermax, Ltd. ................................................... 31,285
IN 2,000 Wockhardt ....................................................... 11,006
--------------
10,001,538
--------------
Indonesia 5.6%
US 49,500 a Asia Pulp & Paper Co., Ltd., Sponsored ADR ...................... 748,688
ID 1,771,000 PT Bank Dagang Nasional Indonesia, fgn. ......................... 1,256,157
ID 126,500 a PT Bank Dagang Nasional Indonesia, warrants ..................... 52,015
ID 162,000 PT Bank Danamon, fgn. ........................................... 84,930
ID 570,500 PT Bank PDFCI, fgn. ............................................. 533,671
ID 2,259,000 PT Barito Pacific Timber, fgn. .................................. 1,927,395
ID 150,000 PT BBL Dharmala Finance, fgn. ................................... 209,704
ID 205,500 PT BDNI Capital Corp., fgn. ..................................... 162,659
ID 2,493,750 PT Charoen Pokphand Indonesia, fgn. ............................. $ 1,127,930
ID 800,000 PT Ciputra Dev................................................... 797,697
ID 196,000 a PT Dharmala Intiland, fgn. ...................................... 282,072
ID 2,447,500 PT Gadjah Tunggal TBK, fgn. ..................................... 1,207,648
ID 715,000 PT Indah Kiat Pulp & Paper Corp., fgn. .......................... 418,945
ID 643,500 a PT Indah Kiat Pulp & Paper Corp., rights......................... 112,454
ID 777,000 PT Indocement Tunggal Prakarsa, fgn. ............................ 1,206,075
ID 206,000 PT Indosat, fgn ................................................. 616,221
ID 12,000 a PT Inter-Pacific Bank, fgn. ..................................... 10,979
ID 885,000 a PT Jakarta International Hotel & Development TBK, fgn. .......... 1,009,817
ID 337,500 PT Japfa Comfeed Indonesia TBK................................... 225,509
ID 127,000 PT Kalbe Farma, fgn. ............................................ 169,716
ID 109,000 PT Modern Photo Film Co., fgn. .................................. 385,444
ID 441,750 a PT Multibreeder Adirama TBK, fgn. ............................... 158,936
ID 676,630 PT Pabrik Kertas Tjiwi Kimia, fgn. .............................. 785,970
ID 17,000 PT Semen Cibinong TBK, fgn. ..................................... 44,562
ID 118,500 PT Semen Gresik, fgn. ........................................... 265,553
ID 745,800 PT Sinar Mas Agro Resources & Technology Corp., fgn. ............ 674,655
ID 3,099,250 PT Sinar Mas Multi Artha, fgn. .................................. 2,835,457
ID 232,440 a PT Sinar Mas Multi Artha, warrants, fgn. ........................ 117,080
ID 349,000 a PT Sumalindo Lestari Jaya, fgn. ................................. 315,707
ID 658,320 PT Summarecon Agung, fgn. ....................................... 392,502
ID 794,500 PT Tambang Timah, fgn. .......................................... 1,233,239
ID 338,500 PT Ultra Jaya Milk, fgn. ........................................ 184,421
ID 68,200 a PT Unggul Indah Corp., fgn. ..................................... 109,367
ID 483,000 PT United Tractors, fgn. ........................................ 1,787,418
--------------
21,450,593
--------------
Israel 1.2%
IL 25,730 Agis Industries, Ltd. ........................................... 269,798
IL 577,883 Bank Hapoalim BM................................................. 1,203,193
IL 251,327 Clal Industries, Ltd. ........................................... 1,256,460
IL 15,748 Discount Investment Corp. ....................................... 1,255,809
IL 768 First International Bank of Israel .............................. 593,395
IL 265 Koor Industries, Ltd. ........................................... 23,402
--------------
4,602,057
--------------
Jordan
ZR 10,000 a Jordan Cement Factories, Ltd. ................................... 57,546
--------------
Malaysia 2.3%
MY 155,000 a Aokam Perdana, Bhd. ............................................. 172,563
MY 418,000 Berjaya Singer, Bhd. ............................................ 808,177
MY 89,000 Berjaya Singer, Bhd., fgn. ...................................... 172,076
MY 204,000 Boustead Holdings, Bhd., fgn. ................................... 444,532
MY 50,000 Federal Flour Mills, Bhd. ....................................... 123,811
MY 288,200 Hong Leong Industries, Bhd. ..................................... 913,471
MY 38,000 a Hong Leong Industries, Bhd., warrants, fgn. ..................... 31,315
MY 75,000 Island & Peninsula, Bhd., fgn. .................................. 240,689
MY 688,000 Leader Universal Holdings, Bhd. ................................ 1,237,528
MY 256,666 Malaysia International Shipping, Bhd., fgn. ..................... 666,071
MY 517,000 MBF Capital, Bhd. ............................................... 950,428
MY 237,500 Perlis Plantations, Bhd., fgn. .................................. 696,315
MY 1,297,000 Renong, Bhd. .................................................... 1,695,761
MY 16,750 a Renong, Bhd., warrants .......................................... 8,826
MY 726,000 Shangri-La Hotels (Malaysia) Bhd. ............................... 693,209
MY 123,000 Shangri La Hotels (Malaysia) Bhd., fgn. ......................... 117,445
--------------
8,972,217
--------------
Mexico 11.3%
MX 1,846,000 Cementos Mexicanos, SA de CV (Cemex), Class B ................... $ 8,995,240
MX 408,639 Cifra, SA de CV, Series A ....................................... 755,329
MX 3,341,085 Cifra, SA de CV, Series C ....................................... 5,342,707
US 38,400 Coca Cola Femsa, SA, Sponsored ADR .............................. 1,982,400
MX 181,938 Cydea, SA de CV.................................................. 485,657
MX 110,034 DESC, SA, Class B ............................................... 803,572
MX 13,515 DESC, SA, Class C ............................................... 97,508
MX 250,000 Fomento Economico Mexicano, SA de CV, Class B ................... 1,487,346
MX 13,429 Grupo Carso, SA de CV ........................................... 93,506
MX 899,000 a Grupo Financiero Banamex Accival, SA, Class B ................... 2,309,192
MX 1,146,137 a Grupo Financiero Banamex Accival, SA, Class L ................... 2,713,092
MX 5,650,000 a Grupo Financiero Bancomer, SA de CV, Class B .................... 2,717,577
MX 2,096,259 a Grupo Financiero Bancomer, SA de CV, Class L .................... 752,246
MX 2,162,816 a Grupo Financiero Serfin, SA, Class B ............................ 691,709
MX 97,000 Telefonos de Mexico, SA, Class L ................................ 232,057
US 228,200 Telefonos de Mexico, SA, Class L, Sponsored, ADR ................ 10,896,550
US 1,500 Transportacion Maritima Mexicana, SA de CV, Class L, ADR ........ 9,281
MX 843,849 a Vitro, SA ....................................................... 3,118,480
--------------
43,483,449
--------------
Philippines 0.2%
PH 299,000 a Filinvest Development Corp. ..................................... 71,417
PH 600,000 a Keppel Philippine Holdings Inc., Class B ........................ 72,793
PH 5,146,500 a Philex Mining Corp., Class B .................................... 429,265
PH 25,970 a Philippine National Bank ........................................ 176,245
PH 435,000 a RFM Corp. ....................................................... 105,551
--------------
855,271
--------------
Poland 0.8%
PL 67,955 a Bank Gdanski, SA ................................................ 785,726
US 23,000 a Bank Gdanski, SA, GDR ........................................... 270,250
PL 269,000 Bank Inicjatyw Gospodarczch, SA, Class G ........................ 323,307
PL 13,638 Bank Przemyslowo-Handlowy, SA ................................... 670,177
PL 18,000 a Mostostal Export, SA ............................................ 56,960
PL 15,410 a Polifarb Ceiszyu, SA ............................................ 78,304
PL 10,000 a Raciborska Fabryka Kotlow, SA ................................... 44,424
PL 53,051 Rolimpex, SA .................................................... 209,847
PL 20,000 Warta, SA ....................................................... 289,061
PL 14,742 Wielkopolski Bank Kredytowy, SA ................................. 84,330
PL 9,372 Zaklady Cementowo Wapiennicze Gorazdze Chorula .................. 320,812
--------------
3,133,198
--------------
Portugal 4.0%
PT 382,894 Banco Comercial Portugues, SA ................................... 7,231,886
PT 151,980 Banco Espirito Santo e Comercial de Lisboa ...................... 3,444,788
PT 63,454 Banco Totta & Acores, SA ........................................ 1,060,391
PT 50,022 BPI SGPS, SA .................................................... 973,495
US 93,840 Espirito Santo Financial Holding, SA, ADR ....................... 1,865,070
PT 75,000 Portucel Industrial-Empresa Produtoria de Celulosa, SA .......... 556,140
PT 7,010 a Sociedade Portuguesa de Celulose, SA ............................ 209,515
--------------
15,341,285
--------------
Singapore 3.0%
SG 293,000 Acer Computer International, Ltd. ............................... 539,120
SG 22,000 a Acer Computer International, Ltd., warrants ..................... 12,650
SG 184,000 Acma, Ltd., fgn. ................................................ 316,598
SG 46,000 a Acma, Ltd., fgn., warrants ...................................... 23,166
SG 18,000 British American Tobacco, Ltd. .................................. 73,022
SG 202,000 First Capital Corp., Ltd. ....................................... $ 525,593
SG 331,000 First Capital Corp., Ltd., fgn. ................................. 861,244
SG 72,000 GP Batteries International, Ltd. ................................ 214,535
SG 18,000 a GP Batteries International, Ltd., warrants ...................... 27,450
SG 1,698,000 Hai Sun Hup Group, Ltd. ......................................... 1,223,292
SG 391,200 a Hai Sun Hup Group, Ltd., warrants ............................... 103,977
SG 167,000 Hinds Hotels International, Ltd. ................................ 299,028
SG 177,000 Hinds Hotels International, Ltd., fgn. .......................... 316,934
SG 100,000 Hour Glass, Ltd. ................................................ 78,338
SG 285,000 Inchcape Berhad., fgn. .......................................... 1,026,614
SG 75,500 Isetan (Singapore), Ltd., fgn. .................................. 171,099
SG 269,000 Jurong Shipyard, fgn ............................................ 1,166,538
SG 328,000 MCL Land, Ltd. .................................................. 497,839
SG 476,000 Natsteel, Ltd., fgn. ............................................ 1,211,891
SG 78,000 Natsteel, Ltd., loc. ............................................ 198,587
SG 178,000 Osprey Maritime, Ltd. ........................................... 232,818
SG 178,000 a Osprey Maritime, Ltd., rights ................................... 52,291
SG 2,000 Overseas Union Enterprise, Ltd. ................................. 9,233
SG 16,000 Robinson & Co., Ltd. ............................................ 83,374
SG 322,000 Sembawang Corp., Ltd. ........................................... 1,463,943
SG 164,000 United Industrial Corp. ......................................... 123,886
SG 639,000 United Industrial Corp., Ltd., fgn. ............................. 482,703
SG 111,000 WBL Corp., Ltd. ................................................. 335,399
--------------
11,671,162
--------------
Slovak Republic 0.2%
SS 6,600 a Nafta Gbely, AS ................................................. 215,936
SS 27,010 Slovnaft, AS .................................................... 666,795
--------------
882,731
--------------
South Africa 3.6%
ZA 14,000 Aeci, Ltd. ...................................................... 83,315
ZA 12,700 Alpha, Ltd. ..................................................... 219,038
ZA 11,919 Anglo American Industrial Corp., Ltd. ........................... 522,786
ZA 21,800 Anglo American Platinum Corp., Ltd. ............................. 180,185
ZA 34,715 Anglovaal Industried, Ltd. ...................................... 127,015
ZA 626,000 BTR Dunlop, Ltd. ................................................ 620,895
ZA 73,000 CG Smith, Ltd. .................................................. 407,075
ZA 1,599,800 Del Monte Royal Foods, Ltd. ..................................... 828,638
ZA 6,000 Edgars Stores ................................................... 156,711
ZA 342,029 Engen, Ltd. ..................................................... 1,707,504
ZA 63,600 First National Bank Holdings, Ltd. .............................. 546,705
ZA 10,721 Foodcorp, Ltd. .................................................. 81,524
ZA 76,800 Kersaf Investments, Ltd. ........................................ 534,062
ZA 42,100 Malbak, Ltd. .................................................... 66,811
ZA 74,000 McCarthy Retail, Ltd. ........................................... 212,034
ZA 107,000 Palabora Mining Co., Ltd. ....................................... 1,981,045
ZA 10,345 Potgietersrust Platinums, Ltd. .................................. 78,095
ZA 311,500 a Rainbow Chicken, Ltd. ........................................... 62,479
ZA 118,070 Rembrandt Group, Ltd. ........................................... 1,259,552
ZA 16,500 Reunert, Ltd. ................................................... 56,552
ZA 128,351 Sappi, Ltd. ..................................................... 1,159,883
ZA 218,800 Sentrachem, Ltd. ................................................ 385,806
ZA 31,000 South African Breweries, Ltd. ................................... 951,455
ZA 1,456,473 South African Iron & Steel Industrial Corp., Ltd. ............... 963,063
ZA 689,585 Sun International (South Africa), Ltd. .......................... 389,098
ZA 400 Toyota South Africa, Ltd. ....................................... $ 2,530
ZA 151,000 Voltex Holdings, Ltd. ........................................... 85,202
--------------
13,669,058
--------------
South Korea 2.2%
KR 12,000 Asia Cement Co., Ltd. ........................................... 391,892
KR 88,730 Boram Bank Co., Ltd. ............................................ 584,539
KR 1,850 BYC Co., Ltd. ................................................... 190,625
KR 27,375 Central Banking Corp............................................. 413,091
US 25,400 Cho Hung Bank Co., Ltd., GDR .................................... 182,245
KR 5,960 Dae Duck Electronics Co., Ltd. .................................. 375,856
KR 84,876 Daegu Bank ...................................................... 727,535
KR 25,292 a Daegu Bank, rights .............................................. 40,208
KR 21,000 Dongkuk Steel Mill Co., Ltd. .................................... 480,068
KR 1,000 Hae In Corp., Ltd. .............................................. 55,180
US 33,028 Hana Bank, GDR .................................................. 477,260
KR 3,950 Hankook Cosmetics Co., Ltd. ..................................... 106,312
KR 142,520 Korea First Bank ................................................ 593,833
KR 64,400 Korea Kumho Petrochemical ....................................... 446,739
KR 53,410 Kyong Nam Bank .................................................. 574,903
KR 1,000 Moon Bae Steel Co., Ltd. ........................................ 31,982
KR 5,830 Samsung Display Devices (L), Ltd ................................ 321,577
KR 11,000 a Samsung Heavy Industries Co., Ltd. .............................. 115,946
KR 81,990 Ssangyong Oil Refining Co., Ltd.................................. 1,661,959
KR 52,287 Tong Yang Merchant Bank ......................................... 541,711
--------------
8,313,461
--------------
Sri Lanka
LK 17,960 Associated Motorways, Ltd. ...................................... 11,208
LK 9,142 John Keells Holdings, Ltd. ...................................... 47,750
--------------
58,958
--------------
Thailand 6.6%
TH 30,800 American Standard Sanitaryware (THB) Public Co., Ltd., fgn. ..... 165,265
TH 18,400 Asia Credit Public Co., Ltd., fgn. .............................. 46,879
TH 48,000 Asia Credit Public Co., Ltd., loc. .............................. 100,984
TH 49,100 Ayudhya Insurance Public Co., Ltd., fgn. ........................ 379,077
TH 488,200 Bangkok Bank Public Co., Ltd. ................................... 2,431,106
TH 35,000 Bangkok Bank Public Co., Ltd., fgn. ............................. 240,494
TH 7,900 Bangkok Insurance ............................................... 101,857
TH 4,900 Bangkok Insurance, fgn. ......................................... 85,592
TH 495,100 Bangkok Land Public Co., Ltd., fgn. ............................. 353,575
TH 20,000 Bank of Ayudhya Public Co., Ltd. ................................ 30,882
TH 231,700 Bank of Ayudhya Public Co., Ltd., fgn. .......................... 362,241
TH 138,000 Charoen Pokphand Feedmill Public Co., Ltd. ...................... 271,685
TH 376,900 a Charoen Pokphand Feedmill Public Co., Ltd., fgn. ................ 931,156
TH 331,000 First Bangkok City Bank Public Co., Ltd., fgn. .................. 265,132
TH 43,300 Hana Microelectronics Co., Ltd. ................................. 202,251
TH 38,900 Hana Microelectronics Co., Ltd., fgn. ........................... 208,728
TH 16,000 Hua Thai Manufacturing Public Co., Ltd. ......................... 27,176
TH 752,900 Industrial Finance Corp. of Thailand, fgn. ...................... 959,108
TH 30,000 Jasmine International Public Co., Ltd. .......................... 27,794
TH 825,000 Jasmine International Public Co., Ltd., fgn. .................... 732,484
TH 124,650 a Karat Sanitaryware Public Co., Ltd., fgn. ....................... 62,554
TH 50,700 Kian Gwan (Thailand) Public Co., Ltd., fgn. ..................... 129,172
TH 205,400 a Land and House Public Co., Ltd. ................................. 443,370
TH 102,700 a Land and House Public Co., Ltd., fgn. ........................... 428,164
TH 397,000 Phatra Thanakit Public Co., Ltd. ................................ 406,118
TH 477,300 Phatra Thanakit Public Co., Ltd., fgn. .......................... $ 589,600
TH 95,200 Regional Container Lines Public Co., Ltd., fgn. ................. 565,945
TH 256,800 a Royal Ceramic Industry Public Co., Ltd., fgn. ................... 39,653
TH 80,700 Saha Pathanapibul Public Co Ltd., fgn. .......................... 143,301
TH 199,600 Saha-Union Public Co., Ltd. ..................................... 125,207
TH 390,000 Saha-Union Public Co., Ltd., fgn. ............................... 286,045
TH 42,600 Sanyo Universal Electric Public Co., Ltd. ....................... 37,001
TH 5,200 Sanyo Universal Electric Public Co., Ltd., fgn. ................. 4,516
TH 41,000 Serm Suk Public Co., Ltd. ....................................... 506,466
TH 80,800 The Siam Cement Public Co., Ltd., fgn. .......................... 1,397,352
TH 4,900 The Siam Cement Public Co., Ltd., fgn. .......................... 73,013
TH 1,661,500 Siam City Bank Public Co., Ltd., fgn. ........................... 978,108
TH 197,600 Siam Commercial Bank Ltd., fgn. ................................. 808,554
TH 149,000 Siam Commercial Bank Ltd., loc. ................................. 557,923
TH 23,200 a Sino-Thai Engineering & Construction Public Co. ................. 64,482
TH 87,100 a Sino-Thai Engineering & Construction Public Co., fgn. ........... 242,085
TH 589,000 a Thai Airways International Public Co., Ltd. ..................... 864,003
TH 116,410 Thai Asahi Glass Public Co., Ltd. ............................... 69,653
TH 1,333,300 Thai Farmers Bank Public Co., Ltd. .............................. 4,091,772
TH 30,000 Thai Farmers Bank Public Co., Ltd., fgn. ........................ 127,389
TH 290,000 Thai Investments and Securities Ltd. ............................ 593,322
TH 425,800 Thai Military Bank Ltd., fgn. ................................... 476,671
TH 1,043,520 Thai Petrochemical Industry Public Co., Ltd., fgn. .............. 654,592
TH 43,000 Thai Rayon Public Co., Ltd. ..................................... 91,295
TH 2,300 Thai Rayon Public Co., Ltd., fgn. ............................... 4,950
TH 313,100 a Thai Telephone & Telecommunication Public Co., Ltd. ............. 129,930
TH 26,400 Thai Wacoal Public Co., Ltd., fgn. .............................. 87,643
TH 8,450 Thai Wah Public Co., Ltd., fgn. ................................. 3,262
TH 25,000 Tipco Asphalt Public Co., Ltd. .................................. 130,284
TH 42,000 Tipco Asphalt Public Co., Ltd., fgn, (TASCO) .................... 218,877
TH 185,000 Total Access Communication Public Co., Ltd. ..................... 858,400
TH 205,200 United Communications Industries, fgn. .......................... 863,416
TH 109,000 United Communications Industry Public Co., Ltd., loc. ........... 450,222
TH 4,500 United Motor Works (Siam) Public Co., Ltd. ...................... 5,342
--------------
25,533,118
--------------
Turkey 5.7%
TR 103,403,250 Akbank .......................................................... 8,876,562
TR 1,380,000 a Alarko Gayrimenkul Yatirim Ortakigi, AS ......................... 58,536
TR 1,704,000 Alarko Sanayii ve Ticaret, SA ................................... 203,642
TR 2,075,000 Alcatel Teletas Endustri Tic, AS ................................ 384,195
TR 4,705,000 a Anadolu Anonim Turk Sigorta Sirketi ............................. 126,713
TR 4,688,000 a Anadolu Anonim Turk Sigorta Sirketi, new ........................ 126,255
TR 6,487,457 Arcelik, AS ..................................................... 873,584
TR 159,000 Bagfas .......................................................... 38,004
TR 7,609,151 Beko Elektronik, AS ............................................. 614,777
TR 1,580,000 Borusan, AS ..................................................... 95,741
TR 3,223,070 Cimentas Izmir Cimento Fabrikasi Turk, AS ....................... 428,585
TR 1,416,000 Cimsa Cimento Sanayi ve Ticaret, AS ............................. 190,675
TR 3,500,000 Erciyas Biracilik ............................................... 418,280
TR 17,375,000 Eregli Demir ve Celik Fabrikalari, AS ........................... 2,895,346
TR 3,990,142 Izocam Ticaret ve Sanayii, AS, br. .............................. 137,012
TR 4,291,666 Koc Holding, AS ................................................. 1,011,334
TR 3,446,800 Koc Yatirim ve Sanayii Mamullesi Pazarlanca, AS ................. 916,671
TR 1,620,528 Marshall Boya ve Vernik Sanayii, AS ............................. 201,850
TR 1,345,000 a Netas Northern Electric Telekomunic Asyon, AS ................... 371,284
TR 280,000 Petkim Petrokimya Holding, AS ................................... 96,145
TR 4,829,663 Tat Konserve Sanayii, AS ........................................ $ 357,693
TR 22,514,025 Tofas Turk Otomobil Fabrikasi, AS ............................... 1,091,405
TR 6,949,993 Turk Demir Dokum, br. ........................................... 350,951
TR 53,025,330 Turkiye Garanti Bankasi, AS ..................................... 1,999,272
TR 2,141,344 Vakif Finansal Kiralama, AS ..................................... 33,520
TR 3,212,015 a Vakif Finansal Kiralama, AS, new ................................ 31,898
--------------
21,929,930
--------------
Venezuela 2.5%
VE 341,440 Ceramica Carabobo CA, Class A ................................... 371,737
US 272,288 Ceramica Carabobo CA, Class A, ADR .............................. 296,449
VE 2,765,696 a Consolidada Carabobo, Class B ................................... 157,657
VE 1,245,939 Electricidad de Caracas ......................................... 1,996,221
VE 60,000 Industrias Ventane .............................................. 42,522
VE 10,000 a Manufacturera de Aparatos Domesticos, SA ........................ 10,682
US 387,000 Mavesa, SA, ADR ................................................. 3,918,375
VE 100,000 Siderurgica Venezolana Sivensa Saica Svs ........................ 51,766
US 241,650 Siderurgica Venezolana Sivensa Saica Svs, ADR ................... 1,250,928
US 22,878 Siderurgica Venezolana Sivensa SAICA Svs., ADR, Class B, new .... 105,742
VE 328,975 Vencemos de Cementos, SA ........................................ 1,115,043
VE 31,537 Venezolana de Cementos-Vencemos, #2 ............................. 101,710
--------------
9,418,832
--------------
Zimbabwe 0.2%
ZW 42,258 Delta Corp....................................................... 64,841
ZW 25,000 Ta Holdings...................................................... 4,713
ZW 587,000 Transarchipel Shipping, Ltd.- TSL ............................... 322,966
ZW 860,046 Zimbabwe Sun, Ltd. .............................................. 320,491
--------------
713,011
--------------
Total Common Stocks, Rights & Warrants (Cost $253,242,874). 306,648,759
--------------
Preferred Stocks 8.6%
Brazil 8.5%
BR 110,000,000 a Banco do Brazil, SA, pfd. ....................................... 1,318,099
BR 218,198,700 a Banespa-Banco do Estado de Sao Paulo, SA, pfd. .................. 5,373,134
BR 4,496,000 Brasmotor, SA, pfd. ............................................. 1,002,313
BR 2,975,700 Copene-Petroquimica do Nordeste, SA, A, pfd. .................... 1,102,879
BR 50,115,800 Duratex, SA, pfd. ............................................... 2,653,011
BR 11,529,000 Eletrobras-Centrais Eletricas Brasileiras, SA, B, pfd. .......... 6,875,313
BR 1,484,200 Itausa-Investimentos Itau, SA, pfd. ............................. 1,364,877
BR 362,700 a Mannesmann, SA, pfd. ............................................ 46,830
BR 43,115,000 Petrobras-Petroleo Brasileiro, SA, pfd. ......................... 11,975,121
BR 30,878,000 Uniao de Bancos Brasileiros, SA, pfd. ........................... 1,132,667
--------------
32,844,244
--------------
Malaysia
MY 26,800 Renong, cvt. pfd. ............................................... 8,494
--------------
Philippines
PH 79,090 RFM Corp., cvt. pfd. ............................................ 14,032
--------------
Singapore
SG 96,120 a Osprey Maritime, Ltd., rights, pfd. ............................. 7
--------------
South Africa 0.1%
ZA 771,052 Rainbow Chicken Ltd., cvt. pfd. ................................. 152,953
--------------
Total Preferred Stocks (Cost $18,285,046).................. 33,019,730
--------------
Convertible Bonds................................................
AR 6,000 Juan Minetti SA, cvt., 12/30/05 ................................. $ 6,001
ZA 24,000 McCarthy Retail Ltd., zero, cvt., 09/30/03 ...................... 69,032
--------------
Total Convertible Bonds (Cost $84,816) .................... 75,033
--------------
Total Long Term Investments (Cost $271,612,736) ........... $339,743,522
--------------
e Short Term Investments 11.4%
US 44,087,000 U.S. Treasury Bills, 4.68% - 5.141%, with maturities to
09/25/97 (Cost $43,787,477) .................................... 43,787,013
--------------
Total Investments 99.7% (Cost $315,400,213) .......... 383,530,535
Other Asset and Liabilities, Net 0.3% ................ 1,234,633
--------------
Net Assets 100.0% .................................... $384,765,168
==============
At June 30, 1997, the net unrealized appreciation based on the cost of
investments for income tax purposes of $315,502,709 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ..................... $ 99,796,561
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ..................... (31,768,735)
--------------
Net unrealized appreciation.................................... $ 68,027,826
==============
CURRENCY LEGEND:
AR - Argentina
BR - Brazil
CN - China
CS - Czech Republic
GR - Greece
HK - Hong Kong
ID - Indonesia
IL - Israel
IN - India
KR - South Korea
LK - Sri Lanka
MX - Mexico
MY - Malaysia
PH - Philippines
PL - Poland
PT - Portugal
SG - Singapore
SS - Slovak Republic
TH - Thailand
TR - Turkey
US - United States
VE - Venezuela
ZA - South Africa
ZR - Jordan
ZW - Zimbabwe
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private placement transactions; resale may only be to qualified institutional buyers.
eCertain short-term securities are traded on a discount basis; the rates shown are the discount rates at the time of
purchase by the Fund. Other securities bear interest at the rates shown, payable at fixed dates or upon maturity.
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
VALUE
COUNTRY* SHARES Templeton Global Asset Allocation Fund (NOTE1)
a,b Common Stocks 58.7%
<S> <C> <C> <C>
Argentina 0.2%
US 2,000 Telecom Argentina Stet - France Telecom, SA, Sponsored ADR ...... $ 105,000
US 6,900 Transportadora de Gas del Sur, SA, Class B, Sponsored ADR ....... 86,250
--------------
191,250
--------------
Australia 1.4%
AU 60,707 Coles Myer Ltd. ................................................. 315,815
AU 317,009 David Jones, Ltd. ............................................... 442,810
AU 95,654 HIH Winterthur International Holdings, Ltd. ..................... 231,115
AU 42,439 Pacific BBA, Ltd. ............................................... 160,217
AU 10,182 RGC, Ltd. ....................................................... 37,286
--------------
1,187,243
--------------
Austria 0.6%
AT 1,060 b Boehler - Uddeholm, AG .......................................... 82,200
AT 3,000 EVN Energie-Versorgung Niederoesterreich, AG .................... 386,513
--------------
468,713
--------------
Belgium 0.1%
BE 600 a Union Miniere, NPV .............................................. 56,182
--------------
Bermuda 1.5%
US 8,400 Ace, Ltd. ....................................................... 620,550
US 17,500 PartnerRe, Ltd. ................................................. 667,188
--------------
1,287,738
--------------
Brazil 2.4%
US 7,500 Companhia Energetica de Minas Gerais, Sponsored ADR ............. 383,906
BR 16,300,000 Companhia Siderurgica Nacional .................................. 537,504
US 7,700 Companhia Siderurgica Nacional, Sponsored ADR ................... 253,913
US 12,600 a Lojas Americanas, SA, ADR ....................................... 170,879
US 28,300 Usinas Siderugicas de Minas Gerais, Sponsored ADR ............... 311,300
US 15,100 Vale do Rio Doce, ADR ........................................... 333,966
--------------
1,991,468
--------------
Canada 0.8%
CA 20,200 Hudson's Bay Co. ................................................ 453,456
CA 15,200 Intrawest Corp. ................................................. 252,609
--------------
706,065
--------------
Chile 0.1%
US 4,800 Madeco Manufacturera de Cobre, SA, ADR .......................... 117,600
--------------
China 1.5%
US 69,740 a Beijing Yanhua Petrochemical Co., Ltd., Sponsored ADR ........... 802,010
HK 834,000 Shanghai Petrochemical Co., Ltd. ................................ 200,230
HK 1,332,000 Yizheng Chemical Fibre Co., Ltd., Class H ....................... 237,265
--------------
1,239,505
--------------
Columbia 0.1%
US 5,000 a,b Cementos Paz del Rio, SA, ADR ................................... 75,000
--------------
Ecuador 0.4%
US 400 La Cemento Nacional CA, Sponsored GDR ........................... 83,200
US 1,400 b La Cemento Nacional CA, Sponsored GDR ........................... 291,200
--------------
374,400
--------------
Egypt 1.1%
EG 45,299 a Suez Cement Co. ................................................. 882,056
--------------
Finland 1.8%
FI 10,000 Enso Oy, Class R ................................................ 92,437
FI 3,750 Metsa - Serla Oy, Class B ....................................... 30,547
FI 17,400 Oy Nokia, AB, Series A .......................................... $ 1,313,524
FI 117 The Rauma Group ................................................. 2,681
FI 4,200 UPM-Kymmene Corp. ............................................... 98,676
--------------
1,537,865
--------------
France 3.1%
FR 12,331 AXA-UAP ......................................................... 766,924
FR 9,000 Banque Nationale de Paris ....................................... 370,922
FR 1,805 Elf Aquitane, SA ................................................ 194,730
FR 9,900 Rhone-Poulenc, Class A .......................................... 403,083
FR 14,639 Scor ............................................................ 589,376
FR 2,500 Unibail - Union du Credit - Bail Immobilier ..................... 233,975
--------------
2,559,010
--------------
Germany 0.3%
DD 360 Volkswagen, AG .................................................. 272,906
--------------
Greece 0.3%
GR 3,832 Alpha Credit Bank ............................................... 260,712
--------------
Hong Kong 1.5%
HK 32,000 Cheung Kong Holdings, Ltd. ...................................... 315,981
HK 111,000 Grand Hotel Holdings, Ltd., Class A ............................. 44,774
HK 1,114,960 Hon Kwok Land Investment, Ltd. .................................. 366,986
HK 7,963 Peregrine Investments Holdings, Ltd. ............................ 16,394
HK 244,000 Shun Tak Holdings, Ltd. ......................................... 149,601
HK 190,140 Yue Yuen Industrial Holdings .................................... 393,911
--------------
1,287,647
--------------
Hungary 0.3%
US 12,107 b Mol Magyar Olaj - Es Gazipari RT, GDS ........................... 269,381
--------------
Indonesia 0.5%
US 19,300 a Asia Pacific Resources International, Class A ................... 94,087
ID 42,000 PT Bank Bali, fgn. .............................................. 112,253
ID 216,000 PT Lippo Bank, fgn. ............................................. 222,039
--------------
428,379
--------------
Irish Republic 0.6%
GB 42,733 Bank of Ireland ................................................. 470,747
--------------
Israel 0.4%
US 12,860 Tadiran, Ltd., Sponsored ADR .................................... 368,118
--------------
Italy 1.1%
IT 74,700 Banca Fideuram, SpA ............................................. 242,245
IT 34,500 Cartiere Burgo, SpA ............................................. 191,725
IT 233,000 Istituto Nazionale delle Assicurazioni .......................... 352,914
IT 15,000 Recordati Industria Chimica e Farmaceutica, SpA, di Risp ........ 52,174
IT 10,000 STET (Sta Finanziaria Telefonica Torino), SpA ................... 58,262
--------------
897,320
--------------
Japan 1.0%
JP 9,700 Daito Trust Construction Co. .................................... 114,257
JP 5,000 Matsushita Electric Industrial Co., Ltd. ........................ 100,777
JP 7,000 Nintendo Co., Ltd. .............................................. 585,115
JP 5,000 Yamato Kogyo Co., Ltd. .......................................... 49,298
--------------
849,447
--------------
Mexico 1.8%
MX 69,251 ALFA, SA de CV, Class A ......................................... 472,602
MX 58,000 b ALFA, SA de CV, Class A ......................................... 395,820
MX 11,766 Cifra, SA de CV, Series A........................................ $ 21,748
MX 96,200 Cifra, SA de CV, Series B ....................................... 179,270
US 3,000 Empresas ICA Sociedad Controladora, SA de CV, Sponsored ADR ..... 48,187
US 20,000 a Grupo Simec, SA de CV, ADR ...................................... 72,500
US 6,709 Telefonos de Mexico, SA, Class L, Sponsored ADR ................. 320,355
--------------
1,510,482
--------------
Netherlands 0.5%
NL 5,097 ING Groep, NV.................................................... 234,998
NL 2,900 Philips Electronics, NV ......................................... 207,723
--------------
442,721
--------------
New Zealand 0.5%
NZ 28,000 Air New Zealand, Ltd., Class B .................................. 85,586
NZ 51,300 Ceramico Corp., Ltd. ............................................ 50,875
US 16,000 Tranz Rail Holdings, Ltd., Sponsored ADR ........................ 270,000
--------------
406,461
--------------
Norway 0.4%
NO 14,800 Elkem, ASA ...................................................... 289,772
NO 1,700 Nycomed, ASA, Class B ........................................... 24,239
--------------
314,011
--------------
Philippines 0.1%
PH 429,524 Metro Pacific Corp. ............................................. 92,823
--------------
Russia 1.2%
US 14,201 Gazprom, ADR, Reg S ............................................. 242,482
US 10,000 b Mosenergo, ADR .................................................. 420,000
US 7,099 Mosenergo, ADR, Reg. S .......................................... 298,158
--------------
960,640
--------------
South Africa
ZA 402 Rustenburg Platinum Holdings, Ltd. .............................. 7,354
--------------
South Korea 2.4%
KR 1,580 Korea Chemical Co., Ltd ......................................... 133,169
KR 39,730 Korea Electric Power Corp. ...................................... 1,185,636
KR 25,719 Korea Long Term Credit Bank ..................................... 407,207
KR 2,725 a Korean Air ...................................................... 56,116
KR 1,890 Pohang Iron & Steel Co., Ltd. ................................... 192,726
KR 1,630 Shinhan Bank .................................................... 24,003
--------------
1,998,857
--------------
Spain 0.9%
ES 9,500 Dragados & Construcciones, SA ................................... 197,285
ES 4,300 Gas y Electricidad, SA .......................................... 230,831
ES 20,500 Iberdrola, SA ................................................... 258,772
ES 1,750 Telefonica de Espana ............................................ 50,594
--------------
737,482
--------------
Sweden 1.2%
SE 2,300 Electrolux, AB, Series B ........................................ 165,910
SE 1,150 a Granges, AB ..................................................... 15,238
SE 4,700 Marieberg Tidnings, AB, Class A ................................. 116,657
SE 9,575 Mo Och Domsjoe, AB, B ........................................... 314,401
SE 10,198 Skandia Forsakrings, AB ......................................... 375,726
SE 1,650 Svenska Handelsbanken, Class A .................................. 52,472
--------------
1,040,404
--------------
Switzerland 1.9%
CH 4,085 Credit Suisse Group ............................................. $ 524,435
CH 70 Kuoni Reison, AG, Class B ....................................... 239,644
CH 115 SGS Societe Generale de Surveillance Holding, SA, Class B ....... 245,669
CH 1,390 Zurich Versicherungsgesellschaft................................. 552,954
--------------
1,562,702
--------------
Thailand 0.1%
TH 30,000 Chareon Pokphand Feedmill Public Co., Ltd., fgn. ................ 74,117
TH 20,400 Robinson Department Store Public Co., Ltd., fgn. ................ 7,678
--------------
81,795
--------------
United Kingdom 6.5%
GB 76,100 Amvescap, Plc. .................................................. 444,188
GB 40,000 BG, Plc. ........................................................ 147,213
GB 66,780 British Energy, Plc. ............................................ 162,921
GB 47,700 b British Energy, Plc. ............................................ 116,372
GB 206,500 British Steel, Plc. ............................................. 512,390
GB 65,000 British Telecommunications, Plc. ................................ 482,772
GB 63,400 BTR, Plc. ....................................................... 216,968
GB 40,000 a Centrica, Plc. .................................................. 48,793
GB 45,000 Cordiant, Plc. .................................................. 92,549
GB 13,500 Dawson International, Plc. ...................................... 16,074
GB 124,039 Harrisons & Crosfield, Plc. ..................................... 229,285
GB 30,000 Imperial Chemical Industries, Plc. .............................. 417,409
GB 21,666 Lex Service, Plc. ............................................... 135,843
GB 93,800 National Grid Group, Plc. ....................................... 342,872
GB 118,414 a Railtrack Group, Plc. ........................................... 1,233,459
US 7,000 Sea Containers, Ltd., Class A ................................... 158,375
GB 222,600 Somerfield, Plc. ................................................ 678,376
GB 2,200 W.H. Smith Group, Plc. .......................................... 13,171
--------------
5,449,030
--------------
United States 20.1%
US 17,000 a 3Com Corp. ...................................................... 765,000
US 2,860 AK Steel Holding Corp. .......................................... 126,197
US 26,800 Archer - Daniels - Midland Co. .................................. 629,800
US 2,900 A.S.A. Holdings, Inc. ........................................... 83,013
US 7,000 AT&T Corp. ...................................................... 245,437
US 33,026 a Bay Networks, Inc. .............................................. 877,253
US 5,900 Beacon Properties Corp. ......................................... 196,912
US 13,600 a Boston Chicken, Inc. ............................................ 190,400
US 6,800 Carramerica Realty Corp. ........................................ 195,500
US 3,000 Conseco, Inc. ................................................... 111,000
US 2,900 a Crescent Operating, Inc. ........................................ 34,800
US 29,000 Crescent Real Estate Equities Co. ............................... 920,750
US 11,100 Dayton Hudson Corp. ............................................. 590,381
US 4,490 a DSC Communications Corp. ........................................ 99,903
US 2,200 Edwards (A.G.), Inc. ............................................ 94,050
US 30,200 Entergy Corp. ................................................... 826,725
US 12,450 a Fruit of the Loom, Inc., Class A ................................ 385,950
US 2,700 General Motors Corp. ............................................ 150,356
US 3100 General Motors Corp., Class H ................................... 179,025
US 2,500 Georgia-Pacific Corp. ........................................... 213,437
US 3,600 Goodyear Tire & Rubber, Co. ..................................... 227,925
US 16,600 Highwoods Properties, Inc. ...................................... 531,200
US 12,000 Horizon Group, Inc. ............................................. 161,250
US 9,500 Houghton Mifflin Co. ............................................ 634,125
US 18,200 a Humana, Inc. .................................................... 420,875
US 8,000 IBP, Inc. ....................................................... $ 186,000
US 7,000 International Business Machines Corp. ........................... 631,312
US 13,000 a Landstar System, Inc. ........................................... 365,625
US 14,000 Merrill Lynch & Co., Inc. ....................................... 834,750
US 20,000 Morgan Stanley Dean Witter Discover & Co. ....................... 861,250
US 5,300 Motorola, Inc. .................................................. 402,800
US 437 a NCR Corp. ....................................................... 13,001
US 8,000 Oregon Steel Mills, Inc. ........................................ 159,500
US 24,800 a Paragon Trade Brands, Inc. ...................................... 423,150
US 1,800 PECO Energy Co. ................................................. 37,800
US 5,200 a Pinnacle Systems, Inc. .......................................... 88,725
US 29,000 a Playtex Products, Inc. .......................................... 271,875
US 7,600 Post Properties, Inc. ........................................... 308,275
US 12,000 Presidential Life Corp. ......................................... 232,500
US 13,500 The Rouse Co. ................................................... 398,250
US 15,000 Summit Properties, Inc. ......................................... 309,375
US 17,500 Sun Co., Inc. ................................................... 542,500
US 1,400 Texas Utilties Co. .............................................. 48,213
US 7,000 Torchmark Corp. ................................................. 498,750
US 6,000 U S WEST Communications Group ................................... 226,125
US 8,000 UNUM Corp. ...................................................... 336,000
US 2,400 Valero Energy Corp. ............................................. 87,000
US 7,100 Walbro Corp. .................................................... 143,775
US 7,500 Weeks Corp. ..................................................... 234,375
US 17,000 Wheelabrator Technologies, Inc. ................................. 262,438
--------------
16,794,628
--------------
Total Common Stocks (Cost $40,305,847) .................... 49,178,142
--------------
Preferred Stock 4.5%
Argentina 1.0%
US 4,700 Cia de Inversiones en Telecomunicaciones,
SA, cvt. pfd., 7.00%, 03/03/98 ................................. 319,600
US 7,800 b Cia Inversiones Telecomunicaciones, SA, cvt. pfd. ............... 530,400
--------------
850,000
--------------
Brazil 3.3%
BR 116,766,000 Banco Bradesco, SA, pfd. ........................................ 1,176,825
BR 13,400 Cia Vale do Rio Doce, pfd. ...................................... 296,367
BR 534,000 Coteminas Cia Tecidos Norte de Minas, pfd. ...................... 208,332
BR 6,245,073 a Lojas Americanas, SA, pfd. ...................................... 84,695
BR 17,369,300 a Petrobras Distribuidora ,SA, pfd. ............................... 453,372
BR 1,851,000 Petrobras-Petroleo Brasileiro, SA, pfd. ......................... 514,112
--------------
2,733,703
--------------
Canada
CA 15,200 a Intrawest Corp., non-resort pfd. ................................ 28,618
--------------
Greece 0.2%
GR 29,990 Michaniki, SA, pfd. ............................................. 186,680
--------------
Total Preferred Stocks (Cost $3,060,137) .................. 3,479,401
--------------
FACE
AMOUNT
Bonds 30.0%
Argentina 2.3%
US $ 100,000 Bridas Corp., Yankee, 12.50%, 11/18/99 .......................... 110,000
US 100,000 b Industrias Metalurgicas Pescarmona,11.75%, 03/27/98 ............. 103,750
US 625,000 Republic of Argentina, 9.25%, 02/23/01 .......................... 653,906
US 100,000 Republic of Argentina, 8.75%, 05/09/02 .......................... 100,050
AR $ 50,000 Republic of Argentina, notes, Series REGS, 11.75%, 02/12/07 ..... $ 55,508
US 700,000 Republic of Argentina, unsecured notes, 11.375%, 01/30/17 ....... 780,500
US 75,000 Republic of Argentina, unsecured notes, Series BGL4, 11.00%, 10/09/06 83,250
--------------
1,886,964
--------------
Australia 1.0%
AU 873,000 Government of Australia, bonds, Series 1002, 10.00%, 10/15/02 ... 760,990
AU 7,971 HIH Winterthur International Holdings. Ltd., 8.00%, 11/02/01 .... 32,741
--------------
793,731
--------------
Brazil 2.9%
US 150,000 b Centrais Electricas Brasileiras-Eletrobas, SA,
senior unsubordinated notes, 10.00%, 10/30/98 .................. 154,875
US 500,000 Republic of Brazil, notes, 8.875%, 11/05/01 ..................... 516,875
US 100,000 Republic of Brazil, 6.5625%, FRN, 04/15/09 ...................... 87,875
US 1,225,000 Republic of Brazil, bonds, 10.125%, 05/15/27 .................... 1,180,594
US 575,000 Republic of Brazil, cvt., Series L, 6.9375%, FRN, 04/15/12 ...... 474,375
--------------
2,414,594
--------------
Canada 2.6%
CA 917,000 Government of Canada, deb., Series A32, 10.50%, 07/01/00 ........ 758,205
CA 182,000 Government of Canada, deb., Series A37, 10.50%, 03/01/01 ........ 153,243
CA 775,000 Government of Canada, deb., Series J25, 10.00%, 05/01/02 ........ 659,735
US 1,024,000 Repap Enterprises Inc., 8.50%, cvt., 08/01/97 ................... 568,320
--------------
2,139,503
--------------
Denmark 1.1%
DK 2,310,000 Kingdom of Denmark, bonds, 9.00%, 11/15/00 ...................... 395,941
DK 3,065,000 Kingdom of Denmark, bonds, 8.00%, 05/15/03 ...................... 522,443
--------------
918,384
--------------
Ecuador 0.5%
US 275,000 b Republic of Ecuador, 11.25%, 04/25/02 ........................... 289,781
US 175,000 Republic of Ecuador, disc, FRN, 6.50%, 02/28/25 ................. 124,906
--------------
414,687
--------------
Germany 1.6%
DD 815,000 Federal Republic of Germany, Bundesobligation,
bonds, Series 110, 5.375%, 02/22/99 ............................ 481,831
DD 1,270,000 Federal Republic of Germany, Bundesobligation, bonds,
Series 118, 5.25%, 02/21/01 .................................... 754,106
DD 155,000 Federal Republic of Germany, Unity, bonds, 8.75%, 08/20/01 ...... 103,298
--------------
1,339,235
--------------
Indonesia 0.5%
US 300,000 PT Indah Kiat Financial Mauritius, 10.00%, 07/1/07 .............. 299,625
US 87,000 PT Polysindo Intl. Finance Co., Series B, 11.375%, 06/15/06 ..... 95,918
--------------
395,543
--------------
Italy 2.4%
IT 370,000,000 Buoni Poliennali del Tes, 10.50%, 04/15/98 ...................... 223,363
IT 595,000,000 Buoni Poliennali del Tes, 10.50%, 07/15/00 ...................... 390,808
IT 170,000,000 Buoni Poliennali del Tes, deb., 12.00%, 01/17/99 ................ 107,828
IT 905,000,000 Buoni Poliennali del Tes, deb., 10.00%, 08/01/03 ................ 621,475
IT 260,000,000 Government of Italy, bonds, 7.75%, 11/01/06 ..................... 162,251
US 490,000 Government of Italy, cvt. bonds, 5.00%, 06/28/01 ................ 501,662
--------------
2,007,387
--------------
Mexico 1.7%
US 130,000 Bancomer, SA, 8.00%, 07/07/98 ................................... 131,144
US 200,000 b Cemex, SA, 10.75%, 07/15/00 ..................................... 212,750
US 175,000 United Mexican States, bonds, 9.875%, 01/15/07 .................. 184,406
US $ 600,000 United Mexican States, bonds, 11.375%, 09/15/16 ................. $ 675,000
US 225,000 United Mexican States, bonds, 11.50%, 05/15/26 .................. 257,063
--------------
1,460,363
--------------
Netherlands 0.3%
NL 500,000 Netherlands Government., 7.00%, 03/15/99, 1 & 2.................. 268,735
--------------
Phillipines 0.3%
US 270,000 Phillipine Long Distance Telephone Co., 9.25%, 06/30/06 ......... 282,825
--------------
Poland 0.5%
US 400,000 b Poland Communications Inc., 9.875%, 11/01/03 .................... 399,700
--------------
Russia 0.6%
US 500,000 b Minfin of Russia, 10.00%, 06/26/07 .............................. 495,820
--------------
Spain 1.6%
ES 58,930,000 Government of Spain, deb., 12.25%, 03/25/00 ..................... 470,800
ES 107,270,000 Government of Spain, deb., 10.10%, 02/28/01 ..................... 842,508
--------------
1,313,308
--------------
Sweden 1.1%
SE 300,000 Government of Sweden, bonds, Series 1030, 13.00%, 06/15/01 ...... 48,896
SE 4,600,000 Government of Sweden, bonds, Series 1033, 10.25%, 05/05/03 ...... 717,030
SE 1,000,000 Government of Sweden, bonds, Series 1037, 8.00%, 08/15/07 ....... 142,048
--------------
907,974
--------------
Trinidad and Tobago 0.2%
US 170,000 b Sei Holdings IX Inc., 11.00%, 11/30/00 .......................... 182,750
--------------
United Kingdom 1.0%
GB 450,000 UK Treasury, deb., 10.00%, 02/26/01 ............................. 814,959
--------------
United States 6.9%
US 405,000 U.S. Treasury Bond, 6.375%, 08/15/02 ............................ 404,874
US 880,000 U S Treasury Note, 7.875%, 11/15/99 ............................. 912,725
US 880,000 U S Treasury Note, 8.50%, 02/15/00 .............................. 928,401
US 371,000 U S Treasury Note, 6.125%, 07/31/00 ............................. 369,957
US 1,010,000 U S Treasury Note, 6.25%, 08/31/00 .............................. 1,009,685
US 1,515,000 U S Treasury Note, 6.625%, 04/30/02 ............................. 1,529,205
US 596,000 U S Treasury Note, 7.25%, 08/15/04 .............................. 621,517
--------------
5,776,364
--------------
Venezuela 0.9%
US 100,000 b Republic of Venezuela, senior unsubordinated deb., 9.125%, 06/18/07 100,375
US 500,000 Republic of Venezuela, Series A, 6.75%, 03/31/20 ................ 393,750
US 250,000 Venezuela DCB, 6.50%, FRN, 12/18/07 ............................. 232,188
--------------
726,313
--------------
Total Bonds (Cost $25,357,170) ............................ 25,258,739
--------------
Total Long Term Investments (Cost $68,723,154) ............ 77,916,282
--------------
e Short Term Investments 0.4%
US 300,000 FNMA, 5.43%, 07/14/97 (Cost $299,412) ........................... 299,416
--------------
Total Investments before Repurchase Agreement (Cost $69,022,566) 78,215,698
--------------
f Receivables from Repurchase Agreement 4.8%
US 3,991,000 Swiss Bank Corp., 5.90%, 07/01/97 (Maturity Value
$3,991,654) (Cost $3,991,000)
Collateral: U.S. Treasury Note, 6.875%, 08/31/99 ............... 3,991,000
--------------
Total Investments (Cost $73,013,566) 98.4% ........... 82,206,698
Other Assets and Liabilities, Net 1.5% ............... 1,233,657
Equity in Forward Contracts 0.1% ..................... 45,215
--------------
Net Assets 100.0%..................................... $83,485,570
==============
At June 30, 1997, the net unrealized appreciation based on the cost
of investments for income tax purposes of $73,013,566 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost................ $10,985,671
Aggregate gross unrealized depreciation for all investments in
which there was an excess of value over tax cost................ (1,792,539)
--------------
Net unrealized appreciation.................................... $ 9,193,132
==============
COUNTRY LEGEND:
AR - Argentina
AT - Austria
AU - Australia
BE - Belgium
BR - Brazil
CA - Canada
CH - Switzerland
DD - Germany
DK - Denmark
EG - Egypt
ES - Spain
FI - Finland
FR - France
GB - United Kingdom
GR - Greece
HK - Hong Kong
ID - Indonesia
IT - Italy
JP - Japan
KR - South Korea
MX - Mexico
NL - Netherlands
NO - Norway
NZ - New Zealand
PH - Philippines
SE - Sweden
TH - Thailand
US - United States
ZA South Africa
PORTFOLIOABBREVIATIONS:
FNMA - Federal National Mortgage Association
FRN - Floating Rate Notes
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified institutional buyers.
eCertain short-term securrities are traded on a discount basis; the rates shown are the discount rates at the time of
purchase by the Fund. Other securirties bear interest at the rates shown, payable at fixed dates or upon maturity.
fFace amount for repurchase agreements is for the underlying collateral.
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES/ VALUE
COUNTRY* WARRANTS Templeton Global Growth Fund (NOTE1)
a,b Common Stocks & Warrants 81.4%
<S> <C> <C> <C>
Argentina 2.1%
AR 681,655 Inversiones y Representacion .................................... $ 2,979,279
US 1,400 Inversiones y Representacion, GDR ............................... 61,250
US 50,000 Telecom Argentina Stet-France Telecom, SA, Sponsored ADR ........ 2,625,000
US 386,900 Transportadora de Gas del Sur, SA, Class B, Sponsored ADR ....... 4,836,250
US 155,000 YPF Sociedad Anonima, Sponsored ADR ............................. 4,766,250
--------------
15,268,029
--------------
Australia 2.7%
AU 1,070,971 Coles Myer, Ltd. ................................................ 5,571,488
AU 2,185,051 HIH Winterthur International Holdings, Ltd. ..................... 5,279,415
AU 2,149,000 Pacific Dunlop, Ltd. ............................................ 6,360,580
AU 712,750 RGC, Ltd. ....................................................... 2,610,076
--------------
19,821,559
--------------
Austria 1.2%
AT 30,000 Boehler-Uddeholm, AG ............................................ 2,326,416
AT 35,400 EVN Energie-Versorgung Niederoesterreich, AG .................... 4,560,851
AT 13,000 VA Technologie, AG .............................................. 2,379,031
--------------
9,266,298
--------------
Bermuda 2.1%
US 80,000 Ace, Ltd. ....................................................... 5,910,000
US 255,000 PartnerRe, Ltd. ................................................. 9,721,875
--------------
15,631,875
--------------
Brazil 1.1%
BR 129,100,000 Companhia Siderugica Nacional ................................... 4,257,164
US 98,100 a Uniao de Bancos Brasileiros, SA, GDR ............................ 3,641,963
--------------
7,899,127
--------------
Canada 1.7%
CA 119,700 Intrawest Corp. ................................................. 1,989,294
CA 74,000 a Newbridge Networks Corp. ........................................ 3,219,000
CA 384,200 Oshawa Group, Ltd., Class A ..................................... 5,745,125
CA 195,000 Primex Forest Products, Ltd. .................................... 1,094,355
--------------
12,047,774
--------------
China 0.3%
CN 13,356,000 Yizheng Chemical Fibre Co., Ltd., Class H ....................... 2,379,059
--------------
Czech Republic 0.6%
US 171,000 a,b Komercni Banka, AS, GDR ......................................... 3,561,075
CZ 9,000 SPT Telecom, AS ................................................. 943,629
--------------
4,504,704
--------------
Denmark 0.8%
DK 110,200 Tele Danmark, AS, Class B ....................................... 5,725,839
--------------
Ecuador 0.1%
US 400 La Cemento Nacional CA, Sponsored GDR ........................... 83,200
US 3,600 b La Cemento Nacional CA, Sponsored GDR ........................... 748,800
--------------
832,000
--------------
Finland 2.3%
FI 145,000 Enso Oy, Class R................................................. 1,340,330
FI 270,000 Metsa-Serla Oy, Class B ......................................... 2,199,413
FI 130,000 Oy Nokia, AB, Series A .......................................... 9,813,683
FI 65,000 Outokumpu, Oy, Series A ......................................... 1,289,298
FI 2,450 The Rauma Group ................................................. 56,146
FI 88,000 UPM-Kymmene Corp. ............................................... 2,067,498
--------------
16,766,368
--------------
France 5.5%
FR 157,102 AXA-UAP ......................................................... $ 9,770,923
FR 129,225 Banque Nationale de Paris........................................ 5,325,828
FR 23,792 Compagnie Generale d'Industrie et de Participations ............. 6,761,046
FR 68,900 Credit Commercial de France ..................................... 2,919,342
FR 83,000 Pechiney, SA, Class A ........................................... 3,269,607
US 112,708 Pechiney, SA, Class A, Sponsored ADR ............................ 2,211,895
FR 5,388 Galeries Lafayette .............................................. 2,233,425
FR 41,972 Elf Aquitane, SA ................................................ 4,528,094
FR 32,029 Unibail-Union du Credit-Bail Immobilier ......................... 2,997,592
--------------
40,017,752
--------------
Germany 0.7%
DD 6,300 Volkswagen, AG .................................................. 4,775,847
--------------
Greece 0.5%
GR 45,333 Alpha Credit Bank ............................................... 3,084,214
US 7,333 b Alpha Credit Bank ............................................... 498,926
--------------
3,583,140
--------------
Hong Kong 4.9%
HK 800,000 Cheung Kong Holdings, Ltd. ...................................... 7,899,526
HK 1,608,500 Hong Kong Electric Holdings, Ltd. ............................... 6,477,766
HK 278,149 HSBC Holdings, Plc. ............................................. 8,365,329
HK 800,000 Jardine Strategic Holdings, Ltd. ................................ 3,024,000
HK 40,000 a Jardine Strategic Holdings, Ltd., warrants ...................... 200
HK 3,600,000 Shun Tak Holdings, Ltd. ......................................... 2,207,221
HK 861,000 Swire Pacific, Ltd., Class A .................................... 7,751,701
HK 75,000 Swire Pacific, Ltd., Class B .................................... 113,749
--------------
35,839,492
--------------
Hungary 0.8%
US 256,358 b Mol Magyar Olaj - Es Gazipari RT, GDS ........................... 5,703,965
--------------
India 0.3%
GB 720,000 a India Fund (The), Class B ....................................... 1,336,908
US 37,000 b Larsen & Toubro, Ltd., GDR ...................................... 633,625
--------------
1,970,533
--------------
Indonesia 0.2%
ID 305,700 a Asia Pacific Resources International, Class A ................... 1,490,288
--------------
Italy 1.5%
IT 896,800 Banca Fideuram, SpA ............................................. 2,908,241
IT 1,745,200 Fiat, SpA ....................................................... 6,274,669
IT 962,290 Telecom Italia, SpA ............................................. 1,925,259
--------------
11,108,169
--------------
Japan 1.8%
JP 186,500 Daito Trust Construction Co. .................................... 2,196,798
JP 603,500 Hitachi, Ltd. ................................................... 6,740,075
JP 200,000 Matsushita Electric Industrial Co., Ltd. ........................ 4,031,062
--------------
12,967,935
--------------
Mexico 2.1%
MX 176,000 ALFA, SA de CV, Class A ......................................... 1,201,108
US 901,000 b ALFA, SA de CV, Class A ......................................... 6,148,854
MX 232,384 Cifra, SA de CV, Series A ....................................... 429,539
MX 1,900,000 Cifra, SA de CV, Series B ....................................... 3,540,670
US 86,400 Telefonos de Mexico, SA, Class L, Sponsored ADR ................. 4,125,600
--------------
15,445,771
--------------
Netherlands 1.2%
NL 56,500 European Vinyls Corp., International, NV ........................ $ 1,430,562
NL 105,188 ING Groep, NV ................................................... 4,849,719
NL 50,000 Koninklijke Frans Maas Groep, NV ................................ 1,604,768
NL 40,000 Koninklijke Nedlloyd, NV ........................................ 1,155,433
--------------
9,040,482
--------------
New Zealand 0.3%
NZ 583,873 Fisher & Paykel Industries, Ltd. ................................ 2,280,429
--------------
Norway 0.7%
NO 180,600 Helikopter Services Group, ASA .................................. 2,316,269
NO 155,100 Nycomed ASA, Class A ............................................ 2,285,488
NO 45,000 Nycomed ASA, Class B ............................................ 641,612
--------------
5,243,369
--------------
Philippines 0.6%
PH 19,923,321 Metro Pacific Corp. ............................................. 4,305,540
--------------
Singapore 0.1%
SG 310,000 Singapore Finance, Ltd. ......................................... 444,499
--------------
South Africa 0.7%
ZA 287,065 Rustenburg Platinum Holdings, Ltd. .............................. 5,251,575
--------------
South Korea 1.8%
KR 22,961 Byucksan Corp. .................................................. 217,199
KR 11,227 Keumkang, Ltd. .................................................. 536,064
KR 25,286 Kookmin Bank..................................................... 476,907
KR 92,200 Korea Electric Power Corp. ...................................... 2,751,464
KR 8,611 a Korean Air....................................................... 177,326
KR 100,000 Pacific Chemical Co.............................................. 2,488,739
KR 43,215 Pohang Iron & Steel Co., Ltd. ................................... 4,406,689
KR 123,920 Shinhan Bank..................................................... 1,824,785
KR 1,000 Tae Kwang Industrial Co., Ltd. .................................. 394,144
--------------
13,273,317
--------------
Spain 2.6%
ES 4,400 Banco Popular Espanol, SA ....................................... 1,077,978
ES 225,000 Banco Santander, SA ............................................. 6,932,474
ES 63,900 Cristaleria Espanola, SA ........................................ 5,520,509
ES 450,000 Iberdrola, SA ................................................... 5,680,353
--------------
19,211,314
--------------
Sweden 3.7%
SE 350,000 Asea, AB, Class A ............................................... 4,909,185
SE 192,100 Assidomaen, AB................................................... 5,463,383
SE 722,500 Munksjoe, AB..................................................... 7,425,344
SE 190,000 Skandia Forsakrings, AB, free.................................... 7,000,194
SE 68,000 Volvo, AB, Class B .............................................. 1,819,663
--------------
26,617,769
--------------
Switzerland 4.0%
CH 5,475 Credit Suisse Group.............................................. 702,884
CH 2,200 Kuoni Reisen, AG, Class B ....................................... 7,531,667
CH 4,160 Novartis ........................................................ 6,648,025
CH 3,000 SGS Societe Generale de Surveillance Holdings, SA, Class B ...... 6,408,764
CH 19,500 Zurich Versicherungsgesellschaft ................................ 7,757,275
--------------
29,048,615
--------------
United Kingdom 7.6%
GB 1,376,200 BG, Plc. ........................................................ 5,064,867
GB 1,291,217 BICC ............................................................ 3,795,231
US 655,100 b British Energy, Plc. ............................................ $ 1,598,231
GB 1,074,500 British Telecommunications, Plc. ................................ 7,980,599
GB 1,180,000 BTR, Plc. ....................................................... 4,038,202
GB 135,000 BTR, Plc., Class A .............................................. 448,498
GB 1,376,200 a Centrica, Plc. .................................................. 1,678,740
GB 1,455,000 Cordiant, Plc. .................................................. 2,992,431
GB 1,194,900 Courtaulds, Plc. ................................................ 6,725,777
GB 1,396,100 Dawson International, Plc. ...................................... 1,662,328
GB 466,666 Lex Service, Plc. ............................................... 2,925,940
GB 256,000 London Pacific Group, Ltd. ...................................... 888,874
GB 249,000 McBride, Plc. ................................................... 561,866
GB 1,569,627 National Grid Group, Plc. ....................................... 5,737,533
GB 1,828,200 Northern Foods, Plc. ............................................ 6,058,582
GB 228,111 Safeway, Plc. ................................................... 1,320,065
GB 275,300 W.H. Smith Group, Plc. .......................................... 1,648,160
--------------
55,125,924
--------------
United States 24.8%
US 294,000 Archer-Daniels-Midland Co. ...................................... 6,909,000
US 127,000 AT&T Corp. ...................................................... 4,452,937
US 339,000 a Banner Aerospace, Inc. .......................................... 3,008,625
US 230,000 a Bay Networks, Inc ............................................... 6,109,375
US 169,500 Dayton Hudson Corp. ............................................. 9,015,281
US 84,800 a DSC Communications Corp. ........................................ 1,886,800
US 97,400 Edwards (A.G.), Inc. ............................................ 4,163,850
US 58,500 Entergy Corp. ................................................... 1,601,437
US 156,000 Fannie Mae ...................................................... 6,805,500
US 90,000 Ford Motor Co. .................................................. 3,397,500
US 136,500 e Fruit of the Loom Inc., Class A ................................. 4,231,500
US 89,000 General Growth Properties ....................................... 2,981,500
US 60,000 General Motors Corp. ............................................ 3,341,250
US 66,000 General Motors Corp., Class H ................................... 3,811,500
US 34,000 Georgia-Pacific Corp. ........................................... 2,902,750
US 70,000 Goodyear Tire & Rubber Co. ...................................... 4,431,875
US 164,900 Highwood Properties, Inc., REIT ................................. 5,276,800
US 34,700 Horizon Group Inc................................................ 466,281
US 52,800 Houghton Mifflin Co.............................................. 3,524,400
US 250,000 a Humana, Inc. .................................................... 5,781,250
US 110,043 IBP, Inc. ....................................................... 2,558,500
US 48,900 a Landstar System, Inc............................................. 1,375,312
US 97,902 Limited, Inc. ................................................... 1,982,515
US 84,000 Merrill Lynch & Co., Inc......................................... 5,008,500
US 218,600 Morgan Stanley Dean Witter Discover & Co. ....................... 9,413,462
US 100,000 Motorola, Inc. .................................................. 7,600,000
US 32,000 National Health Investors, Inc. ................................. 1,256,000
US 157,000 a OMI Corp. ....................................................... 1,501,313
US 50,000 Owens Corning ................................................... 2,156,250
US 70,000 PECO Energy Co. ................................................. 1,470,000
US 151,700 Pharmacia & Upjohn, Inc. ........................................ 5,271,575
US 150,000 a Pinnacle Systems, Inc. .......................................... 2,559,375
US 150,000 Post Properties, Inc. ........................................... 6,084,375
US 24,000 Reliastar Financial Corp. ....................................... 1,755,000
US 80,000 The Rouse Co. ................................................... 2,360,000
US 130,000 a Syms Corp. ...................................................... 1,291,875
US 120,000 Torchmark Corp. ................................................. 8,550,000
US 127,466 Travelers, Inc. ................................................. 8,038,325
US 172,200 U.S. WEST Communications Group .................................. 6,489,787
US 228,400 UNUM Corp. ...................................................... $ 9,592,800
US 81,000 Valero Energy Corp. ............................................. 2,936,250
US 115,000 Weeks Corp. ..................................................... 3,593,750
US 240,000 Wheelabrator Technologies, Inc. ................................. 3,705,000
--------------
180,649,375
--------------
Total Common Stocks & Warrants (Cost $455,471,281)......... 593,537,732
--------------
Preferred Stocks 3.0%
Australia 0.6%
AU 1,103,025 News Corp., Ltd., pfd. .......................................... 4,347,405
--------------
Brazil 2.0%
BR 258,441,822 Banco Bradesco, SA, pfd. ........................................ 2,604,704
BR 1,952,000 Coteminas Cia Tecidos Norte de Minas, pfd. ...................... 761,544
US 75,000 Telecomunicacoes Brasileiras-Telebras, SA, pfd., Sponsored ADR .. 11,381,250
--------------
14,747,498
--------------
Canada
CA 119,700 a Intrawest Corp., pfd., Series NRP................................ 225,367
--------------
Greece 0.3%
GR 374,380 Michaniki, SA, pfd............................................... 2,330,420
--------------
Mexico 0.1%
US 6,500 Nacional Financiera, SA, 11.25%, 05/15/98, cvt., pfd. ........... 312,000
--------------
Total Preferred Stocks (Cost $14,045,243) ................. 21,962,690
--------------
Total Common Stocks, Warrants and Preferred
Stocks (Cost $469,516,524)...................................... 615,500,422
--------------
FACE
AMOUNT
Convertible Bonds 0.9%
Italy 0.7%
IT $ 4,950,000 Government of Italy, cvt. bonds, 5.00%, 06/28/01 ................ 5,067,810
--------------
Mexico 0.1%
US 1,210,000 a Empresas ICA Sociedad Controladora, SA de CV,
sub. deb., Series U.S., 5.00%, 03/15/04 ........................ 955,900
--------------
Thailand 0.1%
US 3,602,000 MDX Public Co., Ltd., cvt. unsecured notes, 4.75%, 09/17/03 ..... 576,320
--------------
Total Convertible Bonds (Cost $7,307,417) ................. 6,600,030
--------------
Total Long Term Investments (Cost $476,823,941) ........... 622,100,452
--------------
e Short Term Investments 5.2%
US 1,286,000 FHLMC, 5.45%, 07/14/97 .......................................... 1,283,497
US 36,510,000 FNMA, 5.43%,07/14/97 ............................................ 36,438,952
--------------
Total Short Term Investments (Cost $37,716,177)............ 37,722,449
--------------
Total Investments before Repurchase Agreement
(Cost $514,540,118)............................................. 659,822,901
--------------
f Receivables from Repurchase Agreements 9.2%
US 20,285,000 Aubrey G. Langston & Co., 5.85%, 07/01/97,
(Maturity Value $33,449,434.65)
Collateral: U.S. Treasury Note, 6.125%,08/31/98 ................ 33,444,000
US 32,943,000 Swiss Bank Corp., 5.90%, 07/01/97, (Maturity Value $33,916,557.64)
Collateral: U.S. Treasury Note, 7.50%, 11/15/01 ................ 33,911,000
--------------
Total Receivables from Repurchase Agreements (Cost $67,355,000) 67,355,000
--------------
Total Investments (Cost $581,895,118) 99.7% .......... 727,177,901
Other Assets and Liabilities, Net 0.3% ............... 1,995,946
--------------
Net Assets 100.0% .................................... $729,173,847
==============
At June 30, 1997, the net unrealized appreciation based on the
cost of investments for income tax purposes of
$581,908,465 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ............... $168,243,312
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value ............ (22,973,876)
--------------
Net unrealized appreciation ................................... $145,269,436
==============
COUNTRY LEGEND:
AR - Argentina
AT - Austria
AU - Australia
BR - Brazil
CA - Canada
CH - Switzerland
CN - China
CZ - Czech Republic
DD - Germany
DK - Denmark
ES - Spain
FI - Finland
FR - France
GB - United Kingdom
GR - Greece
HK - Hong Kong
ID - Indonesia
IT - Italy
JP - Japan
KR - South Korea
MX - Mexico
NL - Netherland
NO - Norway
NZ - New Zealand
PH - Philippines
SE - Sweden
SG - Singapore
US - United States
ZA - South Africa
PORTFOLIO ABBREVIATIONS:
FHLMC -Federal Home Loan Mortgage Corp.
FNMA -Federal National Mortgage Association
REIT - Real Estate Investment Trust
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified institutional buyers.
eCertain short-term securrities are traded on a discount basis; the rates shown are the discount rates at the time of
purchase by the Fund. Other securirties bear interest at the rates shown, payable at fixed dates or upon maturity.
fFace amount for repurchase agreements is for the underlying collateral.
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
FACE VALUE
COUNTRY* AMOUNT Templeton Global Income Securities Fund (NOTE1)
Bonds 92.5%
<S> <C> <C> <C>
Argentina 5.7%
US $ 6,250,000 Republic of Argentina, 8.75%, 05/09/02 .......................... $ 6,253,125
US 2,895,000 Republic of Argentina, bonds, 10.95%, 11/01/99 .................. 3,144,694
US 1,545,000 Republic of Argentina, senior unsecured notes, Series
BGLO, 8.375%, 12/20/03 ......................................... 1,566,244
US 160,000 Republic of Argentina, Series L, 5.50%, VRN, 03/31/23 ........... 111,000
US 550,000 Republic of Argentina, unsecured notes, 11.375%, 01/30/17 ....... 613,250
--------------
11,688,313
--------------
Australia 4.0%
AU 9,368,000 Government of Australia, bonds, Series 1002, 10.00%, 10/15/02 ... 8,166,037
--------------
Brazil 5.9%
US 2,437,414 Republic of Brazil, Series C, 8.00%, 04/15/14 ................... 1,978,579
US 3,905,000 Republic of Brazil, notes, 8.875%, 11/05/01 ..................... 4,036,794
US 3,780,000 Republic of Brazil, 6.5625%, FRN, 04/15/09 ...................... 3,321,675
US 2,300,000 Republic of Brazil, bonds, 10.125%, 05/15/27 .................... 2,216,625
US 620,000 Republic of Brazil, cvt., Series L, 6.9375%, FRN, 04/15/12 ...... 511,500
--------------
12,065,173
--------------
Canada 8.8%
CA 5,956,000 Government of Canada, deb., Series A32, 10.50%, 07/01/00 ........ 4,924,613
CA 5,947,000 Government of Canada, deb., Series A37, 10.50%, 03/01/01 ........ 5,007,336
CA 9,565,000 Government of Canada, deb., Series J25, 10.00%, 05/01/02 ........ 8,142,409
--------------
18,074,358
--------------
Denmark 3.9%
DK 15,995,000 Kingdom of Denmark, bonds, 8.00%, 05/15/03 ...................... 2,726,418
DK 30,380,000 Kingdom of Denmark, bonds, 9.00%, 11/15/00 ...................... 5,207,229
--------------
7,933,647
--------------
Germany 9.1%
DD 19,970,000 Government of Germany, Bundesobligation,
bonds, Series 118, 5.25%, 02/21/01 ............................. 11,857,867
DD 8,900,000 Federal Republic of Germany, Unity, bonds, 8.75%, 08/20/01 ...... 5,931,292
DD 1,190,000 Treuhandanstalt, 7.75%, 10/01/02 ................................ 775,523
--------------
18,564,682
--------------
Italy 8.0%
IT 3,035,000,000 Buoni Poliennali del Tes, deb., 12.00%, 01/17/99 ................ 1,925,048
IT 3,870,000,000 Buoni Poliennali del Tes, deb., 10.50%, 07/15/00 ................ 2,541,894
IT 8,660,000,000 Buoni Poliennali del Tes, deb., 10.00%, 08/01/03 ................ 5,946,934
IT 3,225,000,000 Government of Italy, bonds, 7.75%, 11/01/06 ..................... 2,012,541
IT 6,440,000,000 Government of Italy, deb., 10.50%, 04/15/98 ..................... 3,887,723
--------------
16,314,140
--------------
Mexico 6.4%
US 7,985,000 United Mexican States, notes, 9.75%, 02/06/01 ................... 8,446,134
US 1,125,000 United Mexican States, bonds, 11.375%, 09/15/16 ................. 1,265,625
US 620,000 United Mexican States, bonds, 11.50%, 05/15/26 .................. 708,350
US 3,450,000 United Mexican States, deb., Series A, 6.25%, 12/31/19 .......... 2,669,438
--------------
13,089,547
--------------
Panama 0.6%
US 1,250,000 Republic of Panama, 7.875%, 02/13/02 ............................ 1,246,875
--------------
Spain 5.7%
ES 962,000,000 Government of Spain, deb., 12.25%, 03/25/00 ..................... 7,685,553
ES 511,100,000 Government of Spain, bonds, 10.10%, 02/28/01 .................... 4,014,225
--------------
11,699,778
--------------
Sweden 2.9%
SE $ 12,900,000 Government of Sweden, bonds, Series 1033, 10.25%, 05/05/03....... $ 2,010,802
SE 13,600,000 Government of Sweden, bonds, Series 1037, 8.00%, 08/15/07 ....... 1,931,857
SE 12,100,000 Government of Sweden, deb., Series 1030, 13.00%, 06/15/01 ....... 1,972,133
--------------
5,914,792
--------------
United Kingdom 4.2%
GB 4,720,000 United Kingdom Treasury, deb., 10.00%, 02/26/01 ................. 8,548,018
--------------
United States 25.5%
US 9,610,000 U.S. Treasury Bond, 6.375%, 08/15/02 ............................ 9,607,002
US 7,965,000 U.S. Treasury Note, 6.25%, 08/31/00 ............................. 7,962,515
US 23,545,000 U.S. Treasury Note, 6.625%, 04/30/02 ............................ 23,765,758
US 10,344,000 U.S. Treasury Note, 7.25%, 08/15/04 ............................. 10,786,858
--------------
52,122,133
--------------
Venezuela 1.8%
US 1,940,000 Republic of Venezuela, senior unsubordinated deb., 9.125%, 06/18/07 1,947,275
US 2,250,000 Republic of Venezuela, Series A, 6.75%, 03/31/20 ................ 1,771,875
--------------
3,719,150
--------------
Total Bonds (Cost $189,915,923) ........................... 189,146,643
--------------
Total Investments (Cost $189,915,923) 92.5% .......... 189,146,643
Equity in Forward Contracts 0.3% ..................... 517,359
Other Assets and Liabilities, Net 7.2% ............... 14,774,879
--------------
Net Assets 100.0% .................................... $204,438,881
==============
At June 30, 1997, the net unrealized depreciation based on the
cost of investments for income tax purposes of $189,915,923 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ............... $ 1,393,234
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value ............... (2,162,514)
--------------
Net unrealized depreciation ................................... $ (769,280)
==============
COUNTRY LEGEND:
AU - Australia
CA - Canada
DD - Germany
DK - Denmark
ES - Spain
GB - United Kingdom
IT - Italy
SE - Sweden
US - United States
PORTFOLIO ABBREVIATIONS:
FRN - Floating Rate Notes
VRN - Variable Rate Notes
*Securities traded in currency of country indicated and valued in U.S. dollars.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
SHARES/
RIGHTS & VALUE
COUNTRY* WARRANTS Templeton International Equity Fund (NOTE1)
a,b Common Stocks, Rights & Warrants 83.4%
<S> <C> <C> <C>
Argentina 1.7%
AR 647,568 CIADEA, SA ...................................................... $ 2,784,962
US 221,700 Transportadora de Gas del Sur, SA, Class B, Sponsored ADR ....... 2,771,250
AR 25,100 YPF Sociedad Anonima, Class D ................................... 773,196
US 495,000 YPF Sociedad Anonima, Sponsored ADR ............................. 15,221,250
--------------
21,550,658
--------------
Australia 4.9%
AU 1,615,827 David Jones, Ltd. ............................................... 2,257,048
AU 1,431,025 Email, Ltd. ..................................................... 5,121,531
AU 1,549,534 Gio Australia Holdings, Ltd. .................................... 4,796,884
AU 1,024,647 National Foods, Ltd. ............................................ 1,439,002
AU 90,000 News Corp., Ltd., pfd. .......................................... 354,721
AU 6,527,766 Pacific Dunlop, Ltd. ............................................ 19,320,792
AU 7,462,117 Pioneer International, Ltd. ..................................... 28,847,374
--------------
62,137,352
--------------
Austria 0.5%
AT 33,000 Boehler-Uddeholm, AG ............................................ 2,559,057
US 27,055 b Boehler-Uddeholm, AG ............................................ 2,098,039
AT 39,400 Mayr-Melnhof Karton, AG ......................................... 2,024,055
--------------
6,681,151
--------------
Belgium 0.5%
BE 10,650 Arbed, SA ....................................................... 1,228,049
BE 9,054 Solvay, SA ...................................................... 5,333,281
--------------
6,561,330
--------------
Bermuda 2.1%
US 362,500 Ace, Ltd. ....................................................... 26,779,687
--------------
Brazil 0.8%
BR 1,021,000 Banco Itau, SA .................................................. 571,885
US 276,365 Companhia Siderurgica Nacional, Sponsored ADR ................... 9,113,332
--------------
9,685,217
--------------
Canada 1.7%
CA 357,000 Hudson's Bay Co.................................................. 8,014,048
CA 254,000 London Insurance Group, Inc. .................................... 4,892,574
CA 447,000 National Bank of Canada ......................................... 5,599,841
CA 230,000 Oshawa Group, Ltd., Class A ..................................... 3,439,299
--------------
21,945,762
--------------
China 1.3%
US 650,700 a Beijing Yanhua Petrochemical Co., Ltd., Sponsored ADR ........... 7,483,050
HK 6,960,000 Maanshan Iron and Steel Co., Class H ............................ 1,455,372
US 338,300 Shandong Huaneng Power Co., Ltd., Sponsored ADR ................. 3,636,725
HK 19,340,200 Yizheng Chemical Fibre Co., Ltd., Class H ....................... 3,445,004
--------------
16,020,151
--------------
Czech Republic 0.2%
US 120,000 a,b Komercni Banka, AS, GDR ......................................... 2,499,000
--------------
Ecuador 0.1%
US 400 La Cemento Nacional CA, Sponsored GDR ........................... 83,200
US 6,840 b La Cemento Nacional CA, Sponsored GDR ........................... 1,422,720
--------------
1,505,920
--------------
Finland 3.4%
FI 111,562 a Amer Group, Ltd. ................................................ 2,040,998
FI 1,754,300 Enso Oy, Class R ............................................... 16,216,148
FI 1,254,500 Merita Ltd., Class A ............................................ 4,106,976
FI 231,000 Oy Nokia, AB, Series A .......................................... $ 17,438,159
FI 171,000 Outokumpu, OY, Series A ......................................... 3,391,844
--------------
43,194,125
--------------
France 5.2%
FR 14,323 Alcatel Alsthom, SA ............................................. 1,793,818
FR 12,133 BERTRAND FAURE .................................................. 638,992
FR 13,292 Cie de Saint Gobain ............................................. 1,938,374
FR 128,800 Credit Commercial de France ..................................... 5,457,349
FR 148,024 Elf Aquitaine, SA ............................................... 15,969,373
FR 55,849 Marine-Wendel, SA ............................................... 5,702,078
FR 366,481 Pechiney, SA, Class A ........................................... 14,436,733
FR 558,200 a Regie Nationale des Usines Renault, SA .......................... 14,124,311
FR 62,039 Total SA, Class B ............................................... 6,270,724
--------------
66,331,752
--------------
Germany 1.9%
DD 407,000 Deutsche Bank, AG ............................................... 23,898,618
--------------
Greece 0.5%
GR 96,791 Ergo Bank, SA ................................................... 5,813,591
--------------
Hong Kong 5.8%
HK 7,134,100 C.P. Pokphand ................................................... 2,210,040
HK 188,600 Cheung Kong Holdings, Ltd. ...................................... 1,862,313
HK 9,576,543 Dairy Farm International Holdings, Ltd. ......................... 7,182,407
HK 779,000 Hang Lung Development ........................................... 1,427,826
HK 467,400 Hong Kong Aircraft Engineering Co., Ltd. ........................ 1,701,326
HK 1,635,708 Jardine Matheson Holdings, Ltd. ................................. 11,613,527
HK 2,864,250 Jardine Strategic Holdings, Ltd. ................................ 10,783,901
HK 318,250 a Jardine Strategic Holdings, Ltd., warrants ...................... 125,709
HK 121,900 a Oriental Press Group, Ltd., warrants ............................ 6,766
HK 7,155,000 Peregrine Investments Holdings, Ltd. ............................ 14,730,584
HK 715,500 a Peregrine Investments Holdings, Ltd., warrants .................. 314,006
HK 12,748,000 Shun Tak Holdings, Ltd. ......................................... 7,816,013
HK 3,172,400 a Sing Tao Holdings, Ltd. ......................................... 1,187,505
HK 7,937,100 Swire Pacific, Ltd., Class B .................................... 12,037,862
HK 394,800 Yue Yuen Industrial Holdings..................................... 817,903
--------------
73,817,688
--------------
India
US 109,700 b Gujarat Narmada Valley Fertilizers Co., Ltd., GDR................ 274,250
--------------
Indonesia 0.3%
ID 167,500 PT Barito Pacific Timber, fgn. .................................. 142,912
ID 5,118,052 PT Indah Kiat Pulp & Paper Corp., fgn............................ 2,998,859
ID 4,606,247 a PT Indah Kiat Pulp & Paper Corp., rights......................... 804,957
ID 614,066 a PT Indah Kiat Pulp & Paper Corp., warrants ...................... 227,245
--------------
4,173,973
--------------
Italy 2.4%
IT 148,000 Banco di Sardegna, SpA, di Risp ................................. 1,336,825
IT 696,200 Cartiere Burgo, SpA ............................................. 3,868,961
IT 3,083,100 Fiat, SpA ....................................................... 11,084,936
IT 904,000 Sasib SpA, di Risp .............................................. 1,782,041
IT 1,833,800 Sirti, SpA ...................................................... 10,603,106
IT 468,000 Unione Cementi Marchino Emiliane (Unicem), di Risp .............. 1,196,300
--------------
29,872,169
--------------
Mexico 0.6%
MX 1,983,600 Grupo Mexico, SA de CV, Class B ................................. 7,455,359
--------------
Netherlands 7.8%
NL 32,300 Akzo Nobel, NV .................................................. $ 4,426,461
NL 19,000 DSM, NV ......................................................... 1,890,417
NL 563,685 ING Groep, NV.................................................... 25,988,839
NL 240,308 Internatio-Muller, NV ........................................... 7,578,106
NL 147,900 Koninklijke Bijenkorf Beheer, NV (KBB) .......................... 10,345,239
NL 504,000 NV Holdingmaatschappij De Telegraaf ............................. 10,886,749
NL 534,307 Philips Electronics, NV ......................................... 38,271,723
--------------
99,387,534
--------------
New Zealand 2.4%
NZ 2,322,000 Air New Zealand, Ltd., Class B .................................. 7,097,493
NZ 3,243,400 Carter Holt Harvey, Ltd. ........................................ 8,393,744
NZ 1,321,124 Fisher & Paykel Industries, Ltd. ................................ 5,159,904
NZ 6,020,000 Fletcher Challenge Forests ...................................... 8,750,654
US 47,765 Tranz Rail Holdings, Ltd., Sponsored ADR ........................ 806,034
--------------
30,207,829
--------------
Norway 2.7%
NO 176,200 Fokus Bank, AS .................................................. 1,490,531
NO 355,960 Hafslund, ASA, Class B........................................... 1,932,981
NO 134,000 Helikopter Services Group, ASA .................................. 1,718,605
NO 289,600 Nycomed, ASA, Class A ........................................... 4,267,423
NO 1,005,660 Nycomed, ASA, Class B ........................................... 14,338,737
NO 199,000 Union Bank of Norway, Primary Capital Certificate ............... 5,891,912
NO 295,000 Unitor, AS ...................................................... 4,226,246
--------------
33,866,435
--------------
Peru 1.0%
PE 2,445,602 Cpt-Telefonica del Peru, SA, Class B ............................ 6,426,332
US 251,900 Cpt-Telefonica del Peru, SA, Class B, ADR ....................... 6,596,631
--------------
13,022,963
--------------
Portugal 0.6%
PT 321,978 BPI - SGPS, SA .................................................. 6,266,121
US 239,400 b Portucel Industrial-Empresa Produtora de Celulosa, SA, Sponsored ADR 1,775,197
--------------
8,041,318
--------------
South Africa 1.1%
ZA 417,465 Rustenburg Platinum Holdings, Ltd. .............................. 7,637,116
ZA 722,582 Sappi, Ltd. ..................................................... 6,529,835
--------------
14,166,951
--------------
South Korea 1.5%
KR 60,104 Byucksan Corp.................................................... 568,551
KR 155,586 Daegu Bank ...................................................... 1,333,642
KR 30,600 Dae Han Synthetic Fiber Co. ..................................... 3,097,905
KR 19,110 Keumkang, Ltd. .................................................. 912,459
KR 57,900 Korea Chemical Co., Ltd ......................................... 4,880,047
KR 66,000 Korea Electric Power Corp........................................ 1,969,595
KR 87,100 Korea Long Term Credit Bank ..................................... 1,379,047
KR 155,990 Pacific Chemical Co. ............................................ 3,882,184
KR 10,450 Pohang Iron & Steel Co., Ltd. ................................... 1,065,600
--------------
19,089,030
--------------
Spain 4.4%
ES 27,500 Banco Bilbao Vizcaya ............................................ 2,233,967
ES 15,600 Banco Popular Espanol, SA ....................................... 3,821,921
ES 246,970 Compania Sevillana de Electricidad .............................. 2,547,638
ES 378,000 Dragados & Construcciones, SA ................................... 7,849,881
ES 1,517,800 Iberdrola, SA ................................................... $ 19,159,199
ES 646,100 Telefonica de Espana ............................................ 18,679,240
ES 52,200 Unipapel, SA .................................................... 1,098,202
--------------
55,390,048
--------------
Sweden 9.3%
SE 806,000 Asea, AB, Class A ............................................... 11,305,152
SE 515,500 Celsius, AB, Class B ............................................ 10,129,403
SE 382,000 Electrolux, AB, Series B ........................................ 27,555,556
SE 257,100 a Enator, AB, Class B ............................................. 4,586,620
SE 158,500 Esselte, Class B ................................................ 3,729,171
SE 163,000 Foreningsbanken, AB, Series A ................................... 3,624,329
SE 191,000 a Granges, AB ..................................................... 2,530,864
SE 210,000 Marieberg Tidnings, AB, Class A ................................. 5,212,333
SE 1,288,000 a Stena Line, AB, Class B ......................................... 6,243,940
SE 804,250 Stora Kopparbergs Bergslags, AB, Class B ........................ 13,100,058
SE 155,400 Svenska Handelsbanken, Class A .................................. 4,941,943
SE 922,000 Volvo, AB, Class B .............................................. 24,672,484
--------------
117,631,853
--------------
Switzerland 4.1%
CH 13,989 Adecco, SA ...................................................... 5,370,222
CH 3,690 a Baloise-Holding ................................................. 8,792,331
CH 12,800 Bucher Holding, AG .............................................. 13,321,465
CH 3,570 Kuoni Reisen, AG, Class B ....................................... 12,221,842
CH 2,506 Novartis ........................................................ 4,004,796
CH 15,400 SMH, AG, br. .................................................... 8,793,975
--------------
52,504,631
--------------
Thailand 0.1%
TH 17,900 Charoen Pokphand Feedmill Public Co., Ltd., fgn. ................ 44,223
TH 344,900 Siam City Cement Public Co., Ltd., fgn. ......................... 1,404,630
--------------
1,448,853
--------------
Turkey 0.4%
US 19,688,738 Tofas Turk Otomobil Fabrikasi, AS, Sponsored GDR ................ 4,626,853
--------------
United Kingdom 14.1%
GB 2,536,000 Anglian Group, Plc............................................... 10,410,232
GB 2,908,800 BG, Plc.......................................................... 10,705,337
GB 2,147,200 British Steel, Plc. ............................................. 5,327,862
GB 1,446,000 British Telecommunications, Plc. ................................ 10,739,829
GB 4,204,600 BTR, Plc. ....................................................... 14,389,004
GB 1,290,000 a Centrica, Plc. .................................................. 1,573,590
GB 7,123,000 Cordiant, Plc. .................................................. 14,649,545
GB 2,919,000 Courtaulds, Plc. ................................................ 16,430,282
GB 5,560,000 Harrisons & Crosfield, Plc. ..................................... 10,277,607
GB 449,950 Hepworth, Plc. .................................................. 1,775,852
GB 2,493,900 Hillsdown Holdings, Plc. ........................................ 7,018,753
GB 32,000 Imperial Chemical Industries, Plc. .............................. 445,236
GB 1,330,900 Kwik Save Group, Plc. ........................................... 6,748,806
GB 902,000 Lex Service, Plc. ............................................... 5,655,431
GB 1,890,000 London Pacific Group, Ltd. ...................................... 6,562,391
GB 1,000,000 McBride, Plc. ................................................... 2,256,491
GB 1,487,610 Meggitt, Plc. ................................................... 3,096,659
GB 641,668 National Westminster Bank, Plc. ................................. 8,628,735
GB 612,300 a,b Railtrack Group, Plc. ........................................... 6,378,019
GB 1,695,778 Safeway, Plc. ................................................... 9,813,367
GB 50,000 Tate & Lyle, Plc. ............................................... 371,780
GB 978,479 Thames Water Group, Plc. ........................................ $ 11,300,358
GB 3,844,900 Thorn, Plc. ..................................................... 11,013,053
GB 710,700 a Waste Management International, Plc. ............................ 3,302,058
--------------
178,870,277
--------------
Total Common Stocks, Rights & Warrants (Cost $827,145,250) 1,058,452,328
--------------
Preferred Stocks 1.5%
Brazil 1.3%
BR 525,200,000 Banco Bradesco, SA, pfd. ........................................ 5,293,224
US 57,300 Telecomunicacoes Brasileiras - Telebras, SA, pfd., Sponsored ADR 8,695,275
BR 56,824,000 Uniao de Bancos Brasileiros, SA, pfd. ........................... 2,084,418
--------------
16,072,917
--------------
Hong Kong 0.2%
US 1,531,000 Jardine Strategic Holdings, Ltd., 7.50%, cvt., pfd. ............. 1,890,785
--------------
Total Preferred Stocks (Cost $12,281,998) ................. 17,963,702
--------------
FACE
AMOUNT
Bonds 5.0%
United States
US $63,665,000 Federal National Mortgage Association, 07/14/97 (Cost $63,530,561) 63,541,108
--------------
Total Long Term Investments (Cost $902,957,809) ........... 1,139,957,138
--------------
f Receivable from Repurchase Agreements 9.9%
US 50,000,000 Aubrey G. Lanston & Co., 5.85%, 07/01/97,
(Maturity Value $63,678,346.05) Collateral: U.S. Treasury Notes,
6.250%, 06/30/02 ............................................... 63,668,000
US 50,000,000 Swiss Bank Corp., 5.90%, 07/01/97, (Maturity Value $62,349,216.67)
Collateral: U.S. Treasury Notes, 5.875%, 11/15/99 .............. 62,339,000
--------------
Total Receivables from Repurchase Agreements (Cost $126,007,000) 126,007,000
--------------
Total Investments (Cost $1,028,964,809) 99.8%......... 1,265,964,138
Other Assets and Liablities, Net 0.2%................. 3,026,788
--------------
Net Assets 100.0%.....................................$1,268,990,926
==============
At June 30, 1997, the net unrealized appreciation based on the
cost of investments for income tax purposes of
$1,029,249,534 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost............. $ 281,565,630
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value............. (44,851,026)
--------------
Net unrealized appreciation.................................... $ 236,714,604
==============
CURRENCY LEGEND:
AR - Argentina
AT - Austria
AU - Australia
BE - Belgium
BR - Brazil
CA - Canada
CH - Switzerland
DD - Germany
ES - Spain
FI - Finland
FR - France
GB - United Kingdom
GR - Greece
HK - Hong Kong
ID - Indonesia
IT - Italy
KR - South Korea
MX - Mexico
NL - Netherlands
NO - Norway
NZ - New Zealand
PE - Peru
PT - Portugal
SE - Sweden
TH - Thailand
US - United States
ZA - South Africa
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified institutional buyers.
fFace amount for repurchase agreements is for the underlying collateral.
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES/ VALUE
COUNTRY* WARRANTS Templeton International Smaller Companies Fund (NOTE1)
a Common Stocks & Warrants 62.8%
<S> <C> <C> <C>
Argentina 1.2%
AR 45,900 CIADEA, SA ...................................................... $ 197,400
US 24,300 a Mirgor SA, Comercial Industrial Financiera Inmobi, Class C, ADR . 68,648
US 7,000 Transportadora de Gas del Sur, SA, Class B, Sponsored ADR ....... 87,500
--------------
353,548
--------------
Australia 1.9%
AU 87,500 David Jones, Ltd. ............................................... 122,223
AU 324,000 Davids, Ltd. .................................................... 283,777
AU 44,964 Email, Ltd. ..................................................... 160,923
--------------
566,923
--------------
Austria 1.0%
AT 3,853 Boehler - Uddeholm, AG .......................................... 298,789
--------------
Brazil 1.4%
BR 5,207,000 Bombril, SA ..................................................... 62,636
US 9,200 a Uniao de Bancos Brasileiros, SA, GDR ............................ 341,550
--------------
404,186
--------------
Canada 0.8%
CA 1,480 Hudson's Bay Co. ................................................ 33,224
CA 13,500 Oshawa Group, Ltd., Class A ..................................... 201,872
--------------
235,096
--------------
China 2.0%
CN 52,000 China International Marine Containers, Class B .................. 61,415
CN 179,000 Dongfang Electrical Machinery Co., Ltd., Class H ................ 57,762
US 110,400 b Guangdong Electric Power Development Co., Ltd., Class B ......... 90,488
US 40,000 b Guangdong Kelon Electrical Hldgs Ltd.,Class H ................... 38,207
CN 92,000 Guangdong Kelon Electrical Hldgs. Ltd., Class H ................. 87,876
CN 161,000 Inner Mongolia Erdos Cashmere Products, Class B ................. 135,240
CN 650,000 Yizheng Chemical Fibre Co., Ltd., Class H ....................... 115,782
--------------
586,770
--------------
Denmark 1.8%
DK 2,252 Det Danske Traelastkompagni, AS.................................. 205,871
DK 9,100 a ISS International Service System, AS, Class B ................... 326,180
--------------
532,051
--------------
Ecuador 0.8%
US 1,075 La Cemento Nacional CA, Sponsored GDR ........................... 223,600
--------------
Egypt 0.5%
US 6,500 b Commercial Intl Bank Ltd., GDR .................................. 136,013
--------------
Finland 0.7%
FI 11,300 a Amer Group, Ltd. ................................................ 206,731
--------------
France 2.9%
FR 4,300 BERTRAND FAURE .................................................. 226,462
FR 539 Eramet, SA ...................................................... 24,856
FR 294 Galeries Lafayette .............................................. 121,868
FR 1,283 Marine - Wendel, SA ............................................. 130,992
FR 2,200 Sylea, SA ....................................................... 210,390
FR 2,356 Vallourec ....................................................... 143,965
--------------
858,533
--------------
Germany 0.5%
DD 2,256 Moebel Walther, AG .............................................. 137,127
--------------
Hong Kong 10.3%
HK 904,000 Baltrans Holdings, Ltd. ......................................... 151,692
HK 432,100 C.P. Pokphand ................................................... 133,858
HK 213,000 Giordano International, Ltd. .................................... $ 145,715
HK 55,100 Hong Kong Aircraft Engineering Co., Ltd. ........................ 200,563
HK 126,904 Hung Hing Printing Group, Ltd. .................................. 70,436
HK 215,000 Kumagai Gumi Hong Kong, Ltd. .................................... 223,400
HK 391,000 Li & Fung, Ltd. ................................................. 439,082
HK 280,000 Melco International Development, Ltd. ........................... 91,258
HK 250,000 Orient Overseas International, Ltd. ............................. 177,481
HK 23,225 Peregrine Investments Holdings, Ltd. ............................ 47,815
HK 295,000 a Pioneer Industries International Holdings, Ltd. ................. 136,128
HK 931,000 Sinocan Holdings, Ltd. .......................................... 459,655
HK 23,000 Swank International Manufacturing Co., Ltd. ..................... 2,494
HK 741,000 Techtronic Industries Co., Ltd. ................................. 131,992
HK 525,000 Tungtex Holdings ................................................ 54,212
HK 136,000 V Tech Holdings, Ltd. ........................................... 256,296
HK 924,000 a Wai Kee Holdings, Ltd. .......................................... 218,259
HK 138,600 a Wai Kee Holdings, Ltd., warrants ................................ 13,239
HK 14,400 Wing Hang Bank .................................................. 86,988
--------------
3,040,563
--------------
Hungary 0.3%
US 5,560 b Tiszai Vegyi Kombinat RT, GDR ................................... 96,327
--------------
India 0.1%
IN 3,800 Gujarat Ambuja Cements, Ltd. .................................... 36,779
--------------
Indonesia 1.6%
ID 144,100 PT Steady Safe, fgn. ............................................ 168,867
ID 204,000 PT Tambang Timah, fgn. .......................................... 316,653
--------------
485,520
--------------
Israel
US 200 Tadiran Ltd., Sponsored ADR ..................................... 5,725
--------------
Italy 0.5%
IT 9,566 Cartiere Burgo, SpA ............................................. 53,161
US 3,600 b Esaote Biomedica, SpA, ADR ...................................... 94,184
--------------
147,345
--------------
Mexico 0.4%
MX 151,800 a Empaques Ponderosa, SA de CV, Class B ........................... 124,238
--------------
Netherlands 5.9%
NL 1,223 Crown-Van Gelder Papier, SA ..................................... 103,739
NL 7,740 De Boer Unigro................................................... 273,654
NL 3,000 Gamma Holdings, NV .............................................. 161,241
NL 15,750 Heidemij, NV..................................................... 157,267
NL 960 Hollandsche Beton Groep, NV ..................................... 218,958
NL 3,744 Internatio-Muller, NV ........................................... 118,067
NL 1,850 Nagron Nationaal Grondbezit, NV ................................. 212,059
NL 14,500 Otra, NV ........................................................ 232,691
NL 10,932 Schuttersveld Holding ........................................... 266,213
--------------
1,743,889
--------------
New Zealand 1.7%
NZ 6,625 Fisher & Paykel Industries, Ltd. ................................ 25,875
NZ 66,054 Fletcher Challenge Forests ...................................... 96,016
NZ 155,800 Tourism Holdings, Ltd. .......................................... 221,179
US 8,900 Tranz Rail Holdings, Ltd., Sponsored ADR ........................ 150,188
--------------
493,258
--------------
Norway 1.5%
NO 16,400 Helikopter Services Group, ASA .................................. $ 210,337
NO 600 Norske Skogindustrier, AS, Class A .............................. 20,671
NO 7,170 Union Bank of Norway, Primary Capital Certificate ............... 212,286
--------------
443,294
--------------
Singapore 1.7%
US 60,000 Inchcape Berhad ................................................. 216,129
SG 39,000 Singapore Business Service (1978), Ltd., fgn. ................... 186,857
SG 60,000 Singapore Finance, Ltd. ......................................... 86,032
--------------
489,018
--------------
South Africa 1.7%
ZA 21,500 Impala Platinum Holdings, Ltd. .................................. 240,495
ZA 60,000 Murray & Roberts Hldgs., Ltd. ................................... 140,842
ZA 67,700 Sentrachem, Ltd. ................................................ 122,195
--------------
503,532
--------------
South Korea 2.3%
KR 3,200 Dae Han Synthetic Fiber Co. ..................................... 323,964
KR 2,900 Korea Chemical Co., Ltd. ........................................ 244,424
KR 6,800 Korea Long Term Credit Bank ..................................... 107,664
--------------
676,052
--------------
Spain 4.8%
ES 3,272 Banco de Valencia, SA ........................................... 68,837
ES 4,000 Banco Pastor, SA ................................................ 301,323
ES 1,291 Cristaleria Espanola, SA ........................................ 111,533
ES 14,155 Dragados & Construcciones, SA ................................... 293,955
ES 1,500 Electricas Reunidas de Zaragoza.................................. 62,911
ES 34,500 Energia e Industrias Aragonesas Eia S ........................... 248,185
ES 3,700 Gas y Electridad, SA ............................................ 198,622
ES 1,250 Grupo Acciona, SA ............................................... 140,821
--------------
1,426,187
--------------
Sweden 3.9%
SE 21,400 Catena, Class A ................................................. 250,365
SE 4,000 Celsius, AB, Class B ............................................ 78,599
SE 4,800 b Dahl International, AB .......................................... 94,318
US 6,300 b Dahl International, AB, ADR ..................................... 123,793
SE 1,657 Foreningsbanken, AB, Series A ................................... 36,847
SE 200 Granges, AB ..................................................... 2,650
SE 8,160 Marieberg Tidnings, AB, Class A ................................. 202,536
SE 12,995 Munksjoe, AB .................................................... 133,553
SE 19,045 Scribona, AB, Class B ........................................... 221,582
--------------
1,144,243
--------------
Switzerland 0.8%
CH 44 Kardex, AG ...................................................... 13,256
CH 52 Sarna Kunststoff Holding, AG .................................... 51,626
CH 200 Swisslog Holding, AG ............................................ 66,416
CH 245 Zehnder Holding, AG ............................................. 117,426
--------------
248,724
--------------
Thailand 1.6%
TH 71,300 Charoen Pokphand Feedmill Public Co., Ltd., fgn. ................ 176,151
TH 11,800 Robinson Department Store Public Co., Ltd., fgn. ................ 4,441
TH 1,000 Saha - Union Public Co., Ltd..................................... 733
TH 27,100 Siam City Cement Public Co., Ltd., fgn. ......................... $ 110,367
TH 69,500 Thai Glass Industries Public Co., Ltd., fgn. .................... 182,436
--------------
474,128
--------------
Turkey 0.1%
US 148,313 b Tofas Turk Otomobil Fabrikasi, AS, Sponsored GDR ................ 34,853
--------------
United Kingdom 8.1%
GB 35,337 Albert Fisher Group, Plc. ....................................... 25,451
GB 6,978 Charter, Plc. ................................................... 92,848
GB 21,900 Eurodis Electron, Plc. .......................................... 49,235
GB 187,300 Hazlewood Foods, Plc. ........................................... 349,341
GB 100,000 Hillsdown Holdings, Plc. ........................................ 281,437
GB 54,100 Lex Service, Plc. ............................................... 339,200
GB 16,000 LucasVarity, Plc. ............................................... 55,421
GB 64,100 McBride, Plc. ................................................... 144,641
GB 78,000 Perkins Foods, Plc. ............................................. 107,162
US 500 Sea Containers, Ltd., Class A ................................... 11,313
GB 82,800 Somerfield, Plc. ................................................ 252,334
GB 64,000 Storehouse, Plc. ................................................ 200,903
GB 95,700 Wace Group, Plc. ................................................ 52,592
GB 34,300 Wagon Industrial Holdings, Plc. ................................. 127,949
GB 72,200 Weir Group, Plc. ................................................ 297,582
--------------
2,387,409
--------------
Total Common Stocks & Warrants (Cost $16,757,262) ......... 18,540,451
--------------
Preferred Stocks 2.9%
Austria 0.6%
AT 6,000 a,b Bank Austria AG, new, pfd. ...................................... 183,985
--------------
Brazil 1.6%
BR 842,000 Cia Brasileira de Petroleo Ipiranga, pfd. ....................... 13,695
BR 335,000 Coteminas Cia Tecidos Norte de Minas, pfd. ...................... 130,695
BR 103,395,000 Electrolux do Brasil SA, pfd. ................................... 164,233
BR 227,200 Weg SA, pfd. .................................................... 156,173
--------------
464,796
--------------
Netherlands 0.7%
NL 4,025 Ballast Nedam, NV, certificate, cvt. pfd. ....................... 201,978
--------------
Total Preferred Stocks (Cost $870,738) .................... 850,759
--------------
Total Long Term Investments (Cost $17,628,000) ............ 19,391,210
--------------
FACE
AMOUNT
e Short Term Investments 14.8%
US $1,450,000 FHLMC, 5.45%, 07/11/97 .......................................... 1,447,586
US 2,910,000 FNMA, 5.43% - 5.75%, with maturities - 07/14/97 ................. 2,906,937
--------------
Total Short Term Investments (Cost $4,354,281) ............ 4,354,523
--------------
Total Investments before Repurchase
Agreements (Cost $21,982,281) .................................. 23,745,733
--------------
f Receivables from Repurchase Agreements 14.7%
US $1,463,000 Aubrey G. Lanston & Co., 5.50%, 07/01/97
(Maturity Value $1,450,222)
Collateral: U.S. Treasury Note, 5.875%, 04/30/98 ............... $ 1,450,000
US 1,468,000 Swiss Bank Corp., 5.90%, 07/01/97 (Maturity Value $1,450,238)
Collateral: U.S. Treasury Note, 5.875%, 03/31/99 ............... 1,450,000
US 1,450,000 UBS Securities, L.L.C., 5.87%, 07/01/97 (Maturity Value $1,450,236)
Collateral: U.S. Treasury Note, 6.00%, 08/15/99 ................ 1,450,000
--------------
Total Receivables from Repurchase Agreements (Cost $4,350,000) 4,350,000
--------------
Total Investments (Cost $26,332,281) 95.2% ........... 28,095,733
Other Assets and Liabilities, Net 4.8% ............... 1,408,908
--------------
Net Assets 100.0% .................................... $29,504,641
==============
At June 30, 1997, the net unrealized appreciation based on the cost
of investments for income tax purposes of $26,332,281 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ..................... $ 2,458,287
Aggregate gross unrealized depreciation for all investments in which
there was an excess of value over tax cost ..................... (694,835)
--------------
Net unrealized appreciation ................................... $ 1,763,452
==============
COUNTRY LEGEND:
AR - Argentina
AT - Austria
AU - Australia
BR - Brazil
CA - Canada
CH - Switzerland
CN - China
DD - Germany
DK - Denmark
ES - Spain
FI - Finland
FR - France
GB - United Kingdom
HK - Hong Kong
ID - Indonesia
IN - India
IT - Italy
KR - South Korea
MX - Mexico
NL - Netherlands
NO - Norway
NZ - New Zealand
SE - Sweden
SG - Singapore
TH - Thailand
US - United States
ZA - South Africa
PORTFOLIO ABBREVIATIONS:
FHLMC -Federal Home Loan Mortgage Corp.
FNMA -Federal National Mortgage Association
L.L.C. - Limited Liability Corp.
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified institutional buyers.
eCertain short-term securities are traded on a discount basis; the rates shown are the discount rates at the time of
purchase by the Fund. Other securities bea interest at the rates shown, payable at fixed dates or upon maturity.
fFace amount for repurchase agreements is for the underlying collateral.
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES/
RIGHTS & VALUE
COUNTRY* WARRANTS Templeton Pacific Growth Fund (NOTE1)
a,b Common Stocks, Rights & Warrants 99.7%
<S> <C> <C> <C>
Australia 10.7%
AU 750,000 Australia & New Zealand Banking Group, Ltd....................... $5,606,228
AU 366,275 Brambles Industries, Ltd. ....................................... 7,243,253
AU 1,521,000 Capral Aluminium, Ltd. .......................................... 5,546,904
AU 1,080,000 Coles Myer, Ltd. ................................................ 5,618,459
AU 2,399,145 Gio Australia Holdings, Ltd. .................................... 7,427,020
US 118,100 b Qantas Airways, Ltd., ADR........................................ 2,684,413
--------------
34,126,277
--------------
China 2.4%
US 181,500 Guangshen Railway Co., Ltd., ADR ................................ 3,970,312
HK 1,008,000 a,b GZI Transport, Ltd. ............................................. 403,341
US 201,600 a,b GZI Transport, Ltd., warrants ................................... 20,818
HK 3,216,000 Maanshan Iron and Steel Co., Class H ............................ 672,482
US 225,000 Shandong Huaneng Power Co., Ltd., Sponsored ADR ................. 2,418,750
--------------
7,485,703
--------------
Hong Kong 25.8%
HK 3,000,000 Cathay Pacific Airways, Ltd. .................................... 6,215,068
HK 800,000 Cheung Kong Holdings, Ltd. ...................................... 7,899,526
HK 931,000 China Light & Power Co., Ltd. ................................... 5,275,502
US 4,311,086 Dairy Farm International Holdings, Ltd. ......................... 3,233,314
HK 5,415,000 Grand Hotel Holdings, Ltd., Class A ............................. 2,184,229
HK 5,400,399 Hon Kwok Land Investment, Ltd. .................................. 1,777,525
HK 745,000 Hong Kong Ferry Holdings Co., Ltd. .............................. 1,442,438
HK 2,438,633 Hong Kong Telecommunications, Ltd. .............................. 5,823,282
HK 216,200 HSBC Holdings, Plc. ............................................. 6,502,214
HK 632,031 Jardine Matheson Holdings, Ltd. ................................. 4,487,420
HK 3,860,000 National Mutual Asia, Ltd. ...................................... 4,284,848
HK 1,600,678 New World Development Co., Ltd. ................................. 9,545,432
HK 3,790,000 a Road King Infrastructure, Ltd. .................................. 3,204,278
HK 3,210,000 Shun Tak Holdings, Ltd. ......................................... 1,968,105
HK 4,888,000 South China Morning Post (Holdings), Ltd. ....................... 4,795,064
HK 645,000 Swire Pacific, Ltd., Class A .................................... 5,807,023
HK 3,100,000 Wheelock & Co., Ltd. ............................................ 7,622,656
--------------
82,067,924
--------------
India 0.4%
US 156,100 Great Eastern Shipping Co. ...................................... 1,239,044
--------------
Indonesia 4.7%
US 300,000 a Asia Pacific Resources International, Class A ................... 1,462,500
ID 1,567,000 PT Bank Bali, fgn. .............................................. 4,188,117
ID 4,121,750 PT Bank Pan Indonesia TBK........................................ 2,711,678
ID 2,060,875 a PT Bank Pan Indonesia TBK, rights ............................... 338,960
ID 950,000 PT Barito Pacific Timber, fgn. .................................. 810,547
ID 3,657,384 a PT Indorama Synthetics, fgn. .................................... 3,383,682
ID 129,000 a PT Inti Indorayon Utama, fgn. ................................... 90,173
ID 771,525 PT Pabrik Kertas Tjiwi Kimia, fgn. .............................. 896,200
ID 3,423,000 PT Panasia Indosyntec, fgn. ..................................... 950,051
--------------
14,831,908
--------------
Japan 18.6%
JP 1,011,000 Daicel Chemical Industries, Ltd. ................................ 3,907,800
JP 409,000 Daito Trust Construction Co. .................................... 4,817,642
JP 1,200 East Japan Railway .............................................. 6,156,531
JP 582,800 Hitachi, Ltd. ................................................... 6,508,891
JP 254,000 Hokuetsu Paper Mills, Ltd. ...................................... 1,544,699
JP 308,000 Matsushita Electric Industrial Co., Ltd. ........................ 6,207,835
JP 824,000 Mitsubishi Heavy Industries, Ltd. ............................... 6,319,658
JP 10,800 Nintendo Co., Ltd. .............................................. $ 902,748
JP 821 Nippon Telegraph & Telephone Corp. .............................. 7,879,766
JP 700,000 Nisshinbo Industries, Inc. ...................................... 6,351,976
JP 50,000 Sony Corp. ...................................................... 4,358,258
JP 330,000 Wacoal Corp. .................................................... 4,088,648
--------------
59,044,452
--------------
Malaysia 8.6%
MY 1,310,000 Commerce Asset-Holding Bhd., fgn. ............................... 3,451,466
MY 16,667 a Commerce Asset-Holding Bhd., fgn., warrants. .................... 26,546
MY 262,000 a Commerce Asset-Holding Bhd., rights ............................. 15,571
MY 2,607,000 Golden Hope Plantations Bhd., fgn. .............................. 4,482,718
MY 1,634,000 Hicom Holdings Bhd............................................... 3,094,501
MY 3,342,667 Malaysia International Shipping, Bhd., fgn. ..................... 8,674,512
MY 928,000 Public Finance Bhd., fgn. ....................................... 1,426,561
MY 1,798,800 Sime Darby Bhd., fgn. ........................................... 5,986,498
--------------
27,158,373
--------------
New Zealand 3.9%
NZ 4,177,353 Brierley Investments, Ltd. ...................................... 4,085,958
NZ 2,411,800 Carter Holt Harvey, Ltd. ........................................ 6,241,608
NZ 192,500 Fletcher Challenge Building, Ltd. ............................... 579,248
NZ 192,500 Fletcher Challenge Energy, Ltd. ................................. 581,863
NZ 30,800 Fletcher Challenge Forests ...................................... 44,771
NZ 385,000 Fletcher Challenge Paper, Ltd. .................................. 933,596
--------------
12,467,044
--------------
Pakistan 3.8%
PK 2,618,000 Fauji Fertilizer Co., Ltd. ...................................... 5,149,272
US 91,000 a Hub Power Co., Ltd., GDR, reg.S ................................. 2,252,250
PK 6,300,000 Pakistan Telecom Corp., PTC ..................................... 4,792,860
--------------
12,194,382
--------------
Philippines 2.5%
PH 5,675,000 a Filinvest Land, Inc. ............................................ 1,420,041
PH 962,500 a Philippine National Bank ........................................ 6,531,980
--------------
7,952,021
--------------
Singapore 12.5%
SG 888,600 City Developments Ltd., fgn. .................................... 8,701,406
SG 518,000 Development Bank of Singapore, Ltd., fgn. ....................... 6,521,648
SG 1,240,000 Inchcape Berhad ................................................. 4,466,671
SG 393,800 Overseas Union Bank Ltd., fgn. .................................. 2,451,437
SG 78,760 a Overseas Union Bank Ltd., rights ................................ 105,219
SG 1,217,000 Parkway Holdings Ltd., fgn. ..................................... 5,447,856
SG 882,000 Singapore Airlines Ltd., fgn. ................................... 7,896,482
SG 213,000 Singapore Finance Ltd. .......................................... 305,414
SG 2,102,000 Van Der Horst, Ltd. ............................................. 3,866,727
--------------
39,762,860
--------------
South Korea 0.8%
KR 99,030 Pacific Chemical Co. ............................................ 2,464,598
--------------
Thailand 5.0%
TH 622,000 Bangkok Bank Public Co., Ltd., fgn. ............................. 4,273,924
TH 829,900 Charoen Pokphand Feedmill Public Co., Ltd., fgn. ................ 2,050,322
TH 2,783,133 Industrial Finance Corp. of Thailand, fgn. ...................... 3,545,392
TH 2,531,400 Krung Thai Bank ................................................. 2,638,402
TH 327,900 Robinson Department Store Public Co., Ltd., fgn. ................ 123,413
TH 36,570 Thai Farmers Bank Public Co., Ltd. .............................. 112,230
TH 733,440 Thai Farmers Bank Public Co., Ltd., fgn. ........................ $ 3,114,395
TH 91,680 a Thai Farmers Bank Public Co., Ltd., fgn., warrants. ............. 39,815
--------------
15,897,893
--------------
Total Common Stocks, Rights & Warrants (Cost $277,637,121) 316,692,479
--------------
Preferred Stocks
US 31,000 Dairy Farm International Holdings, Ltd.,
6.50%, cvt. pfd. (Cost $31,000)................................. 22,863
--------------
Total Common Stocks, Rights & Warrants and Preferred
Stocks (Cost $277,668,121) ..................................... 316,715,342
--------------
FACE
AMOUNT
Convertible Bonds 0.2%
US $ 360,000 PT Inti Indorayon Utama, 5.50%, cvt., 10/01/02 .................. 430,200
US 1,307,000 MDX Public Co., Ltd., cvt. unsecured notes, 4.75%, 09/17/03 ..... 209,120
--------------
Total Convertible Bonds (Cost $1,941,281) ................. 639,320
--------------
Total Long Term Investments (Cost $279,609,402) ........... 317,354,662
--------------
e Short Term Investments
US 71,000 U. S. Treasury Bill, 08/21/97 (Cost $70,476) .................... 70,493
--------------
Total Investments before Repurchase Agreements
(Cost $279,679,878) ............................................ 317,425,155
--------------
f Receivables from Repurchase Agreements 0.7%
US 2,305,000 Swiss Bank Corp., 5.90%, 07/01/97 (Maturity Value $2,276,373)
(Cost $2,276,000)
Collateral: U.S. Treasury Note, 5.875%, 03/31/99 ............... 2,276,000
--------------
Total Investments (Cost $281,955,878) 100.6% ......... 319,701,155
Liabilities in Excess of Other Assets (0.6%) ......... (2,106,339)
--------------
Net Assets 100.0% .................................... $317,594,816
==============
At June 30, 1997, the net unrealized appreciation based on the
cost of investments for income tax purposes of
$285,511,117 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ............... $ 67,784,258
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value ............... (33,594,220)
--------------
Net unrealized appreciation ................................... $ 34,190,038
==============
COUNTRY LEGEND:
AU - Australia
HK - Hong Kong
ID - Indonesia
JP - Japan
KR - South Korea
MY - Malaysia
NZ - New Zealand
PH - Philippines
PK - Pakistan
SG - Singapore
TH - Thailand
US - United States
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified institutional buyers.
eCertain short-term securities are traded on a discount basis; the rates shown are the discount rates at the time of
purchase by the Fund. Other securities bear interest at the rates shown, payable at fixed dates or upon maturity.
fFace amount for repurchase agreements is for the underlying collateral.
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT U.S. Government Securities Fund (NOTE1)
Mortgage-Backed Securities 71.0%
<S> <C> <C>
Government National Mortgage Association (GNMA) - Fixed Rate 40.8%
$ 12,524,753 GNMA I, SF, 6.00%, 12/15/23 - 01/15/24 ................................. $ 11,747,766
2,179,820 GNMA II, 6.00%, 01/20/24 - 10/20/24 .................................... 2,024,607
55,008,570 GNMA I, SF, 6.50%, 05/15/23 - 05/15/24 ................................. 53,053,063
3,786,675 GNMA II, 6.50%, 01/20/26 ............................................... 3,614,077
8,656,588 GNMA, PL, 6.50%, 09/15/28 .............................................. 8,163,940
54,671,644 GNMA I, SF, 7.00%, 03/15/22 - 12/15/26 ................................. 54,070,685
29,140,634 GNMA II, 7.00%, 01/20/24 - 1/20/27 ..................................... 28,574,018
1,817,025 GNMA I, SF, 7.25%, 11/15/25 ............................................ 1,801,672
2,227,552 GNMA, PL, 7.25%, 05/15/22 - 08/15/22 ................................... 2,254,506
45,373,677 GNMA I, SF, 7.50%, 02/15/17 - 02/15/27 ................................. 45,810,487
36,554,842 GNMA II, 7.50%, 11/20/16 - 11/20/26 .................................... 36,670,332
28,059,300 GNMA I, SF, 8.00%, 04/15/05 - 06/15/25 ................................. 28,934,716
3,245,033 GNMA II, 8.00%, 02/20/16 - 08/20/26 .................................... 3,329,558
2,237,944 GNMA I, SF, 8.25%, 04/15/25 ............................................ 2,309,111
10,666,036 GNMA I, SF, 8.50%, 08/15/21 - 12/15/24 ................................. 11,159,771
3,870,483 GNMA I, SF, 9.00%, 04/15/16 - 02/15/21 ................................. 4,154,574
9,503,260 GNMA I, SF, 9.50%, 10/15/15 - 12/15/21 ................................. 10,312,378
1,690,526 GNMA II, 9.50%, 04/20/25 ............................................... 1,807,917
7,760,299 GNMA I, SF, 10.00%, 08/15/17 - 08/15/21 ................................ 8,487,555
--------------
318,280,733
--------------
Government National Mortgage Association (GNMA) - Adjustable Rate 1.5%
3,430,490 GNMA, Cap 11.50%, Margin 1.50% + CMT, Resets Annually, 7.125%, 07/20/17 3,528,946
3,171,257 GNMA, Cap 11.50%, Margin 2.50% + CMT, Resets Annually, 7.50%, 07/20/25 . 3,299,915
4,797,426 GNMA, Cap 14.00%, Margin 1.50% + CMT, Resets Annually, 7.00%, 01/20/16 . 4,927,580
--------------
11,756,441
--------------
Federal National Mortgage Association (FNMA) - Fixed Rate 7.2%
6,823,698 FNMA, 6.00%, 10/01/23 - 04/01/24 ....................................... 6,397,153
15,534,028 FNMA, 6.50%, 01/01/24 - 06/01/24 ....................................... 14,985,842
1,866,854 FNMA, 7.00%, 05/01/24 .................................................. 1,841,838
7,793,681 FNMA, PL, 7.00%, 03/17/35 .............................................. 7,428,314
11,336,549 FNMA, 7.50%, 04/01/23 - 08/01/25 ....................................... 11,408,689
12,644,842 FNMA, 8.00%, 07/01/16 - 02/01/25 ....................................... 13,009,463
982,554 FNMA, 8.50%, 10/01/19 - 03/01/22 ....................................... 1,027,834
--------------
56,099,133
--------------
Federal National Mortgage Association (FNMA) - Adjustable Rate 9.0%
8,823,253 FNMA, Cap 12.059%, Margin 1.25% + COFI,
Resets Monthly, 6.016%, 11/01/35 ...................................... 8,744,108
4,874,001 FNMA, Cap 12.49%, Margin 2.00% + CMT,
Resets Annually, 7.772%, 02/01/19 ..................................... 5,119,017
2,189,402 FNMA, Cap 12.786%, Margin 1.25% + COFI,
Resets Monthly, 6.009%, 02/01/03 ...................................... 2,176,966
6,333,386 FNMA, Cap 12.819%, Margin 2.127% + CMT,
Resets Annually, 7.893%, 09/01/18 ..................................... 6,687,295
14,364,771 FNMA, Cap 12.93%, Margin 2.24% + CMT,
Resets Annually, 7.058%, 02/01/27 ..................................... 14,552,662
4,331,621 FNMA, Cap 13.313%, Margin 2.126% + CMT,
Resets Annually, 7.805%, 07/01/19 ..................................... 4,543,914
13,136,379 FNMA, Cap 13.644%, Margin 2.011% + CMT,
Resets Annually, 7.703%, 01/01/18 ..................................... 13,792,541
427,774 FNMA, Cap 13.843%, Margin 1.25% + COFI,
Resets Monthly, 6.03%, 02/01/17 ....................................... 421,469
876,844 FNMA, Cap 14.071%, Margin 1.25% + COFI,
Resets Monthly, 6.009%, 12/01/18 ...................................... 863,920
5,478,804 FNMA, Cap 14.625%, Margin 1.25% + COFI,
Resets Monthly, 6.005%, 06/01/02 ...................................... 5,430,590
2,810,484 FNMA, Cap 14.808%, Margin 1.825% + 3CMT,
Resets Tri-Annually, 8.542%, 07/01/20 ................................. 2,908,711
4,743,241 FNMA, Cap 15.156%, Margin 2.284% + 3CMT,
Resets Tri-Annually, 8.576%, 03/01/20 ................................. 4,975,707
--------------
70,216,900
--------------
Federal Home Loan Mortgage Corp. (FHLMC) - Fixed Rate 8.9%
22,061,757 FHLMC, 6.50%, 06/01/08 - 01/01/24 ...................................... 21,408,708
16,777,379 FHLMC, 7.00%, 04/01/24 ................................................. 16,578,565
19,700,484 FHLMC, PL, 7.00%, 09/17/31 ............................................. 19,263,330
5,595,800 FHLMC, 7.50%, 11/01/22 - 05/01/24 ...................................... 5,652,404
4,094,568 FHLMC, 8.00%, 05/01/16 - 05/01/22 ...................................... 4,223,708
$ 1,232,615 FHLMC, 8.50%, 04/01/18 - 03/01/22 ...................................... $ 1,287,633
760,566 FHLMC, 9.00%, 03/01/03 ................................................. 789,239
--------------
69,203,587
--------------
Federal Home Loan Mortgage Corp. (FHLMC)
- Adjustable Rate 3.6%
3,200,929 FHLMC, Cap 10.99%, Margin 2.225% + CMT,
Resets Annually, 7.883%, 06/01/22 ..................................... 3,350,765
4,533,507 FHLMC, Cap 12.522%, Margin 2.105% + CMT,
Resets Annnually, 7.7%, 06/01/22 ...................................... 4,755,739
2,467,328 FHLMC, Cap 13.006%, Margin 2.00% + CMT,
Resets Annually, 7.685%, 09/01/19 ..................................... 2,583,169
3,235,477 FHLMC, Cap 13.125%, Margin 2.00% + CMT,
Resets Annually, 7.626%, 07/01/18 ..................................... 3,383,920
6,743,016 FHLMC, Cap 13.458%, Margin 2.195% + CMT,
Resets Annually, 7.907%, 02/01/19 ..................................... 7,064,253
6,770,020 FHLMC, Cap 13.879%, Margin 2.089% + CMT,
Resets Annually, 7.755%, 04/01/18 ..................................... 7,097,553
--------------
28,235,399
--------------
Total Mortgage-Backed Securities (Cost $547,332,903) .................. 553,792,193
--------------
Other Government & Agency Securities 25.0%
2,000,000 Federal Agriculture Mortgage Corp., 6.91%, 07/15/97 .................... 2,000,872
5,000,000 Federal Agriculture Mortgage Corp., 7.23%, 01/17/07 .................... 4,988,165
5,000,000 Federal Farm Credit Bank, 5.80%, 09/16/03 .............................. 4,763,519
15,000,000 FICO Strips, Series 1, 0.00%, 05/11/99 ................................. 13,375,079
3,876,000 FICO Strips, Series 1, 0.00%, 11/11/01 ................................. 2,925,825
1,925,000 FICO Strips, Series 1, 0.00%, 05/11/02 ................................. 1,405,340
1,758,000 FICO Strips, Series 1, 0.00%, 05/11/09 ................................. 771,101
10,000,000 FICO Strips, Series 1, 0.00%, 05/11/13 ................................. 3,246,729
11,024,000 FICO Strips, Series 13, 0.00%, 06/27/09 ................................ 4,790,092
5,000,000 FICO Strips, Series 15, 0.00%, 09/07/98 ................................ 4,659,520
10,000,000 FICO Strips, Series 15, 0.00%, 03/07/02 ................................ 7,387,500
3,202,000 FICO Strips, Series 16, 0.00%, 04/05/09 ................................ 1,414,169
4,745,000 FICO Strips, Series 16, 0.00%, 10/05/10 ................................ 1,873,515
2,060,000 FICO Strips, Series A, 0.00%, 02/08/09 ................................. 919,955
7,000,000 FICO Strips, Series D, 0.00%, 09/26/01 ................................. 5,328,077
15,000,000 FNMA, 6.05%, 11/10/97 .................................................. 15,017,818
5,000,000 Housing Urban Development, Series 96-A, 7.63%, 08/01/14 ................ 5,072,479
5,000,000 Housing Urban Development, Series 96-A, 7.66%, 08/01/15 ................ 5,076,154
4,685,663 SBA, 6.45%, 12/01/15 ................................................... 4,506,296
4,929,887 SBA, 6.70%, 12/01/16 ................................................... 4,798,704
7,960,239 SBA, Cap 10.50%, Margin Prime - 0.50%, Resets Quarterly, 8.00%, 03/25/19 8,298,549
7,003,387 SBA, Cap 10.85%, Margin Prime - 0.40%, Resets Quarterly, 8.10%, 06/25/19 7,344,802
8,915,415 SBA, Cap 10.875%, Margin Prime - 0.125%, Resets Quarterly, 8.375%, 03/25/18 9,492,132
5,000,000 SLMA, 5.64%, 11/26/97 .................................................. 4,995,415
5,000,000 SLMA, 6.16%, 12/02/99 .................................................. 4,955,115
15,000,000 SLMA, 0.00%, 05/15/14 .................................................. 4,001,578
10,000,000 Tennessee Valley Authority, 0.00%, 04/15/03 ............................ 6,855,180
6,000,000 Tennessee Valley Authority, 0.00%, 04/15/42 ............................ 2,336,140
5,000,000 Tennessee Valley Authority, 5.98%, 04/01/36 ............................ 5,036,370
5,000,000 Tennessee Valley Authority, 6.125%, 07/15/03 ........................... 4,872,640
19,249,000 Tennessee Valley Authority, 6.235%, 07/15/45 ........................... 19,150,520
10,000,000 Tennessee Valley Authority, 7.25%, 07/15/43 ............................ 9,643,760
1,000,000 Tennessee Valley Authority, 8.375%, 10/01/99 ........................... 1,044,500
12,000,000 Tennessee Valley Authority, 8.625%, 11/15/29 ........................... 12,905,210
--------------
Total Other Agency Government Securities (Cost $191,633,360) .......... 195,252,820
--------------
U.S. Government Securities 1.3%
5,000,000 U.S. Treasury Notes, 5.75%, 08/15/03 ................................... 4,829,690
5,000,000 U.S. Treasury Notes, 5.875%, 03/31/99 .................................. 4,989,065
--------------
Total U.S. Government Securities (Cost $9,992,578) .................... 9,818,755
--------------
Total Long Term Investments (Cost $748,958,841) ....................... 758,863,768
--------------
f,gReceivables from Repurchase Agreements 1.9%
$ 14,532,067 Joint Repurchase Agreement, 5.884%, 07/01/97,
(Maturity $14,537,982) (Cost $14,535,607)
Aubrey G. Lanston & Co., Inc., (Maturity Value $1,440,939)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $1,440,939)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $849,061)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $1,440,939)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $1,440,939)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $720,470)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $1,440,939)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co., L.P., (Maturity Value $1,440,939)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $1,440,939)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $1,440,939)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $1,440,939)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 ... $ 14,535,607
--------------
Total Investments (Cost $763,494,448) 99.2%............................ 773,399,375
Other Assets and Liabilities, Net 0.8%................................. 5,923,313
--------------
Net Assets 100.0%...................................................... $779,322,688
==============
At June 30, 1997 the net unrealized appreciation based on the cost
of investments for income tax purposes of $763,494,448 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ...................... $ 15,872,778
Aggregate gross unrealized depreciation for all investments in which there
was an excess of tax cost over value .................................. (5,967,851)
--------------
Net unrealized appreciation ........................................... $ 9,904,927
==============
PORTFOLIO ABBREVIATIONS:
</TABLE>
3CMT - 3 Year Constant Maturity Treasury Index
CMT - 1 Year Constant Maturity Treasury Index
COFI - 11th District Cost of Funds Index
FICO - Financing Corp.
L.L.C. - 1Limited Liability Corp.
L.P. - Limited Partnership
PL - Project Loan
SBA - Small Business Administration
SF - Single Family
SLMA - Student Loan Marketing Association
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES/ VALUE
COUNTRY* RIGHTS Utility Equity Fund (NOTE1)
a,b Common Stocks & Rights 97.2%
<S> <C> <C> <C>
US 255,600 a AES Corp. ....................................................... $ 18,083,700
US 946,100 a AirTouch Communications, Inc. ................................... 25,899,488
US 1,000,000 Allegheny Power System, Inc. .................................... 26,687,500
US 770,230 American Electric Power Co. ..................................... 32,349,660
US 100,000 Ameritech Corp. ................................................. 6,793,750
US 104,600 a Ascend Communications, Inc. ..................................... 4,118,625
US 360,000 AT&T Corp. ...................................................... 12,622,500
CN 3,291,000 a Beijing Datang Power Generation Co., Ltd......................... 1,518,636
US 158,600 b BSES, Ltd., Sponsored GDR ....................................... 4,222,725
US 1,021,100 Central & South West Corp. ...................................... 21,698,375
US 1,223,900 CINergy Corp. ................................................... 42,607,019
US 33,100 Companhia Energetica de Minas Gerais, Sponsored ADR ............. 1,694,306
US 465,000 Dominion Resources, Inc. ........................................ 17,030,625
US 716,000 DPL, Inc. ....................................................... 17,631,500
US 1,064,600 Duke Energy Corp. ............................................... 51,034,263
US 39,200 a Echelon International Corp., Inc. ............................... 894,250
US 763,600 Edison International ............................................ 18,994,550
BR 22,700,000 Eletropaulo-Eletricidade de Sao Paulo, SA ....................... 6,642,051
US 978,800 Empresa Nacional Electricidad, SA, Sponsored ADR ................ 22,084,175
US 732,560 Enova Corp. ..................................................... 17,627,225
US 1,040,000 Enron Corp. ..................................................... 42,445,000
US 496,300 Enron Global Power & Pipelines, L.L.C. .......................... 16,532,994
US 1,096,200 Entergy Corp. ................................................... 30,008,475
US 195,000 b Espoon Sahko Oy ................................................. 5,182,223
US 1,076,300 a Esprit Telecom Group, Plc., ADR ................................. 8,610,400
US 1,132,000 Florida Progress Corp. .......................................... 35,445,750
US 701,300 FPL Group, Inc. ................................................. 32,303,631
US 900,000 GPU, Inc. ....................................................... 32,287,500
MX 55,600 a Grupo Iusacell, SA, Series D .................................... 77,008
US 144,440 a Grupo Iusacell, SA, Series L, Sponsored ADR ..................... 2,654,085
US 400,840 GTE Corp. ....................................................... 17,586,855
GR 361,800 Hellenic Telecommunication Organization, SA ..................... 8,494,813
GR 361,800 Hellenic Telecommunication Organization, SA, rights ............. 44,450
HK 1,250,000 Hongkong Electric Holdings, Ltd.................................. 5,034,012
US 138,000 a Huaneng Power International, Inc., Sponsored ADR ................ 3,519,000
US 1,380,000 a ICG Communications, Inc. ........................................ 26,565,000
US 211,400 a Itron, Inc. ..................................................... 5,469,975
KR 290,000 Korea Electric Power Corp. ...................................... 8,654,279
BR 10,140,600 Light Servicos de Eletricidade, SA .............................. 5,046,045
US 142,000 MCN Corp. ....................................................... 4,348,750
US 288,400 MidAmerican Energy Holdings Co. ................................. 4,992,925
GB 302,500 National Power, Plc. ............................................ 2,629,602
NO 429,000 a,b NetCom, ASA ..................................................... 4,565,573
US 210,000 New Jersey Resources Corp. ...................................... 6,588,750
JP 2,870 Nippon Telegraph & Telephone Corp. .............................. 27,545,589
US 649,900 NIPSCO Industries, Inc. ......................................... 26,848,994
US 323,000 a Nynex CableComms Group, Sponsored ADR ........................... 6,424,470
US 223,100 OGE Energy Corp. ................................................ 10,151,050
US 229,600 Pacific Enterprises ............................................. 7,720,300
US 950,000 PacifiCorp ...................................................... 20,900,000
US 166,600 PECO Energy Co................................................... 3,498,600
US 1,055,150 PG&E Corp. ...................................................... 25,587,388
US 843,000 Pinnacle West Capital Corp. ..................................... 25,342,688
US 189,500 Public Service Co. of Colorado .................................. 7,864,250
US 104,200 Public Service Enterprise Group, Inc. ........................... 2,605,000
US 100,000 SBC Communications, Inc. ........................................ 6,187,500
US 940,644 SCANA Corp. ..................................................... 23,339,729
GB 590,000 Scottish Power, Plc. ............................................ 3,841,696
KR 2,043 SK Telecom Co., Ltd. ............................................ $ 1,544,257
US 1,966,790 Southern Co. .................................................... 43,023,531
GB 366,091 Southern Electric, Plc. ......................................... 2,703,815
US 442,700 Southwestern Public Service Co. ................................. 17,403,644
IT 1,540,000 Stet Societa Finanziaria Telefonica, SpA ........................ 5,333,906
US 1,800,000 Teco Energy, Inc. ............................................... 46,012,500
US 315,000 Tele Danmark, AS, Sponsored ADR ................................. 8,229,375
PT 11,000 a Telecel-Comunicacaoes Pessoais, SA .............................. 912,552
US 230,000 Telecom Argentina Stet - France Telecom, SA, Sponsored ADR ...... 12,075,000
IT 6,000,000 a Telecom Italia, SpA ............................................. 12,004,237
US 79,400 Telefonica de Espana, Sponsored ADR ............................. 6,848,250
US 69,000 a TeleWest Communications, Plc., Sponsored ADR .................... 1,078,125
US 611,350 Texas Utilities Co. ............................................. 21,053,366
JP 135,000 Tokyo Electric Power Co. ........................................ 2,838,758
JP 2,000,000 Tokyo Gas Co., Ltd. ............................................. 5,549,254
TH 916,600 Total Access Communication Public Co., Ltd. ..................... 4,253,020
US 370,000 Transportadora de Gas del Sur, SA, Class B, Sponsored ADR ....... 4,625,000
US 155,000 a Vimpel-Communications, Sponsored ADR ............................ 5,890,000
--------------
Total Common Stocks & Rights (Cost $979,406,795) .......... 1,058,557,862
--------------
Convertible Preferred Stocks 1.9%
US 175,000 j CMS Energy Corp., 7.75%, quarterly cvt. pfd. .................... 9,072,000
US 240,000 Nortel Inversora, SA, 10.00%, cvt. pfd........................... 11,790,000
--------------
Total Convertible Preferred Stocks (Cost $18,083,247) ..... 20,862,000
--------------
Total Long Term Investments (Cost $997,490,042) ........... 1,079,419,862
--------------
FACE
AMOUNT
f,g Receivables from Repurchase Agreements 0.9%
US $9,789,578 Joint Repurchase Agreement, 5.884%, 07/01/97
(Maturity Value $9,795,106) (Cost $9,793,505)
Aubrey G. Lanston & Co., Inc., (Maturity Value $970,847)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $970,847)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $572,060)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $970,847)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $970,847)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $485,423)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $970,847)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co., L.P., (Maturity Value $970,847)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $970,847)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $970,847)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $970,847)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 9,793,505
--------------
Total Investments (Cost $1,007,283,547) 100.0% ....... 1,089,213,367
Liabilities in Excess of Other Assets ................. (254,073)
--------------
Net Assets 100.0% ....................................$1,088,959,294
==============
At June 30, 1997, the net unrealized appreciation based on the
cost of investments for income tax purposes of
$1,007,283,547 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ............... $ 137,283,530
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value ............... (55,353,710)
--------------
Net unrealized appreciation ................................... $ 81,929,820
==============
COUNTRY LEGEND:
BR - Brazil
CN - China
GB - United Kingdom
GR - Greece
HK - Hong Kong
IT - Italy
JP - Japan
KR - South Korea
MX - Mexico
NO - Norway
PT - Portugal
TH - Thailand
US - United States
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified institutional buyers.
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
jSee Note 9 regarding restricted securities.
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT Zero Coupon Fund - 2000 (NOTE1)
f,gLong Term Investments 99.1%
<S> <C> <C>
Government & Agency Securities 97.5%
$ 7,567,000 FHLB Strips, Series A-1, 0.00%, 02/25/01 ............................... $ 5,990,869
2,884,000 FHLB Strips, Series A-1, 0.00%, 08/25/01 ............................... 2,208,437
465,000 FHLB Strips, Series A-1, 0.00%, 02/25/02 ............................... 344,424
16,175,000 FHLMC, notes, 0.00%, 05/15/00 .......................................... 13,512,754
9,023,000 FICO Strips, 0.00%, 03/26/01 ........................................... 7,100,639
2,000,000 FICO Strips, 0.00%, 04/06/01 ........................................... 1,570,864
1,139,000 FICO Strips, Series 1, 0.00%, 11/11/00 ................................. 919,738
1,000,000 FICO Strips, Series 7, 0.00%, 02/03/01 ................................. 794,743
17,390,000 FICO Strips, Series 12, 0.00%, 12/06/00 ................................ 13,974,846
6,000,000 FICO Strips, Series 12, 0.00%, 06/06/01 ................................ 4,660,205
4,000,000 FICO Strips, Series 13, 0.00%, 06/27/01 ................................ 3,095,027
148,000 FICO Strips, Series 15, 0.00%, 09/07/00 ................................ 120,893
5,000,000 FICO Strips, Series 15, 0.00%, 03/07/01 ................................ 3,948,465
5,875,000 FICO Strips, Series 17, 0.00%, 10/05/00 ................................ 4,774,805
6,200,000 FICO Strips, Series 18, 0.00%, 10/06/00 ................................ 5,038,020
4,965,000 FICO Strips, Series D, 0.00%, 09/26/00 ................................. 4,042,006
5,550,000 FICO Strips, Series D, 0.00%, 02/03/01 ................................. 4,410,823
3,800,000 FNMA Strips, 0.00%, 11/22/99 ........................................... 3,271,150
1,000,000 FNMA Strips, 0.00%, 02/12/02 ........................................... 742,473
500,000 FNMA Strips, Series 1, 0.00%, 02/12/00 ................................. 424,080
1,875,000 FNMA Strips, Series 1, 0.00%, 02/01/01 ................................. 1,491,229
1,000,000 FNMA Strips, Series 1, 0.00%, 02/01/02 ................................. 743,980
3,000,000 FNMA Strips, Series 2, 0.00%, 08/12/01 ................................. 2,302,746
9,195,000 REFCO Strips, 0.00%, 01/15/01 .......................................... 7,371,079
3,320,000 Tennessee Valley Authority, 0.00%, 07/15/00 ............................ 2,743,136
2,500,000 Tennessee Valley Authority, 0.00%, 10/15/00 ............................ 2,031,895
65,000 Tennessee Valley Authority, 0.00%, 01/01/01 ............................ 51,688
10,500,000 Tennessee Valley Authority, 0.00%, 04/15/01 ............................ 8,249,083
1,000,000 Tennessee Valley Authority, 0.00%, 04/15/02 ............................ 735,272
1,110,375 U.S. Treasury Strips, 0.00%, 11/15/00 .................................. 897,562
2,778,750 U.S. Treasury Strips, 0.00%, 02/15/01 .................................. 2,207,639
9,635,000 U.S. Treasury Strips, 0.00%, 02/15/01 .................................. 7,689,799
15,000 U.S. Treasury Strips, 0.00%, 02/15/01 .................................. 11,980
--------------
117,472,349
--------------
Other Securities - "AAA" Rated 1.6%
220,000 InterAmerican Development Bank, 0.00%, 12/16/00 ........................ 175,978
405,000 International Bank for Reconstruction and Development, 0.00%, 02/15/00 . 343,359
945,000 International Bank for Reconstruction and Development, 0.00%, 08/15/00 . 774,839
735,000 International Bank for Reconstruction and Development, 0.00%, 02/15/01 . 582,272
--------------
1,876,448
--------------
Total Long Term Investments (Cost $114,210,502)........................ 119,348,797
--------------
f,gReceivables from Repurchase Agreements 1.3%
$ 1,563,347 Joint Repurchase Agreement, 5.884%, 07/01/97
(Maturity Value $1,564,040) (Cost $1,563,784)
Aubrey G. Lanston & Co., Inc., (Maturity Value $155,021)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $155,021)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $91,341)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $155,021)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $155,021)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $77,510)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $155,021)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co., L.P., (Maturity Value $155,021)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $155,021)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $155,021)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities L.L.C., (Maturity Value $155,021)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 ... $ 1,563,784
--------------
Total Investments (Cost $115,774,286) 100.4% .......................... 120,912,581
Liabilities in Excess of Other Assets (0.4%) .......................... (487,664)
--------------
Net Assets 100.0% ..................................................... $120,424,917
==============
At June 30, 1997, the net unrealized appreciation based on the cost
of investments for income tax purposes of $115,774,286 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ............................ $ 5,340,948
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ............................ (202,653)
--------------
Net unrealized appreciation ........................................... $ 5,138,295
==============
</TABLE>
PORTFOLIO ABBREVIATIONS:
FHLB - Federal Home Loan Bank
FHLMC - Federal Home Loan Mortgage Corp.
FICO - Financing Corp.
FNMA - Federal National Mortgage Association
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
REFCO - Resolution Funding Corp.
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT Zero Coupon Fund - 2005 (NOTE1)
f,gLong Term Investments 100.0%
<S> <C> <C>
Government & Agency Securities 96.5%
$ 1,000,000 FHLB Strips, Series A-1, 0.00%, 08/25/02 ............................... $ 716,024
800,000 FHLB Strips, Series A-1, 0.00%, 02/25/04 ............................... 515,407
9,110,000 FHLB Strips, Series A-1P, 0.00%, 02/25/04 .............................. 5,869,198
11,400,000 FICO Strips, 0.00%, 10/06/05 ........................................... 6,532,028
3,500,000 FICO Strips, Series 1, 0.00%, 05/11/05 ................................. 2,061,517
829,000 FICO Strips, Series 1, 0.00%, 11/11/05 ................................. 471,892
3,509,000 FICO Strips, Series 2, 0.00%, 11/02/05 ................................. 2,000,790
11,055,000 FICO Strips, Series 12, 0.00%, 12/06/05 ................................ 6,256,930
2,755,000 FICO Strips, Series 13, 0.00%, 12/27/05 ................................ 1,551,737
2,620,000 FICO Strips, Series 15, 0.00%, 09/07/05 ................................ 1,509,463
6,000,000 FICO Strips, Series 16, 0.00%, 04/05/06 ................................ 3,307,637
10,000,000 FICO Strips, Series 19, 0.00%, 12/06/05 ................................ 5,659,819
6,799,000 FICO Strips, Series D, 0.00%, 09/26/05 ................................. 3,903,332
1,763,000 FICO Strips, Series D, 0.00%, 03/26/06 ................................. 973,726
5,000,000 FICO Strips, Series F, 0.00%, 03/26/05 ................................. 2,972,495
120,000 FNMA Strips, 0.00%, 02/12/08 ........................................... 57,869
450,000 FNMA Strips, Series 1, 0.00%, 08/01/04 ................................. 280,933
1,000,000 FNMA Strips, Series 1, 0.00%, 02/12/05 ................................. 600,243
875,000 FNMA Strips, Series 1, 0.00%, 08/12/05 ................................. 506,877
4,307,000 FNMA Strips, Series 1, 0.00%, 02/01/06 ................................. 2,407,987
250,000 FNMA Strips, Series 1, 0.00%, 02/12/06 ................................. 139,412
1,730,000 FNMA Strips, Series 1, 0.00%, 02/01/08 ................................. 836,209
6,000,000 FNMA Strips, Series 2, 0.00%, 02/01/05 ................................. 3,609,491
530,000 FNMA Strips, Series 9, 0.00%, 08/01/06 ................................. 285,907
6,500,000 REFCO Strips, 0.00%, 01/15/06 .......................................... 3,695,692
3,000,000 REFCO Strips, Series R, 0.00%, 04/15/06 ................................ 1,674,294
6,200,000 Tennessee Valley Authority, 0.00%, 10/15/04 ............................ 3,819,869
2,260,000 Tennessee Valley Authority, 0.00%, 04/15/05 ............................ 1,341,500
1,000,000 Tennessee Valley Authority, 0.00%, 10/15/05 ............................ 573,409
16,390,000 U.S. Treasury Strips, 0.00%, 02/15/06 .................................. 9,322,942
--------------
73,454,629
--------------
Other Securities - "AAA" Rated 3.5%
1,500,000 Exxon Corp., 0.00%, 11/15/04 ........................................... 923,761
541,000 International Bank for Reconstruction and Development, 0.00%, 02/15/07 . 277,714
2,500,000 International Bank for Reconstruction and Development, 0.00%, 08/15/07 . 1,236,015
459,000 International Bank for Reconstruction and Development,
Series 2, 0.00%, 02/15/07.............................................. 235,565
--------------
2,673,055
--------------
Total Long Term Investments (Cost $70,813,920) ........................ 76,127,684
--------------
f,gReceivables from Repurchase Agreements
$ 26,224 Joint Repurchase Agreement, 5.884%, 07/01/97
(Maturity Value $26,896) (Cost $26,892)
Aubrey G. Lanston & Co., Inc., (Maturity Value $2,666)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $2,666)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $1,570)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $2,666)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $2,666)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $1,332)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $2,666)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co., L.P., (Maturity Value $2,666)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $2,666)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $2,666)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $2,666)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 ... $ 26,892
--------------
Total Investments (Cost $70,840,812) 100.0%............................ 76,154,576
Liabilities in Excess of Other Assets ................................. (23,958)
--------------
Net Assets 100.0% ..................................................... $76,130,618
==============
At June 30, 1997, the net unrealized appreciation based on the cost of
investments for income tax purposes of $70,840,812 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ............................ $ 6,007,572
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ............................ (693,808)
--------------
Net unrealized appreciation ........................................... $ 5,313,764
==============
</TABLE>
PORTFOLIO ABBR EVIATIONS:
FHLB - Federal Home Loan Bank
FICO - Financing Corp.
FNMA - Federal National Mortgage Association
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
REFCO - Resolution Funding Corp.
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT Zero Coupon Fund - 2010 (NOTE1)
f,gLong Term Investments 100.1%
<S> <C> <C>
Government & Agency Securities 95.0%
$ 4,450,000 FHLMC, capital deb., 0.00%, 11/29/19 ................................... $ 905,958
4,040,000 FICO Strips, 0.00%, 10/06/10 ........................................... 1,594,790
16,246,000 FICO Strips, Series 1, 0.00%, 11/11/10 ................................. 6,363,540
2,000,000 FICO Strips, Series 3, 0.00%, 05/30/10 ................................. 811,200
1,528,000 FICO Strips, Series 4, 0.00%, 10/06/10 ................................. 603,178
3,021,000 FICO Strips, Series 8, 0.00%, 08/03/10 ................................. 1,209,097
2,837,000 FICO Strips, Series 11, 0.00%, 02/08/11 ................................ 1,090,993
4,550,000 FICO Strips, Series 12, 0.00%, 06/06/09 ................................ 1,985,456
7,500,000 FICO Strips, Series 12, 0.00%, 12/06/10 ................................ 2,922,142
3,000,000 FICO Strips, Series 19, 0.00%, 06/06/10 ................................ 1,215,120
2,080,000 FICO Strips, Series 19, 0.00%, 12/06/10 ................................ 810,407
7,000,000 FICO Strips, Series A, 0.00%, 08/08/10 ................................. 2,798,669
860,000 FICO Strips, Series D, 0.00%, 03/26/10 ................................. 353,469
4,000,000 FICO Strips, Series D, 0.00%, 03/26/11 ................................. 1,523,036
12,412,000 FICO Strips, Series E, 0.00%, 11/02/10 ................................. 4,871,324
860,000 FICO Strips, Series F, 0.00%, 09/26/10 ................................. 340,268
5,311,000 FICO Strips, Series F, 0.00%, 02/08/11 ................................. 2,042,392
1,975,000 FNMA Strips, 0.00%, 08/12/09 ........................................... 852,112
5,000,000 FNMA Strips, Series 1, 0.00%, 02/01/10 ................................. 2,083,310
8,250,000 FNMA Strips, Series 1, 0.00%, 08/01/10 ................................. 3,311,574
1,230,000 FNMA Strips, Series 1, 0.00%, 08/12/10 ................................. 492,606
4,450,000 FNMA Strips, Series 1, 0.00%, 02/01/11 ................................. 1,718,243
3,281,000 FNMA, sub. deb., 0.00%, 02/01/12 ....................................... 1,176,199
20,000,000 REFCO Strips, 0.00%, 10/15/10 .......................................... 8,040,018
8,000,000 REFCO Strips, 0.00%, 01/15/11 .......................................... 3,154,960
8,650,000 SLMA, 0.00%, 05/15/14 .................................................. 2,307,577
412,000 Tennessee Valley Authority, 0.00%, 01/01/10 ............................ 168,130
12,000,000 Tennessee Valley Authority, 0.00%, 04/15/10 ............................ 4,913,760
1,320,000 Tennessee Valley Authority, 0.00%, 10/15/10 ............................ 519,854
9,525,000 Tennessee Valley Authority, 0.00%, 04/15/11 ............................ 3,608,326
7,295,000 Tennessee Valley Authority, 0.00%, 10/15/11 ............................ 2,661,179
19,610,000 U.S. Treasury Strips, 0.00%, 11/15/10 .................................. 7,946,873
--------------
74,395,760
--------------
Other Securities - "AAA" Rated 5.1%
1,392,000 International Bank for Reconstruction and Development, 0.00%, 02/15/11 . 526,403
2,800,000 International Bank for Reconstruction and Development, 0.00%, 02/15/12 . 981,254
3,287,000 International Bank for Reconstruction and Development, 0.00%, 02/15/13 . 1,066,355
4,100,000 International Bank for Reconstruction and Development, 0.00%, 08/15/13 . 1,278,330
500,000 International Bank for Reconstruction and Development,
Series 2, 0.00%, 02/15/11 ............................................. 189,081
--------------
4,041,423
--------------
Total Long Term Investments (Cost $69,806,434)......................... 78,437,183
--------------
f,gReceivables from Repurchase Agreements 0.1%
$ 71,137 Joint Repurchase Agreement, 5.884%, 07/01/97,
(Maturity Value $71,137) (Cost $71,125)
Aubrey G. Lanston & Co., Inc., (Maturity Value $7,051)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $7,051)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $4,152)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $7,051)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $7,051)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $3,526)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $7,051)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co., L.P., (Maturity Value $7,051)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $7,051)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $7,051)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $7,051)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 ... $ 71,125
--------------
Total Investments (Cost $69,877,559) 100.2% ........................... 78,508,308
Liabilities in Excess of Other Assets (0.2%) .......................... (163,952)
--------------
Net Assets 100.0% ..................................................... $78,344,356
==============
At June 30, 1997, the net unrealized appreciation based on the cost of
investments for income tax purposes of $70,244,886 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost............................. $ 8,391,135
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ............................ (127,713)
--------------
Net unrealized appreciation ........................................... $ 8,263,422
==============
</TABLE>
PORTFOLIO ABBREVIATIONS:
FHLMC - Federal Home Loan Mortgage Corp.
FICO - Financing Corp.
FNMA - Federal National Mortgage Association
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
REFCO - Resolution Funding Corp.
SLMA - Student Loan Marketing Association
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements
Statements of Assets and Liabilities
June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Capital Growth and High Income Money
Growth Fund Income Fund Income Fund Securities Fund Market Fund
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
At identified cost ................................$53,451,493 $ 893,292,316 $418,595,838 $1,216,237,733 $308,274,436
==============================================================================
At value .......................................... 61,850,363 1,125,842,883 436,028,933 1,297,374,969 308,274,436
Receivables from repurchase agreements,
at value and cost .................................. 12,051,457 75,949,649 8,974,501 49,818,613 76,580,000
Cash ............................................... 619,436 36,591 -- -- 8,821,758
Receivables:
Dividends and interest ............................ 32,179 3,844,426 7,801,440 17,267,403 765,330
Investment securities sold ........................ -- 1,132,660 -- 768,224 --
Capital shares sold ............................... -- -- 665,495 -- --
------------------------------------------------------------------------------
Total assets .................................. 74,553,435 1,206,806,209 453,470,369 1,365,229,209 394,441,524
------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ................... 86,563 3,042,881 -- 48,143 --
Capital shares repurchased ........................ -- -- 8,925,507 493,886 --
Management fees ................................... 44,990 462,707 185,055 518,828 137,131
Accrued expenses and other liabilities ............. 1,894 17,402 13,514 81,794 6,573
------------------------------------------------------------------------------
Total liabilities ............................. 133,447 3,522,990 9,124,076 1,142,651 143,704
------------------------------------------------------------------------------
Net assets, at value ................................$74,419,988 $1,203,283,219 $444,346,293 $1,364,086,558 $394,297,820
==============================================================================
Net assets consist of:
Undistributed net investment income ................ $ 202,147 $ 20,568,553 $ 20,882,895 $ 51,564,926 $--
Net unrealized appreciation on investments and
translation of assets and liabilities denominated
in foreign currencies .............................. 8,398,870 232,550,278 17,429,245 81,122,220 --
Accumulated net realized gain
(loss) from investments
and foreign currency transactions .................. (720,289) 41,125,976 819,314 31,432,497 --
Capital shares ..................................... 66,539,260 909,038,412 405,214,839 1,199,966,915 394,297,820
------------------------------------------------------------------------------
Net assets, at value ................................$74,419,988 $1,203,283,219 $444,346,293 $1,364,086,558 $394,297,820
==============================================================================
Shares outstanding .................................. 5,972,448 64,723,671 32,692,098 81,550,321 394,297,820
==============================================================================
Net asset value per share ........................... $12.46 $18.59 $13.59 $16.73 $1.00
==============================================================================
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
June 30, 1997 (unaudited)
Mutual Discovery Mutual Shares Natural Real Estate Rising
Securities Fund Securities Fund Resources Fund Securities Fund Dividends Fund
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
At identified cost ......................... $113,796,366 $198,916,831 $91,731,767 $264,470,445 $467,479,578
==============================================================================
At value ................................... 118,046,070 207,447,960 87,290,035 358,664,954 671,966,052
Receivables from repurchase agreements,
at value and cost ........................... -- -- 2,245,853 26,693,215 26,990,699
Cash ........................................ 252,127 1,383,744 358,054 227,506 --
Foreign currencies at value and cost ........ 849,031 166,840 -- -- --
Receivables:
Dividends and interest ..................... 195,023 273,391 86,185 1,554,367 1,205,206
Investment securities sold ................. 1,944,722 2,267,175 1,973,958 406,078 192,714
Capital shares sold ........................ 788,434 1,536,884 -- -- 292,368
Unrealized gain on forward foreign
currency contracts (Note 2) ................. 812,120 457,278 -- -- --
------------------------------------------------------------------------------
Total assets ........................... 122,887,527 213,533,272 91,954,085 387,546,120 700,647,039
------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased:
Regular delivery .......................... 3,009,525 3,060,374 -- 1,900,675 --
Delayed delivery (Note 1) ................. 144,375 240,625 -- -- 8,392,680
Capital shares repurchased ................. 6,300 86,508 -- -- 666,075
Management fees ............................ 85,716 120,114 49,159 159,274 402,897
Accrued expenses and other liabilities ...... 37,550 34,050 910 664 --
Unrealized loss on forward foreign
currency contracts (Note 2) ................. 212,485 174,998 -- -- --
------------------------------------------------------------------------------
Total liabilities ...................... 3,495,951 3,716,669 50,069 2,060,613 9,461,652
------------------------------------------------------------------------------
Net assets, at value ......................... $119,391,576 $209,816,603 $91,904,016 $385,485,507 $691,185,387
==============================================================================
Net assets consist of:
Undistributed net investment income ......... $ 1,109,308 $ 1,482,453 $ 347,904 $ 6,434,776 $ 4,376,948
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated
in foreign currencies ....................... 4,849,339 8,813,409 (4,441,691) 94,194,509 204,486,474
Accumulated net realized gain
(loss) from investments
and foreign currency transactions ........... 950,342 (376,767) (352,075) 5,771,871 36,592,744
Capital shares .............................. 112,482,587 199,897,508 96,349,878 279,084,351 445,729,221
------------------------------------------------------------------------------
Net assets, at value ......................... $119,391,576 $209,816,603 $91,904,016 $385,485,507 $691,185,387
==============================================================================
Shares outstanding ........................... 10,546,514 18,841,726 7,138,176 16,893,175 40,160,726
==============================================================================
Net asset value per share .................... $11.32 $11.14 $12.88 $22.82 $17.21
==============================================================================
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
June 30, 1997 (unaudited)
Templeton
Developing Templeton Templeton Templeton
Small Markets Global Asset Global Global Income
Cap Fund Equity Fund Allocation Fund Growth Fund Securities Fund
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
At identified cost ........................... $225,570,656 $315,400,213 $69,022,566 $514,540,118 $189,915,923
==============================================================================
At value ..................................... 251,857,297 383,530,535 78,215,698 659,822,901 189,146,643
Receivables from
repurchase agreements,
at value and cost ............................. -- -- 3,991,000 67,355,000 --
Cash .......................................... -- -- 211,792 -- 9,170,965
Foreign currencies at value and cost .......... -- 1,055,099 160,653 -- --
Receivables:
Dividends and interest ....................... 35,585 1,389,227 801,827 3,092,801 4,642,779
Investment securities sold ................... 494,233 2,074,773 1,628,299 -- 15,631,339
Capital shares sold .......................... -- 640,387 195,291 880,571 70,569
Unrealized gain on forward foreign
currency contracts (Note 2) ................... -- -- 129,306 -- 2,610,200
------------------------------------------------------------------------------
Total assets ............................. 252,387,115 388,690,021 85,333,866 731,151,273 221,272,495
------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased .............. -- 3,129,045 1,694,056 49,508 14,472,517
Capital shares repurchased ................... -- -- -- 23,411 154,217
Management fees .............................. 156,959 385,178 53,238 488,626 93,979
Payable upon return of
securities loaned (Note 10) ................... 2,013,000 -- -- -- --
Accrued expenses and other liabilities ........ 3,286 302,315 16,911 135,325 20,060
Unrealized loss on forward
foreign currency contracts (Note 2)............ -- -- 84,091 -- 2,092,841
Bank overdraft ................................ 7,797,252 108,315 -- 1,280,556 --
------------------------------------------------------------------------------
Total liabilities ........................ 9,970,497 3,924,853 1,848,296 1,977,426 16,833,614
------------------------------------------------------------------------------
Net assets, at value ........................... $242,416,618 $384,765,168 $83,485,570 $729,173,847 $204,438,881
==============================================================================
Net assets consist of:
Undistributed net investment income ........... $ 54,888 $ 3,522,304 $ 1,599,707 $ 9,933,949 $ 5,253,010
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated
in foreign currencies ......................... 26,286,641 68,130,322 9,235,509 145,282,783 (301,559)
Accumulated net realized gain
(loss) from investments
and foreign currency transactions ............. 4,500,600 5,216,952 641,710 18,236,103 (3,530,845)
Capital shares ................................ 211,574,489 307,895,590 72,008,644 555,721,012 203,018,275
------------------------------------------------------------------------------
Net assets, at value ........................... $242,416,618 $384,765,168 $83,485,570 $729,173,847 $204,438,881
==============================================================================
Shares outstanding ............................. 17,502,722 28,565,598 6,213,979 47,377,998 16,088,088
==============================================================================
Net asset value per share ...................... $13.85 $13.47 $13.44 $15.39 $12.71
==============================================================================
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
June 30, 1997 (unaudited)
Templeton
Templeton International Templeton
International Smaller Pacific U.S. Government
Equity Fund Companies Fund Growth Fund Securities Fund
<S> <C> <C> <C> <C>
Assets:
Investments in securities:
At identified cost ........................................ $ 902,957,809 $21,982,281 $279,679,878 $748,958,841
==============================================================================
At value .................................................. 1,139,957,138 23,745,733 317,425,155 758,863,768
Receivables from repurchase
agreements, at value and cost .............................. 126,007,000 4,350,000 2,276,000 14,535,607
Cash ....................................................... 214,419 2,734,825 94,134 --
Foreign currencies at value and cost ....................... 33,329 -- 5,874 --
Receivables:
Dividends and interest .................................... 5,914,733 76,921 1,505,602 6,273,095
Investment securities sold ................................ 902,256 45,248 -- 390,632
Capital shares sold ....................................... 199,593 161,088 136,952 314,885
------------------------------------------------------------------------------
Total assets .......................................... 1,273,228,468 31,113,815 321,443,717 780,377,987
------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ........................... 3,254,409 1,573,152 3,258,168 --
Capital shares repurchased ................................ -- 13 286,563 733,038
Management fees ........................................... 782,504 23,363 233,550 308,992
Accrued expenses and other liabilities ..................... 200,629 12,646 70,620 13,269
------------------------------------------------------------------------------
Total liabilities ..................................... 4,237,542 1,609,174 3,848,901 1,055,299
------------------------------------------------------------------------------
Net assets, at value ........................................ $1,268,990,926 $29,504,641 $317,594,816 $779,322,688
==============================================================================
Net assets consist of:
Undistributed net investment income ........................ $ 4,587,105 $ 437,478 $-- $ 26,381,806
Accumulated distributions in excess
of net investment income ................................... -- -- (233,641) --
Net unrealized appreciation on
investments and translation of assets
and liabilities denominated in foreign currencies .......... 236,999,329 1,763,452 37,745,277 9,904,927
Accumulated net realized gain
(loss) from investments and
foreign currency transactions .............................. 41,284,532 354,677 2,358,984 (15,599,250)
Capital shares ............................................. 986,119,960 26,949,034 277,724,196 758,635,205
------------------------------------------------------------------------------
Net assets, at value ........................................ $1,268,990,926 $29,504,641 $317,594,816 $779,322,688
==============================================================================
Shares outstanding .......................................... 77,230,276 2,484,755 21,289,513 58,989,435
==============================================================================
Net asset value per share ................................... $16.43 $11.87 $14.92 $13.21
==============================================================================
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
June 30, 1997 (unaudited)
Utility Zero Coupon Zero Coupon Zero Coupon
Equity Fund Fund - 2000 Fund - 2005 Fund - 2010
<S> <C> <C> <C> <C>
Assets:
Investments in securities:
At identified cost ........................................... $ 997,490,042 $114,210,502 $70,813,920 $69,806,434
==============================================================================
At value ..................................................... 1,079,419,862 119,348,797 76,127,684 78,437,183
Receivables from repurchase
agreements, at value and cost ................................. 9,793,505 1,563,784 26,892 71,125
Cash .......................................................... -- -- 1,407 --
Foreign currencies (Cost $486,209) ............................ 483,690 -- -- --
Receivables:
Dividends and interest ....................................... 1,838,570 -- -- --
Investment securities sold ................................... 846,109 -- -- --
Capital shares sold .......................................... 46,054 -- -- 12,804
------------------------------------------------------------------------------
Total assets ............................................. 1,092,427,790 120,912,581 76,155,983 78,521,112
------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased .............................. 1,817,406 -- -- --
Capital shares repurchased ................................... 1,176,941 447,029 -- 20,244
Management fees .............................................. 418,313 37,377 24,212 16,428
Accrued expenses and other liabilities ........................ 55,836 3,258 1,153 140,084
------------------------------------------------------------------------------
Total liabilities ........................................ 3,468,496 487,664 25,365 176,756
------------------------------------------------------------------------------
Net assets, at value ........................................... $1,088,959,294 $120,424,917 $76,130,618 $78,344,356
==============================================================================
Net assets consist of:
Undistributed net investment income ........................... $ 23,174,772 $ 3,914,051 $ 2,448,739 $ 2,499,046
Net unrealized appreciation on
investments and translation of assets
and liabilities denominated in foreign currencies ............. 81,932,248 5,138,295 5,313,764 8,630,749
Accumulated net realized gain
(loss) from investments and
foreign currency transactions ................................. 25,056,611 751,021 574,026 (589,012)
Capital shares ................................................ 958,795,663 110,621,550 67,794,089 67,803,573
------------------------------------------------------------------------------
Net assets, at value ........................................... $1,088,959,294 $120,424,917 $76,130,618 $78,344,356
==============================================================================
Shares outstanding ............................................. 63,253,739 8,324,305 4,867,554 5,027,827
==============================================================================
Net asset value per share ...................................... $17.22 $14.47 $15.64 $15.58
==============================================================================
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Operations
for the six months ended June 30, 1997 (unaudited)
Capital Growth and High Income Money
Growth Fund Income Fund Income Fund Securities Fund Market Fund
<S> <C> <C> <C> <C> <C>
Investment income:
Interest ......................................... $ 233,711 $ 1,792,187 $21,519,987 $38,568,505 $11,415,618
Dividends1 ....................................... 183,012 21,163,235 527,215 16,333,178 --
------------------------------------------------------------------------------
Total income ................................ 416,723 22,955,422 22,047,202 54,901,683 11,415,618
------------------------------------------------------------------------------
Expenses:
Management fees (Note 6) ......................... 211,213 2,640,673 1,106,945 3,121,566 1,058,727
Professional fees ................................ 1,479 15,176 6,918 33,946 7,886
Reports to shareholders .......................... 891 79,120 35,511 105,189 30,908
Custodian fees ................................... 270 13,999 3,647 65,784 2,598
Trustees' fees and expenses ...................... 94 3,776 1,701 5,090 1,574
Other ............................................ 619 8,267 8,059 14,552 3,686
Management fees waived
by manager (Note 6) .............................. -- -- -- -- (165,307)
------------------------------------------------------------------------------
Total expenses .............................. 214,566 2,761,011 1,162,781 3,346,127 940,072
------------------------------------------------------------------------------
Net investment income ....................... 202,157 20,194,411 20,884,421 51,555,556 10,475,546
------------------------------------------------------------------------------
Realized and unrealized gain
(loss) from investments
and foreign currency:
Net realized gain (loss) on:
Investments .................................... (576,845) 41,270,940 824,844 31,399,079 --
Foreign currency transactions .................. (3,494) 192 (3,487) 60,619 --
Net unrealized appreciation
(depreciation) on:
Investments .................................... 6,416,420 77,382,024 (801,796) 3,603,689 --
Translation of assets
and liabilities denominated
in foreign currencies ............................ -- (497) (3,098) (11,182) --
------------------------------------------------------------------------------
Net realized and unrealized
gain from investments
and foreign currencies ........................... 5,836,081 118,652,659 16,463 35,052,205 --
------------------------------------------------------------------------------
Net increase in net assets
resulting from operations ........................ $6,038,238 $138,847,070 $20,900,884 $86,607,761 $10,475,546
------------------------------------------------------------------------------
1Net of foreign taxes and fees withheld of $2,451, $406,531, and $100,660 for
the Capital Growth Fund, the Growth and Income Fund, and the Income Securities
Fund, respectively.
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Operations (cont.)
for the six months ended June 30, 1997 (unaudited)
Mutual Discovery Mutual Shares Natural Real Estate Rising
Securities Fund Securities Fund Resources Fund Securities Fund Dividends Fund
<S> <C> <C> <C> <C> <C>
Investment income:
Interest2 ....................................... $ 563,608 $1,202,509 $ 139,467 $ 756,757 $ 419,957
Dividends3 ...................................... 935,675 785,434 747,589 6,319,033 6,282,910
------------------------------------------------------------------------------
Total income ............................... 1,499,283 1,987,943 887,056 7,075,790 6,702,867
------------------------------------------------------------------------------
Expenses:
Management fees (Note 6) ........................ 308,069 421,659 309,270 917,204 2,268,468
Professional fees ............................... 6,520 8,472 2,431 4,256 7,544
Reports to shareholders ......................... 15,000 15,000 7,731 15,821 39,896
Custodian fees .................................. 36,193 22,557 9,133 1,270 2,721
Trustees' fees and expenses ..................... 535 535 448 1,025 1,801
Other ........................................... 402 37 1,359 9,175 2,995
------------------------------------------------------------------------------
Total expenses ............................. 366,719 468,260 330,372 948,751 2,323,425
------------------------------------------------------------------------------
Net investment income ...................... 1,132,564 1,519,683 556,684 6,127,039 4,379,442
------------------------------------------------------------------------------
Realized and unrealized
gain (loss) from investments
and foreign currency:
Net realized gain (loss) on:
Investments ................................... 793,060 (431,148) (192,004) 5,976,382 36,892,317
Foreign currency transactions ................. 157,282 57,430 (14,005) -- --
Net unrealized appreciation
(depreciation) on:
Investments ................................... 4,661,489 7,962,786 (9,709,641) 14,339,441 54,206,885
Translation of assets and
liabilities denominated
in foreign currencies ........................... -- 282,280 (5,421) -- --
------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) from investments
and foreign currencies .......................... 5,611,831 7,871,348 (9,921,071) 20,315,823 91,099,202
------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from operations ....................... $6,744,395 $9,391,031 $(9,364,387) $26,442,862 $95,478,644
==============================================================================
2Net of foreign taxes withheld of $51,616 for the Natural Resources Fund.
3Net of foreign taxes and fees withheld of $94,286, $41,226, $12,996, and
$36,770 for the Mutual Discovery Securities Fund, the Mutual Shares
Securities Fund, the Natural Resources Fund, and the Rising Dividends Fund,
respectively.
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Operations (cont.)
for the six months ended June 30, 1997 (unaudited)
Templeton
Developing Templeton Templeton Templeton
Small Markets Global Asset Global Global Income
Cap Fund Equity Fund Allocation Fund Growth Fund Securities Fund
<S> <C> <C> <C> <C> <C>
Investment income:
Interest4 ........................................ $ 390,296 $ 994,961 $1,230,045 $ 2,253,708 $7,806,742
Dividends5........................................ 437,071 5,265,770 755,137 11,186,361 7,384
------------------------------------------------------------------------------
Total income ................................ 827,367 6,260,731 1,985,182 13,440,069 7,814,126
------------------------------------------------------------------------------
Expenses:
Management fees (Note 6) ......................... 756,502 2,056,138 274,060 2,683,193 582,566
Professional fees ................................ 3,502 6,300 1,025 5,000 2,537
Reports to shareholders .......................... 14,158 18,600 4,992 38,400 15,650
Custodian fees ................................... 1,423 247,175 11,900 97,299 32,400
Trustees' fees and expenses ...................... 635 500 323 2,400 950
Other ............................................ 1,137 -- 5,063 3,944 676
------------------------------------------------------------------------------
Total expenses .............................. 777,357 2,328,713 297,363 2,830,236 634,779
------------------------------------------------------------------------------
Net investment income ....................... 50,010 3,932,018 1,687,819 10,609,833 7,179,347
------------------------------------------------------------------------------
Realized and unrealized gain
(loss) from investments
and foreign currency:
Net realized gain (loss) on:
Investments .................................... 4,563,518 5,438,504 586,623 18,336,505 (3,040,852)
Foreign currency transactions .................. 341 (86,906) 73,476 (6,352) 3,555,852
Net unrealized appreciation
(depreciation) on:
Investments .................................... 15,873,568 48,231,911 4,177,585 56,907,732 (6,794,384)
Translation of assets and
liabilities denominated
in foreign currencies ............................ -- -- 37,761 -- (179,145)
------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) from investments
and foreign currencies ........................... 20,437,427 53,583,509 4,875,445 75,237,885 (6,458,529)
------------------------------------------------------------------------------
Net increase in net assets
resulting from operations ........................ $20,487,437 $57,515,527 $6,563,264 $85,847,718 $ 720,818
==============================================================================
4Net of foreign taxes withheld of $7,507 and $154,832 for the Templeton Global
Asset Allocation Fund and the Templeton Global Income Securities Fund,
respectively.
5Net of foreign taxes and fees withheld of $24,227, $241,106, $59,635, and
$786,783 for the Small Cap Fund, the Templeton Developing Markets Equity Fund,
the Templeton Global Asset Allocation Fund, and the Templeton Global Growth
Fund, respectively.
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Operations (cont.)
for the six months ended June 30, 1997 (unaudited)
Templeton
Templeton International Templeton
International Smaller Pacific U.S. Government
Equity Fund Companies Fund Growth Fund Securities Fund
<S> <C> <C> <C> <C>
Investment income:
Interest ...................................................... $ 3,928,997 $ 224,271 $ 184,966 $28,335,260
Dividends6 .................................................... 25,309,868 358,018 4,974,027 --
------------------------------------------------------------------------------
Total income ............................................. 29,238,865 582,289 5,158,993 28,335,260
------------------------------------------------------------------------------
Expenses:
Management fees (Note 6) ...................................... 4,600,750 112,220 1,456,591 1,916,874
Professional fees ............................................. 16,000 1,660 4,150 6,948
Reports to shareholders ....................................... 60,000 1,600 26,500 68,633
Custodian fees ................................................ 391,000 3,900 107,300 3,567
Trustees' fees and expenses ................................... 3,300 550 1,100 2,745
Registration and filing fees .................................. -- 1,690 6,600 --
Other ......................................................... 57,260 59 700 4,844
------------------------------------------------------------------------------
Total expenses ........................................... 5,128,310 121,679 1,602,941 2,003,611
------------------------------------------------------------------------------
Net investment income .................................... 24,110,555 460,610 3,556,052 26,331,649
------------------------------------------------------------------------------
Realized and unrealized gain (loss)
from investments and foreign currency:
Net realized gain (loss) on:
Investments .................................................. 27,572,298 359,479 7,413,119 268,757
Foreign currency transactions ................................ (936,997) (4,802) (117,300) --
Net unrealized appreciation
(depreciation) on investments ................................. 102,676,570 659,380 (2,446,047) 2,858,479
------------------------------------------------------------------------------
Net realized and unrealized gain from
investments and foreign currencies............................. 129,311,871 1,014,057 4,849,772 3,127,236
------------------------------------------------------------------------------
Net increase in net assets
resulting from operations ..................................... $153,422,426 $1,474,667 $8,405,824 $29,458,885
==============================================================================
6Net of foreign taxes and fees withheld of $2,365,071, $40,670, and $382,468 for
the Templeton International Equity Fund, the Templeton International Smaller
Companies Fund, and the Templeton Pacific Growth Fund, respectively.
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Operations (cont.)
for the six months ended June 30, 1997 (unaudited)
Utility Zero Coupon Zero Coupon Zero Coupon
Equity Fund Fund - 2000 Fund - 2005 Fund - 2010
<S> <C> <C> <C> <C>
Investment income:
Interest .......................................................... $ 466,916 $4,159,562 $2,605,081 $2,656,008
Dividends7 ........................................................ 25,496,268 -- -- --
------------------------------------------------------------------------------
Total income ................................................. 25,963,184 4,159,562 2,605,081 2,656,008
------------------------------------------------------------------------------
Expenses:
Management fees (Note 6) .......................................... 2,615,249 366,868 242,059 243,175
Professional fees ................................................. 17,922 2,878 1,746 1,887
Reports to shareholders ........................................... 88,049 13,649 5,065 5,100
Custodian fees .................................................... 49,543 2,646 429 364
Trustees' fees and expenses ....................................... 5,018 638 270 270
Other ............................................................. 10,540 4,155 1,553 2,236
Management fees waived by manager (Note 6) ........................ -- (145,092) (95,021) (96,211)
------------------------------------------------------------------------------
Total expenses ............................................... 2,786,321 245,742 156,101 156,821
------------------------------------------------------------------------------
Net investment income ........................................ 23,176,863 3,913,820 2,448,980 2,499,187
------------------------------------------------------------------------------
Realized and unrealized gain (loss)
from investments and foreign currency:
Net realized gain (loss) on:
Investments ...................................................... 25,095,406 751,801 578,643 (169,893)
Foreign currency transactions .................................... (29,697) -- -- --
Net unrealized appreciation (depreciation) on:
Investments ...................................................... 28,961,913 (1,908,070) (1,418,733) (846,022)
Translation of assets and liabilities
denominated in foreign currencies ................................. 2,428 -- -- --
------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
from investments and foreign currencies ........................... 54,030,050 (1,156,269) (840,090) (1,015,915)
------------------------------------------------------------------------------
Net increase in net assets resulting from operations ............... $77,206,913 $2,757,551 $1,608,890 $1,483,272
==============================================================================
7Net of foreign taxes and fees withheld of $571,356 for the Utility Equity Fund.
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Changes in Net Assets
for the six months ended June 30, 1997 (unaudited)
and the year ended December 31, 1996
Capital Growth Fund Growth and Income Fund High Income Fund
Six months Year ended Six months Year ended Six months Year ended
ended 6/30/97 12/31/96* ended 6/30/97 12/31/96 ended 6/30/97 12/31/96
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................ $ 202,157 $ 110,214 $ 20,194,411 $ 39,513,404 $ 20,884,421 $ 37,008,728
Net realized gain
(loss) from investments
and foreign currency
transactions .......................... (580,339) (140,413) 41,271,132 37,811,712 821,357 1,210,500
Net unrealized appreciation
(depreciation)
on investments and translation of assets
and liabilities denominated
in foreign currencies ................ 6,416,420 1,982,450 77,381,527 55,138,252 (804,894) 13,294,221
--------------------------------------------------------------------------------------
Net increase in net
assets resulting
from operations ....................... 6,038,238 1,952,251 138,847,070 132,463,368 20,900,884 51,513,449
Distributions to
shareholders from:
Undistributed net
investment income ..................... (109,761) -- (39,059,424) (22,230,774) (37,006,747) (31,018,152)
Net realized capital gains ............ -- -- (37,881,070) (78,714,626) (1,213,933) (1,646,547)
Increase in net assets
from capital share
transactions (Note 3) ................. 23,824,800 42,714,460 63,387,635 156,983,572 15,570,564 66,343,229
--------------------------------------------------------------------------------------
Net increase (decrease)
in net assets ......................... 29,753,277 44,666,711 125,294,211 188,501,540 (1,749,232) 85,191,979
Net assets:
Beginning of period ................... 44,666,711 -- 1,077,989,008 889,487,468 446,095,525 360,903,546
--------------------------------------------------------------------------------------
End of period ......................... $74,419,988 44,666,711 $1,203,283,219 $1,077,989,008 $444,346,293 $446,095,525
======================================================================================
Undistributed net investment income
included in net assets:
Beginning of period .................. $ 109,751 $-- $ 39,433,566 $ 22,239,184 $ 37,005,221 $ 31,020,827
======================================================================================
End of period ........................ $ 202,147 $ 109,751 $ 20,568,553 $ 39,433,566 $ 20,882,895 $ 37,005,221
======================================================================================
*For the period May 1, 1996 (effective date) to December 31, 1996.
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended June 30, 1997 (unaudited)
and the year ended December 31, 1996
Mutual Discovery
Income Securities Fund Money Market Fund Securities Fund
Six months Year ended Six months Year ended Six months Year ended
ended 6/30/97 12/31/96 ended 6/30/97 12/31/96 ended 6/30/97 12/31/96**
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets:
Operations:
Net investment income ............... $ 51,555,556 $ 103,698,698 $ 10,475,546 $ 22,043,733 $ 1,132,564 $ 24,287
Net realized gain from
investments and
foreign currency transactions ........ 31,459,698 19,810,309 -- -- 950,342 1,860
Net unrealized appreciation on
investments and translation of assets
and liabilities denominated in
foreign currencies ................... 3,592,507 16,747,285 -- -- 4,661,489 187,850
--------------------------------------------------------------------------------------
Net increase in net
assets resulting
from operations ...................... 86,607,761 140,256,292 10,475,546 22,043,733 6,744,395 213,997
Distributions to shareholders from:
Undistributed net
investment income .................... (99,613,761) (66,927,738) (10,475,546) (22,043,733) (49,403) --
Net realized capital gains ........... (21,398,124) (11,125,807) -- -- -- --
Increase (decrease)
in net assets from
capital share
transactions (Note 3) ................ 47,831,262 21,919,171 (14,631,993) (20,617,040) 97,278,854 15,203,733
--------------------------------------------------------------------------------------
Net increase (decrease)
in net assets........................ 13,427,138 84,121,918 (14,631,993) (20,617,040) 103,973,846 15,417,730
Net assets:
Beginning of period .................. 1,350,659,420 1,266,537,502 408,929,813 429,546,853 15,417,730 --
--------------------------------------------------------------------------------------
End of period ........................$1,364,086,558 $1,350,659,420 $394,297,820 $408,929,813 $119,391,576 $15,417,730
======================================================================================
Undistributed net
investment income
included in net assets:
Beginning of period ................. $ 99,623,131 $ 91,003,300 $-- $-- $ 26,147 $--
======================================================================================
End of period ....................... $ 51,564,926 $ 99,623,131 $-- $-- $ 1,109,308 $ 26,147
======================================================================================
**For the period November 8, 1996 (effective date) to December 31, 1996.
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended June 30, 1997 (unaudited)
and the year ended December 31, 1996
Mutual Shares
Securities Fund Natural Resources Fund Real Estate Securities Fund
Six months Year ended Six months Year ended Six months Year ended
ended 6/30/97 12/31/96** ended 6/30/97 12/31/96 ended 6/30/97 12/31/96
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................. $ 1,519,683 $ 50,601 $ 556,684 $ 1,257,532 $ 6,127,039 $ 11,638,350
Net realized gain
(loss) from investments
and foreign currency transactions ...... (373,718) (3,049) (206,009) (188,566) 5,976,382 5,460,333
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies ..................... 8,245,066 568,343 (9,715,062) 935,906 14,339,441 57,769,186
--------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from operations .............. 9,391,031 615,895 (9,364,387) 2,004,872 26,442,862 74,867,869
Distributions to shareholders from:
Undistributed net
investment income ...................... (87,831) -- (1,423,769) (1,593,439) (10,951,988) (9,713,587)
Net realized capital gains ............. -- -- -- (1,460,667) (5,229,900) --
Increase (decrease) in net
assets from capital
share transactions (Note 3) ............ 172,836,481 27,061,027 (6,886,413) 5,519,005 52,503,338 44,093,562
--------------------------------------------------------------------------------------
Net increase
(decrease) in net assets ............... 182,139,681 27,676,922 (17,674,569) 4,469,771 62,764,312 109,247,844
Net assets:
Beginning of period .................... 27,676,922 -- 109,578,585 105,108,814 322,721,195 213,473,351
--------------------------------------------------------------------------------------
End of period ..........................$209,816,603 $27,676,922 $ 91,904,016 $109,578,585 $385,485,507 $322,721,195
======================================================================================
Undistributed net
investment income included
in net assets:
Beginning of period ................... $ 50,601 $-- $ 1,214,989 $ 1,615,202 $ 11,259,725 $ 9,334,962
======================================================================================
End of period ......................... $ 1,482,453 $ 50,601 $ 347,904 $ 1,214,989 $ 6,434,776 $ 11,259,725
======================================================================================
**For the period November 8, 1996 (effective date) to December 31, 1996.
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended June 30, 1997 (unaudited)
and the year ended December 31, 1996
Templeton Developing
Rising Dividends Fund Small Cap Fund Markets Equity Fund
Six months Year ended Six months Year ended Six months Year ended
ended 6/30/97 12/31/96 ended 6/30/97 12/31/96 ended 6/30/97 12/31/96
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets:
Operations:
Net investment income ............... $ 4,379,442 $ 9,955,580 $ 50,010 $ 585,485 $ 3,932,018 $ 3,874,067
Net realized gain
from investments and
foreign currency transactions ........ 36,892,317 31,514,069 4,563,859 6,726,182 5,351,598 6,246,440
Net unrealized
appreciation on investments
and translation of
assets and liabilities
denominated in
foreign currencies ................... 54,206,885 71,866,460 15,873,568 10,251,252 48,231,911 29,692,572
--------------------------------------------------------------------------------------
Net increase in net
assets resulting
from operations ...................... 95,478,644 113,336,109 20,487,437 17,562,919 57,515,527 39,813,079
Distributions to
shareholders from:
Undistributed
net investment income ................ (9,956,520) (10,368,611) (573,457) (33,640) (3,987,427) (2,182,460)
Net realized capital gains ........... (17,001,263) -- (6,796,191) (2,727) (6,324,884) (4,037,551)
Increase in net assets
from capital share
transactions (Note 3) ................ 25,240,825 31,202,926 58,329,859 140,140,940 65,463,531 80,421,511
--------------------------------------------------------------------------------------
Net increase in net assets ...... 93,761,686 134,170,424 71,447,648 157,667,492 112,666,747 114,014,579
Net assets:
Beginning of period .................. 597,423,701 463,253,277 170,968,970 13,301,478 272,098,421 158,083,842
--------------------------------------------------------------------------------------
End of period ........................ $691,185,387 $597,423,701 $242,416,618 $170,968,970 $384,765,168 $272,098,421
======================================================================================
Undistributed net
investment income
included in net assets:
Beginning of period ................. $ 9,954,026 $ 10,367,057 $ 578,335 $ 33,213 $ 3,577,713 $ 2,084,657
======================================================================================
End of period ....................... $ 4,376,948 $ 9,954,026 $ 54,888 $ 578,335 $ 3,522,304 $ 3,577,713
======================================================================================
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended June 30, 1997 (unaudited)
and the year ended December 31, 1996
Templeton Global Templeton Global Templeton Global Income
Asset Allocation Fund Growth Fund Securities Fund
Six months Year ended Six months Year ended Six months Year ended
ended 6/30/97 12/31/96 ended 6/30/97 12/31/96 ended 6/30/97 12/31/96
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................ $ 1,687,819 $ 1,438,196 $ 10,609,833 $ 10,065,463 $ 7,179,347 $ 16,565,628
Net realized gain
from investments and
foreign currency transactions ......... 660,099 477,024 18,330,153 5,117,524 515,000 419,588
Net unrealized
appreciation (depreciation)
on investments and translation of
assets and liabilities denominated
in foreign currencies ................. 4,215,346 4,638,002 56,907,732 73,557,750 (6,973,529) 3,321,562
------------------------------------------------------------------------------------------
Net increase in
net assets resulting
from operations ....................... 6,563,264 6,553,222 85,847,718 88,740,737 720,818 20,306,778
Distributions to shareholders from:
Undistributed net
investment income ..................... (1,548,504) (14,806) (11,070,041) (7,356,652) (14,522,463) (17,028,466)
Net realized capital gains ............ (446,684) (29,614) (3,690,014) (7,356,653) -- --
Increase (decrease)
in net assets from capital
share transactions (Note 3) ........... 22,643,368 35,036,621 78,208,797 167,094,838 (3,481,943) (24,749,927)
------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets ......................... 27,211,444 41,545,423 149,296,460 241,122,270 (17,283,588) (21,471,615)
Net assets:
Beginning of period ................... 56,274,126 14,728,703 579,877,387 338,755,117 221,722,469 243,194,084
------------------------------------------------------------------------------------------
End of period ......................... $83,485,570 $56,274,126 $729,173,847 $579,877,387 $204,438,881 $221,722,469
==========================================================================================
Undistributed net investment income
included in net assets:
Beginning of period .................. $ 1,460,392 $ (6,078) $ 10,394,157 $ 5,816,563 $ 12,596,126 $ 14,271,863
==========================================================================================
End of period ........................ $ 1,599,707 $ 1,460,392 $ 9,933,949 $ 10,394,157 $ 5,253,010 $ 12,596,126
==========================================================================================
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended June 30, 1997 (unaudited)
and the year ended December 31, 1996
Templeton International Templeton International Templeton
Equity Fund Smaller Companies Fund Pacific Growth Fund
Six months Year ended Six months Year ended Six months Year ended
ended 6/30/97 12/31/96 ended 6/30/97 12/31/96* ended 6/30/97 12/31/96
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............... $ 24,110,555 $ 30,226,760 $ 460,610 $ 141,365 $ 3,556,052 $ 5,661,152
Net realized gain
(loss) from investments
and foreign
currency transactions ................ 26,635,301 49,297,270 354,677 (8,721) 7,295,819 (4,312,669)
Net unrealized
appreciation (depreciation)
on investments and translation of
assets and liabilities denominated
in foreign currencies ................ 102,676,570 122,637,885 659,380 1,104,072 (2,446,047) 36,732,857
------------------------------------------------------------------------------------------
Net increase in
net assets resulting
from operations ...................... 153,422,426 202,161,915 1,474,667 1,236,716 8,405,824 38,081,340
Distributions to shareholders from:
Undistributed net
investment income .................... (47,271,084) (25,386,301) (155,776) -- (5,582,182) (10,991,812)
In excess of net
investment income .................... -- -- -- -- (233,641) --
Net realized
capital gains ........................ (35,002,253) (31,064,815) -- -- -- (6,370,262)
Increase (decrease)
in net assets from capital
share transactions (Note 3) .......... 89,742,463 112,271,953 11,930,712 15,018,322 (41,754,343) 4,104,011
-----------------------------------------------------------------------------------------
Net increase (decrease)
in net assets ........................ 160,891,552 257,982,752 13,249,603 16,255,038 (39,164,342) 24,823,277
Net assets:
Beginning of period .................. 1,108,099,374 850,116,622 16,255,038 -- 356,759,158 331,935,881
-----------------------------------------------------------------------------------------
End of period ........................$1,268,990,926 $1,108,099,374 $29,504,641 $16,255,038 $317,594,816 $356,759,158
=========================================================================================
Undistributed net investment income
(accumulated distributions in excess
of net investment income) included
in net assets:
Beginning of period ................. $ 27,747,634 $ 23,389,762 $ 132,644 $-- $ 2,026,130 $ 7,402,137
========================================================================================
End of period ....................... $ 4,587,105 $ 27,747,634 $ 437,478 $ 132,644 $ (233,641) $ 2,026,130
========================================================================================
*For the period May 1, 1996 (effective date) to December 31, 1996.
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended June 30, 1997 (unaudited)
and the year ended December 31, 1996
U.S. Government
Securities Fund Utility Equity Fund Zero Coupon Fund - 2000
Six months Year ended Six months Year ended Six months Year ended
ended 6/30/97 12/31/96 ended 6/30/97 12/31/96 ended 6/30/97 12/31/96
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .............. $ 26,331,649 $ 42,987,658 $ 23,176,863 $ 54,454,052 $ 3,913,820 $ 8,152,035
Net realized gain (loss) from
investments and foreign
currency transactions ............... 268,757 (158,758) 25,065,709 82,602,515 751,801 183,983
Net unrealized appreciation
(depreciation) on investments and
translation of assets and liabilities
denominated in foreign
currencies .......................... 2,858,479 (18,937,072) 28,964,341 (53,557,473) (1,908,070) (5,248,940)
------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations ........... 29,458,885 23,891,828 77,206,913 83,499,094 2,757,551 3,087,078
Distributions to shareholders from:
Undistributed net
investment income ................... (42,870,826) (41,654,771) (54,348,880) (65,540,030) (8,152,085) (7,341,063)
Net realized capital gains .......... -- -- (75,198,357) -- (184,468) (72,481)
Increase (decrease)
in net assets from
capital share
transactions (Note 3) ............... (51,122,888) 218,454,989 (60,990,702) (239,114,944) (3,597,023) (3,429,313)
------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets ....................... (64,534,829) 200,692,046 (113,331,026) (221,155,880) (9,176,025) (7,755,779)
Net assets:
Beginning of period ................. 843,857,517 643,165,471 1,202,290,320 1,423,446,200 129,600,942 137,356,721
------------------------------------------------------------------------------------------
End of period ....................... $779,322,688 $843,857,517 $1,088,959,294 $1,202,290,320 $120,424,917 $129,600,942
==========================================================================================
Undistributed net investment income
included in net assets:
Beginning of period ................ $ 42,920,983 $ 41,588,096 $ 54,346,789 $ 65,687,973 $ 8,152,316 $ 7,341,344
==========================================================================================
End of period ...................... $ 26,381,806 $ 42,920,983 $ 23,174,772 $ 54,346,789 $ 3,914,051 $ 8,152,316
==========================================================================================
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended June 30, 1997 (unaudited)
and the year ended December 31, 1996
Zero Coupon Fund - 2005 Zero Coupon Fund - 2010
Six months Year ended Six months Year ended
ended 6/30/97 12/31/96 ended 6/30/97 12/31/96
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............................................. $ 2,448,980 $ 4,940,116 $ 2,499,187 $ 4,878,408
Net realized gain (loss) from
investments and foreign currency transactions ...................... 578,643 19,477 (169,893) (191,720)
Net unrealized depreciation on
investments and translation of assets and
liabilities denominated in foreign currencies ...................... (1,418,733) (5,309,151) (846,022) (6,860,589)
------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations .......................................... 1,608,890 (349,558) 1,483,272 (2,173,901)
Distributions to shareholders from:
Undistributed net investment income ................................ (4,939,956) (4,218,190) (4,878,501) (4,092,016)
Net realized capital gains ......................................... (17,170) -- (39,001) (1,109,315)
Increase (decrease) in net assets from
capital share transactions (Note 3) ................................ (3,124,615) 3,949,514 2,962,840 558,186
------------------------------------------------------------------------------
Net decrease in net assets .................................... (6,472,851) (618,234) (471,390) (6,817,046)
Net assets:
Beginning of period ................................................ 82,603,469 83,221,703 78,815,746 85,632,792
------------------------------------------------------------------------------
End of period ...................................................... $76,130,618 $82,603,469 $78,344,356 $78,815,746
==============================================================================
Undistributed net investment
income included in net assets:
Beginning of period ................................................ $ 4,939,715 $ 4,217,789 $ 4,878,360 $ 4,091,968
==============================================================================
End of period ...................................................... $ 2,448,739 $ 4,939,715 $ 2,499,046 $ 4,878,360
==============================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Notes to Financial Statements (unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Valuemark Funds (the Trust) is an open-end, management investment
company (mutual fund) registered under the Investment Company Act of 1940, as
amended. The Trust currently consists of twenty-three separate funds (the
Funds), all of which are diversified except for the Templeton Global Income
Securities Fund. Each of the Funds issues a separate series of the Trust's
shares and maintains a totally separate investment portfolio. Shares of the
Funds are sold only to insurance company separate accounts to fund the benefits
of variable life insurance policies or variable annuity contracts issued by
Allianz Life Insurance Company of North America (Allianz Life), which was
formerly North American Life and Casualty Company (NALAC), and its affiliates.
The investment objectives of each Fund are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Capital Growth Growth and Income High Current Income Capital Preservation and Income
Capital Growth Fund Growth and Income Fund High Income Fund Money Market Fund
Mutual Discovery Securities Fund Income Securities Fund Templeton Global Income Securities Fund
Natural Resources Fund Mutual Shares Securities Fund U.S. Government Securities Fund
Small Cap Fund Real Estate Securities Fund Zero Coupon Fund - 2000
Templeton Developing
Markets Equity Fund Rising Dividends Fund Zero Coupon Fund - 2005
Templeton Global Growth Fund Templeton Global Asset Zero Coupon Fund - 2010
Templeton International Allocation Fund
Equity Fund Utility Equity Fund
Templeton International
Smaller Companies Fund
Templeton Pacific Growth Fund
</TABLE>
The Capital Growth Fund and the Templeton International Smaller Companies Fund
became effective on May 1, 1996, and the Mutual Shares Securities Fund and the
Mututal Discovery Securities Fund became effective November 8, 1996.
Effective May 1, 1997, the name of the Precious Metals Fund changed to the
Natural Resources Fund. Before May 1, 1997, the portfolio had different
investment objectives and policies.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
a. Security Valuation:
Portfolio securities listed on a securities exchange or on the NASDAQ for which
market quotations are readily available are valued at the last sale price or, if
there is no sale price, within the range of the most recent quoted bid and asked
prices. Other securities are valued based on a variety of factors, including
yield, risk, maturity, trade activity and recent developments related to the
securities. Portfolio securities which are traded both in the over-the-counter
market and on a securities exchange are valued according to the broadest and
most representative market as determined by the investment manager. The Trust
may utilize a pricing service, bank or broker/dealer experienced in such matters
to perform any of the pricing functions, under procedures approved by the Board
of Trustees (the Board). Securities for which market quotations are not
available, and securities restricted as to resale, are valued in accordance with
procedures established by the Board.
The value of a foreign security is determined as of the earlier of the close of
trading on the foreign exchange on which it is traded or the close of trading on
the New York Stock Exchange. That value is then converted into its U.S. dollar
equivalent at the foreign exchange rate in effect at noon, New York time, on the
day the value of the foreign security is determined. If no sale is reported at
that time, the mean between the current bid and asked prices is used.
Occasionally, events which affect the values of foreign securities and foreign
exchange rates may occur between the times at which they are determined and the
close of the exchange and will, therefore, not be reflected in the computation
of the Fund's net asset value, unless material. If events which materially
affect the value of these foreign securities occur during such period, these
securities will be valued in accordance with procedures established by the
Board.
Portfolio securities in the Money Market Fund are valued at amortized cost,
which approximates value. The Fund must maintain a dollar weighted average
maturity of 90 days or less and only purchase instruments having remaining
maturities of 397 days or less. If the Fund's portfolio has a remaining weighted
average maturity of greater than 90 days, the portfolio will be stated at value
based on recorded closing sales on a national securities exchange or, in the
absence of a recorded sale, within the range of the most recent quoted bid and
asked prices. The Board has established procedures designed to stabilize, to the
extent reasonably possible, the Fund's price per share as computed for the
purpose of sales and redemptions at $1.00.
b. Income Taxes:
The Funds intend to continue to qualify for the tax treatment applicable to
regulated investment companies under the Internal Revenue Code and to make the
requisite distributions to shareholders which will be sufficient to relieve the
Funds from income taxes. Each Fund is treated as a separate entity in the
determination of compliance with the Internal Revenue Code.
c. Security Transactions:
Security transactions are accounted for on the date the securities are purchased
or sold (trade date). Realized gains and losses on security transactions are
determined on the basis of specific identification.
d. Investment Income, Expenses and Distributions:
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income and estimated expenses are accrued daily.
Original issue discount is amortized as required by the Internal Revenue Code.
For the Money Market Fund, net investment income includes income, calculated on
an accrual basis, and estimated expenses which are accrued daily. The total
available for distribution is computed daily and includes the net investment
income, plus or minus any gains or losses on security transactions and any
changes in unrealized portfolio appreciation or depreciation. Distributions are
normally declared each day the New York Stock Exchange is open for business,
equal to the total available for distributions (as defined above), and are
payable to shareholders of record as of the close of business the preceding day.
Such distributions are automatically reinvested daily in additional shares of
the Fund at net asset value.
A portion of the distributions received from investments in Real Estate
Investment Trust (REIT) securities may be characterized as tax basis return of
capital (ROC) distributions, which are not recorded as dividend income, but
reduce the cost basis of the REIT securities. ROC distributions exceeding the
cost basis of the REIT security are recognized by the Funds as capital gain.
Net investment income differs for financial statement and tax purposes primarily
due to tax basis mark to market of unrealized gains with respect to differing
treatments of foreign currency transactions and defaulted securities - see Note
7.
Net realized capital gains and losses differ for financial statement and tax
purposes primarily due to tax basis mark to market of unrealized gains with
respect to differing treatments of wash sale and foreign currency transactions.
e. Accounting Estimates:
The preparation of financial statements in accordance with generally accepted
accounting principles 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. Expense Allocation:
Common expenses incurred by the Trust are allocated among the Funds based on the
ratio of net assets of each Fund to the combined net assets. In all other
respects, expenses are charged to each Fund as incurred on a specific
identification basis.
g. Foreign Currency Translation:
The accounting records of the Funds are maintained in U.S. dollars. All assets
and liabilities denominated in foreign currencies are translated into U.S.
dollars at the rate of exchange of the currencies against U.S. dollars on the
valuation date. Purchases and sales of securities, income and expenses are
translated at the rate of exchange quoted on the day that the transactions are
recorded. Differences between income and expense amounts recorded and collected
or paid are recognized when reported by the custodian.
g. Foreign Currency Translation: (cont.)
The Funds do not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from fluctuations arising
from changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales and maturities of
short-term securities, sales of foreign currencies, gains or losses realized
between the trade and settlement dates on security transactions, the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized appreciation or depreciation on
translation of assets and liabilities denominated in foreign currencies arise
from changes in the value of assets and liabilities other than investments in
securities at the end of the reporting period, resulting from changes in
exchange rates.
h. Repurchase Agreements:
The Funds may enter into a joint repurchase agreement whereby their uninvested
cash balances are deposited into a joint cash account to be used to invest in
one or more repurchase agreements with government securities dealers recognized
by the Federal Reserve Board and/or member banks of the Federal Reserve System.
The value and face amount of the joint repurchase agreement are allocated to the
Funds based on their pro-rata interest. A repurchase agreement is accounted for
as a loan by the Fund to the seller, collateralized by underlying U.S.
government securities, which are delivered to the Fund's custodian. The market
value, including accrued interest, of the initial collateralization is required
to be at least 102% of the dollar amount invested by the Funds, with the value
of the underlying securities marked to market daily to maintain coverage of at
least 100%. At June 30, 1997, all outstanding repurchase agreements held by the
Funds, had been entered into on that date.
i. Securities Purchased on a When-Issued or Delayed Delivery Basis:
The Funds may trade securities on a when-issued or delayed delivery basis, with
payment and delivery scheduled for a future date. These transactions are subject
to market fluctuations and are subject to the risk that the value at delivery
may be more or less than the trade date purchase price. Although the Funds will
generally purchase these securities with the intention of holding the
securities, they may sell the securities before the settlement date. These
securities are identified on the accompanying Statement of Investments in
Securities and Net Assets. The Funds have set aside sufficient investment
securities as collateral for these purchase commitments.
j. Mortgage Dollar Rolls:
The U.S. Government Securities Fund may enter into mortgage dollar rolls in
which the Fund sells mortgage-backed securities and simultaneously contracts to
repurchase substantially similar, but not identical, securities on a specified
future date, generally at a price lower than the price of the security sold. The
counterparty receives all principal and interest payments, including
prepayments, made on the mortgage-backed security sold while it is the holder.
Mortgage dollar rolls may be renewed with a new sale and repurchase price fixed
and a cash settlement made without physical delivery of the securities subject
to the contract, at the renewal date. Mortgage dollar rolls are accounted
for as collateralized financing transactions.
2. FORWARD FOREIGN CURRENCY CONTRACTS
A forward currency contract, which is individually negotiated and privately
traded by currency traders and their customers, is a commitment to purchase or
sell a specific currency for an agreed-upon price at a future date.
The Mutual Discovery Securities Fund, Mutual Shares Securities Fund, Templeton
Global Asset Allocation Fund, and Templeton Global Income Securities Fund may
enter into forward contracts with the objective of minimizing the risk to the
Funds from adverse changes in the relationship between currencies or to enhance
fund value. The Funds may also enter into a forward contract in relation to a
security denominated in a foreign currency or when they anticipate receipt in a
foreign currency of dividends or interest payments in order to "lock in" the
U.S. dollar price of a security or the U.S. dollar equivalent of such dividend
or interest payments.
Any gain or loss realized from a forward foreign currency contract is recorded
as a realized gain or loss from investments.
Each Fund segregates in its custodian bank sufficient cash, cash equivalents or
readily marketable debt securities as collateral for commitments created by open
forward contracts. The Funds could be exposed to risk if counterparties to the
contracts are unable to meet the terms of their contracts or if the value of the
foreign currency changes unfavorably.
As of June 30, 1997, the Mutual Discovery Securities Fund had the following
forward foreign currency contracts outstanding:
<TABLE>
<CAPTION>
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Gain (Loss)
<S> <C> <C> <C> <C>
905,464 Hong Kong Dollar ................ U.S. $ 116,972 07/10/97 U.S. $ 113
13,158,492 French Franc .................... 2,395,750 07/17/97 153,944
11,518,783 Swedish Krona ................... 1,600,187 08/15/97 108,324
110,956,871 Spanish Peseta .................. 769,678 08/18/97 16,306
21,435,909 French Franc .................... 3,802,075 08/29/97 139,695
3,431,961 Canadian Dollar ................. 2,506,633 08/29/97 11,986
4,455,520 Finnish Markka .................. 884,512 09/03/97 22,161
14,043,857 Norwegian Krone ................. 2,067,925 09/10/97 143,199
1,267,564 Swiss Franc ..................... 886,137 09/10/97 10,643
1,160,662 Dutch Guilder ................... 605,555 09/17/97 10,904
750,000 New Zealand Dollar .............. 515,888 09/17/97 7,567
338,784 Deutschemark .................... 202,865 09/18/97 7,444
12,675,669 Danish Krone .................... 1,966,777 10/24/97 44,428
41,039,048 Belgium C Franc ................. 1,160,055 11/07/97 18,729
37,461,879 Swedish Krona ................... 4,953,151 11/18/97 82,101
906,684 French Franc .................... 159,937 11/28/97 4,061
1,545,799 Dutch Guilder ................... 803,012 12/10/97 6,142
3,734,389,845 Italian Lira .................... 2,189,927 01/02/98 1,463
---------------- -----------
U.S.$27,587,036 789,210
================= -----------
Unrealized gain on offsetting forward
foreign currency contracts ...................... 22,910
-----------
Unrealized gain on forward
foreign currency ccontracts ..................... 812,120
-----------
Contracts to Sell (Foreign exchange currency)
6,023,524 British Pound ................... U.S.$ 9,845,826 07/18/97 (179,513)
547,395 Swiss Franc ..................... 374,415 09/10/97 (3,665)
196,366 British Pound ................... 317,622 10/20/97 (8,271)
962,828 Australian Dollar ............... 723,132 11/06/97 (5,199)
67,671 British Pound ................... 110,648 11/17/97 (1,562)
2,360,194 Swedish Krona ................... 305,238 11/18/97 (1,650)
---------------- -----------
U.S.$11,676,881 (199,860)
================= -----------
Contracts to Buy (Foreign exchange currency)
1,584,913 French Franc .................... U.S. $ 281,567 08/29/97 (10,780)
116,000 Finnish Markka .................. 23,399 09/03/97 (949)
336,488 Danish Krone .................... 51,927 10/24/97 (896)
---------------- -----------
U.S.$ 356,893 (12,625)
================= -----------
Unrealized loss on forward
foreign currency contracts ...................... (212,485)
-----------
Net unrealized gain on forward
foreign currency contracts ...................... U.S. $ 599,635
===========
The Mutual Shares Securities Fund had the following forward foreign currency contracts outstanding:
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Gain (Loss)
11,013,035 French Franc .................... U.S.$ 2,002,708 07/17/97 U.S. $ 126,421
20,568,232 Swedish Krona ................... 2,743,602 08/15/97 79,692
5,905,526 French Franc .................... 1,053,652 08/29/97 44,677
2,948,000 Canadian Dollar ................. 2,158,325 08/29/97 15,463
2,936,392 Norwegian Krone ................. 427,049 09/10/97 24,614
2,390,898 Dutch Guilder ................... 1,253,244 09/17/97 28,298
593,456 Deutschemark .................... 355,363 09/18/97 13,040
22,576,575 Swedish Krona ................... 3,042,665 11/18/97 107,104
3,705,585 French Franc .................... 651,703 11/28/97 14,641
837,593 Dutch Guilder ................... 435,113 12/10/97 3,328
---------------- -----------
U.S.$14,123,424 457,278
================= -----------
Unrealized gain on forward
foreign currency contracts ...................... 457,278
-----------
Contracts to Sell
(Foreign exchange currency)
5,415,830 British Pound ................... U.S.$ 8,848,925 07/18/97 (165,139)
876,310 Canadian Dollar ................. 635,007 08/29/97 (1,971)
238,850 Canadian Dollar ................. 173,079 11/28/97 (1,413)
---------------- -----------
U.S.$ 9,657,011 (168,523)
================= -----------
Contracts to Buy (Foreign exchange currency)
5,300,000 Swedish Krona ................... U.S. $ 689,610 08/15/97 (3,177)
388,142 Dutch Guilder ................... 202,157 09/17/97 (3,298)
---------------- -----------
U.S. $ 891,767 (6,475)
================= -----------
Unrealized loss on forward
foreign currency contracts ...................... (174,998)
-----------
Net unrealized gain on forward
foreign currency contracts ...................... U.S. $ 282,280
===========
The Templeton Global Asset Allocation Fund had the following forward foreign currency contracts outstanding:
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Gain (Loss)
3,630,000 German Deutschemark ............. U.S.$ 2,168,005 7/14/97 U.S. $ 84,189
4,200,000 German Deutschemark ............. 2,461,987 9/15/97 39,837
---------------- -----------
U.S.$ 4,629,992 124,026
================= -----------
Contracts to Buy (Foreign exchange currency)
127,600 British Pound U.S. $ 206,933 8/12/97 5,280
================= -----------
Unrealized gain on forward
foreign currency contracts ...................... U.S. $ 129,306
-----------
The Templeton Global Asset Allocation Fund: (cont.)
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Gain (Loss)
200,000 Australian Dollar ............... U.S. $ 150,746 9/29/97 U.S. $ (428)
319,000 British Pound ................... 512,761 8/12/97 (17,772)
---------------- -----------
U.S. $ 663,507 (18,200)
================= -----------
Contracts to Buy (Foreign exchange currency)
95,700 British Pound ................... U.S. $ 159,264 7/14/97 (104)
3,334,000 German Deutschemark ............. 1,957,311 7/14/97 (43,415)
---------------- -----------
U.S.$2,116,575 (43,519)
================= -----------
Unrealized loss on offsetting forward
foreign currency contracts ....................... (22,372)
-----------
Unrealized loss on forward foreign
currency contracts .............................. (84,091)
-----------
Net unrealized gain on forward
foreign currency contracts ...................... U.S. $ 45,215
===========
The Templeton Global Income Securities Fund had the following forward foreign currency contracts outstanding:
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Gain (Loss)
69,312,000 German Deutschemark ............. U.S.$41,396,363 7/14/97 U.S.$1,607,523
47,300,000 German Deutschemark ............. 27,719,008 9/15/97 440,986
---------------- -----------
U.S.$69,115,371 2,048,509
================= -----------
Contracts to Buy (Foreign exchange currency)
3,712,800 British Pound U.S.$ 6,088,737 8/12/97 86,062
================= -----------
Unrealized gain on offsetting forward
foreign currency contracts ....................... 475,629
-----------
Unrealized gain on forward
foreign currency contracts ...................... 2,610,200
-----------
Contracts to Sell (Foreign exchange currency)
2,700,000 Australian Dollars .............. U.S.$ 2,035,068 9/29/97 (5,774)
5,304,000 British Pound ................... 8,525,650 8/12/97 (295,493)
---------------- -----------
U.S.$10,560,718 (301,267)
================= -----------
Contracts to Buy (Foreign exchange currency)
58,991,000 German Deutschemark U.S.$34,709,993 7/14/97 (845,966)
================= -----------
Unrealized loss on offsetting forward
foreign currency contracts ....................... (945,608)
-----------
Unrealized loss on forward
foreign currency contracts ...................... (2,092,841)
-----------
Net unrealized gain on
forward foreign currency contracts .............. U.S. $ 517,359
===========
</TABLE>
3. TRUST SHARES
At June 30, 1997, there was an unlimited number of $.01 par value shares of
beneficial interest authorized. Transactions in each of the Fund's shares for
the six months ended June 30, 1997 and the year ended December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
Capital Growth Fund* Growth and Income Fund High Income Fund
------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
------------------------------------------------------------------------------
Six months ended June 30, 1997
<S> <C> <C> <C> <C> <C> <C>
Shares sold ................................. 3,513,176 $ 40,874,057 5,986,635 $ 110,737,331 7,712,199 $ 110,500,860
Shares issued in reinvestment
of distributions ............................ 8,739 109,761 4,094,758 76,940,493 2,802,103 38,220,680
Shares redeemed ............................. (1,480,295) (17,159,018) (6,764,452) (124,290,189) (9,333,561) (133,150,976)
------------------------------------------------------------------------------
Net increase ................................. 2,041,620 $ 23,824,800 3,316,941 $ 63,387,635 1,180,741 $ 15,570,564
==============================================================================
Year ended December 31, 1996
Shares sold ................................. 4,551,652 $ 49,307,053 17,103,384 $ 291,261,819 14,886,206 $ 203,832,754
Shares issued in reinvestment
of distributions ............................ -- -- 6,313,033 100,945,400 2,553,925 32,664,699
Shares redeemed ............................. (620,824) (6,592,593) (13,907,925) (235,223,647) (12,349,882) (170,154,224)
------------------------------------------------------------------------------
Net increase ................................. 3,930,828 $ 42,714,460 9,508,492 $ 156,983,572 5,090,249 $ 66,343,229
==============================================================================
Mutual Discovery
Income Securities Fund Money Market Fund Securities Fund**
------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
------------------------------------------------------------------------------
Six months ended June 30, 1997
<S> <C> <C> <C> <C> <C> <C>
Shares sold ................................. 5,083,091$ 89,213,806 399,650,039 $ 399,650,039 9,656,295 $103,980,632
Shares issued in reinvestment
of distributions ............................ 7,246,221 121,011,885 10,475,806 10,475,806 4,419 49,403
Shares redeemed ............................. (9,272,837)(162,394,429) (424,757,838) (424,757,838) (624,697) (6,751,181)
------------------------------------------------------------------------------
Net increase (decrease) ...................... 3,056,475$ 47,831,262 (14,631,993)$ (14,631,993) 9,036,017 $ 97,278,854
==============================================================================
Year ended December 31, 1996
Shares sold ................................. 12,978,656$ 215,025,216 624,484,193 $ 624,484,193 1,510,497 $ 15,203,733
Shares issued in
reinvestment of distributions ............... 4,981,081 78,053,545 22,025,506 22,025,506 -- --
Shares redeemed ............................. (16,378,905)(271,159,590) (667,126,739) (667,126,739) -- --
------------------------------------------------------------------------------
Net increase (decrease) ...................... 1,580,832$ 21,919,171 (20,617,040)$ (20,617,040) 1,510,497 $ 15,203,733
==============================================================================
Mutual Shares Natural Real Estate
Securities Fund** Resources Fund Securities Fund
------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
------------------------------------------------------------------------------
Six months ended June 30, 1997
Shares sold ................................. 16,907,359 $180,767,681 1,645,763 $ 22,862,200 3,601,172 $ 81,118,893
Shares issued in reinvestment
of distributions ............................ 7,793 87,831 107,292 1,423,769 722,406 16,181,888
Shares redeemed ............................. (747,327) (8,019,031) (2,282,999) (31,172,382) (1,998,415) (44,797,443)
------------------------------------------------------------------------------
Net increase (decrease) ...................... 16,167,825 $172,836,481 (529,944) $ (6,886,413) 2,325,163 $ 52,503,338
==============================================================================
Year ended December 31, 1996
Shares sold ................................. 2,673,916 $ 27,061,180 5,826,772 $ 92,609,906 4,215,417 $ 80,007,020
Shares issued in reinvestment
of distributions ............................ -- -- 200,533 3,054,106 541,263 9,713,587
Shares redeemed ............................. (15) (153) (5,826,876) (90,145,007) (2,455,248) (45,627,045)
------------------------------------------------------------------------------
Net increase ................................. 2,673,901 $ 27,061,027 200,429 $ 5,519,005 2,301,432 $ 44,093,562
==============================================================================
Rising Templeton Developing
Dividends Fund Small Cap Fund Markets Equity Fund
------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
------------------------------------------------------------------------------
Six months ended June 30, 1997
<S> <C> <C> <C> <C> <C> <C>
Shares sold ................................... 4,540,482$ 74,826,014 7,769,335 $100,564,086 7,309,306 $ 93,022,186
Shares issued in reinvestment
of distributions .............................. 1,563,677 26,957,783 542,684 7,369,648 774,197 10,312,311
Shares redeemed ............................... (4,735,137) (76,542,972) (3,765,366) (49,603,875) (2,986,336) (37,870,966)
------------------------------------------------------------------------------
Net increase ................................... 1,369,022$ 25,240,825 4,546,653 $ 58,329,859 5,097,167 $ 65,463,531
==============================================================================
Year ended December 31, 1996
Shares sold ................................... 9,416,748$ 128,553,979 17,929,579 $214,314,899 12,008,203 $131,040,673
Shares issued in reinvestment
of distributions .............................. 776,095 10,368,611 2,914 36,368 568,038 6,220,011
Shares redeemed ............................... (7,989,700)(107,719,664) (6,275,212) (74,210,327) (5,266,029) (56,839,173)
------------------------------------------------------------------------------
Net increase ................................... 2,203,143$ 31,202,926 11,657,281 $140,140,940 7,310,212 $ 80,421,511
==============================================================================
Templeton Global Asset Templeton Templeton Global
Allocation Fund Global Growth Fund Income Securities Fund
------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
------------------------------------------------------------------------------
Six months ended June 30, 1997
<S> <C> <C> <C> <C> <C> <C>
Shares sold ................................... 1,860,891 $24,093,371 7,233,062 $104,601,873 841,241 $ 11,263,787
Shares issued in reinvestment
of distributions .............................. 149,676 1,995,188 971,695 14,760,055 1,145,305 14,522,463
Shares redeemed ............................... (265,879) (3,445,191) (2,854,623) (41,153,131) (2,185,885) (29,268,193)
------------------------------------------------------------------------------
Net increase (decrease) ........................ 1,744,688 $22,643,368 5,350,134 $ 78,208,797 (199,339) $ (3,481,943)
==============================================================================
Year ended December 31, 1996
Shares sold ................................... 3,324,255 $37,900,419 16,172,059 $204,037,772 1,774,907 $ 23,229,506
Shares issued in reinvestment
of distributions .............................. 3,931 44,420 1,172,375 14,713,305 1,374,371 17,028,466
Shares redeemed ............................... (258,845) (2,908,218) (4,156,855) (51,656,239) (4,932,897) (65,007,899)
------------------------------------------------------------------------------
Net increase (decrease) ........................ 3,069,341 $35,036,621 13,187,579 $167,094,838 (1,783,619) $(24,749,927)
==============================================================================
Templeton
Templeton International Smaller Templeton
International Equity Fund Companies Fund* Pacific Growth Fund
------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
------------------------------------------------------------------------------
Six months ended June 30, 1997
<S> <C> <C> <C> <C> <C> <C>
Shares sold ................................... 10,002,043$ 160,909,285 1,344,677 $15,439,067 2,873,395 $ 41,681,862
Shares issued in reinvestment
of distributions .............................. 5,084,879 82,273,337 13,269 155,776 396,714 5,815,823
Shares redeemed ............................... (9,575,054)(153,440,159) (318,450) (3,664,131) (6,151,357) (89,252,028)
------------------------------------------------------------------------------
Net increase (decrease) ........................ 5,511,868$ 89,742,463 1,039,496 $11,930,712 (2,881,248) $ (41,754,343)
==============================================================================
Year ended December 31, 1996
Shares sold ................................... 16,304,017$ 233,298,562 1,887,934 $19,652,954 11,017,347 $ 162,907,832
Shares issued in reinvestment
of distributions .............................. 4,023,601 56,451,117 -- -- 1,175,496 17,362,074
Shares redeemed ............................... (12,410,252)(177,477,726) (442,675) (4,634,632) (11,892,182) (176,165,895)
------------------------------------------------------------------------------
Net increase ................................... 7,917,366$ 112,271,953 1,445,259 $15,018,322 300,661 $ 4,104,011
==============================================================================
U.S. Government
Securities Fund Utility Equity Fund Zero Coupon Fund - 2000
------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
------------------------------------------------------------------------------
Six months ended June 30, 1997
<S> <C> <C> <C> <C> <C> <C>
Shares sold ................................... 2,546,380$ 34,559,170 888,288 $ 16,213,346 347,709 $ 5,197,487
Shares issued in reinvestment
of distributions .............................. 3,245,331 42,870,826 7,553,775 129,547,237 575,728 8,336,552
Shares redeemed ............................... (9,469,679)(128,552,884) (11,332,875) (206,751,285) (1,129,368) (17,131,062)
------------------------------------------------------------------------------
Net decrease ................................... (3,677,968)$ (51,122,888) (2,890,812)$ (60,990,702) (205,931) $ (3,597,023)
==============================================================================
Year ended December 31, 1996
Shares sold ................................... 4,777,016$ 64,263,777 4,951,179 $ 87,970,395 1,346,751 $ 20,406,633
Shares issued in connection
with substitution transaction
(Note 11) ..................................... 22,031,312 292,135,204 -- -- -- --
Shares issued in reinvestment
of distributions .............................. 3,298,082 41,654,771 3,882,703 65,540,030 517,344 7,413,544
Shares redeemed ............................... (13,383,651)(179,598,763) (22,222,999) (392,625,369) (2,064,008) (31,249,490)
------------------------------------------------------------------------------
Net increase (decrease) ........................ 16,722,759$ 218,454,989 (13,389,117)$(239,114,944) (199,913) $ (3,429,313)
==============================================================================
Zero Coupon Fund - 2005 Zero Coupon Fund - 2010
---------------------------------------------------
Shares Amount Shares Amount
---------------------------------------------------
Six months ended June 30, 1997
<S> <C> <C> <C> <C>
Shares sold ................................................................. 256,752 $ 4,152,585 844,709 $ 13,427,378
Shares issued in reinvestment of distributions .............................. 315,540 4,957,126 313,017 4,917,502
Shares redeemed ............................................................. (757,260) (12,234,326) (968,971) (15,382,040)
---------------------------------------------------
Net increase ................................................................. (184,968)$ (3,124,615) 188,755 $ 2,962,840
===================================================
Year ended December 31, 1996
Shares sold ................................................................. 1,047,318 $ 16,865,102 2,638,570 $ 42,320,073
Shares issued in reinvestment of distributions .............................. 282,342 4,218,190 361,957 5,201,331
Shares redeemed ............................................................. (1,065,563) (17,133,778) (2,908,691) (46,963,218)
---------------------------------------------------
Net increase ................................................................. 264,097 $ 3,949,514 91,836 $ 558,186
===================================================
</TABLE>
*For the period May 1, 1996 (effective date) to December 31, 1996.
**For the period November 8, 1996 (effective date) to December 31, 1996.
4. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
At December 31, 1996, for tax purposes, the Trust had accumulated net realized
capital gains or capital loss carryovers as follows:
<TABLE>
<CAPTION>
Growth and High Income Real Estate Rising
Income Fund Income Fund Securities FundSecurities FundDividends Fund
---------------------------------------------------------------------
Accumulated
<S> <C> <C> <C> <C> <C>
net realized gains ............ $37,875,435 $1,211,890 $21,389,054 $5,228,326 $16,997,806
Templeton
Developing Templeton Templeton Templeton
Small Markets Global Asset Global International
Cap Fund Equity Fund Allocation Fund Growth Fund Equity Fund
---------------------------------------------------------------------
Accumulated
<S> <C> <C> <C> <C> <C>
net realized gains ................ $6,794,002 $6,195,420 $428,295 $3,597,282 $49,651,484
Utility Zero Coupon Zero Coupon Zero Coupon
Equity Fund Fund - 2000 Fund - 2005 Fund - 2010
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accumulated net realized gains .................... $75,189,259 $183,688 $16,721 $38,764
Money Natural Templeton Templeton
Capital Market Resources Global Income Pacific U.S. Government
Growth Fund Fund Fund Securities Fund Growth Fund Securities Fund
---------------------------------------------------------------------
Capital loss carryovers
<S> <C> <C> <C> <C> <C> <C> <C>
Expiring in: 1999 ........ $ -- $ -- $ -- $-- $-- $--
2000 ......... -- 418 -- -- -- --
2001 ......... -- 523 -- -- -- --
2002 ......... -- 7,568 -- -- 402,770 14,556,689
2003 ......... -- -- -- -- 3,643,075 826,481
2004 ......... 52,275 -- 146,066 1,767,518 -- --
---------------------------------------------------------------------
$52,275 $8,509 $146,066 $1,767,518 $4,045,845 $15,383,170
=====================================================================
</TABLE>
From November 1, 1996 through December 31, 1996, U.S. Government Securities
Fund, Zero Coupon Fund - 2010 and the Capital Growth Fund incurred $251,966,
$104,679 and $87,675 respectively of net realized capital losses. As permitted
by tax regulations, the fund intends to elect to defer these losses and treat
them as having arisen in the year ended December 31, 1997.
For tax purposes, the aggregate cost of securities is higher (and unrealized
appreciation is lower or unrealized depreciation is higher) than for financial
reporting purposes at June 30, 1997 by $20,716 in Capital Growth Fund, $9,777 in
Growth and Income Fund, $296,116 in Rising Dividends Fund, $212,486 in Small Cap
Fund, $102,496 in Templeton Developing Markets Equity Fund, $13,347 in Templeton
Global Growth Fund, $284,725 in Templeton International Equity Fund, $3,555,239
in Templeton Pacific Growth Fund, and $367,327 in Zero Coupon Fund - 2010.
5. PURCHASES AND SALES OF SECURITIES
Aggregate purchases and sales of securities (excluding purchases and sales of
short-term securities) for the six months ended June 30, 1997 were as follows:
<TABLE>
<CAPTION>
Income Mutual
Capital Growth and High Securities Discovery Mutual Shares
Growth Fund Income Fund Income Fund Fund Securities FundSecurities Fund
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Purchases ........ $22,071,333 $186,748,052 $79,057,984 $115,146,135 $88,059,427 $144,963,343
Sales ............ $ 3,830,427 $198,785,228 $72,845,351 $130,633,557 $14,308,924 $ 23,672,464
Templeton
Developing Templeton
Natural Real Estate Rising Small Markets Global Asset
Resources Fund Securities FundDividends Fund Cap Fund Equity Fund Allocation Fund
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Purchases ........ $25,853,709 $69,553,985 $107,490,262 $131,863,753 $64,473,900 $46,242,688
Sales ............ $33,945,628 $28,614,896 $107,963,997 $ 56,940,918 $23,328,389 $21,149,541
Templeton
Templeton Templeton Templeton International Templeton
Global Global Income International Smaller Pacific U.S. Government
Growth Fund Securities Fund Equity Fund Companies Fund Growth Fund Securities Fund
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Purchases ........ $62,614,699 $271,720,995 $136,529,691 $9,660,992 $25,929,088 $64,267,284
Sales ............ $41,798,077 $293,600,532 $164,609,271 $1,288,758 $62,849,757 $155,584,645
Utility Zero Coupon Zero Coupon Zero Coupon
Equity Fund Fund - 2000 Fund - 2005 Fund - 2010
---------------------------------------------------
<S> <C> <C> <C> <C>
Purchases ........................................ $101,287,201 $-- $-- $1,188,780
Sales ............................................ $260,475,084 $13,270,078 $8,188,025 $3,637,640
</TABLE>
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
a. Management Agreement:
Under the terms of a management agreement, Franklin Advisers, Inc. (Advisers),
provides investment advice, administrative services, office space and facilities
to each Fund, and receives fees computed monthly based on the average daily net
assets of each Fund except the Capital Growth Fund, the Mutual Discovery
Securities Fund, the Mutual Shares Securities Fund, the Rising Dividends Fund,
the Small Cap Fund, the Templeton Developing Markets Equity Fund, the Templeton
Global Asset Allocation Fund, the Templeton Global Growth Fund, the Templeton
International Equity Fund, the Templeton International Smaller Companies Fund,
and the Templeton Pacific Growth Fund as follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
0.625 of 1% First $100 million
0.500 of 1% over $100 million, up to and including $250 million
0.450 of 1% over $250 million, up to and including $10 billion
Fees are further reduced on net assets over $10 billion.
Under the terms of a separate management agreement with the Templeton
International Equity Fund and the Templeton Pacific Growth Fund, Advisers
receives fees computed monthly based on average daily net assets as follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
1% First $100 million
0.90 of 1% over $100 million, up to and including $250 million
0.80 of 1% over $250 million, up to and including $500 million
Fees are further reduced on net assets over $500 million.
Under the terms of a separate management agreement with the Capital Growth Fund
and the Small Cap Fund, Advisers receives fees computed monthly based on average
daily net assets as follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
0.750 of 1% First $500 million
0.625 of 1% over $500 million, up to and including $1 billion
0.500 of 1% over $1 billion
Under the terms of a separate management agreement with the Rising Dividends
Fund, Franklin Advisory Services, Inc. (Advisory) receives fees computed monthly
based on the average daily net assets as follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
0.750 of 1% First $500 million
0.625 of 1% over $500 million, up to and including $1 billion
0.500 of 1% over $1 billion
Templeton Global Advisers Ltd. (TGAL) serves as the investment adviser for the
Templeton Global Growth Fund and receives fees computed monthly based on average
daily net assets as follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
1% First $100 million
0.90 of 1% over $100 million, up to and including $250 million
0.80 of 1% over $250 million, up to and including $500 million
Fees are further reduced on net assets over $500 million.
a. Management Agreement: (cont.)
TGAL serves as the investment adviser for the Templeton Global Asset Allocation
Fund and receives fees computed monthly based on average daily net assets as
follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
0.650 of 1% First $200 million
0.585 of 1% over $200 million, up to and including $1.3 billion
0.520 of 1% over $1.3 billion
Templeton Investment Counsel, Inc. (TICI) serves as the investment advisor for
the Templeton International Smaller Companies Fund and receives fees computed
monthly based on average daily net assets as follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
0.850 of 1% First $200 million
0.765 of 1% over $200 million, up to and including $1.3 billion
0.680 of 1% over $1.3 billion
Franklin Mutual Advisers, Inc. (Franklin Mutual) serves as the investment
advisor for the Mutual Discovery Fund and the Mutual Shares Fund, and receives a
monthly fee equal to an annual rate of .80 and .60 of 1%, respectively, of the
average daily net assets.
Templeton Asset Management, Ltd. (TAML) serves as the investment adviser for the
Templeton Developing Markets Equity Fund and receives a monthly fee equal to an
annual rate of 1.25 of 1% of the average daily net assets.
Under an agreement with Advisers, Franklin Templeton Services, Inc. (FT
Services) provides administrative services and facilities for the Funds, except
for the Mutual Discovery Securities Fund, the Mutual Shares Securities Fund, the
Rising Dividends Fund, the Templeton Developing Markets Fund, the Templeton
Global Asset Allocation Fund, the Templeton Global Growth Fund, and the
Templeton International Smaller Companies Fund. The fee is paid by Advisers and
computed monthly based on average daily net assets. It is not a separate expense
of the Funds.
Under an agreement with Advisory, FT Services provides administrative services
and facilities for the Rising Dividends Fund. The fee is paid by Advisory and
computed monthly based on average daily net assets. It is not a separate expense
of the fund.
Under an agreement with TGAL, FT Services provides administrative services and
facilities for the Templeton Global Growth Fund. The fee is paid by TGAL and
computed monthly based on average daily net assets. It is not a separate expense
of the fund.
Under an agreement with TAML, FT Services provides administrative services and
facilities for the Templeton Developing Markets Equity Fund. The fee is paid by
TAML and computed monthly based on average daily net assets. It is not a
separate expense of the fund.
FT Services serves as the business manager for the Mutual Discovery Securities
Fund, the Mutual Shares Securities Fund, the Templeton Global Asset Allocation
Fund, and the Templeton International Smaller Companies Fund. FT Services
receives fees from the funds computed monthly based on the average daily net
assets as follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
0.150 of 1% First $200 million
0.135 of 1% over $200 million, up to and including $700 million
0.100 of 1% over $700 million, up to and including $1.2 billion
Fees are further reduced on net assets over $1.2 billion.
a. Management Agreement: (cont.)
Under a subadvisory agreement, TICI provides services to the Templeton
International Equity Fund and the Templeton Pacific Growth Fund, and receives
from Advisers fees computed monthly based on the average daily net assets of
each Fund as follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
0.50 of 1% First $100 million
0.40 of 1% over $100 million, up to and including $250 million
0.30 of 1% over $250 million, up to and including $500 million
Fees are further reduced on net assets over $500 million.
Under a subadvisory agreement, TICI provides services to the Templeton Global
Asset Allocation Fund and receives from TGAL fees computed monthly based on the
average daily net assets as follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
0.250 of 1% First $200 million
0.225 of 1% over $200 million, up to and including $1.3 billion
0.200 of 1% over $1.3 billion
Under a subadvisory agreement, TICI provides services to the Templeton Global
Income Securities Fund and receives from Advisers fees computed monthly based on
the average daily net assets as follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
0.350 of 1% First $100 million
0.250 of 1% over $100 million, up to and including $250 million
0.200 of 1% over $250 million
Advisers agreed in advance to waive management fees for the Money Market Fund,
the Zero Coupon Fund - 2000, the Zero Coupon Fund - 2005, and the Zero Coupon
Fund - 2010, as noted in the Statement of Operations for the six months ended
June 30, 1997.
b. Distribution Plans:
The management agreements between the Funds, Advisers, TGAL, and TAML include
distribution plans pursuant to Rule 12b-1 under the 1940 Act. However, no
payments were made by any Fund as a result of the plans.
c. Shareholder Services Agreement:
Franklin/Templeton Investor Services, Inc. (Investor Services), under terms of
an agreement, performs shareholder servicing for the Funds and is not paid by
the Funds for the services.
d. Other Affiliates and Related Party Transactions:
Certain officers and trustees of the Trust are also officers and/or directors of
Advisers, Advisory, Franklin Mutual, Investor Services, TGAL, TAML, TICI, FT
Services, (all wholly-owned subsidiaries of Franklin Resources, Inc.), and/or
Allianz Life.
7. CREDIT RISK AND DEFAULTED SECURITIES
The High Income Fund, the Income Securities Fund, the Mutual Discovery
Securities Fund, and the Mutual Shares Securities Fund have 87.9%, 42.5%, 1.1%,
and 1.3%, respectively, of their portfolios invested in lower rated and
comparable quality unrated securities. Investments in high yield securities are
accompanied by a greater degree of credit risk and such lower rated securities
tend to be more sensitive to economic conditions than higher rated securities.
The risk of loss due to default by the issuer may be significantly greater for
the holders of high yield securities, because such securities are generally
unsecured and are often subordinated to other creditors of the issuer.
At June 30, 1997 the Income Securities Fund held two defaulted securities with a
value aggregating $6,175,000, representing .45% of the Fund's net assets. For
information as to the specific securities, see the accompanying Statement of
Investments in Securities and Net Assets.
For financial reporting purposes, it is the Fund's accounting practice to
discontinue accrual of income and provide an estimate for probable losses due to
unpaid interest income on defaulted bonds for the current reporting period.
There are certain credit risks, foreign currency exchange risk, or event risk
due to the manner in which certain Funds are invested, which may subject the
Funds more significantly to economic changes occurring in certain industries or
sectors as follows:
The High Income Fund has investments in excess of 10% of its net assets in Cable
Television and Wireless Communication.
The Templeton Developing Markets Equity Fund has investments in excess of 10% of
its net assets in Mexico.
The Templeton International Equity Fund has investments in excess of 10% of its
net assets in United Kingdom.
The Templeton International Smaller Companies Fund has investments in excess of
10% of its net assets in Hong Kong.
The Templeton Pacific Growth Fund has investments in excess of 10% of its net
assets in Australia, Hong Kong, Japan, and Singapore.
8. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
Investments in portfolio issuers, 5% or more of whose outstanding voting
securities are held by any of the Funds, are defined in the Investment Company
Act of 1940 as affiliated companies. The Real Estate Securities Fund and Rising
Dividends Fund had investments in such affiliated companies at June 30, 1997,
with a value in the amount of $5,443,750 and $15,395,463, respectively. See the
accompanying Statement of Investments in Securities and Net Assets for specific
information on such securities.
9. RESTRICTED SECURITIES
A restricted security is a security which has not been registered with the
Securities and Exchange Commission pursuant to the Securities Act of 1933. The
Funds may purchase restricted securities through a private offering and they
cannot be sold without prior registration under the Securities Act of 1933
unless such sale is pursuant to an exemption therefrom. Subsequent costs of
registration of such securities are borne by the issuer. A secondary market
exists for certain privately placed securities. The Funds value these restricted
securities as disclosed in Note 1(a). At June 30, 1997, the Funds held
restricted securities as follows:
<TABLE>
<CAPTION>
Income Securities Fund (0.8% of net assets)
Shares Security Acquisition Date Cost Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
419,424 Bibb Co. .......................... 03/30/93 - 09/27/96 $6,112,066 $2,935,968
160,000 CMS Energy Corp.,
7.75%, quarterly cvt. pfd. .................. 06/18/97 8,000,000 8,294,400
Mutual Discovery Securities Fund
- --------------------------------------------------------------------------------------------
(0.6% of net assets)
8,000 Cityscape Financial Corp. ......... 11/25/96 $160,000 $151,525
514,590 Re Acquisition, L.L.C. ............ 04/01/97 519,614 514,590
Mutual Shares Securities Fund
- --------------------------------------------------------------------------------------------
(0.1% of net assets)
12,000 Cityscape Financial Corp. ......... 11/25/96 $240,000 $227,287
Real Estate Securities Fund
- --------------------------------------------------------------------------------------------
(2.7% of net assets)
866,067 Pacific Retail Trust .............. 08/30/96 - 04/30/97 $9,864,902 $10,392,804
Utility Equity Fund (0.8% of net assets)
- --------------------------------------------------------------------------------------------
175,000 CMS Energy Corp., 7.75%,
quarterly cvt. pfd. ......... ............... 06/18/97 $8,750,000 $9,072,000
</TABLE>
10. LENDING OF PORTFOLIO SECURITIES
The Small Cap Fund loaned securities to certain brokers for which it received
cash collateral against the loaned securities in an amount equal to at least
100% of the market value of the loaned securities. Net interest income from the
investment of the cash collateral received was $815 for the period ended June
30, 1997. The value of the loaned securities was $2,028,250. The additional
required cash collateral was received by the Small Cap Fund on July 10, 1997.
11. LIQUIDATION OF INVESTMENT GRADE INTERMEDIATE BOND FUND AND ADJUSTABLE U.S.
GOVERNMENT FUND
On October 25, 1996, as a result of a substitution transaction, the U.S.
Government Securities Fund acquired all of the net assets of the Investment
Grade Intermediate Bond Fund and the Adjustable U.S. Government Fund pursuant to
a plan of liquidation approved by the Board on October 18, 1996. In connection
with this liquidation, the U.S. Government Securities Fund acquired the
portfolio securities and other assets and liabilities of the liquidating funds
in exchange for capital shares with an equivalent value.
The net assets acquired and shares issued by the U.S. Government Securities Fund
on October 25, 1996 were as follows:
Shares Issued by
Net Assets U.S. Gov't Sec. Fund
-----------------------------------
Investment Grade
Intermediate Bond Fund ............. $145,186,632 10,949,218
Adjustable U.S. Government
Securities Fund .................... 146,948,572 11,082,094
-----------------------------------
Total .............................. $292,135,204 22,031,312
===================================
12. OTHER CONSIDERATIONS
As the Manager of the High Income Fund and the Income Securities Fund, Advisers
may serve as a member of various credit committees, representing credit
interests in certain corporate restructuring negotiations. Currently, Advisers
serves on the credit committees for Bibb Co., and Anacomp, Inc., and therefore
may be in possession of certain material non-public information. Advisers have
not sold, nor does it intend to sell, any of the Fund's holdings in these
securities while in possession of material non-public information in
contravention of the Federal Securities Laws.
13. FINANCIAL HIGHLIGHTS
Selected data for each share of beneficial interest outstanding throughout the
period, by Fund, are as follows:
<TABLE>
<CAPTION>
Per Share Operating Performance Ratios/Supplemental Data
Net Total Distri- Distri- Ratio
Asset Net From butions butions Net Net of Net Port-
Value Net Realized & Invest- From From Asset Assets Ratio of Investment folio
at Begin-Invest-Unrealized ment Net Realized Total Value at at End Expenses Income to Turn- Average
Year ning of ment Gain (Loss) Opera- Investment Capital Distri- End of Total of Periodto Average Average over Commision
Ended Period Incomeon Securities tions Income Gains butions Period Return+(in 000's)Net Assets Net Assets Rate Rate****
Capital Growth Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19965 $10.00 $ .03 $1.33 $1.36 $ -- $ -- $ -- $11.36 13.60% $ 44,667 .77%* .96%* 3.91% .0567
19977 11.36 .02 1.10 1.12 (.02) -- (.02) 12.46 9.85 74,420 .76* .71* 7.93 .0572
Growth and Income Fund
1992 12.11 .08 .72 .80 (.12) -- (.12) 12.79 6.73 231,659 .62 1.44 25.22 --
1993 12.79 .09 1.22 1.31 (.11) -- (.11) 13.99 10.32 371,484 .58 1.00 41.56 --
1994 13.99 .19 (.47) (.28) (.09) (.20) (.29) 13.42 (3.41) 517,877 .54 1.81 99.21 --
1995 13.42 .41 3.92 4.33 (.20) (.41) (.61) 17.14 32.83 889,487 .52 3.30 116.54 --
1996 17.14 .62 1.64 2.26 (.41) (1.44) (1.85) 17.55 14.19 1,077,989 .50 4.06 23.01 .0407
19977 17.55 .32 1.98 2.30 (.64) (.62) (1.26) 18.59 13.03 1,203,283 .48* 3.58* 17.67 .0388
High Income Fund
1992 $10.62$ .38 $1.31 $1.69 $ (.54) $ -- $ (.54) $11.77 16.21% $ 67,991 .68% 9.76% 33.36% --
1993 11.77 .37 1.45 1.82 (.46) -- (.46) 13.13 15.71 196,972 .64 8.18 21.06 --
1994 13.13 .88 (1.18) (.30) (.55) (.07) (.62) 12.21 (2.26) 255,036 .60 9.45 22.94 --
1995 12.21 1.06 1.30 2.36 (.91) -- (.91) 13.66 19.76 360,904 .56 9.63 20.65 --
1996 13.66 1.20 .56 1.76 (1.20) (.06) (1.26) 14.16 13.90 446,096 .54 9.63 27.16 --
19977 14.16 .68 .01 .69 (1.22) (.04) (1.26) 13.59 4.84 444,346 .52* 9.48* 17.22 --
Income Securities Fund
1992 12.82 .40 1.26 1.66 (.59) (.24) (.83) 13.65 13.20 182,993 .67 7.44 12.59 --
1993 13.65 .33 2.18 2.51 (.31) (.05) (.36) 15.80 18.59 737,942 .56 6.66 10.12 --
1994 15.80 .82 (1.80) (.98) (.44) (.07) (.51) 14.31 (6.27) 1,000,002 .54 7.27 13.33 --
1995 14.31 1.16 1.96 3.12 (.89) (.07) (.96) 16.47 22.40 1,266,538 .51 8.05 33.14 --
1996 16.47 1.32 .44 1.76 (.87) (.15) (1.02) 17.21 11.28 1,350,659 .50 7.96 15.28 .0519
19977 17.21 .70 .44 1.14 (1.33) (.29) (1.62) 16.73 6.64 1,364,087 .50* 7.68* 9.00 .0504
Money Market Fund
1992 1.00 .030 -- .030 (.030) -- (.030) 1.00 3.06 86,907 .69 2.99 -- --
1993 1.00 .030 -- .030 (.030) -- (.030) 1.00 2.54 131,534 .66 2.53 -- --
1994 1.00 .040 -- .040 (.040) -- (.040) 1.00 3.82 518,618 .468 4.05 -- --
1995 1.00 .060 -- .060 (.060) -- (.060) 1.00 5.74 429,547 .408 5.58 -- --
1996 1.00 .050 -- .050 (.050) -- (.050) 1.00 5.16 408,930 .438 5.04 -- --
19977 1.00 .025 -- .025 (.025) -- (.025) 1.00 2.53 394,298 .448* 5.00* -- --
Mutual Discovery Securities Fund
19966 10.00 .02 .19 .21 -- -- -- 10.21 2.10 15,418 1.37* 2.11* .14 .0300
19977 10.21 .09 1.03 1.12 (.01) -- (.01) 11.32 10.92 119,392 1.12* 3.47* 28.63 .0303
Mutual Shares Securities Fund
19966 10.00 .02 .33 .35 -- -- -- 10.35 3.50 27,677 1.00* 2.56* 1.31 .0410
19977 10.35 .07 .73 .80 (.01) -- (.01) 11.14 7.68 209,817 .83* 2.69* 30.49 .0416
Natural Resources Fund
1992 10.71 .10 (1.14) (1.04) (.31) -- (.31) 9.36 (10.13) 13,827 .69 2.23 -- --
1993 9.36 .03 5.16 5.19 (.09) -- (.09) 14.46 55.62 73,575 .68 1.58 .01 --
1994 14.46 .16 (.45) (.29) (.08) -- (.08) 14.09 (2.01) 125,078 .68 1.63 7.66 --
1995 14.09 .22 .12 .34 (.20) (.15) (.35) 14.08 2.35 105,109 .66 1.40 15.66 --
1996 14.08 .15 .44 .59 (.20) (.18) (.38) 14.29 4.00 109,579 .65 1.00 21.77 .0221
19977 14.29 .09 (1.30) (1.21) (.20) -- (.20) 12.88 (8.54) 91,894 .66* 1.11* 26.87 .0307
Real Estate Securities Fund
1992 11.65 .14 1.24 1.38 (.24) -- (.24) 12.79 12.12 14,859 .69 4.50 2.76 --
1993 12.79 .09 2.33 2.42 (.17) -- (.17) 15.04 19.01 92,678 .67 4.05 5.84 --
1994 15.04 .38 .06 .44 (.17) -- (.17) 15.31 2.89 195,697 .62 4.00 11.73 --
1995 15.31 .78 1.83 2.61 (.52) -- (.52) 17.40 17.53 213,473 .59 4.74 22.15 --
1996 17.40 .79 4.74 5.53 (.78) -- (.78) 22.15 32.82 322,721 .57 4.80 10.32 .0519
19977 22.15 .28 1.38 1.66 (.67) (.32) (.99) 22.82 7.59 385,486 .53* 3.45* 8.63 .0553
Rising Dividends Fund
19921 10.00 .06 .92 .98 -- -- -- 10.98 9.80 97,687 .678* 2.11* 5.22 --
1993 10.98 .14 (.52) (.38) (.03) -- (.03) 10.57 (3.48) 299,730 .79 2.31 13.58 --
1994 10.57 .26 (.69) (.43) (.17) -- (.17) 9.97 (4.08) 309,929 .80 2.71 24.07 --
1995 9.97 .27 2.66 2.93 (.24) -- (.24) 12.66 29.74 463,253 .78 2.72 18.72 --
1996 12.66 .25 2.77 3.02 (.28) -- (.28) 15.40 24.18 597,424 .76 1.96 27.97 .0505
19977 15.40 .11 2.41 2.52 (.26) (.45) (.71) 17.21 16.33 691,185 .74* 1.40* 17.61 .0507
Small Cap Fund
19954 $10.00 $ .03 $ .21 $ .24 $ -- $ -- $ -- $10.24 2.30% $ 13,301 .90%* 2.70%* 16.04% --
1996 10.24 .02 2.95 2.97 (.01) -- (.01) 13.20 28.95 170,969 .77 .63 63.72 .0518
19977 13.20 (.01) 1.06 1.05 (.03) (.37) (.40) 13.85 8.06 242,417 .77* .05* 29.85 .0474
Templeton Developing Markets Equity Fund
19942 10.00 .07 (.51) (.44) -- -- -- 9.56 (4.40) 98,189 1.53* 1.85* 1.15 --
1995 9.56 .09 .18 .27 (.04) (.01) (.05) 9.78 2.77 158,084 1.41 2.01 19.96 --
1996 9.78 .12 1.97 2.09 (.10) (.18) (.28) 11.59 21.59 272,098 1.49 1.68 12.42 .0025
19977 11.59 .12 2.14 2.26 (.15) (.23) (.38) 13.47 19.49 384,765 1.42* 2.39* 3.67 .0025
Templeton Global Asset Allocation Fund
19953 10.00 .18 .52 .70 (.18) -- (.18) 10.52 7.01 14,729 .90* 3.84* 30.00 --
1996 10.52 .34 1.75 2.09 (.01) (.01) (.02) 12.59 19.84 56,274 .86 4.21 52.35 .0028
19977 12.59 .19 .99 1.18 (.26) (.07) (.33) 13.44+++9.43 83,486 .87* 4.92* 39.23 .0005
Templeton Global Growth Fund
19942 10.15 .07 .26 .33 -- -- -- 10.48 3.25 158,856 1.14* 2.49* 7.14 --
1995 10.48 .16 1.17 1.33 (.06) -- (.06) 11.75 12.72 338,755 .97 2.46 30.92 --
1996 11.75 .25 2.22 2.47 (.21) (.21) (.42) 13.80 21.28 579,877 .93 2.20 12.32 .0096
19977 13.80 .20 1.71 1.91 (.24) (.08) (.32) 15.39 13.87 729,174 .89* 3.34* 7.40 .0014
Templeton Global Income Securities Fund
1992 12.59 .26 (.30) (.04) (.40) (.15) (.55) 12.00 (.40) 75,062 .67 4.72 92.22 --
1993 12.00 .50 1.47 1.97 (.50) (.16) (.66) 13.31 16.68 206,594 .73 7.56 59.98 --
1994 13.31 .86 (1.52) (.66) (.33) (.13) (.46) 12.19 (4.99) 254,311 .71 7.99 79.38 --
1995 12.19 .29 1.47 1.76 (.49) -- (.49) 13.46 14.68 243,194 .64 7.59 152.89 --
1996 13.46 1.02 .17 1.19 (1.04) -- (1.04) 13.61 9.56 221,722 .61 7.30 140.96 --
19977 13.61 .52 (.45) .07 (.97) -- (.97) 12.71+++ .49 204,439 .61* 6.94* 146.89 --
Templeton International Equity Fund
19921 10.00 .14 (.38) (.24) -- -- -- 9.76 (2.40) 13,662 1.77* 3.91* 21.78 --
1993++ 9.76 .18 2.60 2.78 (.04) -- (.04) 12.50 28.56 310,146 1.12 1.58 29.50 --
1994 12.50 .19 (.07) .12 (.04) (.07) (.11) 12.51 .87 785,124 .99 2.17 12.22 --
1995 12.51 .37 .94 1.31 (.22) (.28) (.50) 13.32 10.59 850,117 .92 2.87 16.42 --
1996 13.32 .40 2.58 2.98 (.38) (.47) (.85) 15.45 22.98 1,108,099 .89 3.07 27.52 .0140
19977 15.45 .12 2.00 2.12 (.45) (.69) (1.14) 16.43 13.84 1,268,991 .89* 4.20* 13.54 .0013
Templeton International Smaller Companies Fund
19965 10.00 .10 1.15 1.25 -- -- -- 11.25 12.50 16,255 1.16* 2.51* -- .0031
19977 11.25 .15 .54 .69 (.07) -- (.07) 11.87 6.10 29,505 1.08* 4.10* 8.98 .0029
Templeton Pacific Growth Fund
19921 10.00 -- (.12) (.12) -- -- -- 9.88 (1.20) 5,788 1.318* -- 8.41 --
1993 9.88 .05 4.68 4.73 -- -- -- 14.61 47.87 215,882 1.14 1.29 12.36 --
1994 14.61 .22 (1.50) (1.28) (.03) (.06) (.09) 13.24 (8.79) 375,832 1.07 2.04 4.29 --
1995 13.24 .33 .71 1.04 (.26) (.11) (.37) 13.91 7.97 331,936 1.01 2.08 36.06 --
1996 13.91 .21 1.34 1.56 (.44) (.26) (.70) 14.76 11.10 356,759 .99 1.51 12.85 .0092
19977 14.76 .18 .26 .44 (.28) .00 (.28) 14.92 2.98 317,595 1.00* 2.22* 8.12 .0064
U.S. Government Securities Fund
1992 12.72 .52 .44 .96 (.43) (.01) (.44) 13.24 7.69 371,828 .59 7.07 28.64 --
1993 13.24 .50 .77 1.27 (.51) (.08) (.59) 13.92 9.71 684,303 .54 6.06 145.11 --
1994 13.92 .96 (1.59) (.63) (.67) (.05) (.72) 12.57 (4.55) 579,039 .53 6.87 18.25** --
1995 12.57 .93 1.46 2.39 (.96) -- (.96) 14.00 19.46 643,165 .52 6.72 18.68** --
1996 14.00 .75 (.31) .44 (.97) -- (.97) 13.47 3.62 843,858 .51 6.66 12.93*** --
19977 13.47 .53 (.03) .50 (.76) -- (.76) 13.21 3.73 779,323 .50* 6.55* 8.21 --
Utility Equity Fund
1992 $14.86 $ .35 $ .92 $1.27 $ (.31) $ -- $ (.31) $15.82 8.69% $ 667,118 .55% 5.18% 0.13% --
1993 15.82 .38 1.28 1.66 (.34) -- (.34) 17.14 10.54 1,589,634 .51 4.47 4.80 --
1994 17.14 .95 (2.94) (1.99) (.62) (.11) (.73) 14.42 (11.56) 1,155,110 .52 5.58 11.74 --
1995 14.42 .84 3.54 4.38 (.90) -- (.90) 17.90 31.35 1,423,446 .50 5.14 13.27 --
1996 17.90 .91 .29 1.20 (.92) -- (.92) 18.18 7.07 1,202,290 .50 4.20 29.69 .0252
19977 18.18 .51 .82 1.33 (.96) (1.33) (2.29) 17.22 7.37 1,088,959 .50* 4.16* 9.22 .0114
Zero Coupon Fund - 2000
1992 13.26 .57 .58 1.15 (.53) -- (.53) 13.88 9.04 48,217 .258 6.97 9.10 --
1993 13.88 .66 1.55 2.21 (.62) (.03) (.65) 15.44 16.15 76,916 .378 5.88 7.02 --
1994 15.44 .68 (1.71) (1.03) (.69) (.10) (.79) 13.62 (6.76) 94,230 .408 6.37 -- --
1995 13.62 .75 2.03 2.78 (.67) -- (.67) 15.73 20.67 137,357 .408 6.14 1.63 --
1996 15.73 .98 (.65) .33 (.86) (.01) (.87) 15.19 2.43 129,601 .408 6.14 .58 --
19977 15.19 .57 (.21) .36 (1.06) (.02) (1.08) 14.47 2.37 120,425 .408* 6.37* -- --
Zero Coupon Fund - 2005
1992 12.91 .65 .67 1.32 (.61) -- (.61) 13.62 10.81 18,295 .258 7.46 19.48 --
1993 13.62 .44 2.55 2.99 (.52) (.01) (.53) 16.08 22.21 42,998 .378 5.67 16.59 --
1994 16.08 .71 (2.24) (1.53) (.60) (.19) (.79) 13.76 (9.60) 51,499 .408 6.53 2.00 --
1995 13.76 .78 3.53 4.31 (.69) -- (.69) 17.38 31.76 83,222 .408 6.19 1.72 --
1996 17.38 .96 (1.13) (.17) (.86) -- (.86) 16.35 (.50) 82,603 .408 6.15 2.06 --
19977 16.35 .59 (.23) .36 (1.06) (.01) (1.07) 15.64 2.16 76,131 .408* 6.27* -- --
Zero Coupon Fund - 2010
1992 12.84 1.21 .03 1.24 (.73) -- (.73) 13.35 10.31 13,431 .258 7.64 54.50 --
1993 13.35 .50 2.81 3.31 (.94) (.04) (.98) 15.68 25.47 29,189 .258 5.89 36.63 --
1994 15.68 .55 (2.27) (1.72) (.63) (.31) (.94) 13.02 (10.97) 45,361 .408 6.57 4.34 --
1995 13.02 .76 4.75 5.51 (.49) -- (.49) 18.04 42.79 85,633 .408 6.41 31.45 --
1996 18.04 1.02 (1.65) (.63) (.88) (.24) (1.12) 16.29 (2.69) 78,816 .408 6.24 16.10 --
19977 16.29 .50 (.19) .31 (1.01) (.01) (1.02) 15.58 1.86 78,344 .408* 6.37* 1.55 --
*Annualized
**The portfolio turnover rate excludes mortgage dollar roll transactions.
***The portfolio turnover rate excludes transactions related to the liquidation of the Investment Grade Intermediate Bond Fund and
the Adjustable U.S. Government Fund and mortgage dollar roll transactions.
****Represents the average broker commission rate per share paid by the Fund in connection wih the execution of the Fund's portfolio
transactions in equity securities.
+Total return measures the change in value of an investment over the periods indicated. It assumes reinvestment and capital gains,
if any, at net asset value and is not annualized. The total return may differ from that reported in the Manager's Discussion due
to differences between the net asset values quoted and the net asset values calculated for financial reporting purposes.
++Per share amounts have been calculated using the average shares outstanding during the period.
+++The net asset value differs from the net asset value used to process shareholder activity as of the reporting date, which does
not include market adjustments for portfolio trades made on that date. These adjustments are generally accounted for on the day
following the trade date.
1For the period January 27, 1992 (effective date) to December 31, 1992.
2For the period March 15, 1994 (effective date) to December 31, 1994.
3For the period April 19, 1995 (effective date) to December 31, 1995.
4For the period November 1, 1995 (effective date) to December 31, 1995.
5For the period May 1, 1996 (effective date) to December 31, 1996.
6For the period November 8, 1996 (effective date) to December 31, 1996.
7For the six months ended June 30, 1997.
8During the periods indicated below, Advisers, the investment manager, agreed to waive in advance a portion of its management fees
and made payments of other expenses incurred by the Funds in the Trust. Had such action not been taken, the ratio of expenses to
average net assets would have been as follows:
</TABLE>
Ratio of
Expenses
to average
net assets
Money Market Fund
1994 .................................................... .54%
1995 .................................................... .53
1996 .................................................... .53
19977 ................................................... .52*
Rising Dividends Fund
19921 ................................................... .76*
Templeton Pacific Growth Fund
19921 ................................................... 2.57*
Zero Coupon Fund - 2000
1992 .................................................... .68
1993 .................................................... .67
1994 .................................................... .66
1995 .................................................... .63
1996 .................................................... .62
19977 ................................................... .64*
Zero Coupon Fund - 2005
1992 .................................................... .69
1993 .................................................... .67
1994 .................................................... .68
1995 .................................................... .66
1996 .................................................... .65
19977 ................................................... .64*
Zero Coupon Fund - 2010
1992 .................................................... .69
1993 .................................................... .68
1994 .................................................... .68
1995 .................................................... .66
1996 .................................................... .65
19977 ................................................... .64*
Franklin Valuemark Semi-Annual Report June 30, 1997
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING (PURSUANT TO ITEM
304(a) OF REGULATION S-T)
GRAPHIC MATERIAL (1)
This chart shows in pie format the sector breakdown of the fund's securities
on 6/30/97, based on total net assets.
Sector Breakdown on 6/30/97
Gold & Precious Metals 59.1%
Energy 16.9%
Base Metals 12.9%
Service/Related Industries 3.0%
REITs 2.0%
Steel 1.1%
Cash & Equivalents 5.0%
GRAPHIC MATERIAL (2)
This chart shows in pie format the geographic distribution of the fund's
securities on 6/30/97, based on total net assets.
Geographic Distribution on 6/30/97
Asia 38.5%
Latin America 34.2%
Europe 10.2%
Mid-East/Africa 5.4%
Short-Term & Other Net Assets 11.7%
GRAPHIC MATERIAL (3)
This chart shows in pie format the geographic distribution of the fund's
securities on 6/30/97, based on total net assets.
Geographic Distribution on 6/30/97
Europe 34.0%
North America 28.6%
Asia 10.0%
Latin America 7.5%
Australia/New Zealand 3.6%
Mid-East/Africa 0.7%
Short-Term & Other Net Assets 15.6%
GRAPHIC MATERIAL (4)
This chart shows in pie format the geographic distribution of the fund's
securities on 6/30/97, based on total net assets.
Geographic Distribution on 6/30/97
Europe 57.6%
Asia 9.6%
Australia/New Zealand 7.3%
Latin America 5.5%
North America 3.8%
Mid-East/Africa 1.1%
Short-Term & Other Net Assets 15.1%
GRAPHIC MATERIAL (5)
This chart shows in pie format the geographic distribution of the fund's
securities on 6/30/97, based on total net assets.
Geographic Distribution on 6/30/97
Europe 34.0%
Asia 19.7%
Latin America 5.4%
Australia/New Zealand 3.6%
Mid-East/Africa 2.2%
North America 0.8%
Short-Term & Other Net Assets 34.3%
GRAPHIC MATERIAL (6)
This chart shows in pie format the asset allocation of the fund's securities
on 6/30/97, based on total net assets.
Asset Allocation on 6/30/97
Equity Securities 63.2%
Fixed-Income Securities 30.0%
Short-Term & Other Net Assets 6.8%
GRAPHIC MATERIAL (7)
This chart shows in pie format the geographic distribution of the fund's
securities on 6/30/97, based on total net assets.
Geographic Distribution on 6/30/97
North America 41.8%
Europe 33.8%
Latin America 20.4%
Australia 4.0%
TABLE OF CONTENTS
Letter to Contract Owners 2
Economic Overview 3
Change in Unit Prices 5
Franklin Valuemark Total Returns 6
Portfolio Objectives & Risks 8
Portfolio Summaries
Portfolios Seeking Capital Growth
Capital Growth Fund 15
Mutual Discovery Securities Fund 16
Natural Resources Securities Fund 16
Small Cap Fund 17
Templeton Developing Markets Equity Fund 18
Templeton Global Growth Fund 19
Templeton International Equity Fund 20
Templeton International Smaller Companies Fund 20
Templeton Pacific Growth Fund 21
Portfolios Seeking Growth and Income
Growth and Income Fund 22
Income Securities Fund 23
Mutual Shares Securities Fund 24
Real Estate Securities Fund 25
Rising Dividends Fund 27
Templeton Global Asset Allocation Fund 28
Utility Equity Fund 29
Portfolios Seeking Current Income
High Income Fund 30
Templeton Global Income Securities Fund 30
U.S. Government Securities Fund 31
Zero Coupon Funds 32
Portfolio Seeking Capital Preservation and Income
Money Market Fund 33
Preferred Life Variable Account C
Financial Statements and Notes 34
Franklin Valuemark Funds
Statement of Investments 59
Financial Statements and Notes 153
CELEBRATING 50 YEARS
This year marks 50 years of business
for Franklin Templeton. Over these years, the mutual fund industry has
experienced profound changes in technology, regulations and customer
expectations. As one of the largest mutual fund families, we're proud to be
an innovative industry leader, providing people like you with an opportunity
to invest around the globe. We thank you for your past support and look
forward to serving your investment needs in the years ahead.
LETTER TO CONTRACT OWNERS
Dear Contract Owner:
This semi-annual report covers the six months ended June 30, 1997, for the
Franklin Valuemark(R) flexible-premium deferred variable annuity and Franklin
Valuemark Funds.
On the following pages you will find a summary covering global market
conditions over the past year as well as discussions of each portfolio's
performance. The portfolios' performance tables, presented on pages 6 and 7,
show cumulative and average annual total returns. It is important to remember
that financial markets fluctuate daily and past investment conditions and
results are not indicative of future trends.
We look to the future with confidence and believe Franklin Valuemark variable
annuity will continue to be an appropriate vehicle for tax-conscious
investors seeking to meet their long-term retirement and other financial
needs. As always, we thank you for your continued support and look forward to
serving you in the years to come.
Sincerely,
Rupert H. Johnson, Jr.
Director and Vice President
Franklin Valuemark Funds
Ronald L. Wobbeking
Chairman of the Board
Preferred Life Insurance Company
of New York
ECONOMIC OVERVIEW
In the U.S.: Up, up and away?
A growing sense of nervousness from market participants and the Federal
Reserve Board (the Fed) shadowed the market's seemingly untethered rise, and
accompanying volatility, over the six-month period. The question on
everyone's mind: "How high can the market go?" The Dow Jones(R) Industrial
Average gained roughly 1200 points during the reporting period, pushing
through the 7000-point mark for the first time, in mid-February 1997. Strong
economic growth (first quarter GDP posted an annualized rate of 5.8%),
combined with the stock market's meteoric rise, prompted some degree of
caution on the part of the Fed. The chief topic on Wall Street was whether
the Federal Open Market Committee would increase the federal funds rate.
To no one's surprise, the Fed nudged the federal funds rate higher at its
March meeting, citing heightened inflation risk as the reason behind the
quarter-point increase. And while the market experienced a roughly 10%
correction, stock prices rebounded sharply by the end of the six months under
review, a move that could be viewed as encouraging.
The economy remains interest-rate sensitive, reacting quickly to any changes.
While expanding economic growth and increased interest rates went
hand-in-hand in the first quarter of 1997, the economy appears to be slowing
slightly, with interest rates trending downward by the end of the reporting
period.
And in the foreign markets...
Many European stocks also appreciated in value as companies there generated
healthy profits due to privatization, restructuring and cost-reduction
programs. Switzerland, the Netherlands, Spain and Denmark were among the
region's best-performing equity markets. Although European equity markets
were strong, their fixed-income markets didn't fare as well. The U.S. dollar
rose against most foreign currencies, reducing returns for U.S. holders of
foreign bonds.
Emerging markets generally experienced substantial gains during the reporting
period, with Latin America, in particular, delivering stellar returns. For
example, Brazil's Bovespa Index soared 86% and Mexico's Bolsa Index surged
33%, as measured in U.S. dollars.1 Asian developing markets, however,
provided mixed results: The Hong Kong and Chinese markets rose, while those
in Thailand, Singapore, and the Philippines declined.
1. Source: Bloomberg.
Outlook for the Second Half
Interest rates will probably continue to fluctuate as the Fed looks for signs of
increasing inflationary pressures and other indicators to determine if
additional action is necessary. And while further Fed action could lead to some
volatility in the domestic markets, we have yet to see any major changes in the
economy. It is important to remember, however, that markets correct -- in our
opinion, it is desirable for them to do so. The quarter-point increase in the
federal funds rate may be a precursor of one or two more adjustments before the
year ends. Large federal budget deficits are still too fresh in investors'
memories, and apparently much attention is directed toward keeping the budget in
close balance. We feel, therefore, that the economy should not see much higher
rates in the near term -- certainly not like those experienced during 1994.
Franklin Valuemark Variable Annuity
Change in Unit Prices
<TABLE>
<CAPTION>
% Change
Unit Price* Unit Price* in Unit Price
Portfolio Name 12/31/96 6/30/97 12/31/96 to 6/30/97
<S> <C> <C> <C>
Capital Growth Fund $11.25 $12.28 9.09%
Growth and Income Fund $19.49 $21.88 12.25%
High Income Fund $19.37 $20.17 4.11%
Income Securities Fund $21.71 $22.99 5.90%
Money Market Fund $13.36 $13.60 1.82%
Mutual Discovery Securities Fund $10.18 $11.23 10.26%
Mutual Shares Securities Fund $10.33 $11.05 6.94%
Natural Resources Securities Fund++ $14.47 $13.14 -9.17%
Real Estate Securities Fund $23.67 $25.29 6.85%
Rising Dividends Fund $15.30 $17.68 15.53%
Small Cap Fund $12.91 $13.86 7.31%
Templeton Developing Markets Equity Fund $11.49 $13.63 18.67%
Templeton Global Asset Allocation Fund $12.51 $13.59 8.60%
Templeton Global Growth Fund $13.56 $15.33 13.08%
Templeton Global Income Securities Fund $16.78 $16.72 -0.35%
Templeton International Equity Fund $16.08 $18.18 13.05%
Templeton International Smaller Companies Fund $11.15 $11.74 5.36%
Templeton Pacific Growth Fund $14.93 $15.27 2.27%
U.S. Government Securities Fund $16.65 $17.15 3.02%
Utility Equity Fund $20.65 $22.02 6.63%
Zero Coupon Fund - 2000 $18.47 $18.78 1.66%
Zero Coupon Fund - 2005 $20.52 $20.82 1.45%
Zero Coupon Fund - 2010 $21.52 $21.77 1.15%
</TABLE>
*The unit prices have been rounded to the nearest hundredth. Percent change
is calculated using actual unit prices.
++Effective May 1, 1997, the Precious Metals Fund's name changed to the
Natural Resources Securities Fund.
Note: The unit value is the total value of assets of the sub-account (which is
equal to the portfolio's net assets), minus the daily variable account charges
with a charge or credit for reserved taxes, and then divided by the total number
of units. It does not reflect the contingent deferred sales charge that declines
from 5% to 0% over five full years, or the annual contract maintenance charge;
if these were included, values would be lower. Investment returns and the value
of your principal will vary with market conditions, so you may have a gain or
loss when you sell your units. Past performance cannot guarantee future results.
Valuemark II
Standardized Total Returns for the periods ended June 30, 1997
With Contingent Deferred Sales Charge and Other Charges
<TABLE>
<CAPTION>
Inception Since
Portfolio Name Date 1-Year 5-Year Inception
<S> <C> <C> <C> <C>
Capital Growth Fund 5/1/96 16.52% N/A 16.16%
Growth and Income Fund* 1/24/89 16.24% 13.79% 9.64%
High Income Fund* 1/24/89 9.12% 9.77% 8.59%
Income Securities Fund* 1/24/89 8.11% 9.03% 10.29%
Money Market Fund* 1/24/89 -0.64% 2.62% 3.62%
Mutual Discovery Securities Fund 11/8/96 N/A N/A 7.90%
Mutual Shares Securities Fund 11/8/96 N/A N/A 6.12%
Natural Resources SecuritiesFund* 1/24/89 -17.97% 3.68% 3.20%
Real Estate Securities Fund* 1/24/89 27.12% 16.27% 11.54%
Rising Dividends Fund 1/27/92 28.47% 12.06% 10.97%
Small Cap Fund 11/1/95 11.41% N/A 19.70%
Templeton Developing Markets Equity Fund* 3/15/94 19.23% N/A 9.44%
Templeton Global Asset Allocation Fund 5/1/95 15.04% N/A 14.21%
Templeton Global Growth Fund* 3/15/94 18.53% N/A 13.47%
Templeton Global Income Securities Fund* 1/24/89 2.77% 4.62% 6.20%
Templeton International Equity Fund 1/27/92 18.55% 12.59% 11.55%
Templeton International Smaller Companies Fund 5/1/96 9.58% N/A 11.68%
Templeton Pacific Growth Fund 1/27/92 -3.76% 7.87% 8.02%
U.S. Government Securities Fund 3/14/89 3.20% 5.46% 6.63%
Utility Equity Fund 1/24/89 4.21% 8.04% 9.74%
Zero Coupon - 2000** 3/14/89 1.24% 6.50% 7.81%
Zero Coupon - 2005** 3/14/89 3.02% 8.79% 9.16%
Zero Coupon - 2010** 3/14/89 5.01% 10.47% 9.75%
</TABLE>
The above figures represent the average annual change in value, assuming
reinvestment of dividends and capital gains. Performance shown reflects all
charges, including the annual contract maintenance charge and applicable
contingent deferred sales charges (CDSC). The CDSC reduces from 5% to 0% over
five full years for each purchase payment and is adjusted for the applicable
withdrawal/surrender privilege. Averaged returns smooth out variations in a
portfolio's returns, which can be significant; they are not the same as
year-by-year results. For periods of less than one year, aggregate total
returns are shown. The sub-account results are based on past performance of
the portfolios. The portfolios may have started before the sub-accounts,
contracts, or their availability in all states. Investment returns and the
value of your principal will vary with market conditions, so you may have a
gain or loss when you sell your units. Past performance cannot predict or
guarantee future results.
*Past and present expense reductions by the manager increased total return;
this agreement may be discontinued at any time.
**The manager will keep total expenses to 0.40% or less of the portfolios'
net assets through 1997, which increases returns.
Valuemark II
Non-Standardized Total Returns for the periods ended June 30, 1997
Without Contingent Deferred Sales Charge and Other Charges
<TABLE>
<CAPTION>
Total Return Cumulative Total Return
Inception 1- 5- Since 3- 5- Since
Portfolio Name Date Year Year Inception Year Year Inception
<S> <C> <C> <C> <C> <C> <C> <C>
Capital Growth Fund 5/1/96 20.87% N/A 19.26% N/A N/A 22.77%
Growth and Income Fund* 1/24/89 20.59% 13.91% 9.72% 68.27% 91.81% 118.77%
High Income Fund* 1/24/89 13.47% 9.91% 8.67% 39.17% 60.39% 101.71%
Income Securities Fund* 1/24/89 12.46% 9.17% 10.37% 38.68% 55.09% 129.89%
Money Market Fund* 1/24/89 3.71% 2.79% 3.71% 11.85% 14.74% 36.03%
Mutual Discovery Securities Fund 11/8/96 N/A N/A N/A N/A N/A 12.25%
Mutual Shares Securities Fund 11/8/96 N/A N/A N/A N/A N/A 10.47%
Natural Resources Securities Fund* 1/24/89 -13.62% 3.83% 3.29% -2.72% 20.66% 31.41%
Real Estate Securities Fund* 1/24/89 31.47% 16.39% 11.63% 60.40% 113.63% 152.88%
Rising Dividends Fund 1/27/92 32.82% 12.21% 11.07% 81.72% 77.87% 76.79%
Small Cap Fund 11/1/95 15.76% N/A 21.67% N/A N/A 38.57%
Templeton Developing Markets Equity Fund* 3/15/94 23.58% N/A 9.86% 37.01% N/A 36.31%
Templeton Global Asset Allocation Fund 5/1/95 19.39% N/A 15.21% N/A N/A 35.90%
Templeton Global Growth Fund* 3/15/94 22.88% N/A 13.85% 53.66% N/A 53.34%
Templeton Global Income Securities Fund* 1/24/89 7.12% 4.78% 6.28% 23.60% 26.30% 67.21%
Templeton International Equity Fund 1/27/92 22.90% 12.72% 11.64% 49.04% 81.99% 81.80%
Templeton International Smaller Companies Fund5/1/96 13.93% N/A 14.79% N/A N/A 17.43%
Templeton Pacific Growth Fund 1/27/92 0.59% 8.01% 8.11% 15.14% 47.01% 52.70%
U.S. Government Securities Fund 3/14/89 7.55% 5.62% 6.72% 24.50% 31.42% 71.52%
Utility Equity Fund 1/24/89 8.56% 8.19% 9.81% 52.96% 48.22% 120.24%
Zero Coupon - 2000** 3/14/89 5.59% 6.64% 7.89% 20.87% 37.91% 87.81%
Zero Coupon - 2005** 3/14/89 7.37% 8.93% 9.23% 29.54% 53.34% 108.15%
Zero Coupon - 2010** 3/14/89 9.36% 10.60% 9.83% 39.02% 65.46% 117.71%
</TABLE>
Total return represents the cumulative or average annual change in value,
assuming reinvestment of dividends and capital gains and adjusted for the
applicable withdrawal/surrender privilege. The figures reflect all fund
operating expenses and variable account asset charges. They do not include
the applicable contingent deferred sales charges (5% to 0% over five full
years) for each purchase payment, or the annual $30 contract maintenance
charge; if these were deducted, returns would be lower. Averaged returns
smooth out variations in a portfolio's returns, which can be significant;
they are not the same as year-by-year results. For periods of less than one
year, aggregate total returns are shown. The sub-account results are based on
past performance of the portfolios. The portfolios may have started before
the sub-accounts, contracts, or their availability in all states. Investment
returns and the value of your principal will vary with market conditions, so
you may have a gain or loss when you sell your units. Past performance cannot
guarantee future results.
Standardized performance data and other important disclosures are on page 6.
Please review this information and a Franklin Valuemark prospectus before
investing.
*Past and present expense reductions by the manager increased total return;
this agreement may be discontinued at any time.
**The manager will keep total expenses to 0.40% or less of the portfolios'
net assets through 1997, which increases returns.
+Figures for these time periods are not available due to portfolios' recent
inception dates.
PORTFOLIO OBJECTIVES AND RISKS
A Word About Risk
All of the portfolios are subject to certain risks. Generally, investments
offering the potential for higher returns are accompanied by a higher degree
of risk. Stocks, and other equities representing an ownership interest in a
corporation, have historically outperformed other asset classes over the long
term, but tend to fluctuate more dramatically over the shorter term. Bonds
and other debt obligations are affected by changes in interest rates and the
creditworthiness of their issuers. High yield, lower-rated ("junk") bonds
generally have greater price swings and higher default risks. Foreign
investing, especially in developing countries, has additional risks such as
changes in currency values, market price swings, and political or social
instability. These and other risks to which particular portfolios may be
subject -- such as specialized industry sectors or use of complex securities --
are discussed in the prospectus.
Portfolios Seeking Capital Growth
<TABLE>
<CAPTION>
Portfolio Description
<S> <C>
Capital Growth Fund Seeks capital appreciation with current income as a secondary
consideration. The portfolio invests primarily in
equity securities, including common stocks and securities
convertible into common stocks.
Mutual Discovery Seeks capital appreciation by investing in U.S. and foreign
Securities Fund equity securities, including common and preferred stocks and
securities convertible into common stocks, as well as debt
obligations of any quality. The portfolio also seeks to invest
in securities of domestic and foreign companies involved in
mergers, consolidations, liquidations and reorganizations or
as to which there exist tender or exchange offers, and may
participate in such transactions.
Natural Resources Seeks capital appreciation through concentration of its
Securities investments in securities of issuers that produce, refine,
Fund*(Formerly process, or market natural resources as well as those that
Precious Metals provide support services for natural resources companies. The
Fund)` portfolio's secondary objective is to provide current income
return through the receipt of dividends or interest from its
investments.
*Effective May 1, 1997, the Precious Metals Fund's name changed to the
Natural Resources Securities Fund.
Small Cap Fund Seeks long-term capital growth. Under normal market
conditions, the portfolio invests primarily in equity
securities of small capitalization growth companies. The
portfolio may also invest in foreign securities, which involve
special risks. Small company securities may have greater price
swings than mid-sized or large company securities.
Portfolios Seeking Capital Growth (cont.)
Portfolio Description
Templeton Developing Seeks long-term capital appreciation. The portfolio seeks to
Markets Equity Fund achieve this objective by investing primarily in equity
securities of issuers in countries having developing markets
operating under normal market conditions. The portfolio is
subject to special and higher risks related to foreign
developing markets, including changes in currency values,
market price swings, and economic, social, and political
developments in the countries where the portfolio is invested
and the relatively smaller size and lesser liquidity of those
markets.
Templeton Global Seeks long-term capital growth; any income realized will be
Growth Fund incidental. The portfolio seeks to achieve its objective
through a flexible policy of investing in stocks and debt
obligations of companies and governments of any nation,
including developing markets operating under normal market
conditions. Investments in foreign securities involve special
risks including changes in currency values, market price
swings, and economic, social, and political developments in
the countries where the portfolio is invested. Developing
markets involve similar but higher risks related to the
smaller size and lesser liquidity of those markets.
Templeton Seeks long-term capital growth. Under normal market
International Equity conditions, the portfolio will invest at least 65% of its
Fund total assets in an internationally diversified portfolio of
equity securities. These equity securities will trade on
markets in countries other than the U.S., including developing
markets, and be issued by companies domiciled in countries
other than the U.S., or companies that derive at least 50% of
either their revenues or pre-tax income from activities
outside the U.S. Investments in foreign securities involve
special risks including changes in currency values, market
price swings, and economic, social, and political developments
in the countries where the portfolio is invested. Developing
markets involve similar but higher risks related to the
smaller size and lesser liquidity of those markets.
Portfolios Seeking Capital Growth (cont.)
Portfolio Description
Templeton Seeks long-term capital appreciation. The portfolio seeks to
International achieve this objective by investing primarily in equity
Smaller Companies securities of smaller companies outside the U.S., including
Fund developing markets operating under normal market conditions.
Investments in foreign securities involve special risks
including changes in currency values, market price swings, and
economic, social, and political developments in the countries
where the portfolio is invested. Developing markets involve
similar but higher risks related to the smaller size and
lesser liquidity of those markets. Small company securities
may have greater price swings than mid-sized or larger company
securities.
Templeton Pacific Seeks long-term capital growth. Under normal conditions, the
Growth Fund portfolio will invest at least 65% of its assets in equity
securities which trade on markets in the Pacific Rim,
including developing markets, and which are issued by
companies domiciled in the Pacific Rim or companies that
derived at least 50% of either their revenues or pre-tax
income from activities in the Pacific Rim. For purposes of the
portfolio's 65% investment policy, the countries in the
Pacific Rim include Australia, China, Hong Kong, India,
Indonesia, Japan, Korea, Malaysia, New Zealand, Pakistan, the
Philippines, Singapore and Thailand. The portfolio invests
primarily in a single geographical region of largely
developing foreign markets and could experience significant
changes in share price in any given year.
Portfolios Seeking Growth and Income
Portfolio Description
Growth and Income Seeks capital appreciation. The portfolio's secondary
Fund objective is to provide current income return. The portfolio
pursues capital appreciation by investing primarily in
domestic common stocks, securities convertible into common
stocks and preferred stocks.
Income Securities Seeks to maximize income while maintaining prospects for
Fund capital appreciation. The portfolio will pursue its objective
by investing in a diversified portfolio of domestic and
foreign (including developing markets) debt obligations, which
may include high yield, high risk, lower-rated bonds, as well
as equity securities, selected with particular consideration
of current income production along with capital appreciation.
Lower-rated and similar non-rated securities, commonly known
as "junk bonds," have higher credit risks and may have greater
price movements. Foreign securities involve special risks,
including currency fluctuations and political uncertainty;
developing markets involve higher risks.
Mutual Shares Seeks capital appreciation with income as a secondary
Securities Fund objective by investing in U.S. and foreign equity securities,
including common and preferred stocks and securities
convertible into common stocks, as well as debt obligations of
any quality. The portfolio also seeks to invest in securities
of domestic and foreign companies involved in mergers,
consolidations, liquidations and reorganizations or as to
which there exist tender or exchange offers, and may
participate in such transactions.
Real Estate Seeks capital appreciation, with a secondary objective of
Securities Fund earning current income on its investments. The portfolio
pursues its principal objective by concentrating in securities
of companies in the real estate industry, primarily equity
real estate investment trusts (REITs). By investing primarily
in a single industry, the portfolio will be affected more by
the unfavorable developments or market downturns in that
industry sector than would a portfolio that invests in a wide
variety of industries.
Rising Dividends Fund Seeks capital appreciation and current income incidental to
capital appreciation. In seeking capital appreciation, the
portfolio invests with a long-term investment horizon.
Preservation of capital, while not an objective, is also an
important consideration. The portfolio seeks to achieve its
investment objectives by investing, as a fundamental policy,
at least 65% of its net assets in financially sound companies
that have paid consistently rising dividends based on the
investment philosophy that the securities of such companies,
because of their dividend record, have a strong potential to
increase in value.
Portfolios Seeking Growth and Income (cont.)
Portfolio Description
Templeton Global Seeks a high level of total return through a flexible policy
Asset Allocation Fund of investing in the following market segments: equity
securities of issuers of any nation, debt obligations of
companies and governments of any nation, and money market
instruments. The mix of investments among these three market
segments will be adjusted in an attempt to capitalize on total
return potential produced by changing economic conditions
throughout the world. Investments in foreign securities
involve special risks including changes in currency values,
market price swings, and economic, social, and political
developments in the countries where the portfolio is invested.
Developing markets involve similar but higher risks related to
the smaller size and lesser liquidity of those markets.
Utility Equity Fund Seeks both capital appreciation and current income by
concentrating investments in the securities of companies in
the public utilities industry. The portfolio pursues its
objective by investing, under normal conditions, at least 65%
of the portfolio's total assets in securities of issuers
engaged in the public utilities industry, which includes the
manufacture, production, generation, transmission and sale of
gas and electric energy and water. Assets may also be invested
in issuers engaged in the communications field, including
entities such as telephone, telegraph, satellite, microwave
and other companies providing communication facilities for the
public benefit. The portfolio may also invest in foreign
securities, which involve special risk considerations,
including currency fluctuations and political uncertainty;
developing markets involve heightened risks. Because the
portfolio may invest in relatively few issuers, changes in the
value of a particular issuer, interest rate movements, changes
in currency values and other risks of foreign investing may
have a greater effect on the portfolio's results.
Portfolios Seeking Current Income
Portfolio Description
High Income Fund Seeks a high level of current return. As a secondary
objective, the portfolio seeks capital appreciation to the
extent consistent with its principal objective. The portfolio
may invest in both debt obligations and dividend-paying common
or preferred stocks, including high risk securities, and will
seek to invest in whatever type of investment is offering the
highest yield and expected total return without excessive risk
at the time of purchase. Lower-rated and similar non-rated
securities, commonly known as "junk bonds," have higher credit
risks and may have greater price movements.
Templeton Global Seeks high current income, consistent with preservation of
Income Securities capital, with capital appreciation as a secondary
Fund consideration. The portfolio will pursue its objectives by
investing at least 65% of its net assets in both domestic and
foreign debt obligations including those in developing markets
and related foreign currency transactions. The portfolio may
invest in relatively few issuers; therefore, changes in the
value of a particular issuer, interest rate movements, changes
in currency values and other special risks of foreign
investment may have a greater effect on the portfolio's
results.
U.S. Government Seeks to earn income through investments in a portfolio
Securities Fund limited to securities which are obligations of the U.S.
government, its agencies or instrumentalities. These
obligations may include fixed-rate or adjustable-rate mortgage
backed securities. Individual securities, but not shares of
the portfolio, are guaranteed by the U.S. government as to
timely payment of principal and interest.
Three Zero Coupon Seek to provide as high an investment return as is consistent
Funds2005, 2010) (maturity dates: 2000, with the preservation of capital. Each
portfolio seeks to re- turn a reasonably assured targeted
dollar amount, predictable at the time of investment, on a
specific target date in the future by investing primarily in
zero coupon securities that pay no cash income but are
acquired by the portfolio at substantial discounts from their
value at maturity. In response to interest rate changes, zero
coupon securities may experience greater changes in market
value than interest- paying securities of similar maturity.
The portfolios may not be appropriate for short-term investors
or those who intend to withdraw money before the maturity date.
Portfolio Seeking Preservation of Capital and Income
Portfolio Description
Money Market Fund Seeks to obtain as high a level of current income (in the
context of the type of investment available to the portfolio)
consistent with capital preservation and liquidity. An
investment is neither insured nor guaranteed by the U.S.
government. The portfolio will seek to maintain a $1 per share
net asset value, but there is no guarantee that it will be
successful in doing so.
</TABLE>
PORTFOLIO SUMMARIES
Portfolios Seeking Capital Growth
Capital Growth Fund
Volatility returned to the domestic equity markets in 1997, with the Standard &
Poor's(R) 500 (S&P 500(R)) index experiencing moves of 1% or more -- up and down
- -- throughout approximately two-thirds of the trading days in the first half of
the year. While such volatility may cause consternation among investors, to us
it presents opportunities to buy securities of good companies that are currently
out of favor. During times like these, many portfolio managers feel compelled to
take some course of action, increasing portfolio turnover and further
contributing to exaggerated stock price movements. Sometimes, we believe the
best course of action during periods of volatility is to just sit tight with
one's investments.
It was with this low turnover philosophy that the Capital Growth Fund
portfolio was originally created -- to try to identify what we believe are
solid companies with promising growth prospects, and buy and hold them for
the long term. The portfolio consists of what we consider good quality growth
companies, generally large-cap and mid-cap (greater than $1 billion) stocks.
Our aim is not to achieve wealth overnight, but rather provide investors with
the potential for consistent growth over time.
On June 30, 1997, the portfolio held stocks of 79 companies across a diverse
group of industries, including software, finance, energy, data networking,
healthcare, semiconductors, and consumer products, to name a few. Such broad
diversity can help to mitigate the fluctuations attendant with the stock
market's volatility.
Our expectation is that the market will continue to experience greater
volatility in the coming years versus the reduced volatility over the last
several years. In part, this is due to concerns for sustained earnings growth
of individual companies. It is our belief that the S&P 500 will not produce
double-digit earnings growth again this year or next. In such an environment
of slowing corporate profit growth, solid stable growth companies -- such as
those your portfolio seeks to invest in -- are sought by investors. As growth
warrants a premium in the market due to its scarcity, investors tend to push
the prices of such growth stocks higher -- a condition which we believe should
benefit many of your portfolio holdings.
Capital Growth Fund
Top 10 Industries on 6/30/97
Based on Total Net Assets
% of Total
Industry Net Assets
Software &
Technology Services 12.8%
Electronic Technology 10.8%
Health Technology 10.2%
Consumer Non-Durables 6.7%
Financial Services 5.8%
Utilities 4.9%
Process Industries 3.7%
Semi-Conductors 3.7%
Consumer Services 3.5%
Energy & Minerals 3.3%
For a complete list of portfolio holdings, please see page 64 of this report.
Mutual Discovery Securities Fund
The Mutual Discovery Securities Fund seeks capital appreciation, with income
as a secondary objective, by investing in domestic and foreign equity
securities. These include common and preferred stocks, securities convertible
into common stocks, as well as debt obligations of any quality. On June 30,
1997, 70.4% of the portfolio's assets were invested in equity securities,
2.3% in fixed-income securities, and the remaining 27.3% in short-term and
other securities. Of course, these holdings will change as conditions warrant.
When an index such as the S&P 500 is up 20.06% in the first six months of
1997, some might ask, "why not just throw in the towel and own an index
fund?" The answer is basic: We believe that our value approach is the best
way to achieve consistent, long-term appreciation with low risk and low
volatility. The mix of our businesses -- cheap stocks, "special situations"
such as mergers and spinoffs, and bankruptcies -- is intended to provide the
best risk-adjusted returns in a wide variety of market conditions.
Our most recent efforts to find value in these markets included buying stakes
in a number of energy companies, including in the oil service business and on
the exploration and production side. We also found good value in selected
healthcare names, some of which have come down in price due to short-term
dislocations. Strong merger and acquisition activity is also providing some
good investment opportunities. Many foreign stocks are still attractive to
us, and though the larger capitalization names are generally less compelling
than they were a year or two ago, we believe opportunities in the smaller
capitalization companies are still plentiful.
Natural Resources Securities Fund (formerly Precious Metals Fund)
On May 1, 1997, the Precious Metals Fund's investment objective changed,
broadening its industry concentration policy to companies in natural
resources industries -- thereby creating the Natural Resources Securities
Fund. The portfolio seeks capital appreciation, with current income as a
secondary objective, by now investing in the equity securities of domestic
and foreign companies in or related to the natural resources sector.
On June 30, 1997, 93.7% of the portfolio's total net assets were invested in
equity securities, 1.3% in convertible corporate bonds, and 5.0% in
short-term and other assets. Companies in the gold and precious metals sector
remain our largest weighting at 59.1%, down from 79.5% on May 1, 1997. In
accordance with the portfolio's new objective, we continue to selectively
reallocate assets to various other natural resources sectors, including
energy, base metals, paper & forest products, steel, and chemicals.
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
New positions in the energy sector include exploration and production
companies with the potential for above-average growth in reserves and
production. Barrett Resources, Newfield Exploration and Nuevo Energy were
among this sector's companies where we found good investment opportunities.
Additionally, we found oilfield services and equipment companies that have
benefited from current strong demand and high utilization rates, including
newly purchased Diamond Offshore Drilling, Inc. and Transocean Offshore, Inc.
- -- two leading offshore drilling rig operators globally. Strong growth in
worldwide hydrocarbon demand combined with modest supply provides a positive
outlook for energy fundamentals over the next several years.
The price of gold bullion declined further during the reporting period,
dropping below $340 per ounce -- negatively impacting the portfolio's holdings
in the precious metals sector. In spite of positive physical demand, the
continued Central Bank selling, strong equity markets and an overall lack of
inflation adversely affected investor sentiment. Short-side and aggressive
options selling also combined to further depress the gold price. On a
protracted basis, we view the resilient physical demand (especially from
developing countries) and long-term supply consistency as attractive and,
therefore, remain optimistic that gold should appreciate in value.
Looking forward, we continue to focus on highly profitable companies with
skilled management, strong growth profiles and solid financials. We will look
for companies that should prosper throughout economic cycles, and thus
identify those companies we believe have sustainable advantages either
through strategic asset bases or technological expertise.
Small Cap Fund
The six-month period under review proved to be favorable for equity
investors, although larger capitalization stocks outperformed their small cap
counterparts. In part due to concerns about market volatility, the Franklin
Small Cap Fund portfolio underperformed during the first quarter of 1997
before turning in strong results in the second quarter. Our second quarter
performance was spurred by the continued strength of the U.S. economy,
coupled with lack of inflationary pressure. These economic conditions helped
prevent a meaningful rise in interest rates and provided a favorable backdrop
for equity markets in general.
During the period, we looked for small companies in their emerging growth
phase, focusing on those corporations we believe have an identifiable and
sustainable competitive advantage. Such an advantage often leads to superior
revenue and earnings growth. Our research uncovered attractive investments in
a variety of industries, and the portfolio's performance was aided by our
holdings in the energy, technology and healthcare sectors.
We remain bullish on the prospects for the energy sector, which benefited
from a favorable supply-and-demand relationship. In the second quarter of
this year, we added to several of our positions in this sector, including
Varco International, Inc., a leading maker of drilling equipment. The
technology sector experienced volatility throughout most of the reporting
period, and we took advantage of this to selectively initiate several new
positions and add to several existing names. Among the new positions in the
portfolio is Electronic Arts Inc., a leading developer of entertainment
software.
We remain optimistic about the prospects for small cap stocks, despite the
recent large cap bias of the market. In our opinion, small cap stocks are
attractively valued relative to the overall market, and the growing economy
and apparent lack of inflationary pressure should create an environment
conducive to the prosperity of small cap companies.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Templeton Developing Markets Equity Fund
On June 30, 1997, the portfolio was invested in 414 individual emerging
market equity securities, among 32 industry sectors and 23 countries, with
Brazil as the largest country holding (12.2% of total net assets), followed
by Mexico (11.3%) and Argentina (8.2%). We think the current geographic
breadth of the portfolio helps minimize risk, thereby reducing the volatility
of the returns on the portfolio while still maintaining the prospects for
strong performance.
The first six months of 1997 saw substantial gains in developing market
equity prices, underpinned by strong economic fundamentals and high capital
inflows from developed market countries. As in 1996, the Latin America region
was the star performer this reporting period. A combination of improved
macroeconomic management, cyclical economic recovery and an improved export
position drove equity prices higher throughout the region, particularly in
Brazil -- which realized unrelenting gains. The Asian region experienced mixed
performance during the six-month period, with many countries suffering from
oversupply in key sectors and a cyclical decline in exports. Malaysia, the
Philippines, Singapore and Thailand were among the hardest hit.
Looking forward, we believe that Asia's exports are likely to recover over
the remainder of the year and into 1998, driven primarily by increased demand
from the U.S. and Europe. A significant rebound in Asian exports would help
economies grow faster and bolster some of the more moribund stock markets in
that region, particularly South Korea and Thailand. We already detect signs
of a cyclical recovery in Asia's export market.
World demand for emerging market securities is its strongest since the 1960s,
and inventory levels in the U.S. and other countries are low in general. This
should benefit exporters in Latin America and Europe as well as Asia. Despite
positive growth in the first half of 1997, we believe developing markets as a
whole still represent good value.
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Templeton Global Growth Fund
Volatility and uncertainty were key factors in the world's financial markets
for the first six months of 1997. The U.S. equity market started the year at
an all-time high, and continued, although the trend was not smooth. In North
America -- and the U.S., in particular -- strong economic growth with
surprisingly modest inflation confounded experts, and the ebb and flow of
interest rates reintroduced volatility in the markets. Stock valuations --
whether price/book or price/earnings -- stretched relative to five- and
ten-year averages and, in some cases, are at unprecedented levels. As
valuations rose for many U.S. stocks, we sold or trimmed some of our holdings
in this region. Among those we reduced or sold were Lucent Technologies,
Highwood Properties, Inc., and IBM.
Because we found what we consider new bargains and opportunities, Europe
remained a significant geographic weighting for us (34.0% of total net
assets). During the six months under review, many European companies
generated strong profits due to privatization, restructuring, and
cost-reduction programs. Most stock markets rose as government efforts to
meet standards for membership in the European Monetary Union (EMU) led to
improved fiscal and monetary policies and lower interest rates. The results
of the French election introduced a new element of uncertainty over the EMU,
where privatization and corporate rationalization could become more difficult
under a socialist government. Nonetheless, careful stock picking and analysis
of companies during times of macro-economic confusion has rewarded our
investors in the past, though past performance cannot guarantee future
results.
The U.K. in particular appeared to swallow the tough medicine of reforming
its labor markets, deregulating its financial markets, and privatizing
state-owned enterprises. As a result, we analyzed an increasing number of
British companies, primarily because of valuations and -- secondarily --
because we think long-term managements there seemingly have to overcome fewer
hurdles to deliver value.
The picture in our emerging markets exposure was mixed. Latin America
rebounded sharply in 1997, with Brazil and Argentina posting phenomenal
performances (52.6% and 26.4% six-month total returns, respectively). On the
other hand, economic deterioration and political turmoil detrimentally
affected Asia's share prices. Regardless, we believe that opportunities are
born out of adversity, and we search diligently for overlooked opportunities
in South Korea, Thailand and China.
Japan, Asia's largest developed market, experienced mixed performance so far
in 1997. We have redoubled our efforts to ensure that we will be in a
position to act when valuations drop to a level where more Japanese companies
qualify as bargains under our criteria.
GRAPHIC MATERIAL 4 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Templeton International Equity Fund
During the six months ended June 30, 1997, the strength of the portfolio's
emerging markets holdings as well as good stock selection bolstered our
overall performance. At period end, the portfolio's largest country
allocations were the U.K. (14.1% of total net assets), Sweden (9.3%), and
Netherlands (7.8%). We allowed our cash position to rise somewhat (from 12%
to 15.1%) to be prepared for any future market weakness.
After several years of underperfomance, the world's developing markets have
rebounded and we were able to uncover many bargain-priced securities in these
areas, most notably in Latin American countries, where we think fundamentals
improved as these nations adapt to capitalist economies. Our Brazilian
holdings -- including telephone company Telebras, steelmaker Companhia
Siderurgica Nacional, ADR (CSN) and banking giant Bradesco -- performed well.
Our European stock holdings also aided the portfolio's performance in early
1997. Sweden, Finland, Italy and Spain turned in particularly good
performances, but the strength of the U.S. dollar somewhat reduced those
gains. Additionally, Eastern European markets soared in early 1997, but due
to the relatively small size of these markets and -- in some cases --
regulatory and operational impediments, it was difficult for the portfolio to
gain access. Our large exposure to cyclical securities also provided good
results as investors focused on the possibility of a cyclical upturn in the
European economy. The portfolio's largest holding -- Philips Electronics
(Netherlands/3.0% of total net assets) -- advanced strongly in the first six
months of 1997 after its new management strategy to maximize share value
raised investor interest.
We believe that the long-term prospects for emerging market companies remain
exceptionally bright, based on the continued rapid development of their own
economies as well as the benefits these countries should realize from an
eventual upturn in the developed world's economic activity level.
GRAPHIC MATERIAL 5 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Templeton International Smaller Companies Fund
Throughout the six-month reporting period, the portfolio, using a disciplined
focus on long-term value, continued in its endeavor to purchase the shares of
undervalued small-cap companies outside the U.S. On June 30, 1997, the
portfolio had $29 million in assets under management and was invested in 31
countries. The largest positions by geographic area were Europe (34.0% of
total net assets), Asia (19.7%), and Latin America (5.4%). By country, the
largest positions were Hong Kong (10.3%), United Kingdom (8.1%), Netherlands
(6.6%), Spain (4.8%), and Sweden (3.9%).
European stock markets moved sharply higher, propelled by excitement over
monetary union, lower interest rates, and moderate economic expansion. In
Asia, Hong Kong's stock exchange rose more than 20% in the time leading up to
the colony's reversion to China.
Currently, worldwide financial valuations are at historically high levels,
reflecting continued investor optimism over future corporate profitability
and strong cash inflows. While identifying investment bargains in this
environment is a challenge, we are confident that our disciplined approach to
finding undervalued small-cap stocks can reward long-term investors.
Templeton Pacific Growth Fund
On June 30, 1997, the fund's top five geographic allocations were Hong Kong
(25.8% of total net assets), Japan (18.6%), Singapore (12.5%), Australia
(10.7%), and Malaysia (8.6%).
A recovery in Hong Kong's retail and property sectors helped buoy its stock
market, and the portfolio benefited from the rising share prices of Cheung
Kong Holdings Ltd. and Hon Kwok Land Investment Co. Ltd., two companies with
real estate holdings in Hong Kong.
Japan's economy continued to falter as its banking system faced huge amounts
of uncollectable loans secured by land or stock worth less than the amount of
the loans. Although our holdings of Sony Corp. performed well, the yen's
decline during the period adversely affected the portfolio.
Indonesia, plagued by political problems that led to rioting in Jakarta,
experienced severe stock market volatility, and we took this opportunity to
purchase shares of PT Bank Bali and PT Panin Bank, two financial institutions
that we believe have growth potential. Seeking to capitalize on volatility in
stock markets of Thailand and India, we purchased shares of Thai Farmers Bank
Public Co. Ltd. and Bangkok Bank Public Co. Ltd., and initiated a position in
Industrial Credit & Investment Corp. of India.
In our opinion, the Pacific Rim continues to offer a variety of investment
opportunities in industrialized nations such as Hong Kong, and in nations
rich with natural resources.
Templeton Pacific
Growth Fund
Top 10 Holdings on 6/30/97
Based on Total Net Assets
Company/ % of Total
INDUSTRY,COUNTRY Net Assets
New World
Development Co. Ltd./ 3.0%
REAL ESTATE, HONG KONG
City Developments, Inc./ 2.7%
CONSTRUCTION & HOUSING,
SINGAPORE
Malaysia International
Shipping Corp./ 2.7%
MULTI-INDUSTRY, MALAYSIA
Cheung Kong Holdings Ltd./ 2.5%
MULTI-INDUSTRY, HONG KONG
Singapore Airlines Ltd./ 2.5%
TRANSPORTATION, SINGAPORE
Nippon Telegraph &
Telephone Corp./ 2.5%
TELECOMMUNICATIONS, JAPAN
Wheelock & Co., Ltd./ 2.4%
MULTI-INDUSTRY, HONG KONG
GIO Australia Holdings, Ltd./ 2.3%
FINANCIAL SERVICES, AUSTRALIA
Brambles Industries, Ltd./ 2.3%
MULTI-INDUSTRY, AUSTRALIA
Philippine National Bank/ 2.1%
BANKING, PHILIPPINES
For a complete list of portfolio holdings, please see page 143 of this report.
Portfolios Seeking Growth and Income
Growth and Income Fund
The strategy of the Growth and Income Fund portfolio is to buy corporate
stocks that are selling at attractive prices according to valuation
parameters such as dividend yield, book value, cash earnings, and revenues.
This strategy generally entails investing at times when a company or sector
is out of favor due to depressed fundamentals or market uncertainty about
future prospects. In our opinion, utility stocks, especially electric
companies, represent such an investment opportunity. Concerns over industry
deregulation have led to stocks selling at their most attractive relative
yield valuations in over 25 years. While the electric utility stocks held in
the portfolio registered disappointing relative returns during the past six
months, we are continuing to focus our investments in what we believe are
competitive, well-positioned companies and beneficiaries of anticipated
industry consolidation. For example, we initiated an investment in Entergy
Corp., a New Orleans-based utility that offered a 7.0% yield and sold at
approximately 10 times earnings at time of purchase.
Energy stocks continue to represent one of the portfolio's largest investment
sectors. Investment fundamentals such as earnings, cash flow and dividends
have been strong. We believe future prospects in this sector are also
favorable as rising worldwide demand for oil and gas, in relation to
exploration and production activity, should lead to strong prices and profit
growth for leading companies in the industry. Energy investments represent
five of the portfolio's top ten positions, including Atlantic Richfield Co.,
Texaco Inc., YPF Sociedad Anonima, Chevron Corp., and Exxon Corp.
Our investments in financial stocks, specifically savings & loans and insurance
companies, experienced notable gains during the period. The portfolio's savings
& loan holdings, which included Roosevelt Financial Group, Inc., were subject to
recent takeover bids, which led to higher prices. In the insurance sector,
Lincoln National Corp. and St. Paul Cos., Inc. performed well as a combination
of good valuations and strong fundamentals led to their strong gains in the
period. Investments in consumer staples and health care stocks also performed
well (Tambrands Inc. received a takeover bid by Proctor & Gamble) and the major
pharmaceutical stocks continued to move higher on strengthening fundamentals. In
the second quarter of 1997, we did take advantage of recent weakness in one of
the few weak-performing drug companies -- Pharmacia & Upjohn Inc. -- to add to
our position in this industry. Pharmacia & Upjohn is trading at a significant
discount to its peers and is currently restructuring its operations which, in
our opinion, should lead to a resumption in earnings growth and higher
valuations.
Foreign stocks represented 12.0% of the portfolio's total net assets on June
30, 1997. Currently, compared to domestic companies, many foreign stocks have
higher dividend yields and more attractive valuations in terms of
price/earnings ratios in sectors such as pharmaceuticals, energy, basic
materials, and financials. In addition to the above-mentioned Pharmacia &
Upjohn Inc., we initiated positions in two foreign companies during the
reporting period: Imperial Chemical (U.K.) and Mid Ocean Limited (Bermuda), a
reinsurance company.
Looking forward, we remain committed to our disciplined, value-oriented
approach, which has produced consistent and favorable long-term results.
Growth and Income Fund
Top Industries on 6/30/97
Based on Total Net Assets
% of Total
Industry Net Assets
Financials 17.7%
Energy & Resources 15.7%
Electric Utilities 12.9%
Basic Materials 12.0%
Telephone Services 10.6%
Consumer Staples 8.3%
Health Care 6.2%
Gas Utilities 4.0%
Manufacturing 4.0%
Retail 2.2%
For a complete list of portfolio holdings, please see page 67 of this report.
Income Securities Fund
The stock market appreciated during the period under review, driven by solid
economic growth and a benign inflation environment. In contrast, the bond
market experienced little change over the period, despite Treasury bond
volatility related to the strength of the economy and the federal funds rate
increase in March. The recovery in the second quarter was precipitated by
signs of slower economic growth. Most of the portfolio's sectors performed
well during the last six months, with the exception of gold stocks (which
declined following a drop in the price of gold).
Our fixed-income holdings consisted of corporate (33.2% of total net assets),
foreign (12.3%), and U.S. Treasury bonds (8.3%). Although corporate bonds
have generally performed well over the past two years, we were still able to
find good values in companies with positive business and credit prospects. We
added selectively to existing bond positions, initiated positions in
Bellwether Exploration (energy) and Paging Network (telecommunications), and
purchased bonds issued to refinance three of the portfolio's existing
positions (Anacomp, Del Monte, and Revlon Worldwide). In addition, several of
the portfolio's corporate bond holdings benefited from buyout or merger
announcements over the last six months (Smith's Food, CommNet Cellular, and
Mesa Petroleum).
The portfolio's foreign bond positions turned in a strong performance. In
February, we took advantage of strength in our Mexican Brady bonds, swapping
these positions for Brazilian Brady bonds, which appeared to offer greater
value. We also sold our Canadian bond position in May due to valuation
concerns and currency risk. With respect to U.S. Treasuries, we increased our
exposure by purchasing bonds amid market weakness earlier in the year.
Most of the portfolio's equity sectors performed well during the last six
months, with energy and pharmaceutical stocks leading the way. Energy stocks
were strong performers as a result of a generally positive earnings outlook.
However, these stocks did experience weakness in February and March due to a
temporary decline in energy prices. We took advantage of this weakness by
adding to existing positions in Nuevo Energy and Swift Energy as we believe
the long-term outlook for these companies remains positive.
We maintained the portfolio's utility weighting (22% of total net assets)
because we believe many of the stocks in this sector are undervalued and
offer attractive high current income. In addition, many utility companies
have made significant progress in adapting to industry deregulation through
cost cutting, consolidation and diversifying into unregulated business lines.
Over the period, we added to existing utility positions in the portfolio, and
initiated positions in MidAmerican Energy (mid-western electric & gas
utility) and CMS Energy (Michigan electric & gas utility).
Looking at other sectors of the portfolio, we purchased two new convertible
real estate positions in Vornado Realty Trust (REIT) and Macerich Co. (REIT),
two high-quality companies with excellent growth prospects. In the
pharmaceutical sector, strong price appreciation prompted us to sell the
portfolio's remaining pharmaceutical holdings as we believed further
appreciation potential for these stocks was limited at current levels.
Finally, due to valuation concerns, we recognized significant gains from the
Altera and Xilinx convertible bond positions purchased during last July's
technology sell-off.
With valuations in the stock and bond markets relatively high, we remain
selective as we search for investments with high current income and good
appreciation potential. We will continue to utilize our extensive research
capabilities in searching for attractively valued securities, and believe
that the portfolio's cash position should provide us with the ability to take
advantage of investment opportunities as they arise.
Mutual Shares Securities Fund
The Mutual Shares Securities Fund seeks capital appreciation, with income as
a secondary objective, by investing in domestic and foreign equity
securities. These include common and preferred stocks, securities convertible
into common stocks, as well as debt obligations of any quality. On June 30,
1997, 65.4% of the portfolio's total net assets were invested in equity
securities, 2.9% in fixed-income securities, and the remaining 31.7% in
short-term and other securities. Of course, these holdings will change as
conditions warrant.
When an index such as the S&P 500 is up 20.06% in the first six months of
1997, some might ask, "why not just throw in the towel and own an index
fund?" The answer is basic: We believe that our value approach is the best
way to achieve consistent, long-term appreciation with low risk and low
volatility. The mix of our businesses -- cheap stocks, "special situations"
such as mergers and spinoffs, and bankruptcies -- is intended to provide the
best risk-adjusted returns in a wide variety of market conditions.
Our most recent efforts to find value in these markets included buying stakes
in a number of energy companies, including in the oil service business and on
the exploration and production side. We also found good value in selected
healthcare names, some of which have come down in price due to short-term
dislocations. Strong merger and acquisition activity is also providing some
good investment opportunities. Many foreign stocks are still attractive to
us, and though the larger capitalization names are generally less compelling
than they were a year or two ago, we believe opportunities in the smaller
capitalization companies are still plentiful.
Real Estate Securities Fund
During the six-month period under review, the U.S. real estate market
performed well as robust economic growth and limited new property development
helped drive occupancy and rental rates higher. In addition, cost savings
from consolidation and growing economies of scale had a positive impact on
real estate companies. Although fundamentals in the real estate industry
remained strong in 1997, prices of real estate stocks -- after appreciating
significantly in the fourth quarter of 1996 -- fell slightly after the Federal
Reserve Board raised interest rates on March 25, 1997. The sector rebounded
in the second quarter of 1997 as the markets stabilized and real estate
stocks continued to report positive results.
The market capitalization and liquidity of equity real estate investment
trusts (REITs) increased significantly over the past several years as the
strong real estate market attracted new investors. In fact, REITs now
represent approximately 8.4% of the Russell 2000 Index of small
capitalization funds. As the public market for real estate companies expands,
we remain committed to our long-term investment strategy of focusing on
property types and geographic regions with strong supply and demand
fundamentals. We attempt to identify those management teams with the ability
to add value through intensive property management and strong capital markets
experience. In keeping with this strategy, we maintained the majority of the
portfolio's investments in hotel, apartment, industrial, office, and
self-storage properties, where we anticipate the most favorable supply and
demand fundamentals and strongest cash flow growth.
At the end of the reporting period, the hotel sector was the portfolio's
largest property-type weighting, representing 20.5% of total net assets, up
from 17.9% six months ago. Available hotel rooms have become scarce in many
cities across the country, reflecting higher occupancy rates. This
contributed to the excellent operating results and significant consolidation
activity, which made hotels our strongest performing sector. During the
period, we initiated a position in Prime Hospitality Corporation, an
attractively-valued lodging company. At the high-end of the hotel/resort
segment, we purchased shares in Colorado-based Vail Resorts, Inc. We also
added to core holdings such as FelCor Suite Hotels Inc., Winston Hotels, and
Host Marriott Corporation.
On June 30, 1997, the apartment sector was the portfolio's second-largest
exposure, representing 18.7% of total net assets. We maintained large
positions in our core apartment holdings, such as Equity Residential
Properties Trust, Security Capital Pacific Trust, and Bay Apartment
Communities, Inc. We also initiated a position in Charles E. Smith
Residential Realty, Inc. -- an apartment company focused on the ownership and
operation of downtown high-rise apartments.
During the past six months, we increased our exposure to the industrial
property sector by adding to our existing positions in Security Capital
Industrial Trust, Spieker Properties, Inc., Meridian Industrial Trust, and
Liberty Property Trust, as their valuations became attractive due to weakness
in office/industrial sector securities. On June 30, 1997, the industrial
sector weighting was 9.8% of total net assets, up from 8.9% six months ago.
Finally, adhering to our disciplined focus on valuation, we realized gains in
several securities in the home building, retail and hotel sectors. We
believed the valuations of these specific stocks did not reflect slowing
growth rates, which could cause weakness in the future.
Looking forward, we are confident about the prospects for real estate
securities, particularly equity REITs, because of the combination of strong
underlying fundamentals, favorable valuations, and attractive growth
opportunities they offer. We will continue to utilize our real estate
background and perspective combined with the securities experience and
resources of our research team. The portfolio will continue to focus on
high-quality real estate companies that are creating significant cash flow
and dividend growth to generate attractive total returns.
Rising Dividends Fund
Our investment strategy is based on our belief that companies with
consistently rising dividends should, over time, realize appreciation in
their stock prices. We select portfolio securities based on several criteria.
To be eligible for purchase, stocks must pass certain investment "screens,"
or screening procedures, including consistent and substantial dividend
increases, strong balance sheets, and relatively low price/earnings ratios.
We seek fundamentally sound companies that meet our standards and attempt to
acquire them at attractive prices, often when they are out of favor with
other investors.
The stock market -- and a number of securities in the portfolio -- continued to
benefit from an environment characterized by solid economic growth and low
inflation. One of our holdings, State Street Corp. -- a provider of services
to institutional investors, was a direct beneficiary of rising prices for
financial assets. Bristol-Myers' strong new product pipeline appears to be
increasing its earnings growth rate. Cohu Inc.'s order backlog for its
semiconductor test handling equipment grew in the first two quarters of 1997
after falling for most of 1996. Investors have begun to appreciate that M.A.
Hanna's earnings have become increasingly less cyclical in recent years. Many
analysts are expecting earnings growth at America's largest company, General
Electric, to be accelerating. Mercury General is experiencing very strong
growth in auto insurance premiums, Family Dollar Stores continues to do well
with its small-scale and low-priced general merchandise stores, and the much
larger Wal-Mart Stores has benefited from better inventory control and an
expanding international presence.
The prices of several stocks in the portfolio fell during the period despite
the strong market. Wallace Computer Services had lower-than-expected earnings
growth as a result of slower-than-anticipated rollout of the company's
services to new accounts and a slowdown in direct mail business. MMI
Companies (insurance - property/casualty) also reported earnings that were
lower than expected. The company was hurt by a slowdown in medical
malpractice premium growth. We think both of these companies are still very
attractive businesses and, therefore, we purchased additional shares during
the period.
New positions added to the portfolio during the six-month period included Nike,
Inc., Washington Mutual, Inc., Hubbell, Inc. - Class B, Diebold, Inc., and
American Heritage Life Investment Corp. Nike has become one of the world's most
recognizable brand names; however, a slowdown in its domestic footwear sales
caused its stock to fall to an attractive valuation. Still, international sales,
as well as domestic apparel sales, continue to be very strong. Washington Mutual
is a rapidly growing west coast financial services company, increasing its
dividend for seven consecutive quarters. Hubbell, a manufacturer of electrical
components, increased its dividend for 37 years, and Diebold -- which makes
card-based transaction systems such as automatic teller machines -- has 43 years
of dividend increases. American Heritage Life specializes in selling life and
health insurance through automatic payroll deductions, and not only has 27 years
of consecutive dividend increases but also has 21 years of increasing operating
earnings.
Several positions were eliminated from the portfolio, including C.R. Bard,
Inc., Arnold Industries, Inc., and Loctite Corp. Bard has had difficulty
growing revenues in a very competitive pricing environment, and Arnold
Industries is no longer increasing its dividend. Loctite, a specialty
chemical company, was acquired by another company in January 1997 at a gain
of 37%.
Notable year-over-year dividend increases during the past six months came
from Baldor Electric Co. (+20%), Cohu, Inc. (+20%), Leggett & Platt, Inc.
(+18.2%), Merck & Co. (+23.5%), Mercury General Corp. (+20.8%), Nucor Corp.
(+25%), Wal-Mart Stores, Inc. (+28.6%), and Washington Mutual, Inc. (+18.2%).
As shown in the table on page 25, our 10 largest positions on June 30, 1997,
comprised 27% of the portfolio's total net assets. It is interesting to note
how these 10 companies would, in the aggregate, answer the portfolio's
screening criteria based on a simple average of statistical measures. On
average, these 10 companies have raised their dividends 16 years in a row and
by 400% in the last 10 years. Their most recent dividend increases averaged
17.4%, for a yield of 1.4% on June 30, 1997, and a dividend payout ratio of
24%. Long-term debt averaged 23% of capitalization, and the average
price/earnings ratio was 17.7%, versus 19.8% for that of the unmanaged S&P
500 Stock Index on the same date.
We think that these companies are representative of the fundamentally high
quality of the portfolio. We also believe that, over the long haul, companies
that increase cash payments to shareholders, year after year, should be
superior builders of wealth.
Rising Dividends Fund
Top 10 Holdings on 6/30/97
Based on Total Net Assets
Company, % of Total
INDUSTRY Net Assets
Family Dollar Stores, 3.81%
RETAIL
Wallace Computer
Services, Inc., 3.35%
BUSINESS SERVICES
Nike, Inc., 2.82%
CONSUMER PRODUCTS
Dimon, Inc., 2.74%
CONSUMER PRODUCTS
Allied Group, Inc., 2.60%
INSURANCE - PROPERTY/
CASUALTY
Millipore Corp., 2.56%
INDUSTRIAL
Wal-Mart Stores, Inc., 2.51%
RETAIL
Circle International, 2.42%
TRANSPORTATION
Mercury General Corp., 2.36%
INSURANCE - PROPERTY/
CASUALTY
Hanna (M.A.) Co., 2.27%
INDUSTRIAL
For a complete list of portfolio holdings, please see page 100 of this report.
GRAPHIC MATERIAL 6 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Templeton Global Asset Allocation Fund
Volatility and uncertainty have been key factors in the world's financial
markets for much of the first half of 1997. The U.S. equity market began the
year at an all-time high, and proceeded to rise and fall. At the same time,
the U.S. dollar rose against most foreign currencies, reducing returns for
U.S. holders of foreign bonds. Since these events affected markets
differently, market selection and currency management were two key factors
impacting the portfolio over the reporting period.
While the U.S. remained our largest portfolio holding (20.1% of total net
assets on June 30, 1997), high stock valuations in this region have brought
us to sell or reduce some of our holdings, particularly financial ones. Among
those equity positions we sold were Citicorp and Lucent Technologies. Within
the European bond markets, we added to our positions in Italy and Sweden,
purchases funded by the May sale of some German bonds.
The picture in our emerging markets exposure has been mixed. Latin America
rebounded sharply in 1997, with Brazil and Argentina posting phenomenal
performance (52.6% and 26.4% six-month total returns, respectively). As a
result, our emerging markets exposure remained relatively unchanged over the
period, with the largest allocations in Brazil, Argentina, and Mexico. On the
other hand, economic deterioration and political turmoil had a detrimental
effect on Asia's share prices. Regardless, we believe that opportunities are
born out of adversity, and we search diligently for overlooked opportunities,
particularly in South Korea, Thailand, and China.
Utility Equity Fund
Although U.S. utility markets were generally weak during the six months under
review, Latin American, European and Asian utility stocks performed
relatively well.
Our U.S. weightings declined slightly over the period (from 82.2% of total
net assets to 81.9%). Investors ignored large segments of the U.S. utility
market due to concerns over changing federal and state regulations. Both the
electric power generation and telecommunications industries experienced
significant deregulatory changes throughout 1996 and into 1997, causing the
average electric utility stock price to increase slightly. Regardless, we
feel that there are select buying opportunities in this market segment and
will continue to look for new investment opportunities.
Overall, our weighting in the foreign markets increased slightly during the
six-month period. We took profits in some European and Asian companies as
several of our holdings in these regions reached our target price range. We
also increased our Latin American position, particularly in electric power as
some governments in this region are trying to privatize this industry in
order to attract the needed technological knowledge and investments.
Looking forward, we believe that the global utility market offers very
attractive equity investment opportunities. In the U.S., high-quality utility
companies with aggressive, entrepreneurial management have been generating
strong earnings growth, and we hold a positive view of the California and
federal attempts at deregulation. Outside the U.S., the ongoing privatization
and deregulation of the utility industry continues to represent, we feel,
high quality investment opportunities with the potential for strong growth
rates and excellent total returns.
Utility Equity Fund
Top 10 Holdings on 6/30/97
Based on Total Net Assets
% of Total
Company Net Assets
Duke Power Co. 4.69%
TECO Energy, Inc. 4.23%
Southern Co. 3.95%
CINergy Corp. 3.91%
Enron Corp. 3.90%
Florida Progress Corp. 3.26%
American Electric Power 2.97%
FPL Group, Inc. 2.97%
GPU, Inc. 2.96%
Entergy Corp. 2.76%
For a complete list of portfolio holdings, please see page 149 of this report.
Portfolios Seeking Current Income
High Income Fund
Over the six months under review, the portfolio made several industry
allocation changes. We reduced our positions in the automotive and chemical
industries to capitalize on profits made in these somewhat cyclical holdings.
To avoid possible underperformance from an increasingly competitive
environment, we also reduced our cable television exposure.
During the reporting period, we increased our holdings in the broadcasting
and wireless communications industries, mainly to take advantage of rapid
market penetration, deregulation and industry consolidation in these sectors.
Additionally, industry consolidation created positive opportunities to
increase positions in the containers and packaging and the industrial sectors.
Within the wireless communications and telecommunications sectors, Nextel,
Telecom and Millicom performed well. Other strong performers include Collins
& Aikman Products (automotive), Smith's Food & Drug (food retailing), Ralphs
Grocery Co. (food retailing), Algoma Steel (metals & mining), and Mesa
Operating (energy). Mesa benefited substantially from a merger with an
investment grade-rated company, and has itself been upgraded to a Ba2 rating
by Moody's Investors Service.
Looking forward, we expect a favorable outlook for the high yield bond market
assuming we experience ongoing steady economic growth. However, the portfolio
will continue to acquire higher-quality issues, realizing that the growth
phase of the U.S. economy is now in its seventh year. Although we do not see
significant risk of recession on the short-term horizon, we believe that this
is a prudent investment strategy for the long term. Barring significant
fluctuations from moderate growth and low inflation trends in the first half
of 1997, a prosperous outlook remains for the high yield bond market.
High Income Fund
Top 10 Industries on 6/30/97
Based on Total Net Assets
% of Total
Industry Net Assets
Wireless
Communications 11.8%
Cable Television 10.5%
Industrial Products 9.0%
Health Care Services 7.3%
Gaming/Leisure 6.3%
Food & Beverage 4.8%
Food Retailing 4.6%
Forest/Paper Products 4.2%
Containers & Packaging 4.1%
Broadcasting 3.9%
For a complete list of portfolio holdings, please see page 70 of this report.
GRAPHIC MATERIAL 7 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Templeton Global Income Securities Fund
During the period under review, interest rates fell in almost all global bond
markets, increasing the value of most global fixed-income securities. At the
same time, however, the U.S. dollar rose against most foreign currencies,
reducing returns for U.S. holders of foreign bonds. Since these events
affected markets differently, market selection and currency management were
two key factors impacting the portfolio over the reporting period.
Responding to fluctuating economic conditions, we remained conservatively
positioned with respect to both interest rate and currency risk. Early in the
period, we reduced our Denmark exposure (from 7.2% of total net assets on
December 31, 1996, to 3.9%), eliminated our Ireland (1.2%) exposure, and
reinvested the proceeds in German and U.S. securities. We eliminated our
position in Japan, as that economy exhibited initial signs of underlying
strength. We also added to our positions in Italy and Sweden, purchases
funded by the May sale of some German bonds.
As of June 30, 1997, the portfolio held approximately 83% of its assets in
intermediate-term securities of dollar bloc countries (the U.S., Australia,
Canada, and dollar-denominated emerging markets), while holding roughly 16%
in intermediate-term European securities. Our emerging markets exposure
remained relatively unchanged over the six-month period, with Brazil,
Argentina and Mexico our largest allocations in this region.
U.S. Government Securities Fund
The U.S. Government Securities Fund holds a diversified portfolio of agency
mortgage and government securities, with holdings of Government National
Mortgage Association (GNMA or "Ginnie Mae") mortgage passthroughs as our
largest positions. Some other portfolio holdings were Federal National
Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation
(FHLMC) passthroughs and debentures issued by the Financing Corporation
(FICO) and the Tennessee Valley Authority (TVA). On June 30, 1997, the fund's
investments consisted of 71.0% of total net assets in mortgage-backed
securities (of which approximately 42.3% were Ginnie Maes), and 28.2% in
other U.S. government and agency securities and short-term investments. Of
course, these holdings may change as market conditions warrant.
As reports of strong economic growth surfaced in the fourth quarter of 1996,
U.S. interest rates -- which had declined between the third quarter and
December 1996 -- reversed course and pushed higher. Investors feared that with
labor markets tight, higher growth would continue to push wage growth higher.
This could eventually be passed on to consumers in the form of higher prices.
To no one's surprise, the Federal Reserve Board nudged the federal funds rate
up slightly at the Open Market Committee meeting in March, citing heightened
inflation risk as the reason behind the quarter-point increase.
The mortgage passthrough market experienced lower prepayment risk as yields
remained higher. This helped the mortgage passthroughs perform well compared
with other government bonds (including U.S. Treasuries) as investors
benefited from the added yield these securities provide.
Over the remainder of 1997, we expect that interest rate volatility will
remain subdued, which will continue to benefit mortgage passthrough
securities. However, overall yield levels may move to the higher end of their
recent trading range as consumer activity and economic growth rebound in the
second half of 1997.
Three Zero Coupon Funds
(maturity dates: 2000, 2005, 2010)
Over the course of the first half of 1997, interest rates increased -- but
only slightly. Strong economic growth heightened prospects that inflation
would accelerate; however, by mid-year, there was only scant evidence that
inflation was on the rise. In addition to the continued favorable news on
inflation, the bond markets rallied because of the progress made on reducing
the federal budget deficit.
The Zero Coupon Fund portfolios aim to maintain investments as close to the
target maturities as practically possible. This makes changes in the interest
rates a highly significant factor affecting the unit value of these
portfolios. With four years to maturity in the 2000 portfolio, this portfolio
could possibly experience an approximate 4% swing in value for every 100
basis point (or 1%) swing in interest rates. Likewise, the 2005 fund has the
potential to move up or down approximately 9% for the same swing in interest
rates, and the 2010 may move -- up or down -- 14%.
Naturally, if held to maturity, individual zero coupon bonds will return a
fixed rate. Zero coupon investments, therefore, can be attractive for both
aggressive and risk averse investors. Of course, a managed portfolio of zero
coupon bonds will fluctuate with cash flow in or out of the portfolio, or
vary with market conditions. In each portfolio, we strive to maintain -- at
all times -- a duration within 12 months of the target maturity. We do not try
to time the market; instead, our portfolio activity mirrors shareholder
activity. We make purchases when money flows into the portfolios, and sell
securities to meet redemptions. Additionally, we hold primarily U.S. Treasury
and agency zero coupon and stripped securities, as well as top-rated
corporate securities. We believe this strategy keeps default risk at a
minimum.
Portfolio Seeking Capital Preservation and Income
Money Market Fund
Strong economic growth coupled with mild inflation characterized most of the
period under review. Real Gross Domestic Product (GDP) growth for the quarter
ended March 31, 1997, was 5.9% -- considerably above the Federal Reserve
Board's (the Fed's) targeted long-term growth rate of 2.5%. Moreover,
unemployment levels trended down to 4.8%, the lowest level experienced in 25
years. In spite of the blistering economic growth, inflation indicators
remained relatively low. However, the Fed responded preemptively to the
potential for higher prices by increasing the federal funds rate on March 25.
In response to this rise, most other short-term rates also rose slightly
during the period.
Since we maintained a relatively neutral weighted average maturity during the
six-month reporting period, the portfolio's seven-day yield reflected the
rise in short-term rates. Our seven-day yield began the period at 5.04% and
ended at 5.18%.
We continue to invest the portfolio's assets in securities that are among the
highest quality available to money market portfolios. Since the portfolio's
objective is to provide shareholders with a high quality conservative
investment, we do not invest in leveraged derivative or other potentially
volatile securities that we believe involve undue risk.
Looking forward, we feel the economy is in the later stages of the current
business cycle. Growth should continue to result from higher private
consumption, capital spending, and improving foreign economies. However, we
expect these forces -- coupled with a tight labor market -- could jeopardize
the current, benign inflation picture. As a result, the Fed may be compelled
to raise short-term rates further.
The Money Market Fund's relatively short-weighted average maturity should
position the portfolio effectively for this type of interest rate
environment. As interest rates rise, we should be able to reinvest the
portfolio's securities at a faster rate due to the relatively short overall
maturity.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES Capital Growth Fund (NOTE1)
Common Stocks 83.1%
Commercial Services 2.6%
<S> <C> <C>
30,000 Equifax, Inc. ........................................................ $ 1,115,625
18,000 a Robert Half International, Inc. ...................................... 847,125
------------
1,962,750
------------
Consumer Products - Durables 1.3%
28,000 Mattel, Inc. ......................................................... 948,500
------------
Consumer Products - Non-Durables 6.7%
12,000 Campbell Soup Co. .................................................... 600,000
7,000 The Coca-Cola Co. .................................................... 472,500
8,000 Gillette Co. ......................................................... 758,000
10,000 Hershey Foods Corp. .................................................. 553,125
20,000 Nike, Inc., Class B .................................................. 1,167,500
20,000 PepsiCo, Inc. ........................................................ 751,250
5,000 Proctor & Gamble Co. ................................................. 706,250
------------
5,008,625
------------
Consumer Services 3.5%
40,000 a CUC International, Inc. .............................................. 1,032,500
7,000 Disney (Walt) Co. .................................................... 561,750
40,000 a Mirage Resorts, Inc. ................................................. 1,010,000
------------
2,604,250
------------
Containers & Packaging 1.6%
38,500 a Owens-Illinois, Inc. ................................................. 1,193,500
------------
Electronic Technology 10.8%
21,750 a 3Com Corp. ........................................................... 978,750
17,500 a Ascend Communications, Inc. .......................................... 689,063
17,000 a Cisco Systems, Inc. .................................................. 1,141,125
6,000 a Compaq Computer Corp. ................................................ 595,500
12,000 Hewlett-Packard Co. .................................................. 672,000
40,000 a Imation Corp. ........................................................ 1,055,000
18,750 Molex, Inc. .......................................................... 684,375
18,000 a Newbridge Networks Corp. ............................................. 783,000
13,000 a Uniphase Corp. ....................................................... 757,250
8,000 United Technologies Corp. ............................................ 664,000
------------
8,020,063
------------
Energy & Minerals 3.3%
30,000 a Barrett Resources Corp. .............................................. 898,125
27,000 Enron Oil & Gas Co. .................................................. 489,375
20,000 Royal Dutch Petroleum Co., New York Shares, ADR ...................... 1,087,500
------------
2,475,000
------------
Financial Services 5.8%
5,000 American International Group, Inc. ................................... 746,875
5,000 Citicorp ............................................................. 602,813
18,000 Fannie Mae............................................................ 785,250
8,300 a Hartford Life, Inc., Class A.......................................... 311,250
25,600 a HomeSide, Inc. ....................................................... 560,000
18,000 Schwab (Charles) Corp. ............................................... 732,375
2,000 Wells Fargo & Co. .................................................... 539,000
------------
4,277,563
------------
Health Care Services 1.7%
10,000 a Oxford Health Plans, Inc. ............................................ 717,500
9,000 a PacifiCare Health Systems, Inc., Class B ............................. 574,875
------------
1,292,375
------------
Health Technology 10.2%
10,000 Abbott Laboratories .................................................. $ 667,500
12,000 Allergan, Inc. ....................................................... 381,750
10,000 American Home Products Corp. ......................................... 765,000
14,000 a Amgen, Inc. .......................................................... 813,750
15,000 Baxter International, Inc. ........................................... 783,750
10,000 a Boston Scientific Corp. .............................................. 614,375
15,000 Johnson & Johnson..................................................... 965,625
7,000 Lilly (Eli) & Co. .................................................... 765,188
40,000 Mentor Corp. ......................................................... 1,185,000
6,000 Merck & Co., Inc. .................................................... 621,000
------------
7,562,938
------------
Industrial Services 0.5%
3,000 Schlumberger, Ltd. ................................................... 375,000
------------
Media & Broadcasting 1.6%
25,000 Time Warner, Inc. .................................................... 1,206,250
------------
Process Industries 3.7%
10,000 Air Products and Chemicals, Inc. ..................................... 812,500
20,000 Millipore Corp. ...................................................... 880,000
30,000 Sigma-Aldrich Corp. .................................................. 1,051,875
------------
2,744,375
------------
Producer Manufacturing 3.3%
16,000 Emerson Electric Co. ................................................. 881,000
7,000 Minnesota Mining and Manufacturing Co. ............................... 714,000
32,000 a U.S. Filter Corp. .................................................... 872,000
------------
2,467,000
------------
Retail 2.6%
15,000 McDonald's Corp. ..................................................... 724,688
35,000 Wal-Mart Stores, Inc. ................................................ 1,183,438
------------
1,908,126
------------
Semiconductors 3.7%
25,000 a Adaptec, Inc. ........................................................ 868,750
5,000 Intel Corp. .......................................................... 709,063
12,000 Linear Technology Corp. .............................................. 621,000
12,000 a Xilinx, Inc. ......................................................... 588,750
------------
2,787,563
------------
Software & Technology Services 12.8%
25,000 Adobe Systems, Inc. .................................................. 876,563
16,000 Automatic Data Processing, Inc. ...................................... 752,000
30,000 a Broderbund Software, Inc. ............................................ 740,625
30,000 a Electronic Arts, Inc. ................................................ 1,008,750
17,000 Electronic Data Systems Corp. ........................................ 697,000
24,000 First Data Corp. ..................................................... 1,054,500
30,000 a Intuit, Inc. ......................................................... 688,124
2,400 a Microsoft Corp. ...................................................... 303,300
16,000 a Oracle Corp. ......................................................... 806,000
30,000 a SABRE Group Holdings, Inc. ........................................... 813,750
20,000 a Sterling Commerce, Inc. .............................................. 657,500
30,000 a Synopsys, Inc. ....................................................... 1,102,500
------------
9,500,612
------------
Transportation 2.5%
30,000 Air Express International Corp. ...................................... $ 1,192,500
25,000 Southwest Airlines Co. ............................................... 646,874
------------
1,839,374
------------
Utilities 4.9%
12,000 a AES Corp. ............................................................ 849,000
35,000 a AirTouch Communications, Inc. ........................................ 958,124
23,000 Enron Corp. .......................................................... 938,688
15,000 GTE Corp. ............................................................ 658,124
8,900 MCN Corp. ............................................................ 272,563
------------
3,676,499
------------
Total Long Term Investments (Cost $53,451,493) ................. 61,850,363
------------
FACE
AMOUNT
f,gReceivables from Repurchase Agreements 16.2%
$ 12,046,850 Joint Repurchase Agreement, 5.884%, 07/01/97
(Maturity Value $12,053,427) (Cost $12,051,457)
Aubrey G. Lanston & Co., Inc., (Maturity Value $1,194,681)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $1,194,681)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $703,953)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $1,194,681)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $1,194,681)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $597,345)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $1,194,681)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co., L.P., (Maturity Value $1,194,681)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $1,194,681)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $1,194,681)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $1,194,681)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 . 12,051,457
------------
Total Investments (Cost $65,502,950) 99.3% ................ 73,901,820
Other Assets and Liabilities, Net 0.7% .................... 518,168
------------
Net Assets 100.0% ......................................... $74,419,988
============
At June 30, 1997, the net unrealized appreciation based on the
cost of investments for income tax purposes of $65,523,666
was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost .................... $ 9,673,413
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value .................... (1,295,259)
------------
Net unrealized appreciation ........................................ $ 8,378,154
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
aNon-income producing.
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES Growth and Income Fund (NOTE1)
f,gCommon Stocks 93.6%
<S> <C> <C>
Automobile 1.5%
547,000 Chrysler Corp. ....................................................... $ 17,948,438
------------
Chemicals - Basic 4.1%
242,300 Dow Chemical Co. ..................................................... 21,110,388
320,000 Imperial Chemical Industries, Plc., Sponsored ADR .................... 18,200,000
428,570 Millennium Chemicals, Inc. ........................................... 9,749,968
------------
49,060,356
------------
Consumer Products 1.3%
391,800 Dial Corp. ........................................................... 6,121,875
182,900 Tambrands, Inc. ...................................................... 9,122,138
------------
15,244,013
------------
Electrical Equipment 2.2%
230,000 AMP, Inc. ............................................................ 9,602,500
262,200 General Electric Co. ................................................. 17,141,325
------------
26,743,825
------------
Financial Services 7.7%
263,100 Banc One Corp. ....................................................... 12,743,906
207,500 BankBoston Corp. ..................................................... 14,952,969
115,900 J.P. Morgan & Co., Inc. .............................................. 12,097,063
320,000 National City Corp. .................................................. 16,800,000
119,700 b Nordbanken AB, Sponsored ADR ......................................... 8,077,488
379,900 PNC Bank Corp. ....................................................... 15,813,338
510,000 Roosevelt Financial Group, Inc. ...................................... 12,407,280
------------
92,892,044
------------
Forest Products & Paper 4.9%
136,000 Georgia-Pacific Corp. ................................................ 11,611,000
1,020,000 b Portucel Industrial-Empresa Produtora de Celulosa,
SA, Sponsored ADR ................................................... 7,563,504
318,400 Potlatch Corp. ....................................................... 14,407,600
240,000 Union Camp Corp. ..................................................... 12,000,000
255,000 Weyerhaeuser Co. ..................................................... 13,260,000
------------
58,842,104
------------
Insurance 4.8%
324,400 Lincoln National Corp. ............................................... 20,883,250
214,100 Mid Ocean, Ltd. ...................................................... 11,226,869
297,000 d Scor (France) ........................................................ 11,957,425
131,000 St. Paul Cos., Inc. .................................................. 9,988,750
121,500 Zenith National Insurance Corp. ...................................... 3,280,500
------------
57,336,794
------------
Miscellaneous Manufacturing 4.0%
430,000 British Steel, Plc., Sponsored ADR ................................... 10,857,500
167,300 Cooper Industries, Inc. .............................................. 8,323,175
345,100 Fortune Brands, Inc. ................................................. 12,876,544
163,750 Hanson, Plc., Sponsored ADR .......................................... 4,093,750
120,500 Minnesota Mining and Manufacturing Co. ............................... 12,291,000
------------
48,441,969
------------
Oil & Gas Transmission 4.0%
280,000 Consolidated Natural Gas Co. ......................................... 15,067,500
357,400 National Fuel Gas Co. ................................................ 14,988,463
547,800 Pacific Enterprises .................................................. 18,419,775
------------
48,475,738
------------
Petroleum - Integrated 15.7%
233,700 Amoco Corp. .......................................................... $ 20,317,294
414,000 Atlantic Richfield Co. ............................................... 29,187,000
305,000 Chevron Corp. ........................................................ 22,550,938
427,000 Exxon Corp. .......................................................... 26,260,500
256,000 Mobil Corp. .......................................................... 17,888,000
385,000 Occidental Petroleum Corp. ........................................... 9,649,063
256,200 Texaco, Inc. ......................................................... 27,861,750
357,800 Ultramar Diamond Shamrock Corp. ...................................... 11,673,225
775,000 YPF Sociedad Anonima, Sponsored ADR .................................. 23,831,250
------------
189,219,020
------------
Pharmaceuticals 6.2%
78,000 American Home Products Corp. ......................................... 5,967,000
417,000 Bristol-Myers Squibb Co. ............................................. 33,777,000
420,800 Glaxo Wellcome, Plc., Sponsored ADR .................................. 17,594,700
510,000 Pharmacia & Upjohn, Inc. ............................................. 17,722,500
------------
75,061,200
------------
Printing, Publishing & Media 0.8%
375,000 Dun & Bradstreet Corp. ............................................... 9,843,750
------------
Real Estate Investment Trust 5.2%
460,300 Equity Residential Properties Trust .................................. 21,864,250
575,000 FelCor Suite Hotels, Inc. ............................................ 21,418,750
595,700 Simon DeBartolo Group, Inc. .......................................... 19,062,400
------------
62,345,400
------------
Retail 2.2%
501,900 Penney (J.C.) Co., Inc. .............................................. 26,192,906
------------
Telecommunications 10.6%
72,000 Ameritech Corp. ...................................................... 4,891,500
252,000 AT&T Corp. ........................................................... 8,835,750
115,800 BellSouth Corp. ...................................................... 5,370,225
161,300 British Telecommunications, Plc., Sponsored ADR ...................... 11,976,525
544,500 GTE Corp. ............................................................ 23,889,938
462,000 NYNEX Corp. .......................................................... 26,622,750
601,900 Southern New England Telecommunications Corp. ........................ 23,398,863
583,100 U S WEST Communications Group ........................................ 21,975,581
------------
126,961,132
------------
Tobacco 4.8%
900,000 d Imperial Tobacco Group, Plc. (United Kingdom) ........................ 5,792,769
528,300 Imperial Tobacco Group, Plc., ADR .................................... 6,800,700
347,800 Philip Morris Cos., Inc. ............................................. 15,433,625
363,560 RJR Nabisco Holdings Corp. ........................................... 11,997,480
640,000 UST, Inc. ............................................................ 17,760,000
------------
57,784,574
------------
Transportation 0.7%
252,000 Illinois Central Corp. ............................................... 8,804,250
------------
Utilities 12.9%
466,100 Central & South West Corp. ........................................... 9,904,625
327,000 CINergy Corp. ........................................................ 11,383,688
484,000 Dominion Resources, Inc. ............................................. 17,726,500
590,000 Enova Corp. .......................................................... 14,196,875
553,000 Entergy Corp. ........................................................ 15,138,375
425,300 GPU, Inc. ............................................................ 15,257,632
401,400 New England Electric System .......................................... 14,851,800
403,000 OGE Energy Corp. ..................................................... 18,336,500
410,000 PacifiCorp ........................................................... $ 9,020,000
444,900 PECO Energy Co. ...................................................... 9,342,900
310,700 PG&E Corp. ........................................................... 7,534,475
288,000 Public Service Co. of Colorado ....................................... 11,952,000
------------
154,645,370
------------
Total Long Term Investments (Cost $893,292,316) ................1,125,842,883
------------
FACE
AMOUNT
f,gReceivables from Repurchase Agreements 6.3%
$ 75,926,090 Joint Repurchase Agreement, 5.884%, 07/01/97
(Maturity Value $75,962,063) (Cost $75,949,649)
Aubrey G. Lanston & Co., Inc., (Maturity Value $7,529,018)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $7,529,018)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $4,436,392)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $7,529,018)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $7,529,018)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $3,764,509)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $7,529,018)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co., L.P., (Maturity Value $7,529,018)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $7,529,018)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $7,529,018)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $7,529,018)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00.. 75,949,649
------------
Total Investments (Cost $969,241,965) 99.9% ...............1,201,792,532
Other Assets and Liabilities, Net 0.1%..................... 1,490,687
------------
Net Assets 100.0%..........................................$1,203,283,219
============
At June 30,1997, the net unrealized appreciation based on the cost
of investments for income tax purposes of $969,251,742 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ..........................$ 242,539,222
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value .................... (9,998,432)
------------
Net unrealized appreciation ........................................$ 232,540,790
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
bPurchased in a private placement transaction; resale may only be to qualified
institutional buyers.
dSecurities are traded in foreign currency and value is stated in U.S. dollars.
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES/ VALUE
WARRANTS High Income Fund (NOTE1)
a Common Stocks & Warrants 0.1%
<S> <C> <C>
33,568 Bucyrus-Erie Co. ..................................................... $ 356,660
6,900 Empire Gas Corp., warrants ........................................... 34,500
70 Foodmaker, Inc., warrants ............................................ 3,243
5,000 Gulf States Steel, warrants .......................................... 25,500
7,800 International Wireless Holding Co., warrants ......................... 156
6,500 Nextel Communications, Inc., warrants ................................ 65
395 Thermadyne Holdings Corp. ............................................ 12,443
5,000 Wireless One, Inc., warrants ......................................... 50
------------
Total Common Stocks & Warrants (Cost $716,040).................. 432,617
------------
Preferred Stocks 4.4%
4,500,000 b Asia Pulp & Paper Co., Ltd., 12.00%, pfd., Class A ................... 4,623,750
1,300 Fresenius Medical Care A.G., 9.00%, pfd., PIK ........................ 1,319,500
8,979 PanAmSat Corp., 12.75%, pfd., PIK .................................... 11,011,428
2,374 Time Warner, Inc., 10.25%, pfd., Series M, PIK ....................... 2,637,872
------------
Total Preferred Stocks (Cost $17,476,758) ...................... 19,592,550
------------
Total Common Stocks & Warrants,
and Preferred Stocks (Cost $18,192,798) ............................. 20,025,167
------------
FACE
AMOUNT
Bonds 93.6%
Automotive 0.4%
$ 700,000 Aetna Industrial, Inc., senior notes, 11.875%, 10/01/06 .............. 763,000
1,000,000 Collins & Aikman Corp., senior sub. notes, 11.50%, 04/15/06 .......... 1,137,500
------------
1,900,500
------------
Broadcasting 3.9%
2,500,000 Benedek Broadcasting Corp., senior notes, 11.875%, 03/01/05 .......... 2,775,000
6,500,000 Granite Broadcasting Corp., senior sub. notes, 10.375%, 05/15/05 ..... 6,646,250
1,000,000 Jacor Communications, Inc., guaranteed senior sub. notes, 9.75%, 12/15/06 1,050,000
2,000,000 SCI Television, Inc., S.F., senior notes, 11.00%, 06/30/05 ........... 2,140,000
2,000,000 SFX Broadcasting, Inc., senior sub. notes, Series B, 10.75%, 05/15/06 2,155,000
2,500,000 Sinclair Broadcast Group, Inc., senior sub. notes, 10.00%, 09/30/05 .. 2,587,500
------------
17,353,750
------------
Cable Television 10.5%
4,000,000 Cablevision Industries Corp., senior sub. deb., 9.25%, 04/01/08 ...... 4,315,956
3,000,000 Cablevision Systems Corp., senior sub. deb., 10.50%, 05/15/16 ........ 3,315,000
4,500,000 Cablevision Systems Corp., senior sub. deb., 9.875%, 04/01/23 ........ 4,741,875
1,500,000 Cablevision Systems Corp., senior sub. notes, 9.25%, 11/01/05 ........ 1,545,000
3,000,000 Century Communications Corp., senior sub. notes, 9.50%, 03/01/05 ..... 3,090,000
2,000,000 Comcast Corp., senior sub. deb., 9.125%, 10/15/06 .................... 2,097,500
2,000,000 Comcast Corp., senior sub. deb., 9.50%, 01/15/08 ..................... 2,110,000
1,500,000 Continental Cablevision, Inc., senior deb., 9.50%, 08/01/13 .......... 1,708,123
1,000,000 Continental Cablevision, Inc., senior sub. deb., 11.00%, 06/01/07 .... 1,125,714
2,700,000 Diamond Cable Communications Co., Plc., senior disc. notes,
zero coupon to 12/15/00, (original accretion rate 11.75%), 11.75%
thereafter, 12/15/05 ................................................ 1,836,000
1,500,000 b Diamond Cable Communications Co., Plc., senior disc. notes,
zero coupon to 02/15/02, (original accretion rate 10.75%), 10.75%
thereafter, 02/15/07 ................................................ 855,000
2,200,000 Le Groupe Videotron Ltee, senior notes, 10.625%, 02/15/05 ............ 2,442,000
5,700,000 c Rogers Cablesystems, Inc., senior secured deb. (Canada), 9.65%, 01/15/14 4,189,507
1,500,000 Rogers Communications, Inc., senior deb., 10.875%, 04/15/04 .......... 1,578,750
8,000,000 TeleWest Communications, Plc., senior deb., zero coupon to 10/01/00,
(original accretion rate 11.00%), 11.00% thereafter,
10/01/07 ............................................................ 5,800,000
1,500,000 Time Warner, Inc., deb., 9.125%, 01/15/13 ............................ 1,657,500
3,000,000 Turner Broadcasting Systems, Inc., senior deb., 8.40%, 02/01/24 ...... 2,987,994
5,000,000 Wireless One, Inc., units, senior disc. notes, zero coupon to 08/01/01,
(original accretion rate 13.50%), 13.50% thereafter, 08/01/06 ....... 1,350,000
------------
46,745,919
------------
Chemicals 3.3%
$ 3,750,000 Applied Extrusion Technologies, Inc., senior notes,
Series B, 11.50%, 04/01/02........................................... $ 3,956,250
2,500,000 Harris Chemical of North America, senior sub. notes, 10.75%, 10/15/03 2,562,500
3,600,000 IMC Global, Inc., senior deb., 9.45%, 12/15/11 ....................... 4,247,816
4,000,000 Uniroyal Chemical Co. Investors, disc. notes, zero coupon to 05/01/98,
(original accretion rate 12.00%), 12.00% thereafter,
05/01/05 ............................................................ 3,680,000
------------
14,446,566
------------
Consumer Products 3.0%
3,000,000 E & S Holdings Corp., senior sub. notes, Series B, 10.375%, 10/01/06 . 3,120,000
300,000 Playtex Family Products Corp., senior sub. notes, 9.00%, 12/15/03 .... 304,500
10,000,000 b Revlon Worldwide Corp., senior disc. notes, zero coupon to 03/15/00,
(original accretion rate 10.75%), 10.75% thereafter, 03/15/01 ....... 6,787,500
3,000,000 RJR Nabisco, Inc., notes, 9.25%, 08/15/13 ............................ 3,123,750
------------
13,335,750
------------
Containers & Packaging 4.1%
3,500,000 Container Corp., senior notes, Series A, 11.25%, 05/01/04 ............ 3,850,000
6,000,000 Owens-Illinois, Inc., senior notes, 8.10%, 05/15/07 .................. 6,105,000
1,000,000 Owens-Illinois, Inc., senior sub. notes, 10.00%, 08/01/02 ............ 1,050,000
1,000,000 Owens-Illinois, Inc., senior sub. notes, 9.75%, 08/15/04 ............. 1,050,000
1,000,000 Plastic Containers, Inc., senior notes, 10.00%, 12/15/06 ............. 1,040,000
5,000,000 Radnor Holdings Corp., senior notes, 10.00%, 12/01/03 ................ 5,075,000
------------
18,170,000
------------
Energy 2.0%
1,000,000 Dawson Production Services, Inc., senior notes, 9.375%, 02/01/07 ..... 1,020,000
5,000,000 Empire Gas Corp., units, senior secured notes, 7.00% to 07/15/99,
12.875% thereafter, 07/15/04 ........................................ 4,512,500
800,000 Forcenergy, Inc., senior sub. notes, 9.50%, 11/01/06 ................. 836,000
1,800,000 Mesa Operating Co., company guaranteed, senior sub. notes,
zero coupon to 07/01/01, (original accretion rate 11.625%), 11.625%
thereafter, 07/01/06 ................................................ 1,395,000
1,000,000 b Pogo Producing Co., sub. notes, 8.75%, 05/15/07 ...................... 997,000
------------
8,760,500
------------
Food & Beverage 4.8%
3,000,000 Coca Cola Bottling Group Southwest, Inc.,
senior sub. notes, 9.00%, 11/15/03................................... 3,119,999
700,000 Curtice-Burns Food, Inc., senior sub. notes, 12.25%, 02/01/05 ........ 778,750
3,000,000 Doane Products Co., senior notes, 10.625%, 03/01/06 .................. 3,180,000
250,000 Dr. Pepper Bottling Co. of Texas, senior notes, 10.25%, 02/15/00 ..... 259,063
1,600,000 International Home Foods, Inc., company guaranteed,
senior sub. notes, 10.375%, 11/01/06 ................................ 1,656,000
4,700,000 PMI Acquisition Corp., senior sub. notes, 10.25%, 09/01/03 ........... 4,970,250
4,000,000 RC/Arby's Corp., senior notes, 9.75%, 08/01/00 ....................... 4,080,000
3,000,000 Texas Bottling Group, Inc., senior sub. notes, 9.00%, 11/15/03 ....... 3,120,000
------------
21,164,062
------------
Food Retailing 4.6%
1,700,000 Dominick's Finer Foods, senior sub. notes, 10.875%, 05/01/05 ......... 1,889,125
3,691,000 Grand Union Co., senior notes, 12.00%, 09/01/04 ...................... 2,749,795
4,000,000 Pathmark Stores, Inc., senior sub. notes, 9.625%, 05/01/03 ........... 3,880,000
1,000,000 Pathmark Stores, Inc., S.F., sub. notes, 11.625%, 06/15/02 ........... 1,015,000
3,000,000 Penn Traffic Co., senior notes, 8.625%, 12/15/03 ..................... 2,452,500
3,750,000 Ralphs Grocery Co., senior notes, 10.45%, 06/15/04 ................... 4,045,313
1,500,000 b Shoppers Food Warehouse Corp., senior notes, 9.75%, 06/15/04 ......... 1,500,000
2,500,000 Smith's Food & Drug Centers, Inc., senior sub. notes, 11.25%, 05/15/07 2,946,875
------------
20,478,608
------------
Forest & Paper Products 4.2%
7,700,000 Four M Corp., senior notes, Series B, 12.00%, 06/01/06 ............... 7,969,500
3,000,000 Rapp International Finance Co., secured notes, 13.25%, 12/15/05 ...... 3,210,000
2,000,000 Repap New Brunswick, senior notes, second priority, 10.625%, 04/15/05 1,900,000
$ 3,000,000 Repap Wisconsin, Inc., senior secured notes, 9.25%, 02/01/02 ......... $ 3,037,500
2,300,000 S.D. Warren Co., senior sub. notes, Series B, 12.00%, 12/15/04 ....... 2,570,250
------------
18,687,250
------------
Gaming & Leisure 6.3%
3,000,000 Aztar Corp., senior sub. notes, 13.75%, 10/01/04 ..................... 3,435,000
1,000,000 Eldorado Resorts, L.L.C., senior sub. notes, 10.50%, 08/15/06 ........ 1,072,500
5,900,000 Players International, Inc., senior notes, 10.875%, 04/15/05 ......... 6,121,250
3,000,000 Rio Hotel & Casino, Inc., senior sub. notes, 10.625%, 07/15/05 ....... 3,232,500
7,500,000 Showboat, Inc., senior sub. notes, 13.00%, 08/01/09 .................. 8,990,625
5,000,000 Six Flags Theme Parks, senior sub. notes, zero coupon to 06/15/98,
(original accretion rate 12.25%), 12.25% thereafter, 06/15/05 ....... 5,125,000
------------
27,976,875
------------
Health Care Services 7.3%
7,770,000 Abbey Healthcare Group, Inc., senior sub. notes, 9.50%, 11/01/02 ..... 8,090,513
5,500,000 Mariner Health Group, Inc., senior sub. notes, 9.50%, 04/01/06 ....... 5,589,375
2,000,000 Maxxim Medical, Inc., guaranteed senior sub. notes, 10.50%, 08/01/06 . 2,115,000
1,000,000 Regency Health Services, Inc., senior sub. notes, 9.875%, 10/15/02 ... 1,025,000
5,500,000 Sola Group, Ltd., senior sub. notes, 6.00% to 12/15/98,
9.625% thereafter, 12/15/03 ......................................... 5,335,000
850,000 Tenet Healthcare Corp., senior notes, 9.625%, 09/01/02 ............... 918,000
2,400,000 Tenet Healthcare Corp., senior notes, 8.625%, 12/01/03 ............... 2,496,000
3,400,000 Tenet Healthcare Corp., senior sub. notes, 10.125%, 03/01/05 ......... 3,740,000
3,250,000 Tenet Healthcare Corp., senior sub. notes, 8.625%, 01/15/07 .......... 3,298,750
------------
32,607,638
------------
Industrial Products 9.0%
11,500,000 b Allied Waste Industries, Inc., senior disc. notes, zero coupon to 06/01/02,
(original accretion rate 11.30%), 11.30% thereafter, 06/01/07 ...... 7,187,500
2,500,000 b Allied Waste Industries, Inc., senior sub. notes, 10.25%, 12/01/06 ... 2,675,000
8,500,000 American Standard Cos., Inc., senior sub. deb., zero coupon to 06/01/98,
(original accretion rate 10.50%), 10.50% thereafter, 06/01/05 ...... 8,404,375
1,000,000 Day International Group, senior sub. notes, 11.125%, 06/01/05 ........ 1,065,000
6,500,000 EASCO Corp., senior notes, Series B, 10.00%, 03/15/01 ................ 6,695,000
3,200,000 Goss Graphic Systems, Inc., senior sub. notes, 12.00%, 10/15/06 ...... 3,536,000
1,200,000 Intertek Finance, Plc., senior sub. notes, 10.25%, 11/01/06 .......... 1,245,000
3,500,000 b L-3 Communications Corp., senior sub. notes, 10.375%, 05/01/07 ....... 3,701,250
5,500,000 Nortek, Inc., senior sub. notes, 9.875%, 03/01/04 .................... 5,623,750
------------
40,132,875
------------
Lodging 1.8%
1,000,000 John Q. Hammons Hotels, L.P., first mortgage, 8.875%, 02/15/04 ....... 1,015,000
1,500,000 John Q. Hammons Hotels, L.P., first mortgage, 9.75%, 10/01/05 ........ 1,571,250
3,000,000 Prime Hospitality Corp., senior sub. notes, Series B, 9.75%, 04/01/07 3,135,000
2,310,000 Red Roof Inns, Inc., senior notes, 9.625%, 12/15/03 .................. 2,361,975
------------
8,083,225
------------
Media 3.8%
1,700,000 American Media Operation, senior sub. notes, 11.625%, 11/15/04 ....... 1,861,500
4,500,000 Hollinger Publishing, guaranteed senior sub. notes, 9.25%, 03/15/07 .. 4,590,000
2,500,000 K-III Communications Corp., senior notes, 10.25%, 06/01/04 ........... 2,700,000
5,000,000 c News America Holdings, Inc., deb. (Australia), 8.625%, 02/07/14 ...... 3,459,061
4,250,000 Outdoor Systems, Inc., senior sub. notes, 8.875%, 06/15/07 ........... 4,149,063
------------
16,759,624
------------
Metals & Mining 3.6%
4,000,000 AK Steel Holding Corp., senior notes, 9.125%, 12/15/06 ............... 4,130,000
4,000,000 Algoma Steel, Inc., first mortgage, 12.375%, 07/15/05 ................ 4,450,000
5,000,000 Gulf States Steel, first mortgage, 13.50%, 04/15/03 .................. 5,000,000
$ 1,000,000 b Neenah Corp., senior sub. notes, 11.125%, 05/01/07 ................... $ 1,057,500
1,110,000 UCAR Global Enterprises, senior sub. notes, Series B, 12.00%, 01/15/05 1,259,850
------------
15,897,350
------------
Technology & Information Systems 2.9%
1,000,000 Amphenol Corp., senior sub. notes, 9.875%, 05/15/07 .................. 1,030,000
1,400,000 Bell & Howell Co., senior disc. deb., Series B, zero coupon to 03/01/00,
(original accretion rate 11.50%), 11.50% thereafter, 03/01/05 ...... 1,134,000
2,450,000 Bell & Howell Operating Co., senior notes, 9.25%, 07/15/00 ........... 2,535,750
800,000 Bell & Howell Operating Co., senior sub. notes,
Series B, 10.75%, 10/01/02 .......................................... 844,000
4,000,000 b Borg-Warner Security Corp., senior sub. notes, 9.625%, 03/15/07 ...... 4,020,000
1,150,000 Celestica International, Inc., senior sub. notes, 10.50%, 12/31/06 ... 1,239,125
2,000,000 Exide Electronics Group, Inc., senior sub. notes, 11.50%, 03/15/06 ... 2,130,000
------------
12,932,875
------------
Telecommunications 1.6%
2,000,000 Intelcom Group, Inc., senior disc. notes, zero coupon to 05/01/01,
(original accretion rate 12.50%), 12.50% thereafter, 05/01/06 ....... 1,345,000
1,500,000 Orion Network Systems, Inc., units,
senior disc. notes, zero coupon to 01/15/02,
(original accretion rate 12.50%), 12.50% thereafter, 01/15/07 ...... 862,500
6,500,000 Teleport Communications Group, Inc., senior disc. notes, zero
coupon to 07/01/01, (original accretion rate 11.125%), 11.125%
thereafter, 07/01/07 ................................................ 4,704,375
------------
6,911,875
------------
Textiles & Apparel 1.3%
5,500,000 Clark-Schwebel, Inc., senior notes, Series B, 10.50%, 04/15/06 ....... 5,940,000
------------
Transportation 1.5%
1,600,000 Eletson Holdings, Inc., first mortgage notes, 9.25%, 11/15/03 ........ 1,628,000
4,500,000 Gearbulk Holding, Ltd., senior notes, 11.25%, 12/01/04 ............... 4,995,000
------------
6,623,000
------------
Utilities 1.9%
3,000,000 CMS Energy Corp., senior notes, Series B, 9.875%, 10/01/99 ........... 3,097,500
2,500,000 El Paso Electric Co., first mortgage, 8.90%, 02/01/06 ................ 2,675,000
2,576,240 Midland Funding Corp. I, deb., Series C-94, 10.33%, 07/23/02 ......... 2,831,133
2,000 System Energy Resource, S.F., first mortgage, 11.375%, 09/01/16 ...... 2,141
------------
8,605,774
------------
Wireless Communication 11.8%
6,000,000 Arch Communications Group, Inc., senior disc. notes,
zero coupon to 03/15/01, (original accretion rate 10.875%),
10.875% thereafter, 03/15/08 ....................................... 3,150,000
3,000,000 b Comcast Cellular, senior notes, 9.50%, 05/01/07 ...................... 3,022,500
6,500,000 Dial Call Communications, units, senior disc. notes,
zero coupon to 04/15/99, (original accretion rate 12.25%),
12.25% thereafter, 04/15/04 ......................................... 5,313,750
7,800,000 International Wireless Communications, Inc., senior disc.
notes, zero coupon to 08/15/01 ...................................... 4,095,000
7,000,000 b McCaw International, Ltd., units, senior disc. notes, 13.00%, 04/15/07 3,325,000
9,300,000 Millicom International Cellular, SA, senior disc. notes, 13.50%, 06/01/06 6,696,000
4,700,000 Paging Network, Inc., senior sub. notes, 10.125%, 08/01/07 ........... 4,582,500
4,500,000 Paging Network, Inc., senior sub. notes, 10.00%, 10/15/08 ............ 4,297,500
3,000,000 Rogers Cantel Mobile Communications, Inc., deb., 9.75%, 06/01/16 ..... 3,195,000
10,000,000 Sprint Spectrum, L.P., senior disc. notes, zero coupon to 08/15/01,
(original accretion rate 12.50%), 12.50% thereafter, 08/15/06 ....... 7,275,000
7,500,000 Sygnet Wireless, Inc., senior notes, 11.50%, 10/01/06 ................ 7,537,500
------------
52,489,750
------------
Total Bonds (Cost $400,403,040) ................................ 416,003,766
------------
Total Long Term Investments (Cost $418,595,838) ................ 436,028,933
------------
f,gReceivables from Repurchase Agreements 2.0%
$ 8,972,603 Joint Repurchase Agreement, 5.884%, 07/01/97,
(Maturity Value $8,975,968) (Cost $8,974,501)
Aubrey G. Lanston & Co., Inc., (Maturity Value $889,658)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $889,658)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $524,217)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $889,658)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $889,658)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $444,829)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $889,658)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co., L.P., (Maturity Value $889,658)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $889,658)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $889,658)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $889,658)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 . $ 8,974,501
------------
Total Investments (Cost $427,570,339) 100.1% .............. 445,003,434
Liabilities in Excess of Other Assets (0.1%)............... (657,141)
------------
Net Assets 100.0%.......................................... $444,346,293
============
At June 30, 1997, the net unrealized appreciation based on the cost
of investments for income tax purposes of $427,570,339 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost .......................... $ 23,465,562
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value .................... (6,032,467)
------------
Net unrealized appreciation ........................................ $ 17,433,095
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
PIK - Payment-in-Kind
S.F. - Sinking Fund
bPurchased in a private placement transaction; resale may only be to qualified
institutional buyers.
cFace amount is stated in foreign currency and value is stated in U.S. dollars.
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES Income Securities Fund (NOTE1)
Common Stocks 31.3%
<S> <C> <C>
Apparel & Textiles 0.2%
419,424 a,jBibb Co. ............................................................... $ 2,935,968
------------
Building Materials 0.1%
47,500 Hanson, Plc., Sponsored ADR ............................................ 1,187,500
------------
Computer & Technology 0.2%
190,223 a Anacomp, Inc. .......................................................... 2,282,676
------------
Consumer Products 2.2%
95,000 Imperial Tobacco Group, Plc., ADR ...................................... 1,222,916
600,000 Philip Morris Cos., Inc. ............................................... 26,625,000
60,000 RJR Nabisco Holdings Corp. ............................................. 1,980,000
93,750 a,bSpecialty Foods Corp. .................................................. 23,437
------------
29,851,353
------------
Energy 2.4%
576,500 d Athabasca Oil Sands Trust (Canada) ..................................... 9,601,723
60,000 Atlantic Richfield Co. ................................................. 4,230,000
50,000 BP Prudhoe Bay Royalty Trust ........................................... 831,250
500,000 b,dCanadian Oil Sands Trust - Units (Canada) .............................. 8,725,877
65,000 a Noble Drilling Corp. ................................................... 1,466,563
279,642 a Santa Fe Energy Resources, Inc. ........................................ 4,107,242
125,000 Ultramar Diamond Shamrock Corp. ........................................ 4,078,125
------------
33,040,780
------------
Metals 1.2%
55,009 a Avgold, Ltd., ADR ...................................................... 539,539
185,200 Driefontein Consolidated, Ltd., Sponsored ADR .......................... 1,250,100
60,000 Evander Gold Mines, Ltd., ADR .......................................... 254,574
390,000 Free State Consolidated Gold Mines, Ltd., ADR .......................... 1,950,000
91,874 Freeport-McMoRan Copper & Gold, Inc., Class A .......................... 2,687,315
216,500 Impala Platinum Holdings, Ltd., ADR .................................... 2,421,726
223,161 Rustenburg Platinum Holdings, Ltd., ADR ................................ 4,082,507
19,000 St. Helena Gold Mines, Ltd., ADR ....................................... 80,750
256,000 Vaal Reefs Exploration & Mining Co., Ltd., ADR ......................... 1,232,000
102,500 Western Deep Levels, Ltd., ADR ......................................... 2,447,188
------------
16,945,699
------------
Real Estate Investment Trust 2.1%
150,000 Equity Residential Properties Trust .................................... 7,125,000
275,000 FelCor Suite Hotels, Inc. .............................................. 10,243,750
150,000 Gables Residential Trust ............................................... 3,787,500
100,000 Meditrust Corp. ........................................................ 3,987,500
102,900 Simon DeBartolo Group, Inc. ............................................ 3,292,800
------------
28,436,550
------------
Telecommunications 1.0%
360,000 U S WEST Communications Group .......................................... 13,567,500
------------
Utilities 21.8%
390,000 American Electric Power Co. ............................................ 16,380,000
670,000 Central & South West Corp. ............................................. 14,237,500
511,000 CINergy Corp. .......................................................... 17,789,187
500,000 Delmarva Power & Light Co. ............................................. 9,531,250
375,000 Dominion Resources, Inc. ............................................... 13,734,375
610,000 Edison International ................................................... 15,173,750
47,500 Energy Group, Plc., Sponsored ADR ...................................... 2,012,813
525,000 Enova Corp. ............................................................ 12,632,812
550,000 Entergy Corp. .......................................................... 15,056,250
410,000 Florida Progress Corp. ................................................. 12,838,125
240,000 FPL Group, Inc. ........................................................ 11,055,000
320,000 GPU, Inc. .............................................................. $ 11,480,000
142,000 Hawaiian Electric Industries, Inc. ..................................... 5,484,750
315,000 Houston Industries, Inc. ............................................... 6,752,812
400,000 Long Island Lighting Co. ............................................... 9,200,000
265,100 MidAmerican Energy Holdings Co. ........................................ 4,589,544
175,000 Nevada Power Co. ....................................................... 3,718,750
330,000 New England Electric System ............................................ 12,210,000
300,000 New York State Electric & Gas Corp. .................................... 6,262,500
385,000 Ohio Edison Co. ........................................................ 8,397,812
120,000 PacifiCorp ............................................................. 2,640,000
400,000 PECO Energy Co. ........................................................ 8,400,000
610,000 PG&E Corp. ............................................................. 14,792,500
233,100 Potomac Electric Power Co. ............................................. 5,390,438
395,000 Public Service Enterprise Group, Inc. .................................. 9,875,000
135,000 SCANA Corp. ............................................................ 3,349,688
460,000 Southern Co. ........................................................... 10,062,500
400,000 Southwestern Public Service Co. ........................................ 15,725,000
370,000 Texas Utilities Co. .................................................... 12,741,875
190,000 Western Resources, Inc. ................................................ 6,163,125
------------
297,677,356
------------
Miscellaneous 0.1%
14,000 a Echelon International Corp., Inc. ...................................... 319,375
27,142 Millennium Chemicals, Inc. ............................................. 617,481
------------
936,856
------------
Total Common Stocks (Cost $389,107,386) .......................... 426,862,238
------------
Preferred Stocks 0.7%
Automotive
16,726 a Harvard Industries, Inc., 14.25% pfd., PIK.............................. 13,068
------------
Cable Systems 0.2%
2,713 Time Warner, Inc., 10.25% pfd., Series M................................ 3,013,896
------------
Consumer Products 0.1%
11,000 Pantry Pride, Inc., $14.875 pfd., Series B.............................. 1,104,813
------------
Paper & Forest Products 0.4%
5,000,000 b Asia Pulp & Paper Co., Ltd., 12.00% pfd., Class A....................... 5,137,500
------------
Total Preferred Stocks (Cost $9,317,800) ......................... 9,269,277
------------
Convertible Preferred Stocks 9.3%
Apparel & Textile 0.2%
50,000 Fieldcrest Cannon, Inc., $3.00 cvt. pfd., Series A...................... 2,300,000
------------
Cable Systems 0.5%
265,000 Cablevision Systems Corp., 8.50%, cvt. pfd., Series I................... 7,188,125
------------
Energy 3.4%
65,000 Devon Financing Trust, $3.25 cvt. pfd................................... 4,594,687
315,000 Enron Corp., 6.25%, cvt. pfd............................................ 6,024,375
235,000 b McDermott International, Inc., $2.875 cvt. pfd., Series C............... 11,632,500
100,000 Nuevo Energy Co., 5.75%, cvt. pfd., Series A............................ 4,825,000
75,000 b Occidental Petroleum Corp., $3.875, cvt. pfd............................ 4,387,500
170,000 b Parker & Parsley Capital, 6.25% cvt. pfd................................ 10,943,750
39,525 Patina Oil & Gas Corp., 7.125% cvt. pfd................................. 1,106,700
100,000 Snyder Oil Corp., $1.50 cvt. exch. pfd.................................. 2,525,000
------------
46,039,512
------------
Lodging 0.4%
100,000 b Host Marriott Financial Trust, 6.75%, cvt. pfd.......................... $ 5,800,000
------------
Metals 2.2%
150,000 Amax Gold, Inc., $3.75 cvt. pfd., Series B.............................. 7,987,500
65,000 Armco, Inc., $3.625 cum. cvt. pfd., Series A............................ 2,770,625
65,000 Battle Mountain Gold Co., $3.25 cvt. pfd................................ 3,107,813
135,000 Coeur D' Alene Mines Corp., 7.00% cvt. pfd.............................. 2,261,250
55,000 Cyprus Minerals, $4.00 cvt. pfd., Series A.............................. 3,031,875
108,800 Freeport-McMoRan Copper & Gold, Inc., $1.25 cum. cvt. pfd............... 3,359,200
60,000 b Freeport-McMoRan, Inc., $4.375 cvt. exch. pfd........................... 3,300,000
70,000 Hecla Mining Co., $3.50 cvt. pfd., Series B............................. 3,268,125
25,000 b Titanium Metals, 6.625% cvt. pfd........................................ 1,318,750
------------
30,405,138
------------
Real Estate Investment Trust 1.4%
135,000 Security Capital Industrial Trust, 7.00%, cvt. pfd...................... 3,763,125
400,000 Security Capital Pacific Trust, $1.75, cvt. pfd., Series A.............. 12,200,000
60,000 Vornado Realty Trust, 6.50%, cvt. pfd., Series A........................ 3,180,000
------------
19,143,125
------------
Telecommunications 0.6%
150,000 d Nortel Inversora, SA, 10.00%, cvt. pfd. (Argentina)..................... 7,368,750
------------
Utility 0.6%
160,000 j CMS Energy Corp., 7.75%, quarterly cvt. pfd............................. 8,294,400
------------
Total Convertible Preferred Stocks (Cost $118,898,990) ........... 126,539,050
------------
Miscellaneous
30,814 a Miscellaneous Securities (Cost $10,477)................................. 15,407
------------
Total Common Stocks, Preferred Stocks, Convertible Preferred Stocks,
and Miscellaneous Securities (Cost $517,334,653)...................... 562,685,972
------------
FACE
AMOUNT
Corporate Bonds 26.8%
Apparels & Textiles 1.9%
10,000,000 Consoltex Group, Inc., senior sub. notes, Series B, 11.00%, 10/01/03 ... 10,350,000
8,300,000 Hartmarx Corp., senior sub. notes, 10.875%, 01/15/02 ................... 8,632,000
1,000,000 Polysindo International Finance Corp., secured notes, 11.375%, 06/15/06 1,102,500
500,000 The William Carter Co., senior sub. notes, 10.375%, 12/01/06 ........... 523,750
5,000,000 WestPoint Stevens, Inc., senior sub. deb., 9.375%, 12/15/05 ............ 5,225,000
------------
25,833,250
------------
Automotive 0.5%
4,000,000 Collins & Aikman Corp., senior sub. notes, 11.50%, 04/15/06 ............ 4,550,000
400,000 Exide Corp., senior notes, 10.75%, 12/15/02 ............................ 423,000
5,000,000 i Harvard Industries, Inc., senior notes, 11.125%, 08/01/05 .............. 2,025,000
------------
6,998,000
------------
Building Products 0.7%
9,250,000 Inter-City Products Corp., senior notes, 9.75%, 03/01/00 ............... 9,527,500
------------
Cable Systems 1.5%
4,000,000 Cablevision Systems Corp., senior sub. deb., 9.875%, 04/01/23 .......... 4,215,000
8,000,000 Continental Cablevision, Inc., senior deb., 9.50%, 08/01/13 ............ 9,109,991
7,300,000 Helicon Group, L.P. Corp., S.F., senior secured notes,
Series B, 11.00%, 11/01/03............................................. 7,628,500
------------
20,953,491
------------
Chemicals 1.0%
$8,000,000 Applied Extrusion Technologies, Inc., senior notes,
Series B, 11.50%, 04/01/02 ............................................$ 8,440,000
725,000 Uniroyal Chemical Co. Investors, senior notes, 10.50%, 05/01/02 ........ 788,438
4,150,000 Uniroyal Chemical Co. Investors, senior sub. notes, 11.00%, 05/01/03 ... 4,523,500
------------
13,751,938
------------
Computer & Technology 0.4%
6,000,000 b Anacomp, Inc., senior sub. notes, 10.875%, 04/01/04 .................... 6,120,000
------------
Consumer Products 2.6%
500,000 E&S Holdings Corp., senior sub. notes, Series B, 10.375%, 10/01/06 ..... 520,000
7,750,000 Hines Horticulture, senior sub. notes, 11.75%, 10/15/05 ................ 8,253,750
1,300,000 L.F.C. Holding Corp., senior deb., 15.00%, 06/15/02 .................... 780,000
5,050,000 Mafco, Inc., senior sub. notes, 11.875%, 11/15/02 ...................... 5,454,000
8,000,000 Playtex Family Products Corp., senior sub. notes, 9.00%, 12/15/03 ...... 8,120,000
5,000,000 Revlon Consumer Product Corp., senior sub. notes,
Series B, 10.50%, 02/15/03 ............................................ 5,337,500
5,000,000 RJR Nabisco, Inc., notes, 9.25%, 08/15/13 .............................. 5,206,250
1,150,000 Sealy Corp., senior sub. notes, 9.50%, 05/01/03 ........................ 1,207,500
------------
34,879,000
------------
Containers & Packaging 0.5%
2,450,000 Calmar, Inc., senior sub. notes, Series B, 11.50%, 08/15/05 ............ 2,609,250
2,000,000 Packaging Resources, Inc., senior notes, 11.625%, 05/01/03 ............. 2,070,000
1,000,000 Printpack, Inc., senior sub. notes, 10.625%, 08/15/06 .................. 1,070,000
300,000 U.S. Can Corp., senior sub. notes, 10.125%, 10/15/06 ................... 321,750
------------
6,071,000
------------
Energy 1.4%
1,000,000 Bellwether Exploration Co., senior sub. notes, 10.875%, 04/01/07 ....... 1,067,500
3,250,000 Energy Ventures, senior notes, 10.25%, 03/15/04 ........................ 3,510,000
9,835,000 Gerrity Oil & Gas Corp., senior sub. notes, 11.75%, 07/15/04 ........... 10,769,325
1,000,000 Global Marine, Inc., senior secured notes, 12.75%, 12/15/99 ............ 1,051,250
1,000,000 Mesa Operating Co., company guaranteed,
senior sub. notes, 10.625%, 07/01/06 .................................. 1,142,500
1,000,000 Plains Resources, Inc., senior sub. notes, 10.25%, 03/15/06 ............ 1,085,000
------------
18,625,575
------------
Entertainment 0.1%
650,000 AMF Group, Inc., Series B, 10.875%, 03/15/06 ........................... 705,250
------------
Financial Services
500,000 First Nationwide Escrow, senior sub. notes, 10.625%, 10/01/03 .......... 555,000
------------
Food & Beverages 2.4%
5,000,000 Curtice-Burns Food, Inc., senior sub. notes, 12.25%, 02/01/05 .......... 5,562,500
4,000,000 b Del Monte Corp., senior sub. notes, 12.25%, 04/15/07 ................... 4,280,000
3,000,000 Doane Products Co., senior notes, 10.625%, 03/01/06 .................... 3,180,000
1,010,000 Dr. Pepper Bottling Co. of Texas, senior notes, 10.25%, 02/15/00 ....... 1,046,613
4,100,000 International Home Foods, Inc., company guaranteed,
senior sub. notes, 10.375%, 11/01/06 .................................. 4,243,500
6,350,000 PMI Acquisition Corp., senior sub. notes, 10.25%, 09/01/03 ............. 6,715,125
4,000,000 Specialty Foods Corp., senior sub. notes, Series B, 11.25%, 08/15/03 ... 3,440,000
4,000,000 Specialty Foods Corp., senior unsecured notes, Series B, 10.25%, 08/15/01 3,900,000
------------
32,367,738
------------
Food Chains 2.8%
1,000,000 Americold Corp., senior sub. notes, 12.875%, 05/01/08 .................. 1,052,500
9,000,000 Americold Corp., senior sub. notes, Series B, 11.50%, 03/01/05 ......... 9,675,000
6,000,000 Bruno's, Inc., senior sub. notes, 10.50%, 08/01/05 ..................... 6,075,000
7,000,000 Grand Union Co., senior notes, 12.00%, 09/01/04 ........................ 5,215,000
10,000,000 Ralphs Grocery Co., senior sub. notes, 11.00%, 06/15/05 ................ 10,900,000
4,000,000 Smith's Food & Drug Centers, Inc., senior sub. notes, 11.25%, 05/15/07 . 4,715,000
------------
37,632,500
------------
Gaming & Leisure 1.5%
$9,000,000 Aztar Corp., senior sub. notes, 11.00%, 10/01/02 ....................... $ 9,337,500
500,000 Eldorado Resorts, L.L.C., senior sub. notes, 10.50%, 08/15/06 .......... 536,250
2,200,000 Harveys Casinos Resorts, senior sub. notes, 10.625%, 06/01/06 .......... 2,343,000
8,000,000 Rio Hotel & Casino, Inc., senior sub. notes, 10.625%, 07/15/05 ......... 8,620,000
------------
20,836,750
------------
Health Care Services 0.5%
3,000,000 Dade International, Inc., senior sub. notes, 11.125%, 05/01/06 ......... 3,330,000
4,000,000 Sola Group, Ltd., senior sub. notes, 6.00%
to 12/15/98, 9.625% thereafter, 12/15/03 .............................. 3,880,000
------------
7,210,000
------------
Industrial Products 2.0%
8,650,000 EASCO Corp., senior notes, Series B, 10.00%, 03/15/01 .................. 8,909,500
2,000,000 Nortek, Inc., senior sub. notes, 9.875%, 03/01/04 ...................... 2,045,000
10,000,000 RBX Corp., senior sub. notes, 11.25%, 10/15/05 ......................... 8,550,000
5,030,000 RHI Holdings, Inc., senior sub. deb., 11.875%, 03/01/99 ................ 5,030,000
2,696,000 Thermadyne Holdings Corp., notes, 10.75%, 11/01/03 ..................... 2,776,880
246,000 Thermadyne Holdings Corp., senior notes, 10.25%, 05/01/02 .............. 248,460
------------
27,559,840
------------
Media & Broadcasting 0.2%
2,000,000 Benedek Broadcasting Corp., senior notes, 11.875%, 03/01/05 ............ 2,220,000
------------
Metals 1.1%
1,000,000 Armco Steel, Inc., senior notes, 11.375%, 10/15/99 ..................... 1,035,000
7,000,000 Jorgensen, Earle M. Co., senior notes, 10.75%, 03/01/00 ................ 7,000,000
6,000,000 Republic Engineered Steel, Inc., first mortgage, 9.875%, 12/15/01 ...... 5,595,000
815,000 UCAR Global Enterprises, senior sub. notes, Series B, 12.00%, 01/15/05 . 925,025
------------
14,555,025
------------
Paper & Forest Products 1.0%
2,000,000 Four M Corp., senior notes, Series B, 12.00%, 06/01/06 ................. 2,070,000
7,000,000 Rapp International Finance Co., secured notes, 13.25%, 12/15/05 ........ 7,490,000
5,000,000 Riverwood International, senior sub. notes, 10.875%, 04/01/08 .......... 4,537,500
------------
14,097,500
------------
Publishing 0.1%
1,600,000 Bell & Howell Operating Co., senior sub. notes, Series B, 10.75%, 10/01/02 1,688,000
------------
Restaurants 0.3%
10,000,000 i Flagstar Corp., S.F., senior sub. deb., 11.25%, 11/01/04 ............... 4,150,000
------------
Retail 0.7%
10,000,000 Levitz Furniture Corp., senior notes, 13.375%, 10/15/98 ................ 10,000,000
------------
Telecommunications 0.6%
5,000,000 CommNet Cellular, Inc., sub. notes, 11.25%, 07/01/05 ................... 5,787,500
3,000,000 Paging Network, Inc., senior sub. notes, 10.125%, 08/01/07 ............. 2,925,000
------------
8,712,500
------------
Utilities 3.0%
195,782,500 c ESCOM, E168, utility deb., 11.00%, 06/01/08, (South Africa)............. 34,789,131
3,680,343 Midland Funding Corp. I, deb., Series C-94, 10.33%, 07/23/02 ........... 4,044,476
2,000,000 Texas-New Mexico Power Co., secured deb., 10.75%, 09/15/03 ............. 2,135,898
------------
40,969,505
------------
Total Corporate Bonds (Cost $359,447,798) ........................ 366,019,362
------------
Convertible Corporate Bonds 5.4%
Automotive 0.2%
4,000,000 b Exide Corp., cvt. senior sub. notes, 2.90%, 12/15/05 ................... 2,510,000
------------
Biotechnology 0.1%
$2,000,000 Centocor, Inc., Eurobonds, cvt. sub. deb., 6.75%, 10/16/01 ............. $ 1,960,000
------------
Computer & Technology 0.9%
11,000,000 Acclaim Entertainment, Inc., cvt. sub. notes, 10.00%, 03/01/02 ......... 10,175,000
2,815,000 Maxtor Corp., cvt. sub. deb., 5.75%, 03/01/12 .......................... 1,956,425
------------
12,131,425
------------
Electrical Equipment 0.6%
8,000,000 Trans-Lux Corp., cvt. sub. notes, 7.50%, 12/01/06 ...................... 8,760,000
------------
Energy 1.6%
9,000,000 Oryx Energy Co., cvt. sub. deb., 7.50%, 05/15/14 ....................... 8,865,000
7,500,000 Snyder Oil Corp., cvt. sub. notes, 7.00%, 05/15/01 ..................... 7,763,250
5,000,000 Swift Energy Co., cvt. sub. notes, 6.25%, 11/15/06 ..................... 5,025,000
------------
21,653,250
------------
Health Care Services 0.1%
1,000,000 b Medical Care International, Inc., cvt. sub. deb., 6.75%, 10/01/06 ...... 1,000,000
------------
Metals 1.2%
5,000,000 Ashanti Capital, Ltd., cvt. notes, 5.50%, 03/15/03 ..................... 4,087,500
100,000 Coeur D'Alene Mines Corp., cvt. senior sub. deb., 6.00%, 06/10/02 ...... 87,000
6,000,000 Coeur D'Alene Mines Corp., cvt. sub. deb., 6.375%, 01/31/04 ............ 5,520,000
1,800,000 FMC Corp., Eurobonds, cvt. senior sub. deb., 6.75%, 01/16/05 ........... 1,714,500
5,850,000 b Homestake Mining Co., cvt. sub. deb., 5.50%, 06/23/00 .................. 5,689,125
------------
17,098,125
------------
Pollution Control 0.2%
3,610,000 Air & Water Technology Corp., cvt. sub. deb., 8.00%, 05/15/15 .......... 3,014,350
------------
Real Estate Investment Trust 0.4%
5,000,000 b Macerich Co., cvt. sub. deb., 7.25%, 12/15/02 .......................... 4,987,500
------------
Retail 0.1%
1,180,000 Drug Emporium, Inc., cvt. sub. deb., 7.75%, 10/01/14 ................... 1,041,350
------------
Total Convertible Corporate Bonds (Cost $73,260,770) ............. 74,156,000
------------
Zero Coupon/Step-up Bonds 3.5%
4,000,000 AMF Group, Inc., senior disc. notes, Series B, zero coupon to 03/15/01,
(original accretion rate 12.25%), 12.25%, 03/15/06 .................... 2,850,000
10,000,000 Bell & Howell Co., senior disc. deb., Series B, zero coupon to 03/01/00,
(original accretion rate 11.50%), 11.50% thereafter, 03/01/05 ........ 8,100,000
2,600,000 Dr. Pepper Bottling Holdings, Inc., senior disc. notes,
zero coupon to 02/15/98, (original accretion rate 11.625%), 11.625%
thereafter, 02/15/03................................................... 2,574,000
10,000,000 Food 4 Less, Inc., zero coupon to 06/15/00, (original accretion rate 13.625%),
13.625% thereafter, 07/15/05 .......................................... 7,900,000
14,000,000 Marcus Cable Holding Co., senior disc. notes, zero coupon to 06/15/00,
(original accretion rate 14.25%), 14.25% thereafter, 12/15/05......... 11,060,000
1,300,000 Mesa Operating Co., company guaranteed, senior sub. notes,
zero coupon to 07/01/01, (original accretion rate 11.625%), 11.625%
thereafter, 07/01/06................................................... 1,007,500
6,000,000 b Revlon Worldwide Corp., senior disc. notes, zero coupon to 03/15/00,
(original accretion rate 10.75%), 10.75% thereafter, 03/15/01 ........ 4,072,500
8,000,000 Revlon Worldwide Corp., senior secured disc. notes, Series B,
(original accretion rate 12.00%), 0.00%, 03/15/98 ..................... 7,620,000
2,250,000 Specialty Foods Corp., senior secured disc. deb., Series B,
zero coupon to 08/13/99, (original accretion rate 13.00%), 13.00%
thereafter, 08/15/05................................................... 978,750
1,500,000 Uniroyal Chemical Co. Investors, disc. notes, zero coupon to 05/01/98,
(original accretion rate 12.00%), 12.00% thereafter, 05/01/05......... 1,380,000
------------
Total Zero Coupon/Step-up Bonds (Cost $43,955,445)................ 47,542,750
------------
Total Bonds (Cost $476,664,013)................................... 487,718,112
------------
U.S. Government Securities 8.3%
95,000,000 U.S. Treasury Bonds, 6.25% - 7.125%, 02/15/23 - 08/15/23 ............... 90,015,702
23,500,000 U.S. Treasury Notes, 6.00% - 6.375%, 11/30/97 - 08/15/02 ............... 23,523,141
------------
Total U.S. Government Securities (Cost $114,669,377).............. 113,538,843
------------
a,bForeign Government & Agency Securities 9.8%
110,000,000 Republic of Argentina, Series L, 5.25%, 03/31/23 ....................... $ 76,312,500
8,700,000 Republic of Brazil, 6.50%, 01/01/01 .................................... 8,582,550
7,920,000 Republic of Brazil, 6.6875%, 04/15/06 .................................. 7,316,100
39,000,000 Republic of Brazil, 5.25%, 04/15/24 .................................... 26,471,250
75,000,000 c Republic of South Africa, 12.00%, 02/28/05 (South Africa)............... 14,749,642
------------
Total Foreign Government & Agency Securities (Cost $107,569,690).. 133,432,042
------------
Total Long Term Investments (Cost $1,216,237,733).................1,297,374,969
------------
f,gReceivables from Repurchase Agreements 3.7%
49,803,194 Joint Repurchase Agreement, 5.884%, 07/01/97
(Maturity Value $49,826,756) (Cost $49,818,613)
Aubrey G. Lanston & Co., Inc., (Maturity Value $4,938,604)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $4,938,604)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $2,910,021)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $4,938,604)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $4,938,604)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $2,469,299)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $4,938,604)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co., L.P., (Maturity Value $4,938,604)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $4,938,604)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $4,938,604)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $4,938,604)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 ... 49,818,613
------------
Total Investments (Cost $1,266,056,346) 98.8% ...............1,347,193,582
Other Assets and Liabilities, Net 1.2% ...................... 16,892,976
------------
Net Assets 100.0% ...........................................$1,364,086,558
============
At June 30, 1997, the net unrealized appreciation based on the cost
of investments for income tax purposes of $1,266,056,346
was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ......................$ 137,462,598
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value ...................... (56,325,362)
------------
Net unrealized appreciation........................................... $ 81,137,236
============
</TABLE>
PORTFOLIOABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
PIK - Payment-In-Kind
S.F. - Sinking Fund
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to
qualified institutional buyers.
cFace amount is stated in foreign currency and value is stated in U.S. dollars.
dSecurities are traded in foreign currency and value is stated in U. S. dollars.
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
iSee Note 7 regarding defaulted securities.
jSee Note 9 regarding restricted securities.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT Money Market Fund (NOTE1)
e Short Term Investments 97.6%
<S> <C> <C>
Certificates of Deposit 12.7%
10,000,000 Bayerische Vereinsbank, New York Branch, 5.65%, 10/21/97 ............... $ 10,000,000
10,000,000 Landesbank Hessen-Thuringen Girozentrale, New York Branch, 6.09%, 09/11/97 10,009,621
15,000,000 Swiss Bank Corp., New York Branch, 5.70%, 07/23/97 - 07/24/97 .......... 15,000,000
15,000,000 Westdeutsche Landesbank, New York Branch,
5.68% - 5.72%, 08/19/97 - 09/08/97.................................... 15,000,000
------------
Total Certificates of Deposit (Cost $50,009,621).................. 50,009,621
------------
Commercial Paper 65.5%
15,000,000 American Express Credit Corp., 5.55% - 5.56%, 07/30/97 - 09/25/97 ...... 14,845,023
10,000,000 Ameritech Corp., 5.55%, 10/20/97 ....................................... 9,828,875
10,000,000 ANZ (Delaware) Inc., 5.60%, 07/08/97 ................................... 9,989,111
5,000,000 Associates Corp. of North America, 5.62%, 07/21/97 ..................... 4,984,389
10,000,000 BIL North America, Inc., 5.60%, 07/03/97 ............................... 9,996,889
10,000,000 Campbell Soup Co., 5.26%, 08/25/97 ..................................... 9,919,639
13,500,000 CIESCO, L.P., 5.60%, 07/17/97 - 07/18/97 ............................... 13,464,845
15,000,000 Coca-Cola Co., 5.50%, 09/09/97 - 09/12/97 .............................. 14,835,000
15,000,000 Dupont de Nemours, Inc., 5.50% - 5.51%, 07/29/97 - 08/20/97 ............ 14,918,741
5,000,000 General Electric Capital Corp., 5.50%, 07/31/97 ........................ 4,976,875
15,000,000 Goldman Sachs Group, L.P., 5.55% - 5.57%, 08/08/97 - 09/04/97 .......... 14,891,132
10,000,000 H.J. Heinz Corp., 5.55% - 5.95%, 07/02/97 - 07/08/97 ................... 9,993,869
15,000,000 Halifax Building Society, 5.58%, 07/15/97 .............................. 14,967,450
10,000,000 MetLife Funding, Inc., 5.55%, 08/05/97 ................................. 9,946,042
15,000,000 Merrill Lynch & Co., Inc., 5.57% - 5.60%, 08/27/97 - 09/17/97 .......... 14,850,992
15,000,000 Morgan Stanley Group, Inc., 5.60% - 5.62%, 07/22/97 - 08/26/97 ......... 14,896,497
12,000,000 National Rural Utilities Cooperative Finance Corp.,
5.28% - 5.52%,07/21/97 - 08/04/97 ..................................... 11,941,451
4,200,000 Province of British Columbia, 5.30%, 07/28/97 .......................... 4,183,305
5,000,000 Schering Corp., 5.56%, 07/01/97 ........................................ 5,000,000
15,000,000 Svenska Handelsbanken, Inc., 5.58% - 5.605%, 07/02/97 - 07/11/97 ....... 14,990,665
10,000,000 Toyota Motor Credit Corp., 5.54%, 07/16/97 ............................. 9,976,917
10,000,000 U.S. Central Credit Union, 5.61%, 08/11/97 ............................. 9,936,108
15,000,000 Wool International, 5.52%, 07/31/97 .................................... 14,931,000
------------
Total Commercial Paper (Cost $258,264,815) ....................... 258,264,815
------------
Total Investments before Repurchase Agreements (Cost $308,274,436) 308,274,436
------------
Receivables from Repurchase Agreements 19.4%
31,580,000 Chase Securities, Inc., 5.60%, 07/01/97, (Maturity Value $31,584,912)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99 ..................... 31,580,000
15,000,000 CIBC Wood Gundy Securities Corp., 5.95%, 07/01/97, (Maturity Value $15,002,479)
Collateral: U.S. Treasury Notes, 5.25%, 12/31/97 ...................... 15,000,000
15,000,000 SBC Warburg, Inc., 5.92%, 07/01/97, (Maturity Value $15,002,467)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99 ..................... 15,000,000
15,000,000 UBS Securities, L.L.C., 5.90%, 07/01/97, (Maturity Value $15,002,458)
Collateral: U.S. Treasury Notes, 5.50%, 02/28/99 ...................... 15,000,000
------------
Total Receivables from Repurchase Agreements (Cost $76,580,000) .. 76,580,000
------------
Total Investments (Cost $384,854,436) 97.6% ................. 384,854,436
Other Assets and Liabilities, Net 2.4% ...................... 9,443,384
------------
Net Assets 100.0% ........................................... $394,297,820
============
</TABLE>
At June 30, 1997, there was no unrealized appreciation or depreciation for
financial statement or income tax purposes.
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
eCertain short-term securities are traded on a discount basis; the rates shown
are the discount rates at the time of purchase by the Fund. Other securities
bear interest at the rates shown, payable at fixed dates or upon maturity.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
VALUE
COUNTRY* SHARES Mutual Discovery Securities Fund (NOTE1)
a,jCommon Stocks & Other Equity Interests 70.1%
<S> <C> <C> <C>
Appliances & Household Durables 1.3%
SE 9,000 Electrolux, AB, Series B ...................................... $ 649,215
US 12,000 Electrolux, AB, Series B, Sponsored ADR ....................... 871,500
--------------
1,520,715
--------------
Automobiles 1.1%
IT 275,000 Fiat, SpA ..................................................... 988,731
US 5,000 General Motors Corp. .......................................... 278,438
--------------
1,267,169
--------------
Banking 1.8%
US 20,000 a Life Financial Corp. .......................................... 270,000
US 10,000 a Pacific Bank, N.A. ............................................ 360,000
US 105,000 SC Bancorp .................................................... 1,496,250
--------------
2,126,250
--------------
Beverages & Tobacco 1.4%
GB 16,000 B.A.T. Industries, Plc. ....................................... 143,216
US 2,500 Farmer Brothers Co. ........................................... 317,500
GB 65,000 Grand Metropolitan, Plc. ...................................... 629,444
GB 35,000 Guinness, Plc. ................................................ 342,720
NL 1,300 Heineken Holding, NV, Class A ................................. 201,997
--------------
1,634,877
--------------
Broadcasting & Publishing 8.1%
NO 14,100 A-Pressen, AS, Class A ........................................ 340,515
FI 12,500 Aamulehti Yhtymae OY, II ...................................... 457,368
US 40,000 Dow Jones & Co., Inc. ......................................... 1,607,500
US 4,800 Dun & Bradstreet Corp. ........................................ 126,000
AU 300,000 John Fairfax Holdings, Ltd. ................................... 711,255
GB 50,000 Midland Independent Newspapers, Plc. .......................... 149,461
GB 114,800 Mirror Group, Plc. ............................................ 359,413
NL 24,300 NV Holdingsmij de Telegraaf ................................... 524,897
GB 40,600 Pearson, Plc. ................................................. 470,238
HK 278,000 Shaw Brothers Hong Kong, Ltd. ................................. 312,186
CA 75,000 Southam, Inc. ................................................. 1,281,726
US 10,000 TCA Cable TV, Inc. ............................................ 376,250
GB 29,877 United News & Media, Plc. ..................................... 346,539
US 23,700 a US West, Inc. ................................................. 479,925
GB 55,000 Yorkshire Tyne Tees Television Holdings, Plc. ................. 1,039,568
US 34,300 a Young Broadcasting Corp., Class A ............................. 1,114,750
--------------
9,697,591
--------------
Business & Public Services 1.7%
SE 8,000 Esselte, Class A .............................................. 183,052
IT 80,000 a IFIL Finanziaria Partecipazioni, SpA .......................... 275,674
FR 12,678 Suez Lyonnaise des Eaux, SA.................................... 1,277,146
US 9,700 a Tenet Healthcare Corp. ........................................ 286,756
--------------
2,022,628
--------------
Chemicals 2.7%
SE 30,000 Aga, AB, Class B .............................................. 399,457
DD 5,900 BASF, AG ...................................................... 217,710
US 20,000 a Bush Boake Allen, Inc. ........................................ 622,500
US 15,000 ChemFirst, Inc. ............................................... 406,875
GB 125,000 Inspec Group, Plc. ............................................ 412,163
GB 60,000 Laporte, Plc. ................................................. 640,977
US 15,000 Olin Corp. .................................................... 585,938
--------------
3,285,620
--------------
Construction & Housing 2.8%
ES 6,600 Grupo Acciona, SA ............................................. $ 743,536
NL 1,542 Hollandsche Beton Groep, NV ................................... 351,701
US 40,000 Lennar Corp. .................................................. 1,277,500
US 7,500 Martin Marietta Materials, Inc. ............................... 242,813
SE 15,300 Skanska, AB, Class B .......................................... 676,440
--------------
3,291,990
--------------
Data Processing & Reproduction 1.3%
US 20,000 a Intuit, Inc. .................................................. 458,750
US 75,000 a National Processing, Inc. ..................................... 768,750
IT 190,000 Tecnost Mael, SpA ............................................. 344,357
--------------
1,571,857
--------------
Electrical & Electronics 0.3%
US 14,500 a Wang Labs, Inc., Class A ...................................... 309,031
--------------
Electronic Components & Instruments 1.7%
US 10,032 a Amphenol Corp., Class A ....................................... 389,994
US 5,000 a Dynatech, Corp. ............................................... 178,750
US 15,000 Harman International Industries, Inc. ......................... 631,875
US 20,000 a Imation Corp. ................................................. 527,500
CA 47,300 a NBS Technologies, Inc. ........................................ 115,771
SE 8,800 Spectra Physics, AB, Class A .................................. 158,128
--------------
2,002,018
--------------
Energy Equipment & Services 1.0%
US 37,000 Bouygues Offshore, SA, ADR .................................... 462,500
US 10,000 Transocean Offshore, Inc. ..................................... 726,250
--------------
1,188,750
--------------
Energy Sources 4.2%
FR 2,430 a Cie Generale De Geophysique, SA ............................... 236,520
US 17,900 a Cie Generale De Geophysique, SA, ADR .......................... 344,575
FR 10,800 Elf Aquitaine, SA ............................................. 1,165,144
GB 27,000 Energy Group, Plc. ............................................ 288,215
IT 175,000 Eni, SpA ...................................................... 989,511
US 17,000 Enserch Corp. ................................................. 378,250
NO 16,600 Saga Petroleum, AS, Class B ................................... 289,909
GB 44,400 Shell Transport & Trading Co., Plc. ........................... 302,783
US 15,000 a United Meridian Corp. ......................................... 450,000
GB 85,000 Yorkshire Water, Plc. ......................................... 552,757
--------------
4,997,664
--------------
Financial Services 2.9%
US 20,000 Advanta Corp., Class B ........................................ 713,750
US 18,700 Arthur J Gallagher Co. ........................................ 705,925
US 20,000 Asia Tigers Fund, Inc. ........................................ 226,250
FR 1,000 AXA-UAP ....................................................... 62,195
FR 19,500 Cerus-Compagnies Europeennes Reunies, SA ...................... 98,550
US 8,000 a,j Cityscape Financial Corp. ..................................... 151,525
BE 5,000 Credit Communal Holding Dexia Belgium.......................... 536,955
GB 50,000 a Edinburg Dragon Trust, Plc. ................................... 72,649
US 12,000 Long Island Bancorp, Inc. ..................................... 435,750
US 7,500 Morgan Stanley Dean Witter Discover & Co. ..................... 322,969
US 8,000 a SPS Transaction Services, Inc. ................................ 148,000
--------------
3,474,518
--------------
Food & Household Products 3.3%
GB 56,212 Cadbury Schweppes, Plc. ....................................... 501,283
US 50,000 Ralcorp Holdings, Inc. ........................................ 737,500
SE 25,000 a Sardus, AB .................................................... $ 214,918
US 34,000 a U S Industries, Inc. .......................................... 1,211,250
NL 5,800 Van Melle, NV ................................................. 455,041
GB 50,000 Williams, Plc. ................................................ 268,947
FR 10,232 a Worms Et Compagnie ............................................ 605,907
--------------
3,994,846
--------------
Forest Products & Paper 0.7%
CA 10,000 Fletcher Challenge Canada Ltd., Class A ....................... 168,362
CA 36,000 a Pacific Forest Products, Ltd. ................................. 658,243
--------------
826,605
--------------
Health & Personal Care 2.9%
US 30,000 a Apria Healthcare Group, Inc. .................................. 532,500
US 10,000 a Beverly Enterprises, Inc. ..................................... 162,500
US 4,160 a Foundation Health Systems, Inc., Class A ...................... 126,100
US 50,000 a Grancare, Inc., Delaware ...................................... 540,625
US 5,000 a Mid Atlantic Medical Services, Inc. ........................... 77,813
US 65,000 a Summit Care Corp. ............................................. 877,500
US 25,000 a United Dental Care, Inc., Delaware ............................ 375,000
US 5,000 a Vencor, Inc. .................................................. 211,250
US 28,813 a Vitalink Pharmacy Services, Inc. .............................. 551,049
--------------
3,454,337
--------------
Industrial Components 3.6%
GB 51,612 Charter, Plc. ................................................. 686,739
US 20,000 a DT Industries, Inc. ........................................... 715,000
US 20,000 Kennametal, Inc. .............................................. 860,000
GB 180,000 LucasVarity, Plc. ............................................. 623,491
FR 13,300 Michelin, SA, Class B ......................................... 798,674
GB 130,477 Tomkins, Plc. ................................................. 564,939
US 5,000 a Veritas DGC, Inc. ............................................. 112,500
--------------
4,361,343
--------------
Insurance 2.3%
US 2,500 20th Century Industries ....................................... 52,500
US 1,020 a Alleghany Corp. ............................................... 221,850
US 2,901 American General Corp. ........................................ 138,523
IT 200,000 Istituto Nazionale delle Assicurazioni ........................ 302,930
FI 5,000 Pohjola Insurance Co., Ltd., Class A .......................... 149,247
US 24,100 Pxre Corp. .................................................... 741,075
US 2,000 Reliable Life Insurance Co., Class A .......................... 252,000
GB 65,000 Royal & Sun Alliance Insurance Group, Plc. .................... 479,525
FR 8,900 Scor .......................................................... 358,320
--------------
2,695,970
--------------
Leisure & Tourism 0.2%
US 6,000 Comcast Corp., Class A ........................................ 128,250
FR 800 Pathe, SA ..................................................... 158,729
--------------
286,979
--------------
Machinery & Engineering 1.3%
US 20,000 Greenfield Industries, Inc. ................................... 540,000
FI 20,000 The Rauma Group ............................................... 458,331
GB 100,000 Triplex Lloyd, Plc. ........................................... 257,290
GB 40,000 TT Group, Plc. ................................................ 246,465
--------------
1,502,086
--------------
Merchandising 2.7%
US 25,000 a Dress Barn, Inc. .............................................. $ 487,500
DK 28,000 East Asiatic Co., Ltd. ........................................ 662,058
US 25,000 a Footstar, Inc. ................................................ 653,125
SE 50,000 a Hemkopskedjan, AB.............................................. 513,865
GB 57,400 Vendome Luxury Group, Plc. .................................... 423,935
US 15,000 a Waban, Inc. ................................................... 482,813
--------------
3,223,296
--------------
Metals & Mining 0.1%
US 16,000 a WHX Corp. ..................................................... 122,000
--------------
Multi-Industry 12.0%
NO 39,500 Aker RGI, ASA, Class A ........................................ 776,074
NO 71,940 Aker RGI, ASA, Class B ........................................ 1,256,388
SE 46,000 Bulten, AB, Class B ........................................... 362,743
CH 700 Cie Financiere Richemont, AG, Class A ......................... 1,011,298
FR 1,761 Cie Generale d'Industrie et de Participation, CGIP ............ 500,429
SE 68,900 Custos, AB, Class A ........................................... 1,478,560
SE 41,540 Custos, AB, Class B ........................................... 894,113
CA 2,600 Empire Co., Ltd., Class A ..................................... 33,890
FR 484 Financiere Et Industrielle Gaz Et Eaux, SA .................... 200,153
CA 50,000 Gendis, Inc., Class A ......................................... 493,320
US 15,000 Harcourt General, Inc. ........................................ 714,375
GB 60,000 Hogg Robinson, Plc. ........................................... 214,325
SE 11,000 Investor, AB, Class B.......................................... 579,471
SE 5,500 Invik & Co., AB, Class B ...................................... 243,520
SE 22,000 Kinnevik, AB, Class B ......................................... 612,889
FR 16,000 Lagardere, SCA ................................................ 464,751
FR 3,770 Marine - Wendel, SA ........................................... 384,910
FR 317 Montaigne Participations et Gestion, SA ....................... 156,162
US 15,000 Morton International, Inc. .................................... 452,813
CH 4,850 Oerlikon-Buehrle Holding, AG .................................. 567,853
SE 16,500 Oresund Investment, AB ........................................ 447,935
DK 9,350 Sophus Berendsen, Class B ..................................... 1,351,828
FR 950 Ste Eurafrance ................................................ 389,589
BE 8,300 Ste Generale de Belgique, SA .................................. 774,882
--------------
14,362,271
--------------
Real Estate 3.2%
US 50,000 Alexander Haagen Properties, Inc. ............................. 812,500
US 50,000 Berkshire Realty Co. .......................................... 531,250
SE 32,000 a Castellum, AB ................................................. 239,933
US 80,000 First Union Real Estate Equity & Mtg. Investments, SBI ........ 1,135,000
US 30,000 Mark Centers Trust ............................................ 288,750
US 514,590 a,j Re Acquisition, L.L.C. ........................................ 514,590
US 6,900 Santa Anita Realty Enterprises, Inc. .......................... 214,330
FR 2,000 Ste Des Immeubles De France ................................... 115,710
--------------
3,852,063
--------------
Recreation & Other Consumer Goods 1.3%
GB 50,000 EMI Group, Plc. ............................................... 897,184
US 30,000 a Scientific Games Holdings Corp. ............................... 618,750
--------------
1,515,934
--------------
Telecommunications 1.6%
US 20,309 a Cellular Communications International, Inc. ................... 670,003
DK 1,300 GN Great Nordic, Ltd. ......................................... 138,029
US 60,000 a Palmer Wireless, Inc., Class A ................................ $ 1,012,500
US 15,000 a United States Satellite Broadcasting Co., Inc., Class A ....... 123,750
--------------
1,944,282
--------------
Transportation 2.4%
US 3,000 Florida East Coast Industries, Inc. ........................... 333,000
US 20,000 a Fritz Cos. .................................................... 193,750
US 20,000 a Landstar System, Inc. ......................................... 562,500
US 8,000 a M.S. Carriers, Inc. ........................................... 201,000
GB 75,000 Railtrack Group, Plc. ......................................... 781,236
NZ 50,000 Tranz Rail Holdings, Ltd., Sponsored ADR ...................... 843,750
--------------
2,915,236
--------------
Utilities Electrical & Gas 0.2%
US 12,000 Southwest Gas Corp. ........................................... 238,500
--------------
Total Common Stocks & Other Equity Interests (Cost $83,799,907) 83,686,426
--------------
Preferred Stocks 0.3%
US 5,000 Granite Broadcasting Corp., $1.938 cum. cvt. pfd., ............ 257,500
US 5 a North Atlantic Trading Co., Inc., 12.00%, pfd. ................ 125,000
--------------
Total Preferred Stocks (Cost $392,250) .................. 382,500
--------------
FACE
AMOUNT
Bonds & Notes 2.3%
US $ 425,000 a American Communication Services, Inc., senior disc.
notes, zero coupon to 11/01/00, (original accretion rate 13.00%),
13.00% thereafter, 11/01/05................................... 250,750
US 830,000 CAI Wireless Systems, Inc., senior notes, 12.25%, 09/15/02 .... 265,600
US 100,000 a Consorcio G Grupo Dina, SA de CV, zero coupon, 11/15/02 ....... 87,500
US 1,125,000 a CS Wireless Systems, Inc., senior disc. notes,
Series B, zero coupon to 03/01/01, (original accretion rate 11.375%),
11.375% thereafter, 03/01/06.................................. 264,375
US 250,000 b Globalstar Telecommunications, Ltd., L.P., senior notes, 11.25%, 06/15/04 235,625
US 100,000 b North Atlantic Trading Co., Inc., senior notes, 11.00%, 06/15/04 101,500
US 500 a,m People's Choice TV Corp., senior disc. notes, 13.125%, 06/1/04 187,500
US 150,000 a,k Sassco, Inc., 12.75%, 02/15/05 ................................ 157,500
US 250,000 b TFM, SA de CV, 10.25%, 06/15/07 ............................... 253,125
US 300,000 a,b TFM, SA de CV, zero coupon to 06/15/02,
(original accretion rate 11.75%), 11.75% thereafter, 06/15/09 174,000
US 67,500 b Vicap, SA, company guaranteed, 11.375%, 05/15/07 .............. 707,906
--------------
Total Bonds (Cost $2,912,038) ........................... 2,685,381
--------------
Bonds & Notes in Reorganization 1.1%
US 440,634 a Buenos Aires Embotelladora, SA, bank claim .................... 354,710
a Eurotunnel Jr. Credit Facility,
GB 50,000 l Tranche B ..................................................... 26,065
GB 860,000 Tranche B ..................................................... 676,697
Mercury Finance Co., Commercial Paper
US 13,628 03/17/97 ...................................................... 12,538
US 6,194 04/11/97 ...................................................... 5,698
US 17,345 04/18/97 ...................................................... 15,957
US 9,911 04/22/97 ...................................................... 9,118
US 14,867 04/24/97 ...................................................... 13,678
US 225,000 Mercury Finance Co., MTN, 7.42%, 06/29/00 ..................... 207,000
--------------
Total Bonds & Notes in Reorganization (Cost $1,161,955) . 1,321,461
--------------
Total Long Term Investments (Cost $88,266,150) .......... 86,754,307
--------------
e Short Term Investments 25.1%
US$ 1,000,000 Federal Home Loan Mortgage Association, 5.50% with maturities to 07/10/97 998,652
US 7,815,000 FHLB, 5.45% - 5.52% with maturities to 09/10/97 ............... 7,763,027
US13,100,000 FHLMC, 5.426% - 5.54% with maturities to 08/18/97.............. 13,032,834
US 8,250,000 FNMA, 5.43% - 5.54% with maturities to 09/26/97 ............... 8,175,789
--------------
Total Short Term Investments (Cost $25,530,216) ......... 29,970,302
--------------
Total Investments (Cost $113,796,366) 98.9% ........ 118,046,070
Other Assets and Liabilities, Net 0.6% ............. 745,871
Equity in Forward Contracts 0.5% ................... 599,635
--------------
Net Assets 100.0% .................................. 119,391,576
==============
At June 30, 1997, the net unrealized appreciation based on the
cost of investments for income tax purposes of
$113,796,366 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ............. $ 6,049,527
Aggregate gross unrealized depreciation for all investments in
which there was an excess of value over tax cost ............. (1,799,823)
--------------
Net unrealized appreciation ................................. $ 4,249,704
==============
COUNTRY LEGEND:
AU - Australia
BE - Belgium
CA - Canada
CH - Switzerland
DD - Germany
DK - Denmark
ES - Spain
FI - Finland
FR - France
GB - United Kingdom
HK - Hong Kong
IT - Italy
MX - Mexico
NL - Netherlands
NO - Norway
NZ - New Zealand
SE - Sweden
US - United States
PORTFOLIO ABBREVIATIONS:
FHLB - Federal Home Loan Bank
FHLMC - Federal Home Loan Mortgage Corp.
FNMA - Federal National Mortgage Association
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
MTN - Medium Term Note
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing
bPurchased in a private placement transaction; resale may only be to qualified institutional buyers.
eCertain short-term securities are traded on a discount basis; the rates shown are the discount rates at the time of
purchase by the Fund. Other securities bear interest at the rates shown, payable at fixed dates or upon maturity.
jSee Note 9 regarding restricted securities.
kSee Note 1(i) regarding securities purchased on a when-issued basis.
lTraded in European Currency Unit.
mIn Units.
The accompanying notes are an integral part of these financial statements.
</TABLE>
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
VALUE
COUNTRY* SHARES Mutual Shares Securities Fund (NOTE1)
<S> <C> <C> <C>
a Common Stocks & Other Equity Interests 65.4%
Aerospace & Military Technological Services 2.0%
US 12,000 General Motors Corp., Class H ................................. $ 693,000
US 42,000 a Hexcel Corp. .................................................. 724,500
US 15,000 a Litton Industries, Inc. ....................................... 724,687
US 5,000 Lockheed Martin Corp. ......................................... 517,813
US 75,000 a Loral Space & Communications .................................. 1,125,000
US 6,500 McDonnell Douglas Corp. ....................................... 445,250
--------------
4,230,250
--------------
Appliances & Household Durables 0.9%
US 50,000 Black & Decker Corp. .......................................... 1,859,375
--------------
Automobiles 1.2%
US 45,000 General Motors Corp. .......................................... 2,505,938
--------------
Banking 0.7%
US 15,000 Chase Manhattan Corp. ......................................... 1,455,938
--------------
Beverages & Tobacco 4.2%
GB 92,000 B.A.T. Industries, Plc. ....................................... 823,493
GB 360,000 a Gallaher Group, Plc. .......................................... 1,684,624
US 5,500 a Gallaher Group, Plc., ADR ..................................... 101,405
GB 40,000 Grand Metropolitan, Plc. ...................................... 387,350
NL 3,000 Heineken Holding, NV, Class A ................................. 466,147
US 60,000 Philip Morris Cos., Inc. ...................................... 2,662,500
US 75,000 RJR Nabisco Holdings Corp. .................................... 2,475,000
--------------
8,600,519
--------------
Broadcasting & Publishing 10.0%
US 30,000 Belo (AH) Corp. ............................................... 1,248,750
GB 25,300 Daily Mail & General Trust, Plc, Class A ...................... 695,182
US 80,000 Dow Jones & Co., Inc. ......................................... 3,215,000
US 14,000 Dun & Bradstreet Corp. ........................................ 367,500
US 35,000 Houghton Mifflin Co............................................ 2,336,250
US 45,000 a Outdoor Systems, Inc. ......................................... 1,721,250
US 60,000 Scripps (EW) Co., Class A ..................................... 2,497,500
CA 150,000 Southam, Inc. ................................................. 2,563,452
GB 102,000 United News & Media, Plc. ..................................... 1,183,084
US 205,000 a US West, Inc. ................................................. 4,151,250
US 35,000 a Viacom, Inc., Class B ......................................... 1,050,000
--------------
21,029,218
--------------
Building Materials & Components 0.7%
US 35,000 a American Standard Cos., Inc. .................................. 1,566,250
--------------
Business & Public Services 1.1%
FR 17,976 Suez Lyonnaise des Eaux, SA ................................... 1,810,805
US 20,000 a Tenet Healthcare Corp. ........................................ 591,250
--------------
2,402,055
--------------
Chemicals 1.4%
DD 10,800 BASF, AG ...................................................... 398,521
US 35,062 Olin Corp. .................................................... 1,373,357
US 12,000 Rohm & Haas, Co. .............................................. 1,080,750
--------------
2,852,628
--------------
Construction & Housing 0.5%
US 30,000 Martin Marietta Materials, Inc. ............................... 971,250
--------------
Data Processing & Reproduction 0.4%
US 25,000 a NCR Corp. ..................................................... 743,750
--------------
Electronic Components & Instruments 1.2%
US 64,400 a Imation Corp. ................................................. $ 1,698,550
US 9,700 Raychem Corp. ................................................. 721,437
--------------
2,419,987
--------------
Energy Equipment & Services 1.4%
CA 82,000 a CS Resources, Ltd. ............................................ 947,102
US 32,500 a Rowan Cos., Inc. .............................................. 916,094
US 15,000 Transocean Offshore, Inc. ..................................... 1,089,374
--------------
2,952,570
--------------
Energy Sources 5.8%
US 50,000 Ashland, Inc. ................................................. 2,318,750
FR 16,800 Elf Aquitaine, SA ............................................. 1,812,446
CA 30,000 Imperial Oil, Ltd. ............................................ 1,541,250
US 25,000 a Pennzoil Co.................................................... 1,918,750
US 50,000 a Reading & Bates Corp. ......................................... 1,337,500
NO 29,300 Saga Petroleum, AS, Class B.................................... 511,707
US 92,200 a Santa Fe Energy Resources, Inc. ............................... 1,354,188
GB 78,300 Shell Transport & Trading Co., Plc. ........................... 533,961
US 12,000 a Western Atlas, Inc. ........................................... 879,000
--------------
12,207,552
--------------
Financial Services 2.9%
US 50,000 Advanta Corp., Class B ........................................ 1,784,375
US 5,000 Beneficial Corp. .............................................. 355,313
US 12,000 a,j Cityscape Financial Corp. ..................................... 227,287
US 17,000 Lehman Brothers Holdings, Inc. ................................ 688,500
US 70,000 Morgan Stanley Dean Witter Discover & Co. ..................... 3,014,375
--------------
6,069,850
--------------
Food & Household Products 2.7%
GB 105,270 Cadbury Schweppes, Plc. ....................................... 938,768
US 50,000 Tupperware Corp. .............................................. 1,825,000
US 50,000 a U S Industries, Inc. .......................................... 1,781,250
NL 15,070 Van Melle, NV.................................................. 1,182,322
--------------
5,727,340
--------------
Forest Products & Paper 1.6%
US 20,000 Bowater, Inc. ................................................. 925,000
US 5,000 Greif Brothers Corp., Class A ................................. 135,000
US 19,000 St. Joe Paper Corp. ........................................... 1,591,250
US 15,111 Temple Inland, Inc. ........................................... 815,994
--------------
3,467,244
--------------
Health & Personal Care 3.6%
US 80,900 a Apria Healthcare Group, Inc. .................................. 1,435,975
US 50,000 a Beverly Enterprises, Inc. ..................................... 812,500
US 75,470 a Foundation Health Systems, Inc., Class A ...................... 2,287,683
US 15,000 a Mid Atlantic Medical Services, Inc. ........................... 233,438
US 25,000 a Pacificare Health Systems, Inc., Class A ...................... 1,514,063
US 8,500 a Pacificare Health Systems, Inc., Class B ...................... 542,938
US 7,500 Rhone-Poulenc Rorer, Inc. ..................................... 681,563
--------------
7,508,160
--------------
Industrial Components 0.6%
GB 280,000 LucasVarity, Plc. ............................................. 969,875
US 7,800 a Owens-Illinois, Inc. .......................................... 241,800
--------------
1,211,675
--------------
Insurance 3.6%
US 25,000 20th Century Industries ....................................... $ 525,000
US 2,550 a Alleghany Corp. ............................................... 554,625
US 7,253 American General Corp. ........................................ 346,307
US 42,300 AON Corp. ..................................................... 2,189,025
US 41,206 Argonaut Group, Inc. .......................................... 1,215,577
US 25,000 Fund American Enterprises Holdings, Inc. ...................... 2,625,000
US 3,000 Selective Insurance Group, Inc. ............................... 145,313
--------------
7,600,847
--------------
Leisure & Tourism 2.3%
US 30,000 a Circus Circus Enterprises, Inc. ............................... 738,750
US 60,000 Comcast Corp., Class A ........................................ 1,282,500
US 50,000 Hilton Hotels Corp. ........................................... 1,328,124
US 20,000 a ITT Corp. ..................................................... 1,221,250
US 12,500 Readers Digest Association, Inc., Class A ..................... 358,594
--------------
4,929,218
--------------
Machinery & Engineering 1.5%
US 9,500 Federal - Mogul Corp. ......................................... 332,500
US 75,000 ITT Industries, Inc. .......................................... 1,931,250
US 30,000 New Holland, NV ............................................... 821,250
--------------
3,085,000
--------------
Merchandising 0.7%
US 44,000 Dillards, Inc., Class A ....................................... 1,523,500
--------------
Metals & Mining 1.2%
US 25,000 LTV Corp. ..................................................... 356,250
US 30,000 Reynolds Metals Co. ........................................... 2,137,500
--------------
2,493,750
--------------
Multi-Industry 5.2%
US 35,000 Harcourt General, Inc. ........................................ 1,666,875
SE 21,900 Investor, AB, Class A ......................................... 1,132,441
SE 93,100 Investor, AB, Class B ......................................... 4,904,434
FR 20,000 Lagardere, SCA ................................................ 580,938
CA 25,000 McMillan Bloedel, Ltd. ........................................ 343,061
US 75,000 Morton International, Inc. .................................... 2,264,063
--------------
10,891,812
--------------
Real Estate 0.3%
US 8,000 a Alexander's, Inc. ............................................. 563,000
--------------
Recreation & Other Consumer Goods 0.8%
US 50,000 Mattel, Inc. .................................................. 1,693,750
--------------
Telecommunications 4.5%
US 10,618 AT&T Corp. .................................................... 350,631
US 50,000 MCI Communications Corp. ...................................... 1,914,063
US 15,000 Sprint ........................................................ 789,375
US 97,000 a Tele Communications, Inc., Class A ............................ 2,303,750
US 63,400 Telephone & Data Systems, Inc. ................................ 2,405,238
US 100,000 a Three Hundred Sixty Degrees Communications Co. ................ 1,712,500
--------------
9,475,557
--------------
Transportation 2.4%
US 15,000 Burlington Northern Santa Fe Corp. ............................ 1,348,125
US 11,500 Florida East Coast Industries, Inc. ........................... 1,276,500
GB 150,000 Railtrack Group, Plc. ......................................... 1,562,474
US 6,000 Ryder Systems, Inc. ........................................... $ 198,000
US 14,300 Xtra Corp. .................................................... 628,306
--------------
5,013,405
--------------
Total Common Stocks & Other Equity Interests (Cost $130,238,049) 137,051,388
--------------
Preferred Stock 0.1%
US 5 North Atlantic Trading Co., Inc., 12.00%, pfd. (Cost $125,000) 125,000
--------------
FACE
AMOUNT
Bonds & Notes 2.9%
US $ 825,000 a American Communication Services, Inc., senior disc. notes,
zero coupon to 11/01/00, (original accretion rate 13.00%),
13.00% thereafter, 11/01/05 .................................. 486,750
US 1,650,000 CAI Wireless Systems, Inc., senior notes, 12.25%, 09/15/02 .... 528,000
US 175,000 a Consorcio Grupo Dina, SA, de CV, zero coupon, 11/15/02 ........ 153,125
US 2,250,000 a CS Wireless, Inc., senior disc. notes, Series B,
zero coupon to 03/01/01, (original accretion rate 11.375%), 11.375%
thereafter, 03/01/06.......................................... 528,750
US 1,000,000 a,b Falcon Building Products, Inc., zero coupon, to 06/15/02,
10.50% thereafter, 06/15/07 .................................. 595,000
US 500,000 b Globalstar Telecommunications, Ltd., L.P.,
senior notes, 11.25%, 06/15/04 ............................... 471,250
US 100,000 b North Atlantic Trading Co., Inc., senior notes, 11.00%, 06/15/04 101,500
US 500 a,m People's Choice TV Corp., senior disc. notes, 13.125%, 06/01/04 187,500
US 250,000 a,k Sassco, Inc., 12.75%, 02/15/05 ................................ 262,500
US 250,000 b TFM, SA de CV, 10.25%, 06/15/07 ............................... 253,125
US 600,000 a,b TFM, SA de CV, zero coupon to 06/15/02,
(original accretion rate 11.75%), 11.75% thereafter, 06/15/09 348,000
CA 500,000 b Uniforet, Inc., 11.125%, 10/15/06 ............................. 450,000
US 1,150,000 b Vicap, SA, company guaranteed, 11.375%, 05/15/07 .............. 1,206,063
US 500,000 b Wavetek Corp., 10.125%, 06/15/07 .............................. 510,000
--------------
Total Bonds & Notes (Cost $6,361,026) ................... 6,081,563
--------------
Bonds & Notes in Reorganization 1.3%
US 100,000 a Dow Corning Corp., bank claim ................................. 120,500
a Eurotunnel Jr Credit Facility,
GB 84,000 l Tranche B ..................................................... 43,790
GB 1,540,000 Tranche B ..................................................... 1,211,760
Mercury Finance Co., Commercial Paper
US 27,256 03/17/97 ...................................................... 25,076
US 12,389 04/11/97 ...................................................... 11,398
US 1,000,000 04/16/97 ...................................................... 920,000
US 34,689 04/18/97 ..................................................... 31,914
US 19,822 04/22/97 ...................................................... 18,236
US 29,734 04/24/97 ...................................................... 27,355
US 375,000 Mercury Finance Co., MTN, 7.42%, 06/29/00 ..................... 345,000
--------------
Total Bonds & Notes in Reorganization (Cost $2,497,619) . 2,755,029
--------------
Total Bonds (Cost $8,858,645) ........................... 8,836,592
--------------
Total Long Term Investments (Cost $139,221,694) ......... 146,012,980
--------------
e Short Term Investments 29.3%
US 2,000,000 Federal Home Loan Mortgage Association, 5.50%, 07/10/97 ....... 1,997,304
US18,800,000 FHLB, 5.42% to 5.51% with maturities to 09/10/97 .............. 18,691,295
US14,604,000 FHLMC, 5.425% to 5.54% with maturities to 09/03/97 ............ 14,534,524
US26,450,000 FNMA, 5.354% to 5.54% with maturities to 10/02/97 ............. 26,211,857
--------------
Total Short Term Investments (Cost $59,695,137) ......... 61,434,980
--------------
Total Investments (Cost $198,916,831) 98.9% ........ 207,447,960
Other Assets and Liabilities, Net 1.0%.............. 2,086,363
Equity in Forward Contracts 0.1% ................... 282,280
--------------
Net Assets 100.0% .................................. $209,816,603
==============
At June 30, 1997, the net unrealized appreciation based on the
cost of investments for income tax purposes of
$198,916,831 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ............. $ 10,727,281
Aggregate gross unrealized depreciation for all investments
in which there was an excess of value over tax cost .......... (2,196,152)
--------------
Net unrealized appreciation ................................. $ 8,531,129
==============
COUNTRY LEGEND:
CA - Canada
DD - Germany
FR - France
GB - United Kingdom
MX - Mexico
NL - Netherlands
NO - Norway
SE - Sweden
US - United States
PORTFOLIO ABBREVIATIONS:
FHLB - Federal Home Loan Bank
FHLMC - Federal Home Loan Mortgage Corp.
FNMA - Federal National Mortgage Association
L.P. - Limited Partnership
MTN - Medium Term Note
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified institutional buyers.
eCertain short-term securities are traded on a discount basis; the rates shown are the discount rates at the time of
purchase by the Fund. Other securities bear interest at the rates shown, payable at fixed dates or upon maturity.
jSee Note 9 regarding restricted securities.
kSee Note 1(i) regarding securities purchased on a when-issued basis.
lTraded in European Currency Unit.
mIn Units.
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES/ VALUE
COUNTRY* WARRANTSNatural Resources Fund (NOTE1)
<S> <C> <C> <C>
a Common Stocks & Warrants 93.7%
Capital Goods 1.1%
US 62,000 a Atchinson Casting Corp. ....................................... $ 1,030,750
--------------
Environmental Control & Construction 1.9%
US 20,700 Lone Star Industries, Inc. .................................... 937,969
US 25,100 a Owens-Illinois, Inc. .......................................... 778,100
--------------
1,716,069
--------------
Metals - Diversified 12.9%
AU 2,937,000 a Austral Coal, Ltd. ............................................ 997,909
US 160,718 Freeport-McMoRan Copper & Gold, Inc., Class A ................. 4,701,002
AU 320,000 Pasminco, Ltd. ................................................ 649,945
GB 318,429 Rio Tinto, Plc. ............................................... 5,549,400
--------------
11,898,256
--------------
Mining - Precious Metals 57.8%
AU 586,600 a Acacia Resources, Ltd. ........................................ 770,665
US 214,042 Ashanti Goldfields Co., Ltd., Sponsored GDR ................... 2,501,616
CA 694,200 a,b Asquith Resources, Inc., Legend Shares ........................ 326,753
ZA 201,140 a Avgold, Ltd. .................................................. 197,284
US 126,595 Barrick Gold Corp. ............................................ 2,785,090
ZA 125,000 Beatrix Mines, Ltd. ........................................... 566,178
CA 69,000 a Bema Gold Corp. ............................................... 417,213
US 209,000 a Campbell Resources, Inc., warrants ............................ 35,927
US 210,000 a Canyon Resources Corp. ........................................ 511,875
US 67,000 b Compania de Minas Buenaventura, SA, Sponsored ADR ............. 1,319,063
CA 151,200 a Dayton Mining Corp. ........................................... 525,551
US 63,000 DeBeers Consolidated Mines, Ltd., ADR ......................... 2,327,063
US 249,500 Driefontein Consolidated, Ltd., Sponsored ADR ................. 1,684,125
AU 1,480,000 a Equinox Resources, N.L. ....................................... 480,512
CA 155,300 b Euro-Nevada Mining Corp. ...................................... 4,779,500
CA 15,000 Euro-Nevada Mining Corp., Legend Shares ....................... 461,639
CA 80,800 b Franco-Nevada Mining Corp., Ltd. .............................. 4,051,848
CA 2,500 Franco-Nevada Mining Corp., Ltd., Legend Shares ............... 125,367
CA 234,600 a Geomaque Explorations, Ltd. ................................... 543,626
US 37,000 a Getchell Gold Corp. ........................................... 1,299,625
AU 201,800 Great Central Mines, Ltd. ..................................... 384,274
CA 170,900 a Greenstone Resources, Ltd. .................................... 1,497,440
AU 495,000 a Helix Resources, N.L. ......................................... 523,248
US 49,488 Homestake Mining Co. .......................................... 646,437
AU 820,260 a Leo Shield Exploration, N.L. .................................. 253,927
AU 329,500 a Lihir Gold, Ltd. .............................................. 549,822
CA 275,700 a Minefinders Corp., Ltd., warrants ............................. 998,226
US 42,400 Newmont Gold Co. .............................................. 1,693,350
US 57,755 Newmont Mining Corp. .......................................... 2,252,445
AU 1,535,571 Normandy Mining, Ltd. ......................................... 1,727,549
AU 230,000 a Orogen Minerals, Ltd. ......................................... 658,175
US 17,200 a,b Orogen Minerals, Ltd., GDR .................................... 492,200
CA 110,000 a Pangea Goldfields, Inc. ....................................... 318,621
US 167,800 Placer Dome, Inc. ............................................. 2,747,725
AU 632,500 Plutonic Resources, Ltd. ...................................... 1,977,130
ZA 40,000 Rangold & Exploration Co., Ltd. ............................... 176,328
US 97,179 Rustenburg Platinum Holdings, Ltd., ADR ....................... 1,777,792
AU 505,900 Sons Of Gwali, Ltd. ........................................... 1,883,154
US 82,300 a,b Stillwater Mining Co. ......................................... 1,625,424
CA 159,100 Teck Corp., Class B ........................................... 3,220,135
US 339,000 Vaal Reefs Exploration & Mining Co., Ltd., ADR ................ 1,631,438
CA 152,733 a Williams Resources, Inc. ...................................... $ 237,790
CA 71,300 Williams Resources, Inc., Legend Shares ....................... 111,007
--------------
53,094,157
--------------
Oil/Gas Equipment & Services 8.8%
US 23,300 a Core Laboratories, NV ......................................... 605,800
US 20,000 a Diamond Offshore Drilling, Inc. ............................... 1,562,500
US 6,000 a ENSCO International, Inc. ..................................... 316,500
US 28,000 a Input/Output, Inc. ............................................ 507,500
US 45,000 a Rowan Cos., Inc. .............................................. 1,268,438
US 9,700 a Santa Fe International Corp. .................................. 329,800
US 27,700 a Stolt Comex Seaway, SA ........................................ 702,888
CA 54,200 a Tesco Corp. ................................................... 706,470
US 20,000 Transocean Offshore, Inc. ..................................... 1,452,500
US 20,000 a Varco International, Inc. ..................................... 645,000
--------------
8,097,396
--------------
Oil/Gas Exploration & Production 7.7%
CA 70,000 a Abacan Resource Corp. ......................................... 223,035
US 150,000 a Abacan Resource Corp. ......................................... 478,125
US 50,000 a Barrett Resources Corp. ....................................... 1,496,875
US 127,000 a Hugoton Energy Corp. .......................................... 1,762,125
US 25,000 a Newfield Exploration Co. ...................................... 500,000
US 12,000 a Nuevo Energy Co. .............................................. 492,000
CA 150,000 a Summit Resources, Ltd. ........................................ 651,725
US 96,700 a Titan Exploration, Inc. ....................................... 1,172,488
US 10,000 a United Meridian Corp. ......................................... 300,000
--------------
7,076,373
--------------
Oil/Gas Pipelines & Distribution 0.4%
US 11,400 MCN Corp. ..................................................... 349,125
--------------
Real Estate Investment Trusts 2.0%
US 23,000 a Alexandria Real Estate Equities, Inc. ......................... 504,562
US 21,000 FelCor Suite Hotels, Inc. ..................................... 782,250
US 21,000 Storage Trust Realty .......................................... 556,500
--------------
1,843,312
--------------
Steel 1.1%
US 22,600 a UCAR International, Inc. ...................................... 1,033,950
--------------
Total Common Stocks & Warrants (Cost $90,512,027)........ 86,139,388
--------------
FACE
AMOUNT
Convertible Bonds 1.3%
US $ 800,000 Dayton Mining Corp. cvt. sub. deb., 7.00%, 04/01/02 ........... 764,000
US 270,000 b Rangold & Exploration Co., Ltd., cvt. sub. notes, 7.00%, 10/03/01 259,200
CA 200,000 Williams Resources, Inc., cvt. sub. deb., 8.00%, 01/23/02 ..... 127,447
--------------
Total Convertible Bonds (Cost $1,219,740)................ 1,150,647
--------------
Total Long Term Investments (Cost $91,731,767)........... 87,290,035
--------------
f,g Receivables from Repurchase Agreements 2.4%
US$2,245,156 Joint Repurchase Agreement, 5.884%, 07/01/97
(Maturity Value $2,246,220) (Cost $2,245,853)
Aubrey G. Lanston & Co., Inc., (Maturity Value $222,635)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $222,635)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $131,184)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $222,635)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $222,635)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $111,321)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $222,635)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co., L.P., (Maturity Value $222,635)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $222,635)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $222,635)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $222,635)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 $ 2,245,853
Total Investments (Cost $93,977,620) 97.4% ......... 89,535,888
Other Assets and Liabilities, Net 2.6% .............. 2,368,128
--------------
Net Assets 100.0% ................................. $91,904,016
==============
At June 30, 1997, the net unrealized depreciation based on the
cost of investments for income tax purposes of
$93,977,620 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ............. $11,280,099
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value ............. (15,721,831)
--------------
Net unrealized depreciation ................................. $ (4,441,732)
==============
COUNTRY LEGEND:
AU - Australia
CA - Canada
GB - United Kingdom
US - United States
ZA - South Africa
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified institutional buyers.
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES Real Estate Securities Fund (NOTE1)
Common Stocks 92.6%
<S> <C> <C>
Equity REIT - Apartments 18.7%
180,000 Amli Residential Properties Trust ...................................... $ 4,252,500
200,000 Bay Apartment Communities, Inc. ........................................ 7,400,000
170,000 Camden Property Trust .................................................. 5,376,250
63,000 Charles E. Smith Residential Realty, Inc. .............................. 1,819,125
220,000 Equity Residential Properties Trust .................................... 10,450,000
212,000 Evans Withycombe Residential, Inc. ..................................... 4,399,000
195,000 Gables Residential Trust ............................................... 4,923,750
145,600 Irvine Apartment Communities, Inc. ..................................... 4,277,000
225,000 Oasis Residential, Inc. ................................................ 5,287,500
100,000 Post Properties, Inc. .................................................. 4,056,250
330,000 Security Capital Atlantic, Inc. ........................................ 7,899,375
310,000 Security Capital Pacific Trust ......................................... 7,091,250
225,000 Summit Properties, Inc. ................................................ 4,640,625
20,157 United Dominion Realty Trust, Inc. ..................................... 285,977
------------
72,158,602
------------
Equity REIT - Health Care 4.3%
84,100 a Alexandria Real Estate Equities, Inc. .................................. 1,844,944
135,000 Health Care Property Investors, Inc. ................................... 4,758,750
200,000 Nationwide Health Properties, Inc. ..................................... 4,400,000
168,000 Omega Healthcare Investors, Inc. ....................................... 5,491,500
------------
16,495,194
------------
Equity REIT - Hotels 12.4%
200,700 Equity Inns, Inc. ...................................................... 2,684,363
360,000 FelCor Suite Hotels, Inc. .............................................. 13,410,000
430,000 Patriot American Hospitality, Inc. ..................................... 10,965,000
265,050 Starwood Lodging Trust ................................................. 11,314,322
620,000 Winston Hotels, Inc. ................................................... 9,338,750
------------
47,712,435
------------
Equity REIT - Industrial 9.8%
122,500 Duke Realty Investments, Inc. .......................................... 4,961,250
260,000 Liberty Property Trust ................................................. 6,467,500
300,000 Meridian Industrial Trust, Inc. ........................................ 7,050,000
367,473 Security Capital Industrial Trust ...................................... 7,900,670
200,000 Spieker Properties, Inc. ............................................... 7,037,500
140,000 Weeks Corp. ............................................................ 4,375,000
------------
37,791,920
------------
Equity REIT - Mixed Property Type 3.3%
195,000 Colonial Properties Trust .............................................. 5,728,125
275,000 Glenborough Realty Trust, Inc. ......................................... 6,943,750
------------
12,671,875
------------
Equity REIT - Office 7.4%
265,100 Arden Realty Group, Inc. ............................................... 6,892,600
145,000 Beacon Properties Corp. ................................................ 4,839,375
275,000 Crescent Real Estate Equities Co. ...................................... 8,731,250
250,000 Highwoods Properties, Inc. ............................................. 8,000,000
------------
28,463,225
------------
Equity REIT - Residential Communities 2.4%
200,000 Manufactured Home Communities, Inc. .................................... 4,612,500
140,000 Sun Communities, Inc. .................................................. 4,698,750
------------
9,311,250
------------
Equity REIT - Retail - Community Centers 7.5%
220,000 Burnham Pacific Properties, Inc. ....................................... $ 3,025,000
110,000 Developers Diversified Realty Corp. .................................... 4,400,000
150,000 Kimco Realty Corp. ..................................................... 4,762,500
866,067 j Pacific Retail Trust ................................................... 10,392,804
90,000 Vornado Realty Trust ................................................... 6,491,250
------------
29,071,554
------------
Equity REIT - Retail - Regional Malls 5.4%
310,000 Simon DeBartolo Group, Inc. ............................................ 9,920,000
170,700 The Macerich Co. ....................................................... 4,736,925
215,000 The Mills Corp. ........................................................ 5,952,813
------------
20,609,738
------------
Equity REIT - Storage 6.7%
350,000 Public Storage, Inc. ................................................... 10,237,500
370,000 Storage Trust Realty ................................................... 9,805,000
150,500 Storage USA, Inc. ...................................................... 5,756,625
------------
25,799,125
------------
Home Builders 3.6%
100,000 a Beazer Homes USA, Inc. ................................................. 1,600,000
306,100 a Belmont Homes, Inc. .................................................... 2,104,438
281,250 Clayton Homes, Inc. .................................................... 4,007,813
300,000 a NVR, Inc. .............................................................. 4,575,000
193,100 a Southern Energy Homes, Inc. ............................................ 1,762,037
------------
14,049,288
------------
Hotels 8.1%
650,000 a,hCandlewood Hotel Co., Inc. ............................................. 5,443,750
350,000 a CapStar Hotel Co. ...................................................... 11,200,000
570,000 a Host Marriott Corp. .................................................... 10,153,124
224,500 a Prime Hospitality Corp. ................................................ 4,433,874
------------
31,230,748
------------
Mixed Property Type 3.0%
27,500 a Crescent Operating, Inc. ............................................... 330,000
500,000 Security Capital US Realty.............................................. 7,450,000
144,000 a Vail Resorts, Inc. ..................................................... 3,645,000
------------
11,425,000
------------
Total Common Stocks (Cost $262,500,445) .......................... 356,789,954
------------
FACE
AMOUNT
Bonds 0.5%
$2,000,000 US Home Corp., cvt. sub. notes, 4.875%, 11/01/05 (Cost $1,970,000) ..... 1,875,000
------------
Total Long Term Investments (Cost $264,470,445) .................. 358,664,954
------------
f,gReceivables from Repurchase Agreements 6.9%
$26,685,830 Joint Repurchase Agreement, 5.884%, 07/01/97
(Maturity Value $26,697,578) (Cost $26,693,215)
Aubrey G. Lanston & Co., Inc., (Maturity Value $2,646,144)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $2,646,144)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $1,559,209)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $2,646,144)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $2,646,144)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $1,323,073)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $2,646,144)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co, L.P., (Maturity Value $2,646,144)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $2,646,144)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $2,646,144)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $2,646,144)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 ... $ 26,693,215
------------
Total Investments (Cost $291,163,660) 100.0% ................ 385,358,169
Other Assets and Liabilities, Net............................. 127,338
------------
Net Assets 100.0% ........................................... $385,485,507
============
At June 30, 1997, the net unrealized appreciation based on the cost
of investments for income tax purposes of $291,163,660
was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ..................... $ 96,839,183
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value ...................... (2,644,674)
------------
Net unrealized appreciation .......................................... $ 94,194,509
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
REIT - Real Estate Investment Trust
aNon-income producing.
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
hSee Note 8 regarding holdings of 5% or more of voting securities.
jSee Note 9 regarding restricted securities.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES Rising Dividends Fund (NOTE1)
f,gCommon Stocks 97.0%
<S> <C> <C>
Banks 12.0%
172,400 CoreStates Financial Corp. ............................................. $ 9,266,500
151,000 First Union Corp. ...................................................... 13,967,500
224,150 Mercantile Bankshares Corp. ............................................ 8,966,000
449,900 National Commerce BanCorp. ............................................. 9,897,800
243,200 State Street Corp. ..................................................... 11,248,000
561,028 TrustCo Bank Corp., New York ........................................... 11,991,974
134,500 Washington Mutual, Inc. ................................................ 8,036,375
203,000 Wilmington Trust Corp. ................................................. 9,287,250
------------
82,661,399
------------
Business Services 8.5%
252,700 Avery Dennison Corp. ................................................... 10,139,588
363,500 Brady (W.H.) Co. ....................................................... 10,541,500
498,200 Ennis Business Forms ................................................... 4,795,175
326,900 Standard Register Co. .................................................. 10,011,313
769,400 Wallace Computer Services, Inc. ........................................ 23,130,088
------------
58,617,664
------------
Consumer Products 16.0%
436,900 Alberto-Culver Co., Class A ............................................ 10,185,231
184,033 Block Drug Co., Inc., Class A .......................................... 8,051,444
715,100 Dimon, Inc. ............................................................ 18,950,150
313,700 Newell Co. ............................................................. 12,430,363
334,000 Nike, Inc., Class B .................................................... 19,497,250
324,300 Philip Morris Cos., Inc. ............................................... 14,390,813
320,400 Stanhome, Inc. ......................................................... 10,533,150
368,500 Universal Corp. ........................................................ 11,699,875
175,800 UST, Inc. .............................................................. 4,878,450
------------
110,616,726
------------
Drugs & Health Care 2.5%
73,700 Bristol-Myers Squibb Co. ............................................... 5,969,700
56,800 Merck & Co., Inc. ...................................................... 5,878,800
194,900 West Co., Inc. ......................................................... 5,579,013
------------
17,427,513
------------
Electronics & Technology 7.1%
121,100 Baldor Electric Co. .................................................... 3,580,019
256,100 Cohu, Inc. ............................................................. 8,003,125
66,000 Diebold, Inc. .......................................................... 2,574,000
146,100 General Electric Co. ................................................... 9,551,288
231,500 Hewlett-Packard Co. .................................................... 12,964,000
131,700 Hubbell, Inc. .......................................................... 5,794,800
117,700 Rockwell International Corp. ........................................... 6,944,300
------------
49,411,532
------------
Energy 1.6%
204,000 Royal Dutch Petroleum Co., New York Shares, ADR ........................ 11,092,500
------------
Financial Services 2.2%
348,000 Fannie Mae ............................................................. 15,181,500
------------
Industrial 21.3%
109,600 Donaldson Co., Inc. .................................................... 4,164,800
215,600 Dover Corp. ............................................................ 13,259,400
503,600 Durco International, Inc. .............................................. 14,730,300
34,400 Graco, Inc. ............................................................ 1,036,300
545,400 Hanna (M.A.) Co. ....................................................... 15,714,338
211,600 Kaydon Corp. ........................................................... 10,500,650
251,800 Kimball International, Inc., Class B ................................... 10,134,950
91,800 Leggett & Platt, Inc. .................................................. $ 3,947,400
402,800 Millipore Corp. ........................................................ 17,723,200
236,000 Monsanto Co. ........................................................... 10,162,750
339,600 Myers Industries, Inc. ................................................. 5,730,750
276,200 Nucor Corp. ............................................................ 15,605,300
360,900 Superior Industries International, Inc. ................................ 9,563,850
228,200 Superior Surgical Manufacturing Co., Inc. .............................. 2,681,350
13,918 The Boeing Co. ......................................................... 738,524
474,800 Watts Industries, Inc., Class A ........................................ 11,395,200
------------
147,089,062
------------
Insurance - Life 0.2%
33,100 American Heritage Life Investment Corp. ................................ 1,092,300
------------
Insurance - Property Casualty 13.1%
472,600 Allied Group, Inc. ..................................................... 17,958,800
45,000 American International Group, Inc. ..................................... 6,721,875
196,200 Chubb Corp. ............................................................ 13,120,875
223,900 Mercury General Corp. .................................................. 16,288,725
589,300 h MMI Cos., Inc. ......................................................... 15,395,463
377,225 RLI Corp. .............................................................. 13,745,135
97,300 St. Paul Cos., Inc. .................................................... 7,419,124
------------
90,649,997
------------
Retail 10.1%
968,000 Family Dollar Stores, Inc. ............................................. 26,378,000
349,300 Gap, Inc. .............................................................. 13,579,037
222,100 Rite Aid Corp. ......................................................... 11,077,237
80,300 The Limited, Inc. ...................................................... 1,626,074
514,200 Wal-Mart Stores, Inc. .................................................. 17,386,387
------------
70,046,735
------------
Transportation 2.4%
635,000 Circle International Group, Inc. ....................................... 16,748,124
------------
Total Common Stocks (Cost $466,269,578)........................... 670,635,052
------------
Convertible Preferred Stocks 0.2%
24,200 American Heritage Life Investment Corp.,
8.50% cvt. pfd. (Cost $1,210,000)...................................... 1,331,000
------------
Total Long Term Investments (Cost $467,479,578)................... 671,966,052
------------
f,gReceivables from Repurchase Agreements 3.9%
$26,982,361 Joint Repurchase Agreement, 5.884%, 07/01/97
(Maturity Value $26,995,111) (Cost $26,990,699)
Aubrey G. Lanston & Co., Inc., (Maturity Value $2,675,634)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $2,675,634)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $1,576,591)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $2,675,634)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $2,675,634)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $1,337,814)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $2,675,634)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co, L.P., (Maturity Value $2,675,634)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $2,675,634)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $2,675,634)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $2,675,634)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 ... $ 26,990,699
------------
Total Investments (Cost $494,470,277) 101.1%................. 698,956,751
Liabilities in Excess of Other Assets (1.1)% ................ (7,771,364)
------------
Net Assets 100.0% ........................................... $691,185,387
============
At June 30, 1997, the net unrealized appreciation based on the cost
of investments for income tax purposes of $494,766,393 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ...................... $204,910,156
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value ...................... (719,798)
------------
Net unrealized appreciation .......................................... $204,190,358
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
hSee Note 8 regarding holdings of 5% or more of voting securities.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES Small Cap Fund (NOTE1)
a,dCommon Stocks 103.9%
<S> <C> <C>
Commercial Services 1.3%
80,650 a Labor Ready, Inc. ...................................................... $ 816,581
72,200 Norrell Corp. .......................................................... 2,382,600
------------
3,199,181
------------
Consumer Products Durables 6.5%
56,650 a Belmont Homes, Inc. .................................................... 389,469
124,200 a Cannondale Corp. ....................................................... 2,204,550
146,250 Clayton Homes, Inc. .................................................... 2,084,063
129,500 a Galoob Toys, Inc. ...................................................... 2,444,313
75,000 a K-2, Inc. .............................................................. 2,376,563
140,000 Oakwood Homes .......................................................... 3,360,000
56,600 a RockShox, Inc. ......................................................... 976,350
24,400 a Sola International, Inc. ............................................... 817,400
115,800 a Southern Energy Homes, Inc. ............................................ 1,056,675
------------
15,709,383
------------
Consumer Products Non-Durables 4.2%
111,100 a Consolidated Cigar Holdings, Inc. ...................................... 3,083,025
190,000 a Designer Holdings, Ltd. ................................................ 1,935,625
77,600 a The North Face, Inc. ................................................... 1,416,200
93,800 a Tommy Hilfiger Corp. ................................................... 3,769,588
------------
10,204,438
------------
Consumer Services 3.5%
101,100 a CapStar Hotel Co. ...................................................... 3,235,200
176,400 a Prime Hospitality Corp. ................................................ 3,483,900
74,100 a Vail Resorts, Inc. ..................................................... 1,782,000
------------
8,501,100
------------
Electronic Technology 7.3%
9,300 a 3Dfx Interactive, Inc. ................................................. 124,388
78,800 a Coherent, Inc. ......................................................... 3,506,600
10,200 a Harmonic Lightwaves, Inc. .............................................. 174,675
117,800 a Komag, Inc. ............................................................ 1,928,975
57,000 a Natural Microsystems Corp. ............................................. 2,052,000
58,600 a Newbridge Networks Corp. ............................................... 2,549,100
183,000 a Spectralink Corp. ...................................................... 1,029,375
93,300 a Tekelec ................................................................ 3,300,488
101,800 a Tracor, Inc. ........................................................... 2,557,725
112,500 a Visioneer, Inc. ........................................................ 407,813
------------
17,631,139
------------
Energy & Minerals 8.8%
291,900 a Abacan Resource Corp. .................................................. 930,431
150,000 a,dAbacan Resource Corp. (Canada) ......................................... 477,932
2,000 a Atwood Oceanic, Inc. ................................................... 134,000
95,500 a Barrett Resources Corp. ................................................ 2,859,031
72,000 a Cliffs Drilling Co. .................................................... 2,628,000
73,000 Devon Energy Corp. ..................................................... 2,682,750
90,700 a Input/Output, Inc. ..................................................... 1,643,938
100,000 a Marine Drilling Cos., Inc. ............................................. 1,962,500
243,200 a Titan Exploration, Inc. ................................................ 2,948,800
152,900 a Varco International, Inc. .............................................. 4,931,025
------------
21,198,407
------------
Financial Services 7.3%
46,300 Chartwell Re Corp. ..................................................... 1,389,000
65,000 EVEREN Capital Corp. ................................................... 2,027,188
38,400 Executive Risk, Inc. ................................................... 1,996,800
162,300 a HomeSide, Inc. ......................................................... $ 3,550,313
7,200 a Life USA Holding, Inc. ................................................. 102,600
160,000 a Risk Capital Holdings, Inc. ............................................ 3,360,000
56,600 d Scor (France) .......................................................... 2,278,755
67,700 a Silicon Valley Bancshares .............................................. 3,063,425
------------
17,768,081
------------
Health Care Services 6.0%
78,600 a Access Health, Inc. .................................................... 1,925,700
153,900 a Capstone Pharmacy Services, Inc. ....................................... 1,673,663
7,326 HBO & Company .......................................................... 504,606
91,400 a Healthcare Recoveries, Inc. ............................................ 1,770,875
44,900 a Medaphis Corp. ......................................................... 451,806
124,000 a Medic Computer Systems, Inc. ........................................... 2,759,000
43,200 a Renal Care Group, Inc. ................................................. 1,800,900
20,000 a Total Renal Care Holdings, Inc. ........................................ 803,750
159,000 a Transition Systems, Inc. ............................................... 2,891,813
------------
14,582,113
------------
Health Technology 6.8%
106,000 a DepoTech Corp. ......................................................... 1,444,250
69,300 a Inhale Therapeutic Systems ............................................. 1,715,175
110,000 Mentor Corp. ........................................................... 3,258,750
210,000 a Neurobiological Technologies, Inc. ..................................... 472,500
85,000 a Neurogen Corp. ......................................................... 1,933,750
64,900 a Noven Pharmaceuticals, Inc. ............................................ 462,413
245,000 a OrthoLogic Corp. ....................................................... 1,347,500
75,700 a Penederm, Inc. ......................................................... 1,021,950
26,400 a Pharmacopeia, Inc. ..................................................... 349,800
116,100 a Serologicals Corp. ..................................................... 2,670,300
46,700 a Vertex Pharmaceuticals, Inc. ........................................... 1,786,275
------------
16,462,663
------------
Industrial Services 0.9%
52,000 Butler Manufacturing Co. ............................................... 1,722,500
5,400 a Core Laboratories, NV .................................................. 140,400
6,600 a Waters Corp. ........................................................... 236,775
------------
2,099,675
------------
Non-Energy & Minerals 1.4%
30,000 Carpenter Technology Corp. ............................................. 1,372,500
87,400 a Gibraltar Steel Corp. .................................................. 2,010,200
------------
3,382,700
------------
Process Industries 2.3%
69,200 ChemFirst, Inc. ........................................................ 1,877,050
80,500 a UCAR International, Inc. ............................................... 3,682,866
------------
5,559,916
------------
Producer Manufacturing 4.4%
60,200 Easco, Inc. ............................................................ 586,950
156,400 a Gentex Corp. ........................................................... 3,088,900
267,600 JLG Industries, Inc. ................................................... 3,646,050
65,700 Roper Industries, Inc. ................................................. 3,408,188
------------
10,730,088
------------
Real Estate Investment Trust 3.1%
60,000 Arden Realty Group, Inc. ............................................... 1,560,000
97,000 FelCor Suite Hotels, Inc. .............................................. 3,613,250
27,400 Omega Healthcare Investors, Inc. ....................................... $ 895,638
98,000 Winston Hotels, Inc. ................................................... 1,476,125
------------
7,545,013
------------
Retail 2.6%
30,000 a AnnTaylor Stores Corp. ................................................. 585,000
93,000 a Guitar Center, Inc. .................................................... 1,569,375
157,400 a Rent-Way, Inc. ......................................................... 2,321,650
71,600 a West Marine, Inc. ...................................................... 1,843,700
------------
6,319,725
------------
Semiconductors 8.7%
103,600 a Adaptec, Inc. .......................................................... 3,600,100
40,000 a Altera Corp. ........................................................... 2,020,000
71,700 a C-Cube Microsystems, Inc. .............................................. 1,259,231
21,800 a Etec Systems, Inc. ..................................................... 934,675
36,100 a Lattice Semiconductor Corp. ............................................ 2,039,650
55,000 Linear Technology Corp. ................................................ 2,846,250
116,500 a NeoMagic Corp. ......................................................... 2,606,688
108,000 a PMC-Sierra, Inc. ....................................................... 2,835,000
49,200 a Uniphase Corp. ......................................................... 2,865,900
------------
21,007,494
------------
Technology Services 13.1%
87,800 a Activision, Inc. ....................................................... 1,262,125
49,800 a Affiliated Computer Services, Inc. ..................................... 1,394,400
37,000 a Arbor Software Corp. ................................................... 1,304,250
45,000 a Broderbund Software, Inc. .............................................. 1,110,938
94,700 a Business Objects, SA, ADR .............................................. 923,325
102,200 a Electronic Arts, Inc. .................................................. 3,436,475
61,500 a Envoy Corp. ............................................................ 2,044,875
104,900 a First USA Paymentech, Inc. ............................................. 3,035,544
75,000 a FORE Systems, Inc. ..................................................... 1,021,875
6,300 a Forrester Research, Inc. ............................................... 179,569
125,700 a Integrated Systems, Inc. ............................................... 1,476,975
14,900 a International Network Services ......................................... 387,400
81,100 a Intuit, Inc. ........................................................... 1,860,231
125,000 a Phoenix Technologies, Ltd. ............................................. 1,625,000
60,000 a Remedy Corp. ........................................................... 2,400,000
58,000 a Sapient Corp. .......................................................... 2,871,000
38,500 a Software Artistry, Inc. ................................................ 611,188
32,163 a Sterling Commerce, Inc. ................................................ 1,057,359
84,000 a Synopsys, Inc. ......................................................... 3,087,000
29,000 a Trusted Information Systems, Inc. ...................................... 344,375
21,000 a XcelleNet, Inc. ........................................................ 343,875
------------
31,777,779
------------
Transportation 3.5%
60,000 Air Express International Corp. ........................................ 2,385,000
57,000 a Atlantic Coast Airlines, Inc. .......................................... 897,750
76,600 Circle International Group, Inc. ....................................... 2,020,325
115,000 Expeditors International of Washington, Inc. ........................... 3,263,125
------------
8,566,200
------------
Utilities & Communications 12.2%
191,700 a Arch Communications Group, Inc. ........................................ 1,461,713
61,339 a Cable & Wireless Communications, Plc. .................................. 1,648,486
95,400 a CommNet Cellular, Inc. ................................................. 3,315,150
84,500 HSN, Inc. .............................................................. 2,640,625
195,000 a ICG Communications, Inc. ............................................... $ 3,753,750
112,800 a Iridium World Communications ........................................... 2,044,500
62,400 a Millicom International Cellular, SA .................................... 2,979,600
444,800 a Paging Network, Inc. ................................................... 3,905,922
143,000 a Primus Telecommunications Group, Inc. .................................. 1,501,500
139,300 a Rural Cellular Corp., Class A .......................................... 1,436,531
310,200 a Western Wireless Corp. ................................................. 4,924,425
------------
29,612,202
------------
Total Long Term Investments (Cost $225,570,656) .................. 251,857,297
------------
Total Investments (Cost $225,570,656) 103.9% ................ 251,857,297
Liabilities in Excess of Other Assets (3.9%) ................ (9,440,679)
------------
Net Assets 100.0% ........................................... $242,416,618
============
At June 30, 1997, the net unrealized appreciation based on the
cost of investments for income tax purposes of $225,783,142
was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ...................... $ 40,589,995
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value ...................... (14,515,840)
------------
Net unrealized appreciation .......................................... $ 26,074,155
============
</TABLE>
aNon-income producing.
dSecurities are traded in foreign currency and value is stated in U.S. dollars.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES/
RIGHTS & VALUE
COUNTRY* WARRANTS Templeton Developing Markets Equity Fund (NOTE1)
Common Stocks, Rights & Warrants 79.7%
<S> <C> <C> <C>
Argentina 8.2%
AR 78,876 Aluar Aluminio Argentino, SA, Class B ........................... $ 283,996
AR 493,180 Astra Cia Argentina de Petroleo, SA.............................. 1,045,699
AR 530,163 Atanor Cia Nacional Para la Industria Quimica, SA, Class D ...... 853,690
AR 101,725 a Banco Bansud, SA, Class B ....................................... 1,576,974
AR 608,471 Banco de Galicia y Buenos Aires, SA, Class B .................... 4,046,938
AR 86,333 Banco Frances del Rio de la Plata, SA ........................... 935,124
US 56,200 a Buenos Aires Embotelladora, SA, Sponsored ADR ................... 562
AR 15,555 Capex, SA, Class A .............................................. 146,239
AR 310,746 CIADEA, SA ...................................................... 1,336,407
AR 36,010 Juan Minetti, SA ................................................ 172,874
AR 978,245 Molinos Rio de Plata, SA, Class B ............................... 3,825,512
AR 49,212 Nobleza Piccardo Sdad Industrial Comercial y Financial .......... 324,848
AR 662,707 Perez Companc, SA, Class B ...................................... 5,322,338
AR 184,000 Quilmes Industrial, SA .......................................... 2,139,000
AR 4,000 Quilmes Industrial, SA, reg. .................................... 41,000
AR 31,781 a Sevel Argentina, SA, Class C .................................... 64,843
AR 22,230 Siderar, Class A ................................................ 91,379
AR 1,290,000 a Sociedad Comercial del Plata Cadelplata Come .................... 4,206,031
AR 126,224 Transportadora de Gas del Sur, SA, Class B ...................... 305,508
US 153,410 YPF Sociedad Anonima, Sponsored ADR.............................. 4,717,357
AR 2,840 a Zanella Hermanos, SA ............................................ 611
--------------
31,436,930
--------------
Brazil 3.7%
US 36,800 Aracruz Celulose, SA, ADR ....................................... 749,800
BR 77,613,291 Banco Bradesco, SA .............................................. 742,573
BR 111,182,976 a Banco do Brasil, SA ............................................. 1,167,031
BR 36,132,595 a Banco do Brasil, SA, Series A, warrants ......................... 117,472
BR 54,198,893 a Banco do Brasil, SA, Series B, warrants ......................... 151,538
BR 90,331,488 a Banco do Brasil, SA, Series C, warrants ......................... 251,725
BR 36,703,000 Companhia Siderurgica Nacional .................................. 1,210,307
BR 9,982,000 Eletrobras-Centrais Eletricas Brasileiras, SA ................... 5,581,872
BR 2,224,000 a Mannesmann, SA .................................................. 256,166
BR 29,560,000 Telecomunicacoes Brasileiras - Telebras, SA ..................... 4,008,880
--------------
14,237,364
--------------
China 2.7%
US 9,000 a Beijing Yanhua Petrochemical Co., Ltd., Sponsored ADR ........... 103,500
CN 1,666,340 China Southern Glass Co., Ltd., Class B ......................... 871,101
CN 1,158,000 a Chiwan Wharf Holdings, Ltd., Class B ............................ 708,495
CN 865,000 Guangzhou Shipyard International Co., Ltd., Class H ............. 161,895
CN 2,107,000 a Luoyang Glass Co., Ltd., Class H ................................ 367,154
US 96,500 Shandong Huaneng Power Co., Ltd., Sponsored ADR ................. 1,037,375
CN 1,269,000 a Shanghai Chlor-Alkali Chemical Co., Ltd., Class B ............... 362,934
CN 1,016,600 a Shanghai Dazhong Taxi Shareholding Co., Ltd., Class B ........... 902,741
CN 327,600 a Shanghai Industrial Sewing Machine Corp. ........................ 39,967
CN 1,732,500 a Shanghai Jin Jiang Tower Co., Ltd., Class B ..................... 547,470
CN 592,900 Shanghai Lujiaxui Finance & Trade Zn Dev Stock Co., Ltd, Class B 847,847
CN 157,000 Shanghai New Asia Group Co., Ltd., Class B ...................... 85,722
CN 2,304,000 Shanghai Petrochemical Co., Ltd., Class H ....................... 553,153
CN 636,480 a Shanghai Refrigerator Compressor Co., Ltd., Class B ............. 305,510
CN 406,750 a Shanghai Shangling Electric Appliance, Class B .................. 83,790
CN 1,481,000 Shanghai Tyre & Rubber Co., Ltd., Class B ....................... 725,690
CN 1,744,361 a Shanghai Vacuum Electron Devices Co., Ltd., Class B ............. 348,872
CN 682,000 a Shanghai Yaohua Pilkington Glass, Class B ....................... 246,884
CN 2,163,349 Shenzhen Vanke Co., Ltd., Class B ............................... $ 2,102,670
CN 34,000 a Tsingtao Brewey Co., Class H .................................... 13,166
--------------
10,415,936
--------------
Czech Republic 1.1%
CS 95,430 a CEZ.............................................................. 2,633,830
CS 19,358 Chemopetrol Group, AS ........................................... 683,511
CS 17 Elektrarny Opatovice, AS ........................................ 2,228
CS 1,000 Komercni Banka, AS .............................................. 51,807
CS 7,610 SPT Telecom, AS ................................................. 797,891
CS 130 a Tabak, AS ....................................................... 30,467
--------------
4,199,734
--------------
Ghana 0.4%
US 143,427 Ashanti Goldfields Co., Ltd., Sponsored GDR ..................... 1,676,303
--------------
Greece 4.1%
GR 57,999 Alpha Credit Bank ............................................... 3,945,950
GR 31,000 Alpha Leasing, SA ............................................... 822,649
GR 61,140 Delta Dairy, SA ................................................. 756,711
GR 6,220 Elais Oleaginous Co. ............................................ 180,910
GR 17,983 Ergo Bank, SA ................................................... 1,080,119
GR 40,690 Etba Leasing .................................................... 413,254
GR 36,250 Hellas Can - Container Manufacturers ............................ 669,683
GR 16,450 Hellenic Telecommunications Organization, SA .................... 386,235
US 154,000 b Hellenic Telecommunications Organization, SA .................... 3,615,813
GR 170,450 a Hellenic Telecommunications Organization, SA, rights ............ 20,941
GR 29,000 a Intracom, SA, reg. .............................................. 1,320,629
GR 5,687 a National Bank of Greece, SA ..................................... 695,582
GR 34,340 Titan Cement Co., reg............................................ 1,693,812
--------------
15,602,288
--------------
Hong Kong 7.5%
HK 529,000 Cheung Kong Holdings, Ltd. ...................................... 5,223,562
HK 70,000 Cross Harbour Tunnel Co., Ltd. .................................. 149,536
HK 268,208 Dairy Farm International Holdings, Ltd. ......................... 201,156
HK 1,154,000 a East Asiatic Co., (Hong Kong), Ltd. (The) ....................... 192,897
HK 530,679 Great Wall Electronic International, Ltd. ....................... 56,854
HK 1,536,000 Hang Lung Development ........................................... 2,815,329
HK 577,000 Hongkong Electric Holdings, Ltd. ................................ 2,323,700
HK 81,000 Hongkong & Shanghai Hotels, Ltd. ................................ 129,122
HK 347,000 Hopewell Holdings, Ltd. ......................................... 219,470
HK 180,357 HSBC Holdings, Plc. ............................................. 5,424,236
HK 33,418 Jardine Matheson Holdings, Ltd. ................................. 237,268
HK 108,625 Jardine Strategic Holdings, Ltd. ................................ 410,602
HK 1,005,804 K Wah International Holdings, Ltd. .............................. 189,547
HK 755,600 Lai Sun Development Co., Ltd. ................................... 848,518
HK 301,000 Lai Sun Garment International, Ltd. ............................. 369,096
HK 151,651 a Lai Sun Hotels International, Ltd., warrants .................... 13,311
HK 882,000 Laws International Holdings, Ltd. ............................... 225,415
HK 717,127 New World Development Co., Ltd. ................................. 4,276,492
HK 2,102,400 a S. Megga International Holdings, Ltd. ........................... 149,255
HK 311,598 Semi-Tech (Global) Co., Ltd. .................................... 508,786
HK 109,400 Sun Hung Kai & Co., Ltd. ........................................ 32,831
HK 42,080 a Sun Hung Kai & Co., Ltd, warrants ............................... 3,965
HK 276,000 Sun Hung Kai Properties, Ltd. ................................... 3,322,061
HK 12,500 Swire Pacific, Ltd., Class A .................................... 112,539
HK 95,000 Swire Pacific, Ltd., Class B .................................... 144,082
HK 600,000 Tian An China Investments Co., Ltd. ............................. 81,319
HK 886,000 Tungtex (Holdings) Co., Ltd. .................................... $ 91,490
HK 207,000 Wheelock & Co., Ltd. ............................................ 508,997
HK 2,753,200 a Wo Kee Hong Holdings, Ltd. ...................................... 195,456
HK 300,000 a Yaohan Hongkong Corp., Ltd. ..................................... 15,489
HK 251,200 Yue Yuen Industrial Holdings .................................... 520,408
--------------
28,992,789
--------------
India 2.6%
IN 141,850 a Arvind Mills, Ltd. .............................................. 515,098
IN 95,700 a Bank of Baroda................................................... 247,270
IN 6,200 Bharat Petroleum Corp., Ltd. .................................... 77,846
IN 6,750 a Bombay Dyeing & Manufacturing Co., Ltd. ......................... 18,195
IN 6,000 BSES, Ltd. ...................................................... 39,930
IN 82,750 Cochin Refineries, Ltd. ......................................... 353,652
IN 28,900 Grasim Industries, Ltd. Ord INR10 ............................... 301,513
IN 271,700 Great Eastern Shipping Co. ...................................... 371,880
IN 11,800 Gujarat Ambuja Cements, Ltd. .................................... 114,209
IN 52,100 a Gujarat Industries Power, Ltd. .................................. 41,476
IN 7,000 Gujarat Narmada Valley Fertilizers Co., Ltd. .................... 4,448
IN 3,175 Hindalco Industries ............................................. 86,470
IN 25,900 Hindustan Organic Chemicals, Ltd. ............................... 18,087
IN 55,900 Hindustan Petroleum Corp., Ltd. ................................. 707,338
IN 61,600 a India Cements, Ltd. ............................................. 185,832
US 3,051 India Cements, Ltd., GDR ........................................ 9,153
IN 38,500 Indian Aluminium Co., Ltd. ...................................... 143,300
IN 127,200 Indian Petrochemicals Corp., Ltd. ............................... 515,196
IN 20,350 Indian Rayon & Industries, Ltd. ................................. 210,321
US 7,113 Indian Rayon & Industries, Ltd., GDR ............................ 89,090
IN 143,300 Indo Gulf Fertilisers & Chemicals Corp., Ltd. ................... 138,096
IN 190,480 Industrial Credit & Inv. Corp. of India (ICICI) ................. 416,342
IN 166,300 a Industrial Development Bank of India ............................ 474,977
IN 66,700 ITC Bhadrachalam Paperboards, Ltd. .............................. 85,704
IN 85,300 Larsen &Toubro, Ltd. ............................................ 581,374
IN 100 Madras Cements .................................................. 22,556
IN 2,600 Mahanagar Telephone Nigam, Ltd. ................................. 21,969
IN 198,200 a National Aluminium Co., Ltd. .................................... 251,902
IN 114,800 a Oriental Bank of Commerce ....................................... 223,507
IN 58,700 Reliance Industries, Ltd. ....................................... 609,545
IN 190,500 Shipping Corporation of India, Ltd. ............................. 259,410
IN 505,900 Steel Authority of India, Ltd. .................................. 289,691
US 45,000 Steel Authority of India, Ltd., GDR, reg S ...................... 402,750
IN 9,100 Sterlite Industries (India), Ltd. ............................... 67,996
IN 76,350 a Tata Chemicals, Ltd. ............................................ 386,015
IN 91,600 Tata Engineering & Locomotive Co., Telco ........................ 1,156,514
IN 97,450 a Tata Iron & Steel Co., Ltd. ..................................... 520,595
IN 3,200 Thermax, Ltd. ................................................... 31,285
IN 2,000 Wockhardt ....................................................... 11,006
--------------
10,001,538
--------------
Indonesia 5.6%
US 49,500 a Asia Pulp & Paper Co., Ltd., Sponsored ADR ...................... 748,688
ID 1,771,000 PT Bank Dagang Nasional Indonesia, fgn. ......................... 1,256,157
ID 126,500 a PT Bank Dagang Nasional Indonesia, warrants ..................... 52,015
ID 162,000 PT Bank Danamon, fgn. ........................................... 84,930
ID 570,500 PT Bank PDFCI, fgn. ............................................. 533,671
ID 2,259,000 PT Barito Pacific Timber, fgn. .................................. 1,927,395
ID 150,000 PT BBL Dharmala Finance, fgn. ................................... 209,704
ID 205,500 PT BDNI Capital Corp., fgn. ..................................... 162,659
ID 2,493,750 PT Charoen Pokphand Indonesia, fgn. ............................. $ 1,127,930
ID 800,000 PT Ciputra Dev................................................... 797,697
ID 196,000 a PT Dharmala Intiland, fgn. ...................................... 282,072
ID 2,447,500 PT Gadjah Tunggal TBK, fgn. ..................................... 1,207,648
ID 715,000 PT Indah Kiat Pulp & Paper Corp., fgn. .......................... 418,945
ID 643,500 a PT Indah Kiat Pulp & Paper Corp., rights......................... 112,454
ID 777,000 PT Indocement Tunggal Prakarsa, fgn. ............................ 1,206,075
ID 206,000 PT Indosat, fgn ................................................. 616,221
ID 12,000 a PT Inter-Pacific Bank, fgn. ..................................... 10,979
ID 885,000 a PT Jakarta International Hotel & Development TBK, fgn. .......... 1,009,817
ID 337,500 PT Japfa Comfeed Indonesia TBK................................... 225,509
ID 127,000 PT Kalbe Farma, fgn. ............................................ 169,716
ID 109,000 PT Modern Photo Film Co., fgn. .................................. 385,444
ID 441,750 a PT Multibreeder Adirama TBK, fgn. ............................... 158,936
ID 676,630 PT Pabrik Kertas Tjiwi Kimia, fgn. .............................. 785,970
ID 17,000 PT Semen Cibinong TBK, fgn. ..................................... 44,562
ID 118,500 PT Semen Gresik, fgn. ........................................... 265,553
ID 745,800 PT Sinar Mas Agro Resources & Technology Corp., fgn. ............ 674,655
ID 3,099,250 PT Sinar Mas Multi Artha, fgn. .................................. 2,835,457
ID 232,440 a PT Sinar Mas Multi Artha, warrants, fgn. ........................ 117,080
ID 349,000 a PT Sumalindo Lestari Jaya, fgn. ................................. 315,707
ID 658,320 PT Summarecon Agung, fgn. ....................................... 392,502
ID 794,500 PT Tambang Timah, fgn. .......................................... 1,233,239
ID 338,500 PT Ultra Jaya Milk, fgn. ........................................ 184,421
ID 68,200 a PT Unggul Indah Corp., fgn. ..................................... 109,367
ID 483,000 PT United Tractors, fgn. ........................................ 1,787,418
--------------
21,450,593
--------------
Israel 1.2%
IL 25,730 Agis Industries, Ltd. ........................................... 269,798
IL 577,883 Bank Hapoalim BM................................................. 1,203,193
IL 251,327 Clal Industries, Ltd. ........................................... 1,256,460
IL 15,748 Discount Investment Corp. ....................................... 1,255,809
IL 768 First International Bank of Israel .............................. 593,395
IL 265 Koor Industries, Ltd. ........................................... 23,402
--------------
4,602,057
--------------
Jordan
ZR 10,000 a Jordan Cement Factories, Ltd. ................................... 57,546
--------------
Malaysia 2.3%
MY 155,000 a Aokam Perdana, Bhd. ............................................. 172,563
MY 418,000 Berjaya Singer, Bhd. ............................................ 808,177
MY 89,000 Berjaya Singer, Bhd., fgn. ...................................... 172,076
MY 204,000 Boustead Holdings, Bhd., fgn. ................................... 444,532
MY 50,000 Federal Flour Mills, Bhd. ....................................... 123,811
MY 288,200 Hong Leong Industries, Bhd. ..................................... 913,471
MY 38,000 a Hong Leong Industries, Bhd., warrants, fgn. ..................... 31,315
MY 75,000 Island & Peninsula, Bhd., fgn. .................................. 240,689
MY 688,000 Leader Universal Holdings, Bhd. ................................ 1,237,528
MY 256,666 Malaysia International Shipping, Bhd., fgn. ..................... 666,071
MY 517,000 MBF Capital, Bhd. ............................................... 950,428
MY 237,500 Perlis Plantations, Bhd., fgn. .................................. 696,315
MY 1,297,000 Renong, Bhd. .................................................... 1,695,761
MY 16,750 a Renong, Bhd., warrants .......................................... 8,826
MY 726,000 Shangri-La Hotels (Malaysia) Bhd. ............................... 693,209
MY 123,000 Shangri La Hotels (Malaysia) Bhd., fgn. ......................... 117,445
--------------
8,972,217
--------------
Mexico 11.3%
MX 1,846,000 Cementos Mexicanos, SA de CV (Cemex), Class B ................... $ 8,995,240
MX 408,639 Cifra, SA de CV, Series A ....................................... 755,329
MX 3,341,085 Cifra, SA de CV, Series C ....................................... 5,342,707
US 38,400 Coca Cola Femsa, SA, Sponsored ADR .............................. 1,982,400
MX 181,938 Cydea, SA de CV.................................................. 485,657
MX 110,034 DESC, SA, Class B ............................................... 803,572
MX 13,515 DESC, SA, Class C ............................................... 97,508
MX 250,000 Fomento Economico Mexicano, SA de CV, Class B ................... 1,487,346
MX 13,429 Grupo Carso, SA de CV ........................................... 93,506
MX 899,000 a Grupo Financiero Banamex Accival, SA, Class B ................... 2,309,192
MX 1,146,137 a Grupo Financiero Banamex Accival, SA, Class L ................... 2,713,092
MX 5,650,000 a Grupo Financiero Bancomer, SA de CV, Class B .................... 2,717,577
MX 2,096,259 a Grupo Financiero Bancomer, SA de CV, Class L .................... 752,246
MX 2,162,816 a Grupo Financiero Serfin, SA, Class B ............................ 691,709
MX 97,000 Telefonos de Mexico, SA, Class L ................................ 232,057
US 228,200 Telefonos de Mexico, SA, Class L, Sponsored, ADR ................ 10,896,550
US 1,500 Transportacion Maritima Mexicana, SA de CV, Class L, ADR ........ 9,281
MX 843,849 a Vitro, SA ....................................................... 3,118,480
--------------
43,483,449
--------------
Philippines 0.2%
PH 299,000 a Filinvest Development Corp. ..................................... 71,417
PH 600,000 a Keppel Philippine Holdings Inc., Class B ........................ 72,793
PH 5,146,500 a Philex Mining Corp., Class B .................................... 429,265
PH 25,970 a Philippine National Bank ........................................ 176,245
PH 435,000 a RFM Corp. ....................................................... 105,551
--------------
855,271
--------------
Poland 0.8%
PL 67,955 a Bank Gdanski, SA ................................................ 785,726
US 23,000 a Bank Gdanski, SA, GDR ........................................... 270,250
PL 269,000 Bank Inicjatyw Gospodarczch, SA, Class G ........................ 323,307
PL 13,638 Bank Przemyslowo-Handlowy, SA ................................... 670,177
PL 18,000 a Mostostal Export, SA ............................................ 56,960
PL 15,410 a Polifarb Ceiszyu, SA ............................................ 78,304
PL 10,000 a Raciborska Fabryka Kotlow, SA ................................... 44,424
PL 53,051 Rolimpex, SA .................................................... 209,847
PL 20,000 Warta, SA ....................................................... 289,061
PL 14,742 Wielkopolski Bank Kredytowy, SA ................................. 84,330
PL 9,372 Zaklady Cementowo Wapiennicze Gorazdze Chorula .................. 320,812
--------------
3,133,198
--------------
Portugal 4.0%
PT 382,894 Banco Comercial Portugues, SA ................................... 7,231,886
PT 151,980 Banco Espirito Santo e Comercial de Lisboa ...................... 3,444,788
PT 63,454 Banco Totta & Acores, SA ........................................ 1,060,391
PT 50,022 BPI SGPS, SA .................................................... 973,495
US 93,840 Espirito Santo Financial Holding, SA, ADR ....................... 1,865,070
PT 75,000 Portucel Industrial-Empresa Produtoria de Celulosa, SA .......... 556,140
PT 7,010 a Sociedade Portuguesa de Celulose, SA ............................ 209,515
--------------
15,341,285
--------------
Singapore 3.0%
SG 293,000 Acer Computer International, Ltd. ............................... 539,120
SG 22,000 a Acer Computer International, Ltd., warrants ..................... 12,650
SG 184,000 Acma, Ltd., fgn. ................................................ 316,598
SG 46,000 a Acma, Ltd., fgn., warrants ...................................... 23,166
SG 18,000 British American Tobacco, Ltd. .................................. 73,022
SG 202,000 First Capital Corp., Ltd. ....................................... $ 525,593
SG 331,000 First Capital Corp., Ltd., fgn. ................................. 861,244
SG 72,000 GP Batteries International, Ltd. ................................ 214,535
SG 18,000 a GP Batteries International, Ltd., warrants ...................... 27,450
SG 1,698,000 Hai Sun Hup Group, Ltd. ......................................... 1,223,292
SG 391,200 a Hai Sun Hup Group, Ltd., warrants ............................... 103,977
SG 167,000 Hinds Hotels International, Ltd. ................................ 299,028
SG 177,000 Hinds Hotels International, Ltd., fgn. .......................... 316,934
SG 100,000 Hour Glass, Ltd. ................................................ 78,338
SG 285,000 Inchcape Berhad., fgn. .......................................... 1,026,614
SG 75,500 Isetan (Singapore), Ltd., fgn. .................................. 171,099
SG 269,000 Jurong Shipyard, fgn ............................................ 1,166,538
SG 328,000 MCL Land, Ltd. .................................................. 497,839
SG 476,000 Natsteel, Ltd., fgn. ............................................ 1,211,891
SG 78,000 Natsteel, Ltd., loc. ............................................ 198,587
SG 178,000 Osprey Maritime, Ltd. ........................................... 232,818
SG 178,000 a Osprey Maritime, Ltd., rights ................................... 52,291
SG 2,000 Overseas Union Enterprise, Ltd. ................................. 9,233
SG 16,000 Robinson & Co., Ltd. ............................................ 83,374
SG 322,000 Sembawang Corp., Ltd. ........................................... 1,463,943
SG 164,000 United Industrial Corp. ......................................... 123,886
SG 639,000 United Industrial Corp., Ltd., fgn. ............................. 482,703
SG 111,000 WBL Corp., Ltd. ................................................. 335,399
--------------
11,671,162
--------------
Slovak Republic 0.2%
SS 6,600 a Nafta Gbely, AS ................................................. 215,936
SS 27,010 Slovnaft, AS .................................................... 666,795
--------------
882,731
--------------
South Africa 3.6%
ZA 14,000 Aeci, Ltd. ...................................................... 83,315
ZA 12,700 Alpha, Ltd. ..................................................... 219,038
ZA 11,919 Anglo American Industrial Corp., Ltd. ........................... 522,786
ZA 21,800 Anglo American Platinum Corp., Ltd. ............................. 180,185
ZA 34,715 Anglovaal Industried, Ltd. ...................................... 127,015
ZA 626,000 BTR Dunlop, Ltd. ................................................ 620,895
ZA 73,000 CG Smith, Ltd. .................................................. 407,075
ZA 1,599,800 Del Monte Royal Foods, Ltd. ..................................... 828,638
ZA 6,000 Edgars Stores ................................................... 156,711
ZA 342,029 Engen, Ltd. ..................................................... 1,707,504
ZA 63,600 First National Bank Holdings, Ltd. .............................. 546,705
ZA 10,721 Foodcorp, Ltd. .................................................. 81,524
ZA 76,800 Kersaf Investments, Ltd. ........................................ 534,062
ZA 42,100 Malbak, Ltd. .................................................... 66,811
ZA 74,000 McCarthy Retail, Ltd. ........................................... 212,034
ZA 107,000 Palabora Mining Co., Ltd. ....................................... 1,981,045
ZA 10,345 Potgietersrust Platinums, Ltd. .................................. 78,095
ZA 311,500 a Rainbow Chicken, Ltd. ........................................... 62,479
ZA 118,070 Rembrandt Group, Ltd. ........................................... 1,259,552
ZA 16,500 Reunert, Ltd. ................................................... 56,552
ZA 128,351 Sappi, Ltd. ..................................................... 1,159,883
ZA 218,800 Sentrachem, Ltd. ................................................ 385,806
ZA 31,000 South African Breweries, Ltd. ................................... 951,455
ZA 1,456,473 South African Iron & Steel Industrial Corp., Ltd. ............... 963,063
ZA 689,585 Sun International (South Africa), Ltd. .......................... 389,098
ZA 400 Toyota South Africa, Ltd. ....................................... $ 2,530
ZA 151,000 Voltex Holdings, Ltd. ........................................... 85,202
--------------
13,669,058
--------------
South Korea 2.2%
KR 12,000 Asia Cement Co., Ltd. ........................................... 391,892
KR 88,730 Boram Bank Co., Ltd. ............................................ 584,539
KR 1,850 BYC Co., Ltd. ................................................... 190,625
KR 27,375 Central Banking Corp............................................. 413,091
US 25,400 Cho Hung Bank Co., Ltd., GDR .................................... 182,245
KR 5,960 Dae Duck Electronics Co., Ltd. .................................. 375,856
KR 84,876 Daegu Bank ...................................................... 727,535
KR 25,292 a Daegu Bank, rights .............................................. 40,208
KR 21,000 Dongkuk Steel Mill Co., Ltd. .................................... 480,068
KR 1,000 Hae In Corp., Ltd. .............................................. 55,180
US 33,028 Hana Bank, GDR .................................................. 477,260
KR 3,950 Hankook Cosmetics Co., Ltd. ..................................... 106,312
KR 142,520 Korea First Bank ................................................ 593,833
KR 64,400 Korea Kumho Petrochemical ....................................... 446,739
KR 53,410 Kyong Nam Bank .................................................. 574,903
KR 1,000 Moon Bae Steel Co., Ltd. ........................................ 31,982
KR 5,830 Samsung Display Devices (L), Ltd ................................ 321,577
KR 11,000 a Samsung Heavy Industries Co., Ltd. .............................. 115,946
KR 81,990 Ssangyong Oil Refining Co., Ltd.................................. 1,661,959
KR 52,287 Tong Yang Merchant Bank ......................................... 541,711
--------------
8,313,461
--------------
Sri Lanka
LK 17,960 Associated Motorways, Ltd. ...................................... 11,208
LK 9,142 John Keells Holdings, Ltd. ...................................... 47,750
--------------
58,958
--------------
Thailand 6.6%
TH 30,800 American Standard Sanitaryware (THB) Public Co., Ltd., fgn. ..... 165,265
TH 18,400 Asia Credit Public Co., Ltd., fgn. .............................. 46,879
TH 48,000 Asia Credit Public Co., Ltd., loc. .............................. 100,984
TH 49,100 Ayudhya Insurance Public Co., Ltd., fgn. ........................ 379,077
TH 488,200 Bangkok Bank Public Co., Ltd. ................................... 2,431,106
TH 35,000 Bangkok Bank Public Co., Ltd., fgn. ............................. 240,494
TH 7,900 Bangkok Insurance ............................................... 101,857
TH 4,900 Bangkok Insurance, fgn. ......................................... 85,592
TH 495,100 Bangkok Land Public Co., Ltd., fgn. ............................. 353,575
TH 20,000 Bank of Ayudhya Public Co., Ltd. ................................ 30,882
TH 231,700 Bank of Ayudhya Public Co., Ltd., fgn. .......................... 362,241
TH 138,000 Charoen Pokphand Feedmill Public Co., Ltd. ...................... 271,685
TH 376,900 a Charoen Pokphand Feedmill Public Co., Ltd., fgn. ................ 931,156
TH 331,000 First Bangkok City Bank Public Co., Ltd., fgn. .................. 265,132
TH 43,300 Hana Microelectronics Co., Ltd. ................................. 202,251
TH 38,900 Hana Microelectronics Co., Ltd., fgn. ........................... 208,728
TH 16,000 Hua Thai Manufacturing Public Co., Ltd. ......................... 27,176
TH 752,900 Industrial Finance Corp. of Thailand, fgn. ...................... 959,108
TH 30,000 Jasmine International Public Co., Ltd. .......................... 27,794
TH 825,000 Jasmine International Public Co., Ltd., fgn. .................... 732,484
TH 124,650 a Karat Sanitaryware Public Co., Ltd., fgn. ....................... 62,554
TH 50,700 Kian Gwan (Thailand) Public Co., Ltd., fgn. ..................... 129,172
TH 205,400 a Land and House Public Co., Ltd. ................................. 443,370
TH 102,700 a Land and House Public Co., Ltd., fgn. ........................... 428,164
TH 397,000 Phatra Thanakit Public Co., Ltd. ................................ 406,118
TH 477,300 Phatra Thanakit Public Co., Ltd., fgn. .......................... $ 589,600
TH 95,200 Regional Container Lines Public Co., Ltd., fgn. ................. 565,945
TH 256,800 a Royal Ceramic Industry Public Co., Ltd., fgn. ................... 39,653
TH 80,700 Saha Pathanapibul Public Co Ltd., fgn. .......................... 143,301
TH 199,600 Saha-Union Public Co., Ltd. ..................................... 125,207
TH 390,000 Saha-Union Public Co., Ltd., fgn. ............................... 286,045
TH 42,600 Sanyo Universal Electric Public Co., Ltd. ....................... 37,001
TH 5,200 Sanyo Universal Electric Public Co., Ltd., fgn. ................. 4,516
TH 41,000 Serm Suk Public Co., Ltd. ....................................... 506,466
TH 80,800 The Siam Cement Public Co., Ltd., fgn. .......................... 1,397,352
TH 4,900 The Siam Cement Public Co., Ltd., fgn. .......................... 73,013
TH 1,661,500 Siam City Bank Public Co., Ltd., fgn. ........................... 978,108
TH 197,600 Siam Commercial Bank Ltd., fgn. ................................. 808,554
TH 149,000 Siam Commercial Bank Ltd., loc. ................................. 557,923
TH 23,200 a Sino-Thai Engineering & Construction Public Co. ................. 64,482
TH 87,100 a Sino-Thai Engineering & Construction Public Co., fgn. ........... 242,085
TH 589,000 a Thai Airways International Public Co., Ltd. ..................... 864,003
TH 116,410 Thai Asahi Glass Public Co., Ltd. ............................... 69,653
TH 1,333,300 Thai Farmers Bank Public Co., Ltd. .............................. 4,091,772
TH 30,000 Thai Farmers Bank Public Co., Ltd., fgn. ........................ 127,389
TH 290,000 Thai Investments and Securities Ltd. ............................ 593,322
TH 425,800 Thai Military Bank Ltd., fgn. ................................... 476,671
TH 1,043,520 Thai Petrochemical Industry Public Co., Ltd., fgn. .............. 654,592
TH 43,000 Thai Rayon Public Co., Ltd. ..................................... 91,295
TH 2,300 Thai Rayon Public Co., Ltd., fgn. ............................... 4,950
TH 313,100 a Thai Telephone & Telecommunication Public Co., Ltd. ............. 129,930
TH 26,400 Thai Wacoal Public Co., Ltd., fgn. .............................. 87,643
TH 8,450 Thai Wah Public Co., Ltd., fgn. ................................. 3,262
TH 25,000 Tipco Asphalt Public Co., Ltd. .................................. 130,284
TH 42,000 Tipco Asphalt Public Co., Ltd., fgn, (TASCO) .................... 218,877
TH 185,000 Total Access Communication Public Co., Ltd. ..................... 858,400
TH 205,200 United Communications Industries, fgn. .......................... 863,416
TH 109,000 United Communications Industry Public Co., Ltd., loc. ........... 450,222
TH 4,500 United Motor Works (Siam) Public Co., Ltd. ...................... 5,342
--------------
25,533,118
--------------
Turkey 5.7%
TR 103,403,250 Akbank .......................................................... 8,876,562
TR 1,380,000 a Alarko Gayrimenkul Yatirim Ortakigi, AS ......................... 58,536
TR 1,704,000 Alarko Sanayii ve Ticaret, SA ................................... 203,642
TR 2,075,000 Alcatel Teletas Endustri Tic, AS ................................ 384,195
TR 4,705,000 a Anadolu Anonim Turk Sigorta Sirketi ............................. 126,713
TR 4,688,000 a Anadolu Anonim Turk Sigorta Sirketi, new ........................ 126,255
TR 6,487,457 Arcelik, AS ..................................................... 873,584
TR 159,000 Bagfas .......................................................... 38,004
TR 7,609,151 Beko Elektronik, AS ............................................. 614,777
TR 1,580,000 Borusan, AS ..................................................... 95,741
TR 3,223,070 Cimentas Izmir Cimento Fabrikasi Turk, AS ....................... 428,585
TR 1,416,000 Cimsa Cimento Sanayi ve Ticaret, AS ............................. 190,675
TR 3,500,000 Erciyas Biracilik ............................................... 418,280
TR 17,375,000 Eregli Demir ve Celik Fabrikalari, AS ........................... 2,895,346
TR 3,990,142 Izocam Ticaret ve Sanayii, AS, br. .............................. 137,012
TR 4,291,666 Koc Holding, AS ................................................. 1,011,334
TR 3,446,800 Koc Yatirim ve Sanayii Mamullesi Pazarlanca, AS ................. 916,671
TR 1,620,528 Marshall Boya ve Vernik Sanayii, AS ............................. 201,850
TR 1,345,000 a Netas Northern Electric Telekomunic Asyon, AS ................... 371,284
TR 280,000 Petkim Petrokimya Holding, AS ................................... 96,145
TR 4,829,663 Tat Konserve Sanayii, AS ........................................ $ 357,693
TR 22,514,025 Tofas Turk Otomobil Fabrikasi, AS ............................... 1,091,405
TR 6,949,993 Turk Demir Dokum, br. ........................................... 350,951
TR 53,025,330 Turkiye Garanti Bankasi, AS ..................................... 1,999,272
TR 2,141,344 Vakif Finansal Kiralama, AS ..................................... 33,520
TR 3,212,015 a Vakif Finansal Kiralama, AS, new ................................ 31,898
--------------
21,929,930
--------------
Venezuela 2.5%
VE 341,440 Ceramica Carabobo CA, Class A ................................... 371,737
US 272,288 Ceramica Carabobo CA, Class A, ADR .............................. 296,449
VE 2,765,696 a Consolidada Carabobo, Class B ................................... 157,657
VE 1,245,939 Electricidad de Caracas ......................................... 1,996,221
VE 60,000 Industrias Ventane .............................................. 42,522
VE 10,000 a Manufacturera de Aparatos Domesticos, SA ........................ 10,682
US 387,000 Mavesa, SA, ADR ................................................. 3,918,375
VE 100,000 Siderurgica Venezolana Sivensa Saica Svs ........................ 51,766
US 241,650 Siderurgica Venezolana Sivensa Saica Svs, ADR ................... 1,250,928
US 22,878 Siderurgica Venezolana Sivensa SAICA Svs., ADR, Class B, new .... 105,742
VE 328,975 Vencemos de Cementos, SA ........................................ 1,115,043
VE 31,537 Venezolana de Cementos-Vencemos, #2 ............................. 101,710
--------------
9,418,832
--------------
Zimbabwe 0.2%
ZW 42,258 Delta Corp....................................................... 64,841
ZW 25,000 Ta Holdings...................................................... 4,713
ZW 587,000 Transarchipel Shipping, Ltd.- TSL ............................... 322,966
ZW 860,046 Zimbabwe Sun, Ltd. .............................................. 320,491
--------------
713,011
--------------
Total Common Stocks, Rights & Warrants (Cost $253,242,874). 306,648,759
--------------
Preferred Stocks 8.6%
Brazil 8.5%
BR 110,000,000 a Banco do Brazil, SA, pfd. ....................................... 1,318,099
BR 218,198,700 a Banespa-Banco do Estado de Sao Paulo, SA, pfd. .................. 5,373,134
BR 4,496,000 Brasmotor, SA, pfd. ............................................. 1,002,313
BR 2,975,700 Copene-Petroquimica do Nordeste, SA, A, pfd. .................... 1,102,879
BR 50,115,800 Duratex, SA, pfd. ............................................... 2,653,011
BR 11,529,000 Eletrobras-Centrais Eletricas Brasileiras, SA, B, pfd. .......... 6,875,313
BR 1,484,200 Itausa-Investimentos Itau, SA, pfd. ............................. 1,364,877
BR 362,700 a Mannesmann, SA, pfd. ............................................ 46,830
BR 43,115,000 Petrobras-Petroleo Brasileiro, SA, pfd. ......................... 11,975,121
BR 30,878,000 Uniao de Bancos Brasileiros, SA, pfd. ........................... 1,132,667
--------------
32,844,244
--------------
Malaysia
MY 26,800 Renong, cvt. pfd. ............................................... 8,494
--------------
Philippines
PH 79,090 RFM Corp., cvt. pfd. ............................................ 14,032
--------------
Singapore
SG 96,120 a Osprey Maritime, Ltd., rights, pfd. ............................. 7
--------------
South Africa 0.1%
ZA 771,052 Rainbow Chicken Ltd., cvt. pfd. ................................. 152,953
--------------
Total Preferred Stocks (Cost $18,285,046).................. 33,019,730
--------------
Convertible Bonds................................................
AR 6,000 Juan Minetti SA, cvt., 12/30/05 ................................. $ 6,001
ZA 24,000 McCarthy Retail Ltd., zero, cvt., 09/30/03 ...................... 69,032
--------------
Total Convertible Bonds (Cost $84,816) .................... 75,033
--------------
Total Long Term Investments (Cost $271,612,736) ........... $339,743,522
--------------
e Short Term Investments 11.4%
US 44,087,000 U.S. Treasury Bills, 4.68% - 5.141%, with maturities to
09/25/97 (Cost $43,787,477) .................................... 43,787,013
--------------
Total Investments 99.7% (Cost $315,400,213) .......... 383,530,535
Other Asset and Liabilities, Net 0.3% ................ 1,234,633
--------------
Net Assets 100.0% .................................... $384,765,168
==============
At June 30, 1997, the net unrealized appreciation based on the cost of
investments for income tax purposes of $315,502,709 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ..................... $ 99,796,561
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ..................... (31,768,735)
--------------
Net unrealized appreciation.................................... $ 68,027,826
==============
CURRENCY LEGEND:
AR - Argentina
BR - Brazil
CN - China
CS - Czech Republic
GR - Greece
HK - Hong Kong
ID - Indonesia
IL - Israel
IN - India
KR - South Korea
LK - Sri Lanka
MX - Mexico
MY - Malaysia
PH - Philippines
PL - Poland
PT - Portugal
SG - Singapore
SS - Slovak Republic
TH - Thailand
TR - Turkey
US - United States
VE - Venezuela
ZA - South Africa
ZR - Jordan
ZW - Zimbabwe
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private placement transactions; resale may only be to qualified institutional buyers.
eCertain short-term securities are traded on a discount basis; the rates shown are the discount rates at the time of
purchase by the Fund. Other securities bear interest at the rates shown, payable at fixed dates or upon maturity.
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
VALUE
COUNTRY* SHARES Templeton Global Asset Allocation Fund (NOTE1)
a,b Common Stocks 58.7%
<S> <C> <C> <C>
Argentina 0.2%
US 2,000 Telecom Argentina Stet - France Telecom, SA, Sponsored ADR ...... $ 105,000
US 6,900 Transportadora de Gas del Sur, SA, Class B, Sponsored ADR ....... 86,250
--------------
191,250
--------------
Australia 1.4%
AU 60,707 Coles Myer Ltd. ................................................. 315,815
AU 317,009 David Jones, Ltd. ............................................... 442,810
AU 95,654 HIH Winterthur International Holdings, Ltd. ..................... 231,115
AU 42,439 Pacific BBA, Ltd. ............................................... 160,217
AU 10,182 RGC, Ltd. ....................................................... 37,286
--------------
1,187,243
--------------
Austria 0.6%
AT 1,060 b Boehler - Uddeholm, AG .......................................... 82,200
AT 3,000 EVN Energie-Versorgung Niederoesterreich, AG .................... 386,513
--------------
468,713
--------------
Belgium 0.1%
BE 600 a Union Miniere, NPV .............................................. 56,182
--------------
Bermuda 1.5%
US 8,400 Ace, Ltd. ....................................................... 620,550
US 17,500 PartnerRe, Ltd. ................................................. 667,188
--------------
1,287,738
--------------
Brazil 2.4%
US 7,500 Companhia Energetica de Minas Gerais, Sponsored ADR ............. 383,906
BR 16,300,000 Companhia Siderurgica Nacional .................................. 537,504
US 7,700 Companhia Siderurgica Nacional, Sponsored ADR ................... 253,913
US 12,600 a Lojas Americanas, SA, ADR ....................................... 170,879
US 28,300 Usinas Siderugicas de Minas Gerais, Sponsored ADR ............... 311,300
US 15,100 Vale do Rio Doce, ADR ........................................... 333,966
--------------
1,991,468
--------------
Canada 0.8%
CA 20,200 Hudson's Bay Co. ................................................ 453,456
CA 15,200 Intrawest Corp. ................................................. 252,609
--------------
706,065
--------------
Chile 0.1%
US 4,800 Madeco Manufacturera de Cobre, SA, ADR .......................... 117,600
--------------
China 1.5%
US 69,740 a Beijing Yanhua Petrochemical Co., Ltd., Sponsored ADR ........... 802,010
HK 834,000 Shanghai Petrochemical Co., Ltd. ................................ 200,230
HK 1,332,000 Yizheng Chemical Fibre Co., Ltd., Class H ....................... 237,265
--------------
1,239,505
--------------
Columbia 0.1%
US 5,000 a,b Cementos Paz del Rio, SA, ADR ................................... 75,000
--------------
Ecuador 0.4%
US 400 La Cemento Nacional CA, Sponsored GDR ........................... 83,200
US 1,400 b La Cemento Nacional CA, Sponsored GDR ........................... 291,200
--------------
374,400
--------------
Egypt 1.1%
EG 45,299 a Suez Cement Co. ................................................. 882,056
--------------
Finland 1.8%
FI 10,000 Enso Oy, Class R ................................................ 92,437
FI 3,750 Metsa - Serla Oy, Class B ....................................... 30,547
FI 17,400 Oy Nokia, AB, Series A .......................................... $ 1,313,524
FI 117 The Rauma Group ................................................. 2,681
FI 4,200 UPM-Kymmene Corp. ............................................... 98,676
--------------
1,537,865
--------------
France 3.1%
FR 12,331 AXA-UAP ......................................................... 766,924
FR 9,000 Banque Nationale de Paris ....................................... 370,922
FR 1,805 Elf Aquitane, SA ................................................ 194,730
FR 9,900 Rhone-Poulenc, Class A .......................................... 403,083
FR 14,639 Scor ............................................................ 589,376
FR 2,500 Unibail - Union du Credit - Bail Immobilier ..................... 233,975
--------------
2,559,010
--------------
Germany 0.3%
DD 360 Volkswagen, AG .................................................. 272,906
--------------
Greece 0.3%
GR 3,832 Alpha Credit Bank ............................................... 260,712
--------------
Hong Kong 1.5%
HK 32,000 Cheung Kong Holdings, Ltd. ...................................... 315,981
HK 111,000 Grand Hotel Holdings, Ltd., Class A ............................. 44,774
HK 1,114,960 Hon Kwok Land Investment, Ltd. .................................. 366,986
HK 7,963 Peregrine Investments Holdings, Ltd. ............................ 16,394
HK 244,000 Shun Tak Holdings, Ltd. ......................................... 149,601
HK 190,140 Yue Yuen Industrial Holdings .................................... 393,911
--------------
1,287,647
--------------
Hungary 0.3%
US 12,107 b Mol Magyar Olaj - Es Gazipari RT, GDS ........................... 269,381
--------------
Indonesia 0.5%
US 19,300 a Asia Pacific Resources International, Class A ................... 94,087
ID 42,000 PT Bank Bali, fgn. .............................................. 112,253
ID 216,000 PT Lippo Bank, fgn. ............................................. 222,039
--------------
428,379
--------------
Irish Republic 0.6%
GB 42,733 Bank of Ireland ................................................. 470,747
--------------
Israel 0.4%
US 12,860 Tadiran, Ltd., Sponsored ADR .................................... 368,118
--------------
Italy 1.1%
IT 74,700 Banca Fideuram, SpA ............................................. 242,245
IT 34,500 Cartiere Burgo, SpA ............................................. 191,725
IT 233,000 Istituto Nazionale delle Assicurazioni .......................... 352,914
IT 15,000 Recordati Industria Chimica e Farmaceutica, SpA, di Risp ........ 52,174
IT 10,000 STET (Sta Finanziaria Telefonica Torino), SpA ................... 58,262
--------------
897,320
--------------
Japan 1.0%
JP 9,700 Daito Trust Construction Co. .................................... 114,257
JP 5,000 Matsushita Electric Industrial Co., Ltd. ........................ 100,777
JP 7,000 Nintendo Co., Ltd. .............................................. 585,115
JP 5,000 Yamato Kogyo Co., Ltd. .......................................... 49,298
--------------
849,447
--------------
Mexico 1.8%
MX 69,251 ALFA, SA de CV, Class A ......................................... 472,602
MX 58,000 b ALFA, SA de CV, Class A ......................................... 395,820
MX 11,766 Cifra, SA de CV, Series A........................................ $ 21,748
MX 96,200 Cifra, SA de CV, Series B ....................................... 179,270
US 3,000 Empresas ICA Sociedad Controladora, SA de CV, Sponsored ADR ..... 48,187
US 20,000 a Grupo Simec, SA de CV, ADR ...................................... 72,500
US 6,709 Telefonos de Mexico, SA, Class L, Sponsored ADR ................. 320,355
--------------
1,510,482
--------------
Netherlands 0.5%
NL 5,097 ING Groep, NV.................................................... 234,998
NL 2,900 Philips Electronics, NV ......................................... 207,723
--------------
442,721
--------------
New Zealand 0.5%
NZ 28,000 Air New Zealand, Ltd., Class B .................................. 85,586
NZ 51,300 Ceramico Corp., Ltd. ............................................ 50,875
US 16,000 Tranz Rail Holdings, Ltd., Sponsored ADR ........................ 270,000
--------------
406,461
--------------
Norway 0.4%
NO 14,800 Elkem, ASA ...................................................... 289,772
NO 1,700 Nycomed, ASA, Class B ........................................... 24,239
--------------
314,011
--------------
Philippines 0.1%
PH 429,524 Metro Pacific Corp. ............................................. 92,823
--------------
Russia 1.2%
US 14,201 Gazprom, ADR, Reg S ............................................. 242,482
US 10,000 b Mosenergo, ADR .................................................. 420,000
US 7,099 Mosenergo, ADR, Reg. S .......................................... 298,158
--------------
960,640
--------------
South Africa
ZA 402 Rustenburg Platinum Holdings, Ltd. .............................. 7,354
--------------
South Korea 2.4%
KR 1,580 Korea Chemical Co., Ltd ......................................... 133,169
KR 39,730 Korea Electric Power Corp. ...................................... 1,185,636
KR 25,719 Korea Long Term Credit Bank ..................................... 407,207
KR 2,725 a Korean Air ...................................................... 56,116
KR 1,890 Pohang Iron & Steel Co., Ltd. ................................... 192,726
KR 1,630 Shinhan Bank .................................................... 24,003
--------------
1,998,857
--------------
Spain 0.9%
ES 9,500 Dragados & Construcciones, SA ................................... 197,285
ES 4,300 Gas y Electricidad, SA .......................................... 230,831
ES 20,500 Iberdrola, SA ................................................... 258,772
ES 1,750 Telefonica de Espana ............................................ 50,594
--------------
737,482
--------------
Sweden 1.2%
SE 2,300 Electrolux, AB, Series B ........................................ 165,910
SE 1,150 a Granges, AB ..................................................... 15,238
SE 4,700 Marieberg Tidnings, AB, Class A ................................. 116,657
SE 9,575 Mo Och Domsjoe, AB, B ........................................... 314,401
SE 10,198 Skandia Forsakrings, AB ......................................... 375,726
SE 1,650 Svenska Handelsbanken, Class A .................................. 52,472
--------------
1,040,404
--------------
Switzerland 1.9%
CH 4,085 Credit Suisse Group ............................................. $ 524,435
CH 70 Kuoni Reison, AG, Class B ....................................... 239,644
CH 115 SGS Societe Generale de Surveillance Holding, SA, Class B ....... 245,669
CH 1,390 Zurich Versicherungsgesellschaft................................. 552,954
--------------
1,562,702
--------------
Thailand 0.1%
TH 30,000 Chareon Pokphand Feedmill Public Co., Ltd., fgn. ................ 74,117
TH 20,400 Robinson Department Store Public Co., Ltd., fgn. ................ 7,678
--------------
81,795
--------------
United Kingdom 6.5%
GB 76,100 Amvescap, Plc. .................................................. 444,188
GB 40,000 BG, Plc. ........................................................ 147,213
GB 66,780 British Energy, Plc. ............................................ 162,921
GB 47,700 b British Energy, Plc. ............................................ 116,372
GB 206,500 British Steel, Plc. ............................................. 512,390
GB 65,000 British Telecommunications, Plc. ................................ 482,772
GB 63,400 BTR, Plc. ....................................................... 216,968
GB 40,000 a Centrica, Plc. .................................................. 48,793
GB 45,000 Cordiant, Plc. .................................................. 92,549
GB 13,500 Dawson International, Plc. ...................................... 16,074
GB 124,039 Harrisons & Crosfield, Plc. ..................................... 229,285
GB 30,000 Imperial Chemical Industries, Plc. .............................. 417,409
GB 21,666 Lex Service, Plc. ............................................... 135,843
GB 93,800 National Grid Group, Plc. ....................................... 342,872
GB 118,414 a Railtrack Group, Plc. ........................................... 1,233,459
US 7,000 Sea Containers, Ltd., Class A ................................... 158,375
GB 222,600 Somerfield, Plc. ................................................ 678,376
GB 2,200 W.H. Smith Group, Plc. .......................................... 13,171
--------------
5,449,030
--------------
United States 20.1%
US 17,000 a 3Com Corp. ...................................................... 765,000
US 2,860 AK Steel Holding Corp. .......................................... 126,197
US 26,800 Archer - Daniels - Midland Co. .................................. 629,800
US 2,900 A.S.A. Holdings, Inc. ........................................... 83,013
US 7,000 AT&T Corp. ...................................................... 245,437
US 33,026 a Bay Networks, Inc. .............................................. 877,253
US 5,900 Beacon Properties Corp. ......................................... 196,912
US 13,600 a Boston Chicken, Inc. ............................................ 190,400
US 6,800 Carramerica Realty Corp. ........................................ 195,500
US 3,000 Conseco, Inc. ................................................... 111,000
US 2,900 a Crescent Operating, Inc. ........................................ 34,800
US 29,000 Crescent Real Estate Equities Co. ............................... 920,750
US 11,100 Dayton Hudson Corp. ............................................. 590,381
US 4,490 a DSC Communications Corp. ........................................ 99,903
US 2,200 Edwards (A.G.), Inc. ............................................ 94,050
US 30,200 Entergy Corp. ................................................... 826,725
US 12,450 a Fruit of the Loom, Inc., Class A ................................ 385,950
US 2,700 General Motors Corp. ............................................ 150,356
US 3100 General Motors Corp., Class H ................................... 179,025
US 2,500 Georgia-Pacific Corp. ........................................... 213,437
US 3,600 Goodyear Tire & Rubber, Co. ..................................... 227,925
US 16,600 Highwoods Properties, Inc. ...................................... 531,200
US 12,000 Horizon Group, Inc. ............................................. 161,250
US 9,500 Houghton Mifflin Co. ............................................ 634,125
US 18,200 a Humana, Inc. .................................................... 420,875
US 8,000 IBP, Inc. ....................................................... $ 186,000
US 7,000 International Business Machines Corp. ........................... 631,312
US 13,000 a Landstar System, Inc. ........................................... 365,625
US 14,000 Merrill Lynch & Co., Inc. ....................................... 834,750
US 20,000 Morgan Stanley Dean Witter Discover & Co. ....................... 861,250
US 5,300 Motorola, Inc. .................................................. 402,800
US 437 a NCR Corp. ....................................................... 13,001
US 8,000 Oregon Steel Mills, Inc. ........................................ 159,500
US 24,800 a Paragon Trade Brands, Inc. ...................................... 423,150
US 1,800 PECO Energy Co. ................................................. 37,800
US 5,200 a Pinnacle Systems, Inc. .......................................... 88,725
US 29,000 a Playtex Products, Inc. .......................................... 271,875
US 7,600 Post Properties, Inc. ........................................... 308,275
US 12,000 Presidential Life Corp. ......................................... 232,500
US 13,500 The Rouse Co. ................................................... 398,250
US 15,000 Summit Properties, Inc. ......................................... 309,375
US 17,500 Sun Co., Inc. ................................................... 542,500
US 1,400 Texas Utilties Co. .............................................. 48,213
US 7,000 Torchmark Corp. ................................................. 498,750
US 6,000 U S WEST Communications Group ................................... 226,125
US 8,000 UNUM Corp. ...................................................... 336,000
US 2,400 Valero Energy Corp. ............................................. 87,000
US 7,100 Walbro Corp. .................................................... 143,775
US 7,500 Weeks Corp. ..................................................... 234,375
US 17,000 Wheelabrator Technologies, Inc. ................................. 262,438
--------------
16,794,628
--------------
Total Common Stocks (Cost $40,305,847) .................... 49,178,142
--------------
Preferred Stock 4.5%
Argentina 1.0%
US 4,700 Cia de Inversiones en Telecomunicaciones,
SA, cvt. pfd., 7.00%, 03/03/98 ................................. 319,600
US 7,800 b Cia Inversiones Telecomunicaciones, SA, cvt. pfd. ............... 530,400
--------------
850,000
--------------
Brazil 3.3%
BR 116,766,000 Banco Bradesco, SA, pfd. ........................................ 1,176,825
BR 13,400 Cia Vale do Rio Doce, pfd. ...................................... 296,367
BR 534,000 Coteminas Cia Tecidos Norte de Minas, pfd. ...................... 208,332
BR 6,245,073 a Lojas Americanas, SA, pfd. ...................................... 84,695
BR 17,369,300 a Petrobras Distribuidora ,SA, pfd. ............................... 453,372
BR 1,851,000 Petrobras-Petroleo Brasileiro, SA, pfd. ......................... 514,112
--------------
2,733,703
--------------
Canada
CA 15,200 a Intrawest Corp., non-resort pfd. ................................ 28,618
--------------
Greece 0.2%
GR 29,990 Michaniki, SA, pfd. ............................................. 186,680
--------------
Total Preferred Stocks (Cost $3,060,137) .................. 3,479,401
--------------
FACE
AMOUNT
Bonds 30.0%
Argentina 2.3%
US $ 100,000 Bridas Corp., Yankee, 12.50%, 11/18/99 .......................... 110,000
US 100,000 b Industrias Metalurgicas Pescarmona,11.75%, 03/27/98 ............. 103,750
US 625,000 Republic of Argentina, 9.25%, 02/23/01 .......................... 653,906
US 100,000 Republic of Argentina, 8.75%, 05/09/02 .......................... 100,050
AR $ 50,000 Republic of Argentina, notes, Series REGS, 11.75%, 02/12/07 ..... $ 55,508
US 700,000 Republic of Argentina, unsecured notes, 11.375%, 01/30/17 ....... 780,500
US 75,000 Republic of Argentina, unsecured notes, Series BGL4, 11.00%, 10/09/06 83,250
--------------
1,886,964
--------------
Australia 1.0%
AU 873,000 Government of Australia, bonds, Series 1002, 10.00%, 10/15/02 ... 760,990
AU 7,971 HIH Winterthur International Holdings. Ltd., 8.00%, 11/02/01 .... 32,741
--------------
793,731
--------------
Brazil 2.9%
US 150,000 b Centrais Electricas Brasileiras-Eletrobas, SA,
senior unsubordinated notes, 10.00%, 10/30/98 .................. 154,875
US 500,000 Republic of Brazil, notes, 8.875%, 11/05/01 ..................... 516,875
US 100,000 Republic of Brazil, 6.5625%, FRN, 04/15/09 ...................... 87,875
US 1,225,000 Republic of Brazil, bonds, 10.125%, 05/15/27 .................... 1,180,594
US 575,000 Republic of Brazil, cvt., Series L, 6.9375%, FRN, 04/15/12 ...... 474,375
--------------
2,414,594
--------------
Canada 2.6%
CA 917,000 Government of Canada, deb., Series A32, 10.50%, 07/01/00 ........ 758,205
CA 182,000 Government of Canada, deb., Series A37, 10.50%, 03/01/01 ........ 153,243
CA 775,000 Government of Canada, deb., Series J25, 10.00%, 05/01/02 ........ 659,735
US 1,024,000 Repap Enterprises Inc., 8.50%, cvt., 08/01/97 ................... 568,320
--------------
2,139,503
--------------
Denmark 1.1%
DK 2,310,000 Kingdom of Denmark, bonds, 9.00%, 11/15/00 ...................... 395,941
DK 3,065,000 Kingdom of Denmark, bonds, 8.00%, 05/15/03 ...................... 522,443
--------------
918,384
--------------
Ecuador 0.5%
US 275,000 b Republic of Ecuador, 11.25%, 04/25/02 ........................... 289,781
US 175,000 Republic of Ecuador, disc, FRN, 6.50%, 02/28/25 ................. 124,906
--------------
414,687
--------------
Germany 1.6%
DD 815,000 Federal Republic of Germany, Bundesobligation,
bonds, Series 110, 5.375%, 02/22/99 ............................ 481,831
DD 1,270,000 Federal Republic of Germany, Bundesobligation, bonds,
Series 118, 5.25%, 02/21/01 .................................... 754,106
DD 155,000 Federal Republic of Germany, Unity, bonds, 8.75%, 08/20/01 ...... 103,298
--------------
1,339,235
--------------
Indonesia 0.5%
US 300,000 PT Indah Kiat Financial Mauritius, 10.00%, 07/1/07 .............. 299,625
US 87,000 PT Polysindo Intl. Finance Co., Series B, 11.375%, 06/15/06 ..... 95,918
--------------
395,543
--------------
Italy 2.4%
IT 370,000,000 Buoni Poliennali del Tes, 10.50%, 04/15/98 ...................... 223,363
IT 595,000,000 Buoni Poliennali del Tes, 10.50%, 07/15/00 ...................... 390,808
IT 170,000,000 Buoni Poliennali del Tes, deb., 12.00%, 01/17/99 ................ 107,828
IT 905,000,000 Buoni Poliennali del Tes, deb., 10.00%, 08/01/03 ................ 621,475
IT 260,000,000 Government of Italy, bonds, 7.75%, 11/01/06 ..................... 162,251
US 490,000 Government of Italy, cvt. bonds, 5.00%, 06/28/01 ................ 501,662
--------------
2,007,387
--------------
Mexico 1.7%
US 130,000 Bancomer, SA, 8.00%, 07/07/98 ................................... 131,144
US 200,000 b Cemex, SA, 10.75%, 07/15/00 ..................................... 212,750
US 175,000 United Mexican States, bonds, 9.875%, 01/15/07 .................. 184,406
US $ 600,000 United Mexican States, bonds, 11.375%, 09/15/16 ................. $ 675,000
US 225,000 United Mexican States, bonds, 11.50%, 05/15/26 .................. 257,063
--------------
1,460,363
--------------
Netherlands 0.3%
NL 500,000 Netherlands Government., 7.00%, 03/15/99, 1 & 2.................. 268,735
--------------
Phillipines 0.3%
US 270,000 Phillipine Long Distance Telephone Co., 9.25%, 06/30/06 ......... 282,825
--------------
Poland 0.5%
US 400,000 b Poland Communications Inc., 9.875%, 11/01/03 .................... 399,700
--------------
Russia 0.6%
US 500,000 b Minfin of Russia, 10.00%, 06/26/07 .............................. 495,820
--------------
Spain 1.6%
ES 58,930,000 Government of Spain, deb., 12.25%, 03/25/00 ..................... 470,800
ES 107,270,000 Government of Spain, deb., 10.10%, 02/28/01 ..................... 842,508
--------------
1,313,308
--------------
Sweden 1.1%
SE 300,000 Government of Sweden, bonds, Series 1030, 13.00%, 06/15/01 ...... 48,896
SE 4,600,000 Government of Sweden, bonds, Series 1033, 10.25%, 05/05/03 ...... 717,030
SE 1,000,000 Government of Sweden, bonds, Series 1037, 8.00%, 08/15/07 ....... 142,048
--------------
907,974
--------------
Trinidad and Tobago 0.2%
US 170,000 b Sei Holdings IX Inc., 11.00%, 11/30/00 .......................... 182,750
--------------
United Kingdom 1.0%
GB 450,000 UK Treasury, deb., 10.00%, 02/26/01 ............................. 814,959
--------------
United States 6.9%
US 405,000 U.S. Treasury Bond, 6.375%, 08/15/02 ............................ 404,874
US 880,000 U S Treasury Note, 7.875%, 11/15/99 ............................. 912,725
US 880,000 U S Treasury Note, 8.50%, 02/15/00 .............................. 928,401
US 371,000 U S Treasury Note, 6.125%, 07/31/00 ............................. 369,957
US 1,010,000 U S Treasury Note, 6.25%, 08/31/00 .............................. 1,009,685
US 1,515,000 U S Treasury Note, 6.625%, 04/30/02 ............................. 1,529,205
US 596,000 U S Treasury Note, 7.25%, 08/15/04 .............................. 621,517
--------------
5,776,364
--------------
Venezuela 0.9%
US 100,000 b Republic of Venezuela, senior unsubordinated deb., 9.125%, 06/18/07 100,375
US 500,000 Republic of Venezuela, Series A, 6.75%, 03/31/20 ................ 393,750
US 250,000 Venezuela DCB, 6.50%, FRN, 12/18/07 ............................. 232,188
--------------
726,313
--------------
Total Bonds (Cost $25,357,170) ............................ 25,258,739
--------------
Total Long Term Investments (Cost $68,723,154) ............ 77,916,282
--------------
e Short Term Investments 0.4%
US 300,000 FNMA, 5.43%, 07/14/97 (Cost $299,412) ........................... 299,416
--------------
Total Investments before Repurchase Agreement (Cost $69,022,566) 78,215,698
--------------
f Receivables from Repurchase Agreement 4.8%
US 3,991,000 Swiss Bank Corp., 5.90%, 07/01/97 (Maturity Value
$3,991,654) (Cost $3,991,000)
Collateral: U.S. Treasury Note, 6.875%, 08/31/99 ............... 3,991,000
--------------
Total Investments (Cost $73,013,566) 98.4% ........... 82,206,698
Other Assets and Liabilities, Net 1.5% ............... 1,233,657
Equity in Forward Contracts 0.1% ..................... 45,215
--------------
Net Assets 100.0%..................................... $83,485,570
==============
At June 30, 1997, the net unrealized appreciation based on the cost
of investments for income tax purposes of $73,013,566 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost................ $10,985,671
Aggregate gross unrealized depreciation for all investments in
which there was an excess of value over tax cost................ (1,792,539)
--------------
Net unrealized appreciation.................................... $ 9,193,132
==============
COUNTRY LEGEND:
AR - Argentina
AT - Austria
AU - Australia
BE - Belgium
BR - Brazil
CA - Canada
CH - Switzerland
DD - Germany
DK - Denmark
EG - Egypt
ES - Spain
FI - Finland
FR - France
GB - United Kingdom
GR - Greece
HK - Hong Kong
ID - Indonesia
IT - Italy
JP - Japan
KR - South Korea
MX - Mexico
NL - Netherlands
NO - Norway
NZ - New Zealand
PH - Philippines
SE - Sweden
TH - Thailand
US - United States
ZA South Africa
PORTFOLIOABBREVIATIONS:
FNMA - Federal National Mortgage Association
FRN - Floating Rate Notes
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified institutional buyers.
eCertain short-term securrities are traded on a discount basis; the rates shown are the discount rates at the time of
purchase by the Fund. Other securirties bear interest at the rates shown, payable at fixed dates or upon maturity.
fFace amount for repurchase agreements is for the underlying collateral.
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES/ VALUE
COUNTRY* WARRANTS Templeton Global Growth Fund (NOTE1)
a,b Common Stocks & Warrants 81.4%
<S> <C> <C> <C>
Argentina 2.1%
AR 681,655 Inversiones y Representacion .................................... $ 2,979,279
US 1,400 Inversiones y Representacion, GDR ............................... 61,250
US 50,000 Telecom Argentina Stet-France Telecom, SA, Sponsored ADR ........ 2,625,000
US 386,900 Transportadora de Gas del Sur, SA, Class B, Sponsored ADR ....... 4,836,250
US 155,000 YPF Sociedad Anonima, Sponsored ADR ............................. 4,766,250
--------------
15,268,029
--------------
Australia 2.7%
AU 1,070,971 Coles Myer, Ltd. ................................................ 5,571,488
AU 2,185,051 HIH Winterthur International Holdings, Ltd. ..................... 5,279,415
AU 2,149,000 Pacific Dunlop, Ltd. ............................................ 6,360,580
AU 712,750 RGC, Ltd. ....................................................... 2,610,076
--------------
19,821,559
--------------
Austria 1.2%
AT 30,000 Boehler-Uddeholm, AG ............................................ 2,326,416
AT 35,400 EVN Energie-Versorgung Niederoesterreich, AG .................... 4,560,851
AT 13,000 VA Technologie, AG .............................................. 2,379,031
--------------
9,266,298
--------------
Bermuda 2.1%
US 80,000 Ace, Ltd. ....................................................... 5,910,000
US 255,000 PartnerRe, Ltd. ................................................. 9,721,875
--------------
15,631,875
--------------
Brazil 1.1%
BR 129,100,000 Companhia Siderugica Nacional ................................... 4,257,164
US 98,100 a Uniao de Bancos Brasileiros, SA, GDR ............................ 3,641,963
--------------
7,899,127
--------------
Canada 1.7%
CA 119,700 Intrawest Corp. ................................................. 1,989,294
CA 74,000 a Newbridge Networks Corp. ........................................ 3,219,000
CA 384,200 Oshawa Group, Ltd., Class A ..................................... 5,745,125
CA 195,000 Primex Forest Products, Ltd. .................................... 1,094,355
--------------
12,047,774
--------------
China 0.3%
CN 13,356,000 Yizheng Chemical Fibre Co., Ltd., Class H ....................... 2,379,059
--------------
Czech Republic 0.6%
US 171,000 a,b Komercni Banka, AS, GDR ......................................... 3,561,075
CZ 9,000 SPT Telecom, AS ................................................. 943,629
--------------
4,504,704
--------------
Denmark 0.8%
DK 110,200 Tele Danmark, AS, Class B ....................................... 5,725,839
--------------
Ecuador 0.1%
US 400 La Cemento Nacional CA, Sponsored GDR ........................... 83,200
US 3,600 b La Cemento Nacional CA, Sponsored GDR ........................... 748,800
--------------
832,000
--------------
Finland 2.3%
FI 145,000 Enso Oy, Class R................................................. 1,340,330
FI 270,000 Metsa-Serla Oy, Class B ......................................... 2,199,413
FI 130,000 Oy Nokia, AB, Series A .......................................... 9,813,683
FI 65,000 Outokumpu, Oy, Series A ......................................... 1,289,298
FI 2,450 The Rauma Group ................................................. 56,146
FI 88,000 UPM-Kymmene Corp. ............................................... 2,067,498
--------------
16,766,368
--------------
France 5.5%
FR 157,102 AXA-UAP ......................................................... $ 9,770,923
FR 129,225 Banque Nationale de Paris........................................ 5,325,828
FR 23,792 Compagnie Generale d'Industrie et de Participations ............. 6,761,046
FR 68,900 Credit Commercial de France ..................................... 2,919,342
FR 83,000 Pechiney, SA, Class A ........................................... 3,269,607
US 112,708 Pechiney, SA, Class A, Sponsored ADR ............................ 2,211,895
FR 5,388 Galeries Lafayette .............................................. 2,233,425
FR 41,972 Elf Aquitane, SA ................................................ 4,528,094
FR 32,029 Unibail-Union du Credit-Bail Immobilier ......................... 2,997,592
--------------
40,017,752
--------------
Germany 0.7%
DD 6,300 Volkswagen, AG .................................................. 4,775,847
--------------
Greece 0.5%
GR 45,333 Alpha Credit Bank ............................................... 3,084,214
US 7,333 b Alpha Credit Bank ............................................... 498,926
--------------
3,583,140
--------------
Hong Kong 4.9%
HK 800,000 Cheung Kong Holdings, Ltd. ...................................... 7,899,526
HK 1,608,500 Hong Kong Electric Holdings, Ltd. ............................... 6,477,766
HK 278,149 HSBC Holdings, Plc. ............................................. 8,365,329
HK 800,000 Jardine Strategic Holdings, Ltd. ................................ 3,024,000
HK 40,000 a Jardine Strategic Holdings, Ltd., warrants ...................... 200
HK 3,600,000 Shun Tak Holdings, Ltd. ......................................... 2,207,221
HK 861,000 Swire Pacific, Ltd., Class A .................................... 7,751,701
HK 75,000 Swire Pacific, Ltd., Class B .................................... 113,749
--------------
35,839,492
--------------
Hungary 0.8%
US 256,358 b Mol Magyar Olaj - Es Gazipari RT, GDS ........................... 5,703,965
--------------
India 0.3%
GB 720,000 a India Fund (The), Class B ....................................... 1,336,908
US 37,000 b Larsen & Toubro, Ltd., GDR ...................................... 633,625
--------------
1,970,533
--------------
Indonesia 0.2%
ID 305,700 a Asia Pacific Resources International, Class A ................... 1,490,288
--------------
Italy 1.5%
IT 896,800 Banca Fideuram, SpA ............................................. 2,908,241
IT 1,745,200 Fiat, SpA ....................................................... 6,274,669
IT 962,290 Telecom Italia, SpA ............................................. 1,925,259
--------------
11,108,169
--------------
Japan 1.8%
JP 186,500 Daito Trust Construction Co. .................................... 2,196,798
JP 603,500 Hitachi, Ltd. ................................................... 6,740,075
JP 200,000 Matsushita Electric Industrial Co., Ltd. ........................ 4,031,062
--------------
12,967,935
--------------
Mexico 2.1%
MX 176,000 ALFA, SA de CV, Class A ......................................... 1,201,108
US 901,000 b ALFA, SA de CV, Class A ......................................... 6,148,854
MX 232,384 Cifra, SA de CV, Series A ....................................... 429,539
MX 1,900,000 Cifra, SA de CV, Series B ....................................... 3,540,670
US 86,400 Telefonos de Mexico, SA, Class L, Sponsored ADR ................. 4,125,600
--------------
15,445,771
--------------
Netherlands 1.2%
NL 56,500 European Vinyls Corp., International, NV ........................ $ 1,430,562
NL 105,188 ING Groep, NV ................................................... 4,849,719
NL 50,000 Koninklijke Frans Maas Groep, NV ................................ 1,604,768
NL 40,000 Koninklijke Nedlloyd, NV ........................................ 1,155,433
--------------
9,040,482
--------------
New Zealand 0.3%
NZ 583,873 Fisher & Paykel Industries, Ltd. ................................ 2,280,429
--------------
Norway 0.7%
NO 180,600 Helikopter Services Group, ASA .................................. 2,316,269
NO 155,100 Nycomed ASA, Class A ............................................ 2,285,488
NO 45,000 Nycomed ASA, Class B ............................................ 641,612
--------------
5,243,369
--------------
Philippines 0.6%
PH 19,923,321 Metro Pacific Corp. ............................................. 4,305,540
--------------
Singapore 0.1%
SG 310,000 Singapore Finance, Ltd. ......................................... 444,499
--------------
South Africa 0.7%
ZA 287,065 Rustenburg Platinum Holdings, Ltd. .............................. 5,251,575
--------------
South Korea 1.8%
KR 22,961 Byucksan Corp. .................................................. 217,199
KR 11,227 Keumkang, Ltd. .................................................. 536,064
KR 25,286 Kookmin Bank..................................................... 476,907
KR 92,200 Korea Electric Power Corp. ...................................... 2,751,464
KR 8,611 a Korean Air....................................................... 177,326
KR 100,000 Pacific Chemical Co.............................................. 2,488,739
KR 43,215 Pohang Iron & Steel Co., Ltd. ................................... 4,406,689
KR 123,920 Shinhan Bank..................................................... 1,824,785
KR 1,000 Tae Kwang Industrial Co., Ltd. .................................. 394,144
--------------
13,273,317
--------------
Spain 2.6%
ES 4,400 Banco Popular Espanol, SA ....................................... 1,077,978
ES 225,000 Banco Santander, SA ............................................. 6,932,474
ES 63,900 Cristaleria Espanola, SA ........................................ 5,520,509
ES 450,000 Iberdrola, SA ................................................... 5,680,353
--------------
19,211,314
--------------
Sweden 3.7%
SE 350,000 Asea, AB, Class A ............................................... 4,909,185
SE 192,100 Assidomaen, AB................................................... 5,463,383
SE 722,500 Munksjoe, AB..................................................... 7,425,344
SE 190,000 Skandia Forsakrings, AB, free.................................... 7,000,194
SE 68,000 Volvo, AB, Class B .............................................. 1,819,663
--------------
26,617,769
--------------
Switzerland 4.0%
CH 5,475 Credit Suisse Group.............................................. 702,884
CH 2,200 Kuoni Reisen, AG, Class B ....................................... 7,531,667
CH 4,160 Novartis ........................................................ 6,648,025
CH 3,000 SGS Societe Generale de Surveillance Holdings, SA, Class B ...... 6,408,764
CH 19,500 Zurich Versicherungsgesellschaft ................................ 7,757,275
--------------
29,048,615
--------------
United Kingdom 7.6%
GB 1,376,200 BG, Plc. ........................................................ 5,064,867
GB 1,291,217 BICC ............................................................ 3,795,231
US 655,100 b British Energy, Plc. ............................................ $ 1,598,231
GB 1,074,500 British Telecommunications, Plc. ................................ 7,980,599
GB 1,180,000 BTR, Plc. ....................................................... 4,038,202
GB 135,000 BTR, Plc., Class A .............................................. 448,498
GB 1,376,200 a Centrica, Plc. .................................................. 1,678,740
GB 1,455,000 Cordiant, Plc. .................................................. 2,992,431
GB 1,194,900 Courtaulds, Plc. ................................................ 6,725,777
GB 1,396,100 Dawson International, Plc. ...................................... 1,662,328
GB 466,666 Lex Service, Plc. ............................................... 2,925,940
GB 256,000 London Pacific Group, Ltd. ...................................... 888,874
GB 249,000 McBride, Plc. ................................................... 561,866
GB 1,569,627 National Grid Group, Plc. ....................................... 5,737,533
GB 1,828,200 Northern Foods, Plc. ............................................ 6,058,582
GB 228,111 Safeway, Plc. ................................................... 1,320,065
GB 275,300 W.H. Smith Group, Plc. .......................................... 1,648,160
--------------
55,125,924
--------------
United States 24.8%
US 294,000 Archer-Daniels-Midland Co. ...................................... 6,909,000
US 127,000 AT&T Corp. ...................................................... 4,452,937
US 339,000 a Banner Aerospace, Inc. .......................................... 3,008,625
US 230,000 a Bay Networks, Inc ............................................... 6,109,375
US 169,500 Dayton Hudson Corp. ............................................. 9,015,281
US 84,800 a DSC Communications Corp. ........................................ 1,886,800
US 97,400 Edwards (A.G.), Inc. ............................................ 4,163,850
US 58,500 Entergy Corp. ................................................... 1,601,437
US 156,000 Fannie Mae ...................................................... 6,805,500
US 90,000 Ford Motor Co. .................................................. 3,397,500
US 136,500 e Fruit of the Loom Inc., Class A ................................. 4,231,500
US 89,000 General Growth Properties ....................................... 2,981,500
US 60,000 General Motors Corp. ............................................ 3,341,250
US 66,000 General Motors Corp., Class H ................................... 3,811,500
US 34,000 Georgia-Pacific Corp. ........................................... 2,902,750
US 70,000 Goodyear Tire & Rubber Co. ...................................... 4,431,875
US 164,900 Highwood Properties, Inc., REIT ................................. 5,276,800
US 34,700 Horizon Group Inc................................................ 466,281
US 52,800 Houghton Mifflin Co.............................................. 3,524,400
US 250,000 a Humana, Inc. .................................................... 5,781,250
US 110,043 IBP, Inc. ....................................................... 2,558,500
US 48,900 a Landstar System, Inc............................................. 1,375,312
US 97,902 Limited, Inc. ................................................... 1,982,515
US 84,000 Merrill Lynch & Co., Inc......................................... 5,008,500
US 218,600 Morgan Stanley Dean Witter Discover & Co. ....................... 9,413,462
US 100,000 Motorola, Inc. .................................................. 7,600,000
US 32,000 National Health Investors, Inc. ................................. 1,256,000
US 157,000 a OMI Corp. ....................................................... 1,501,313
US 50,000 Owens Corning ................................................... 2,156,250
US 70,000 PECO Energy Co. ................................................. 1,470,000
US 151,700 Pharmacia & Upjohn, Inc. ........................................ 5,271,575
US 150,000 a Pinnacle Systems, Inc. .......................................... 2,559,375
US 150,000 Post Properties, Inc. ........................................... 6,084,375
US 24,000 Reliastar Financial Corp. ....................................... 1,755,000
US 80,000 The Rouse Co. ................................................... 2,360,000
US 130,000 a Syms Corp. ...................................................... 1,291,875
US 120,000 Torchmark Corp. ................................................. 8,550,000
US 127,466 Travelers, Inc. ................................................. 8,038,325
US 172,200 U.S. WEST Communications Group .................................. 6,489,787
US 228,400 UNUM Corp. ...................................................... $ 9,592,800
US 81,000 Valero Energy Corp. ............................................. 2,936,250
US 115,000 Weeks Corp. ..................................................... 3,593,750
US 240,000 Wheelabrator Technologies, Inc. ................................. 3,705,000
--------------
180,649,375
--------------
Total Common Stocks & Warrants (Cost $455,471,281)......... 593,537,732
--------------
Preferred Stocks 3.0%
Australia 0.6%
AU 1,103,025 News Corp., Ltd., pfd. .......................................... 4,347,405
--------------
Brazil 2.0%
BR 258,441,822 Banco Bradesco, SA, pfd. ........................................ 2,604,704
BR 1,952,000 Coteminas Cia Tecidos Norte de Minas, pfd. ...................... 761,544
US 75,000 Telecomunicacoes Brasileiras-Telebras, SA, pfd., Sponsored ADR .. 11,381,250
--------------
14,747,498
--------------
Canada
CA 119,700 a Intrawest Corp., pfd., Series NRP................................ 225,367
--------------
Greece 0.3%
GR 374,380 Michaniki, SA, pfd............................................... 2,330,420
--------------
Mexico 0.1%
US 6,500 Nacional Financiera, SA, 11.25%, 05/15/98, cvt., pfd. ........... 312,000
--------------
Total Preferred Stocks (Cost $14,045,243) ................. 21,962,690
--------------
Total Common Stocks, Warrants and Preferred
Stocks (Cost $469,516,524)...................................... 615,500,422
--------------
FACE
AMOUNT
Convertible Bonds 0.9%
Italy 0.7%
IT $ 4,950,000 Government of Italy, cvt. bonds, 5.00%, 06/28/01 ................ 5,067,810
--------------
Mexico 0.1%
US 1,210,000 a Empresas ICA Sociedad Controladora, SA de CV,
sub. deb., Series U.S., 5.00%, 03/15/04 ........................ 955,900
--------------
Thailand 0.1%
US 3,602,000 MDX Public Co., Ltd., cvt. unsecured notes, 4.75%, 09/17/03 ..... 576,320
--------------
Total Convertible Bonds (Cost $7,307,417) ................. 6,600,030
--------------
Total Long Term Investments (Cost $476,823,941) ........... 622,100,452
--------------
e Short Term Investments 5.2%
US 1,286,000 FHLMC, 5.45%, 07/14/97 .......................................... 1,283,497
US 36,510,000 FNMA, 5.43%,07/14/97 ............................................ 36,438,952
--------------
Total Short Term Investments (Cost $37,716,177)............ 37,722,449
--------------
Total Investments before Repurchase Agreement
(Cost $514,540,118)............................................. 659,822,901
--------------
f Receivables from Repurchase Agreements 9.2%
US 20,285,000 Aubrey G. Langston & Co., 5.85%, 07/01/97,
(Maturity Value $33,449,434.65)
Collateral: U.S. Treasury Note, 6.125%,08/31/98 ................ 33,444,000
US 32,943,000 Swiss Bank Corp., 5.90%, 07/01/97, (Maturity Value $33,916,557.64)
Collateral: U.S. Treasury Note, 7.50%, 11/15/01 ................ 33,911,000
--------------
Total Receivables from Repurchase Agreements (Cost $67,355,000) 67,355,000
--------------
Total Investments (Cost $581,895,118) 99.7% .......... 727,177,901
Other Assets and Liabilities, Net 0.3% ............... 1,995,946
--------------
Net Assets 100.0% .................................... $729,173,847
==============
At June 30, 1997, the net unrealized appreciation based on the
cost of investments for income tax purposes of
$581,908,465 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ............... $168,243,312
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value ............ (22,973,876)
--------------
Net unrealized appreciation ................................... $145,269,436
==============
COUNTRY LEGEND:
AR - Argentina
AT - Austria
AU - Australia
BR - Brazil
CA - Canada
CH - Switzerland
CN - China
CZ - Czech Republic
DD - Germany
DK - Denmark
ES - Spain
FI - Finland
FR - France
GB - United Kingdom
GR - Greece
HK - Hong Kong
ID - Indonesia
IT - Italy
JP - Japan
KR - South Korea
MX - Mexico
NL - Netherland
NO - Norway
NZ - New Zealand
PH - Philippines
SE - Sweden
SG - Singapore
US - United States
ZA - South Africa
PORTFOLIO ABBREVIATIONS:
FHLMC -Federal Home Loan Mortgage Corp.
FNMA -Federal National Mortgage Association
REIT - Real Estate Investment Trust
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified institutional buyers.
eCertain short-term securrities are traded on a discount basis; the rates shown are the discount rates at the time of
purchase by the Fund. Other securirties bear interest at the rates shown, payable at fixed dates or upon maturity.
fFace amount for repurchase agreements is for the underlying collateral.
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
FACE VALUE
COUNTRY* AMOUNT Templeton Global Income Securities Fund (NOTE1)
Bonds 92.5%
<S> <C> <C> <C>
Argentina 5.7%
US $ 6,250,000 Republic of Argentina, 8.75%, 05/09/02 .......................... $ 6,253,125
US 2,895,000 Republic of Argentina, bonds, 10.95%, 11/01/99 .................. 3,144,694
US 1,545,000 Republic of Argentina, senior unsecured notes, Series
BGLO, 8.375%, 12/20/03 ......................................... 1,566,244
US 160,000 Republic of Argentina, Series L, 5.50%, VRN, 03/31/23 ........... 111,000
US 550,000 Republic of Argentina, unsecured notes, 11.375%, 01/30/17 ....... 613,250
--------------
11,688,313
--------------
Australia 4.0%
AU 9,368,000 Government of Australia, bonds, Series 1002, 10.00%, 10/15/02 ... 8,166,037
--------------
Brazil 5.9%
US 2,437,414 Republic of Brazil, Series C, 8.00%, 04/15/14 ................... 1,978,579
US 3,905,000 Republic of Brazil, notes, 8.875%, 11/05/01 ..................... 4,036,794
US 3,780,000 Republic of Brazil, 6.5625%, FRN, 04/15/09 ...................... 3,321,675
US 2,300,000 Republic of Brazil, bonds, 10.125%, 05/15/27 .................... 2,216,625
US 620,000 Republic of Brazil, cvt., Series L, 6.9375%, FRN, 04/15/12 ...... 511,500
--------------
12,065,173
--------------
Canada 8.8%
CA 5,956,000 Government of Canada, deb., Series A32, 10.50%, 07/01/00 ........ 4,924,613
CA 5,947,000 Government of Canada, deb., Series A37, 10.50%, 03/01/01 ........ 5,007,336
CA 9,565,000 Government of Canada, deb., Series J25, 10.00%, 05/01/02 ........ 8,142,409
--------------
18,074,358
--------------
Denmark 3.9%
DK 15,995,000 Kingdom of Denmark, bonds, 8.00%, 05/15/03 ...................... 2,726,418
DK 30,380,000 Kingdom of Denmark, bonds, 9.00%, 11/15/00 ...................... 5,207,229
--------------
7,933,647
--------------
Germany 9.1%
DD 19,970,000 Government of Germany, Bundesobligation,
bonds, Series 118, 5.25%, 02/21/01 ............................. 11,857,867
DD 8,900,000 Federal Republic of Germany, Unity, bonds, 8.75%, 08/20/01 ...... 5,931,292
DD 1,190,000 Treuhandanstalt, 7.75%, 10/01/02 ................................ 775,523
--------------
18,564,682
--------------
Italy 8.0%
IT 3,035,000,000 Buoni Poliennali del Tes, deb., 12.00%, 01/17/99 ................ 1,925,048
IT 3,870,000,000 Buoni Poliennali del Tes, deb., 10.50%, 07/15/00 ................ 2,541,894
IT 8,660,000,000 Buoni Poliennali del Tes, deb., 10.00%, 08/01/03 ................ 5,946,934
IT 3,225,000,000 Government of Italy, bonds, 7.75%, 11/01/06 ..................... 2,012,541
IT 6,440,000,000 Government of Italy, deb., 10.50%, 04/15/98 ..................... 3,887,723
--------------
16,314,140
--------------
Mexico 6.4%
US 7,985,000 United Mexican States, notes, 9.75%, 02/06/01 ................... 8,446,134
US 1,125,000 United Mexican States, bonds, 11.375%, 09/15/16 ................. 1,265,625
US 620,000 United Mexican States, bonds, 11.50%, 05/15/26 .................. 708,350
US 3,450,000 United Mexican States, deb., Series A, 6.25%, 12/31/19 .......... 2,669,438
--------------
13,089,547
--------------
Panama 0.6%
US 1,250,000 Republic of Panama, 7.875%, 02/13/02 ............................ 1,246,875
--------------
Spain 5.7%
ES 962,000,000 Government of Spain, deb., 12.25%, 03/25/00 ..................... 7,685,553
ES 511,100,000 Government of Spain, bonds, 10.10%, 02/28/01 .................... 4,014,225
--------------
11,699,778
--------------
Sweden 2.9%
SE $ 12,900,000 Government of Sweden, bonds, Series 1033, 10.25%, 05/05/03....... $ 2,010,802
SE 13,600,000 Government of Sweden, bonds, Series 1037, 8.00%, 08/15/07 ....... 1,931,857
SE 12,100,000 Government of Sweden, deb., Series 1030, 13.00%, 06/15/01 ....... 1,972,133
--------------
5,914,792
--------------
United Kingdom 4.2%
GB 4,720,000 United Kingdom Treasury, deb., 10.00%, 02/26/01 ................. 8,548,018
--------------
United States 25.5%
US 9,610,000 U.S. Treasury Bond, 6.375%, 08/15/02 ............................ 9,607,002
US 7,965,000 U.S. Treasury Note, 6.25%, 08/31/00 ............................. 7,962,515
US 23,545,000 U.S. Treasury Note, 6.625%, 04/30/02 ............................ 23,765,758
US 10,344,000 U.S. Treasury Note, 7.25%, 08/15/04 ............................. 10,786,858
--------------
52,122,133
--------------
Venezuela 1.8%
US 1,940,000 Republic of Venezuela, senior unsubordinated deb., 9.125%, 06/18/07 1,947,275
US 2,250,000 Republic of Venezuela, Series A, 6.75%, 03/31/20 ................ 1,771,875
--------------
3,719,150
--------------
Total Bonds (Cost $189,915,923) ........................... 189,146,643
--------------
Total Investments (Cost $189,915,923) 92.5% .......... 189,146,643
Equity in Forward Contracts 0.3% ..................... 517,359
Other Assets and Liabilities, Net 7.2% ............... 14,774,879
--------------
Net Assets 100.0% .................................... $204,438,881
==============
At June 30, 1997, the net unrealized depreciation based on the
cost of investments for income tax purposes of $189,915,923 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ............... $ 1,393,234
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value ............... (2,162,514)
--------------
Net unrealized depreciation ................................... $ (769,280)
==============
COUNTRY LEGEND:
AU - Australia
CA - Canada
DD - Germany
DK - Denmark
ES - Spain
GB - United Kingdom
IT - Italy
SE - Sweden
US - United States
PORTFOLIO ABBREVIATIONS:
FRN - Floating Rate Notes
VRN - Variable Rate Notes
*Securities traded in currency of country indicated and valued in U.S. dollars.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
SHARES/
RIGHTS & VALUE
COUNTRY* WARRANTS Templeton International Equity Fund (NOTE1)
a,b Common Stocks, Rights & Warrants 83.4%
<S> <C> <C> <C>
Argentina 1.7%
AR 647,568 CIADEA, SA ...................................................... $ 2,784,962
US 221,700 Transportadora de Gas del Sur, SA, Class B, Sponsored ADR ....... 2,771,250
AR 25,100 YPF Sociedad Anonima, Class D ................................... 773,196
US 495,000 YPF Sociedad Anonima, Sponsored ADR ............................. 15,221,250
--------------
21,550,658
--------------
Australia 4.9%
AU 1,615,827 David Jones, Ltd. ............................................... 2,257,048
AU 1,431,025 Email, Ltd. ..................................................... 5,121,531
AU 1,549,534 Gio Australia Holdings, Ltd. .................................... 4,796,884
AU 1,024,647 National Foods, Ltd. ............................................ 1,439,002
AU 90,000 News Corp., Ltd., pfd. .......................................... 354,721
AU 6,527,766 Pacific Dunlop, Ltd. ............................................ 19,320,792
AU 7,462,117 Pioneer International, Ltd. ..................................... 28,847,374
--------------
62,137,352
--------------
Austria 0.5%
AT 33,000 Boehler-Uddeholm, AG ............................................ 2,559,057
US 27,055 b Boehler-Uddeholm, AG ............................................ 2,098,039
AT 39,400 Mayr-Melnhof Karton, AG ......................................... 2,024,055
--------------
6,681,151
--------------
Belgium 0.5%
BE 10,650 Arbed, SA ....................................................... 1,228,049
BE 9,054 Solvay, SA ...................................................... 5,333,281
--------------
6,561,330
--------------
Bermuda 2.1%
US 362,500 Ace, Ltd. ....................................................... 26,779,687
--------------
Brazil 0.8%
BR 1,021,000 Banco Itau, SA .................................................. 571,885
US 276,365 Companhia Siderurgica Nacional, Sponsored ADR ................... 9,113,332
--------------
9,685,217
--------------
Canada 1.7%
CA 357,000 Hudson's Bay Co.................................................. 8,014,048
CA 254,000 London Insurance Group, Inc. .................................... 4,892,574
CA 447,000 National Bank of Canada ......................................... 5,599,841
CA 230,000 Oshawa Group, Ltd., Class A ..................................... 3,439,299
--------------
21,945,762
--------------
China 1.3%
US 650,700 a Beijing Yanhua Petrochemical Co., Ltd., Sponsored ADR ........... 7,483,050
HK 6,960,000 Maanshan Iron and Steel Co., Class H ............................ 1,455,372
US 338,300 Shandong Huaneng Power Co., Ltd., Sponsored ADR ................. 3,636,725
HK 19,340,200 Yizheng Chemical Fibre Co., Ltd., Class H ....................... 3,445,004
--------------
16,020,151
--------------
Czech Republic 0.2%
US 120,000 a,b Komercni Banka, AS, GDR ......................................... 2,499,000
--------------
Ecuador 0.1%
US 400 La Cemento Nacional CA, Sponsored GDR ........................... 83,200
US 6,840 b La Cemento Nacional CA, Sponsored GDR ........................... 1,422,720
--------------
1,505,920
--------------
Finland 3.4%
FI 111,562 a Amer Group, Ltd. ................................................ 2,040,998
FI 1,754,300 Enso Oy, Class R ............................................... 16,216,148
FI 1,254,500 Merita Ltd., Class A ............................................ 4,106,976
FI 231,000 Oy Nokia, AB, Series A .......................................... $ 17,438,159
FI 171,000 Outokumpu, OY, Series A ......................................... 3,391,844
--------------
43,194,125
--------------
France 5.2%
FR 14,323 Alcatel Alsthom, SA ............................................. 1,793,818
FR 12,133 BERTRAND FAURE .................................................. 638,992
FR 13,292 Cie de Saint Gobain ............................................. 1,938,374
FR 128,800 Credit Commercial de France ..................................... 5,457,349
FR 148,024 Elf Aquitaine, SA ............................................... 15,969,373
FR 55,849 Marine-Wendel, SA ............................................... 5,702,078
FR 366,481 Pechiney, SA, Class A ........................................... 14,436,733
FR 558,200 a Regie Nationale des Usines Renault, SA .......................... 14,124,311
FR 62,039 Total SA, Class B ............................................... 6,270,724
--------------
66,331,752
--------------
Germany 1.9%
DD 407,000 Deutsche Bank, AG ............................................... 23,898,618
--------------
Greece 0.5%
GR 96,791 Ergo Bank, SA ................................................... 5,813,591
--------------
Hong Kong 5.8%
HK 7,134,100 C.P. Pokphand ................................................... 2,210,040
HK 188,600 Cheung Kong Holdings, Ltd. ...................................... 1,862,313
HK 9,576,543 Dairy Farm International Holdings, Ltd. ......................... 7,182,407
HK 779,000 Hang Lung Development ........................................... 1,427,826
HK 467,400 Hong Kong Aircraft Engineering Co., Ltd. ........................ 1,701,326
HK 1,635,708 Jardine Matheson Holdings, Ltd. ................................. 11,613,527
HK 2,864,250 Jardine Strategic Holdings, Ltd. ................................ 10,783,901
HK 318,250 a Jardine Strategic Holdings, Ltd., warrants ...................... 125,709
HK 121,900 a Oriental Press Group, Ltd., warrants ............................ 6,766
HK 7,155,000 Peregrine Investments Holdings, Ltd. ............................ 14,730,584
HK 715,500 a Peregrine Investments Holdings, Ltd., warrants .................. 314,006
HK 12,748,000 Shun Tak Holdings, Ltd. ......................................... 7,816,013
HK 3,172,400 a Sing Tao Holdings, Ltd. ......................................... 1,187,505
HK 7,937,100 Swire Pacific, Ltd., Class B .................................... 12,037,862
HK 394,800 Yue Yuen Industrial Holdings..................................... 817,903
--------------
73,817,688
--------------
India
US 109,700 b Gujarat Narmada Valley Fertilizers Co., Ltd., GDR................ 274,250
--------------
Indonesia 0.3%
ID 167,500 PT Barito Pacific Timber, fgn. .................................. 142,912
ID 5,118,052 PT Indah Kiat Pulp & Paper Corp., fgn............................ 2,998,859
ID 4,606,247 a PT Indah Kiat Pulp & Paper Corp., rights......................... 804,957
ID 614,066 a PT Indah Kiat Pulp & Paper Corp., warrants ...................... 227,245
--------------
4,173,973
--------------
Italy 2.4%
IT 148,000 Banco di Sardegna, SpA, di Risp ................................. 1,336,825
IT 696,200 Cartiere Burgo, SpA ............................................. 3,868,961
IT 3,083,100 Fiat, SpA ....................................................... 11,084,936
IT 904,000 Sasib SpA, di Risp .............................................. 1,782,041
IT 1,833,800 Sirti, SpA ...................................................... 10,603,106
IT 468,000 Unione Cementi Marchino Emiliane (Unicem), di Risp .............. 1,196,300
--------------
29,872,169
--------------
Mexico 0.6%
MX 1,983,600 Grupo Mexico, SA de CV, Class B ................................. 7,455,359
--------------
Netherlands 7.8%
NL 32,300 Akzo Nobel, NV .................................................. $ 4,426,461
NL 19,000 DSM, NV ......................................................... 1,890,417
NL 563,685 ING Groep, NV.................................................... 25,988,839
NL 240,308 Internatio-Muller, NV ........................................... 7,578,106
NL 147,900 Koninklijke Bijenkorf Beheer, NV (KBB) .......................... 10,345,239
NL 504,000 NV Holdingmaatschappij De Telegraaf ............................. 10,886,749
NL 534,307 Philips Electronics, NV ......................................... 38,271,723
--------------
99,387,534
--------------
New Zealand 2.4%
NZ 2,322,000 Air New Zealand, Ltd., Class B .................................. 7,097,493
NZ 3,243,400 Carter Holt Harvey, Ltd. ........................................ 8,393,744
NZ 1,321,124 Fisher & Paykel Industries, Ltd. ................................ 5,159,904
NZ 6,020,000 Fletcher Challenge Forests ...................................... 8,750,654
US 47,765 Tranz Rail Holdings, Ltd., Sponsored ADR ........................ 806,034
--------------
30,207,829
--------------
Norway 2.7%
NO 176,200 Fokus Bank, AS .................................................. 1,490,531
NO 355,960 Hafslund, ASA, Class B........................................... 1,932,981
NO 134,000 Helikopter Services Group, ASA .................................. 1,718,605
NO 289,600 Nycomed, ASA, Class A ........................................... 4,267,423
NO 1,005,660 Nycomed, ASA, Class B ........................................... 14,338,737
NO 199,000 Union Bank of Norway, Primary Capital Certificate ............... 5,891,912
NO 295,000 Unitor, AS ...................................................... 4,226,246
--------------
33,866,435
--------------
Peru 1.0%
PE 2,445,602 Cpt-Telefonica del Peru, SA, Class B ............................ 6,426,332
US 251,900 Cpt-Telefonica del Peru, SA, Class B, ADR ....................... 6,596,631
--------------
13,022,963
--------------
Portugal 0.6%
PT 321,978 BPI - SGPS, SA .................................................. 6,266,121
US 239,400 b Portucel Industrial-Empresa Produtora de Celulosa, SA, Sponsored ADR 1,775,197
--------------
8,041,318
--------------
South Africa 1.1%
ZA 417,465 Rustenburg Platinum Holdings, Ltd. .............................. 7,637,116
ZA 722,582 Sappi, Ltd. ..................................................... 6,529,835
--------------
14,166,951
--------------
South Korea 1.5%
KR 60,104 Byucksan Corp.................................................... 568,551
KR 155,586 Daegu Bank ...................................................... 1,333,642
KR 30,600 Dae Han Synthetic Fiber Co. ..................................... 3,097,905
KR 19,110 Keumkang, Ltd. .................................................. 912,459
KR 57,900 Korea Chemical Co., Ltd ......................................... 4,880,047
KR 66,000 Korea Electric Power Corp........................................ 1,969,595
KR 87,100 Korea Long Term Credit Bank ..................................... 1,379,047
KR 155,990 Pacific Chemical Co. ............................................ 3,882,184
KR 10,450 Pohang Iron & Steel Co., Ltd. ................................... 1,065,600
--------------
19,089,030
--------------
Spain 4.4%
ES 27,500 Banco Bilbao Vizcaya ............................................ 2,233,967
ES 15,600 Banco Popular Espanol, SA ....................................... 3,821,921
ES 246,970 Compania Sevillana de Electricidad .............................. 2,547,638
ES 378,000 Dragados & Construcciones, SA ................................... 7,849,881
ES 1,517,800 Iberdrola, SA ................................................... $ 19,159,199
ES 646,100 Telefonica de Espana ............................................ 18,679,240
ES 52,200 Unipapel, SA .................................................... 1,098,202
--------------
55,390,048
--------------
Sweden 9.3%
SE 806,000 Asea, AB, Class A ............................................... 11,305,152
SE 515,500 Celsius, AB, Class B ............................................ 10,129,403
SE 382,000 Electrolux, AB, Series B ........................................ 27,555,556
SE 257,100 a Enator, AB, Class B ............................................. 4,586,620
SE 158,500 Esselte, Class B ................................................ 3,729,171
SE 163,000 Foreningsbanken, AB, Series A ................................... 3,624,329
SE 191,000 a Granges, AB ..................................................... 2,530,864
SE 210,000 Marieberg Tidnings, AB, Class A ................................. 5,212,333
SE 1,288,000 a Stena Line, AB, Class B ......................................... 6,243,940
SE 804,250 Stora Kopparbergs Bergslags, AB, Class B ........................ 13,100,058
SE 155,400 Svenska Handelsbanken, Class A .................................. 4,941,943
SE 922,000 Volvo, AB, Class B .............................................. 24,672,484
--------------
117,631,853
--------------
Switzerland 4.1%
CH 13,989 Adecco, SA ...................................................... 5,370,222
CH 3,690 a Baloise-Holding ................................................. 8,792,331
CH 12,800 Bucher Holding, AG .............................................. 13,321,465
CH 3,570 Kuoni Reisen, AG, Class B ....................................... 12,221,842
CH 2,506 Novartis ........................................................ 4,004,796
CH 15,400 SMH, AG, br. .................................................... 8,793,975
--------------
52,504,631
--------------
Thailand 0.1%
TH 17,900 Charoen Pokphand Feedmill Public Co., Ltd., fgn. ................ 44,223
TH 344,900 Siam City Cement Public Co., Ltd., fgn. ......................... 1,404,630
--------------
1,448,853
--------------
Turkey 0.4%
US 19,688,738 Tofas Turk Otomobil Fabrikasi, AS, Sponsored GDR ................ 4,626,853
--------------
United Kingdom 14.1%
GB 2,536,000 Anglian Group, Plc............................................... 10,410,232
GB 2,908,800 BG, Plc.......................................................... 10,705,337
GB 2,147,200 British Steel, Plc. ............................................. 5,327,862
GB 1,446,000 British Telecommunications, Plc. ................................ 10,739,829
GB 4,204,600 BTR, Plc. ....................................................... 14,389,004
GB 1,290,000 a Centrica, Plc. .................................................. 1,573,590
GB 7,123,000 Cordiant, Plc. .................................................. 14,649,545
GB 2,919,000 Courtaulds, Plc. ................................................ 16,430,282
GB 5,560,000 Harrisons & Crosfield, Plc. ..................................... 10,277,607
GB 449,950 Hepworth, Plc. .................................................. 1,775,852
GB 2,493,900 Hillsdown Holdings, Plc. ........................................ 7,018,753
GB 32,000 Imperial Chemical Industries, Plc. .............................. 445,236
GB 1,330,900 Kwik Save Group, Plc. ........................................... 6,748,806
GB 902,000 Lex Service, Plc. ............................................... 5,655,431
GB 1,890,000 London Pacific Group, Ltd. ...................................... 6,562,391
GB 1,000,000 McBride, Plc. ................................................... 2,256,491
GB 1,487,610 Meggitt, Plc. ................................................... 3,096,659
GB 641,668 National Westminster Bank, Plc. ................................. 8,628,735
GB 612,300 a,b Railtrack Group, Plc. ........................................... 6,378,019
GB 1,695,778 Safeway, Plc. ................................................... 9,813,367
GB 50,000 Tate & Lyle, Plc. ............................................... 371,780
GB 978,479 Thames Water Group, Plc. ........................................ $ 11,300,358
GB 3,844,900 Thorn, Plc. ..................................................... 11,013,053
GB 710,700 a Waste Management International, Plc. ............................ 3,302,058
--------------
178,870,277
--------------
Total Common Stocks, Rights & Warrants (Cost $827,145,250) 1,058,452,328
--------------
Preferred Stocks 1.5%
Brazil 1.3%
BR 525,200,000 Banco Bradesco, SA, pfd. ........................................ 5,293,224
US 57,300 Telecomunicacoes Brasileiras - Telebras, SA, pfd., Sponsored ADR 8,695,275
BR 56,824,000 Uniao de Bancos Brasileiros, SA, pfd. ........................... 2,084,418
--------------
16,072,917
--------------
Hong Kong 0.2%
US 1,531,000 Jardine Strategic Holdings, Ltd., 7.50%, cvt., pfd. ............. 1,890,785
--------------
Total Preferred Stocks (Cost $12,281,998) ................. 17,963,702
--------------
FACE
AMOUNT
Bonds 5.0%
United States
US $63,665,000 Federal National Mortgage Association, 07/14/97 (Cost $63,530,561) 63,541,108
--------------
Total Long Term Investments (Cost $902,957,809) ........... 1,139,957,138
--------------
f Receivable from Repurchase Agreements 9.9%
US 50,000,000 Aubrey G. Lanston & Co., 5.85%, 07/01/97,
(Maturity Value $63,678,346.05) Collateral: U.S. Treasury Notes,
6.250%, 06/30/02 ............................................... 63,668,000
US 50,000,000 Swiss Bank Corp., 5.90%, 07/01/97, (Maturity Value $62,349,216.67)
Collateral: U.S. Treasury Notes, 5.875%, 11/15/99 .............. 62,339,000
--------------
Total Receivables from Repurchase Agreements (Cost $126,007,000) 126,007,000
--------------
Total Investments (Cost $1,028,964,809) 99.8%......... 1,265,964,138
Other Assets and Liablities, Net 0.2%................. 3,026,788
--------------
Net Assets 100.0%.....................................$1,268,990,926
==============
At June 30, 1997, the net unrealized appreciation based on the
cost of investments for income tax purposes of
$1,029,249,534 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost............. $ 281,565,630
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value............. (44,851,026)
--------------
Net unrealized appreciation.................................... $ 236,714,604
==============
CURRENCY LEGEND:
AR - Argentina
AT - Austria
AU - Australia
BE - Belgium
BR - Brazil
CA - Canada
CH - Switzerland
DD - Germany
ES - Spain
FI - Finland
FR - France
GB - United Kingdom
GR - Greece
HK - Hong Kong
ID - Indonesia
IT - Italy
KR - South Korea
MX - Mexico
NL - Netherlands
NO - Norway
NZ - New Zealand
PE - Peru
PT - Portugal
SE - Sweden
TH - Thailand
US - United States
ZA - South Africa
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified institutional buyers.
fFace amount for repurchase agreements is for the underlying collateral.
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES/ VALUE
COUNTRY* WARRANTS Templeton International Smaller Companies Fund (NOTE1)
a Common Stocks & Warrants 62.8%
<S> <C> <C> <C>
Argentina 1.2%
AR 45,900 CIADEA, SA ...................................................... $ 197,400
US 24,300 a Mirgor SA, Comercial Industrial Financiera Inmobi, Class C, ADR . 68,648
US 7,000 Transportadora de Gas del Sur, SA, Class B, Sponsored ADR ....... 87,500
--------------
353,548
--------------
Australia 1.9%
AU 87,500 David Jones, Ltd. ............................................... 122,223
AU 324,000 Davids, Ltd. .................................................... 283,777
AU 44,964 Email, Ltd. ..................................................... 160,923
--------------
566,923
--------------
Austria 1.0%
AT 3,853 Boehler - Uddeholm, AG .......................................... 298,789
--------------
Brazil 1.4%
BR 5,207,000 Bombril, SA ..................................................... 62,636
US 9,200 a Uniao de Bancos Brasileiros, SA, GDR ............................ 341,550
--------------
404,186
--------------
Canada 0.8%
CA 1,480 Hudson's Bay Co. ................................................ 33,224
CA 13,500 Oshawa Group, Ltd., Class A ..................................... 201,872
--------------
235,096
--------------
China 2.0%
CN 52,000 China International Marine Containers, Class B .................. 61,415
CN 179,000 Dongfang Electrical Machinery Co., Ltd., Class H ................ 57,762
US 110,400 b Guangdong Electric Power Development Co., Ltd., Class B ......... 90,488
US 40,000 b Guangdong Kelon Electrical Hldgs Ltd.,Class H ................... 38,207
CN 92,000 Guangdong Kelon Electrical Hldgs. Ltd., Class H ................. 87,876
CN 161,000 Inner Mongolia Erdos Cashmere Products, Class B ................. 135,240
CN 650,000 Yizheng Chemical Fibre Co., Ltd., Class H ....................... 115,782
--------------
586,770
--------------
Denmark 1.8%
DK 2,252 Det Danske Traelastkompagni, AS.................................. 205,871
DK 9,100 a ISS International Service System, AS, Class B ................... 326,180
--------------
532,051
--------------
Ecuador 0.8%
US 1,075 La Cemento Nacional CA, Sponsored GDR ........................... 223,600
--------------
Egypt 0.5%
US 6,500 b Commercial Intl Bank Ltd., GDR .................................. 136,013
--------------
Finland 0.7%
FI 11,300 a Amer Group, Ltd. ................................................ 206,731
--------------
France 2.9%
FR 4,300 BERTRAND FAURE .................................................. 226,462
FR 539 Eramet, SA ...................................................... 24,856
FR 294 Galeries Lafayette .............................................. 121,868
FR 1,283 Marine - Wendel, SA ............................................. 130,992
FR 2,200 Sylea, SA ....................................................... 210,390
FR 2,356 Vallourec ....................................................... 143,965
--------------
858,533
--------------
Germany 0.5%
DD 2,256 Moebel Walther, AG .............................................. 137,127
--------------
Hong Kong 10.3%
HK 904,000 Baltrans Holdings, Ltd. ......................................... 151,692
HK 432,100 C.P. Pokphand ................................................... 133,858
HK 213,000 Giordano International, Ltd. .................................... $ 145,715
HK 55,100 Hong Kong Aircraft Engineering Co., Ltd. ........................ 200,563
HK 126,904 Hung Hing Printing Group, Ltd. .................................. 70,436
HK 215,000 Kumagai Gumi Hong Kong, Ltd. .................................... 223,400
HK 391,000 Li & Fung, Ltd. ................................................. 439,082
HK 280,000 Melco International Development, Ltd. ........................... 91,258
HK 250,000 Orient Overseas International, Ltd. ............................. 177,481
HK 23,225 Peregrine Investments Holdings, Ltd. ............................ 47,815
HK 295,000 a Pioneer Industries International Holdings, Ltd. ................. 136,128
HK 931,000 Sinocan Holdings, Ltd. .......................................... 459,655
HK 23,000 Swank International Manufacturing Co., Ltd. ..................... 2,494
HK 741,000 Techtronic Industries Co., Ltd. ................................. 131,992
HK 525,000 Tungtex Holdings ................................................ 54,212
HK 136,000 V Tech Holdings, Ltd. ........................................... 256,296
HK 924,000 a Wai Kee Holdings, Ltd. .......................................... 218,259
HK 138,600 a Wai Kee Holdings, Ltd., warrants ................................ 13,239
HK 14,400 Wing Hang Bank .................................................. 86,988
--------------
3,040,563
--------------
Hungary 0.3%
US 5,560 b Tiszai Vegyi Kombinat RT, GDR ................................... 96,327
--------------
India 0.1%
IN 3,800 Gujarat Ambuja Cements, Ltd. .................................... 36,779
--------------
Indonesia 1.6%
ID 144,100 PT Steady Safe, fgn. ............................................ 168,867
ID 204,000 PT Tambang Timah, fgn. .......................................... 316,653
--------------
485,520
--------------
Israel
US 200 Tadiran Ltd., Sponsored ADR ..................................... 5,725
--------------
Italy 0.5%
IT 9,566 Cartiere Burgo, SpA ............................................. 53,161
US 3,600 b Esaote Biomedica, SpA, ADR ...................................... 94,184
--------------
147,345
--------------
Mexico 0.4%
MX 151,800 a Empaques Ponderosa, SA de CV, Class B ........................... 124,238
--------------
Netherlands 5.9%
NL 1,223 Crown-Van Gelder Papier, SA ..................................... 103,739
NL 7,740 De Boer Unigro................................................... 273,654
NL 3,000 Gamma Holdings, NV .............................................. 161,241
NL 15,750 Heidemij, NV..................................................... 157,267
NL 960 Hollandsche Beton Groep, NV ..................................... 218,958
NL 3,744 Internatio-Muller, NV ........................................... 118,067
NL 1,850 Nagron Nationaal Grondbezit, NV ................................. 212,059
NL 14,500 Otra, NV ........................................................ 232,691
NL 10,932 Schuttersveld Holding ........................................... 266,213
--------------
1,743,889
--------------
New Zealand 1.7%
NZ 6,625 Fisher & Paykel Industries, Ltd. ................................ 25,875
NZ 66,054 Fletcher Challenge Forests ...................................... 96,016
NZ 155,800 Tourism Holdings, Ltd. .......................................... 221,179
US 8,900 Tranz Rail Holdings, Ltd., Sponsored ADR ........................ 150,188
--------------
493,258
--------------
Norway 1.5%
NO 16,400 Helikopter Services Group, ASA .................................. $ 210,337
NO 600 Norske Skogindustrier, AS, Class A .............................. 20,671
NO 7,170 Union Bank of Norway, Primary Capital Certificate ............... 212,286
--------------
443,294
--------------
Singapore 1.7%
US 60,000 Inchcape Berhad ................................................. 216,129
SG 39,000 Singapore Business Service (1978), Ltd., fgn. ................... 186,857
SG 60,000 Singapore Finance, Ltd. ......................................... 86,032
--------------
489,018
--------------
South Africa 1.7%
ZA 21,500 Impala Platinum Holdings, Ltd. .................................. 240,495
ZA 60,000 Murray & Roberts Hldgs., Ltd. ................................... 140,842
ZA 67,700 Sentrachem, Ltd. ................................................ 122,195
--------------
503,532
--------------
South Korea 2.3%
KR 3,200 Dae Han Synthetic Fiber Co. ..................................... 323,964
KR 2,900 Korea Chemical Co., Ltd. ........................................ 244,424
KR 6,800 Korea Long Term Credit Bank ..................................... 107,664
--------------
676,052
--------------
Spain 4.8%
ES 3,272 Banco de Valencia, SA ........................................... 68,837
ES 4,000 Banco Pastor, SA ................................................ 301,323
ES 1,291 Cristaleria Espanola, SA ........................................ 111,533
ES 14,155 Dragados & Construcciones, SA ................................... 293,955
ES 1,500 Electricas Reunidas de Zaragoza.................................. 62,911
ES 34,500 Energia e Industrias Aragonesas Eia S ........................... 248,185
ES 3,700 Gas y Electridad, SA ............................................ 198,622
ES 1,250 Grupo Acciona, SA ............................................... 140,821
--------------
1,426,187
--------------
Sweden 3.9%
SE 21,400 Catena, Class A ................................................. 250,365
SE 4,000 Celsius, AB, Class B ............................................ 78,599
SE 4,800 b Dahl International, AB .......................................... 94,318
US 6,300 b Dahl International, AB, ADR ..................................... 123,793
SE 1,657 Foreningsbanken, AB, Series A ................................... 36,847
SE 200 Granges, AB ..................................................... 2,650
SE 8,160 Marieberg Tidnings, AB, Class A ................................. 202,536
SE 12,995 Munksjoe, AB .................................................... 133,553
SE 19,045 Scribona, AB, Class B ........................................... 221,582
--------------
1,144,243
--------------
Switzerland 0.8%
CH 44 Kardex, AG ...................................................... 13,256
CH 52 Sarna Kunststoff Holding, AG .................................... 51,626
CH 200 Swisslog Holding, AG ............................................ 66,416
CH 245 Zehnder Holding, AG ............................................. 117,426
--------------
248,724
--------------
Thailand 1.6%
TH 71,300 Charoen Pokphand Feedmill Public Co., Ltd., fgn. ................ 176,151
TH 11,800 Robinson Department Store Public Co., Ltd., fgn. ................ 4,441
TH 1,000 Saha - Union Public Co., Ltd..................................... 733
TH 27,100 Siam City Cement Public Co., Ltd., fgn. ......................... $ 110,367
TH 69,500 Thai Glass Industries Public Co., Ltd., fgn. .................... 182,436
--------------
474,128
--------------
Turkey 0.1%
US 148,313 b Tofas Turk Otomobil Fabrikasi, AS, Sponsored GDR ................ 34,853
--------------
United Kingdom 8.1%
GB 35,337 Albert Fisher Group, Plc. ....................................... 25,451
GB 6,978 Charter, Plc. ................................................... 92,848
GB 21,900 Eurodis Electron, Plc. .......................................... 49,235
GB 187,300 Hazlewood Foods, Plc. ........................................... 349,341
GB 100,000 Hillsdown Holdings, Plc. ........................................ 281,437
GB 54,100 Lex Service, Plc. ............................................... 339,200
GB 16,000 LucasVarity, Plc. ............................................... 55,421
GB 64,100 McBride, Plc. ................................................... 144,641
GB 78,000 Perkins Foods, Plc. ............................................. 107,162
US 500 Sea Containers, Ltd., Class A ................................... 11,313
GB 82,800 Somerfield, Plc. ................................................ 252,334
GB 64,000 Storehouse, Plc. ................................................ 200,903
GB 95,700 Wace Group, Plc. ................................................ 52,592
GB 34,300 Wagon Industrial Holdings, Plc. ................................. 127,949
GB 72,200 Weir Group, Plc. ................................................ 297,582
--------------
2,387,409
--------------
Total Common Stocks & Warrants (Cost $16,757,262) ......... 18,540,451
--------------
Preferred Stocks 2.9%
Austria 0.6%
AT 6,000 a,b Bank Austria AG, new, pfd. ...................................... 183,985
--------------
Brazil 1.6%
BR 842,000 Cia Brasileira de Petroleo Ipiranga, pfd. ....................... 13,695
BR 335,000 Coteminas Cia Tecidos Norte de Minas, pfd. ...................... 130,695
BR 103,395,000 Electrolux do Brasil SA, pfd. ................................... 164,233
BR 227,200 Weg SA, pfd. .................................................... 156,173
--------------
464,796
--------------
Netherlands 0.7%
NL 4,025 Ballast Nedam, NV, certificate, cvt. pfd. ....................... 201,978
--------------
Total Preferred Stocks (Cost $870,738) .................... 850,759
--------------
Total Long Term Investments (Cost $17,628,000) ............ 19,391,210
--------------
FACE
AMOUNT
e Short Term Investments 14.8%
US $1,450,000 FHLMC, 5.45%, 07/11/97 .......................................... 1,447,586
US 2,910,000 FNMA, 5.43% - 5.75%, with maturities - 07/14/97 ................. 2,906,937
--------------
Total Short Term Investments (Cost $4,354,281) ............ 4,354,523
--------------
Total Investments before Repurchase
Agreements (Cost $21,982,281) .................................. 23,745,733
--------------
f Receivables from Repurchase Agreements 14.7%
US $1,463,000 Aubrey G. Lanston & Co., 5.50%, 07/01/97
(Maturity Value $1,450,222)
Collateral: U.S. Treasury Note, 5.875%, 04/30/98 ............... $ 1,450,000
US 1,468,000 Swiss Bank Corp., 5.90%, 07/01/97 (Maturity Value $1,450,238)
Collateral: U.S. Treasury Note, 5.875%, 03/31/99 ............... 1,450,000
US 1,450,000 UBS Securities, L.L.C., 5.87%, 07/01/97 (Maturity Value $1,450,236)
Collateral: U.S. Treasury Note, 6.00%, 08/15/99 ................ 1,450,000
--------------
Total Receivables from Repurchase Agreements (Cost $4,350,000) 4,350,000
--------------
Total Investments (Cost $26,332,281) 95.2% ........... 28,095,733
Other Assets and Liabilities, Net 4.8% ............... 1,408,908
--------------
Net Assets 100.0% .................................... $29,504,641
==============
At June 30, 1997, the net unrealized appreciation based on the cost
of investments for income tax purposes of $26,332,281 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ..................... $ 2,458,287
Aggregate gross unrealized depreciation for all investments in which
there was an excess of value over tax cost ..................... (694,835)
--------------
Net unrealized appreciation ................................... $ 1,763,452
==============
COUNTRY LEGEND:
AR - Argentina
AT - Austria
AU - Australia
BR - Brazil
CA - Canada
CH - Switzerland
CN - China
DD - Germany
DK - Denmark
ES - Spain
FI - Finland
FR - France
GB - United Kingdom
HK - Hong Kong
ID - Indonesia
IN - India
IT - Italy
KR - South Korea
MX - Mexico
NL - Netherlands
NO - Norway
NZ - New Zealand
SE - Sweden
SG - Singapore
TH - Thailand
US - United States
ZA - South Africa
PORTFOLIO ABBREVIATIONS:
FHLMC -Federal Home Loan Mortgage Corp.
FNMA -Federal National Mortgage Association
L.L.C. - Limited Liability Corp.
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified institutional buyers.
eCertain short-term securities are traded on a discount basis; the rates shown are the discount rates at the time of
purchase by the Fund. Other securities bea interest at the rates shown, payable at fixed dates or upon maturity.
fFace amount for repurchase agreements is for the underlying collateral.
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES/
RIGHTS & VALUE
COUNTRY* WARRANTS Templeton Pacific Growth Fund (NOTE1)
a,b Common Stocks, Rights & Warrants 99.7%
<S> <C> <C> <C>
Australia 10.7%
AU 750,000 Australia & New Zealand Banking Group, Ltd....................... $5,606,228
AU 366,275 Brambles Industries, Ltd. ....................................... 7,243,253
AU 1,521,000 Capral Aluminium, Ltd. .......................................... 5,546,904
AU 1,080,000 Coles Myer, Ltd. ................................................ 5,618,459
AU 2,399,145 Gio Australia Holdings, Ltd. .................................... 7,427,020
US 118,100 b Qantas Airways, Ltd., ADR........................................ 2,684,413
--------------
34,126,277
--------------
China 2.4%
US 181,500 Guangshen Railway Co., Ltd., ADR ................................ 3,970,312
HK 1,008,000 a,b GZI Transport, Ltd. ............................................. 403,341
US 201,600 a,b GZI Transport, Ltd., warrants ................................... 20,818
HK 3,216,000 Maanshan Iron and Steel Co., Class H ............................ 672,482
US 225,000 Shandong Huaneng Power Co., Ltd., Sponsored ADR ................. 2,418,750
--------------
7,485,703
--------------
Hong Kong 25.8%
HK 3,000,000 Cathay Pacific Airways, Ltd. .................................... 6,215,068
HK 800,000 Cheung Kong Holdings, Ltd. ...................................... 7,899,526
HK 931,000 China Light & Power Co., Ltd. ................................... 5,275,502
US 4,311,086 Dairy Farm International Holdings, Ltd. ......................... 3,233,314
HK 5,415,000 Grand Hotel Holdings, Ltd., Class A ............................. 2,184,229
HK 5,400,399 Hon Kwok Land Investment, Ltd. .................................. 1,777,525
HK 745,000 Hong Kong Ferry Holdings Co., Ltd. .............................. 1,442,438
HK 2,438,633 Hong Kong Telecommunications, Ltd. .............................. 5,823,282
HK 216,200 HSBC Holdings, Plc. ............................................. 6,502,214
HK 632,031 Jardine Matheson Holdings, Ltd. ................................. 4,487,420
HK 3,860,000 National Mutual Asia, Ltd. ...................................... 4,284,848
HK 1,600,678 New World Development Co., Ltd. ................................. 9,545,432
HK 3,790,000 a Road King Infrastructure, Ltd. .................................. 3,204,278
HK 3,210,000 Shun Tak Holdings, Ltd. ......................................... 1,968,105
HK 4,888,000 South China Morning Post (Holdings), Ltd. ....................... 4,795,064
HK 645,000 Swire Pacific, Ltd., Class A .................................... 5,807,023
HK 3,100,000 Wheelock & Co., Ltd. ............................................ 7,622,656
--------------
82,067,924
--------------
India 0.4%
US 156,100 Great Eastern Shipping Co. ...................................... 1,239,044
--------------
Indonesia 4.7%
US 300,000 a Asia Pacific Resources International, Class A ................... 1,462,500
ID 1,567,000 PT Bank Bali, fgn. .............................................. 4,188,117
ID 4,121,750 PT Bank Pan Indonesia TBK........................................ 2,711,678
ID 2,060,875 a PT Bank Pan Indonesia TBK, rights ............................... 338,960
ID 950,000 PT Barito Pacific Timber, fgn. .................................. 810,547
ID 3,657,384 a PT Indorama Synthetics, fgn. .................................... 3,383,682
ID 129,000 a PT Inti Indorayon Utama, fgn. ................................... 90,173
ID 771,525 PT Pabrik Kertas Tjiwi Kimia, fgn. .............................. 896,200
ID 3,423,000 PT Panasia Indosyntec, fgn. ..................................... 950,051
--------------
14,831,908
--------------
Japan 18.6%
JP 1,011,000 Daicel Chemical Industries, Ltd. ................................ 3,907,800
JP 409,000 Daito Trust Construction Co. .................................... 4,817,642
JP 1,200 East Japan Railway .............................................. 6,156,531
JP 582,800 Hitachi, Ltd. ................................................... 6,508,891
JP 254,000 Hokuetsu Paper Mills, Ltd. ...................................... 1,544,699
JP 308,000 Matsushita Electric Industrial Co., Ltd. ........................ 6,207,835
JP 824,000 Mitsubishi Heavy Industries, Ltd. ............................... 6,319,658
JP 10,800 Nintendo Co., Ltd. .............................................. $ 902,748
JP 821 Nippon Telegraph & Telephone Corp. .............................. 7,879,766
JP 700,000 Nisshinbo Industries, Inc. ...................................... 6,351,976
JP 50,000 Sony Corp. ...................................................... 4,358,258
JP 330,000 Wacoal Corp. .................................................... 4,088,648
--------------
59,044,452
--------------
Malaysia 8.6%
MY 1,310,000 Commerce Asset-Holding Bhd., fgn. ............................... 3,451,466
MY 16,667 a Commerce Asset-Holding Bhd., fgn., warrants. .................... 26,546
MY 262,000 a Commerce Asset-Holding Bhd., rights ............................. 15,571
MY 2,607,000 Golden Hope Plantations Bhd., fgn. .............................. 4,482,718
MY 1,634,000 Hicom Holdings Bhd............................................... 3,094,501
MY 3,342,667 Malaysia International Shipping, Bhd., fgn. ..................... 8,674,512
MY 928,000 Public Finance Bhd., fgn. ....................................... 1,426,561
MY 1,798,800 Sime Darby Bhd., fgn. ........................................... 5,986,498
--------------
27,158,373
--------------
New Zealand 3.9%
NZ 4,177,353 Brierley Investments, Ltd. ...................................... 4,085,958
NZ 2,411,800 Carter Holt Harvey, Ltd. ........................................ 6,241,608
NZ 192,500 Fletcher Challenge Building, Ltd. ............................... 579,248
NZ 192,500 Fletcher Challenge Energy, Ltd. ................................. 581,863
NZ 30,800 Fletcher Challenge Forests ...................................... 44,771
NZ 385,000 Fletcher Challenge Paper, Ltd. .................................. 933,596
--------------
12,467,044
--------------
Pakistan 3.8%
PK 2,618,000 Fauji Fertilizer Co., Ltd. ...................................... 5,149,272
US 91,000 a Hub Power Co., Ltd., GDR, reg.S ................................. 2,252,250
PK 6,300,000 Pakistan Telecom Corp., PTC ..................................... 4,792,860
--------------
12,194,382
--------------
Philippines 2.5%
PH 5,675,000 a Filinvest Land, Inc. ............................................ 1,420,041
PH 962,500 a Philippine National Bank ........................................ 6,531,980
--------------
7,952,021
--------------
Singapore 12.5%
SG 888,600 City Developments Ltd., fgn. .................................... 8,701,406
SG 518,000 Development Bank of Singapore, Ltd., fgn. ....................... 6,521,648
SG 1,240,000 Inchcape Berhad ................................................. 4,466,671
SG 393,800 Overseas Union Bank Ltd., fgn. .................................. 2,451,437
SG 78,760 a Overseas Union Bank Ltd., rights ................................ 105,219
SG 1,217,000 Parkway Holdings Ltd., fgn. ..................................... 5,447,856
SG 882,000 Singapore Airlines Ltd., fgn. ................................... 7,896,482
SG 213,000 Singapore Finance Ltd. .......................................... 305,414
SG 2,102,000 Van Der Horst, Ltd. ............................................. 3,866,727
--------------
39,762,860
--------------
South Korea 0.8%
KR 99,030 Pacific Chemical Co. ............................................ 2,464,598
--------------
Thailand 5.0%
TH 622,000 Bangkok Bank Public Co., Ltd., fgn. ............................. 4,273,924
TH 829,900 Charoen Pokphand Feedmill Public Co., Ltd., fgn. ................ 2,050,322
TH 2,783,133 Industrial Finance Corp. of Thailand, fgn. ...................... 3,545,392
TH 2,531,400 Krung Thai Bank ................................................. 2,638,402
TH 327,900 Robinson Department Store Public Co., Ltd., fgn. ................ 123,413
TH 36,570 Thai Farmers Bank Public Co., Ltd. .............................. 112,230
TH 733,440 Thai Farmers Bank Public Co., Ltd., fgn. ........................ $ 3,114,395
TH 91,680 a Thai Farmers Bank Public Co., Ltd., fgn., warrants. ............. 39,815
--------------
15,897,893
--------------
Total Common Stocks, Rights & Warrants (Cost $277,637,121) 316,692,479
--------------
Preferred Stocks
US 31,000 Dairy Farm International Holdings, Ltd.,
6.50%, cvt. pfd. (Cost $31,000)................................. 22,863
--------------
Total Common Stocks, Rights & Warrants and Preferred
Stocks (Cost $277,668,121) ..................................... 316,715,342
--------------
FACE
AMOUNT
Convertible Bonds 0.2%
US $ 360,000 PT Inti Indorayon Utama, 5.50%, cvt., 10/01/02 .................. 430,200
US 1,307,000 MDX Public Co., Ltd., cvt. unsecured notes, 4.75%, 09/17/03 ..... 209,120
--------------
Total Convertible Bonds (Cost $1,941,281) ................. 639,320
--------------
Total Long Term Investments (Cost $279,609,402) ........... 317,354,662
--------------
e Short Term Investments
US 71,000 U. S. Treasury Bill, 08/21/97 (Cost $70,476) .................... 70,493
--------------
Total Investments before Repurchase Agreements
(Cost $279,679,878) ............................................ 317,425,155
--------------
f Receivables from Repurchase Agreements 0.7%
US 2,305,000 Swiss Bank Corp., 5.90%, 07/01/97 (Maturity Value $2,276,373)
(Cost $2,276,000)
Collateral: U.S. Treasury Note, 5.875%, 03/31/99 ............... 2,276,000
--------------
Total Investments (Cost $281,955,878) 100.6% ......... 319,701,155
Liabilities in Excess of Other Assets (0.6%) ......... (2,106,339)
--------------
Net Assets 100.0% .................................... $317,594,816
==============
At June 30, 1997, the net unrealized appreciation based on the
cost of investments for income tax purposes of
$285,511,117 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ............... $ 67,784,258
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value ............... (33,594,220)
--------------
Net unrealized appreciation ................................... $ 34,190,038
==============
COUNTRY LEGEND:
AU - Australia
HK - Hong Kong
ID - Indonesia
JP - Japan
KR - South Korea
MY - Malaysia
NZ - New Zealand
PH - Philippines
PK - Pakistan
SG - Singapore
TH - Thailand
US - United States
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified institutional buyers.
eCertain short-term securities are traded on a discount basis; the rates shown are the discount rates at the time of
purchase by the Fund. Other securities bear interest at the rates shown, payable at fixed dates or upon maturity.
fFace amount for repurchase agreements is for the underlying collateral.
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT U.S. Government Securities Fund (NOTE1)
Mortgage-Backed Securities 71.0%
<S> <C> <C>
Government National Mortgage Association (GNMA) - Fixed Rate 40.8%
$ 12,524,753 GNMA I, SF, 6.00%, 12/15/23 - 01/15/24 ................................. $ 11,747,766
2,179,820 GNMA II, 6.00%, 01/20/24 - 10/20/24 .................................... 2,024,607
55,008,570 GNMA I, SF, 6.50%, 05/15/23 - 05/15/24 ................................. 53,053,063
3,786,675 GNMA II, 6.50%, 01/20/26 ............................................... 3,614,077
8,656,588 GNMA, PL, 6.50%, 09/15/28 .............................................. 8,163,940
54,671,644 GNMA I, SF, 7.00%, 03/15/22 - 12/15/26 ................................. 54,070,685
29,140,634 GNMA II, 7.00%, 01/20/24 - 1/20/27 ..................................... 28,574,018
1,817,025 GNMA I, SF, 7.25%, 11/15/25 ............................................ 1,801,672
2,227,552 GNMA, PL, 7.25%, 05/15/22 - 08/15/22 ................................... 2,254,506
45,373,677 GNMA I, SF, 7.50%, 02/15/17 - 02/15/27 ................................. 45,810,487
36,554,842 GNMA II, 7.50%, 11/20/16 - 11/20/26 .................................... 36,670,332
28,059,300 GNMA I, SF, 8.00%, 04/15/05 - 06/15/25 ................................. 28,934,716
3,245,033 GNMA II, 8.00%, 02/20/16 - 08/20/26 .................................... 3,329,558
2,237,944 GNMA I, SF, 8.25%, 04/15/25 ............................................ 2,309,111
10,666,036 GNMA I, SF, 8.50%, 08/15/21 - 12/15/24 ................................. 11,159,771
3,870,483 GNMA I, SF, 9.00%, 04/15/16 - 02/15/21 ................................. 4,154,574
9,503,260 GNMA I, SF, 9.50%, 10/15/15 - 12/15/21 ................................. 10,312,378
1,690,526 GNMA II, 9.50%, 04/20/25 ............................................... 1,807,917
7,760,299 GNMA I, SF, 10.00%, 08/15/17 - 08/15/21 ................................ 8,487,555
--------------
318,280,733
--------------
Government National Mortgage Association (GNMA) - Adjustable Rate 1.5%
3,430,490 GNMA, Cap 11.50%, Margin 1.50% + CMT, Resets Annually, 7.125%, 07/20/17 3,528,946
3,171,257 GNMA, Cap 11.50%, Margin 2.50% + CMT, Resets Annually, 7.50%, 07/20/25 . 3,299,915
4,797,426 GNMA, Cap 14.00%, Margin 1.50% + CMT, Resets Annually, 7.00%, 01/20/16 . 4,927,580
--------------
11,756,441
--------------
Federal National Mortgage Association (FNMA) - Fixed Rate 7.2%
6,823,698 FNMA, 6.00%, 10/01/23 - 04/01/24 ....................................... 6,397,153
15,534,028 FNMA, 6.50%, 01/01/24 - 06/01/24 ....................................... 14,985,842
1,866,854 FNMA, 7.00%, 05/01/24 .................................................. 1,841,838
7,793,681 FNMA, PL, 7.00%, 03/17/35 .............................................. 7,428,314
11,336,549 FNMA, 7.50%, 04/01/23 - 08/01/25 ....................................... 11,408,689
12,644,842 FNMA, 8.00%, 07/01/16 - 02/01/25 ....................................... 13,009,463
982,554 FNMA, 8.50%, 10/01/19 - 03/01/22 ....................................... 1,027,834
--------------
56,099,133
--------------
Federal National Mortgage Association (FNMA) - Adjustable Rate 9.0%
8,823,253 FNMA, Cap 12.059%, Margin 1.25% + COFI,
Resets Monthly, 6.016%, 11/01/35 ...................................... 8,744,108
4,874,001 FNMA, Cap 12.49%, Margin 2.00% + CMT,
Resets Annually, 7.772%, 02/01/19 ..................................... 5,119,017
2,189,402 FNMA, Cap 12.786%, Margin 1.25% + COFI,
Resets Monthly, 6.009%, 02/01/03 ...................................... 2,176,966
6,333,386 FNMA, Cap 12.819%, Margin 2.127% + CMT,
Resets Annually, 7.893%, 09/01/18 ..................................... 6,687,295
14,364,771 FNMA, Cap 12.93%, Margin 2.24% + CMT,
Resets Annually, 7.058%, 02/01/27 ..................................... 14,552,662
4,331,621 FNMA, Cap 13.313%, Margin 2.126% + CMT,
Resets Annually, 7.805%, 07/01/19 ..................................... 4,543,914
13,136,379 FNMA, Cap 13.644%, Margin 2.011% + CMT,
Resets Annually, 7.703%, 01/01/18 ..................................... 13,792,541
427,774 FNMA, Cap 13.843%, Margin 1.25% + COFI,
Resets Monthly, 6.03%, 02/01/17 ....................................... 421,469
876,844 FNMA, Cap 14.071%, Margin 1.25% + COFI,
Resets Monthly, 6.009%, 12/01/18 ...................................... 863,920
5,478,804 FNMA, Cap 14.625%, Margin 1.25% + COFI,
Resets Monthly, 6.005%, 06/01/02 ...................................... 5,430,590
2,810,484 FNMA, Cap 14.808%, Margin 1.825% + 3CMT,
Resets Tri-Annually, 8.542%, 07/01/20 ................................. 2,908,711
4,743,241 FNMA, Cap 15.156%, Margin 2.284% + 3CMT,
Resets Tri-Annually, 8.576%, 03/01/20 ................................. 4,975,707
--------------
70,216,900
--------------
Federal Home Loan Mortgage Corp. (FHLMC) - Fixed Rate 8.9%
22,061,757 FHLMC, 6.50%, 06/01/08 - 01/01/24 ...................................... 21,408,708
16,777,379 FHLMC, 7.00%, 04/01/24 ................................................. 16,578,565
19,700,484 FHLMC, PL, 7.00%, 09/17/31 ............................................. 19,263,330
5,595,800 FHLMC, 7.50%, 11/01/22 - 05/01/24 ...................................... 5,652,404
4,094,568 FHLMC, 8.00%, 05/01/16 - 05/01/22 ...................................... 4,223,708
$ 1,232,615 FHLMC, 8.50%, 04/01/18 - 03/01/22 ...................................... $ 1,287,633
760,566 FHLMC, 9.00%, 03/01/03 ................................................. 789,239
--------------
69,203,587
--------------
Federal Home Loan Mortgage Corp. (FHLMC)
- Adjustable Rate 3.6%
3,200,929 FHLMC, Cap 10.99%, Margin 2.225% + CMT,
Resets Annually, 7.883%, 06/01/22 ..................................... 3,350,765
4,533,507 FHLMC, Cap 12.522%, Margin 2.105% + CMT,
Resets Annnually, 7.7%, 06/01/22 ...................................... 4,755,739
2,467,328 FHLMC, Cap 13.006%, Margin 2.00% + CMT,
Resets Annually, 7.685%, 09/01/19 ..................................... 2,583,169
3,235,477 FHLMC, Cap 13.125%, Margin 2.00% + CMT,
Resets Annually, 7.626%, 07/01/18 ..................................... 3,383,920
6,743,016 FHLMC, Cap 13.458%, Margin 2.195% + CMT,
Resets Annually, 7.907%, 02/01/19 ..................................... 7,064,253
6,770,020 FHLMC, Cap 13.879%, Margin 2.089% + CMT,
Resets Annually, 7.755%, 04/01/18 ..................................... 7,097,553
--------------
28,235,399
--------------
Total Mortgage-Backed Securities (Cost $547,332,903) .................. 553,792,193
--------------
Other Government & Agency Securities 25.0%
2,000,000 Federal Agriculture Mortgage Corp., 6.91%, 07/15/97 .................... 2,000,872
5,000,000 Federal Agriculture Mortgage Corp., 7.23%, 01/17/07 .................... 4,988,165
5,000,000 Federal Farm Credit Bank, 5.80%, 09/16/03 .............................. 4,763,519
15,000,000 FICO Strips, Series 1, 0.00%, 05/11/99 ................................. 13,375,079
3,876,000 FICO Strips, Series 1, 0.00%, 11/11/01 ................................. 2,925,825
1,925,000 FICO Strips, Series 1, 0.00%, 05/11/02 ................................. 1,405,340
1,758,000 FICO Strips, Series 1, 0.00%, 05/11/09 ................................. 771,101
10,000,000 FICO Strips, Series 1, 0.00%, 05/11/13 ................................. 3,246,729
11,024,000 FICO Strips, Series 13, 0.00%, 06/27/09 ................................ 4,790,092
5,000,000 FICO Strips, Series 15, 0.00%, 09/07/98 ................................ 4,659,520
10,000,000 FICO Strips, Series 15, 0.00%, 03/07/02 ................................ 7,387,500
3,202,000 FICO Strips, Series 16, 0.00%, 04/05/09 ................................ 1,414,169
4,745,000 FICO Strips, Series 16, 0.00%, 10/05/10 ................................ 1,873,515
2,060,000 FICO Strips, Series A, 0.00%, 02/08/09 ................................. 919,955
7,000,000 FICO Strips, Series D, 0.00%, 09/26/01 ................................. 5,328,077
15,000,000 FNMA, 6.05%, 11/10/97 .................................................. 15,017,818
5,000,000 Housing Urban Development, Series 96-A, 7.63%, 08/01/14 ................ 5,072,479
5,000,000 Housing Urban Development, Series 96-A, 7.66%, 08/01/15 ................ 5,076,154
4,685,663 SBA, 6.45%, 12/01/15 ................................................... 4,506,296
4,929,887 SBA, 6.70%, 12/01/16 ................................................... 4,798,704
7,960,239 SBA, Cap 10.50%, Margin Prime - 0.50%, Resets Quarterly, 8.00%, 03/25/19 8,298,549
7,003,387 SBA, Cap 10.85%, Margin Prime - 0.40%, Resets Quarterly, 8.10%, 06/25/19 7,344,802
8,915,415 SBA, Cap 10.875%, Margin Prime - 0.125%, Resets Quarterly, 8.375%, 03/25/18 9,492,132
5,000,000 SLMA, 5.64%, 11/26/97 .................................................. 4,995,415
5,000,000 SLMA, 6.16%, 12/02/99 .................................................. 4,955,115
15,000,000 SLMA, 0.00%, 05/15/14 .................................................. 4,001,578
10,000,000 Tennessee Valley Authority, 0.00%, 04/15/03 ............................ 6,855,180
6,000,000 Tennessee Valley Authority, 0.00%, 04/15/42 ............................ 2,336,140
5,000,000 Tennessee Valley Authority, 5.98%, 04/01/36 ............................ 5,036,370
5,000,000 Tennessee Valley Authority, 6.125%, 07/15/03 ........................... 4,872,640
19,249,000 Tennessee Valley Authority, 6.235%, 07/15/45 ........................... 19,150,520
10,000,000 Tennessee Valley Authority, 7.25%, 07/15/43 ............................ 9,643,760
1,000,000 Tennessee Valley Authority, 8.375%, 10/01/99 ........................... 1,044,500
12,000,000 Tennessee Valley Authority, 8.625%, 11/15/29 ........................... 12,905,210
--------------
Total Other Agency Government Securities (Cost $191,633,360) .......... 195,252,820
--------------
U.S. Government Securities 1.3%
5,000,000 U.S. Treasury Notes, 5.75%, 08/15/03 ................................... 4,829,690
5,000,000 U.S. Treasury Notes, 5.875%, 03/31/99 .................................. 4,989,065
--------------
Total U.S. Government Securities (Cost $9,992,578) .................... 9,818,755
--------------
Total Long Term Investments (Cost $748,958,841) ....................... 758,863,768
--------------
f,gReceivables from Repurchase Agreements 1.9%
$ 14,532,067 Joint Repurchase Agreement, 5.884%, 07/01/97,
(Maturity $14,537,982) (Cost $14,535,607)
Aubrey G. Lanston & Co., Inc., (Maturity Value $1,440,939)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $1,440,939)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $849,061)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $1,440,939)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $1,440,939)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $720,470)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $1,440,939)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co., L.P., (Maturity Value $1,440,939)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $1,440,939)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $1,440,939)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $1,440,939)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 ... $ 14,535,607
--------------
Total Investments (Cost $763,494,448) 99.2%............................ 773,399,375
Other Assets and Liabilities, Net 0.8%................................. 5,923,313
--------------
Net Assets 100.0%...................................................... $779,322,688
==============
At June 30, 1997 the net unrealized appreciation based on the cost
of investments for income tax purposes of $763,494,448 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ...................... $ 15,872,778
Aggregate gross unrealized depreciation for all investments in which there
was an excess of tax cost over value .................................. (5,967,851)
--------------
Net unrealized appreciation ........................................... $ 9,904,927
==============
PORTFOLIO ABBREVIATIONS:
</TABLE>
3CMT - 3 Year Constant Maturity Treasury Index
CMT - 1 Year Constant Maturity Treasury Index
COFI - 11th District Cost of Funds Index
FICO - Financing Corp.
L.L.C. - 1Limited Liability Corp.
L.P. - Limited Partnership
PL - Project Loan
SBA - Small Business Administration
SF - Single Family
SLMA - Student Loan Marketing Association
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES/ VALUE
COUNTRY* RIGHTS Utility Equity Fund (NOTE1)
a,b Common Stocks & Rights 97.2%
<S> <C> <C> <C>
US 255,600 a AES Corp. ....................................................... $ 18,083,700
US 946,100 a AirTouch Communications, Inc. ................................... 25,899,488
US 1,000,000 Allegheny Power System, Inc. .................................... 26,687,500
US 770,230 American Electric Power Co. ..................................... 32,349,660
US 100,000 Ameritech Corp. ................................................. 6,793,750
US 104,600 a Ascend Communications, Inc. ..................................... 4,118,625
US 360,000 AT&T Corp. ...................................................... 12,622,500
CN 3,291,000 a Beijing Datang Power Generation Co., Ltd......................... 1,518,636
US 158,600 b BSES, Ltd., Sponsored GDR ....................................... 4,222,725
US 1,021,100 Central & South West Corp. ...................................... 21,698,375
US 1,223,900 CINergy Corp. ................................................... 42,607,019
US 33,100 Companhia Energetica de Minas Gerais, Sponsored ADR ............. 1,694,306
US 465,000 Dominion Resources, Inc. ........................................ 17,030,625
US 716,000 DPL, Inc. ....................................................... 17,631,500
US 1,064,600 Duke Energy Corp. ............................................... 51,034,263
US 39,200 a Echelon International Corp., Inc. ............................... 894,250
US 763,600 Edison International ............................................ 18,994,550
BR 22,700,000 Eletropaulo-Eletricidade de Sao Paulo, SA ....................... 6,642,051
US 978,800 Empresa Nacional Electricidad, SA, Sponsored ADR ................ 22,084,175
US 732,560 Enova Corp. ..................................................... 17,627,225
US 1,040,000 Enron Corp. ..................................................... 42,445,000
US 496,300 Enron Global Power & Pipelines, L.L.C. .......................... 16,532,994
US 1,096,200 Entergy Corp. ................................................... 30,008,475
US 195,000 b Espoon Sahko Oy ................................................. 5,182,223
US 1,076,300 a Esprit Telecom Group, Plc., ADR ................................. 8,610,400
US 1,132,000 Florida Progress Corp. .......................................... 35,445,750
US 701,300 FPL Group, Inc. ................................................. 32,303,631
US 900,000 GPU, Inc. ....................................................... 32,287,500
MX 55,600 a Grupo Iusacell, SA, Series D .................................... 77,008
US 144,440 a Grupo Iusacell, SA, Series L, Sponsored ADR ..................... 2,654,085
US 400,840 GTE Corp. ....................................................... 17,586,855
GR 361,800 Hellenic Telecommunication Organization, SA ..................... 8,494,813
GR 361,800 Hellenic Telecommunication Organization, SA, rights ............. 44,450
HK 1,250,000 Hongkong Electric Holdings, Ltd.................................. 5,034,012
US 138,000 a Huaneng Power International, Inc., Sponsored ADR ................ 3,519,000
US 1,380,000 a ICG Communications, Inc. ........................................ 26,565,000
US 211,400 a Itron, Inc. ..................................................... 5,469,975
KR 290,000 Korea Electric Power Corp. ...................................... 8,654,279
BR 10,140,600 Light Servicos de Eletricidade, SA .............................. 5,046,045
US 142,000 MCN Corp. ....................................................... 4,348,750
US 288,400 MidAmerican Energy Holdings Co. ................................. 4,992,925
GB 302,500 National Power, Plc. ............................................ 2,629,602
NO 429,000 a,b NetCom, ASA ..................................................... 4,565,573
US 210,000 New Jersey Resources Corp. ...................................... 6,588,750
JP 2,870 Nippon Telegraph & Telephone Corp. .............................. 27,545,589
US 649,900 NIPSCO Industries, Inc. ......................................... 26,848,994
US 323,000 a Nynex CableComms Group, Sponsored ADR ........................... 6,424,470
US 223,100 OGE Energy Corp. ................................................ 10,151,050
US 229,600 Pacific Enterprises ............................................. 7,720,300
US 950,000 PacifiCorp ...................................................... 20,900,000
US 166,600 PECO Energy Co................................................... 3,498,600
US 1,055,150 PG&E Corp. ...................................................... 25,587,388
US 843,000 Pinnacle West Capital Corp. ..................................... 25,342,688
US 189,500 Public Service Co. of Colorado .................................. 7,864,250
US 104,200 Public Service Enterprise Group, Inc. ........................... 2,605,000
US 100,000 SBC Communications, Inc. ........................................ 6,187,500
US 940,644 SCANA Corp. ..................................................... 23,339,729
GB 590,000 Scottish Power, Plc. ............................................ 3,841,696
KR 2,043 SK Telecom Co., Ltd. ............................................ $ 1,544,257
US 1,966,790 Southern Co. .................................................... 43,023,531
GB 366,091 Southern Electric, Plc. ......................................... 2,703,815
US 442,700 Southwestern Public Service Co. ................................. 17,403,644
IT 1,540,000 Stet Societa Finanziaria Telefonica, SpA ........................ 5,333,906
US 1,800,000 Teco Energy, Inc. ............................................... 46,012,500
US 315,000 Tele Danmark, AS, Sponsored ADR ................................. 8,229,375
PT 11,000 a Telecel-Comunicacaoes Pessoais, SA .............................. 912,552
US 230,000 Telecom Argentina Stet - France Telecom, SA, Sponsored ADR ...... 12,075,000
IT 6,000,000 a Telecom Italia, SpA ............................................. 12,004,237
US 79,400 Telefonica de Espana, Sponsored ADR ............................. 6,848,250
US 69,000 a TeleWest Communications, Plc., Sponsored ADR .................... 1,078,125
US 611,350 Texas Utilities Co. ............................................. 21,053,366
JP 135,000 Tokyo Electric Power Co. ........................................ 2,838,758
JP 2,000,000 Tokyo Gas Co., Ltd. ............................................. 5,549,254
TH 916,600 Total Access Communication Public Co., Ltd. ..................... 4,253,020
US 370,000 Transportadora de Gas del Sur, SA, Class B, Sponsored ADR ....... 4,625,000
US 155,000 a Vimpel-Communications, Sponsored ADR ............................ 5,890,000
--------------
Total Common Stocks & Rights (Cost $979,406,795) .......... 1,058,557,862
--------------
Convertible Preferred Stocks 1.9%
US 175,000 j CMS Energy Corp., 7.75%, quarterly cvt. pfd. .................... 9,072,000
US 240,000 Nortel Inversora, SA, 10.00%, cvt. pfd........................... 11,790,000
--------------
Total Convertible Preferred Stocks (Cost $18,083,247) ..... 20,862,000
--------------
Total Long Term Investments (Cost $997,490,042) ........... 1,079,419,862
--------------
FACE
AMOUNT
f,g Receivables from Repurchase Agreements 0.9%
US $9,789,578 Joint Repurchase Agreement, 5.884%, 07/01/97
(Maturity Value $9,795,106) (Cost $9,793,505)
Aubrey G. Lanston & Co., Inc., (Maturity Value $970,847)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $970,847)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $572,060)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $970,847)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $970,847)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $485,423)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $970,847)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co., L.P., (Maturity Value $970,847)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $970,847)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $970,847)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $970,847)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 9,793,505
--------------
Total Investments (Cost $1,007,283,547) 100.0% ....... 1,089,213,367
Liabilities in Excess of Other Assets ................. (254,073)
--------------
Net Assets 100.0% ....................................$1,088,959,294
==============
At June 30, 1997, the net unrealized appreciation based on the
cost of investments for income tax purposes of
$1,007,283,547 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ............... $ 137,283,530
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value ............... (55,353,710)
--------------
Net unrealized appreciation ................................... $ 81,929,820
==============
COUNTRY LEGEND:
BR - Brazil
CN - China
GB - United Kingdom
GR - Greece
HK - Hong Kong
IT - Italy
JP - Japan
KR - South Korea
MX - Mexico
NO - Norway
PT - Portugal
TH - Thailand
US - United States
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified institutional buyers.
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
jSee Note 9 regarding restricted securities.
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT Zero Coupon Fund - 2000 (NOTE1)
f,gLong Term Investments 99.1%
<S> <C> <C>
Government & Agency Securities 97.5%
$ 7,567,000 FHLB Strips, Series A-1, 0.00%, 02/25/01 ............................... $ 5,990,869
2,884,000 FHLB Strips, Series A-1, 0.00%, 08/25/01 ............................... 2,208,437
465,000 FHLB Strips, Series A-1, 0.00%, 02/25/02 ............................... 344,424
16,175,000 FHLMC, notes, 0.00%, 05/15/00 .......................................... 13,512,754
9,023,000 FICO Strips, 0.00%, 03/26/01 ........................................... 7,100,639
2,000,000 FICO Strips, 0.00%, 04/06/01 ........................................... 1,570,864
1,139,000 FICO Strips, Series 1, 0.00%, 11/11/00 ................................. 919,738
1,000,000 FICO Strips, Series 7, 0.00%, 02/03/01 ................................. 794,743
17,390,000 FICO Strips, Series 12, 0.00%, 12/06/00 ................................ 13,974,846
6,000,000 FICO Strips, Series 12, 0.00%, 06/06/01 ................................ 4,660,205
4,000,000 FICO Strips, Series 13, 0.00%, 06/27/01 ................................ 3,095,027
148,000 FICO Strips, Series 15, 0.00%, 09/07/00 ................................ 120,893
5,000,000 FICO Strips, Series 15, 0.00%, 03/07/01 ................................ 3,948,465
5,875,000 FICO Strips, Series 17, 0.00%, 10/05/00 ................................ 4,774,805
6,200,000 FICO Strips, Series 18, 0.00%, 10/06/00 ................................ 5,038,020
4,965,000 FICO Strips, Series D, 0.00%, 09/26/00 ................................. 4,042,006
5,550,000 FICO Strips, Series D, 0.00%, 02/03/01 ................................. 4,410,823
3,800,000 FNMA Strips, 0.00%, 11/22/99 ........................................... 3,271,150
1,000,000 FNMA Strips, 0.00%, 02/12/02 ........................................... 742,473
500,000 FNMA Strips, Series 1, 0.00%, 02/12/00 ................................. 424,080
1,875,000 FNMA Strips, Series 1, 0.00%, 02/01/01 ................................. 1,491,229
1,000,000 FNMA Strips, Series 1, 0.00%, 02/01/02 ................................. 743,980
3,000,000 FNMA Strips, Series 2, 0.00%, 08/12/01 ................................. 2,302,746
9,195,000 REFCO Strips, 0.00%, 01/15/01 .......................................... 7,371,079
3,320,000 Tennessee Valley Authority, 0.00%, 07/15/00 ............................ 2,743,136
2,500,000 Tennessee Valley Authority, 0.00%, 10/15/00 ............................ 2,031,895
65,000 Tennessee Valley Authority, 0.00%, 01/01/01 ............................ 51,688
10,500,000 Tennessee Valley Authority, 0.00%, 04/15/01 ............................ 8,249,083
1,000,000 Tennessee Valley Authority, 0.00%, 04/15/02 ............................ 735,272
1,110,375 U.S. Treasury Strips, 0.00%, 11/15/00 .................................. 897,562
2,778,750 U.S. Treasury Strips, 0.00%, 02/15/01 .................................. 2,207,639
9,635,000 U.S. Treasury Strips, 0.00%, 02/15/01 .................................. 7,689,799
15,000 U.S. Treasury Strips, 0.00%, 02/15/01 .................................. 11,980
--------------
117,472,349
--------------
Other Securities - "AAA" Rated 1.6%
220,000 InterAmerican Development Bank, 0.00%, 12/16/00 ........................ 175,978
405,000 International Bank for Reconstruction and Development, 0.00%, 02/15/00 . 343,359
945,000 International Bank for Reconstruction and Development, 0.00%, 08/15/00 . 774,839
735,000 International Bank for Reconstruction and Development, 0.00%, 02/15/01 . 582,272
--------------
1,876,448
--------------
Total Long Term Investments (Cost $114,210,502)........................ 119,348,797
--------------
f,gReceivables from Repurchase Agreements 1.3%
$ 1,563,347 Joint Repurchase Agreement, 5.884%, 07/01/97
(Maturity Value $1,564,040) (Cost $1,563,784)
Aubrey G. Lanston & Co., Inc., (Maturity Value $155,021)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $155,021)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $91,341)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $155,021)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $155,021)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $77,510)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $155,021)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co., L.P., (Maturity Value $155,021)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $155,021)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $155,021)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities L.L.C., (Maturity Value $155,021)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 ... $ 1,563,784
--------------
Total Investments (Cost $115,774,286) 100.4% .......................... 120,912,581
Liabilities in Excess of Other Assets (0.4%) .......................... (487,664)
--------------
Net Assets 100.0% ..................................................... $120,424,917
==============
At June 30, 1997, the net unrealized appreciation based on the cost
of investments for income tax purposes of $115,774,286 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ............................ $ 5,340,948
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ............................ (202,653)
--------------
Net unrealized appreciation ........................................... $ 5,138,295
==============
</TABLE>
PORTFOLIO ABBREVIATIONS:
FHLB - Federal Home Loan Bank
FHLMC - Federal Home Loan Mortgage Corp.
FICO - Financing Corp.
FNMA - Federal National Mortgage Association
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
REFCO - Resolution Funding Corp.
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT Zero Coupon Fund - 2005 (NOTE1)
f,gLong Term Investments 100.0%
<S> <C> <C>
Government & Agency Securities 96.5%
$ 1,000,000 FHLB Strips, Series A-1, 0.00%, 08/25/02 ............................... $ 716,024
800,000 FHLB Strips, Series A-1, 0.00%, 02/25/04 ............................... 515,407
9,110,000 FHLB Strips, Series A-1P, 0.00%, 02/25/04 .............................. 5,869,198
11,400,000 FICO Strips, 0.00%, 10/06/05 ........................................... 6,532,028
3,500,000 FICO Strips, Series 1, 0.00%, 05/11/05 ................................. 2,061,517
829,000 FICO Strips, Series 1, 0.00%, 11/11/05 ................................. 471,892
3,509,000 FICO Strips, Series 2, 0.00%, 11/02/05 ................................. 2,000,790
11,055,000 FICO Strips, Series 12, 0.00%, 12/06/05 ................................ 6,256,930
2,755,000 FICO Strips, Series 13, 0.00%, 12/27/05 ................................ 1,551,737
2,620,000 FICO Strips, Series 15, 0.00%, 09/07/05 ................................ 1,509,463
6,000,000 FICO Strips, Series 16, 0.00%, 04/05/06 ................................ 3,307,637
10,000,000 FICO Strips, Series 19, 0.00%, 12/06/05 ................................ 5,659,819
6,799,000 FICO Strips, Series D, 0.00%, 09/26/05 ................................. 3,903,332
1,763,000 FICO Strips, Series D, 0.00%, 03/26/06 ................................. 973,726
5,000,000 FICO Strips, Series F, 0.00%, 03/26/05 ................................. 2,972,495
120,000 FNMA Strips, 0.00%, 02/12/08 ........................................... 57,869
450,000 FNMA Strips, Series 1, 0.00%, 08/01/04 ................................. 280,933
1,000,000 FNMA Strips, Series 1, 0.00%, 02/12/05 ................................. 600,243
875,000 FNMA Strips, Series 1, 0.00%, 08/12/05 ................................. 506,877
4,307,000 FNMA Strips, Series 1, 0.00%, 02/01/06 ................................. 2,407,987
250,000 FNMA Strips, Series 1, 0.00%, 02/12/06 ................................. 139,412
1,730,000 FNMA Strips, Series 1, 0.00%, 02/01/08 ................................. 836,209
6,000,000 FNMA Strips, Series 2, 0.00%, 02/01/05 ................................. 3,609,491
530,000 FNMA Strips, Series 9, 0.00%, 08/01/06 ................................. 285,907
6,500,000 REFCO Strips, 0.00%, 01/15/06 .......................................... 3,695,692
3,000,000 REFCO Strips, Series R, 0.00%, 04/15/06 ................................ 1,674,294
6,200,000 Tennessee Valley Authority, 0.00%, 10/15/04 ............................ 3,819,869
2,260,000 Tennessee Valley Authority, 0.00%, 04/15/05 ............................ 1,341,500
1,000,000 Tennessee Valley Authority, 0.00%, 10/15/05 ............................ 573,409
16,390,000 U.S. Treasury Strips, 0.00%, 02/15/06 .................................. 9,322,942
--------------
73,454,629
--------------
Other Securities - "AAA" Rated 3.5%
1,500,000 Exxon Corp., 0.00%, 11/15/04 ........................................... 923,761
541,000 International Bank for Reconstruction and Development, 0.00%, 02/15/07 . 277,714
2,500,000 International Bank for Reconstruction and Development, 0.00%, 08/15/07 . 1,236,015
459,000 International Bank for Reconstruction and Development,
Series 2, 0.00%, 02/15/07.............................................. 235,565
--------------
2,673,055
--------------
Total Long Term Investments (Cost $70,813,920) ........................ 76,127,684
--------------
f,gReceivables from Repurchase Agreements
$ 26,224 Joint Repurchase Agreement, 5.884%, 07/01/97
(Maturity Value $26,896) (Cost $26,892)
Aubrey G. Lanston & Co., Inc., (Maturity Value $2,666)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $2,666)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $1,570)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $2,666)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $2,666)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $1,332)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $2,666)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co., L.P., (Maturity Value $2,666)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $2,666)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $2,666)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $2,666)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 ... $ 26,892
--------------
Total Investments (Cost $70,840,812) 100.0%............................ 76,154,576
Liabilities in Excess of Other Assets ................................. (23,958)
--------------
Net Assets 100.0% ..................................................... $76,130,618
==============
At June 30, 1997, the net unrealized appreciation based on the cost of
investments for income tax purposes of $70,840,812 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ............................ $ 6,007,572
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ............................ (693,808)
--------------
Net unrealized appreciation ........................................... $ 5,313,764
==============
</TABLE>
PORTFOLIO ABBR EVIATIONS:
FHLB - Federal Home Loan Bank
FICO - Financing Corp.
FNMA - Federal National Mortgage Association
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
REFCO - Resolution Funding Corp.
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT Zero Coupon Fund - 2010 (NOTE1)
f,gLong Term Investments 100.1%
<S> <C> <C>
Government & Agency Securities 95.0%
$ 4,450,000 FHLMC, capital deb., 0.00%, 11/29/19 ................................... $ 905,958
4,040,000 FICO Strips, 0.00%, 10/06/10 ........................................... 1,594,790
16,246,000 FICO Strips, Series 1, 0.00%, 11/11/10 ................................. 6,363,540
2,000,000 FICO Strips, Series 3, 0.00%, 05/30/10 ................................. 811,200
1,528,000 FICO Strips, Series 4, 0.00%, 10/06/10 ................................. 603,178
3,021,000 FICO Strips, Series 8, 0.00%, 08/03/10 ................................. 1,209,097
2,837,000 FICO Strips, Series 11, 0.00%, 02/08/11 ................................ 1,090,993
4,550,000 FICO Strips, Series 12, 0.00%, 06/06/09 ................................ 1,985,456
7,500,000 FICO Strips, Series 12, 0.00%, 12/06/10 ................................ 2,922,142
3,000,000 FICO Strips, Series 19, 0.00%, 06/06/10 ................................ 1,215,120
2,080,000 FICO Strips, Series 19, 0.00%, 12/06/10 ................................ 810,407
7,000,000 FICO Strips, Series A, 0.00%, 08/08/10 ................................. 2,798,669
860,000 FICO Strips, Series D, 0.00%, 03/26/10 ................................. 353,469
4,000,000 FICO Strips, Series D, 0.00%, 03/26/11 ................................. 1,523,036
12,412,000 FICO Strips, Series E, 0.00%, 11/02/10 ................................. 4,871,324
860,000 FICO Strips, Series F, 0.00%, 09/26/10 ................................. 340,268
5,311,000 FICO Strips, Series F, 0.00%, 02/08/11 ................................. 2,042,392
1,975,000 FNMA Strips, 0.00%, 08/12/09 ........................................... 852,112
5,000,000 FNMA Strips, Series 1, 0.00%, 02/01/10 ................................. 2,083,310
8,250,000 FNMA Strips, Series 1, 0.00%, 08/01/10 ................................. 3,311,574
1,230,000 FNMA Strips, Series 1, 0.00%, 08/12/10 ................................. 492,606
4,450,000 FNMA Strips, Series 1, 0.00%, 02/01/11 ................................. 1,718,243
3,281,000 FNMA, sub. deb., 0.00%, 02/01/12 ....................................... 1,176,199
20,000,000 REFCO Strips, 0.00%, 10/15/10 .......................................... 8,040,018
8,000,000 REFCO Strips, 0.00%, 01/15/11 .......................................... 3,154,960
8,650,000 SLMA, 0.00%, 05/15/14 .................................................. 2,307,577
412,000 Tennessee Valley Authority, 0.00%, 01/01/10 ............................ 168,130
12,000,000 Tennessee Valley Authority, 0.00%, 04/15/10 ............................ 4,913,760
1,320,000 Tennessee Valley Authority, 0.00%, 10/15/10 ............................ 519,854
9,525,000 Tennessee Valley Authority, 0.00%, 04/15/11 ............................ 3,608,326
7,295,000 Tennessee Valley Authority, 0.00%, 10/15/11 ............................ 2,661,179
19,610,000 U.S. Treasury Strips, 0.00%, 11/15/10 .................................. 7,946,873
--------------
74,395,760
--------------
Other Securities - "AAA" Rated 5.1%
1,392,000 International Bank for Reconstruction and Development, 0.00%, 02/15/11 . 526,403
2,800,000 International Bank for Reconstruction and Development, 0.00%, 02/15/12 . 981,254
3,287,000 International Bank for Reconstruction and Development, 0.00%, 02/15/13 . 1,066,355
4,100,000 International Bank for Reconstruction and Development, 0.00%, 08/15/13 . 1,278,330
500,000 International Bank for Reconstruction and Development,
Series 2, 0.00%, 02/15/11 ............................................. 189,081
--------------
4,041,423
--------------
Total Long Term Investments (Cost $69,806,434)......................... 78,437,183
--------------
f,gReceivables from Repurchase Agreements 0.1%
$ 71,137 Joint Repurchase Agreement, 5.884%, 07/01/97,
(Maturity Value $71,137) (Cost $71,125)
Aubrey G. Lanston & Co., Inc., (Maturity Value $7,051)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 04/15/98 - 08/15/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $7,051)
Collateral: U.S. Treasury Notes, 5.25% - 7.125%, 12/31/97 - 02/28/01
Chase Securities, Inc., (Maturity Value $4,152)
Collateral: U.S. Treasury Notes, 5.875%, 01/31/99
CIBC Wood Gundy Securities Corp., (Maturity Value $7,051)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 07/31/99
Daiwa Securities America, Inc., (Maturity Value $7,051)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 03/31/99 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $3,526)
Collateral: U.S. Treasury Notes, 5.00% - 6.25%, 09/30/97 - 07/31/98
Fuji Securities, Inc., (Maturity Value $7,051)
Collateral: U.S. Treasury Notes, 4.75% - 7.125%, 02/28/98 - 03/31/01
Sanwa Securities (USA) Co., L.P., (Maturity Value $7,051)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 06/30/01
SBC Warburg, Inc., (Maturity Value $7,051)
Collateral: U.S. Treasury Notes, 5.50%, 11/15/98
The Nikko Securities Co. International, Inc., (Maturity Value $7,051)
Collateral: U.S. Treasury Notes, 5.125% - 7.875%, 12/31/98 - 08/15/01
UBS Securities, L.L.C., (Maturity Value $7,051)
Collateral: U.S. Treasury Notes, 5.00% - 6.00%, 07/31/98 - 04/15/00 ... $ 71,125
--------------
Total Investments (Cost $69,877,559) 100.2% ........................... 78,508,308
Liabilities in Excess of Other Assets (0.2%) .......................... (163,952)
--------------
Net Assets 100.0% ..................................................... $78,344,356
==============
At June 30, 1997, the net unrealized appreciation based on the cost of
investments for income tax purposes of $70,244,886 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost............................. $ 8,391,135
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ............................ (127,713)
--------------
Net unrealized appreciation ........................................... $ 8,263,422
==============
</TABLE>
PORTFOLIO ABBREVIATIONS:
FHLMC - Federal Home Loan Mortgage Corp.
FICO - Financing Corp.
FNMA - Federal National Mortgage Association
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
REFCO - Resolution Funding Corp.
SLMA - Student Loan Marketing Association
fFace amount for repurchase agreements is for the underlying collateral.
gSee Note 1(h) regarding joint repurchase agreement.
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements
Statements of Assets and Liabilities
June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Capital Growth and High Income Money
Growth Fund Income Fund Income Fund Securities Fund Market Fund
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
At identified cost ................................$53,451,493 $ 893,292,316 $418,595,838 $1,216,237,733 $308,274,436
==============================================================================
At value .......................................... 61,850,363 1,125,842,883 436,028,933 1,297,374,969 308,274,436
Receivables from repurchase agreements,
at value and cost .................................. 12,051,457 75,949,649 8,974,501 49,818,613 76,580,000
Cash ............................................... 619,436 36,591 -- -- 8,821,758
Receivables:
Dividends and interest ............................ 32,179 3,844,426 7,801,440 17,267,403 765,330
Investment securities sold ........................ -- 1,132,660 -- 768,224 --
Capital shares sold ............................... -- -- 665,495 -- --
------------------------------------------------------------------------------
Total assets .................................. 74,553,435 1,206,806,209 453,470,369 1,365,229,209 394,441,524
------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ................... 86,563 3,042,881 -- 48,143 --
Capital shares repurchased ........................ -- -- 8,925,507 493,886 --
Management fees ................................... 44,990 462,707 185,055 518,828 137,131
Accrued expenses and other liabilities ............. 1,894 17,402 13,514 81,794 6,573
------------------------------------------------------------------------------
Total liabilities ............................. 133,447 3,522,990 9,124,076 1,142,651 143,704
------------------------------------------------------------------------------
Net assets, at value ................................$74,419,988 $1,203,283,219 $444,346,293 $1,364,086,558 $394,297,820
==============================================================================
Net assets consist of:
Undistributed net investment income ................ $ 202,147 $ 20,568,553 $ 20,882,895 $ 51,564,926 $--
Net unrealized appreciation on investments and
translation of assets and liabilities denominated
in foreign currencies .............................. 8,398,870 232,550,278 17,429,245 81,122,220 --
Accumulated net realized gain
(loss) from investments
and foreign currency transactions .................. (720,289) 41,125,976 819,314 31,432,497 --
Capital shares ..................................... 66,539,260 909,038,412 405,214,839 1,199,966,915 394,297,820
------------------------------------------------------------------------------
Net assets, at value ................................$74,419,988 $1,203,283,219 $444,346,293 $1,364,086,558 $394,297,820
==============================================================================
Shares outstanding .................................. 5,972,448 64,723,671 32,692,098 81,550,321 394,297,820
==============================================================================
Net asset value per share ........................... $12.46 $18.59 $13.59 $16.73 $1.00
==============================================================================
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
June 30, 1997 (unaudited)
Mutual Discovery Mutual Shares Natural Real Estate Rising
Securities Fund Securities Fund Resources Fund Securities Fund Dividends Fund
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
At identified cost ......................... $113,796,366 $198,916,831 $91,731,767 $264,470,445 $467,479,578
==============================================================================
At value ................................... 118,046,070 207,447,960 87,290,035 358,664,954 671,966,052
Receivables from repurchase agreements,
at value and cost ........................... -- -- 2,245,853 26,693,215 26,990,699
Cash ........................................ 252,127 1,383,744 358,054 227,506 --
Foreign currencies at value and cost ........ 849,031 166,840 -- -- --
Receivables:
Dividends and interest ..................... 195,023 273,391 86,185 1,554,367 1,205,206
Investment securities sold ................. 1,944,722 2,267,175 1,973,958 406,078 192,714
Capital shares sold ........................ 788,434 1,536,884 -- -- 292,368
Unrealized gain on forward foreign
currency contracts (Note 2) ................. 812,120 457,278 -- -- --
------------------------------------------------------------------------------
Total assets ........................... 122,887,527 213,533,272 91,954,085 387,546,120 700,647,039
------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased:
Regular delivery .......................... 3,009,525 3,060,374 -- 1,900,675 --
Delayed delivery (Note 1) ................. 144,375 240,625 -- -- 8,392,680
Capital shares repurchased ................. 6,300 86,508 -- -- 666,075
Management fees ............................ 85,716 120,114 49,159 159,274 402,897
Accrued expenses and other liabilities ...... 37,550 34,050 910 664 --
Unrealized loss on forward foreign
currency contracts (Note 2) ................. 212,485 174,998 -- -- --
------------------------------------------------------------------------------
Total liabilities ...................... 3,495,951 3,716,669 50,069 2,060,613 9,461,652
------------------------------------------------------------------------------
Net assets, at value ......................... $119,391,576 $209,816,603 $91,904,016 $385,485,507 $691,185,387
==============================================================================
Net assets consist of:
Undistributed net investment income ......... $ 1,109,308 $ 1,482,453 $ 347,904 $ 6,434,776 $ 4,376,948
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated
in foreign currencies ....................... 4,849,339 8,813,409 (4,441,691) 94,194,509 204,486,474
Accumulated net realized gain
(loss) from investments
and foreign currency transactions ........... 950,342 (376,767) (352,075) 5,771,871 36,592,744
Capital shares .............................. 112,482,587 199,897,508 96,349,878 279,084,351 445,729,221
------------------------------------------------------------------------------
Net assets, at value ......................... $119,391,576 $209,816,603 $91,904,016 $385,485,507 $691,185,387
==============================================================================
Shares outstanding ........................... 10,546,514 18,841,726 7,138,176 16,893,175 40,160,726
==============================================================================
Net asset value per share .................... $11.32 $11.14 $12.88 $22.82 $17.21
==============================================================================
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
June 30, 1997 (unaudited)
Templeton
Developing Templeton Templeton Templeton
Small Markets Global Asset Global Global Income
Cap Fund Equity Fund Allocation Fund Growth Fund Securities Fund
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
At identified cost ........................... $225,570,656 $315,400,213 $69,022,566 $514,540,118 $189,915,923
==============================================================================
At value ..................................... 251,857,297 383,530,535 78,215,698 659,822,901 189,146,643
Receivables from
repurchase agreements,
at value and cost ............................. -- -- 3,991,000 67,355,000 --
Cash .......................................... -- -- 211,792 -- 9,170,965
Foreign currencies at value and cost .......... -- 1,055,099 160,653 -- --
Receivables:
Dividends and interest ....................... 35,585 1,389,227 801,827 3,092,801 4,642,779
Investment securities sold ................... 494,233 2,074,773 1,628,299 -- 15,631,339
Capital shares sold .......................... -- 640,387 195,291 880,571 70,569
Unrealized gain on forward foreign
currency contracts (Note 2) ................... -- -- 129,306 -- 2,610,200
------------------------------------------------------------------------------
Total assets ............................. 252,387,115 388,690,021 85,333,866 731,151,273 221,272,495
------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased .............. -- 3,129,045 1,694,056 49,508 14,472,517
Capital shares repurchased ................... -- -- -- 23,411 154,217
Management fees .............................. 156,959 385,178 53,238 488,626 93,979
Payable upon return of
securities loaned (Note 10) ................... 2,013,000 -- -- -- --
Accrued expenses and other liabilities ........ 3,286 302,315 16,911 135,325 20,060
Unrealized loss on forward
foreign currency contracts (Note 2)............ -- -- 84,091 -- 2,092,841
Bank overdraft ................................ 7,797,252 108,315 -- 1,280,556 --
------------------------------------------------------------------------------
Total liabilities ........................ 9,970,497 3,924,853 1,848,296 1,977,426 16,833,614
------------------------------------------------------------------------------
Net assets, at value ........................... $242,416,618 $384,765,168 $83,485,570 $729,173,847 $204,438,881
==============================================================================
Net assets consist of:
Undistributed net investment income ........... $ 54,888 $ 3,522,304 $ 1,599,707 $ 9,933,949 $ 5,253,010
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated
in foreign currencies ......................... 26,286,641 68,130,322 9,235,509 145,282,783 (301,559)
Accumulated net realized gain
(loss) from investments
and foreign currency transactions ............. 4,500,600 5,216,952 641,710 18,236,103 (3,530,845)
Capital shares ................................ 211,574,489 307,895,590 72,008,644 555,721,012 203,018,275
------------------------------------------------------------------------------
Net assets, at value ........................... $242,416,618 $384,765,168 $83,485,570 $729,173,847 $204,438,881
==============================================================================
Shares outstanding ............................. 17,502,722 28,565,598 6,213,979 47,377,998 16,088,088
==============================================================================
Net asset value per share ...................... $13.85 $13.47 $13.44 $15.39 $12.71
==============================================================================
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
June 30, 1997 (unaudited)
Templeton
Templeton International Templeton
International Smaller Pacific U.S. Government
Equity Fund Companies Fund Growth Fund Securities Fund
<S> <C> <C> <C> <C>
Assets:
Investments in securities:
At identified cost ........................................ $ 902,957,809 $21,982,281 $279,679,878 $748,958,841
==============================================================================
At value .................................................. 1,139,957,138 23,745,733 317,425,155 758,863,768
Receivables from repurchase
agreements, at value and cost .............................. 126,007,000 4,350,000 2,276,000 14,535,607
Cash ....................................................... 214,419 2,734,825 94,134 --
Foreign currencies at value and cost ....................... 33,329 -- 5,874 --
Receivables:
Dividends and interest .................................... 5,914,733 76,921 1,505,602 6,273,095
Investment securities sold ................................ 902,256 45,248 -- 390,632
Capital shares sold ....................................... 199,593 161,088 136,952 314,885
------------------------------------------------------------------------------
Total assets .......................................... 1,273,228,468 31,113,815 321,443,717 780,377,987
------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ........................... 3,254,409 1,573,152 3,258,168 --
Capital shares repurchased ................................ -- 13 286,563 733,038
Management fees ........................................... 782,504 23,363 233,550 308,992
Accrued expenses and other liabilities ..................... 200,629 12,646 70,620 13,269
------------------------------------------------------------------------------
Total liabilities ..................................... 4,237,542 1,609,174 3,848,901 1,055,299
------------------------------------------------------------------------------
Net assets, at value ........................................ $1,268,990,926 $29,504,641 $317,594,816 $779,322,688
==============================================================================
Net assets consist of:
Undistributed net investment income ........................ $ 4,587,105 $ 437,478 $-- $ 26,381,806
Accumulated distributions in excess
of net investment income ................................... -- -- (233,641) --
Net unrealized appreciation on
investments and translation of assets
and liabilities denominated in foreign currencies .......... 236,999,329 1,763,452 37,745,277 9,904,927
Accumulated net realized gain
(loss) from investments and
foreign currency transactions .............................. 41,284,532 354,677 2,358,984 (15,599,250)
Capital shares ............................................. 986,119,960 26,949,034 277,724,196 758,635,205
------------------------------------------------------------------------------
Net assets, at value ........................................ $1,268,990,926 $29,504,641 $317,594,816 $779,322,688
==============================================================================
Shares outstanding .......................................... 77,230,276 2,484,755 21,289,513 58,989,435
==============================================================================
Net asset value per share ................................... $16.43 $11.87 $14.92 $13.21
==============================================================================
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
June 30, 1997 (unaudited)
Utility Zero Coupon Zero Coupon Zero Coupon
Equity Fund Fund - 2000 Fund - 2005 Fund - 2010
<S> <C> <C> <C> <C>
Assets:
Investments in securities:
At identified cost ........................................... $ 997,490,042 $114,210,502 $70,813,920 $69,806,434
==============================================================================
At value ..................................................... 1,079,419,862 119,348,797 76,127,684 78,437,183
Receivables from repurchase
agreements, at value and cost ................................. 9,793,505 1,563,784 26,892 71,125
Cash .......................................................... -- -- 1,407 --
Foreign currencies (Cost $486,209) ............................ 483,690 -- -- --
Receivables:
Dividends and interest ....................................... 1,838,570 -- -- --
Investment securities sold ................................... 846,109 -- -- --
Capital shares sold .......................................... 46,054 -- -- 12,804
------------------------------------------------------------------------------
Total assets ............................................. 1,092,427,790 120,912,581 76,155,983 78,521,112
------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased .............................. 1,817,406 -- -- --
Capital shares repurchased ................................... 1,176,941 447,029 -- 20,244
Management fees .............................................. 418,313 37,377 24,212 16,428
Accrued expenses and other liabilities ........................ 55,836 3,258 1,153 140,084
------------------------------------------------------------------------------
Total liabilities ........................................ 3,468,496 487,664 25,365 176,756
------------------------------------------------------------------------------
Net assets, at value ........................................... $1,088,959,294 $120,424,917 $76,130,618 $78,344,356
==============================================================================
Net assets consist of:
Undistributed net investment income ........................... $ 23,174,772 $ 3,914,051 $ 2,448,739 $ 2,499,046
Net unrealized appreciation on
investments and translation of assets
and liabilities denominated in foreign currencies ............. 81,932,248 5,138,295 5,313,764 8,630,749
Accumulated net realized gain
(loss) from investments and
foreign currency transactions ................................. 25,056,611 751,021 574,026 (589,012)
Capital shares ................................................ 958,795,663 110,621,550 67,794,089 67,803,573
------------------------------------------------------------------------------
Net assets, at value ........................................... $1,088,959,294 $120,424,917 $76,130,618 $78,344,356
==============================================================================
Shares outstanding ............................................. 63,253,739 8,324,305 4,867,554 5,027,827
==============================================================================
Net asset value per share ...................................... $17.22 $14.47 $15.64 $15.58
==============================================================================
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Operations
for the six months ended June 30, 1997 (unaudited)
Capital Growth and High Income Money
Growth Fund Income Fund Income Fund Securities Fund Market Fund
<S> <C> <C> <C> <C> <C>
Investment income:
Interest ......................................... $ 233,711 $ 1,792,187 $21,519,987 $38,568,505 $11,415,618
Dividends1 ....................................... 183,012 21,163,235 527,215 16,333,178 --
------------------------------------------------------------------------------
Total income ................................ 416,723 22,955,422 22,047,202 54,901,683 11,415,618
------------------------------------------------------------------------------
Expenses:
Management fees (Note 6) ......................... 211,213 2,640,673 1,106,945 3,121,566 1,058,727
Professional fees ................................ 1,479 15,176 6,918 33,946 7,886
Reports to shareholders .......................... 891 79,120 35,511 105,189 30,908
Custodian fees ................................... 270 13,999 3,647 65,784 2,598
Trustees' fees and expenses ...................... 94 3,776 1,701 5,090 1,574
Other ............................................ 619 8,267 8,059 14,552 3,686
Management fees waived
by manager (Note 6) .............................. -- -- -- -- (165,307)
------------------------------------------------------------------------------
Total expenses .............................. 214,566 2,761,011 1,162,781 3,346,127 940,072
------------------------------------------------------------------------------
Net investment income ....................... 202,157 20,194,411 20,884,421 51,555,556 10,475,546
------------------------------------------------------------------------------
Realized and unrealized gain
(loss) from investments
and foreign currency:
Net realized gain (loss) on:
Investments .................................... (576,845) 41,270,940 824,844 31,399,079 --
Foreign currency transactions .................. (3,494) 192 (3,487) 60,619 --
Net unrealized appreciation
(depreciation) on:
Investments .................................... 6,416,420 77,382,024 (801,796) 3,603,689 --
Translation of assets
and liabilities denominated
in foreign currencies ............................ -- (497) (3,098) (11,182) --
------------------------------------------------------------------------------
Net realized and unrealized
gain from investments
and foreign currencies ........................... 5,836,081 118,652,659 16,463 35,052,205 --
------------------------------------------------------------------------------
Net increase in net assets
resulting from operations ........................ $6,038,238 $138,847,070 $20,900,884 $86,607,761 $10,475,546
------------------------------------------------------------------------------
1Net of foreign taxes and fees withheld of $2,451, $406,531, and $100,660 for
the Capital Growth Fund, the Growth and Income Fund, and the Income Securities
Fund, respectively.
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Operations (cont.)
for the six months ended June 30, 1997 (unaudited)
Mutual Discovery Mutual Shares Natural Real Estate Rising
Securities Fund Securities Fund Resources Fund Securities Fund Dividends Fund
<S> <C> <C> <C> <C> <C>
Investment income:
Interest2 ....................................... $ 563,608 $1,202,509 $ 139,467 $ 756,757 $ 419,957
Dividends3 ...................................... 935,675 785,434 747,589 6,319,033 6,282,910
------------------------------------------------------------------------------
Total income ............................... 1,499,283 1,987,943 887,056 7,075,790 6,702,867
------------------------------------------------------------------------------
Expenses:
Management fees (Note 6) ........................ 308,069 421,659 309,270 917,204 2,268,468
Professional fees ............................... 6,520 8,472 2,431 4,256 7,544
Reports to shareholders ......................... 15,000 15,000 7,731 15,821 39,896
Custodian fees .................................. 36,193 22,557 9,133 1,270 2,721
Trustees' fees and expenses ..................... 535 535 448 1,025 1,801
Other ........................................... 402 37 1,359 9,175 2,995
------------------------------------------------------------------------------
Total expenses ............................. 366,719 468,260 330,372 948,751 2,323,425
------------------------------------------------------------------------------
Net investment income ...................... 1,132,564 1,519,683 556,684 6,127,039 4,379,442
------------------------------------------------------------------------------
Realized and unrealized
gain (loss) from investments
and foreign currency:
Net realized gain (loss) on:
Investments ................................... 793,060 (431,148) (192,004) 5,976,382 36,892,317
Foreign currency transactions ................. 157,282 57,430 (14,005) -- --
Net unrealized appreciation
(depreciation) on:
Investments ................................... 4,661,489 7,962,786 (9,709,641) 14,339,441 54,206,885
Translation of assets and
liabilities denominated
in foreign currencies ........................... -- 282,280 (5,421) -- --
------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) from investments
and foreign currencies .......................... 5,611,831 7,871,348 (9,921,071) 20,315,823 91,099,202
------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from operations ....................... $6,744,395 $9,391,031 $(9,364,387) $26,442,862 $95,478,644
==============================================================================
2Net of foreign taxes withheld of $51,616 for the Natural Resources Fund.
3Net of foreign taxes and fees withheld of $94,286, $41,226, $12,996, and
$36,770 for the Mutual Discovery Securities Fund, the Mutual Shares
Securities Fund, the Natural Resources Fund, and the Rising Dividends Fund,
respectively.
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Operations (cont.)
for the six months ended June 30, 1997 (unaudited)
Templeton
Developing Templeton Templeton Templeton
Small Markets Global Asset Global Global Income
Cap Fund Equity Fund Allocation Fund Growth Fund Securities Fund
<S> <C> <C> <C> <C> <C>
Investment income:
Interest4 ........................................ $ 390,296 $ 994,961 $1,230,045 $ 2,253,708 $7,806,742
Dividends5........................................ 437,071 5,265,770 755,137 11,186,361 7,384
------------------------------------------------------------------------------
Total income ................................ 827,367 6,260,731 1,985,182 13,440,069 7,814,126
------------------------------------------------------------------------------
Expenses:
Management fees (Note 6) ......................... 756,502 2,056,138 274,060 2,683,193 582,566
Professional fees ................................ 3,502 6,300 1,025 5,000 2,537
Reports to shareholders .......................... 14,158 18,600 4,992 38,400 15,650
Custodian fees ................................... 1,423 247,175 11,900 97,299 32,400
Trustees' fees and expenses ...................... 635 500 323 2,400 950
Other ............................................ 1,137 -- 5,063 3,944 676
------------------------------------------------------------------------------
Total expenses .............................. 777,357 2,328,713 297,363 2,830,236 634,779
------------------------------------------------------------------------------
Net investment income ....................... 50,010 3,932,018 1,687,819 10,609,833 7,179,347
------------------------------------------------------------------------------
Realized and unrealized gain
(loss) from investments
and foreign currency:
Net realized gain (loss) on:
Investments .................................... 4,563,518 5,438,504 586,623 18,336,505 (3,040,852)
Foreign currency transactions .................. 341 (86,906) 73,476 (6,352) 3,555,852
Net unrealized appreciation
(depreciation) on:
Investments .................................... 15,873,568 48,231,911 4,177,585 56,907,732 (6,794,384)
Translation of assets and
liabilities denominated
in foreign currencies ............................ -- -- 37,761 -- (179,145)
------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) from investments
and foreign currencies ........................... 20,437,427 53,583,509 4,875,445 75,237,885 (6,458,529)
------------------------------------------------------------------------------
Net increase in net assets
resulting from operations ........................ $20,487,437 $57,515,527 $6,563,264 $85,847,718 $ 720,818
==============================================================================
4Net of foreign taxes withheld of $7,507 and $154,832 for the Templeton Global
Asset Allocation Fund and the Templeton Global Income Securities Fund,
respectively.
5Net of foreign taxes and fees withheld of $24,227, $241,106, $59,635, and
$786,783 for the Small Cap Fund, the Templeton Developing Markets Equity Fund,
the Templeton Global Asset Allocation Fund, and the Templeton Global Growth
Fund, respectively.
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Operations (cont.)
for the six months ended June 30, 1997 (unaudited)
Templeton
Templeton International Templeton
International Smaller Pacific U.S. Government
Equity Fund Companies Fund Growth Fund Securities Fund
<S> <C> <C> <C> <C>
Investment income:
Interest ...................................................... $ 3,928,997 $ 224,271 $ 184,966 $28,335,260
Dividends6 .................................................... 25,309,868 358,018 4,974,027 --
------------------------------------------------------------------------------
Total income ............................................. 29,238,865 582,289 5,158,993 28,335,260
------------------------------------------------------------------------------
Expenses:
Management fees (Note 6) ...................................... 4,600,750 112,220 1,456,591 1,916,874
Professional fees ............................................. 16,000 1,660 4,150 6,948
Reports to shareholders ....................................... 60,000 1,600 26,500 68,633
Custodian fees ................................................ 391,000 3,900 107,300 3,567
Trustees' fees and expenses ................................... 3,300 550 1,100 2,745
Registration and filing fees .................................. -- 1,690 6,600 --
Other ......................................................... 57,260 59 700 4,844
------------------------------------------------------------------------------
Total expenses ........................................... 5,128,310 121,679 1,602,941 2,003,611
------------------------------------------------------------------------------
Net investment income .................................... 24,110,555 460,610 3,556,052 26,331,649
------------------------------------------------------------------------------
Realized and unrealized gain (loss)
from investments and foreign currency:
Net realized gain (loss) on:
Investments .................................................. 27,572,298 359,479 7,413,119 268,757
Foreign currency transactions ................................ (936,997) (4,802) (117,300) --
Net unrealized appreciation
(depreciation) on investments ................................. 102,676,570 659,380 (2,446,047) 2,858,479
------------------------------------------------------------------------------
Net realized and unrealized gain from
investments and foreign currencies............................. 129,311,871 1,014,057 4,849,772 3,127,236
------------------------------------------------------------------------------
Net increase in net assets
resulting from operations ..................................... $153,422,426 $1,474,667 $8,405,824 $29,458,885
==============================================================================
6Net of foreign taxes and fees withheld of $2,365,071, $40,670, and $382,468 for
the Templeton International Equity Fund, the Templeton International Smaller
Companies Fund, and the Templeton Pacific Growth Fund, respectively.
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Operations (cont.)
for the six months ended June 30, 1997 (unaudited)
Utility Zero Coupon Zero Coupon Zero Coupon
Equity Fund Fund - 2000 Fund - 2005 Fund - 2010
<S> <C> <C> <C> <C>
Investment income:
Interest .......................................................... $ 466,916 $4,159,562 $2,605,081 $2,656,008
Dividends7 ........................................................ 25,496,268 -- -- --
------------------------------------------------------------------------------
Total income ................................................. 25,963,184 4,159,562 2,605,081 2,656,008
------------------------------------------------------------------------------
Expenses:
Management fees (Note 6) .......................................... 2,615,249 366,868 242,059 243,175
Professional fees ................................................. 17,922 2,878 1,746 1,887
Reports to shareholders ........................................... 88,049 13,649 5,065 5,100
Custodian fees .................................................... 49,543 2,646 429 364
Trustees' fees and expenses ....................................... 5,018 638 270 270
Other ............................................................. 10,540 4,155 1,553 2,236
Management fees waived by manager (Note 6) ........................ -- (145,092) (95,021) (96,211)
------------------------------------------------------------------------------
Total expenses ............................................... 2,786,321 245,742 156,101 156,821
------------------------------------------------------------------------------
Net investment income ........................................ 23,176,863 3,913,820 2,448,980 2,499,187
------------------------------------------------------------------------------
Realized and unrealized gain (loss)
from investments and foreign currency:
Net realized gain (loss) on:
Investments ...................................................... 25,095,406 751,801 578,643 (169,893)
Foreign currency transactions .................................... (29,697) -- -- --
Net unrealized appreciation (depreciation) on:
Investments ...................................................... 28,961,913 (1,908,070) (1,418,733) (846,022)
Translation of assets and liabilities
denominated in foreign currencies ................................. 2,428 -- -- --
------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
from investments and foreign currencies ........................... 54,030,050 (1,156,269) (840,090) (1,015,915)
------------------------------------------------------------------------------
Net increase in net assets resulting from operations ............... $77,206,913 $2,757,551 $1,608,890 $1,483,272
==============================================================================
7Net of foreign taxes and fees withheld of $571,356 for the Utility Equity Fund.
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Changes in Net Assets
for the six months ended June 30, 1997 (unaudited)
and the year ended December 31, 1996
Capital Growth Fund Growth and Income Fund High Income Fund
Six months Year ended Six months Year ended Six months Year ended
ended 6/30/97 12/31/96* ended 6/30/97 12/31/96 ended 6/30/97 12/31/96
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................ $ 202,157 $ 110,214 $ 20,194,411 $ 39,513,404 $ 20,884,421 $ 37,008,728
Net realized gain
(loss) from investments
and foreign currency
transactions .......................... (580,339) (140,413) 41,271,132 37,811,712 821,357 1,210,500
Net unrealized appreciation
(depreciation)
on investments and translation of assets
and liabilities denominated
in foreign currencies ................ 6,416,420 1,982,450 77,381,527 55,138,252 (804,894) 13,294,221
--------------------------------------------------------------------------------------
Net increase in net
assets resulting
from operations ....................... 6,038,238 1,952,251 138,847,070 132,463,368 20,900,884 51,513,449
Distributions to
shareholders from:
Undistributed net
investment income ..................... (109,761) -- (39,059,424) (22,230,774) (37,006,747) (31,018,152)
Net realized capital gains ............ -- -- (37,881,070) (78,714,626) (1,213,933) (1,646,547)
Increase in net assets
from capital share
transactions (Note 3) ................. 23,824,800 42,714,460 63,387,635 156,983,572 15,570,564 66,343,229
--------------------------------------------------------------------------------------
Net increase (decrease)
in net assets ......................... 29,753,277 44,666,711 125,294,211 188,501,540 (1,749,232) 85,191,979
Net assets:
Beginning of period ................... 44,666,711 -- 1,077,989,008 889,487,468 446,095,525 360,903,546
--------------------------------------------------------------------------------------
End of period ......................... $74,419,988 44,666,711 $1,203,283,219 $1,077,989,008 $444,346,293 $446,095,525
======================================================================================
Undistributed net investment income
included in net assets:
Beginning of period .................. $ 109,751 $-- $ 39,433,566 $ 22,239,184 $ 37,005,221 $ 31,020,827
======================================================================================
End of period ........................ $ 202,147 $ 109,751 $ 20,568,553 $ 39,433,566 $ 20,882,895 $ 37,005,221
======================================================================================
*For the period May 1, 1996 (effective date) to December 31, 1996.
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended June 30, 1997 (unaudited)
and the year ended December 31, 1996
Mutual Discovery
Income Securities Fund Money Market Fund Securities Fund
Six months Year ended Six months Year ended Six months Year ended
ended 6/30/97 12/31/96 ended 6/30/97 12/31/96 ended 6/30/97 12/31/96**
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets:
Operations:
Net investment income ............... $ 51,555,556 $ 103,698,698 $ 10,475,546 $ 22,043,733 $ 1,132,564 $ 24,287
Net realized gain from
investments and
foreign currency transactions ........ 31,459,698 19,810,309 -- -- 950,342 1,860
Net unrealized appreciation on
investments and translation of assets
and liabilities denominated in
foreign currencies ................... 3,592,507 16,747,285 -- -- 4,661,489 187,850
--------------------------------------------------------------------------------------
Net increase in net
assets resulting
from operations ...................... 86,607,761 140,256,292 10,475,546 22,043,733 6,744,395 213,997
Distributions to shareholders from:
Undistributed net
investment income .................... (99,613,761) (66,927,738) (10,475,546) (22,043,733) (49,403) --
Net realized capital gains ........... (21,398,124) (11,125,807) -- -- -- --
Increase (decrease)
in net assets from
capital share
transactions (Note 3) ................ 47,831,262 21,919,171 (14,631,993) (20,617,040) 97,278,854 15,203,733
--------------------------------------------------------------------------------------
Net increase (decrease)
in net assets........................ 13,427,138 84,121,918 (14,631,993) (20,617,040) 103,973,846 15,417,730
Net assets:
Beginning of period .................. 1,350,659,420 1,266,537,502 408,929,813 429,546,853 15,417,730 --
--------------------------------------------------------------------------------------
End of period ........................$1,364,086,558 $1,350,659,420 $394,297,820 $408,929,813 $119,391,576 $15,417,730
======================================================================================
Undistributed net
investment income
included in net assets:
Beginning of period ................. $ 99,623,131 $ 91,003,300 $-- $-- $ 26,147 $--
======================================================================================
End of period ....................... $ 51,564,926 $ 99,623,131 $-- $-- $ 1,109,308 $ 26,147
======================================================================================
**For the period November 8, 1996 (effective date) to December 31, 1996.
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended June 30, 1997 (unaudited)
and the year ended December 31, 1996
Mutual Shares
Securities Fund Natural Resources Fund Real Estate Securities Fund
Six months Year ended Six months Year ended Six months Year ended
ended 6/30/97 12/31/96** ended 6/30/97 12/31/96 ended 6/30/97 12/31/96
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................. $ 1,519,683 $ 50,601 $ 556,684 $ 1,257,532 $ 6,127,039 $ 11,638,350
Net realized gain
(loss) from investments
and foreign currency transactions ...... (373,718) (3,049) (206,009) (188,566) 5,976,382 5,460,333
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies ..................... 8,245,066 568,343 (9,715,062) 935,906 14,339,441 57,769,186
--------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from operations .............. 9,391,031 615,895 (9,364,387) 2,004,872 26,442,862 74,867,869
Distributions to shareholders from:
Undistributed net
investment income ...................... (87,831) -- (1,423,769) (1,593,439) (10,951,988) (9,713,587)
Net realized capital gains ............. -- -- -- (1,460,667) (5,229,900) --
Increase (decrease) in net
assets from capital
share transactions (Note 3) ............ 172,836,481 27,061,027 (6,886,413) 5,519,005 52,503,338 44,093,562
--------------------------------------------------------------------------------------
Net increase
(decrease) in net assets ............... 182,139,681 27,676,922 (17,674,569) 4,469,771 62,764,312 109,247,844
Net assets:
Beginning of period .................... 27,676,922 -- 109,578,585 105,108,814 322,721,195 213,473,351
--------------------------------------------------------------------------------------
End of period ..........................$209,816,603 $27,676,922 $ 91,904,016 $109,578,585 $385,485,507 $322,721,195
======================================================================================
Undistributed net
investment income included
in net assets:
Beginning of period ................... $ 50,601 $-- $ 1,214,989 $ 1,615,202 $ 11,259,725 $ 9,334,962
======================================================================================
End of period ......................... $ 1,482,453 $ 50,601 $ 347,904 $ 1,214,989 $ 6,434,776 $ 11,259,725
======================================================================================
**For the period November 8, 1996 (effective date) to December 31, 1996.
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended June 30, 1997 (unaudited)
and the year ended December 31, 1996
Templeton Developing
Rising Dividends Fund Small Cap Fund Markets Equity Fund
Six months Year ended Six months Year ended Six months Year ended
ended 6/30/97 12/31/96 ended 6/30/97 12/31/96 ended 6/30/97 12/31/96
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets:
Operations:
Net investment income ............... $ 4,379,442 $ 9,955,580 $ 50,010 $ 585,485 $ 3,932,018 $ 3,874,067
Net realized gain
from investments and
foreign currency transactions ........ 36,892,317 31,514,069 4,563,859 6,726,182 5,351,598 6,246,440
Net unrealized
appreciation on investments
and translation of
assets and liabilities
denominated in
foreign currencies ................... 54,206,885 71,866,460 15,873,568 10,251,252 48,231,911 29,692,572
--------------------------------------------------------------------------------------
Net increase in net
assets resulting
from operations ...................... 95,478,644 113,336,109 20,487,437 17,562,919 57,515,527 39,813,079
Distributions to
shareholders from:
Undistributed
net investment income ................ (9,956,520) (10,368,611) (573,457) (33,640) (3,987,427) (2,182,460)
Net realized capital gains ........... (17,001,263) -- (6,796,191) (2,727) (6,324,884) (4,037,551)
Increase in net assets
from capital share
transactions (Note 3) ................ 25,240,825 31,202,926 58,329,859 140,140,940 65,463,531 80,421,511
--------------------------------------------------------------------------------------
Net increase in net assets ...... 93,761,686 134,170,424 71,447,648 157,667,492 112,666,747 114,014,579
Net assets:
Beginning of period .................. 597,423,701 463,253,277 170,968,970 13,301,478 272,098,421 158,083,842
--------------------------------------------------------------------------------------
End of period ........................ $691,185,387 $597,423,701 $242,416,618 $170,968,970 $384,765,168 $272,098,421
======================================================================================
Undistributed net
investment income
included in net assets:
Beginning of period ................. $ 9,954,026 $ 10,367,057 $ 578,335 $ 33,213 $ 3,577,713 $ 2,084,657
======================================================================================
End of period ....................... $ 4,376,948 $ 9,954,026 $ 54,888 $ 578,335 $ 3,522,304 $ 3,577,713
======================================================================================
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended June 30, 1997 (unaudited)
and the year ended December 31, 1996
Templeton Global Templeton Global Templeton Global Income
Asset Allocation Fund Growth Fund Securities Fund
Six months Year ended Six months Year ended Six months Year ended
ended 6/30/97 12/31/96 ended 6/30/97 12/31/96 ended 6/30/97 12/31/96
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................ $ 1,687,819 $ 1,438,196 $ 10,609,833 $ 10,065,463 $ 7,179,347 $ 16,565,628
Net realized gain
from investments and
foreign currency transactions ......... 660,099 477,024 18,330,153 5,117,524 515,000 419,588
Net unrealized
appreciation (depreciation)
on investments and translation of
assets and liabilities denominated
in foreign currencies ................. 4,215,346 4,638,002 56,907,732 73,557,750 (6,973,529) 3,321,562
------------------------------------------------------------------------------------------
Net increase in
net assets resulting
from operations ....................... 6,563,264 6,553,222 85,847,718 88,740,737 720,818 20,306,778
Distributions to shareholders from:
Undistributed net
investment income ..................... (1,548,504) (14,806) (11,070,041) (7,356,652) (14,522,463) (17,028,466)
Net realized capital gains ............ (446,684) (29,614) (3,690,014) (7,356,653) -- --
Increase (decrease)
in net assets from capital
share transactions (Note 3) ........... 22,643,368 35,036,621 78,208,797 167,094,838 (3,481,943) (24,749,927)
------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets ......................... 27,211,444 41,545,423 149,296,460 241,122,270 (17,283,588) (21,471,615)
Net assets:
Beginning of period ................... 56,274,126 14,728,703 579,877,387 338,755,117 221,722,469 243,194,084
------------------------------------------------------------------------------------------
End of period ......................... $83,485,570 $56,274,126 $729,173,847 $579,877,387 $204,438,881 $221,722,469
==========================================================================================
Undistributed net investment income
included in net assets:
Beginning of period .................. $ 1,460,392 $ (6,078) $ 10,394,157 $ 5,816,563 $ 12,596,126 $ 14,271,863
==========================================================================================
End of period ........................ $ 1,599,707 $ 1,460,392 $ 9,933,949 $ 10,394,157 $ 5,253,010 $ 12,596,126
==========================================================================================
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended June 30, 1997 (unaudited)
and the year ended December 31, 1996
Templeton International Templeton International Templeton
Equity Fund Smaller Companies Fund Pacific Growth Fund
Six months Year ended Six months Year ended Six months Year ended
ended 6/30/97 12/31/96 ended 6/30/97 12/31/96* ended 6/30/97 12/31/96
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............... $ 24,110,555 $ 30,226,760 $ 460,610 $ 141,365 $ 3,556,052 $ 5,661,152
Net realized gain
(loss) from investments
and foreign
currency transactions ................ 26,635,301 49,297,270 354,677 (8,721) 7,295,819 (4,312,669)
Net unrealized
appreciation (depreciation)
on investments and translation of
assets and liabilities denominated
in foreign currencies ................ 102,676,570 122,637,885 659,380 1,104,072 (2,446,047) 36,732,857
------------------------------------------------------------------------------------------
Net increase in
net assets resulting
from operations ...................... 153,422,426 202,161,915 1,474,667 1,236,716 8,405,824 38,081,340
Distributions to shareholders from:
Undistributed net
investment income .................... (47,271,084) (25,386,301) (155,776) -- (5,582,182) (10,991,812)
In excess of net
investment income .................... -- -- -- -- (233,641) --
Net realized
capital gains ........................ (35,002,253) (31,064,815) -- -- -- (6,370,262)
Increase (decrease)
in net assets from capital
share transactions (Note 3) .......... 89,742,463 112,271,953 11,930,712 15,018,322 (41,754,343) 4,104,011
-----------------------------------------------------------------------------------------
Net increase (decrease)
in net assets ........................ 160,891,552 257,982,752 13,249,603 16,255,038 (39,164,342) 24,823,277
Net assets:
Beginning of period .................. 1,108,099,374 850,116,622 16,255,038 -- 356,759,158 331,935,881
-----------------------------------------------------------------------------------------
End of period ........................$1,268,990,926 $1,108,099,374 $29,504,641 $16,255,038 $317,594,816 $356,759,158
=========================================================================================
Undistributed net investment income
(accumulated distributions in excess
of net investment income) included
in net assets:
Beginning of period ................. $ 27,747,634 $ 23,389,762 $ 132,644 $-- $ 2,026,130 $ 7,402,137
========================================================================================
End of period ....................... $ 4,587,105 $ 27,747,634 $ 437,478 $ 132,644 $ (233,641) $ 2,026,130
========================================================================================
*For the period May 1, 1996 (effective date) to December 31, 1996.
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended June 30, 1997 (unaudited)
and the year ended December 31, 1996
U.S. Government
Securities Fund Utility Equity Fund Zero Coupon Fund - 2000
Six months Year ended Six months Year ended Six months Year ended
ended 6/30/97 12/31/96 ended 6/30/97 12/31/96 ended 6/30/97 12/31/96
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .............. $ 26,331,649 $ 42,987,658 $ 23,176,863 $ 54,454,052 $ 3,913,820 $ 8,152,035
Net realized gain (loss) from
investments and foreign
currency transactions ............... 268,757 (158,758) 25,065,709 82,602,515 751,801 183,983
Net unrealized appreciation
(depreciation) on investments and
translation of assets and liabilities
denominated in foreign
currencies .......................... 2,858,479 (18,937,072) 28,964,341 (53,557,473) (1,908,070) (5,248,940)
------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations ........... 29,458,885 23,891,828 77,206,913 83,499,094 2,757,551 3,087,078
Distributions to shareholders from:
Undistributed net
investment income ................... (42,870,826) (41,654,771) (54,348,880) (65,540,030) (8,152,085) (7,341,063)
Net realized capital gains .......... -- -- (75,198,357) -- (184,468) (72,481)
Increase (decrease)
in net assets from
capital share
transactions (Note 3) ............... (51,122,888) 218,454,989 (60,990,702) (239,114,944) (3,597,023) (3,429,313)
------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets ....................... (64,534,829) 200,692,046 (113,331,026) (221,155,880) (9,176,025) (7,755,779)
Net assets:
Beginning of period ................. 843,857,517 643,165,471 1,202,290,320 1,423,446,200 129,600,942 137,356,721
------------------------------------------------------------------------------------------
End of period ....................... $779,322,688 $843,857,517 $1,088,959,294 $1,202,290,320 $120,424,917 $129,600,942
==========================================================================================
Undistributed net investment income
included in net assets:
Beginning of period ................ $ 42,920,983 $ 41,588,096 $ 54,346,789 $ 65,687,973 $ 8,152,316 $ 7,341,344
==========================================================================================
End of period ...................... $ 26,381,806 $ 42,920,983 $ 23,174,772 $ 54,346,789 $ 3,914,051 $ 8,152,316
==========================================================================================
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended June 30, 1997 (unaudited)
and the year ended December 31, 1996
Zero Coupon Fund - 2005 Zero Coupon Fund - 2010
Six months Year ended Six months Year ended
ended 6/30/97 12/31/96 ended 6/30/97 12/31/96
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............................................. $ 2,448,980 $ 4,940,116 $ 2,499,187 $ 4,878,408
Net realized gain (loss) from
investments and foreign currency transactions ...................... 578,643 19,477 (169,893) (191,720)
Net unrealized depreciation on
investments and translation of assets and
liabilities denominated in foreign currencies ...................... (1,418,733) (5,309,151) (846,022) (6,860,589)
------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations .......................................... 1,608,890 (349,558) 1,483,272 (2,173,901)
Distributions to shareholders from:
Undistributed net investment income ................................ (4,939,956) (4,218,190) (4,878,501) (4,092,016)
Net realized capital gains ......................................... (17,170) -- (39,001) (1,109,315)
Increase (decrease) in net assets from
capital share transactions (Note 3) ................................ (3,124,615) 3,949,514 2,962,840 558,186
------------------------------------------------------------------------------
Net decrease in net assets .................................... (6,472,851) (618,234) (471,390) (6,817,046)
Net assets:
Beginning of period ................................................ 82,603,469 83,221,703 78,815,746 85,632,792
------------------------------------------------------------------------------
End of period ...................................................... $76,130,618 $82,603,469 $78,344,356 $78,815,746
==============================================================================
Undistributed net investment
income included in net assets:
Beginning of period ................................................ $ 4,939,715 $ 4,217,789 $ 4,878,360 $ 4,091,968
==============================================================================
End of period ...................................................... $ 2,448,739 $ 4,939,715 $ 2,499,046 $ 4,878,360
==============================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Franklin Valuemark Funds
Notes to Financial Statements (unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Valuemark Funds (the Trust) is an open-end, management investment
company (mutual fund) registered under the Investment Company Act of 1940, as
amended. The Trust currently consists of twenty-three separate funds (the
Funds), all of which are diversified except for the Templeton Global Income
Securities Fund. Each of the Funds issues a separate series of the Trust's
shares and maintains a totally separate investment portfolio. Shares of the
Funds are sold only to insurance company separate accounts to fund the benefits
of variable life insurance policies or variable annuity contracts issued by
Allianz Life Insurance Company of North America (Allianz Life), which was
formerly North American Life and Casualty Company (NALAC), and its affiliates.
The investment objectives of each Fund are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Capital Growth Growth and Income High Current Income Capital Preservation and Income
Capital Growth Fund Growth and Income Fund High Income Fund Money Market Fund
Mutual Discovery Securities Fund Income Securities Fund Templeton Global Income Securities Fund
Natural Resources Fund Mutual Shares Securities Fund U.S. Government Securities Fund
Small Cap Fund Real Estate Securities Fund Zero Coupon Fund - 2000
Templeton Developing
Markets Equity Fund Rising Dividends Fund Zero Coupon Fund - 2005
Templeton Global Growth Fund Templeton Global Asset Zero Coupon Fund - 2010
Templeton International Allocation Fund
Equity Fund Utility Equity Fund
Templeton International
Smaller Companies Fund
Templeton Pacific Growth Fund
</TABLE>
The Capital Growth Fund and the Templeton International Smaller Companies Fund
became effective on May 1, 1996, and the Mutual Shares Securities Fund and the
Mututal Discovery Securities Fund became effective November 8, 1996.
Effective May 1, 1997, the name of the Precious Metals Fund changed to the
Natural Resources Fund. Before May 1, 1997, the portfolio had different
investment objectives and policies.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
a. Security Valuation:
Portfolio securities listed on a securities exchange or on the NASDAQ for which
market quotations are readily available are valued at the last sale price or, if
there is no sale price, within the range of the most recent quoted bid and asked
prices. Other securities are valued based on a variety of factors, including
yield, risk, maturity, trade activity and recent developments related to the
securities. Portfolio securities which are traded both in the over-the-counter
market and on a securities exchange are valued according to the broadest and
most representative market as determined by the investment manager. The Trust
may utilize a pricing service, bank or broker/dealer experienced in such matters
to perform any of the pricing functions, under procedures approved by the Board
of Trustees (the Board). Securities for which market quotations are not
available, and securities restricted as to resale, are valued in accordance with
procedures established by the Board.
The value of a foreign security is determined as of the earlier of the close of
trading on the foreign exchange on which it is traded or the close of trading on
the New York Stock Exchange. That value is then converted into its U.S. dollar
equivalent at the foreign exchange rate in effect at noon, New York time, on the
day the value of the foreign security is determined. If no sale is reported at
that time, the mean between the current bid and asked prices is used.
Occasionally, events which affect the values of foreign securities and foreign
exchange rates may occur between the times at which they are determined and the
close of the exchange and will, therefore, not be reflected in the computation
of the Fund's net asset value, unless material. If events which materially
affect the value of these foreign securities occur during such period, these
securities will be valued in accordance with procedures established by the
Board.
Portfolio securities in the Money Market Fund are valued at amortized cost,
which approximates value. The Fund must maintain a dollar weighted average
maturity of 90 days or less and only purchase instruments having remaining
maturities of 397 days or less. If the Fund's portfolio has a remaining weighted
average maturity of greater than 90 days, the portfolio will be stated at value
based on recorded closing sales on a national securities exchange or, in the
absence of a recorded sale, within the range of the most recent quoted bid and
asked prices. The Board has established procedures designed to stabilize, to the
extent reasonably possible, the Fund's price per share as computed for the
purpose of sales and redemptions at $1.00.
b. Income Taxes:
The Funds intend to continue to qualify for the tax treatment applicable to
regulated investment companies under the Internal Revenue Code and to make the
requisite distributions to shareholders which will be sufficient to relieve the
Funds from income taxes. Each Fund is treated as a separate entity in the
determination of compliance with the Internal Revenue Code.
c. Security Transactions:
Security transactions are accounted for on the date the securities are purchased
or sold (trade date). Realized gains and losses on security transactions are
determined on the basis of specific identification.
d. Investment Income, Expenses and Distributions:
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income and estimated expenses are accrued daily.
Original issue discount is amortized as required by the Internal Revenue Code.
For the Money Market Fund, net investment income includes income, calculated on
an accrual basis, and estimated expenses which are accrued daily. The total
available for distribution is computed daily and includes the net investment
income, plus or minus any gains or losses on security transactions and any
changes in unrealized portfolio appreciation or depreciation. Distributions are
normally declared each day the New York Stock Exchange is open for business,
equal to the total available for distributions (as defined above), and are
payable to shareholders of record as of the close of business the preceding day.
Such distributions are automatically reinvested daily in additional shares of
the Fund at net asset value.
A portion of the distributions received from investments in Real Estate
Investment Trust (REIT) securities may be characterized as tax basis return of
capital (ROC) distributions, which are not recorded as dividend income, but
reduce the cost basis of the REIT securities. ROC distributions exceeding the
cost basis of the REIT security are recognized by the Funds as capital gain.
Net investment income differs for financial statement and tax purposes primarily
due to tax basis mark to market of unrealized gains with respect to differing
treatments of foreign currency transactions and defaulted securities - see Note
7.
Net realized capital gains and losses differ for financial statement and tax
purposes primarily due to tax basis mark to market of unrealized gains with
respect to differing treatments of wash sale and foreign currency transactions.
e. Accounting Estimates:
The preparation of financial statements in accordance with generally accepted
accounting principles 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. Expense Allocation:
Common expenses incurred by the Trust are allocated among the Funds based on the
ratio of net assets of each Fund to the combined net assets. In all other
respects, expenses are charged to each Fund as incurred on a specific
identification basis.
g. Foreign Currency Translation:
The accounting records of the Funds are maintained in U.S. dollars. All assets
and liabilities denominated in foreign currencies are translated into U.S.
dollars at the rate of exchange of the currencies against U.S. dollars on the
valuation date. Purchases and sales of securities, income and expenses are
translated at the rate of exchange quoted on the day that the transactions are
recorded. Differences between income and expense amounts recorded and collected
or paid are recognized when reported by the custodian.
g. Foreign Currency Translation: (cont.)
The Funds do not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from fluctuations arising
from changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales and maturities of
short-term securities, sales of foreign currencies, gains or losses realized
between the trade and settlement dates on security transactions, the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized appreciation or depreciation on
translation of assets and liabilities denominated in foreign currencies arise
from changes in the value of assets and liabilities other than investments in
securities at the end of the reporting period, resulting from changes in
exchange rates.
h. Repurchase Agreements:
The Funds may enter into a joint repurchase agreement whereby their uninvested
cash balances are deposited into a joint cash account to be used to invest in
one or more repurchase agreements with government securities dealers recognized
by the Federal Reserve Board and/or member banks of the Federal Reserve System.
The value and face amount of the joint repurchase agreement are allocated to the
Funds based on their pro-rata interest. A repurchase agreement is accounted for
as a loan by the Fund to the seller, collateralized by underlying U.S.
government securities, which are delivered to the Fund's custodian. The market
value, including accrued interest, of the initial collateralization is required
to be at least 102% of the dollar amount invested by the Funds, with the value
of the underlying securities marked to market daily to maintain coverage of at
least 100%. At June 30, 1997, all outstanding repurchase agreements held by the
Funds, had been entered into on that date.
i. Securities Purchased on a When-Issued or Delayed Delivery Basis:
The Funds may trade securities on a when-issued or delayed delivery basis, with
payment and delivery scheduled for a future date. These transactions are subject
to market fluctuations and are subject to the risk that the value at delivery
may be more or less than the trade date purchase price. Although the Funds will
generally purchase these securities with the intention of holding the
securities, they may sell the securities before the settlement date. These
securities are identified on the accompanying Statement of Investments in
Securities and Net Assets. The Funds have set aside sufficient investment
securities as collateral for these purchase commitments.
j. Mortgage Dollar Rolls:
The U.S. Government Securities Fund may enter into mortgage dollar rolls in
which the Fund sells mortgage-backed securities and simultaneously contracts to
repurchase substantially similar, but not identical, securities on a specified
future date, generally at a price lower than the price of the security sold. The
counterparty receives all principal and interest payments, including
prepayments, made on the mortgage-backed security sold while it is the holder.
Mortgage dollar rolls may be renewed with a new sale and repurchase price fixed
and a cash settlement made without physical delivery of the securities subject
to the contract, at the renewal date. Mortgage dollar rolls are accounted
for as collateralized financing transactions.
2. FORWARD FOREIGN CURRENCY CONTRACTS
A forward currency contract, which is individually negotiated and privately
traded by currency traders and their customers, is a commitment to purchase or
sell a specific currency for an agreed-upon price at a future date.
The Mutual Discovery Securities Fund, Mutual Shares Securities Fund, Templeton
Global Asset Allocation Fund, and Templeton Global Income Securities Fund may
enter into forward contracts with the objective of minimizing the risk to the
Funds from adverse changes in the relationship between currencies or to enhance
fund value. The Funds may also enter into a forward contract in relation to a
security denominated in a foreign currency or when they anticipate receipt in a
foreign currency of dividends or interest payments in order to "lock in" the
U.S. dollar price of a security or the U.S. dollar equivalent of such dividend
or interest payments.
Any gain or loss realized from a forward foreign currency contract is recorded
as a realized gain or loss from investments.
Each Fund segregates in its custodian bank sufficient cash, cash equivalents or
readily marketable debt securities as collateral for commitments created by open
forward contracts. The Funds could be exposed to risk if counterparties to the
contracts are unable to meet the terms of their contracts or if the value of the
foreign currency changes unfavorably.
As of June 30, 1997, the Mutual Discovery Securities Fund had the following
forward foreign currency contracts outstanding:
<TABLE>
<CAPTION>
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Gain (Loss)
<S> <C> <C> <C> <C>
905,464 Hong Kong Dollar ................ U.S. $ 116,972 07/10/97 U.S. $ 113
13,158,492 French Franc .................... 2,395,750 07/17/97 153,944
11,518,783 Swedish Krona ................... 1,600,187 08/15/97 108,324
110,956,871 Spanish Peseta .................. 769,678 08/18/97 16,306
21,435,909 French Franc .................... 3,802,075 08/29/97 139,695
3,431,961 Canadian Dollar ................. 2,506,633 08/29/97 11,986
4,455,520 Finnish Markka .................. 884,512 09/03/97 22,161
14,043,857 Norwegian Krone ................. 2,067,925 09/10/97 143,199
1,267,564 Swiss Franc ..................... 886,137 09/10/97 10,643
1,160,662 Dutch Guilder ................... 605,555 09/17/97 10,904
750,000 New Zealand Dollar .............. 515,888 09/17/97 7,567
338,784 Deutschemark .................... 202,865 09/18/97 7,444
12,675,669 Danish Krone .................... 1,966,777 10/24/97 44,428
41,039,048 Belgium C Franc ................. 1,160,055 11/07/97 18,729
37,461,879 Swedish Krona ................... 4,953,151 11/18/97 82,101
906,684 French Franc .................... 159,937 11/28/97 4,061
1,545,799 Dutch Guilder ................... 803,012 12/10/97 6,142
3,734,389,845 Italian Lira .................... 2,189,927 01/02/98 1,463
---------------- -----------
U.S.$27,587,036 789,210
================= -----------
Unrealized gain on offsetting forward
foreign currency contracts ...................... 22,910
-----------
Unrealized gain on forward
foreign currency ccontracts ..................... 812,120
-----------
Contracts to Sell (Foreign exchange currency)
6,023,524 British Pound ................... U.S.$ 9,845,826 07/18/97 (179,513)
547,395 Swiss Franc ..................... 374,415 09/10/97 (3,665)
196,366 British Pound ................... 317,622 10/20/97 (8,271)
962,828 Australian Dollar ............... 723,132 11/06/97 (5,199)
67,671 British Pound ................... 110,648 11/17/97 (1,562)
2,360,194 Swedish Krona ................... 305,238 11/18/97 (1,650)
---------------- -----------
U.S.$11,676,881 (199,860)
================= -----------
Contracts to Buy (Foreign exchange currency)
1,584,913 French Franc .................... U.S. $ 281,567 08/29/97 (10,780)
116,000 Finnish Markka .................. 23,399 09/03/97 (949)
336,488 Danish Krone .................... 51,927 10/24/97 (896)
---------------- -----------
U.S.$ 356,893 (12,625)
================= -----------
Unrealized loss on forward
foreign currency contracts ...................... (212,485)
-----------
Net unrealized gain on forward
foreign currency contracts ...................... U.S. $ 599,635
===========
The Mutual Shares Securities Fund had the following forward foreign currency contracts outstanding:
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Gain (Loss)
11,013,035 French Franc .................... U.S.$ 2,002,708 07/17/97 U.S. $ 126,421
20,568,232 Swedish Krona ................... 2,743,602 08/15/97 79,692
5,905,526 French Franc .................... 1,053,652 08/29/97 44,677
2,948,000 Canadian Dollar ................. 2,158,325 08/29/97 15,463
2,936,392 Norwegian Krone ................. 427,049 09/10/97 24,614
2,390,898 Dutch Guilder ................... 1,253,244 09/17/97 28,298
593,456 Deutschemark .................... 355,363 09/18/97 13,040
22,576,575 Swedish Krona ................... 3,042,665 11/18/97 107,104
3,705,585 French Franc .................... 651,703 11/28/97 14,641
837,593 Dutch Guilder ................... 435,113 12/10/97 3,328
---------------- -----------
U.S.$14,123,424 457,278
================= -----------
Unrealized gain on forward
foreign currency contracts ...................... 457,278
-----------
Contracts to Sell
(Foreign exchange currency)
5,415,830 British Pound ................... U.S.$ 8,848,925 07/18/97 (165,139)
876,310 Canadian Dollar ................. 635,007 08/29/97 (1,971)
238,850 Canadian Dollar ................. 173,079 11/28/97 (1,413)
---------------- -----------
U.S.$ 9,657,011 (168,523)
================= -----------
Contracts to Buy (Foreign exchange currency)
5,300,000 Swedish Krona ................... U.S. $ 689,610 08/15/97 (3,177)
388,142 Dutch Guilder ................... 202,157 09/17/97 (3,298)
---------------- -----------
U.S. $ 891,767 (6,475)
================= -----------
Unrealized loss on forward
foreign currency contracts ...................... (174,998)
-----------
Net unrealized gain on forward
foreign currency contracts ...................... U.S. $ 282,280
===========
The Templeton Global Asset Allocation Fund had the following forward foreign currency contracts outstanding:
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Gain (Loss)
3,630,000 German Deutschemark ............. U.S.$ 2,168,005 7/14/97 U.S. $ 84,189
4,200,000 German Deutschemark ............. 2,461,987 9/15/97 39,837
---------------- -----------
U.S.$ 4,629,992 124,026
================= -----------
Contracts to Buy (Foreign exchange currency)
127,600 British Pound U.S. $ 206,933 8/12/97 5,280
================= -----------
Unrealized gain on forward
foreign currency contracts ...................... U.S. $ 129,306
-----------
The Templeton Global Asset Allocation Fund: (cont.)
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Gain (Loss)
200,000 Australian Dollar ............... U.S. $ 150,746 9/29/97 U.S. $ (428)
319,000 British Pound ................... 512,761 8/12/97 (17,772)
---------------- -----------
U.S. $ 663,507 (18,200)
================= -----------
Contracts to Buy (Foreign exchange currency)
95,700 British Pound ................... U.S. $ 159,264 7/14/97 (104)
3,334,000 German Deutschemark ............. 1,957,311 7/14/97 (43,415)
---------------- -----------
U.S.$2,116,575 (43,519)
================= -----------
Unrealized loss on offsetting forward
foreign currency contracts ....................... (22,372)
-----------
Unrealized loss on forward foreign
currency contracts .............................. (84,091)
-----------
Net unrealized gain on forward
foreign currency contracts ...................... U.S. $ 45,215
===========
The Templeton Global Income Securities Fund had the following forward foreign currency contracts outstanding:
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Gain (Loss)
69,312,000 German Deutschemark ............. U.S.$41,396,363 7/14/97 U.S.$1,607,523
47,300,000 German Deutschemark ............. 27,719,008 9/15/97 440,986
---------------- -----------
U.S.$69,115,371 2,048,509
================= -----------
Contracts to Buy (Foreign exchange currency)
3,712,800 British Pound U.S.$ 6,088,737 8/12/97 86,062
================= -----------
Unrealized gain on offsetting forward
foreign currency contracts ....................... 475,629
-----------
Unrealized gain on forward
foreign currency contracts ...................... 2,610,200
-----------
Contracts to Sell (Foreign exchange currency)
2,700,000 Australian Dollars .............. U.S.$ 2,035,068 9/29/97 (5,774)
5,304,000 British Pound ................... 8,525,650 8/12/97 (295,493)
---------------- -----------
U.S.$10,560,718 (301,267)
================= -----------
Contracts to Buy (Foreign exchange currency)
58,991,000 German Deutschemark U.S.$34,709,993 7/14/97 (845,966)
================= -----------
Unrealized loss on offsetting forward
foreign currency contracts ....................... (945,608)
-----------
Unrealized loss on forward
foreign currency contracts ...................... (2,092,841)
-----------
Net unrealized gain on
forward foreign currency contracts .............. U.S. $ 517,359
===========
</TABLE>
3. TRUST SHARES
At June 30, 1997, there was an unlimited number of $.01 par value shares of
beneficial interest authorized. Transactions in each of the Fund's shares for
the six months ended June 30, 1997 and the year ended December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
Capital Growth Fund* Growth and Income Fund High Income Fund
------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
------------------------------------------------------------------------------
Six months ended June 30, 1997
<S> <C> <C> <C> <C> <C> <C>
Shares sold ................................. 3,513,176 $ 40,874,057 5,986,635 $ 110,737,331 7,712,199 $ 110,500,860
Shares issued in reinvestment
of distributions ............................ 8,739 109,761 4,094,758 76,940,493 2,802,103 38,220,680
Shares redeemed ............................. (1,480,295) (17,159,018) (6,764,452) (124,290,189) (9,333,561) (133,150,976)
------------------------------------------------------------------------------
Net increase ................................. 2,041,620 $ 23,824,800 3,316,941 $ 63,387,635 1,180,741 $ 15,570,564
==============================================================================
Year ended December 31, 1996
Shares sold ................................. 4,551,652 $ 49,307,053 17,103,384 $ 291,261,819 14,886,206 $ 203,832,754
Shares issued in reinvestment
of distributions ............................ -- -- 6,313,033 100,945,400 2,553,925 32,664,699
Shares redeemed ............................. (620,824) (6,592,593) (13,907,925) (235,223,647) (12,349,882) (170,154,224)
------------------------------------------------------------------------------
Net increase ................................. 3,930,828 $ 42,714,460 9,508,492 $ 156,983,572 5,090,249 $ 66,343,229
==============================================================================
Mutual Discovery
Income Securities Fund Money Market Fund Securities Fund**
------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
------------------------------------------------------------------------------
Six months ended June 30, 1997
<S> <C> <C> <C> <C> <C> <C>
Shares sold ................................. 5,083,091$ 89,213,806 399,650,039 $ 399,650,039 9,656,295 $103,980,632
Shares issued in reinvestment
of distributions ............................ 7,246,221 121,011,885 10,475,806 10,475,806 4,419 49,403
Shares redeemed ............................. (9,272,837)(162,394,429) (424,757,838) (424,757,838) (624,697) (6,751,181)
------------------------------------------------------------------------------
Net increase (decrease) ...................... 3,056,475$ 47,831,262 (14,631,993)$ (14,631,993) 9,036,017 $ 97,278,854
==============================================================================
Year ended December 31, 1996
Shares sold ................................. 12,978,656$ 215,025,216 624,484,193 $ 624,484,193 1,510,497 $ 15,203,733
Shares issued in
reinvestment of distributions ............... 4,981,081 78,053,545 22,025,506 22,025,506 -- --
Shares redeemed ............................. (16,378,905)(271,159,590) (667,126,739) (667,126,739) -- --
------------------------------------------------------------------------------
Net increase (decrease) ...................... 1,580,832$ 21,919,171 (20,617,040)$ (20,617,040) 1,510,497 $ 15,203,733
==============================================================================
Mutual Shares Natural Real Estate
Securities Fund** Resources Fund Securities Fund
------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
------------------------------------------------------------------------------
Six months ended June 30, 1997
Shares sold ................................. 16,907,359 $180,767,681 1,645,763 $ 22,862,200 3,601,172 $ 81,118,893
Shares issued in reinvestment
of distributions ............................ 7,793 87,831 107,292 1,423,769 722,406 16,181,888
Shares redeemed ............................. (747,327) (8,019,031) (2,282,999) (31,172,382) (1,998,415) (44,797,443)
------------------------------------------------------------------------------
Net increase (decrease) ...................... 16,167,825 $172,836,481 (529,944) $ (6,886,413) 2,325,163 $ 52,503,338
==============================================================================
Year ended December 31, 1996
Shares sold ................................. 2,673,916 $ 27,061,180 5,826,772 $ 92,609,906 4,215,417 $ 80,007,020
Shares issued in reinvestment
of distributions ............................ -- -- 200,533 3,054,106 541,263 9,713,587
Shares redeemed ............................. (15) (153) (5,826,876) (90,145,007) (2,455,248) (45,627,045)
------------------------------------------------------------------------------
Net increase ................................. 2,673,901 $ 27,061,027 200,429 $ 5,519,005 2,301,432 $ 44,093,562
==============================================================================
Rising Templeton Developing
Dividends Fund Small Cap Fund Markets Equity Fund
------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
------------------------------------------------------------------------------
Six months ended June 30, 1997
<S> <C> <C> <C> <C> <C> <C>
Shares sold ................................... 4,540,482$ 74,826,014 7,769,335 $100,564,086 7,309,306 $ 93,022,186
Shares issued in reinvestment
of distributions .............................. 1,563,677 26,957,783 542,684 7,369,648 774,197 10,312,311
Shares redeemed ............................... (4,735,137) (76,542,972) (3,765,366) (49,603,875) (2,986,336) (37,870,966)
------------------------------------------------------------------------------
Net increase ................................... 1,369,022$ 25,240,825 4,546,653 $ 58,329,859 5,097,167 $ 65,463,531
==============================================================================
Year ended December 31, 1996
Shares sold ................................... 9,416,748$ 128,553,979 17,929,579 $214,314,899 12,008,203 $131,040,673
Shares issued in reinvestment
of distributions .............................. 776,095 10,368,611 2,914 36,368 568,038 6,220,011
Shares redeemed ............................... (7,989,700)(107,719,664) (6,275,212) (74,210,327) (5,266,029) (56,839,173)
------------------------------------------------------------------------------
Net increase ................................... 2,203,143$ 31,202,926 11,657,281 $140,140,940 7,310,212 $ 80,421,511
==============================================================================
Templeton Global Asset Templeton Templeton Global
Allocation Fund Global Growth Fund Income Securities Fund
------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
------------------------------------------------------------------------------
Six months ended June 30, 1997
<S> <C> <C> <C> <C> <C> <C>
Shares sold ................................... 1,860,891 $24,093,371 7,233,062 $104,601,873 841,241 $ 11,263,787
Shares issued in reinvestment
of distributions .............................. 149,676 1,995,188 971,695 14,760,055 1,145,305 14,522,463
Shares redeemed ............................... (265,879) (3,445,191) (2,854,623) (41,153,131) (2,185,885) (29,268,193)
------------------------------------------------------------------------------
Net increase (decrease) ........................ 1,744,688 $22,643,368 5,350,134 $ 78,208,797 (199,339) $ (3,481,943)
==============================================================================
Year ended December 31, 1996
Shares sold ................................... 3,324,255 $37,900,419 16,172,059 $204,037,772 1,774,907 $ 23,229,506
Shares issued in reinvestment
of distributions .............................. 3,931 44,420 1,172,375 14,713,305 1,374,371 17,028,466
Shares redeemed ............................... (258,845) (2,908,218) (4,156,855) (51,656,239) (4,932,897) (65,007,899)
------------------------------------------------------------------------------
Net increase (decrease) ........................ 3,069,341 $35,036,621 13,187,579 $167,094,838 (1,783,619) $(24,749,927)
==============================================================================
Templeton
Templeton International Smaller Templeton
International Equity Fund Companies Fund* Pacific Growth Fund
------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
------------------------------------------------------------------------------
Six months ended June 30, 1997
<S> <C> <C> <C> <C> <C> <C>
Shares sold ................................... 10,002,043$ 160,909,285 1,344,677 $15,439,067 2,873,395 $ 41,681,862
Shares issued in reinvestment
of distributions .............................. 5,084,879 82,273,337 13,269 155,776 396,714 5,815,823
Shares redeemed ............................... (9,575,054)(153,440,159) (318,450) (3,664,131) (6,151,357) (89,252,028)
------------------------------------------------------------------------------
Net increase (decrease) ........................ 5,511,868$ 89,742,463 1,039,496 $11,930,712 (2,881,248) $ (41,754,343)
==============================================================================
Year ended December 31, 1996
Shares sold ................................... 16,304,017$ 233,298,562 1,887,934 $19,652,954 11,017,347 $ 162,907,832
Shares issued in reinvestment
of distributions .............................. 4,023,601 56,451,117 -- -- 1,175,496 17,362,074
Shares redeemed ............................... (12,410,252)(177,477,726) (442,675) (4,634,632) (11,892,182) (176,165,895)
------------------------------------------------------------------------------
Net increase ................................... 7,917,366$ 112,271,953 1,445,259 $15,018,322 300,661 $ 4,104,011
==============================================================================
U.S. Government
Securities Fund Utility Equity Fund Zero Coupon Fund - 2000
------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
------------------------------------------------------------------------------
Six months ended June 30, 1997
<S> <C> <C> <C> <C> <C> <C>
Shares sold ................................... 2,546,380$ 34,559,170 888,288 $ 16,213,346 347,709 $ 5,197,487
Shares issued in reinvestment
of distributions .............................. 3,245,331 42,870,826 7,553,775 129,547,237 575,728 8,336,552
Shares redeemed ............................... (9,469,679)(128,552,884) (11,332,875) (206,751,285) (1,129,368) (17,131,062)
------------------------------------------------------------------------------
Net decrease ................................... (3,677,968)$ (51,122,888) (2,890,812)$ (60,990,702) (205,931) $ (3,597,023)
==============================================================================
Year ended December 31, 1996
Shares sold ................................... 4,777,016$ 64,263,777 4,951,179 $ 87,970,395 1,346,751 $ 20,406,633
Shares issued in connection
with substitution transaction
(Note 11) ..................................... 22,031,312 292,135,204 -- -- -- --
Shares issued in reinvestment
of distributions .............................. 3,298,082 41,654,771 3,882,703 65,540,030 517,344 7,413,544
Shares redeemed ............................... (13,383,651)(179,598,763) (22,222,999) (392,625,369) (2,064,008) (31,249,490)
------------------------------------------------------------------------------
Net increase (decrease) ........................ 16,722,759$ 218,454,989 (13,389,117)$(239,114,944) (199,913) $ (3,429,313)
==============================================================================
Zero Coupon Fund - 2005 Zero Coupon Fund - 2010
---------------------------------------------------
Shares Amount Shares Amount
---------------------------------------------------
Six months ended June 30, 1997
<S> <C> <C> <C> <C>
Shares sold ................................................................. 256,752 $ 4,152,585 844,709 $ 13,427,378
Shares issued in reinvestment of distributions .............................. 315,540 4,957,126 313,017 4,917,502
Shares redeemed ............................................................. (757,260) (12,234,326) (968,971) (15,382,040)
---------------------------------------------------
Net increase ................................................................. (184,968)$ (3,124,615) 188,755 $ 2,962,840
===================================================
Year ended December 31, 1996
Shares sold ................................................................. 1,047,318 $ 16,865,102 2,638,570 $ 42,320,073
Shares issued in reinvestment of distributions .............................. 282,342 4,218,190 361,957 5,201,331
Shares redeemed ............................................................. (1,065,563) (17,133,778) (2,908,691) (46,963,218)
---------------------------------------------------
Net increase ................................................................. 264,097 $ 3,949,514 91,836 $ 558,186
===================================================
</TABLE>
*For the period May 1, 1996 (effective date) to December 31, 1996.
**For the period November 8, 1996 (effective date) to December 31, 1996.
4. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
At December 31, 1996, for tax purposes, the Trust had accumulated net realized
capital gains or capital loss carryovers as follows:
<TABLE>
<CAPTION>
Growth and High Income Real Estate Rising
Income Fund Income Fund Securities FundSecurities FundDividends Fund
---------------------------------------------------------------------
Accumulated
<S> <C> <C> <C> <C> <C>
net realized gains ............ $37,875,435 $1,211,890 $21,389,054 $5,228,326 $16,997,806
Templeton
Developing Templeton Templeton Templeton
Small Markets Global Asset Global International
Cap Fund Equity Fund Allocation Fund Growth Fund Equity Fund
---------------------------------------------------------------------
Accumulated
<S> <C> <C> <C> <C> <C>
net realized gains ................ $6,794,002 $6,195,420 $428,295 $3,597,282 $49,651,484
Utility Zero Coupon Zero Coupon Zero Coupon
Equity Fund Fund - 2000 Fund - 2005 Fund - 2010
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accumulated net realized gains .................... $75,189,259 $183,688 $16,721 $38,764
Money Natural Templeton Templeton
Capital Market Resources Global Income Pacific U.S. Government
Growth Fund Fund Fund Securities Fund Growth Fund Securities Fund
---------------------------------------------------------------------
Capital loss carryovers
<S> <C> <C> <C> <C> <C> <C> <C>
Expiring in: 1999 ........ $ -- $ -- $ -- $-- $-- $--
2000 ......... -- 418 -- -- -- --
2001 ......... -- 523 -- -- -- --
2002 ......... -- 7,568 -- -- 402,770 14,556,689
2003 ......... -- -- -- -- 3,643,075 826,481
2004 ......... 52,275 -- 146,066 1,767,518 -- --
---------------------------------------------------------------------
$52,275 $8,509 $146,066 $1,767,518 $4,045,845 $15,383,170
=====================================================================
</TABLE>
From November 1, 1996 through December 31, 1996, U.S. Government Securities
Fund, Zero Coupon Fund - 2010 and the Capital Growth Fund incurred $251,966,
$104,679 and $87,675 respectively of net realized capital losses. As permitted
by tax regulations, the fund intends to elect to defer these losses and treat
them as having arisen in the year ended December 31, 1997.
For tax purposes, the aggregate cost of securities is higher (and unrealized
appreciation is lower or unrealized depreciation is higher) than for financial
reporting purposes at June 30, 1997 by $20,716 in Capital Growth Fund, $9,777 in
Growth and Income Fund, $296,116 in Rising Dividends Fund, $212,486 in Small Cap
Fund, $102,496 in Templeton Developing Markets Equity Fund, $13,347 in Templeton
Global Growth Fund, $284,725 in Templeton International Equity Fund, $3,555,239
in Templeton Pacific Growth Fund, and $367,327 in Zero Coupon Fund - 2010.
5. PURCHASES AND SALES OF SECURITIES
Aggregate purchases and sales of securities (excluding purchases and sales of
short-term securities) for the six months ended June 30, 1997 were as follows:
<TABLE>
<CAPTION>
Income Mutual
Capital Growth and High Securities Discovery Mutual Shares
Growth Fund Income Fund Income Fund Fund Securities FundSecurities Fund
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Purchases ........ $22,071,333 $186,748,052 $79,057,984 $115,146,135 $88,059,427 $144,963,343
Sales ............ $ 3,830,427 $198,785,228 $72,845,351 $130,633,557 $14,308,924 $ 23,672,464
Templeton
Developing Templeton
Natural Real Estate Rising Small Markets Global Asset
Resources Fund Securities FundDividends Fund Cap Fund Equity Fund Allocation Fund
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Purchases ........ $25,853,709 $69,553,985 $107,490,262 $131,863,753 $64,473,900 $46,242,688
Sales ............ $33,945,628 $28,614,896 $107,963,997 $ 56,940,918 $23,328,389 $21,149,541
Templeton
Templeton Templeton Templeton International Templeton
Global Global Income International Smaller Pacific U.S. Government
Growth Fund Securities Fund Equity Fund Companies Fund Growth Fund Securities Fund
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Purchases ........ $62,614,699 $271,720,995 $136,529,691 $9,660,992 $25,929,088 $64,267,284
Sales ............ $41,798,077 $293,600,532 $164,609,271 $1,288,758 $62,849,757 $155,584,645
Utility Zero Coupon Zero Coupon Zero Coupon
Equity Fund Fund - 2000 Fund - 2005 Fund - 2010
---------------------------------------------------
<S> <C> <C> <C> <C>
Purchases ........................................ $101,287,201 $-- $-- $1,188,780
Sales ............................................ $260,475,084 $13,270,078 $8,188,025 $3,637,640
</TABLE>
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
a. Management Agreement:
Under the terms of a management agreement, Franklin Advisers, Inc. (Advisers),
provides investment advice, administrative services, office space and facilities
to each Fund, and receives fees computed monthly based on the average daily net
assets of each Fund except the Capital Growth Fund, the Mutual Discovery
Securities Fund, the Mutual Shares Securities Fund, the Rising Dividends Fund,
the Small Cap Fund, the Templeton Developing Markets Equity Fund, the Templeton
Global Asset Allocation Fund, the Templeton Global Growth Fund, the Templeton
International Equity Fund, the Templeton International Smaller Companies Fund,
and the Templeton Pacific Growth Fund as follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
0.625 of 1% First $100 million
0.500 of 1% over $100 million, up to and including $250 million
0.450 of 1% over $250 million, up to and including $10 billion
Fees are further reduced on net assets over $10 billion.
Under the terms of a separate management agreement with the Templeton
International Equity Fund and the Templeton Pacific Growth Fund, Advisers
receives fees computed monthly based on average daily net assets as follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
1% First $100 million
0.90 of 1% over $100 million, up to and including $250 million
0.80 of 1% over $250 million, up to and including $500 million
Fees are further reduced on net assets over $500 million.
Under the terms of a separate management agreement with the Capital Growth Fund
and the Small Cap Fund, Advisers receives fees computed monthly based on average
daily net assets as follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
0.750 of 1% First $500 million
0.625 of 1% over $500 million, up to and including $1 billion
0.500 of 1% over $1 billion
Under the terms of a separate management agreement with the Rising Dividends
Fund, Franklin Advisory Services, Inc. (Advisory) receives fees computed monthly
based on the average daily net assets as follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
0.750 of 1% First $500 million
0.625 of 1% over $500 million, up to and including $1 billion
0.500 of 1% over $1 billion
Templeton Global Advisers Ltd. (TGAL) serves as the investment adviser for the
Templeton Global Growth Fund and receives fees computed monthly based on average
daily net assets as follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
1% First $100 million
0.90 of 1% over $100 million, up to and including $250 million
0.80 of 1% over $250 million, up to and including $500 million
Fees are further reduced on net assets over $500 million.
a. Management Agreement: (cont.)
TGAL serves as the investment adviser for the Templeton Global Asset Allocation
Fund and receives fees computed monthly based on average daily net assets as
follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
0.650 of 1% First $200 million
0.585 of 1% over $200 million, up to and including $1.3 billion
0.520 of 1% over $1.3 billion
Templeton Investment Counsel, Inc. (TICI) serves as the investment advisor for
the Templeton International Smaller Companies Fund and receives fees computed
monthly based on average daily net assets as follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
0.850 of 1% First $200 million
0.765 of 1% over $200 million, up to and including $1.3 billion
0.680 of 1% over $1.3 billion
Franklin Mutual Advisers, Inc. (Franklin Mutual) serves as the investment
advisor for the Mutual Discovery Fund and the Mutual Shares Fund, and receives a
monthly fee equal to an annual rate of .80 and .60 of 1%, respectively, of the
average daily net assets.
Templeton Asset Management, Ltd. (TAML) serves as the investment adviser for the
Templeton Developing Markets Equity Fund and receives a monthly fee equal to an
annual rate of 1.25 of 1% of the average daily net assets.
Under an agreement with Advisers, Franklin Templeton Services, Inc. (FT
Services) provides administrative services and facilities for the Funds, except
for the Mutual Discovery Securities Fund, the Mutual Shares Securities Fund, the
Rising Dividends Fund, the Templeton Developing Markets Fund, the Templeton
Global Asset Allocation Fund, the Templeton Global Growth Fund, and the
Templeton International Smaller Companies Fund. The fee is paid by Advisers and
computed monthly based on average daily net assets. It is not a separate expense
of the Funds.
Under an agreement with Advisory, FT Services provides administrative services
and facilities for the Rising Dividends Fund. The fee is paid by Advisory and
computed monthly based on average daily net assets. It is not a separate expense
of the fund.
Under an agreement with TGAL, FT Services provides administrative services and
facilities for the Templeton Global Growth Fund. The fee is paid by TGAL and
computed monthly based on average daily net assets. It is not a separate expense
of the fund.
Under an agreement with TAML, FT Services provides administrative services and
facilities for the Templeton Developing Markets Equity Fund. The fee is paid by
TAML and computed monthly based on average daily net assets. It is not a
separate expense of the fund.
FT Services serves as the business manager for the Mutual Discovery Securities
Fund, the Mutual Shares Securities Fund, the Templeton Global Asset Allocation
Fund, and the Templeton International Smaller Companies Fund. FT Services
receives fees from the funds computed monthly based on the average daily net
assets as follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
0.150 of 1% First $200 million
0.135 of 1% over $200 million, up to and including $700 million
0.100 of 1% over $700 million, up to and including $1.2 billion
Fees are further reduced on net assets over $1.2 billion.
a. Management Agreement: (cont.)
Under a subadvisory agreement, TICI provides services to the Templeton
International Equity Fund and the Templeton Pacific Growth Fund, and receives
from Advisers fees computed monthly based on the average daily net assets of
each Fund as follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
0.50 of 1% First $100 million
0.40 of 1% over $100 million, up to and including $250 million
0.30 of 1% over $250 million, up to and including $500 million
Fees are further reduced on net assets over $500 million.
Under a subadvisory agreement, TICI provides services to the Templeton Global
Asset Allocation Fund and receives from TGAL fees computed monthly based on the
average daily net assets as follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
0.250 of 1% First $200 million
0.225 of 1% over $200 million, up to and including $1.3 billion
0.200 of 1% over $1.3 billion
Under a subadvisory agreement, TICI provides services to the Templeton Global
Income Securities Fund and receives from Advisers fees computed monthly based on
the average daily net assets as follows:
Annualized Fee Rate Average Daily Net Assets
- -------------------------------------------------------------------------------
0.350 of 1% First $100 million
0.250 of 1% over $100 million, up to and including $250 million
0.200 of 1% over $250 million
Advisers agreed in advance to waive management fees for the Money Market Fund,
the Zero Coupon Fund - 2000, the Zero Coupon Fund - 2005, and the Zero Coupon
Fund - 2010, as noted in the Statement of Operations for the six months ended
June 30, 1997.
b. Distribution Plans:
The management agreements between the Funds, Advisers, TGAL, and TAML include
distribution plans pursuant to Rule 12b-1 under the 1940 Act. However, no
payments were made by any Fund as a result of the plans.
c. Shareholder Services Agreement:
Franklin/Templeton Investor Services, Inc. (Investor Services), under terms of
an agreement, performs shareholder servicing for the Funds and is not paid by
the Funds for the services.
d. Other Affiliates and Related Party Transactions:
Certain officers and trustees of the Trust are also officers and/or directors of
Advisers, Advisory, Franklin Mutual, Investor Services, TGAL, TAML, TICI, FT
Services, (all wholly-owned subsidiaries of Franklin Resources, Inc.), and/or
Allianz Life.
7. CREDIT RISK AND DEFAULTED SECURITIES
The High Income Fund, the Income Securities Fund, the Mutual Discovery
Securities Fund, and the Mutual Shares Securities Fund have 87.9%, 42.5%, 1.1%,
and 1.3%, respectively, of their portfolios invested in lower rated and
comparable quality unrated securities. Investments in high yield securities are
accompanied by a greater degree of credit risk and such lower rated securities
tend to be more sensitive to economic conditions than higher rated securities.
The risk of loss due to default by the issuer may be significantly greater for
the holders of high yield securities, because such securities are generally
unsecured and are often subordinated to other creditors of the issuer.
At June 30, 1997 the Income Securities Fund held two defaulted securities with a
value aggregating $6,175,000, representing .45% of the Fund's net assets. For
information as to the specific securities, see the accompanying Statement of
Investments in Securities and Net Assets.
For financial reporting purposes, it is the Fund's accounting practice to
discontinue accrual of income and provide an estimate for probable losses due to
unpaid interest income on defaulted bonds for the current reporting period.
There are certain credit risks, foreign currency exchange risk, or event risk
due to the manner in which certain Funds are invested, which may subject the
Funds more significantly to economic changes occurring in certain industries or
sectors as follows:
The High Income Fund has investments in excess of 10% of its net assets in Cable
Television and Wireless Communication.
The Templeton Developing Markets Equity Fund has investments in excess of 10% of
its net assets in Mexico.
The Templeton International Equity Fund has investments in excess of 10% of its
net assets in United Kingdom.
The Templeton International Smaller Companies Fund has investments in excess of
10% of its net assets in Hong Kong.
The Templeton Pacific Growth Fund has investments in excess of 10% of its net
assets in Australia, Hong Kong, Japan, and Singapore.
8. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
Investments in portfolio issuers, 5% or more of whose outstanding voting
securities are held by any of the Funds, are defined in the Investment Company
Act of 1940 as affiliated companies. The Real Estate Securities Fund and Rising
Dividends Fund had investments in such affiliated companies at June 30, 1997,
with a value in the amount of $5,443,750 and $15,395,463, respectively. See the
accompanying Statement of Investments in Securities and Net Assets for specific
information on such securities.
9. RESTRICTED SECURITIES
A restricted security is a security which has not been registered with the
Securities and Exchange Commission pursuant to the Securities Act of 1933. The
Funds may purchase restricted securities through a private offering and they
cannot be sold without prior registration under the Securities Act of 1933
unless such sale is pursuant to an exemption therefrom. Subsequent costs of
registration of such securities are borne by the issuer. A secondary market
exists for certain privately placed securities. The Funds value these restricted
securities as disclosed in Note 1(a). At June 30, 1997, the Funds held
restricted securities as follows:
<TABLE>
<CAPTION>
Income Securities Fund (0.8% of net assets)
Shares Security Acquisition Date Cost Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
419,424 Bibb Co. .......................... 03/30/93 - 09/27/96 $6,112,066 $2,935,968
160,000 CMS Energy Corp.,
7.75%, quarterly cvt. pfd. .................. 06/18/97 8,000,000 8,294,400
Mutual Discovery Securities Fund
- --------------------------------------------------------------------------------------------
(0.6% of net assets)
8,000 Cityscape Financial Corp. ......... 11/25/96 $160,000 $151,525
514,590 Re Acquisition, L.L.C. ............ 04/01/97 519,614 514,590
Mutual Shares Securities Fund
- --------------------------------------------------------------------------------------------
(0.1% of net assets)
12,000 Cityscape Financial Corp. ......... 11/25/96 $240,000 $227,287
Real Estate Securities Fund
- --------------------------------------------------------------------------------------------
(2.7% of net assets)
866,067 Pacific Retail Trust .............. 08/30/96 - 04/30/97 $9,864,902 $10,392,804
Utility Equity Fund (0.8% of net assets)
- --------------------------------------------------------------------------------------------
175,000 CMS Energy Corp., 7.75%,
quarterly cvt. pfd. ......... ............... 06/18/97 $8,750,000 $9,072,000
</TABLE>
10. LENDING OF PORTFOLIO SECURITIES
The Small Cap Fund loaned securities to certain brokers for which it received
cash collateral against the loaned securities in an amount equal to at least
100% of the market value of the loaned securities. Net interest income from the
investment of the cash collateral received was $815 for the period ended June
30, 1997. The value of the loaned securities was $2,028,250. The additional
required cash collateral was received by the Small Cap Fund on July 10, 1997.
11. LIQUIDATION OF INVESTMENT GRADE INTERMEDIATE BOND FUND AND ADJUSTABLE U.S.
GOVERNMENT FUND
On October 25, 1996, as a result of a substitution transaction, the U.S.
Government Securities Fund acquired all of the net assets of the Investment
Grade Intermediate Bond Fund and the Adjustable U.S. Government Fund pursuant to
a plan of liquidation approved by the Board on October 18, 1996. In connection
with this liquidation, the U.S. Government Securities Fund acquired the
portfolio securities and other assets and liabilities of the liquidating funds
in exchange for capital shares with an equivalent value.
The net assets acquired and shares issued by the U.S. Government Securities Fund
on October 25, 1996 were as follows:
Shares Issued by
Net Assets U.S. Gov't Sec. Fund
-----------------------------------
Investment Grade
Intermediate Bond Fund ............. $145,186,632 10,949,218
Adjustable U.S. Government
Securities Fund .................... 146,948,572 11,082,094
-----------------------------------
Total .............................. $292,135,204 22,031,312
===================================
12. OTHER CONSIDERATIONS
As the Manager of the High Income Fund and the Income Securities Fund, Advisers
may serve as a member of various credit committees, representing credit
interests in certain corporate restructuring negotiations. Currently, Advisers
serves on the credit committees for Bibb Co., and Anacomp, Inc., and therefore
may be in possession of certain material non-public information. Advisers have
not sold, nor does it intend to sell, any of the Fund's holdings in these
securities while in possession of material non-public information in
contravention of the Federal Securities Laws.
13. FINANCIAL HIGHLIGHTS
Selected data for each share of beneficial interest outstanding throughout the
period, by Fund, are as follows:
<TABLE>
<CAPTION>
Per Share Operating Performance Ratios/Supplemental Data
Net Total Distri- Distri- Ratio
Asset Net From butions butions Net Net of Net Port-
Value Net Realized & Invest- From From Asset Assets Ratio of Investment folio
at Begin-Invest-Unrealized ment Net Realized Total Value at at End Expenses Income to Turn- Average
Year ning of ment Gain (Loss) Opera- Investment Capital Distri- End of Total of Periodto Average Average over Commision
Ended Period Incomeon Securities tions Income Gains butions Period Return+(in 000's)Net Assets Net Assets Rate Rate****
Capital Growth Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19965 $10.00 $ .03 $1.33 $1.36 $ -- $ -- $ -- $11.36 13.60% $ 44,667 .77%* .96%* 3.91% .0567
19977 11.36 .02 1.10 1.12 (.02) -- (.02) 12.46 9.85 74,420 .76* .71* 7.93 .0572
Growth and Income Fund
1992 12.11 .08 .72 .80 (.12) -- (.12) 12.79 6.73 231,659 .62 1.44 25.22 --
1993 12.79 .09 1.22 1.31 (.11) -- (.11) 13.99 10.32 371,484 .58 1.00 41.56 --
1994 13.99 .19 (.47) (.28) (.09) (.20) (.29) 13.42 (3.41) 517,877 .54 1.81 99.21 --
1995 13.42 .41 3.92 4.33 (.20) (.41) (.61) 17.14 32.83 889,487 .52 3.30 116.54 --
1996 17.14 .62 1.64 2.26 (.41) (1.44) (1.85) 17.55 14.19 1,077,989 .50 4.06 23.01 .0407
19977 17.55 .32 1.98 2.30 (.64) (.62) (1.26) 18.59 13.03 1,203,283 .48* 3.58* 17.67 .0388
High Income Fund
1992 $10.62$ .38 $1.31 $1.69 $ (.54) $ -- $ (.54) $11.77 16.21% $ 67,991 .68% 9.76% 33.36% --
1993 11.77 .37 1.45 1.82 (.46) -- (.46) 13.13 15.71 196,972 .64 8.18 21.06 --
1994 13.13 .88 (1.18) (.30) (.55) (.07) (.62) 12.21 (2.26) 255,036 .60 9.45 22.94 --
1995 12.21 1.06 1.30 2.36 (.91) -- (.91) 13.66 19.76 360,904 .56 9.63 20.65 --
1996 13.66 1.20 .56 1.76 (1.20) (.06) (1.26) 14.16 13.90 446,096 .54 9.63 27.16 --
19977 14.16 .68 .01 .69 (1.22) (.04) (1.26) 13.59 4.84 444,346 .52* 9.48* 17.22 --
Income Securities Fund
1992 12.82 .40 1.26 1.66 (.59) (.24) (.83) 13.65 13.20 182,993 .67 7.44 12.59 --
1993 13.65 .33 2.18 2.51 (.31) (.05) (.36) 15.80 18.59 737,942 .56 6.66 10.12 --
1994 15.80 .82 (1.80) (.98) (.44) (.07) (.51) 14.31 (6.27) 1,000,002 .54 7.27 13.33 --
1995 14.31 1.16 1.96 3.12 (.89) (.07) (.96) 16.47 22.40 1,266,538 .51 8.05 33.14 --
1996 16.47 1.32 .44 1.76 (.87) (.15) (1.02) 17.21 11.28 1,350,659 .50 7.96 15.28 .0519
19977 17.21 .70 .44 1.14 (1.33) (.29) (1.62) 16.73 6.64 1,364,087 .50* 7.68* 9.00 .0504
Money Market Fund
1992 1.00 .030 -- .030 (.030) -- (.030) 1.00 3.06 86,907 .69 2.99 -- --
1993 1.00 .030 -- .030 (.030) -- (.030) 1.00 2.54 131,534 .66 2.53 -- --
1994 1.00 .040 -- .040 (.040) -- (.040) 1.00 3.82 518,618 .468 4.05 -- --
1995 1.00 .060 -- .060 (.060) -- (.060) 1.00 5.74 429,547 .408 5.58 -- --
1996 1.00 .050 -- .050 (.050) -- (.050) 1.00 5.16 408,930 .438 5.04 -- --
19977 1.00 .025 -- .025 (.025) -- (.025) 1.00 2.53 394,298 .448* 5.00* -- --
Mutual Discovery Securities Fund
19966 10.00 .02 .19 .21 -- -- -- 10.21 2.10 15,418 1.37* 2.11* .14 .0300
19977 10.21 .09 1.03 1.12 (.01) -- (.01) 11.32 10.92 119,392 1.12* 3.47* 28.63 .0303
Mutual Shares Securities Fund
19966 10.00 .02 .33 .35 -- -- -- 10.35 3.50 27,677 1.00* 2.56* 1.31 .0410
19977 10.35 .07 .73 .80 (.01) -- (.01) 11.14 7.68 209,817 .83* 2.69* 30.49 .0416
Natural Resources Fund
1992 10.71 .10 (1.14) (1.04) (.31) -- (.31) 9.36 (10.13) 13,827 .69 2.23 -- --
1993 9.36 .03 5.16 5.19 (.09) -- (.09) 14.46 55.62 73,575 .68 1.58 .01 --
1994 14.46 .16 (.45) (.29) (.08) -- (.08) 14.09 (2.01) 125,078 .68 1.63 7.66 --
1995 14.09 .22 .12 .34 (.20) (.15) (.35) 14.08 2.35 105,109 .66 1.40 15.66 --
1996 14.08 .15 .44 .59 (.20) (.18) (.38) 14.29 4.00 109,579 .65 1.00 21.77 .0221
19977 14.29 .09 (1.30) (1.21) (.20) -- (.20) 12.88 (8.54) 91,894 .66* 1.11* 26.87 .0307
Real Estate Securities Fund
1992 11.65 .14 1.24 1.38 (.24) -- (.24) 12.79 12.12 14,859 .69 4.50 2.76 --
1993 12.79 .09 2.33 2.42 (.17) -- (.17) 15.04 19.01 92,678 .67 4.05 5.84 --
1994 15.04 .38 .06 .44 (.17) -- (.17) 15.31 2.89 195,697 .62 4.00 11.73 --
1995 15.31 .78 1.83 2.61 (.52) -- (.52) 17.40 17.53 213,473 .59 4.74 22.15 --
1996 17.40 .79 4.74 5.53 (.78) -- (.78) 22.15 32.82 322,721 .57 4.80 10.32 .0519
19977 22.15 .28 1.38 1.66 (.67) (.32) (.99) 22.82 7.59 385,486 .53* 3.45* 8.63 .0553
Rising Dividends Fund
19921 10.00 .06 .92 .98 -- -- -- 10.98 9.80 97,687 .678* 2.11* 5.22 --
1993 10.98 .14 (.52) (.38) (.03) -- (.03) 10.57 (3.48) 299,730 .79 2.31 13.58 --
1994 10.57 .26 (.69) (.43) (.17) -- (.17) 9.97 (4.08) 309,929 .80 2.71 24.07 --
1995 9.97 .27 2.66 2.93 (.24) -- (.24) 12.66 29.74 463,253 .78 2.72 18.72 --
1996 12.66 .25 2.77 3.02 (.28) -- (.28) 15.40 24.18 597,424 .76 1.96 27.97 .0505
19977 15.40 .11 2.41 2.52 (.26) (.45) (.71) 17.21 16.33 691,185 .74* 1.40* 17.61 .0507
Small Cap Fund
19954 $10.00 $ .03 $ .21 $ .24 $ -- $ -- $ -- $10.24 2.30% $ 13,301 .90%* 2.70%* 16.04% --
1996 10.24 .02 2.95 2.97 (.01) -- (.01) 13.20 28.95 170,969 .77 .63 63.72 .0518
19977 13.20 (.01) 1.06 1.05 (.03) (.37) (.40) 13.85 8.06 242,417 .77* .05* 29.85 .0474
Templeton Developing Markets Equity Fund
19942 10.00 .07 (.51) (.44) -- -- -- 9.56 (4.40) 98,189 1.53* 1.85* 1.15 --
1995 9.56 .09 .18 .27 (.04) (.01) (.05) 9.78 2.77 158,084 1.41 2.01 19.96 --
1996 9.78 .12 1.97 2.09 (.10) (.18) (.28) 11.59 21.59 272,098 1.49 1.68 12.42 .0025
19977 11.59 .12 2.14 2.26 (.15) (.23) (.38) 13.47 19.49 384,765 1.42* 2.39* 3.67 .0025
Templeton Global Asset Allocation Fund
19953 10.00 .18 .52 .70 (.18) -- (.18) 10.52 7.01 14,729 .90* 3.84* 30.00 --
1996 10.52 .34 1.75 2.09 (.01) (.01) (.02) 12.59 19.84 56,274 .86 4.21 52.35 .0028
19977 12.59 .19 .99 1.18 (.26) (.07) (.33) 13.44+++9.43 83,486 .87* 4.92* 39.23 .0005
Templeton Global Growth Fund
19942 10.15 .07 .26 .33 -- -- -- 10.48 3.25 158,856 1.14* 2.49* 7.14 --
1995 10.48 .16 1.17 1.33 (.06) -- (.06) 11.75 12.72 338,755 .97 2.46 30.92 --
1996 11.75 .25 2.22 2.47 (.21) (.21) (.42) 13.80 21.28 579,877 .93 2.20 12.32 .0096
19977 13.80 .20 1.71 1.91 (.24) (.08) (.32) 15.39 13.87 729,174 .89* 3.34* 7.40 .0014
Templeton Global Income Securities Fund
1992 12.59 .26 (.30) (.04) (.40) (.15) (.55) 12.00 (.40) 75,062 .67 4.72 92.22 --
1993 12.00 .50 1.47 1.97 (.50) (.16) (.66) 13.31 16.68 206,594 .73 7.56 59.98 --
1994 13.31 .86 (1.52) (.66) (.33) (.13) (.46) 12.19 (4.99) 254,311 .71 7.99 79.38 --
1995 12.19 .29 1.47 1.76 (.49) -- (.49) 13.46 14.68 243,194 .64 7.59 152.89 --
1996 13.46 1.02 .17 1.19 (1.04) -- (1.04) 13.61 9.56 221,722 .61 7.30 140.96 --
19977 13.61 .52 (.45) .07 (.97) -- (.97) 12.71+++ .49 204,439 .61* 6.94* 146.89 --
Templeton International Equity Fund
19921 10.00 .14 (.38) (.24) -- -- -- 9.76 (2.40) 13,662 1.77* 3.91* 21.78 --
1993++ 9.76 .18 2.60 2.78 (.04) -- (.04) 12.50 28.56 310,146 1.12 1.58 29.50 --
1994 12.50 .19 (.07) .12 (.04) (.07) (.11) 12.51 .87 785,124 .99 2.17 12.22 --
1995 12.51 .37 .94 1.31 (.22) (.28) (.50) 13.32 10.59 850,117 .92 2.87 16.42 --
1996 13.32 .40 2.58 2.98 (.38) (.47) (.85) 15.45 22.98 1,108,099 .89 3.07 27.52 .0140
19977 15.45 .12 2.00 2.12 (.45) (.69) (1.14) 16.43 13.84 1,268,991 .89* 4.20* 13.54 .0013
Templeton International Smaller Companies Fund
19965 10.00 .10 1.15 1.25 -- -- -- 11.25 12.50 16,255 1.16* 2.51* -- .0031
19977 11.25 .15 .54 .69 (.07) -- (.07) 11.87 6.10 29,505 1.08* 4.10* 8.98 .0029
Templeton Pacific Growth Fund
19921 10.00 -- (.12) (.12) -- -- -- 9.88 (1.20) 5,788 1.318* -- 8.41 --
1993 9.88 .05 4.68 4.73 -- -- -- 14.61 47.87 215,882 1.14 1.29 12.36 --
1994 14.61 .22 (1.50) (1.28) (.03) (.06) (.09) 13.24 (8.79) 375,832 1.07 2.04 4.29 --
1995 13.24 .33 .71 1.04 (.26) (.11) (.37) 13.91 7.97 331,936 1.01 2.08 36.06 --
1996 13.91 .21 1.34 1.56 (.44) (.26) (.70) 14.76 11.10 356,759 .99 1.51 12.85 .0092
19977 14.76 .18 .26 .44 (.28) .00 (.28) 14.92 2.98 317,595 1.00* 2.22* 8.12 .0064
U.S. Government Securities Fund
1992 12.72 .52 .44 .96 (.43) (.01) (.44) 13.24 7.69 371,828 .59 7.07 28.64 --
1993 13.24 .50 .77 1.27 (.51) (.08) (.59) 13.92 9.71 684,303 .54 6.06 145.11 --
1994 13.92 .96 (1.59) (.63) (.67) (.05) (.72) 12.57 (4.55) 579,039 .53 6.87 18.25** --
1995 12.57 .93 1.46 2.39 (.96) -- (.96) 14.00 19.46 643,165 .52 6.72 18.68** --
1996 14.00 .75 (.31) .44 (.97) -- (.97) 13.47 3.62 843,858 .51 6.66 12.93*** --
19977 13.47 .53 (.03) .50 (.76) -- (.76) 13.21 3.73 779,323 .50* 6.55* 8.21 --
Utility Equity Fund
1992 $14.86 $ .35 $ .92 $1.27 $ (.31) $ -- $ (.31) $15.82 8.69% $ 667,118 .55% 5.18% 0.13% --
1993 15.82 .38 1.28 1.66 (.34) -- (.34) 17.14 10.54 1,589,634 .51 4.47 4.80 --
1994 17.14 .95 (2.94) (1.99) (.62) (.11) (.73) 14.42 (11.56) 1,155,110 .52 5.58 11.74 --
1995 14.42 .84 3.54 4.38 (.90) -- (.90) 17.90 31.35 1,423,446 .50 5.14 13.27 --
1996 17.90 .91 .29 1.20 (.92) -- (.92) 18.18 7.07 1,202,290 .50 4.20 29.69 .0252
19977 18.18 .51 .82 1.33 (.96) (1.33) (2.29) 17.22 7.37 1,088,959 .50* 4.16* 9.22 .0114
Zero Coupon Fund - 2000
1992 13.26 .57 .58 1.15 (.53) -- (.53) 13.88 9.04 48,217 .258 6.97 9.10 --
1993 13.88 .66 1.55 2.21 (.62) (.03) (.65) 15.44 16.15 76,916 .378 5.88 7.02 --
1994 15.44 .68 (1.71) (1.03) (.69) (.10) (.79) 13.62 (6.76) 94,230 .408 6.37 -- --
1995 13.62 .75 2.03 2.78 (.67) -- (.67) 15.73 20.67 137,357 .408 6.14 1.63 --
1996 15.73 .98 (.65) .33 (.86) (.01) (.87) 15.19 2.43 129,601 .408 6.14 .58 --
19977 15.19 .57 (.21) .36 (1.06) (.02) (1.08) 14.47 2.37 120,425 .408* 6.37* -- --
Zero Coupon Fund - 2005
1992 12.91 .65 .67 1.32 (.61) -- (.61) 13.62 10.81 18,295 .258 7.46 19.48 --
1993 13.62 .44 2.55 2.99 (.52) (.01) (.53) 16.08 22.21 42,998 .378 5.67 16.59 --
1994 16.08 .71 (2.24) (1.53) (.60) (.19) (.79) 13.76 (9.60) 51,499 .408 6.53 2.00 --
1995 13.76 .78 3.53 4.31 (.69) -- (.69) 17.38 31.76 83,222 .408 6.19 1.72 --
1996 17.38 .96 (1.13) (.17) (.86) -- (.86) 16.35 (.50) 82,603 .408 6.15 2.06 --
19977 16.35 .59 (.23) .36 (1.06) (.01) (1.07) 15.64 2.16 76,131 .408* 6.27* -- --
Zero Coupon Fund - 2010
1992 12.84 1.21 .03 1.24 (.73) -- (.73) 13.35 10.31 13,431 .258 7.64 54.50 --
1993 13.35 .50 2.81 3.31 (.94) (.04) (.98) 15.68 25.47 29,189 .258 5.89 36.63 --
1994 15.68 .55 (2.27) (1.72) (.63) (.31) (.94) 13.02 (10.97) 45,361 .408 6.57 4.34 --
1995 13.02 .76 4.75 5.51 (.49) -- (.49) 18.04 42.79 85,633 .408 6.41 31.45 --
1996 18.04 1.02 (1.65) (.63) (.88) (.24) (1.12) 16.29 (2.69) 78,816 .408 6.24 16.10 --
19977 16.29 .50 (.19) .31 (1.01) (.01) (1.02) 15.58 1.86 78,344 .408* 6.37* 1.55 --
*Annualized
**The portfolio turnover rate excludes mortgage dollar roll transactions.
***The portfolio turnover rate excludes transactions related to the liquidation of the Investment Grade Intermediate Bond Fund and
the Adjustable U.S. Government Fund and mortgage dollar roll transactions.
****Represents the average broker commission rate per share paid by the Fund in connection wih the execution of the Fund's portfolio
transactions in equity securities.
+Total return measures the change in value of an investment over the periods indicated. It assumes reinvestment and capital gains,
if any, at net asset value and is not annualized. The total return may differ from that reported in the Manager's Discussion due
to differences between the net asset values quoted and the net asset values calculated for financial reporting purposes.
++Per share amounts have been calculated using the average shares outstanding during the period.
+++The net asset value differs from the net asset value used to process shareholder activity as of the reporting date, which does
not include market adjustments for portfolio trades made on that date. These adjustments are generally accounted for on the day
following the trade date.
1For the period January 27, 1992 (effective date) to December 31, 1992.
2For the period March 15, 1994 (effective date) to December 31, 1994.
3For the period April 19, 1995 (effective date) to December 31, 1995.
4For the period November 1, 1995 (effective date) to December 31, 1995.
5For the period May 1, 1996 (effective date) to December 31, 1996.
6For the period November 8, 1996 (effective date) to December 31, 1996.
7For the six months ended June 30, 1997.
8During the periods indicated below, Advisers, the investment manager, agreed to waive in advance a portion of its management fees
and made payments of other expenses incurred by the Funds in the Trust. Had such action not been taken, the ratio of expenses to
average net assets would have been as follows:
</TABLE>
Ratio of
Expenses
to average
net assets
Money Market Fund
1994 .................................................... .54%
1995 .................................................... .53
1996 .................................................... .53
19977 ................................................... .52*
Rising Dividends Fund
19921 ................................................... .76*
Templeton Pacific Growth Fund
19921 ................................................... 2.57*
Zero Coupon Fund - 2000
1992 .................................................... .68
1993 .................................................... .67
1994 .................................................... .66
1995 .................................................... .63
1996 .................................................... .62
19977 ................................................... .64*
Zero Coupon Fund - 2005
1992 .................................................... .69
1993 .................................................... .67
1994 .................................................... .68
1995 .................................................... .66
1996 .................................................... .65
19977 ................................................... .64*
Zero Coupon Fund - 2010
1992 .................................................... .69
1993 .................................................... .68
1994 .................................................... .68
1995 .................................................... .66
1996 .................................................... .65
19977 ................................................... .64*
Franklin Valuemark Semi-Annual Report June 30, 1997
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING (PURSUANT TO ITEM
304(a) OF REGULATION S-T)
GRAPHIC MATERIAL (1)
This chart shows in pie format the sector breakdown of the fund's securities
on 6/30/97, based on total net assets.
Sector Breakdown on 6/30/97
Gold & Precious Metals 59.1%
Energy 16.9%
Base Metals 12.9%
Service/Related Industries 3.0%
REITs 2.0%
Steel 1.1%
Cash & Equivalents 5.0%
GRAPHIC MATERIAL (2)
This chart shows in pie format the geographic distribution of the fund's
securities on 6/30/97, based on total net assets.
Geographic Distribution on 6/30/97
Asia 38.5%
Latin America 34.2%
Europe 10.2%
Mid-East/Africa 5.4%
Short-Term & Other Net Assets 11.7%
GRAPHIC MATERIAL (3)
This chart shows in pie format the geographic distribution of the fund's
securities on 6/30/97, based on total net assets.
Geographic Distribution on 6/30/97
Europe 34.0%
North America 28.6%
Asia 10.0%
Latin America 7.5%
Australia/New Zealand 3.6%
Mid-East/Africa 0.7%
Short-Term & Other Net Assets 15.6%
GRAPHIC MATERIAL (4)
This chart shows in pie format the geographic distribution of the fund's
securities on 6/30/97, based on total net assets.
Geographic Distribution on 6/30/97
Europe 57.6%
Asia 9.6%
Australia/New Zealand 7.3%
Latin America 5.5%
North America 3.8%
Mid-East/Africa 1.1%
Short-Term & Other Net Assets 15.1%
GRAPHIC MATERIAL (5)
This chart shows in pie format the geographic distribution of the fund's
securities on 6/30/97, based on total net assets.
Geographic Distribution on 6/30/97
Europe 34.0%
Asia 19.7%
Latin America 5.4%
Australia/New Zealand 3.6%
Mid-East/Africa 2.2%
North America 0.8%
Short-Term & Other Net Assets 34.3%
GRAPHIC MATERIAL (6)
This chart shows in pie format the asset allocation of the fund's securities
on 6/30/97, based on total net assets.
Asset Allocation on 6/30/97
Equity Securities 63.2%
Fixed-Income Securities 30.0%
Short-Term & Other Net Assets 6.8%
GRAPHIC MATERIAL (7)
This chart shows in pie format the geographic distribution of the fund's
securities on 6/30/97, based on total net assets.
Geographic Distribution on 6/30/97
North America 41.8%
Europe 33.8%
Latin America 20.4%
Australia 4.0%
